Hexion (HXOH) 10-Q 2015 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2015

OR

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

For the transition period from              to             

Commission File Number 1-71

HEXION INC.

(Exact name of registrant as specified in its charter)

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

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

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

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

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

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

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

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

Number of shares of common stock, par value $0.01 per share, outstanding as of the close of business on August 1, 2015: 82,556,847

HEXION INC.

INDEX

		Page
PART I – FINANCIAL INFORMATION
Item 1.	Hexion Inc. Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets at June 30, 2015 and December 31, 2014	3
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2014	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2015 and 2014	5
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014	6
	Condensed Consolidated Statement of Deficit for the six months ended June 30, 2015	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	42
Item 4.	Controls and Procedures	42
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	43

2

HEXION INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In millions, except share data)	June 30, 2015			December 31, 2014
Assets
Current assets:
Cash and cash equivalents (including restricted cash of $16)	$	324		$	172
Short-term investments	2			7
Accounts receivable (net of allowance for doubtful accounts of $16 and $14, respectively)	625			591
Inventories:
Finished and in-process goods	267			290
Raw materials and supplies	107			110
Other current assets	62			73
Total current assets	1,387			1,243
Investment in unconsolidated entities	42			48
Deferred income taxes	15			18
Other long-term assets	108			110
Property and equipment:
Land	86			89
Buildings	297			302
Machinery and equipment	2,384			2,419
	2,767			2,810
Less accumulated depreciation	(1,742		)	(1,755		)
	1,025			1,055
Goodwill	115			119
Other intangible assets, net	72			81
Total assets	$	2,764		$	2,674
Liabilities and Deficit
Current liabilities:
Accounts payable	$	425		$	426
Debt payable within one year	75			99
Interest payable	88			82
Income taxes payable	24			12
Accrued payroll and incentive compensation	58			67
Other current liabilities	122			135
Total current liabilities	792			821
Long-term liabilities:
Long-term debt	3,962			3,735
Long-term pension and post employment benefit obligations	259			278
Deferred income taxes	18			19
Other long-term liabilities	168			171
Total liabilities	5,199			5,024
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 June 30, 2015 and December 31, 2014	1			1
Paid-in capital	526			526
Treasury stock, at cost—88,049,059 shares	(296		)	(296		)
Accumulated other comprehensive income	24			73
Accumulated deficit	(2,688		)	(2,652		)
Total Hexion Inc. shareholder’s deficit	(2,433		)	(2,348		)
Noncontrolling interest	(2		)	(2		)
Total deficit	(2,435		)	(2,350		)
Total liabilities and deficit	$	2,764		$	2,674

See Notes to Condensed Consolidated Financial Statements

3

HEXION INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
(In millions)	2015			2014			2015			2014
Net sales	$	1,087		$	1,337		$	2,166		$	2,630
Cost of sales	925			1,173			1,848			2,299
Gross profit	162			164			318			331
Selling, general and administrative expense	76			93			158			187
Business realignment costs	5			12			8			18
Other operating expense (income), net	2			(1		)	10			3
Operating income	79			60			142			123
Interest expense, net	84			76			161			153
Other non-operating expense (income), net	2			3			(1		)	5
Loss before income tax and earnings from unconsolidated entities	(7		)	(19		)	(18		)	(35		)
Income tax expense	1			9			27			15
Loss before earnings from unconsolidated entities	(8		)	(28		)	(45		)	(50		)
Earnings from unconsolidated entities, net of taxes	6			6			9			10
Net loss	$	(2	)	$	(22	)	$	(36	)	$	(40	)

See Notes to Condensed Consolidated Financial Statements

4

HEXION INC.

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

	Three Months Ended June 30,						Six Months Ended June 30,
(In millions)	2015			2014			2015			2014
Net loss	$	(2	)	$	(22	)	$	(36	)	$	(40	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	13			(4		)	(49		)	(1		)
Other comprehensive income (loss)	13			(4		)	(49		)	(1		)
Comprehensive income (loss)	$	11		$	(26	)	$	(85	)	$	(41	)

See Notes to Condensed Consolidated Financial Statements

5

HEXION INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Six Months Ended June 30,
(In millions)	2015			2014
Cash flows provided by (used in) operating activities
Net loss	$	(36	)	$	(40	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	68			71
Deferred tax expense (benefit)	3			(2		)
Unrealized foreign currency losses	1			8
Other non-cash adjustments	1			(3		)
Net change in assets and liabilities:
Accounts receivable	(56		)	(116		)
Inventories	8			(122		)
Accounts payable	16			24
Income taxes payable	13			(1		)
Other assets, current and non-current	13			13
Other liabilities, current and long-term	(3		)	(18		)
Net cash provided by (used in) operating activities	28			(186		)
Cash flows used in investing activities
Capital expenditures	(79		)	(78		)
Purchase of businesses	—			(64		)
Proceeds from the sale of investments, net	4			3
Change in restricted cash	—			(2		)
Disbursement of affiliated loan	—			(50		)
Repayment of affiliated loan	—			50
Funds remitted to unconsolidated affiliates, net	—			(2		)
Net cash used in investing activities	(75		)	(143		)
Cash flows provided by financing activities
Net short-term debt (repayments) borrowings	(5		)	27
Borrowings of long-term debt	490			160
Repayments of long-term debt	(274		)	(117		)
Long-term debt and credit facility financing fees	(8		)	—
Net cash provided by financing activities	203			70
Effect of exchange rates on cash and cash equivalents	(4		)	(1		)
Increase (decrease) in cash and cash equivalents	152			(260		)
Cash and cash equivalents (unrestricted) at beginning of period	156			379
Cash and cash equivalents (unrestricted) at end of period	$	308		$	119
Supplemental disclosures of cash flow information
Cash paid for:
Interest, net	$	146		$	148
Income taxes paid, net	10			18

See Notes to Condensed Consolidated Financial Statements

6

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	—		—		—			—			(36		)	(36		)	—			(36		)
Other comprehensive loss	—		—		—			(49		)	—			(49		)	—			(49		)
Balance at June 30, 2015	$	1	$	526	$	(296	)	$	24		$	(2,688	)	$	(2,433	)	$	(2	)	$	(2,435	)

See Notes to Condensed Consolidated Financial Statements

7

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(In millions, except share data)

1. Background and Basis of Presentation

Based in Columbus, Ohio, Hexion Inc. (which may be referred to as “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 June 30, 2015, 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 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.

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—In the first quarter 2015, the Company elected to change its accounting policies 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 (loss)”, and amortized into net income (loss) 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 transparency of the Company’s 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.

8

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, and for the three and six months ended, June 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” in 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 June 30, 2015:
Cost of sales	$	927		$	(2	)	$	925
Selling, general and administrative expense	$	79		$	(3	)	$	76
Income tax expense	—			1			$	1
Net loss	(6		)	4			(2		)
Unaudited Condensed Consolidated Statement of Comprehensive Loss for the three months ended June 30, 2015:
Net loss	$	(6	)	$	4		$	(2	)
Gain recognized from pension and postretirement benefits	6			(6		)	—
Comprehensive income	13			(2		)	11

	As Previously Reported			Effect of Accounting Change			As Adjusted
Unaudited Condensed Consolidated Statement of Operations for the three months ended June 30, 2014:
Cost of sales	$	1,174		$	(1	)	$	1,173
Selling, general and administrative expense	$	95		$	(2	)	93
Income tax expense	11			(2		)	9
Net loss	(27		)	5			(22		)
Unaudited Condensed Consolidated Statement of Comprehensive Loss for the three months ended June 30, 2014:
Net loss	$	(27	)	$	5		$	(22	)
Gain recognized from pension and postretirement benefits	2			(2		)	—
Comprehensive loss	(29		)	3			(26		)

	Previous Accounting Method			Effect of Accounting Change			As Reported
Unaudited Condensed Consolidated Statement of Operations for the six months ended June 30, 2015:
Cost of sales	$	1,850		$	(2	)	$	1,848
Selling, general and administrative expense	$	164		$	(6	)	$	158
Net loss	(44		)	8			(36		)
Unaudited Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2015:
Net loss	$	(44	)	$	8		$	(36	)
Changes in inventories	6			2			8
Net changes in other liabilities, current and long-term	7			(10		)	(3		)
Unaudited Condensed Consolidated Statement of Comprehensive Loss for the six months ended June 30, 2015:
Net loss	$	(44	)	$	8		$	(36	)
Gain recognized from pension and postretirement benefits	11			(11		)	—
Comprehensive loss	(82		)	(3		)	(85		)

9

	As Previously Reported			Effect of Accounting Change			As Adjusted
Unaudited Condensed Consolidated Statement of Operations for the six months ended June 30, 2014:
Cost of sales	$	2,303		$	(4	)	$	2,299
Selling, general and administrative expense	191			(4		)	187
Income tax expense	21			(6		)	15
Net loss	(54		)	14			(40		)
Unaudited Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2014:
Net loss	$	(54	)	$	14		$	(40	)
Changes in inventories	(120		)	(2		)	(122		)
Changes in income taxes payable	5			(6		)	(1		)
Net changes in other liabilities, current and long-term	(12		)	(6		)	(18		)
Unaudited Condensed Consolidated Statement of Comprehensive Loss for the six months ended June 30, 2014:
Net loss	$	(54	)	$	14		$	(40	)
Gain recognized from pension and postretirement benefits	5			(5		)	—
Comprehensive loss	(50		)	9			(41		)

In addition, the effect of these accounting changes increased Segment EBITDA by $3 and $6 for the three and six months ended, June 30, 2014, respectively. For additional discussion and a reconciliation of Segment EBITDA to Net 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.

