XML 22 R11.htm IDEA: XBRL DOCUMENT v3.20.2
Discontinued Operations and Disposal Groups
 9 Months Ended
Sep. 30, 2020
Discontinued Operations and Disposal Groups [Abstract]  
Disposal Groups, Including Discontinued Operations, Disclosure Discontinued Operations
On September 27, 2020, the Company entered into a Purchase Agreement for the sale of PSR, Hexamine and European-based Forest Products Resins businesses (together with PSR, the “Held for Sale Business” or the “Business”) to Black Diamond Capital Management, LLC and Investindustrial (the “Buyers”) for a purchase price of approximately $425. The consideration consists of $335 in cash and certain assumed liabilities with the remainder in future contingent proceeds based on the performance of the Held for Sale Business. The final purchase price is subject to customary post-closing adjustments. The Held for Sale Business was formerly included in the Company’s Adhesives reportable segment.

Assets included in the transaction are the Company’s manufacturing sites in Barry, United Kingdom; Cowie, United Kingdom; Lantaron, Spain; Botlek, Netherlands; Iserlohn, Germany; Frielendorf, Germany; Solbiate, Italy; Kitee, Finland; Louisville, Kentucky; Acme, North Carolina; and the Company's 50% ownership interest in Hexion Schekinoazot Holding B.V. (the “Russia JV”), a joint venture that manufactures forest products resins in Russia.

The Held for Sale Business produces phenolic specialty resins and engineered thermoset molding compounds used in applications that require extreme heat resistance and strength, such as after-market automotive and original equipment manufacturing (“OEM”) truck brake pads, filtration, aircraft components and foundry resins. The Business is also a significant producer of formaldehyde-based resins in Europe and merchant formaldehyde and formaldehyde derivatives in the Louisville and Acme plants, respectively. Formaldehyde-based resins, also known as forest products resins, are a key adhesive and binding ingredient used in the production of a wide variety of engineered lumber products, including medium density fiberboard (“MDF”), particleboard and oriented strand board (“OSB”). These products are used in a wide range of applications in the construction, remodeling and furniture industries. Merchant formaldehyde and formaldehyde derivatives are intermediate ingredients that are used in a variety of durable and industrial products. The Business generated annual sales of approximately $600 in 2019, and was reported within the Adhesives reportable segment. The sale is subject to customary closing conditions, including European Works Council consultation, and is expected to close in the first quarter of 2021.

Until the closing date, the Company has agreed to operate the Held for Sale Business in the ordinary course. The Company has agreed to provide certain transitional services to the Buyers for a limited period of time following the closing.

