Chemtura Corp.
Chemtura CORP (Form: 10-Q, Received: 10/31/2016 16:26:34)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q  
x
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended September 30, 2016
 
 
OR
 
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from                 to                
(Commission File Number) 1-15339  
CHEMTURA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
 
52-2183153
(State or other jurisdiction of incorporation or
organization)
 
(I.R.S. Employer Identification Number)
1818 Market Street, Suite 3700, Philadelphia, Pennsylvania
199 Benson Road, Middlebury, Connecticut
 
19103
06749
(Address of principal executive offices)
 
(Zip Code)
(203) 573-2000
(Registrant’s telephone number,
including area code)  
(Former name, former address and former fiscal year, if changed from last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   x   Yes   o   No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of the chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   x   Yes   o   No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definition of “large accelerated filer,” “accelerated filer,” “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer o
 
 
 
Non-accelerated filer o
(Do not check if smaller reporting company)
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   o   Yes   x   No
The number of shares of common stock outstanding as of the latest practicable date is as follows
Class
 
Number of shares outstanding at September 30, 2016
Common Stock - $.01 par value
 
62,974,764




CHEMTURA CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2016
 
INDEX
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
 
 
 
 
Consolidated Balance Sheets (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mine Safety Disclosure
 
 
 
Other Information
 
 
 
 
 
 



PART I.                 FINANCIAL INFORMATION

ITEM 1.                Financial Statements

CHEMTURA CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
Quarters and nine months ended September 30, 2016 and 2015
( In millions, except per share data )
 
Quarters ended September 30,
 
Nine months ended September 30,
 
2016
 
2015
 
2016
 
2015
Net sales
$
414

 
$
444

 
$
1,269

 
$
1,346

 
 
 
 
 
 
 
 
Cost of goods sold
289

 
327

 
904

 
1,017

Selling, general and administrative
35

 
36

 
105

 
113

Depreciation and amortization
21

 
22

 
64

 
70

Research and development
5

 
4

 
15

 
15

Facility closures, severance and related costs
1

 
1

 
1

 
2

Merger and integration costs
11

 

 
11

 

Loss on sale of business
1

 
1

 
1

 
4

Impairment charges

 

 
1

 

Pension settlement

 

 
162

 

Equity income

 

 

 
(1
)
Operating income
51

 
53

 
5

 
126

Interest expense
(8
)
 
(7
)
 
(24
)
 
(23
)
Other (expense) income, net
(1
)
 
1

 
(3
)
 
10

Earnings (loss) before income taxes
42

 
47

 
(22
)
 
113

Income tax expense
(17
)
 
(16
)
 
(15
)
 
(43
)
Net earnings (loss)
$
25

 
$
31

 
$
(37
)
 
$
70

 
 
 
 
 
 
 
 
Basic per share information
 
 
 
 
 
 
 
Net earnings (loss)
$
0.40

 
$
0.46

 
$
(0.58
)
 
$
1.03

Diluted per share information
 
 
 
 
 

 
 

Net earnings (loss)
$
0.39

 
$
0.45

 
$
(0.58
)
 
$
1.02

 
 
 
 
 
 
 
 
Weighted average shares outstanding - Basic
63.0

 
67.5

 
64.1

 
68.0

Weighted average shares outstanding - Diluted
63.9

 
68.3

 
64.1

 
68.8

 
See accompanying notes to Consolidated Financial Statements.


2


CHEMTURA CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
Quarters and nine months ended September 30, 2016 and 2015
( In millions )
 
 
Quarters ended September 30,
 
Nine months ended September 30,
 
2016
 
2015
 
2016
 
2015
Net earnings (loss)
$
25

 
$
31

 
$
(37
)
 
$
70

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Foreign currency translation adjustments
(3
)
 
(21
)
 
(6
)
 
(39
)
Pension and other post-retirement benefit costs
1

 
(2
)
 
133

 
1

Unrealized gain on available for sale securities

 

 

 
5

Comprehensive income
$
23

 
$
8

 
$
90

 
$
37


See accompanying notes to Consolidated Financial Statements


3


CHEMTURA CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 2016 (Unaudited) and December 31, 2015
( In millions, except par value data )
 
September 30,
2016
 
December 31,
2015
 
(unaudited)
 
 
ASSETS
 
 
 
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
202

 
$
323

Accounts receivable, net
219

 
210

Inventories, net
328

 
315

Other current assets
134

 
130

Total current assets
883

 
978

NON-CURRENT ASSETS
 
 
 
Property, plant and equipment, net
665

 
663

Goodwill
162

 
166

Intangible assets, net
81

 
88

Deferred tax asset
319

 
354

Other assets
116

 
111

Total assets
$
2,226

 
$
2,360

LIABILITIES AND EQUITY
 
 
 
CURRENT LIABILITIES
 
 
 
Short-term borrowings
$
13

 
$
46

Accounts payable
125

 
120

Accrued expenses
126

 
142

Below market contract obligation - current
38

 
38

Income taxes payable
17

 
15

Total current liabilities
319

 
361

NON-CURRENT LIABILITIES
 
 
 
Long-term debt
466

 
465

Pension and post-retirement health care liabilities
226

 
270

Below market contract obligation - non-current
117

 
145

Deferred tax liability
7

 
7

Other liabilities
107

 
110

Total liabilities
1,242

 
1,358

EQUITY
 
 
 
Common stock - $0.01 par value Authorized - 500.0 shares Issued - 100.6 shares at September 30, 2016 and 100.6 shares at December 31, 2015
1

 
1

Additional paid-in capital
4,373

 
4,371

Accumulated deficit
(2,163
)
 
(2,126
)
Accumulated other comprehensive loss
(335
)
 
(462
)
Treasury stock - at cost - 37.7 shares at September 30, 2016 and 33.4 shares at December 31, 2015
(893
)
 
(783
)
Total Chemtura stockholders' equity
983

 
1,001

Non-controlling interest
1

 
1

Total equity
984

 
1,002

Total liabilities and equity
$
2,226

 
$
2,360

See accompanying notes to Consolidated Financial Statements.

4


CHEMTURA CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30, 2016 and 2015
( In millions )
 
Nine months ended September 30,
 
2016
 
2015
Increase (decrease) in cash
 
 
 
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net (loss) earnings
$
(37
)
 
$
70

Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:
 
 
 
Merger and integration costs
4

 

Loss on sale of business
1

 
4

Below market contract obligation
(29
)
 
(29
)
Pension settlement
162

 

Depreciation and amortization
64

 
70

Share-based compensation expense
9

 
9

Other non-cash transactions
1

 

Changes in assets and liabilities, net of assets acquired and liabilities assumed:
 
 
 
Accounts receivable
(7
)
 
8

Inventories
(11
)
 
(3
)
Accounts payable
5

 
(1
)
Pension and post-retirement health care liabilities
(57
)
 
(25
)
Other
(18
)
 
14

Net cash provided by operating activities
87

 
117

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Net proceeds from divestments

 
3

Sale of Platform Specialty Products Corporation shares

 
54

Capital expenditures
(62
)
 
(53
)
Net cash (used in) provided by investing activities
(62
)
 
4

CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Payments on long term debt
(41
)
 
(59
)
Proceeds from short-term borrowings, net
6

 

Common shares acquired
(116
)
 
(140
)
Proceeds from exercise of stock options

 
13

Net cash used in financing activities
(151
)
 
(186
)
CASH AND CASH EQUIVALENTS
 
 
 
Effect of exchange rates on cash and cash equivalents
5

 
(10
)
Change in cash and cash equivalents
(121
)
 
(75
)
Cash and cash equivalents at beginning of period
323

 
392

Cash and cash equivalents at end of period
$
202

 
$
317

 
See accompanying notes to Consolidated Financial Statements.

