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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 June 30, 2021
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/7206c02c7131f44c6f56730d7c8f6e75-hsc-20210630_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 August 1, 2021: 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.
Hexion Inc. | 2 | Q2 2021 Form 10-Q

Table of Contents                     
PART I - FINANCIAL INFORMATION
Item 1.    Financial Statements
HEXION INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In millions, except share data)June 30, 2021December 31, 2020
Assets
Current assets:
Cash and cash equivalents (including restricted cash of $2 and $4, respectively)
$288 $204 
Accounts receivable (net of allowance for doubtful accounts of $4 and $3, respectively)
449 331 
Inventories:
Finished and in-process goods230 180 
Raw materials and supplies114 85 
Current assets held for sale (see Note 4)
1 114 
Other current assets48 39 
Total current assets1,130 953 
Investment in unconsolidated entities11 10 
Deferred tax assets8 7 
Long-term assets held for sale (see Note 4)
 342 
Other long-term assets80 85 
Property and equipment:
Land79 79 
Buildings126 122 
Machinery and equipment1,293 1,270 
1,498 1,471 
Less accumulated depreciation(282)(212)
1,216 1,259 
Operating lease assets99 103 
Goodwill164 164 
Other intangible assets, net1,046 1,079 
Total assets$3,754 $4,002 
Liabilities and Equity
Current liabilities:
Accounts payable$357 $339 
Debt payable within one year43 82 
Interest payable28 30 
Income taxes payable20 6 
Accrued payroll and incentive compensation59 42 
Current liabilities associated with assets held for sale (see Note 4)
4 70 
Current portion of operating lease liabilities18 19 
Other current liabilities103 111 
Total current liabilities632 699 
Long-term liabilities:
Long-term debt1,567 1,710 
Long-term pension and post employment benefit obligations236 250 
Deferred income taxes154 161 
Operating lease liabilities74 76 
Long-term liabilities associated with assets held for sale (see Note 4)
 74 
Other long-term liabilities208 209 
Total liabilities2,871 3,179 
Commitments and contingencies (see Note 9)
Equity
Common stock —$0.01 par value; 100 shares authorized, issued and outstanding
  
Paid-in capital 1,184 1,169 
Accumulated other comprehensive loss(31)(27)
Accumulated deficit(270)(319)
Total equity883 823 
Total liabilities and equity$3,754 $4,002 
See Notes to Condensed Consolidated Financial Statements
Hexion Inc. | 3 | Q2 2021 Form 10-Q

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HEXION INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 
(In millions)Three Months Ended June 30, 2021Three Months Ended June 30, 2020Six Months Ended June 30, 2021Six Months Ended June 30, 2020
Net sales$852 $535 $1,605 $1,222 
Cost of sales (exclusive of depreciation and amortization shown below)
636 448 1,220 1,013 
Selling, general and administrative expense
83 45 153 109 
Depreciation and amortization
51 47 100 96 
Asset impairments   16 
Business realignment costs8 18 13 38 
Other operating expense, net3 5  12 
Operating income (loss)71 (28)119 (62)
Interest expense, net24 25 48 51 
Other non-operating income(3)(4)(7)(4)
Income (loss) from continuing operations before income tax and earnings from unconsolidated entities50 (49)78 (109)
Income tax expense (benefit)9 (6)25 (9)
Income (loss) from continuing operations before earnings from unconsolidated entities41 (43)53 (100)
Earnings from unconsolidated entities, net of taxes1 1 1 2 
Income (loss) from continuing operations, net of taxes42 (42)54 (98)
Loss from discontinued operations, net of taxes(4) (5)(3)
Net income (loss)$38 $(42)$49 $(101)
See Notes to Condensed Consolidated Financial Statements
Hexion Inc. | 4 | Q2 2021 Form 10-Q

Table of Contents                     
HEXION INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(In millions)Three Months Ended June 30, 2021Three Months Ended June 30, 2020Six Months Ended June 30, 2021Six Months Ended June 30, 2020
Net income (loss)$38 $(42)$49 $(101)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 6 (9)(36)
Unrealized (loss) gain on cash flow hedge (3)5 (18)
Other comprehensive income (loss) 3 (4)(54)
Comprehensive income (loss)$38 $(39)$45 $(155)
See Notes to Condensed Consolidated Financial Statements
Hexion Inc. | 5 | Q2 2021 Form 10-Q

