Guarantor Non-Guarantor Subsidiary Financial Information

9 Months Ended

Sep. 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.

SEPTEMBER 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 $19, respectively)	$	49		$	—		$	96		$	—		$	145
Accounts receivable, net	140			1			357			—			498
Intercompany accounts receivable	115			—			38			(153		)	—
Intercompany loans receivable - current portion	27			—			144			(171		)	—
Inventories:
Finished and in-process goods	90			—			131			—			221
Raw materials and supplies	35			—			63			—			98
Other current assets	42			—			38			—			80
Total current assets	498			1			867			(324		)	1,042
Investment in unconsolidated entities	79			6			18			(86		)	17
Deferred income taxes	—			—			10			—			10
Other assets, net	15			6			22			—			43
Intercompany loans receivable	1,080			—			214			(1,294		)	—
Property and equipment, net	444			—			448			—			892
Goodwill	66			—			58			—			124
Other intangible assets, net	43			—			13			—			56
Total assets	$	2,225		$	13		$	1,650		$	(1,704	)	$	2,184
Liabilities and Deficit
Current liabilities:
Accounts payable	$	106		$	—		$	205		$	—		$	311
Intercompany accounts payable	38			—			115			(153		)	—
Debt payable within one year	8			—			61			—			69
Intercompany loans payable within one year	144			—			27			(171		)	—
Interest payable	95			—			1			—			96
Income taxes payable	22			—			2			—			24
Accrued payroll and incentive compensation	23			—			35			—			58
Other current liabilities	104			—			56			—			160
Total current liabilities	540			—			502			(324		)	718
Long-term liabilities:
Long-term debt	3,430			—			45			—			3,475
Intercompany loans payable	210			6			1,078			(1,294		)	—
Accumulated losses of unconsolidated subsidiaries in excess of investment	313			86			—			(399		)	—
Long-term pension and post employment benefit obligations	41			—			183			—			224
Deferred income taxes	(3		)	—			17			—			14
Other long-term liabilities	104			—			60			—			164
Advance from affiliates	—			—			—			—			—
Total liabilities	4,635			92			1,885			(2,017		)	4,595
Total Hexion Inc. shareholder’s deficit	(2,410		)	(79		)	(234		)	313			(2,410		)
Noncontrolling interest	—			—			(1		)	—			(1		)
Total deficit	(2,410		)	(79		)	(235		)	313			(2,411		)
Total liabilities and deficit	$	2,225		$	13		$	1,650		$	(1,704	)	$	2,184

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 SEPTEMBER 30, 2016

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Hexion Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	356		$	—		$	507		$	(44	)	$	819
Cost of sales	325			—			420			(44		)	701
Gross profit	31			—			87			—			118
Selling, general and administrative expense	30			—			39			—			69
Business realignment (income) costs	(7		)	—			4			—			(3		)
Other operating expense (income), net	10			6			(9		)	—			7
Operating (loss) income	(2		)	(6		)	53			—			45
Interest expense, net	74			—			2			—			76
Intercompany interest (income) expense, net	(18		)	—			18			—			—
Gain on extinguishment of debt	(3		)	—			—			—			(3		)
Other non-operating (income) expense, net	(5		)	—			7			—			2
(Loss) income before income tax and earnings (losses) from unconsolidated entities	(50		)	(6		)	26			—			(30		)
Income tax expense	9			—			7			—			16
(Loss) income before earnings (losses) from unconsolidated entities	(59		)	(6		)	19			—			(46		)
Earnings (losses) from unconsolidated entities, net of taxes	12			(1		)	—			(12		)	(1		)
Net (loss) income	$	(47	)	$	(7	)	$	19		$	(12	)	$	(47	)
Comprehensive (loss) income	$	(40	)	$	(7	)	$	26		$	(19	)	$	(40	)

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.

NINE MONTHS ENDED SEPTEMBER 30, 2016

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Hexion Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	1,119		$	—		$	1,701		$	(140	)	$	2,680
Cost of sales	1,080			—			1,417			(140		)	2,357
Gross profit	39			—			284			—			323
Selling, general and administrative expense	109			—			126			—			235
Gain on dispositions	(188		)	—			(52		)	—			(240		)
Business realignment costs	31			—			11			—			42
Other operating expense (income), net	14			6			(14		)	—			6
Operating income (loss)	73			(6		)	213			—			280
Interest expense, net	227			—			8			—			235
Intercompany interest (income) expense, net	(55		)	—			55			—			—
Gain on extinguishment of debt	(47		)	—			—			—			(47		)
Other non-operating (income) expense, net	(16		)	—			17			—			1
(Loss) income before income tax and earnings from unconsolidated entities	(36		)	(6		)	133			—			91
Income tax expense	5			—			35			—			40
(Loss) income before earnings from unconsolidated entities	(41		)	(6		)	98			—			51
Earnings from unconsolidated entities, net of taxes	100			45			2			(139		)	8
Net income	$	59		$	39		$	100		$	(139	)	$	59
Comprehensive income	$	66		$	39		$	100		$	(139	)	$	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 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, 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	$	(198	)		$	4		$	67			$	(4	)	$	(131	)
Cash flows provided by (used in) investing activities
Capital expenditures	(47		)		—			(44		)		—			(91		)
Capitalized interest	(1		)		—			—				—			(1		)
Proceeds from dispositions, net	146				—			135				—			281
Cash received on buyer’s note	45				—			—				—			45
Proceeds from sale of assets, net	—				—			1				—			1
Change in restricted cash	—				—			(11		)		—			(11		)
Capital contribution to subsidiary	(13		)		(9		)	—				22			—
Investment in unconsolidated affiliates, net	(1		)		—			—				—			(1		)
Return of capital from subsidiary from sales of accounts receivable	70			(a)	—			—				(70		)	—
	199				(9		)	81				(48		)	223
Cash flows (used in) provided by financing activities
Net short-term debt borrowings (repayments)	2				—			(15		)		—			(13		)
Borrowings of long-term debt	280				—			181				—			461
Repayments of long-term debt	(467		)		—			(176		)		—			(643		)
Net intercompany loan borrowings (repayments)	171				—			(171		)		—			—
Capital contributions	—				9			13				(22		)	—
Common stock dividends paid	—				(4		)	—				4			—
Return of capital to parent from sales of accounts receivable	—				—			(70		)	(a)	70			—
	(14		)		5			(238		)		52			(195		)
Effect of exchange rates on cash and cash equivalents	—				—			1				—			1
Decrease in cash and cash equivalents	(13		)		—			(89		)		—			(102		)
Cash and cash equivalents (unrestricted) at beginning of period	62				—			166				—			228
Cash and cash equivalents (unrestricted) at end of period	$	49			$	—		$	77			$	—		$	126

(a) During the nine months ended September 30, 2016, Hexion Inc. contributed receivables of $70 to a non-guarantor subsidiary as capital contributions, resulting in a non-cash transaction. During the nine months ended September 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.

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 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.