Subsequent Events—The Company has evaluated events and transactions subsequent to June 30, 2015 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.

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. The guidance is effective for annual periods beginning after December 15, 2015, including interim periods within that reporting period, and early adoption is permitted. Based on unamortized debt issuance costs as of June 30, 2015, the Company estimates approximately $60 of debt issuance costs would be reclassified from “Other long-term assets” to “Long term debt” within the Company’s Consolidated Balance Sheets.

10

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 overall 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 of ASU 2015-11 on its 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 over the next 12 to 18 months. As of June 30, 2015 the total costs expected to be incurred on restructuring and cost reduction activities are estimated at $17, consisting primarily of workforce reduction costs.

The following table summarizes restructuring and cost reduction information:

Restructuring costs expected to be incurred	$	17
Cumulative restructuring costs incurred through June 30, 2015	$	16
Accrued liability at December 31, 2014	$	12
Restructuring charges	2
Payments	(7		)
Accrued liability at June 30, 2015	$	7

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 both the three and six months ended June 30, 2015, charges of $2 were recorded in “Business realignment costs” in the unaudited Condensed Consolidated Statements of Operations. At June 30, 2015 and December 31, 2014, the Company had accrued $7 and $12 for restructuring liabilities in “Other current liabilities” in the unaudited Condensed Consolidated Balance Sheets.

The following table summarizes restructuring and cost reduction information by reporting segment:

	Epoxy, Phenolic and Coating Resins			Corporate and Other			Total
Restructuring costs expected to be incurred	$	11		$	6		$	17
Cumulative restructuring costs incurred through June 30, 2015	$	10		$	6		$	16
Accrued liability at December 31, 2014	$	9		$	3		$	12
Restructuring charges	—			2			2
Payments	(5		)	(2		)	(7		)
Accrued liability at June 30, 2015	$	4		$	3		$	7

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.

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

11

Participation of Apollo Global Securities in 2015 Refinancing Transactions

During the six months ended June 30, 2015, Apollo Global Securities, LLC, an affiliate of Apollo, acted as one of the initial purchasers and received approximately $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 is subject to termination by either the Company or MPM, without cause, on not less than 30 days’ written notice, and expires in October 2015 (subject to one-year renewals every year thereafter; absent contrary notice from either party).

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 six months ended June 30, 2015 and 2014, the Company incurred approximately $45 and $67, respectively, of net costs for shared services and MPM incurred approximately $37 and $51, respectively, of net costs for shared services. Included in the net costs incurred during the six months ended June 30, 2015 and 2014, were net billings from the Company to MPM of $24 and $20, respectively, to bring the percentage of total net incurred costs for shared services under the Shared Services Agreement to the applicable allocation percentage. The allocation percentages are reviewed by the Steering Committee pursuant to the terms of the Shared Services Agreement. The Company had accounts receivable from MPM of $4 and $9 as of June 30, 2015 and December 31, 2014, 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 an initial term of three years and may be terminated for convenience by either party thereunder upon 30 days' prior notice. Additionally, a subsidiary of MPM has acted as a non-exclusive distributor in India for certain of the Company’s subsidiaries pursuant to Distribution Agreements dated as of September 6, 2012 (the “Distribution Agreements”). The Distribution Agreements had initial terms of three years and were terminated by mutual agreement on March 9, 2015. Pursuant to these agreements and other purchase orders, during the three months ended June 30, 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 six months ended June 30, 2015 and 2014, the Company sold less than $1 of products to MPM and purchased $2 and $4, respectively. As of June 30, 2015 and December 31, 2014, 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 six months ended June 30, 2015 and 2014.

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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 the three months ended June 30, 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 six months ended June 30, 2015 and 2014, the Company purchased approximately $14 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. As of both June 30, 2015 and December 31, 2014, the Company had $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 $23 and $34 for the three months ended June 30, 2015 and 2014, respectively, and $47 and $76 for the six months ended June 30, 2015 and 2014, respectively. Accounts receivable from these affiliates were $12 and $11 at June 30, 2015 and December 31, 2014, respectively. The Company also purchases raw materials and services from various Apollo affiliates other than MPM. These purchases were less than $1 and $1 for the three months ended June 30, 2015 and 2014, respectively, and $1 and $2 for the six months ended June 30, 2015 and 2014, respectively. The Company had accounts payable to these affiliates of less than $1 at both June 30, 2015 and December 31, 2014.

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 $18 and $29 for the three months ended June 30, 2015 and 2014, respectively, and $39 and $56 for the six months ended June 30, 2015 and 2014, respectively. There were no accounts receivable from HAI at June 30, 2015 and $8 at December 31, 2014. Purchases from HAI were $4 and $8 for the three months ended June 30, 2015 and 2014, respectively, and $9 and $15 for the six months ended June 30, 2015 and 2014, respectively. The Company had accounts payable to HAI of $2 at both June 30, 2015 and December 31, 2014. Additionally, HAI declared dividends to the Company of $5 and $3 during the three months ended June 30, 2015 and 2014, respectively, and $9 and $6 for the six months ended June 30, 2015 and 2014, respectively. No amounts remained outstanding related to these previously declared dividends at June 30, 2015.

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 six months ended June 30, 2015 and 2014, the Company issued $1 and $3, respectively, of discounts to HAI under this agreement. As of June 30, 2015 and December 31, 2014, $4 and $7, respectively, remained outstanding under this agreement. As of June 30, 2015, all of the outstanding amount is classified in “Other current liabilities” in the unaudited Condensed Consolidated Balance Sheets 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.”

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 $10 and $7 for the three months ended June 30, 2015 and 2014, respectively, and $22 and $11 for the six months ended June 30, 2015 and 2014, respectively. Accounts receivable from these joint ventures were $3 and $15 at June 30, 2015 and December 31, 2014, respectively. These purchases were $12 and less than $1 for the three months ended June 30, 2015 and 2014, respectively, and $24 and less than $1 for the six months ended June 30, 2015 and 2014, respectively. The Company had accounts payable to these joint ventures of $10 and $26 at June 30, 2015 and December 31, 2014, respectively.

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

As of both June 30, 2015 and 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.

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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 June 30, 2015, the Company had derivative liabilities related to electricity and natural gas contracts of less than $1, which were measured using Level 2 inputs, and consist of derivative instruments transacted primarily in over-the-counter markets. There were no transfers between Level 1, Level 2 or Level 3 measurements during the three and six months ended June 30, 2015 or 2014.

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 June 30, 2015 and December 31, 2014, 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
			Level 1		Level 2		Level 3		Total
June 30, 2015
Debt	$	4,037	$	—	$	3,554	$	8	$	3,562
December 31, 2014
Debt	$	3,834	$	—	$	3,386	$	9	$	3,395

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

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6. Debt Obligations

Debt outstanding at June 30, 2015 and December 31, 2014 is as follows:

	June 30, 2015				December 31, 2014
	Long-Term		Due Within One Year		Long-Term		Due Within One Year
ABL Facility	$	—	$	—	$	60	$	—
Senior Secured Notes:
6.625% First-Priority Senior Secured Notes due 2020 (includes $5 and $6 of unamortized debt premium at June 30, 2015 and December 31, 2014, respectively)	1,555		—		1,556		—
10.00% First-Priority Senior Secured Notes due 2020	315		—		—		—
8.875% Senior Secured Notes due 2018 (includes $3 of unamortized debt discount)	1,197		—		1,197		—
9.00% Second-Priority Senior Secured Notes due 2020	574		—		574		—
Debentures:
9.2% debentures due 2021	74		—		74		—
7.875% debentures due 2023	189		—		189		—
8.375% sinking fund debentures due 2016	—		—		20		20
Other Borrowings:
Australia Facility due 2017	32		3		36		4
Brazilian bank loans	9		48		9		47
Capital leases	7		1		8		1
Other	10		23		12		27
Total	$	3,962	$	75	$	3,735	$	99

2015 Refinancing Transactions

On April 15, 2015, 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.