Table of Contents                     
HEXION INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions)Six Months Ended June 30, 2021Six Months Ended June 30, 2020
Cash flows used in operating activities
Net income (loss)$49 $(101)
Less: Loss from discontinued operations, net of tax(5)(3)
Income (loss) from continuing operations54 (98)
Adjustments to reconcile net loss to net cash used in by operating activities:
Depreciation and amortization100 96 
Non-cash asset impairments 16 
Deferred tax benefit(3)(7)
Loss on sale of assets and dispositions 8 
Unrealized foreign currency losses8 4 
Non-cash stock based compensation expense15 9 
Net change in assets and liabilities:
Accounts receivable(121)(15)
Inventories(82)4 
Accounts payable21 (22)
Income taxes payable19 (3)
Other assets, current and non-current(3)(1)
Other liabilities, current and non-current(13)(13)
Net cash used in operating activities from continuing operations(5)(22)
Net cash (used in) provided by operating activities from discontinued operations(1)3 
Net cash used in operating activities(6)(19)
Cash flows provided by (used) in investing activities
Capital expenditures(52)(52)
Proceeds from disposition of Held for Sale Business (see Note 4)304  
Proceeds from sale of assets and other dispositions11  
Net cash provided by (used in) investing activities from continuing operations263 (52)
Net cash used in investing activities from discontinued operations(6)(9)
Net cash provided by (used in) investing activities257 (61)
Cash flows (used in) provided by financing activities
Net short-term debt repayments(7)(14)
Borrowings of long-term debt130 181 
Repayments of long-term debt(294)(32)
Return of capital to parent (see Note 6)
 (10)
Net cash (used in) provided by financing activities(171)125 
Effect of exchange rates on cash and cash equivalents, including restricted cash4 (4)
Change in cash and cash equivalents, including restricted cash84 41 
Cash, cash equivalents and restricted cash at beginning of period204 254 
Cash, cash equivalents and restricted cash at end of period$288 $295 
Supplemental disclosures of cash flow information
Cash paid for:
Interest, net$48 $53 
Income taxes, net14 4 
See Notes to Condensed Consolidated Financial Statements
Hexion Inc. | 6 | Q2 2021 Form 10-Q

Table of Contents                     
HEXION INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)
(In millions)Common
Stock
Paid-in
Capital
Loan
Receivable
from Parent
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total Shareholder’s Equity
Balance at March 31, 2020
$ $1,170 $(10)$(58)$(148)$954 
Net loss    (42)(42)
Stock-based compensation expense 4    4 
Other comprehensive loss   3  3 
Return of capital from parent (see Note 6) (10)   (10)
Settlement of affiliate loan (see Note 6)  10   10 
Balance at June 30, 2020
$ $1,164 $ $(55)$(190)$919 
Balance at December 31, 2019
$ $1,165 $ $(1)$(89)$1,075 
Net loss    (101)(101)
Stock-based compensation expense 9    9 
Other comprehensive loss   (54) (54)
Return of capital from parent (10)   (10)
Distribution of affiliate loan (see Note 6)
  (10)  (10)
Settlement of affiliate loan (see Note 6)  10   10 
Balance at June 30, 2020
$ $1,164 $ $(55)$(190)$919 
Balance at March 31, 2021
$ $1,175 $ $(31)$(308)$836 
Net income    38 38 
Stock-based compensation expense 9    9 
Other comprehensive income      
Balance at June 30, 2021
$ $1,184 $ $(31)$(270)$883 
Balance at December 31, 2020
$ $1,169 $ $(27)$(319)$823 
Net income    49 49 
Stock-based compensation expense 15    15 
Other comprehensive loss   (4) (4)
Balance at June 30, 2021
$ $1,184 $ $(31)$(270)$883 

See Notes to Condensed Consolidated Financial Statements
Hexion Inc. | 7 | Q2 2021 Form 10-Q