5


CHEMTURA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1)                          NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Chemtura Corporation, together with our consolidated subsidiaries, is a global specialty chemical company dedicated to delivering innovative, performance-driven engineered specialty chemical solutions which are used as additives, ingredients or intermediates that add value to our customers' end products.  We are committed to global sustainability through “greener technology” and developing engineered chemical solutions that meet our customers’ evolving needs. We operate in a wide variety of end-use industries, including automotive, building and construction, electronics, energy, lubricants, packaging and transportation. We are a leader in many of our key product lines and transact business in more than 80 countries.
Our principal executive offices are located in Philadelphia, PA and Middlebury, CT.
When we use the terms “Corporation,” “Company,” “Chemtura,” “Registrant,” “We,” “Us” and “Our,” unless otherwise indicated or the context otherwise requires, we are referring to Chemtura Corporation and our consolidated subsidiaries.
The information in the foregoing Consolidated Financial Statements for the quarters and nine months ended September 30, 2016 and 2015 is unaudited but reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of the results of operations for the interim periods presented.  All such adjustments are of a normal recurring nature, except as otherwise disclosed in the accompanying notes to our Consolidated Financial Statements.
Basis of Presentation
The accompanying Consolidated Financial Statements include the accounts of Chemtura and our wholly-owned and majority-owned subsidiaries that we control.  Other affiliates in which we have a 20% to 50% ownership interest or a non-controlling majority interest are accounted for in accordance with the equity method.  Other investments in which we have less than 20% ownership are recorded at cost.  All significant intercompany balances and transactions have been eliminated in consolidation.
Our Consolidated Financial Statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”), which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from these estimates.
The interim Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2015 (the “2015 Form 10-K”).  The consolidated results of operations for the quarter and nine months ended September 30, 2016 are not necessarily indicative of the results expected for the full year.
In accordance with the requirements of ASC 740, Income Taxes , we calculate our interim period income tax expense based upon an estimated effective tax rate for the annual period multiplied by our interim earnings (loss) before income taxes, adjusted for discrete items as necessary.
Accounting Policies and Other Items
Included in accounts receivable are allowances for doubtful accounts of $4 million and $2 million as of September 30, 2016 and December 31, 2015 , respectively.
During the nine months ended September 30, 2016 and 2015 , we made cash interest payments of $29 million and $30 million , respectively, and cash payments for income taxes (net of refunds) of $22 million and $32 million , respectively.
At September 30, 2016 , $2 million of our asset retirement obligation balance was included in accrued expenses and $15 million was included in other liabilities in our Consolidated Balance Sheet. At December 31, 2015, $1 million of asset retirement obligation balance was included in accrued expense and $15 million was included in other liabilities in our Consolidated Balance Sheet.

6


Accounting Developments
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers , which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective on January 1, 2018. Early adoption is permitted in 2017 for calendar year entities. We currently do not intend to early adopt. The standard permits the use of either the retrospective or cumulative effect transition method. We are in the process of assessing our current practices against the requirements of this ASU and evaluating the effect that the ASU will have on our Consolidated Financial Statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.
In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. Under current U.S. GAAP, debt issuance costs are reported on the balance sheet as assets and amortized as interest expense.  This ASU requires that they be presented on the balance sheet as a direct deduction from the carrying amount of the related debt liability, which is similar to the presentation of debt discounts or premiums. The costs will continue to be amortized to interest expense using the effective interest method. We adopted this guidance retrospectively during the first quarter of 2016. As a result of adoption of this guidance, total assets and total liabilities as of December 31, 2015 decreased as discussed below:
 
 
December 31, 2015
(in millions)
 
Previously reported
Reclassification
Current presentation
Other assets
 
$
117

(6
)
$
111

Total assets
 
$
2,366

(6
)
$
2,360

 
 
 
 
 
Long-term debt
 
$
471

(6
)
$
465

Total liabilities
 
$
1,364

(6
)
$
1,358

Total liabilities and equity
 
$
2,366

(6
)
$
2,360

In July 2015, the FASB issued ASU No. 2015-11 Simplifying the Measurement of Inventory, which requires inventory to be measured at the lower of cost and net realizable value. This new standard will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, and is to be applied prospectively. While early adoption is permitted we do not intend to early adopt these provisions. The adoption of this ASU will not have a material impact on our Consolidated Financial Statements and related disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases , which revises the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases with terms greater than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations. The provisions of ASU 2016-02 are effective for fiscal years and interim periods beginning after December 15, 2018 and should be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. We are currently evaluating the impact this accounting standard will have on our Consolidated Financial Statements and related disclosures.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting , which changes several aspects of the accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities, employee tax withholding, calculation of shares for use in diluted earnings per share and classification on the statement of cash flows. The provisions of ASU 2016-09 are effective for fiscal years and interim periods beginning after December 15, 2016. Early adoption is permitted. We have evaluated the impact of this standard based on the information available to us as of September 30, 2016 and have determined that it would not have a material impact on our Consolidated Financial Statements or related disclosures. We intend to adopt this new ASU on January 1, 2017.

2)                   MERGERS AND DIVESTITURES
Pending merger transaction with Lanxess
On September 25, 2016 , we entered into an agreement and plan of merger (the "Merger Agreement") with Lanxess Deutschland GmbH, a limited liability company under the laws of Germany ("Lanxess"), and LANXESS Additives Inc., a Delaware

