Guarantor Non-Guarantor Subsidiary Financial Information

3 Months Ended

Mar. 31, 2015

Guarantor Non Guarantor Subsidary Financial Information [Abstract]

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.

Financial Statement Revisions

The Company revised its Condensed Consolidating Statement of Operations for the three months ended March 31, 2014 to correct the amount of other comprehensive income reported in the Combined Guarantor Subsidiaries, Combined Non-Guarantor Subsidiaries and Eliminations columns. The revisions resulted in a decrease of $125, $115 and $240, respectively, to “Comprehensive loss”.

These corrections, which the Company determined are not material to the previously issued financial statements, had no impact on the unaudited Condensed Consolidated Financial Statements or footnotes, except for the columns of the Condensed Consolidating Statement of Operations for the three months ended March 31, 2014.

INC.

MARCH 31, 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 $15, respectively)	$	25		$	—		$	142		$	—		$	167
Short-term investments	—			—			2			—			2
Accounts receivable, net	168			—			433			—			601
Intercompany accounts receivable	125			—			242			(367		)	—
Intercompany loans receivable - current portion	19			—			26			(45		)	—
Inventories:										—			—
Finished and in-process goods	118			—			165			—			283
Raw materials and supplies	42			—			60			—			102
Other current assets	19			—			43			—			62
Total current assets	516			—			1,113			(412		)	1,217
Investment in unconsolidated entities	164			34			23			(179		)	42
Deferred income taxes	—			—			15			—			15
Other assets, net	72			6			26			—			104
Intercompany loans receivable	1,227			28			20			(1,275		)	—
Property and equipment, net	532			—			474			—			1,006
Goodwill	65			—			49			—			114
Other intangible assets, net	54			—			21			—			75
Total assets	$	2,630		$	68		$	1,741		$	(1,866	)	$	2,573
Liabilities and Deficit
Current liabilities:
Accounts payable	$	144		$	—		$	286		$	—		$	430
Intercompany accounts payable	241			—			126			(367		)	—
Debt payable within one year	23			—			70			—			93
Intercompany loans payable within one year	26			—			19			(45		)	—
Interest payable	89			—			1			—			90
Income taxes payable	5			—			24			—			29
Accrued payroll and incentive compensation	43			—			37			—			80
Other current liabilities	66			—			55			—			121
Total current liabilities	637			—			618			(412		)	843
Long-term liabilities:
Long-term debt	3,674			—			61			—			3,735
Intercompany loans payable	10			5			1,260			(1,275		)	—
Accumulated losses of unconsolidated subsidiaries in excess of investment	566			179			—			(745		)	—
Long-term pension and post employment benefit obligations	57			—			196			—			253
Deferred income taxes	10			—			7			—			17
Other long-term liabilities	120			—			51			—			171
Total liabilities	5,074			184			2,193			(2,432		)	5,019
Total deficit	(2,444		)	(116		)	(450		)	566			(2,444		)
Noncontrolling interest	—			—			(2		)	—			(2		)
Total deficit	(2,444		)	(116		)	(452		)	566			(2,446		)
Total liabilities and deficit	$	2,630		$	68		$	1,741		$	(1,866	)	$	2,573

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 $14, 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

INC.

THREE MONTHS ENDED MARCH 31, 2015

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)



	Hexion Inc.			Combined Subsidiary Guarantors		Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	465		$	—	$	663		$	(49	)	$	1,079
Cost of sales	405			—		567			(49		)	923
Gross profit	60			—		96			—			156
Selling, general and administrative expense	35			—		47			—			82
Business realignment costs	2			—		1			—			3
Other operating expense, net	4			—		4			—			8
Operating income	19			—		44			—			63
Interest expense, net	75			—		2			—			77
Intercompany interest (income) expense, net	(20		)	—		20			—			—
Other non-operating expense (income), net	101			—		(104		)	—			(3		)
(Loss) income before income tax and earnings (losses) from unconsolidated entities	(137		)	—		126			—			(11		)
Income tax (benefit) expense	(5		)	—		31			—			26
(Loss) income before earnings (losses) from unconsolidated entities	(132		)	—		95			—			(37		)
Earnings (losses) from unconsolidated entities, net of taxes	98			74		(2		)	(167		)	3
Net (loss) income	$	(34	)	$	74	$	93		$	(167	)	$	(34	)
Comprehensive (loss) income	$	(96	)	$	74	$	68		$	(142	)	$	(96	)

HEXION INC.