Table of Contents                     
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. At June 30, 2021, 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. We have made rounding adjustments to some of the figures included in this filing. Numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that precede them. 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.
In this Quarterly Report on Form 10-Q (“10-Q”, “Q2 2021 Form 10-Q” or “Report”) for the fiscal period ended June 30, 2021, Hexion Inc. is referred to as “Hexion”, the “Company”, “we,” “us” or “our.”
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 of up to $90 based on the performance of the Held for Sale Business. The Company completed the sale of the Held for Sale Business on April 30, 2021. For more information, see Note 4 “Discontinued Operations”.
For the six months ended June 30, 2021, we reported the results of the operations as a “Loss 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. As of December 31, 2020, we reclassified the assets and liabilities of our Held for Sale Business as held for sale on the unaudited Condensed Consolidated Balance Sheets.
Additionally, the Company has included $7 in both “Net sales” and “Cost of sales” within the Company’s continuing operations for the six months ended June 30, 2021 and 2020, respectively, and $2 and $3 for the three months ended June 30, 2021 and 2020 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 income (loss)” in the unaudited Condensed Consolidated Statements of Operations for any of the periods presented.
Unless otherwise noted, amounts presented within the Notes to the unaudited Condensed Consolidated Financial Statements refer to the Company’s continuing operations.
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 $11 and $5 is recorded within “Other current assets” at June
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30, 2021 and December 31, 2020 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 $2 and $4 at June 30, 2021 and December 31, 2020, 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.
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 June 30, 2021. 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 $4 and $3 at June 30, 2021 and December 31, 2020 to reduce accounts receivable for estimated expected credit losses. Accounts receivable balances are written-off against the allowance if a final determination of uncollectibility is made. There were less than $1 of write-offs for the three and six months ended June 30, 2021 and no write-offs for the three and six months ended June 30, 2020.
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 Held for Sale Business and the results of operations as discontinued operations. See Note 4 for more information.
Subsequent Events—The Company has evaluated events and transactions subsequent to June 30, 2021 through the date of issuance of its unaudited Condensed Consolidated Financial Statements.
Recently Issued Accounting Standards
Newly Adopted 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 was effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company adopted ASU 2019-12 on January 1, 2021 and the adoption did not have a significant impact 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 was effective for fiscal years ending after December 15, 2020. The Company adopted ASU 2018-14 and the adoption did not have a significant impact on its condensed consolidated 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.

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The Company’s businesses have been designated by many governments as essential businesses and the Company’s operations have continued through June 30, 2021. 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 its variants and actions to contain the virus or treat its impact.
A significant amount of legislative and/or economic actions have been enacted or proposed by the U.S. and other jurisdictions during the 2020 and 2021 tax years. The Company has reviewed the enacted legislation and continues to monitor proposed legislation to evaluate the impact on its financial results, including on its estimated effective tax rate. Currently, the Company does not expect any of the enacted or proposed legislation to have a material impact on its business and financial results. The Company was able to defer $5 of payroll related tax payments to December 2021 and December 2022 under the Coronavirus Aid, Relief, and Economic Security Act enacted on March 27, 2020.
Subsequent to June 30, 2021, the United States, and the global regions where the Company operates, continue to be affected by COVID-19 and its variants. 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 received to date consists of $335 in cash and certain assumed liabilities. The remainder consists of future payments of up to $90 based on the performance of the Held for Sale Business. The Held for Sale Business was formerly included in the Company’s Adhesives reportable segment.
On April 30, 2021, the Company completed the sale (the “Transaction”) of its Held for Sale Business pursuant to the terms of the Purchase Agreement with the Buyers. The Company received gross cash consideration for the Held for Sale Business in the amount of $304. In addition, the Buyers assumed approximately $31 of certain liabilities, net of preliminary working capital and other closing adjustments as part of the Purchase Agreement. A positive subsequent post-closing adjustment to the purchase price of $2 was made in accordance with the Purchase Agreement. Hexion expects to use a portion of the net proceeds to invest in its business, and in May 2021, the Company used a portion of its net proceeds to reduce its borrowings under its Senior Secured Term Loan, in accordance with its credit agreement. See Note 8 for further information on reduction to the Company’s Senior Secured Term Loan.

