Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 FORM 10-Q
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017March 31, 2020
OR
oTRANSITION 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


logo2002a03.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  xo   No  ox
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x No   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer” and, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o  Accelerated filer o
      
Non-accelerated filer x(Do not check if a smaller reporting company)
  Smaller reporting company o
       
    Emerging growth company o
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.  o

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

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  x    No  o

Number of shares of common stock, par value $0.01 per share, outstanding as of the close of business on NovemberMay 1, 2017: 82,556,847

Table of Contents
2020: 100

HEXION INC.
INDEX
 
  Page
PART I – FINANCIAL INFORMATION 
   
Item 1.Hexion Inc. Condensed Consolidated Financial Statements (Unaudited) 
   
 
Condensed Consolidated Balance Sheets at September 30, 2017 and December 31, 2016
3
   
 
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017 and 2016
4
   
 
Condensed Consolidated Statements of Comprehensive (Loss) Income for the three and nine months ended September 30, 2017 and 2016Loss
5
   
 
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016
6
   
 
Condensed Consolidated StatementStatements of Deficit for the Equity (Deficit)nine months ended September 30, 2017
7
   
 
Notes to Condensed Consolidated Financial Statements
8
   
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
2720
   
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
3932
   
Item 4.
Controls and Procedures
3932
   
PART II – OTHER INFORMATION 
   
Item 1.
Legal Proceedings
4033
   
Item 1A.
Risk Factors
4033
   
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
4033
   
Item 3.
Defaults upon Senior Securities
4033
   
Item 4.
Mine Safety Disclosures
4033
   
Item 5.
Other Information
4033
   
Item 6.
Exhibits
4034

PART I - FINANCIAL INFORMATION

Item 1.    Financial Statements
HEXION INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In millions, except share data)September 30,
2017		 December 31,
2016		March 31, 2020 December 31, 2019
Assets  
   
Current assets:  
   
Cash and cash equivalents (including restricted cash of $18 and $17, respectively)
$118
 $196
Accounts receivable (net of allowance for doubtful accounts of $18 and $17, respectively)500
 390
Cash and cash equivalents (including restricted cash of $4)$250
 $254
Accounts receivable (net of allowance for doubtful accounts of $4 and $3, respectively)451
 365
Inventories:  
   
Finished and in-process goods240
 199
212
 232
Raw materials and supplies92
 88
104
 100
Other current assets49
 45
51
 51
Total current assets999
 918
1,068
 1,002
Investment in unconsolidated entities20
 18
17
 17
Deferred income taxes12
 10
Deferred tax assets6
 6
Other long-term assets49
 43
56
 55
Property and equipment:  
   
Land84
 79
109
 116
Buildings288
 273
174
 172
Machinery and equipment2,312
 2,353
1,351
 1,368

2,684
 2,705
1,634
 1,656
Less accumulated depreciation(1,766) (1,812)(139) (78)

918
 893
1,495
 1,578
Operating lease assets118
 122
Goodwill113
 121
178
 178
Other intangible assets, net45
 52
1,159
 1,188
Total assets$2,156
 $2,055
$4,097
 $4,146
Liabilities and Deficit  
Liabilities and Equity   
Current liabilities:  
   
Accounts payable$347
 $368
$315
 $341
Debt payable within one year121
 107
80
 70
Interest payable101
 70
24
 35
Income taxes payable13
 13
22
 17
Accrued payroll and incentive compensation47
 55
44
 48
Current portion of operating lease liabilities21
 22
Other current liabilities126
 159
114
 105
Total current liabilities755
 772
620
 638
Long-term liabilities:  
   
Long-term debt3,612
 3,397
1,834
 1,715
Long-term pension and post employment benefit obligations263
 246
244
 252
Deferred income taxes13
 13
155
 164
Operating lease liabilities83
 86
Other long-term liabilities173
 166
207
 216
Total liabilities4,816
 4,594
3,143
 3,071
Commitments and contingencies (see Note 7)  
   
Deficit  
Common stock—$0.01 par value; 300,000,000 shares authorized, 170,605,906 issued and 82,556,847 outstanding at September 30, 2017 and December 31, 20161
 1
Equity   
Common stock —$0.01 par value; 100 shares authorized, issued and outstanding—
 —
Paid-in capital526
 526
1,170
 1,165
Treasury stock, at cost—88,049,059 shares(296) (296)
Loan receivable from parent(10) —
Accumulated other comprehensive loss(14) (39)(58) (1)
Accumulated deficit(2,876) (2,730)(148) (89)
Total Hexion Inc. shareholder’s deficit(2,659) (2,538)
Total Hexion Inc. shareholders’ equity954
 1,075
Noncontrolling interest(1) (1)—
 —
Total deficit(2,660) (2,539)
Total liabilities and deficit$2,156
 $2,055
Total equity954
 1,075
Total liabilities and equity$4,097
 $4,146
See Notes to Condensed Consolidated Financial Statements

HEXION INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 
 Three Months Ended September 30, Nine Months Ended September 30,
(In millions)2017
2016 2017 2016
Net sales$914

$819

$2,696

$2,680
Cost of sales797

701

2,312

2,357
Gross profit117

118

384

323
Selling, general and administrative expense75

69

227

235
Gain on dispositions—

—

—

(240)
Asset impairments (see Note 5)13
 —
 13
 —
Business realignment costs (income)10

(3)
27

42
Other operating expense, net1

7

4

6
Operating income18

45

113

280
Interest expense, net82

76

247

235
(Gain) loss on extinguishment of debt—

(3)
3

(47)
Other non-operating (income) expense, net(3)
2

(4)
1
(Loss) income before income tax and earnings from unconsolidated entities(61)
(30)
(133)
91
Income tax expense9

16

16

40
(Loss) income before (losses) earnings from unconsolidated entities(70)
(46)
(149)
51
(Losses) earnings from unconsolidated entities, net of taxes—

(1)
3

8
Net (loss) income$(70)
$(47)
$(146)
$59
  Successor  Predecessor
 (In millions)Three Months Ended
March 31, 2020		  Three Months Ended March 31, 2019
 
 Net sales$826
  $886
 Cost of sales (exclusive of depreciation and amortization shown below, see Note 2)680
  727
 Selling, general and administrative expense (see Note 2)75
  88
 Depreciation and amortization (see Note 2)58
  26
 Asset impairments16
  —
 Business realignment costs21
  4
 Other operating expense, net7
  8
 Operating (loss) income(31)  33
 Interest expense, net26
  80
 Other non-operating income, net—
  (1)
 Loss before income tax and earnings from unconsolidated entities(57)  (46)
 Income tax expense3
  7
 Loss before earnings from unconsolidated entities(60)  (53)
 Earnings from unconsolidated entities, net of taxes1
  1
 Net loss$(59)  $(52)
See Notes to Condensed Consolidated Financial Statements

HEXION INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOMELOSS (Unaudited)

 Three Months Ended September 30, Nine Months Ended September 30,
(In millions)2017
2016 2017 2016
Net (loss) income$(70) $(47) $(146) $59
Other comprehensive income, net of tax:       
Foreign currency translation adjustments10
 7
 25
 8
Loss recognized from pension and postretirement benefits—
 —
 —
 (1)
Other comprehensive income10
 7
 25
 7
Comprehensive (loss) income$(60) $(40) $(121) $66
  Successor  Predecessor
 (In millions)Three Months Ended
March 31, 2020		  Three Months Ended March 31, 2019
 
 Net loss$(59)  $(52)
 Other comprehensive loss, net of tax:    
 Foreign currency translation adjustments(42)  —
 Unrealized loss on cash flow hedge(15)  —
 Other comprehensive loss(57)  —
 Comprehensive loss$(116)  $(52)
See Notes to Condensed Consolidated Financial Statements

HEXION INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 Nine Months Ended September 30,
(In millions)2017
2016
Cash flows used in operating activities
 
Net (loss) income$(146) $59
Adjustments to reconcile net (loss) income to net cash used in operating activities:
 
Depreciation and amortization85
 101
Non-cash asset impairments and accelerated depreciation27
 127
Deferred tax (benefit) expense(1) 3
Gain on dispositions—
 (240)
Gain on sale of assets(1) —
Amortization of deferred financing fees12
 11
Loss (gain) on extinguishment of debt3
 (47)
Unrealized foreign currency gains(5) (40)
Other non-cash adjustments(4) 3
Net change in assets and liabilities:
  
Accounts receivable(89) (88)
Inventories(29) (32)
Accounts payable(32) (35)
Income taxes payable8
 26
Other assets, current and non-current(4) (27)
Other liabilities, current and long-term(29) 48
Net cash used in operating activities(205) (131)
Cash flows (used in) provided by investing activities
 
Capital expenditures(86) (91)
Capitalized interest(1) (1)
Proceeds from dispositions, net—
 281
Cash received on buyer’s note—
 45
Proceeds from sale of assets, net5
 1
Change in restricted cash1
 (11)
Investment in affiliate—
 (1)
Net cash (used in) provided by investing activities(81) 223
Cash flows provided by (used in) financing activities
 
Net short-term debt borrowings (repayments)15
 (13)
Borrowings of long-term debt1,291
 461
Repayments of long-term debt(1,079) (643)
Long-term debt and credit facility financing fees paid(25) —
Net cash provided by (used in) financing activities202
 (195)
Effect of exchange rates on cash and cash equivalents5
 1
Change in cash and cash equivalents(79) (102)
Cash and cash equivalents (unrestricted) at beginning of period179
 228
Cash and cash equivalents (unrestricted) at end of period$100
 $126
Supplemental disclosures of cash flow information
 
Cash paid for:
 
Interest, net$205
 $210
Income taxes, net10
 20
Non-cash investing activity:   
Acceptance of buyer’s note$—
 $75
 Successor  Predecessor
(In millions)Three Months Ended
March 31, 2020		  Three Months Ended March 31, 2019
Cash flows used in operating activities   
Net loss$(59)  $(52)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization58
  26
Non-cash asset impairments16
  —
Deferred tax benefit(2)  —
Unrealized foreign currency losses5
  —
Non-cash stock based compensation expense5
  —
Other non-cash adjustments3
  —
Net change in assets and liabilities:    
Accounts receivable(104)  (84)
Inventories7
  (20)
Accounts payable(8)  (21)
Income taxes payable3
  4
Other assets, current and non-current(8)  (9)
Other liabilities, current and long-term(18)  2
Net cash used in operating activities(102)  (154)
Cash flows used in investing activities    
Capital expenditures(32)  (19)
Net cash used in investing activities(32)  (19)
Cash flows provided by financing activities    
Net short-term debt repayments(10)  —
Borrowings of long-term debt181
  196
Repayments of long-term debt(25)  (40)
Distribution of affiliate loan (see Note 4)(10)  —
Net cash provided by financing activities136
  156
Effect of exchange rates on cash and cash equivalents, including restricted cash(6)  —
Change in cash and cash equivalents, including restricted cash(4)  (17)
Cash, cash equivalents and restricted cash at beginning of period254
  128
Cash, cash equivalents and restricted cash at end of period$250
  $111
Supplemental disclosures of cash flow information    
Cash paid for:    
Interest, net$36
  $62
Income taxes, net2
  5
See Notes to Condensed Consolidated Financial Statements

HEXION INC.
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF DEFICITEQUITY (DEFICIT) (Unaudited)

(In millions)
Common
Stock
 
Paid-in
Capital
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Loss
 
Accumulated
Deficit
 Total Hexion Inc. Deficit Noncontrolling Interest Total
Balance at December 31, 2016$1
 $526
 $(296) $(39) $(2,730) $(2,538) $(1) $(2,539)
Net loss—
 —
 —
 —
 (146) (146) —
 (146)
Other comprehensive income—
 —
 —
 25
 —
 25
 —
 25
Balance at September 30, 2017$1
 $526
 $(296) $(14) $(2,876) $(2,659) $(1) $(2,660)
(In millions)
Common
Stock
 
Paid-in
Capital
 
Treasury
Stock
 
Loan
Receivable
from Parent
 
Accumulated
Other
Comprehensive
Loss
 
Accumulated
Deficit
 Total Hexion Inc. (Deficit) Equity Noncontrolling Interest Total Shareholder’s (Deficit) Equity
Predecessor                 
Balance at December 31, 2018$1
 $526
 $(296) $—
 $(18) $(3,125) $(2,912) $(2) $(2,914)
Net loss—
 —
 —
 —
 —
 (52) (52) —
 (52)
Balance at March 31, 2019$1
 $526
 $(296) $—
 $(18) $(3,177) $(2,964) $(2) $(2,966)
                  
Successor                 
Balance at December 31, 2019$—
 $1,165
 $—
 $—
 $(1) $(89) $1,075
 $—
 $1,075
Net loss—
 —
 —
 —
 —
 (59) (59) —
 (59)
Stock-based compensation expense—
 5
 —
 —
 —
 —
 5
 —
 5
Other comprehensive loss—
 —
 —
 —
 (57) —
 (57) —
 (57)
Distribution of affiliate loan (see Note 4)—
 —
 —
 (10) —
 —
 (10) —
 (10)
Balance at March 31, 2020$—
 $1,170
 $—
 $(10) $(58) $(148) $954
 $—
 $954

See Notes to Condensed Consolidated Financial Statements

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In millions, except share data)
1. Background and Basis of Presentation
Based in Columbus, Ohio, Hexion Inc. (“Hexion” or the “Company”) serves global adhesive, coatings, composites and industrial markets through a broad range of thermoset technologies, specialty products and technical support for customers in a diverse range of applications and industries. The Company’s business is organized based on the products offered and the markets served. In January 2020, the Company changed its reporting segments to align around its growth platforms. At September 30, 2017,March 31, 2020, the Company had twothree reportable segments: Epoxy, PhenolicAdhesives; Coatings and Coating ResinsComposites; and Forest Products Resins.
The Company’s direct parent is Hexion LLC, a holding companyCorporate and wholly owned subsidiary of Hexion Holdings LLC (“Hexion Holdings”), the ultimate parent entity of Hexion. Hexion Holdings is controlled by investment funds managed by affiliates of Apollo Management Holdings, L.P. (together with Apollo Global Management, LLC and its subsidiaries, “Apollo”). Apollo may also be referred to as the Company’s owner.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 and variable interest entities in which the Company is the primary beneficiary.rights. Intercompany accounts and transactions are eliminated in consolidation. In the opinion of management, all adjustments consisting of normal, recurring adjustments considered necessary for a fair statement have been included. Results for the interim periods are not necessarily indicative of results for the entire year.
Year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the accompanying notes included in the Company’s most recent Annual Report on Form 10-K.
Emergence from Chapter 11 and Fresh Start Accounting
On April 1, 2019, the Company, Hexion Holdings LLC, Hexion LLC and certain of the Company’s subsidiaries (collectively, the “Debtors”) filed voluntary petitions (the “Bankruptcy Petitions”) for reorganization under Chapter 11 (“Chapter 11”) of the U.S. Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware, (the “Bankruptcy Court”). The Chapter 11 proceedings were jointly administered under the caption In re Hexion TopCo, LLC, No. 19-10684 (the “Chapter 11 Cases”). The Debtors continued to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.
On June 25, 2019, the Court entered an order (the “Confirmation Order”) confirming the Second Amended Joint Chapter 11 Plan of Reorganization of Hexion Holdings LLC and its Debtor Affiliates under Chapter 11 (the “Plan”). On the morning of July 1, 2019 (the "Effective Date"), in accordance with the terms of the Plan and the Confirmation Order, the Plan became effective and the Debtors emerged from bankruptcy (the “Emergence”).
As a result of the Company’s reorganization and emergence from Chapter 11 bankruptcy on the Effective Date, the Company’s direct parent is Hexion Intermediate Holding 2, Inc. (“Hexion Intermediate”), a holding company and wholly owned subsidiary of Hexion Intermediate Holding 1, Inc., a holding company and wholly owned subsidiary of Hexion Holdings Corporation, the ultimate parent of Hexion (“Hexion Holdings” or “Parent”). Prior to its reorganization, the Company’s parent was Hexion LLC, a holding company and wholly owned subsidiary of Hexion Holdings LLC (now known as Hexion TopCo, LLC or “TopCo”), the previous ultimate parent entity of Hexion, which was controlled by investment funds managed by affiliates of Apollo Management Holdings, L.P. (together with Apollo Global Management, Inc. and its subsidiaries, “Apollo”). On the Effective Date, the Company’s existing common stock were cancelled and 100 new shares of common stock were issued at a par value of $0.01 to the Company’s new direct parent Hexion Intermediate in accordance with the Plan.
On the Effective Date, the Company applied fresh start accounting to its financial statements, which resulted in a new basis of accounting and the Company became a new entity for financial reporting purposes. As a result of the application of fresh start accounting and the effects of the implementation of the Plan, the Condensed Consolidated Financial Statements after the Effective Date are not comparable with the Condensed Consolidated Financial Statements prior to that date. References to “Successor” or “Successor Company” relate to the financial position and results of operations of the Company after the Effective Date. References to “Predecessor” or “Predecessor Company” refer to the financial position and results of operations of the Company on or before the Effective Date.
2. Summary of Significant Accounting Policies
Use of Estimates—The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and also requires the disclosure of contingent assets and liabilities at the date of the financial statements. In addition, it requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Subsequent EventsRevenue Recognition—The Company has evaluated events and transactions subsequent to September 30, 2017 throughfollows the date of issuance of its unaudited Condensed Consolidated Financial Statements.
Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Board Update No. 2014-09: Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 supersedes the existing revenue recognition guidance and most industry-specific guidance applicable to revenue recognition. According to the new guidance, an entity will apply a 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. The effective dateRevenue, 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 ASU 2014-09 iscertain 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 annualthe product. In these cases,timing of revenue recognition will differ from the timing of invoicing to customers and interim periods beginning on or after December 15, 2017, and early adoption will be permitted for annual and interim periods beginning on or after December 15, 2016. Entities will have the option of using either a full retrospective approach or a modified approach to adopt the guidance in ASU 2014-09. The Company plans to adopt ASU 2014-09 utilizing a modified retrospective approach, which will result in the Company recording a cumulative adjustmentcontract asset. A contract asset balance of $10 and $9 is recorded within “Other current assets” at March 31, 2020 and December 31, 2019, respectively, in the unaudited Condensed Consolidated Balance Sheet. Refer to equityNote 10 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 $4 at both March 31, 2020 and December 31, 2019 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 Consolidated Balance Sheets as a component of “Cash and cash equivalents.”
Allowance for Doubtful Accounts—The Company adopted ASU 2016-13 (see definition below) on January 1, 2020. 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 inform its credit loss estimates. The Company utilizes a historical aging method disaggregated by portfolio segment of geographic region, and then the Company makes any necessary adjustments for current conditions and forecasts about future economic conditions for calculating its allowance for doubtful accounts. The Company evaluates each pooled receivables’ geographic region by differing regional industrial and economic conditions, overall end market conditions and groups of customers with similar risk profiles related to timing and uncertainty of future collections. If particular accounts receivable balances no longer display risk characteristics that are similar to other pooled receivables, the Company performs individual assessments of expected credit losses for those specific receivables. Receivables are charged against the allowance for doubtful accounts when it is probable that the receivable will not be collected.
During the Successor three months ended March 31, 2020, the Company increased its current period allowance for doubtful accounts provision for expected credit losses by $1 to reflect current business conditions, forecasts of future economic conditions and the impacts related to the global business and market disruptions of the coronavirus disease 2019 (“COVID-19”) pandemic in accordance with ASU 2016-13 (see Note 13 for more information). These future economic conditions reflect the Company’s current expectations and assumptions regarding its business, the economy and other future events and conditions and are based on currently available financial, economic and competitive data and current business plans as of March 31, 2020. Actual results could vary materially depending on risks and uncertainties that may affect the Company’s operations, markets, services, prices and other factors as discussed in the Risk Factors section in this Quarterly Report on Form 10-Q and in the Company’s most recent Annual Report filed on Form 10-K and other filings with the SEC. While the Company believes its assumptions are reasonable, it is very difficult to predict the impact of known factors, and it is impossible for the Company to anticipate all factors that could affect its actual results and any future impacts of COVID-19.
The Company recorded an allowance for doubtful accounts of $4 and $3 at March 31, 2020 and December 31, 2019, respectively, to reduce accounts receivable to their estimated net realizable value. Accounts receivable balances are written-off against the allowance if a final determination of uncollectibility is made. There were write-offs of less than $1 and no recoveries for the Successor three months ended March 31, 2020.
Income Statement Presentation— As a result of the application of fresh start accounting upon the Company’s emergence from Chapter 11, the Company elected to change its income statement presentation of depreciation and amortization expense beginning in the Successor period July 2, 2019 through December 31, 2019 and all periods thereafter. As a result, “Depreciation and amortization” has been added as a line item in the unaudited Condensed Consolidated Statements of Operations and “Cost of sales” and “Selling, general and administrative expense” will now exclude all depreciation and amortization expense. In addition, the Company will no longer present “Gross profit” as a subtotal caption. For comparability purposes, this presentation change will be applied to all comparable periods presented in this Quarterly Report on Form 10-Q and all future filings.
The effects of the income statement presentation change on the adoptionPredecessor Company’s previously reported unaudited Condensed Consolidated Statements of Operations are presented below. As noted above, a component of this presentation change is removal of the “Gross profit” subtotal.
Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2019:
 Previous Presentation Method Effect of Presentation Change As Reported
Cost of sales$750
 $(23) $727
Selling, general and administrative expense91
 (3) 88
Depreciation and amortization—
 26
 26
Subsequent Events—The Company has evaluated events and transactions subsequent to March 31, 2020 through the date of January 1, 2018. The Company currently anticipates that implementationissuance of this standard will result only in timing differences for certain revenue streams, which are not expected to have a material impact on its financial statements.unaudited Condensed Consolidated Financial Statements (See Note 13).

