Guarantor Non-Guarantor Subsidiary Financial Information

9 Months Ended

Sep. 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.

SEPTEMBER 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 $8, respectively)	$	45		$	—		$	150		$	—		$	195
Accounts receivable, net	139			—			440			—			579
Intercompany accounts receivable	126			—			106			(232		)	—
Intercompany loans receivable - current portion	—			—			56			(56		)	—
Inventories:
Finished and in-process goods	104			—			154			—			258
Raw materials and supplies	41			—			63			—			104
Other current assets	32			—			36			—			68
Total current assets	487			—			1,005			(288		)	1,204
Investment in unconsolidated entities	151			30			19			(164		)	36
Deferred income taxes	—			—			16			—			16
Other assets, net	77			6			23			—			106
Intercompany loans receivable	1,256			29			109			(1,394		)	—
Property and equipment, net	548			—			495			—			1,043
Goodwill	66			—			58			—			124
Other intangible assets, net	50			—			19			—			69
Total assets	$	2,635		$	65		$	1,744		$	(1,846	)	$	2,598
Liabilities and Deficit
Current liabilities:
Accounts payable	$	127		$	—		$	259		$	—		$	386
Intercompany accounts payable	106			—			126			(232		)	—
Debt payable within one year	9			—			66			—			75
Intercompany loans payable within one year	56			—			—			(56		)	—
Interest payable	100			—			2			—			102
Income taxes payable	6			—			15			—			21
Accrued payroll and incentive compensation	34			—			37			—			71
Other current liabilities	68			—			50			—			118
Total current liabilities	506			—			555			(288		)	773
Long-term liabilities:
Long-term debt	3,795			—			48			—			3,843
Intercompany loans payable	108			6			1,280			(1,394		)	—
Accumulated losses of unconsolidated subsidiaries in excess of investment	501			164			—			(665		)	—
Long-term pension and post employment benefit obligations	50			—			202			—			252
Deferred income taxes	10			—			8			—			18
Other long-term liabilities	115			—			49			—			164
Total liabilities	5,085			170			2,142			(2,347		)	5,050
Total Hexion Inc. shareholder’s deficit	(2,450		)	(105		)	(396		)	501			(2,450		)
Noncontrolling interest	—			—			(2		)	—			(2		)
Total deficit	(2,450		)	(105		)	(398		)	501			(2,452		)
Total liabilities and deficit	$	2,635		$	65		$	1,744		$	(1,846	)	$	2,598

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 SEPTEMBER 30, 2015

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Hexion Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries		Eliminations			Consolidated
Net sales	$	433		$	—		$	675	$	(43	)	$	1,065
Cost of sales	384			—			564		(43		)	905
Gross profit	49			—			111		—			160
Selling, general and administrative expense	29			—			42		—			71
Business realignment costs	1			—			2		—			3
Other operating expense, net	5			—			7		—			12
Operating income	14			—			60		—			74
Interest expense, net	81			—			3		—			84
Intercompany interest (income) expense, net	(20		)	(1		)	21		—			—
Gain on extinguishment of debt	(14		)	—			—		—			(14		)
Other non-operating (income) expense, net	(1		)	—			1		—			—
(Loss) income before income tax and earnings from unconsolidated entities	(32		)	1			35		—			4
Income tax expense	1			—			—		—			1
(Loss) income before earnings from unconsolidated entities	(33		)	1			35		—			3
Earnings from unconsolidated entities, net of taxes	40			17			—		(53		)	4
Net income	$	7		$	18		$	35	$	(53	)	$	7
Comprehensive (loss) income	$	(17	)	$	17		$	20	$	(37	)	$	(17	)

HEXION INC.

