Guarantor Non-Guarantor Subsidiary Financial Information

6 Months Ended

Jun. 30, 2015

Guarantor Non Guarantor Subsidary Financial Information [Abstract]

Guarantees [Text Block]

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.

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

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

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

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	)

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	)

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	)

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.

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.