Additionally, on July 27, 2015, the Company finalized an amendment to its ABL Facility, 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.

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.

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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 June 30, 2015, the amount of the assessment, including tax, penalties, monetary correction and interest, is 39 Brazilian reais, or approximately $12.

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

	Liability				Range of Reasonably Possible Costs at June 30, 2015
Site Description	June 30, 2015		December 31, 2014		Low		High
Geismar, LA	$	15	$	15	$	9	$	22
Superfund and offsite landfills – allocated share:
Less than 1%	1		—		—		2
Equal to or greater than 1%	7		7		5		13
Currently-owned	5		9		3		11
Formerly-owned:
Remediation	31		30		31		46
Monitoring only	1		1		—		1
Total	$	60	$	62	$	48	$	95

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 June 30, 2015 and December 31, 2014, $9 and $12, respectively, have been included in “Other current liabilities” in the unaudited Condensed Consolidated Balance Sheets with the remaining amount included in “Other long-term liabilities.”

Following is a discussion of the Company’s environmental liabilities and the related assumptions at June 30, 2015:

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 24 years. The range of possible outcomes is discounted in a similar manner. The undiscounted liability, which is expected to be paid over the next 24 years, is approximately $20. Over the next five years, the Company expects to make ratable payments totaling $6.

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

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

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

Formerly-Owned Sites—The Company is conducting, or has been identified as a PRP in connection with, environmental remediation at a number of locations that it formerly owned and/or operated. Remediation costs at these former sites, such as those associated with our former phosphate mining and processing operations, could be material. The Company has accrued those costs for formerly-owned sites which are currently probable and reasonably estimable. One such site is the Coronet Industries, Inc. Superfund Alternative Site in Plant City, Florida. The current owner of the site has alleged that it has incurred environmental costs at the site for which it believes it has a contribution claim against the Company, and that additional future costs are likely to be incurred. In July 2014, the Company reached a non-binding agreement with the current owner of the site, subject to negotiation of an acceptable settlement agreement and required approvals. Pursuant to the agreement, the Company would pay $10 in fulfillment of the contribution claim against the Company for past remediation costs. Additionally, the Company would accept a 40% allocable share of specified future remediation costs at this site. The Company estimates its allocable share of future remediation costs to be approximately $12. 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 $6 and $12 at June 30, 2015 and December 31, 2014, respectively, for all non-environmental legal defense costs incurred and settlement costs that it believes are probable and estimable. At June 30, 2015 and December 31, 2014, $5 and $9, 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 (benefit) expense recognized by the Company for the three and six months ended June 30, 2015 and 2014 (see Note 2):

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

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	Pension Benefits												Non-Pension Postretirement Benefits
	Six Months Ended June 30,												Six Months Ended June 30,
	2015						2014						2015				2014
	U.S. Plans			Non-U.S. Plans			U.S. Plans			Non-U.S. Plans			U.S. Plans		Non-U.S. Plans		U.S. Plans		Non-U.S. Plans
Service cost	$	2		$	8		$	1		$	8		$	—	$	—	$	—	$	—
Interest cost on projected benefit obligation	5			5			6			8			—		1		—		1
Expected return on assets	(8		)	(6		)	(8		)	(8		)	—		—		—		—
Net (benefit) expense	$	(1	)	$	7		$	(1	)	$	8		$	—	$	1	$	—	$	1

9. Segment Information

The Company’s business segments are based on the products that the Company offers and the markets that it serves. At June 30, 2015, 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

Reportable Segments

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

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.

Net Sales ⁽¹⁾:

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Epoxy, Phenolic and Coating Resins	$	683	$	862	$	1,357	$	1,679
Forest Products Resins	404		475		809		951
Total	$	1,087	$	1,337	$	2,166	$	2,630

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

Segment EBITDA:

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Epoxy, Phenolic and Coating Resins	$	88		$	77		$	173		$	157
Forest Products Resins	62			66			123			128
Corporate and Other	(17		)	(20		)	(36		)	(42		)
Total	$	133		$	123		$	260		$	243

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Reconciliation of Segment EBITDA to Net Loss:

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Segment EBITDA:
Epoxy, Phenolic and Coating Resins	$	88		$	77		$	173		$	157
Forest Products Resins	62			66			123			128
Corporate and Other	(17		)	(20		)	(36		)	(42		)
Total	$	133		$	123		$	260		$	243
Reconciliation:
Items not included in Segment EBITDA:
Business realignment costs	$	(5	)	$	(12	)	$	(8	)	$	(18	)
Integration costs	—			(3		)	—			(5		)
Realized and unrealized foreign currency losses	—			(1		)	(3		)	(4		)
Other	(11		)	(8		)	(29		)	(17		)
Total adjustments	(16		)	(24		)	(40		)	(44		)
Interest expense, net	(84		)	(76		)	(161		)	(153		)
Income tax expense	(1		)	(9		)	(27		)	(15		)
Depreciation and amortization	(34		)	(36		)	(68		)	(71		)
Net loss	$	(2	)	$	(22	)	$	(36	)	$	(40	)

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 six months ended June 30, 2015, these items primarily include expenses from retention programs, losses on the disposal of assets and certain professional fees. For the three and six months ended June 30, 2014, these items primarily include expenses from retention programs, stock-based compensation expense and losses on the disposal of assets. Business realignment costs for the three and six months ended June 30, 2015 include costs related to certain in-process cost reduction programs. Business realignment costs for the three and six months ended June 30, 2014 include costs for environmental remediation at certain formerly owned locations and also include costs related to minor restructuring programs. Integration costs for the three and six months ended June 30, 2014 primarily represent integration costs associated with the previous integration of Hexion and MPM.

10. Summarized Financial Information of Unconsolidated Affiliate

Summarized financial information of the unconsolidated affiliate HAI as of June 30, 2015 and December 31, 2014 and for the three and six months ended June 30, 2015 and 2014 is as follows:

	June 30, 2015		December 31, 2014
Current assets	$	29	$	38
Non-current assets	24		26
Current liabilities	14		16
Non-current liabilities	2		2

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Net sales	$	41	$	49	$	83	$	94
Gross profit	16		12		33		23
Pre-tax income	9		8		19		15
Net income	9		8		18		15

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11. Changes in Accumulated Other Comprehensive Income

Following is a summary of changes in “Accumulated other comprehensive income” for the three and six months ended June 30, 2015 and 2014:

	Three Months Ended June 30, 2015						Three Months Ended June 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	$	7	$	11	$	—	$	133		$	133
Other comprehensive income (loss) before reclassifications, net of tax	—		13		13		—		(4		)	(4		)
Amounts reclassified from Accumulated other comprehensive loss, net of tax	—		—		—		—		—			—
Net other comprehensive income (loss)	—		13		13		—		(4		)	(4		)
Ending balance	$	4	$	20	$	24	$	—	$	129		$	129

	Six Months Ended June 30, 2015								Six Months Ended June 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	—		(49		)	(49		)	—		(1		)	(1		)
Amounts reclassified from Accumulated other comprehensive loss, net of tax	—		—			—			—		—			—
Net other comprehensive loss	—		(49		)	(49		)	—		(1		)	(1		)
Ending balance	$	4	$	20		$	24		$	—	$	129		$	129

12. Income Taxes

The effective tax rate was (14)% and (47)% for the second quarter of 2015 and 2014, respectively. The effective tax rate was (150)% and (43)% for the first half 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 six months ended June 30, 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.

20

13. Guarantor/Non-Guarantor Subsidiary Financial Information

The Company’s 6.625% First-Priority Senior Secured Notes due 2020, New First Lien Notes, 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.

21

HEXION INC.

