Company Quick10K Filing
Quick10K
Hexion
10-Q 2019-09-30 Quarter: 2019-09-30
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-11-12 Earnings, Exhibits
8-K 2019-08-12 Earnings, Exhibits
8-K 2019-08-08 Officers, Officers
8-K 2019-07-19 Regulation FD, Exhibits
8-K 2019-07-01 Enter Agreement, Leave Agreement, Bankruptcy, Off-BS Arrangement, Sale of Shares, Shareholder Rights, Officers, Other Events, Exhibits
8-K 2019-07-01 Regulation FD, Exhibits
8-K 2019-06-24 Regulation FD, Exhibits
8-K 2019-06-20 Regulation FD, Exhibits
8-K 2019-06-19 Regulation FD, Exhibits
8-K 2019-06-10 Regulation FD, Exhibits
8-K 2019-05-29 Regulation FD, Exhibits
8-K 2019-05-22 Regulation FD, Exhibits
8-K 2019-05-01 Officers
8-K 2019-04-03 Enter Agreement, Off-BS Arrangement, Regulation FD, Exhibits
8-K 2019-03-29 Enter Agreement, Bankruptcy, Off-BS Arrangement, Regulation FD, Other Events, Exhibits
8-K 2019-03-22 Regulation FD, Exhibits
8-K 2019-03-18 Officers, Officers
8-K 2019-02-11 Officers, Officers
8-K 2019-02-08 Officers
8-K 2019-01-10 Officers
8-K 2018-11-30 Officers
8-K 2018-11-13 Earnings, Exhibits
8-K 2018-08-07 Earnings, Exhibits
8-K 2018-03-30 Officers, Officers
HLT Hilton Worldwide Holdings 26,525
MGM MGM Resorts 15,063
HTHT Huazhu Group 9,706
CHH Choice Hotels 4,961
WH Wyndham Hotels & Resorts 4,874
BYD Boyd Gaming 2,609
EAGL Platinum Eagle Acquisition 1,031
SKIS Peak Resorts 165
CLUB Town Sports International 54
PLNT Planet Fitness 0
MSC 2019-09-30
Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollar Amounts in Millions)
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.1 exhibit101.htm
EX-10.2 exhibit102.htm
EX-10.3 exhibit103.htm
EX-10.4 exhibit104.htm
EX-31.1(A) exhibit311a.htm
EX-31.1(B) exhibit311b.htm
EX-32.1 exhibit321.htm

Hexion Earnings 2019-09-30

MSC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 hexion10q.htm QUARTERLY REPORT Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number 1-71
_______________________________________
logo2002.jpg
  HEXION INC.
(Exact name of registrant as specified in its charter)
________________________________________
New Jersey
 
13-0511250
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
180 East Broad St., Columbus, OH 43215
 
614-225-4000
(Address of principal executive offices including zip code)
 
(Registrant’s telephone number including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
None
 
None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  o   No  x
Explanatory Note:  While the registrant is not subject to the filing requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, it has filed all reports required to be filed by such filing requirements during the preceding 12 months.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x No   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
o
  
Accelerated filer
 
o
 
 
 
 
 
 
Non-accelerated filer
 
x
  
Smaller reporting company
 
o
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o No  x.

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes  x    No  o

Number of shares of common stock, par value $0.01 per share, outstanding as of the close of business on November 1, 2019: 100



HEXION INC.
INDEX
 
 
 
Page
PART I – FINANCIAL INFORMATION
 
 
 
 
Item 1.
Hexion Inc. Condensed Consolidated Financial Statements (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II – OTHER INFORMATION
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.

2


PART I - FINANCIAL INFORMATION
Item 1.    Financial Statements
HEXION INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
 
Successor
 
 
Predecessor
(In millions, except share data)
September 30, 2019
 
 
December 31, 2018
Assets
 
 
 

Current assets:
 
 
 

Cash and cash equivalents (including restricted cash of $15)
$
108

 
 
$
128

Accounts receivable (net of allowance for doubtful accounts of $1 and $16, respectively)
471

 
 
412

Inventories:
 
 
 
 
Finished and in-process goods
241

 
 
240

Raw materials and supplies
101

 
 
94

Other current assets
62

 
 
57

Total current assets
983

 
 
931

Investment in unconsolidated entities
18

 
 
19

Deferred tax assets
5

 
 

Other long-term assets
49

 
 
34

Property and equipment:
 
 
 
 
Land
110

 
 
89

Buildings
165

 
 
285

Machinery and equipment
1,315

 
 
2,293


1,590

 
 
2,667

Less accumulated depreciation
(40
)
 
 
(1,826
)

1,550

 
 
841

Operating lease assets (see Note 10)
125

 
 

Goodwill
178

 
 
109

Other intangible assets, net
1,193

 
 
27

Total assets
$
4,101

 
 
$
1,961

Liabilities and Deficit
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
$
276

 
 
$
384

Debt payable within one year
87

 
 
3,716

Interest payable
26

 
 
82

Income taxes payable
17

 
 
5

Accrued payroll and incentive compensation
50

 
 
52

Current portion of operating lease liabilities (see Note 10)
23

 
 

Other current liabilities
99

 
 
106

Total current liabilities
578

 
 
4,345

Long-term liabilities:
 
 
 
 
Long-term debt
1,702

 
 
99

Long-term pension and post employment benefit obligations
248

 
 
221

Deferred income taxes
162

 
 
15

Operating lease liabilities (see Note 10)
88

 
 

Other long-term liabilities
221

 
 
195

Total liabilities
2,999

 
 
4,875

Commitments and contingencies (see Note 11)
 
 
 
 
Equity (Deficit)
 
 
 
 
Common stock (Successor)—$0.01 par value; 100 shares authorized, issued and outstanding September 30, 2019

 
 

Paid-in capital (Successor)
1,162

 
 

Common stock (Predecessor)—$0.01 par value; 300,000,000 shares authorized, 170,605,906 issued and 82,556,847 outstanding December 31, 2018

 
 
1

Paid-in capital (Predecessor)

 
 
526

Treasury stock (Predecessor), at cost—88,049,059 shares at December 31, 2018

 
 
(296
)
Accumulated other comprehensive loss
(16
)
 
 
(18
)
Accumulated deficit
(43
)
 
 
(3,125
)
Total Hexion Inc. equity (deficit)
1,103

 
 
(2,912
)
Noncontrolling interest
(1
)
 
 
(2
)
Total equity (deficit)
1,102

 
 
(2,914
)
Total liabilities and equity (deficit)
$
4,101

 
 
$
1,961

See Notes to Condensed Consolidated Financial Statements

3


HEXION INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 
 
Successor
 
 
Predecessor
 
Successor
 
 
Predecessor
(In millions)
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
 
 
Net sales
$
836

 
 
$

 
$
952

 
$
836

 
 
$
1,778

 
$
2,893

Cost of sales (exclusive of depreciation and amortization shown below, see Note 2)
710

 
 

 
773

 
710

 
 
1,462

 
2,343

Selling, general and administrative expense (see Note 2)
69

 
 

 
68

 
69

 
 
145

 
217

Depreciation and amortization (see Note 2)
55

 
 

 
27

 
55

 
 
52

 
85

Gain on disposition

 
 

 

 

 
 

 
(44
)
Asset impairments

 
 

 
3

 

 
 

 
28

Business realignment costs
13

 
 

 
5

 
13

 
 
15

 
19

Other operating expense, net
5

 
 

 
6

 
5

 
 
16

 
26

Operating (loss) income
(16
)
 
 

 
70

 
(16
)
 
 
88

 
219

Interest expense, net
28

 
 

 
83

 
28

 
 
89

 
250

Other non-operating expense (income), net
4

 
 

 
(1
)
 
4

 
 
(11
)
 
6

Reorganization items, net (see Note 5)

 
 
(3,261
)
 

 

 
 
(3,105
)
 

(Loss) income before income tax and earnings from unconsolidated entities
(48
)
 
 
3,261

 
(12
)
 
(48
)
 
 
3,115

 
(37
)
Income tax (benefit) expense
(4
)
 
 
207

 
6

 
(4
)
 
 
222

 
17

(Loss) income before earnings from unconsolidated entities
(44
)
 
 
3,054

 
(18
)
 
(44
)
 
 
2,893

 
(54
)
Earnings from unconsolidated entities, net of taxes
1

 
 

 

 
1

 
 
2

 
2

Net (loss) income
(43
)
 
 
3,054

 
(18
)
 
(43
)
 
 
2,895

 
(52
)
Net income attributable to noncontrolling interest

 
 

 

 

 
 
(1
)
 
(1
)
Net (loss) income attributable to Hexion Inc.
$
(43
)
 
 
$
3,054

 
$
(18
)
 
$
(43
)
 