As of September 30, 2020, the Company reclassified the assets and liabilities of the Held for Sale Business as held for sale on the unaudited Condensed Consolidated Balance Sheets and reported the results of the operations for the three and nine months ended September 30, 2020 as “Income (loss) from discontinued operations, net of tax” on the unaudited Condensed Consolidated Statements of Operations. Amounts for prior periods have similarly been retrospectively reclassified for all periods presented.
The Held for Sale Business had $14 of goodwill at both September 30, 2020 and December 31, 2019 and $61 and $63 of other intangible assets at September 30, 2020 and December 31, 2019, respectively. Goodwill was allocated based on the relative fair value of the European-based Forest Products Resins businesses, included in the Held for Sale Business, which is part of the Company’s Forest Product Resins reporting unit. Other intangible assets were specifically identified based on customer relationships within the Company’s Forest Products Resins reporting unit that are associated with the Held for Sale Business.
As a result of entering into the Purchase Agreement, the Company recognized a pre-tax charge of $75 within discontinued operations, representing the difference between the fair value of the Held for Sale Business, less costs to sell, and the carrying value of net assets held for sale as of September 30, 2020. Fair value represents the expected net cash proceeds, excluding any future contingent proceeds, from the sale of the Held for Sale Business. The Company has made an accounting policy election to account for the initial and subsequent measurement of the future contingent proceeds, of up to $90, as a gain contingency. Under this model, any future contingent consideration is not recognized until all future conditions are met and the Company has earned the proceeds. The contingent proceeds are based on performance targets of the Held for Sale Business over each of the next three years, as specified in the Purchase Agreement. Thus, for purposes of this impairment analysis the fair value of the future contingent proceeds was not considered in determination of the disposal group impairment. Further, the Company concluded that the impairment of the Held for Sale Business assets did not represent an impairment triggering event for the Company’s continuing operations.
The following table reconciles the carrying amounts of major classes of assets and liabilities of discontinued operations to total assets and liabilities of discontinued operations that are classified as held for sale in the Company’s unaudited Condensed Consolidated Balance Sheets:
September 30, 2020December 31, 2019
Carrying amounts of major classes of assets held for sale:
Accounts receivable$59 $49 
Finished and in-process goods1721
Raw materials and supplies1718
Other current assets1011
Total current assets10399
Investment in unconsolidated entities5 3 
Other long-term assets7 11 
Property, plant and equipment, net293 297 
Operating lease assets13 12 
Goodwill14 14 
Other intangible assets, net61 63 
Discontinued operations impairment(75)— 
Total long-term assets318400
Total assets held for sale$421 $499 
Carrying amounts of major classes of liabilities held for sale:
Accounts payable$48 $52 
Income taxes payable2 — 
Accrued payroll5 5 
Current portion of operating lease liabilities2 2 
Other current liabilities10 10 
Total current liabilities67 69 
Long-term pension and post employment benefit obligations30 29 
Deferred income taxes16 15 
Operating lease liabilities5 4 
Other long-term liabilities8 8 
Total long-term liabilities59 56 
Total liabilities held for sale$126 $125 
The following table shows the financial results of discontinued operations for the periods presented:

SuccessorPredecessorSuccessorPredecessor
Three Months Ended September 30, 2020July 2, 2019 through September 30, 2019July 1, 2019Nine Months Ended September 30, 2020July 2, 2019 through September 30, 2019January 1, 2019 through July 1, 2019
Major line items constituting pretax income of discontinued operations:
Net sales$120 $149 $— $360 $149 $309 
Cost of sales (exclusive of depreciation and amortization)
100 130 — 301130 263 
Selling, general and administrative expense11 8 — 338 17 
Depreciation and amortization8 7 — 26 7 9 
Asset impairments75 — — 75 — — 
Business realignment costs— 1 — 1 1 1 
Other operating expense (income), net— 1 — — 1 (1)
Operating (loss) income(74)2 — (76)2 20 
Reorganization items, net— — (135)— — (135)
Other non-operating expense, net1 — — 1 — — 
(Loss) income from discontinued operations before income tax, earnings from unconsolidated entities(75)2 135 (77)2 155 
Income tax expense2 1 16 3 1 21 
(Loss) income from discontinued operations, net of tax$(77)$1 $119 $(80)$1 $134 
Earnings from unconsolidated entities, net of tax1 — — 1 — 1 
Net (loss) income attributable to discontinued operations$(76)$1 $119 $(79)$1 $135 

Equity Method Investments

The Company's 50% ownership interest in the Russia JV, accounted for using the equity method of accounting, is included in the Held for Sale Business. Summarized financial data for the Russia JV are shown in the following tables:

September 30, 2020December 31, 2019
Current assets$7 $9 
Non-current assets1 1 
Current liabilities2 11 
Non-current liabilities7 12 
SuccessorPredecessorSuccessorPredecessor
Three Months Ended September 30, 2020July 2, 2019 through September 30, 2019July 1, 2019Nine Months Ended September 30, 2020July 2, 2019 through September 30, 2019January 1, 2019 through July 1, 2019
Net sales$8 $10 $— $25 $10 $18 
Gross profit
3 2 — 9 2 4 
Pre-tax income1 — — 3 — 2 
Net income— — — 2 — 2