Recently Issued Accounting Standards
Newly Adopted Accounting Standards
In FebruaryJune 2016, the FASB issued Accounting Standards Board Update No. 2016-02:ASU 2016-13:Financial Instruments - Credit Losses (Topic 820): Leases (Topic 842)Measurement of Credit Losses on Financial Instruments, (“ASU 2016-02”2016-13”). ASU 2016-02 supersedesThe amendments in this update replace the existing lease guidanceincurred loss impairment methodology in Topic 840. According to the new guidance, all leases,current GAAP with limited scope exceptions, will be recorded on the balance sheet in the forma methodology that reflects expected credit losses and requires consideration of a liabilitybroader range of reasonable and supportable information to make lease payments (lease liability) and a right-of-use asset representing the right to use the underlying asset for the lease term.inform credit loss estimates. New disclosures are also required with this standard. The guidancestandard is effective for annual and interim periods beginning on or after December 15, 2018,2019. This standard impacts the Company’s accounts receivables and early adoption is permitted. Entities will be required to adoptcontract assets. The Company adopted ASU 2016-022016-13 at January 1, 2020, using a modified retrospective approach, whereby leases will be recognizedadoption method. Under this method of adoption, there is no impact to the comparative Consolidated Statement of Operations and measured at the Consolidated Balance Sheets. There was an immaterial impact of adopting ASU 2016-13 on the date of adoption.
In August 2018, the FASB issued ASU 2018-15: Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (“ASU 2018-15”). ASU 2018-15 align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard was effective for annual and interim periods beginning ofafter December 15, 2019. The Company adopted ASU 2018-15 prospectively on January 1, 2020 and the earliest period presented.adoption had an immaterial impact on its condensed consolidated financial statements.
Recently Issued Accounting Standards
In August 2018, the FASB issued ASU 2018-14: Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”). ASU 2018-14 modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The standard is effective for fiscal years ending after December 15, 2020. The Company is currently assessing the potential impact of ASU 2016-022018-14 on its financial statements.

3. Asset Impairments
In August 2016, the FASB issued Accounting Standards Board Update No. 2016-15: Statement of Cash Flows (Topic 230) (“ASU 2016-15”) as part of the FASB simplification initiative. ASU 2016-15 provides guidance on treatment in the statement of cash flows for eight specific cash flow topics, with the objective of reducing existing diversity in practice. Of the eight cash flow topics addressed in the new guidance, the topics expected to have an impact on the Company include debt prepayment or debt extinguishment costs, proceeds from the settlement of insurance claims, treatment of restricted cash and distributions received from equity method investees. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period, and early adoption is permitted. The Company is currently assessing the potential impact of ASU 2016-15 on its financial statements.

In November 2016, the FASB issued Accounting Standards Board Update No. 2016-18: Statement of Cash Flows (Topic 230) Restricted Cash (“ASU 2016-18”) as part of the FASB simplification initiative. ASU 2016-18 requires that amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of period total amounts shown on the statement of cash flows. ASU 2016-18 also requires supplemental disclosure regarding the nature of restrictions on a company’s cash and cash equivalents, such as the purpose and terms of the restriction, expected duration of the restriction and the amount of cash subject to restriction. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period, and early adoption is permitted. Based on restricted cash balances at December 31, 2016 and September 30, 2017, beginning and ending cash balances in the Condensed Consolidated Statements of Cash Flows would include $17 and $18, respectively, of restricted cash upon adoption of this standard.
In January 2017, the FASB issued Accounting Standards Board Update No. 2017-01: Clarifying the Definition of a Business (Topic 805) (“ASU 2017-01”). ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period, and early adoption is permitted. The Company is currently assessing the potential impact of ASU 2017-01 on its financial statements.
In March 2017, the FASB issued Accounting Standards Board Update No. 2017-07: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”). ASU 2017-07 requires that an employer report the service cost component of its net periodic pension and postretirement benefit costs (“net benefit cost”) in the same line item or items as other compensation costs arising from services rendered by employees during the period. Additionally, ASU 2017-07 only allows the service cost component of net benefit cost to be eligible for capitalization into inventory. All other components of net benefit cost, which primarily include interest cost, expected return on assets and the annual mark-to-market liability remeasurement, are required to be presented in the income statement separately from the service cost component and outside of income from operations. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period, and early adoption was only permitted inDuring the first quarter of 2017. The Company is currently assessing the potential impact of ASU 2017-07 on its financial statements.
Recently Adopted Accounting Standards
In July 2015, the FASB issued Accounting Standards Board Update No. 2015-11: Simplifying the Measurement of Inventory (Topic 330) (“ASU 2015-11”) as part of the FASB simplification initiative. ASU 2015-11 replaces the existing concept of market value of inventory (where market was defined as replacement cost, with a ceiling of net realizable value and floor of net realizable value less a normal profit margin) with the single measurement of net realizable value. The guidance is effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period. The Company adopted ASU 2015-11 as of January 1, 2017 and adoption of this standard had no impact on the Company’s financial statements.

In March 2016, the FASB issued Accounting Standards Board Update No. 2016-07: Simplifying the Transition to the Equity Method of Accounting(Topic 323) (“ASU 2016-07”) as part of the FASB simplification initiative. ASU 2016-07 eliminates the requirement that when an existing investment qualifies for use of the equity method, an investor adjust the investment, results of operations and retained earnings retroactively as if the equity method has been in effect in all previous periods that the investment had been held. Under the new guidance, the equity method investor is only required to adopt the equity method as of the date the investment qualifies for the equity method, with no retrospective adjustment required. The guidance is effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period. The Company adopted ASU 2016-07 as of January 1, 2017 and adoption of this standard had no impact on the Company’s financial statements.

In March 2016, the FASB issued Accounting Standards Board Update No. 2016-09: Improvements to Employee Share-Based Payment Accounting (Topic 718) (“ASU 2016-09”) as part of the FASB simplification initiative. ASU 2016-09 simplifies various aspects of share-based payment accounting, including the income tax consequences, classification of equity awards as either equity or liabilities and classification on the statement of cash flows. The guidance is effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period. The Company adopted ASU 2016-09 as of January 1, 2017 and adoption of this standard had no impact on the Company’s financial statements.
In January 2017, the FASB issued Accounting Standards Board Update No. 2017-04: Simplifying the Test for Goodwill Impairment (Topic 350) (“ASU 2017-04”) as part of the FASB simplification initiative. To simplify the subsequent measurement of goodwill, ASU 2017-04 eliminated Step 2 from the goodwill impairment test. Instead, under the amendments in ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount, which is Step 1 of the goodwill impairment test. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. The guidance is effective for goodwill impairment tests performed after December 15, 2019 and early adoption is permitted. The Company early adopted ASU 2017-04 during the third quarter 2017. See Note 5 for more information.


3. Restructuring & Business Realignment
2017 Restructuring Activities

In November 2017, the Company initiated new restructuring actions with the intent to optimize its cost structure. The Company expects these restructuring actions to generate approximately $40 of incremental cost savings over the next 12 to 18 months. As of the filing date of this Quarterly Report on Form 10-Q, the total one-time cash costs expected to be incurred for these restructuring activities are estimated between $30 and $40, consisting primarily of workforce reduction costs.

Oilfield

During the third quarter of 2017,2020, the Company indefinitely idled an oilfield manufacturing facilitycertain assets within its Epoxy, PhenolicAdhesives segment. These represented triggering events resulting in impairment evaluations of the fixed assets within both the oilfield and Coating Resins segment, and production was ceased at this facility.phenolic specialty resins asset groups. As a result, the estimated useful lives of certain long-lived assets related to this facilityasset impairments totaling $16 were shortened, and consequently, during the three months ended September 30, 2017, the Company incurred $14 of accelerated depreciation related to these assets, which is includedrecorded in “Cost of sales” in the unaudited Condensed Consolidated Statements of Operations.

Norco

In the first quarter of 2016, the Company announced a planned rationalization at its Norco, LA manufacturing facility within its Epoxy, Phenolic and Coating Resins segment, and production was ceased at this facility during the second quarter of 2016. As a result of this facility rationalization, the Company recorded one-time costs in 2016 related to the early termination of certain contracts for utilities, site services, raw materials and other items. The Company also recorded a conditional asset retirement obligation (“ARO”) in 2016 related to certain contractually obligated future demolition, decontamination and repair costs associated with this facility rationalization. The Company does not expect to incur any additional contract termination or ARO charges related to this facility rationalization.

The table below summarizes the changes in the liabilities recorded related to contract termination costs and ARO from December 31, 2016 to September 30, 2017, all of which are included in “Other current liabilities” in the unaudited Condensed Consolidated Balance Sheets.
 Contract Termination Costs Asset Retirement Obligation Total
Accrued liability at December 31, 2016$18
 $13
 $31
Activity (1)
(15) (13) (28)
Accrued liability at September 30, 2017$3
 $—
 $3
(1)         These amounts include $23 of cash payments during the nine months ended September 30, 2017 and $5 of these amounts are included in “Accounts payable” in the unaudited Condensed Consolidated Balance Sheets as of September 30, 2017.

As a result of the announcement of the Norco facility rationalization, the estimated useful lives of certain long-lived assets related to this facility were shortened, and consequently, during the nine months ended September 30, 2016, the Company incurred $76 of accelerated depreciation related to these assets, which is included in “Cost of sales” in the unaudited Condensed Consolidated Statements of Operations. These assets were fully depreciated in the second quarter of 2016. In addition, at June 30, 2016 the Company recorded a conditional ARO of $30 related to certain contractually obligated future demolition, decontamination and repair costs associated with this facility rationalization. During the nine months ended September 30, 2016, the Company recorded an additional $30 of accelerated depreciation related to this ARO, which is also included in “Cost of sales”“Asset impairments” in the unaudited Condensed Consolidated Statements of Operations rendering this item fully depreciated as of June 30, 2016. Duringduring the Successor three months ended September 30, 2016, this ARO liability was reduced by $11 as a result of revised cost estimates, primarily due to a reduction in the scope of expected future demolition. This $11 reduction in costs is included in “Business realignment costs (income)” in the unaudited Condensed Consolidated Statements of Operations for both the three and nine months ended September 30, 2016.
Lastly, during the three months and nine months ended September 30, 2017, the Company incurred additional costs of less than $1 and $3, respectively, related to other ongoing site closure expenses related to this facility rationalization, which are included in “Business realignment costs (income)” in the unaudited Condensed Consolidated Statements of Operations. During the nine months ended September 30, 2016, the Company incurred costs of $23 related to the early termination of certain contracts for utilities, site services, raw materials and other items related to this facility rationalization and $13 related to abnormal production overhead, severance and other expenses to the facility closure. All of these costs are included in “Business realignment costs (income)” in the unaudited Condensed Consolidated Statements of Operations.March 31, 2020.


4. Related Party Transactions
Administrative Service, Transactions with Apollo
As of the Company’s emergence from bankruptcy on July 1, 2019, Apollo is no longer a related party to the Company.
Management and Consulting ArrangementAgreement
The Company is subjectwas party to a Management Consulting Agreement with Apollo (the “Management Consulting Agreement”) that renews on an annual basis, unless noticepursuant to the contrary is given by either party. Under the Management Consulting Agreement,which the Company receivesreceived certain structuring and advisory services from Apollo and its affiliates. The Management Consulting Agreement provides indemnification to Apollo its affiliates and their directors, officers and representatives for potential losses arising from these services. Apollo iswas entitled to an annual fee equal to the greater of $3 or 2% of the Company’s Adjusted EBITDA. Apollo elected to waive charges of any portion of the annual management fee due in excess of $3 for the calendar year 2017.2019.
During the Predecessor three months ended September 30, 2017 and 2016 and during the nine months ended September 30, 2017 and 2016,March 31, 2019, the Company recognized expense under the Management Consulting Agreement of $1 and $2, respectively.$1. This amount is included in “Other operating expense, net” in the unaudited Condensed Consolidated Statements of Operations. In conjunction with the Company’s Chapter 11 proceedings and the Support Agreement filed on April 1, 2019, Apollo agreed to waive its annual management fee for 2019. In connection with the Company’s emergence from Chapter 11, the Management Consulting Agreement was terminated pursuant to the Confirmation Order, as of the Effective Date.
Purchases and Sales of Products and Services with Apollo Affiliates
The Company sells products to various Apollo affiliates. These sales were $1 for the Predecessor three months ended March 31, 2019. There were no purchases during the Predecessor three months ended March 31, 2019.
Transactions with MPM
As of May 15, 2019, Momentive Performance Materials (“MPM”) is no longer under the common control of Apollo and no longer a related party to the Company.

Shared Services Agreement
On October 1, 2010, theThe Company entered intopreviously held a shared services agreement with Momentive Performance Materials Inc. (‘MPM”) (which, from October 1, 2010 through October 24, 2014, was a subsidiary of Hexion Holdings), as amended in October 2014MPM (the “Shared Services Agreement”). Under this agreement, the Company providesprovided to MPM, and MPM providesprovided to the Company, certain services, including, but not limited to, executive and senior management, administrative support, human resources, information technology support, accounting, finance, legal and procurement services. The Shared Services Agreement establishesestablished certain criteria upon which the costs of such services are allocated between the Company and MPM. TheOn March 14, 2019, MPM terminated the Shared Services Agreement, was renewedwhich triggered a transition period for one year starting October 2017 and is subjectthe parties to termination by eitherwork together to facilitate an orderly transition of services. In the Company or MPM, without cause, on not less than 30 days’ written notice, and expires in October 2018 (subject to one-year renewals every year thereafter; absent contrary notice from either party). The Company periodically reviewsfirst quarter of 2020, the scopetransition of services provided under this agreement and has recently begun efforts to reduce the scope of services provided by the Company, in particular with respect to human resources, information technology and accounting and finance.was completed.
Pursuant to the Shared Services Agreement, during the ninePredecessor three months ended September 30, 2017 and 2016,March 31, 2019 the Company incurred approximately $41 and $50, respectively,$6 of net costs for shared services and MPM incurred approximately $31 and $38, respectively,$5 of net costs for shared services. Included in the net costs incurred during the ninePredecessor three months ended September 30, 2017 and 2016, March 31, 2019were net billings from the CompanyHexion to MPM of $21 and $23, respectively,$3 to bring the percentage of total net incurred costs for shared services under the Shared Services Agreement to the applicable agreed upon allocation percentage. The Company had accounts receivable from MPM of $2 and $5 as of September 30, 2017 and December 31, 2016, respectively, and no accounts payable to MPM.
Sales and Purchases of Products with MPM
The Company also sells products to, and purchases products from, MPM. DuringThere were no products sold during the Predecessor three months ended September 30, 2017 and 2016, the Company sold less than $1 of products to MPM and purchased $6 and $7, respectively.March 31, 2019. During the ninePredecessor three months ended September 30, 2017 and 2016, the Company sold less than $1 of products to MPM and purchased $18 and $22, respectively. During the three and nine months ended September 30, 2017 and 2016, March 31, 2019, the Company earned less than $1 from MPM as compensation for acting as distributor of products. The Companyproducts and had no accounts receivablepurchases from MPM at September 30, 2017 and accounts receivable of less than $1 at December 31, 2016. As of both September 30, 2017 and December 31, 2016, the Company had $2 of accounts payable to MPM.$7.
Purchases and Sales of Products and Services with Apollo Affiliates Other than MPM
The Company sells products to various Apollo affiliates other than MPM. These sales were $1 and less than $1 for the three months ended September 30, 2017 and 2016, respectively, and $3 and $6 for the nine months ended September 30, 2017 and 2016, respectively. Accounts receivable from these affiliates were less than $1 at both September 30, 2017 and December 31, 2016. The Company also purchases raw materials and services from various Apollo affiliates other than MPM. There were no purchases for the three and nine months ended September 30, 2017 and purchases of less than $1 for the three and nine months ended September 30, 2016, respectively. The Company had no accounts payable to these affiliates at September 30, 2017 and accounts payable of less than $1 at December 31, 2016.
Other Transactions and Arrangements
In March 2020, the Company entered into a $10 short term affiliate loan with its Parent at a 0% interest rate to fund Parent share repurchases, which is recorded in “Loan Receivable from Parent” in the Condensed Consolidated Balance Sheets at March 31, 2020.
The Company sells products and provides services to, and purchases products from, its joint ventures which are recorded under the equity method of accounting. TheseRefer to the below table for a summary of the sales were $1 and $4 forpurchases with the three months ended September 30, 2017Company and 2016, respectively, and $9 and $38 forits joint ventures which are recorded under the nine months ended September 30, 2017 and 2016, respectively. Accountsequity method of accounting:
 Successor  Predecessor
 Three Months Ended
March 31, 2020		  Three Months Ended
March 31, 2019
Sales to joint ventures$1
  $1
Purchases from joint ventures<1
  1
 March 31, 2020 December 31, 2019
Accounts receivable from joint ventures$1
 $1
Accounts payable to joint ventures<1
 <1
In addition to the accounts receivable from these joint ventures were $5 and $7 at September 30, 2017 and December 31, 2016, respectively. These purchases were $3 and $4 fordisclosed above, the three months ended September 30, 2017 and 2016, respectively, and $10 and $14 for the nine months ended September 30, 2017 and 2016, respectively. The Company had accounts payable to these joint ventures of less than $1 and $1 at September 30, 2017 and December 31, 2016, respectively.
The Company had a loan receivable of $6 and royalties receivable of $2 $7as of both September 30, 2017March 31, 2020 and December 31, 20162019, respectively, from its unconsolidated forest products joint venture in Russia. Note that these royalties receivable are also included in the accounts receivable from joint ventures disclosed above.

