Guarantor Non-Guarantor Subsidiary Financial Information

6 Months Ended

Jun. 30, 2019

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. and foreign 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); Hexion International Inc.; Hexion CI Holding Company (China) LLC and NL COOP Holdings LLC) and the combined non-guarantor subsidiaries, which includes a majority 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.

Condensed Combined Debtor Financial Information

The combination of the “Hexion Inc. (Debtors)” and “Combined Subsidiary Guarantors (Debtors)” columns of the condensed consolidating financial statements presented represent the Debtors’ Balance Sheet as of June 30, 2019, the Debtors’ Statement of Operations for the three and six months ended June 30, 2019 and the Debtors’ Statement of Cash Flows for the six months ended June 30, 2019. Effective April 1, 2019, the Company’s Non-Filing Entities are accounted for as non-guarantor subsidiaries in these financial statements and, as such, their net loss is included in the “Combined Non-guarantor Subsidiaries” column as “Net (loss) income attributable to Hexion Inc.” in the Condensed Consolidating Statement of Operations and their net assets are included in the “Combined Non-guarantor Subsidiaries” column as “Total Deficit” in the Condensed Consolidating Balance Sheet.

HEXION INC.

(DEBTORS-IN-POSSESSION)

JUNE 30, 2019

CONDENSED CONSOLIDATING BALANCE SHEET (Unaudited)

	Hexion Inc. (Debtors)			Combined Subsidiary Guarantors (Debtors)			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents (including restricted cash of $0 and $15, respectively)	$	13		$	—		$	83		$	—		$	96
Accounts receivable, net	143			—			356			—			499
Intercompany accounts receivable	56			1			81			(138		)	—
Intercompany loans receivable—current portion	248			—			—			(248		)	—
Inventories:
Finished and in-process goods	99			—			143			—			242
Raw materials and supplies	44			—			65			—			109
Other current assets	32			—			37			—			69
Total current assets	635			1			765			(386		)	1,015
Investment in unconsolidated entities	134			14			20			(148		)	20
Other assets, net	10			7			25			—			42
Intercompany loans receivable	725			—			369			(1,094		)	—
Property and equipment, net	353			—			474			—			827
Operating lease assets (see Note 10)	42			—			53			—			95
Goodwill	52			—			56			—			108
Other intangible assets, net	17			—			7			—			24
Total assets	$	1,968		$	22		$	1,769		$	(1,628	)	$	2,131
Liabilities and Deficit
Current liabilities:
Accounts payable	$	79		$	—		$	214		$	—		$	293
Intercompany accounts payable	82			—			56			(138		)	—
Debt payable within one year	9			—			429			—			438
Intercompany loans payable within one year	—			—			248			(248		)	—
Interest payable	1			—			6			—			7
Income taxes payable	2			—			4			—			6
Accrued payroll and incentive compensation	10			—			28			—			38
Current portion of operating lease liabilities (see Note 10)	11			—			10			—			21
Financing fees payable	104			—			—			—			104
Other current liabilities	63			—			43			—			106
Total current liabilities	361			—			1,038			(386		)	1,013
Long-term liabilities:
Liabilities subject to compromise	3,671			1			—			—			3,672
Long-term debt	47			—			43			—			90
Intercompany loans payable	369			—			725			(1,094		)	—
Accumulated losses of unconsolidated subsidiaries in excess of investment	476			148			—			(624		)	—
Long-term pension and post employment benefit obligations	—			—			184			—			184
Deferred income taxes	11			—			4			—			15
Operating lease liabilities (see Note 10)	31			—			43			—			74
Other long-term liabilities	82			—			82			—			164
Total liabilities	5,048			149			2,119			(2,104		)	5,212
Total Hexion Inc. shareholder’s deficit	(3,080		)	(127		)	(349		)	476			(3,080		)
Noncontrolling interest	—			—			(1		)	—			(1		)
Total deficit	(3,080		)	(127		)	(350		)	476			(3,081		)
Total liabilities and deficit	$	1,968		$	22		$	1,769		$	(1,628	)	$	2,131

HEXION INC.

