SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

incorporation or organization)

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):

~~Table of Contents~~

HEXION INC.

INDEX



		Page
PART I – FINANCIAL INFORMATION

Item 1.	Hexion Inc. Condensed Consolidated Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets at ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014~~2015	3

	Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~	4

	Condensed Consolidated Statements of Comprehensive Loss for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~	5

	Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~	6

	Condensed Consolidated Statement of Deficit for the ~~nine~~three months ended ~~September 30, 2015~~March 31, 2016	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3026

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4336

Item 4.	Controls and Procedures	4336

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	4437

Item 1A.	Risk Factors	4437

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4437

Item 3.	Defaults upon Senior Securities	4437

Item 4.	Mine Safety Disclosures	4437

Item 5.	Other Information	4437

Item 6.	Exhibits	4537

~~Table of Contents~~

HEXION INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)


(In millions, except share data)	September 30, 2015			December 31, 2014			March 31, 2016			December 31, 2015
Assets
Current assets:
Cash and cash equivalents (including restricted cash of $8 and $16, respectively)	$	195		$	172
Short-term investments	—			7
Accounts receivable (net of allowance for doubtful accounts of $15 and $14, respectively)	579			591
Cash and cash equivalents (including restricted cash of $11 and $8, respectively)							$	119		$	236
Accounts receivable (net of allowance for doubtful accounts of $16 and $15, respectively)							508			450
Inventories:
Finished and in-process goods	258			290			229			218
Raw materials and supplies	104			110			89			90
Current assets held for sale (see Note 12)							67			—
Other current assets	68			73			53			53
Total current assets	1,204			1,243			1,065			1,047
Investment in unconsolidated entities	36			48			37			36
Deferred income taxes	16			18			11			13
Long-term assets held for sale (see Note 12)							80			—
Other long-term assets	106			110			46			48
Property and equipment:
Land	85			89			75			84
Buildings	292			302			265			296
Machinery and equipment	2,399			2,419			2,355			2,406
	2,776			2,810			2,695			2,786
Less accumulated depreciation	(1,733		)	(1,755		)	(1,751		)	(1,735		)
	1,043			1,055			944			1,051
Goodwill	124			119			125			122
Other intangible assets, net	69			81			62			65
Total assets	$	2,598		$	2,674		$	2,370		$	2,382
Liabilities and Deficit
Current liabilities:
Accounts payable	$	386		$	426		$	319		$	386
Debt payable within one year	75			99			66			80
Interest payable	102			82			99			82
Income taxes payable	21			12			10			15
Accrued payroll and incentive compensation	71			67			99			78
Current liabilities associated with assets held for sale (see Note 12)							56			—
Other current liabilities	118			135			110			123
Total current liabilities	773			821			759			764
Long-term liabilities:
Long-term debt	3,843			3,735			3,700			3,698
Long-term pension and post employment benefit obligations	252			278			227			224
Deferred income taxes	18			19			13			12
Long-term liabilities associated with assets held for sale (see Note 12)							10			—
Other long-term liabilities	164			171			156			161
Total liabilities	5,050			5,024			4,865			4,859
Commitments and contingencies (See Note 7)
Commitments and contingencies (see Note 7)
Deficit
Common stock—$0.01 par value; 300,000,000 shares authorized, 170,605,906 issued and 82,556,847 outstanding at September 30, 2015 and December 31, 2014	1			1
Common stock—$0.01 par value; 300,000,000 shares authorized, 170,605,906 issued and 82,556,847 outstanding at March 31, 2016 and December 31, 2015							1			1
Paid-in capital	526			526			526			526
Treasury stock, at cost—88,049,059 shares	(296		)	(296		)	(296		)	(296		)
Accumulated other comprehensive income	—			73
Accumulated other comprehensive income (loss)							11			(15		)
Accumulated deficit	(2,681		)	(2,652		)	(2,736		)	(2,692		)
Total Hexion Inc. shareholder’s deficit	(2,450		)	(2,348		)	(2,494		)	(2,476		)
Noncontrolling interest	(2		)	(2		)	(1		)	(1		)
Total deficit	(2,452		)	(2,350		)	(2,495		)	(2,477		)
Total liabilities and deficit	$	2,598		$	2,674		$	2,370		$	2,382

~~Table of Contents~~

HEXION INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
(In millions)	2015			2014			2015			2014			2016			2015
Net sales	$	1,065		$	1,347		$	3,231		$	3,977		$	909		$	1,079
Cost of sales	905			1,188			2,753			3,487			802			923
Gross profit	160			159			478			490			107			156
Selling, general and administrative expense	71			82			229			269			84			82
Business realignment costs	3			6			11			24			3			3
Other operating expense, net	12			4			22			7			3			8
Operating income	74			67			216			190			17			63
Interest expense, net	84			77			245			230			79			77
Gain on extinguishment of debt	(14		)	—			(14		)	—			(23		)	—
Other non-operating expense (income), net	—			18			(1		)	23			2			(3		)
Income (loss) before income tax and earnings from unconsolidated entities	4			(28		)	(14		)	(63		)
Loss before income tax and earnings from unconsolidated entities													(41		)	(11		)
Income tax expense	1			2			28			17			7			26
Income (loss) before earnings from unconsolidated entities	3			(30		)	(42		)	(80		)
Loss before earnings from unconsolidated entities													(48		)	(37		)
Earnings from unconsolidated entities, net of taxes	4			4			13			14			4			3
Net income (loss)	$	7		$	(26	)	$	(29	)	$	(66	)
Net loss													$	(44	)	$	(34	)

~~Table of Contents~~

HEXION INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
(In millions)	2015			2014			2015			2014			2016			2015
Net income (loss)	$	7		$	(26	)	$	(29	)	$	(66	)
Other comprehensive loss, net of tax:
Net loss													$	(44	)	$	(34	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(24		)	(40		)	(73		)	(41		)	26			(62		)
Other comprehensive loss	(24		)	(40		)	(73		)	(41		)
Other comprehensive income (loss)													26			(62		)
Comprehensive loss	$	(17	)	$	(66	)	$	(102	)	$	(107	)	$	(18	)	$	(96	)

~~Table of Contents~~

HEXION INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	Nine Months Ended September 30,						Three Months Ended March 31,
(In millions)	2015			2014			2016			2015
Cash flows provided by (used in) operating activities
Cash flows (used in) provided by operating activities
Net loss	$	(29	)	$	(66	)	$	(44	)	$	(34	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	102			109			35			34
Accelerated depreciation							46			—
Deferred tax expense (benefit)	2			(2		)	2			(7		)
Gain on step acquisition (see Note 12)	(5		)	—
Gain on extinguishment of debt (see Note 6)	(14		)	—			(23		)	—
Unrealized foreign currency losses	19			32
Unrealized foreign currency (gains) losses							(29		)	1
Other non-cash adjustments	3			(3		)	—			1
Net change in assets and liabilities:
Accounts receivable	(30		)	(142		)	(73		)	(41		)
Inventories	14			(92		)	(32		)	(9		)
Accounts payable	(25		)	40			(31		)	29
Income taxes payable	10			(4		)	(3		)	17
Other assets, current and non-current	13			34			1			9
Other liabilities, current and long-term	6			(38		)	50			35
Net cash provided by (used in) operating activities	66			(132		)
Net cash (used in) provided by operating activities							(101		)	35
Cash flows used in investing activities
Capital expenditures	(122		)	(133		)	(27		)	(40		)
Purchase of businesses, net of cash acquired	(7		)	(64		)
Proceeds from the sale of investments, net	6			(4		)	—			4
Change in restricted cash	8			(2		)	(3		)	—
Proceeds from sale of assets	1			—
Disbursement of affiliated loan	—			(50		)
Repayment of affiliated loan	—			50
Funds remitted to unconsolidated affiliates, net	—			(2		)
Net cash used in investing activities	(114		)	(205		)	(30		)	(36		)
Cash flows provided by financing activities
Net short-term debt (repayments) borrowings	(1		)	25
Net short-term debt repayments							(13		)	(3		)
Borrowings of long-term debt	492			213			126			119
Repayments of long-term debt	(393		)	(174		)	(103		)	(114		)
Long-term debt and credit facility financing fees	(10		)	—
Net cash provided by financing activities	88			64			10			2
Effect of exchange rates on cash and cash equivalents	(9		)	(5		)	2			(5		)
Increase (decrease) in cash and cash equivalents	31			(278		)
Decrease in cash and cash equivalents							(119		)	(4		)
Cash and cash equivalents (unrestricted) at beginning of period	156			379			228			156
Cash and cash equivalents (unrestricted) at end of period	$	187		$	101		$	109		$	152
Supplemental disclosures of cash flow information
Cash paid for:
Interest, net	$	214		$	215		$	59		$	67
Income taxes, net	12			23			9			4
Non-cash investing activities:
Non-cash assumption of debt on step acquisition (see Note 12)	$	18		$	—

~~Table of Contents~~

HEXION INC.

CONDENSED CONSOLIDATED STATEMENT OF DEFICIT (Unaudited)

(In millions)
Common
Stock

Paid-in
Capital

Treasury
Stock

Accumulated
Other
Comprehensive
Income

Accumulated
Deficit
Total Hexion Inc. Deficit Noncontrolling Interest Total
Balance at December 31, 2014 $ 1
$ 526
$ (296 ) $ 73
$ (2,652 ) $ (2,348 ) $ (2 ) $ (2,350 )
Net loss —
—
—
—
(29 ) (29 ) —
(29 )
Other comprehensive loss —
—
—
(73 ) —
(73 ) —
(73 )
Balance at September 30, 2015 $ 1
$ 526
$ (296 ) $ —
$ (2,681 ) $ (2,450 ) $ (2 ) $ (2,452 )



(In millions)	Common Stock		Paid-in Capital		Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Hexion Inc. Deficit			Noncontrolling Interest			Total
Balance at December 31, 2015	$	1	$	526	$	(296	)	$	(15	)	$	(2,692	)	$	(2,476	)	$	(1	)	$	(2,477	)
Net loss	—		—		—			—			(44		)	(44		)	—			(44		)
Other comprehensive income	—		—		—			26			—			26			—			26
Balance at March 31, 2016	$	1	$	526	$	(296	)	$	11		$	(2,736	)	$	(2,494	)	$	(1	)	$	(2,495	)

See Notes to Condensed Consolidated Financial Statements

~~Table of Contents~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(In millions, except share data)

1. Background and Basis of Presentation

Based in Columbus, Ohio, Hexion Inc. ~~(which may be referred to as “Hexion”~~(“Hexion” 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, 2015~~March 31, 2016, the Company had two reportable segments: Epoxy, Phenolic and Coating Resins and Forest Products Resins.

The Company’s direct parent is Hexion LLC, a holding company and wholly owned subsidiary of Hexion Holdings LLC (“Hexion Holdings”), the ultimate parent entity of Hexion. Hexion 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 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 ~~Current Report on Form 8-K dated June 10, 2015, which revised the Consolidated Financial Statements and the accompanying notes included within Item 8 of the Company’s 2014~~most recent Annual Report on Form ~~10-K, to reflect management’s accounting methodology change for the Company’s pension and other non-pension postretirement benefit (“OPEB”) plans. See Note 2.~~10-K.

2. Summary of Significant Accounting Policies

Use of Estimates—The preparation of financial statements in conformity with U.S. GAAP 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.

~~Change in Accounting Policy~~Assets and Liabilities Held for Sale—~~—In the first quarter of 2015, the Company elected to change its accounting policies~~The assets and liabilities at March 31, 2016 related to the recognition of gains and losses for pension and OPEB plans to a more preferable policy under U.S. GAAP. Specifically, such gains and losses historically recognized as a component of Other comprehensive income, and amortized into net income in future periods, will be recognized in earnings in the period in which they occur. In addition, the Company has changed its policy for recognizing expected returns on plan assets from a market-related value method (based on a five-year smoothing of asset returns), to a fair value method.

Under the new policies, upon the Company’s annual remeasurement of its pension and OPEB plans in the fourth quarter, or on an interim basis as triggering events warrant remeasurement, the Company will immediately recognize gains and losses as a mark-to-market (“MTM”) gain or loss through earnings. As such, under the new policies, the Company’s net periodic pension and OPEB expense recognized on a quarterly basis will consist of i) service cost, interest cost, expected return on plan assets, amortization of prior service cost/credits and ii) MTM adjustments recognized annually in the fourth quarter upon remeasurement of pension and OPEB liabilities or when triggering events warrant remeasurement. The Company believes that these changes are preferable as they provide greater transparencyproposed sale of the Company’s ~~economic obligations in accounting results~~Performance Adhesives, Powder Coatings, Additives & Acrylic Coatings and ~~better alignment~~Monomers businesses (the “PAC Business”) are classified as “Current assets held for sale”, “Long-term assets held for sale”, “Current liabilities associated with ~~fair value accounting principles by recognizing the effects of economic~~assets held for sale” and ~~interest rate changes on pension and OPEB~~“Long-term liabilities associated with assets ~~and liabilities in the year in which the gains and losses are incurred.~~

~~Table of Contents~~

The impact of these pension and OPEB accounting policy changes was applied through retrospective application of the new policies to all periods presented. Accordingly, all relevant information as of, andheld for the three and nine months ended, September 30, 2015 and all prior periods has been adjusted to reflect the application of the changes. As of January 1, 2015, the cumulative effect of these changes was a $229 increase to “Accumulated deficit”, a $232 decrease to “Accumulated other comprehensive loss”, a $2 increase to “Finished and in-process goods” and a $1 increase to “Noncontrolling interest” insale” within the unaudited Condensed Consolidated Balance Sheets. ~~The effects of the aforementioned accounting policy changes to the unaudited Condensed Consolidated Financial Statements are as follows:~~

Previous Accounting Method Effect of Accounting Change As Reported
Unaudited Condensed Consolidated Statement of Operations for the three months ended September 30, 2015:
Cost of sales $ 907
$ (2 ) $ 905
Selling, general and administrative expense 74
(3 ) 71
Net income 2
5
7
Unaudited Condensed Consolidated Statement of Comprehensive Loss for the three months ended September 30, 2015:
Net income $ 2
$ 5
$ 7
Gain recognized from pension and postretirement benefits 5
(5 ) —