As part of the Transaction, the Company will provide certain transitional services to the Buyers for an initial period of up to six months pursuant to a Transitional Services Agreement, which certain services may be extended two times for an additional three months for each extension by the Buyers. The purpose of these services is to provide short-term assistance to the Buyers in assuming the operations of the Business. These services do not confer to the Company the ability to influence the operating or financial policies of the Business under its new ownership.
Assets disposed in the transaction included 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 Held for Sale Business generated annual sales of $493 in 2020, and for the three and six months ended June 30, 2021, net sales totaled $53 and $216, respectively. Until the closing date, the Company operated the Held for Sale Business in the ordinary course.

For the three and six months ended June 30, 2021, we reported the results of the operations as a “Loss 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. As of December 31, 2020, we reclassified the assets and liabilities of our Held for Sale Business as held for sale on the unaudited Condensed Consolidated Balance Sheets.
The Held for Sale business reported $14 of goodwill and $61 of other intangible assets at December 31, 2020. 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 was 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 the Company completed the sale on April 30, 2021, there were no balances reported on the unaudited Condensed Consolidated Balance Sheet at June 30, 2021.
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As a result of entering into the Purchase Agreement, the Company recognized a pre-tax charge of $16 during the six months ended June 30, 2021 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 June 30, 2021 for a total impairment charge of $91 since entering into the Purchase Agreement. Fair value represents the expected net cash proceeds, excluding any future contingent proceeds, from the sale of the Held for Sale Business. The Company 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 years 2021, 2022 and 2023, 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.

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:
December 31, 2020
Carrying amounts of major classes of assets held for sale:
Accounts receivable$66 
Finished and in-process goods18
Raw materials and supplies17
Other current assets12
Total current assets113
Investment in unconsolidated entities5 
Deferred tax assets2 
Other long-term assets7 
Property, plant and equipment, net310 
Operating lease assets13 
Goodwill14 
Other intangible assets, net61 
Discontinued operations impairment(75)
Total long-term assets337
Total assets held for sale$450 
Carrying amounts of major classes of liabilities held for sale:
Accounts payable$52 
Income taxes payable1 
Accrued payroll3 
Current portion of operating lease liabilities2 
Other current liabilities9 
Total current liabilities67 
Long-term pension and post employment benefit obligations36 
Deferred income taxes22 
Operating lease liabilities5 
Other long-term liabilities8 
Total long-term liabilities71 
Total liabilities held for sale$138 

