Guarantor Non-Guarantor Subsidiary Financial Information

6 Months Ended

Jun. 30, 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.

JUNE 30, 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 $18, respectively)	$	43		$	—		$	147		$	—		$	190
Accounts receivable, net	136			1			383			—			520
Intercompany accounts receivable	89			—			34			(123		)	—
Intercompany loans receivable - current portion	—			—			186			(186		)	—
Inventories:
Finished and in-process goods	101			—			108			—			209
Raw materials and supplies	38			—			59			—			97
Other current assets	97			—			28			—			125
Total current assets	504			1			945			(309		)	1,141
Investment in unconsolidated entities	78			13			22			(91		)	22
Deferred income taxes	—			—			10			—			10
Other assets, net	16			6			23			—			45
Intercompany loans receivable	1,163			6			208			(1,377		)	—
Property and equipment, net	467			—			442			—			909
Goodwill	66			—			57			—			123
Other intangible assets, net	45			—			14			—			59
Total assets	$	2,339		$	26		$	1,721		$	(1,777	)	$	2,309
Liabilities and Deficit
Current liabilities:
Accounts payable	$	108		$	—		$	238		$	—		$	346
Intercompany accounts payable	34			—			89			(123		)	—
Debt payable within one year	—			—			67			—			67
Intercompany loans payable within one year	186			—			—			(186		)	—
Interest payable	72			—			2			—			74
Income taxes payable	7			—			10			—			17
Accrued payroll and incentive compensation	25			—			29			—			54
Other current liabilities	104			—			54			—			158
Total current liabilities	536			—			489			(309		)	716
Long-term liabilities:
Long-term debt	3,464			—			91			—			3,555
Intercompany loans payable	205			6			1,166			(1,377		)	—
Accumulated losses of unconsolidated subsidiaries in excess of investment	332			91			—			(423		)	—
Long-term pension and post employment benefit obligations	43			—			179			—			222
Deferred income taxes	5			—			9			—			14
Other long-term liabilities	124			—			49			—			173
Total liabilities	4,709			97			1,983			(2,109		)	4,680
Total Hexion Inc. shareholder’s deficit	(2,370		)	(71		)	(261		)	332			(2,370		)
Noncontrolling interest	—			—			(1		)	—			(1		)
Total deficit	(2,370		)	(71		)	(262		)	332			(2,371		)
Total liabilities and deficit	$	2,339		$	26		$	1,721		$	(1,777	)	$	2,309

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 JUNE 30, 2016

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Hexion Inc.			Combined Subsidiary Guarantors		Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	382		$	—	$	616		$	(46	)	$	952
Cost of sales	381			—		519			(46		)	854
Gross profit	1			—		97			—			98
Selling, general and administrative expense	40			—		42			—			82
Gain on dispositions	(188		)	—		(52		)	—			(240		)
Business realignment costs	37			—		5			—			42
Other operating expense (income), net	2			—		(6		)	—			(4		)
Operating income	110			—		108			—			218
Interest expense, net	76			—		4			—			80
Intercompany interest (income) expense, net	(18		)	—		18			—			—
Gain on extinguishment of debt	(21		)	—		—			—			(21		)
Other non-operating expense (income), net	24			—		(27		)	—			(3		)
Income before income tax and earnings from unconsolidated entities	49			—		113			—			162
Income tax expense	—			—		17			—			17
Income before earnings from unconsolidated entities	49			—		96			—			145
Earnings from unconsolidated entities, net of taxes	101			51		2			(149		)	5
Net income	$	150		$	51	$	98		$	(149	)	$	150
Comprehensive income	$	124		$	52	$	76		$	(128	)	$	124

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 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.

SIX MONTHS ENDED JUNE 30, 2016

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Hexion Inc.			Combined Subsidiary Guarantors		Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	763		$	—	$	1,194		$	(96	)	$	1,861
Cost of sales	755			—		997			(96		)	1,656
Gross profit	8			—		197			—			205
Selling, general and administrative expense	79			—		87			—			166
Gain on dispositions	(188		)	—		(52		)	—			(240		)
Business realignment costs	38			—		7			—			45
Other operating expense (income), net	4			—		(5		)	—			(1		)
Operating income	75			—		160			—			235
Interest expense, net	153			—		6			—			159
Intercompany interest (income) expense, net	(37		)	—		37			—			—
Gain on extinguishment of debt	(44		)	—		—			—			(44		)
Other non-operating (income) expense, net	(11		)	—		10			—			(1		)
Income before income tax and earnings from unconsolidated entities	14			—		107			—			121
Income tax (benefit) expense	(4		)	—		28			—			24
Income before earnings from unconsolidated entities	18			—		79			—			97
Earnings from unconsolidated entities, net of taxes	88			46		2			(127		)	9
Net income	$	106		$	46	$	81		$	(127	)	$	106
Comprehensive income	$	106		$	46	$	74		$	(120	)	$	106

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) income before income tax and earnings from unconsolidated entities	(149		)	—		131			—			(18		)
Income tax (benefit) expense	(2		)	—		29			—			27
(Loss) income before earnings 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, 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	$	(145	)		$	4		$	(5	)		$	(4	)	$	(150	)
Cash flows provided by (used in) investing activities
Capital expenditures	(33		)		—			(28		)		—			(61		)
Capitalized interest	(1		)		—			—				—			(1		)
Proceeds from dispositions, net	146				—			135				—			281
Proceeds from sale of assets, net	—				—			1				—			1
Change in restricted cash	—				—			(10		)		—			(10		)
Capital contribution to subsidiary	(13		)		(9		)	—				22			—
Return of capital from subsidiary from sales of accounts receivable	51			(a)	—			—				(51		)	—
	150				(9		)	98				(29		)	210
Cash flows (used in) provided by financing activities
Net short-term debt repayments	(6		)		—			(6		)		—			(12		)
Borrowings of long-term debt	160				—			175				—			335
Repayments of long-term debt	(314		)		—			(125		)		—			(439		)
Net intercompany loan borrowings (repayments)	136				—			(136		)		—			—
Capital Contributions	—				9			13				(22		)	—
Common stock dividends paid	—				(4		)	—				4			—
Return of capital to parent from sales of accounts receivable	—				—			(51		)	(a)	51			—
	(24		)		5			(130		)		33			(116		)
Effect of exchange rates on cash and cash equivalents	—				—			—				—			—
Decrease in cash and cash equivalents	(19		)		—			(37		)		—			(56		)
Cash and cash equivalents (unrestricted) at beginning of period	62				—			166				—			228
Cash and cash equivalents (unrestricted) at end of period	$	43			$	—		$	129			$	—		$	172

(a) During the six months ended June 30, 2016, Hexion Inc. contributed receivables of $51 to a non-guarantor subsidiary as capital contributions, resulting in a non-cash transaction. During the six months ended June 30, 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.

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 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 provided by (used in) 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.