JUNE 30, 2015

CONDENSED CONSOLIDATING BALANCE SHEET (Unaudited)

	Hexion Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents (including restricted cash of $0 and $16, respectively)	$	181		$	—		$	143		$	—		$	324
Short-term investments	—			—			2			—			2
Accounts receivable, net	150			—			475			—			625
Intercompany accounts receivable	112			—			121			(233		)	—
Intercompany loans receivable - current portion	21			—			40			(61		)	—
Inventories:				—									—
Finished and in-process goods	106			—			161			—			267
Raw materials and supplies	44			—			63			—			107
Other current assets	28			—			34			—			62
Total current assets	642			—			1,039			(294		)	1,387
Investment in unconsolidated entities	164			31			24			(177		)	42
Deferred income taxes	—			—			15			—			15
Other assets, net	74			6			28			—			108
Intercompany loans receivable	1,268			29			107			(1,404		)	—
Property and equipment, net	539			—			486			—			1,025
Goodwill	66			—			49			—			115
Other intangible assets, net	52			—			20			—			72
Total assets	$	2,805		$	66		$	1,768		$	(1,875	)	$	2,764
Liabilities and Deficit
Current liabilities:
Accounts payable	$	145		$	—		$	280		$	—		$	425
Intercompany accounts payable	121			—			112			(233		)	—
Debt payable within one year	—			—			75			—			75
Intercompany loans payable within one year	40			—			21			(61		)	—
Interest payable	87			—			1			—			88
Income taxes payable	6			—			18			—			24
Accrued payroll and incentive compensation	27			—			31			—			58
Other current liabilities	69			—			53			—			122
Total current liabilities	495			—			591			(294		)	792
Long-term liabilities:
Long-term debt	3,909			—			53			—			3,962
Intercompany loans payable	117			6			1,281			(1,404		)	—
Accumulated losses of unconsolidated subsidiaries in excess of investment	536			177			—			(713		)	—
Long-term pension and post employment benefit obligations	55			—			204			—			259
Deferred income taxes	10			—			8			—			18
Other long-term liabilities	116			—			52			—			168
Total liabilities	5,238			183			2,189			(2,411		)	5,199
Total Hexion Inc. shareholder’s deficit	(2,433		)	(117		)	(419		)	536			(2,433		)
Noncontrolling interest	—			—			(2		)	—			(2		)
Total deficit	(2,433		)	(117		)	(421		)	536			(2,435		)
Total liabilities and deficit	$	2,805		$	66		$	1,768		$	(1,875	)	$	2,764

22

HEXION INC.

DECEMBER 31, 2014

CONDENSED CONSOLIDATING BALANCE SHEET

	Hexion Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents (including restricted cash of $0 and $16, respectively)	$	23		$	—		$	149		$	—		$	172
Short-term investments	—			—			7			—			7
Accounts receivable, net	174			—			417			—			591
Intercompany accounts receivable	118			—			138			(256		)	—
Intercompany loans receivable - current portion	265			—			43			(308		)	—
Inventories:													—
Finished and in-process goods	117			—			173			—			290
Raw materials and supplies	46			—			64			—			110
Other current assets	36			—			37			—			73
Total current assets	779			—			1,028			(564		)	1,243
Investment in unconsolidated entities	234			34			29			(249		)	48
Deferred income taxes	—			—			18			—			18
Other assets, net	76			6			28			—			110
Intercompany loans receivable	1,046			28			17			(1,091		)	—
Property and equipment, net	534			—			521			—			1,055
Goodwill	65			—			54			—			119
Other intangible assets, net	56			—			25			—			81
Total assets	$	2,790		$	68		$	1,720		$	(1,904	)	$	2,674
Liabilities and Deficit
Current liabilities:
Accounts payable	$	142		$	—		$	284		$	—		$	426
Intercompany accounts payable	138			—			118			(256		)	—
Debt payable within one year	26			—			73			—			99
Intercompany loans payable within one year	43			—			265			(308		)	—
Interest payable	81			—			1			—			82
Income taxes payable	6			—			6			—			12
Accrued payroll and incentive compensation	34			—			33			—			67
Other current liabilities	69			—			66			—			135
Total current liabilities	539			—			846			(564		)	821
Long term liabilities:
Long-term debt	3,674			—			61			—			3,735
Intercompany loans payable	36			6			1,049			(1,091		)	—
Accumulated losses of unconsolidated subsidiaries in excess of investment	705			249			—			(954		)	—
Long-term pension and post employment benefit obligations	59			—			219			—			278
Deferred income taxes	8			—			11			—			19
Other long-term liabilities	117			—			54			—			171
Total liabilities	5,138			255			2,240			(2,609		)	5,024
Total Hexion Inc. shareholder’s deficit	(2,348		)	(187		)	(518		)	705			(2,348		)
Noncontrolling interest	—			—			(2		)	—			(2		)
Total deficit	(2,348		)	(187		)	(520		)	705			(2,350		)
Total liabilities and deficit	$	2,790		$	68		$	1,720		$	(1,904	)	$	2,674

23

HEXION INC.

THREE MONTHS ENDED JUNE 30, 2015

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Hexion Inc.			Combined Subsidiary Guarantors		Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	443		$	—	$	692		$	(48	)	$	1,087
Cost of sales	398			—		575			(48		)	925
Gross profit	45			—		117			—			162
Selling, general and administrative expense	25			—		51			—			76
Business realignment costs	1			—		4			—			5
Other operating expense, net	—			—		2			—			2
Operating income	19			—		60			—			79
Interest expense, net	83			—		1			—			84
Intercompany interest (income) expense, net	(20		)	—		20			—			—
Other non-operating (income) expense, net	(32		)	—		34			—			2
(Loss) income before income tax and earnings (losses) from unconsolidated entities	(12		)	—		5			—			(7		)
Income tax expense (benefit)	3			—		(2		)	—			1
(Loss) income before earnings from unconsolidated entities	(15		)	—		7			—			(8		)
Earnings from unconsolidated entities, net of taxes	13			4		2			(13		)	6
Net (loss) income	$	(2	)	$	4	$	9		$	(13	)	$	(2	)
Comprehensive income	$	11		$	5	$	14		$	(19	)	$	11

24

HEXION INC.

THREE MONTHS ENDED JUNE 30, 2014

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Hexion Inc.			Combined Subsidiary Guarantors		Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	595		$	—	$	804		$	(62	)	$	1,337
Cost of sales	524			—		711			(62		)	1,173
Gross profit	71			—		93			—			164
Selling, general and administrative expense	24			—		69			—			93
Business realignment costs	10			—		2			—			12
Other operating expense (income), net	2			—		(3		)	—			(1		)
Operating income	35			—		25			—			60
Interest expense, net	74			—		2			—			76
Intercompany interest (income) expense, net	(24		)	—		24			—			—
Other non-operating expense (income), net	5			—		(2		)	—			3
(Loss) income before income tax and earnings from unconsolidated entities	(20		)	—		1			—			(19		)
Income tax expense	2			—		7			—			9
Loss before earnings from unconsolidated entities	(22		)	—		(6		)	—			(28		)
Earnings from unconsolidated entities, net of taxes	—			5		1			—			6
Net (loss) income	$	(22	)	$	5	$	(5	)	$	—		$	(22	)
Comprehensive (loss) income	$	(26	)	$	5	$	(11	)	$	6		$	(26	)

25

HEXION INC.

SIX MONTHS ENDED JUNE 30, 2015

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Hexion Inc.			Combined Subsidiary Guarantors		Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	908		$	—	$	1,355		$	(97	)	$	2,166
Cost of sales	803			—		1,142			(97		)	1,848
Gross profit	105			—		213			—			318
Selling, general and administrative expense	60			—		98			—			158
Business realignment costs	3			—		5			—			8
Other operating expense, net	4			—		6			—			10
Operating income	38			—		104			—			142
Interest expense, net	158			—		3			—			161
Intercompany interest (income) expense, net	(40		)	—		40			—			—
Other non-operating expense (income), net	69			—		(70		)	—			(1		)
Loss before income tax and earnings (losses) from unconsolidated entities	(149		)	—		131			—			(18		)
Income tax (benefit) expense	(2		)	—		29			—			27
Loss before earnings (losses) from unconsolidated entities	(147		)	—		102			—			(45		)
Earnings from unconsolidated entities, net of taxes	111			78		—			(180		)	9
Net (loss) income	$	(36	)	$	78	$	102		$	(180	)	$	(36	)
Comprehensive (loss) income	$	(85	)	$	79	$	82		$	(161	)	$	(85	)

26

HEXION INC.

