Guarantor Non-Guarantor Subsidiary Financial Information

3 Months Ended

Mar. 31, 2016

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, 10.00% First-Priority Senior Secured Notes due 2020, 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.

HEXION INC.

MARCH 31, 2016

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 $11, respectively)	$	20		$	—		$	99		$	—		$	119
Accounts receivable, net	133			1			374			—			508
Intercompany accounts receivable	159			—			44			(203		)	—
Intercompany loans receivable - current portion	—			—			63			(63		)	—
Inventories:
Finished and in-process goods	105			—			124			—			229
Raw materials and supplies	35			—			54			—			89
Current assets held for sale	10			—			57			—			67
Other current assets	14			—			39			—			53
Total current assets	476			1			854			(266		)	1,065
Investment in unconsolidated entities	127			29			22			(141		)	37
Deferred income taxes	2			—			9			—			11
Long-term assets held for sale	6			—			74			—			80
Other assets, net	19			6			21			—			46
Intercompany loans receivable	1,165			6			214			(1,385		)	—
Property and equipment, net	503			—			441			—			944
Goodwill	66			—			59			—			125
Other intangible assets, net	47			—			15			—			62
Total assets	$	2,411		$	42		$	1,709		$	(1,792	)	$	2,370
Liabilities and Deficit
Current liabilities:
Accounts payable	$	112		$	—		$	207		$	—		$	319
Intercompany accounts payable	44			—			159			(203		)	—
Debt payable within one year	3			—			63			—			66
Intercompany loans payable within one year	63			—			—			(63		)	—
Interest payable	98			—			1			—			99
Income taxes payable	10			—			—			—			10
Accrued payroll and incentive compensation	55			—			44			—			99
Current liabilities associated with assets held for sale	6			—			50			—			56
Other current liabilities	70			—			40			—			110
Total current liabilities	461			—			564			(266		)	759
Long-term liabilities:
Long-term debt	3,661			—			39			—			3,700
Intercompany loans payable	208			6			1,171			(1,385		)	—
Accumulated losses of unconsolidated subsidiaries in excess of investment	427			141			—			(568		)	—
Long-term pension and post employment benefit obligations	43			—			184			—			227
Deferred income taxes	(2		)	—			15			—			13
Long-term liabilities associated with assets held for sale	—			—			10			—			10
Other long-term liabilities	107			—			49			—			156
Total liabilities	4,905			147			2,032			(2,219		)	4,865
Total Hexion Inc. shareholder’s deficit	(2,494		)	(105		)	(322		)	427			(2,494		)
Noncontrolling interest	—			—			(1		)	—			(1		)
Total deficit	(2,494		)	(105		)	(323		)	427			(2,495		)
Total liabilities and deficit	$	2,411		$	42		$	1,709		$	(1,792	)	$	2,370

HEXION INC.

