Chemtura Corp.
Chemtura CORP (Form: 10-Q, Received: 11/04/2013 16:40:34)

Table of Contents

 

 

 

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, 2013

 

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, 2013

Common Stock - $.01 par value

 

96,467,574

 

 

 



Table of Contents

 

CHEMTURA CO RPORATION AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2013

 

INDEX

 

PAGE

 

 

 

PART I.

FINANCIAL INFORMATION

2

 

 

 

ITEM 1.

Financial Statements

2

 

 

 

 

Consolidated Statements of Operations (Unaudited)

2

 

 

 

 

Consolidated Statements of Comprehensive (Loss) Income (Unaudited)

3

 

 

 

 

Consolidated Balance Sheets (Unaudited)

4

 

 

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

5

 

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

6

 

 

 

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

37

 

 

 

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

52

 

 

 

ITEM 4.

Controls and Procedures

53

 

 

 

PART II.

OTHER INFORMATION

54

 

 

 

ITEM 1.

Legal Proceedings

54

 

 

 

ITEM 1A.

Risk Factors

54

 

 

 

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

54

 

 

 

ITEM 4.

Mine Safety Disclosure

55

 

 

 

ITEM 5.

Other Information

55

 

 

 

ITEM 6.

Exhibits

55

 

 

 

SIGNATURE

 

56

 



Table of Contents

 

PART I.                 FINANCIAL INFORMATION

 

ITEM 1.                Financial Statements

 

CHEMTURA CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations (Unaudited)

Quarters and nine months ended September 30, 2013 and 2012

( In millions, except per share data )

 

 

 

Quarters ended September 30,

 

Nine months ended September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Net sales

 

$

569

 

$

546

 

$

1,687

 

$

1,663

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

448

 

398

 

1,310

 

1,209

 

Selling, general and administrative

 

58

 

60

 

169

 

182

 

Depreciation and amortization

 

24

 

26

 

76

 

75

 

Research and development

 

9

 

10

 

27

 

31

 

Facility closures, severance and related costs

 

3

 

2

 

28

 

8

 

Changes in estimates related to expected allowable claims

 

 

(1

)

 

1

 

Equity loss

 

 

1

 

3

 

3

 

Operating income

 

27

 

50

 

74

 

154

 

Interest expense

 

(14

)

(17

)

(45

)

(47

)

Loss on early extinguishment of debt

 

(50

)

 

(50

)

 

Other (expense) income, net

 

(4

)

(5

)

11

 

(3

)

Reorganization items, net

 

 

(1

)

(1

)

(4

)

(Loss) earnings from continuing operations before income taxes

 

(41

)

27

 

(11

)

100

 

Income tax expense

 

(3

)

(5

)

(24

)

(16

)

(Loss) earnings from continuing operations

 

(44

)

22

 

(35

)

84

 

Earnings (loss) from discontinued operations, net of tax

 

7

 

(15

)

28

 

(4

)

Loss on sale of discontinued operations, net of tax

 

(3

)

 

(149

)

 

Net (loss) earnings

 

(40

)

7

 

(156

)

80

 

Less: Net loss attributed to non-controlling interests

 

 

2

 

 

1

 

Net (loss) earnings attributable to Chemtura

 

$

(40

)

$

9

 

$

(156

)

$

81

 

 

 

 

 

 

 

 

 

 

 

Basic per share information - attributable to Chemtura

 

 

 

 

 

 

 

 

 

(Loss) earnings from continuing operations

 

$

(0.45

)

$

0.22

 

$

(0.36

)

$

0.85

 

Earnings (loss) from discontinued operations, net of tax

 

0.07

 

(0.13

)

0.29

 

(0.03

)

Loss on sale of discontinued operations, net of tax

 

(0.03

)

 

(1.52

)

 

Net (loss) earnings attributable to Chemtura

 

$

(0.41

)

$

0.09

 

$

(1.59

)

$

0.82

 

Diluted per share information - attributable to Chemtura

 

 

 

 

 

 

 

 

 

(Loss) earnings from continuing operations

 

$

(0.45

)

$

0.22

 

$

(0.36

)

$

0.85

 

Earnings (loss) from discontinued operations, net of tax

 

0.07

 

(0.13

)

0.29

 

(0.03

)

Loss on sale of discontinued operations, net of tax

 

(0.03

)

 

(1.52

)

 

Net (loss) earnings attributable to Chemtura

 

$

(0.41

)

$

0.09

 

$

(1.59

)

$

0.82

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - Basic

 

97.5

 

97.9

 

98.1

 

98.4

 

Weighted average shares outstanding - Diluted

 

97.5

 

98.2

 

98.1

 

98.8

 

 

See accompanying notes to Consolidated Financial Statements.

