Guarantor Non-Guarantor Subsidiary Financial Information

3 Months Ended

Mar. 31, 2017

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, 10.375% First-Priority Senior Secured Notes due 2022, 13.75% Senior Secured Notes due 2022 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.; 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, Brazilian and China subsidiaries contain certain restrictions related to 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, 2017

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 $16, respectively)	$	12		$	—		$	111		$	—		$	123
Accounts receivable, net	126			2			353			—			481
Intercompany accounts receivable	110			—			26			(136		)	—
Intercompany loans receivable - current portion	15			—			—			(15		)	—
Inventories:
Finished and in-process goods	90			—			131			—			221
Raw materials and supplies	42			—			63			—			105
Other current assets	14			—			33			—			47
Total current assets	409			2			717			(151		)	977
Investment in unconsolidated entities	97			13			19			(110		)	19
Deferred income taxes	—			—			11			—			11
Other assets, net	17			6			24			—			47
Intercompany loans receivable	1,068			—			283			(1,351		)	—
Property and equipment, net	443			—			455			—			898
Goodwill	66			—			56			—			122
Other intangible assets, net	39			—			10			—			49
Total assets	$	2,139		$	21		$	1,575		$	(1,612	)	$	2,123
Liabilities and Deficit
Current liabilities:
Accounts payable	$	134		$	—		$	240		$	—		$	374
Intercompany accounts payable	26			—			110			(136		)	—
Debt payable within one year	2			—			116			—			118
Intercompany loans payable within one year	—			—			15			(15		)	—
Interest payable	96			—			2			—			98
Income taxes payable	6			—			9			—			15
Accrued payroll and incentive compensation	28			—			32			—			60
Other current liabilities	89			—			48			—			137
Total current liabilities	381			—			572			(151		)	802
Long-term liabilities:
Long-term debt	3,396			—			74			—			3,470
Intercompany loans payable	283			—			1,068			(1,351		)	—
Accumulated losses of unconsolidated subsidiaries in excess of investment	503			110			—			(613		)	—
Long-term pension and post employment benefit obligations	42			—			205			—			247
Deferred income taxes	4			—			9			—			13
Other long-term liabilities	104			—			62			—			166
Total liabilities	4,713			110			1,990			(2,115		)	4,698
Total Hexion Inc. shareholder’s deficit	(2,574		)	(89		)	(414		)	503			(2,574		)
Noncontrolling interest	—			—			(1		)	—			(1		)
Total deficit	(2,574		)	(89		)	(415		)	503			(2,575		)
Total liabilities and deficit	$	2,139		$	21		$	1,575		$	(1,612	)	$	2,123

HEXION INC.

DECEMBER 31, 2016

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 $17, respectively)	$	28		$	—		$	168		$	—		$	196
Accounts receivable, net	119			1			270			—			390
Intercompany accounts receivable	106			—			60			(166		)	—
Intercompany loans receivable - current portion	—			—			175			(175		)	—
Inventories:
Finished and in-process goods	82			—			117			—			199
Raw materials and supplies	31			—			57			—			88
Other current assets	26			—			19			—			45
Total current assets	392			1			866			(341		)	918
Investment in unconsolidated entities	93			13			18			(106		)	18
Deferred income taxes	—			—			10			—			10
Other long-term assets	17			6			20			—			43
Intercompany loans receivable	1,050			—			180			(1,230		)	—
Property and equipment, net	448			—			445			—			893
Goodwill	65			—			56			—			121
Other intangible assets, net	41			—			11			—			52
Total assets	$	2,106		$	20		$	1,606		$	(1,677	)	$	2,055
Liabilities and Deficit
Current liabilities:
Accounts payable	$	142		$	—		$	226		$	—		$	368
Intercompany accounts payable	60			—			106			(166		)	—
Debt payable within one year	6			—			101			—			107
Intercompany loans payable within one year	175			—			—			(175		)	—
Interest payable	69			—			1			—			70
Income taxes payable	6			—			7			—			13
Accrued payroll and incentive compensation	28			—			27			—			55
Other current liabilities	110			—			49			—			159
Total current liabilities	596			—			517			(341		)	772
Long term liabilities:
Long-term debt	3,378			—			19			—			3,397
Intercompany loans payable	180			—			1,050			(1,230		)	—
Accumulated losses of unconsolidated subsidiaries in excess of investment	339			106			—			(445		)	—
Long-term pension and post employment benefit obligations	42			—			204			—			246
Deferred income taxes	4			—			9			—			13
Other long-term liabilities	105			—			61			—			166
Total liabilities	4,644			106			1,860			(2,016		)	4,594
Total Hexion Inc. shareholder’s deficit	(2,538		)	(86		)	(253		)	339			(2,538		)
Noncontrolling interest	—			—			(1		)	—			(1		)
Total deficit	(2,538		)	(86		)	(254		)	339			(2,539		)
Total liabilities and deficit	$	2,106		$	20		$	1,606		$	(1,677	)	$	2,055