 
$
2,894

 
$
(53
)
See Notes to Condensed Consolidated Financial Statements

4


HEXION INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited)
 
Successor
 
 
Predecessor
 
Successor
 
 
Predecessor
(In millions)
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
 
 
Net (loss) income
$
(43
)
 
 
$
3,054

 
$
(18
)
 
$
(43
)
 
 
$
2,895

 
$
(52
)
Other comprehensive loss, net of tax:
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
(16
)
 
 

 
(6
)
 
(16
)
 
 
(8
)
 
(8
)
Other comprehensive loss
(16
)
 
 

 
(6
)
 
(16
)
 
 
(8
)
 
(8
)
Comprehensive (loss) income
(59
)
 
 
3,054

 
(24
)
 
(59
)
 
 
2,887

 
(60
)
Comprehensive income attributable to noncontrolling interest

 
 

 

 

 
 
(1
)
 
(1
)
Comprehensive (loss) income attributable to Hexion Inc.
$
(59
)
 
 
$
3,054

 
$
(24
)
 
$
(59
)
 
 
$
2,886

 
$
(61
)
See Notes to Condensed Consolidated Financial Statements

5


HEXION INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 
Successor
 
 
Predecessor
(In millions)
July 2, 2019 through September 30, 2019
 
 
January 1, 2019 through July 1, 2019
 
Nine Months Ended September 30, 2018
Cash flows provided by (used in) operating activities
 
 
 
 
 

Net (loss) income
$
(43
)
 
 
$
2,895

 
$
(52
)
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
 
 
 
 
 

Depreciation and amortization
55

 
 
52

 
85

Non-cash asset impairments

 
 

 
30

Non-cash reorganization items, net

 
 
(3,293
)
 

Deferred tax (benefit) expense
(8
)
 
 
156

 

Loss on sale of assets

 
 
3

 
3

Gain on disposition

 
 

 
(44
)
Amortization of deferred financing fees

 
 

 
13

Unrealized foreign currency losses (gains)
6

 
 
(7
)
 
12

Financing fees included in net loss

 
 
136

 

Other non-cash adjustments
3

 
 
(2
)
 

Net change in assets and liabilities:
 
 
 
 
 
 
Accounts receivable
22

 
 
(88
)
 
(25
)
Inventories
29

 
 
(19
)
 
(91
)
Accounts payable
(67
)
 
 
(28
)
 
10

Income taxes payable

 
 
18

 
4

Other assets, current and non-current
10

 
 
(7
)
 
(20
)
Other liabilities, current and long-term
18

 
 
11

 
26

Net cash provided by (used in) operating activities
25

 
 
(173
)
 
(49
)
Cash flows used in investing activities
 
 
 
 
 

Capital expenditures
(22
)
 
 
(43
)
 
(62
)
Proceeds from disposition, net

 
 

 
49

Proceeds from sale of assets, net

 
 
1

 
1

Net cash used in investing activities
(22
)


(42
)
 
(12
)
Cash flows (used in) provided by financing activities
 
 
 
 
 

Net short-term debt (repayments) borrowings
(6
)
 
 
(4
)
 
6

Borrowings of long-term debt
91

 
 
2,313

 
425

Repayments of long-term debt
(100
)
 
 
(2,261
)
 
(343
)
Proceeds from rights offering

 
 
300

 

Financing fees paid
(2
)
 
 
(136
)
 
(1
)
Net cash (used in) provided by financing activities
(17
)


212

 
87

Effect of exchange rates on cash and cash equivalents, including restricted cash
(3
)
 
 

 
(4
)
Change in cash and cash equivalents, including restricted cash
(17
)


(3
)
 
22

Cash, cash equivalents and restricted cash at beginning of period
125

 
 
128

 
115

Cash, cash equivalents and restricted cash at end of period
$
108



$
125

 
$
137

Supplemental disclosures of cash flow information
 
 
 
 
 

Cash paid for:
 
 
 
 
 

Interest, net
$
3

 
 
$
71

 
$
219

Income taxes, net
4

 
 
10

 
12

Reorganization items, net

 
 
188

 

See Notes to Condensed Consolidated Financial Statements

6


HEXION INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER’S EQUITY (DEFICIT) (Unaudited)

(In millions)
Common
Stock
 
Paid-in
Capital
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Loss
 
Accumulated
(Deficit) Equity
 
Total Hexion Inc. (Deficit) Equity
 
Noncontrolling Interest
 
Total Shareholder’s (Deficit) Equity
Predecessor
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
$
1

 
$
526

 
$
(296
)
 
$
(8
)
 
$
(2,964
)
 
$
(2,741
)
 
$
(1
)
 
$
(2,742
)
Net (loss) income

 

 

 

 
(53
)
 
(53
)
 
1

 
(52
)
Other comprehensive loss

 

 

 
(8
)
 

 
(8
)
 

 
(8
)
Impact of change in accounting policy

 

 

 

 
1

 
1

 

 
1

Balance at September 30, 2018
$
1

 
$
526

 
$
(296
)
 
$
(16
)
 
$
(3,016
)
 
$
(2,801
)
 
$

 
$
(2,801
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2018
$
1

 
$
526

 
$
(296
)
 
$
(10
)
 
$
(2,998
)
 
$
(2,777
)
 
$

 
$
(2,777
)
Net (loss) income

 

 

 

 
(18
)
 
(18
)
 

 
(18
)
Other comprehensive loss

 

 

 
(6
)
 

 
(6
)
 

 
(6
)
Balance at September 30, 2018
$
1

 
$
526

 
$
(296
)
 
$
(16
)
 
$
(3,016
)
 
$
(2,801
)
 
$

 
$
(2,801
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
$
1

 
$
526

 
$
(296
)
 
$
(18
)
 
$
(3,125
)
 
$
(2,912
)
 
$
(2
)
 
$
(2,914
)
Net (loss) income

 

 

 

 
(160
)
 
(160
)
 
1

 
(159
)
Other comprehensive loss

 

 

 
(8
)
 

 
(8
)
 

 
(8
)
Balance at June 30, 2019
$
1

 
$
526

 
$
(296
)
 
$
(26
)
 
$
(3,285
)
 
$
(3,080
)
 
$
(1
)
 
$
(3,081
)
Elimination of Predecessor equity
(1
)
 
(526
)
 
296

 

 
231

 

 

 

Elimination of Predecessor accumulated other comprehensive loss

 

 

 
26

 

 
26

 

 
26

Net income

 

 

 

 
3,054

 
3,054

 

 
3,054

Balance at July 1, 2019
$

 
$

 
$

 
$

 
$

 
$

 
$
(1
)
 
$
(1
)
Issuance of Successor Company common stock

 
1,157

 

 

 

 
1,157

 

 
1,157

Successor
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at July 2, 2019
$

 
$
1,157

 
$

 
$

 
$

 
$
1,157

 
$
(1
)
 
$
1,156

Net loss

 

 

 

 
(43
)
 
(43
)
 

 
(43
)
Stock-based compensation expense

 
5

 

 

 

 
5

 

 
5

Other comprehensive loss

 

 

 
(16
)
 

 
(16
)
 

 
(16
)
Balance at September 30, 2019
$

 
$
1,162

 
$

 
$
(16
)
 
$
(43
)
 
$
1,103

 
$
(1
)
 
