EXHIBIT 99.1
Realignment of Hexion Reportable Segments in Fiscal Year 2020
As previously disclosed in the Hexion Inc. (the “Company”) 2019 Annual Report on Form 10-K, effective in the first quarter of 2020, the Company changed its reportable segments around its two growth platforms: Adhesives; and Coatings and Composites, which consist of the following businesses:
• | Adhesives: these businesses focus on the global adhesives market. They include the Company’s global wood adhesives business, including: forest products resin assets in North America, Latin America, Europe, Australia and New Zealand; global formaldehyde; and the global phenolic specialty resins business, which now also includes the oilfield technologies group. |
• | Coatings and Composites: these businesses focus on the global coatings and composites market. They include the Company’s base and specialty epoxy resins and Versatic™ Acids and Derivatives businesses. |
This Current Report on Form 8-K includes supplemental unaudited historical business segment net sales and Segment EBITDA (see definition below) information to reflect the Company's change in reportable segments. The Company did not operate under this segment structure for any of these prior periods and will begin to report comparative results under the new structure with the filing of its Quarterly Report on Form 10-Q for the quarter ending March 31, 2020. Corporate and Other will continue to be a reportable segment.
The Company revised its Net Sales and Segment EBITDA by reportable segment, in the Current Report herein, for the the periods July 2, 2019 through December 31, 2019, January 1, 2019 through July 1, 2019 and for the years ended December 31, 2018 and 2017, and for all quarters in fiscal year 2017, 2018 and 2019 to reflect the new reportable segments. Corporate and Other will continue to be a reportable segment.
Segment EBITDA
Segment EBITDA is defined as EBITDA (earnings before interest, income taxes, depreciation and amortization) adjusted to exclude certain non-cash and non-recurring expenses. Segment EBITDA is an important measure used by the Company's senior management and board of directors to evaluate operating results and allocate capital resources among segments. Segment EBITDA is also the profitability measure used to set management and executive incentive compensation goals. Corporate and Other primarily represents certain corporate, general and administrative expenses that are not allocated to the other segments. Segment EBITDA should not be considered a substitute for net (loss) income or other results reported in accordance with U.S. GAAP. Segment EBITDA may not be comparable to similarly titled measures reported by other companies. The total Company's net sales, net (loss) income and total Segment EBITDA did not change for any of the historical periods disclosed under this new reportable segment presentation.
Fresh Start Accounting Presentation for Fiscal Year 2019
Upon emerging from Chapter 11 on July 1, 2019 ("Effective Date") and qualifying for the application of fresh-start accounting, at the Effective Date, Hexion's assets and liabilities were recorded at their estimated fair values which, in some cases, were significantly different than amounts included in the Company's financial statements prior to the Effective Date. Accordingly, Hexion's financial condition and results of operations on and after the Effective Date are not directly comparable to our financial condition and results of operations prior to the Effective Date. References to “Successor” or “Successor Company” relate to the financial position and results of operations of the reorganized Company subsequent to the Effective Date. References to “Predecessor” or “Predecessor Company” refer to the financial position and results of operations of the Company on or before the Effective Date.
