~~Epoxy, Phenolic~~•Coatings and ~~Coating Resins:~~ ~~epoxy~~Composites: these businesses are focused on the global coatings and composites market. They include our base and specialty ~~resins, phenolic encapsulated substrates, versatic acids and derivatives, basic~~ epoxy resins and ~~intermediates, phenolic specialty resins~~Versatic™ Acids and ~~molding compounds, polyester resins, acrylic resins~~Derivatives businesses.

•Corporate and ~~vinylic resins~~Other: primarily corporate general and administrative expenses that are not allocated to the other segments, such as shared service and administrative functions and foreign exchange gains and losses.

Hexion Inc. | 22 | Q1 2021 Form 10-Q

~~Forest Products Resins:~~ ~~forest products resins and formaldehyde applications~~

~~2017~~2021 Overview

Following are highlights from our results of continuing operations for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016:~~2020:


	Three Months Ended March 31, 2021		Three Months Ended March 31, 2020		$ Change		% Change
Statements of Operations:
Net sales	$	753	$	687	$	66	10	%
Operating income (loss)	48		(34)		82		n/m
Income (loss) before income tax	28		(60)		88		n/m
Net income (loss) from continuing operations	12		(56)		68		n/m
Segment EBITDA:
Adhesives	$	68	$	55	13		24	%
Coatings and Composites	65		39		26		67	%
Corporate and Other	(19)		(21)		2		(10)	%
Total	$	114	$	73	$	41	56	%

2017 2016 $ Change % Change
Statements of Operations:
Net sales $ 2,696
$ 2,680
$ 16
1 %
Gross profit 384
323
61
19 %
Operating income 113
280
(167 ) (60 )%
(Loss) income before income tax (133 ) 91
(224 ) 246 %
Net (loss) income (146 ) 59
(205 ) 347 %
Segment EBITDA:
Epoxy, Phenolic and Coating Resins $ 143
$ 230
$ (87 ) (38 )%
Forest Products Resins 195
184
11
6 %
Corporate and Other (47 ) (50 ) 3
6 %
Total $ 291
$ 364
$ (73 ) (20 )%

•Net Sales—~~Net sales in~~In the first ~~nine~~three months of 2017 were $2.7 billion, an increase of 1% compared with the first nine months of 2016. Excluding $185 of net sales in the first nine months of 2016 from our divested Performance Adhesives, Powder Coatings, Additives & Acrylic Coatings and Monomers businesses (“PAC Business”),2021, net sales increased by ~~8%. These increases were driven by pricing, which~~$66, or 10%, compared to the first three months of2020. Pricing positively impacted sales by ~~$127~~$64 due ~~largely~~ to raw material price increases contractually passed through to customers across many of our businesses, ~~partially offset by competitive pricing pressures~~as well as favorable product mix and improved market conditions in our base epoxy resins and specialty ~~business. Overall, volumes~~epoxy resins businesses. Foreign currency translation positively impacted net sales by ~~$73~~$13 due to the strengthening of various foreign currencies against the U.S. dollar in the first three months of 2021 compared to the first three months of 2020. Volumes negatively impacted net sales by $11, primarily due to the impact of winter storm Uri in the U.S. gulf coast on several of our businesses, offset by volume increases in our specialty epoxy resins and global resins businesses.

•Net Income (Loss) from continuing operations—In the first three months of 2021, net income from continuing operations increased by $68 from a net loss of $56 as compared to the first three months of2020. The increase was driven by ~~strong~~an increase in operating income of $82, primarily due to an increase in gross profit as a result of improved market ~~demand in~~conditions across many of our ~~North American formaldehyde business,~~businesses mentioned above as well as the absence of a $16 asset impairment charge related to our oilfield and phenolic specialty resins businesses in the first quarter of 2020, and a $15 decrease in business realignment costs driven by lower severance expenses.

•Segment EBITDA—For the first three months of 2021, Segment EBITDA was $114, an increase of 56% compared with $73 in the first three months of 2020. This increase was primarily due to improved market conditions in our base epoxy resins, specialty epoxy resins business, and due to raw material productivity impacting our forest products resins and formaldehyde businesses, partially offset by $6 of repair costs and $12 of lost volume due to temporary manufacturing outages caused by winter storm Uri in the U.S. gulf coast. Additionally, our Corporate and Other charges in the first three months of 2021 decreased by $2 compared to the first three months of 2020.

•Growth Initiativesand New Product Development— We continue to focus on new product development to further strengthen our industry-leading research and development, technical services capabilities, and to strategically invest in our R&D footprint to increase opportunities for innovation and stimulate growth. These growth activities include the following:

◦Our new Adhesives product Armorbuilt™, which is designed to protect the critical utility pole infrastructure against wildfires. We expect incremental growth in 2021 from this product.

◦Extensive conversions were initiated at several major customers in 2020 for next generation OSB PF technology for board surface applications and additional ~~capacity~~applications are scheduled for 2021 as productivity gains and further reduction in resin usage, positions our products favorably compared to pMDI.

◦As an alternative technology, we have also developed BPA-free alternative coating technologies to address changing consumer preferences.

◦An expansion of our Brimbank, Australia facility to develop fire-resistant cladding materials leveraging proprietary phenolic resin technology.

Short-term Outlook

As we look towards the remainder of 2021, we anticipate continued strong economic recovery from the COVID-19 global pandemic resulting in increased demand in many of our ~~new formaldehyde plants.~~key end markets. While our businesses have been designated by many governments as essential businesses, which has allowed our operations to continue during the pandemic, we saw weak economic conditions develop in the first half of 2020, specifically within automotive and certain industrial markets. In the second half of 2020 and in the first quarter of 2021, we saw sequential improvement in many of the industries in which our businesses operate and year-over-year Segment EBITDA improvement as the overall economy continued to recover from the global pandemic. We expect these strong tailwinds to continue into the second quarter and second half of 2021.

Hexion Inc. | 23 | Q1 2021 Form 10-Q

Table of Content s

While we expect these current positive economic trends to continue during 2021, delays in COVID-19 vaccine distributions, increases in COVID-19 cases, hospitalizations, deaths, restrictions on trade or government lock-downs could disrupt the current recovery and our expectations. The ultimate impact that COVID-19 will have on our operating results will depend on the overall severity and duration of the COVID-19 pandemic and actions to contain the virus or treat its impact.

Within our Coatings and Composites segment, we continue to expect significant year over year improvement in our base epoxy business in 2021 due to strong improvements in market conditions. Our Versatic AcidsTM and Derivatives business should continue to benefit from modest growth in architectural coatings. Additionally, ~~volumes increased~~within our epoxy specialty resins business we anticipate lower demand in the China wind energy market in the second half of 2021.

Within our Adhesives segment, we anticipate improvement in Segment EBITDA within our North American forest products resins business ~~due to modest growth~~ in the U.S. housing market and in our base epoxy resins business as it continues to recover from cyclical trough conditions. These increases were partially offset by volume decreases in our epoxy specialty business driven by an ongoing destocking of wind blades in China. The impact of foreign exchange translation positively impacted net sales by $1 as the strengthening of the Brazilian real against the U.S. dollar was largely offset by the strengthening of the U.S. dollar against the euro and Chinese yuan in the first nine months of 2017 compared to the first nine months of 2016.

~~Net Loss~~—Net loss in the first nine months of 2017 was $146, a decrease of $205 as compared with net income of $59 in the first nine months of 2016. This decrease was primarily driven by the absence of gains2021 based on the ~~disposition of our PAC Business~~latest expectations in U.S. and ~~HA-International, LLC (“HAI”) joint venture interest of $240~~Canadian housing starts, remodeling and ~~gains on debt buybacks of $47~~ongoing macroeconomic recovery from the COVID-19 pandemic. We also expect that continued economic recovery and strong market demand will positively impacted the first nine months of 2016. These decreases to net loss were partially offset by increased gross margin and decreased business realignment costs. Higher gross margin is primarily driven by a reduction in accelerated depreciation of $113 related to our Norco, LA facility closure that occurred in 2016, partially offset by the absence of gross margin from our divested PAC Business in 2017 results. Lower business realignment costs are largely attributable to approximately $23 of costs in the first nine months of 2016 related to the Norco, LA facility closure that did not recur in 2017.

~~Segment EBITDA~~—For the first nine months of 2017, Segment EBITDA was $291, a decrease of 20% compared with $364 in the first nine months of 2016. Excluding Segment EBITDA of $30 in the first nine months of 2016 from our divested PAC Business and HAI joint venture, Segment EBITDA decreased by 13%. This decrease was primarily driven by volume decreases and margin compression in our specialty epoxy business discussed above, $13 of insurance recoveries received in the first nine months of 2016 in our versatic acids business that did not recur in 2017 and $6 of negative impact ~~related to the hurricanes that occurred in the U.S. during the third quarter of 2017. These decreases were partially offset by volume increases in~~ our North American formaldehyde business ~~discussed above,~~in 2021.

We also anticipate that our businesses will continue to benefit from the savings associated with our restructuring and cost reduction initiatives. Further, we are in the process of implementing various efficiency initiatives, which include process improvement and other productivity projects.

Lastly, we completed the sale of our Phenolic Specialty Resin, Hexamine and European-based Forest Products Resins businesses, on April 30, 2021, which will further streamline our portfolio and improve our specialty product mix. We expect to use the proceeds to further reduce our indebtedness as well as ~~continued cost efficiencies associated with our new North American formaldehyde plants. Additionally, year over year improvements~~for general corporate purposes including investments in our ~~oilfield and base epoxy resins businesses positively impacted Segment EBITDA, as both of these businesses continue to recover from cyclical trough conditions.~~

~~Restructuring and Cost Reduction Programs—~~In November 2017, we initiated new cost reduction programs that will be finalized in the first half of 2018. We expect these programs to generate approximately $40 of annual savings once fully implemented. During the first nine months of 2017, we have achieved $20 in cost savings related to our ongoing productivity and cost reduction programs. With the addition of the new programs discussed above, we have a total of approximately $54 of in-process cost savings, which we expect to achieve in the next 12 to 18 months.

~~Growth Initiatives—~~Our new North American formaldehyde plants, the last of which was completed in the first quarter of 2016, have provided us with additional capacity to support expected long-term growth in this business and has helped drive improved results in 2017. In addition, we continue to focus on new product development and have taken steps to improve our analytical and product development services for our global grid, such as the recently completed expansion of our technology center in Edmonton. Further, we continue to invest in new coatings technologies and capacity in response to recent volatile organic compounds regulation in China.

~~2017 Refinancing Transactions—~~In February 2017, we issued $485 aggregate principal amount of New First Lien Notes and $225 aggregate principal amount of New Senior Secured Notes. We used the net proceeds from these notes, together with cash on our balance sheet, to redeem all of our outstanding Old Senior Secured Notes. In May 2017, we issued an additional $75 aggregate principal amount of New First Lien Notes. We also amended and restated our ABL Facility, which effectively extended the maturity date of the facility from March 2018 to December 2021 and reduced the existing commitments under the facility from $400 to $350.

~~Short-term Outlook~~

We expect strong market demand combined with the incremental capacity created by our new formaldehyde plants in North America to continue to drive volume increases in our North American formaldehyde business for the remainder of 2017 and into 2018. Additionally, we continue to expect improved demand in our North American forest products resins business due to ongoing modest growth in U.S. housing starts.

