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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number 1-71
_______________________________________
https://cdn.kscope.io/e032f0bb6a586d64d3eae7076fd97d4f-hsc-20200930_g1.jpg
  HEXION INC.
(Exact name of registrant as specified in its charter)
________________________________________
New Jersey 13-0511250
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
180 East Broad St., Columbus, OH 43215
 
614-225-4000
(Address of principal executive offices including zip code) (Registrant’s telephone number including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
NoneNone
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☐   No  ☒
Explanatory Note:  While the registrant is not subject to the filing requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, it has filed all reports required to be filed by such filing requirements during the preceding 12 months.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒ No   ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   No  ☒.

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes      No  ☐

Number of shares of common stock, par value $0.01 per share, outstanding as of the close of business on November 1, 2020: 100


Table of Contents
HEXION INC.
INDEX
 
  Page
PART I – FINANCIAL INFORMATION
Item 1.Hexion Inc. Condensed Consolidated Financial Statements (Unaudited)
Item 2.
Item 3.
Item 4.
PART II – OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
2

Table of Contents
PART I - FINANCIAL INFORMATION
Item 1.    Financial Statements
HEXION INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In millions, except share data)September 30, 2020December 31, 2019
Assets
Current assets:
Cash and cash equivalents (including restricted cash of $3 and $4, respectively)
$158 $254 
Accounts receivable (net of allowance for doubtful accounts of $3)
363 316 
Inventories:
Finished and in-process goods191 211 
Raw materials and supplies70 82 
Current assets held for sale (see Note 4)103 99 
Other current assets51 40 
Total current assets936 1,002 
Investment in unconsolidated entities16 14 
Deferred tax assets6 6 
Long-term assets held for sale (see Note 4)318 400 
Other long-term assets60 44 
Property and equipment:
Land78 82 
Buildings124 114 
Machinery and equipment1,207 1,148 
1,409 1,344 
Less accumulated depreciation(187)(63)
1,222 1,281 
Operating lease assets105 110 
Goodwill164 164 
Other intangible assets, net1,082 1,125 
Total assets$3,909 $4,146 
Liabilities and Equity
Current liabilities:
Accounts payable$265 $289 
Debt payable within one year77 70 
Interest payable21 35 
Income taxes payable6 17 
Accrued payroll and incentive compensation40 43 
Current liabilities associated with assets held for sale (see Note 4)67 69 
Current portion of operating lease liabilities19 20 
Other current liabilities112 95 
Total current liabilities607 638 
Long-term liabilities:
Long-term debt1,756 1,715 
Long-term pension and post employment benefit obligations223 223 
Deferred income taxes153 149 
Operating lease liabilities78 82 
Long-term liabilities associated with assets held for sale (see Note 4)59 56 
Other long-term liabilities206 208 
Total liabilities3,082 3,071 
Commitments and contingencies (see Note 9)
Equity
Common stock —$0.01 par value; 100 shares authorized, issued and outstanding
  
Paid-in capital 1,168 1,165 
Accumulated other comprehensive loss(49)(1)
Accumulated deficit(292)(89)
Total equity827 1,075 
Total liabilities and equity$3,909 $4,146 
See Notes to Condensed Consolidated Financial Statements
3