THREE MONTHS ENDED SEPTEMBER 30, 2014

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Hexion Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	597		$	—		$	816		$	(66	)	$	1,347
Cost of sales	531			—			723			(66		)	1,188
Gross profit	66			—			93			—			159
Selling, general and administrative expense	24			—			58			—			82
Business realignment costs	4			—			2			—			6
Other operating expense (income), net	1			(1		)	4			—			4
Operating income	37			1			29			—			67
Interest expense, net	76			—			1			—			77
Intercompany interest (income) expense, net	(23		)	—			23			—			—
Other non-operating expense (income), net	62			—			(44		)	—			18
(Loss) income before income tax and earnings from unconsolidated entities	(78		)	1			49			—			(28		)
Income tax (benefit) expense	(8		)	—			10			—			2
(Loss) income before earnings from unconsolidated entities	(70		)	1			39			—			(30		)
Earnings from unconsolidated entities, net of taxes	44			25			2			(67		)	4
Net (loss) income	$	(26	)	$	26		$	41		$	(67	)	$	(26	)
Comprehensive (loss) income	$	(66	)	$	27		$	34		$	(61	)	$	(66	)

HEXION INC.

NINE MONTHS ENDED SEPTEMBER 30, 2015

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Hexion Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	1,341		$	—		$	2,030		$	(140	)	$	3,231
Cost of sales	1,187			—			1,706			(140		)	2,753
Gross profit	154			—			324			—			478
Selling, general and administrative expense	89			—			140			—			229
Business realignment costs	4			—			7			—			11
Other operating expense, net	9			—			13			—			22
Operating income	52			—			164			—			216
Interest expense, net	239			—			6			—			245
Intercompany interest (income) expense, net	(60		)	(1		)	61			—			—
Gain on extinguishment of debt	(14		)	—			—			—			(14		)
Other non-operating expense (income), net	68			—			(69		)	—			(1		)
(Loss) income before income tax and earnings (losses) from unconsolidated entities	(181		)	1			166			—			(14		)
Income tax (benefit) expense	(1		)	—			29			—			28
(Loss) income before earnings from unconsolidated entities	(180		)	1			137			—			(42		)
Earnings from unconsolidated entities, net of taxes	151			95			—			(233		)	13
Net (loss) income	$	(29	)	$	96		$	137		$	(233	)	$	(29	)
Comprehensive (loss) income	$	(102	)	$	96		$	102		$	(198	)	$	(102	)

HEXION INC.

NINE MONTHS ENDED SEPTEMBER 30, 2014

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Hexion Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	1,770		$	—		$	2,392		$	(185	)	$	3,977
Cost of sales	1,560			—			2,112			(185		)	3,487
Gross profit	210			—			280			—			490
Selling, general and administrative expense	75			—			194			—			269
Business realignment costs	19			—			5			—			24
Other operating expense (income), net	4			(1		)	4			—			7
Operating income	112			1			77			—			190
Interest expense, net	225			—			5			—			230
Intercompany interest (income) expense, net	(72		)				72			—			—
Other non-operating expense (income), net	67			—			(44		)	—			23
(Loss) income before income tax and earnings from unconsolidated entities	(108		)	1			44			—			(63		)
Income tax (benefit) expense	(11		)	—			28			—			17
(Loss) income before earnings from unconsolidated entities	(97		)	1			16			—			(80		)
Earnings from unconsolidated entities, net of taxes	31			29			4			(50		)	14
Net (loss) income	$	(66	)	$	30		$	20		$	(50	)	$	(66	)
Comprehensive (loss) income	$	(107	)	$	31		$	16		$	(47	)	$	(107	)

HEXION INC.

