Significant Accounting Policies

9 Months Ended

Sep. 30, 2021

Significant Accounting Policies [Text Block]

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.

Revenue Recognition—The Company follows the 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. Revenue, 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 certain 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 the product. In these cases, timing of revenue recognition will differ from the timing of invoicing to customers and

will result in the Company recording a contract asset. A contract asset balance of $11 and $5 is recorded within “Other current assets” at September 30, 2021 and December 31, 2020 in the unaudited Condensed Consolidated Balance Sheet. Refer to Note 12 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 $2 and $4 at September 30, 2021 and December 31, 2020, 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 unaudited Condensed Consolidated Balance Sheets as a component of “Cash and cash equivalents.”

Allowance for Doubtful Accounts— 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 determine 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.

The Company’s current expectations and assumptions regarding its business, the economy and other future events and conditions are based on currently available financial, economic and competitive data and current business plans as of September 30, 2021. Actual results could vary materially depending on risks and uncertainties that may affect the Company’s operations, markets, services, prices and other factors.

The Company recorded an allowance for doubtful accounts of $3 at both September 30, 2021 and December 31, 2020 to reduce accounts receivable for estimated expected credit losses. Accounts receivable balances are written-off against the allowance if a final determination of uncollectibility is made. There were $1 of write-offs for the three and nine months ended September 30, 2021 and no write-offs for the three and nine months ended September 30, 2020.

Financial Statement Presentation — In the fourth quarter 2020, we identified certain errors within our condensed consolidated financial statements for the three and nine months ended September 30, 2020:

•Approximately $13 associated with an insurance premium financing arrangement was incorrectly disclosed as a non-cash financing activity but should have been classified as an operating cash outflow from continuing operations and financing cash inflow;

•“Net cash used in operating activities from continuing operations” was overstated by approximately $13 and “Net cash (used in) provided by operating activities from discontinued operations” was understated by approximately $13 due to activity within “Other assets, current and non-current” being incorrectly classified; and

•The impairment charge recognized with respect to our Held for Sale Business was overstated by approximately $8 which also resulted in an understatement of the Assets Held for Sale as of September 30, 2020.

Based upon quantitative and qualitative assessments, we determined that these adjustments were not material to the previously issued interim financial statements. The impacts to the previously issued interim financial statements are shown in the tables below.

Condensed Consolidated Statement of Cash Flows (Nine Months Ended September 30, 2020) (unaudited)


Line Item	As Previously Reported		Adjustments		As Revised
Net income (loss)	$	(203)	$	8	$	(195)
Loss from discontinued operations, net of taxes	(79)		8		(71)
Other assets, current and non-current	(1)		(26)		(27)
Net cash provided by (used in) operating activities from continuing operations	(11)		(26)		(37)
Net cash (used in) provided by operating activities from discontinued operations	(1)		13		12
Net cash provided by (used in) operating activities	$	(12)	$	(13)	$	(25)

Net short-term debt repayments	$	(25)	$	13	$	(12)
Net cash (used in) provided by financing activities	$	7	$	13	$	20

Condensed Consolidated Statement of Operations (Three Months Ended September 30, 2020) (unaudited)


Line Item	As Previously Reported		Adjustment (1)		As Revised
Loss from discontinued operations, net of taxes	$	(76)	$	8	$	(68)
Net income (loss)	(102)		8		(94)
Net loss attributable to Hexion Inc.	(102)		8		(94)

Condensed Consolidated Statement of Operations (Nine Months Ended September 30, 2020) (unaudited)


Line Item	As Previously Reported		Adjustment (1)		As Revised
Loss from discontinued operations, net of taxes	$	(79)	$	8	$	(71)
Net income (loss)	(203)		8		(195)
Net loss attributable to Hexion Inc.	(203)		8		(195)

(1)The $8 adjustment summarized above impacts the “Asset impairments” caption within the financial results table in the Discontinued Operations footnote. The adjustment also impacts “Comprehensive loss” and “Accumulated deficit.”

Subsequent Events—The Company has evaluated events and transactions subsequent to September 30, 2021 through the date of issuance of its unaudited Condensed Consolidated Financial Statements.

Recently Issued Accounting Standards

Newly Adopted Accounting Standards

In December 2019, the FASB issued ASU 2019-12: Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 will simplify the accounting for income taxes by removing certain exceptions to the general principles in income tax accounting and improve consistent application of and simplify GAAP for other areas of income tax accounting by clarifying and amending existing guidance. The new guidance was effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company adopted ASU 2019-12 on January 1, 2021 and the adoption did not have a significant impact on its condensed consolidated financial statements.

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 was effective for fiscal years ending after December 15, 2020. The Company adopted ASU 2018-14 and the adoption did not have a significant impact on its condensed consolidated financial statements.