7


corporation and an indirect, wholly owned subsidiary of Lanxess ("Merger Subsidiary"). Upon the terms, and subject to the conditions set forth in the Merger Agreement, Merger Subsidiary will merge with and into Chemtura (the "Merger"), with Chemtura surviving the merger in an all-cash transaction in which Chemtura stockholders will receive $33.50 in cash, without interest, per share of Chemtura common stock, which represented an 18.9% premium to the stock’s closing share price of $28.18 on September 23, 2016 , the last trading day prior to the announcement of the Merger. Chemtura and Lanxess have each made customary representations, warranties and covenants in the Merger Agreement. The Merger Agreement is subject to customary closing conditions including, among others, approval of the Merger Agreement by Chemtura stockholders, regulatory approvals and the absence of a material adverse effect on our financial condition, business, assets, liabilities or results of operations. Closing is not subject to any vote of Lanxess’s stockholders or any financing condition.
The Merger Agreement contains certain termination rights for both Chemtura and Lanxess and further provides that, upon termination of the Merger Agreement under certain circumstances, including if we terminate the Merger Agreement to accept a superior proposal, we may be required to pay Lanxess a termination fee equal to $75 million as a condition to our ability to exercise our right to terminate the Merger Agreement and accept the superior proposal.
We expect to file a preliminary proxy statement with the SEC regarding the Merger. The description of the Merger Agreement and the Merger herein does not purport to be complete and is subject to, and qualified in its entirety by the full text of the Merger Agreement attached as Exhibit 2.1 to the Current Report on Form 8-K filed on September 26, 2016.
Contemporaneous with the execution of the Merger Agreement, we entered into an agreement with SK Blue Holdings, Ltd., and Addivant USA Holdings Corp (collectively, "Addivant") that committed us to surrender our shares of Addivant preferred stock to Addivant along with a cash payment of $1 million in exchange for a modification of a non-compete agreement entered into in conjunction with the sale of our antioxidants business to Addivant in 2013. Reflecting the terms of this agreement, in the third quarter of 2016, we took a charge of $5 million which is included in merger and integration costs described below. The agreement with Addivant also provides for certain other changes to our continuing supply agreements with Addivant contingent upon the completion of the Merger.
During the third quarter of 2016, we recorded $11 million of merger and integration costs, which primarily are comprised of the legal and other fees associated with the signing of the Merger Agreement and the terms of the agreement with Addivant.
Chemtura AgroSolutions business divestiture
In November 2014 , we sold our Chemtura AgroSolutions business to Platform Specialty Products Corporation ("Platform") under a Stock and Asset Purchase Agreement ("SAPA") for approximately $1 billion , consisting of $950 million in cash and 2 million shares of Platform's common stock. During 2015, we sold the 2 million shares of Platform common stock for net proceeds of $54 million . The purchase price was subject to customary post-closing adjustments, primarily for working capital which was settled during 2015.
Under the terms of the SAPA, we retained most of the property, plant and equipment used to manufacture products of the Chemtura AgroSolutions business and continue to manufacture products for Platform under several supply agreements and a tolling agreement (collectively, the "supply agreements") with minimum terms of between two and four years. In alignment with the change in the nature of operations, we changed the name of this segment to Agrochemical Manufacturing.
The supply agreements with Platform are designed to recover the cash costs incurred to manufacture the products under the agreements. Accordingly, the supply agreements are considered below-market contracts for their full term. As of September 30, 2016 , our Consolidated Balance Sheet included $155 million , which represents the remaining loss of profit, on a discounted basis, for these products over the remaining terms of the supply agreements, including contractual obligations to continue to supply for a period of up to 2 years after termination of the supply agreements.
The recognition of this obligation, along with the accretion of the obligation to its undiscounted value, has been and will continue to be recorded as net sales in the Agrochemical Manufacturing segment on a straight-line basis over the term of each supply agreement based on our estimate of the timing of shipments. The recognition of this obligation will not generate cash flows during the term of the supply agreements. As of September 30, 2016 , the current and long-term portions of this obligation, on a discounted basis, were $38 million and $117 million , respectively.
As of December 31, 2014, we had not transferred ownership of our wholly-owned subsidiary in Russia and our 15% investment in Certis Europe B.V. ("Certis") to Platform as provided in the SAPA due to certain pending approvals. The value ascribed to these investments as part of the purchase price was received at the closing in November 2014 . We closed on the sale of our subsidiary in Russia in January 2015 and we transferred our shares in Certis to Platform during the second quarter of 2015.

8


Included in the loss on sale of business for the nine months ended September 30, 2015 are customary working capital and other adjustments and the sale of our wholly-owned subsidiary in Russia.
3)                          RESTRUCTURING ACTIVITIES
We recorded a pre-tax charge of $1 million during the quarter ended September 30, 2016 primarily for professional fees related to the closure of the West Lafayette, Indiana facility that was initiated in February 2015.

A summary of the changes in the liabilities established for restructuring programs during the nine months ended September 30, 2016 is as follows:
(In millions)
 
Severance and Related Costs
Balance at December 31, 2015
 
$
3

2016 charge
 
1

Cash payments
 
(3
)
Balance at September 30, 2016
 
$
1


At September 30, 2016 and December 31, 2015 , the balance of these reserves were included in accrued expenses in our Consolidated Balance Sheet.

4)                          INVENTORIES
(In millions)
 
September 30, 2016
 
December 31, 2015
Finished goods
 
$
214

 
$
209

Work in process
 
38

 
38

Raw materials and supplies
 
76

 
68

 
 
$
328

 
$
315


Included in the above net inventory balances are inventory obsolescence reserves of approximately $12 million and $20 million at September 30, 2016 and December 31, 2015 , respectively.

5)                          PROPERTY, PLANT AND EQUIPMENT
(In millions)
 
September 30, 2016
 
December 31, 2015
Land and improvements
 
$
61

 
$
63

Buildings and improvements
 
204

 
200

Machinery and equipment
 
1,256

 
1,201

Information systems equipment
 
161

 
161

Furniture, fixtures and other
 
19

 
19

Construction in progress
 
58

 
65

 
 
1,759

 
1,709

Less: accumulated depreciation
 
1,094

 
1,046

 
 
$
665

 
$
663


Depreciation expense was $19 million for the quarters ended September 30, 2016 and 2015 and $ 58 million and $ 61 million for the nine months ended September 30, 2016 and 2015 , respectively. Depreciation expense included accelerated depreciation of certain fixed assets associated with our restructuring programs of $2 million for the nine months ended September 30, 2015 .

6)                          GOODWILL AND INTANGIBLE ASSETS
Goodwill was $162 million and $166 million at September 30, 2016 and December 31, 2015 , respectively. The decrease in goodwill since December 31, 2015 was due to foreign currency translation. The goodwill is allocated to the Industrial Performance Products segment.

9


Our intangible assets, excluding goodwill, consist of Patents, Trademarks, Customer Relationships and Other Intangibles. At September 30, 2016 and December 31, 2015 , our net intangible assets were $81 million and $88 million , respectively. The decrease was primarily due to amortization expense. Amortization expense related to intangible assets was $2 million and $3 million for the quarters ended September 30, 2016 and 2015 , respectively and $6 million and $9 million for the nine months ended September 30, 2016 and 2015 , respectively.

7)                          DEBT
Our debt is comprised of the following:
(In millions)
 
September 30, 2016
 
December 31, 2015
 
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
5.75% Senior Notes due 2021
 
$
445

 
$
473

 
$
444

 
$
452

Term Loan due 2016
 
1

 
1

 
40

 
40

Other borrowings
 
33

 
33

 
27

 
27

Total Debt
 
479

 
507

 
511

 
519

Less: Other short-term borrowings
 
(12
)
 
 
 
(6
)
 
 
Less: Current portion of Term Loan
 
(1
)
 
 
 
(40
)
 
 
Total Long-term debt
 
$
466

 
 
 
$
465

 
 