Table of Contents
HEXION INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 
SuccessorPredecessorSuccessorPredecessor
(In millions)Three Months Ended September 30, 2020July 2, 2019 through September 30, 2019July 1, 2019Nine Months Ended September 30, 2020July 2, 2019 through September 30, 2019January 1, 2019 through July 1, 2019
Net sales$634 $693 $ $1,855 $693 $1,481 
Cost of sales (exclusive of depreciation and amortization shown below)
500 586  1,514 586 1,211 
Selling, general and administrative expense
56 61  164 61 128 
Depreciation and amortization
47 48  143 48 43 
Asset impairments   16   
Business realignment costs19 12  57 12 14 
Other operating expense, net4 4  15 4 17 
Operating income (loss)8 (18) (54)(18)68 
Interest expense, net25 28  76 28 89 
Other non-operating (income) expense, net(8)4  (12)4 (11)
Reorganization items, net  (3,126)  (2,970)
(Loss) income from continuing operations before income tax and earnings from unconsolidated entities(9)(50)3,126 (118)(50)2,960 
Income tax expense (benefit) 17 (5)191 8 (5)201 
(Loss) income from continuing operations before earnings from unconsolidated entities(26)(45)2,935 (126)(45)2,759 
Earnings from unconsolidated entities, net of taxes 1  2 1 1 
(Loss) income from continuing operations, net of taxes(26)(44)2,935 (124)(44)2,760 
(Loss) income from discontinued operations, net of taxes(76)1 119 (79)1 135 
Net (loss) income$(102)$(43)$3,054 $(203)$(43)$2,895 
Net income attributable to noncontrolling interest     (1)
Net (loss) income attributable to Hexion Inc.$(102)$(43)$3,054 $(203)$(43)$2,894 
See Notes to Condensed Consolidated Financial Statements
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HEXION INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited)
SuccessorPredecessorSuccessorPredecessor
(In millions)Three Months Ended September 30, 2020July 2, 2019 through September 30, 2019July 1, 2019Nine Months Ended September 30, 2020July 2, 2019 through September 30, 2019January 1, 2019 through July 1, 2019
Net (loss) income$(102)$(43)$3,054 $(203)$(43)$2,895 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments7 (16) (29)(16)(8)
Unrealized loss on cash flow hedge(1)  (19)  
Other comprehensive income (loss)6 (16) (48)(16)(8)
Comprehensive (loss) income$(96)$(59)$3,054 $(251)$(59)$2,887 
Comprehensive income attributable to noncontrolling interest     (1)
Comprehensive (loss) income attributable to Hexion Inc.$(96)$(59)$3,054 $(251)$(59)$2,886 
See Notes to Condensed Consolidated Financial Statements
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HEXION INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
SuccessorPredecessor
(In millions)Nine Months Ended September 30, 2020July 2, 2019 through September 30, 2019January 1, 2019 through July 1, 2019
Cash flows (used in) provided by operating activities
Net (loss) income$(203)$(43)$2,895 
Less: (Loss) income from discontinued operations, net of tax(79)1 135 
(Loss) income from continuing operations(124)(44)2,760 
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization143 48 43 
Non-cash asset impairments16   
Non-cash reorganization items, net—  (3,156)
Deferred tax expense (benefit)5 (8)140 
Loss on sale of assets7  3 
Unrealized foreign currency (gains) losses(1)6 (7)
Non-cash stock based compensation expense13 4  
Financing fees included in net loss— — 136 
Other non-cash adjustments(1)(2)(1)
Net change in assets and liabilities:
Accounts receivable(55)12 (73)
Inventories31 25 (20)
Accounts payable(14)(58)(15)
Income taxes payable(8)2 15 
Other assets, current and non-current(1)5 3 
Other liabilities, current and non-current(22)17 9 
Net cash (used in) provided by operating activities from continuing operations(11)7 (163)
Net cash (used in) provided by operating activities from discontinued operations(1)18 (10)
Net cash (used in) provided by operating activities(12)25 (173)
Cash flows used in investing activities
Capital expenditures(78)(18)(41)
Proceeds from sale of assets, net2  1 
Net cash used in investing activities from continuing operations(76)(18)(40)
Net cash used in investing activities from discontinued operations(13)(4)(2)
Net cash used in investing activities(89)(22)(42)
Cash flows provided by (used in) financing activities
Net short-term debt repayments(25)(6)(4)
Borrowings of long-term debt209 91 2,313 
Repayments of long-term debt(167)(100)(2,261)
Return of capital to parent (see Note 6)
(10)  
Proceeds from rights offering— — 300 
Financing fees paid (2)(136)
Net cash provided by (used in) financing activities7 (17)212 
Effect of exchange rates on cash and cash equivalents, including restricted cash(2)(3) 
Change in cash and cash equivalents, including restricted cash(96)(17)(3)
Cash, cash equivalents and restricted cash at beginning of period254 125 128 
Cash, cash equivalents and restricted cash at end of period$158 $108 $125 
Supplemental disclosures of cash flow information
Cash paid for:
Interest, net$88 $3 $71 
Income taxes, net12 4 10 
Reorganization items, net  188 
Non-cash financing activities13 — — 
See Notes to Condensed Consolidated Financial Statements
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HEXION INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT) (Unaudited)
(In millions)Common
Stock
Paid-in
Capital
Treasury
Stock
Loan
Receivable
from Parent
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total Hexion Inc. (Deficit) EquityNoncontrolling InterestTotal Shareholder’s (Deficit) Equity
Predecessor
Balance at December 31, 2018
$1 $526 $(296)$ $(18)$(3,125)$(2,912)$(2)$(2,914)
Net loss     (160)(160)1 (159)
Other comprehensive loss    (8) (8) (8)
Balance at June 30, 2019
$1 $526 $(296)$ $(26)$(3,285)$(3,080)$(1)$(3,081)
Elimination of Predecessor equity(1)(526)296   231    
Elimination of Predecessor accumulated other comprehensive loss    26  26  26 
Net income     3,054 3,054  3,054 
Balance at July 1, 2019$ $ $ $ $ $ $ $(1)$(1)
Issuance of Successor Company common stock 1,157     1,157  1,157 
Successor
Balance at July 2, 2019$ $1,157 $ $ $ $ $1,157 $(1)$1,156 
Net loss     (43)(43) (43)
Stock-based compensation expense 5     5  5 
Other comprehensive loss    (16) (16) (16)
Balance at September 30, 2019
$ $1,162 $ $ $(16)$(43)$1,103 $(1)$1,102 
Balance at June 30, 2020
$ $1,164 $ $ $(55)$(190)$919 $ $919 
Net loss     (102)(102) (102)
Stock-based compensation expense 4     4  4 
Other comprehensive income    6  6  6 
Balance at September 30, 2020
$ $1,168 $ $ $(49)$(292)$827 $ $827 
Balance at December 31, 2019
$ $1,165 $ $ $(1)$(89)$1,075 $ $1,075 
Net loss     (203)(203) (203)
Stock-based compensation expense 13     13  13 
Other comprehensive loss    (48) (48) (48)
Return of capital to parent (see Note 6)
 (10)    (10) (10)
Distribution of affiliate loan (see Note 6)
   (10)  (10) (10)
Settlement of affiliate loan (see Note 6)
   10   10  10 
Balance at September 30, 2020
$ $1,168 $ $ $(49)$(292)$827 $ $827 