NINE MONTHS ENDED SEPTEMBER 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	$	(255	)		$	14		$	321			$	(14	)	$	66
Cash flows provided by (used in) investing activities
Capital expenditures	(63		)		—			(59		)		—			(122		)
Purchase of business, net of cash acquired	—				—			(7		)		—			(7		)
Proceeds from the sale of investments, net	—				—			6				—			6
Proceeds from sale of assets	—				—			1				—			1
Change in restricted cash	—				—			8				—			8
Capital contribution to subsidiary	(13		)		(8		)	—				21			—
Return of capital from subsidiary from sales of accounts receivable	227			(a)	—			—				(227		)	—
	151				(8		)	(51		)		(206		)	(114		)
Cash flows provided by (used in) financing activities
Net short-term debt borrowings (repayments)	3				—			(4		)		—			(1		)
Borrowings of long-term debt	470				—			22				—			492
Repayments of long-term debt	(354		)		—			(39		)		—			(393		)
Net intercompany loan borrowings (repayments)	17				—			(17		)		—			—
Capital Contributions	—				8			13				(21		)	—
Long-term debt and credit facility financing fees	(10		)		—			—				—			(10		)
Common stock dividends paid	—				(14		)	—				14			—
Return of capital to parent from sales of accounts receivable	—				—			(227		)	(a)	227			—
	126				(6		)	(252		)		220			88
Effect of exchange rates on cash and cash equivalents	—				—			(9		)		—			(9		)
Increase in cash and cash equivalents	22				—			9				—			31
Cash and cash equivalents (unrestricted) at beginning of period	23				—			133				—			156
Cash and cash equivalents (unrestricted) at end of period	$	45			$	—		$	142			$	—		$	187

(a) During the nine months ended September 30, 2015, Hexion Inc. contributed receivables of $227 to a non-guarantor subsidiary as capital contributions, resulting in a non-cash transaction. During the nine months ended September 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.

NINE MONTHS ENDED SEPTEMBER 30, 2014

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)

	Hexion Inc.				Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries				Eliminations			Consolidated
Cash flows (used in) provided by operating activities	$	(349	)		$	6		$	220			$	(9	)	$	(132	)
Cash flows provided by (used in) investing activities
Capital expenditures	(74		)		—			(59		)		—			(133		)
Proceeds from sale of investments, net	—				—			(4		)		—			(4		)
Change in restricted cash	—				—			(2		)		—			(2		)
Capital contribution to subsidiary	(16		)		(10		)	—				26			—
Disbursement of affiliated loan	—				—			(50		)		—			(50		)
Repayment of affiliated loan	—				—			50				—			50
Acquisition of businesses	(52		)		—			(12		)		—			(64		)
Return of capital from subsidiary from sales of accounts receivable	272			(a)	—			—				(272		)	—
Investment in unconsolidated affiliates, net	—				—			(2		)		—			(2		)
	130				(10		)	(79		)		(246		)	(205		)
Cash flows provided by (used in) financing activities
Net short-term debt borrowings	8				—			17				—			25
Borrowings of long-term debt	155				—			58				—			213
Repayments of long-term debt	(110		)		—			(64		)					(174		)
Net intercompany loan borrowings (repayments)	10				—			(10		)		—			—
Capital contribution from parent	—				10			16				(26		)	—
Common stock dividends paid	—				(9		)	—				9			—
Return of capital to parent from sales of accounts receivable	—				—			(272		)	(a)	272			—
	63				1			(255		)		255			64
Effect of exchange rates on cash and cash equivalents	—				—			(5		)		—			(5		)
Decrease in cash and cash equivalents	(156		)		(3		)	(119		)		—			(278		)
Cash and cash equivalents (unrestricted) at beginning of period	165				5			209				—			379
Cash and cash equivalents (unrestricted) at end of period	$	9			$	2		$	90			$	—		$	101

(a) During the nine months ended September 30, 2014, Hexion Inc. contributed receivables of $272 to a non-guarantor subsidiary as capital contributions, resulting in a non-cash transaction. During the nine months ended September 30, 2014, the non-guarantor subsidiary sold the contributed receivables to certain banks under various supplier financing agreements. The cash proceeds were returned to Hexion Inc. by the non-guarantor subsidiary as a return of capital. The sale of receivables has been included within cash flows from operating activities on the Combined non-guarantor subsidiaries. The return of the cash proceeds from the sale of receivables has been included as a financing outflow and an investing inflow on the Combined Non-Guarantor Subsidiaries and Hexion Inc., respectively.