DECEMBER 31, 2015

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 $8, respectively)	$	62		$	—		$	174		$	—		$	236
Accounts receivable, net	115			1			334			—			450
Intercompany accounts receivable	132			—			154			(286		)	—
Intercompany loans receivable	—			—			174			(174		)	—
Inventories:
Finished and in-process goods	97			—			121			—			218
Raw materials and supplies	34			—			56			—			90
Other current assets	29			—			24			—			53
Total current assets	469			1			1,037			(460		)	1,047
Investment in unconsolidated entities	117			28			21			(130		)	36
Deferred income taxes	—			—			13			—			13
Other long-term assets	21			6			21			—			48
Intercompany loans receivable	1,269			6			108			(1,383		)	—
Property and equipment, net	559			—			492			—			1,051
Goodwill	65			—			57			—			122
Other intangible assets, net	49			—			16			—			65
Total assets	$	2,549		$	41		$	1,765		$	(1,973	)	$	2,382
Liabilities and Deficit
Current liabilities:
Accounts payable	$	148		$	—		$	238		$	—		$	386
Intercompany accounts payable	154			—			132			(286		)	—
Debt payable within one year	6			—			74			—			80
Intercompany loans payable within one year	174			—			—			(174		)	—
Interest payable	80			—			2			—			82
Income taxes payable	7			—			8			—			15
Accrued payroll and incentive compensation	43			—			35			—			78
Other current liabilities	73			—			50			—			123
Total current liabilities	685			—			539			(460		)	764
Long term liabilities:
Long-term debt	3,656			—			42			—			3,698
Intercompany loans payable	93			6			1,284			(1,383		)	—
Accumulated losses of unconsolidated subsidiaries in excess of investment	429			130			—			(559		)	—
Long-term pension and post employment benefit obligations	45			—			179			—			224
Deferred income taxes	6			—			6			—			12
Other long-term liabilities	111			—			50			—			161
Total liabilities	5,025			136			2,100			(2,402		)	4,859
Total Hexion Inc. shareholder’s deficit	(2,476		)	(95		)	(334		)	429			(2,476		)
Noncontrolling interest	—			—			(1		)	—			(1		)
Total deficit	(2,476		)	(95		)	(335		)	429			(2,477		)
Total liabilities and deficit	$	2,549		$	41		$	1,765		$	(1,973	)	$	2,382

HEXION INC.

THREE MONTHS ENDED MARCH 31, 2016

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Hexion Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	381		$	—		$	578		$	(50	)	$	909
Cost of sales	374			—			478			(50		)	802
Gross profit	7			—			100			—			107
Selling, general and administrative expense	39			—			45			—			84
Business realignment costs	1			—			2			—			3
Other operating expense, net	2			—			1			—			3
Operating (loss) income	(35		)	—			52			—			17
Interest expense, net	77			—			2			—			79
Intercompany interest (income) expense, net	(19		)	—			19			—			—
Gain on extinguishment of debt	(23		)	—			—			—			(23		)
Other non-operating (income) expense, net	(35		)	—			37			—			2
Loss before income tax and (losses) earnings from unconsolidated entities	(35		)	—			(6		)	—			(41		)
Income tax (benefit) expense	(4		)	—			11			—			7
Loss before (losses) earnings from unconsolidated entities	(31		)	—			(17		)	—			(48		)
(Losses) earnings from unconsolidated entities, net of taxes	(13		)	(5		)	—			22			4
Net loss	$	(44	)	$	(5	)	$	(17	)	$	22		$	(44	)
Comprehensive (loss) income	$	(18	)	$	(6	)	$	(2	)	$	8		$	(18	)

HEXION 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, 2016

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	$	(99	)		$	4		$	(2	)		$	(4	)	$	(101	)
Cash flows provided by (used in) investing activities
Capital expenditures	(18		)		—			(9		)		—			(27		)
Change in restricted cash	—				—			(3		)		—			(3		)
Return of capital from subsidiary from sales of accounts receivable	27			(a)	—			—				(27		)	—
	9				—			(12		)		(27		)	(30		)
Cash flows provided by (used in) financing activities
Net short-term debt repayments	(4		)		—			(9		)		—			(13		)
Borrowings of long-term debt	110				—			16				—			126
Repayments of long-term debt	(84		)		—			(19		)		—			(103		)
Net intercompany loan borrowings (repayments)	26				—			(26		)		—			—
Common stock dividends paid	—				(4		)	—				4			—
Return of capital to parent from sales of accounts receivable	—				—			(27		)	(a)	27			—
	48				(4		)	(65		)		31			10
Effect of exchange rates on cash and cash equivalents	—				—			2				—			2
Decrease in cash and cash equivalents	(42		)		—			(77		)		—			(119		)
Cash and cash equivalents (unrestricted) at beginning of period	62				—			166				—			228
Cash and cash equivalents (unrestricted) at end of period	$	20			$	—		$	89			$	—		$	109

(a) During the three months ended March 31, 2016, Hexion Inc. contributed receivables of $27 to a non-guarantor subsidiary as capital contributions, resulting in a non-cash transaction. During the three months ended March 31, 2016, 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, 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 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 provided by (used in) 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.