In addition to the Held for Sale Business assets and liabilities classified as held for sale in the table above, the Company’s Consolidated Balance Sheets at June 30, 2021 includes an additional $1 of current assets held for sale and $4 of current liabilities associated with assets held for sale related to the Company’s other restructuring activities.
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The following table shows the financial results of discontinued operations for the periods presented:
Three Months Ended June 30, 2021Three Months Ended June 30, 2020Six Months Ended June 30, 2021Six Months Ended June 30, 2020
Major line items constituting pretax income of discontinued operations:
Net sales$53 $97 $216 $242 
Cost of sales (exclusive of depreciation and amortization)46 84 183 205 
Selling, general and administrative expense5 10 16 21 
Depreciation and amortization 9  18 
Loss on sale of business10  10  
Asset impairments  16  
Business realignment costs   1 
Other operating income, net (1) (1)
Operating (loss) income(8)(5)(9)(2)
Other non-operating income, net(5) (5) 
Loss from discontinued operations before income tax, earnings from unconsolidated entities(3)(5)(4)(2)
Income tax expense (benefit)1 (5)2 1 
Loss from discontinued operations, net of tax$(4)$ $(6)$(3)
Earnings from unconsolidated entities, net of tax  1  
Net loss attributable to discontinued operations$(4)$ $(5)$(3)
5. Asset Impairments
During the first quarter of 2020, the Company indefinitely idled certain assets within its Adhesives segment. These represented triggering events resulting in impairment evaluations of the fixed assets within both the oilfield and phenolic specialty resins asset groups. As a result, asset impairments totaling $16 were recorded in “Asset impairments” in the unaudited Condensed Consolidated Statements of Operations during the six months ended June 30, 2020. There were no asset impairments recognized in the three and six months ended June 30, 2021.
6. Related Party Transactions
2020 Affiliate Loan
In March 2020, the Company entered into a $10 short term affiliate loan with Hexion Holdings Corporation (the “Parent” or “Hexion Holdings”) at a 0% interest rate to fund Parent share repurchases. In June 2020, the Company made a $10 non-cash distribution to its Parent treated as a return of capital to settle this affiliate loan. This return of capital reduced “Paid-in capital” in the unaudited Condensed Consolidated Balance Sheet at June 30, 2020.
Transactions with Joint Ventures
The Company sells products and provides services to, and purchases products from, its joint ventures which are recorded under the equity method of accounting. Sales to joint ventures were less than $1 for the three and six months ended June 30, 2021 and the three and six months ended June 30, 2020. There were no purchases from joint ventures for the three and six months ended June 30, 2021. Accounts receivable from joint ventures were less than $1 at both June 30, 2021 and December 31, 2020. There were no accounts payable at June 30, 2021 and December 31, 2020. Joint venture activity is primarily driven by the Russia JV which the Company sold as part of the sale of its Held for Sale Business. The Company had a loan receivable from the Russia JV of $4 at December 31, 2020, which was recorded in “Long-term assets held for sale,” and was settled with the sale in April 2021.
7. Fair Value
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value measurement provisions establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. This guidance describes three levels of inputs that may be used to measure fair value:
Level 1: Inputs are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2: Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date.
Level 3: Unobservable inputs that are supported by little or no market activity and are developed based on the best information available in the circumstances. For example, inputs derived through extrapolation or interpolation that cannot be corroborated by observable market data.
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Derivative Financial Instruments
The Company is exposed to certain risks related to its ongoing business operations. The primary risks managed by using derivative instruments are interest rate risk, foreign currency exchange risk and commodity price risk. The Company does not hold or issue derivative financial instruments for trading purposes.
Recurring Fair Value Measurements
As of June 30, 2021, the Company had derivative assets related to foreign exchange, electricity and natural gas contracts of $1, which were measured using Level 2 inputs, and consisted of derivative instruments transacted primarily in over-the-counter markets. There were no transfers between Level 1, Level 2 or Level 3 measurements during the six months ended June 30, 2021 or 2020.
The Company calculates the fair value of its Level 2 derivative liabilities using standard pricing models with market-based inputs, adjusted for nonperformance risk. When its financial instruments are in a liability position, the Company evaluates its credit risk as a component of fair value. At both June 30, 2021 and December 31, 2020, no adjustment was made by the Company to reduce its derivative position for nonperformance risk.
When its financial instruments are in an asset position, the Company is exposed to credit loss in the event of nonperformance by other parties to these contracts and evaluates their credit risk as a component of fair value.
Interest Rate Swap
The Company will from time to time use interest rate swaps to alter interest rate exposures between floating and fixed rates on certain long-term debt. Under interest rate swaps, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts calculated using an agreed-upon notional principal amount. The counter-parties to the interest rate swap agreements are financial institutions with investment grade ratings.
In October 2019, the Company executed an interest rate swap syndication agreement where by Hexion receives a variable 3-month LIBOR, and pays fixed interest rate swaps, beginning January 1, 2020 through January 1, 2025 (the “Hedge”) for a total notional amount of $300. The purpose of this arrangement is to hedge the variability caused by quarterly changes in cash flow due to associated changes in LIBOR for $300 of the Company’s variable rate Senior Secured Term Loan denominated in USD ($700 outstanding at June 30, 2021). The Company has evaluated this transaction and designated this derivative instrument as a cash flow hedge under Accounting Standard Codification, No. 815, “Derivatives and hedging,” (“ASC 815”). For the Hedge, the Company records changes in the fair value of the derivative in other comprehensive income (“OCI”) and will subsequently reclassify gains and losses from these changes in fair value from OCI to the unaudited Condensed Consolidated Statement of Operations in the same period that the hedged transaction affects net (loss) income and in the same unaudited Condensed Consolidated Statement of Operations category as the hedged item, “Interest expense, net”.
The following tables summarize the Company’s derivative financial instrument designated as a hedging instrument:
June 30, 2021December 31, 2020
Balance Sheet LocationNotional AmountFair Value LiabilityNotional AmountFair Value Liability
Derivatives designated as hedging instruments
Interest Rate SwapOther current (liabilities)/assets$300 $(10)$300 $(15)
Total derivatives designated as hedging instruments$(10)$(15)
Amount of Gain (Loss) Recognized in OCI on Derivatives
Derivatives designated as hedging instrumentsThree Months Ended June 30, 2021Three Months Ended June 30, 2020Six Months Ended June 30, 2021Six Months Ended June 30, 2020
Interest Rate Swaps
Interest Rate Swap$— $(3)$$(18)
Total$ $(3)$5 $(18)
In both the three and six months ended June 30, 2021 and 2020 the Company reclassified a loss of $1 from OCI to “Interest expense, net” on the Condensed Consolidated Statement of Operations related to the settlement of a portion of the Hedge.     

