Guarantor Non-Guarantor Subsidiary Financial Information

9 Months Ended

Sep. 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. (dissolved in September 2017)) 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.

SEPTEMBER 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)	$	6		$	—		$	112		$	—		$	118
Accounts receivable, net	131			2			367			—			500
Intercompany accounts receivable	104			—			22			(126		)	—
Intercompany loans receivable - current portion	9			—			—			(9		)	—
Inventories:
Finished and in-process goods	87			—			153			—			240
Raw materials and supplies	35			—			57			—			92
Other current assets	16			—			33			—			49
Total current assets	388			2			744			(135		)	999
Investment in unconsolidated entities	146			13			20			(159		)	20
Deferred income taxes	1			—			11			—			12
Other assets, net	16			6			27			—			49
Intercompany loans receivable	1,110			—			208			(1,318		)	—
Property and equipment, net	416			—			502			—			918
Goodwill	52			—			61			—			113
Other intangible assets, net	35			—			10			—			45
Total assets	$	2,164		$	21		$	1,583		$	(1,612	)	$	2,156
Liabilities and Deficit
Current liabilities:
Accounts payable	$	109		$	—		$	238		$	—		$	347
Intercompany accounts payable	22			—			104			(126		)	—
Debt payable within one year	10			—			111			—			121
Intercompany loans payable within one year	—			—			9			(9		)	—
Interest payable	99			—			2			—			101
Income taxes payable	8			—			5			—			13
Accrued payroll and incentive compensation	10			—			37			—			47
Other current liabilities	69			—			57			—			126
Total current liabilities	327			—			563			(135		)	755
Long-term liabilities:
Long-term debt	3,528			—			84			—			3,612
Intercompany loans payable	208			—			1,110			(1,318		)	—
Accumulated losses of unconsolidated subsidiaries in excess of investment	614			159			—			(773		)	—
Long-term pension and post employment benefit obligations	39			—			224			—			263
Deferred income taxes	2			—			11			—			13
Other long-term liabilities	105			—			68			—			173
Total liabilities	4,823			159			2,060			(2,226		)	4,816
Total Hexion Inc. shareholder’s deficit	(2,659		)	(138		)	(476		)	614			(2,659		)
Noncontrolling interest	—			—			(1		)	—			(1		)
Total deficit	(2,659		)	(138		)	(477		)	614			(2,660		)
Total liabilities and deficit	$	2,164		$	21		$	1,583		$	(1,612	)	$	2,156

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 SEPTEMBER 30, 2017

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Hexion Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	400		$	—		$	558		$	(44	)	$	914
Cost of sales	360			—			481			(44		)	797
Gross profit	40			—			77			—			117
Selling, general and administrative expense	28			—			47			—			75
Asset impairments	13			—			—			—			13
Business realignment costs	6			—			4			—			10
Other operating expense (income), net	3			—			(2		)	—			1
Operating (loss) income	(10		)	—			28			—			18
Interest expense, net	78			—			4			—			82
Intercompany interest (income) expense, net	(20		)	—			20			—			—
Other non-operating (income) expense, net	(24		)	—			21			—			(3		)
Loss before tax and (losses) earnings from unconsolidated entities	(44		)	—			(17		)	—			(61		)
Income tax expense	3			—			6			—			9
Loss before (losses) earnings from unconsolidated entities	(47		)	—			(23		)	—			(70		)
(Losses) earnings from unconsolidated entities, net of taxes	(23		)	(18		)	1			40			—
Net loss	$	(70	)	$	(18	)	$	(22	)	$	40		$	(70	)
Comprehensive loss	$	(60	)	$	(18	)	$	(22	)	$	40		$	(60	)

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.

NINE MONTHS ENDED SEPTEMBER 30, 2017

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Hexion Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	1,195		$	—		$	1,651		$	(150	)	$	2,696
Cost of sales	1,037			—			1,425			(150		)	2,312
Gross profit	158			—			226			—			384
Selling, general and administrative expense	91			—			136			—			227
Asset impairments	13			—			—			—			13
Business realignment costs	16			—			11			—			27
Other operating expense, net	—			—			4			—			4
Operating income	38			—			75			—			113
Interest expense, net	236			—			11			—			247
Intercompany interest (income) expense, net	(55		)	—			55			—			—
Loss on extinguishment of debt	3			—			—			—			3
Other non-operating (income) expense, net	(78		)	—			74			—			(4		)
Loss before tax and (losses) earnings from unconsolidated entities	(68		)	—			(65		)	—			(133		)
Income tax (benefit) expense	(1		)	—			17			—			16
Loss before (losses) earnings from unconsolidated entities	(67		)	—			(82		)	—			(149		)
(Losses) earnings from unconsolidated entities, net of taxes	(79		)	(52		)	3			131			3
Net loss	$	(146	)	$	(52	)	$	(79	)	$	131		$	(146	)
Comprehensive loss	$	(121	)	$	(52	)	$	(71	)	$	123		$	(121	)

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, 2017

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	$	(245	)		$	—	$	41			$	(1	)	$	(205	)
Cash flows provided by (used in) investing activities
Capital expenditures	(33		)		—		(53		)		—			(86		)
Capitalized interest	—				—		(1		)		—			(1		)
Proceeds from sale of assets, net	5				—		—				—			5
Change in restricted cash	—				—		1				—			1
Return of capital from subsidiary from sales of accounts receivable	117			(a)	—		—				(117		)	—
	89				—		(53		)		(117		)	(81		)
Cash flows provided by (used in) financing activities
Net short-term debt borrowings	4				—		11				—			15
Borrowings of long-term debt	1,007				—		284				—			1,291
Repayments of long-term debt	(850		)		—		(229		)		—			(1,079		)
Net intercompany loan borrowings (repayments)	(7		)		—		7				—			—
Long-term debt and credit facility financing fees paid	(20		)		—		(5		)		—			(25		)
Common stock dividends paid	—				—		(1		)		1			—
Return of capital to parent from sales of accounts receivable	—				—		(117		)	(a)	117			—
	134				—		(50		)		118			202
Effect of exchange rates on cash and cash equivalents	—				—		5				—			5
Change in cash and cash equivalents	(22		)		—		(57		)		—			(79		)
Cash and cash equivalents (unrestricted) at beginning of period	28				—		151				—			179
Cash and cash equivalents (unrestricted) at end of period	$	6			$	—	$	94			$	—		$	100

(a) During the nine months ended September 30, 2017, Hexion Inc. contributed receivables of $117 to a non-guarantor subsidiary as capital contributions, resulting in a non-cash transaction. During the nine months ended September 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.

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.