Segment and Geographic Information

The Company’s business segments are based on the products that the Company offers and the markets that it serves. At December 31, 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 and items associated with the Company’s reportable segments are as 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, 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, foreign exchange gains and losses and legacy company costs.

Subsequent event

Realignment of Reportable 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: adhesives; and coatings and composites which consist of the following businesses:


•	Adhesives: 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 New Zealand; global formaldehyde; and the global phenolic specialty resins business, which now also includes the oilfield technologies group.


•	Coatings and Composites: these businesses focus on the global coatings and composites market. They include the Company’s base and specialty epoxy resins and Versatic™ Acids and Derivatives businesses.

The Company modified its internal reporting processes and systems to accommodate the new structure and the change to segment reporting is effective starting in the first quarter of 2020. Corporate and Other will continue to be a reportable segment.

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 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.

Net Sales⁽¹⁾:



	Successor		Predecessor
	July 2, 2019 through December 31, 2019		January 1, 2019 through July 1, 2019		Year Ended December 31,
	July 2, 2019 through December 31, 2019		January 1, 2019 through July 1, 2019		2018		2017
Forest Products Resins	$	710	$	775	$	1,682	$	1,539
Epoxy, Phenolic and Coating Resins	886		1,003		2,115		2,052
Total	$	1,596	$	1,778	$	3,797	$	3,591


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

Segment EBITDA:



	Successor			Predecessor
	July 2, 2019 through December 31, 2019			January 1, 2019 through July 1, 2019			Year Ended December 31,
	July 2, 2019 through December 31, 2019			January 1, 2019 through July 1, 2019			2018			2017
Forest Products Resins⁽¹⁾	$	129		$	152		$	285		$	257
Epoxy, Phenolic and Coating Resins⁽²⁾	75			111			226			174
Corporate and Other	(37		)	(30		)	(71		)	(66		)
Total	$	167		$	233		$	440		$	365


(1)	Included in the Forest Products Resins Segment EBITDA are “Earnings from unconsolidated entities, net of taxes” of $1 for all the periods July 2, 2019 through December 31, 2019, January 1, 2019 through July 1, 2019 and the years ended December 31, 2018 and 2017, respectively.


(2)	Included in the Epoxy, Phenolic and Coating Resins Segment EBITDA are “Earnings from unconsolidated entities, net of taxes” of $1, $1, $2 and $3 for the period July 2, 2019 through December 31, 2019, January 1, 2019 through July 1, 2019 and the years ended December 31, 2018 and 2017, respectively.

Depreciation and Amortization Expense:



	Successor		Predecessor
	July 2, 2019 through December 31, 2019		January 1, 2019 through July 1, 2019		Year Ended December 31,
	July 2, 2019 through December 31, 2019		January 1, 2019 through July 1, 2019		2018		2017
Forest Products Resins ⁽¹⁾	$	51	$	20	$	44	$	40
Epoxy, Phenolic and Coating Resins ⁽²⁾	57		30		69		85
Corporate and Other	2		2		4		4
Total	$	110	$	52	$	117	$	129


(1)	Includes accelerated depreciation of $4 for the year ended December 31, 2018.


(2)	Includes accelerated depreciation of $14 for the year ended December 31, 2017.

Total Assets:



	Successor		Predecessor
	December 31, 2019		December 31, 2018
Forest Products Resins	$	1,986	$	779
Epoxy, Phenolic and Coating Resins	1,733		1,031
Corporate and Other	427		151
Total	$	4,146	$	1,961

Capital Expenditures⁽¹⁾:



	Successor		Predecessor
	July 2, 2019 through December 31, 2019		January 1, 2019 through July 1, 2019		Year Ended December 31,
	July 2, 2019 through December 31, 2019		January 1, 2019 through July 1, 2019		2018		2017
Forest Products Resins	$	20	$	12	$	31	$	40
Epoxy, Phenolic and Coating Resins	34		30		56		73
Corporate and Other	4		1		3		5
Total	$	58	$	43	$	90	$	118


(1)	Includes capitalized interest costs that are incurred during the construction of property and equipment.

Reconciliation of Net Loss to Segment EBITDA:



	Successor			Predecessor
	July 2, 2019 through December 31, 2019			January 1, 2019 through July 1, 2019			Year Ended December 31,
	July 2, 2019 through December 31, 2019			January 1, 2019 through July 1, 2019			2018			2017
Reconciliation:
Net (loss) income attributable to Hexion Inc.	$	(89	)	$	2,894		$	(162	)	$	(234	)
Net (income) loss attributable to noncontrolling interest	(1		)	(1		)	1			—
Net (loss) income	(88		)	2,895			(163		)	(234		)
Income tax (benefit) expense	(9		)	222			40			18
Interest expense, net	55			89			365			329
Depreciation and amortization ⁽¹⁾	110			52			117			129
EBITDA	68			3,258			359			242
Adjustments to arrive at Segment EBITDA:
Asset impairments and write-downs	$	—		$	—		$	32		$	13
Business realignment costs	24			15			29			52
Realized and unrealized foreign currency losses (gains)	5			(6		)	27			3
Gain on dispositions	—			—			(44		)	—
Loss on extinguishment of debt	—			—			—			3
Unrealized losses (gains) on pension and OPEB plan liabilities	5			—			(13		)	(4		)
Transaction costs	11			26			13			8
Reorganization items, net ⁽²⁾	—			(3,076		)	—			—
Non-cash impact of inventory step-up ⁽³⁾	29			(29		)	—			—
Other non-cash items ⁽⁴⁾	10			9			14			16
Other ⁽⁵⁾	15			36			23			32
Total adjustments	99			(3,025		)	81			123
Segment EBITDA	$	167		$	233		$	440		$	365

Segment EBITDA:
Forest Products Resins	$	129		$	152		$	285		$	257
Epoxy, Phenolic and Coating Resins	75			111			226			174
Corporate and Other	(37		)	(30		)	(71		)	(66		)
Total	$	167		$	233		$	440		$	365


(1)	For the years ended December 31, 2018 and 2017 accelerated depreciation of $4 and $14, respectively, has been included in “Depreciation and amortization.”


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


(3)	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 (see Note 4).


(4)	Primarily include expenses for retention programs, fixed asset disposals and share-based compensation costs.


(5)	Includes $18 of Segment EBITDA impact related to deferred revenue that was accelerated on July 1, 2019 as part of Fresh Start accounting.

Adjustments to Arrive at Segment EBITDA

Not included in Segment EBITDA are certain non-cash items and other 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 December 31, 2019, transaction costs primarily included $6 of certain professional fees and other expenses related to the Company’s Chapter 11 proceedings incurred post-emergence,as well as certain professional fees related to strategic projects. 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 years ended December 31, 2018 and 2017, transaction costs included certain professional fees related to strategic projects.

For the period July 2, 2019 through December 31, 2019, January 1, 2019 through July 1, 2019 and the year ended December 31, 2018, business realignment costs primarily included costs related to certain in-process facility rationalizations and cost reduction programs. Business realignment costs for 2017 primarily included costs related to the rationalization at our Norco, LA manufacturing facility and costs related to certain in-process cost reduction programs.

For the Successor period from July 2, 2019 through December 31, 2019, items classified as “Other” primarily included IT outage costs and expenses related to legacy liabilities. For the Predecessor period from January 1, 2019 through July 1, 2019 and for the years ended December 31, 2018 and 2017, items classified as “Other” primarily included management fees and expenses related to legacy liabilities.

Geographic Information

Net Sales⁽¹⁾:



	Successor		Predecessor
	July 2, 2019 through December 31, 2019		January 1, 2019 through July 1, 2019		Year Ended December 31,
	July 2, 2019 through December 31, 2019		January 1, 2019 through July 1, 2019		2018		2017
United States	$	703	$	789	$	1,662	$	1,513
Netherlands	231		298		628		595
Canada	155		155		365		344
China	121		121		230		270
Germany	87		91		201		198
Brazil	83		91		194		176
Other international	216		233		517		495
Total	$	1,596	$	1,778	$	3,797	$	3,591


(1)	Sales are attributed to the country in which the individual business locations reside.

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⁽¹⁾:



			Successor				Predecessor
	July 2, 2019 through December 31, 2019						January 1, 2019 through July 1, 2019
	Forest Products Resins		Epoxy, Phenolic and Coating Resins		Total		Forest Products Resins		Epoxy, Phenolic and Coating Resins		Total
North America	$	477	$	381	$	858	$	519	$	425	$	944
Europe	82		352		434		90		431		521
Asia Pacific	56		153		209		63		147		210
Latin America	95		—		95		103		—		103
Total	$	710	$	886	$	1,596	$	775	$	1,003	$	1,778

			Predecessor
	Year Ended December 31, 2018						Year Ended December 31, 2017
	Forest Products Resins		Epoxy, Phenolic and Coating Resins		Total		Forest Products Resins		Epoxy, Phenolic and Coating Resins		Total
North America	$	1,125	$	902	$	2,027	$	1,020	$	837	$	1,857
Europe	203		920		1,123		194		882		1,076
Asia Pacific	135		290		425		130		325		455
Latin America	219		3		222		195		8		203
Total	$	1,682	$	2,115	$	3,797	$	1,539	$	2,052	$	3,591


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

Long-Lived Assets:



	Successor		Predecessor
	December 31, 2019		December 31, 2018
United States	$	1,785	$	435
Germany	164		124
Netherlands	543		120
Brazil	105		62
Canada	116		61
Other international	231		175
Total	$	2,944	$	977