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The following table summarizes the carrying amount and fair value of the Company’s non-derivative financial instruments:
 
Carrying Amount
Fair Value
Level 1Level 2Level 3Total
June 30, 2021
Debt$1,610 $ $1,606 $48 $1,654 
December 31, 2020
Debt$1,792 $ $1,767 $55 $1,822 
Fair values of debt classified as Level 2 are determined based on other similar financial instruments, or based upon interest rates that are currently available to the Company for the issuance of debt with similar terms and maturities. Level 3 amounts represent finance leases and sale leaseback financing arrangements whose fair value is determined through the use of present value and specific contract terms. The carrying amount and fair value of the Company’s debt is exclusive of unamortized deferred financing fees. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and other accrued liabilities are classified as Level 1 and are considered reasonable estimates of their fair values due to the short-term maturity of these financial instruments.
8. Debt Obligations
Debt outstanding at June 30, 2021 and December 31, 2020 is as follows:
 June 30, 2021December 31, 2020
 Long-TermDue Within
One Year
Long-TermDue Within
One Year
Senior Secured Credit Facilities:
ABL Facility$ $ $ $ 
Senior Secured Term Loan - USD due 2026 (includes $5 and $6 of unamortized debt discount)
698 7 701 7 
Senior Secured Term Loan - EUR due 2026 (includes $3 and $4 of unamortized debt discount)
353  515  
Senior Notes:
7.875% Senior Notes due 2027
450  450  
Other Borrowings:
Australia Facility due 2026(1)
30   30 
Brazilian bank loans1 18 2 22 
Lease obligations (2)
35 13 42 14 
Other 5  9 
Total(3)
$1,567 $43 $1,710 $82 
(1)In February 2021, the Company extended its Australian Term Loan Facility through February 2026.
(2)Lease obligations include finance leases and sale leaseback financing arrangements.
(3)The foreign exchange translation impact of the Company’s foreign currency denominated debt instruments resulted in a decrease of $13 as of June 30, 2021 compared to December 31, 2020.

May 2021 Transaction
In May 2021, in connection with the sale of its Held for Sale Business, the Company used a portion of the net proceeds to pay down $150 in aggregate principal of the euro denominated Senior Secured Term Loan - EUR . See Note 4 for more information regarding sale of the Held for Sale Business in April 2021.

9. Commitments and Contingencies
Environmental Matters
The Company’s operations involve the use, handling, processing, storage, transportation and disposal of hazardous materials. The Company is subject to extensive environmental regulation at the federal, state and local levels as well as foreign laws and regulations, and is therefore exposed to the risk of claims for environmental remediation or restoration. In addition, violations of environmental laws or permits may result in restrictions being imposed on operating activities, substantial fines, penalties, damages or other costs, any of which could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