$
1,102


See Notes to Condensed Consolidated Financial Statements

7


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In millions, except share data)
1. Background and Basis of Presentation
Based in Columbus, Ohio, Hexion Inc. (“Hexion” or the “Company”) serves global adhesive, coatings, composites and industrial markets through a broad range of thermoset technologies, specialty products and technical support for customers in a diverse range of applications and industries. The Company’s business is organized based on the products offered and the markets served. At September 30, 2019, the Company had three reportable segments: Epoxy, Phenolic and Coating Resins; Forest Products Resins; and Corporate and Other.
As a result of the Company’s reorganization and emergence from Chapter 11 (as defined in Note 3) on the morning of July 1, 2019 (the “Effective Date”), the Company’s direct parent is Hexion Intermediate Holding 2, Inc. (“Hexion Intermediate”), a holding company and wholly owned subsidiary of Hexion Intermediate Holding 1, Inc., a holding company and wholly owned subsidiary of Hexion Holdings Corporation, the ultimate parent of Hexion (“Hexion Holdings”). Prior to its reorganization, the Company’s parent was Hexion LLC, a holding company and wholly owned subsidiary of Hexion Holdings LLC (now known as Hexion TopCo, LLC or “TopCo”), the previous ultimate parent entity of Hexion, which was controlled by investment funds managed by affiliates of Apollo Management Holdings, L.P. (together with Apollo Global Management, Inc. and its subsidiaries, “Apollo”). On the Effective Date, the Company’s existing common stock were cancelled and 100 new shares of common stock were issued at a par value of $0.01 to the Company’s new direct parent Hexion Intermediate in accordance with the Plan (as defined in Note 3). See Note 3 for more information.
The unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its majority-owned subsidiaries in which minority shareholders hold no substantive participating rights. Intercompany accounts and transactions are eliminated in consolidation. In the opinion of management, all adjustments consisting of normal, recurring adjustments considered necessary for a fair statement have been included. Results for the interim periods are not necessarily indicative of results for the entire year.
Year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the accompanying notes included in the Company’s most recent Annual Report on Form 10-K.
Going Concern
The Company filed for Chapter 11 bankruptcy protection on April 1, 2019 (the “Petition Date”) and as the Company previously disclosed, based on its financial condition and its projected operating results, the defaults under its debt agreements, and the risks and uncertainties surrounding its Chapter 11 proceedings (see Note 3), that there was substantial doubt as to the Company’s ability to continue as a going concern as of the issuance of the Company’s 2018 Annual Report on Form 10-K. After the Company’s emergence from Chapter 11 on July 1, 2019, based on its new capital structure, liquidity position and projected operating results, the Company expects to continue as a going concern for the next twelve months. See Note 3 for more information.
Financial Reporting in Reorganization
Effective on the Petition Date, the Company applied Accounting Standard Codification, No. 852, “Reorganizations,” (“ASC 852”) which is applicable to companies under Chapter 11 bankruptcy protection. It requires the financial statements for periods subsequent to the Chapter 11 filing to distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Expenses, realized gains and losses, and provisions for losses that are directly associated with reorganization proceedings must be reported separately as “Reorganization items, net” in the Condensed Consolidated Statements of Operations. In addition, the balance sheet must distinguish debtor pre-petition liabilities subject to compromise (“LSTC”) from liabilities of non-filing entities, pre-petition liabilities that are not subject to compromise and post-petition liabilities in the accompanying Condensed Consolidated Balance Sheet. LSTC are pre-petition obligations that are not fully secured and have at least a possibility of not being repaid at the full claim amount. LSTC related to debt, its related interest payable and certain affiliate payables were settled in accordance with the Plan, as applicable, on or shortly after the Company emerged from Chapter 11 bankruptcy on July 1, 2019. As of July 1, 2019, all remaining liabilities subject to compromise were not impaired and remain on the Company’s Condensed Consolidated Balance Sheets.
The Company’s Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018 included in this Quarterly Report on Form 10-Q were prepared under the basis of accounting assuming that the Company will continue as a going concern, which contemplated continuity of operations, realization of assets and satisfaction of liabilities and commitments in the normal course of business.

8


Fresh Start Accounting
On the Effective Date, in accordance with ASC 852, the Company applied fresh start accounting to its financial statements as (i) the holders of existing voting shares of the Company prior to its emergence received less than 50% of the voting shares of the Company outstanding following its emergence from bankruptcy and (ii) the reorganization value of the Company’s assets immediately prior to confirmation of the plan of reorganization was less than the post-petition liabilities and allowed claims. Fresh start accounting was applied to the Company’s consolidated financial statements as of July 1, 2019, the date it emerged from bankruptcy, which resulted in a new basis of accounting and the Company became a new entity for financial reporting purposes. As a result, the Company allocated the reorganization value of the Company to its individual assets based on their estimated fair values. Reorganization value represents the fair value of the Company’s assets before considering liabilities. The excess reorganization value over the fair value of identified tangible and intangible assets was reported as goodwill.
As a result of the application of fresh start accounting and the effects of the implementation of the Plan, the Condensed Consolidated Financial Statements after the Effective Date are not comparable with the Condensed Consolidated Financial Statements prior to that date. References to “Successor” or “Successor Company” relate to the financial position and results of operations of the Company after the Effective Date. References to “Predecessor” or “Predecessor Company” refer to the financial position and results of operations of the Company on or before the Effective Date. Refer to Note 4 for more information.
2. Summary of Significant Accounting Policies
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 $10 and $11 is recorded within “Other current assets” at September 30, 2019 and December 31, 2018, respectively, in the unaudited Condensed Consolidated Balance Sheet. Refer to Note 15 for additional discussion of the Company’s net sales by reportable segment disaggregated by geographic region.
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.
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 $15 as of both September 30, 2019 and December 31, 2018 represent 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 Consolidated Balance Sheets as a component of “Cash and cash equivalents.”
Income Statement Presentation— As a result of the application of fresh start accounting upon the Company’s emergence from Chapter 11, the Company elected to change its income statement presentation of depreciation and amortization expense beginning in the Successor period July 2, 2019 through September 30, 2019 and all periods thereafter. As a result, “Depreciation and amortization” has been added as a line item in the unaudited Condensed Consolidated Statements of Operations and “Cost of sales” and “Selling, general and administrative expense” will now exclude all depreciation and amortization expense. In addition, the Company will no longer present “Gross profit” as a subtotal caption. For comparability purposes, this presentation change will be applied to all comparable periods presented in this Quarterly Report on Form 10-Q and all future filings.
The effects of the income statement presentation change on the Predecessor Company’s previously reported unaudited Condensed Consolidated Statements of Operations are presented below. As noted above, a component of this presentation change is removal of the “Gross profit” subtotal.
Unaudited Condensed Consolidated Statements of Operations for the period from January 1, 2019 to July 1, 2019:
 
Previous Presentation Method
 
Effect of Presentation Change
 
As Reported
Cost of sales
1,507

 
(45
)
 
1,462

Selling, general and administrative expense
152

 
(7
)
 
145

Depreciation and amortization

 
52

 
52


9


Unaudited Condensed Consolidated Statements of Operations for the three months ended September 30, 2018:
 
As Previously Reported
 
Effect of Presentation Change
 
As Reported
Cost of sales
796

 
(23
)
 
773

Selling, general and administrative expense
72

 
(4
)
 
68

Depreciation and amortization

 
27

 
27

Unaudited Condensed Consolidated Statements of Operations for the nine months ended September 30, 2018:
 
As Previously Reported
 
Effect of Presentation Change
 
As Reported
Cost of sales
2,414

 
(71
)
 
2,343

Selling, general and administrative expense
231

 
(14
)
 
217

Depreciation and amortization

 
85

 
85

Goodwill—Upon the application of fresh start accounting, the excess of reorganization value over the fair value of identified tangible and intangible assets of $178 is carried as “Goodwill” in the Consolidated Balance Sheets, and the Company does not amortize goodwill. As of September 30, 2019, the Company has goodwill of $141 and $37 for its Forest Products Resins and Epoxy, Phenolic and Coating Resins segments, respectively. The Company reviews goodwill for impairment annually during the fourth quarter by comparing the estimated fair value to the book value of each reporting unit utilizing either a qualitative or quantitative approach. Goodwill impairment is also tested as needed upon the occurrence of an impairment triggering event.
Intangible assets - Separately identifiable intangible assets that are used in operations of the business are recorded at cost (fair value at the time of acquisition) and reported as “Other intangible assets, net” in the Condensed Consolidated Balance Sheets. Costs to renew or extend the term of identifiable intangible assets are expensed as incurred. Intangible assets with determinable lives are amortized on a straight-line basis over the shorter of the legal or useful life of the assets, which range from 15 to 25 years.
As part of fresh start accounting, on the Effective Date, the Company established new intangible assets at fair value and the Predecessor Company’s intangible asset accumulated amortization was eliminated. As of September 30, 2019, the Company’s intangible assets with identifiable useful lives consisted of the following:
Customer relationships
$
968

Trademarks
110

Technology
141

Accumulated amortization (1)
(26
)
Other intangible assets, net
$
1,193

(1)
The impact of foreign currency translation on intangible assets is included in accumulated amortization.    
Derivative Financial Instruments and Hedging Activities—Periodically, the Company is a party to forward exchange contracts, foreign exchange rate swaps, interest rate swaps, natural gas futures and electricity forward contracts to reduce its cash flow exposure to changes in interest rates and natural gas and electricity prices. The Company does not hold or issue derivative financial instruments for trading purposes. All derivatives, whether designated as hedging relationships or not, are recorded on our balance sheet at fair value. For fair value and cash flow hedges qualifying for hedge accounting, the Company formally documents at inception the relationship between hedging instruments and hedged items, the risk management objective, strategy and the evaluation of effectiveness for the hedge transaction. If the derivative is designated as a cash flow hedge, changes in the fair value of the derivative are recorded in accumulated other comprehensive income, to the extent effective, and will be recognized in the Consolidated Statement of Operations when the hedged item affects earnings. The effectiveness of a cash flow hedging relationship is established at the inception of the hedge, and after inception the Company performs effectiveness assessments at least every three months. For a derivative that does not qualify or has not been designated as a hedge, changes in fair value are recognized in earnings.
Turnaround Costs—The Company periodically performs procedures at its major production facilities to extend the useful life, increase output and efficiency and ensure the long-term reliability and safety of plant machinery (“turnaround” or “turnaround costs”). As a result of the application of fresh start accounting upon the Company’s emergence from Chapter 11, the Successor Company adopted an accounting policy to capitalize certain turnaround costs and amortize on a straight-line basis over the estimated period until the next turnaround. Costs for routine repairs and maintenance are expensed as incurred. Capitalized turnaround costs were less than $1 at September 30, 2019 and are included in “Other long-term assets”.
Subsequent Events—The Company has evaluated events and transactions subsequent to September 30, 2019 through the date of issuance of its unaudited Condensed Consolidated Financial Statements.

