Guarantor Non-Guarantor Subsidiary Financial Information

9 Months Ended

Sep. 30, 2018

Guarantor Non Guarantor Subsidary Financial Information [Abstract]

Guarantor/Non-Guarantor Subsidiary Financial Information

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.; Hexion Deer Park LLC (became a subsidiary guarantor in June 2018); 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 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, 2018

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)	$	34		$	1		$	102		$	—		$	137
Accounts receivable, net	120			1			342			—			463
Intercompany accounts receivable	64			—			49			(113		)	—
Intercompany loans receivable—current portion	69			—			—			(69		)	—
Inventories:
Finished and in-process goods	123			—			168			—			291
Raw materials and supplies	43			—			62			—			105
Other current assets	28			—			34			—			62
Total current assets	481			2			757			(182		)	1,058
Investment in unconsolidated entities	144			13			19			(157		)	19
Deferred income taxes	—			—			9			—			9
Other assets, net	13			7			20			—			40
Intercompany loans receivable	1,121			—			135			(1,256		)	—
Property and equipment, net	365			—			478			—			843
Goodwill	52			—			57			—			109
Other intangible assets, net	21			—			8			—			29
Total assets	$	2,197		$	22		$	1,483		$	(1,595	)	$	2,107
Liabilities and Deficit
Current liabilities:
Accounts payable	$	117		$	1		$	273		$	—		$	391
Intercompany accounts payable	49			—			64			(113		)	—
Debt payable within one year	13			—			71			—			84
Intercompany loans payable within one year	—			—			69			(69		)	—
Interest payable	99			—			2			—			101
Income taxes payable	4			—			3			—			7
Accrued payroll and incentive compensation	29			—			34			—			63
Other current liabilities	62			—			49			—			111
Total current liabilities	373			1			565			(182		)	757
Long-term liabilities:
Long-term debt	3,536			—			174			—			3,710
Intercompany loans payable	135			—			1,121			(1,256		)	—
Accumulated losses of unconsolidated subsidiaries in excess of investment	812			157			—			(969		)	—
Long-term pension and post employment benefit obligations	28			—			219			—			247
Deferred income taxes	2			—			10			—			12
Other long-term liabilities	112			—			70			—			182
Total liabilities	4,998			158			2,159			(2,407		)	4,908
Total deficit	(2,801		)	(136		)	(676		)	812			(2,801		)
Total liabilities and deficit	$	2,197		$	22		$	1,483		$	(1,595	)	$	2,107

HEXION INC.

DECEMBER 31, 2017

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 $18, respectively)	$	13		$	—		$	102		$	—		$	115
Accounts receivable, net	126			1			335			—			462
Intercompany accounts receivable	121			—			80			(201		)	—
Intercompany loans receivable—current portion	1			—			22			(23		)	—
Inventories:
Finished and in-process goods	85			—			136			—			221
Raw materials and supplies	36			—			56			—			92
Current assets held-for-sale	1			—			5			—			6
Other current assets	19			—			25			—			44
Total current assets	402			1			761			(224		)	940
Investment in unconsolidated entities	158			13			20			(171		)	20
Deferred income taxes	—			—			8			—			8
Long-term assets held for sale	—			—			2			—			2
Other long-term assets	17			8			24			—			49
Intercompany loans receivable	1,114			—			190			(1,304		)	—
Property and equipment, net	410			—			514			—			924
Goodwill	52			—			60			—			112
Other intangible assets, net	32			—			10			—			42
Total assets	$	2,185		$	22		$	1,589		$	(1,699	)	$	2,097
Liabilities and Deficit
Current liabilities:
Accounts payable	$	129		$	—		$	273		$	—		$	402
Intercompany accounts payable	80			—			121			(201		)	—
Debt payable within one year	10			—			115			—			125
Intercompany loans payable within one year	22			—			1			(23		)	—
Interest payable	80			—			2			—			82
Income taxes payable	6			—			6			—			12
Accrued payroll and incentive compensation	22			—			25			—			47
Current liabilities associated with assets held for sale	—			—			2			—			2
Other current liabilities	70			—			65			—			135
Total current liabilities	419			—			610			(224		)	805
Long term liabilities:
Long-term debt	3,507			—			77			—			3,584
Intercompany loans payable	190			—			1,114			(1,304		)	—
Accumulated losses of unconsolidated subsidiaries in excess of investment	668			171			—			(839		)	—
Long-term pension and post employment benefit obligations	31			—			231			—			262
Deferred income taxes	2			—			9			—			11
Other long-term liabilities	109			—			68			—			177
Total liabilities	4,926			171			2,109			(2,367		)	4,839
Total Hexion Inc. shareholder’s deficit	(2,741		)	(149		)	(519		)	668			(2,741		)
Noncontrolling interest	—			—			(1		)	—			(1		)
Total deficit	(2,741		)	(149		)	(520		)	668			(2,742		)
Total liabilities and deficit	$	2,185		$	22		$	1,589		$	(1,699	)	$	2,097

HEXION INC.

