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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.