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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, 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/d21cc393e01e9b64f39a4172945752c2-hsc-20210930_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, 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 | Q3 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)September 30, 2021December 31, 2020
Assets
Current assets:
Cash and cash equivalents (including restricted cash of $2 and $4, respectively)
$354 $204 
Accounts receivable (net of allowance for doubtful accounts of $3 and $3, respectively)
413 331 
Inventories:
Finished and in-process goods273 180 
Raw materials and supplies122 85 
Current assets held for sale (see Note 4)
5 114 
Other current assets51 39 
Total current assets1,218 953 
Investment in unconsolidated entities12 10 
Deferred tax assets7 7 
Long-term assets held for sale (see Note 4)
 342 
Other long-term assets77 85 
Property and equipment:
Land78 79 
Buildings124 122 
Machinery and equipment1,294 1,270 
1,496 1,471 
Less accumulated depreciation(309)(212)
1,187 1,259 
Operating lease assets94 103 
Goodwill164 164 
Other intangible assets, net1,025 1,079 
Total assets$3,784 $4,002 
Liabilities and Equity
Current liabilities:
Accounts payable$360 $339 
Debt payable within one year47 82 
Interest payable19 30 
Income taxes payable38 6 
Accrued payroll and incentive compensation71 42 
Current liabilities associated with assets held for sale (see Note 4)
3 70 
Current portion of operating lease liabilities16 19 
Other current liabilities104 111 
Total current liabilities658 699 
Long-term liabilities:
Long-term debt1,546 1,710 
Long-term pension and post employment benefit obligations228 250 
Deferred income taxes147 161 
Operating lease liabilities71 76 
Long-term liabilities associated with assets held for sale (see Note 4)
 74 
Other long-term liabilities207 209 
Total liabilities2,857 3,179 

Equity
Common stock —$0.01 par value; 100 shares authorized, issued and outstanding
  
Paid-in capital 1,192 1,169 
Accumulated other comprehensive loss(44)(27)
Accumulated deficit(221)(319)
Total equity927 823 
Total liabilities and equity$3,784 $4,002 
See Notes to Condensed Consolidated Financial Statements
Hexion Inc. | 3 | Q3 2021 Form 10-Q

Table of Contents                 
HEXION INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 
(In millions)Three Months Ended September 30, 2021Three Months Ended September 30, 2020Nine Months Ended September 30, 2021Nine Months Ended September 30, 2020
Net sales$945 $634 $2,550 $1,855 
Cost of sales (exclusive of depreciation and amortization shown below)
702 500 1,922 1,514 
Selling, general and administrative expense
90 56 243 164 
Depreciation and amortization
48 47 148 143 
Asset impairments   16 
Business realignment costs6 19 19 57 
Other operating expense, net2 4 2 15 
Operating income (loss)97 8 216 (54)
Interest expense, net24 25 72 76 
Other non-operating income, net(1)(8)(8)(12)
Income (loss) from continuing operations before income tax and earnings from unconsolidated entities74 (9)152 (118)
Income tax expense26 17 51 8 
Income (loss) from continuing operations before earnings from unconsolidated entities48 (26)101 (126)
Earnings from unconsolidated entities, net of taxes1  2 2 
Income (loss) from continuing operations, net of taxes49 (26)103 (124)
Loss from discontinued operations, net of taxes (68)(5)(71)
Net income (loss)$49 $(94)$98 $(195)
See Notes to Condensed Consolidated Financial Statements
Hexion Inc. | 4 | Q3 2021 Form 10-Q

Table of Contents                 
HEXION INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(In millions)Three Months Ended September 30, 2021Three Months Ended September 30, 2020Nine Months Ended September 30, 2021Nine Months Ended September 30, 2020
Net income (loss)$49 $(94)$98 $(195)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments(14)7 (23)(29)
Unrealized gain (loss) on cash flow hedge1 (1)6 (19)
Other comprehensive (loss) income(13)6 (17)(48)
Comprehensive income (loss)$36 $(88)$81 $(243)
See Notes to Condensed Consolidated Financial Statements
Hexion Inc. | 5 | Q3 2021 Form 10-Q