10


Recently Issued Accounting Standards
Newly Adopted Accounting Standards
In February 2016, the FASB issued Accounting Standards Board Update No. 2016-02: Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 supersedes the existing lease guidance in Topic 840. According to the new guidance, all leases, with limited scope exceptions, will be recorded on the balance sheet in the form of a liability to make lease payments (lease liability) and a right-of-use asset representing the right to use the underlying asset for the lease term. The guidance was effective for annual and interim periods beginning on or after December 15, 2018.
The Company adopted ASU 2016-02 using a modified retrospective adoption method at January 1, 2019. Under this method of adoption, there is no impact to the comparative Condensed Consolidated Statement of Operations and the Condensed Consolidated Balance Sheets. The Company also determined that there was no cumulative-effect adjustment to beginning retained earnings on the Condensed Consolidated Balance Sheet. The Company will continue to report periods prior to January 1, 2019 in its financial statements under prior guidance as outlined in Accounting Standards Codification Topic 840, “Leases”. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed the Company to carry forward its historical lease classification. The Company also elected the hindsight practical expedient to determine the lease term for existing leases. Adoption of the new standard resulted in the recording of right of use assets and offsetting lease liabilities of $105 as of January 1, 2019.
In February 2018, the FASB issued Accounting Standards Board Update No. 2018-02: Income Statement-Reporting Comprehensive Income (Topic 220) (“ASU 2018-02”). ASU 2018-02 was issued in response to the United States tax reform legislation, the Tax Cuts and Jobs Act (“Tax Reform”), enacted in December 2017. The amendments in ASU 2018-02 allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the new tax legislation. The guidance is effective for annual and interim periods beginning on or after December 15, 2018, and early adoption is permitted. The Company adopted ASU 2018-02 as of January 1, 2019 and it did not have a material impact on the financial statements.
In August 2017, the FASB issued Accounting Standards Board Update No. 2017-12: Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”). The amendments in this ASU 2017-12 better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships as well as the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements to increase the understandability of the results of an entity’s intended hedging strategies. The amendments in ASU 2017-12 also include certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The amendments in ASU 2017-12 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted ASU 2017-12 as of January 1, 2019, and the initial adoption had no impact on the Company’s financial statements.
In October 2018, the FASB issued ASU 2018-16: Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes (“ASU 2018-16”). ASU 2018-16 permits the use of the Overnight Index Swap (“OIS”) based on the Secured Overnight Financing Rate (“SOFR”) as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the interest rates on direct Treasury obligations of the U.S. government (“UST”), the London Interbank Offered Rate (“LIBOR”) swap rate, the OIS rate based on the Fed Funds Effective Rate, and the Securities Industry and Financial Markets Association (“SIFMA”) Municipal Swap Rate. The amendments in this ASU 2018-16 update permit the OIS rate based on SOFR as a U.S. benchmark interest rate. Including the OIS rate based on SOFR as an eligible benchmark interest rate during the early stages of the marketplace transition will facilitate the LIBOR to SOFR transition and provide sufficient lead time for entities to prepare for changes to interest rate risk hedging strategies for both risk management and hedge accounting purposes. For entities that have not already adopted Update 2017-12, the amendments in this Update are required to be adopted concurrently with the amendments in ASU 2017-12. The Company has adopted ASU 2018-16 as of January 1, 2019 and it did not have a material impact on the financial statements.
Recently Issued Accounting Standards
In June 2016, the FASB issued ASU 2016-13: Financial Instruments - Credit Losses (Topic 820): Measurement of Credit Losses on Financial Instruments, (“ASU 2016-13”). The amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. New disclosures are also required with this standard. The standard is effective for annual and interim periods beginning after December 15, 2019. The Company is currently assessing the potential impact of adopting this standard.
In August 2018, the FASB issued ASU 2018-15: Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (“ASU 2018-15”). ASU 2018-15 align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted and an entity can elect to apply the new guidance on a prospective or retrospective basis. The Company is currently assessing the potential impact of adopting this standard.


11


3. Emergence from Chapter 11 Bankruptcy
Bankruptcy Petitions and Emergence from Chapter 11
On the Petition Date, the Company, Hexion Holdings LLC, Hexion LLC and certain of the Company’s subsidiaries (collectively, the “Debtors”) filed voluntary petitions (the “Bankruptcy Petitions”) for reorganization under Chapter 11 (“Chapter 11”) of the U.S. Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware, (the “Bankruptcy Court”). The Chapter 11 proceedings were jointly administered under the caption In re Hexion TopCo, LLC, No. 19-10684 (the “Chapter 11 Cases”). The Debtors continued to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.
On June 25, 2019, the Court entered an order (the “Confirmation Order”) confirming the Second Amended Joint Chapter 11 Plan of Reorganization of Hexion Holdings LLC and its Debtor Affiliates under Chapter 11 (the “Plan”). On the morning of July 1, 2019, in accordance with the terms of the Plan and the Confirmation Order, the Plan became effective and the Debtors emerged from bankruptcy (the “Emergence”).
Debtor-in-Possession Financing
DIP Term Loan Facility
In connection with the filing of the Bankruptcy Petitions, on April 3, 2019, the Company entered into a New York law-governed senior secured term loan agreement (the “DIP Term Loan Facility”), among Hexion LLC (“Holdings”), the Company, Hexion International Holdings B.V. (the “Dutch Borrower”), which was amended on April 17, 2019, the lenders party thereto and JPMorgan Chase Bank, N.A. (“JPMorgan”), as administrative agent and collateral agent (the “Term Loan Agent”). The proceeds of the DIP Term Loan Facility were loaned by the Dutch Borrower to the Company pursuant to an intercompany loan agreement (the “Intercompany Loan Agreement”) and were used in part to repay in full the outstanding obligations under the Company’s existing asset-based revolving credit agreement ABL Facility (the “ABL Facility”). As of June 30, 2019, the Company had $350 borrowings outstanding under DIP Term Loan Facility. The Company’s remaining obligations under the DIP Term Loan Facility were repaid in full and the DIP Term Loan Facility was terminated upon consummation of the Plan by the Company on July 1, 2019.
DIP ABL Facility
In connection with the filing of the Bankruptcy Petitions, on April 3, 2019, Holdings, the Company and certain of its subsidiaries (collectively, the “Borrowers”), the lenders party thereto, JPMorgan, as administrative agent, and JPMorgan, as collateral agent (the “DIP ABL Collateral Agent” and together with the DIP Term Loan Facility, the “Credit Facilities”), entered into an amended and restated senior secured debtor-in-possession asset-based revolving credit agreement, which was further amended on May 10, 2019 (the “DIP ABL Facility”), which amended and restated the Company’s ABL Facility among Holdings, the Company, the Borrowers, the lenders party thereto, JPMorgan, as administrative agent, and JPMorgan, as collateral agent. As of June 30, 2019, the Company had no outstanding borrowings under the DIP ABL Facility and the DIP ABL Facility was terminated upon consummation of the Plan by the Company on July 1, 2019.
Restructuring Support Agreement
On April 1, 2019, the Debtors entered into a Restructuring Support Agreement (the “Support Agreement”) with equityholders that beneficially owned more than a majority of the Company’s outstanding equity (the “Consenting Sponsors”) and creditors that held more than a majority of the aggregate outstanding principal amount of each of the Company’s 6.625% Notes and 10.00% Notes, (the “1L Notes”), 13.750% 1.5 lien notes due 2022 (the “1.5L Notes”), 9.00% second lien notes due 2020 (the “2L Notes”), 9.20% Debentures due 2021 and/or 7.875% Debentures due 2023 issued by Borden, Inc. (the “Unsecured Notes”) (the “Consenting Creditors” and, together with the Consenting Sponsors, the “Consenting Parties”). The Support Agreement incorporated the economic terms regarding a restructuring of the Debtors agreed to by the parties reflected in the Support Agreement. The restructuring transactions were effectuated through the Plan.
Equity Backstop Agreement and Rights Offering
On April 25, 2019, the Debtors entered into the Equity Backstop Commitment Agreement, as subsequently amended (the “Equity Backstop”), among the Debtors and the equity backstop parties party thereto (the “Equity Backstop Parties”). The Equity Backstop provides that upon the satisfaction of certain terms and conditions, including the confirmation of the Plan, the Company will have the option to require the Equity Backstop Parties to backstop the common stock of the reorganized Company (the “New Common Stock”) that is not otherwise purchased in connection with the $300 rights offerings for New Common Stock of Hexion Holdings (the “Rights Offering”) to be made in connection with the Plan (the “Unsubscribed Shares”) on a several, and not joint and several, basis. In consideration for their commitment to purchase the Unsubscribed Shares, the Equity Backstop Parties will be paid a Premium of 8% of the Rights Offering Amount (the “Equity Backstop Premium”), which premium was earned in full upon entry of the Equity Backstop Approval Order and which is payable either in Cash or in New Common Equity at the option of each Equity Backstop Party. Pursuant to the terms of the Equity Backstop, the Equity Backstop Premium was deemed earned, nonrefundable and non-avoidable upon entry of the approval order by the Court. The Company incurred $24 for the Equity Backstop Premium, which is included in “Reorganization items, net” in the unaudited Condensed Consolidated Statements of Operations. The Company paid the Equity Backstop Premium on the Effective Date in accordance with the Plan.