See Notes to Condensed Consolidated Financial Statements
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In millions, except share data)
1. Background and Basis of Presentation
Based in Columbus, Ohio, Hexion Inc. (“Hexion” or the “Company”) serves global adhesive, coatings, composites and industrial markets through a broad range of thermoset technologies, specialty products and technical support for customers in a diverse range of applications and industries. The Company’s business is organized based on the products offered and the markets served. In January 2020, the Company changed its reporting segments to align around its growth platforms. At September 30, 2020, the Company had three reportable segments: Adhesives; Coatings and Composites; and Corporate and Other.
The unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its majority-owned subsidiaries in which minority shareholders hold no substantive participating rights. Intercompany accounts and transactions are eliminated in consolidation. In the opinion of management, all adjustments consisting of normal, recurring adjustments considered necessary for a fair statement have been included. Results for the interim periods are not necessarily indicative of results for the entire year.
Year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the accompanying notes included in the Company’s most recent Annual Report on Form 10-K.
Sale of Phenolic Specialty Resins Business
On September 27, 2020, the Company entered into a definitive agreement (the “Purchase Agreement”) for the sale of its Phenolic Specialty Resins ("PSR"), Hexamine and European-based Forest Products Resins businesses (together with PSR, the “Held for Sale Business”) to Black Diamond Capital Management, LLC and Investindustrial (the “Buyers”) for a purchase price of approximately $425. The consideration consists of $335 in cash and certain assumed liabilities with the remainder in future contingent proceeds based on the performance of the Held for Sale Business. For more information, see Note 4 “Discontinued Operations”.
As of September 30, 2020, the Company reclassified the assets and liabilities of the Held for Sale Business as held for sale on the unaudited Condensed Consolidated Balance Sheets and reported the results of the operations for the three and nine months ended September 30, 2020 as “(Loss) income from discontinued operations, net of taxes” on the unaudited Condensed Consolidated Statements of Operations. Amounts for prior periods have similarly been retrospectively reclassified for all periods presented.
Additionally, the Company has included $4, $11, $4 and $10 in both “Net sales” and “Cost of sales” within the Company’s continuing operations for the Successor three and nine months ended September 30, 2020, the Successor period July 2, 2019 through September 30, 2019 and the Predecessor period January 1, 2019 through July 1, 2019, respectively, which represents sales from the Company’s continuing operations to the Held for Sale Business that were previously eliminated in consolidation. These reclassifications had no impact on “Net (loss) income” in the unaudited Condensed Consolidated Statements of Operations for any of the periods presented.
Emergence from Chapter 11 and Fresh Start Accounting
On April 1, 2019, the Company, Hexion Holdings LLC, Hexion LLC and certain of the Company’s subsidiaries (collectively, the “Debtors”) filed voluntary petitions (the “Bankruptcy Petitions”) for reorganization under Chapter 11 (“Chapter 11”) of the U.S. Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware, (the “Bankruptcy Court”). The Chapter 11 proceedings were jointly administered under the caption In re Hexion TopCo, LLC, No. 19-10684 (the “Chapter 11 Cases”). The Debtors continued to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.
On June 25, 2019, the Court entered an order (the “Confirmation Order”) confirming the Second Amended Joint Chapter 11 Plan of Reorganization of Hexion Holdings LLC and its Debtor Affiliates under Chapter 11 (the “Plan”). On the morning of July 1, 2019 (the "Effective Date"), in accordance with the terms of the Plan and the Confirmation Order, the Plan became effective and the Debtors emerged from bankruptcy (the “Emergence”).
As a result of the Company’s reorganization and emergence from Chapter 11 bankruptcy on the Effective Date, the Company’s direct parent is Hexion Intermediate Holding 2, Inc. (“Hexion Intermediate”), a holding company and wholly owned subsidiary of Hexion Intermediate Holding 1, Inc., a holding company and wholly owned subsidiary of Hexion Holdings Corporation, the ultimate parent of Hexion (“Hexion Holdings” or “Parent”). Prior to its reorganization, the Company’s parent was Hexion LLC, a holding company and wholly owned subsidiary of Hexion Holdings LLC (now known as Hexion TopCo, LLC or “TopCo”), the previous ultimate parent entity of Hexion, which was controlled by investment funds managed by affiliates of Apollo Management Holdings, L.P. (together with Apollo Global Management, Inc. and its subsidiaries, “Apollo”). On the Effective Date, the Company’s existing common stock were cancelled and 100 new shares of common stock were issued at a par value of $0.01 to the Company’s new direct parent Hexion Intermediate in accordance with the Plan.
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On the Effective Date, the Company applied fresh start accounting to its financial statements, which resulted in a new basis of accounting and the Company became a new entity for financial reporting purposes. As a result of the application of fresh start accounting and the effects of the implementation of the Plan, the Condensed Consolidated Financial Statements after the Effective Date are not comparable with the Condensed Consolidated Financial Statements prior to that date. References to “Successor” or “Successor Company” relate to the financial position and results of operations of the Company after the Effective Date. References to “Predecessor” or “Predecessor Company” refer to the financial position and results of operations of the Company on or before the Effective Date.