As Previously Reported Effect of Accounting Change As Adjusted
Unaudited Condensed Consolidated Statement of Operations for the three months ended September 30, 2014:
Selling, general and administrative expense $ 84
$ (2 ) $ 82
Net loss (28 ) 2
(26 )
Unaudited Condensed Consolidated Statement of Comprehensive Loss for the three months ended September 30, 2014:
Net loss $ (28 ) $ 2
$ (26 )
Gain recognized from pension and postretirement benefits 1
(1 ) —
Comprehensive loss (67 ) 1
(66 )

Previous Accounting Method Effect of Accounting Change As Reported
Unaudited Condensed Consolidated Statement of Operations for the nine months ended September 30, 2015:
Cost of sales $ 2,757
$ (4 ) $ 2,753
Selling, general and administrative expense 238
(9 ) 229
Net loss (42 ) 13
(29 )
Unaudited Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2015:
Net loss $ (42 ) $ 13
$ (29 )
Changes in inventories 12
2
14
Net changes in other liabilities, current and long-term 21
(15 ) 6
Unaudited Condensed Consolidated Statement of Comprehensive Loss for the nine months ended September 30, 2015:
Net loss $ (42 ) $ 13
$ (29 )
Gain recognized from pension and postretirement benefits 16
(16 ) —
Comprehensive loss (99 ) (3 ) (102 )

~~Table of Contents~~

As Previously Reported Effect of Accounting Change As Adjusted
Unaudited Condensed Consolidated Statement of Operations for the nine months ended September 30, 2014:
Cost of sales $ 3,491
$ (4 ) $ 3,487
Selling, general and administrative expense 275
(6 ) 269
Income tax expense 23
(6 ) 17
Net loss (82 ) 16
(66 )
Unaudited Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2014:
Net loss $ (82 ) $ 16
$ (66 )
Changes in inventories (90 ) (2 ) (92 )
Changes in income taxes payable 3
(7 ) (4 )
Net changes in other liabilities, current and long-term (31 ) (7 ) (38 )
Unaudited Condensed Consolidated Statement of Comprehensive Loss for the nine months ended September 30, 2014:
Net loss $ (82 ) $ 16
$ (66 )
Gain recognized from pension and postretirement benefits 6
(6 ) —
Comprehensive loss (117 ) 10
(107 )

~~In addition, the effect of these accounting changes increased Segment EBITDA by $3 and $9~~See Note 12 for ~~the three and nine months ended September 30, 2014, respectively. For additional discussion and a reconciliation of Segment EBITDA to “Net income (loss)”, see Note 9.~~

~~The notes to the unaudited Condensed Consolidated Financial Statements herein have been adjusted to reflect the impact of these changes accordingly.~~more information.

Subsequent Events—The Company has evaluated events and transactions subsequent to ~~September 30, 2015~~March 31, 2016 through 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 ~~revised~~ effective date for ASU 2014-09 is for annual and interim periods beginning on or after December 15, 2017, and early adoption will be permitted for annual and interim periods beginning on or after December 15, 2016. Entities will have the option of using either a full retrospective approach or a modified approach to adopt the guidance in ASU 2014-09. The Company is currently assessing the potential impact of ASU 2014-09 on its financial statements.

~~In January 2015, the FASB issued Accounting Standards Board Update No. 2015-01:~~ ~~Income Statement—Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items~~ (“ASU 2015-01”). ASU 2015-01 eliminates from U.S. GAAP the concept of extraordinary items and removes the requirement to present extraordinary items separately on the income statement, net of tax. The guidance is effective for annual periods beginning after December 15, 2015, including interim periods within that reporting period. The requirements of ASU 2015-01 are not expected to have a significant impact on the Company’s financial statements.

~~In February 2015, the FASB issued Accounting Standards Board Update No. 2015-02:~~ ~~Consolidation (Topic 810): Amendments to the Consolidation Analysis~~ (“ASU 2015-02”). ASU 2015-02 amends the existing consolidation guidance related to (i) limited partnerships and similar legal entities, (ii) the evaluation of fees paid to a decision maker or a service provider as variable interest, (iii) the effect of fee arrangements on the primary beneficiary determination, and (iv) the effect of related parties on the primary beneficiary determination. ASU 2015-02 simplifies the existing guidance by reducing the number of consolidation models from four to two, reducing the extent to which related party arrangements cause an entity to be considered a primary beneficiary, and placing more emphasis on the risk of loss when determining a controlling financial interest. The guidance is effective for annual periods beginning after December 15, 2015, including interim periods within that reporting period. The requirements of ASU 2015-02 are not expected to have a significant impact on the Company’s financial statements.

~~Table of Contents~~

~~In April 2015, the FASB issued Accounting Standards Board Update No. 2015-03:~~ ~~Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs~~ (“ASU 2015-03”). ASU 2015-03 requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, and also requires that the amortization of such costs be reported as interest expense. In August 2015, ASU 2015-03 was amended by Accounting Standards Board Update No. 2015-15: ~~Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements~~ (“ASU 2015-15”). ASU 2015-15 adds language to ASU 2015-03 based on the SEC Staff Announcement that the SEC would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The guidance in ASU 2015-03, as amended by ASU 2015-15, is effective for annual periods beginning after December 15, 2015, including interim periods within that reporting period, and early adoption is permitted. The Company plans to early adopt ASU 2015-03 as of December 31, 2015. Based on unamortized debt issuance costs as of September 30, 2015, the Company estimates approximately $55 of debt issuance costs would be reclassified from “Other long-term assets” to “Long term debt” within the Company’s Consolidated Balance Sheets.

In July 2015, the FASB issued Accounting Standards Board Update No. 2015-11: Simplifying the Measurement of Inventory (Topic 330) (“ASU 2015-11”) as part of the FASB simplification initiative. ASU 2015-11 replaces the existing concept of market value of inventory (where market was defined as replacement cost, with a ceiling of net realizable value and floor of net realizable value less a normal profit margin) with the single measurement of net realizable value. The guidance is effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period. The ~~Company is currently assessing the potential impact~~requirements of ASU 2015-11 ~~on its financial statements.~~

~~In September 2015, the FASB issued Accounting Standards Board Update No. 2015-16:~~ ~~Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments~~ (“ASU 2015-16”) as part of the FASB simplification initiative. ASU 2015-16 eliminates the requirement for an acquirer in a business combination to retrospectively adjust the provisional amounts recognized at the acquisition date to reflect new information obtained during the measurement period. Instead, ASU 2015-16 allows an acquirer to recognize measurement period adjustments prospectively, with added disclosure of the impact on previous periods if the adjustments had been recognized as of the acquisition date. The guidance is effective for the annual periods beginning after December 15, 2015, including interim periods within that reporting period. The requirements of ASU 2015-16 are not expected to have a significant impact on the Company’s financial statements.

In February 2016, the FASB issued Accounting Standards Board Update No. 2016-02: Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 supersedes the existing lease guidance in Topic 840. According to the new guidance, all leases, with limited scope exceptions, will be recorded on the balance sheet in the form of a liability to make lease payments (lease liability) and a right-of-use asset representing the right to use the underlying asset for the lease term. The guidance is effective for annual and interim periods beginning on or after December 15, 2018, and early adoption is permitted. Entities will be required to adopt ASU 2016-02 using a modified retrospective approach, whereby leases will be recognized and measured at the beginning of the earliest period presented. The Company is currently assessing the potential impact of ASU 2016-02 on its financial statements.

In March 2016, the FASB issued Accounting Standards Board Update No. 2016-07: Simplifying the Transition to the Equity Method of Accounting(Topic 323) (“ASU 2016-07”) as part of the FASB simplification initiative. ASU 2016-07 eliminates the requirement that when an existing investment qualifies for use of the equity method, an investor adjust the investment, results of operations and retained earnings retroactively as if the equity method has been in effect in all previous periods that the investment had been held. Under the new guidance, the equity method investor is only required to adopt the equity method as of the date the investment qualifies for the equity method, with no retrospective adjustment required. The guidance is effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period, and early adoption is permitted. The requirements of ASU 2016-07 are not expected to have a significant impact on the Company’s financial statements.

In March 2016, the FASB issued Accounting Standards Board Update No. 2016-09: Improvements to Employee Share-Based Payment Accounting (Topic 718) (“ASU 2016-09”) as part of the FASB simplification initiative. ASU 2016-09 simplifies various aspects of share-based payment accounting, including the income tax consequences, classification of equity awards as either equity or liabilities and classification on the statement of cash flows. The guidance is effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period, and early adoption is permitted. The requirements of ASU 2016-09 are not expected to have a significant impact on the Company’s financial statements.

3. Restructuring and Cost Reduction Programs

In 2014, in response to an uncertain economic outlook, the Company initiated significant restructuring and cost reduction programs with the intent to optimize its cost structure and bring manufacturing capacity in line with demand. The Company estimates that these activities will ~~continue to occur~~be completed in the first half of 2016. As of March 31, 2016, $17 of costs have been incurred over the ~~next 6 to 12 months. As~~life of ~~September 30, 2015 the total costs expected to be incurred on restructuring and cost reduction activities are estimated at $17,~~these programs, consisting primarily of workforce reduction ~~costs.~~

~~The following table summarizes restructuring~~costs, and ~~cost reduction information:~~

Epoxy, Phenolic and Coating Resins Corporate and Other Total
Restructuring costs expected to be incurred $ 11
$ 6
$ 17
Cumulative restructuring costs incurred through September 30, 2015 $ 11
$ 6
$ 17

Accrued liability at December 31, 2014 $ 9
$ 3
$ 12
Restructuring charges 1
3
4
Payments (6 ) (4 ) (10 )
Accrued liability at September 30, 2015 $ 4
$ 2
$ 6
no additional costs are expected to be incurred related to the 2014 programs.

Workforce reduction costs primarily relate to non-voluntary employee termination benefits and are accounted for under the guidance for nonretirement postemployment benefits or as exit and disposal costs, as applicable. During the three ~~and nine~~ months ended ~~September 30, 2015,~~March 31, 2016, there were no additional charges ~~of $2 and $4, respectively, were~~ recorded in “Business realignment costs” in the unaudited Condensed Consolidated Statements of Operations. At ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014,~~2015, the Company had accrued $6$2 and ~~$12~~$3 for restructuring liabilities in “Other current liabilities” in the unaudited Condensed Consolidated Balance Sheets.

The following table summarizes restructuring and cost reduction information:



	Epoxy, Phenolic and Coating Resins		Corporate and Other			Total
Restructuring costs expected to be incurred	$	11	$	6		$	17
Cumulative restructuring costs incurred through March 31, 2016	$	11	$	6		$	17

Accrued liability at December 31, 2015	$	1	$	2		$	3
Payments	—		(1		)	(1		)
Accrued liability at March 31, 2016	$	1	$	1		$	2

4. 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 ~~2015.~~2016.

~~Table of Contents~~

During both the three months ended ~~September 30,~~March 31, 2016 and 2015, ~~and 2014 and during the nine months ended September 30, 2015 and 2014,~~ the Company recognized expense under the Management Consulting Agreement of ~~$1 and $2, respectively.~~$1. This amount is included in “Other operating expense, net” in the Company’s unaudited Condensed Consolidated Statements of Operations.

~~Participation of Apollo Global Securities in 2015 Refinancing Transactions~~

During the nine months ended September 30, 2015, Apollo Global Securities, LLC, an affiliate of Apollo, acted as one of the initial purchasers and received less than $1 in connection with the sale of the $315 aggregate principal amount of the Company’s 10.00% First-Priority Senior Secured Notes due 2020.

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 Hexion 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 establishes certain criteria upon which the costs of such services are allocated between the Company and MPM. The Shared Services Agreement was renewed for one year starting October 2015 and is subject to termination by either the Company or MPM, without cause, on not less than 30 days’ written notice, and expires in October 2016 (subject to one-year renewals every year thereafter; absent contrary notice from either party).

On April 13, 2014, Momentive Performance Materials Holdings Inc. (MPM’s direct parent company at such date), 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 firm to assist the Shared Services 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.~~

Pursuant to the Shared Services Agreement, during the ~~nine~~three months ended ~~September 30,~~March 31, 2016 and 2015, ~~and~~ ~~2014~~, the Company incurred approximately ~~$58~~$27 and ~~$100,~~$31, respectively, of net costs for shared services and MPM incurred approximately ~~$49~~$16 and ~~$76~~,$25, respectively, of net costs for shared services. Included in the net costs incurred during the ~~nine~~three months ended ~~September 30,~~March 31, 2016 and 2015, ~~and~~ ~~2014~~, were net billings from the Company to MPM of ~~$30~~$9 and ~~$31,~~$17, respectively, to bring the percentage of total net incurred costs for shared services under the Shared Services Agreement to the applicable agreed upon allocation percentage. ~~The allocation percentages are reviewed by the Steering Committee pursuant to the terms of the Shared Services Agreement.~~ The Company had accounts receivable from MPM of $5$3 and $97 as of ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014~~2015, respectively, and no accounts payable to MPM.

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”). The standard terms and conditions of the seller in the applicable jurisdiction apply to transactions under the Master Buy/Sell Agreement. The Master Buy/Sell Agreement ~~has~~had an initial term of three years and ~~may be terminated for convenience by either party thereunder upon 30 days' prior notice. The Master Buy/Sell Agreement~~ was renewed for one year starting September 2015. Additionally, from September 6, 2012 to March 9, 2015, a subsidiary of MPM ~~has~~ acted as a non-exclusive distributor in India for certain of the Company’s subsidiaries pursuant to ~~Distribution Agreements~~distribution agreements dated as of September 6, ~~2012 (the “Distribution Agreements”). The Distribution Agreements had initial terms of three years and were terminated by mutual agreement on March 9, 2015.~~2012. Pursuant to these agreements and other purchase orders, during the three months ended ~~September 30,~~March 31, 2016 and 2015 ~~and~~ ~~2014, the Company sold less than $1 of products to MPM and purchased less than $1 and $2, respectively, of products from MPM. During the nine months ended September 30, 2015 and 2014~~, the Company sold less than $1 of products to MPM and purchased $3$1 and ~~$6,~~$2, respectively. As of ~~September 30, 2015~~both March 31, 2016 and December 31, ~~2014,~~2015, the Company had less than $1 of accounts receivable from MPM and ~~less than $1 and $1, respectively, of~~ accounts payable to MPM related to these agreements.

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 entered into a site services agreement whereby MPM’s subsidiary provides to the Company various services such as environmental, health and safety, security, maintenance and accounting, among 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, 2015~~March 31, 2016 and ~~2014.~~2015.