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The following table summarizes all probable environmental remediation, indemnification and restoration liabilities, including related legal expenses, at June 30, 2021 and December 31, 2020:
 Liability
Range of Reasonably Possible Costs at June 30, 2021
Site Description
June 30, 2021(1)
December 31, 2020(2)
LowHigh
Geismar, LA$12 $12 $9 $22 
Superfund and offsite landfills – allocated share:
Less than 1%2 3 1 3 
Equal to or greater than 1%7 6 6 14 
Currently-owned6 8 3 14 
Formerly-owned:
Remediation17 18 14 33 
Monitoring only   1 
Total$44 $47 $33 $87 
(1)    The table includes approximately $3 of environmental remediation liabilities at June 30, 2021 related to assets held for sale related to the Company’s other restructuring activities and are included in the “Current liabilities associated with assets held for sale” within the unaudited Condensed Consolidated Balance Sheets.
(2)     The table includes approximately $2 of environmental remediation liabilities related to the Held for Sale Business at December 31, 2020. These associated liabilities have been included in “Long-term liabilities associated with assets held for sale” within the unaudited Condensed Consolidated Balance Sheets.
These amounts include estimates for unasserted claims that the Company believes are probable of loss and reasonably estimable. The estimate of the range of reasonably possible costs is less certain than the estimates upon which the liabilities are based. To establish the upper end of a range, assumptions less favorable to the Company among the range of reasonably possible outcomes were used. As with any estimate, if facts or circumstances change, the final outcome could differ materially from these estimates. At both June 30, 2021, and December 31, 2020, $14 of these liabilities have been included in “Other current liabilities” with the remaining amount included in “Other long-term liabilities” within the unaudited Condensed Consolidated Balance Sheets.

Following is a discussion of the Company’s environmental liabilities and the related assumptions at June 30, 2021:
Geismar, LA Site—The Company formerly owned a basic chemicals and polyvinyl chloride business that was taken public as Borden Chemicals and Plastics Operating Limited Partnership (“BCPOLP”) in 1987. The Company retained a 1% interest, the general partner interest and the liability for certain environmental matters after BCPOLP’s formation. Under a Settlement Agreement approved by the United States Bankruptcy Court for the District of Delaware among the Company, BCPOLP, the United States Environmental Protection Agency and the Louisiana Department of Environmental Quality, the Company agreed to perform certain tasks related to BCPOLP’s obligations for soil and groundwater contamination at BCPOLP’s Geismar, Louisiana site. The Company bears the sole responsibility for these obligations because there are no other potentially responsible parties (“PRP”) or third parties from whom the Company could seek reimbursement.
A groundwater pump and treat system to remove contaminants is operational, and natural attenuation studies are proceeding. If closure procedures and remediation systems prove to be inadequate, or if additional contamination is discovered, costs that would approach the higher end of the range of possible outcomes could result.
Due to the long-term nature of the project, the reliability of timing and the ability to estimate remediation payments, a portion of this liability was recorded at its net present value, assuming a 3% discount rate and a time period of 20 years. The range of possible outcomes is discounted in a similar manner. The undiscounted liability, which is expected to be paid over the next 20 years, is approximately $16. Over the next five years, the Company expects to make ratable payments totaling $5.
Superfund Sites and Offsite Landfills—The Company is currently involved in environmental remediation activities at a number of sites for which it has been notified that it is, or may be, a PRP under the United States Comprehensive Environmental Response, Compensation and Liability Act or similar state “superfund” laws. The Company anticipates approximately 50% of the estimated liability for these sites will be paid within the next five years, with the remainder over the next twenty-five years. The Company generally does not bear a significant level of responsibility for these sites, and as a result, has little control over the costs and timing of cash flows.
The Company’s ultimate liability will depend on many factors including its share of waste volume, the financial viability of other PRPs, the remediation methods and technology used, the amount of time necessary to accomplish remediation and the availability of insurance coverage. The range of possible outcomes takes into account the maturity of each project, resulting in a more narrow range as the project progresses. To estimate both its current reserves for environmental remediation at these sites and the possible range of additional costs, the Company has not assumed that it will bear the entire cost of remediation of every site to the exclusion of other known PRPs who may be jointly and severally liable. The Company has limited information to assess the viability of other PRPs and their probable contribution on a per site basis. The Company’s insurance provides very limited, if any, coverage for these environmental matters.