We expect demand in our epoxy specialty business to remain below historical levels during the remainder of 2017 due to softness in the China wind energy market, although demand is expected to improve in the first half of 2018. We also expect this business to benefit from significant improvements in market demand for waterborne coatings over the next few years, primarily in China. Additionally, we expect our phenolic resins business to benefit from cost reductions associated with our ongoing grid optimization efforts in Germany. Further, we anticipate volumes in our versatic acid and derivatives business to continue to improve due to ongoing volume recovery and favorable market conditions. We also expect modest year over year improvement in our oilfield business through 2017 and into 2018 due to increased drilling activity. Lastly, we expect our base epoxy business to continue to improve in the remainder of 2017 and into 2018 due to our restructuring initiatives and favorable market conditions.

~~We expect raw material prices to stabilize through the remainder of 2017 and into 2018, following large increases in the first nine months of 2017.~~business.

Matters Impacting Comparability of Results

~~Dispositions of PAC Business and HAI Joint Venture Interest~~

During the second quarter of 2016, we completed the sales of both our PAC Business and our 50% interest in the HAI joint venture. As a result, when comparing 2017 to 2016, our results in the first nine months of 2017 exclude these divested businesses, while our results in the first nine months of 2016 include net sales of $185 and Segment EBITDA of $30 related to these divested businesses. Additionally, in the first nine months of 2016 we recorded a gain of $240 on the disposition of these businesses.

Raw Material Prices

Raw materials comprise approximately ~~70%~~75% of our cost of ~~sales.~~sales (excluding depreciation expense). The three largest raw materials used in our production processes are phenol, methanol and urea. These materials represent about half of our total raw material costs. Fluctuations in energy costs, such as volatility in the price of crude oil and related petrochemical products, as well as the cost of natural gas have historically caused volatility in our raw material and utility costs. ~~The~~In the first three months of 2021 compared to the first three months of 2020, the average price of phenol, ~~methanol,~~urea and ~~urea~~methanol increased by approximately ~~16%~~3%, ~~56%~~45% and 30%, ~~and 2% respectively, in the first nine months of 2017 compared to the first nine months of 2016.~~respectively. The impact of passing through raw material price changes to customers can result in significant variances in sales comparisons from year to year.

~~Other Comprehensive Income~~We expect long-term raw material cost volatility to continue because of price movements of key feedstocks. To help mitigate raw material volatility, we have purchase and sale contracts and commercial arrangements with many of our vendors and customers that contain periodic price adjustment mechanisms. Due to differences in timing of the pricing trigger points between our sales and purchase contracts, there is often a “lead-lag” impact. In many cases this “lead-lag” impact can negatively impact our margins in the short term in periods of rising raw material prices and positively impact them in the short term in periods of falling raw material prices.

~~Our other comprehensive income is significantly impacted by foreign currency translation and, to a lesser extent, impacted by defined benefit pension and postretirement benefit adjustments.~~ Foreign Currency Exchange

The impact of foreign currency translation is driven by the translation of assets and liabilities of our foreign subsidiaries which are denominated in functional currencies other than the U.S. dollar. Our non-U.S. operations accounted for approximately 56% of our sales in the first three months of 2021. The primary assets and liabilities driving the adjustments are cash and cash equivalents; accounts receivable; inventory; property, plant and equipment; accounts payable; pension and other postretirement benefit obligations and certain intercompany loans payable and receivable. The primary currencies in which these assets and liabilities are denominated are the euro, Brazilian real, Chinese yuan, Canadian dollar ~~Chinese yuan~~ and Australian dollar. ~~The impact~~

Hexion Inc. | 24 | Q1 2021 Form 10-Q

Table of defined benefit pension and postretirement benefit adjustments is primarily driven by unrecognized prior service cost related to our defined benefit and other postretirement benefit plans, as well as the subsequent amortization of these amounts from accumulated other comprehensive income in periods following the initial recording of such items.Content s

Results of Operations

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended March 31, 2021				Three Months Ended March 31, 2020
	$		% of Net Sales		$		% of Net Sales
Net sales	$	753	100	%	$	687	100	%
Cost of sales (exclusive of depreciation and amortization shown below)	584		78	%	565		82	%
Selling, general and administrative expense	70		9	%	64		9	%
Depreciation and amortization	49		7	%	49		7	%

Asset impairments	—		—	%	16		2	%
Business realignment costs	5		1	%	20		3	%
Other operating (income) expense, net	(3)		—	%	7		1	%
Operating income (loss)	48		6	%	(34)		(5)	%
Interest expense, net	24		3	%	26		4	%
Other non-operating income	(4)		(1)	%	—		—	%

Total non-operating expense	20		3	%	26		4	%
Income (loss) from continuing operations before income tax and earnings from unconsolidated entities	28		4	%	(60)		(9)	%
Income tax expense (benefit)	16		2	%	(3)		—	%
Income (loss) from continuing operations before earnings from unconsolidated entities	12		2	%	(57)		(8)	%
Earnings from unconsolidated entities, net of taxes	—		—	%	1		—	%
Income (loss) from continuing operations, net of taxes	12		2	%	(56)		(8)	%
Loss from discontinued operations, net of taxes	(1)		—	%	(3)		—	%
Net income (loss)	11		1	%	(59)		(9)	%


Other comprehensive loss	$	(4)			$	(57)

Three Months Ended September 30,
2017 2016
$ % of Net Sales $ % of Net Sales
Net sales $ 914
100 % $ 819
100 %
Cost of sales 783
86 % 680
83 %
Accelerated depreciation 14
2 % 21
3 %
Gross profit 117
12 % 118
14 %
Selling, general and administrative expense 75
8 % 69
8 %
Asset impairments 13
1 % —
— %
Business realignment costs (income) 10
1 % (3 ) — %
Other operating expense, net 1
— % 7
1 %
Operating income 18
2 % 45
5 %
Interest expense, net 82
9 % 76
9 %
Gain on extinguishment of debt —
— % (3 ) — %
Other non-operating (income) expense, net (3 ) — % 2
— %
Total non-operating expense 79
9 % 75
9 %
Loss before income tax and earnings from unconsolidated entities (61 ) (7 )% (30 ) (4 )%
Income tax expense 9
1 % 16
2 %
Loss before earnings from unconsolidated entities (70 ) (8 )% (46 ) (6 )%
Losses from unconsolidated entities, net of taxes —
— % (1 ) — %
Net loss $ (70 ) (8 )% $ (47 ) (6 )%
Other comprehensive income $ 10
$ 7

Three Months Ended ~~September 30, 2017~~March 31, 2021 vs. Three Months Ended ~~September 30, 2016~~March 31, 2020

Net Sales

In the ~~third quarter~~first three months of ~~2017,~~2021, net sales increased by ~~$95,~~$66, or ~~12%~~10%, compared to the ~~third quarter~~first three months of2016. Volume increases had a positive impact on net sales of $43, which was primarily due to year over year volume growth in our base epoxy resins, oilfield businesses, as well as continued strong market demand in our North American formaldehyde and forest products resins businesses.2020. Pricing positively impacted sales by ~~$37~~$64 due ~~largely~~ to raw material ~~price~~ increases contractually passed through to customers across many of our businesses, ~~partially offset by competitive pressures~~as well as favorable product mix and improved market conditions in our base epoxy resins and specialty ~~and oilfield~~epoxy resins businesses. Foreign currency translation positively impacted net sales by ~~$15~~$13 due to ~~an overall~~the strengthening of various foreign currencies against the U.S. dollar in the ~~third quarter~~first three months of ~~2017~~2021 compared to the ~~third quarter~~first three months of ~~2016.~~2020. Volumes negatively impacted net sales by $11, primarily due to the impact of Winter Storm Uri in the U.S. gulf coast on several of our businesses, offset by volume increases in our specialty epoxy resins and global resins businesses.

~~Gross Profit~~Operating Income (Loss)

In the ~~third quarter~~first three months of ~~2017, gross profit decreased~~2021, operating income (loss) increased by ~~$1 compared~~$82 from an operating loss of $34 in the first three months of 2020 to an operating income of $48 in the ~~third quarter~~first three months of ~~2016. Gross profit as a percentage of net sales decreased by 2%~~2021. This was primarily due to ~~margin compression driven by~~a $16 asset impairment charge related to our oilfield and phenolic specialty resins businesses in the ~~competitive pricing pressures discussed above, as well as unfavorable raw material price inflation during the third~~first quarter of ~~2017. This impact was partially offset by~~2020, a $15 decrease ~~in accelerated depreciation in the third quarter of 2017 as compared to the third quarter of 2016.~~

~~Operating Income~~

~~In the third quarter of 2017, operating income decreased by $27 compared to the third quarter of 2016, driven primarily by an increases~~ in business realignment costs ~~of $13, asset impairments of $13, selling, general~~driven by lower severance expenses and ~~administrative expense of $6 and the decrease~~an increase in gross profit due primarily to improved market across many of ~~$1 discussed~~our businesses mentioned above. ~~The increase in business realignment costs is largely attributable~~

Non-Operating Expense

In the first three months of 2021, total non-operating expense decreased by $6 due primarily to a ~~one-time reduction~~decrease in ~~the asset retirement obligation (“ARO”) liability~~interest expense of ~~$11 that occurred in the third quarter of 2016 related to the Norco plant closure. In the third quarter of 2017, a goodwill impairment of $13 was recognized~~$2 as a result of the estimated fair value of our oilfield reporting unit being less than the carrying value of its net assets. The increase in selling, general and administrative expense was due primarily to $4 of insurance recoveries in the third quarter of 2016 related to the supplier disruptiondecrease in our ~~European versatic acids business. These overall decreases to operating income were partially offset by a decrease in other operating expense of $6 driven by a decrease in realized~~debt obligations, and ~~unrealized foreign currency transaction losses.~~

~~Non-Operating Expense~~

~~In the third quarter of 2017, total non-operating expense increased by $4 compared to the third quarter of 2016. This was primarily due to~~ an increase in interest expense of $6 driven by higher average debt levels and lower gains on debt extinguishment of $3 due to gains on debt buybacks in the third quarter of 2016 that did not recur in 2017, partially offset by an increase of $5 in othermiscellaneous non-operating ~~income due to increased realized and unrealized foreign currency transaction gains.~~

income.

Income Tax Expense

The income tax expense (benefit) for the three months ended March 31, 2021 and 2020 was $16 and $(3), respectively. The income tax expense (benefit) is comprised of tax expense on income and tax benefit on losses from certain foreign operations. In 2021 and 2020, losses in the United States and certain foreign jurisdictions had no impact on income tax expense as no tax benefit was recognized due to the maintenance of a full valuation allowance.

Hexion Inc. | 25 | Q1 2021 Form 10-Q

Table of Content s

The effective tax rate ~~was (15)% and (53)%~~ for the ~~third quarter of 2017~~three months ended March 31, 2021 and ~~2016,~~2020 was 57% and 5%, respectively. The change in the effective tax rate was primarily attributable to the amount and distribution of income and losses among the various jurisdictions in which we operate. The effective tax rates were also impacted by operating gains and losses generated in jurisdictions where no tax expense or benefit was recognized due to the maintenance of a full valuation allowance.

Other Comprehensive Loss

For the ~~third quarter~~first three months of 2017 and 2016, income tax expense relates primarily to income from certain foreign operations. In 2017, losses in the United States and certain foreign jurisdictions had no impact on income tax expense as no tax benefit was recognized due to the maintenance of a full valuation allowance. In 2016, the income tax expense related to the gain on dispositions was substantially reduced by net operating loss utilization which was offset by a decrease to the respective valuation allowances.