~~Table of Contents~~

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 acts as a distributor of certain MPM 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. During both the three months ended ~~September 30,~~March 31, 2016 and 2015, ~~and 2014,~~ the Company purchased approximately $7 and $10, 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. During the nine months ended September 30, 2015 and 2014, the Company purchased approximately $21~~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 both ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014~~2015, the Company had ~~$3 and $2, respectively,~~$2 of accounts payable to MPM related to the distribution agreement.

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

The Company sells products to various Apollo affiliates other than MPM. These sales were $8$4 and ~~$14~~$23 for the three months ended ~~September 30,~~March 31, 2016 and 2015, ~~and 2014, respectively, and $55 and $90 for the nine months ended September 30, 2015 and 2014,~~ respectively. Accounts receivable from these affiliates were ~~$3 and $11~~less than $1 at ~~September 30, 2015~~both March 31, 2016 and December 31, ~~2014, respectively.~~2015. The Company also purchases raw materials and services from various Apollo affiliates other than MPM. These purchases were less than $1 and $2$1 for the three months ended ~~September 30,~~March 31, 2016 and 2015, ~~and 2014, respectively, and $2 and $4 for the nine months ended September 30, 2015 and 2014,~~ respectively. The Company had accounts payable to these affiliates of less than $1$1 at both ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014.~~2015.

Other Transactions and Arrangements

The Company sells finished goods to, and purchases raw materials from, a 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 ~~$17~~$16 and ~~$27~~$21 for the three months ended ~~September 30,~~March 31, 2016 and 2015, ~~and 2014, respectively, and $56 and $83 for the nine months ended September 30, 2015 and 2014,~~ respectively. There were ~~less than~~ $1 of accounts receivable from HAI at ~~September 30, 2015~~both March 31, 2016 and ~~$8 at~~ December 31, ~~2014.~~2015. Purchases from HAI were $3 and ~~$12~~$5 for the three months ended ~~September 30,~~March 31, 2016 and 2015, ~~and 2014, respectively, and $12 and $27 for the nine months ended September 30, 2015 and 2014,~~ respectively. The Company had accounts payable to HAI of $1 ~~and $2~~ at ~~September 30, 2015~~both March 31, 2016 and December 31, ~~2014, respectively.~~2015. Additionally, HAI declared dividends to the Company of ~~$5 and $3~~$4 during both the three months ended ~~September 30, 2015~~March 31, 2016 and ~~2014, respectively, and $14 and $9 for the nine months ended September 30, 2015 and 2014, respectively.~~2015. No amounts remained outstanding related to these previously declared dividends at ~~September 30, 2015.~~March 31, 2016.

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.

In 2013, the Company and HAI resolved a dispute regarding raw material pricing. As part of the resolution, the Company agreed to provide discounts to HAI on future purchases of dry and liquid resins totaling $16 over a period of three years. During both the ~~three and~~ ~~nine~~three months ended ~~September 30, 2015~~March 31, 2016 and ~~2014,~~2015, the Company issued $1 ~~and $4, respectively,~~ of discounts to HAI under this agreement. As of ~~September 30, 2015~~ ~~and~~ ~~December~~March 31, ~~2014~~2016, ~~$3 and $7, respectively, remained~~no amounts remain outstanding under this agreement. As of ~~September 30,~~December 31, 2015, ~~all of the~~$1 was outstanding ~~amount is classified in “Other current liabilities” in the unaudited Condensed Consolidated Balance Sheets~~under this agreement and ~~as of~~ ~~December 31, 2014, $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.”~~Sheets.

The Company sells products and provides services to, and purchases products from, its other joint ventures which are recorded under the equity method of accounting. These sales were $9$4 and $4$12 for the three months ended ~~September 30,~~March 31, 2016 and 2015, ~~and 2014, respectively, and $31 and $15 for the nine months ended September 30, 2015 and 2014,~~ respectively. Accounts receivable from these joint ventures were $9$4 and ~~$15~~$10 at ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014,~~2015, respectively. These purchases were ~~less than $1~~$4 and $12 for the three months ended ~~September 30,~~March 31, 2016 and 2015, ~~and 2014, and $25 and less than $1 for the nine months ended September 30, 2015 and 2014,~~ respectively. The Company had accounts payable to these joint ventures of ~~$10~~$3 and ~~$26~~$2 at ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014,~~2015, respectively.

The Company had a loan receivable of $6 and royalties receivable of $2 as of both March 31, 2016 and December 31, 2015 from its unconsolidated forest products joint venture in ~~Russia of $6 as of both~~ ~~September 30, 2015~~ ~~and~~ ~~December 31, 2014~~.Russia.

As of December 31, 2014, the Company had approximately $11 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.

~~Table of Contents~~

5. 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, 2015~~March 31, 2016, the Company had derivative ~~assets~~liabilities related to electricity and natural gas contracts of $2, 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 ~~and nine~~ months ended ~~September 30, 2015~~March 31, 2016 or ~~2014~~2015.

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, 2015~~March 31, 2016 and December 31, ~~2014~~2015, 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-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											Carrying Amount			Fair Value
			Level 1			Level 2			Level 3			Total			Carrying Amount		Level 1			Level 2			Level 3			Total
September 30, 2015	Carrying Amount
March 31, 2016
Debt	$	3,918		$	—		$	3,176		$	8		$	3,184	$	3,818		$	—		$	2,685		$	10		$	2,695
December 31, 2014
December 31, 2015
Debt	$	3,834		$	—		$	3,386		$	9		$	3,395	$	3,829		$	—		$	2,560		$	10		$	2,570

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 amount and fair value of the Company’s debt is exclusive of unamortized deferred financing fees. 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.

~~Table of Contents~~

6. Debt Obligations

Debt outstanding at ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014~~2015 is as follows:


	September 30, 2015				December 31, 2014				March 31, 2016					December 31, 2015
	Long-Term		Due Within One Year		Long-Term		Due Within One Year		Long-Term			Due Within One Year		Long-Term			Due Within One Year
ABL Facility	$	—	$	—	$	60	$	—	$	80		$	—	$	—		$	—
Senior Secured Notes:
6.625% First-Priority Senior Secured Notes due 2020 (includes $5 and $6 of unamortized debt premium at September 30, 2015 and December 31, 2014, respectively)	1,555		—		1,556		—
6.625% First-Priority Senior Secured Notes due 2020 (includes $4 of unamortized debt premium at both March 31, 2016 and December 31, 2015)									1,554			—		1,554			—
10.00% First-Priority Senior Secured Notes due 2020	315		—		—		—		315			—		315			—
8.875% Senior Secured Notes due 2018 (includes $2 and $3 of unamortized debt discount at September 30, 2015 and December 31, 2014, respectively)	1,083		—		1,197		—
8.875% Senior Secured Notes due 2018 (includes $1 and $2 of unamortized debt discount at March 31, 2016 and December 31, 2015, respectively)									917			—		995			—
9.00% Second-Priority Senior Secured Notes due 2020	574		—		574		—		574			—		574			—
Debentures:
9.2% debentures due 2021	74		—		74		—		74			—		74			—
7.875% debentures due 2023	189		—		189		—		189			—		189			—
8.375% sinking fund debentures due 2016	—		—		20		20
Other Borrowings:
Australia Facility due 2017	29		3		36		4		29			4		29			3
Brazilian bank loans	7		42		9		47		5			37		5			42
Capital leases	7		1		8		1		9			1		9			1
Other	10		29		12		27		4			26		5			34
Unamortized debt issuance costs									(47		)	—		(51		)	—
Total	$	3,843	$	75	$	3,735	$	99	$	3,703		$	68	$	3,698		$	80

~~2015~~2016 Debt Transactions

~~On April 15, 2015,~~During the Company issued $315 aggregate principal amount of 10.00% First-Priority Senior Secured Notes due 2020 (the “New First Lien Notes”). The Company used the net proceeds to redeem or repay all $40 of its outstanding 8.375% Sinking Fund Debentures due 2016, and to repay all amounts outstanding under its senior secured asset-based revolving loan facility (the “ABL Facility”) at the closing of the offering.

The New First Lien Notes are secured by first-priority liens on collateral that generally includes most of the Company and its domestic subsidiaries’ assets other than inventory and accounts receivable and related assets and by second-priority liens on the domestic portion of the collateral for the ABL Facility, which generally includes most of the inventory and accounts receivable and related assets of the Company, its domestic subsidiaries and certain of its foreign subsidiaries, in each case subject to certain exceptions and permitted liens.

On July 27, 2015, the Company entered into an amendment to its ABL Facility, which was completed on November 6, 2015, under which certain of the Company’s subsidiaries are borrowers, to (i) add one of its German subsidiaries as a borrower and one of its German subsidiaries as a guarantor and (ii) expand its borrowing base to include certain machinery and equipment in certain foreign jurisdictions, subject to customary reserves.

~~Additionally, during the third~~first quarter of ~~2015,~~2016, the Company repurchased ~~$115~~$78 of its 8.875% Senior Secured Notes due 2018 on the open market for cash of ~~$99.~~$54. This transaction resulted in a gain of ~~$14,~~$23, which represents the difference between the carrying value of the repurchased debt and the cash paid for the repurchases, less the proportionate amount of unamortized deferred financing fees and debt discounts that were written off in conjunction with the repurchases. This amount is recorded in “Gain on debt extinguishment” in the unaudited Condensed Consolidated Statements of Operations.

7. 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.

~~Table of Contents~~

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, 2015,~~March 31, 2016, the amount of the assessment, including tax, penalties, monetary correction and interest, is 4146 Brazilian reais, or approximately ~~$11.~~$13.

The following table summarizes all probable environmental remediation, indemnification and restoration liabilities, including related legal expenses, at ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014:~~2015:


	Liability				Range of Reasonably Possible Costs at September 30, 2015				Liability				Range of Reasonably Possible Costs at March 31, 2016
Site Description	September 30, 2015		December 31, 2014		Low		High		March 31, 2016		December 31, 2015		Low		High
Geismar, LA	$	15	$	15	$	9	$	22	$	15	$	15	$	9	$	22
Superfund and offsite landfills – allocated share:
Less than 1%	1		—		—		2		1		1		1		2
Equal to or greater than 1%	7		7		5		13		7		7		4		13
Currently-owned	5		9		4		11		5		5		4		9
Formerly-owned:
Remediation	32		30		31		46		29		33		27		43
Monitoring only	1		1		—		1		—		—		—		1
Total	$	61	$	62	$	49	$	95	$	57	$	61	$	45	$	90

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, 2015~~both March 31, 2016 and December 31, ~~2014, $11 and $12, respectively,~~2015, $13 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, 2015:~~March 31, 2016:

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.

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 2322 years. The range of possible outcomes is discounted in a similar manner. The undiscounted liability, which is expected to be paid over the next 2322 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~~Company entered into 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 effective February 1, 2016 with Coronet Industries and ~~required approvals.~~another former site owner. Pursuant to the agreement, the Company ~~would~~agreed to pay $10 in fulfillment of the contribution claim against the Company for past remediation ~~costs.~~costs, payable in three annual installments. Additionally, the Company ~~would accept~~accepted a 40% allocable share of specified future remediation costs at this site. The Company estimates its allocable share of future remediation costs to be approximately ~~$12.~~$11. The final costs to the Company will depend on the method of remediation chosen, the amount of time necessary to accomplish remediation and the ongoing financial viability of the other PRPs. Currently, the Company has insufficient information to estimate the range of reasonably possible costs related to this site.

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 $5$2 and $124 at ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014~~2015, respectively, for all non-environmental legal defense costs incurred and settlement costs that it believes are probable and estimable. At ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014~~2015, $4$1 and ~~$9,~~$3, respectively, has been included in “Other current liabilities” in the unaudited Condensed Consolidated Balance Sheets, with the remaining amount included in “Other long-term liabilities.”

The Company is also involved in various product liability, commercial and employment litigation, personal injury, property damage and other legal proceedings, 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.

8. Pension and Postretirement Benefit Plans

Following are the components of net pension and postretirement expense (benefit) ~~expense~~ recognized by the Company for the three ~~and nine~~ months ended ~~September 30, 2015~~March 31, 2016 and ~~2014~~2015 ~~(see Note 2)~~:

9. 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, 2015~~March 31, 2016, 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

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.

Beginning in 2015, the Company has modified the components of Corporate and Other to include certain shared service and administrative functional costs that were previously allocated to the reportable segments. Accordingly, for comparative purposes, the Company has recasted its Segment EBITDA results to include these costs within Corporate and Other for all prior periods presented.

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

~~Table of Contents~~

Reconciliation of Segment EBITDA to Net ~~Income (Loss):~~Loss:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2015			2014			2015			2014			2016			2015
Segment EBITDA:
Epoxy, Phenolic and Coating Resins	$	92		$	84		$	265		$	241		$	83		$	85
Forest Products Resins	59			63			182			191			56			61
Corporate and Other	(18		)	(19		)	(54		)	(61		)	(17		)	(19		)
Total	$	133		$	128		$	393		$	371		$	122		$	127

Reconciliation:
Items not included in Segment EBITDA:
Business realignment costs	$	(3	)	$	(6	)	$	(11	)	$	(24	)	$	(3	)	$	(3	)
Gain on extinguishment of debt													23			—
Realized and unrealized foreign currency losses	(14		)	(17		)	(17		)	(21		)	(2		)	(3		)
Other	(4		)	(14		)	(33		)	(36		)	(17		)	(18		)
Total adjustments	(21		)	(37		)	(61		)	(81		)	1			(24		)
Interest expense, net	(84		)	(77		)	(245		)	(230		)	(79		)	(77		)
Gain on extinguishment of debt	14			—			14			—
Income tax expense	(1		)	(2		)	(28		)	(17		)	(7		)	(26		)
Depreciation and amortization	(34		)	(38		)	(102		)	(109		)	(35		)	(34		)
Net income (loss)	$	7		$	(26	)	$	(29	)	$	(66	)
Accelerated depreciation													(46		)	—
Net loss													$	(44	)	$	(34	)

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,~~March 31, 2016, these items primarily include expenses from retention programs and certain professional fees. For the three months ended March 31, 2015, these items primarily include expenses from retention programs, losses on the disposal of assets and certain professional fees and a gain on a step acquisition. 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 losses and integration costs associated with the previous integration of Hexion and MPM.

fees. Business realignment costs for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2016 and March 31, 2015, include ~~costs related to certain in-process cost reduction programs. Business realignment costs for the three and nine months ended September 30, 2014 primarily relate to~~ costs for environmental remediation at certain formerly owned locations and expenses ~~from minor restructuring~~related to certain in-process cost reduction programs.