5. 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.
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, 2017,March 31, 2020, the Company had derivative liabilities assetsrelated to foreign exchange, electricity and natural gas and foreign exchange contracts of less than $1,$3, which were measured using levelLevel 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 nineSuccessor three months ended September 30, 2017March 31, 2020 or 2016.the Predecessor three months ended March 31, 2019.
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, 2017March 31, 2020 and December 31, 2016,2019, 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.
Non-recurring Fair Value MeasurementsInterest Rate Swap
Goodwill
In 2017,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 lowered its forecastagrees 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 estimated earnings and$300. The purpose of this arrangement is to hedge the variability caused by quarterly changes in cash flows for its oilfield business from those previously projected, and indefinitely idled a manufacturing facility within its oilfield business. This wasflow due to the slower than previously assumed recoveryassociated changes in the oil and gas market. As of September 30, 2017, the estimated fair valueLIBOR for $300 of the Company’s oilfield reporting unit was less thanvariable rate Senior Secured Term Loan denominated in USD ($720 outstanding at March 31, 2020). 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 carrying value ofHedge, the net assets of the reporting unit. In estimatingCompany records changes in the fair value of the oilfield reporting unit,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 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:
    March 31, 2020 December 31, 2019
  Balance Sheet Location Notional Amount Fair Value Liability Notional Amount Fair Value Asset
Derivatives designated as hedging instruments          
Interest Rate Swap Other current (liabilities)/assets $300
 $(12) $300
 $3
Total derivatives designated as hedging instruments     $(12)   $3
  Amount of Loss Recognized in OCI on Derivative for the Three Months Ended:
  Successor  Predecessor
Derivatives designated as hedging instruments March 31, 2020  March 31, 2019
Interest Rate Swaps     
Interest Rate Swap $(15)  $—
Total $(15)  $—
In the Successor period three months ended March 31, 2020, the Company relied solelyreclassified a gain of less than $1 from OCI to “Interest expense, net” on a discounted cash flow model income approach. This was duethe Condensed Consolidated Statement of Operations related to the Company’s beliefsettlement of a portion of the Hedge.
Interest Rate Cap
In 2019, the Company executed an interest rate cap derivative instrument for a premium amount of less than $1. This instrument is a derivative under ASC 815 that does not qualify for hedge accounting and as a result, changes in fair value are recognized within earnings throughout the reporting unit’s EBITDA, a key input underterm of the market approach, was not representative and consistent withinstrument. For the reporting unit’s historical performance and long-term outlook and, therefore, was not consistent with assumptions that a market participant would useSuccessor three months ended March 31, 2020, the Company recognized an unrealized loss of less than $1 for the change in determining the fair value of the reporting unit. To measure the amount of the goodwill impairment, the Company allocated the estimated fair value of the reporting unit to the reporting unit’s assets and liabilities. As a result of this allocation, the Company estimated that the implied fair value of the oilfield reporting unit’s goodwill was $0. As such, the entire oilfield reporting unit’s goodwill balance of $13 was impaired during the third quarter of 2017, and the Company recognized a goodwill impairment charge of $13 in its Epoxy, Phenolic and Coating Resins segment,instrument, which is included in “Asset impairments”“Other operating expense, net” in the unaudited Condensed Consolidated StatementsStatement of Operations. Significant unobservable inputs in the discounted cash flow analysis included projected long-term future cash flows, projected growth rates and discount rates associated with this reporting unit. Future projected long-term cash flows and growth rates were derived from models based upon forecasts prepared by the Company’s management. These projected cash flows were discounted using a rate of 13.5%.

Non-derivative Financial Instruments
The following table summarizes the carrying amount and fair value of the Company’s non-derivative financial instruments:
 Carrying Amount Fair Value Carrying Amount Fair Value
 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
September 30, 2017          
March 31, 2020          
Debt $3,777
 $—
 $3,205
 $31
 $3,236
 $1,914
 $—
 $1,797
 $60
 $1,857
December 31, 2016          
December 31, 2019          
Debt $3,542
 $—
 $3,134
 $9
 $3,143
 $1,785
 $—
 $1,751
 $64
 $1,815
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 capitalfinance 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, short term investments, 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.

6. Debt Obligations
Debt outstanding at September 30, 2017March 31, 2020 and December 31, 20162019 is as follows:
  September 30, 2017 December 31, 2016
  Long-Term 
Due Within
One Year
 Long-Term 
Due Within
One Year
ABL Facility $124
 $—
 $—
 $—
Senior Secured Notes:        
6.625% First-Priority Senior Secured Notes due 2020 (includes $2 and $3 of unamortized debt premium at September 30, 2017 and December 31, 2016, respectively) 1,552
 —
 1,553
 —
10.00% First-Priority Senior Secured Notes due 2020 315
 —
 315
 —
10.375% First-Priority Senior Secured Notes due 2022 560
 —
 —
 —
8.875% Senior Secured Notes due 2018 (includes $1 of unamortized debt discount at December 31, 2016) —
 —
 706
 —
13.75% Senior Secured Notes due 2022 225
 —
 —
 —
9.00% Second-Priority Senior Secured Notes due 2020 574
 —
 574
 —
Debentures:        
9.2% debentures due 2021 74
 —
 74
 —
7.875% debentures due 2023 189
 —
 189
 —
Other Borrowings:        
Australia Facility due 2017 —
 55
 —
 51
Brazilian bank loans 11
 29
 14
 26
Lease obligations 27
 4
 7
 2
Other 5
 33
 3
 28
Unamortized debt issuance costs (44) —
 (38) —
Total $3,612
 $121
 $3,397
 $107
  March 31, 2020 December 31, 2019
  Long-Term 
Due Within
One Year
 Long-Term 
Due Within
One Year
Senior Secured Credit Facilities:        
ABL Facility $164
 $—
 $—
 $—
Senior Secured Term Loan - USD due 2026 (includes $7 of unamortized debt discount) 706
 7
 708
 7
Senior Secured Term Loan - EUR due 2026 (includes $4 of unamortized debt discount) 464
 —
 473
 —
Senior Notes:        
7.875% Senior Notes due 2027 450
 —
 450
 —
Other Borrowings:        
Australia Facility due 2021 —
 26
 27
 4
Brazilian bank loans 4
 22
 7
 34
Lease obligations (1)
 46
 14
 50
 14
Other —
 11
 —
 11
Total
$1,834
 $80
 $1,715
 $70
(1)Lease obligations include finance leases and sale leaseback financing arrangements.
2017 Refinancing Transactions
In February 2017, the Company issued $485 aggregate principal amount of 10.375% First-Priority Senior Secured Notes due 2022 (the “New First Lien Notes”) and $225 aggregate principal amount of 13.75% Senior Secured Notes due 2022 (the “New Senior Secured Notes”). Upon the closing of these offerings, the Company used the net proceeds from these offerings, together with cash on its balance sheet, to redeem all of the Company’s outstanding 8.875% Senior Secured Notes due 2018 (the “Old Senior Secured Notes”), which occurred in March 2017. In connection with the extinguishment of the Old Senior Secured Notes, the Company wrote off $3 of unamortized deferred debt issuance costs and discounts, which are included in “(Gain) loss on extinguishment of debt” in the unaudited Condensed Consolidated Statements of Operations.
In May 2017, the Company issued an additional $75 aggregate principal amount of New First Lien Notes at an issue price of 100.5%. These notes mature on February 1, 2022 and have the same terms as the New First Lien Notes issued in February 2017. The Company used the net proceeds from these notes for general corporate purposes.
The Company also amended and restated its ABL Facility in December 2016 with modifications to, among other things, permit the refinancing of the Old Senior Secured Notes. In connection with the issuance of the new notes in February 2017, certain lenders under the ABL Facility provided extended revolving credit facility commitments in an aggregate principal amount of $350 with a maturity date of December 5, 2021 (subject to certain early maturity triggers), the existing commitments were terminated and the size of the ABL Facility was reduced from $400 to $350.    
These transactions are collectively referred to as the “2017 Refinancing Transactions.”

7. 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.

Environmental Institution of Paraná IAP—On August 10, 2005, the Environmental Institute of Paraná (IAP), an environmental agency in the State of Paraná, provided Hexion Quimica Industria, the Company’s Brazilian subsidiary, with notice of an environmental assessment in the amount of 12 Brazilian reals. The assessment related to alleged environmental damages to the Paranagua Bay caused in November 2004 from an explosion on a shipping vessel carrying methanol purchased by the Company. The investigations performed by the public authorities have not identified any actions of the Company that contributed to or caused the accident. The Company responded to the assessment by filing a request to have it cancelled and by obtaining an injunction precluding execution of the assessment pending adjudication of the issue. In November 2010, the Court denied the Company’s request to cancel the assessment and lifted the injunction that had been issued. The Company responded to the ruling by filing an appeal in the State of Paraná Court of Appeals. In March 2012, the Company was informed that the Court of Appeals had denied the Company’s appeal, and on June 4, 2012 the Company filed appeals to the Superior Court of Justice and the Supreme Court of Brazil. In September 2016, the Superior Court of Justice decided that strict liability does not apply to administrative fines issued by environmental agencies and reversed the decision of the State of Paraná Court of Appeals. The Superior Court of Justice remanded the case back to the Court of Appeals to determine if the IAP met its burden of proving negligence by the Company. In September 2017, the State of Paraná Court of Appeals decided that IAP did not prove that the Company was negligent and granted the Company’s request to annul the environmental assessment. IAP filed a motion for clarification regarding the Court of Appeals’ analysis of the case and the Company filed a motion for clarification regarding attorney fees.  After the pending motions are resolved, IAP will have 15 business days to file an appeal with the Superior Court of Justice. The Company does not believe that a loss is probable. At September 30, 2017, the amount of the assessment, including tax, penalties, monetary correction and interest, is 55 Brazilian reals, or approximately $17.
The following table summarizes all probable environmental remediation, indemnification and restoration liabilities, including related legal expenses, at September 30, 2017March 31, 2020 and December 31, 2016:2019:
Liability Range of Reasonably Possible Costs at September 30, 2017Liability Range of Reasonably Possible Costs at March 31, 2020
Site DescriptionSeptember 30, 2017 December 31, 2016 Low HighMarch 31, 2020 December 31, 2019 Low High
Geismar, LA$14
 $14
 $9
 $22
$12
 $12
 $9
 $22
Superfund and offsite landfills – allocated share:              
Less than 1%2
 2
 1
 4
3
 3
 2
 6
Equal to or greater than 1%7
 6
 5
 14
6
 6
 5
 14
Currently-owned4
 4
 3
 9
7
 8
 4
 13
Formerly-owned:              
Remediation27
 30
 25
 42
20
 21
 17
 39
Monitoring only—
 1
 —
 1
—
 1
 —
 1
Total$54
 $57
 $43
 $92
$48
 $51
 $37
 $95
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 September 30, 2017March 31, 2020 and December 31, 2016, $142019, $17 and $13, respectively,$18 of these liabilities have been included in “Other current liabilities” in the unaudited Condensed Consolidated Balance Sheets, with the remaining amount included in “Other long-term liabilities.”liabilities” within the unaudited Condensed Consolidated Balance Sheets.
Following is a discussion of the Company’s environmental liabilities and the related assumptions at September 30, 2017:March 31, 2020:
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 2220 years. The range of possible outcomes is discounted in a similar manner. The undiscounted liability, which is expected to be paid over the next 2220 years, is approximately $20.$16. Over the next five years, the Company expects to make ratable payments totaling $6.

$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.

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 Company expects to pay approximately $4 of these liabilities within the next five years, with the remainder over the next ten years. 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 ourthe 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 Company entered into a settlement agreement effective February 1, 2016 with Coronet Industries and another former site owner. Pursuant to the agreement, the Company agreed to pay $10 in fulfillmentcurrent 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 $10 for past remediation costs payable in three annual installments, of which one installment remains to be paid in 2018. Additionally, the Companyand 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 $15.$12. The final costs to the Company will depend on the methodnatural variations in remediation costs, including unforeseen circumstances, agency requests, new contaminants of remediation chosen, the amount of time necessary to accomplish remediationconcern and the ongoing financial viability of the other PRPs. Currently, the Company has insufficient information to estimate the range of reasonably possible costs related to this site.
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 is involved in various legal proceedings in the ordinary course of business and had reserves of $4 and $2$3 at September 30, 2017both March 31, 2020 and December 31, 2016, respectively,2019 for all non-environmental legal defense costs incurred and settlement costs that it believes are probable and estimable. At September 30, 2017both March 31, 2020 and December 31, 2016, $3 and $1,respectively,2019, $2 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.


8. 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) expense, 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 both the Successor three months ended March 31, 2020 and for the Predecessor three months ended March 31, 2019. Following are the components of net pension and postretirement (benefit) expensebenefit cost recognized by the Company for the Successor three and nine months ended September 30, 2017March 31, 2020 and 2016for the Predecessor three months ended March 31, 2019 :
Pension Benefits Non-Pension Postretirement BenefitsPension Benefits
Three Months Ended September 30, Three Months Ended September 30,Successor  Predecessor
2017 2016 2017 2016Three Months Ended
March 31, 2020		  Three Months Ended
March 31, 2019
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
U.S.
Plans		 Non-U.S.
Plans		  
U.S.
Plans
 
Non-U.S.
Plans
Service cost$1
 $4
 $1
 $4
 $—
 $—
 $—
 $—
$1
 $4
  $1
 $4
Interest cost on projected benefit obligation2
 3
 2
 3
 —
 —
 —
 —
1
 2
  2
 2
Expected return on assets(3) (3) (4) (3) —
 —
 —
 —
(3) (3)  (3) (3)
Net expense (benefit)$—
 $4
 $(1) $4
 $—
 $—
 $—
 $—
               
Pension Benefits Non-Pension Postretirement Benefits
Nine Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
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$2
 $12
 $3
 $11
 $—
 $—
 $—
 $—
Interest cost on projected benefit obligation6
 7
 6
 8
 —
 1
 —
 1
Expected return on assets(10) (8) (11) (8) —
 —
 —
 —
Amortization of prior service benefit—
 —
 —
 —
 —
 —
 (1) —
Net (benefit) expense$(2) $11
 $(2) $11
 $—
 $1
 $(1) $1
$(1) $3
  $—
 $3

9. Stock Based Compensation
The Company grants stock-based compensation to employees, directors, and other key service providers under the Hexion Holdings Corporation 2019 Omnibus Incentive Plan (the “2019 Incentive Plan”). Under the 2019 Incentive Plan, the Company may grant stock options, restricted stock units, performance stock units and other equity-based awards to be awarded from time to time as the Board of Directors of Hexion Holdings (the “Board”) determines. The restricted and performance stock units are deemed to be equivalent to one share of common stock of Hexion Holdings. The awards contain restrictions on transferability and other typical terms and conditions.
In the first quarter of 2020, Hexion Holdings granted 821,758 Restricted Stock Units (“RSUs”) to certain employees and non-employee directors that time vest over three years with a weighted average grant date fair value of $15.80 per share. Additionally, Hexion Holdings granted 823,619 Performance Stock Units (“PSUs”) to certain employees that vest based on performance conditions with a weighted average grant date fair value of $15.80. Compensation cost will be recognized over the service period of the PSUs once the satisfaction of the applicable performance condition is deemed probable. As of March 31, 2020, the Company performance conditions underlying the PSU's were not considered probable of occurring and thus no expense has been recorded.
As of March 31, 2020, there were no RSUs or PSUs forfeited and all units were unvested.
The Company recognized a total of $5 of stock-based compensation costs for the Successor three months ended March 31, 2020 and there were no stock-based compensation costs for the Predecessor three months ended March 31, 2019. The amounts are included in “Selling, general and administrative expense” in the Condensed Consolidated Statements of Operations.
9.10. Segment Information
The Company’s business segments are based on the products that the Company offers and the markets that it serves. At September 30, 2017, the Company had two reportable segments: Epoxy, Phenolic and Coating Resins and Forest Products Resins. A summaryRealignment of the major productsReportable Segments in 2020
As part of the Company’s continuing efforts to drive growth and greater operating efficiencies, in January 2020, the Company changed its reporting segments to align around its two growth platforms: (i) Adhesives and (ii) Coatings and Composites. At March 31, 2020, the Company has three reportable segments, follows:
which consist of the following businesses:
Epoxy, PhenolicAdhesives: these businesses focus on the global adhesives market. They include the Company’s global wood adhesives business, including: forest products resin assets in North America, Latin America, Europe, Australia and Coating Resins: epoxyNew Zealand; global formaldehyde; and the global phenolic specialty resins phenolic encapsulated substrates, versatic acidsbusiness, which now also includes the oilfield technologies group.
Coatings and derivatives, basicComposites: these businesses focus on the global coatings and composites market. They include the Company’s base and specialty epoxy resins and intermediatesVersatic™ Acids and phenolic specialty resins and molding compoundsDerivatives businesses.
 
Forest Products Resins:Corporate and Other forest products resins: primarily corporate general and formaldehyde applicationsadministrative expenses that are not allocated to the other segments, such as shared service and administrative functions and foreign exchange gains and losses.

The Company has recast its Net Sales and Segment EBITDA (as defined below) for the Predecessor three months ended March 31, 2019 to reflect the new reportable segments. The recast of previously issued financial information does not represent a correction of error with respect to, and has no impact on, the Company’s previously issued financial statements.