~~Other Comprehensive Income~~

~~For the third quarter of 2017,~~2021, foreign currency translation ~~positively~~negatively impacted other comprehensive ~~income~~loss by ~~$10, primarily~~$9, due to an overall ~~strengthening~~weakening of various foreign currencies against the U.S. dollar in the ~~third quarter~~first three months of ~~2017.~~

~~For the third quarter~~2021 and an unrealized gain of ~~2016,~~$5 on an interest rate swap designated as a cash flow hedge recorded to other comprehensive ~~income of $7 relates to the positive impact of foreign currency, primarily due to the strengthening of the euro against the U.S. dollar.~~loss.

Nine Months Ended September 30,
2017 2016
$ % of Net Sales $ % of Net Sales
Net sales $ 2,696
100 % $ 2,680
100 %
Cost of sales 2,298
85 % 2,230
83 %
Accelerated depreciation 14
1 % 127
5 %
Gross profit 384
14 % 323
12 %
Selling, general and administrative expense 227
8 % 235
9 %
Gain on dispositions —
— % (240 ) (9 )%
Asset impairments 13
— % —
— %
Business realignment costs 27
1 % 42
2 %
Other operating expense, net 4
— % 6
— %
Operating income 113
5 % 280
10 %
Interest expense, net 247
9 % 235
9 %
Loss (gain) on extinguishment of debt 3
— % (47 ) (2 )%
Other non-operating (income) expense, net (4 ) — % 1
— %
Total non-operating expense 246
9 % 189
7 %
(Loss) income before income tax and earnings from unconsolidated entities (133 ) (4 )% 91
3 %
Income tax expense 16
1 % 40
1 %
(Loss) income before earnings from unconsolidated entities (149 ) (5 )% 51
2 %
Earnings from unconsolidated entities, net of taxes 3
— % 8
— %
Net (loss) income $ (146 ) (5 )% $ 59
2 %
Other comprehensive income $ 25
$ 7

~~Nine Months Ended September 30, 2017 vs. Nine Months Ended September 30, 2016~~

~~Net Sales~~

~~In the first nine months of 2017, net sales increased by $16, or 1%, compared to the first nine months of~~2016. Excluding $185 of net sales in the first nine months of 2016 from our PAC Business that did not recur in 2017, net sales increased by 8%. Pricing positively impacted sales by $127 due largely to raw material price increases passed through to customers across many of our businesses, partially offset by competitive pressures in our epoxy specialty business. Volume increases positively impacted net sales by $73 driven by strong market demand in our North American formaldehyde business combined with the additional capacity from our new formaldehyde plants. Additionally, volumes increased in our North American forest products resins business due to modest growth in the U.S. housing market. Volumes also increased in our base epoxy resins and oilfield businesses as these businesses continue to recover from cyclical trough conditions. These increases were partially offset by volume decreases in our epoxy specialty business driven by an ongoing destocking of wind blades in China. Lastly, the impact of foreign exchange translation positively impacted net sales by $1 as the strengthening of the Brazilian real against the U.S. dollar was largely offset by the strengthening of the U.S. dollar against the euro and Chinese yuan in the first nine months of 2017 compared to the first nine months of 2016.

~~Gross Profit~~

In the first nine months of 2017, gross profit increased by $61 compared to the first nine months of 2016, primarily due to the absence of $127 of accelerated depreciation recorded in the first nine months of 2016 related to the closure of our Norco, LA facility. Gross profit as a percentage of net sales increased by 2%, primarily due to the impact of the accelerated depreciation discussed above, which had a negative impact of 5% on 2016 gross profit. This impact was partially offset by margin compression driven by the competitive pricing pressures discussed above, as well as unfavorable raw material price inflation during the first nine months of 2017.

~~Operating Income~~

In the first nine months of 2017, operating income decreased by $167 compared to the first nine months of 2016, primarily due to the gain on dispositions of $240 related to the sale of our PAC Business and HAI joint venture interest in 2016 that did not recur in 2017 and an increase in asset impairments of $13. These decreases to operating income was partially offset by the increase in gross profit of $61 discussed above, as well as decreases in business realignment costs of $15 and in selling, general and administrative expense of $8. The decrease in business realignment costs is largely attributable to costs in the first nine months of 2016 related to the Norco, LA facility closure that did not recur in 2017. In the first nine months of 2017, a goodwill impairment of $13 was recognized as a result of the estimated fair value of our oilfield reporting unit being less than the carrying value of its net assets. The decrease in selling, general and administrative expense was due primarily to lower compensation and benefits expense driven by our recent cost savings and productivity actions, as well as the sale of our PAC Business in the second quarter of 2016, partially offset by $14 of insurance recoveries in the first nine months of 2016 related to the supplier disruption in our European versatic acids business.

~~Non-Operating Expense~~

In the first nine months of 2017, total non-operating expense increased by $57 compared to the first nine months of 2016. This was primarily due to lower gains on debt extinguishment of $50 due to gains on debt buybacks in the first nine months of 2016 that did not recur in 2017 and an increase in interest expense of $12 driven by higher average debt levels, partially offset by an increase of $5 in other non-operating income due to increased realized and unrealized foreign currency transaction gains.

~~Income Tax Expense~~

The effective tax rate was (12)% and 44% for the first nine months of 2017 and 2016, respectively. The change in the effective tax rate was primarily attributable to the amount and distribution of income and losses among the various jurisdictions in which we operate. The effective tax rates were also impacted by operating gains and losses generated in jurisdictions where no tax expense or benefit was recognized due to the maintenance of a full valuation allowance.

For the first ~~nine~~three months of 2017 and 2016, income tax expense relates primarily to income from certain foreign operations. In 2017, losses in the United States and certain foreign jurisdictions had no impact on income tax expense as no tax benefit was recognized due to the maintenance of a full valuation allowance. In 2016, the income tax expense related to the gain on dispositions was substantially reduced by net operating loss utilization which was offset by a decrease to the respective valuation allowances.

~~Other Comprehensive Income~~

~~For the first nine months of 2017,~~2020, foreign currency translation ~~positively~~negatively impacted other comprehensive ~~income~~loss by ~~$25, primarily~~$42, due to an overall ~~strengthening~~weakening of various foreign currencies against the U.S. dollar in the ~~third quarter~~first three months of ~~2017.~~

~~For the first nine months~~2020 and an unrealized loss of ~~2016,~~$15 on an interest rate swap designated as a cash flow hedge recorded to other comprehensive income of $7 relates to $8 positive impact of foreign currency, primarily due to the strengthening of the euro, Brazilian real and Canadian dollar against the U.S. dollar, partially offset by $1 of amortization of prior service costs related to defined benefit pension and postretirement benefits.

loss.

Results of Operations by Segment

Following are net sales and Segment EBITDA (earnings before interest, income taxes, depreciation and amortization) by reportable segment. Segment EBITDA is defined as EBITDA adjusted for certain non-cash items and other income and expenses. Segment EBITDA is the primary performance measure used by our senior management, the chief operating decision-maker and the ~~board~~Board of ~~directors~~Directors to evaluate operating results and allocate capital resources among segments. Segment EBITDA is also the profitability measure used to set management and executive incentive compensation goals. Segment EBITDA should not be considered a substitute for net loss or other results reported in accordance with U.S. GAAP. Segment EBITDA may not be comparable to similarly titled measures reported by other companies.


	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016				Three Months Ended March 31, 2021		Three Months Ended March 31, 2020
Net Sales ⁽¹⁾:													Net Sales (1):
Epoxy, Phenolic and Coating Resins	$	528		$	476		$	1,537		$	1,664
Forest Products Resins	386			343			1,159			1,016
Adhesives													Adhesives	$	361	$	329
Coatings and Composites													Coatings and Composites	392		358
Total	$	914		$	819		$	2,696		$	2,680		Total	$	753	$	687

Segment EBITDA:													Segment EBITDA:
Epoxy, Phenolic and Coating Resins	$	45		$	64		$	143		$	230
Forest Products Resins	66			65			195			184
Adhesives													Adhesives	$	68	$	55
Coatings and Composites													Coatings and Composites	65		39
Corporate and Other	(15		)	(17		)	(47		)	(50		)	Corporate and Other	(19)		(21)
Total	$	96		$	112		$	291		$	364		Total	$	114	$	73

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

Three Months Ended ~~September 30, 2017~~March 31, 2021 vs. Three Months Ended ~~September 30, 2016~~March 31, 2020 Segment Results

Following is an analysis of the percentage change in net sales by segment from the three months ended ~~September 30, 2016~~March 31, 2020 to the three months ended ~~September 30, 2017:~~March 31, 2021:


	Volume		Price/Mix		Currency Translation		Total
Adhesives	2	%	8	%	—	%	10	%
Coatings and Composites	(5)	%	11	%	3	%	9	%

Volume Price/Mix
Currency
Translation
Total
Epoxy, Phenolic and Coating Resins 7 % 2 % 2 % 11 %
Forest Products Resins 3 % 9 % 1 % 13 %
Adhesives

~~Epoxy, Phenolic and Coating Resins~~

Net sales in the ~~third quarter~~first three months of ~~2017~~2021 increased by ~~$52,~~$32, or ~~11%~~10%, when compared to the ~~third quarter~~first three months of ~~2016. Volume positively impacted net sales by $32, primarily due to volume growth in our base epoxy resins and oilfield businesses. The impact of foreign exchange translation positively~~impacted net sales by $11, due primarily to the strengthening of the euro against the U.S. dollar, partially offset by the strengthening of the U.S. dollar against the Chinese yuan in the third quarter of 2017 compared to the third quarter of 2016.~~Lastly, pricing positively~~impacted net sales by $9 due primarily to raw material price increases passed through to customers across many of our businesses, partially offset by competitive pressures in our epoxy specialty and oilfield businesses.

Segment EBITDA in the third quarter of 2017 decreased by $19 to $45 compared to the third quarter of 2016. The decrease was primarily due to margin compression and volume decreases in our epoxy specialty business, $6 of negative impact related to the hurricanes that occurred in the U.S. during the third quarter of 2017 and $4 of insurance recoveries received in the third quarter of 2016 in our versatic acids business that did not recur in 2017. These decreases were partially offset by year over year improvements in our oilfield and base epoxy resins businesses, as both continue to recover from cyclical trough conditions.

~~Forest Products Resins~~

~~Net sales in the third quarter of 2017 increased by $43, or 13%, when compared to the third quarter of 2016.~~2020. Pricing positively impacted net sales by ~~$28, which was~~$25, primarily due to raw material price increases contractually passed through to customers across many of our businesses. Volumes positively impacted net sales by ~~$11, and were~~$7, primarily ~~driven by strong market demand~~due to volume increases in our North American and Latin American resins businesses and global formaldehyde business ~~combined with~~driven by strong demand across many key end markets, largely offset by the ~~additional capacity from~~impact of winter storm Uri in the U.S. gulf coast. Lastly, foreign currency translation remained flat, due to the strengthening of various foreign currencies against the U.S. dollar, offset by the weakening of the Brazilian real against the U.S dollar in the first three months of 2021 compared to the first three months of 2020.

Segment EBITDA in the first three months of 2021 increased by $13 to $68, when compared to the first three months of 2020. This increase was primarily driven by an improved global demand across many of our ~~new formaldehyde plants. Additionally, volumes increased in~~end markets, as discussed above, and raw material productivity impacting our ~~North American~~ forest products resins ~~business~~and formaldehyde businesses.