 

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CHEMTURA CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive (Loss) Income (Unaudited)

Quarters and nine months ended September 30, 2013 and 2012

( In millions )

 

 

 

Quarters ended September 30,

 

Nine months ended September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Net (loss) earnings

 

$

(40

)

$

7

 

$

(156

)

$

80

 

Other comprehensive (loss) income, net of tax

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

25

 

37

 

(16

)

15

 

Unrecognized pension and other post-retirement benefit costs

 

5

 

7

 

142

 

6

 

Comprehensive (loss) income

 

(10

)

51

 

(30

)

101

 

Comprehensive loss attributable to non-controlling interests

 

 

2

 

 

1

 

Comprehensive (loss) income attributable to Chemtura

 

$

(10

)

$

53

 

$

(30

)

$

102

 

 

See accompanying notes to Consolidated Financial Statements

 

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Table of Contents

 

CHEMTURA CORPORATION AND SUBSIDIARIES

Consolidated Balance S heets

September 30, 2013 (Unaudited) and December 31, 2012

( In millions, except par value data )

 

 

 

September 30,
2013

 

December 31,
2012

 

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

Cash and cash equivalents

 

$

311

 

$

363

 

Accounts receivable, net

 

386

 

345

 

Inventories, net

 

428

 

398

 

Other current assets

 

137

 

123

 

Current assets of discontinued operations

 

390

 

383

 

Total current assets

 

1,652

 

1,612

 

NON-CURRENT ASSETS

 

 

 

 

 

Property, plant and equipment, net

 

716

 

655

 

Goodwill

 

177

 

177

 

Intangible assets, net

 

138

 

146

 

Other assets

 

161

 

169

 

Non-current assets of discontinued operations

 

 

271

 

Total assets

 

$

2,844

 

$

3,030

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

Short-term borrowings

 

$

2

 

$

5

 

Accounts payable

 

172

 

152

 

Accrued expenses

 

189

 

178

 

Income taxes payable

 

7

 

8

 

Current liabilities of discontinued operations

 

124

 

168

 

Total current liabilities

 

494

 

511

 

NON-CURRENT LIABILITIES

 

 

 

 

 

Long-term debt

 

892

 

871

 

Pension and post-retirement health care liabilities

 

323

 

386

 

Other liabilities

 

138

 

109

 

Non-current liabilities of discontinued operations

 

 

85

 

Total liabilities

 

1,847

 

1,962

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

Common stock - $0.01 par value Authorized - 500.0 shares Issued - 100.5 shares at September 30, 2013 and 100.4 shares at December 31, 2012

 

1

 

1

 

Additional paid-in capital

 

4,373

 

4,366

 

Accumulated deficit

 

(3,004

)

(2,848

)

Accumulated other comprehensive loss

 

(302

)

(428

)

Treasury stock- at cost - 4.0 shares at September 30, 2013 and 2.4 shares at December 31, 2012

 

(72

)

(30

)

Total Chemtura stockholders’ equity

 

996

 

1,061

 

Non-controlling interest - continuing operations

 

1

 

 

Non-controlling interest - discontinued operations

 

 

7

 

Total Non-controlling interest

 

1

 

7

 

Total stockholders’ equity

 

997

 

1,068

 

Total liabilities and stockholders’ equity

 

$

2,844

 

$

3,030

 

 

See accompanying notes to Consolidated Financial Statements.