SIX MONTHS ENDED JUNE 30, 2014

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Hexion Inc.			Combined Subsidiary Guarantors		Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	1,173		$	—	$	1,576		$	(119	)	$	2,630
Cost of sales	1,029			—		1,389			(119		)	2,299
Gross profit	144			—		187			—			331
Selling, general and administrative expense	51			—		136			—			187
Business realignment costs	15			—		3			—			18
Other operating expense, net	3			—		—			—			3
Operating income	75			—		48			—			123
Interest expense, net	149			—		4			—			153
Intercompany interest (income) expense, net	(49		)	—		49			—			—
Other non-operating expense, net	5			—		—			—			5
Loss before income tax and (losses) earnings from unconsolidated entities	(30		)	—		(5		)	—			(35		)
Income tax (benefit) expense	(3		)	—		18			—			15
Loss before (losses) earnings from unconsolidated entities	(27		)	—		(23		)	—			(50		)
(Losses) earnings from unconsolidated entities, net of taxes	(13		)	4		2			17			10
Net (loss) income	$	(40	)	$	4	$	(21	)	$	17		$	(40	)
Comprehensive (loss) income	$	(41	)	$	4	$	(18	)	$	14		$	(41	)

27

HEXION INC.

SIX MONTHS ENDED JUNE 30, 2015

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	$	(148	)		$	9		$	176			$	(9	)	$	28
Cash flows provided by (used in) investing activities
Capital expenditures	(42		)		—			(37		)		—			(79		)
Proceeds from the sale of investments, net	—				—			4				—			4
Return of capital from subsidiary from sales of accounts receivable	151			(a)	—			—				(151		)	—
	109				—			(33		)		(151		)	(75		)
Cash flows (used in) provided by financing activities
Net short-term debt repayments	(5		)		—			—				—			(5		)
Borrowings of long-term debt	470				—			20				—			490
Repayments of long-term debt	(255		)		—			(19		)		—			(274		)
Net intercompany loan (repayments) borrowings	(5		)		—			5				—			—
Long-term debt and credit facility financing fees	(8		)		—			—				—			(8		)
Common stock dividends paid	—				(9		)	—				9			—
Return of capital to parent from sales of accounts receivable	—				—			(151		)	(a)	151			—
	197				(9		)	(145		)		160			203
Effect of exchange rates on cash and cash equivalents	—				—			(4		)		—			(4		)
Increase (decrease) in cash and cash equivalents	158				—			(6		)		—			152
Cash and cash equivalents (unrestricted) at beginning of period	23				—			133				—			156
Cash and cash equivalents (unrestricted) at end of period	$	181			$	—		$	127			$	—		$	308

(a) During the six months ended June 30, 2015, Hexion Inc. contributed receivables of $151 to a non-guarantor subsidiary as capital contributions, resulting in a non-cash transaction. During the six months ended June 30, 2015, 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.

28

HEXION INC.

SIX MONTHS ENDED JUNE 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	$	(270	)		$	6		$	84			$	(6	)	$	(186	)
Cash flows provided by (used in) investing activities
Capital expenditures	(41		)		—			(37		)		—			(78		)
Proceeds from sale of investments, net	—				—			3				—			3
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	186			(a)	—			—				(186		)	—
Investment in unconsolidated affiliates, net	—				—			(2		)		—			(2		)
	77				(10		)	(50		)		(160		)	(143		)
Cash flows (used in) provided by financing activities
Net short-term debt borrowings	—				—			27				—			27
Borrowings of long-term debt	115				—			45				—			160
Repayments of long-term debt	(69		)		—			(48		)					(117		)
Net intercompany loan borrowings (repayments)	9				—			(9		)		—			—
Capital contribution from parent	—				10			16				(26		)	—
Common stock dividends paid	—				(6		)	—				6			—
Return of capital to parent from sales of accounts receivable	—				—			(186		)	(a)	186			—
	55				4			(155		)		166			70
Effect of exchange rates on cash and cash equivalents	—				—			(1		)		—			(1		)
Decrease in cash and cash equivalents	(138		)		—			(122		)		—			(260		)
Cash and cash equivalents (unrestricted) at beginning of period	170				—			209				—			379
Cash and cash equivalents (unrestricted) at end of period	$	32			$	—		$	87			$	—		$	119

(a) During the six months ended June 30, 2014, Hexion Inc. contributed receivables of $186 to a non-guarantor subsidiary as capital contributions, resulting in a non-cash transaction. During the six months ended June 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.

29

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 2014 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.

Within the following discussion, unless otherwise stated, “the second quarter of 2015” refers to the three months ended June 30, 2015, “the second quarter of 2014” refers to the three months ended June 30, 2014, “the first half of 2015” refers to the six months ended June 30, 2015 and “the first half of 2014” refers to the six months ended June 30, 2014.

Forward-Looking and Cautionary Statements

Certain statements in this report, including without limitation, certain statements made under the caption “Overview and Outlook,” are forward-looking statements within the meaning of and made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In addition, our management may from time to time make oral forward-looking statements. All statements, other than statements of historical facts, are forward-looking statements. Forward-looking statements may be identified by the words “believe,” “expect,” “anticipate,” “project,” “plan,” “estimate,” “may,” “will,” “could,” “should,” “seek” or “intend” and similar expressions. Forward-looking statements reflect our current expectations and assumptions regarding our business, the economy and other future events and conditions and are based on currently available financial, economic and competitive data and our current business plans. Actual results could vary materially depending on risks and uncertainties that may affect our operations, markets, services, prices and other factors as discussed in the Risk Factors section of this report and our other filings with the Securities and Exchange Commission (the “SEC”). While we believe our assumptions are reasonable, we caution you against relying on any forward-looking statements as it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, a weakening of global economic and financial conditions, interruptions in the supply of or increased cost of raw materials, the loss of, or difficulties with the further realization of, cost savings in connection with our strategic initiatives, including transactions with our affiliate, Momentive Performance Materials Inc., the impact of our substantial indebtedness, our failure to comply with financial covenants under our credit facilities or other debt, pricing actions by our competitors that could affect our operating margins, changes in governmental regulations and related compliance and litigation costs and the other factors listed in the Risk Factors section of this report and in our other SEC filings. For a more detailed discussion of these and other risk factors, see the Risk Factors section of this report and our most recent filings made with the SEC. All forward-looking statements are expressly qualified in their entirety by this cautionary notice. The forward-looking statements made by us speak only as of the date on which they are made. Factors or events that could cause our actual results to differ may emerge from time to time. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

Overview and Outlook

Business Overview

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

Our products are used in thousands of applications and are sold into diverse markets, such as forest products, architectural and industrial paints, packaging, consumer products and automotive coatings, as well as higher growth markets, such as composites, UV cured coatings and electrical composites. Major industry sectors that we serve include industrial/marine, construction, consumer/durable goods, automotive, wind energy, aviation, electronics, architectural, civil engineering, repair/remodeling and oil and gas field support. Key drivers for our business include general economic and industrial conditions, including housing starts, auto build rates and active 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 have significantly affected our results.

Through our worldwide network of strategically located production facilities, we serve more than 5,200 customers in over 100 countries. Our global customers include large companies in their respective industries, such as 3M, Akzo Nobel, BASF, Bayer, Dow, EP Energy, GE, Louisiana Pacific, Monsanto, Owens Corning, PPG Industries, Valspar and Weyerhaeuser.

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Reportable Segments

The Company’s business segments are based on the products that we offer and the markets that we serve. At June 30, 2015, 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

2015 Overview

Following are highlights from our results of operations for the six months ended June 30, 2015 and 2014:

	2015			2014			$ Change			% Change
Statements of Operations:
Net sales	$	2,166		$	2,630		$	(464	)	(18	)%
Gross profit	318			331			(13		)	(4	)%
Operating income	142			123			19			15	%
Loss before income tax	(18		)	(35		)	17			49	%
Segment EBITDA:
Epoxy, Phenolic and Coating Resins	$	173		$	157		$	16		10	%
Forest Products Resins	123			128			(5		)	(4	)%
Corporate and Other	(36		)	(42		)	6			14	%
Total	$	260		$	243		$	17		7	%

• Net Sales—Net sales for the first half of 2015 were $2.2 billion, a decrease of 18% compared with $2.6 billion in the first half of 2014. 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 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. These decreases are partially offset by increases in our specialty epoxy business, driven by increasing demand in the China wind energy market. On a constant currency basis, net sales would have decreased by 9%.