Reportable Segments
Following are net sales and Segment EBITDA (earnings before interest, income taxes, depreciation and amortization) by reportable segment. Segment EBITDA is defined as EBITDA (earnings before interest, income taxes, depreciation and amortization) adjusted for certain non-cash items and other income and expenses. Segment EBITDA is the primary performance measure used by the Company’s senior management, the chief operating decision-maker and the board of directors to evaluate operating results and allocate capital resources among segments. Segment EBITDA is also the profitability measure used to set management and executive incentive compensation goals. Corporate and Other is primarily corporate general and administrative expenses that are not allocated to the other segments, such as shared service and administrative functions and foreign exchange gains and losses and legacy company costs not allocated to continuing segments.
Net Sales (1):
Following is revenue by reportable segment. Product sales within each reportable segment share economically similar risks. These risks include general economic and industrial conditions, competitive pricing pressures and the Company’s ability to pass on fluctuations in raw material prices to its customers. A substantial number of the Company’s raw material inputs are petroleum-based and their prices fluctuate with the price of oil. Due to differing regional industrial and economic conditions, the geographic distribution of revenue may impact the amount, timing and uncertainty of revenue and cash flows from contracts with customers.
Following is net sales by reportable segment disaggregated by geographic region:
 Three Months Ended September 30, Nine Months Ended September 30.
 2017
2016 20172016
Epoxy, Phenolic and Coating Resins$528

$476
 $1,537
$1,664
Forest Products Resins386

343
 1,159
1,016
Total$914

$819
 $2,696
$2,680
 Successor  Predecessor
 Three Months Ended
March 31, 2020		  
Three Months Ended
March 31, 2019 (2)
 Adhesives Coatings and Composites Total  Adhesives Coatings and Composites Total
North America$295
 $154
 $449
  $332
 $137
 $469
Europe102
 154
 256
  114
 152
 266
Asia Pacific33
 50
 83
  42
 54
 96
Latin America38
 —
 38
  55
 —
 55
Total$468
 $358

$826
  $543
 $343
 $886
(1)Intersegment sales are not significant and, as such, are eliminated within the selling segment.
(2)Previously reported Net Sales by reportable segment for the Predecessor three months ended March 31, 2019 is shown below:
(1) Intersegment sales are not significant and, as such, are eliminated within the selling segment.
 Predecessor
 Three Months Ended March 31, 2019
 Forest Products Resins Epoxy, Phenolic and Coating Resins Total
North America$260
 $209
 $469
Europe47
 219
 266
Asia Pacific33
 63
 96
Latin America55
 —
 55
Total$395
 $491
 $886


Reconciliation of Net (Loss) IncomeLoss to Segment EBITDA:
Three Months Ended September 30, Nine Months Ended September 30,Successor  Predecessor
2017 2016 2017 2016Three Months Ended
March 31, 2020		  Three Months Ended
March 31, 2019
Reconciliation:           
Net (loss) income$(70) $(47) $(146) $59
Net loss$(59)  $(52)
Income tax expense9
 16
 16
 40
3
  7
Interest expense, net82
 76
 247
 235
26
  80
Depreciation and amortization(1)29
 30
 85
 101
58
  26
Accelerated depreciation14
 21
 14
 127
EBITDA$64
 $96
 $216
 $562
28
  61
Items not included in Segment EBITDA:    
 
Adjustments to arrive at Segment EBITDA:    
Asset impairments$13
 $—
 $13
 $—
$16
  $—
Business realignment costs (income)10
 (3) 27
 42
Gain on dispositions—
 —
 —
 (240)
Realized and unrealized foreign currency (gains) losses(5) 6
 (7) (3)
(Gain) loss on extinguishment of debt—
 (3) 3
 (47)
Business realignment costs21
  4
Transaction costs3
  23
Realized and unrealized foreign currency losses6
  1
Other non-cash items (2)
12
  2
Other14
 16
 39
 50
3
  12
Total adjustments32
 16
 75
 (198)61
  42
Segment EBITDA$96
 $112
 $291
 $364
$89
  $103
    

 

    
Segment EBITDA:    

 

Epoxy, Phenolic and Coating Resins$45
 $64
 $143
 $230
Forest Products Resins66
 65
 195
 184
Segment EBITDA (3):
    
Adhesives$71
  $76
Coatings and Composites39
  44
Corporate and Other(15) (17) (47) (50)(21)  (17)
Total$96
 $112
 $291
 $364
$89
  $103
(1)For the three months ended March 31, 2020 accelerated depreciation of $2 has been included in “Depreciation and amortization.”
(2)For the three months ended March 31, 2020, primarily included expenses for stock-based compensation costs of $5, long-term retention programs of $3 and non-cash fixed asset write-offs of $2.
(3)Previously reported Segment EBITDA by reportable segment for the Predecessor three months ended March 31, 2019 is shown below:
Items Not Included in
 Predecessor
 Three Months Ended
March 31, 2019
Segment EBITDA: 
Forest Products Resins$68
Epoxy, Phenolic and Coating Resins52
Corporate and Other(17)
Total$103
Adjustments to arrive at Segment EBITDA
Not included in Segment EBITDA are certain non-cash items and other unusual or non-recurring income and expenses.
For the Successor three and nine months ended September 30, 2017 and 2016, these itemsMarch 31, 2020, business realignment costs primarily include expenses from retention programs and certain professional feesincluded severance costs of $8 related to strategic projects. Businesscertain in-process cost reduction activities, $6 related to certain in-process facility rationalizations, $4 of one-time implementation costs associated with the creation of a business services group within the Company and a $2 increase in legacy environmental reserves for future clean-up of closed facilities. For the Predecessor three months ended March 31, 2019, business realignment costs for the three and nine months ended September 30, 2017 primarily includeincluded costs related to certain in-process facility rationalizations and cost reduction programs. Business realignment costs foractivities.
For the Successor three and nine months ended September 30, 2016March 31, 2020, transaction costs included certain professional fees related to strategic projects. For the Predecessor three months ended March 31, 2019, transaction costs primarily include costsincluded $21 of certain professional fees and other expenses related to the planned facility rationalizations withinCompany’s Chapter 11 Proceedings incurred prior to the Epoxy, Phenolic and Coating Resins segment and costsdate of filing.
For the Successor three months ended March 31, 2020, items classified as “Other” included expenses related to certain in-process cost reduction programs.
legacy liabilities. For the Predecessor three months ended March 31, 2019, items classified as “Other” primarily included expenses from management fees and expenses related to legacy liabilities.


10.11. Changes in Accumulated Other Comprehensive Loss
Following is a summary of changes in “Accumulated other comprehensive loss” for the Successor three and nine months ended September 30, 2017March 31, 2020 and 2016:the Predecessor three months ended March 31, 2019:
 Three Months Ended September 30, 2017 Three Months Ended September 30, 2016
 Defined Benefit Pension and Postretirement Plans Foreign Currency Translation Adjustments Total Defined Benefit Pension and Postretirement Plans Foreign Currency Translation Adjustments Total
Beginning balance$3
 $(27) $(24) $3
 $(18) $(15)
Other comprehensive income before reclassifications, net of tax—
 10
 10
 —
 7
 7
Ending balance$3
 $(17) $(14) $3
 $(11) $(8)
            
 Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
 Defined Benefit Pension and Postretirement Plans Foreign Currency Translation Adjustments Total Defined Benefit Pension and Postretirement Plans Foreign Currency Translation Adjustments Total
Beginning balance$3
 $(42) $(39) $4
 $(19) $(15)
Other comprehensive income (loss) before reclassifications, net of tax—
 25
 25
 (1) 8
 7
Ending balance$3
 $(17) $(14) $3
 $(11) $(8)
  Defined Benefit Pension and Postretirement Plans Foreign Currency Translation Adjustments Cash Flow Hedge Total
Predecessor        
Balance at December 31, 2018 $(1) $(17) $—
 $(18)
Change in value —
 —
 —
 —
Balance at March 31, 2019 $(1) $(17) $—
 $(18)
Successor        
Balance at December 31, 2019 $—
 $(3) $2
 $(1)
Change in value —
 (42) (15) (57)
Balance at March 31, 2020 $—
 $(45) $(13) $(58)

11.12. Income Taxes

The income tax expense for the Successor three months ended March 31, 2020 and the Predecessor three months ended March 31, 2019 was $3 and $7, respectively. The income tax expense is comprised of tax expense on income and tax benefit on losses from certain foreign operations. In 2020 and 2019, losses in the United States and certain foreign jurisdictions had no impact on income tax expense as no tax benefit was recognized due to the maintenance of a full valuation allowance.
The effective tax rate was (15)% and (53)% for the Successor three months ended September 30, 2017March 31, 2020 and 2016, respectively. The effective tax ratefor the Predecessor three months ended March 31, 2019 was (12)(5)% and 44% for the nine months ended September 30, 2017 and 2016,(15)%, respectively. The change in the effective tax rate was primarily attributable to the amount and distribution of income and losses among the various jurisdictions in which we operate. The effective tax rates were also impacted by operating gains and losses generated in jurisdictions where no tax expense or benefit was recognized due to the maintenance of a full valuation allowance.

For13. COVID-19 Impacts
In March 2020, the three and nine months ended September 30, 2017 and 2016, income tax expense relates primarilyWorld Health Organization categorized COVID-19 as a global pandemic. Subsequent to income from certain foreign operations. In 2017, losses inMarch 31, 2020, the United States, and certain foreign jurisdictions had no impactthe global regions where the Company operates, continue to be impacted by COVID-19. Around the world, local governments’ responses to COVID-19 continue to evolve, which has led to stay-at-home orders and social distancing guidelines that have disrupted various industries in the global economy.
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 committed to maintaining a paramount focus on income tax expense as no tax benefit was recognized duethe 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 maintenance of a full valuation allowance. In 2016,risk from COVID-19. Additionally, the income tax expense relatedCompany is utilizing extended work from home options to the gain on dispositions was substantially reduced by net operating loss utilization which was offset by a decrease to the respective valuation allowances.
12. Guarantor/Non-Guarantor Subsidiary Financial Informationprotect its office associates, while adjusting its meeting protocols and processes at its manufacturing sites.
The Company’s 6.625% First-Priority Senior Secured Notes duebusinesses have been designated by many governments as essential businesses as of March 31, 2020 10.00% First-Priority Senior Secured Notes due 2020, 10.375% First-Priority Senior Secured Notes due 2022, 13.75% Senior Secured Notes due 2022 and 9.00% Second-Priority Senior Secured Notes due 2020 are guaranteed by certain of its U.S. subsidiaries.
The following information contains the condensed consolidating financial information for Hexion Inc. (the parent), the combined subsidiary guarantors (Hexion Investments Inc.; Lawter International, Inc.; HSC Capital Corporation (dissolved in April 2017); Hexion International Inc.; Hexion CI Holding Company (China) LLC; NL COOP Holdings LLC and Oilfield Technology Group, Inc. (dissolved in September 2017)) and the combined non-guarantor subsidiaries, which includes allvast majority of the Company’s foreign subsidiaries.
Alloperations are continuing. The Company is closely monitoring the impact of the subsidiary guarantors are 100% owned by Hexion Inc. All guarantees are fullCOVID-19 pandemic on all aspects of its businesses and unconditional,geographies, including the impact on its facilities, employees, customers, suppliers, vendors, business partners and are joint and several. There are no significant restrictions on the ability ofdistribution. While the Company did not incur significant adverse financial impacts or business disruptions during the three months ended March 31, 2020 from COVID-19, it is unable to obtain funds frompredict the impact that COVID-19 will have on its domestic subsidiaries by dividendfuture financial position, operating results or loan. While the Company’s Australian, New Zealand, Brazilian and China subsidiaries contain certain restrictions related to the payment of dividends and intercompany loanscash flows due to numerous uncertainties, including new information which may emerge concerning the termsseverity and duration of their credit facilities, there are no material restrictions onCOVID-19 and the Company’s abilityactions to obtain cash fromcontain the remaining non-guarantor subsidiaries.
These financial statements are prepared on the same basis as the consolidated financial statements of the Company except that investments in subsidiaries are accounted for using the equity method for purposes of the consolidating presentation. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions.
This information includes allocations of corporate overhead to the combined non-guarantor subsidiaries based on net sales. Income tax expense has been provided on the combined non-guarantor subsidiaries based on actual effective tax rates.
virus or treat its impact, among others.


HEXION INC.
SEPTEMBER 30, 2017
CONDENSED CONSOLIDATING BALANCE SHEET (Unaudited)
 
Hexion
Inc.
 
Combined
Subsidiary
Guarantors
 
Combined
Non-Guarantor
Subsidiaries
 Eliminations Consolidated
Assets         
Current assets:         
Cash and cash equivalents (including restricted cash of $0 and $18, respectively)$6
 $—
 $112
 $—
 $118
Accounts receivable, net131
 2
 367
 —
 500
Intercompany accounts receivable104
 —
 22
 (126) —
Intercompany loans receivable - current portion9
 —
 —
 (9) —
Inventories:        

Finished and in-process goods87
 —
 153
 —
 240
Raw materials and supplies35
 —
 57
 —
 92
Other current assets16
 —
 33
 —
 49
Total current assets388
 2
 744
 (135) 999
Investment in unconsolidated entities146
 13
 20
 (159) 20
Deferred income taxes1
 —
 11
 —
 12
Other assets, net16
 6
 27
 —
 49
Intercompany loans receivable1,110
 —
 208
 (1,318) —
Property and equipment, net416
 —
 502
 —
 918
Goodwill52
 —
 61
 —
 113
Other intangible assets, net35
 —
 10
 —
 45
Total assets$2,164
 $21
 $1,583
 $(1,612) $2,156
Liabilities and Deficit         
Current liabilities:         
Accounts payable$109
 $—
 $238
 $—
 $347
Intercompany accounts payable22
 —
 104
 (126) —
Debt payable within one year10
 —
 111
 —
 121
Intercompany loans payable within one year—
 —
 9
 (9) —
Interest payable99
 —
 2
 —
 101
Income taxes payable8
 —
 5
 —
 13
Accrued payroll and incentive compensation10
 —
 37
 —
 47
Other current liabilities69
 —
 57
 —
 126
Total current liabilities327
 —
 563
 (135) 755
Long-term liabilities:         
Long-term debt3,528
 —
 84
 —
 3,612
Intercompany loans payable208
 —
 1,110
 (1,318) —
Accumulated losses of unconsolidated subsidiaries in excess of investment614
 159
 —
 (773) —
Long-term pension and post employment benefit obligations39
 —
 224
 —
 263
Deferred income taxes2
 —
 11
 —
 13
Other long-term liabilities105
 —
 68
 —
 173
Total liabilities4,823
 159
 2,060
 (2,226) 4,816
Total Hexion Inc. shareholder’s deficit(2,659) (138) (476) 614
 (2,659)
Noncontrolling interest—
 —
 (1) —
 (1)
Total deficit(2,659) (138) (477) 614
 (2,660)
Total liabilities and deficit$2,164
 $21
 $1,583
 $(1,612) $2,156





HEXION INC.
DECEMBER 31, 2016
CONDENSED CONSOLIDATING BALANCE SHEET
 
Hexion
Inc.
 
Combined
Subsidiary
Guarantors
 
Combined
Non-Guarantor
Subsidiaries
 Eliminations Consolidated
Assets         
Current assets:         
Cash and cash equivalents (including restricted cash of $0 and $17, respectively)$28
 $—
 $168
 $—
 $196
Accounts receivable, net119
 1
 270
 —
 390
Intercompany accounts receivable106
 —
 60
 (166) —
Intercompany loans receivable - current portion—
 —
 175
 (175) —
Inventories:        

Finished and in-process goods82
 —
 117
 —
 199
Raw materials and supplies31
 —
 57
 —
 88
Other current assets26
 —
 19
 —
 45
Total current assets392
 1
 866
 (341) 918
Investment in unconsolidated entities93
 13
 18
 (106) 18
Deferred income taxes—
 —
 10
 —
 10
Other long-term assets17
 6
 20
 —
 43
Intercompany loans receivable1,050
 —
 180
 (1,230) —
Property and equipment, net448
 —
 445
 —
 893
Goodwill65
 —
 56
 —
 121
Other intangible assets, net41
 —
 11
 —
 52
Total assets$2,106
 $20
 $1,606
 $(1,677) $2,055
Liabilities and Deficit         
Current liabilities:         
Accounts payable$142
 $—
 $226
 $—
 $368
Intercompany accounts payable60
 —
 106
 (166) —
Debt payable within one year6
 —
 101
 —
 107
Intercompany loans payable within one year175
 —
 —
 (175) —
Interest payable69
 —
 1
 —
 70
Income taxes payable6
 —
 7
 —
 13
Accrued payroll and incentive compensation28
 —
 27
 —
 55
Other current liabilities110
 —
 49
 —
 159
Total current liabilities596
 —
 517
 (341) 772
Long term liabilities:         
Long-term debt3,378
 —
 19
 —
 3,397
Intercompany loans payable180
 —
 1,050
 (1,230) —
Accumulated losses of unconsolidated subsidiaries in excess of investment339
 106
 —
 (445) —
Long-term pension and post employment benefit obligations42
 —
 204
 —
 246
Deferred income taxes4
 —
 9
 —
 13
Other long-term liabilities105
 —
 61
 —
 166
Total liabilities4,644
 106
 1,860
 (2,016) 4,594
Total Hexion Inc. shareholder’s deficit(2,538) (86) (253) 339
 (2,538)
Noncontrolling interest—
 —
 (1) —
 (1)
Total deficit(2,538) (86) (254) 339
 (2,539)
Total liabilities and deficit$2,106
 $20
 $1,606
 $(1,677) $2,055

HEXION INC.
THREE MONTHS ENDED SEPTEMBER 30, 2017
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
 
Hexion
Inc.
 
Combined
Subsidiary
Guarantors
 
Combined
Non-Guarantor
Subsidiaries
 Eliminations Consolidated
Net sales$400
 $—
 $558
 $(44) $914
Cost of sales360
 —
 481
 (44) 797
Gross profit40
 —
 77
 —
 117
Selling, general and administrative expense28
 —
 47
 —
 75
Asset impairments13
 —
 —
 —
 13
Business realignment costs6
 —
 4
 —
 10
Other operating expense (income), net3
 —
 (2) —
 1
Operating (loss) income(10) —
 28
 —
 18
Interest expense, net78
 —
 4
 —
 82
Intercompany interest (income) expense, net(20) —
 20
 —
 —
Other non-operating (income) expense, net(24) —
 21
 —
 (3)
Loss before tax and (losses) earnings from unconsolidated entities(44)
—
 (17) —
 (61)
Income tax expense3
 —
 6
 —
 9
Loss before (losses) earnings from unconsolidated entities(47) —
 (23) —
 (70)
(Losses) earnings from unconsolidated entities, net of taxes(23) (18) 1
 40
 —
Net loss$(70) $(18) $(22) $40
 $(70)
Comprehensive loss$(60) $(18) $(22) $40
 $(60)

HEXION INC.
THREE MONTHS ENDED SEPTEMBER 30, 2016
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
 
Hexion
Inc.
 
Combined
Subsidiary
Guarantors
 
Combined
Non-Guarantor
Subsidiaries
 Eliminations Consolidated
Net sales$356
 $—
 $507
 $(44) $819
Cost of sales325
 —
 420
 (44) 701
Gross profit31
 —
 87
 —
 118
Selling, general and administrative expense30
 —
 39
 —
 69
Business realignment (income) costs(7) —
 4
 —
 (3)
Other operating expense (income), net10
 6
 (9) —
 7
Operating (loss) income(2) (6) 53
 —
 45
Interest expense, net74
 —
 2
 —
 76
Intercompany interest (income) expense, net(18) —
 18
 —
 —
Gain on extinguishment of debt(3) —
 —
 —
 (3)
Other non-operating (income) expense, net(5) —
 7
 —
 2
(Loss) income before income tax and earnings (losses) from unconsolidated entities(50) (6) 26
 —
 (30)
Income tax expense9
 —
 7
 —
 16
(Loss) income before earnings (losses) from unconsolidated entities(59) (6) 19
 —
 (46)
Earnings (losses) from unconsolidated entities, net of taxes12
 (1) —
 (12) (1)
Net (loss) income$(47) $(7) $19
 $(12) $(47)
Comprehensive (loss) income$(40) $(7) $26
 $(19) $(40)




HEXION INC.
NINE MONTHS ENDED SEPTEMBER 30, 2017
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
 
Hexion
Inc.
 
Combined
Subsidiary
Guarantors
 
Combined
Non-Guarantor
Subsidiaries
 Eliminations Consolidated
Net sales$1,195
 $—
 $1,651
 $(150) $2,696
Cost of sales1,037
 —
 1,425
 (150) 2,312
Gross profit158
 —
 226
 —
 384
Selling, general and administrative expense91
 —
 136
 —
 227
Asset impairments13
 —
 —
 —
 13
Business realignment costs16
 —
 11
 —
 27
Other operating expense, net—
 —
 4
 —
 4
Operating income38
 —
 75
 —
 113
Interest expense, net236
 —
 11
 —
 247
Intercompany interest (income) expense, net(55) —
 55
 —
 —
Loss on extinguishment of debt3
 —
 —
 —
 3
Other non-operating (income) expense, net(78) —
 74
 —
 (4)
Loss before tax and (losses) earnings from unconsolidated entities(68) —
 (65) —
 (133)
Income tax (benefit) expense(1) —
 17
 —
 16
Loss before (losses) earnings from unconsolidated entities(67) —
 (82) —
 (149)
(Losses) earnings from unconsolidated entities, net of taxes(79) (52) 3
 131
 3
Net loss$(146) $(52) $(79) $131
 $(146)
Comprehensive loss$(121) $(52) $(71) $123
 $(121)


HEXION INC.
NINE MONTHS ENDED SEPTEMBER 30, 2016
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
 
Hexion
Inc.
 