(DEBTORS-IN-POSSESSION)

DECEMBER 31, 2018

CONDENSED CONSOLIDATING BALANCE SHEET

	Hexion Inc. (Debtors)			Combined Subsidiary Guarantors (Debtors)			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents (including restricted cash of $0 and $15, respectively)	$	20		$	—		$	108		$	—		$	128
Accounts receivable, net	98			—			314			—			412
Intercompany accounts receivable	40			—			66			(106		)	—
Intercompany loans receivable—current portion	82			—			101			(183		)	—
Inventories:
Finished and in-process goods	100			—			140			—			240
Raw materials and supplies	36			—			58			—			94
Other current assets	28			—			29			—			57
Total current assets	404			—			816			(289		)	931
Investment in unconsolidated entities	134			12			19			(146		)	19
Deferred income taxes	—			—			—			—			—
Other long-term assets	10			7			17			—			34
Intercompany loans receivable	1,114			—			—			(1,114		)	—
Property and equipment, net	363			—			478			—			841
Goodwill	53			—			56			—			109
Other intangible assets, net	19			—			8			—			27
Total assets	$	2,097		$	19		$	1,394		$	(1,549	)	$	1,961
Liabilities and Deficit
Current liabilities:
Accounts payable	$	126		$	—		$	258		$	—		$	384
Intercompany accounts payable	66			—			40			(106		)	—
Debt payable within one year	3,563			—			153			—			3,716
Intercompany loans payable within one year	101			—			82			(183		)	—
Interest payable	81			—			1			—			82
Income taxes payable	3			—			2			—			5
Accrued payroll and incentive compensation	22			—			30			—			52
Other current liabilities	61			—			45			—			106
Total current liabilities	4,023			—			611			(289		)	4,345
Long term liabilities:
Long-term debt	52			—			47			—			99
Intercompany loans payable	—			—			1,114			(1,114		)	—
Accumulated losses of unconsolidated subsidiaries in excess of investment	781			146			—			(927		)	—
Long-term pension and post employment benefit obligations	34			—			187			—			221
Deferred income taxes	2			—			13			—			15
Other long-term liabilities	117			—			78			—			195
Total liabilities	5,009			146			2,050			(2,330		)	4,875
Total Hexion Inc. shareholder’s deficit	(2,912		)	(127		)	(654		)	781			(2,912		)
Noncontrolling interest	—			—			(2		)	—			(2		)
Total deficit	(2,912		)	(127		)	(656		)	781			(2,914		)
Total liabilities and deficit	$	2,097		$	19		$	1,394		$	(1,549	)	$	1,961

HEXION INC.

(DEBTORS-IN-POSSESSION)

THREE MONTHS ENDED JUNE 30, 2019

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Hexion Inc. (Debtors)			Combined Subsidiary Guarantors (Debtors)			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	413		$	—		$	526		$	(47	)	$	892
Cost of sales	339			—			465			(47		)	757
Gross profit	74			—			61			—			135
Selling, general and administrative expense	25			—			36			—			61
Business realignment costs	3			—			8			—			11
Other operating expense, net	6			—			2			—			8
Operating income	40			—			15			—			55
Interest expense, net (contractual interest of $76 and $7, respectively)	2			—			7			—			9
Intercompany interest (income) expense, net	(19		)	—			19			—			—
Other non-operating income, net	(10		)	—			—			—			(10		)
Reorganization items, net	156			—			—			—			156
Loss before tax and (losses) earnings from unconsolidated entities	(89		)	—			(11		)	—			(100		)
Income tax expense	1			—			7			—			8
Loss before (losses) earnings from unconsolidated entities	(90		)	—			(18		)	—			(108		)
(Losses) earnings from unconsolidated entities, net of taxes	(18		)	(13		)	1			31			1
Net loss	(108		)	(13		)	(17		)	31			(107		)
Net income attributable to noncontrolling interest	—			—			(1		)	—			(1		)
Net loss attributable to Hexion Inc.	$	(108	)	$	(13	)	$	(18	)	$	31		$	(108	)
Comprehensive loss attributable to Hexion Inc.	$	(116	)	$	(13	)	$	(25	)	$	38		$	(116	)

HEXION INC.