Table of Contents                 
HEXION INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions)Nine Months Ended September 30, 2021Nine Months Ended September 30, 2020
Cash flows provided by (used in) operating activities
Net income (loss)$98 $(195)
Less: Loss from discontinued operations, net of tax(5)(71)
Income (loss) from continuing operations103 (124)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization148 143 
Non-cash asset impairments 16 
Deferred tax (benefit) expense(3)5 
Loss on sale of assets and dispositions2 7 
Unrealized foreign currency losses (gains)8 (1)
Non-cash stock based compensation expense23 13 
Other non-cash adjustments (1)
Net change in assets and liabilities:
Accounts receivable(93)(55)
Inventories(139)31 
Accounts payable34 (14)
Income taxes payable38 (8)
Other assets, current and non-current(2)(27)
Other liabilities, current and non-current(13)(22)
Net cash provided by (used in) operating activities from continuing operations106 (37)
Net cash (used in) provided by operating activities from discontinued operations(1)12 
Net cash provided by (used in) operating activities105 (25)
Cash flows provided by (used in) investing activities
Capital expenditures(80)(78)
Proceeds from disposition of Held for Sale Business (see Note 4)304  
Proceeds from sale of assets and other dispositions11 2 
Net cash provided by (used in) investing activities from continuing operations235 (76)
Net cash used in investing activities from discontinued operations(6)(13)
Net cash provided by (used in) investing activities229 (89)
Cash flows (used in) provided by financing activities
Net short-term debt repayments(8)(12)
Borrowings of long-term debt131 209 
Repayments of long-term debt(301)(167)
Return of capital to parent (see Note 6)
 (10)
Financing fees paid(1) 
Net cash (used in) provided by financing activities(179)20 
Effect of exchange rates on cash and cash equivalents, including restricted cash (2)
Change in cash and cash equivalents, including restricted cash and cash classified within current assets held for sale155 (96)
Change in cash classified within current assets held for sale(5) 
Cash, cash equivalents and restricted cash at beginning of period204 254 
Cash, cash equivalents and restricted cash at end of period$354 $158 
Supplemental disclosures of cash flow information
Cash paid for:
Interest, net$80 $88 
Income taxes, net21 12 
See Notes to Condensed Consolidated Financial Statements
Hexion Inc. | 6 | Q3 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 June 30, 2020
$ $1,164 $ $(55)$(190)$919 
Net loss    (94)(94)
Stock-based compensation expense 4    4 
Other comprehensive income   6  6 
Balance at September 30, 2020
$ $1,168 $ $(49)$(284)$835 
Balance at December 31, 2019
$ $1,165 $ $(1)$(89)$1,075 
Net loss    (195)(195)
Stock-based compensation expense 13    13 
Other comprehensive loss   (48) (48)
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 September 30, 2020
$ $1,168 $ $(49)$(284)$835 
Balance at June 30, 2021
$ $1,184 $ $(31)$(270)$883 
Net income    49 49 
Stock-based compensation expense 8    8 
Other comprehensive loss   (13) (13)
Balance at September 30, 2021
$ $1,192 $ $(44)$(221)$927 
Balance at December 31, 2020
$ $1,169 $ $(27)$(319)$823 
Net income    98 98 
Stock-based compensation expense 23    23 
Other comprehensive loss   (17) (17)
Balance at September 30, 2021
$ $1,192 $ $(44)$(221)$927 

See Notes to Condensed Consolidated Financial Statements
Hexion Inc. | 7 | Q3 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 September 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”, “Q3 2021 Form 10-Q” or “Report”) for the period ended September 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 proceeds of up to $90 is based on the performance of the Held for Sale Business over the three year period after the completion of the sale. Payments will be based on the amount of actual EBITDA (as defined in the Purchase Agreement) above targeted EBITDA amounts of $45, $50 and $60 in 2021, 2022 and 2023, respectively. The maximum payout per year under the earnout are $40, $35 and $15 respectively. 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 nine months ended September 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 $4, $7 and $11 in “Net sales” and “Cost of sales” within the Company’s continuing operations for the three months ended September 30, 2020 and nine months ended September 30, 2021 and 2020, respectively. There were no sales included for the three months ended September 30, 2021. These represent 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
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will result in the Company recording a contract asset. A contract asset balance of $11 and $5 is recorded within “Other current assets” at September 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 September 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 September 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 $3 at both September 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 $1 of write-offs for the three and nine months ended September 30, 2021 and no write-offs for the three and nine months ended September 30, 2020.
Financial Statement Presentation — In the fourth quarter 2020, we identified certain errors within our condensed consolidated financial statements for the three and nine months ended September 30, 2020:

Approximately $13 associated with an insurance premium financing arrangement was incorrectly disclosed as a non-cash financing activity but should have been classified as an operating cash outflow from continuing operations and financing cash inflow;

“Net cash used in operating activities from continuing operations” was overstated by approximately $13 and “Net cash (used in) provided by operating activities from discontinued operations” was understated by approximately $13 due to activity within “Other assets, current and non-current” being incorrectly classified; and

The impairment charge recognized with respect to our Held for Sale Business was overstated by approximately $8 which also resulted in an understatement of the Assets Held for Sale as of September 30, 2020.

Based upon quantitative and qualitative assessments, we determined that these adjustments were not material to the previously issued interim financial statements. The impacts to the previously issued interim financial statements are shown in the tables below.

Condensed Consolidated Statement of Cash Flows (Nine Months Ended September 30, 2020) (unaudited)
Line ItemAs Previously ReportedAdjustmentsAs Revised
Net income (loss)$(203)$8 $(195)
Loss from discontinued operations, net of taxes(79)8 (71)
Other assets, current and non-current(1)(26)(27)
Net cash provided by (used in) operating activities from continuing operations(11)(26)(37)
Net cash (used in) provided by operating activities from discontinued operations(1)13 12 
Net cash provided by (used in) operating activities$(12)$(13)$(25)
Net short-term debt repayments$(25)$13 $(12)
Net cash (used in) provided by financing activities$7 $13 $20 
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Condensed Consolidated Statement of Operations (Three Months Ended September 30, 2020) (unaudited)
Line ItemAs Previously Reported
Adjustment (1)
As Revised
Loss from discontinued operations, net of taxes$(76)$8 $(68)
Net income (loss)(102)8 (94)
Net loss attributable to Hexion Inc.(102)8 (94)
Condensed Consolidated Statement of Operations (Nine Months Ended September 30, 2020) (unaudited)
Line ItemAs Previously Reported
Adjustment (1)
As Revised
Loss from discontinued operations, net of taxes$(79)$8 $(71)
Net income (loss)(203)8 (195)
Net loss attributable to Hexion Inc.(203)8 (195)
(1)The $8 adjustment summarized above impacts the “Asset impairments” caption within the financial results table in the Discontinued Operations footnote. The adjustment also impacts “Comprehensive loss” and “Accumulated deficit.”
Subsequent Events—The Company has evaluated events and transactions subsequent to September 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.
The Company’s businesses have been designated by many governments as essential businesses, and the Company’s operations have continued through September 30, 2021. Though the Company’s strong results reflect a recovering economy, the impact of COVID-19 continues to evolve, and its ultimate impact 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.
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Subsequent to September 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 in future proceeds of up to $90 is based on the performance of the Held for Sale Business over the three year period after the completion of the sale. Payments will be based on the amount of actual EBITDA (as defined in the Purchase Agreement) above targeted EBITDA amounts of $45, $50 and $60 in 2021, 2022, and 2023, respectively. The maximum payout per year under the earnout are $40, $35, and $15, respectively. 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 provided certain transitional services to the buyers for an initial period of six months which ended in October 2021 pursuant to the Transitional Services Agreement, certain services have been extended for an additional three months and may be extended an additional period 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 sales of $216 and $360 through the disposition date of April 30, 2021 for the nine months ended September 30, 2021 and for the nine months ended September 30, 2020, respectively. Until the closing date, the Company operated the Held for Sale Business in the ordinary course.
For the nine months ended September 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 September 30, 2021.
As a result of entering into the Purchase Agreement, the Company recognized a pre-tax charge of $16 during the nine months ended September 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 the closing date 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
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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 unaudited Condensed Consolidated Balance Sheet at September 30, 2021 includes an additional $5 of current assets held for sale and $3 of current liabilities. The Company’s Consolidated Balance Sheet as of December 31, 2020 also includes $1 of current assets held for sale, noncurrent assets held for sale of $5, current liabilities associated with assets held for sale of $3 and noncurrent liabilities associated with assets held for sale of $3. These additional assets and liabilities classified as “held for sale” at September 30, 2021 and December 31, 2020 are related to the Company’s other restructuring activities.