Financing Facilities
2021 Senior Notes
In July 2013, we completed a registered public offering of $450 million of 5.75% Senior Notes due 2021 (the "2021 Senior Notes").
We are permitted to redeem some or all of the 2021 Senior Notes, with the redemption prices being, prior to July 15, 2017, 104.313% of the principal amount; on or after July 15, 2017 and prior to July 15, 2018, 102.875% of the principal amount; on or after July 15, 2018 and prior to July 15, 2019, 101.438% of the principal amount; and thereafter 100% of the principal amount, in each case plus any accrued and unpaid interest to the redemption date. If we experience certain kinds of changes in control, as defined in the indenture governing the 2021 Senior Notes (the "2021 Indenture"), we may be required to offer to repurchase all of the 2021 Senior Notes at a redemption price (subject to limitations as described in the 2021 Indenture) equal to 101% of the aggregate principal amount plus accrued and unpaid interest.
Our 2021 Senior Notes contain covenants that limit our ability to enter into certain transactions, such as incurring secured debt and subsidiary debt and entering into sale and lease-back transactions.
Our 2021 Senior Notes are subject to certain events of default, including, among others, breach of other agreements in the 2021 Indenture; any guarantee of a significant subsidiary ceasing to be in full force and effect; a default by us or our restricted subsidiaries under any bonds, debentures, notes or other evidences of indebtedness of a certain amount, resulting in its acceleration; and certain events of bankruptcy or insolvency.
Term Loan
In August 2010, we entered into a senior secured term loan facility due August 2016 (the "Term Loan") with Bank of America, N.A., as administrative agent, and other lenders party thereto for an aggregate principal amount of $295 million with an original issue discount of 1% .  Repayments were made on the Term Loan in 2013 and 2014 with proceeds from the 2021 Senior Notes offering, the cash proceeds from the sale of businesses and cash on hand. In May 2015, we made an additional repayment of $42 million . In June 2016, we made a payment of $39 million on the Term Loan leaving $1 million remaining outstanding at September 30, 2016 .
Borrowings under the Term Loan bear interest at a rate per annum equal to, at our election, (i) 1.75% plus the Base Rate (defined as the higher of (a) the Federal Funds rate plus 0.5% ; (b) Bank of America’s published prime rate ; and (c) the Eurodollar Rate plus 1% ) or (ii) 2.75% plus the Eurodollar Rate (defined as the higher of (a) 0.75% and (b) the current LIBOR adjusted for reserve requirements).

10


The Term Loan contains covenants that limit, among other things, our ability to enter into certain transactions, such as creating liens, incurring additional indebtedness or repaying certain indebtedness, making investments, paying dividends, and entering into acquisitions, dispositions and joint ventures.
Additionally, the Term Loan requires that we meet certain financial maintenance covenants including a maximum Secured Leverage Ratio (net of unrestricted cash, as defined in the agreement) of 2.5 :1.0 and a minimum Consolidated Interest Coverage Ratio (as defined in the agreement) of 3.0 :1.0. Additionally, the Term Loan contains a covenant related to the repayment of excess cash flow (as defined in the agreement). As of September 30, 2016 , we were in compliance with the covenant requirements of the Term Loan.
In July 2016, we amended our Term Loan providing for a new $1 million term loan which was borrowed to refinance the remaining balance of the Term Loan.  The interest rate for the new term loan is identical to and maintains substantially identical collateral, covenants, events of default, representations and warranties and other terms as the original Term Loan, but with an extended maturity date to July 2017, a waiver of the prepayment requirements for proceeds of asset sales and annual excess cash flow, and a reduction of the annual administrative agency fee.
ABL Facility
In December 2013, we entered into a five -year senior secured revolving credit facility that provides for $175 million available to our domestic subsidiaries (the "US ABL Facility") and €60 million available to Chemtura Sales Europe B.V., a Netherlands subsidiary (the “Foreign ABL Facility”, and together with the US ABL Facility, the “2018 ABL Facility”), subject in each case to availability under a borrowing base. The 2018 ABL Facility provides a $125 million letter of credit sub-facility.
The revolving loans under the 2018 ABL Facility will bear interest at a rate per annum which, at our option, can be either: (a) a base rate (which varies depending on the currency in which the loans are borrowed) plus a margin of between 0.50% and 1.00% for loans denominated in U.S. dollars or between 1.50% and 2.00% for loans denominated in other currencies, in each case based on the average excess availability under the 2018 ABL Facility for the preceding quarter; or (b) the current reserve adjusted Eurocurrency Rate (as defined in the agreement) plus a margin of between 1.50% and 2.00% based on the average excess availability under the 2018 ABL Facility for the preceding quarter.
The 2018 ABL Facility Agreement contains certain affirmative and negative covenants (applicable to us, the other borrowing subsidiaries, the guarantors and their respective subsidiaries other than unrestricted subsidiaries), including, without limitation, covenants requiring financial reporting and notices of certain events, and covenants imposing limitations on incurrence of indebtedness and guaranties; liens; loans and investments; asset dispositions; dividends, redemptions, and repurchases of stock and prepayments, redemptions and repurchases of certain indebtedness; mergers, consolidations, acquisitions, joint ventures or creation of subsidiaries; material changes in business; transactions with affiliates; restrictions on distributions from restricted subsidiaries and granting of negative pledges; changes in accounting and reporting; sale leasebacks; and speculative transactions, and a springing financial covenant requiring a minimum trailing four quarter fixed charge coverage ratio of 1.0 to 1.0 at all times during (A) any period from the date when the amount available for borrowings under the 2018 ABL Facility falls below the greater of (i) $25 million and (ii) 10% of the aggregate commitments to the date such available amount has been equal to or greater than the greater of (i) $25 million and (ii) 10% of the aggregate commitments for 30 consecutive days, or (B) any period from the date when the amount available for borrowings under the US ABL Facility falls below the greater of (i) $18 million and (ii) 10% of the aggregate commitments under the US ABL Facility to the date such available amount has been equal to or greater than the greater of (i) $18 million and (ii) 10% of the aggregate commitments under the US ABL Facility for 30 consecutive days.
At September 30, 2016 and December 31, 2015 , we had no borrowings under the 2018 ABL Facility. However, at September 30, 2016 and December 31, 2015 we had $12 million and $14 million , respectively, of outstanding letters of credit (primarily related to insurance and environmental obligations and banking credit facilities) which utilizes available capacity under the facility. At September 30, 2016 and December 31, 2015 , we had approximately $164 million and $186 million , respectively, of undrawn availability under the 2018 ABL Facility.
Other Facilities
In December 2012, we entered into a CNY 250 million (approximately $40 million ) 5 year secured credit facility available through December 2017 (the “China Bank Facility”) with Agricultural Bank of China, Nantong Branch (the "ABC Bank").  The China Bank Facility has been used for funding construction of our manufacturing facility in Nantong, China and is secured by land, property and machinery of our subsidiary Chemtura Advanced Materials (Nantong) Co., Ltd.  The loans under the China Bank Facility bear interest at a rate determined from time to time by ABC Bank based on the prevailing People's Bank of

11


China Lending Rate. Repayments of principal are made in semi-annual installments from December 2014 through December 2017. In January 2015, we prepaid $15 million of the China Bank Facility with proceeds from the sale of our Chemtura AgroSolutions business. At September 30, 2016 and December 31, 2015 , we had borrowings of $11 million under the China Bank Facility.

We have an uncommitted revolving facility with Bank of America, N.A., Shanghai Branch for supporting the general working capital requirements of our Chinese entities. The facility currently provides for borrowings of up to $10 million . The loans under the facility bear interest at a rate determined from time to time by the bank based on the prevailing People's Bank of China Lending Rate.  At September 30, 2016 and December 31, 2015 , we had borrowings of $7 million and $1 million under the facility, respectively.