12


Debt Backstop Agreement
On April 25, 2019, the Debtors entered into the Debt Backstop Commitment Agreement, as subsequently amended (the “Debt Backstop”), among the Debtors and the debt backstop parties party thereto (the “Debt Backstop Parties”). The Debt Backstop provides that upon satisfaction of certain terms and conditions, including the confirmation of the Plan, the Debt Backstop Parties will backstop the New Long-Term Debt on a several, and not joint and several, basis of an amount equal to such Debt Backstop Party’s commitment percentage, in exchange for (a) the Debt Backstop Premium of 3.375% of the backstop commitments thereunder payable either in Cash or in New Common Equity at the option of each Debt Backstop Party and (b) for certain Debt Backstop Parties, the Additional Debt Backstop Premium of 1.5% of the backstop commitments thereunder payable in Cash, both of which premiums (described in (a) and (b)) were earned in full upon entry of the Debt Backstop Approval Order. Pursuant to the terms of the Debt Backstop, the Backstop Commitment Premium was deemed earned, nonrefundable and non-avoidable upon entry of the approval order by the Court. The Company incurred $80 for the Backstop Commitment Premium, which is included in “Reorganization items, net” in the unaudited Condensed Consolidated Statements of Operations. The Company paid the Debt Backstop Premium on the Effective Date in accordance with the Plan.

Pre-Petition Claims
On June 7, 2019, the Debtors filed schedules of assets and liabilities and statements of financial affairs with the Court, which were amended on June 14, 2019. Prior to the Company’s emergence from Chapter 11 bankruptcy on the Effective Date, all pre-petition amounts were classified as “Liabilities subject to compromise” in the unaudited Condensed Consolidated Balance Sheets as of June 30, 2019 and have either been settled or reinstated pursuant to the terms of the Plan. See Note 4 for more information.
The Debt Instruments provide that as a result of the Bankruptcy Petitions the principal and interest due thereunder shall be immediately
due and payable. Any efforts to enforce such payment obligations under the Debt Instruments are automatically stayed as a result of the Bankruptcy Petitions and the creditors’ rights of enforcement in respect of the Debt Instruments are subject to the applicable provisions of the Bankruptcy Code. Upon Emergence on July 1, 2019, these automatic stay provisions are no longer in effect.
Emergence from Chapter 11 Bankruptcy
On July 1, 2019, the Plan became effective and the Debtors emerged from the Chapter 11 proceedings.
On or following the Effective Date, and pursuant to the terms of the Plan, the following occurred:
The restructuring of the Debtors’ pre-petition funded debt obligations with the proceeds of $1,658 in new long-term debt (“New Long-term Debt”) (see Note 9);
A $300 Rights Offering for new common equity of Hexion Holdings;
A percentage of the Rights Offering was issued in the form of warrants (“New Warrants”), these warrants represented 15% of the Rights Offering which are exercisable for shares of Common Stock, issued by Hexion Holdings under the Plan, and referred to as New Warrants under the Plan (together with New Common Stock, “Registrable Securities”);
Certain of the Debtors entered into the $350 ABL Facility (see Note 9) ;
General unsecured claims being paid in full or otherwise continuing unimpaired;
Holders of claims with respect to the 1L Notes received their pro rata share of (a) cash in the amount of $1.450 billion (less the sum of adequate protection payments paid on account of the 1L Notes during the Chapter 11 cases), (b) 72.5% of new common equity of Hexion Holdings (“New Common Equity”) (subject to the Agreed Dilution), and (c) 72.5% of the rights to purchase additional New Common Equity pursuant to the Rights Offering. The dilution of the New Common Equity (“the Agreed Dilution”) resulted from the Rights Offering, the Management Incentive Plan (as defined in the Plan, 10% of the fully-diluted equity of Hexion Holdings is to be reserved for grant to key members of management and independent, non-employee members of the Board of Directors, (see Note 14 for further details on the Management Incentive Plan );
Holders of claims with respect to the 1.5L Notes, 2L Notes, and Unsecured Notes received their pro rata share of (a) 27.5% of the New Common Equity (subject to the Agreed Dilution) and (b) 27.5% of the rights to purchase additional New Common Equity pursuant to the Rights Offering;
Holders of equity interests (i.e., any class of equity securities) in TopCo received no distributions and all such Equity Interests being cancelled;
Reorganized Hexion issuing a $2.5 settlement note to the Consenting Sponsors; and
Appointment of a new board of directors.
    
    
    

13


Cancellation of Prior Common Stock

In accordance with the Plan, each share of the Predecessor Company’s common stock outstanding prior to the Effective Date, including treasury stock, were canceled. Furthermore, all of the Company’s equity award agreements under prior incentive plans, and the awards granted pursuant thereto, were extinguished, canceled and discharged and have no further force or effect after the Effective Date. On the Effective Date, 100 new shares of common stock were issued at a par value of $0.01 to the Company’s new direct parent Hexion Intermediate in accordance with the Plan.
    
Issuance of New Common Stock
    
On the Effective Date, all previously issued and outstanding equity interests in TopCo were cancelled. Upon effectiveness of the Plan, Hexion Holdings issued 58,410,731 shares of a new class of common stock, par value $0.01 per share (“New Common Stock”), pursuant to the Rights Offering. The shares of New Common Stock were exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 1145 of the Bankruptcy Code, which generally exempts from such registration requirements the issuance of securities under a plan of reorganization.
    
New Warrant Agreement

In addition, Hexion Holdings entered into a warrant agreement (the “Warrant Agreement”) and upon effectiveness of the Plan, Hexion Holdings issued 10,307,778 New Warrants as a part of the Rights Offering on the Effective Date. The New Warrants represented 15% of the Rights Offering which are exercisable to purchase shares of New Common Stock. These New Warrants may be exercised, at any time on or after the initial exercise date for exercise price per share of the New Common Stock of $0.01. The Warrant Agreement contains customary anti-dilution adjustments in the event of any stock split, reverse stock split, reclassification, stock dividend or other distributions.

    
The holder or group of holders (the “Attribution Parties”) of New Warrants shall be permitted to exercise these New Warrants, at any time, in part or in whole, in amounts sufficient for the holder and Attribution Parties to maintain in the aggregate no less than the beneficial ownership limitation of 9.9% of the fully diluted shares outstanding. Fully diluted shares outstanding is calculated as (x) the aggregate number of shares of New Common Stock issued and outstanding plus (y) the aggregate number of shares of common stock issuable upon the conversion of any other issued and outstanding securities or rights convertible into, or exchangeable for (in each case, directly or indirectly), common stock (excluding, for the avoidance of doubt, any unexercised warrants or options to purchase common stock).

The New Warrants do not entitle the holder or group of holders of the New Warrants to any voting rights, dividends or other rights as a stockholder of the Company prior to exercise of the held New Warrants. If any shares of common stock are listed on a trading market, Hexion Holdings shall use its reasonable best efforts to cause the New Warrants shares issued upon exercise of these New Warrants to also be listed on such trading market, in accordance with the Warrant Agreement.

Registration Rights Agreement

On the Effective Date, Hexion Holdings entered into a registration rights agreement with certain of its stockholders (the “Registration Rights Agreement”).

Under the Registration Rights Agreement, upon delivery of a written notice by one or more stockholders holding, individually or in the aggregate, at least a majority of the outstanding Registrable Securities and New Warrants, voting together (as if such New Warrants had been exercised), Hexion Holdings is required to file a registration statement and effect an initial public offering and listing of its common stock, so long as the total offering size is at least $100 (a “Qualified IPO”).
 