Hexion Inc. | 26 | Q1 2021 Form 10-Q

Table of Content s

Coatings and Composites

Net sales in the first three months of 2021 increased by $34, or 9%, when compared to the first three months of 2020. Pricing positively impacted net sales by $39 due to ~~modest growth~~improved market conditions in ~~the U.S. housing market.~~our base epoxy resins and specialty epoxy resins businesses. Foreign ~~exchange~~currency translation positively impacted net sales by $4$13, due primarily to ~~an overall~~the strengthening of various foreign currencies against the U.S. dollar in the ~~third quarter~~three months of ~~2017~~2021 compared to the ~~third~~first three months of 2020. Volumes negatively impacted net sales by $18, which was primarily related to volume decreases in our base epoxy business mainly driven by winter storm Uri in the U.S. gulf coast in the first quarter 2021. These decreases in volumes were partially offset by year over year volume increases in our specialty epoxy resins business driven by lower China demand in the first quarter of ~~2016.~~2020 due to the global pandemic.

Segment EBITDA in the ~~third quarter~~first three months of ~~2017~~2021 increased by ~~$1,~~$26 to ~~$66,~~$65 compared to the ~~third quarter~~first three months of ~~2016. This~~2020. The increase was primarily due to ~~the volume increases~~improved market conditions in our ~~North American formaldehyde~~base epoxy resins business and specialty epoxy resins business, as discussed above, ~~as well as continued cost efficiencies associated with our new North American formaldehyde plants.~~

partially offset by temporary manufacturing outages caused by winter storm Uri in the U.S. gulf coast.

Corporate and Other

Corporate and Other is primarily corporate, general and administrative expenses that are not allocated to the other segments, such as shared service and administrative functions and unallocated foreign exchange gains and losses and legacy company costs not allocated to continuing segments. Corporate and Other charges in the third quarter of 2017 decreased by $2 compared to the third quarter of 2016 due primarily to cost savings actions and lower incentive compensation accruals.

~~Nine Months Ended September 30, 2017 vs. Nine Months Ended September 30, 2016 Segment Results~~

~~Following is an analysis of the percentage change in net sales by segment from the nine months ended September 30, 2016 to the nine months ended September 30, 2017:~~

Volume Price/Mix
Currency
Translation
Impact of Dispositions Total
Epoxy, Phenolic and Coating Resins 2 % 2 % (1 )% (11 )% (8 )%
Forest Products Resins 4 % 9 % 1 % — % 14 %

~~Epoxy, Phenolic and Coating Resins~~

Net sales in the first nine months of 2017 decreased by $127, or 8%, when compared to the first nine months of 2016. The majority of the decrease is due to the disposition of our PAC Business in the second quarter of 2016, which negatively impacted net sales by $185. Pricing positivelyimpacted net sales by $39 due primarily to raw material price increases passed through to customers across many of our businesses, partially offset by competitive pressures in our epoxy specialty business. Volumes positively impacted net sales by $28, primarily due to volume growth in our base epoxy resins and oilfield businesses, market driven volume increases in our phenolic resins business in North America and China and continued volume recovery in our European versatic acids business, partially offset by volume decreases in our epoxy specialty business largely driven by an ongoing destocking of wind blades in China. Lastly, these increases were partially offset by foreign exchange translation, which negatively~~impacted net sales by $9, due primarily to the strengthening of the U.S. dollar against the euro and Chinese yuan in the first nine months of 2017 compared to the first nine months of 2016.~~

Segment EBITDA in the first nine months of 2017 decreased by $87 to $143 compared to the first nine months of 2016. The impact of the disposition of our PAC Business and HAI joint venture interest in the second quarter of 2016 contributed $30 to this decrease. The remaining decrease was primarily due to margin compression and volume decreases in our epoxy specialty business, as well as a Segment EBITDA impact of $13 related to insurance recoveries received in the first nine months of 2016 in our versatic acids business that did not recur in 2017 and $6 of negative impact related to the hurricanes that occurred in the U.S. during the third quarter of 2017. These decreases were partially offset by improvements in our oilfield and base epoxy resins businesses, as both continue to recover from cyclical trough conditions.

~~Forest Products Resins~~

Net sales in the first nine months of 2017 increased by $143, or 14%, when compared to the first nine months of 2016. Pricing positively impacted net sales by $88, which was primarily due to raw material price increases passed through to customers across many of our businesses. Volumes positively impacted net sales by $45, and were primarily driven by strong market demand in our North American formaldehyde business combined with the additional capacity from our new formaldehyde plants. Additionally, volumes increased in our North American forest products resins business due to modest growth in the U.S. housing market. The impact of foreign exchange translation positively impacted net sales by $10, due largely to the strengthening of the Brazilian real against the U.S. dollar, partially offset by strengthening of the U.S. dollar against the euro in the first nine months of 2017 compared to the first nine months of 2016.

Segment EBITDA in the first nine months of 2017 increased by $11, to $195, compared to the first nine months of 2016. This increase was primarily due to the volume increases in our North American formaldehyde business discussed above, as well as continued cost efficiencies associated with our new North American formaldehyde plants.

~~Corporate and Other~~

Corporate and Other is primarily corporate, general and administrative expenses that are not allocated to the segments, such as shared service and administrative functions, unallocated foreign exchange gains and losses and legacy company costs not allocated to continuing segments.losses. Corporate and Other charges in the first ~~nine~~three months of ~~2017~~2021 decreased by $3$2 compared to the first ~~nine~~three months of ~~2016 due~~2020 primarily ~~to cost savings actions~~driven by lower compensation and ~~lower incentive compensation accruals.~~travel costs, partially offset by costs associated with our business services implementation.

Reconciliation of Net Income (Loss) ~~Income~~ to Segment EBITDA:


	Three Months Ended March 31, 2021		Three Months Ended March 31, 2020
Reconciliation:
Net income (loss)	$	11	$	(59)

Less: Net loss from discontinued operations	(1)		(3)
Net income (loss) from continuing operations	$	12	$	(56)
Income tax expense	16		(3)
Interest expense, net	24		26
Depreciation and amortization (1)	49		49

EBITDA	101		16
Adjustments to arrive at Segment EBITDA:
Asset impairments	$	—	$	16
Business realignment costs (2)	5		20


Transaction costs (3)	—		2
Realized and unrealized foreign currency losses	4		6




Other non-cash items (4)	10		11
Other (5)	(6)		2
Total adjustments	13		57
Segment EBITDA	$	114	$	73

Segment EBITDA:
Adhesives	$	68	$	55
Coatings and Composites	65		39
Corporate and Other	(19)		(21)
Total	$	114	$	73

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Reconciliation:
Net (loss) income $ (70 ) $ (47 ) $ (146 ) $ 59
Income tax expense 9
16
16
40
Interest expense, net 82
76
247
235
Depreciation and amortization 29
30
85
101
Accelerated depreciation 14
21
14
127
EBITDA $ 64
$ 96
$ 216
$ 562
Items not included in Segment EBITDA:
Business realignment costs (income) $ 10
$ (3 ) $ 27
$ 42
Gain on dispositions —
—
—
(240 )
Asset impairments 13
—
13
—
Realized and unrealized foreign currency (gains) losses (5 ) 6
(7 ) (3 )
(Gain) loss on extinguishment of debt —
(3 ) 3
(47 )
Other 14
16
39
50
Total adjustments 32
16
75
(198 )
Segment EBITDA $ 96
$ 112
$ 291
$ 364

Segment EBITDA:
Epoxy, Phenolic and Coating Resins $ 45
$ 64
$ 143
$ 230
Forest Products Resins 66
65
195
184
Corporate and Other (15 ) (17 ) (47 ) (50 )
Total $ 96
$ 112
$ 291
$ 364

~~Items Not Included in Segment EBITDA~~

~~Not included in Segment EBITDA are certain non-cash items and other income and expenses.~~ (1)For the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020, accelerated depreciation of $2 has been included in “Depreciation and ~~2016, these items primarily include expenses from retention programs and~~amortization.”

(2)Business realignment costs for the periods below included:


	Three Months Ended March 31, 2021		Three Months Ended March 31, 2020
Severance costs	$	(1)	$	8
In-process facility rationalizations	1		6
Contractual costs from exited businesses	2		—
Business services implementation	2		4
Legacy environmental reserves	(2)		2
Other	3		—

(3)For the three months ended March 31, 2020, transaction costs included certain professional fees related to strategic projects. ~~Business realignment costs~~

Hexion Inc. | 27 | Q1 2021 Form 10-Q

Table of Content s

(4)Other non-cash items for the ~~three and nine months ended September 30, 2017 primarily include costs related to certain in-process facility rationalizations and cost reduction programs. Business realignment costs~~periods presented below included:


	Three Months Ended March 31, 2021		Three Months Ended March 31, 2020
Fixed asset write-offs	$	1	$	2
Stock-based compensation costs	6		5
Long-term retention programs	2		3

Other	1		1

(5)Other for the three and nine months ended September 30, 2016 primarily include costs related to the planned facility rationalizations within the Epoxy, Phenolic and Coating Resins segment and costs related to certain in-process cost reduction programs.periods presented below included:


	Three Months Ended March 31, 2021		Three Months Ended March 31, 2020
Legacy and other non-recurring items	$	—	$	2
IT outage recoveries, net	—		(1)
Gain on sale of assets	(4)		—
Financing fees and other	(2)		1

Hexion Inc. | 28 | Q1 2021 Form 10-Q

Table of Content s

Liquidity and Capital Resources

2021 Outlook

We believe we are ~~a highly leveraged company. Our primary sources of~~favorably positioned to fund our ongoing liquidity ~~are~~requirements for the foreseeable future through cash ~~flows~~ generated from operations, as well as available borrowings under our ABL Facility. We have the operational and financial flexibility to make strategic capital investments, leverage our leadership positions with both our customers and suppliers, optimize our portfolio and drive new growth programs. As the impact of the COVID-19 pandemic on the global economy and our operations evolves, we will continue to assess our liquidity needs.

The following factors will impact 2021 cash flows:

•Sales of Assets: During the third quarter of 2020, we entered in a Purchase Agreement to sell our Phenolic Specialty Resins, Hexamine and European-based Forest Products Resins businesses. We completed the transaction on April 30, 2021 for cash proceeds of $304. In May 2021, we used a portion of the net proceeds to pay down the aggregate principal of the euro denominated tranche Senior Secured Term Loan for $150. We plan to use the remaining proceeds from the transaction to further reduce our indebtedness as well as for general corporate purposes including investments in our business. We will continue to explore options to optimize our portfolio.

•Interest and Income Taxes: We expect cash outflows in 2021 related to interest payments on our debt of approximately $85 to $95 and income tax payments between $20 to $30.

•Capital Spending: Capital spending in 2021 is expected to be between $115 and $125, an increase from 2020 due to our commitment to future investments to productivity and growth projects in our businesses.

•Working Capital: We anticipate working capital to increase modestly during 2021, as compared to 2020, based on expected increased volumes as key end markets continue to recover from COVID-19. During the year, we expect an increase in the first half and a decrease in the second half, consistent with historical trends.

•Restructuring Activities: We expect that the 2021 cost savings associated with our in-process facility rationalizations and the creation of a business service group within the Company to provide certain administrative functions for us going forward will have a net positive impact on our liquidity.

