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, 2019, the Company had three reportable segments: Forest Products Resins; Epoxy, Phenolic and Coating Resins; and Corporate and Other. A summary of the major products of the Company’s reportable segments follows:


•	Forest Products Resins: forest products resins and formaldehyde applications


•	Epoxy, Phenolic and Coating Resins: epoxy specialty resins, phenolic encapsulated substrates, versatic acids and derivatives, basic epoxy resins and intermediates and phenolic specialty resins and molding compounds


•	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.

Reportable Segments

Following are net sales and Segment EBITDA 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 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 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:



	Successor						Predecessor
	July 2, 2019 through September 30, 2019						July 1, 2019						Three Months Ended September 30, 2018
	Forest Products Resins		Epoxy, Phenolic and Coating Resins		Total		Forest Products Resins		Epoxy, Phenolic and Coating Resins		Total		Forest Products Resins		Epoxy, Phenolic and Coating Resins		Total
North America	$	248	$	206	$	454	$	—	$	—	$	—	$	294	$	225	$	519
Europe	42		184		226		—		—		—		49		215		264
Asia Pacific	30		79		109		—		—		—		35		80		115
Latin America	47		—		47		—		—		—		53		1		54
Total	$	367	$	469	$	836	$	—	$	—	$	—	$	431	$	521	$	952

	Successor						Predecessor
	July 2, 2019 through September 30, 2019						January 1, 2019 through July 1, 2019						Nine Months Ended September 30, 2018
	Forest Products Resins		Epoxy, Phenolic and Coating Resins		Total		Forest Products Resins		Epoxy, Phenolic and Coating Resins		Total		Forest Products Resins		Epoxy, Phenolic and Coating Resins		Total
North America	$	248	$	206	$	454	$	519	$	425	$	944	$	856	$	695	$	1,551
Europe	42		184		226		90		431		521		155		709		864
Asia Pacific	30		79		109		63		147		210		101		218		319
Latin America	47		—		47		103		—		103		156		3		159
Total	$	367	$	469	$	836	$	775	$	1,003	$	1,778	$	1,268	$	1,625	$	2,893


( 1)	Intersegment sales are not significant and, as such, are eliminated within the selling segment.

Reconciliation of Net (Loss) Income to Segment EBITDA:



	Successor			Predecessor						Successor			Predecessor
	July 2, 2019 through September 30, 2019			July 1, 2019			Three Months Ended September 30, 2018			July 2, 2019 through September 30, 2019			January 1, 2019 through July 1, 2019			Nine Months Ended September 30, 2018
Reconciliation:
Net (loss) income attributable to Hexion Inc.	$	(43	)	$	3,054		$	(18	)	$	(43	)	$	2,894		$	(53	)
Net income attributable to noncontrolling interest	—			—			—			—			(1		)	(1		)
Net (loss) income	(43		)	3,054			(18		)	(43		)	2,895			(52		)
Income tax (benefit) expense	(4		)	207			6			(4		)	222			17
Interest expense, net	28			—			83			28			89			250
Depreciation and amortization	55			—			27			55			52			85
Accelerated depreciation	—			—			2			—			—			2
EBITDA	$	36		$	3,261		$	100		$	36		$	3,258		$	302
Adjustments to arrive at Segment EBITDA:
Asset impairments and write-downs	$	—		$	—		$	7		$	—		$	—		$	32
Business realignment costs	13			—			5			13			15			19
Gain on disposition	—			—			—			—			—			(44		)
Transaction costs	5			—			4			5			26			10
Realized and unrealized foreign currency losses (gains)	9			—			4			9			(6		)	26
Reorganization items, net ⁽¹⁾	—			(3,232		)	—			—			(3,076		)	—
Non-cash impact of inventory step-up ⁽²⁾	29			(29		)	—			29			(29		)	—
Other ⁽³⁾	7			18			8			7			45			29
Total adjustments	63			(3,243		)	28			63			(3,025		)	72
Segment EBITDA	$	99		$	18		$	128		$	99		$	233		$	374

Segment EBITDA:
Forest Products Resins	$	66		$	18		$	76		$	66		$	152		$	219
Epoxy, Phenolic and Coating Resins	50			—			66			50			111			208
Corporate and Other	(17		)	—			(14		)	(17		)	(30		)	(53		)
Total	$	99		$	18		$	128		$	99		$	233		$	374

(1) Excludes the “Non-cash impact of inventory step-up” discussed below.

(2) Represent $29 of non-cash expense related to the step up of finished goods inventory on July 1 as part of fresh start accounting that was expensed in the successor period upon the sale of the inventory (see Note 4).

(3) Includes $18 of Segment EBITDA impact related to deferred revenue that was accelerated on July 1 as part of Fresh Start accounting.

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.

Reorganization items, net for the Predecessor period from January 1, 2019 through July 1, 2019 represent incremental costs incurred directly as a result of the Company’s 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. See Note 5 for more information.

For the Successor period from July 2, 2019 through September 30, 2019, transaction costs primarily included $4 of certain professional fees and other expenses related to the Company’s Chapter 11 proceedings incurred post-emergence. For the Predecessor period from January 1, 2019 through July 1, 2019, transaction costs primarily included $23 of certain professional fees and other expenses related to the Company’s Chapter 11 proceedings incurred prior to the date of filing. For the three and nine months ended September 30, 2018, transaction costs included certain professional fees related to strategic projects.

For the Successor period July 2, 2019 through September 30, 2019, Predecessor period from January 1, 2019 through July 1, 2019 and for the three and nine months ended September 30, 2018, business realignment costs primarily included costs related to certain in-process facility rationalizations and cost reduction programs.

For the Successor period from July 2, 2019 through September 30, 2019, items classified as “Other” includes expenses from retention programs and expenses related to legacy liabilities. For the Predecessor period from January 1, 2019 through July 1, 2019 and for the three and nine months ended September 30, 2018, items classified as “Other” primarily included expenses from retention programs, management fees and expenses related to legacy liabilities.