Combined
Subsidiary
Guarantors
 
Combined
Non-Guarantor
Subsidiaries
 Eliminations Consolidated
Net sales$1,119
 $—
 $1,701
 $(140) $2,680
Cost of sales1,080
 —
 1,417
 (140) 2,357
Gross profit39
 —
 284
 —
 323
Selling, general and administrative expense109
 —
 126
 —
 235
Gain on dispositions(188) —
 (52) —
 (240)
Business realignment costs31
 —
 11
 —
 42
Other operating expense (income), net14
 6
 (14) —
 6
Operating income (loss)73
 (6) 213
 —
 280
Interest expense, net227
 —
 8
 —
 235
Intercompany interest (income) expense, net(55) —
 55
 —
 —
Gain on extinguishment of debt(47) —
 —
 —
 (47)
Other non-operating (income) expense, net(16) —
 17
 —
 1
(Loss) income before income tax and earnings from unconsolidated entities(36) (6) 133
 —
 91
Income tax expense5
 —
 35
 —
 40
(Loss) income before earnings from unconsolidated entities(41) (6) 98
 —
 51
 Earnings from unconsolidated entities, net of taxes100
 45
 2
 (139) 8
Net income$59
 $39
 $100
 $(139) $59
Comprehensive income$66
 $39
 $100
 $(139) $66


HEXION INC.
NINE MONTHS ENDED SEPTEMBER 30, 2017
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)

 
Hexion
Inc.
 
Combined
Subsidiary
Guarantors
 
Combined
Non-Guarantor
Subsidiaries
 Eliminations Consolidated
Cash flows (used in) provided by operating activities$(245) $—
 $41
 $(1) $(205)
Cash flows provided by (used in) investing activities         
Capital expenditures(33) —
 (53) —
 (86)
Capitalized interest—
 —
 (1) —
 (1)
Proceeds from sale of assets, net5
 —
 —
 —
 5
Change in restricted cash—
 —
 1
 —
 1
Return of capital from subsidiary from sales of accounts receivable117
(a)—
 —
 (117) —
 89
 —
 (53) (117) (81)
Cash flows provided by (used in) financing activities         
Net short-term debt borrowings4
 —
 11
 —
 15
Borrowings of long-term debt1,007
 —
 284
 —
 1,291
Repayments of long-term debt(850) —
 (229) —
 (1,079)
Net intercompany loan borrowings (repayments)(7) —
 7
 —
 —
Long-term debt and credit facility financing fees paid(20) —
 (5) —
 (25)
Common stock dividends paid—
 —
 (1) 1
 —
Return of capital to parent from sales of accounts receivable—
 —
 (117)(a)117
 —
 134
 —
 (50) 118
 202
Effect of exchange rates on cash and cash equivalents—
 —
 5
 —
 5
Change in cash and cash equivalents(22) —
 (57) —
 (79)
Cash and cash equivalents (unrestricted) at beginning of period28
 —
 151
 —
 179
Cash and cash equivalents (unrestricted) at end of period$6
 $—
 $94
 $—
 $100
(a)
During the nine months ended September 30, 2017, Hexion Inc. contributed receivables of $117 to a non-guarantor subsidiary as capital contributions, resulting in a non-cash transaction. During the nine months ended September 30, 2017, the non-guarantor subsidiary sold the contributed receivables to certain banks under various supplier financing agreements. The cash proceeds were returned to Hexion Inc. by the non-guarantor subsidiary as a return of capital. The sale of receivables has been included within cash flows from operating activities on the Combined non-guarantor subsidiaries. The return of the cash proceeds from the sale of receivables has been included as a financing outflow and an investing inflow on the Combined Non-Guarantor Subsidiaries and Hexion Inc., respectively.


HEXION INC.
NINE MONTHS ENDED SEPTEMBER 30, 2016
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)
 
Hexion
Inc.
 
Combined
Subsidiary
Guarantors
 
Combined
Non-Guarantor
Subsidiaries
 Eliminations Consolidated
Cash flows (used in) provided by operating activities$(198) $4
 $67
 $(4) $(131)
Cash flows provided by (used in) investing activities         
Capital expenditures(47) —
 (44) —
 (91)
Capitalized interest(1) —
 —
 —
 (1)
Proceeds from dispositions, net146
 —
 135
 —
 281
Cash received on buyer’s note45
 —
 —
 —
 45
Proceeds from sale of assets, net—
 —
 1
 —
 1
Change in restricted cash—
 —
 (11) —
 (11)
Capital contribution to subsidiary(13) (9) —
 22
 —
Investment in unconsolidated affiliates, net(1) —
 —
 —
 (1)
Return of capital from subsidiary from sales of accounts receivable70
(a)—
 —
 (70) —
 199
 (9) 81
 (48) 223
Cash flows (used in) provided by financing activities         
Net short-term debt borrowings (repayments)2
 —
 (15) —
 (13)
Borrowings of long-term debt280
 —
 181
 —
 461
Repayments of long-term debt(467) —
 (176) —
 (643)
Net intercompany loan borrowings (repayments)171
 —
 (171) —
 —
Capital contributions—
 9
 13
 (22) —
Common stock dividends paid—
 (4) —
 4
 —
Return of capital to parent from sales of accounts receivable—
 —
 (70)(a)70
 —
 (14) 5
 (238) 52
 (195)
Effect of exchange rates on cash and cash equivalents—
 —
 1
 —
 1
Decrease in cash and cash equivalents(13) —
 (89) —
 (102)
Cash and cash equivalents (unrestricted) at beginning of period62
 —
 166
 —
 228
Cash and cash equivalents (unrestricted) at end of period$49
 $—
 $77
 $—
 $126

(a)During the nine months ended September 30, 2016, Hexion Inc. contributed receivables of $70 to a non-guarantor subsidiary as capital contributions, resulting in a non-cash transaction. During the nine months ended September 30, 2016, the non-guarantor subsidiary sold the contributed receivables to certain banks under various supplier financing agreements. The cash proceeds were returned to Hexion Inc. by the non-guarantor subsidiary as a return of capital. The sale of receivables has been included within cash flows from operating activities on the Combined non-guarantor subsidiaries. The return of the cash proceeds from the sale of receivables has been included as a financing outflow and an investing inflow on the Combined Non-Guarantor Subsidiaries and Hexion Inc., respectively.

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollar amounts in millions)
The following commentary should be read in conjunction with the audited Consolidated Financial Statements and the accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s most recent Annual Report on Form 10-K.
Within the following discussion, unless otherwise stated, “the thirdfirst quarter of 2017”2020” refers to the three months ended September 30, 2017 ,March 31, 2020 and “the thirdfirst quarter of 2016”2019” refers to the three months ended September 30, 2016, “the first nine months of 2017” refers to the nine months ended September 30, 2017 and “the first nine months of 2016” refers to the nine months ended September 30, 2016.March 31, 2019.
Forward-Looking and Cautionary Statements
Certain statements in this report, including without limitation, certain statements made under the caption “Overview and Outlook,” are forward-looking statements within the meaning of and made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In addition, our management may from time to time make oral forward-looking statements. All statements, other than statements of historical facts, are forward-looking statements. Forward-looking statements may be identified by the words “believe,” “expect,” “anticipate,” “project,” “might,” “plan,” “estimate,” “may,” “will,” “could,” “should,” “seek” or “intend” and similar expressions. Forward-looking statements reflect our current expectations and assumptions regarding our business, the economy and other future events and conditions and are based on currently available financial, economic and competitive data and our current business plans. Actual results could vary materially depending on risks and uncertainties that may affect our operations, markets, services, prices and other factors as discussed in the Risk Factors section of this report and our other filings with the Securities and Exchange Commission (the “SEC”).SEC. While we believe our assumptions are reasonable, we caution you against relying on any forward-looking statements as it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, a weakening of global economic and financial conditions, interruptions in the supply of or increased cost of raw materials, the loss of, or difficulties with the further realization of, cost savings in connection with our strategic initiatives, including transactions with our affiliate, Momentive Performance Materials Inc., the impact of our substantial indebtedness, our failure to comply with financial covenants under our credit facilities or other debt, pricing actions by our competitors that could affect our operating margins, changes in governmental regulations and related compliance and litigation costs, uncertainties related to COVID-19 and the impact of our responses to it and the other factors listed in the Risk Factors section of this report and in our other SEC filings. For a more detailed discussion of these and other risk factors, see the Risk Factors section of this report and our most recent filings made with the SEC. All forward-looking statements are expressly qualified in their entirety by this cautionary notice. The forward-looking statements made by us speak only as of the date on which they are made. Factors or events that could cause our actual results to differ may emerge from time to time. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
Overview and Outlook
COVID-19 Impact
In March 2020, the World Health Organization categorized COVID-19 as a global pandemic. Subsequent to March 31, 2020, the United States, and the global regions where we operate, continue to be impacted by COVID-19. Around the world, local governments’ responses to COVID-19 continue to evolve, which has led to stay-at-home orders and social distancing guidelines that have disrupted various industries in the global economy.
During this pandemic, we have implemented additional guidelines to further protect the health and safety of our employees as we continue to operate with our suppliers and customers. We have committed to maintaining a paramount focus on the safety of our employees while minimizing potential disruptions caused by COVID-19. For example we are following all legislatively-mandated travel directives in the various countries where we operate, and we have also put additional travel restrictions in place for our associates designed to reduce the risk from COVID-19. Additionally, we are utilizing extended work from home options to protect our office associates, while adjusting our meeting protocols and processes at our manufacturing sites.
Our businesses have been designated by many governments as essential businesses as of March 31, 2020 and the vast majority of our operations are continuing. We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our businesses and geographies, including its impact on our facilities, employees, customers, suppliers, vendors, business partners and distribution. While we did not incur significant adverse financial impacts or business disruptions during the three months ended March 31, 2020 from COVID-19, we are unable to predict the impact that COVID-19 will have on our future financial position, operating results or cash flows due to numerous uncertainties, including new information which may emerge concerning the severity and duration of COVID-19 and the actions to contain the virus or treat its impact, among others.
Business Overview
We are a large participant in the specialty chemicals industry, one of the world’s largest producers of thermosetting resins, or thermosets, and a leading producer of adhesive and structural resins and coatings. Thermosets are a critical ingredient for virtually allmost paints, coatings, glues and other adhesives produced for consumer or industrial uses. We provide a broad array of thermosets and associated technologies and have significant market positions in all of the key markets that we serve.

Our products are used in thousands of applications and are sold into diverse markets, such as forest products, architectural and industrial paints, packaging, consumer products and automotive coatings, as well as higher growth markets, such as wind energy and electrical composites. Major industry sectors that we serve include industrial/marine, construction, consumer/durable goods, automotive, wind energy, aviation, electronics, architectural, civil engineering, repair/remodeling and oil and gas drilling. Key drivers for our business include general economic and industrial conditions, including housing starts and auto build rates, wind energy turbine installations and active oil and gas drilling rigs.rates. In addition, due to the nature of our products and the markets we serve, competitor capacity constraints and the availability of similar products in the market may impact our results. As is true for many industries, our financial results are impacted by the effect on our customers of economic upturns or downturns, as well as by the impact on our own costs to produce, sell and deliver our products. Our customers use most of our products in their production processes. As a result, factors that impact their industries can and have significantly affected our results.
Through our worldwide network of strategically located production facilities, we serve more than 4,2003,100 customers in approximately 10085 countries. Our global customers include large companies in their respective industries, such as 3M, Akzo Nobel, BASF, Bayer, Dow,Norbord, Louisiana Pacific, Monsanto, Owens Corning, PPG Industries, ValsparSherwin Williams and Weyerhaeuser.
Realignment of Reportable Segments in 2020
Our businessAs part of our continuing efforts to drive growth and greater operating efficiencies, in January 2020, we changed our reporting segments are basedto align around our two growth platforms: Adhesives; and Coatings and Composites. At March 31, 2020, we have three reportable segments, which consist of the following businesses:
Adhesives: these businesses focus on the global adhesives market. They include our global wood adhesives business, including: forest products that we offerresin assets in North America, Latin America, Europe, Australia and New Zealand; global formaldehyde; and the markets that we serve. At September 30, 2017, we had two reportable segments: Epoxy, Phenolic and Coating Resins and Forest Products Resins. A summary ofglobal phenolic specialty resins business, which now also includes the major products of our reportable segments follows:oilfield technologies group.
Epoxy, PhenolicCoatings and Coating Resins:Composites epoxy: these businesses focus on the global coatings and composites market. They include our base and specialty resins, phenolic encapsulated substrates, versatic acids and derivatives, basic epoxy resins and intermediates, phenolic specialty resinsVersatic™ Acids and molding compounds, polyester resins, acrylic resins and vinylic resinsDerivatives businesses.
Corporate and Other: primarily corporate general and administrative expenses that are not allocated to the other segments, such as shared service and administrative functions and foreign exchange gains and losses.
Forest Products Resins: forest products resinsIn this quarterly report on form 10-Q, we have recast our Net Sales and formaldehyde applicationsSegment EBITDA by reportable segment, for the comparable Predecessor three months ended March 31, 2019 to reflect the new reportable segments. The recast of previously issued financial information does not represent a correction of error with respect to, and has no impact on, our previously issued financial statements.
Fresh Start Accounting
As a result of the Company’s reorganization and emergence from Chapter 11 on the Effective Date, we applied fresh start accounting to our financial statements, which resulted in a new basis of accounting and we became a new entity for financial reporting purposes. As a result of the application of fresh start accounting and the effects of the implementation of the Plan, the Condensed Consolidated Financial Statements after the Effective Date are not comparable with the Condensed Consolidated Financial Statements prior to that date. References to “Successor” or “Successor Company” relate to the financial position and results of operations of the Company after the Effective Date. References to “Predecessor” or “Predecessor Company” refer to the financial position and results of operations of the Company on or before the Effective Date.

20172020 Overview
Following are highlights from our results of operations for the ninethree months ended September 30, 2017March 31, 2020 and 2016:2019:
 2017 2016 $ Change % Change
Statements of Operations:       
Net sales$2,696
 $2,680
 $16
 1 %
Gross profit384
 323
 61
 19 %
Operating income113
 280
 (167) (60)%
(Loss) income before income tax(133) 91
 (224) 246 %
Net (loss) income(146) 59
 (205) 347 %
Segment EBITDA:       
Epoxy, Phenolic and Coating Resins$143
 $230
 $(87) (38)%
Forest Products Resins195
 184
 11
 6 %
Corporate and Other(47) (50) 3
 6 %
Total$291
 $364
 $(73) (20)%
 Successor  Predecessor    
 March 31, 2020  March 31, 2019 $ Change % Change
Statements of Operations:        
Net sales$826
  $886
 $(60) (7)%
Operating (loss) income(31)  33
 (64) (194)%
Loss before income tax(57)  (46) (11) 24 %
Net loss(59)  (52) (7) 13 %
Segment EBITDA:        
Adhesives$71
  $76
 $(5) (7)%
Coatings and Composites39
  44
 (5) (11)%
Corporate and Other(21)  (17) (4) 24 %
Total$89
  $103
 $(14) (14)%


Net Sales—Net sales inIn the first ninethree months of 2017 were $2.7 billion, an increase of 1%2020, net sales decreased by $60, or 7%, compared withto the first ninethree months of 2016. Excluding $185 of net sales in the first nine months of 2016 from our divested Performance Adhesives, Powder Coatings, Additives & Acrylic Coatings and Monomers businesses (“PAC Business”), net sales increased by 8%. These increases were driven by pricing, which positively2019. Pricing negatively impacted sales by $127$57 due largelyprimarily to raw material price increasesdecreases contractually passed through to customers across many of our businesses, partially offset byas well as continued competitive pricing pressuresmarket conditions in our base epoxy specialtyresins business. Overall, volumesForeign currency translation negatively impacted net sales by $15 due to the weakening of various foreign currencies against the U.S. dollar in the first three months 2020 compared to the first three months of 2019. Volume increases positively impacted net sales by $73$12 related to improved volumes in our base and specialty epoxy resins businesses driven by strong market demand, most notably in global wind energy. These volume increases were partially offset by volume reductions in our Northphenolic specialty resins and Latin American formaldehyde business,resins businesses driven by overall weakness in the market, primarily in the automotive and construction industries.
Net Loss—In the first three months of 2020, net loss increased by $7 as wellcompared to the first three months of2019. This increase in net loss was driven by a reduction in operating income of $64, primarily related to an increase of $32 in depreciation and amortization expense related to the step up of our fixed and intangible assets as a result of the additional capacity from our new formaldehyde plants. Additionally, volumes increasedapplication of fresh-start accounting, $16 of asset impairments in our North American forest productsoilfield and phenolic specialty resins business due to modest growthbusinesses in the U.S. housing marketfirst quarter 2020, a $17 increase in business realignment costs driven by higher severance expenses related to current cost reduction actions and a decrease in gross profit due primarily to the margin reductions in our base epoxy resins business as it continues to recover from cyclical trough conditions.discussed above. These increases were partially offset by volume decreases in our epoxy specialty business driven by an ongoing destocking of wind blades in China. The impact of foreign exchange translation positively impacted net sales by $1 as the strengthening of the Brazilian real against the U.S. dollar was largely offset by the strengthening of the U.S. dollar against the euro and Chinese yuan in the first nine months of 2017 compared to the first nine months of 2016.
Net Loss—Net loss in the first nine months of 2017 was $146, a decrease of $205 as compared with net income of $59 in the first nine months of 2016. This decrease was primarily driven by the absence of gains on the disposition of our PAC Business and HA-International, LLC (“HAI”) joint venture interest of $240 and gains on debt buybacks of $47 that positively impacted the first nine months of 2016. These decreasesunfavorable changes to net loss wereare partially offset by increased gross margin and decreased business realignment costs. Higher gross margin is primarily driven by a reduction in accelerated depreciationinterest expense of $113$54 as a result of the restructuring of our debt through our Chapter 11 proceedings and $21 of costs related to our Norco, LA facility closure that occurred in 2016, partially offset by the absence of gross margin from our divested PAC Business in 2017 results. Lower business realignment costs are largely attributable to approximately $23 of costsChapter 11 proceedings incurred in the first nine months of 2016 relatedquarter 2019 prior to the Norco, LA facility closure that did not recur in 2017.filing for bankruptcy.
Segment EBITDA—For the first ninethree months of 2017,2020, Segment EBITDA was $291,$89, a decrease of 20%14% compared with $364$103 in the first ninethree months of 2016. Excluding Segment EBITDA of $30 in the first nine months of 2016 from our divested PAC Business and HAI joint venture, Segment EBITDA decreased by 13%.2019. This decrease was primarily due to margin reductions in our base epoxy resins business driven by continued competitive market conditions, partially offset by margin and volume decreases and margin compression in our specialty epoxy business discussed above, $13 of insurance recoveries received in the first nine months of 2016improvements in our versatic acids business that did not recur in 2017 and $6 of negative impact related to the hurricanes that occurred in the U.S. during the third quarter of 2017. These decreases were partially offset by volume increases in our North American formaldehyde business discussed above, as well as continued cost efficiencies associated with our new North American formaldehyde plants. Additionally, year over year improvements in our oilfield and base epoxy resins businesses positively impacted Segment EBITDA, as both of these businesses continue to recover from cyclical trough conditions.business.
Restructuring and Cost Reduction Programs—Activities—In November 2017, we initiated new cost reduction programs that will be finalized in the first half of 2018.  We expect these programs to generate approximately $40 of annual savings once fully implemented.  During the first ninethree months of 2017,2020, we have achieved $20$8 in cost savings related to our ongoing productivity and cost reduction programs. Withactivities. These activities include certain in-process facility rationalizations and the additioncreation of a business service group within the new programs discussed above,Company to provide certain administrative functions for us going forward. Overall we have a total of approximately $54$15 of in-process cost savings related to these activities, which we expect to achieve inrealize over the next 12 to 18 months.
Growth Initiatives—Our new North American formaldehyde plants, the last of which was completed in the first quarter of 2016, have provided us with additional capacity to support expected long-term growth in this business and has helped drive improved results in 2017. In addition, we continue to focus on new product development and have taken steps to improve our analytical and product development services for our global grid, such as the recently completed expansion of our technology center in Edmonton. Further, we continue to invest in new coatings technologies and capacity in response to recent volatile organic compounds regulation in China.