 

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CHEMTURA CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statement s of Cash Flows (Unaudited)

Nine months ended September 30, 2013 and 2012

( In millions )

 

 

 

Nine months ended September 30,

 

 

 

2013

 

2012

 

Increase (decrease) in cash

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net (loss) earnings

 

$

(156

)

$

80

 

Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:

 

 

 

 

 

Loss on sale of discontinued operations

 

149

 

 

Impairment charges

 

 

36

 

Release of cumulative translation adjustment from liquidation of entities

 

(15

)

 

Loss on early extinguishment of debt

 

50

 

 

Depreciation and amortization

 

93

 

104

 

Stock-based compensation expense

 

11

 

14

 

Reorganization items, net

 

 

1

 

Changes in estimates related to expected allowable claims

 

 

1

 

Equity loss (income)

 

1

 

(2

)

Changes in assets and liabilities, net of assets acquired and liabilities assumed:

 

 

 

 

 

Accounts receivable

 

(29

)

(33

)

Inventories

 

(29

)

(23

)

Accounts payable

 

24

 

36

 

Pension and post-retirement health care liabilities

 

(43

)

(71

)

Other

 

3

 

(32

)

Net cash provided by operating activities

 

59

 

111

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

Proceeds from divestments, net

 

91

 

9

 

Payments for acquisitions

 

(3

)

 

Capital expenditures

 

(124

)

(94

)

Net cash used in investing activities

 

(36

)

(85

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

Proceeds from 2021 Senior Notes

 

450

 

 

Payments on 2018 Senior Notes, includes premium on tendering of notes

 

(395

)

 

Payments on Term Loan

 

(102

)

 

Proceeds from A/R Financing Facility, net

 

 

2

 

Proceeds from other long-term borrowings

 

27

 

 

Payments on other long-term borrowings

 

(3

)

 

Payments on other short-term borrowings, net

 

(1

)

(3

)

Common shares acquired

 

(50

)

(20

)

Payment for debt issuance costs

 

(8

)

(1

)

Proceeds from exercise of stock options

 

6

 

2

 

Net cash used in financing activities

 

(76

)

(20

)

CASH AND CASH EQUIVALENTS

 

 

 

 

 

Effect of exchange rates on cash and cash equivalents

 

(1

)

1

 

Change in cash and cash equivalents

 

(54

)

7

 

Cash and cash equivalents at beginning of period

 

365

 

180

 

Cash and cash equivalents at end of period

 

$

311

 

$

187

 

Cash and cash equivalents at end of period - Continuing operations

 

$

311

 

$

186

 

Cash and cash equivalents at end of period - Discontinued operations

 

$

 

$

1

 

 

See accompanying notes to Consolidated Financial Statements.

 

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CHEMTURA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDA TED FINANCIAL STATEMENTS (UNAUDITED)

 

1)            NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Operations

 

Chemtura Corporation together with our consolidated subsidiaries, is dedicated to delivering innovative, application-focused specialty chemicals.  Our corporate headquarters is located at 1818 Market Street, Suite 3700, Philadelphia, PA 19103.  Our principal executive offices are located at 1818 Market Street, Suite 3700, Philadelphia, PA 19103 and at 199 Benson Road, Middlebury, CT 06749.  We operate in a wide variety of end-use industries including agriculture, automotive, construction, electronics, lubricants, packaging, plastics for durable and non-durable goods, and transportation.

 

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.

 

We are the successor to Crompton & Knowles Corporation (“Crompton & Knowles”), which was incorporated in Massachusetts in 1900 and engaged in the manufacture and sale of specialty chemicals beginning in 1954.  Crompton & Knowles traces its roots to the Crompton Loom Works incorporated in the 1840s.  We expanded the specialty chemical business through acquisitions in the United States and Europe, including the 1996 acquisition of Uniroyal Chemical Company, Inc. (“Uniroyal”), the 1999 merger with Witco Corporation (“Witco”) and the 2005 acquisition of Great Lakes Chemical Corporation (“Great Lakes”).

 

The information in the foregoing Consolidated Financial Statements for the quarters and nine months ended September 30, 2013 and 2012 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 (“GAAP”), which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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.

 

Certain prior year amounts have been reclassified to conform to the current year’s presentation of discontinued operations (see Note 2 - Acquisitions and Divestitures).  These changes did not have a material impact on previously reported results of operations, cash flows or financial position.