HEXION INC.

THREE MONTHS ENDED MARCH 31, 2017

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Hexion Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	378		$	—		$	543		$	(51	)	$	870
Cost of sales	322			—			466			(51		)	737
Gross profit	56			—			77			—			133
Selling, general and administrative expense	31			—			46			—			77
Business realignment costs	4			—			3			—			7
Other operating income, net	(6		)	—			—			—			(6		)
Operating income	27			—			28			—			55
Interest expense, net	80			—			3			—			83
Intercompany interest (income) expense, net	(17		)	—			17			—			—
Loss on extinguishment of debt	3			—			—			—			3
Other non-operating (income) expense, net	(6		)	—			10			—			4
Loss before tax and earnings from unconsolidated entities	(33		)	—			(2		)	—			(35		)
Income tax (benefit) expense	(6		)	—			14			—			8
Loss before earnings from unconsolidated entities	(27		)	—			(16		)	—			(43		)
(Losses) earnings from unconsolidated entities, net of taxes	(15		)	(2		)	1			17			1
Net loss	$	(42	)	$	(2	)	$	(15	)	$	17		$	(42	)
Comprehensive loss	$	(36	)	$	(3	)	$	(3	)	$	6		$	(36	)

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 earnings from unconsolidated entities	(35		)	—			(6		)	—			(41		)
Income tax (benefit) expense	(4		)	—			11			—			7
Loss before 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	$	(18	)	$	(6	)	$	(2	)	$	8		$	(18	)

HEXION INC.

THREE MONTHS ENDED MARCH 31, 2017

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)

	Hexion Inc.				Combined Subsidiary Guarantors		Combined Non-Guarantor Subsidiaries				Eliminations			Consolidated
Cash flows used in operating activities	$	(93	)		$	—	$	(25	)		$	—		$	(118	)
Cash flows provided by (used in) investing activities
Capital expenditures	(13		)		—		(17		)		—			(30		)
Proceeds from sale of assets, net	4				—		—				—			4
Change in restricted cash	—				—		1				—			1
Return of capital from subsidiary from sales of accounts receivable	33			(a)	—		—				(33		)	—
	24				—		(16		)		(33		)	(25		)
Cash flows provided by (used in) financing activities
Net short-term debt (repayments) borrowings	(3		)		—		14				—			11
Borrowings of long-term debt	770				—		101				—			871
Repayments of long-term debt	(742		)		—		(49		)		—			(791		)
Net intercompany loan borrowings (repayments)	46				—		(46		)		—			—
Long-term debt and credit facility financing fees paid	(18		)		—		(4		)		—			(22		)
Return of capital to parent from sales of accounts receivable	—				—		(33		)	(a)	33			—
	53				—		(17		)		33			69
Effect of exchange rates on cash and cash equivalents	—				—		2				—			2
Change in cash and cash equivalents	(16		)		—		(56		)		—			(72		)
Cash and cash equivalents (unrestricted) at beginning of period	28				—		151				—			179
Cash and cash equivalents (unrestricted) at end of period	$	12			$	—	$	95			$	—		$	107

(a) During the three months ended March 31, 2017, Hexion Inc. contributed receivables of $33 to a non-guarantor subsidiary as capital contributions, resulting in a non-cash transaction. During the three months ended March 31, 2017, 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, 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
Change 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.