2. Summary of Significant Accounting Policies
Use of Estimates—The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and also requires the disclosure of contingent assets and liabilities at the date of the financial statements. In addition, it requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Revenue Recognition—The Company follows the principles-based five step model to recognize revenue upon the transfer of promised goods or services to customers and in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. Revenue, net of estimated allowances and returns, is recognized when the Company has completed its performance obligations under a contract and control of the product is transferred to the customer. Substantially all revenue is recognized at the time shipment is made or upon delivery as risk and title to the product transfer to the customer. Sales, value add, and other taxes that are collected concurrently with revenue-producing activities are excluded from revenue. Contract terms for certain transactions, including sales made on a consignment basis, result in the transfer of control of the finished product to the customer prior to the point at which the Company has the right to invoice for the product. In these cases, timing of revenue recognition will differ from the timing of invoicing to customers and will result in the Company recording a contract asset. A contract asset balance of $6 is recorded within “Other current assets” at both September 30, 2020 and December 31, 2019 in the unaudited Condensed Consolidated Balance Sheet. Refer to Note 12 for additional discussion of the Company’s net sales by reportable segment disaggregated by geographic region.
Cash and Cash Equivalents— The Company considers all highly liquid investments that are purchased with an original maturity of three months or less to be cash equivalents. The Company’s restricted cash balance of $3 and $4 at September 30, 2020 and December 31, 2019, respectively, represents deposits to secure certain bank guarantees issued to third parties to guarantee potential obligations of the Company primarily related to the completion of tax audits and environmental liabilities. These balances will remain restricted as long as the underlying exposures exist and are included in the unaudited Condensed Consolidated Balance Sheets as a component of “Cash and cash equivalents.”
Allowance for Doubtful Accounts— Under adoption of ASU 2016-13, the Company has updated its credit loss methodology to consider a broader range of reasonable and supportable information to determine its credit loss estimates. The Company utilizes a historical aging method disaggregated by portfolio segment of geographic region, and then the Company makes any necessary adjustments for current conditions and forecasts about future economic conditions for calculating its allowance for doubtful accounts. The Company evaluates each pooled receivables’ geographic region by differing regional industrial and economic conditions, overall end market conditions and groups of customers with similar risk profiles related to timing and uncertainty of future collections. If particular accounts receivable balances no longer display risk characteristics that are similar to other pooled receivables, the Company performs individual assessments of expected credit losses for those specific receivables. Receivables are charged against the allowance for doubtful accounts when it is probable that the receivable will not be collected.
During the three and nine months ended September 30, 2020, the Company increased its allowance for doubtful accounts provision for expected credit losses by less than $1, to reflect current business conditions, forecasts of future economic conditions and the impacts related to the global business and market disruptions of the coronavirus disease 2019 (“COVID-19”) pandemic in accordance with ASU 2016-13 (see Note 3 for more information). The Company’s current expectations and assumptions regarding its business, the economy and other future events and conditions are based on currently available financial, economic and competitive data and current business plans as of September 30, 2020. Actual results could vary materially depending on risks and uncertainties that may affect the Company’s operations, markets, services, prices and other factors.
The Company recorded an allowance for doubtful accounts of $3 at both September 30, 2020 and December 31, 2019, to reduce accounts receivable to their estimated net realizable value. Accounts receivable balances are written-off against the allowance if a final determination of uncollectibility is made. There were no write-offs or recoveries for the Successor three and nine months ended September 30, 2020.
Goodwill— Goodwill is reviewed annually for impairment of value or more frequently when potential impairment triggering events are present. The Company’s annual impairment testing date is October 1. The Company continuously monitors events which could trigger an interim impairment analysis, such as changing business conditions and environmental factors, which included the impact of the COVID-19 pandemic for the three and nine months ended September 30, 2020 and the signing of the Purchase Agreement for the Held for Sale Business in September 2020. The Company determined there was no triggering event requiring an interim impairment analysis at September 30, 2020. However, the continued duration and severity of COVID-19 may result in future impairment charges as a prolonged pandemic could have an additional impact on the results of the Company’s operations.
Reclassifications— Certain amounts in the unaudited Condensed Consolidated Financial Statements for prior periods have been reclassified to conform with the current presentation. These reclassifications were to record the assets and liabilities of the Held for Sale Business and the results of operations as discontinued operations. See Note 4 for more information.
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Subsequent Events—The Company has evaluated events and transactions subsequent to September 30, 2020 through the date of issuance of its unaudited Condensed Consolidated Financial Statements.