THREE MONTHS ENDED MARCH 31, 2014

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)



	Hexion Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	578		$	—		$	772		$	(57	)	$	1,293
Cost of sales	505			—			678			(57		)	1,126
Gross profit	73			—			94			—			167
Selling, general and administrative expense	27			—			67			—			94
Business realignment costs	5			—			1			—			6
Other operating expense, net	1			—			3			—			4
Operating income	40			—			23			—			63
Interest expense, net	75			—			2			—			77
Intercompany interest (income) expense, net	(25		)	—			25			—			—
Other non-operating expense, net	—			—			2			—			2
Loss before income tax and (losses) earnings from unconsolidated entities	(10		)	—			(6		)	—			(16		)
Income tax (benefit) expense	(5		)	—			11			—			6
Loss before (losses) earnings from unconsolidated entities	(5		)	—			(17		)	—			(22		)
(Losses) earnings from unconsolidated entities, net of taxes	(13		)	(1		)	1			17			4
Net loss	$	(18	)	$	(1	)	$	(16	)	$	17		$	(18	)
Comprehensive loss	$	(15	)	$	(1	)	$	(7	)	$	8		$	(15	)

INC.

THREE MONTHS ENDED MARCH 31, 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	$	(28	)		$	4		$	63			$	(4	)	$	35
Cash flows provided by (used in) investing activities
Capital expenditures	(20		)		—			(20		)		—			(40		)
Proceeds from the sale of investments, net	—				—			4				—			4
Return of capital from subsidiary from sales of accounts receivable	59			(a)	—			—				(59		)	—
	39				—			(16		)		(59		)	(36		)
Cash flows (used in) provided by financing activities
Net short-term debt repayments	(3		)		—			—				—			(3		)
Borrowings of long-term debt	100				—			19				—			119
Repayments of long-term debt	(100		)		—			(14		)		—			(114		)
Net intercompany loan (repayments) borrowings	(6		)		—			6				—			—
Common stock dividends paid	—				(4		)	—				4			—
Return of capital to parent from sales of accounts receivable	—				—			(59		)	(a)	59			—
	(9		)		(4		)	(48		)		63			2
Effect of exchange rates on cash and cash equivalents	—				—			(5		)		—			(5		)
Increase (decrease) in cash and cash equivalents	2				—			(6		)		—			(4		)
Cash and cash equivalents (unrestricted) at beginning of period	23				—			133				—			156
Cash and cash equivalents (unrestricted) at end of period	$	25			$	—		$	127			$	—		$	152

(a)

During the three months ended March 31, 2015, Hexion Inc. contributed receivables of $59 to a non-guarantor subsidiary as capital contributions, resulting in a non-cash transaction. During the three months ended March 31, 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.

HEXION INC.

THREE MONTHS ENDED MARCH 31, 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	$	(120	)		$	3		$	18			$	(3	)	$	(102	)
Cash flows provided by (used in) investing activities
Capital expenditures	(18		)		—			(16		)		—			(34		)
Proceeds from sale of investments, net	—				—			3				—			3
Acquisition of businesses	(52		)		—			—				—			(52		)
Return of capital from subsidiary from sales of accounts receivable	92			(a)	—							(92		)	—
	22				—			(13		)		(92		)	(83		)
Cash flows (used in) provided by financing activities
Net short-term debt borrowings	—				—			8				—			8
Repayments of long-term debt	—				—			(3		)		—			(3		)
Net intercompany loan (repayments) borrowings	(23		)		—			23				—			—
Common stock dividends paid	—				(3		)	—				3			—
Return of capital to parent from sales of accounts receivable	—				—			(92		)	(a)	92			—
	(23		)		(3		)	(64		)		95			5
Effect of exchange rates on cash and cash equivalents	—				—			(2		)		—			(2		)
Decrease in cash and cash equivalents	(121		)		—			(61		)		—			(182		)
Cash and cash equivalents (unrestricted) at beginning of period	170				—			209				—			379
Cash and cash equivalents (unrestricted) at end of period	$	49			$	—		$	148			$	—		$	197

(a)

During the three months ended March 31, 2014, Hexion Inc. contributed receivables of $92 to a non-guarantor subsidiary as capital contributions, resulting in a non-cash transaction. During the three months ended March 31, 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.