 

We operated as a debtor-in-possession (“DIP”) under the protection of the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) from March 18, 2009 (the “Petition Date”) through November 10, 2010 (the “Effective Date”).  From the Petition Date through the Effective Date, our Consolidated Financial Statements were prepared in accordance with Accounting Standards Codification (“ASC”) Section 852-10-45, Reorganizations — Other Presentation Matters (“ASC 852-10-45”) which requires that financial statements, for periods during the pendency of our voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code (the “Chapter 11”) filings, distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business.  Accordingly, certain income, expenses, realized gains and losses and expenses for losses that are realized or incurred in the Chapter 11 cases are recorded in Reorganization items, net in our Consolidated Statements of Operations.  As of September 30, 2013, the Bankruptcy Court has entered orders granting final decrees closing all of the Debtors’ Chapter 11 cases except the Chapter 11 case of Chemtura Corporation.

 

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 period ended December 31, 2012 (the “2012 Annual Report on Form 10-K”).  The consolidated results of operations for the quarter and nine months ended September 30, 2013 are not necessarily indicative of the results expected for the full year.

 

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Accounting Policies and Other Items

 

Cash and cash equivalents include bank term deposits with original maturities of three months or less.

 

Included in accounts receivable are allowances for doubtful accounts of $12 million and $11 million as of September 30, 2013 and December 31, 2012.

 

During the nine months ended September 30, 2013 and 2012, we made cash interest payments of approximately $52 million.  During the nine months ended September 30, 2013 and 2012, we made cash payments for income taxes (net of refunds) of $15 million and $29 million, respectively.

 

Recent Accounting Pronouncements

 

In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”).  The guidance in ASU 2013-02 requires an organization to present the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income, but only if the item reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period.  The guidance in ASU 2013-02 is effective for fiscal years beginning after December 15, 2012.  The adoption of this guidance did not have a material impact on our results of operations or financial position because it only provides for enhanced disclosure requirements.  Accordingly, we have included the enhanced footnote disclosure (see Note 9 - Accumulated Other Comprehensive Loss).

 

In March 2013, the FASB issued ASU 2013-05,  Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (“ASU” 2013-05”) . The amendments in ASU 2013-05 address the accounting for the cumulative translation adjustment when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. The amendments are effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013 (early adoption is permitted). We do not anticipate the adoption of this amendment will have a material impact on our financial statements.

 

In July 2013, the FASB issued ASU No. 2013-11,  Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists , providing guidance on the presentation of unrecognized tax benefits in the financial statements as either a reduction to a deferred tax asset or either a liability to better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses or tax credit carryforwards exist. The amendments in this ASU do not require new recurring disclosures. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The amendments in this ASU should be applied prospectively to all unrecognized tax benefits that exist at the effective date. We do not expect the adoption of the amendments in this ASU will have a significant impact on our financial statements.

 

2 )            ACQUISITIONS AND DIVESTITURES

 

Acquisitions

 

Solaris Acquisition

 

On September 26, 2012, we announced that we entered into a Business Transfer Agreement (“BTA”) with Solaris ChemTech Industries Limited (“Solaris ChemTech”), an Indian Company, and Avantha Holdings Limited, an Indian Company and the parent company of Solaris ChemTech (collectively, “Solaris”).  As provided in the BTA, we have agreed to purchase from Solaris certain assets used in the manufacture and distribution of bromine and bromine chemicals for cash consideration of $142 million and the assumption of certain liabilities.  The purchase price is subject to a post-closing net working capital adjustment.  The transaction is subject to, among other things, receiving governmental approval for the transfer of rights to the brine resources from which bromine is extracted.  The transaction is expected to close upon receipt of those approvals, the date of which is not yet known.  The parties are presently discussing alternative transaction structures.

 

DayStar Acquisition

 

On May 15, 2013, we purchased the remaining 50% interest in DayStar Materials L.L.C. (“DayStar”) from our partner UP Chemical Co., Ltd. and DayStar became a consolidated entity.  The purchase price was $3 million in cash which approximated

 

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the fair value of the remaining share of the assets and liabilities, primarily inventory and fixed assets, as of the purchase date. In addition, we reimbursed UP Chemical Co. Ltd. for a $3 million loan they had made to DayStar.