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Sites Under Current Ownership—The Company is conducting environmental remediation at a number of locations that it currently owns, of which ten sites are no longer in operation. As the Company is performing a portion of the remediation on a voluntary basis, it has some control over the costs to be incurred and the timing of cash flows. The factors influencing the ultimate outcome include the methods of remediation elected, the conclusions and assessment of site studies remaining to be completed, and the time period required to complete the work. No other parties are responsible for remediation at these sites.
Formerly-Owned Sites—The Company is conducting, or has been identified as a PRP in connection with, environmental remediation at a number of locations that it formerly owned and/or operated. Remediation costs at these former sites, such as those associated with the Company’s former phosphate mining and processing operations, could be material. The Company has accrued those costs for formerly-owned sites which are currently probable and reasonably estimable. One such site is the Coronet Industries, Inc. Superfund Alternative Site in Plant City, Florida. The current owner of the site alleged that it incurred environmental costs at the site for which it has a contribution claim against the Company, and that additional future costs are likely to be incurred. The Company signed a settlement agreement in 2016 with the current site owner and a past site owner, pursuant to which the Company paid for a portion of past remediation costs and accepted a 40% allocable share of specified future remediation costs at this site. The Company estimates its allocable share of future remediation costs to be approximately $7. The final costs to the Company will depend on natural variations in remediation costs, including unforeseen circumstances, agency requests, new contaminants of concern and the ongoing financial viability of the other PRPs.
Monitoring Only Sites—The Company is responsible for a number of sites that require monitoring where no additional remediation is expected. The Company has established reserves for costs related to these sites. Payment of these liabilities is anticipated to occur over the next ten or more years. The ultimate cost to the Company will be influenced by fluctuations in projected monitoring periods or by findings that are different than anticipated.
Indemnifications—In connection with the acquisition of certain of the Company’s operating businesses, the Company has been indemnified by the sellers against certain liabilities of the acquired businesses, including liabilities relating to both known and unknown environmental contamination arising prior to the date of the purchase. The indemnifications may be subject to certain exceptions and limitations, deductibles and indemnity caps. While it is reasonably possible that some costs could be incurred, except for those sites identified above, the Company has inadequate information to allow it to estimate a potential range of liability, if any.
Non-Environmental Legal Matters
The Company’s continuing operations is involved in various legal proceedings in the ordinary course of business and had reserves of $1 at both June 30, 2021 and December 31, 2020, for all non-environmental legal defense costs incurred and settlement costs that it believes are probable and estimable. At June 30, 2021 and December 31, 2020, $3 and $2, respectively, has been included in “Other current liabilities” in the unaudited Condensed Consolidated Balance Sheets, with the remaining amount included in “Other long-term liabilities.”
Other Legal Matters—The Company is also involved in various product liability, commercial and employment litigation, personal injury, property damage and other legal proceedings, including actions that allege harm caused by products the Company has allegedly made or used, containing silica, vinyl chloride monomer and asbestos. The Company believes it has adequate reserves and that it is not reasonably possible that a loss exceeding amounts already reserved would be material. Furthermore, the Company has insurance to cover claims of these types.
Other Commitments and Contingencies
The Company has contractual agreements with third parties to purchase feedstocks, tolling arrangements or other services. The terms of these different agreements can vary and may be extended at the Company’s request and are cancellable by either party as provided for in each agreement. While the agreements vary by scope and terms, early cancellation of contractual agreements could result in one-time contract termination costs.
10. Pension and Postretirement Benefit Plans
The Company’s service cost component of net benefit cost is included in “Operating income” and all other components of net benefit cost are included in “Other non-operating income, net” within the Company’s unaudited Condensed Consolidated Statements of Operations. The Company recognized less than $1 of net non-pension postretirement benefit cost for the three and six months ended June 30, 2021 and 2020.

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Following are the components of net pension benefit cost recognized by the Company for the three and six months ended June 30, 2021 and 2020:
 Pension Benefits
 Three Months Ended
June 30, 2021
Three Months Ended June 30, 2020Six Months Ended June 30, 2021Six Months Ended June 30, 2020
 U.S.
Plans
Non-U.S.
Plans
U.S.
Plans
Non-U.S.
Plans
U.S.
Plans
Non-U.S.
Plans
U.S.
Plans
Non-U.S.
Plans
Service cost$ $4 $1 $4 $1 $10 $1 $9 
Interest cost on projected benefit obligation1 2 1 2 2 3 3 3 
Expected return on assets(3)(3)(3)(3)(6)(7)(6)(6)
Net (benefit) expense(1)
$(2)$3 $(