Our short-term cash needs are expected to include funding operations as currently planned and we believe that we will be able to meet our liquidity needs over the next 12 months based on our current projections of cash flow from operations and borrowing availability under ~~the ABL Facility. Our primary liquidity requirements are interest, working capital and capital expenditures.~~

financing arrangements.

At ~~September 30, 2017,~~March 31, 2021, we had ~~$3,733~~$1,766 of outstanding debt and ~~$310~~$483 in liquidity consisting of the following:

•$~~100~~131 of unrestricted cash and cash equivalents (of which ~~$94~~$93 is maintained in foreign jurisdictions);

•$~~188~~295 of borrowings available under our ABL Facility ($350 borrowing base less ~~$124 of outstanding borrowings and $38~~$55 of outstanding letters of ~~credit)~~credit; there were no outstanding borrowings); and

•$2257 of time drafts and borrowings available under credit facilities at certain international subsidiaries

Our net working capital (defined as accounts receivable and inventories less accounts payable) from our continuing operations, excluding Assets Held for Sale, at ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016~~2020 was ~~$485~~$353 and ~~$309,~~$257, respectively. A summary of the components of our net working capital as of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016~~2020 is as follows:


	March 31, 2021		% of LTM Net Sales		December 31, 2020		% of LTM Net Sales
Accounts receivable	$	410	16	%	$	331	13	%
Inventories	292		11	%	265		11	%
Accounts payable	(349)		(14)	%	(339)		(14)	%
Net working capital (1)	$	353	13	%	$	257	10	%

September 30, 2017 % of LTM Net Sales December 31, 2016
% of LTM Net Sales ⁽¹⁾
Accounts receivable $ 500
14 % $ 390

12 %
Inventories 332
10 % 287

9 %
Accounts payable (347 ) (10 )% (368 )
(11 )%
Net working capital $ 485
14 % $ 309
10 %
(1)Management believes that this non-GAAP measure is useful supplemental information. This non-GAAP measure should be considered by the reader in addition to but not instead of, the financial statements prepared in accordance with U.S. GAAP.


~~(1)~~	~~The percentage of LTM Net Sales at December 31, 2016 exclude net sales related to our PAC Business, which was sold on June 30, 2016.~~

The increase in net working capital of ~~$176~~$96 from December 31, ~~2016~~2020 was ~~primarily due to increases~~driven by an increase in accounts receivable of ~~$110 and~~$79, an increase in inventory of ~~$45. Both~~$27 and an increase in accounts payable of ~~these increases were primarily the result of increased~~$10. The increase in accounts receivable was driven by higher volumes in the ~~third~~first quarter of ~~2017~~2021 as compared to the fourth quarter of ~~2016 due to market conditions and seasonality, as well as raw material price inflation. These increases to net working capital were partially offset by a decrease~~2020, the increase in accounts payable ~~of $21,~~was largely related to raw material price ~~inflation~~increases in the first quarter of 2021 and ~~the~~ timing of vendor ~~payments. To minimize~~payments and the impact of seasonal changes in net working capital on cash flows, we continue to review inventory safety stock levels, focus on accelerating receivable collections by offering incentives to customers to encourage early payment or through the sale of receivables at a discount and negotiate with vendors or enter into inventory financing arrangements to extend payment terms.

~~We periodically borrow from the ABL Facility to support our short-term liquidity requirements, particularly when net working capital requirements~~ increase in ~~response to the seasonality of our volumes. As of September 30, 2017, there were $124 of outstanding borrowings under the ABL Facility.~~

~~2017 Refinancing Transactions~~

In February 2017, we issued $485 aggregate principal amount of New First Lien Notes and $225 aggregate principal amount of New Senior Secured Notes. Upon the closing of these offerings, we used the net proceeds from these offerings, together with cash on our balance sheet, to redeem all of our outstanding 8.875% Senior Secured Notes due 2018 (the “Old Senior Secured Notes”), which occurred in March 2017.

~~In May 2017, we issued an additional $75 aggregate principal amount of New First Lien Notes at an issue price of 100.5%. These notes~~ ~~mature on February 1, 2022 and have substantially the same terms as the New First Lien Notes issued in February 2017.~~ ~~We used the net proceeds from these notes for general corporate purposes.~~

In December 2016, we amended and restated the ABL Facility, with modifications to, among other things, permit the refinancing of the Old Senior Secured Notes. In connection with the issuance of the new notes in February 2017, certain lenders under the ABL Facility provided extended revolving facility commitments in an aggregate principal amount of $350 with a maturity date of December 5, 2021 (subject to early maturity triggers), the existing commitments were terminated and the size of the ABL Facilityinventories was ~~reduced from $400 to $350.~~

~~Short-Term Outlook~~

~~The following factors will impact cash flows for the remainder of 2017:~~

~~Interest and Income Taxes:~~ ~~We expect cash outflows in 2017 related to interest payments on our debt of approximately $300, with the largest components being paid~~driven by volume increases in the ~~second and fourth quarters, and income tax payments between $15 and $25.~~first quarter of 2021.

~~Capital Spending:~~ ~~Capital spending in 2017 is expected to be between $100 and $110, a significant decrease from 2016 due to the completion~~

Hexion Inc. | 29 | Q1 2021 Form 10-Q

Table of ~~large strategic growth projects in 2016, as well as our recent divestitures and restructuring activities at certain facilities.~~Content s

~~Working Capital:~~ In the first nine months of 2017, our net working capital increased by $176 due primarily to sequential volume increases, seasonality, inventory build for turnarounds and a weaker U.S. dollar. During the fourth quarter, we expect a decrease in net working capital, consistent with historical trends. We anticipate an overall increase in working capital in 2017, as compared to 2016.

We plan to fund these outflows with available cash and cash equivalents, cash from operations, available borrowings under our ABL Facility, as well as other liquidity actions. Based on our liquidity position as of September 30, 2017 and projections of operating cash flows, we expect to have sufficient liquidity to fund our operations for the next twelve months.

Historically, our liquidity position has been cyclical due to the timing of our interest payment obligations and seasonality of our volumes. We maintain normal commercial terms with our major vendors and customers. If certain of our commercial counterparties request changes to our terms it could put additional pressure on our liquidity position in certain times of the year.

We have $1.9 billion of First Priority Senior Secured Notes and $0.6 billion of Second Priority Notes maturing in 2020. Depending upon market, pricing and other conditions, including the current state of the high yield bond market, as well as our cash balances and available liquidity, we or our affiliates, may seek to acquire notes or other indebtedness of the Company through open market purchases, privately negotiated transactions, tender offers, redemption or otherwise, upon such terms and at such prices as we or our affiliates may determine (or as may be provided for in the indentures governing the notes), for cash or other consideration. In addition, the Company may sell certain assets to raise additional funds for reducing debt.

Sources and Uses of Cash

Following are highlights from our unaudited Condensed Consolidated Statements of Cash ~~Flows:~~Flows for continuing operations:


	Nine Months Ended September 30,
	2017			2016				Three Months Ended March 31, 2021		Three Months Ended March 31, 2020
(Uses) sources of cash:							(Uses) sources of cash:
Operating activities	$	(205	)	$	(131	)	Operating activities	$	(49)	$	(94)
Investing activities	(81		)	223			Investing activities	(17)		(26)
Financing activities	202			(195		)	Financing activities	(3)		136
Effect of exchange rates on cash flow	5			1			Effect of exchange rates on cash flow	(2)		(6)
Net change in cash and cash equivalents	$	(79	)	$	(102	)	Net change in cash and cash equivalents	$	(71)	$	10

Operating Activities

In the ~~first nine~~three months ~~of 2017,~~ended March 31, 2021, operations used ~~$205~~$49 of cash. Net ~~loss~~income from continuing operations of ~~$146~~$12 included ~~$116~~$58 of net non-cash expense items, consisting of depreciation and amortization of ~~$85,~~$49, non-cash ~~asset impairments~~stock based compensation expense of $6, and ~~accelerated depreciation~~unrealized foreign currency losses of ~~$27, amortization of deferred financing fees of $12 and loss on debt extinguishment of $3,~~$8, partially offset by ~~unrealized foreign currency gains of $5, gains~~a gain on sale of assets and dispositions of ~~$1 and a deferred tax benefit of $1.~~$4. Net working capital used ~~$150,~~$100, which was ~~largely~~ driven by ~~increases~~an increase in accounts receivable, an increase in inventory and ~~inventories~~an increase in accounts payable, due primarily to ~~volume increases related to market conditions and the seasonality of our businesses, as well as~~ raw material price ~~inflation.~~increases and increased volumes. Changes in other assets and liabilities and income taxes payable used ~~$25~~$19 due to the timing of when items were expensed versus paid, which primarily included operating lease expense, interest expense, employee retention programs, ~~restructuring reserves,~~ incentive compensation, pension plan contributions and taxes.

In the ~~first nine~~three months ~~of 2016,~~ended March 31, 2020, operations used ~~$131~~$94 of cash. Net ~~income~~loss from continuing operations of ~~$59~~$56 included ~~$93~~$76 of net non-cash income ~~items, primarily~~items. consisting of ~~gains on dispositions of $240 related to the HAI and PAC dispositions, a gain on debt extinguishment of $47 and~~ unrealized foreign currency gains of ~~$40. These items were partially offset by~~$6, depreciation and amortization of ~~$101, accelerated depreciation~~$49, non-cash asset impairments of ~~$127~~$16, non-cash stock based compensation expense of $5 and $3loss on the sale of assets of $2, partially offset by deferred tax ~~expense.~~expense of $2. Net working capital used ~~$155,~~$92, which was largely driven by increases in accounts receivable ~~and inventories~~due primarily to seasonality of our businesses, and decreases in accounts payable ~~in the first nine months of 2016, due primarily~~related to ~~the seasonality of our businesses and the~~ timing of vendor payments. Changes in other assets and liabilities and income taxes payable ~~provided $58~~used $22 due to the timing of when items were expensed versus paid, which primarily included operating lease expense, interest expense, employee retention programs, ~~restructuring reserves,~~ incentive compensation, pension plan contributions and taxes.

Investing Activities

In the ~~first nine~~three months ~~of 2017,~~ended March 31, 2021, investing activities used ~~$81~~$17 of cash primarily ~~driven by~~related to capital expenditures of ~~$87 (including capitalized interest),~~$24, partially offset by ~~net~~ proceeds from ~~the~~ sale of assets and dispositions of ~~$5 and an increase in restricted cash of $1.~~$7.

In the ~~first nine~~three months ~~of 2016,~~ended March 31, 2020, investing activities ~~provided $223~~used $26 of cash ~~primarily driven by net cash proceeds of $326~~ related to ~~the HAI and PAC dispositions and cash received on the HAI buyer’s note. These items were partially offset by~~ capital ~~expenditures (including capitalized interest) of $92 and an increase in restricted cash of $11.~~expenditures.

Financing Activities

In the ~~first nine~~three months ~~of 2017,~~ended March 31, 2021, financing activities provided ~~$202~~$3 of cash. Net short-term debt borrowings were ~~$15~~$2 and net long-term debt borrowings were $212. Our long-term debt borrowings primarily consisted of $124 in borrowings under our ABL Facility, the refinancing of our Old Senior Secured Notes in February 2017, an additional $75 aggregate principal amount of New First Lien Notes issued in May 2017 and $23 related to the sale-leaseback financing of certain equipment at a plant within our Forest Products Resins segment that occurred in the third quarter of 2017.$5.

