Background and Basis of Presentation

12 Months Ended

Dec. 31, 2012

Background and Basis of Presentation [Abstract]

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

Background and Basis of Presentation

Based in Columbus, Ohio, Momentive Specialty Chemicals Inc., (which may be referred to as “MSC” or the “Company”) serves global industrial markets through a broad range of thermoset technologies, specialty products and technical support for customers in a diverse range of applications and industries. At December 31, 2012, Company had 61 production and manufacturing facilities, with 26 located in the United States. The Company’s business is organized based on the products offered and the markets served. At December 31, 2012, the Company had two reportable segments: Epoxy, Phenolic and Coating Resins and Forest Products Resins.

The Company’s direct parent is Momentive Specialty Chemicals Holdings LLC (“MSC Holdings”), a holding company and wholly owned subsidiary of Momentive Performance Materials Holdings LLC (“Momentive Holdings”), the ultimate parent entity of MSC. On October 1, 2010, MSC Holdings and Momentive Performance Materials Holdings Inc. (“MPM Holdings”), the parent company of Momentive Performance Materials Inc. (“MPM”), became subsidiaries of Momentive Holdings. This transaction is referred to as the “Momentive Combination.” Momentive Holdings is controlled by investment funds managed by affiliates of Apollo Management Holdings, L.P. (together with Apollo Global Management, LLC and its subsidiaries, “Apollo”). Apollo may also be referred to as the Company’s owner.

As of December 31, 2012, the Company has elected not to apply push-down accounting of its parent’s basis as a result of the Momentive Combination because it is a public reporting registrant as a result of significant public debt that was outstanding before and after the Momentive Combination.

Restatement of Previously Issued Financial Statements

During the third quarter of 2013, the Company discovered an error in income tax (benefit) expense and related deferred income tax balances recorded in the Company’s Consolidated Statement of Operations for the year ended December 31, 2012 and the Company’s Consolidated Balance Sheet at December 31, 2012. The error related to the calculation of the valuation allowance on deferred tax assets related to the Company’s Netherlands subsidiary.

The following table summarizes the impact of the restatement on the balances originally reported in the Company’s Consolidated Financial Statements for the specified periods. The table also reflects adjustments to the balances originally reported in the Company’s Consolidated Financial Statements to correct for losses on the disposal of certain assets, as further discussed below:

Consolidated Balance Sheet:	As Previously Reported			Adjustments			As Restated
December 31, 2012
Deferred income taxes	$	348		$	12		$	360
Total assets	3,325			12			3,337
Other long-term liabilities	166			(7		)	159
Total liabilities	4,642			(7		)	4,635
Accumulated deficit	(1,673		)	19			(1,654		)
Consolidated Statement of Operations:
Year ended December 31, 2012
Other operating expense, net	$	14		$	(3	)	$	11
Income tax benefit	(365		)	(19		)	(384		)
Income from continuing operations before earnings from unconsolidated entities	305			22			327
Net income from continuing operations	324			22			346
Net income	324			22			346

Consolidated Statement of Comprehensive Income:	As Previously Reported			Adjustments			As Restated
Year ended December 31, 2012
Net income	$	324		$	22		$	346
Comprehensive income	229			22			251
Comprehensive income attributable to Momentive Specialty Chemicals Inc.	230			22			252
Consolidated Statement of Cash Flows:
Year ended December 31, 2012
Net income	$	324		$	22		$	346
Deferred tax benefit	(375		)	(19		)	(394		)
Other non-cash adjustments	11			(3		)	8
Consolidated Statement of Deficit:
Year ended December 31, 2012
Net income	$	324		$	22		$	346
Accumulated deficit	(1,673		)	19			(1,654		)

Revision of Previously Issued Financial Statements

The Company revised the Consolidated Financial Statements for the years ended December 31, 2011 and 2010 to correct for losses on the disposal of certain assets, which were previously disclosed and recorded as an out of period error in the Company’s originally filed Consolidated Financial Statements for the year ended December 31, 2012. As a result of recording these revisions, the Company’s loss from continuing operations before income tax decreased by $3 and net income increased by $3 for the year ended December 31, 2012. Of the $3 decrease to loss from continuing operations before income tax, approximately $1 and $2 has been recorded in the years ended December 31, 2011 and 2010, respectively. Management does not believe these revisions are material to the Consolidated Financial Statements for the years ended December 31, 2012, 2011 or 2010. These adjustments are summarized in the table above.

Additionally, as disclosed in the Company’s originally filed Consolidated Financial Statements for the year ended December 31, 2012, the Company revised the Consolidated Statements of Cash Flows for the years ended December 31, 2011 and 2010 to correct for the classification of dividends of $12 and $6, respectively, received from unconsolidated affiliates that were originally included in investing activities, but have now been properly classified in operating activities. The Company also revised the Consolidated Balance Sheet as of December 31, 2011 and the Consolidated Statements of Cash Flows for the years ended December 31, 2011 and 2010 to correct for the classification of certain outstanding checks that were originally classified as “Accounts payable.” The amounts have now been properly classified as a reduction to “Cash and cash equivalents.” Management does not believe these revisions were material to the Company’s Consolidated Financial Statements. The impacts of correcting the financial statements for the specified periods are as follows:

Consolidated Balance Sheets:	As Previously Reported		Adjustments			As Revised
As of December 31, 2011
Cash and cash equivalents	$	431	$	(12	)	$	419
Accounts payable	393		(12		)	381

Consolidated Statements of Cash Flows:	As Previously Reported			Adjustments			As Revised
Year Ended December 31, 2011
Net cash provided by operating activities	$	151		$	20		$	171
Net cash provided by investing activities	45			(12		)	33
Cash and cash equivalents (unrestricted) at beginning of year	180			(20		)	160
Cash and cash equivalents (unrestricted) at end of year	428			(12		)	416
Year Ended December 31, 2010
Net cash provided by operating activities	$	45		$	6		$	51
Net cash used in investing activities	(99		)	(6		)	(105		)
Cash and cash equivalents (unrestricted) at beginning of year	135			(20		)	115
Cash and cash equivalents (unrestricted) at end of year	180			(20		)	160

Footnotes contained herein have been revised, where applicable, for the revisions discussed above.

Revision of Future Comparative Financial Statements

During the fourth quarter of 2012 the Company identified out of period income tax expense of approximately $21, which related to the third quarter of 2012. This adjustment had no impact on the Consolidated Financial Statements for the year ended December 31, 2012 or any prior period except for the three and nine months ended September 30, 2012, wherein income tax benefit was overstated by approximately $21. Management does not believe that this out of period error is material to the unaudited Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2012, and will revise such financial statements in a future filing. The revision will result in a reduction in income tax benefit of $21 for the three and nine months ended September 30, 2012.