• Segment EBITDA—For the first half of 2015, Segment EBITDA was $260, an increase of 7% compared with $243 in the first half of 2014. The increase in Segment EBITDA was primarily driven by strong growth in our specialty epoxy business, as well as modest growth in our base epoxy resins and in our North American and Latin American forest products resins businesses. This growth was partially offset by decreases in our oilfield business and the impact of the U.S. dollar strengthening against most other currencies. On a constant currency basis, Segment EBITDA would have increased 18%.

• 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 due 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 $634 as of June 30, 2015. Collectively, these transactions are referred to as the “2015 Refinancing Transactions”.

• 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 recoveries in the first half of 2015 related to this disruption and we continue to proactively pursue additional recoveries.

• In the fourth quarter of 2014, we began to implement new restructuring and cost reduction programs, which are expected to generate savings of approximately $21 in 2015 and annual savings of $31 once fully implemented. During the first half of 2015, we realized approximately $9 of savings under these and other initiatives, and as of June 30, 2015 we had approximately $21 of in-process savings that we expect to be achieved over the next 12 to 18 months.

• We continued to make progress on future growth initiatives, including the expansion of our forest products resins manufacturing capacity in Brazil and construction of two new formaldehyde plants in North America.

Facility Location	Type	Estimated Completion Date	Manufacturing Capacity
Curitiba, Brazil	Facility expansion	Q3 2015	150k MT/year
Geismar, LA	Facility expansion	Q4 2015	216k MT/year
Luling, LA	New facility	Q1 2016	216k MT/year

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Short-term Outlook

During the remainder of 2015, we expect continued growth in our epoxy specialty and forest products businesses due to strong demand in China wind energy and continuing modest growth in U.S. housing starts, respectively. Additionally, we expect volumes in our European versatic acid and dispersions businesses to benefit in the second half of 2015 from the resolution of the supplier disruption that impacted these businesses since late 2014. This growth is expected to be partially offset by decreases in natural gas and oil drilling activity, as well as continued flat demand in Europe and expected economic volatility in Latin America. We also expect weaker global currencies to continue to negatively impact our results. In addition, while we expect our base epoxy business to remain below historical levels of profitability during 2015, we expect continued improvement as compared to 2014.

Over the past few quarters, oil prices and raw material costs have been volatile and decreasing. We expect the decline in oil prices to continue to negatively impact sales volumes and earnings in our oilfield business due to the corresponding decline in natural gas and oil drilling activity. But, we expect this negative impact to be offset by the positive effect of declining raw material prices, 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 positive impact on our working capital during 2015.

In July 2015, the supplier disruption 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 $15 in the first half of 2015 for a portion of these losses and we ultimately expect to recover a substantial portion of the total losses related to this disruption.

As part of 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 over the next 12 to 18 months. We expect to realize approximately $21 of savings from this cost savings program during 2015 and annual savings of $31 once fully implemented.

Matters Impacting Comparability of Results

Raw Material Prices

Raw materials comprise approximately 70% of our cost of sales. The three largest raw materials used in our production processes are phenol, methanol and urea. These materials represent about half of our total raw material costs. Fluctuations in energy costs, such as volatility in the price of crude oil and related petrochemical products, as well as the cost of natural gas have historically caused volatility in our raw material and utility costs. The average prices of phenol, methanol and urea decreased by approximately 29%, 26% and 13%, respectively, in the first half of 2015 compared to the first half of 2014. The impact of passing through raw material price changes to customers can result in significant variances in sales comparisons from year to year.

Other Comprehensive Income

Our other comprehensive income is significantly impacted by foreign currency translation and 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 a mark-to-market (“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.

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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 six months ended June 30, 2014 have been adjusted to reflect the application of the changes. The effects of the aforementioned accounting policy changes to the unaudited Consolidated Statements of Operations are as follows:

Effect of Accounting Changes Increase (Decrease)	Three Months Ended June 30, 2014			Six Months Ended June 30, 2014
Cost of sales	$	(1	)	$	(4	)
Selling, general and administrative expense	(2		)	(4		)
Income tax expense	(2		)	(6		)
Segment EBITDA	3			6

There were no MTM adjustments for the three and six months ended June 30, 2015 and 2014.

Results of Operations

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended June 30,
	2015					2014
	$			% of Net Sales		$			% of Net Sales
Net sales	$	1,087		100	%	$	1,337		100	%
Cost of sales	925			85	%	1,173			88	%
Gross profit	162			15	%	164			12	%
Selling, general and administrative expense	76			7	%	93			7	%
Business realignment costs	5			1	%	12			1	%
Other operating expense, net	2			—	%	(1		)	—	%
Operating income	79			7	%	60			4	%
Interest expense, net	84			8	%	76			6	%
Other non-operating expense, net	2			—	%	3			—	%
Total non-operating expense	86			8	%	79			6	%
Loss before income tax and earnings from unconsolidated entities	(7		)	(1	)%	(19		)	(2	)%
Income tax expense	1			—	%	9			1	%
Loss before earnings from unconsolidated entities	(8		)	(1	)%	(28		)	(3	)%
Earnings from unconsolidated entities, net of taxes	6			1	%	6			—	%
Net loss	$	(2	)	—	%	$	(22	)	(3	)%
Other comprehensive income (loss)	$	13				$	(4	)

Three Months Ended June 30, 2015 vs. Three Months Ended June 30, 2014

Net Sales

In the second quarter of 2015, net sales decreased by $250, or 19%, compared to the second quarter of2014. Volume decreases negatively impacted net sales by $17, 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 versatic acid business primarily due to the impact of a supplier disruption in our European versatic acid business, as well as 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 and Latin American forest products resins businesses, driven by modest increases in U.S. housing construction and increases in the furniture, housing construction and industrial markets in South America, respectively. Pricing had a negative impact of $105 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 $128, primarily as a result of the strengthening of the U.S. dollar against the euro, Brazilian real and Canadian dollar in the second quarter of 2015 compared to the second quarter of 2014.

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Gross Profit

In the second quarter of 2015, gross profit decreased by $2 compared to the second quarter 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 second quarter of 2015, operating income increased by $19 compared to the second quarter of 2014, primarily due to decreases in selling, general and administrative expense and business realignment costs of $17 and $7, 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, as well as insurance recoveries of $6 related to the supplier plant disruption in our European versatic acid 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 decreases were partially offset by the decrease in gross profit of $2 discussed above and an increase of $3 in other operating expense due to an increase in losses recognized on the disposal of certain assets.

Non-Operating Expense

In the second quarter of 2015, total non-operating expense increased by $7 compared to the second quarter of 2014, due to an increase in interest expense caused by higher average debt levels.

Income Tax Expense

The effective tax rate was (14)% and (47)% for the second 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 second 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 Income (Loss)

For the second quarter of 2015, foreign currency translation positively impacted other comprehensive income by $13, primarily due to the weakening of the U.S. dollar against the euro, Brazilian real and Canadian dollar.

For the second quarter of 2014, foreign currency translation negatively impacted other comprehensive loss by $4, 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.

	Six Months Ended June 30,
	2015					2014
	$			% of Net Sales		$			% of Net Sales
Net sales	$	2,166		100	%	$	2,630		100	%
Cost of sales	1,848			85	%	2,299			87	%
Gross profit	318			15	%	331			13	%
Selling, general and administrative expense	158			7	%	187			7	%
Business realignment costs	8			—	%	18			1	%
Other operating expense, net	10			1	%	3			—	%
Operating income	142			7	%	123			5	%
Interest expense, net	161			8	%	153			6	%
Other non-operating expense, net	(1		)	—	%	5			—	%
Total non-operating expense	160			8	%	158			6	%
Loss before income tax and earnings from unconsolidated entities	(18		)	(1	)%	(35		)	(1	)%
Income tax expense	27			1	%	15			1	%
Loss before earnings from unconsolidated entities	(45		)	(2	)%	(50		)	(2	)%
Earnings from unconsolidated entities, net of taxes	9			—	%	10			—	%
Net loss	$	(36	)	(2	)%	$	(40	)	(2	)%
Other comprehensive loss	$	(49	)			$	(1	)

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Six Months Ended June 30, 2015 vs. Six Months Ended June 30, 2014

Net Sales

In the first half of 2015, net sales decreased by $464, or 18%, compared to the first half of2014. Volume decreases negatively impacted net sales by $66, 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 versatic acid business primarily due to the impact of a supplier disruption in our European versatic acid business, as well as 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 and Latin American forest products resins businesses, driven by modest increases in U.S. housing construction and increases in the furniture, housing construction and industrial markets in South America, respectively. Pricing had a negative impact of $177 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 and unfavorable product mix and in our base epoxy business. In addition, foreign currency translation negatively impacted net sales by $221, primarily as a result of the strengthening of the U.S. dollar against the euro, Brazilian real and Canadian dollar in the first half of 2015 compared to the first half of 2014.