10. Summarized Financial Information of Unconsolidated Affiliate

Summarized financial information of the unconsolidated affiliate HAI as of ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014~~2015 and for the three ~~and nine~~ months ended ~~September 30, 2015~~March 31, 2016 and ~~2014~~2015 is as follows:

~~Table of Contents~~

11. Changes in Accumulated Other Comprehensive Income (Loss)

Following is a summary of changes in “Accumulated other comprehensive ~~income”~~income (loss)” for the three ~~and nine~~ months ended ~~September 30, 2015~~March 31, 2016 and ~~2014~~2015:


	Three Months Ended September 30, 2015								Three Months Ended September 30, 2014								Three Months Ended March 31, 2016								Three Months Ended March 31, 2015
	Defined Benefit Pension and Postretirement Plans		Foreign Currency Translation Adjustments			Total			Defined Benefit Pension and Postretirement Plans		Foreign Currency Translation Adjustments			Total			Defined Benefit Pension and Postretirement Plans		Foreign Currency Translation Adjustments			Total			Defined Benefit Pension and Postretirement Plans		Foreign Currency Translation Adjustments			Total
Beginning balance	$	4	$	20		$	24		$	—	$	129		$	129		$	4	$	(19	)	$	(15	)	$	4	$	69		$	73
Other comprehensive loss before reclassifications, net of tax	—		(24		)	(24		)	—		(40		)	(40		)
Net other comprehensive loss	—		(24		)	(24		)	—		(40		)	(40		)
Other comprehensive income (loss) before reclassifications, net of tax																	—		26			26			—		(62		)	(62		)
Ending balance	$	4	$	(4	)	$	—		$	—	$	89		$	89		$	4	$	7		$	11		$	4	$	7		$	11

12. ~~Step Acquisition~~Assets and Liabilities Held for Sale

~~In August 2015,~~On March 18, 2016, the Company ~~acquired~~entered into a definitive agreement for the ~~remaining 50% interest~~sale of its PAC Business to Synthomer plc (the “Buyer”) for a purchase price of approximately $226. Assets included in ~~Momentive Union Specialty Chemicals Ltd (“MUSC”), a joint venture~~the transaction are the Company’s manufacturing sites in Sokolov, Czech Republic; Sant’Albano, Italy; Leuna, Germany; Asua, Spain; Roebuck, South Carolina; and Chonburi, Thailand. The PAC Business produces resins, polymers, monomers and additives that ~~manufactures phenolic specialty resins~~provide enhanced performance for adhesives, sealants, paints, coatings, mortars and cements used primarily in ~~China, from its joint venture partner to better position~~consumer, industrial and building and construction applications.

The PAC Business generated annual sales of approximately $370 in 2015, and is reported within the ~~Company to serve its customers in this region. As a result~~Epoxy, Phenolic and Coating Resins Division of the ~~transaction,~~Company. The PAC Business had pre-tax income of $5 and $4 for the ~~Company now owns a 100% interest in MUSC. This transaction was accounted for~~three months ended March 31, 2016 and 2015, respectively, which is reported as a ~~step acquisition~~component of “Loss before income tax and the allocation of the consideration exchanged was based upon a valuation of MUSC’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 cash of $3, a net liability of $4 allocated to working capital, $29 allocated to property and equipment, $4 allocated to debt payable within one year, $14 allocated to long-term debt and $10 allocated to goodwill. Additionally, a gain of $5 was recorded in “Other operating expense, net”earnings from unconsolidated entities” in the unaudited Condensed Consolidated Statements of ~~Operations, which represents~~Operations.

The sale is subject to customary closing conditions, including Works Council consultation. The transaction is expected to close in the ~~difference between~~second quarter of 2016. Until the ~~$10 fair value~~closing date, the Company has agreed to operate the PAC Business in the ordinary course. The Company has also agreed to provide certain transitional services to the Buyer for a limited period of time following the closing.

The assets and ~~$5 carrying value~~liabilities of the ~~Company’s previously~~PAC Business as of March, 31, 2016 are classified as “Current assets held ~~50% non-controlling interest~~for sale”, “Long-term assets held for sale”, “Current liabilities associated with assets held for sale” and “Long-term liabilities associated with assets held for sale” in ~~MUSC on~~ the ~~acquisition date. The fair value of the non-controlling interest was determined using a market approach.~~

~~The pro forma impacts of this acquisition are not material to the Company’s~~ unaudited Condensed Consolidated ~~Financial Statements.~~Balance Sheets, and consist of the following:

The effective tax rate was ~~25%~~(17)% and ~~(7)~~(236)% for the ~~third quarter of~~three months ended March 31, 2016 and 2015, ~~and 2014, respectively. The effective tax rate was (200)% and (27)% for the first nine months of 2015 and 2014,~~ 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 the three ~~and nine~~ months ended ~~September 30,~~March 31, 2016 and 2015, ~~and 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.

14. Guarantor/Non-Guarantor Subsidiary Financial Information

The Company’s 6.625% First-Priority Senior Secured Notes due 2020, ~~New First Lien~~10.00% First-Priority Senior Secured Notes due 2020, 8.875% Senior Secured Notes due 2018 and 9.00% Second-Priority Senior Secured Notes due 2020 are guaranteed by certain of its U.S. subsidiaries.

The following information contains the condensed consolidating financial information for Hexion Inc. (the parent), the combined subsidiary guarantors (Hexion Investments Inc.; Borden Chemical Foundry, LLC; Lawter International, Inc.; HSC Capital Corporation; Hexion International Inc.; Hexion CI Holding Company (China) LLC; 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 guarantors are 100% owned by Hexion Inc. 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, New Zealand 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.

These financial statements are prepared on the same basis as the consolidated financial statements of the Company except that investments in subsidiaries are accounted for using the equity method for purposes of the consolidating presentation. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions.

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.

~~Corporate Changes~~

In December 2014, Hexion U.S. Finance Corp. (“Hexion U.S.”), the issuer under the indentures governing the Company’s 6.625% First-Priority Senior Secured Notes due 2020 (the “First Lien Notes”), the Company’s 8.875% Senior Secured Notes due 2018 (the “Senior Secured Notes”) and the Company’s 9.00% Second-Priority Senior Secured Notes due 2020 (the “Second Lien Notes”), merged with and into Hexion Inc., its parent company, with Hexion Inc. remaining as the surviving entity. Pursuant to supplemental indentures, Hexion Inc. assumed all the obligations of Hexion U.S. under the indentures and the First Lien Notes, the Senior Secured Notes and the Second Lien Notes.

The merger was accounted for as a transaction under common control as defined in the accounting guidance for business combinations. As a result, the Company has recasted its prior period guarantor/non-guarantor subsidiary financial information on a combined basis to reflect the merger of Hexion U.S. with and into Hexion Inc., resulting in the balances and activity previously reported in the Issuer column to be combined with the balances and activity reported in the Hexion Inc. column.

~~Table of Contents~~

HEXION INC.

~~SEPTEMBER 30, 2015~~MARCH 31, 2016

CONDENSED CONSOLIDATING BALANCE SHEET (Unaudited)


	Hexion Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated			Hexion Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents (including restricted cash of $0 and $8, respectively)	$	45		$	—		$	150		$	—		$	195
Cash and cash equivalents (including restricted cash of $0 and $11, respectively)																$	20		$	—		$	99		$	—		$	119
Accounts receivable, net	139			—			440			—			579			133			1			374			—			508
Intercompany accounts receivable	126			—			106			(232		)	—			159			—			44			(203		)	—
Intercompany loans receivable - current portion	—			—			56			(56		)	—			—			—			63			(63		)	—
Inventories:
Finished and in-process goods	104			—			154			—			258			105			—			124			—			229
Raw materials and supplies	41			—			63			—			104			35			—			54			—			89
Current assets held for sale																10			—			57			—			67
Other current assets	32			—			36			—			68			14			—			39			—			53
Total current assets	487			—			1,005			(288		)	1,204			476			1			854			(266		)	1,065
Investment in unconsolidated entities	151			30			19			(164		)	36			127			29			22			(141		)	37
Deferred income taxes	—			—			16			—			16			2			—			9			—			11
Long-term assets held for sale																6			—			74			—			80
Other assets, net	77			6			23			—			106			19			6			21			—			46
Intercompany loans receivable	1,256			29			109			(1,394		)	—			1,165			6			214			(1,385		)	—
Property and equipment, net	548			—			495			—			1,043			503			—			441			—			944
Goodwill	66			—			58			—			124			66			—			59			—			125
Other intangible assets, net	50			—			19			—			69			47			—			15			—			62
Total assets	$	2,635		$	65		$	1,744		$	(1,846	)	$	2,598		$	2,411		$	42		$	1,709		$	(1,792	)	$	2,370
Liabilities and Deficit
Current liabilities:
Accounts payable	$	127		$	—		$	259		$	—		$	386		$	112		$	—		$	207		$	—		$	319
Intercompany accounts payable	106			—			126			(232		)	—			44			—			159			(203		)	—
Debt payable within one year	9			—			66			—			75			3			—			63			—			66
Intercompany loans payable within one year	56			—			—			(56		)	—			63			—			—			(63		)	—
Interest payable	100			—			2			—			102			98			—			1			—			99
Income taxes payable	6			—			15			—			21			10			—			—			—			10
Accrued payroll and incentive compensation	34			—			37			—			71			55			—			44			—			99
Current liabilities associated with assets held for sale																6			—			50			—			56
Other current liabilities	68			—			50			—			118			70			—			40			—			110
Total current liabilities	506			—			555			(288		)	773			461			—			564			(266		)	759
Long-term liabilities:
Long-term debt	3,795			—			48			—			3,843			3,661			—			39			—			3,700
Intercompany loans payable	108			6			1,280			(1,394		)	—			208			6			1,171			(1,385		)	—
Accumulated losses of unconsolidated subsidiaries in excess of investment	501			164			—			(665		)	—			427			141			—			(568		)	—
Long-term pension and post employment benefit obligations	50			—			202			—			252			43			—			184			—			227
Deferred income taxes	10			—			8			—			18			(2		)	—			15			—			13
Long-term liabilities associated with assets held for sale																—			—			10			—			10
Other long-term liabilities	115			—			49			—			164			107			—			49			—			156
Total liabilities	5,085			170			2,142			(2,347		)	5,050			4,905			147			2,032			(2,219		)	4,865
Total Hexion Inc. shareholder’s deficit	(2,450		)	(105		)	(396		)	501			(2,450		)	(2,494		)	(105		)	(322		)	427			(2,494		)
Noncontrolling interest	—			—			(2		)	—			(2		)	—			—			(1		)	—			(1		)
Total deficit	(2,450		)	(105		)	(398		)	501			(2,452		)	(2,494		)	(105		)	(323		)	427			(2,495		)
Total liabilities and deficit	$	2,635		$	65		$	1,744		$	(1,846	)	$	2,598		$	2,411		$	42		$	1,709		$	(1,792	)	$	2,370

CONDENSED CONSOLIDATING BALANCE SHEET

~~Table of Contents~~

HEXION INC.

THREE MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2016

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)



	Hexion Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	381		$	—		$	578		$	(50	)	$	909
Cost of sales	374			—			478			(50		)	802
Gross profit	7			—			100			—			107
Selling, general and administrative expense	39			—			45			—			84
Business realignment costs	1			—			2			—			3
Other operating expense, net	2			—			1			—			3
Operating (loss) income	(35		)	—			52			—			17
Interest expense, net	77			—			2			—			79
Intercompany interest (income) expense, net	(19		)	—			19			—			—
Gain on extinguishment of debt	(23		)	—			—			—			(23		)
Other non-operating (income) expense, net	(35		)	—			37			—			2
Loss before income tax and (losses) earnings from unconsolidated entities	(35		)	—			(6		)	—			(41		)
Income tax (benefit) expense	(4		)	—			11			—			7
Loss before (losses) earnings from unconsolidated entities	(31		)	—			(17		)	—			(48		)
(Losses) earnings from unconsolidated entities, net of taxes	(13		)	(5		)	—			22			4
Net loss	$	(44	)	$	(5	)	$	(17	)	$	22		$	(44	)
Comprehensive (loss) income	$	(18	)	$	(6	)	$	(2	)	$	8		$	(18	)

HEXION INC.

THREE MONTHS ENDED MARCH 31, 2015

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)


	Hexion Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries		Eliminations			Consolidated			Hexion Inc.			Combined Subsidiary Guarantors		Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	433		$	—		$	675	$	(43	)	$	1,065		$	465		$	—	$	663		$	(49	)	$	1,079
Cost of sales	384			—			564		(43		)	905			405			—		567			(49		)	923
Gross profit	49			—			111		—			160			60			—		96			—			156
Selling, general and administrative expense	29			—			42		—			71			35			—		47			—			82
Business realignment costs	1			—			2		—			3			2			—		1			—			3
Other operating expense, net	5			—			7		—			12			4			—		4			—			8
Operating income	14			—			60		—			74			19			—		44			—			63
Interest expense, net	81			—			3		—			84			75			—		2			—			77
Intercompany interest (income) expense, net	(20		)	(1		)	21		—			—			(20		)	—		20			—			—
Gain on extinguishment of debt	(14		)	—			—		—			(14		)
Other non-operating (income) expense, net	(1		)	—			1		—			—
(Loss) income before income tax and earnings from unconsolidated entities	(32		)	1			35		—			4
Income tax expense	1			—			—		—			1
(Loss) income before earnings from unconsolidated entities	(33		)	1			35		—			3
Earnings from unconsolidated entities, net of taxes	40			17			—		(53		)	4
Net income	$	7		$	18		$	35	$	(53	)	$	7
Other non-operating expense (income), net															101			—		(104		)	—			(3		)
(Loss) income before income tax and earnings (losses) from unconsolidated entities															(137		)	—		126			—			(11		)
Income tax (benefit) expense															(5		)	—		31			—			26
(Loss) income before earnings (losses) from unconsolidated entities															(132		)	—		95			—			(37		)
Earnings (losses) from unconsolidated entities, net of taxes															98			74		(2		)	(167		)	3
Net (loss) income															$	(34	)	$	74	$	93		$	(167	)	$	(34	)
Comprehensive (loss) income	$	(17	)	$	17		$	20	$	(37	)	$	(17	)	$	(96	)	$	74	$	68		$	(142	)	$	(96	)

~~CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)~~

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)

Purchase of business, net of cash acquired

THREE MONTHS ENDED MARCH 31, 2015

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)

~~Table of Contents~~

~~HEXION INC.~~

~~NINE MONTHS ENDED SEPTEMBER 30, 2014~~

~~CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)~~

Hexion
Inc.