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The following table shows the financial results of discontinued operations for the periods presented:
Three Months Ended September 30, 2021
Three Months Ended September 30, 2020(1)
Nine Months Ended September 30, 2021
Nine Months Ended September 30, 2020(1)
Major line items constituting pretax income of discontinued operations:
Net sales$ $120 $216 $360 
Cost of sales (exclusive of depreciation and amortization) 100 183 301 
Selling, general and administrative expense 11 16 33 
Depreciation and amortization 8  26 
Loss on sale of business  10  
Asset impairments 67 16 67 
Business realignment costs   1 
Operating loss (66)(9)(68)
Other non-operating expense (income), net 1 (5)1 
Loss from discontinued operations before income tax and earnings from unconsolidated entities (67)(4)(69)
Income tax expense 2 2 3 
Loss from discontinued operations, net of tax$ $(69)$(6)$(72)
Earnings from unconsolidated entities, net of tax 1 1 1 
Net loss attributable to discontinued operations$ $(68)$(5)$(71)
(1)The three and nine months ended September 30, 2020 have been revised. See Note 2 for more information.
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 nine months ended September 30, 2020. There were no asset impairments recognized for the three and nine months ended September 30, 2021 or the three months ended September 30, 2020.
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 September 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 $1 than for the three months ended September 30, 2021 and $1 for the nine months ended September 30, 2021, and less than $1 for the three and nine months ended September 30, 2020. There were no purchases from joint ventures for the three and nine months ended September 30, 2021. There were no accounts receivable from joint ventures at September 30, 2021 and less than $1 at December 31, 2020. There were no accounts payable at September 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 September 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 nine months ended September 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 September 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 ($708 outstanding at September 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:
September 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 $(9)$300 $(15)
Total derivatives designated as hedging instruments$(9)$(15)
Amount of Gain (Loss) Recognized in OCI on Derivatives
Derivatives designated as hedging instrumentsThree Months Ended September 30, 2021Three Months Ended September 30, 2020Nine Months Ended September 30, 2021Nine Months Ended September 30, 2020
Interest Rate Swaps
Interest Rate Swap$$(1)$$(19)
Total$1 $(1)$6 $(19)
In both the three and nine months ended September 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
September 30, 2021
Debt$1,593 $ $1,583 $48 $1,631 
December 31, 2020
Debt$1,792 $ $1,767 $55 $1,822 
Fair values of debt classified as Level 2 are determined based on other similar financial instruments, or based upon interest rates that are currently available to the Company for the issuance of debt with similar terms and maturities. Level 3 amounts represent finance leases and sale leaseback financing arrangements whose fair value is determined through the use of present value and specific contract terms. The carrying amount and fair value of the Company’s debt is exclusive of unamortized deferred financing fees. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and other accrued liabilities are classified as Level 1 and are considered reasonable estimates of their fair values due to the short-term maturity of these financial instruments.
8. Debt Obligations
Debt outstanding at September 30, 2021 and December 31, 2020 is as follows:
 September 30, 2021December 31, 2020
 Long-TermDue Within
One Year
Long-TermDue Within
One Year
Senior Secured Credit Facilities:
ABL Facility$ $ $ $ 
Senior Secured Term Loan - USD due 2026 (includes $5 and $6 of unamortized debt discount)
696 7 701 7 
Senior Secured Term Loan - EUR due 2026 (includes $2 and $4 of unamortized debt discount)
345  515  
Senior Notes:
7.875% Senior Notes due 2027
450  450  
Other Borrowings:
Australia Facility due 2026(1)
29   30 
Brazilian bank loans 13 2 22 
Lease obligations (2)
26 22 42 14 
Other 5  9 
Total(3)
$1,546 $47 $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 $23 as of September 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 September 30, 2021 and December 31, 2020:
 Liability
Range of Reasonably Possible Costs at September 30, 2021
Site Description
September 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-owned5 8 3 15 
Formerly-owned:
Remediation15 18 14 33 
Monitoring only   1 
Total$41 $47 $33 $88 
(1)The table includes approximately $3 of environmental remediation liabilities at September 30, 2021 related to assets held for sale related to the Company’s other restructuring activities and are included in the “Current