Revised Annual Segment Information (unaudited):
Net Sales as previously reported(1): | Successor | Predecessor | ||||||||||||||
July 2, 2019 to December 31, 2019 | January 1, 2019 to July 1, 2019 | Year Ended December 31, | ||||||||||||||
2018 | 2017 | |||||||||||||||
Forest Products Resins | $ | 710 | $ | 775 | $ | 1,682 | $ | 1,539 | ||||||||
Epoxy, Phenolic and Coating Resins | 886 | 1,003 | 2,115 | 2,052 | ||||||||||||
Total | $ | 1,596 | $ | 1,778 | $ | 3,797 | $ | 3,591 | ||||||||
Net Sales revised for segment change(1): | ||||||||||||||||
Adhesives | $ | 966 | $ | 1,060 | $ | 2,304 | $ | 2,162 | ||||||||
Coating and Composites | 630 | 718 | 1,493 | 1,429 | ||||||||||||
Total | $ | 1,596 | $ | 1,778 | $ | 3,797 | $ | 3,591 |
(1) | Intersegment sales are not significant and, as such, are eliminated within the selling segment. |
Segment EBITDA as previously reported: | Successor | Predecessor | ||||||||||||||
July 2, 2019 to December 31, 2019 | January 1, 2019 to July 1, 2019 | Year Ended December 31, | ||||||||||||||
2018 | 2017 | |||||||||||||||
Forest Products Resins | $ | 129 | $ | 152 | $ | 285 | $ | 257 | ||||||||
Epoxy, Phenolic and Coating Resins | 75 | 111 | 226 | 174 | ||||||||||||
Corporate and Other | (37 | ) | (30 | ) | (71 | ) | (66 | ) | ||||||||
Total | $ | 167 | $ | 233 | $ | 440 | $ | 365 | ||||||||
Segment EBITDA revised for segment change: | ||||||||||||||||
Adhesives | $ | 144 | $ | 167 | $ | 311 | $ | 272 | ||||||||
Coating and Composites | 60 | 96 | 200 | 159 | ||||||||||||
Corporate and Other | (37 | ) | (30 | ) | (71 | ) | (66 | ) | ||||||||
Total | $ | 167 | $ | 233 | $ | 440 | $ | 365 |
Depreciation and Amortization expense as previously reported: | Successor | Predecessor | ||||||||||||||
July 2, 2019 to December 31, 2019 | January 1, 2019 to July 1, 2019 | Year Ended December 31, | ||||||||||||||
2018 | 2017 | |||||||||||||||
Forest Products Resins | $ | 51 | $ | 20 | $ | 44 | $ | 40 | ||||||||
Epoxy, Phenolic and Coating Resins | 57 | 30 | 69 | 85 | ||||||||||||
Corporate and Other | 2 | 2 | 4 | 4 | ||||||||||||
Total | $ | 110 | $ | 52 | $ | 117 | $ | 129 | ||||||||
Depreciation and Amortization expense revised for segment change: | ||||||||||||||||
Adhesives | $ | 64 | $ | 30 | $ | 69 | $ | 83 | ||||||||
Coating and Composites | 44 | 20 | 44 | 42 | ||||||||||||
Corporate and Other | 2 | 2 | 4 | 4 | ||||||||||||
Total | $ | 110 | $ | 52 | $ | 117 | $ | 129 |
Capital Expenditures as previously reported(1): | Successor | Predecessor | ||||||||||||||
July 2, 2019 to December 31, 2019 | January 1, 2019 to July 1, 2019 | Year Ended December 31, | ||||||||||||||
2018 | 2017 | |||||||||||||||
Forest Products Resins | $ | 20 | $ | 12 | $ | 31 | $ | 40 | ||||||||
Epoxy, Phenolic and Coating Resins | 34 | 30 | 56 | 73 | ||||||||||||
Corporate and Other | 4 | 1 | 3 | 5 | ||||||||||||
Total | $ | 58 | $ | 43 | $ | 90 | $ | 118 | ||||||||
Capital Expenditures revised for segment change(1): | ||||||||||||||||
Adhesives | $ | 31 | $ | 20 | $ | 45 | $ | 72 | ||||||||
Coating and Composites | 23 | 22 | 42 | 41 | ||||||||||||
Corporate and Other | 4 | 1 | 3 | 5 | ||||||||||||
Total | $ | 58 | $ | 43 | $ | 90 | $ | 118 |