Combined
Subsidiary
Guarantors

Combined
Non-Guarantor
Subsidiaries
Eliminations Consolidated
Cash flows (used in) provided by operating activities $ (349 ) $ 6
$ 220
$ (9 ) $ (132 )
Cash flows provided by (used in) investing activities
Capital expenditures (74 ) —
(59 ) —
(133 )
Proceeds from sale of investments, net —
—
(4 ) —
(4 )
Change in restricted cash —
—
(2 ) —
(2 )
Capital contribution to subsidiary (16 ) (10 ) —
26
—
Disbursement of affiliated loan —
—
(50 ) —
(50 )
Repayment of affiliated loan —
—
50
—
50
Acquisition of businesses (52 ) —
(12 ) —
(64 )
Return of capital from subsidiary from sales of accounts receivable 272
(a) —
—
(272 ) —
Investment in unconsolidated affiliates, net —
—
(2 ) —
(2 )
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, Hexion 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 Hexion 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 Hexion Inc., respectively.

~~Table of Contents~~


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 Consolidated Financial Statements and the accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Current Report on Form 8-K dated June 10, 2015, which revised the Consolidated Financial Statements and the accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations within Items 7 and 8 of the Company’s 2014most recent Annual Report on Form 10-K to reflect management’s accounting methodology change for the Company’s pension and other non-pension postretirement benefit (“OPEB”) plans described in Note 2 to the unaudited Condensed Consolidated Financial Statements.10-K.

Within the following discussion, unless otherwise stated, “the ~~third~~first quarter of 2016” refers to the three months ended March 31, 2016, “the first quarter of 2015” refers to the three months ended ~~September 30, 2015, “the third quarter of 2014” refers to the three months ended September 30, 2014, “the first nine months of 2015” refers to the~~ ~~nine months ended September 30, 2015~~ ~~and “the first nine months of 2014” refers to the~~ ~~nine months ended September 30, 2014~~.March 31, 2015.

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 a large participant in the ~~world’s largest producer of thermosetting resins, or thermosets,~~specialty chemicals industry, 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~~wind energy 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.~~drilling. Key drivers for our business include general economic and industrial conditions, including housing starts, auto build rates and active oil and 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 can and have significantly affected our results.

Through our worldwide network of strategically located production facilities, we serve more than ~~5,200~~4,800 customers in ~~over 100~~approximately100 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.

~~Table of Contents~~

Reportable Segments

~~The Company’s~~Our business segments are based on the products that we offer and the markets that we serve. At ~~September 30, 2015~~March 31, 2016, ~~the Company~~we had two reportable segments: Epoxy, Phenolic and Coating Resins and Forest Products Resins. A summary of the major products of ~~the Company’s~~our reportable segments follows:

Forest Products Resins: forest products resins and formaldehyde applications

~~2015~~

2016 Overview

Following are highlights from our results of operations for the ~~nine months ended September 30, 2015~~first quarter of 2016 and ~~2014:~~2015:


	2015			2014			$ Change			% Change		2016			2015			$ Change			% Change
Statements of Operations:
Net sales	$	3,231		$	3,977		$	(746	)	(19	)%	$	909		$	1,079		$	(170	)	(16	)%
Gross profit	478			490			(12		)	(2	)%	107			156			(49		)	(31	)%
Operating income	216			190			26			14	%	17			63			(46		)	(73	)%
Loss before income tax	(14		)	(63		)	49			78	%	(41		)	(11		)	(30		)	(273	)%
Segment EBITDA:
Epoxy, Phenolic and Coating Resins	$	265		$	241		$	24		10	%	$	83		$	85		$	(2	)	(2	)%
Forest Products Resins	182			191			(9		)	(5	)%	56			61			(5		)	(8	)%
Corporate and Other	(54		)	(61		)	7			11	%	(17		)	(19		)	2			11	%
Total	$	393		$	371		$	22		6	%	$	122		$	127		$	(5	)	(4	)%

Net Sales—Net sales for the first ~~nine months~~quarter of ~~2015~~2016 were ~~$3.2~~$0.9 billion, a decrease of ~~19%~~16% compared with $4$1.1 billion in the first ~~nine months~~quarter of ~~2014.~~2015. The decline in net sales was primarily driven by the ~~combination of the strengthening of the U.S. dollar against most other currencies and the~~continued global decline in oil and raw material prices, which has led to lower demand and volumes in our oilfield business and an overall reduction in selling prices across many of our businesses due to the pass through of raw material cost reductions to our customers. Additionally, the continued economic downturn in Brazil negatively impacted volumes in our Latin American forest products resins business. These decreases are partially offset by increases in our specialty epoxy business, driven by ~~increasing~~increased demand in the China and European wind energy ~~market.~~markets, as well as smaller volume increases within our base epoxy, dispersions and North American forest product resins businesses. Lastly, the strengthening of the U.S. dollar against most other currencies negatively impacted our results. On a constant currency basis, net sales would have decreased by ~~10%~~11%.

Segment EBITDA—For the first ~~nine months~~quarter of ~~2015,~~2016, Segment EBITDA was ~~$393, an increase~~$122, a decrease of 6%4% compared with ~~$371~~$127 in the first ~~nine months~~quarter of ~~2014.~~2015. The ~~increase~~reduction in Segment EBITDA was primarily driven by volume and pricing decreases in our oilfield business, lower pricing and unfavorable product mix in our our phenolic resins business and decreased volumes within our Latin American forest products resins businesses. These reductions were offset by strong growth in our specialty epoxy business, ~~as well as modest growth in~~favorable product mix within our ~~base epoxy resins and in our North American forest products resins businesses~~versatic acids business and increases in raw ~~material productivity. This growth was partially offset by decreases in~~materiality productivity across many of our ~~oilfield business and~~businesses. Additionally, the ~~impact~~strengthening of the U.S. dollar ~~strengthening~~ against most other ~~currencies.~~currencies negatively impacted our Segment EBITDA results. On a constant currency basis, Segment EBITDA would have increased ~~16%~~by 2%.

~~Acquisition—~~Planned Sale of PAC Business—In August 2015, we acquired the remaining 50% interest in Momentive Union Specialty Chemicals Ltd (“MUSC”) from our joint venture partner. We are now the sole owner of MUSC, which recently started up a phenolic specialty resins manufacturing facility in China. This acquisition reinforces our global growth strategy and better positions us to serve our customers in this region, where demand for our products continues to increase.

~~2015 Debt Transactions—~~On April 15, 2015, we issued $315 aggregate principal amount of 10.00% First-Priority Senior Secured Notes due 2020 (the “New First Lien Notes”). We used the net proceeds to redeem or repay all $40 of our outstanding 8.375% Sinking Fund Debentures dueMarch 2016, (the “Sinking Fund Debentures”), and to repay all amounts outstanding under the ABL Facility at the closing of the offering. The remaining proceeds from the offering provided incremental liquidity, bringing our total liquidity to $562 as of September 30, 2015. Collectively, these transactions are referred to as the “2015 Refinancing Transactions.” Additionally, on July 27, 2015, we entered into ~~an amendment~~a definitive agreement for the sale of our Performance Adhesives, Powder Coatings, Additives & Acrylic Coatings and Monomers businesses (the “PAC Business”) for a purchase price of approximately $226. The sale is expected to ~~our ABL Facility (the “ABL Amendment”), which expanded our borrowing base to include certain machinery and equipment in certain foreign jurisdictions.~~

~~Supplier Disruption—~~In July 2015, the supplier disruption that began in late 2014 that negatively impacted our European versatic acid and dispersions businesses was resolved and production has resumed at the impacted facility. We have received insurance recoveriesclose in the ~~first nine months~~second quarter of ~~2015 related~~2016. We plan to use the proceeds from this ~~disruption~~sale to bolster our liquidity and ~~we continue to proactively pursue additional recoveries.~~invest back into the business.

Restructuring and Cost Reduction Programs—In the fourth quarter of ~~2014,~~2015, we ~~began to implement new restructuring~~identified additional productivity and cost reduction programs, which ~~are expected to~~we anticipate will generate approximately $35 in annual cost savings ~~of approximately $22~~once completed. We began executing these programs in ~~2015 and annual savings of $31 once fully implemented. During~~ the first ~~nine months~~quarter of ~~2015,~~2016. As of March 31, 2016, we ~~realized~~have approximately ~~$16~~$38 of total in-process cost savings ~~under~~related to these and other ~~initiatives, and as~~smaller programs, the majority of ~~September 30, 2015 we had approximately$14 of in-process savings that~~which we expect to be achieved over the next 612 to 1224 months.

31Planned Facility Rationalization—One of the above identified cost reduction projects is a planned facility rationalization within our Epoxy, Phenolic and Coating Resins segment, which we anticipate will generate approximately $20 in annual cost savings once completed. As a result, the estimated useful lives of certain long-lived assets related to this facility have been shortened and consequently, we incurred approximately $46 of accelerated depreciation in the first quarter of 2016 related to this project, and expect the remaining approximate $30 of accelerated depreciation to be recognized in the second quarter of 2016. Additionally, in the second quarter of 2016, we anticipate we will recognize approximately $30 to $35 of costs related to the early termination of certain contracts for utilities, site services, raw materials and other items related to this facility rationalization. These costs will result in cash outflows over the next approximately 2 to 3 years.

~~Future~~ Growth Initiatives—~~We continued to make progress on future growth initiatives, including~~In February 2016, we completed construction of our formaldehyde plant in Luling, LA. The completion of this facility, combined with the ~~expansion~~2015 expansions of our forest products resins manufacturing facility in Curitiba, Brazil and our formaldehyde manufacturing facility in Geismar, LA, provides us with additional capacity to support expected long-term growth in ~~Brazil, which was completed in September 2015,~~these businesses and ~~construction of two new formaldehyde plants in North America.~~regions.

During the remainder of ~~2015 and into the first half of~~ 2016, ~~we expect modestly lower demand in our epoxy specialty business due to seasonality and economic uncertainty in China. Additionally,~~ we expect continued strong demand in our North American forest products ~~businesses~~resins business due to continuing growth in U.S. housing starts. Additionally, we expect the incremental capacity created by the newly completed formaldehyde plants in North America to drive volume increases in this business in 2016. We ~~also~~expect these increases to be partially offset by weakening demand in Latin America, driven by the Brazilian economic downturn, which will continue to negatively impact our Latin American forest products resins business.

While we anticipate flat demand in Europe, we expect volumes in our European versatic acid and dispersions businesses to continue to improve from the resolution of the supplier disruption that impacted these businesses induring the first half of 2015. ~~This growth is expected~~Additionally, although we continue to ~~be partially offset by a continued weakness in natural gas and oil drilling activity, as well as continued flat demand in Europe,~~expect economic volatility in China, ~~and weaker~~we anticipate a modest demand increase in ~~Latin America.~~our epoxy specialty business in 2016. We also expect ~~weaker global currencies~~our phenolic resins business to ~~continue to negatively impact~~benefit from the acquisition of the remaining 50% of our ~~results. In addition,~~previous Chinese joint venture. Lastly, we expect our base epoxy business to improve in 2016 due to our restructuring initiatives, but remain below historical levels of ~~profitability over the next few quarters.~~profitability.

~~Over the past few quarters,~~We expect lower oil prices ~~and raw material costs have been volatile and decreasing. We expect the decline~~to continue in ~~oil prices to~~2016, which will continue to negatively impact sales volumes and earnings in our oilfield business due to the corresponding ~~decline~~weakness in natural gas and oil drilling activity. ~~However,~~Given the current economic conditions in the oil and gas markets, we continue to monitor the recoverability of assets in our oilfield business. In addition, we expect ~~this negative impact to be offset by the positive effect of declining~~lower raw material prices to continue in 2016, as a substantial number of our raw material inputs are petroleum-based and their prices fluctuate with the price of ~~oil. In addition, we expect such declines in~~ oil, ~~prices and raw material costs to have a~~which will create an offsetting positive ~~impact~~effect on our ~~working capital during 2015.~~results.

~~In July 2015, the supplier disruption~~Lastly, we anticipate that began in October 2014 which negatively impacted our European versatic acid and dispersions businesses was resolved and production has successfully restarted at the impacted facility. We expect the overall negative impact of this disruption to be $55 to $60, which includes a $25 to $30 negative impact on our Segment EBITDA in 2015. We have received insurance recoveries of $25 in the first nine months of 2015 for a portion of these losses, and weweaker global currencies could continue to ~~proactively pursue additional recoveries.~~

~~As part of~~pressure our continued focus on productivity, we continue to execute our new cost savings program, which began in late 2014 and will structurally enhance our manufacturing and administrative cost profile through the first half of 2016. We expect to realize approximately $22 of savings from this cost savings program during 2015 and annual savings of $31 once fully implemented.results.

Matters Impacting Comparability of Results

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 price of phenol remained flat, and the average prices of ~~phenol,~~ methanol and urea decreased by approximately ~~29%, 21%~~34% and~~14%~~ 25%, respectively, in the first ~~nine~~three months of ~~2015~~2016 compared to the first ~~nine~~three months of ~~2014~~2015. The impact of passing through raw material price changes to customers can result in significant variances in sales comparisons from year to year.

From late 2014 through July 2015, our European versatic acids and dispersions businesses were negatively impacted by a supplier disruption beginning in late 2014. The disruption had negative impacts of $6 and $8 on Segment EBITDA for our Epoxy, Phenolic and Coating Resins segment in the first quarter of 2016 and 2015, respectively. We recorded insurance recoveries of $6 and $9 in the first quarter of 2016 and 2015, respectively, for a portion of these losses, and we continue to proactively pursue additional recoveries. Timing differences between the negative impacts of the disruption and the related insurance recoveries can result in variances in Segment EBITDA comparisons from year to year.

Other Comprehensive Income

Our other comprehensive income is significantly impacted by foreign currency translation and also impacted by 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 prior service cost related to our defined benefit and other postretirement benefit plans, as well as the subsequent amortization of these amounts from accumulated other comprehensive income in periods following the initial recording of such items.