THREE MONTHS ENDED SEPTEMBER 30, 2018

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Hexion Inc.			Combined Subsidiary Guarantors		Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	438		$	—	$	562		$	(48	)	$	952
Cost of sales	361			—		483			(48		)	796
Gross profit	77			—		79			—			156
Selling, general and administrative expense	28			—		44			—			72
Asset impairments	—			—		3			—			3
Business realignment costs	3			—		2			—			5
Other operating expense, net	2			—		4			—			6
Operating income	44			—		26			—			70
Interest expense, net	80			—		3			—			83
Intercompany interest (income) expense, net	(21		)	—		21			—			—
Other non-operating income, net	—			—		(1		)	—			(1		)
(Loss) income before tax and (losses) earnings from unconsolidated entities	(15		)	—		3			—			(12		)
Income tax expense	—			—		6			—			6
Loss before (losses) earnings from unconsolidated entities	(15		)	—		(3		)	—			(18		)
(Losses) earnings from unconsolidated entities, net of taxes	(3		)	—		1			2			—
Net loss	$	(18	)	$	—	$	(2	)	$	2		$	(18	)
Comprehensive loss	$	(24	)	$	—	$	(11	)	$	11		$	(24	)

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	29			—			48			—			77
Asset impairments	13			—			—			—			13
Business realignment costs	6			—			4			—			10
Other operating expense (income), net	3			—			(2		)	—			1
Operating (loss) income	(11		)	—			27			—			16
Interest expense, net	78			—			4			—			82
Intercompany interest (income) expense, net	(20		)	—			20			—			—
Other non-operating (income) expense, net	(25		)	—			20			—			(5		)
Loss before income 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.

NINE MONTHS ENDED SEPTEMBER 30, 2018

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Hexion Inc.			Combined Subsidiary Guarantors		Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	1,329		$	—	$	1,715		$	(151	)	$	2,893
Cost of sales	1,088			—		1,477			(151		)	2,414
Gross profit	241			—		238			—			479
Selling, general and administrative expense	108			—		123			—			231
Gain on disposition	(24		)	—		(20		)	—			(44		)
Asset impairments	25			—		3			—			28
Business realignment costs	12			—		7			—			19
Other operating expense, net	5			—		21			—			26
Operating income	115			—		104			—			219
Interest expense, net	239			—		11			—			250
Intercompany interest (income) expense, net	(62		)	—		62			—			—
Other non-operating expense (income), net	17			—		(11		)	—			6
(Loss) income before tax and earnings from unconsolidated entities	(79		)	—		42			—			(37		)
Income tax (benefit) expense	(6		)	—		23			—			17
(Loss) income before earnings earnings from unconsolidated entities	(73		)	—		19			—			(54		)
Earnings from unconsolidated entities, net of taxes	20			14		3			(35		)	2
Net (loss) income	(53		)	14		22			(35		)	(52		)
Net income attributable to noncontrolling interest	—			—		(1		)	—			(1		)
Net (loss) income attributable to Hexion Inc.	$	(53	)	$	14	$	21		$	(35	)	$	(53	)
Comprehensive (loss) income attributable to Hexion Inc.	$	(61	)	$	14	$	26		$	(40	)	$	(61	)

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	96			—			137			—			233
Asset impairments	13			—			—			—			13
Business realignment costs	16			—			11			—			27
Other operating expense, net	—			—			4			—			4
Operating income	33			—			74			—			107
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	(83		)	—			73			—			(10		)
Loss before income 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, 2018

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	$	(303	)		$	1	$	253			$	—		$	(49	)
Cash flows provided by (used in) investing activities
Capital expenditures	(20		)		—		(42		)		—			(62		)
Proceeds from disposition, net	24				—		25				—			49
Proceeds from sale of assets, net	—				—		1				—			1
Return of capital from subsidiary from sales of accounts receivable	243			(a)	—		—				(243		)	—
	247				—		(16		)		(243		)	(12		)
Cash flows provided by (used in) financing activities
Net short-term debt borrowings	—				—		6				—			6
Borrowings of long-term debt	221				—		204				—			425
Repayments of long-term debt	(197		)		—		(146		)		—			(343		)
Net intercompany loan borrowings (repayments)	53				—		(53		)		—			—
Long-term debt and credit facility financing fees paid	—				—		(1		)		—			(1		)
Return of capital to parent from sales of accounts receivable	—				—		(243		)	(a)	243			—
	77				—		(233		)		243			87
Effect of exchange rates on cash and cash equivalents	—				—		(4		)		—			(4		)
Change in cash and cash equivalents	21				1		—				—			22
Cash and cash equivalents at beginning of period	13				—		102				—			115
Cash and cash equivalents at end of period	$	34			$	1	$	102			$	—		$	137

(a) During the nine months ended September 30, 2018, Hexion Inc. contributed receivables of $243 to a non-guarantor subsidiary as capital contributions, resulting in a non-cash transaction. During the nine months ended September 30, 2018, 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, 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
Return of capital from subsidiary from sales of accounts receivable	117			(a)	—		—				(117		)	—
	89				—		(54		)		(117		)	(82		)
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 (repayments) borrowings	(7		)		—		7				—			—
Long-term debt and credit facility financing fees	(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	—				—		7				—			7
Change in cash and cash equivalents	(22		)		—		(56		)		—			(78		)
Cash and cash equivalents at beginning of period	28				—		168				—			196
Cash and cash equivalents at end of period	$	6			$	—	$	112			$	—		$	118

(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.