(1) | Includes capitalized interest costs that are incurred during the construction of property and equipment. |
Total Assets as previously reported: | Successor | Predecessor | ||||||||||
December 31, 2019 | December 31, 2018 | December 31, 2017 | ||||||||||
Forest Products Resins | $ | 1,986 | $ | 779 | 880 | |||||||
Epoxy, Phenolic and Coating Resins | 1,733 | 1,031 | 1,100 | |||||||||
Corporate and Other | 427 | 151 | 117 | |||||||||
Total | $ | 4,146 | $ | 1,961 | $ | 2,097 | ||||||
Total Assets revised for segment change: | ||||||||||||
Adhesives | $ | 2,348 | $ | 1,082 | $ | 1,239 | ||||||
Coating and Composites | 1,371 | 728 | 741 | |||||||||
Corporate and Other | 427 | 151 | 117 | |||||||||
Total | $ | 4,146 | $ | 1,961 | $ | 2,097 |
Revised Quarterly Segment Information (unaudited):
Net Sales as previously reported(1): | Successor | Predecessor | ||||||||||||||||||
Three Months Ended December 31, 2019(2) | July 2, 2019 through September 30, 2019 | July 1, 2019 | Three Months Ended | |||||||||||||||||
June 30, 2019 | March 31, 2019 | |||||||||||||||||||
Forest Products Resins | $ | 343 | $ | 367 | $ | — | $ | 380 | $ | 395 | ||||||||||
Epoxy, Phenolic and Coating Resins | 417 | 469 | — | 512 | 491 | |||||||||||||||
Total | $ | 760 | $ | 836 | $ | — | $ | 892 | $ | 886 | ||||||||||
Net Sales revised for segment change(1): | ||||||||||||||||||||
Adhesives | $ | 462 | $ | 504 | $ | — | $ | 517 | $ | 543 | ||||||||||
Coating and Composites | 298 | 332 | — | 375 | 343 | |||||||||||||||
Total | $ | 760 | $ | 836 | $ | — | $ | 892 | $ | 886 |
(1) | Intersegment sales are not significant and, as such, are eliminated within the selling segment. |
(2) | Results for three months ended December 31, 2019 were not individually disclosed in prior filings but can be calculated. |
Segment EBITDA as previously reported: | Successor | Predecessor | ||||||||||||||||||
Three Months Ended December 31, 2019(1) | July 2, 2019 through September 30, 2019 | July 1, 2019(2) | Three Months Ended | |||||||||||||||||
June 30, 2019 | March 31, 2019 | |||||||||||||||||||
Forest Products Resins | $ | 63 | $ | 66 | $ | 18 | $ | 66 | $ | 68 | ||||||||||
Epoxy, Phenolic and Coating Resins | 24 | 50 | — | 59 | 52 | |||||||||||||||
Corporate and Other | (19 | ) | (17 | ) | — | (13 | ) | (17 | ) | |||||||||||
Total | $ | 68 | $ | 99 | $ | 18 | $ | 112 | $ | 103 | ||||||||||
Segment EBITDA revised for segment change: | ||||||||||||||||||||
Adhesives | $ | 72 | $ | 72 | $ | 18 | $ | 73 | $ | 76 | ||||||||||
Coating and Composites | 15 | 44 | — | 52 | 44 | |||||||||||||||
Corporate and Other | (19 | ) | (17 | ) | — | (13 | ) | (17 | ) | |||||||||||
Total | $ | 68 | $ | 99 | $ | 18 | $ | 112 | $ | 103 |
(1) | Results for three months ended December 31, 2019 were not individually disclosed in prior filings but can be calculated. |
(2) | Includes $18 of Segment EBITDA impact related to deferred revenue that was accelerated on July 1, 2019 as part of Fresh Start accounting. |
Net Sales as previously reported(1): | Three Months Ended | ||||||||||||||
December 31, 2018(2) | September 31, 2018 | June 30, 2018 | March 31, 2018 | ||||||||||||