2017 Refinancing Transactions—In February 2017, we issued $485 aggregate principal amount of New First Lien Notes and $225 aggregate principal amount of New Senior Secured Notes. We used the net proceeds from these notes, together with cash on our balance sheet, to redeem all of our outstanding Old Senior Secured Notes. In May 2017, we issued an additional $75 aggregate principal amount of New First Lien Notes. We also amended and restated our ABL Facility, which effectively extended the maturity date of the facility from March 2018 to December 2021 and reduced the existing commitments under the facility from $400 to $350.
Short-term Outlook
WeOverall, we expect strong market demand combined with the incremental capacity created byCOVID-19 impacts to challenge our new formaldehyde plants in North America to continue to drive volume increases in our North American formaldehyde business forresults throughout the remainder of 20172020. While our businesses have been designated by many governments as essential businesses which has allowed our operations to continue during the pandemic, we saw weaker economic conditions begin to develop in the latter half of March 2020, specifically within automotive and into 2018. Additionally, wecertain industrial markets. We expect these weaknesses and overall lower global economic demand caused by COVID-19 to impact our sales and profitability results beginning in the second quarter 2020. While circumstances around COVID-19 continue to evolve, thus creating uncertainties around predicting the future impacts on our financial results, we anticipate that both of our operating segments will be impacted in some manner by COVID-19 through 2020, due to the global economic impacts of this pandemic.
We anticipate that the COVID-19 pandemic will have a modest impact on our overall Coatings and Composites segment due to the markets and geographies in which this segment operates. Despite overall economic headwinds, we expect improved demandimprovement in our epoxy specialty business in 2020 due to the ongoing introduction of new products and government supported investment in the China wind energy market, as well as a strong global wind energy market. We expect competitive market conditions in our base epoxy business to continue throughout 2020.
Within our Adhesives segment, we expect year over year declines in Segment EBITDA in our North American forest products resins business due to ongoing modest growthbased on the latest expectations in U.S. housing starts.
We expect demand in our epoxy specialty business to remain below historical levels during the remainder of 2017 due to softness in the China wind energy market, although demand is expected to improve in the first half of 2018.starts, remodeling and COVID-19 impacts. We also expect thisCOVID-19 to negatively impact volumes in our North American formaldehyde business in 2020. We also expect weaker volumes in our phenolic specialty resins business due primarily to the impact of COVID-19 on the automotive industry.
We also anticipate that all of our businesses will continue to benefit from significant improvements in market demand for waterborne coatings over the next few years, primarily in China. Additionally, we expect our phenolic resins business to benefit from cost reductionssavings associated with our ongoing grid optimization efforts in Germany.restructuring and cost reduction initiatives. In addition, we expect lower raw material costs to positively impact results across many of our businesses. Further, we anticipate volumesplan to implement a variety of growth and efficiency initiatives in 2020, which include accelerating new product development efforts and process improvement initiatives. Lastly, despite the prevailing economic headwinds, the benefits our versatic acidnew capital structure and derivatives business to continue to improve due to ongoing volume recovery and favorable market conditions. We also expect modest year over year improvementdecreasing working capital will have a positive impact on free cash flow in our oilfield business through 2017 and into 2018 due to increased drilling activity. Lastly, we expect our base epoxy business to continue to improve in the remainder of 2017 and into 2018 due to our restructuring initiatives and favorable market conditions.
We expect raw material prices to stabilize through the remainder of 2017 and into 2018, following large increases in the first nine months of 2017.2020.
Matters Impacting Comparability of Results
Dispositions of PAC BusinessChapter 11 Bankruptcy and HAI Joint Venture InterestFresh Start Accounting Impacts
During the second quarter of 2016, we completed the sales of both our PAC Business and our 50% interest in the HAI joint venture. As a result when comparing 2017of the emerging from Chapter 11 and qualifying for the application of fresh-start accounting, at the Effective Date, our assets and liabilities were recorded at their estimated fair values which, in some cases, were significantly different than amounts included in our financial statements prior to 2016,the Effective Date. Accordingly, our financial condition and results of operations on and after the Effective Date are not directly comparable to our financial condition and results of operations prior to the Effective Date. Specifically, our depreciation and amortization expense after the Effective Date reflects the step-up of fixed and intangible assets as a result of fresh-start accounting, and our interest expense after the Effective Date reflects the restructuring of our debt through the Chapter 11 process.
In addition, we incurred costs related to our Chapter 11 proceedings prior to filing. For the three months ended March 31, 2019, these costs were $21 and are classified within “Selling, general and administrative expense” in the first nine monthsConsolidated Statements of 2017 exclude these divested businesses, while our results in the first nine months of 2016 include net sales of $185 and Segment EBITDA of $30 related to these divested businesses. Additionally, in the first nine months of 2016 we recorded a gain of $240 on the disposition of these businesses.Operations.

Raw Material Prices
Raw materials comprise approximately 70%80% of our cost of sales.sales (excluding depreciation expense). The three largest raw materials used in our production processes are phenol, methanol and urea. These materials represent about half of our total raw material costs. Fluctuations in energy costs, such as volatility in the price of crude oil and related petrochemical products, as well as the cost of natural gas have historically caused volatility in our raw material and utility costs. TheIn the first three months of 2020 compared to the first three months of 2019, the average price of phenol methanol, and urea increased by approximately 16% and the average price of urea and methanol decreased by approximately 4% and 15%, 56%, and 2% respectively, in the first nine months of 2017 compared to the first nine months of 2016.respectively. The impact of passing through raw material price changes to customers can result in significant variances in sales comparisons from year to year.
Other Comprehensive IncomeLoss
Our other comprehensive incomeloss is significantlyprimarily impacted by foreign currency translation and, to a lesser extent, impacted by defined benefit pension and postretirement benefit adjustments.translation. The impact of foreign currency translation is driven by the translation of assets and liabilities of our foreign subsidiaries which are denominated in functional currencies other than the U.S. dollar. Our non-U.S. operations accounted for approximately 55% of our sales in the first three months of 2020. The primary assets and liabilities driving the adjustments are cash and cash equivalents; accounts receivable; inventory; property, plant and equipment; accounts payable; pension and other postretirement benefit obligations and certain intercompany loans payable and receivable. The primary currencies in which these assets and liabilities are denominated are the euro, Brazilian real, Chinese yuan, Canadian dollar Chinese yuan and Australian dollar.
In 2019, we entered into an interest rate swap agreement to hedge interest rate variability caused by quarterly changes in cash flow due to associated changes in LIBOR under our Senior Secured Term Loan. This swap was designed as a cash flow hedge and the change in fair value was recorded in “Accumulated other comprehensive loss”.
The impact of defined benefit pension and postretirement benefit adjustments is primarily driven by unrecognized prior service cost related to our defined benefit and other non-pension postretirement benefit plans (“OPEB”), as well as the subsequent amortization of these amounts from accumulated other comprehensive income in periods following the initial recording of such items.

amounts. Upon the application of fresh start accounting, on the Effective Date, all prior unrecognized service cost within accumulated other comprehensive income related to our defined benefit pension and OPEB plans were reset in accordance with ASC 852.

Results of Operations
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended September 30,
 2017 2016
 $ % of Net Sales $ % of Net Sales
Net sales$914
 100 % $819
 100 %
Cost of sales783
 86 % 680
 83 %
Accelerated depreciation14
 2 % 21
 3 %
Gross profit117
 12 % 118
 14 %
Selling, general and administrative expense75
 8 % 69
 8 %
Asset impairments13
 1 % —
 — %
Business realignment costs (income)10
 1 % (3) — %
Other operating expense, net1
 — % 7
 1 %
Operating income18
 2 % 45
 5 %
Interest expense, net82
 9 % 76
 9 %
Gain on extinguishment of debt—
 — % (3) — %
Other non-operating (income) expense, net(3) — % 2
 — %
Total non-operating expense79
 9 % 75
 9 %
Loss before income tax and earnings from unconsolidated entities(61) (7)% (30) (4)%
Income tax expense9
 1 % 16
 2 %
Loss before earnings from unconsolidated entities(70) (8)% (46) (6)%
Losses from unconsolidated entities, net of taxes—
 — % (1) — %
Net loss$(70) (8)% $(47) (6)%
Other comprehensive income$10
   $7
  
 Successor  Predecessor
 Three Months Ended March 31, 2020  Three Months Ended March 31, 2019
 $ % of Net Sales  $ % of Net Sales
Net sales$826
 100 %  $886
 100 %
Cost of sales (exclusive of depreciation and amortization shown below, see Note 2)680
 82 %  727
 82 %
Selling, general and administrative expense (see Note 2)75
 9 %  88
 10 %
Depreciation and amortization (see Note 2)58
 7 %  26
 3 %
Asset impairments16
 2 %  —
 — %
Business realignment costs21
 3 %  4
 — %
Other operating expense, net7
 1 %  8
 1 %
Operating (loss) income(31) (4)%  33
 4 %
Interest expense, net26
 3 %  80
 9 %
Other non-operating income, net—
 — %  (1) — %
Total non-operating expense26
 3 %  79
 9 %
Loss before income tax and earnings from unconsolidated entities(57) (7)%  (46) (5)%
Income tax expense3
 — %  7
 1 %
Loss before earnings from unconsolidated entities(60) (7)%  (53) (6)%
Earnings from unconsolidated entities, net of taxes1
 — %  1
 — %
Net loss(59) (7)%  (52) (6)%
Other comprehensive loss$(57)    $—
  
Three Months Ended September 30, 2017March 31, 2020 vs. Three Months Ended September 30, 2016March 31, 2019
Net Sales
In the third quarterfirst three months of 2017,2020, net sales increaseddecreased by $95,$60, or 12%7%, compared to the third quarterfirst three months of 2016. Volume increases had a positive impact on net sales of $43, which was primarily due to year over year volume growth in our base epoxy resins, oilfield businesses, as well as continued strong market demand in our North American formaldehyde and forest products resins businesses.2019. Pricing positivelynegatively impacted sales by $37$57 due largelyprimarily to raw material price increasesdecreases contractually passed through to customers across many of our businesses, partially offset byas well as continued competitive pressuresmarket conditions in our base epoxy specialty and oilfield businesses.resins business. Foreign currency translation positivelynegatively impacted net sales by $15 due to an overall strengtheningthe weakening of various foreign currencies against the U.S. dollar in the third quarterfirst three months of 20172020 compared to the third quarterfirst three months of 2016.
Gross Profit
In the third quarter of 2017, gross profit decreased by $1 compared to the third quarter of 2016. Gross profit as a percentage of2019. Volume increases positively impacted net sales decreased by 2% primarily due$12 related to margin compressionimproved volumes in our base and specialty epoxy resins businesses driven by the competitive pricing pressures discussed above, as well as unfavorable raw material price inflation during the third quarter of 2017. This impact wasstrong demand, most notably in global wind energy. These volume increases were partially offset by a decreasevolume reductions in accelerated depreciationour phenolic specialty resins and Latin American resins businesses driven by overall weakness in the third quarter of 2017 as compared tomarket, primarily in the third quarter of 2016.automotive and construction industries.
Operating Income
In the third quarterfirst three months of 2017,2020, operating income decreased by $27$64 compared to the third quarterfirst three months of 2016,2019. This decrease was driven primarily by an increasesincrease of $32 in business realignment costsdepreciation and amortization expense related to the step up of $13,our fixed and intangible assets as a result of the application of fresh-start accounting, $16 of asset impairments of $13, selling, generalin our oilfield and administrative expense of $6 andphenolic specialty resins businesses in the decrease in gross profit of $1 discussed above. Thefirst quarter 2020, a $17 increase in business realignment costs is largely attributable to a one-time reduction in the asset retirement obligation (“ARO”) liability of $11 that occurred in the third quarter of 2016driven by higher severance expenses related to the Norco plant closure. In the third quarter of 2017,current cost reduction actions and a goodwill impairment of $13 was recognized as a result of the estimated fair value of our oilfield reporting unit being less than the carrying value of its net assets. The increasedecrease in selling, general and administrative expense wasgross profit due primarily to $4 of insurance recoveries in the third quarter of 2016 related to the supplier disruptionmargin reductions in our European versatic acids business. These overall decreasesbase epoxy resins business discussed above. This reductions to operating income were partially offset by a decrease$21 of costs related to our Chapter 11 proceedings incurred in other operating expense of $6 driven by a decrease in realized and unrealized foreign currency transaction losses.the first quarter 2019 prior to filing for bankruptcy.
Non-Operating Expense
In the third quarterfirst three months of 2017,2020, total non-operating expense increaseddecreased by $4$53 compared to the third quarterfirst three months of 2016. This was primarily2019 due to an increasea decrease in interest expense of $6 driven by higher average$54 as a result of our the restructuring of our debt levels and lower gains on debt extinguishment of $3 due to gains on debt buybacks in the third quarter of 2016 that did not recur in 2017, partially offset by an increase of $5 in other non-operating income due to increased realized and unrealized foreign currency transaction gains.through our Chapter 11 proceedings.

Income Tax Expense

The income tax expense for the Successor three months ended March 31, 2020 and the Predecessor three months ended March 31, 2019 was $3 and $7, respectively. The income tax expense is comprised of tax expense on income and tax benefit on losses from certain foreign operations. In 2020 and 2019, losses in the United States and certain foreign jurisdictions had no impact on income tax expense as no tax benefit was recognized due to the maintenance of a full valuation allowance.
The effective tax rate for the Successor three months ended March 31, 2020 and for the Predecessor three months ended March 31, 2019 was (15)(5)% and (53)(15)% for the third quarter of 2017 and 2016,, respectively. The change in the effective tax rate was primarily attributable to the amount and distribution of income and losses among the various jurisdictions in which we operate. The effective tax rates were also impacted by operating gains and losses generated in jurisdictions where no tax expense or benefit was recognized due to the maintenance of a full valuation allowance.

Other Comprehensive Loss
For the third quarterfirst three months of 2017 and 2016, income tax expense relates primarily to income from certain foreign operations. In 2017, losses in the United States and certain foreign jurisdictions had no impact on income tax expense as no tax benefit was recognized due to the maintenance of a full valuation allowance. In 2016, the income tax expense related to the gain on dispositions was substantially reduced by net operating loss utilization which was offset by a decrease to the respective valuation allowances.
Other Comprehensive Income
For the third quarter of 2017,2020, foreign currency translation positivelynegatively impacted other comprehensive incomeloss by $10, primarily$42, due to an overall strengtheningweakening of various foreign currencies against the U.S. dollar in the third quarterfirst three months of 2017.
For the third quarter2020 and an unrealized loss of 2016,$15 on an interest rate swap designated as a cash flow hedge recorded to other comprehensive income of $7 relates to the positive impact of foreign currency, primarily due to the strengthening of the euro against the U.S. dollar.
 Nine Months Ended September 30,
 2017 2016
 $ % of Net Sales $ % of Net Sales
Net sales$2,696
 100 % $2,680
 100 %
Cost of sales2,298
 85 % 2,230
 83 %
Accelerated depreciation14
 1 % 127
 5 %
Gross profit384
 14 % 323
 12 %
Selling, general and administrative expense227
 8 % 235
 9 %
Gain on dispositions—
 — % (240) (9)%
Asset impairments13
 — % —
 — %
Business realignment costs27
 1 % 42
 2 %
Other operating expense, net4
 — % 6
 — %
Operating income113
 5 % 280
 10 %
Interest expense, net247
 9 % 235
 9 %
Loss (gain) on extinguishment of debt3
 — % (47) (2)%
Other non-operating (income) expense, net(4) — % 1
 — %
Total non-operating expense246
 9 % 189
 7 %
(Loss) income before income tax and earnings from unconsolidated entities(133) (4)% 91
 3 %
Income tax expense16
 1 % 40
 1 %
(Loss) income before earnings from unconsolidated entities(149) (5)% 51
 2 %
Earnings from unconsolidated entities, net of taxes3
 — % 8
 — %
Net (loss) income$(146) (5)% $59
 2 %
Other comprehensive income$25
   $7
  
Nine Months Ended September 30, 2017 vs. Nine Months Ended September 30, 2016
Net Sales
In the first nine months of 2017, net sales increased by $16, or 1%, compared to the first nine months of2016. Excluding $185 of net sales in the first nine months of 2016 from our PAC Business that did not recur in 2017, net sales increased by 8%. Pricing positively impacted sales by $127 due largely to raw material price increases passed through to customers across many of our businesses, partially offset by competitive pressures in our epoxy specialty business. Volume increases positively impacted net sales by $73 driven by strong market demand in our North American formaldehyde business combined with the additional capacity from our new formaldehyde plants. Additionally, volumes increased in our North American forest products resins business due to modest growth in the U.S. housing market. Volumes also increased in our base epoxy resins and oilfield businesses as these businesses continue to recover from cyclical trough conditions. These increases were partially offset by volume decreases in our epoxy specialty business driven by an ongoing destocking of wind blades in China. Lastly, the impact of foreign exchange translation positively impacted net sales by $1 as the strengthening of the Brazilian real against the U.S. dollar was largely offset by the strengthening of the U.S. dollar against the euro and Chinese yuan in the first nine months of 2017 compared to the first nine months of 2016.

Gross Profit
In the first nine months of 2017, gross profit increased by $61 compared to the first nine months of 2016, primarily due to the absence of $127 of accelerated depreciation recorded in the first nine months of 2016 related to the closure of our Norco, LA facility. Gross profit as a percentage of net sales increased by 2%, primarily due to the impact of the accelerated depreciation discussed above, which had a negative impact of 5% on 2016 gross profit. This impact was partially offset by margin compression driven by the competitive pricing pressures discussed above, as well as unfavorable raw material price inflation during the first nine months of 2017.
Operating Income
In the first nine months of 2017, operating income decreased by $167 compared to the first nine months of 2016, primarily due to the gain on dispositions of $240 related to the sale of our PAC Business and HAI joint venture interest in 2016 that did not recur in 2017 and an increase in asset impairments of $13. These decreases to operating income was partially offset by the increase in gross profit of $61 discussed above, as well as decreases in business realignment costs of $15 and in selling, general and administrative expense of $8. The decrease in business realignment costs is largely attributable to costs in the first nine months of 2016 related to the Norco, LA facility closure that did not recur in 2017. In the first nine months of 2017, a goodwill impairment of $13 was recognized as a result of the estimated fair value of our oilfield reporting unit being less than the carrying value of its net assets. The decrease in selling, general and administrative expense was due primarily to lower compensation and benefits expense driven by our recent cost savings and productivity actions, as well as the sale of our PAC Business in the second quarter of 2016, partially offset by $14 of insurance recoveries in the first nine months of 2016 related to the supplier disruption in our European versatic acids business.
Non-Operating Expense
In the first nine months of 2017, total non-operating expense increased by $57 compared to the first nine months of 2016. This was primarily due to lower gains on debt extinguishment of $50 due to gains on debt buybacks in the first nine months of 2016 that did not recur in 2017 and an increase in interest expense of $12 driven by higher average debt levels, partially offset by an increase of $5 in other non-operating income due to increased realized and unrealized foreign currency transaction gains.
Income Tax Expense

The effective tax rate was (12)% and 44% for the first nine months of 2017 and 2016, respectively. The change in the effective tax rate was primarily attributable to the amount and distribution of income and losses among the various jurisdictions in which we operate. The effective tax rates were also impacted by operating gains and losses generated in jurisdictions where no tax expense or benefit was recognized due to the maintenance of a full valuation allowance.

loss.
For the first ninethree months of 2017 and 2016, income tax expense relates primarily to income from certain2019, foreign operations. In 2017, losses in the United States and certain foreign jurisdictionscurrency translation had no impact on income tax expense as no tax benefit was recognizedother comprehensive loss, due to the maintenance of a full valuation allowance. In 2016, the income tax expense related to the gain on dispositions was substantially reduced by net operating loss utilization which was offset by a decrease to the respective valuation allowances.
Other Comprehensive Income
For the first nine months of 2017, foreign currency translation positively impacted other comprehensive income by $25, primarily due to an overall strengthening of various foreign currencies remaining relatively flat against the U.S. dollar in the third quarter of 2017.
For the first ninethree months of 2016, other comprehensive income of $7 relates to $8 positive impact of foreign currency, primarily due to the strengthening of the euro, Brazilian real and Canadian dollar against the U.S. dollar, partially offset by $1 of amortization of prior service costs related to defined benefit pension and postretirement benefits.