(DEBTORS-IN-POSSESSION)

THREE MONTHS ENDED JUNE 30, 2018

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Hexion Inc. (Debtors)			Combined Subsidiary Guarantors (Debtors)		Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	460		$	—	$	583		$	(48	)	$	995
Cost of sales	370			—		507			(48		)	829
Gross profit	90			—		76			—			166
Selling, general and administrative expense	44			—		33			—			77
Business realignment costs	3			—		2			—			5
Other operating expense, net	3			—		8			—			11
Operating income	40			—		33			—			73
Interest expense, net	80			—		4			—			84
Intercompany interest (income) expense, net	(21		)	—		21			—			—
Other non-operating expense (income), net	36			—		(28		)	—			8
(Loss) income before tax and earnings from unconsolidated entities	(55		)	—		36			—			(19		)
Income tax expense	1			—		2			—			3
(Loss) income before earnings from unconsolidated entities	(56		)	—		34			—			(22		)
Earnings from unconsolidated entities, net of taxes	34			17		1			(51		)	1
Net (loss) income	(22		)	17		35			(51		)	(21		)
Net income attributable to noncontrolling interest	—			—		(1		)	—			(1		)
Net (loss) income attributable to Hexion Inc.	$	(22	)	$	17	$	34		$	(51	)	$	(22	)
Comprehensive (loss) income attributable to Hexion Inc.	$	(38	)	$	16	$	35		$	(51	)	$	(38	)

HEXION INC.

(DEBTORS-IN-POSSESSION)

SIX MONTHS ENDED JUNE 30, 2019

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Hexion Inc. (Debtors)			Combined Subsidiary Guarantors (Debtors)			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	817		$	—		$	1,057		$	(96	)	$	1,778
Cost of sales	680			—			923			(96		)	1,507
Gross profit	137			—			134			—			271
Selling, general and administrative expense	76			—			76			—			152
Business realignment costs	5			—			10			—			15
Other operating expense, net	13			—			3			—			16
Operating income	43			—			45			—			88
Interest expense, net (contractual interest of $152 and $11, respectively)	78			—			11			—			89
Intercompany interest (income) expense, net	(39		)	—			39			—			—
Other non-operating expense (income), net	8			—			(19		)	—			(11		)
Reorganization items, net	156			—			—			—			156
(Loss) income before tax and earnings from unconsolidated entities	(160		)	—			14			—			(146		)
Income tax expense	1			—			14			—			15
Loss before earnings earnings from unconsolidated entities	(161		)	—			—			—			(161		)
Earnings from unconsolidated entities, net of taxes	1			(1		)	2			—			2
Net (loss) income	(160		)	(1		)	2			—			(159		)
Net income attributable to noncontrolling interest	—			—			(1		)	—			(1		)
Net (loss) income attributable to Hexion Inc.	$	(160	)	$	(1	)	$	1		$	—		$	(160	)
Comprehensive loss attributable to Hexion Inc.	$	(168	)	$	(1	)	$	(6	)	$	7		$	(168	)

HEXION INC.

(DEBTORS-IN-POSSESSION)

SIX MONTHS ENDED JUNE 30, 2018

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Hexion Inc. (Debtors)			Combined Subsidiary Guarantors (Debtors)		Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	891		$	—	$	1,153		$	(103	)	$	1,941
Cost of sales	727			—		994			(103		)	1,618
Gross profit	164			—		159			—			323
Selling, general and administrative expense	80			—		79			—			159
Gain on disposition	(24		)	—		(20		)	—			(44		)
Asset impairments	25			—		—			—			25
Business realignment costs	9			—		5			—			14
Other operating expense, net	3			—		17			—			20
Operating income	71			—		78			—			149
Interest expense, net	159			—		8			—			167
Intercompany interest (income) expense, net	(41		)	—		41			—			—
Other non-operating expense (income), net	17			—		(10		)	—			7
(Loss) income before tax and earnings from unconsolidated entities	(64		)	—		39			—			(25		)
Income tax (benefit) expense	(6		)	—		17			—			11
(Loss) income before earnings from unconsolidated entities	(58		)	—		22			—			(36		)
Earnings from unconsolidated entities, net of taxes	23			14		2			(37		)	2
Net (loss) income	(35		)	14		24			(37		)	(34		)
Net income attributable to noncontrolling interest	—			—		(1		)	—			(1		)
Net (loss) income attributable to Hexion Inc.	$	(35	)	$	14	$	23		$	(37	)	$	(35	)
Comprehensive (loss) income attributable to Hexion Inc.	$	(37	)	$	14	$	37		$	(51	)	$	(37	)

HEXION INC.