Recently Issued Accounting Standards
Newly Adopted Accounting Standards
In June 2016, the FASB issued ASU 2016-13: Financial Instruments - Credit Losses (Topic 820): Measurement of Credit Losses on Financial Instruments, (“ASU 2016-13”). The amendments in this update replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. New disclosures are also required with this standard. The standard is effective for annual and interim periods beginning after December 15, 2019. This standard impacts the Company’s accounts receivables and contract assets. The Company adopted ASU 2016-13 at January 1, 2020, using a modified retrospective adoption method. Under this method of adoption, there is no impact to the comparative Consolidated Statement of Operations and the Consolidated Balance Sheets. There was an immaterial impact of adopting ASU 2016-13 on the date of adoption.
In August 2018, the FASB issued ASU 2018-15: Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (“ASU 2018-15”). ASU 2018-15 align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard was effective for annual and interim periods beginning after December 15, 2019. The Company adopted ASU 2018-15 prospectively on January 1, 2020 and the adoption had an immaterial impact on its condensed consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04: Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 will provide optional expedients and exceptions for a limited period of time to ease the potential burden in accounting for contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments in this ASU are effective for all entities as of March 12, 2020 through December 31, 2022. The Company has adopted ASU 2020-04 and the initial adoption of this ASU did not have an impact on our condensed consolidated financial statements.
Recently Issued Accounting Standards
In December 2019, the FASB issued ASU 2019-12: Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 will simplify the accounting for income taxes by removing certain exceptions to the general principles in income tax accounting and improve consistent application of and simplify GAAP for other areas of income tax accounting by clarifying and amending existing guidance. The new guidance is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently assessing the potential impact ASU 2019-12 will have on its condensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14: Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”). ASU 2018-14 modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The standard is effective for fiscal years ending after December 15, 2020. The Company is currently assessing the potential impact of ASU 2018-14 on its financial statements.
3. COVID-19 Impacts
In March 2020, the World Health Organization categorized COVID-19 as a global pandemic. Around the world, local governments’ responses to COVID-19 continue to evolve, which has led to stay-at-home orders, social distancing guidelines and other preventative measures that have disrupted various industries in the global economy and the markets in which our products are manufactured, distributed and sold.
During this pandemic, the Company has implemented additional guidelines to further protect the health and safety of its employees as the Company continues to operate with its suppliers and customers. The Company has maintained a focus on the safety of its employees while minimizing potential disruptions caused by COVID-19. For example, the Company is following all legislatively-mandated travel directives in the various countries where it operates, and the Company has also put additional travel restrictions in place for its associates designed to reduce the risk from COVID-19. Additionally, the Company is utilizing extended work from home options to protect its office associates, while adjusting its meeting protocols and processes at its manufacturing sites.
The Company’s businesses have been designated by many governments as essential businesses and the Company’s operations have continued through September 30, 2020. While the Company has continued to operate during the pandemic, it did incur adverse financial impacts to its sales and profitability results during the three and nine months ended September 30, 2020 from COVID-19, primarily related to reduced volumes associated with the pandemic. The pandemic has impacted global economic conditions and lowered demand in many of the end use markets in which the Company operates such as automotive, aerospace, industrial products, oil and gas, construction and housing. The ultimate impact that COVID-19 will have on the Company’s future financial position, operating results and cash flows involves numerous risks and uncertainties, including new information which may emerge concerning the severity and duration of COVID-19 and actions to contain the virus or treat its impact.
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The Coronavirus Aid, Relief, and Economic Security (the “CARES”) Act was enacted on March 27, 2020 in the U.S. The CARES Act includes several significant provisions, such as delaying certain payroll tax payments, mandatory transition tax payments under the Tax Cuts and Jobs Act, and estimated income tax payments. The Company does not currently expect the CARES Act to have a material impact on its financial results, including on its annual estimated effective tax rate but the Company delayed approximately $15 of certain income tax and non-income tax payments to the third quarter of 2020 and deferred an additional $5 of certain tax payments to future years. The Company will continue to monitor and assess the CARES Act and similar legislation in other jurisdictions where the Company operates that may impact the Company’s business and financial results.
Subsequent to September 30, 2020, the United States, and the global regions where the Company operates, continue to be affected by COVID-19. The Company is closely monitoring the COVID-19 pandemic on all aspects of its businesses and geographies, including the impact on its facilities, employees, customers, suppliers, vendors, business partners and distribution.