~~Pension and OPEB Accounting Policies~~

~~Change in Pension and OPEB Accounting Policies~~

We have elected to change our accounting policies related to the recognition of gains and losses for pension and other non-pension postretirement benefit (“OPEB”) plans to a more preferable policy under U.S. GAAP. Specifically, such gains and losses historically recognized as a component of “Other comprehensive income (loss)”, and amortized into net income (loss) in future periods, will be recognized in earnings in the period in which they occur. In addition, we have changed our policy for recognizing expected returns on plan assets from a market-related value method (based on a five-year smoothing of asset returns), to a fair value method whereby the expected returns on assets are recognized annually.

Under the new policies, upon the annual remeasurement of our pension and OPEB plans in the fourth quarter, or on an interim basis as triggering events warrant remeasurement, we will immediately recognize gains and losses as an MTM gain or loss through earnings. As such, under the new policies, our net periodic pension and OPEB expense recognized on a quarterly basis will consist of:

~~Service cost, interest cost, expected return on plan assets, amortization of prior service cost/credits; and~~

~~MTM adjustments recognized annually in the fourth quarter upon remeasurement of pension and OPEB liabilities or when triggering events warrant remeasurement.~~

We believe that these changes are preferable as they provide greater transparency of our economic obligations in accounting results and better alignment with fair value accounting principles by recognizing the effects of economic and interest rate changes on pension and OPEB assets and liabilities in the year in which the gains and losses are incurred.

The impact of these pension and OPEB accounting policy changes was applied through retrospective application of the new policies to all periods presented. Accordingly, all relevant information three and nine months ended September 30, 2014 have been adjusted to reflect the application of the changes. The effects of the aforementioned accounting policy changes to the unaudited Condensed Consolidated Statements of Operations are as follows:

Effect of Accounting Changes Increase (Decrease) Three Months Ended September 30, 2014 Nine Months Ended September 30, 2014
Cost of sales $ —
$ (4 )
Selling, general and administrative expense (2 ) (6 )
Income tax expense —
(6 )
Segment EBITDA 3
9

~~There were no MTM adjustments for the three or nine months ended September 30, 2015 and 2014.~~

Results of Operations

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended September 30,										Three Months Ended March 31,
	2015					2014					2016					2015
	$			% of Net Sales		$			% of Net Sales		$			% of Net Sales		$			% of Net Sales
Net sales	$	1,065		100	%	$	1,347		100	%	$	909		100	%	$	1,079		100	%
Cost of sales	905			85	%	1,188			88	%	756			83	%	923			86	%
Accelerated depreciation											46			5	%	—			—	%
Gross profit	160			15	%	159			12	%	107			12	%	156			14	%
Selling, general and administrative expense	71			7	%	82			7	%	84			9	%	82			8	%
Business realignment costs	3			—	%	6			—	%	3			—	%	3			—	%
Other operating expense, net	12			1	%	4			—	%	3			—	%	8			1	%
Operating income	74			7	%	67			5	%	17			3	%	63			5	%
Interest expense, net	84			8	%	77			6	%	79			9	%	77			7	%
Gain on extinguishment of debt	(14		)	(1	)%	—			—	%	(23		)	(2	)%	—			—	%
Other non-operating expense, net	—			—	%	18			1	%
Other non-operating expense (income), net											2			—	%	(3		)	—	%
Total non-operating expense	70			7	%	95			7	%	58			7	%	74			7	%
Income (loss) before income tax and earnings from unconsolidated entities	4			—	%	(28		)	(2	)%
Loss before income tax and earnings from unconsolidated entities											(41		)	(4	)%	(11		)	(2	)%
Income tax expense	1			—	%	2			—	%	7			1	%	26			2	%
Income (loss) before earnings from unconsolidated entities	3			—	%	(30		)	(2	)%
Loss before earnings from unconsolidated entities											(48		)	(5	)%	(37		)	(4	)%
Earnings from unconsolidated entities, net of taxes	4			—	%	4			—	%	4			—	%	3			—	%
Net income (loss)	$	7		—	%	$	(26	)	(2	)%
Other comprehensive loss	$	(24	)			$	(40	)
Net loss											$	(44	)	(5	)%	$	(34	)	(4	)%
Other comprehensive income (loss)											$	26				$	(62	)

Three Months Ended ~~September 30, 2015~~March 31, 2016 vs. Three Months Ended ~~September 30, 2014~~March 31, 2015

In the ~~third~~first quarter of ~~2015,~~2016, net sales decreased by ~~$282,~~$170, or ~~21%~~16%, compared to the ~~third~~first quarter of ~~2014.~~2015. Volume decreases negatively impacted net sales by ~~$108,~~$31, and were primarily driven by reduced volumes in our oilfield business, which was the result of lower natural gas and oil drilling activity caused by a decrease in oil prices. Also contributing to the overall volume decrease ~~was~~were lower volumes in our ~~base epoxy~~Latin American forest products resins business ~~primarily~~ due to ~~a customer plant closure~~the recent economic downturn in ~~late 2014.~~Brazil. These decreases were partially offset by volume increases in our epoxy specialty business, driven by strong demand in the China and European wind energy ~~market.~~markets, as well as smaller volume increases across our base epoxy, dispersions and North American forest product resins businesses. Pricing had a negative impact of ~~$49~~$87 due primarily to raw material price decreases passed through to customers in most of our ~~businesses, as well as ongoing competitive pricing pressures in our oilfield business.~~businesses. In addition, foreign currency translation negatively impacted net sales by ~~$125,~~$52, primarily as a result of the strengthening of the U.S. dollar against the Brazilian real, euro and ~~Brazilian real~~Canadian dollar in the ~~third~~first quarter of ~~2015~~2016 compared to the ~~third~~first quarter of ~~2014.~~2015.

In the ~~third~~first quarter of 2016, gross profit decreased by $49 compared to the first quarter of 2015, primarily due to accelerated depreciation of $46 in the first quarter of 2016 related to a planned facility rationalization within our Epoxy, Phenolic and Coating Resins segment. Excluding this accelerated depreciation, gross profit ~~increased~~decreased by ~~$1 compared to the third quarter of 2014. As~~$3, and as a percentage of sales, gross profit increased by 3%,. The increase in gross profit percentage was primarily due to favorable raw material deflation and raw material productivity ~~initiatives, which outpaced the negative impact of competitive pricing pressures discussed above.~~initiatives.

In the ~~third~~first quarter of 2016, operating income decreased by $46 compared to the first quarter of 2015, ~~operating income increased by $7 compared to the third quarter of 2014,~~ primarily due to ~~decreases~~the $49 decrease in gross profit discussed above, as well as an increase in selling, general and administrative expense ~~and business realignment costs~~ of ~~$11 and $3, respectively, and the $1~~$2. The increase ~~in gross profit discussed above. The decrease~~ in selling, general and administrative expense was due primarily to ~~insurance recoveries of $10~~costs related to the proposed sale of our PAC Business and lower insurance recoveries in the first quarter of 2016 related to the supplier ~~plant~~ disruption in our European versatic ~~acid business. The decrease in~~acids business, ~~realignment costs was due primarily to a decrease in costs related to environmental remediation at certain formerly owned locations. These decreases were~~ partially offset by ~~an increase of $8in other operating expense due to an increase in realized and unrealized foreign currency transaction losses, partially offset by a gain of $5 on a step acquisition (see Note 12).~~

~~Non-Operating Expense~~

In the third quarter of 2015, total non-operating expense decreased by $25 compared to the third quarter of 2014, primarily due to a $14 gain on debt extinguishment that occurred in the third quarter of 2015 and a decrease in realized and unrealized foreign currency transaction losses. These items were partially offset by an increase of $7 in interest expense driven by higher average debt levels.

~~Income Tax Expense~~

The effective tax rate was 25% and (7)% for the third quarter of 2015 and 2014, 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 2015 and 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.

~~Other Comprehensive Loss~~

For the third quarter of 2015, foreign currency translation negatively impacted other comprehensive loss by $24, primarily due to the strengthening of the U.S. dollar against the euro and Brazilian real.

For the third quarter of 2014, foreign currency translation negatively impacted other comprehensive loss by $40, primarily due to the strengthening of the U.S. dollar against the Australian dollar and Brazilian real, partially offset by the weakening of the U.S. dollar against the euro.

~~Nine Months Ended September 30, 2015 vs. Nine Months Ended September 30, 2014~~

~~In the first nine months of 2015, net sales decreased by $746, or 19%, compared to the first nine months of~~2014. Volume decreases negatively impacted net sales by $174, and were primarily driven by reduced volumes in our oilfield business, which was the result of lower natural gas and oil drilling activity caused by a decrease in oil prices. Also contributing to the overall volume decrease was lower volumes in our base epoxy business primarily due to a customer plant closure in late 2014 and operational issues at certain manufacturing facilities. These decreases were partially offset by volume increases in our epoxy specialty business, driven by increasing demand in the China wind energy market, as well as volume increases in our North American forest products resins business, driven by increases in U.S. housing construction. Pricing had a negative impact of $226 due to raw material price decreases passed through to customers in most of our businesses, as well as competitive pricing pressures in our oilfield business. In addition, foreign currency translation negatively impacted net sales by $346, primarily as a result of the strengthening of the U.S. dollar against the euro, Brazilian real and Canadian dollar in the first nine months of 2015 compared to the first nine months of 2014.

In the first nine months of 2015, gross profit decreased by $12 compared to the first nine months of 2014. As a percentage of sales, gross profit increased by 3%, primarily due to favorable raw material deflation and raw material productivity initiatives, which outpaced the negative impact of competitive pricing pressures discussed above.

~~Operating Income~~

In the first nine months of 2015, operating income increased by $26 compared to the first nine months of 2014, primarily due to decreases in selling, general and administrative expense and business realignment costs of $40 and $13, respectively. The decrease in selling, general and administrative expense was due primarily to lower compensation and benefits expense driven by our recent cost savings and productivity ~~actions~~actions. The negative impacts of the gross profit decrease and lower professional service costs, as well as insurance recoveries of $25 related to the supplier plant disruption in our European versatic acids business. The decrease in business realignment costs was due primarily to a decrease in costs related to environmental remediation at certain formerly owned locations. These decreasesselling, general and administrative expense increase discussed above were partially offset by ~~the~~a decrease ~~in gross profit~~ of ~~$12 discussed above and an increase of $15~~ $5in other operating expense, which was due to ~~an increase in realized and unrealized foreign currency transaction losses, partially offset by a gain of $5 on a step acquisition (see Note 12).~~

~~Non-Operating Expense~~

In the first nine months of 2015, total non-operating expense decreased by $23 compared to the first nine months of 2014, primarily due to a $14 gain on debt extinguishment that occurred in the third quarter of 2015 and a decrease in realized and unrealized foreign currency transaction losses. ~~These items were~~

Non-Operating Expense

In the first quarter of 2016, total non-operating expense decreased by $16 compared to the first quarter of 2015, primarily due to a $23 gain on debt extinguishment that occurred in the first quarter of 2016, partially offset by an increase of ~~$15~~$2 in interest expense driven by higher average debt ~~levels.~~levels, as well as an increase in realized and unrealized losses related to non-transactional foreign currency and derivative transactions.

~~Table of Contents~~

Income Tax Expense

The effective tax rate was ~~(200)~~(17)% and ~~(27)~~(236)% for the first ~~nine months~~quarter of ~~2015~~2016 and ~~2014,~~2015, 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~~quarter of ~~2015~~2016 and ~~2014,~~2015, 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.

Other Comprehensive ~~Loss~~Income (Loss)

For the first ~~nine months~~quarter of 2016, foreign currency translation positively impacted other comprehensive income by $26, primarily due to the strengthening of the euro against the U.S. dollar in the first quarter of 2016.

For the first quarter of 2015, foreign currency translation negatively impacted other comprehensive ~~loss~~income by ~~$73, primarily due to the strengthening of the U.S. dollar against the euro, Brazilian real and Canadian dollar.~~

~~For the first nine months of 2014, foreign currency translation negatively impacted other comprehensive loss by~~ ~~$41~~,$62, primarily due to the strengthening of the U.S. dollar against the Australian dollar, ~~and~~ Brazilian real, ~~partially offset by~~Canadian dollar and the ~~weakening of the U.S. dollar against the~~ euro.

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. Segment EBITDA should not be considered a substitute for net income (loss) or other results reported in accordance with U.S. GAAP. Segment EBITDA may not be comparable to similarly titled measures reported by other companies.

As discussed in Note 9 to the unaudited Condensed Consolidated Financial Statements, in 2015 we modified the components of Corporate and Other to include certain shared service and administrative functional costs that were previously allocated to our reportable segments. Accordingly, for comparative purposes, we have recasted our Segment EBITDA results to include these costs within Corporate and Other for all prior periods presented.


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2015			2014			2015			2014			2016			2015
Net Sales ⁽¹⁾:
Epoxy, Phenolic and Coating Resins	$	669		$	878		$	2,026		$	2,557		$	575		$	674
Forest Products Resins	396			469			1,205			1,420			334			405
Total	$	1,065		$	1,347		$	3,231		$	3,977		$	909		$	1,079

Segment EBITDA:
Epoxy, Phenolic and Coating Resins	$	92		$	84		$	265		$	241		$	83		$	85
Forest Products Resins	59			63			182			191			56			61
Corporate and Other	(18		)	(19		)	(54		)	(61		)	(17		)	(19		)
Total	$	133		$	128		$	393		$	371		$	122		$	127

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

Three Months Ended ~~September 30, 2015~~March 31, 2016 vs. Three Months Ended ~~September 30, 2014~~March 31, 2015 Segment Results

Following is an analysis of the percentage change net in sales by segment from the three months ended ~~September 30, 2014~~March 31, 2015 to the three months ended ~~September 30, 2015:~~March 31, 2016:

Epoxy, Phenolic and Coating Resins

Net sales in the ~~third~~first quarter of ~~2015~~2016 decreased by ~~$209,~~$99, or ~~24%~~15%, when compared to the ~~third~~first quarter of ~~2014.~~2015. Lower volumes negatively impacted net sales by ~~$100,~~$11, which were primarily driven by continued decreased volumes within our oilfield ~~business, as well as volume decreases related to certain products within our base epoxy~~ business. These decreases were partially offset by higher volumes in our epoxy specialty ~~business.~~and dispersions businesses. Volume decreases in our oilfield business were a result of ~~reduced~~a continued reduction in natural gas and oil drilling activity ~~as a result of~~due to lower oil ~~prices and decreases in volumes in our base epoxy business were primarily due to a customer plant closure in late 2014.~~prices. Increases in volumes in our epoxy specialty business were driven by ~~continued~~ strong demand in the China and European wind energy ~~market.~~markets, and increased volumes in our dispersions business were the result of growth in the adhesives and coatings markets. Pricing had a negative impact of ~~$39,~~$65, which was primarily due to ~~unfavorable product mix and competitive pricing pressures in our oilfield business and~~ raw material price decreases passed through to ~~customers.~~customers across many of our businesses. Foreign exchange translation negatively impacted net sales by ~~$70,~~$23, primarily due to the strengthening of the U.S. dollar against the euro in the ~~third~~first quarter of ~~2015~~2016 compared to the ~~third~~first quarter of ~~2014.~~2015.