8)                          INCOME TAXES
We reported income tax expense of $17 million and $16 million for the quarters ended September 30, 2016 and 2015 , respectively. We reported income tax expense of $15 million and $43 million for the nine months ended September 30, 2016 and 2015 respectively. The tax expense reported for the nine months ended September 30, 2016 reflected tax expense of $3 million , recorded in the third quarter of 2016, for an increase to the valuation allowance related to our state net operating loss deferred tax asset and a tax benefit of $33 million , recorded in the first quarter of 2016, related to the pension annuity transaction which was considered a discrete item for purposes of our interim tax provision.
We have net liabilities related to unrecognized tax benefits of $28 million and $27 million at September 30, 2016 and December 31, 2015 , respectively. We believe it is reasonably possible that our unrecognized tax benefits will remain unchanged within the next 12 months.
9)                          ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss (“AOCL”), net of tax at September 30, 2016 and December 31, 2015 , were as follows:
(in millions)
 
Foreign Currency Translation Adjustments
 
Unrecognized Pension and Other Post-Retirement Benefit Costs
 
Total
As of December 31, 2015
 
$
(141
)
 
$
(321
)
 
$
(462
)
Other comprehensive (loss) income before reclassifications
 
(6
)
 
1

 
(5
)
Amounts reclassified from AOCL
 

 
132

 
132

Net current period other comprehensive (loss) income
 
(6
)
 
133

 
127

As of September 30, 2016
 
$
(147
)
 
$
(188
)
 
$
(335
)

The following table summarizes the reclassifications from AOCL to the Consolidated Statement of Operations for the quarters and nine months ended September 30, 2016 and 2015 :

12


 
 
Amount Reclassified from AOCL
 
 
 
 
Quarters ended September 30,
 
Nine months ended September 30,
 
 
(in millions)
 
2016
 
2015
 
2016
 
2015
 
Affected line item in the consolidated statement of operations
Foreign currency translation items:
 
 
 
 
 
 
 
 
 
 
Loss on sale of business (a)
 
$

 
$

 
$

 
$
(5
)
 
Loss on sale of business
Net of tax
 

 

 

 
(5
)
 
 
Defined benefit pension plan items:
 
 
 
 
 
 
 
 
 
 
Amortization of prior-service costs (b)
 
2

 
1

 
4

 
3

 
Primarily SG&A
Amortization of actuarial losses (b)
 
(3
)
 
(4
)
 
(8
)
 
(15
)
 
Primarily SG&A
Pension settlement loss
 

 

 
(162
)
 

 
Pension settlement
Total before tax
 
(1
)
 
(3
)
 
(166
)
 
(12
)
 
 
Total tax
 

 
3

 
34

 
4

 
Income tax expense
Net of tax
 
(1
)
 

 
(132
)
 
(8
)
 
 
Sale of available for sale securities:
 
 
 
 
 
 
 
 
 
 
Gain on sale of Platform stock
 

 

 

 
2

 
Other (expense) income, net
Total tax
 

 

 

 
(1
)
 
Income tax expense
Net of tax
 

 

 

 
1

 
 
Total reclassifications
 
$
(1
)
 
$

 
$
(132
)
 
$
(12
)
 
 

(a) Represents the release of the cumulative translation adjustment of our subsidiary in Russia as part of the sale of our Chemtura AgroSolutions business.
(b) These items are included in the computation of net periodic benefit pension cost (see Note 12 - Pension and Other Post-Retirement Benefit Plans for additional information).
10)                          COMMON SHARES
The computation of basic earnings per common share is based on the weighted average number of common shares outstanding.  The computation of diluted earnings per common share is based on the weighted average number of common and common share equivalents outstanding. The computation of diluted earnings per common share equals the basic earnings per common share for the nine months ended September 30, 2016 , since the common stock equivalents were anti-dilutive as a result of a loss from continuing operations. Common stock equivalents amounted to 0.8 million shares for the nine months ended September 30, 2016 .
The following is a reconciliation of the shares used in the computation of earnings per share: 
 
 
Quarters ended September 30,
 
Nine months ended September 30,
(In millions)
 
2016
 
2015
 
2016
 
2015
Weighted average shares outstanding - Basic
 
63.0

 
67.5

 
64.1

 
68.0

Dilutive effect of common share equivalents
 
0.9

 
0.8

 

 
0.8

Weighted average shares outstanding - Diluted
 
63.9

 
68.3

 
64.1

 
68.8


In October 2014 , our Board of Directors (the "Board") approved a share repurchase authorization of up to $500 million conditioned upon the sale of the Chemtura AgroSolutions business (the “October 2014 Authorization”). In August 2015 , the Board authorized an increase to the October 2014 Authorization by $150 million , up to $650 million in the aggregate when combined with the October 2014 Authorization, and extended the program to December 1, 2016.
During the nine months ended September 30, 2016 , we repurchased 4.5 million shares of our common stock at a cost of $116 million . As of September 30, 2016 , $54 million remained under our share repurchase program.
The shares are expected to be repurchased from time to time through open market purchases. The program does not obligate us to repurchase any particular amount of common stock and may be modified or suspended at any time at the Board’s discretion.  The manner, price, number and timing of such repurchases, if any, will be subject to a variety of factors, including market conditions and the applicable rules and regulations of the Securities and Exchange Commission ("SEC"). We release the value of treasury shares at the weighted average price per share when shares are issued from treasury.

13



We do not currently anticipate undertaking further repurchases in light of our Merger Agreement with Lanxess.

11)                   STOCK INCENTIVE PLANS
In 2010, we adopted the Chemtura Corporation 2010 Long-Term Incentive Plan (the “2010 LTIP”).  The 2010 LTIP provides for grants of non-qualified stock options (“NQOs”), incentive stock options (“ISOs”), stock appreciation rights, dividend equivalent rights, stock units, bonus stock, performance awards, share awards, restricted stock, time-based restricted stock units (“RSUs”) and performance-based RSUs.  The 2010 LTIP provides for the issuance of a maximum of 11 million shares.  Stock options may be granted under the 2010 LTIP at prices equal to the fair market value of the underlying common shares on the date of the grant.  All outstanding stock options will expire not more than ten years from the date of the grant. Stock issuances can be from treasury shares or newly issued shares.
Share-based compensation expense was $3 million for the quarters ended September 30, 2016 and 2015 and $ 9 million for the nine months ended September 30, 2016 and 2015 . Stock-based compensation expense was primarily reported in SG&A.
Restricted Stock Units and Performance Shares
In March 2016 , the compensation and governance committee of the Board (the "Compensation Committee") approved the grant of 0.2 million time-based RSUs under the 2016 long-term incentive awards (the " 2016 Awards").  These RSUs vest ratably over a three -year period.
In March 2016 , the Compensation Committee also approved the grant of 0.2 million performance shares under the 2016 Awards.  The performance share grant is subject to a performance multiplier of up to 2 times the targeted award.  The performance measurement period is the three calendar year period ending December 31, 2018 and the performance share metric is the relative total shareholder return against the companies comprising the Dow Jones U.S. Chemical Index. The performance shares will be settled as soon as practicable after the performance period but no later than March 15, 2019 . We used the Monte-Carlo simulation model to determine the fair value of the performance shares.  Using this method, the average per share fair value of these awards was $28.89 .
Total remaining unrecognized compensation expense associated with all unvested time-based RSUs and performance shares at September 30, 2016 was $13 million , which will be recognized over the weighted average period of approximately 2 years.

Contingent upon the closing of the Merger, all remaining RSUs and performance shares outstanding at that time will be converted into cash awards and will continue to vest according to our current long-term incentive award plans.