Hexion Holdings is also required to file a registration statement at any time following 180 days after the closing of a Qualified IPO upon the delivery of a written notice by one or more stockholders proposing to sell, individually or in the aggregate, at least $50 of Registrable Securities. In addition, under the Registration Rights Agreement, Hexion Holdings is required to file a shelf registration statement as soon as practicable following the closing of a Qualified IPO to register the resale, on a delayed or continuous basis, of all Registrable Securities that have been timely designated for inclusion by the holders (specified in the Registration Rights Agreement). Any individual holder or holders of our outstanding common stock party thereto can demand up to four “shelf takedowns” in any 12-month period which may be conducted in underwritten offerings so long as the total offering size is at least $50. Furthermore, each stockholder party to the Registration Rights Agreement has unlimited piggyback registration rights with respect to underwritten offerings, subject to certain exceptions and limitations.

The foregoing registration rights are subject to certain cutback provisions and customary suspension/blackout provisions. Hexion Holdings has agreed to pay all registration expenses under the Registration Rights Agreement.

Generally, “Registrable Securities” under the Registration Rights Agreement includes New Common Equity issued under the Plan, except that “Registrable Securities” does not include securities that have been sold under an effective registration statement or Rule 144 under the Securities Act.

14


4. Fresh Start Accounting
Upon emergence from bankruptcy, the Company applied fresh start accounting, in accordance with ASC 852, to its financial statements because (i) the holders of existing voting shares of the Predecessor Company prior to its emergence received less than 50% of the voting shares of the Successor Company outstanding following its emergence from bankruptcy and (ii) the reorganization value of the Company’s assets immediately prior to confirmation of the plan of reorganization was less than the post-petition liabilities and allowed claims. Fresh start accounting was applied to the Company’s consolidated financial statements as of the Emergence.
Under the principles of fresh start accounting, a new reporting entity was created, and, as a result, the Company allocated the reorganization value of the Company to its individual assets based on their estimated fair values in conformity with ASC 805, “Business Combinations”. Reorganization value represents the fair value of the Successor Company’s assets before considering liabilities. The excess reorganization value over the fair value of identified tangible and intangible assets was reported as goodwill. As a result of the application of fresh start accounting and the effects of the implementation of the Plan of Reorganization, the consolidated financial statements after the Effective Date are not comparable with the consolidated financial statements as of or prior to that date.
Reorganization Value
As set forth in the Plan of Reorganization and the Disclosure Statement, the enterprise value of the Successor Company was estimated to be between $2,900 and $3,300 as of the Effective Date. Based on the estimates and assumptions discussed below, the Company estimated the enterprise value to be $3,100 for financial reporting purposes, which is the mid-point of the range of enterprise value per the Plan of Reorganization.
The Company estimated the enterprise value of the Successor Company utilizing three valuation methods: a comparable public company analysis, a selected precedent transactions analysis, and a discounted cash flow (“DCF”) method. The comparable public company analysis is based on the enterprise values of selected publicly traded diversified chemical companies with operating and financial characteristics comparable to the Company. Under this methodology, certain financial multiples that measure financial performance and value are calculated for each selected company and then applied to imply an estimated enterprise value of the Company.
The selected precedent transaction analysis is based on the implied enterprise values of companies and assets involved in publicly disclosed merger and acquisition transactions which the targets had operating and financial characteristics comparable to certain respects of the Company. Under this methodology, a multiple is derived using the enterprise value of each such target, calculated as the consideration paid and the net debt assumed in the merger or acquisition transaction relative to a financial metric, in this case, EBITDA (earnings before interest, income taxes, depreciation and amortization) for the Company, for the last twelve month period which financial results have been publicly announced. Utilizing these multiples a reference range was created to imply an estimated enterprise value range.
The DCF analysis is a forward-looking enterprise valuation methodology that estimates fair value by calculating the present value of expected future cash flows to be generated plus a present value of the estimated terminal value. The Company established a five year estimate of future cash flows based on the financial projections and assumptions utilized in the Company’s disclosure statement, which were derived from earnings forecasts and assumptions regarding growth and margin projections. A terminal value was included, and was calculated using the constant growth method based on the projected cash flows of the final year of the forecast period. While the Company considers such estimates and assumptions reasonable, they are inherently subject to significant business, economic and competitive uncertainties, many of which are beyond the Company’s control and, therefore, may not be realized. Changes in these estimates and assumptions may have a significant effect on the determination of the Company’s enterprise value. The assumptions used in the calculations for the DCF analysis included projected revenue, cost and cash flows representing the Company’s best estimates at the time the analysis was prepared. The DCF analysis has various complex considerations and judgments, including the discount rate and all of the other projections, etc. Due to the unobservable inputs to the valuation, the fair value would be considered Level 3 in the fair value hierarchy.
The estimated enterprise value is not necessarily indicative of the actual value and the financial results; changes in the economy or the financial markets could result in a different enterprise value. The calculated enterprise value relies on all three of the methodologies listed above collectively. The actual value of the business is subject to certain uncertainties and contingencies that are difficult to predict and will fluctuate with changes in various factors affecting the financial conditions and prospects of such a business.
The discount rate for each reporting unit was estimated based on an after-tax weighted average cost of capital (“WACC”) reflecting the rate of return that would be expected by a market participant and ranged between approximately 11% and 19%. The WACC also takes into consideration a company-specific risk premium, reflecting the risk associated with the overall uncertainty of the financial projections used to estimate future cash flows.
The fair value of debt obligations represents $97 of debt payable within one year and $1,733 of long-term debt. The fair value of long-term debt was determined based on a market approach utilizing current market yields and was estimated to be approximately 100% of par value.
The fair value of pension liabilities of $239 was determined based upon assumptions related to discount rates and expected return on assets, as well as certain other assumptions related to various demographic factors.
    

15


The following table reconciles the enterprise value to the estimated reorganization value as of the Effective Date:
Enterprise value
$
3,100

Plus: Total cash
125

Plus: Fair value of non-debt and non-pension liabilities
 
Current liabilities
540

Long-term liabilities
527

Total non-debt and non-pension liabilities
1,067

Reorganization value of Successor assets
$
4,292

    
The fair value of non-debt and non-pension liabilities represents the total liabilities, less debt payable within one year, long-term debt and pension obligations, of the Successor Company as of the Effective Date.

16


Condensed Consolidated Statement of Financial Position
The following balance sheet illustrates the impacts of the implementation of the Plan and the application of fresh start accounting, which results in the opening balance sheet of the Successor Company.
As of July 1, 2019 (in millions, except share data)
Predecessor Company
 
Reorganization Adjustments(a)
 
Fresh Start Adjustments(q)
 
Successor Company
Assets
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents (including restricted cash of $15)
$
96

 
$
29

(b)
$

 
$
125

Accounts receivable (net of allowance for doubtful accounts of $16 and $0, respectively)
499

 

 
6

(r)
505

Inventories:
 
 
 
 
 
 

Finished and in-process goods
242

 

 
29

(s)
271

Raw materials and supplies
109

 

 

 
109

Other current assets
69

 
2

(c)

 
71

Total current assets
1,015

 
31

 
35

 
1,081

Investment in unconsolidated entities
20

 

 
(3
)
(t)
17

Deferred tax assets

 
12

(d)
(4
)
(u)
8

Other long-term assets
42

 
4

(e)
2

(v)
48

Property and equipment:
 
 
 
 
 
 

Land
90

 

 
23

(w)
113

Buildings
287

 

 
(119
)
(w)
168

Machinery and equipment
2,320

 

 
(994
)
(w)
1,326

 
2,697

 

 
(1,090
)
 
1,607

Less accumulated depreciation
(1,870
)
 

 
1,870

(w)

 
827

 

 
780

 
1,607

Operating lease assets
95

 

 
39

(x)
134

Goodwill
108

 

 
70

(y)
178

Other intangible assets, net
24

 

 
1,195

(z)
1,219

Total assets
$
2,131

 
$
47

 
$
2,114

 
$
4,292

Liabilities and Deficit
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Accounts payable
$
293

 
$
56

(a)
$

 
$
349

Debt payable within one year
438

 
(343
)
(f)
2

(aa)
97

Interest payable
7

 
(5
)
(g)

 
2

Income taxes payable
6

 
11

(h)

 
17

Accrued payroll and incentive compensation
38

 

 

 
38

Current portion of operating lease liabilities
21

 

 
7

(x)
28

Financing fees payable
104

 
(104
)
(i)

 

Other current liabilities
106

 
5

(j)

 
111

Total current liabilities
1,013

 
(380
)
 
9

 
642

Long-term liabilities:
 
 
 
 
 
 