Forest Products Resins | $ | 414 | $ | 431 | $ | 431 | $ | 406 | |||||||
Epoxy, Phenolic and Coating Resins | 490 | 521 | 564 | 540 | |||||||||||
Total | $ | 904 | $ | 952 | $ | 995 | $ | 946 | |||||||
Net Sales revised for segment change(1): | |||||||||||||||
Adhesives | $ | 557 | $ | 582 | $ | 591 | $ | 574 | |||||||
Coating and Composites | 347 | 370 | 404 | 372 | |||||||||||
Total | $ | 904 | $ | 952 | $ | 995 | $ | 946 |
(1) | Intersegment sales are not significant and, as such, are eliminated within the selling segment. |
(2) | Results for three months ended December 31, 2018 were not individually disclosed in prior filings but can be calculated. |
Segment EBITDA as previously reported: | Three Months Ended | ||||||||||||||
December 31, 2018(1) | September 31, 2018 | June 30, 2018 | March 31, 2018 | ||||||||||||
Forest Products Resins | $ | 66 | $ | 76 | $ | 76 | $ | 67 | |||||||
Epoxy, Phenolic and Coating Resins | 18 | 66 | 72 | 70 | |||||||||||
Corporate and Other | (18 | ) | (14 | ) | (20 | ) | (19 | ) | |||||||
Total | $ | 66 | $ | 128 | $ | 128 | $ | 118 | |||||||
Segment EBITDA revised for segment change: | |||||||||||||||
Adhesives | $ | 70 | $ | 81 | $ | 84 | $ | 76 | |||||||
Coating and Composites | 14 | 61 | 64 | 61 | |||||||||||
Corporate and Other | (18 | ) | (14 | ) | (20 | ) | (19 | ) | |||||||
Total | $ | 66 | $ | 128 | $ | 128 | $ | 118 |
(1) Results for three months ended December 31, 2018 were not individually disclosed in prior filings but can be calculated.
Net Sales as previously reported(1): | Three Months Ended | ||||||||||||||
December 31, 2017(2) | September 31, 2017 | June 30, 2017 | March 31, 2017 | ||||||||||||
Forest Products Resins | $ | 380 | $ | 386 | $ | 395 | $ | 378 | |||||||
Epoxy, Phenolic and Coating Resins | 515 | 528 | 517 | 492 | |||||||||||
Total | $ | 895 | $ | 914 | $ | 912 | $ | 870 | |||||||
Net Sales revised for segment change(1): | |||||||||||||||
Adhesives | $ | 536 | $ | 541 | $ | 552 | $ | 533 | |||||||
Coating and Composites | 359 | 373 | 360 | 337 | |||||||||||
Total | $ | 895 | $ | 914 | $ | 912 | $ | 870 |
(1) | Intersegment sales are not significant and, as such, are eliminated within the selling segment. |
(2) | Results for three months ended December 31, 2017 were not individually disclosed in prior filings but can be calculated. |
Segment EBITDA as previously reported: | Three Months Ended | ||||||||||||||
December 31, 2017(1) | September 31, 2017 | June 30, 2017 | March 31, 2017 | ||||||||||||
Forest Products Resins | $ | 62 | $ | 66 | $ | 68 | $ | 61 | |||||||
Epoxy, Phenolic and Coating Resins | 31 | 45 | 46 | 52 | |||||||||||
Corporate and Other | (19 | ) | (15 | ) | (14 | ) | (18 | ) | |||||||
Total | $ | 74 | $ | 96 | $ | 100 | $ | 95 | |||||||
Segment EBITDA revised for segment change: | |||||||||||||||
Adhesives | $ | 67 | $ | 68 | $ | 72 | $ | 65 | |||||||
Coating and Composites | 26 | 43 | 42 | 48 | |||||||||||
Corporate and Other | (19 | ) | (15 | ) | (14 | ) | (18 | ) | |||||||
Total | $ | 74 | $ | 96 | $ | 100 | $ | 95 |
(1) Results for three months ended December 31, 2017 were not individually disclosed in prior filings but can be calculated.