In the ~~first nine~~three months ~~of 2016,~~ended March 31, 2020, financing activities ~~used $195~~provided $136 of cash. Net short-term debt ~~repayments~~borrowings were ~~$13 and~~$10, net long-term debt ~~repayments~~borrowings were ~~$182. Our long-term debt repayments primarily consisted~~$156 and distribution of ~~$187 used to repurchase a portion of our 8.875% Senior Secured Notes due 2018 on the open market.~~

affiliate loan was $10.

There are certain restrictions on the ability of certain of our subsidiaries to transfer funds to Hexion Inc. in the form of cash dividends, loans or otherwise, which primarily arise as a result of certain foreign government regulations or as a result of restrictions within certain subsidiaries’ financing agreements limiting such transfers to the amounts of available earnings and profits or otherwise limit the amount of dividends that can be distributed. In either case, we have alternative methods to obtain cash from these subsidiaries in the form of intercompany loans and/or returns of capital in such instances where payment of dividends is limited to the extent of earnings and profits.

We regularly review our portfolio for optimization through potential divestitures and potential bolt-on acquisitions or mergers. While there is no guarantee of any future transactions, it could include a specific business unit or combination of several businesses. We expect that a portion of the proceeds from any future divestiture transaction or transactions upon completion would be used to help reduce the absolute amount of our debt.

Further, depending upon market, pricing and other conditions, including the current state of the high yield bond market, as well as cash balances and available liquidity, we or our affiliates, may seek to acquire notes or other indebtedness of the Company through open market purchases, privately negotiated transactions, tender offers, redemption or otherwise, upon such terms and at such prices as we or our affiliates may determine (or as may be provided for in the indentures governing the notes), for cash or other consideration.

Hexion Inc. | 30 | Q1 2021 Form 10-Q

Table of Content s

Covenant Compliance

Credit Facilities and Senior Notes

The instruments that govern our indebtedness contain, among other provisions, restrictive covenants (and incurrence tests in certain cases) regarding indebtedness, dividends and distributions, mergers and acquisitions, asset sales, affiliate transactions, capital expenditures and, in the case of our ABL Facility, the maintenance of a financial ratio (depending on certain conditions). Payment of borrowings under the ABL Facility and our notes may be accelerated if there is an event of default as determined under the governing debt instrument. Events of default under the credit agreement governing our ABL Facility includes the failure to pay principal and interest when due, a material breach of representations or warranties, ~~most covenant defaults,~~ events of bankruptcy, ~~and~~ a change of ~~control.~~control, and most covenant defaults. Events of default under the indentures governing our notes include the failure to pay principal and interest, a failure to comply with covenants, subject to a 30-day grace period in certain instances, and certain events of bankruptcy.

The ~~indentures~~indenture that ~~govern~~governs our ~~6.625% First-Priority~~7.875% Senior ~~Secured~~ Notes ~~10.00% First Lien Notes, New First Lien Notes, New Senior Secured Notes and 9.00% Second-Priority Senior Secured Notes~~due 2027 (the ~~“Secured Indentures”~~“Indenture”) ~~contain an Adjusted~~contains a Pro Forma EBITDA to Fixed Charges ratio incurrence test which may restrict our ability to take certain actions such as incurring additional debt or making acquisitions if we are unable to meet this ratio (measured on a last twelve months, or LTM, basis) of at least 2.0:1. The ~~Adjusted~~Pro Forma EBITDA to Fixed Charges Ratio under the ~~Secured Indentures~~Indenture is generally defined as the ratio of (a) ~~Adjusted~~Pro Forma EBITDA to (b) net interest expense excluding the amortization or write-off of deferred financing costs, each measured on an LTM basis. See below for our Pro Forma EBITDA to Fixed Charges Ratio calculation.

~~The~~Our ABL Facility, which is subject to a borrowing base, does not have any financial maintenance covenant other than a minimum fixed charge coverage ratio of 1.0 to 1.0 that would only apply if our availability under the ABL Facility at any time is less than the greater of (a) ~~$35~~$30 and (b) ~~12.5%~~10.0% of the lesser of the borrowing base and the total ABL Facility commitments at such time. The fixed charge coverage ratio under the credit agreement governing the ABL Facility is generally defined as the ratio of (a) ~~Adjusted~~Pro Forma EBITDA minus non-financed capital expenditures and cash taxes to (b) debt service plus cash interest expense plus certain restricted payments, each measured ~~on an LTM basis. At September 30, 2017, our availability under~~for the ~~ABL Facility exceeded such levels; therefore, the minimum fixed charge covenant ratio did not apply. As~~four most recent quarters for which financial statements have been delivered.

Reconciliation of ~~September 30, 2017, we were in compliance with all covenants that govern the ABL Facility. We do not believe that a covenant default under the ABL Facility is reasonably likely~~Last Twelve Months Net Income to ~~occur in the foreseeable future.~~Pro Forma EBITDA

~~Adjusted~~Pro Forma EBITDA is defined as EBITDA adjusted for certain non-cash and certain non-recurring items and other adjustments calculated on a pro-forma basis, including the expected future cost savings from business optimization programs or other programs and the expected future impact of acquisitions, in each case as determined under the governing debt instrument. ~~As we are highly leveraged, we~~We believe that including the supplemental adjustments that are made to calculate ~~Adjusted~~Pro Forma EBITDA provides additional information to investors about our ability to comply with our financial covenants and to obtain additional debt in the future. ~~Adjusted~~Pro Forma EBITDA and Fixed Charges are not defined terms under U.S. GAAP. ~~Adjusted~~Pro Forma EBITDA is not a measure of financial condition, liquidity or profitability, and should not be considered as an alternative to net income (loss) determined in accordance with U.S. GAAP or operating cash flows determined in accordance with U.S. GAAP. Additionally, EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not take into account certain items such as interest and principal payments on our indebtedness, depreciation and amortization expense (because we use capital assets, depreciation and amortization expense is a necessary element of our costs and ability to generate revenue), working capital needs, tax payments (because the payment of taxes is part of our operations, it is a necessary element of our costs and ability to operate), non-recurring expenses and capital expenditures. Fixed Charges under the ~~Secured Indentures~~Indenture should not be considered an alternative to interest expense.

~~Reconciliation~~

Hexion Inc. | 31 | Q1 2021 Form 10-Q

Table of ~~Net Loss to Adjusted EBITDA~~Content s

The following table reconciles net loss to EBITDA and ~~Adjusted~~Pro Forma EBITDA from continuing operations for the twelve month period, and calculates the ratio of ~~Adjusted~~Pro Forma EBITDA to Fixed Charges as calculated under our ~~Secured Indentures~~Indenture for the period presented:

September 30, 2017
LTM Period
Net loss $ (244 )
Income tax expense 13
Interest expense, net 323
Depreciation and amortization 115
Accelerated depreciation 16
EBITDA 223
Adjustments to EBITDA:
Asset impairments 13
Business realignment costs ⁽¹⁾
41
Realized and unrealized foreign currency gains (15 )
Loss on extinguishment of debt 1
Unrealized loss on pension and postretirement benefits ⁽²⁾
34
Other ⁽³⁾
73
Cost reduction programs savings ⁽⁴⁾
54
Adjusted EBITDA $ 424
Pro forma fixed charges ⁽⁵⁾
$ 313
Ratio of Adjusted EBITDA to Fixed Charges ⁽⁶⁾
1.35


	March 31, 2021
	LTM Period
Net loss	$	(160)
Net loss from discontinued operations	(67)
Net loss from continuing operations	(93)
Income tax expense	33
Interest expense, net	98
Depreciation and amortization	191

~~(1)~~EBITDA	~~Primarily represents~~ ~~headcount reduction expenses and plant rationalization costs related~~229
Adjustments to ~~cost reduction programs, termination costs and other costs associated with business realignments, as well as environmental liabilities related to closed sites.~~arrive at Pro Forma EBITDA:


~~(2)~~ Business realignment costs (1)			~~Represents non-cash~~54
Realized and unrealized foreign currency gains			(2)
Unrealized losses ~~resulting from~~on pension and postretirement ~~benefit plan liability remeasurements.~~benefits (2)			4


Transaction costs (3)			~~Primarily includes~~ ~~employee~~ ~~retention program costs, certain professional fees~~ ~~related to strategic projects and legacy sites,~~ ~~business optimization expenses and management fees.~~ 4


~~(4)~~			Represents pro forma impact of in-process cost reduction programs savings. Cost reduction program savings represent the unrealized headcount reduction savings and plant rationalization savings related to cost reduction programs and other unrealized savings associated with the Company’s business realignments activities, and represent our estimate of the unrealized savings from such initiatives that would have been realized had the related actions been completed at the beginning of the LTM period. The savings are calculated based on actual costs of exiting headcount and elimination or reduction of site costs.

Other non-cash items (4)			42

Other (5)			~~Reflects pro forma interest expense based on interest rates at~~ ~~September 30, 2017, as if the 2017 Refinancing Transactions had taken place at the beginning of the period.~~

8
Cost reduction programs savings (6)	~~The Company’s ability to incur additional indebtedness, among other actions, is restricted under the Secured Indentures, unless the Company has an Adjusted~~4
Pro Forma EBITDA	$	343
Pro forma fixed charges (7)	$	81
Ratio of Pro Forma EBITDA to Fixed Charges ratio of at least 2.0 to 1.0. As of September 30, 2017, we did not satisfy this test. As a result, we are subject to restrictions on our ability to incur additional indebtedness and to make investments; however, there are exceptions to these restrictions, including exceptions that permit indebtedness under our ABL Facility (available borrowings of which were $188 at September 30, 2017).(8)	4.23

(1)Primarily represents costs related to certain in-process cost reduction activities, including severance costs of $7, $6 related to certain in-process facility rationalizations, $10 of contractual costs for exited businesses, $5 for future environmental clean-up of closed facilities and one-time implementation and transition costs associated with the creation of a business services group within the Company of $20.

(2)Represents non-cash losses resulting from pension and postretirement benefit plan liability remeasurements.

(3)Represents certain professional fees related to strategic projects.

(4)Primarily includes expenses for retention programs of $8, fixed asset disposals of $12 and share-based compensation costs of $18.

(5)Primarily represents $6 of expenses related to legacy expenses and other non-recurring items, $5 of business optimization expense, $7 related to financing fees and other expenses, offset by $3 of IT outage recoveries and $4 of gain on dispositions.

(6)Represents pro forma impact of in-process cost reduction programs savings. Cost reduction program savings represent the unrealized headcount reduction savings and plant rationalization savings related to cost reduction programs and other unrealized savings associated with the Company’s business realignments activities, and represent our estimate of the unrealized savings from such initiatives that would have been realized had the related actions been completed at the beginning of the period presented. The savings are calculated based on actual costs of exiting headcount and elimination or reduction of site costs. We expect the savings to be realized within the next 12 months.

(7)Reflects pro forma interest expense based on interest rates at March 31, 2021 and expected 2021 debt pay downs.

(8)The Company’s ability to incur additional indebtedness, among other actions, is restricted under the Secured Indentures, unless the Company has a Pro Forma EBITDA to Fixed Charges ratio of at least 2.0 to 1.0.

Recently Issued Accounting Standards

See Note 2 in Item 1 of Part I of this Quarterly Report on Form 10-Q for a detailed description of recently issued accounting pronouncements.