4. Discontinued Operations
On September 27, 2020, the Company entered into a Purchase Agreement for the sale of PSR, Hexamine and European-based Forest Products Resins businesses (together with PSR, the “Held for Sale Business” or the “Business”) to Black Diamond Capital Management, LLC and Investindustrial (the “Buyers”) for a purchase price of approximately $425. The consideration consists of $335 in cash and certain assumed liabilities with the remainder in future contingent proceeds based on the performance of the Held for Sale Business. The final purchase price is subject to customary post-closing adjustments. The Held for Sale Business was formerly included in the Company’s Adhesives reportable segment.

Assets included in the transaction are the Company’s manufacturing sites in Barry, United Kingdom; Cowie, United Kingdom; Lantaron, Spain; Botlek, Netherlands; Iserlohn, Germany; Frielendorf, Germany; Solbiate, Italy; Kitee, Finland; Louisville, Kentucky; Acme, North Carolina; and the Company's 50% ownership interest in Hexion Schekinoazot Holding B.V. (the “Russia JV”), a joint venture that manufactures forest products resins in Russia.

The Held for Sale Business produces phenolic specialty resins and engineered thermoset molding compounds used in applications that require extreme heat resistance and strength, such as after-market automotive and original equipment manufacturing (“OEM”) truck brake pads, filtration, aircraft components and foundry resins. The Business is also a significant producer of formaldehyde-based resins in Europe and merchant formaldehyde and formaldehyde derivatives in the Louisville and Acme plants, respectively. Formaldehyde-based resins, also known as forest products resins, are a key adhesive and binding ingredient used in the production of a wide variety of engineered lumber products, including medium density fiberboard (“MDF”), particleboard and oriented strand board (“OSB”). These products are used in a wide range of applications in the construction, remodeling and furniture industries. Merchant formaldehyde and formaldehyde derivatives are intermediate ingredients that are used in a variety of durable and industrial products. The Business generated annual sales of approximately $600 in 2019, and was reported within the Adhesives reportable segment. The sale is subject to customary closing conditions, including European Works Council consultation, and is expected to close in the first quarter of 2021.