12)                   PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS
Components of our defined benefit plans net periodic benefit (credit) cost for the quarters and nine months ended September 30, 2016 and 2015 are as follows: 
 
 
Defined Benefit Plans
 
 
Qualified
 
International and
 
Post-Retirement
 
 
U.S. Plans
 
Non-Qualified Plans
 
Health Care Plans
 
 
Quarters ended September 30,
 
Quarters ended September 30,
 
Quarters ended September 30,
(In millions)
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Service cost
 
$

 
$

 
$
1

 
$
1

 
$

 
$

Interest cost
 
2

 
6

 
4

 
4

 
1

 
1

Expected return on plan assets
 
(4
)
 
(9
)
 
(5
)
 
(5
)
 

 

Amortization of prior service cost
 

 

 

 

 
(2
)
 
(1
)
Amortization of actuarial losses
 
1

 
3

 
1

 
1

 
1

 

Net periodic benefit cost
 
$
(1
)
 
$

 
$
1

 
$
1

 
$

 
$



14


 
 
Defined Benefit Plans
 
 
Qualified
 
International and
 
Post-Retirement
 
 
U.S. Plans
 
Non-Qualified Plans
 
Health Care Plans
 
 
Nine months ended September 30,
 
Nine months ended September 30,
 
Nine months ended September 30,
(In millions)
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Service cost
 
$

 
$

 
$
2

 
$
2

 
$

 
$

Interest cost
 
9

 
18

 
12

 
13

 
3

 
3

Expected return on plan assets
 
(16
)
 
(29
)
 
(15
)
 
(17
)
 

 

Amortization of prior service cost
 

 

 

 

 
(4
)
 
(3
)
Amortization of actuarial losses
 
3

 
10

 
3

 
4

 
2

 
1

Settlement loss recognized
 
162

 

 

 

 

 

Net periodic benefit cost
 
$
158

 
$
(1
)
 
$
2

 
$
2

 
$
1

 
$
1


On February 22, 2016, we announced that, in accordance with the selection made by Evercore Trust Company, N.A. ("Evercore Trust"), the independent fiduciary for the Chemtura Corporation Retirement Plan (the “US Qualified Plan”), our US Qualified Plan entered into a purchase agreement with Voya Retirement Insurance and Annuity Company ("Voya"), a member of the Voya Financial, Inc. family of companies, for a group annuity contract transferring payment responsibility to Voya for the pension benefits of approximately 5,000 U.S. retirees, or their designated beneficiaries, to Voya.

By irrevocably transferring these pension benefit payment obligations to Voya, our overall projected pension benefit obligation has been reduced by $363 million , based on the valuation date of February 17, 2016. The annuity purchase price was $354 million and was funded by the assets of the US Qualified Plan. As a result, we recorded a pre-tax non-cash pension settlement charge of $162 million to pension settlement in the first quarter of 2016. Additionally, we contributed $35 million of cash to the US Qualified Plan during the first quarter of 2016 to maintain the US Qualified Plan’s funded status at the approximate level that existed prior to the pension annuity transaction.

We also completed the evaluation as to whether additional benefit obligations existed in connection with the equalization of certain benefits under the Great Lakes U.K. Limited Pension Plan ("UK Pension Plan") that occurred in the early 1990s and pursuant to European Law requiring equal treatment of male and female members.   During the first quarter of 2016, we reached a final agreement with the trustees of the UK Pension Plan as to the contribution our UK subsidiary should make to fund this benefit obligation and as a result we further reduced our previously estimated liability related to this matter.  Therefore, in the first quarter of 2016, our UK subsidiary made a contribution of under $1 million to the UK Pension Plan in accordance with the agreement reached with the trustees and released the $2 million remainder of the estimated liability as a credit to SG&A.

As noted above, we contributed a total of $35 million to our US qualified pension plans in the first quarter of 2016. We also contributed $2 million to our US non-qualified pension plans and $15 million to our international pension plans in the nine months ended September 30, 2016 .  Contributions to post-retirement health care plans in the nine months ended September 30, 2016 were $5 million .

We participate in a multi-employer pension plan that provides defined benefits to certain employees covered under a collective bargaining agreement. The projected liabilities of this plan based on the April 1, 2016 actuarial projection were $13 million and the market value of the assets were $10 million at March 31, 2016, an estimated 79.9% funded status. In May 2016, this plan was certified by its plan actuary as critical and declining. We intend to review the rehabilitation plan with the plan trustees to mitigate the risk of insolvency of this plan to the extent possible.

Our contributions to this multi-employer plan for 2016 and prior years have been and are expected to continue to be insignificant. However, due to the withdrawal of certain employers from the plan and the critical and declining status, there is uncertainty regarding the impact on our future contributions, although any incremental future contributions are not expected to have a significant impact on our Consolidated Financial Statements and related disclosures.

13)                   LEGAL PROCEEDINGS AND CONTINGENCIES
We are involved in claims, litigation, administrative proceedings and investigations of various types in a number of jurisdictions.  A number of such matters involve, or may involve, claims for a material amount of damages and relate to or allege, among other things, environmental liabilities, including clean-up costs associated with hazardous waste disposal sites, natural resource damages, property damage and personal injury.
Litigation and Claims

15


Environmental Liabilities
We are involved in environmental matters of various types in a number of jurisdictions.  These matters may, from time to time, involve claims for material amounts of damages and relate to or allege environmental liabilities, including clean up costs associated with hazardous waste disposal sites and natural resource damages.
The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”), and comparable state statutes impose strict liability upon various classes of persons with respect to the costs associated with the investigation and remediation of waste disposal sites.  Such persons are typically referred to as “Potentially Responsible Parties” or PRPs.  Because in certain circumstances these laws have been construed to authorize the imposition of joint and several liability, the Environmental Protection Agency (“EPA”) and comparable state agencies could seek to recover all costs involving a waste disposal site from any one of the PRPs for such site, including Chemtura, despite the involvement of other PRPs.  Currently, we are one of a large number of PRPs with respect to a site in which we hold the majority of the liability. Chemtura and its subsidiaries may be named as PRPs at other sites in the future.  In addition, we are involved with environmental remediation and compliance activities at some of our current and former sites in the United States and abroad.
Each quarter, we evaluate and review estimates for future remediation and other costs to determine appropriate environmental reserve amounts.  For each site where the cost of remediation is probable and reasonably estimable, we determine the specific measures that are believed to be required to remediate the site, the estimated total cost to carry out the remediation plan, the portion of the total remediation costs to be borne by us and the anticipated time frame over which payments toward the remediation plan will occur.  At sites where we expect to incur ongoing operation and maintenance expenditures, we accrue on an undiscounted basis for a period of generally 10 years those costs which we believe are probable and estimable.
The total amount accrued for environmental liabilities as of September 30, 2016 and December 31, 2015 was $63 million .  At September 30, 2016 and December 31, 2015 , $16 million of these environmental liabilities were reflected as accrued expenses and $47 million were reflected as other liabilities.  We estimate that ongoing environmental liabilities could range up to $71 million at September 30, 2016 .  Our accruals for environmental liabilities include estimates for determinable clean-up costs.  We recorded pre-tax charges of $5 million for the nine months ended September 30, 2016 and made payments of $7 million during the nine months ended September 30, 2016 for clean-up costs, which reduced our environmental liabilities.  At certain sites, we have contractual agreements with certain other parties to share remediation costs.  As of September 30, 2016 , no receivables are outstanding related to these agreements.  At a number of these sites, the extent of contamination has not yet been fully investigated or the final scope of remediation is not yet determinable.  We intend to assert all meritorious legal defenses and will pursue other equitable factors that are available with respect to these matters.  However, the final cost of clean-up at these sites could exceed our present estimates, and could have, individually or in the aggregate, a material adverse effect on our financial condition, results of operations, or cash flows.  Our estimates for environmental remediation liabilities may change in the future as the extent of contamination is further investigated, should additional sites be identified, further remediation measures be required or undertaken, current laws and regulations be modified or additional environmental laws and regulations be enacted, and as negotiations with respect to certain sites are finalized.
Other
We are routinely subject to civil claims, litigations, arbitrations, and regulatory investigations arising in the ordinary course of our business, as well as in respect of our divested businesses.  Some of these claims and litigations relate to product liability claims, including claims related to our current and historical products of our corporate affiliates and predecessors.
Guarantees
In addition to the letters of credit of $12 million and $14 million , respectively, outstanding at September 30, 2016 and December 31, 2015 , we have guarantees that have been provided to various financial institutions.  At September 30, 2016 and December 31, 2015 , we had $6 million of outstanding guarantees, respectively.  The letters of credit and guarantees were primarily related to liabilities for insurance and environmental obligations, banking and credit facilities, vendor deposits and European value added tax (“VAT”) obligations.
In the ordinary course of business, we enter into contractual arrangements under which we may agree to indemnify a third party to such arrangement from any losses incurred relating to the services they perform on our behalf or for losses arising from certain events as defined within the particular contract, which may include, for example, litigation, claims or environmental matters relating to our past performance.  For any losses that we believe are probable and estimable, we have accrued for such amounts in our Consolidated Balance Sheets.