Hexion Inc. | 32 | Q1 2021 Form 10-Q

Table of Content s


~~Item 3.~~	~~Quantitative and Qualitative Disclosures about Market Risk~~

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material developments during the first ~~nine~~three months of ~~2017~~2021 on the matters we have previously disclosed about quantitative and qualitative market risk in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~.2020.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, including the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer, performed an evaluation of the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of ~~September 30, 2017~~.March 31, 2021. Based upon that evaluation, the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were effective at ~~September 30, 2017~~.

March 31, 2021.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Hexion Inc. | 33 | Q1 2021 Form 10-Q

~~Part~~

Table of Content s

PART II - OTHER INFORMATION


~~Item 1.~~	~~Legal Proceedings~~

~~The Louisville Air Pollution Control District (the “District”) has assessed~~Item 1. Legal Proceedings

There have been no other material developments during the ~~Company penalties totaling $296,000 associated with alleged violations~~first quarter of 2021 in any of the ~~District’s air pollution laws and~~ongoing legal proceedings that were included in our Annual Report on Form 10-K for the ~~Company’s air permit in 2016 and 2017. The Company is actively cooperating with the District to resolve this matter.~~ year ended December 31, 2020.

Item 1A. Risk Factors

There have been no other material ~~changes~~developments during the first ~~nine months~~quarter of ~~2017~~2021 in the risk factors that were included in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.


~~Item 3.~~	~~Defaults upon Senior Securities~~

Item 3. Defaults upon Senior Securities

None.


~~Item 4.~~	~~Mine Safety Disclosures~~

Item 4. Mine Safety Disclosures

This item is not applicable to the registrant.


~~Item 5.~~	Item 5. Other Information

In November 2017, the Company initiated new restructuring actions with the intent to optimize its cost structure. The Company expects these restructuring actions to generate approximately $40 of incremental cost savings over the next 12 to 18 months. As of the filing date of this Quarterly Report onNone.

Hexion Inc. | 34 | Q1 2021 Form 10-Q ~~the total one-time cash costs expected to be incurred for these restructuring activities are estimated between $30 and $40, consisting primarily~~

Table of ~~workforce reduction costs.~~Content s

Item 6. Exhibits



31.1		Rule 13a-14 Certifications:

		(a) Certificate of the Chief Executive Officer

	(b) Certificate of the Chief Financial Officer

32.1		Section 1350 Certifications

101.INS*		XBRL Instance Document

101.SCH*		XBRL Schema Document

101.CAL*		XBRL Calculation Linkbase Document

101.DEF*		XBRL Definition Linkbase Document

101.LAB*		XBRL Label Linkbase Document

101.PRE*		XBRL Presentation Linkbase Document

* Attached as Exhibit 101 to this report are documents formatted in XBRL (Extensible Business Reporting Language). The financial information in the XBRL-related documents is “unaudited” or “unreviewed.”

† Represents a management contract or compensatory plan or arrangement

Hexion Inc. | 35 | Q1 2021 Form 10-Q

Table of Content s

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			HEXION INC.

Date:		May 12, 2021	~~HEXION INC.~~

~~Date:~~	~~November 14, 2017~~	/s/ George F. Knight
			George F. Knight
			Executive Vice President, ~~and~~ Chief Financial Officer
			(Principal Financial Officer)

41Hexion Inc. | 36 | Q1 2021 Form 10-Q



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)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None		None


				Page
PART I – FINANCIAL INFORMATION

			~~Page~~
~~PART I – FINANCIAL INFORMATION~~

Item 1.	Hexion Inc. Condensed Consolidated Financial Statements (Unaudited)

		Condensed Consolidated Balance Sheets ~~at September 30, 2017 and December 31, 2016~~		3

		Condensed Consolidated Statements of Operations ~~for the three~~ ~~and nine months ended September 30, 2017 and 2016~~		4

		Condensed Consolidated Statements of Comprehensive ~~(Loss)~~ Income ~~for the three and nine months ended September 30, 2017 and 2016~~(Loss)		5

		Condensed Consolidated Statements of Cash Flows ~~for the~~ ~~nine months ended September 30, 2017 and 2016~~		6

		Condensed Consolidated ~~Statement~~Statements of ~~Deficit for the~~ Equity~~nine months ended September 30, 2017~~		7

		Notes to Condensed Consolidated Financial Statements		8

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		2721

Item 3.		Quantitative and Qualitative Disclosures about Market Risk		3933

Item 4.		Controls and Procedures		3933

PART II – OTHER INFORMATION

Item 1.		Legal Proceedings		4034

Item 1A.		Risk Factors		4034

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		4034

Item 3.		Defaults upon Senior Securities		4034

Item 4.		Mine Safety Disclosures		4034

Item 5.		Other Information		4034

Item 6.		Exhibits		4035


(In millions, except share data)	September 30, 2017			December 31, 2016			(In millions, except share data)	March 31, 2021		December 31, 2020
Assets							Assets
Current assets:							Current assets:
Cash and cash equivalents (including restricted cash of $18 and $17, respectively)	$	118		$	196
Accounts receivable (net of allowance for doubtful accounts of $18 and $17, respectively)	500			390
Cash and cash equivalents (including restricted cash of $3 and $4, respectively)							Cash and cash equivalents (including restricted cash of $3 and $4, respectively)	$	134	$	204

Accounts receivable (net of allowance for doubtful accounts of $3)							Accounts receivable (net of allowance for doubtful accounts of $3)	410		331
Inventories:							Inventories:
Finished and in-process goods	240			199			Finished and in-process goods	196		180
Raw materials and supplies	92			88			Raw materials and supplies	96		85
Current assets held for sale (see Note 4)							Current assets held for sale (see Note 4)	141		114
Other current assets	49			45			Other current assets	51		39
Total current assets	999			918			Total current assets	1,028		953
Investment in unconsolidated entities	20			18			Investment in unconsolidated entities	11		10
Deferred income taxes	12			10
Deferred tax assets							Deferred tax assets	7		7
Long-term assets held for sale (see Note 4)							Long-term assets held for sale (see Note 4)	325		342
Other long-term assets	49			43			Other long-term assets	77		85
Property and equipment:							Property and equipment:
Land	84			79			Land	78		79
Buildings	288			273			Buildings	122		122
Machinery and equipment	2,312			2,353			Machinery and equipment	1,260		1,270
	2,684			2,705				1,460		1,471
Less accumulated depreciation	(1,766		)	(1,812		)	Less accumulated depreciation	(244)		(212)
	918			893				1,216		1,259
Operating lease assets							Operating lease assets	100		103
Goodwill	113			121			Goodwill	164		164
Other intangible assets, net	45			52			Other intangible assets, net	1,057		1,079
Total assets	$	2,156		$	2,055		Total assets	$	3,985	$	4,002
Liabilities and Deficit
Liabilities and Equity							Liabilities and Equity
Current liabilities:							Current liabilities:
Accounts payable	$	347		$	368		Accounts payable	$	349	$	339
Debt payable within one year	121			107			Debt payable within one year	52		82

Interest payable	101			70			Interest payable	20		30
Income taxes payable	13			13			Income taxes payable	12		6
Accrued payroll and incentive compensation	47			55			Accrued payroll and incentive compensation	49		42
Current liabilities associated with assets held for sale (see Note 4)							Current liabilities associated with assets held for sale (see Note 4)	88		70
Current portion of operating lease liabilities							Current portion of operating lease liabilities	19		19

Other current liabilities	126			159			Other current liabilities	99		111
Total current liabilities	755			772			Total current liabilities	688		699
Long-term liabilities:							Long-term liabilities:
Long-term debt	3,612			3,397			Long-term debt	1,714		1,710
Long-term pension and post employment benefit obligations	263			246			Long-term pension and post employment benefit obligations	235		250
Deferred income taxes	13			13			Deferred income taxes	157		161
Operating lease liabilities							Operating lease liabilities	74		76
Long-term liabilities associated with assets held for sale (see Note 4)							Long-term liabilities associated with assets held for sale (see Note 4)	74		74
Other long-term liabilities	173			166			Other long-term liabilities	207		209
Total liabilities	4,816			4,594			Total liabilities	3,149		3,179
Commitments and contingencies (see Note 7)
Deficit
Common stock—$0.01 par value; 300,000,000 shares authorized, 170,605,906 issued and 82,556,847 outstanding at September 30, 2017 and December 31, 2016	1			1
Commitments and contingencies (see Note 9)							Commitments and contingencies (see Note 9)
Equity							Equity
Common stock —$0.01 par value; 100 shares authorized, issued and outstanding							Common stock —$0.01 par value; 100 shares authorized, issued and outstanding	0		0
Paid-in capital	526			526			Paid-in capital	1,175		1,169
Treasury stock, at cost—88,049,059 shares	(296		)	(296		)

Accumulated other comprehensive loss	(14		)	(39		)	Accumulated other comprehensive loss	(31)		(27)
Accumulated deficit	(2,876		)	(2,730		)	Accumulated deficit	(308)		(319)
Total Hexion Inc. shareholder’s deficit	(2,659		)	(2,538		)
Noncontrolling interest	(1		)	(1		)
Total deficit	(2,660		)	(2,539		)
Total liabilities and deficit	$	2,156		$	2,055

Total equity							Total equity	836		823
Total liabilities and equity							Total liabilities and equity	$	3,985	$	4,002



x☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



o☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




(Former name, former address and former fiscal year, if changed since last report)



	Three Months Ended September 30,						Nine Months Ended September 30,
(In millions)	2017			2016			2017			2016
Net sales	$	914		$	819		$	2,696		$	2,680
Cost of sales	797			701			2,312			2,357
Gross profit	117			118			384			323
Selling, general and administrative expense	75			69			227			235
Gain on dispositions	—			—			—			(240		)
Asset impairments (see Note 5)	13			—			13			—
Business realignment costs (income)	10			(3		)	27			42
Other operating expense, net	1			7			4			6
Operating income	18			45			113			280
Interest expense, net	82			76			247			235
(Gain) loss on extinguishment of debt	—			(3		)	3			(47		)
Other non-operating (income) expense, net	(3		)	2			(4		)	1
(Loss) income before income tax and earnings from unconsolidated entities	(61		)	(30		)	(133		)	91
Income tax expense	9			16			16			40
(Loss) income before (losses) earnings from unconsolidated entities	(70		)	(46		)	(149		)	51
(Losses) earnings from unconsolidated entities, net of taxes	—			(1		)	3			8
Net (loss) income	$	(70	)	$	(47	)	$	(146	)	$	59


(In millions)	Common Stock		Paid-in Capital		Loan Receivable from Parent		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Shareholder’s Equity








Balance at December 31, 2019	$	0	$	1,165	$	0	$	(1)	$	(89)	$	1,075
Net loss	0		0		0		0		(59)		(59)
Stock-based compensation expense	0		5		0		0		0		5
Other comprehensive loss	0		0		0		(57)		0		(57)

Distribution of affiliate loan (see Note 6)	0		0		(10)		0		0		(10)
Balance at March 31, 2020	$	0	$	1,170	$	(10)	$	(58)	$	(148)	$	954









Balance at December 31, 2020	$	0	$	1,169	$	0	$	(27)	$	(319)	$	823
Net income	0		0		0		0		11		11
Stock-based compensation expense	0		6		0		0		0		6
Other comprehensive loss	0		0		0		(4)		0		(4)