2019.
Results of Operations by Segment
Following are net sales and Segment EBITDA (earnings before interest, income taxes, depreciation and amortization) by reportable segment. Segment EBITDA is defined as EBITDA adjusted for certain non-cash items and other income and expenses. Segment EBITDA is the primary performance measure used by our senior management, the chief operating decision-maker and the board of directors to evaluate operating results and allocate capital resources among segments. Segment EBITDA is also the profitability measure used to set management and executive incentive compensation goals. Segment EBITDA should not be considered a substitute for net loss or other results reported in accordance with U.S. GAAP. Segment EBITDA may not be comparable to similarly titled measures reported by other companies.
Successor  Predecessor
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended March 31,

2017 2016 2017 20162020  
2019(2)
Net Sales (1):
           
Epoxy, Phenolic and Coating Resins$528
 $476
 $1,537
 $1,664
Forest Products Resins386
 343
 1,159
 1,016
Adhesives$468
  $543
Coatings and Composites358
  343
Total$914
 $819
 $2,696
 $2,680
$826
 
$886
           
Segment EBITDA:




        
Epoxy, Phenolic and Coating Resins$45

$64
 $143
 $230
Forest Products Resins66

65
 195
 184
Adhesives$71
  $76
Coatings and Composites39
  44
Corporate and Other(15)
(17) (47) (50)(21)  (17)
Total$96

$112
 $291
 $364
$89
  $103
(1)Intersegment sales are not significant and, as such, are eliminated within the selling segment.
(2)Previously reported Net Sales and Segment EBITDA by reportable segment for the Predecessor three months ended March 31, 2019 is shown below:
(1)     Intersegment sales are not significant and, as such, are eliminated within the selling segment.
 Predecessor
 Three Months Ended
March 31, 2019
Net Sales: 
Forest Products Resins$395
Epoxy, Phenolic and Coating Resins491
Total$886
  
Segment EBITDA: 
Forest Products Resins$68
Epoxy, Phenolic and Coating Resins52
Corporate and Other(17)
Total$103


Three Months Ended September 30, 2017March 31, 2020 vs. Three Months Ended September 30, 2016March 31, 2019 Segment Results
Following is an analysis of the percentage change in net sales by segment from the Successor three months ended September 30, 2016March 31, 2020 to the Predecessor three months ended September 30, 2017:March 31, 2019:
 Volume Price/Mix 
Currency
Translation
 Total
Epoxy, Phenolic and Coating Resins7% 2% 2% 11%
Forest Products Resins3% 9% 1% 13%
 Volume Price/Mix 
Currency
Translation
 Total
Adhesives(5)% (7)% (2)% (14)%
Coatings and Composites12 % (6)% (2)% 4 %

Adhesives
Epoxy, Phenolic and Coating Resins
Net sales in the third quarterfirst three months of 2017 increased2020 decreased by $52,$75, or 11%14%, when compared to the third quarterfirst three months of 2016. Volume positively2019. Pricing negatively impacted net sales by $32, primarily due to volume growth in our base epoxy resins and oilfield businesses. The impact of foreign exchange translation positivelyimpacted net sales by $11, due primarily to the strengthening of the euro against the U.S. dollar, partially offset by the strengthening of the U.S. dollar against the Chinese yuan in the third quarter of 2017 compared to the third quarter of 2016.Lastly, pricing positivelyimpacted net sales by $9 due primarily to raw material price increases passed through to customers across many of our businesses, partially offset by competitive pressures in our epoxy specialty and oilfield businesses.
Segment EBITDA in the third quarter of 2017 decreased by $19 to $45 compared to the third quarter of 2016. The decrease was primarily due to margin compression and volume decreases in our epoxy specialty business, $6 of negative impact related to the hurricanes that occurred in the U.S. during the third quarter of 2017 and $4 of insurance recoveries received in the third quarter of 2016 in our versatic acids business that did not recur in 2017. These decreases were partially offset by year over year improvements in our oilfield and base epoxy resins businesses, as both continue to recover from cyclical trough conditions.
Forest Products Resins
Net sales in the third quarter of 2017 increased by $43, or 13%, when compared to the third quarter of 2016. Pricing positively impacted net sales by $28, which was$36, primarily due to raw material price increasesdecreases contractually passed through to customers across many of our businesses. Volumes positivelynegatively impacted net sales by $11,$29, primarily related to volume reductions in our phenolic specialty resins and were primarilyLatin American resins businesses driven by strong market demand in our North American formaldehyde business combined with the additional capacity from our new formaldehyde plants. Additionally, volumes increased in our North American forest products resins business due to modest growthoverall weakness in the U.S. housing market. Foreign exchangemarket, primarily in the automotive and construction industries. Lastly, foreign currency translation positivelynegatively impacted net sales by $4$10, due largely to an overall strengtheningthe weakening of various foreign currencies against the U.S. dollar in the third quarterfirst three months of 20172020 compared to the third quarterfirst three months of 2016.2019.
Segment EBITDA in the third quarterfirst three months of 2017 increased2020 decreased by $1,$5 to $66,$71, when compared to the thirdfirst three months of 2019. This decrease was primarily driven by competitive pricing pressures in our North American forest products resins business and the volume decreases in our phenolic specialty resins business discussed above. COVID-19 negatively impacted first quarter Segment EBITDA by approximately $3.
Coatings and Composites
Net sales in the first three months of 2016. This increase2020 increased by $15, or 4%, when compared to the first three months of 2019. Volumes positively impacted net sales by $41 related to improved volumes in our base and specialty epoxy resins businesses driven by strong demand, most notably in global wind energy. Pricing negativelyimpacted net sales by $21 due primarily to raw material decreases contractually passed through to customers across many of our businesses, as well as continued competitive market conditions in our base epoxy resins business. Foreign currency translation negativelyimpacted net sales by $5, due primarily to the weakening of various foreign currencies against the U.S. dollar in the first three months of 2020 compared to the first three months of 2019.
Segment EBITDA in the first three months of 2020 decreased by $5 to $39 compared to the first three months of 2019. The decrease was primarily due to the volume increasesmargin reductions in our North American formaldehyde discussed above, as well asbase epoxy resins business driven by continued cost efficiencies associated withcompetitive market conditions, partially offset by margin and volume improvements in our new North American formaldehyde plants.

versatic acids business. COVID-19 negatively impacted first quarter Segment EBITDA by approximately $1.
Corporate and Other
Corporate and Other is primarily corporate, general and administrative expenses that are not allocated to the other segments, such as shared service and administrative functions and unallocated foreign exchange gains and losses and legacy company costs not allocated to continuing segments. Corporate and Other charges in the third quarter of 2017 decreased by $2 compared to the third quarter of 2016 due primarily to cost savings actions and lower incentive compensation accruals.
Nine Months Ended September 30, 2017 vs. Nine Months Ended September 30, 2016 Segment Results
Following is an analysis of the percentage change in net sales by segment from the nine months ended September 30, 2016 to the nine months ended September 30, 2017:
 Volume Price/Mix 
Currency
Translation
 Impact of Dispositions Total
Epoxy, Phenolic and Coating Resins2% 2% (1)% (11)% (8)%
Forest Products Resins4% 9% 1 % — % 14 %
Epoxy, Phenolic and Coating Resins
Net sales in the first nine months of 2017 decreased by $127, or 8%, when compared to the first nine months of 2016. The majority of the decrease is due to the disposition of our PAC Business in the second quarter of 2016, which negatively impacted net sales by $185. Pricing positivelyimpacted net sales by $39 due primarily to raw material price increases passed through to customers across many of our businesses, partially offset by competitive pressures in our epoxy specialty business. Volumes positively impacted net sales by $28, primarily due to volume growth in our base epoxy resins and oilfield businesses, market driven volume increases in our phenolic resins business in North America and China and continued volume recovery in our European versatic acids business, partially offset by volume decreases in our epoxy specialty business largely driven by an ongoing destocking of wind blades in China. Lastly, these increases were partially offset by foreign exchange translation, which negativelyimpacted net sales by $9, due primarily to the strengthening of the U.S. dollar against the euro and Chinese yuan in the first nine months of 2017 compared to the first nine months of 2016.
Segment EBITDA in the first nine months of 2017 decreased by $87 to $143 compared to the first nine months of 2016. The impact of the disposition of our PAC Business and HAI joint venture interest in the second quarter of 2016 contributed $30 to this decrease. The remaining decrease was primarily due to margin compression and volume decreases in our epoxy specialty business, as well as a Segment EBITDA impact of $13 related to insurance recoveries received in the first nine months of 2016 in our versatic acids business that did not recur in 2017 and $6 of negative impact related to the hurricanes that occurred in the U.S. during the third quarter of 2017. These decreases were partially offset by improvements in our oilfield and base epoxy resins businesses, as both continue to recover from cyclical trough conditions.
Forest Products Resins
Net sales in the first nine months of 2017 increased by $143, or 14%, when compared to the first nine months of 2016. Pricing positively impacted net sales by $88, which was primarily due to raw material price increases passed through to customers across many of our businesses. Volumes positively impacted net sales by $45, and were primarily driven by strong market demand in our North American formaldehyde business combined with the additional capacity from our new formaldehyde plants. Additionally, volumes increased in our North American forest products resins business due to modest growth in the U.S. housing market. The impact of foreign exchange translation positively impacted net sales by $10, due largely to the strengthening of the Brazilian real against the U.S. dollar, partially offset by strengthening of the U.S. dollar against the euro in the first nine months of 2017 compared to the first nine months of 2016.
Segment EBITDA in the first nine months of 2017 increased by $11, to $195, compared to the first nine months of 2016. This increase was primarily due to the volume increases in our North American formaldehyde business discussed above, as well as continued cost efficiencies associated with our new North American formaldehyde plants.
Corporate and Other
Corporate and Other is primarily corporate, general and administrative expenses that are not allocated to the segments, such as shared service and administrative functions, unallocated foreign exchange gains and losses and legacy company costs not allocated to continuing segments.losses. Corporate and Other charges in the first ninethree months of 2017 decreased2020 increased by $3$4 compared to the first ninethree months of 20162019 due primarily to timing of incentive and group insurance accruals of $2, unfavorable foreign exchange impacts of $1 and the impact of termination of our Shared Services Agreement with MPM, partially offset by savings associated with our ongoing cost savings actions and lower incentive compensation accruals.reduction efforts.


Reconciliation of Net (Loss) IncomeLoss to Segment EBITDA:
Three Months Ended September 30, Nine Months Ended September 30,Successor  Predecessor
2017 2016 20172016Three Months Ended
March 31, 2020		  Three Months Ended
March 31, 2019
Reconciliation:         
Net (loss) income$(70) $(47) $(146)$59
Net loss$(59)  $(52)
Income tax expense9
 16
 16
40
3
  7
Interest expense, net82
 76
 247
235
26
  80
Depreciation and amortization(1)29
 30
 85
101
58
  26
Accelerated depreciation14
 21
 14
127
EBITDA$64
 $96
 $216
$562
28
  61
Items not included in Segment EBITDA:     
Business realignment costs (income)$10
 $(3) $27
$42
Gain on dispositions—
 —
 —
(240)
Adjustments to arrive at Segment EBITDA:    
Asset impairments13
 —
 13
—
$16
  $—
Realized and unrealized foreign currency (gains) losses(5) 6
 (7)(3)
(Gain) loss on extinguishment of debt—
 (3) 3
(47)
Business realignment costs21
  4
Transaction costs3
  23
Realized and unrealized foreign currency losses6
  1
Other non-cash items (2)
12
  2
Other14
 16
 39
50
3
  12
Total adjustments32
 16
 75
(198)61
  42
Segment EBITDA$96
 $112
 $291
$364
$89
  $103
         
Segment EBITDA:     
Epoxy, Phenolic and Coating Resins$45
 $64
 $143
$230
Forest Products Resins66
 65
 195
184
Segment EBITDA (3):
    
Adhesives$71
  $76
Coatings and Composites39
  44
Corporate and Other(15) (17) (47)(50)(21)  (17)
Total$96
 $112
 $291
$364
$89
  $103
(1)For the three months ended March 31, 2020 accelerated depreciation of $2 has been included in “Depreciation and amortization.”
(2)For the three months ended March 31, 2020, primarily included expenses for stock-based compensation costs of $5, long-term retention programs of $3 and non-cash fixed asset write-offs of $2.
(3)Previously reported Segment EBITDA by reportable segment for the Predecessor three months ended March 31, 2019 is shown below:

 Predecessor
 Three Months Ended
March 31, 2019
Segment EBITDA: 
Forest Products Resins$68
Epoxy, Phenolic and Coating Resins52
Corporate and Other(17)
Total$103
Items Not Included in Segment EBITDA
Not included in Segment EBITDA are certain non-cash items and other unusual or non-recurring income and expenses.
For the Successor three and nine months ended September 30, 2017 and 2016, these itemsMarch 31, 2020, business realignment costs primarily include expenses from retention programs and certain professional feesincluded severance costs of $8 related to strategic projects. Businesscertain in-process cost reduction activities, $6 related to certain in-process facility rationalizations, $4 of one-time implementation costs associated with the creation of a business services group within the Company and a $2 increase in legacy environmental reserves for future clean-up of closed facilities. For the Predecessor three months ended March 31, 2019, business realignment costs for the three and nine months ended September 30, 2017 primarily includeincluded costs related to certain in-process facility rationalizations and cost reduction programs. Business realignment costs foractivities.
For the Successor three and nine months ended September 30, 2016 primarily includeMarch 31, 2020, transaction costs included certain professional fees related to strategic projects. For the planned facility rationalizations within the Epoxy, PhenolicPredecessor three months ended March 31, 2019, transaction costs primarily included $21 of certain professional fees and Coating Resins segment and costsother expenses related to certain in-process cost reduction programs.our Chapter 11 Proceedings incurred prior to the date of filing.
For the Successor three months ended March 31, 2020, items classified as “Other” included expenses related to legacy liabilities. For the Predecessor three months ended March 31, 2019, items classified as “Other” primarily included expenses from management fees and expenses related to legacy liabilities.


Liquidity and Capital Resources
We2020 Outlook
Following our emergence from our Chapter 11 proceedings, we believe we are a highly leveraged company. Our primary sources offavorably positioned to fund our ongoing liquidity arerequirements for the foreseeable future through cash flows generated from operations, as well as available borrowings under our ABL Facility. The impact of the Plan on our capital structure resulted in a reduction of more than $200 in our annual debt service obligations and the additional liquidity from the Rights Offerings has provided operational and financial flexibility and allowed us to be well positioned to make strategic capital investments, leverage our leadership positions with both our customers and suppliers, optimize our portfolio and drive new growth programs.
As the impact of the COVID-19 pandemic on the global economy and our operations evolves, we will continue to assess our liquidity needs. We have taken a number of actions to mitigate the unfavorable liquidity impacts of the pandemic, including:
Reducing our anticipated 2020 capital expenditures to between $100 and $110 and reviewing the timing of manufacturing turnarounds at certain of our sites;
Continuing to focus on reducing working capital, which we expect to be positively impacted by the pass through of significantly lower raw material prices;
Reducing selling, general and administrative expense wherever possible, including travel and other discretionary spending items, as well as moving to a managed services model;
Delaying approximately $15 of certain tax payments to later in 2020 and deferring $5 of certain tax payments to future years in conjunction with the Coronavirus Aid, Relief and Economic Security (“CARES”) Act and tax relief measures in other jurisdictions where we operate; and
Drawing down $164 on our ABL Facility as a precautionary measure to increase cash balances and preserve financial flexibility.
Our short-term cash needs are expected to include funding operations as currently planned and we believe that we will be able to meet our liquidity needs over the next 12 months based on our current projections of cash flow from operations and borrowing availability under the ABL Facility. Our primary liquidity requirements are interest, working capital and capital expenditures.
financing arrangements.
At September 30, 2017,March 31, 2020, we had $3,733$1,914 of outstanding debt and $310$440 in liquidity consisting of the following:
$100246 of unrestricted cash and cash equivalents (of which $94$124 is maintained in foreign jurisdictions);
$188126 of borrowings available under our ABL Facility ($350 borrowing base less $124$164 of outstanding borrowings and $38$60 of outstanding letters of credit); and
$2268 of time drafts and borrowings available under credit facilities at certain international subsidiaries
Our net working capital (defined as accounts receivable and inventories less accounts payable) at September 30, 2017March 31, 2020 and December 31, 20162019 was $485 $452and $309,$356, respectively. A summary of the components of our net working capital as of September 30, 2017March 31, 2020 and December 31, 20162019 is as follows:
September 30, 2017 % of LTM Net Sales December 31, 2016 
% of LTM Net Sales (1)
March 31, 2020 % of LTM Net Sales December 31, 2019 % of LTM Net Sales
Accounts receivable$500
 14 % $390

12 %$451
 14 % $365

11 %
Inventories332
 10 % 287

9 %316
 10 % 332

10 %
Accounts payable(347) (10)% (368)
(11)%(315) (10)% (341)
(10)%
Net working capital(1)$485
 14 % $309
 10 %$452
 14 % $356
 11 %
(1)The percentageManagement believes that this non-GAAP measure is useful supplemental information. This non-GAAP measure should be considered by the reader in addition to but not instead of, LTM Net Sales at December 31, 2016 exclude net sales related to our PAC Business, which was sold on June 30, 2016.the financial statements prepared in accordance with GAAP.