Liabilities subject to compromise
3,672

 
(3,672
)
(k)

 

Long-term debt
90

 
1,622

(l)
21

(aa)
1,733

Long-term pension and post employment benefit obligations
184

 
33

(a)
44

(ab)
261

Deferred income taxes
15

 
1

(m)
163

(ac)
179

Operating lease liabilities
74

 

 
17

(x)
91

Other long-term liabilities
164

 
72

(n)
(6
)
(r)
230

Total liabilities
5,212

 
(2,324
)
 
248

 
3,136

Equity (Deficit)
 
 
 
 
 
 

Common stock (Successor)

 

(o)

 

Paid-in capital (Successor)

 
1,157

(o)

 
1,157

Common stock (Predecessor)
1

 
(1
)
(p)

 

Paid-in capital (Predecessor)
526

 
(526
)
(p)

 

Treasury stock (Predecessor), at cost—88,049,059 shares at December 31, 2018
(296
)
 
296

(p)

 

Accumulated other comprehensive loss
(26
)
 

 
26

(ad)

Accumulated deficit
(3,285
)
 
1,445

(p)
1,840

(ad)

Total Hexion Inc. equity (deficit)
(3,080
)
 
2,371

 
1,866

 
1,157

Noncontrolling interest
(1
)
 

 

 
(1
)
Total equity (deficit)
(3,081
)
 
2,371

(o)
1,866

 
1,156

Total liabilities and equity (deficit)
$
2,131

 
$
47

 
$
2,114

 
$
4,292


17


Reorganization Adjustments
(a)
The reorganization adjustments column reflects adjustments related to the consummation of the Plan, including the settlement of liabilities subject to compromise and related payments, other distributions of cash, issuance of new shares of common stock and the cancellation of the common equity of the Predecessor Company, as discussed in Note 3.
The following is a calculation of the total pre-tax gain on the settlement of the liabilities subject to compromise:
Liabilities subject to compromise (“LSTC”) (see (k) below)
$
3,672

Repayment of 1st Lien Notes
(1,383
)
Liabilities reinstated at emergence:
 
Accounts payable
(56
)
Pension and other post employment benefit obligations
(33
)
Other current liabilities
(19
)
Other long-term liabilities
(32
)
Total liabilities reinstated at emergence
(140
)
Fair value of equity issued in exchange for debt:
 
Fair value of equity
(1,156
)
Less: Proceeds from Rights Offering
300

Total fair value of equity issued in exchange for debt
(856
)
Gain on settlement of LSTC
$
1,293

(b)    Reflects the net cash received as of the Effective Date from implementation of the Plan:
Sources:
 
Proceeds from the Rights Offerings
$
300

Proceeds from the Senior Notes
450

Proceeds from the Senior Secured Term Loan
1,196

Release of utility deposit
1

Total sources
1,947

Uses:
 
Repayment of 1st Lien Notes
(1,383
)
Repayment of DIP Term Loan Facility
(350
)
Repayment of DIP Term Loan interest
(5
)
Debt and Equity Backstop premiums
(104
)
Financing fees
(19
)
Success fees at emergence
(31
)
Other professional fees
(26
)
Total uses
(1,918
)
Net cash received
$
29

(c)
Represents $3 of excess professional fees due to the Company offset by $1 for the settlement of certain amounts owed during reorganization.
(d)
Reflects the adjustment to release the valuation allowance on deferred tax assets for certain non-U.S. subsidiaries which management believes more likely than not will be realized as a result of reorganization.
(e)    Reflects the adjustments to capitalize the ABL Facility financing fees incurred upon emergence.
(f)
Reflects the adjustments made on the Effective Date to repay $350 in outstanding DIP Term Loans and to incur $7 for the current portion of the new Senior Secured Term Loan (see Note 9).
(g)
On the Effective Date, the Company repaid $5 of accrued unpaid interest on the DIP Term Loan Facility.
(h)
Reflects the adjustment to record income taxes payable as a result of reorganization.
(i)
On the Effective Date, the Company paid $24 of Equity Backstop premiums to the parties participating in the Rights Offering and $80 of Debt Backstop premiums. See Note 3 for more information.

18


(j)
Represents $19 of other current liabilities that were reclassified from “Liabilities subject to compromise” and $12 of other current liabilities incurred as a result of emergence offset by $26 of professional fees paid at emergence.
(k)
Liabilities subject to compromise represent unsecured liabilities incurred prior to the Petition Date. As a result of the Bankruptcy Petitions, actions to enforce or otherwise effect payment of pre-petition liabilities were generally stayed. These liabilities represent the amounts which have been allowed on known claims which were resolved through the Chapter 11 process, and have been approved by the Court as a result of the Confirmation Order.
The following table summarizes pre-petition liabilities that are classified as “Liabilities subject to compromise” in the unaudited Condensed Consolidated Balance Sheets:    
 
June 30, 2019
Debt
$
3,420

Interest payable
99

Accounts payable
56

Environmental reserve
43

Pension and other post employment benefit obligations
33

Dividends payable to parent
13

Other
8

Total
$
3,672

(l)
Represents the issuance of the new Senior Term Loan due 2026 of $1,208 and the new Senior Secured Notes due 2027 of $450 offset by $12 of debt discounts and $17 of debt issuance costs of which $7 is classified as “Debt due within one year” on the Condensed Consolidated Balance Sheets. The term loan and notes were recorded at estimated fair value, which was determined based on a market approach utilizing current yield.
(m)
Represents deferred tax activity associated with emergence.
(n)
Reflects the adjustments made to reclassify $32 of other long-term liabilities from “Liabilities subject to compromise” and to record $40 of tax liability as a result of emergence.
(o)     The following table reconciles the enterprise value to the estimated fair value of the Successor equity as of the Emergence Date:
Enterprise value
$
3,100

Plus: Total cash
125

Less: Fair value of new debt
(1,646
)
Less: Fair value of remaining debt obligations
(184
)
Less: Pension obligations
(239
)
Fair value of equity
1,156

Plus: Fair value of noncontrolling interest
1

Fair value of Successor paid-in capital
$
1,157

At the Effective Date, 100 shares of Common Stock of Hexion Inc. held by new direct parent Hexion Intermediate were issued and outstanding at a par value of $0.01 per share.
(p)    Reflects the cumulative impact of the reorganization adjustments discussed above:
Gain on settlement of LSTC
$
1,293

Success and other fees recognized at emergence
(39
)
Net gain on reorganization adjustments(1)
1,254

Tax impact on reorganization adjustments
(40
)
Cancellation of Predecessor common stock
1

Cancellation of Predecessor additional paid-in capital
526

Cancellation of Predecessor treasury stock
(296
)
Net impact to Accumulated Deficit
$
1,445

(1)    The net gain on reorganization adjustments has been included in “Reorganization items, net” in the Condensed Consolidated Statements of Operations.
Fresh Start Adjustments
(q)
The Fresh Start Adjustments column reflects adjustments required to record the assets and liabilities of the Company at fair value, including the elimination of the accumulated deficit and accumulated other comprehensive (loss) of the Predecessor Company.

