Guarantor Non-Guarantor Subsidiary Financial Information

6 Months Ended

Jun. 30, 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 (dissolved in April 2017); 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.

June 30, 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 $18, respectively)	$	12		$	—		$	116		$	—		$	128
Accounts receivable, net	126			2			369			—			497
Intercompany accounts receivable	135			—			25			(160		)	—
Intercompany loans receivable - current portion	4			—			—			(4		)	—
Inventories:
Finished and in-process goods	101			—			143			—			244
Raw materials and supplies	39			—			63			—			102
Other current assets	16			—			29			—			45
Total current assets	433			2			745			(164		)	1,016
Investment in unconsolidated entities	128			13			19			(141		)	19
Deferred income taxes	—			—			12			—			12
Other assets, net	16			6			25			—			47
Intercompany loans receivable	1,075			—			254			(1,329		)	—
Property and equipment, net	436			—			479			—			915
Goodwill	66			—			59			—			125
Other intangible assets, net	37			—			10			—			47
Total assets	$	2,191		$	21		$	1,603		$	(1,634	)	$	2,181
Liabilities and Deficit
Current liabilities:
Accounts payable	$	134		$	—		$	252		$	—		$	386
Intercompany accounts payable	25			—			135			(160		)	—
Debt payable within one year	—			—			114			—			114
Intercompany loans payable within one year	—			—			4			(4		)	—
Interest payable	78			—			3			—			81
Income taxes payable	6			—			1			—			7
Accrued payroll and incentive compensation	4			—			27			—			31
Other current liabilities	80			—			53			—			133
Total current liabilities	327			—			589			(164		)	752
Long-term liabilities:
Long-term debt	3,482			—			103			—			3,585
Intercompany loans payable	254			—			1,075			(1,329		)	—
Accumulated losses of unconsolidated subsidiaries in excess of investment	575			141			—			(716		)	—
Long-term pension and post employment benefit obligations	40			—			218			—			258
Deferred income taxes	5			—			8			—			13
Other long-term liabilities	107			—			66			—			173
Total liabilities	4,790			141			2,059			(2,209		)	4,781
Total Hexion Inc. shareholder’s deficit	(2,599		)	(120		)	(455		)	575			(2,599		)
Noncontrolling interest	—			—			(1		)	—			(1		)
Total deficit	(2,599		)	(120		)	(456		)	575			(2,600		)
Total liabilities and deficit	$	2,191		$	21		$	1,603		$	(1,634	)	$	2,181

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 JUNE 30, 2017

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Hexion Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	417		$	—		$	550		$	(55	)	$	912
Cost of sales	355			—			478			(55		)	778
Gross profit	62			—			72			—			134
Selling, general and administrative expense	32			—			43			—			75
Business realignment costs	6			—			4			—			10
Other operating income, net	3			—			6			—			9
Operating income	21			—			19			—			40
Interest expense, net	78			—			4			—			82
Intercompany interest (income) expense, net	(18		)	—			18			—			—
Other non-operating (income) expense, net	(48		)	—			43			—			(5		)
Income (loss) before tax and earnings from unconsolidated entities	9			—			(46		)	—			(37		)
Income tax expense (benefit)	2			—			(3		)	—			(1		)
Income (loss) before earnings from unconsolidated entities	7			—			(43		)	—			(36		)
(Losses) earnings from unconsolidated entities, net of taxes	(41		)	(32		)	1			74			2
Net loss	$	(34	)	$	(32	)	$	(42	)	$	74		$	(34	)
Comprehensive loss	$	(25	)	$	(31	)	$	(46	)	$	77		$	(25	)

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.

SIX MONTHS ENDED JUNE 30, 2017

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Hexion Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	795		$	—		$	1,093		$	(106	)	$	1,782
Cost of sales	677			—			944			(106		)	1,515
Gross profit	118			—			149			—			267
Selling, general and administrative expense	63			—			89			—			152
Business realignment costs	10			—			7			—			17
Other operating (income) expense, net	(3		)	—			6			—			3
Operating income	48			—			47			—			95
Interest expense, net	158			—			7			—			165
Intercompany interest (income) expense, net	(35		)	—			35			—			—
Loss on extinguishment of debt	3			—			—			—			3
Other non-operating (income) expense, net	(54		)	—			53			—			(1		)
Loss before tax and earnings from unconsolidated entities	(24		)	—			(48		)	—			(72		)
Income tax (benefit) expense	(4		)	—			11			—			7
Loss before earnings from unconsolidated entities	(20		)	—			(59		)	—			(79		)
(Losses) earnings from unconsolidated entities, net of taxes	(56		)	(34		)	2			91			3
Net loss	$	(76	)	$	(34	)	$	(57	)	$	91		(76		)
Comprehensive loss	(61		)	(34		)	(49		)	83			(61		)

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, 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	$	(186	)		$	—	$	(9	)		$	—		$	(195	)
Cash flows provided by (used in) investing activities
Capital expenditures	(23		)		—		(34		)		—			(57		)
Proceeds from sale of assets, net	4				—		—				—			4
Change in restricted cash	—				—		1				—			1
Return of capital from subsidiary from sales of accounts receivable	68			(a)	—		—				(68		)	—
	49				—		(33		)		(68		)	(52		)
Cash flows provided by (used in) financing activities
Net short-term debt (repayments) borrowings	(5		)		—		13				—			8
Borrowings of long-term debt	915				—		204				—			1,119
Repayments of long-term debt	(801		)		—		(127		)		—			(928		)
Net intercompany loan borrowings (repayments)	31				—		(31		)		—			—
Long-term debt and credit facility financing fees paid	(20		)		—		(4		)		—			(24		)
Return of capital to parent from sales of accounts receivable	—				—		(68		)	(a)	68			—
	120				—		(13		)		68			175
Effect of exchange rates on cash and cash equivalents	—				—		3				—			3
Change in cash and cash equivalents	(17		)		—		(52		)		—			(69		)
Cash and cash equivalents (unrestricted) at beginning of period	28				—		151				—			179
Cash and cash equivalents (unrestricted) at end of period	$	11			$	—	$	99			$	—		$	110

(a) During the six months ended June 30, 2017, Hexion Inc. contributed receivables of $68 to a non-guarantor subsidiary as capital contributions, resulting in a non-cash transaction. During the six months ended June 30, 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.

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.