16


14)                   BUSINESS SEGMENT DATA
We evaluate a segment’s performance based on several factors, of which the primary factor is operating income (loss).  In computing operating income (loss) by segment, the following items have not been deducted:  (1) general corporate expense; (2) amortization; (3) facility closures, severance and related costs; (4) merger and integration costs; (5) gain or loss on sale of business; (6) impairment charges; and (7) pension settlement charge. Pursuant to ASC Topic 280, Segment Reporting (“ASC 280”), these items have been excluded from our reporting segment presentation of operating income (loss) because they are not reported to the chief operating decision maker for purposes of allocating resources among reporting segments or assessing segment performance.
Industrial Performance Products
Industrial Performance Products are engineered solutions for our customers’ specialty chemical needs.  Industrial Performance Products include petroleum additives that provide detergency, friction modification and corrosion protection in automotive lubricants, greases, refrigeration and turbine lubricants as well as synthetic lubricant base-stocks and greases; castable urethane prepolymers engineered to provide superior abrasion resistance and durability in many industrial and recreational applications; and polyurethane dispersions and urethane prepolymers used in various types of coatings such as clear floor finishes, high-gloss paints and textiles treatments.  These products are sold directly to manufacturers and through distribution channels.
Industrial Engineered Products
Industrial Engineered Products are chemical additives designed to improve the performance of polymers in their end-use applications. Industrial Engineered Products include brominated performance products, flame retardants, fumigants and organometallics.  The products are sold across the entire value chain ranging from direct sales to monomer producers, polymer manufacturers, compounders and fabricators, manufacturers of electronic components, fine chemical manufacturers, utilities, pharmaceutical manufactures and oilfield service companies to industry distributors.
Agrochemical Manufacturing
Our Agrochemical Manufacturing segment represents continuing supply agreements with Platform with minimum terms of between two and four years. The supply agreements with Platform are designed to recover the cash costs incurred to manufacture the products under the agreements. Due to these economics, the supply agreements are considered below-market contracts for their full term and therefore, an obligation was recorded, on a discounted basis, which represents the remaining loss of profit on these products over the remaining terms of the supply agreements, including contractual obligations to continue to supply for a period of up to 2 years after the termination of the contracts. The recognition of this obligation, along with the accretion of the obligation to its undiscounted value, has been and will continue to be recorded as net sales in the Agrochemical Manufacturing segment on a straight-line basis over the term of each supply agreement based on our estimate of the timing of shipments. The recognition of this obligation will not generate cash flows during the term of the supply agreements.
Corporate and Other Charges
Corporate includes costs and expenses that are of a general corporate nature or managed on a corporate basis.  These costs (net of allocations to the business segments) primarily represent corporate stewardship and administration activities together with costs associated with legacy activities and intangible asset amortization.  Functional costs are allocated between the business segments and general corporate expense. Facility closures, severance and related costs are primarily for severance costs related to our cost savings initiatives. Merger and integration costs primarily are comprised of legal and other fees associated with the signing of the Merger Agreement with Lanxess and the charge related to the modification of the non-compete agreement with Addivant. The loss on sale of business primarily represents the settlement of working capital and other adjustments which occurred in 2015 related to the sale of our Chemtura AgroSolutions business in 2014. The pension settlement related to the transfer of certain pension benefit obligations to Voya which occurred in the first quarter of 2016.

17


A summary of business data for our reportable segments for the quarters and nine months ended September 30, 2016 and 2015 are as follows:
 
 
Quarters ended September 30,
 
Nine months ended September 30,
(In millions)
 
2016
 
2015
 
2016
 
2015
Net Sales
 
 
 
 
 
 
 
 
Petroleum additives
 
$
140

 
$
156

 
$
445

 
$
473

Urethanes
 
63

 
70

 
190

 
215

Industrial Performance Products
 
203

 
226

 
635

 
688

Bromine based & related products
 
142

 
144

 
425

 
441

Organometallics
 
42

 
37

 
122

 
112

Industrial Engineered Products
 
184

 
181

 
547

 
553

Agrochemical Manufacturing
 
27

 
37

 
87

 
105

Total net sales
 
$
414

 
$
444

 
$
1,269

 
$
1,346

 
 
Quarters ended September 30,
 
Nine months ended September 30,
(In millions)
 
2016
 
2015
 
2016
 
2015
Operating Income
 
 
 
 
 
 
 
 
Industrial Performance Products
 
$
41

 
$
37

 
$
122

 
$
111

Industrial Engineered Products
 
28

 
24

 
71

 
41

Agrochemical Manufacturing
 
9

 
9

 
28

 
27

 
 
78

 
70

 
221

 
179

General corporate expense, including amortization
 
(14
)
 
(15
)
 
(40
)
 
(47
)
Facility closures, severance and related costs
 
(1
)
 
(1
)
 
(1
)
 
(2
)
Merger and integration costs
 
(11
)
 

 
(11
)
 

Loss on sale of business
 
(1
)
 
(1
)
 
(1
)
 
(4
)
Impairment charges
 

 

 
(1
)
 

Pension settlement
 

 

 
(162
)
 

Total operating income
 
$
51

 
$
53

 
$
5

 
$
126


18


15)                   GUARANTOR CONDENSED CONSOLIDATING FINANCIAL DATA
Our obligations under the 2021 Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis, jointly and severally, by each current and future domestic restricted subsidiary, other than excluded subsidiaries, that guarantee any indebtedness of Chemtura or our restricted subsidiaries.  Our subsidiaries that do not guarantee the 2021 Senior Notes are referred to as the “Non-Guarantor Subsidiaries.”  The Guarantor Condensed Consolidating Financial Data presented below presents the statements of operations, statements of comprehensive income (loss), balance sheets and statements of cash flows for: (i) Chemtura Corporation (the “Parent Company”), the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries on a consolidated basis (which is derived from Chemtura historical reported financial information); (ii) the Parent Company, alone (accounting for our Guarantor Subsidiaries and the Non-Guarantor Subsidiaries on an equity basis under which the investments are recorded by each entity owning a portion of another entity at cost, adjusted for the applicable share of the subsidiary’s cumulative results of operations, capital contributions and distributions, and other equity changes); (iii) the Guarantor Subsidiaries alone; and (iv) the Non-Guarantor Subsidiaries alone.
Condensed Consolidating Statement of Operations
Quarter ended September 30, 2016
(In millions)
 