Gross Profit

In the first half of 2015, gross profit decreased by $13 compared to the first half of 2014. As a percentage of sales, gross profit increased by 2%, 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 half of 2015, operating income increased by $19 compared to the first half of 2014, primarily due to decreases in selling, general and administrative expense and business realignment costs of $29 and $10, 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 and lower professional service costs, as well as insurance recoveries of $15 related to the supplier plant disruption in our European versatic acid 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 decreases were partially offset by the decrease in gross profit of $13 discussed above and an increase of $7 in other operating expense due to an increase in losses recognized on the disposal of certain assets.

Non-Operating Expense

In the first half of 2015, total non-operating expense increased by $2 compared to the first half of 2014, primarily due to an increase in interest expense of $8 compared to the prior year caused by higher average debt levels. This increase was partially offset by lower realized and unrealized foreign currency transaction losses.

Income Tax Expense

The effective tax rate was (150)% and (43)% for the first half 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 first half 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 first half of 2015, foreign currency translation negatively impacted other comprehensive income by $49, primarily due to the strengthening of the U.S. dollar against the euro, Brazilian real, Australian dollar and Canadian dollar.

For the first half of 2014, foreign currency translation negatively impacted other comprehensive income by $1, 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.

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.

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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 June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Net Sales (1):
Epoxy, Phenolic and Coating Resins	$	683		$	862		$	1,357		$	1,679
Forest Products Resins	404			475			809			951
Total	$	1,087		$	1,337		$	2,166		$	2,630
Segment EBITDA:
Epoxy, Phenolic and Coating Resins	$	88		$	77		$	173		$	157
Forest Products Resins	62			66			123			128
Corporate and Other	(17		)	(20		)	(36		)	(42		)
Total	$	133		$	123		$	260		$	243

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

Three Months Ended June 30, 2015 vs. Three Months Ended June 30, 2014 Segment Results

Following is an analysis of the percentage change in sales by segment from the three months ended June 30, 2014 to the three months ended June 30, 2015:

	Volume		Price/Mix		Currency Translation		Total
Epoxy, Phenolic and Coating Resins	(5	)%	(6	)%	(10	)%	(21	)%
Forest Products Resins	6	%	(12	)%	(9	)%	(15	)%

Epoxy, Phenolic and Coating Resins

Net sales in the second quarter of 2015 decreased by $179, or 21%, when compared to the second quarter of 2014. Lower volumes negatively impacted net sales by $46, which were primarily driven by decreased volumes within our oilfield and versatic acid businesses, as well as volume decreases related to 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 was 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 improving demand in the China wind energy market. Pricing had a negative impact of $50, 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 $83, primarily due to the strengthening of the U.S. dollar against the euro in the second quarter of 2015 compared to the second quarter of 2014.

Segment EBITDA in the second quarter of 2015 increased by $11 to $88 compared to the second quarter of 2014. This increase is primarily due to strong volume growth and raw material deflation in our epoxy specialty business, as well lower raw material prices which resulted in favorable lead/lag in our base epoxy business. These increases more than offset the declines in our oilfield business and unfavorable foreign exchange impacts discussed above. The negative impact of the supplier plant disruption in our European versatic acid business was partially offset by related insurance recoveries.

Forest Products Resins

Net sales in the second quarter of 2015 decreased by $71, or 15%, when compared to the second quarter of 2014. Higher volumes positively impacted net sales by $29, and were primarily driven by volume increases in our North American forest products resins business which were primarily due to modest increases in U.S. housing construction, as well as increases in our Latin American forest products resins business, which were driven by increases in the furniture, housing construction and industrial markets in this region. 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 associated reduction in natural gas and oil drilling activity. Pricing had a negative impact of $55, which was primarily due to raw material price decreases passed through to customers and unfavorable product mix in our North American formaldehyde business. Foreign exchange translation negatively impacted net sales by $45, primarily due to the strengthening of the U.S. dollar against the Brazilian real, Canadian dollar and the euro in the second quarter of 2015 compared to the second quarter of 2014.

Segment EBITDA in the second quarter of 2015 decreased by $4 to $62 compared to the second quarter 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.

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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 $3 to $17 compared to the second quarter of 2014 due primarily to lower compensation and benefits expense driven by our recent cost savings actions.

Six Months Ended June 30, 2015 vs. Six Months Ended June 30, 2014 Segment Results

Following is an analysis of the percentage change in sales by segment from the six months ended June 30, 2014 to the six months ended June 30, 2015:

	Volume		Price/Mix		Currency Translation		Total
Epoxy, Phenolic and Coating Resins	(5	)%	(5	)%	(9	)%	(19	)%
Forest Products Resins	2	%	(9	)%	(8	)%	(15	)%

Epoxy, Phenolic and Coating Resins

Net sales in the first half of 2015 decreased by $322, or 19%, when compared to the first half of 2014. Lower volumes negatively impacted net sales by $86, which were primarily driven by decreased volumes within our oilfield and versatic acid businesses, as well as volume decreases related to 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 was 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 improving demand in the China wind energy market. Pricing had a negative impact of $90, 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 $146, primarily due to the strengthening of the U.S. dollar against the euro and the Canadian dollar in the first half of 2015 compared to the first half of 2014.

Segment EBITDA in the first half of 2015 increased by $16 to $173 compared to the first half of 2014. This increase is primarily due to strong volume growth and raw material deflation in our epoxy specialty business, as well lower raw material prices which resulted in favorable lead/lag in our base epoxy business. These increases more than offset the declines in our oilfield business and unfavorable foreign exchange impacts discussed above. The majority of the negative impact of the supplier plant disruption in our European versatic acid business was offset by related insurance recoveries.

Forest Products Resins

Net sales in the first half of 2015 decreased by $142, or 15%, when compared to the first half of 2014. Higher volumes positively impacted net sales by $20, were primarily driven by volume increases in our North American forest products resins business which were primarily due to modest increases in U.S. housing construction, as well as increases in our Latin American forest products resins business, which were driven by increases in the furniture, housing construction and industrial markets in this region. 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 associated reduction in natural gas and oil drilling activity. Pricing had a negative impact of $87, which was primarily due to raw material price decreases passed through to customers and unfavorable product mix in our North American formaldehyde business. Foreign exchange translation negatively impacted net sales by $75, primarily due to the strengthening of the U.S. dollar against the Brazilian real, Canadian dollar and the euro in the first half of 2015 compared to the first half of 2014.

Segment EBITDA in the first half of 2015 decreased by $5 to $123 compared to the first half 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 $6 compared to the first half of 2014 due primarily to lower compensation and benefits expense driven by our recent cost savings actions.

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Reconciliation of Segment EBITDA to Net Loss:

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Segment EBITDA:
Epoxy, Phenolic and Coating Resins	$	88		$	77		$	173		$	157
Forest Products Resins	62			66			123			128
Corporate and Other	(17		)	(20		)	(36		)	(42		)
Total	$	133		$	123		$	260		$	243
Reconciliation:
Items not included in Segment EBITDA
Business realignment costs	$	(5	)	$	(12	)	$	(8	)	$	(18	)
Integration costs	—			(3		)	—			(5		)
Realized and unrealized foreign currency losses	—			(1		)	(3		)	(4		)
Other	(11		)	(8		)	(29		)	(17		)
Total adjustments	(16		)	(24		)	(40		)	(44		)
Interest expense, net	(84		)	(76		)	(161		)	(153		)
Income tax expense	(1		)	(9		)	(27		)	(15		)
Depreciation and amortization	(34		)	(36		)	(68		)	(71		)
Net loss	$	(2	)	$	(22	)	$	(36	)	$	(40	)

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 six months ended June 30, 2015, these items primarily include expenses from retention programs, losses on the disposal of assets and certain professional fees. For the three and six months ended June 30, 2014, these items primarily include expenses from retention programs, stock-based compensation expense and losses on the disposal of assets. Business realignment costs for the three and six months ended June 30, 2015 include costs related to certain in-process cost reduction programs. Business realignment costs for the three and six months ended June 30, 2014 include costs for environmental remediation at certain formerly owned locations and also include costs related to minor restructuring programs. Integration costs for the three and six months ended June 30, 2014 primarily represent integration costs associated with the previous integration of Hexion and MPM.