Segment EBITDA in the ~~third~~first quarter of ~~2015 increased~~2016 decreased by $8$2 to ~~$92~~$83 compared to the ~~third~~first quarter of ~~2014.~~2015. This ~~increase~~decrease is primarily due to declines in our oilfield business discussed above, as well as unfavorable product mix in our our phenolic resins business and the negative impact of foreign exchange. These decreases were partially offset by the strong ~~volume~~ growth in our epoxy specialty business discussed above, combined with favorable product mix and increased raw material ~~price deflation. These increases more than offset the declines~~productivity in our ~~oilfield business and unfavorable foreign exchange impacts discussed above.~~versatic acids business.

Forest Products Resins

Net sales in the ~~third~~first quarter of ~~2015~~2016 decreased by ~~$73,~~$71, or ~~16%~~18%, when compared to the ~~third~~first quarter of ~~2014.~~2015. The primary driver of this decrease iswas foreign exchange translation, which negatively impacted net sales by ~~$55,~~$29, primarily due to the strengthening of the U.S. dollar against the Brazilian real, Canadian dollar and the euro in the ~~third~~first quarter of ~~2015~~2016 compared to the ~~third~~first quarter of ~~2014.~~2015. Lower volumes negatively impacted net sales by ~~$8,~~$20, and were primarily driven by weaker demand in our Latin American forest products resins business ~~and~~as a result of the Brazilian economic downturn, as well as volume decreases ~~in certain industrial markets~~ within our North American formaldehyde business due to the scheduled downtime of a ~~decrease~~large customer in ~~oil prices and associated reduction in natural gas and oil drilling activity.~~the first quarter of 2016. These decreases were partially offset by volume increases in our North American and European forest products resins ~~business due to increases in U.S. housing construction.~~businesses. Pricing had a negative impact of ~~$10,~~$22, which was primarily due to raw material price decreases contractually passed through to customers ~~and unfavorable product mix in~~across many of our ~~North American formaldehyde business.~~businesses.

Segment EBITDA in the ~~third~~first quarter of ~~2015~~2016 decreased by $4$5 to ~~$59~~$56 compared to the ~~third~~first quarter of ~~2014.~~2015. This decrease is primarily due to the negative impact of foreign exchange translation, ~~and~~the volume decreases discussed above and a reduction in favorable raw materials lead/lag in the first quarter of 2016 compared to the first quarter of 2015. These decreases were partially offset by ~~favorable lead/lag and~~ increases in raw material productivity.

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 in the ~~third~~first quarter of ~~2015~~2016 decreased by ~~$1 compared to the third quarter of 2014.~~

~~Nine Months Ended September 30, 2015 vs. Nine Months Ended September 30, 2014 Segment Results~~

~~Following is an analysis of the percentage change in net sales by segment from the nine months ended September 30, 2014 to the nine months ended September 30, 2015:~~

~~Epoxy, Phenolic and Coating Resins~~

~~Net sales in the first nine months of 2015 decreased by $531, or 21%, when~~$2 compared to the first ~~nine months~~quarter of 2014. Lower volumes negatively impacted net sales by $186, which were primarily driven by decreased volumes within our oilfield business, as well as volume decreases related to our versatic acid business and certain products within our base epoxy and dispersions businesses. These decreases were partially offset by higher volumes in our epoxy specialty business. Volume decreases in our oilfield business were a result of reduced natural gas and oil drilling activity as a result of lower oil prices. Decreases in volumes in our versatic acid and dispersions businesses were primarily driven by the impact of a supplier disruption in our European versatic acid business and decreases in volumes in our base epoxy business were2015, primarily due to ~~a customer plant closure in late 2014 and operational issues at certain manufacturing facilities. Increases in volumes in~~ our epoxy specialty business were driven by strong demand in the China wind energy market. Pricing had a negative impact of $129, which was primarily due to raw material price decreases passed through to customers, as well as unfavorable product mix and competitive pricing pressures in our oilfield business. Foreign exchange translation negatively impacted net sales by $216, primarily due to the strengthening of the U.S. dollar against the euro in the first nine months of 2015 compared to the first nine months of 2014.

Segment EBITDA in the first nine months of 2015 increased by $24 to $265 compared to the first nine months of 2014. This increase is primarily due to strong volume growth in our epoxy specialty business and raw material price deflation. These increases more than offset the declines in our oilfield business and unfavorable foreign exchange impacts discussed above.

~~Forest Products Resins~~

Net sales in the first nine months of 2015 decreased by $215, or 15%, when compared to the first nine months of 2014. The primary driver of this decrease is foreign exchange translation, which negatively impacted net sales by $130, primarily due to the strengthening of the U.S. dollar against the Brazilian real, Canadian dollar and the euro in the first nine months of 2015 compared to the first nine months of 2014. Pricing had a negative impact of$97, which was primarily due to raw material price decreases passed through to customers and unfavorable product mix in our North American formaldehyde business. Higher volumes positively impacted net sales by $12, and were primarily driven by volume increases in our North American forest products resins business due to modest increases in U.S. housing construction. These increases were partially offset by volume decreases in certain industrial markets within our North American formaldehyde business due to a decrease in oil prices and associatedongoing cost reduction ~~in natural gas and oil drilling activity.~~

Segment EBITDA in the first nine months of 2015 decreased by $9 to $182 compared to the first nine months of 2014. This decrease is primarily due to the negative impact of foreign exchange translation discussed above, partially offset by the volume increases discussed above and increases in raw material productivity.

~~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 decreased by $7 compared to the first nine months of 2014 due primarily to lower compensation and benefits expense driven by our recent cost savings actions.initiatives.

Reconciliation of Segment EBITDA to Net ~~Income (Loss):~~Loss:

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,~~March 31, 2016, these items primarily include expenses from retention programs and certain professional fees. For the three months ended March 31, 2015, these items primarily include expenses from retention programs, losses on the disposal of assets and certain professional fees and a gain on a step acquisition. 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 integration costs associated with the previous integration of Hexion and MPM.

~~Table of Contents~~

Liquidity and Capital Resources

We are a highly leveraged company. Our primary sources of liquidity are cash flows generated from operations and availability under the ABL Facility. Our primary liquidity requirements are interest, working capital and capital expenditures.

At ~~September 30, 2015,~~March 31, 2016, we had ~~$3,918~~$3,771 of outstanding debt and ~~$562~~$418 in liquidity consisting of the following:

$~~187~~109 of unrestricted cash and cash equivalents (of which ~~$142~~$89 is maintained in foreign jurisdictions);

$~~337~~262 of borrowings available under our ABL Facility ($~~372~~383 borrowing base less ~~$35~~$80 of outstanding borrowings and $41 of outstanding letters of credit); and

$3847 of time drafts and borrowings available under credit facilities at certain international subsidiaries

~~As adjusted for the completion of our ABL Amendment, our liquidity would have been $590 as of September 30, 2015.~~

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, 2015~~March 31, 2016 and December 31, ~~2014~~2015 was ~~$555~~$507 and ~~$565,~~$356, respectively. A summary of the components of our net working capital as of ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014~~2015 is as follows:


	September 30, 2015			% of LTM Net Sales		December 31, 2014			% of LTM Net Sales		March 31, 2016			% of LTM Net Sales		December 31, 2015			% of LTM Net Sales
Accounts receivable	$	579		13	%	$	591		12	%	$	508		14	%	$	428		11	%
Inventories	362			8	%	400			7	%	318			9	%	279			7	%
Accounts payable	(386		)	(9	)%	(426		)	(8	)%	(319		)	(9	)%	(351		)	(9	)%
Net working capital(1)	$	555		12	%	$	565		11	%	$	507		14	%	$	356		9	%

The ~~decrease~~increase in net working capital of ~~$10~~$151 from December 31, ~~2014~~2015 was primarily due to increases in accounts receivable of $80 and inventory of $39. Both of these increases were primarily the ~~impact~~result of ~~foreign currency translation, driven by~~increased volumes in the ~~strengthening~~first quarter of 2016 compared to the fourth quarter of 2015 due largely to seasonality. A portion of the ~~U.S. dollar against most other currencies~~inventory increase is also attributed to inventory build-up in some of our businesses during ~~2015. On a constant currency basis, accounts receivable~~the first quarter of 2016 in anticipation of scheduled turnarounds later in the year. Net working capital also increased ~~primarily~~ due to ~~sales mix within our certain businesses to customers with longer credit terms. The~~a decrease in ~~inventory and~~ accounts payable ~~was due primarily~~of $32, largely related to ~~the impact of foreign currency translation discussed above and lower~~continued raw material ~~costs in 2015.~~price deflation and the timing of vendor payments. To minimize the impact of seasonal changes in net working capital on cash flows, we continue to review inventory safety stock levels, focus on accelerating receivable collections by offering incentives to customers to encourage early payment or through the sale of receivables at a discount and negotiate with vendors to contractually extend payment terms whenever possible.

We periodically borrow from the ABL Facility to support our short-term liquidity requirements, particularly when net working capital requirements increase in response to the seasonality of our volumes in the summer months. As of ~~September 30, 2015,~~March 31, 2016, there were no$80 of outstanding borrowings under the ABL Facility.

~~2015~~2016 Debt Transactions

~~In April 2015, we issued $315 aggregate principal amount of~~

During the New First Lien Notes. We used the net proceeds to redeem or repay all $40 of our outstanding Sinking Fund Debentures, and to repay all amounts outstanding under the ABL Facility at the closing of the offering. The remaining proceeds from the offering provided incremental liquidity.

On July 27, 2015, we entered into the ABL Amendment, which was completed on November 6, 2015, under which certain of our subsidiaries are borrowers, to (i) add one of our German subsidiaries as a borrower and one of its German subsidiaries as a guarantor and (ii) expand our borrowing base to include certain machinery and equipment in certain foreign jurisdictions, subject to customary reserves.

~~Additionally, during the third~~first quarter of ~~2015,~~2016, we repurchased ~~$115~~$78 of our 8.875% Senior Secured Notes due 2018 on the open market for cash of ~~$99.~~$54. This transaction resulted in a gain of ~~$14,~~$23, which represents the difference between the carrying value of the repurchased debt and the cash paid for the repurchases, less the proportionate amount of unamortized deferred financing fees and debt discounts that were written off in conjunction with the repurchases.

The following factors will impact ~~2015~~2016 cash flows:

Proceeds from Sale of PAC Business: We expect cash inflows of approximately $226, less customary fees, in the second quarter of 2016 related to the anticipated closing of the sale of our PAC Business.

Interest and Income Taxes: We expect cash outflows in ~~2015~~2016 related to interest payments on our debt of ~~$310~~$305 and income tax payments estimated at ~~$19.~~$31.

Capital Spending: We continue to expect capital spending in ~~2015~~2016 to be lower than ~~2014. While we have certain capital spending commitments related to various expansion and growth projects in our forest products resins and formaldehyde businesses, our~~2015. Our capital spending requirements are generally flexible, and we will continue to manage our overall capital plan in the context of our strategic business and financial objectives.

Net Working Capital: We anticipate ~~a decrease~~an increase in working capital during ~~the remainder 2015,~~2016, as compared to ~~2014. We~~2015, related to volume increases. During the year, we continue to expect an increase in the first half and a decrease in the ~~fourth quarter of 2015 due to seasonality of demand.~~second half, consistent with historical trends.

We plan to fund these ~~significant~~ outflows with available cash and cash equivalents, cash from operations and the ~~additional liquidity provided by the 2015 Refinancing Transactions~~proposed sale of our PAC Business, and, if necessary, through available borrowings under our ABL Facility. Based on our liquidity position as of ~~September 30, 2015~~March 31, 2016 and projections of operating cash flows for the remainder of ~~2015,~~2016, we believe we have sufficient liquidity to fund continuing operations for the next twelve months.

Depending upon market, pricing and other conditions, including the current state of the high yield bond market, as well as our cash balances and available liquidity, we or our affiliates, may seek to acquire additional 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. We also continue to review possible sales of certain non-core assets, such as the proposed sale of our PAC Business, which could further increase our liquidity. ~~Opportunities for these sales depends~~Our next significant debt maturity is the $917 balance of our 8.875% Senior Secured Notes, which will come due in 2018. We expect to ~~some degree~~refinance and/or repay this debt depending on ~~favorable~~the levels of cash generated from our operations and conditions in the credit markets.

Sources and Uses of Cash

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

Operating Activities

In the first ~~nine months~~quarter of ~~2015,~~2016, operations ~~provided $66~~used $101 of cash. Net loss of ~~$29~~$44 included ~~$107~~$31 of net non-cash expense items, of which ~~$102~~$35 was for depreciation and amortization, ~~$19~~$46 was for ~~unrealized foreign currency losses~~accelerated depreciation and $2 was for deferred taxes. These expense items were partially offset by a ~~$14~~$23 gain on extinguishment of debt and ~~$5 gain on step acquisition.~~$29 of unrealized foreign currency gains. Net working capital used ~~$41, as compared to $194 of cash used~~$136, which was driven by increases in accounts receivable in the first ~~nine months~~quarter of ~~2014. The change was~~2016 due to the ~~decrease~~seasonality of our businesses and increases in ~~net sales and~~inventory due to the timing of strategic inventory builds in anticipation of planned plant turnarounds. Additionally, accounts payable decreased due to lower raw material ~~costs in the first nine months of 2015~~prices and the ~~related impact on the components~~timing of ~~net working capital.~~vendor payments. Changes in other assets and liabilities and income taxes payable provided ~~$29~~$48 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~~quarter of ~~2014,~~2015, operations used ~~$132~~$35 of cash. Net loss of ~~$66~~$34 included ~~$136~~$29 of net non-cash expense items, of which ~~$109~~$34 was for depreciation and amortization and ~~$32~~$1 was for unrealized foreign currency ~~losses.~~losses, partially offset by a $7 deferred tax benefit. Net working capital used ~~$194, which~~$21. The change was ~~driven by increases in accounts receivable of $142 and inventory of $92~~ due to ~~seasonality-driven sequential~~the decrease in net sales ~~volume increases, which were partially offset by an increase~~and raw material costs in ~~accounts payable~~the first quarter of ~~$40, driven by~~2015 and the ~~same factors.~~related impact on components of net working capital, as well as the timing of strategic inventory builds in anticipation of planned plan turnarounds. Changes in other assets and liabilities and income taxes payable ~~used $8~~provided $61 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~~quarter of 2016, investing activities used $30 of cash. We spent $27 for capital expenditures, which primarily related to plant expansions, improvements and maintenance related capital expenditures. The increase in restricted cash used an additional $3.