 
Consolidated
 
Eliminations
 
Parent Company
 
Guarantor Subsidiaries
 
Non- Guarantor Subsidiaries
Net sales
 
$
414

 
$
(317
)
 
$
263

 
$
85

 
$
383

Cost of goods sold
 
289

 
(317
)
 
186

 
80

 
340

Selling, general and administrative
 
35

 

 
22

 
2

 
11

Depreciation and amortization
 
21

 

 
5

 
7

 
9

Research and development
 
5

 

 
4

 

 
1

Facility closures, severance and related costs
 
1

 

 

 
1

 

Merger and integration costs
 
11

 

 
11

 

 

Loss on sale of business
 
1

 

 

 

 
1

Operating income (loss)
 
51

 

 
35

 
(5
)
 
21

Interest expense
 
(8
)
 

 
(9
)
 

 
1

Other (expense) income, net
 
(1
)
 

 
(2
)
 

 
1

Equity in net earnings of subsidiaries
 

 
(8
)
 
8

 

 

Earnings (loss) before income taxes
 
42

 
(8
)
 
32

 
(5
)
 
23

Income tax expense
 
(17
)
 

 
(7
)
 
(1
)
 
(9
)
Net earnings (loss)
 
$
25

 
$
(8
)
 
$
25

 
$
(6
)
 
$
14



19


Condensed Consolidating Statement of Operations
Nine months ended September 30, 2016
(In millions)

 
 
Consolidated
 
Eliminations
 
Parent Company
 
Guarantor Subsidiaries
 
Non- Guarantor Subsidiaries
Net sales
 
$
1,269

 
$
(979
)
 
$
807

 
$
268

 
$
1,173

Cost of goods sold
 
904

 
(979
)
 
614

 
222

 
1,047

Selling, general and administrative
 
105

 

 
66

 
6

 
33

Depreciation and amortization
 
64

 

 
16

 
21

 
27

Research and development
 
15

 

 
10

 
1

 
4

Facility closures, severance and related costs
 
1

 

 

 
1

 

Merger and integration costs
 
11

 

 
11

 

 

Loss on sale of business
 
1

 

 

 

 
1

Impairment charges
 
1

 

 

 
1

 

Pension settlement
 
162

 

 
162

 

 

Operating income (loss)
 
5

 

 
(72
)
 
16

 
61

Interest expense
 
(24
)
 

 
(25
)
 

 
1

Other (expense) income, net
 
(3
)
 

 
(13
)
 
7

 
3

Equity in net earnings of subsidiaries
 

 
(66
)
 
66

 

 

(Loss) earnings before income taxes
 
(22
)
 
(66
)
 
(44
)
 
23

 
65

Income tax (expense) benefit
 
(15
)
 

 
7

 
(2
)
 
(20
)
Net (loss) earnings
 
$
(37
)
 
$
(66
)
 
$
(37
)
 
$
21

 
$
45



Condensed Consolidating Statement of Comprehensive Income (Loss)
Quarter ended September 30, 2016
(In millions)  
 
 
Consolidated
 
Eliminations
 
Parent Company
 
Guarantor Subsidiaries
 
Non- Guarantor Subsidiaries
Net earnings (loss)
 
$
25

 
$
(8
)
 
$
25

 
$
(6
)
 
$
14

Other comprehensive income (loss), net of tax
 
 

 
 

 
 

 
 

 
 

Foreign currency translation adjustments
 
(3
)
 

 
2

 

 
(5
)
Pension and other post-retirement benefit costs
 
1

 

 

 

 
1

Comprehensive income (loss)
 
$
23

 
$
(8
)
 
$
27

 
$
(6
)
 
$
10

 

Condensed Consolidating Statement of Comprehensive Income (Loss)
Nine months ended September 30, 2016
(In millions)  
 
 
Consolidated
 
Eliminations
 
Parent Company
 
Guarantor Subsidiaries
 
Non- Guarantor Subsidiaries
Net (loss) earnings
 
$
(37
)
 
$
(66
)
 
$
(37
)
 
$
21

 
$
45

Other comprehensive income (loss), net of tax
 
 

 
 

 
 

 
 

 
 
Foreign currency translation adjustments
 
(6
)
 

 
5

 

 
(11
)
Pension and other post-retirement benefit costs
 
133

 

 
131

 

 
2

Comprehensive income (loss)
 
$
90

 
$
(66
)
 
$
99

 
$
21

 
$
36

 




20


Condensed Consolidating Balance Sheet
As of September 30, 2016
(In millions)
 
 
Consolidated
 
Eliminations
 
Parent Company
 
Guarantor Subsidiaries
 
Non- Guarantor Subsidiaries
ASSETS
 
 
 
 
 
 
 
 
 
 
Current assets
 
$
883

 
$

 
$
272

 
$
94

 
$
517

Intercompany receivables
 

 
(1,587
)
 
527

 
238

 
822

Investment in subsidiaries
 

 
(4,772
)
 
831

 
1,132

 
2,809

Property, plant and equipment
 
665

 

 
112

 
227

 
326

Goodwill
 
162

 

 
93

 
3

 
66

Other assets
 
516

 

 
402

 
26

 
88

Total assets
 
$
2,226

 
$
(6,359
)
 
$
2,237

 
$
1,720

 
$
4,628

LIABILITIES AND EQUITY
 
 

 
 

 
 

 
 

 
 

Current liabilities
 
$
319

 
$

 
$
143

 
$
33

 
$
143

Intercompany payables
 

 
(1,587
)
 
406

 
475

 
706

Long-term debt
 
466

 

 
456

 

 
10

Other long-term liabilities
 
457

 

 
248

 
71

 
138

Total liabilities
 
1,242

 
(1,587
)
 
1,253

 
579

 
997

Total equity
 
984

 
(4,772
)
 
984

 
1,141

 
3,631

Total liabilities and equity
 
$
2,226

 
$
(6,359
)
 
$
2,237

 
$
1,720

 
$
4,628

 

Condensed Consolidating Statement of Cash Flows
Nine months ended September 30, 2016
(In millions)
 
 
Consolidated
 
Eliminations
 
Parent Company
 
Guarantor Subsidiaries
 
Non- Guarantor Subsidiaries
Increase (decrease) to cash
 
 
 
 
 
 
 
 
 
 
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
 
 
 
 
 
 
Net (loss) earnings
 
$
(37
)
 
$
(66
)
 
$
(37
)
 
$
21

 
$
45

Adjustments to reconcile net (loss) earnings to net cash provided by operations:
 
 
 
 
 
 
 
 
 
 
Loss on sale of business
 
1

 

 

 

 
1

Merger and integration costs
 
4

 

 
4

 

 

Below market contract obligation
 
(29
)
 

 
(27
)
 

 
(2
)
Pension settlement
 
162

 

 
162

 

 

Depreciation and amortization
 
64

 

 
16

 
21

 
27

Share-based compensation expense
 
9

 

 
9

 

 

Other non-cash transactions
 
1

 

 

 
1