Balance at March 31, 2021	$	0	$	1,175	$	0	$	(31)	$	(308)	$	836



	Contract Termination Costs			Asset Retirement Obligation			Total
Accrued liability at December 31, 2016	$	18		$	13		$	31
Activity ⁽¹⁾	(15		)	(13		)	(28		)
Accrued liability at September 30, 2017	$	3		$	—		$	3


	March 31, 2021		December 31, 2020
Carrying amounts of major classes of assets held for sale:

Accounts receivable	$	86	$	66
Finished and in-process goods	20		18
Raw materials and supplies	24		17
Other current assets	11		12
Total current assets	141		113
Investment in unconsolidated entities	6		5
Deferred tax assets	8		2
Other long-term assets	7		7
Property, plant and equipment, net	307		310
Operating lease assets	13		13
Goodwill	14		14
Other intangible assets, net	61		61
Discontinued operations impairment	(91)		(75)
Total long-term assets	325		337
Total assets held for sale	$	466	$	450

Carrying amounts of major classes of liabilities held for sale:
Accounts payable	$	69	$	52
Income taxes payable	2		1
Accrued payroll	6		3
Current portion of operating lease liabilities	3		2
Other current liabilities	8		9
Total current liabilities	88		67
Long-term pension and post employment benefit obligations	35		36
Deferred income taxes	26		22
Operating lease liabilities	5		5
Other long-term liabilities	8		8
Total long-term liabilities	74		71
Total liabilities held for sale	$	162	$	138


	Three Months Ended March 31, 2021		Three Months Ended March 31, 2020
Major line items constituting pretax income of discontinued operations:
Net sales	$	163	$	145
Cost of sales (exclusive of depreciation and amortization)	137		121
Selling, general and administrative expense	11		11
Depreciation and amortization	0		9

Asset impairments	16		0
Business realignment costs	0		1
Other operating income, net	(1)		0



Income from discontinued operations before income tax, earnings from unconsolidated entities	0		3
Income tax expense	2		6
Loss from discontinued operations, net of tax	$	(2)	$	(3)
Earnings from unconsolidated entities, net of tax	1		0
Net loss attributable to discontinued operations	$	(1)	$	(3)


	March 31, 2021		December 31, 2020
Current assets	$	7	$	7
Non-current assets	1		1
Current liabilities	1		2
Non-current liabilities	6		6


		March 31, 2021				December 31, 2020
	Balance Sheet Location	Notional Amount		Fair Value Liability		Notional Amount		Fair Value Liability
Derivatives designated as hedging instruments
Interest Rate Swap	Other current (liabilities)/assets	$	300	$	(10)	$	300	$	(15)
Total derivatives designated as hedging instruments				$	(10)			$	(15)


	Liability				Range of Reasonably Possible Costs at March 31, 2021
Site Description	March 31, 2021(1)		December 31, 2020(1)		Low		High
Geismar, LA	$	12	$	12	$	9	$	22
Superfund and offsite landfills – allocated share:
Less than 1%	3		3		2		6
Equal to or greater than 1%	7		6		6		14
Currently-owned	4		8		4		15
Formerly-owned:
Remediation	17		18		14		34
Monitoring only	0		0		0		1
Total	$	43	$	47	$	35	$	92


	Amount of Gain (Loss) Recognized in OCI on Derivatives
Derivatives designated as hedging instruments	Three Months Ended March 31, 2021		Three Months Ended March 31, 2020
Interest Rate Swaps
Interest Rate Swap	$	5	$	(15)
Total	$	5	$	(15)


																Carrying Amount			Fair Value
	Carrying Amount			Fair Value														Level 1			Level 2			Level 3			Total
			Level 1			Level 2			Level 3			Total
September 30, 2017
March 31, 2021															March 31, 2021
Debt	$	3,777		$	—		$	3,205		$	31		$	3,236	Debt	$	1,766		$	0		$	1,756		$	52		$	1,808
December 31, 2016
December 31, 2020															December 31, 2020
Debt	$	3,542		$	—		$	3,134		$	9		$	3,143	Debt	$	1,792		$	0		$	1,767		$	55		$	1,822


	March 31, 2021				December 31, 2020
	Long-Term		Due Within One Year		Long-Term		Due Within One Year
Senior Secured Credit Facilities:
ABL Facility	$	0	$	0	$	0	$	0
Senior Secured Term Loan - USD due 2026 (includes $6 of unamortized debt discount)	699		7		701		7
Senior Secured Term Loan - EUR due 2026 (includes $4 of unamortized debt discount)	495		—		515		—
Senior Notes:
7.875% Senior Notes due 2027	450		—		450		—
Other Borrowings:
Australia Facility due 2026(1)	30		0		0		30
Brazilian bank loans	1		22		2		22
Lease obligations (2)	39		13		42		14
Other	0		10		0		9

Total(3)	$	1,714	$	52	$	1,710	$	82



	Liability				Range of Reasonably Possible Costs at September 30, 2017
Site Description	September 30, 2017		December 31, 2016		Low		High
Geismar, LA	$	14	$	14	$	9	$	22
Superfund and offsite landfills – allocated share:
Less than 1%	2		2		1		4
Equal to or greater than 1%	7		6		5		14
Currently-owned	4		4		3		9
Formerly-owned:
Remediation	27		30		25		42
Monitoring only	—		1		—		1
Total	$	54	$	57	$	43	$	92


	Pension Benefits
		Three Months Ended March 31, 2021	Three Months Ended March 31, 2020
			U.S. Plans		Non-U.S. Plans		U.S. Plans		Non-U.S. Plans
Service cost			$	1	$	6	$	1	$	4
Interest cost on projected benefit obligation			1		1		1		2
Expected return on assets			(3)		(4)		(3)		(3)
Net (benefit) expense(1)			$	(1)	$	3	$	(1)	$	3



	Pension Benefits												Non-Pension Postretirement Benefits
	Three Months Ended September 30,												Three Months Ended September 30,
	2017						2016						2017				2016
	U.S. Plans			Non-U.S. Plans			U.S. Plans			Non-U.S. Plans			U.S. Plans		Non-U.S. Plans		U.S. Plans			Non-U.S. Plans
Service cost	$	1		$	4		$	1		$	4		$	—	$	—	$	—		$	—
Interest cost on projected benefit obligation	2			3			2			3			—		—		—			—
Expected return on assets	(3		)	(3		)	(4		)	(3		)	—		—		—			—
Net expense (benefit)	$	—		$	4		$	(1	)	$	4		$	—	$	—	$	—		$	—

	Pension Benefits												Non-Pension Postretirement Benefits
	Nine Months Ended September 30,												Nine Months Ended September 30,
	2017						2016						2017				2016
	U.S. Plans			Non-U.S. Plans			U.S. Plans			Non-U.S. Plans			U.S. Plans		Non-U.S. Plans		U.S. Plans			Non-U.S. Plans
Service cost	$	2		$	12		$	3		$	11		$	—	$	—	$	—		$	—
Interest cost on projected benefit obligation	6			7			6			8			—		1		—			1
Expected return on assets	(10		)	(8		)	(11		)	(8		)	—		—		—			—
Amortization of prior service benefit	—			—			—			—			—		—		(1		)	—
Net (benefit) expense	$	(2	)	$	11		$	(2	)	$	11		$	—	$	1	$	(1	)	$	1



	Three Months Ended September 30,				Nine Months Ended September 30.
	2017		2016		2017		2016
Epoxy, Phenolic and Coating Resins	$	528	$	476	$	1,537	$	1,664
Forest Products Resins	386		343		1,159		1,016
Total	$	914	$	819	$	2,696	$	2,680


	Foreign Currency Translation Adjustments		Cash Flow Hedge		Total




Balance at December 31, 2019	$	(3)	$	2	$	(1)
Change in value	(42)		(15)		(57)
Balance at March 31, 2020	$	(45)	$	(13)	$	(58)





Balance at December 31, 2020	$	(11)	$	(16)	$	(27)
Change in value	(9)		5		(4)
Balance at March 31, 2021	$	(20)	$	(11)	$	(31)



	Three Months Ended September 30, 2017								Three Months Ended September 30, 2016
	Defined Benefit Pension and Postretirement Plans		Foreign Currency Translation Adjustments			Total			Defined Benefit Pension and Postretirement Plans			Foreign Currency Translation Adjustments			Total
Beginning balance	$	3	$	(27	)	$	(24	)	$	3		$	(18	)	$	(15	)
Other comprehensive income before reclassifications, net of tax	—		10			10			—			7			7
Ending balance	$	3	$	(17	)	$	(14	)	$	3		$	(11	)	$	(8	)

	Nine Months Ended September 30, 2017								Nine Months Ended September 30, 2016
	Defined Benefit Pension and Postretirement Plans		Foreign Currency Translation Adjustments			Total			Defined Benefit Pension and Postretirement Plans			Foreign Currency Translation Adjustments			Total
Beginning balance	$	3	$	(42	)	$	(39	)	$	4		$	(19	)	$	(15	)
Other comprehensive income (loss) before reclassifications, net of tax	—		25			25			(1		)	8			7
Ending balance	$	3	$	(17	)	$	(14	)	$	3		$	(11	)	$	(8	)



	Hexion Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents (including restricted cash of $0 and $18, respectively)	$	6		$	—		$	112		$	—		$	118
Accounts receivable, net	131			2			367			—			500
Intercompany accounts receivable	104			—			22			(126		)	—
Intercompany loans receivable - current portion	9			—			—			(9		)	—
Inventories:
Finished and in-process goods	87			—			153			—			240
Raw materials and supplies	35			—			57			—			92
Other current assets	16			—			33			—			49
Total current assets	388			2			744			(135		)	999
Investment in unconsolidated entities	146			13			20			(159		)	20
Deferred income taxes	1			—			11			—			12
Other assets, net	16			6			27			—			49
Intercompany loans receivable	1,110			—			208			(1,318		)	—
Property and equipment, net	416			—			502			—			918
Goodwill	52			—			61			—			113
Other intangible assets, net	35			—			10			—			45
Total assets	$	2,164		$	21		$	1,583		$	(1,612	)	$	2,156
Liabilities and Deficit
Current liabilities:
Accounts payable	$	109		$	—		$	238		$	—		$	347
Intercompany accounts payable	22			—			104			(126		)	—
Debt payable within one year	10			—			111			—			121
Intercompany loans payable within one year	—			—			9			(9		)	—
Interest payable	99			—			2			—			101
Income taxes payable	8			—			5			—			13
Accrued payroll and incentive compensation	10			—			37			—			47
Other current liabilities	69			—			57			—			126
Total current liabilities	327			—			563			(135		)	755
Long-term liabilities:
Long-term debt	3,528			—			84			—			3,612
Intercompany loans payable	208			—			1,110			(1,318		)	—
Accumulated losses of unconsolidated subsidiaries in excess of investment	614			159			—			(773		)	—
Long-term pension and post employment benefit obligations	39			—			224			—			263
Deferred income taxes	2			—			11			—			13
Other long-term liabilities	105			—			68			—			173
Total liabilities	4,823			159			2,060			(2,226		)	4,816
Total Hexion Inc. shareholder’s deficit	(2,659		)	(138		)	(476		)	614			(2,659		)
Noncontrolling interest	—			—			(1		)	—			(1		)
Total deficit	(2,659		)	(138		)	(477		)	614			(2,660		)
Total liabilities and deficit	$	2,164		$	21		$	1,583		$	(1,612	)	$	2,156


~~Item 2.~~	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollar amounts in millions)~~