In the first quarter of 2015, investing activities used ~~$114~~$36 of cash. We spent ~~$122~~$40 for capital expenditures, which primarily related to plant expansions, improvements and maintenance related capital expenditures. Additionally, ~~we spent $7, net of cash received, on~~ the ~~step acquisition of a joint venture. The~~ sale of certain investments ~~and other assets~~ provided cash of ~~$7, and the decrease in restricted cash provided $8.~~

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. We extended a loan to an unconsolidated affiliate which resulted in a $50 decrease in cash, which was offset by the subsequent $50 repayment of the loan by the unconsolidated affiliate. Additionally, we used net cash of $4 to purchase debt securities and the change in restricted cash used $2.$4.

Financing Activities

In the first ~~nine months~~quarter of ~~2015,~~2016, financing activities provided ~~$88~~$10 of cash. Net short-term debt repayments were ~~$1,~~$13, and net long-term debt borrowings were ~~$99, which~~$23. Our long-term borrowings primarily consisted of ~~proceeds from the issuance of an aggregate principal amount of $315 New First Lien Notes, which was partially~~$80 in ABL borrowings, largely offset by ~~the redemption or repayment of approximately $40 of our outstanding Sinking Fund Debentures and all amounts outstanding on the ABL Facility at the time of the issuance, as well as $99~~$54 used to repurchase a portion of our 8.875% Senior Secured Notes due 2018 on the open market. ~~We also paid $10 of financing fees related to these debt transactions.~~

In the first ~~nine months~~quarter of ~~2014,~~2015, financing activities provided ~~$64~~$2 of cash. Net short-term debt ~~borrowings~~repayments were ~~$25,~~$3, and net long-term debt borrowings were ~~$39,~~$5, which primarily consisted of net borrowings under the ABL Facility.

There are certain restrictions on the ability of certain of our subsidiaries to transfer funds to Hexion Inc. 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~~

Depending upon market, pricing and other conditions, as well as our cash balances and liquidity, we or our affiliates, may seek to acquire additional 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 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.

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, ~~New First Lien~~10.00% First-Priority Senior Secured Notes due 2020, 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 to 1.0. 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.

The ABL Facility, which is subject to a borrowing base, 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, 2015,~~March 31, 2016, our availability under the ABL Facility exceeded such levels; therefore, the minimum fixed charge covenant ratio did not apply. As of ~~September 30, 2015~~March 31, 2016, 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.

~~Table of Contents~~

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, 2015			March 31, 2016
	LTM Period			LTM Period
Net loss	$	(187	)	$	(49	)
Income tax expense	33			14
Interest expense, net	322			329
Gain on extinguishment of debt	(14		)
Depreciation and amortization	138			137
Accelerated depreciation				48
EBITDA	292			479
Adjustments to EBITDA:
Asset impairments				6
Business realignment costs ⁽¹⁾	33			17
Realized and unrealized foreign currency losses	28			8
Unrealized loss on pension and postretirement benefits ⁽²⁾	91
Gain on extinguishment of debt				(64		)
Unrealized gain on pension and postretirement benefits ⁽²⁾				(14		)
Other ⁽³⁾	51			38
Cost reduction programs savings ⁽⁴⁾	14			38
Adjusted EBITDA	$	509		$	508
Pro forma fixed charges ⁽⁵⁾	$	312		$	300
Ratio of Adjusted EBITDA to Fixed Charges ⁽⁶⁾	1.63			1.69

Reflects pro forma interest expense based on interest rates at ~~September 30, 2015~~March 31, 2016, as if the ~~2015 Refinancing~~2016 Debt Transactions had taken place at the beginning of the period.

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, 2015~~March 31, 2016, 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 ~~$337~~$262 at ~~September 30, 2015)~~March 31, 2016).

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 ~~revised~~ effective date for ASU 2014-09 is for annual and interim periods beginning on or after December 15, 2017, and early adoption will be permitted for annual and interim periods beginning on or after December 15, 2016. Entities will have the option of using either a full retrospective approach or a modified approach to adopt the guidance in ASU 2014-09. We are currently assessing the potential impact of ASU 2014-09 on our financial statements.

~~In April 2015, the FASB issued Accounting Standards Board Update No. 2015-03:~~ ~~Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs~~ (“ASU 2015-03”). ASU 2015-03 requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, and also requires that the amortization of such costs be reported as interest expense. In August 2015, ASU 2015-03 was amended by Accounting Standards Board Update No. 2015-15: ~~Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements~~ (“ASU 2015-15”). ASU 2015-15 adds language to ASU 2015-03 based on the SEC Staff Announcement that the SEC would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The guidance in ASU 2015-03, as amended by ASU 2015-15, is effective for annual periods beginning after December 15, 2015, including interim periods within that reporting period, and early adoption is permitted. We plan to early adopt ASU 2015-03 as of December 31, 2015. Based on unamortized debt issuance costs as of September 30, 2015, we estimate approximately $55 of debt issuance costs would be reclassified from “Other long-term assets” to “Long term debt” within our Consolidated Balance Sheets.

In July 2015, the FASB issued Accounting Standards Board Update No. 2015-11: Simplifying the Measurement of Inventory (Topic 330) (“ASU 2015-11”) as part of the FASB simplification initiative. ASU 2015-11 replaces the existing concept of market value of inventory (where market was defined as replacement cost, with a ceiling of net realizable value and floor of net realizable value less a normal profit margin) with the single measurement of net realizable value. The guidance is effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period. We are currently assessing the potential impact of ASU 2015-11 on our financial statements.

In ~~September 2015,~~February 2016, the FASB issued Accounting Standards Board Update No. ~~2015-16:~~2016-02: ~~Business Combinations~~Leases (Topic ~~805):~~ 842) (“ASU 2016-02”). ASU 2016-02 supersedes the existing lease guidance in Topic 840. According to the new guidance, all leases, with limited scope exceptions, will be recorded on the balance sheet in the form of a liability to make lease payments (lease liability) and a right-of-use asset representing the right to use the underlying asset for the lease term. The guidance is effective for annual and interim periods beginning on or after December 15, 2018, and early adoption is permitted. Entities will be required to adopt ASU 2016-02 using a modified retrospective approach, whereby leases will be recognized and measured at the beginning of the earliest period presented. We are currently assessing the potential impact of ASU 2016-02 on our financial statements.

In March 2016, the FASB issued Accounting Standards Board Update No. 2016-07: Simplifying the Transition to the Equity Method of Accounting ~~for Measurement-Period Adjustments~~ (Topic 323)(“ (“ASU ~~2015-16”~~2016-07”) as part of the FASB simplification initiative. ASU ~~2015-16~~2016-07 eliminates the requirement that when an existing investment qualifies for use of the equity method, an ~~acquirer in a business combination to retrospectively~~investor adjust the ~~provisional amounts recognized at~~investment, results of operations and retained earnings retroactively as if the acquisition date to reflect new information obtained during the measurement period. Instead, ASU 2015-16 allows an acquirer to recognize measurement period adjustments prospectively, with added disclosure of the impact onequity method has been in effect in all previous periods ifthat the ~~adjustments~~investment had been ~~recognized~~held. Under the new guidance, the equity method investor is only required to adopt the equity method as of the ~~acquisition date.~~date the investment qualifies for the equity method, with no retrospective adjustment required. The guidance is effective for ~~the~~ annual periods beginning after December 15, ~~2015,~~2016, including interim periods within that reporting ~~period.~~period, and early adoption is permitted. The requirements of ASU ~~2015-16~~2016-07 are not expected to have a significant impact on the our financial statements.

In March 2016, the FASB issued Accounting Standards Board Update No. 2016-09: Improvements to Employee Share-Based Payment Accounting (Topic 718) (“ASU 2016-09”) as part of the FASB simplification initiative. ASU 2016-09 simplifies various aspects of share-based payment accounting, including the income tax consequences, classification of equity awards as either equity of liabilities and classification on the statement of cash flows. The guidance is effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period, and early adoption is permitted. The requirements of ASU 2016-09 are not expected to have a significant impact on our financial statements.

There have been no material developments during the first ~~nine~~three months of ~~2015~~2016 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, ~~2014~~2015.

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, 2015~~March 31, 2016. 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, 2015~~March 31, 2016.

Changes in Internal Control Over Financial Reporting



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)



~~Facility Location~~	~~Type~~	~~Estimated Completion Date~~	~~Manufacturing Capacity~~
~~Curitiba, Brazil~~	~~Facility expansion~~	~~Completed~~	~~150k MT/year~~
~~Geismar, LA~~	~~Facility expansion~~	~~Q4 2015~~	~~216k MT/year~~
~~Luling, LA~~	~~New facility~~	~~Q1 2016~~	~~216k MT/year~~



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



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



	Previous Accounting Method		Effect of Accounting Change			As Reported
Unaudited Condensed Consolidated Statement of Operations for the three months ended September 30, 2015:
Cost of sales	$	907	$	(2	)	$	905
Selling, general and administrative expense	74		(3		)	71
Net income	2		5			7
Unaudited Condensed Consolidated Statement of Comprehensive Loss for the three months ended September 30, 2015:
Net income	$	2	$	5		$	7
Gain recognized from pension and postretirement benefits	5		(5		)	—



	As Previously Reported			Effect of Accounting Change			As Adjusted
Unaudited Condensed Consolidated Statement of Operations for the three months ended September 30, 2014:
Selling, general and administrative expense	$	84		$	(2	)	$	82
Net loss	(28		)	2			(26		)
Unaudited Condensed Consolidated Statement of Comprehensive Loss for the three months ended September 30, 2014:
Net loss	$	(28	)	$	2		$	(26	)
Gain recognized from pension and postretirement benefits	1			(1		)	—
Comprehensive loss	(67		)	1			(66		)


	Pension Benefits												Non-Pension Postretirement Benefits								Pension Benefits												Non-Pension Postretirement Benefits
	Three Months Ended September 30,												Three Months Ended September 30,								Three Months Ended March 31,												Three Months Ended March 31,
	2015						2014						2015				2014				2016						2015						2016				2015
	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		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		$	4		$	1		$	3		$	—	$	—	$	—	$	—	$	1		$	4		$	1		$	4		$	—	$	—	$	—	$	—
Interest cost on projected benefit obligation	2			3			3			5			—		—		—		—		2			2			2			3			—		—		—		—
Expected return on assets	(4		)	(3		)	(5		)	(4		)	—		—		—		—		(3		)	(3		)	(4		)	(3		)	—		—		—		—
Net (benefit) expense	$	(1	)	$	4		$	(1	)	$	4		$	—	$	—	$	—	$	—
Net expense (benefit)																					$	—		$	3		$	(1	)	$	4		$	—	$	—	$	—	$	—


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



	Nine Months Ended September 30, 2015								Nine Months Ended September 30, 2014
	Defined Benefit Pension and Postretirement Plans		Foreign Currency Translation Adjustments			Total			Defined Benefit Pension and Postretirement Plans		Foreign Currency Translation Adjustments			Total
Beginning balance	$	4	$	69		$	73		$	—	$	130		$	130
Other comprehensive loss before reclassifications, net of tax	—		(73		)	(73		)	—		(41		)	(41		)
Net other comprehensive loss	—		(73		)	(73		)	—		(41		)	(41		)
Ending balance	$	4	$	(4	)	$	—		$	—	$	89		$	89



	March 31, 2016
Current assets held for sale:
Cash and cash equivalents	$	1
Accounts receivable (net of allowance for doubtful accounts of $1)	29
Inventories:
Finished and in-process goods	23
Raw materials and supplies	8
Other current assets	6
Total current assets held for sale	$	67

Long-term assets held for sale:
Deferred income taxes	$	2
Other long-term assets	2
Property and equipment:
Land	11
Buildings	48
Machinery and equipment	108
	167
Less accumulated depreciation	(92		)
	75
Other intangible assets, net	1
Total long-term assets held for sale	$	80

Current liabilities associated with assets held for sale:
Accounts payable	$	42
Debt payable within one year	2
Other current liabilities	12
Total current liabilities associated with assets held for sale	$	56

Long-term liabilities associated with assets held for sale:
Long-term debt	$	3
Long-term pension and post employment benefit obligations	2
Other long-term liabilities	5
Total long-term liabilities associated with assets held for sale	$	10


	Volume		Price/Mix		Currency Translation		Total		Volume		Price/Mix		Currency Translation		Total
Epoxy, Phenolic and Coating Resins	(11	)%	(5	)%	(8	)%	(24	)%	(2	)%	(10	)%	(3	)%	(15	)%
Forest Products Resins	(2	)%	(2	)%	(12	)%	(16	)%	(5	)%	(5	)%	(8	)%	(18	)%


(1)	The components of net working capital and percentage of LTM Net Sales at both March 31, 2016 and December 31, 2015 exclude net working capital and net sales related to the PAC Business. The assets and liabilities of the PAC Business are classified as held for sale in the March 31, 2016 unaudited Condensed Consolidated Balance Sheets.


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


(2)	Represents non-cash ~~losses~~gains resulting from pension and postretirement benefit plan liability remeasurements.


(3)	Primarily includes ~~pension expense related to formerly owned businesses,~~retention program costs, business optimization expenses, certain professional fees and management fees, ~~retention program costs, stock-based compensation~~partially offset by gains on the disposal of assets and ~~realized and unrealized foreign exchange and derivative activity.~~a gain on a step acquisition.



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



		HEXION INC.

Date:	~~November 9, 2015~~May 13, 2016	/s/ ~~William H. Carter~~George F. Knight
		~~William H. Carter~~George F. Knight
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company