Segment Information

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: (i) Adhesives and (ii) Coatings and Composites. At March 31, 2020, the Company has three reportable segments, 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.


•	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.

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 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 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
	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
Europe	102		154		256		114		152		266
Asia Pacific	33		50		83		42		54		96
Latin America	38		—		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:



	Predecessor
	Three Months Ended March 31, 2019
	Forest Products Resins		Epoxy, Phenolic and Coating Resins		Total
North America	$	260	$	209	$	469
Europe	47		219		266
Asia Pacific	33		63		96
Latin America	55		—		55
Total	$	395	$	491	$	886

Reconciliation of Net Loss to Segment EBITDA:



	Successor			Predecessor
	Three Months Ended March 31, 2020			Three Months Ended March 31, 2019
Reconciliation:
Net loss	$	(59	)	$	(52	)
Income tax expense	3			7
Interest expense, net	26			80
Depreciation and amortization ⁽¹⁾	58			26
EBITDA	28			61
Adjustments to arrive at Segment EBITDA:
Asset impairments	$	16		$	—
Business realignment costs	21			4
Transaction costs	3			23
Realized and unrealized foreign currency losses	6			1
Other non-cash items ⁽²⁾	12			2
Other	3			12
Total adjustments	61			42
Segment EBITDA	$	89		$	103

Segment EBITDA ⁽³⁾:
Adhesives	$	71		$	76
Coatings and Composites	39			44
Corporate and Other	(21		)	(17		)
Total	$	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 Resins	52
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 months ended March 31, 2020, business realignment costs primarily included severance costs of $8 related to certain 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 primarily included costs related to certain in-process facility rationalizations and cost reduction activities.

For the Successor three months ended March 31, 2020, transaction costs included certain professional fees related to strategic projects. For the Predecessor three months ended March 31, 2019, transaction costs primarily included $21 of certain professional fees and other expenses related to the Company’s 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.