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 June 30, 2015, we had $4,037 of outstanding debt and $634 in liquidity consisting of the following:

•$308 of unrestricted cash and cash equivalents (of which $127 is maintained in foreign jurisdictions);

• $2 of short-term investments;

• $290 of borrowings available under our ABL Facility ($327 borrowing base less $37 of outstanding letters of credit); and

• $34 of time drafts and borrowings available under credit facilities at certain international subsidiaries

As adjusted for the ABL amendment effective July 27, 2015, our liquidity would have been $706 as of June 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 June 30, 2015 and December 31, 2014 was $574 and $565, respectively. A summary of the components of our net working capital as of June 30, 2015 and December 31, 2014 is as follows:

	June 30, 2015			% of LTM Net Sales		December 31, 2014			% of LTM Net Sales
Accounts receivable	$	625		13	%	$	591		12	%
Inventories	374			8	%	400			7	%
Accounts payable	(425		)	(9	)%	(426		)	(8	)%
Net working capital	$	574		12	%	$	565		11	%

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Net working capital remained relatively flat from December 31, 2014. Working capital was impacted by an increase in volumes, offset by the impact of foreign currency translation and raw material cost deflation. The increase in accounts receivable was due primarily to sales mix within our certain businesses to customers with longer credit terms. 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 June 30, 2015, there were no outstanding borrowings under the ABL Facility.

2015 Refinancing Transactions

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

Additionally, on July 27, 2015, we finalized an amendment to its ABL Facility, 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.

Short-term Outlook

The following factors will impact 2015 cash flows:

• Interest and Income Taxes: We expect cash outflows in 2015 related to interest payments on our debt of $310 and income tax payments estimated at $22.

• Capital Spending: Capital spending in 2015 is expected 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 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 in working capital during 2015, as compared to 2014. We expect a decrease in the second half of 2015 due to seasonality of demand.

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

Sources and Uses of Cash

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

	Six Months Ended June 30,
	2015			2014
Sources (uses) of cash:
Operating activities	$	28		$	(186	)
Investing activities	(75		)	(143		)
Financing activities	203			70
Effect of exchange rates on cash flow	(4		)	(1		)
Net increase (decrease) in cash and cash equivalents	$	152		$	(260	)

Operating Activities

In the first half of 2015, operations provided $28 of cash. Net loss of $36 included $73 of net non-cash expense items, of which $68 was for depreciation and amortization, $1 was for unrealized foreign currency losses and $3 of deferred taxes. Net working capital used $32, as compared to $214 of cash used in the first half of 2014. The change was due to the decrease in net sales and raw material costs in the first half of 2015 and the related impact on the components of net working capital. Changes in other assets and liabilities and income taxes payable provided $23 due to the timing of when items were expensed versus paid, which primarily included interest expense, employee retention programs, pension plan contributions and taxes.

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In the first half of 2014, operations used $186 of cash. Net loss of $40 included $74 of net non-cash expense items, of which $71 was for depreciation and amortization and $8 was for unrealized foreign currency losses. Working capital (defined as accounts receivable and inventories less accounts payable) used $214, which was driven by increases in accounts receivable of $116 and inventory of $122 due to seasonality-driven sequential sales volume increases, which were partially offset by an increase in accounts payable of $24, driven by the same factors. Changes in other assets and liabilities and income taxes payable used $6 due to the timing of when items were expensed versus paid, which primarily included interest expense, employee retention programs, pension plan contributions and taxes.

Investing Activities

In the first half of 2015, investing activities used $75 of cash. We spent $79 for capital expenditures, which primarily related to plant expansions, improvements and maintenance related capital expenditures. Additionally, the sale of certain investments provided cash of $4.

In the first half of 2014, investing activities used $143 of cash. We spent $78 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 generated cash of $3 from the sale of debt securities, and the change in restricted cash provided $2.

Financing Activities

In the first half of 2015, financing activities provided $203 of cash. Net short-term debt repayments were $5, and net long-term debt borrowings were $216, which primarily consisted of proceeds from the issuance of an aggregate principal amount of $315 New First Lien Notes, which was partially offset by the redemption or repayment of approximately $40 of our outstanding Sinking Fund Debentures and all amounts outstanding on the ABL Facility. We also paid $8 of financing fees related to these transactions.

In the first half of 2014, financing activities provided $70 of cash. Net short-term debt borrowings were $27, and net long-term debt borrowings were $43, 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 the parent in the form of cash dividends, loans or otherwise, which primarily arise as a result of certain foreign government regulations or as a result of restrictions within certain subsidiaries’ financing agreements limiting such transfers to the amounts of available earnings and profits or otherwise limit the amount of dividends that can be distributed. In either case, we have alternative methods to obtain cash from these subsidiaries in the form of intercompany loans and/or returns of capital in such instances where payment of dividends is limited to the extent of earnings and profits.

Debt Repurchases and Other Financing Transactions

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

Covenant Compliance

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

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

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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 June 30, 2015, our availability under the ABL Facility exceeded such levels; therefore, the minimum fixed charge covenant ratio did not apply. As of June 30, 2015, 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.

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:

	June 30, 2015
	LTM Period
Net loss	$	(220	)
Income tax expense	35
Interest expense, net	316
Depreciation and amortization	141
EBITDA	272
Adjustments to EBITDA:
Business realignment costs (1)	36
Realized and unrealized foreign currency losses	31
Unrealized loss on pension and postretirement benefits (2)	91
Other (3)	61
Cost reduction programs savings (4)	21
Adjusted EBITDA	$	512
Pro forma fixed charges (5)	$	322
Ratio of Adjusted EBITDA to Fixed Charges (6)	1.59

(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 resulting from pension and postretirement benefit plan liability remeasurements.

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

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

(5) Reflects pro forma interest expense based on interest rates at June 30, 2015, as if the 2015 Refinancing Transactions had taken place at the beginning of the period.

(6) 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 June 30, 2015, 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 $290 at June 30, 2015).

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Recently Issued Accounting Standards

In May, 2014, the FASB issued Accounting Standards Board Update No. 2014-09: Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 supersedes the existing revenue recognition guidance and most industry-specific guidance applicable to revenue recognition. According to the new guidance, an entity will apply a principles-based five step model to recognize revenue upon the transfer of promised goods or services to customers and in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. The 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 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 our 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 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. The guidance is effective for annual periods beginning after December 15, 2015, including interim periods within that reporting period, and early adoption is permitted. Based on unamortized debt issuance costs as of June 30, 2015, the Company estimates approximately $60 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 overall 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 of ASU 2015-11 on its financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material developments during the first six months of 2015 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.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures    

Our management, including the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer, performed an evaluation of the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of June 30, 2015. 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 June 30, 2015.

Changes in Internal Control Over Financial Reporting

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

Part II

Item 1. Legal Proceedings

There have been no other material developments during the second quarter of 2015 in any of the ongoing legal proceedings that are included in our Annual Report on Form 10-K for the year ended December 31, 2014.

Item 1A. Risk Factors

There have been no material changes during the first six months of 2015 in the risk factors that were included in our Annual Report on Form 10-K for the year ended December 31, 2014.

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

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

This item is not applicable to the registrant.

Item 5. Other Information

None.

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Item 6.    Exhibits

10.1†	Summary of Terms of Employment between Hexion Inc. and Douglas A. Johns dated May 6, 2015
10.2	Amendment Agreement, dated as of July 27, 2015, among Hexion LLC, Hexion Inc., as U.S. borrower, Hexion Canada Inc., as Canadian borrower, Hexion B.V., as Dutch borrower, Hexion UK Limited and Borden Chemical UK Limited, as U.K. borrowers, Hexion GmbH, as German borrower, the other subsidiaries of Hexion LLC party thereto, as loan parties, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent.
31.1	Rule 13a-14 Certifications:
	(a) Certificate of the Chief Executive Officer
	(b) Certificate of the Chief Financial Officer
32.1	Section 1350 Certifications
101.INS*	XBRL Instance Document
101.SCH*	XBRL Schema Document
101.CAL*	XBRL Calculation Linkbase Document
101.DEF*	XBRL Definition Linkbase Document
101.LAB*	XBRL Label Linkbase Document
101.PRE*	XBRL Presentation Linkbase Document

† Represents a management contract or compensatory plan or arrangement.

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

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SIGNATURE

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

		HEXION INC.
Date:	August 12, 2015	/s/ William H. Carter
		William H. Carter
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

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