Until the closing date, the Company has agreed to operate the Held for Sale Business in the ordinary course. The Company has agreed to provide certain transitional services to the Buyers for a limited period of time following the closing.

As of September 30, 2020, the Company reclassified the assets and liabilities of the Held for Sale Business as held for sale on the unaudited Condensed Consolidated Balance Sheets and reported the results of the operations for the three and nine months ended September 30, 2020 as “Income (loss) from discontinued operations, net of tax” on the unaudited Condensed Consolidated Statements of Operations. Amounts for prior periods have similarly been retrospectively reclassified for all periods presented.
The Held for Sale Business had $14 of goodwill at both September 30, 2020 and December 31, 2019 and $61 and $63 of other intangible assets at September 30, 2020 and December 31, 2019, respectively. Goodwill was allocated based on the relative fair value of the European-based Forest Products Resins businesses, included in the Held for Sale Business, which is part of the Company’s Forest Product Resins reporting unit. Other intangible assets were specifically identified based on customer relationships within the Company’s Forest Products Resins reporting unit that are associated with the Held for Sale Business.
As a result of entering into the Purchase Agreement, the Company recognized a pre-tax charge of $75 within discontinued operations, representing the difference between the fair value of the Held for Sale Business, less costs to sell, and the carrying value of net assets held for sale as of September 30, 2020. Fair value represents the expected net cash proceeds, excluding any future contingent proceeds, from the sale of the Held for Sale Business. The Company has made an accounting policy election to account for the initial and subsequent measurement of the future contingent proceeds, of up to $90, as a gain contingency. Under this model, any future contingent consideration is not recognized until all future conditions are met and the Company has earned the proceeds. The contingent proceeds are based on performance targets of the Held for Sale Business over each of the next three years, as specified in the Purchase Agreement. Thus, for purposes of this impairment analysis the fair value of the future contingent proceeds was not considered in determination of the disposal group impairment. Further, the Company concluded that the impairment of the Held for Sale Business assets did not represent an impairment triggering event for the Company’s continuing operations.


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The following table reconciles the carrying amounts of major classes of assets and liabilities of discontinued operations to total assets and liabilities of discontinued operations that are classified as held for sale in the Company’s unaudited Condensed Consolidated Balance Sheets:
September 30, 2020December 31, 2019
Carrying amounts of major classes of assets held for sale:
Accounts receivable$59 $49 
Finished and in-process goods1721
Raw materials and supplies1718
Other current assets1011
Total current assets10399
Investment in unconsolidated entities5 3 
Other long-term assets7 11 
Property, plant and equipment, net293 297 
Operating lease assets13 12 
Goodwill14 14 
Other intangible assets, net61 63 
Discontinued operations impairment(75) 
Total long-term assets318400
Total assets held for sale$421 $499 
Carrying amounts of major classes of liabilities held for sale:
Accounts payable$48 $52 
Income taxes payable2  
Accrued payroll5 5 
Current portion of operating lease liabilities2 2 
Other current liabilities10 10 
Total current liabilities67 69 
Long-term pension and post employment benefit obligations30 29 
Deferred income taxes16 15 <