19


(r)
Reflects the adjustments made to Predecessor deferred revenue in situations where it has been determined the Successor Company has no remaining legal performance obligation related to the arrangement that give rise to the deferred revenue for the Predecessor Company.
(s)
Reflects the adjustment made to record finished goods inventory at its estimated fair value, which was determined based on the current acquisition cost, including disposal and holding period costs and a reasonable profit margin less costs to sell.
(t)
Reflects the adjustments made to record the Predecessor Company’s investments in unconsolidated subsidiaries at fair value utilizing a cost approach method.
(u)
Reflects the deferred tax asset impact of the fresh start adjustments, resulting primarily from the book adjustment made to foreign property, plant, and equipment and intangibles that increased the future taxable temporary differences recorded.
(v)
Reflects the adjustments required to record the Predecessor Company’s long-term assets at fair value.
(w)
Reflects the adjustments made to record property, plant and equipment at its estimated fair value and eliminate Predecessor depreciation. Depreciable lives were also revised to reflect the remaining estimated useful lives of the related property, plant and equipment, which range from 1 to 39 years. Fair value was determined as follows:
The market, sales comparison or trended cost approach was utilized to estimate fair value for land and buildings. This approach relies upon recent sales, offerings of similar assets or a specific inflationary adjustment to original purchase price to arrive at a probable selling price.
The cost approach was utilized to estimate fair value for machinery and equipment. This approach considers the amount required to construct or purchase a new asset of equal utility at current market prices, with adjustments in value for physical deterioration and functional and economic obsolescence. Physical deterioration is an adjustment made in the cost approach to reflect the real operating age of an asset with regard to wear and tear, decay and deterioration that is not prevented by maintenance. Functional obsolescence is an adjustment made to reflect the loss in value or usefulness of an asset caused by inefficiencies or inadequacies of the asset, as compared to a more efficient or less costly replacement asset with newer technology. Economic obsolescence is an adjustment made to reflect the loss in value or usefulness of an asset due to factors external to the asset, such as the economics of the industry, reduced demand, increased competition or similar factors.
Depreciable lives were revised to reflect the remaining estimated useful lives as follows (in years):
Buildings
9 to 39 years
Machinery and equipment
1 to 20 years
(x)
Reflects $25 of adjustments made to bring the right-of-use operating leased assets and their associated liabilities to fair value utilizing an average discount rate of approximately 6% and to record favorable leasehold interests of $14, which were valued using a rental analysis approach based on (i) fair market rent was determined based on rates for facilities comparable to the Company’s properties, (ii) discount rates ranging from 8.0% to 12.0%, which were based on the after-tax WACC; and (iii) market rental growth rates ranging from 0.0% to 5.0%.
(y)
Reflects the adjustments made to record the elimination of the Predecessor goodwill balance of $108 and to record the Successor goodwill of $178, which represents the reorganization value of assets in excess of amounts allocated to identified tangible and intangible assets.
(z)
Reflects the adjustments made to eliminate the Predecessor Company’s other intangible assets of $24 and to record $1,219 in estimated fair value of Successor other intangible assets. Fair value was comprised of the following:
Customer related intangible assets of $968 were valued using the multi-period excess earnings income approach based on the following significant assumptions;
i.
Forecasted net sales and profit margins attributable to the current customer base through the applicable economic useful life;
ii.
Attrition rates ranging from 0.5% to 5.0%;
iii.
Discount rates ranging from 13.0% to 17.5%, which were based on the after-tax WACC; and
iv.
Economic lives of 20 to 25 years.
Trademarks of $141 were valued using the relief from royalty income approach based on the following significant assumptions:
i.
Forecasted net sales attributable to the trademarks through the applicable economic useful life;
ii.
Royalty rates ranging from 0.2% to 2.0% of expected net sales determined with regard to comparable market transactions and profitability analysis;
iii.
Discount rates ranging from 11.0% to 16.5%, which were based on the after-tax weighted average cost of capital (“WACC”); and
iv.
Economic lives ranging from 15 to 20 years.


20


Technology based intangible assets of $110 were valued used the relief from royalty income approach based on the following significant assumptions:
i.
Forecasted net sales attributable to the respective technologies through the applicable economic useful life;
ii.
Royalty rates ranging from 0.5% to 2.25% of expected net sales determined with regard to expected cash flows of respective technologies and the overall importance of respective technologies to product offering
iii.
Discount rates ranging from 11.0% to 16.5%, which were based on the after-tax WACC; and
iv.
Economic lives of 15 years.
(aa)
Reflects the adjustments made to bring various sale-leaseback financing arrangements to fair value and to revalue debt obligations.
(ab)
Reflects the remeasurement of the Predecessor Company’s pension liabilities. The increase in pension liabilities was driven by reductions in discount rates and changes in other actuarial assumptions as of the Effective Date, primarily impacting our unfunded German pension plans.
(ac)
Represents the deferred tax liability impact of the fresh start adjustments, resulting primarily from the book adjustment made to foreign property, plant, and equipment and intangibles that increased the future taxable temporary differences recorded.    
(ad)    Reflects the cumulative impact of the fresh start accounting adjustments discussed above and the elimination of the Predecessor Company’s accumulated other comprehensive income:
Establishment of Successor goodwill
$
178

Elimination of Predecessor goodwill
(108
)
Establishment of Successor other intangible assets
1,219

Elimination of Predecessor other intangible assets
(24
)
Inventory fair value adjustments
29

Property, plant and equipment fair value adjustment
780

Pension liability fair value adjustment
(44
)
Other assets and liabilities fair value adjustment
3

Elimination of Predecessor Company accumulated other comprehensive income
(26
)
Net gain on fresh start adjustments(1)
2,007

Tax impact on fresh start adjustments
(167
)
Net impact on accumulated deficit
$
1,840

(1)    The net gain on fresh start adjustments has been included in “Reorganization items, net” in the Condensed Statements of Operations.
5. Reorganization Items, Net
Incremental costs incurred directly as a result of the Bankruptcy Petitions, gains on the settlement of liabilities under the Plan and the net impact of fresh start accounting adjustments are classified as “Reorganization items, net” in the unaudited Condensed Consolidated Statements of Operations. The following table summarizes reorganization items:
 
Successor
 
 
Predecessor
 
Successor
 
 
Predecessor
 
July 2, 2019 through September 30, 2019
 
 
July 1, 2019
 
July 2, 2019 through September 30, 2019
 
 
January 1, 2019 through July 1, 2019
Net gain on reorganization adjustments (see Note 4)
$

 
 
$
(1,254
)
 
$

 
 
$
(1,254
)
Net gain on fresh start adjustments (see Note 4)

 
 
(2,007
)
 

 
 
(2,007
)
Financing fees

 
 

 

 
 
104

Professional fees

 
 

 

 
 
39

DIP ABL Facility fees

 
 

 

 
 
13

Total
$

 
 
$
(3,261
)
 
$

 
 
$
(3,105
)

21


6. Restructuring & Business Realignment
Restructuring Activities
In November 2017, the Company initiated new restructuring actions with the intent to optimize its cost structure. As of September 30, 2019, $26 of one-time cash costs have been incurred for these restructuring activities, consisting primarily of workforce reduction costs, and no additional costs are expected to be incurred related to the 2017 programs. All costs for these restructuring activities were incurred in the predecessor period.
The following table summarizes restructuring information by reporting segment:
 
Epoxy, Phenolic and Coating Resins
 
Forest Products Resins
 
Corporate and Other
 
Total
Total restructuring costs incurred through September 30, 2019
14

 
8

 
4

 
26

 
 
 
 
 
 
 
 
Predecessor
 
 
 
 
 
 
 
Accrued liability at December 31, 2018
$
2

 
$
2

 
$
2

 
$
6

Restructuring charges
1

 

 

 
1

Payments
(2
)
 
(1
)
 
(1
)
 
(4
)
Accrued liability at July 1, 2019
$
1

 
$
1

 
$
1

 
$
3

Successor
 
 
 
 
 
 
 
Accrued liability at July 2, 2019
$
1

 
$
1

 
$
1

 
$
3

Restructuring charges

 

 

 

Payments

 

 
(1
)
 
(1
)
Accrued liability at September 30, 2019
$
1

 
$
1

 
$

 
$
2

Oilfield
During the first quarter of 2018, the Company indefinitely idled an oilfield manufacturing facility within its Epoxy, Phenolic and Coating Resins segment, and production was shifted to another facility within the oilfield manufacturing group. This represented a triggering event resulting in an impairment evaluation of the fixed and intangible assets within the U.S. oilfield asset group. As a result, an asset impairment of $20 was recorded in the first quarter of 2018 related to the fixed assets at the idled manufacturing facility. In addition, the remaining U.S. oilfield asset group was evaluated for impairment utilizing a discounted cash flow approach, resulting in an additional impairment of $5 that was recorded during the first quarter of 2018 related to an existing customer relationship intangible asset. Overall, the Company incurred $25 of total impairment related to these assets, which is included in “Asset impairments” in the unaudited Condensed Consolidated Statements of Operations for the nine months ended September 30, 2018.
7. Related Party Transactions
Transactions with Apollo
As of the Company’s emergence from bankruptcy on July 1, 2019, Apollo is no longer a related party to the Company. The below disclosures are through July 1, 2019 and only reflect the time period when Apollo was a related party.
Management Consulting Agreement
The Company was party to a Management Consulting Agreement with Apollo (the “Management Consulting Agreement”) pursuant to which the Company received certain structuring and advisory services from Apollo and its affiliates. Apollo was entitled to an annual fee equal to the greater of $3 or 2% of the Company’s Adjusted EBITDA. Apollo elected to waive charges of any portion of the annual management fee due in excess of $3 for the calendar year 2018.
During the three and nine months ended September 30, 2018, the Company recognized expense under the Management Consulting Agreement of $1 and $2, respectively. This amount is included in “Other operating expense, net” in the unaudited Condensed Consolidated Statements of Operations. In conjunction with the Company’s Chapter 11 proceedings and the Support Agreement filed on April 1, 2019, Apollo agreed to waive its annual management fee for 2019. In connection with the Company’s emergence from Chapter 11, the Management Consulting Agreement was terminated pursuant to the Confirmation Order, as of the Effective Date.
Support Agreement
Pursuant to the Support Agreement, Apollo will receive a $2.5 senior unsecured note maturing on March 31, 2020, payable upon the earlier of the maturity date or an initial public offering or listing on NYSE or NASDAQ.
    

22