(DEBTORS-IN-POSSESSION)

SIX MONTHS ENDED JUNE 30, 2019

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)

	Hexion Inc. (Debtors)				Combined Subsidiary Guarantors (Debtors)		Combined Non-Guarantor Subsidiaries				Eliminations			Consolidated
Cash flows (used in) provided by operating activities	$	(154	)		$	—	$	41			$	—		$	(113	)
Cash flows provided by (used in) investing activities
Capital expenditures	(18		)		—		(25		)		—			(43		)
Proceeds from sale of assets, net	—				—		1				—			1
Return of capital from subsidiary from sales of accounts receivable	135			(a)	—		—				(135		)	—
	117				—		(24		)		(135		)	(42		)
Cash flows provided by (used in) financing activities
Net short-term debt borrowings	(4		)		—		—				—			(4		)
Borrowings of long-term debt	89				—		578				—			667
Repayments of long-term debt	(225		)		—		(302		)		—			(527		)
DIP Facility financing fees	(13		)		—		—				—			(13		)
Net intercompany loan borrowings (repayments)	183				—		(183		)		—			—
Return of capital to parent from sales of accounts receivable	—				—		(135		)	(a)	135			—
	30				—		(42		)		135			123
Change in cash and cash equivalents	(7		)		—		(25		)		—			(32		)
Cash, cash equivalents and restricted cash at beginning of period	20				—		108				—			128
Cash, cash equivalents and restricted cash at end of period	$	13			$	—	$	83			$	—		$	96

(a) During the six months ended June 30, 2019, Hexion Inc. contributed receivables of $135 to a non-guarantor subsidiary as capital contributions, resulting in a non-cash transaction. During the six months ended June 30, 2019, 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.

(DEBTORS-IN-POSSESSION)

SIX MONTHS ENDED JUNE 30, 2018

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)

	Hexion Inc. (Debtors)				Combined Subsidiary Guarantors (Debtors)		Combined Non-Guarantor Subsidiaries				Eliminations			Consolidated
Cash flows (used in) provided by operating activities	$	(185	)		$	—	$	143			$	—		$	(42	)
Cash flows provided by (used in) investing activities
Capital expenditures	(13		)		—		(30		)		—			(43		)
Proceeds from dispositions, net	24				—		25				—			49
Proceeds from sale of assets, net	—				—		1				—			1
Return of capital from subsidiary from sales of accounts receivable	172			(a)	—		—				(172		)	—
	183				—		(4		)		(172		)	7
Cash flows provided by (used in) financing activities
Net short-term debt borrowings	(5		)		—		8				—			3
Borrowings of long-term debt	150				—		144				—			294
Repayments of long-term debt	(140		)		—		(103		)		—			(243		)
Net intercompany loan borrowings (repayments)	26				—		(26		)		—			—
Long-term debt and credit facility financing fees	—				—		(1		)		—			(1		)
Return of capital to parent from sales of accounts receivable	—				—		(172		)	(a)	172			—
	31				—		(150		)		172			53
Effect of exchange rates on cash and cash equivalents	—				—		(3		)		—			(3		)
Change in cash and cash equivalents	29				—		(14		)		—			15
Cash, cash equivalents and restricted cash at beginning of period	13				—		102				—			115
Cash, cash equivalents and restricted cash at end of period	$	42			$	—	$	88			$	—		$	130

(a) During the six months ended June 30, 2018, Hexion Inc. contributed receivables of $172 to a non-guarantor subsidiary as capital contributions, resulting in a non-cash transaction. During the six months ended June 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.