The increase in net working capital of $176$96 from December 31, 20162019 was primarily due to increasesdriven by an increase in accounts receivable of $110$86 and a decrease in accounts payable of $26, partially offset by a decrease in inventory of $45. Both of these increases were$16. The increase in accounts receivable was primarily the result of increased volumes in the thirdfirst quarter of 20172020 compared to the fourth quarter of 20162019 due to market conditionsseasonality of our businesses, and seasonality,the decrease in inventories was driven by raw material price decreases in the first quarter of 2020. The decrease in accounts payable was largely related to timing of vendor payments as well as raw material price inflation. These increases to netdecreases. The overall change in working capital were partially offset by a decrease in accounts payable of $21, largely related to raw material price inflation and the timing of vendor payments. To minimize the impact of seasonal changes in net working capital on cash flows, we continue to review inventory safety stock levels, focus on accelerating receivable collections by offering incentives to customers to encourage early payment or through the sale of receivables at a discount and negotiate with vendors or enter into inventory financing arrangements to extend payment terms.    
We periodically borrow from the ABL Facility to support our short-term liquidity requirements, particularly when net working capital requirements increase in response to the seasonality of our volumes. As of September 30, 2017, there were $124 of outstanding borrowings under the ABL Facility.
2017 Refinancing Transactions
In February 2017, we issued $485 aggregate principal amount of New First Lien Notes and $225 aggregate principal amount of New Senior Secured Notes. Upon the closing of these offerings, we used the net proceeds from these offerings, together with cash on our balance sheet, to redeem all of our outstanding 8.875% Senior Secured Notes due 2018 (the “Old Senior Secured Notes”), which occurred in March 2017.
In May 2017, we issued an additional $75 aggregate principal amount of New First Lien Notes at an issue price of 100.5%. These notes mature on February 1, 2022 and have substantially the same terms as the New First Lien Notes issued in February 2017. We used the net proceeds from these notes for general corporate purposes.
In December 2016, we amended and restated the ABL Facility, with modifications to, among other things, permit the refinancing of the Old Senior Secured Notes. In connection with the issuance of the new notes in February 2017, certain lenders under the ABL Facility provided extended revolving facility commitments in an aggregate principal amount of $350 with a maturity date of December 5, 2021 (subject to early maturity triggers), the existing commitments were terminated and the size of the ABL Facility was reduced from $400 to $350.
Short-Term Outlook
The following factors will impact cash flows for the remainder of 2017:
Interest and Income Taxes: We expect cash outflows in 2017 related to interest payments on our debt of approximately $300, with the largest components being paid in the second and fourth quarters, and income tax payments between $15 and $25.
Capital Spending: Capital spending in 2017 is expected to be between $100 and $110, a significant decrease from 2016 due to the completion of large strategic growth projects in 2016, as well as our recent divestitures and restructuring activities at certain facilities.
Working Capital: In the first nine months of 2017, our net working capital increased by $176 due primarily to sequential volume increases, seasonality, inventory build for turnarounds and a weaker U.S. dollar. During the fourth quarter, we expect a decrease in net working capital, consistent with historical trends. We anticipate an overall increase in working capital in 2017, as compared to 2016.    
We plan to fund these outflows with available cash and cash equivalents, cash from operations, available borrowings under our ABL Facility, as well as other liquidity actions. Based on our liquidity position as of September 30, 2017 and projections of operating cash flows, we expect to have sufficient liquidity to fund our operations for the next twelve months.
Historically, our liquidity position has been cyclical due to the timing of our interest payment obligations and seasonality of our volumes. We maintain normal commercial terms with our major vendors and customers. If certain of our commercial counterparties request changes to our terms it could put additional pressure on our liquidity position in certain times of the year.
We have $1.9 billion of First Priority Senior Secured Notes and $0.6 billion of Second Priority Notes maturing in 2020. Depending upon market, pricing and other conditions, including the current state of the high yield bond market, as well as our cash balances and available liquidity, we or our affiliates, may seek to acquire notes or other indebtedness of the Company through open market purchases, privately negotiated transactions, tender offers, redemption or otherwise, upon such terms and at such prices as we or our affiliates may determine (or as may be provided for in the indentures governing the notes), for cash or other consideration. In addition, the Company may sell certain assets to raise additional funds for reducing debt.seasonality.

Sources and Uses of Cash
Following are highlights from our unaudited Condensed Consolidated Statements of Cash Flows:
Successor  Predecessor
Nine Months Ended September 30,Three Months Ended March 31, 2020  Three Months Ended March 31, 2019
2017 2016  
(Uses) sources of cash:       
Operating activities$(205) $(131)$(102)  $(154)
Investing activities(81) 223
(32)  (19)
Financing activities202
 (195)136
  156
Effect of exchange rates on cash flow5
 1
(6)  —
Net change in cash and cash equivalents$(79) $(102)$(4)  $(17)
Operating Activities
In the first ninethree months of 2017,2020, operations used $205$102 of cash. Net loss of $146$59 included $116$85 of net non-cash expense items, consisting of depreciation and amortization of $85,$58, non-cash asset impairments and accelerated depreciation of $27, amortization$16, unrealized foreign currency losses of deferred financing fees$5, non-cash stock based compensation expense of $12$5 and loss on debt extinguishment of $3, partially offset by unrealized foreign currency gains of $5, gains on sale of assets of $1 and a deferred tax benefit of $1.$2. Net working capital used $150,$105, which was largely driven by increases in accounts receivable and inventories due primarily to volume increases related to market conditions and the seasonality of our businesses, as well as raw material price inflation.businesses. Changes in other assets and liabilities and income taxes payable used $25$23 due to the timing of when items were expensed versus paid, which primarily included operating lease expense, interest expense, employee retention programs, restructuring reserves, incentive compensation, pension plan contributions and taxes.
In the first ninethree months of 2016,2019, operations used $131$154 of cash. Net incomeloss of $59$52 included $93$26 of net non-cash incomeexpense items primarily consisting of gains on dispositions of $240 related to the HAI and PAC dispositions, a gain on debt extinguishment of $47 and unrealized foreign currency gains of $40. These items were partially offset by depreciation and amortization of $101, accelerated depreciation of $127 and $3 of deferred tax expense.amortization. Net working capital used $155,$125, which was largely driven by increases in accounts receivable and inventories and decreases in accounts payable in the first nine months of 2016,receivables due primarily to the seasonality of our businesses and the timing of vendor payments.businesses. Changes in other assets and liabilities and income taxes payable provided $58used $3 due to the timing of when items were expensed versus paid, which primarily included operating lease expense, interest expense, employee retention programs, restructuring reserves, incentive compensation, pension plan contributions and taxes.
Investing Activities
In the first ninethree months of 2017,2020, investing activities used $81$32 of cash primarily driven byrelated to capital expenditures of $87 (including capitalized interest), partially offset by net proceeds from the sale of assets of $5 and an increase in restricted cash of $1.
expenditures. In the first ninethree months of 2016,2019, investing activities provided $223used $19 of cash primarily driven by net cash proceeds of $326 related to the HAI and PAC dispositions and cash received on the HAI buyer’s note. These items were partially offset by capital expenditures (including capitalized interest) of $92 and an increase in restricted cash of $11.expenditures.
Financing Activities
In the first ninethree months of 2017,2020, financing activities provided $202$136 of cash. Net short-term debt borrowings were $15 and$10, net long-term debt borrowings were $212.$156 and distribution of affiliate loan of $10. Our long-term debt borrowings primarily consisted of $124 in$164 of ABL borrowings under our ABL Facility, the refinancing of our Old Senior Secured Notes in February 2017, an additional $75 aggregate principal amount of New First Lien Notes issued in May 2017 and $23 related to the sale-leaseback financing of certain equipment at a plant within our Forest Products Resins segment that occurred in the thirdfirst quarter of 2017.2020.
In the first ninethree months of 2016,2019, financing activities used $195provided $156 of cash. Net short-term debt repayments were $13 and net long-term debt repaymentsborrowings were $182.$156. Our long-term debt repaymentsborrowings primarily consisted of $187 used to repurchase a portion$159 of our 8.875% Senior Secured Notes due 2018 onadditional ABL borrowings in the open market.

first quarter of 2019.
There are certain restrictions on the ability of certain of our subsidiaries to transfer funds to Hexion Inc. in the form of cash dividends, loans or otherwise, which primarily arise as a result of certain foreign government regulations or as a result of restrictions within certain subsidiaries’ financing agreements limiting such transfers to the amounts of available earnings and profits or otherwise limit the amount of dividends that can be distributed. In either case, we have alternative methods to obtain cash from these subsidiaries in the form of intercompany loans and/or returns of capital in such instances where payment of dividends is limited to the extent of earnings and profits.

Covenant Compliance
New Credit Facilities and Senior Notes
The instruments that govern our indebtedness contain, among other provisions, restrictive covenants (and incurrence tests in certain cases) regarding indebtedness, dividends and distributions, mergers and acquisitions, asset sales, affiliate transactions, capital expenditures and, in the case of our ABL Facility, the maintenance of a financial ratio (depending on certain conditions). Payment of borrowings under the ABL Facility and our notes may be accelerated if there is an event of default as determined under the governing debt instrument. Events of default under the credit agreement governing our ABL Facility includes the failure to pay principal and interest when due, a material breach of representations or warranties, most covenant defaults, events of bankruptcy, and a change of control.control, and most covenant defaults. Events of default under the indentures governing our notes include the failure to pay principal and interest, a failure to comply with covenants, subject to a 30-day grace period in certain instances, and certain events of bankruptcy.
The indenturesindenture that governgoverns our 6.625% First-Priority7.875% Senior Secured Notes 10.00% First Lien Notes, New First Lien Notes, New Senior Secured Notes and 9.00% Second-Priority Senior Secured Notesdue 2027 (the “Secured Indentures”“Indenture”) contain an Adjustedcontains a Pro Forma EBITDA to Fixed Charges ratio incurrence test which may restrict our ability to take certain actions such as incurring additional debt or making acquisitions if we are unable to meet this ratio (measured on a last twelve months, or LTM, basis) of at least 2.0:1. The AdjustedPro Forma EBITDA to Fixed Charges Ratio under the Secured IndenturesIndenture is generally defined as the ratio of (a) AdjustedPro Forma EBITDA to (b) net interest expense excluding the amortization or write-off of deferred financing costs, each measured on an LTM basis. See below for our Pro Forma EBITDA to Fixed Charges Ratio calculation.
TheOur ABL Facility, which is subject to a borrowing base, does not have any financial maintenance covenant other than a minimum fixed charge coverage ratio of 1.0 to 1.0 that would only apply if our availability under the ABL Facility at any time is less than the greater of (a) $35$30 and (b) 12.5%10.0% of the lesser of the borrowing base and the total ABL Facility commitments at such time. The fixed charge coverage ratio under the credit agreement governing the ABL Facility is generally defined as the ratio of (a) AdjustedPro Forma EBITDA minus non-financed capital expenditures and cash taxes to (b) debt service plus cash interest expense plus certain restricted payments, each measured on an LTM basis. At September 30, 2017, our availability underfor the ABL Facility exceeded such levels; therefore, the minimum fixed charge covenant ratio did not apply. Asfour most recent quarters for which financial statements have been delivered.

Reconciliation of September 30, 2017, we were in compliance with all covenants that govern the ABL Facility. We do not believe that a covenant default under the ABL Facility is reasonably likelyLast Twelve Months Net Income to occur in the foreseeable future.Pro Forma EBITDA
AdjustedPro Forma EBITDA is defined as EBITDA adjusted for certain non-cash and certain non-recurring items and other adjustments calculated on a pro-forma basis, including the expected future cost savings from business optimization programs or other programs and the expected future impact of acquisitions, in each case as determined under the governing debt instrument. As we are highly leveraged, weWe believe that including the supplemental adjustments that are made to calculate AdjustedPro Forma EBITDA provides additional information to investors about our ability to comply with our financial covenants and to obtain additional debt in the future. AdjustedPro Forma EBITDA and Fixed Charges are not defined terms under U.S. GAAP. AdjustedPro Forma EBITDA is not a measure of financial condition, liquidity or profitability, and should not be considered as an alternative to net income (loss) determined in accordance with U.S. GAAP or operating cash flows determined in accordance with U.S. GAAP. Additionally, EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not take into account certain items such as interest and principal payments on our indebtedness, depreciation and amortization expense (because we use capital assets, depreciation and amortization expense is a necessary element of our costs and ability to generate revenue), working capital needs, tax payments (because the payment of taxes is part of our operations, it is a necessary element of our costs and ability to operate), non-recurring expenses and capital expenditures. Fixed Charges under the Secured IndenturesIndenture should not be considered an alternative to interest expense.

Reconciliation of Net Loss to Adjusted EBITDA
The following table reconciles net lossincome to EBITDA and AdjustedPro Forma EBITDA for the twelve month period that includes combined information from the Predecessor Company from April 1, 2019 through July 1, 2019 and the Successor Company from July 2, 2019 through March 31, 2020, and calculates the ratio of AdjustedPro Forma EBITDA to Fixed Charges as calculated under our Secured IndenturesIndenture for the period presented:

September 30, 2017
 LTM Period
Net loss$(244)
Income tax expense13
Interest expense, net323
Depreciation and amortization115
Accelerated depreciation16
EBITDA223
Adjustments to EBITDA: 
Asset impairments13
Business realignment costs (1)
41
Realized and unrealized foreign currency gains(15)
Loss on extinguishment of debt1
Unrealized loss on pension and postretirement benefits (2)
34
Other (3)
73
Cost reduction programs savings (4)
54
Adjusted EBITDA$424
Pro forma fixed charges (5)
$313
Ratio of Adjusted EBITDA to Fixed Charges (6)
1.35

March 31, 2020
 LTM Period
Net income$2,797
Income tax expense209
Interest expense, net89
Depreciation and amortization195
EBITDA3,290
Adjustments to arrive at Pro Forma EBITDA: 
Asset impairments16
Business realignment costs (1)
56
Realized and unrealized foreign currency losses5
Unrealized losses on pension and postretirement benefits (2)
5
Transaction costs (3)
16
Reorganization items, net (4)
(3,105)
Non-cash impact of inventory step-up (5)
29
Other non-cash items (6)
29
Acceleration of deferred revenue (7)
18
Other (8)
30
Cost reduction programs savings (9)
15
Pro Forma EBITDA$404
Pro forma fixed charges (10)
$106
Ratio of Pro Forma EBITDA to Fixed Charges (11)
3.81
(1)
Primarily represents headcount reduction expenses and plant rationalization costs related to certain in-process cost reduction programs, terminationactivities, including severance costs of $25, $14 related to certain in-process facility rationalizations, an $10 increase in legacy environmental reserves for future clean-up of closed facilities and otherone-time implementation costs associated with the creation of a business realignments, as well as environmental liabilities related to closed sites.services group within the Company of $4.
(2)
Represents non-cash losses resulting from pension and postretirement benefit plan liability remeasurements.
(3)
Primarily includes employee retention program costs,Represents certain professional fees related to strategic projects, including $8 of certain professional fees and legacy sites, business optimizationother expenses and management fees.related to our Chapter 11 proceedings incurred post-emergence.
(4)
Represents incremental costs incurred directly as a result of our Chapter 11 proceedings after the date of filing, gains on the settlement of liabilities under the Plan and the net impact of fresh start accounting adjustments.
(5)
Represents $29 of non-cash expense related to the step up of finished goods inventory on July 1, 2019 as part of fresh start accounting that was expensed in the successor period upon the sale of the inventory.
(6)
Primarily include expenses for stock-based compensation costs of $13, non-cash fixed asset write-offs of $10 and long-term retention programs of $4.
(7)
Represents the impact of deferred revenue that was accelerated on July 1 as part of fresh start accounting.
(8)
Represents business optimization expenses of $6, IT outage costs of $4 and expenses related to legacy liabilities.
(9)
Represents pro forma impact of in-process cost reduction programs savings. Cost reduction program savings represent the unrealized headcount reduction savings and plant rationalization savings related to cost reduction programs and other unrealized savings associated with the Company’s business realignments activities, and represent our estimate of the unrealized savings from such initiatives that would have been realized had the related actions been completed at the beginning of the LTM period.period presented. The savings are calculated based on actual costs of exiting headcount and elimination or reduction of site costs. We expect the savings to be realized within the next 18 months.
(5)(10)
Reflects pro forma interest expense based on interest rates at September 30, 2017, as if the 2017 Refinancing Transactions had taken place at the beginning of the period.
March 31, 2020.
(6)(11)
The Company’s ability to incur additional indebtedness, among other actions, is restricted under the Secured Indentures, unless the Company has an Adjusteda Pro Forma EBITDA to Fixed Charges ratio of at least 2.0 to 1.0.  As of September 30, 2017, we did not satisfy this test. As a result, we are subject to restrictions on our ability to incur additional indebtedness and to make investments; however, there are exceptions to these restrictions, including exceptions that permit indebtedness under our ABL Facility (available borrowings of which were $188 at September 30, 2017).


Recently Issued Accounting Standards
See Note 2 in Item 1 of Part I of this Quarterly Report on Form 10-Q for a detailed description of recently issued accounting pronouncements.
Item 3.Quantitative and Qualitative Disclosures about Market Risk
Item 3.        Quantitative and Qualitative Disclosures about Market Risk
There have been no material developments during the first ninethree months of 20172020 on the matters we have previously disclosed about quantitative and qualitative market risk in our Annual Report on Form 10-K for the year ended December 31, 2016.2019.
Item 4.        Controls and Procedures
Evaluation of Disclosure Controls and Procedures    
Our management, including the President andActing Chief Executive Officer and the Executive Vice President, and Chief Financial Officer, performed an evaluation of the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of September 30, 2017.March 31, 2020. Based upon that evaluation, the President andActing Chief Executive Officer and the Executive Vice President, and Chief Financial Officer concluded that our disclosure controls and procedures were effective at September 30, 2017.

March 31, 2020.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PartPART II - OTHER INFORMATION
Item 1.Legal Proceedings
Item 1.        Legal Proceedings
The Louisville Air Pollution Control District (the “District”) has assessedThere have been no other material developments during the Company penalties totaling $296,000 associated with alleged violationsfirst quarter of 2020 in any of the District’s air pollution laws andongoing legal proceedings that are included in our Annual Report on Form 10-K for the Company’s air permit in 2016 and 2017.  The Company is actively cooperating with the District to resolve this matter.   year ended December 31, 2019.
Item 1A.    Risk Factors
ThereOur operations and results may be negatively impacted by the COVID-19 outbreak.
Global or national health concerns, including the outbreak of pandemic or contagious disease, such as the recent COVID-19 pandemic, may adversely affect us.
Since December 2019, the COVID-19 virus which was first reported in Wuhan, China, has spread further in China and other regions including Europe and the United States, where we have been no material changesoperations. In March 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. Around the world, local governments’ responses to COVID-19 continue to evolve, which has led to stay-at-home orders and social distancing guidelines that have disrupted various industries in the global economy and created significant volatility in the financial markets.
While the Company did not incur significant adverse financial impacts or business disruptions during the first ninethree months ended March 31, 2020 from COVID-19, future COVID developments could adversely result in business and manufacturing disruption, inventory shortages, delivery delays, our ability to obtain financing on favorable terms, and reduced sales due to an economic downturn that could affect demand for our products. The extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of 2017 inCOVID-19 and the risk factors that were included in our Annual Report on Form 10-K for the year ended December 31, 2016.actions to contain COVID-19 or treat its impact, among others.
Item 2.        Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3.Defaults upon Senior Securities
Item 3.        Defaults upon Senior Securities
None.
Item 4.Mine Safety Disclosures
Item 4.        Mine Safety Disclosures
This item is not applicable to the registrant.
Item 5.
Item 5.        Other Information

In November 2017, the Company initiated new restructuring actions with the intent to optimize its cost structure. The Company expects these restructuring actions to generate approximately $40 of incremental cost savings over the next 12 to 18 months. As of the filing date of this Quarterly Reportcurrent report on Form 10-Q, Craig Rogerson, the total one-time cash costs expected to be incurred for these restructuring activities are estimated between $30Company’s Chairman and $40, consisting primarilyChief Executive Officer (“CEO”), remains on a medical leave of workforce reduction costs.absence. As resolved by the Hexion Holdings Board of Directors on March 29, 2020, George Knight, the Company’s Executive Vice President and Chief Financial Officer, has been named acting CEO and has assumed all of Mr. Rogerson’s authority and responsibilities until he returns from his leave of absence.


Item 6.    Exhibits
10.1†
Hexion Holdings Corporation 2020 Incentive Compensation Plan
10.2†
Hexion Holdings Corporation 2019 Omnibus Incentive Plan Performance Stock Unit Award Agreement
10.3†
Hexion Holdings Corporation 2019 Omnibus Incentive Plan Restricted Stock Unit Award Agreement
31.1Rule 13a-14 Certifications:
  
 
(a) Certificate of the Acting Chief Executive Officer
(b) Certificate of the and Executive Vice President, Chief Financial Officer
  
32.1
Section 1350 Certifications
  
101.INS*XBRL Instance Document
  
101.SCH*XBRL Schema Document
  
101.CAL*XBRL Calculation Linkbase Document
  
101.DEF*XBRL Definition Linkbase Document
  
101.LAB*XBRL Label Linkbase Document
  
101.PRE*XBRL Presentation Linkbase Document

*
*Attached as Exhibit 101 to this report are documents formatted in XBRL (Extensible Business Reporting Language). The financial information in the XBRL-related documents is “unaudited” or “unreviewed.”

† Represents a management contract or “unreviewed.”

compensatory plan or arrangement


SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
   HEXION INC.
    
Date:NovemberMay 14, 20172020 /s/ George F. Knight
   George F. Knight
   Acting Chief Executive Officer and Executive Vice President, and Chief Financial Officer
   (Principal Financial Officer)

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