 

Divestitures

 

Consumer Divestiture

 

In September 2013 our Board of Directors (“ the Board”) approved a plan to sell our Consumer Products segment subject to the completion of definitive transaction documents and in October 2013, we entered into a stock purchase agreement to sell our Consumer Products business, including dedicated manufacturing plants in the U.S. and South Africa, to KIK Custom Products Inc. (“KIK”) for $315 million in cash at closing subject to certain customary pre- and post-closing adjustments, primarily for working capital and assumed pension liabilities.  Working capital consists of current assets and current liabilities, excluding cash, net current income and deferred taxes, and certain other current assets and liabilities.  The transaction is subject to customary closing conditions and regulatory approvals and is targeted to close on December 31, 2013.

 

As a result of the Board approval, the assets and liabilities of the Consumer Products segment have been presented as assets and liabilities held for sale.  Additionally, we determined that discontinued operations treatment applied and earnings and direct costs associated with Consumer Products segment have been presented as earnings (loss) from discontinued operations, net of tax in our Consolidated Statements of Operations for the current and comparative periods.  All applicable disclosures included in the accompanying footnotes have been updated to reflect the Consumer Products segment as a discontinued operation.

 

Additionally, earnings and direct costs associated with the Consumer Products business have been presented as earnings (loss) from discontinued operations, net of tax for the current and comparative periods.  All applicable disclosures included in the accompanying footnotes have been updated to reflect the Consumer Products business as a discontinued operation.

 

The following is a summary of the assets and liabilities of discontinued operations related to the Consumer Products business as of September 30, 2013 and December 31, 2012.

 

(In millions)

 

September 30, 2013

 

December 31, 2012

 

Accounts receivable, net

 

$

41

 

$

60

 

Inventories

 

69

 

70

 

Other current assets

 

20

 

19

 

Property, plant and equipment

 

61

 

64

 

Intangible assets, net

 

194

 

202

 

Other assets

 

5

 

5

 

Assets

 

390

 

420

 

 

 

 

 

 

 

Accounts payable

 

$

20

 

$

23

 

Accrued expenses

 

19

 

16

 

Income taxes payable

 

3

 

4

 

Pension and post-retirement health care liabilities

 

7

 

7

 

Other liabilities

 

75

 

78

 

Liabilities

 

124

 

128

 

Net Assets

 

$

266

 

$

292

 

 

Antioxidant Divestiture

 

On April 30, 2013, we completed the sale of our Antioxidant business to SK Blue Holdings, Ltd, (“SK”) and Addivant USA Holdings Corp. (“Addivant”) for consideration of $97 million, $9 million in preferred stock issued by Addivant, a seller note in the amount of $1 million issued by an affiliate of Addivant and the assumption by SK and Addivant of pension, environmental and other liabilities totaling approximately $91 million.

 

At closing, the cash consideration was subject to the retention of certain assets, the finalization of pension assets and liabilities and the change in certain working capital components through the closing date.  The asset purchase agreement provides a customary mechanism for finalizing any adjustments to the working capital base.  We anticipate finalizing the working capital adjustment in the fourth quarter of 2013.  During the third quarter of 2013, the net pension liability transferred to Addivant was

 

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finalized and the seller note was extinguished by these adjustments.  Additionally, we paid $2 million in cash considerations as part of the adjustment.

 

Included as part of the consideration, we received 9.2 million shares of Series A Preferred Stock of Addivant with a face value of $9 million.  These shares accrue dividends at escalating rates beginning at 7% in the first year and up to 11% in the third year and beyond which are payable upon declaration.

 

We recognized a pre-tax loss of $162 million ($149 million after-tax), which included $121 million of non-cash charges related to the release of accumulated other comprehensive loss (“AOCL”) associated with the pension obligations transferred, the release of cumulative translation adjustments and the release of our non-controlling interest in a Korean joint venture.  In connection with the sale, we entered into several ancillary agreements, including supply agreements, a distribution agreement, and a transition service agreement.

 

As a result of entering into this transaction beginning in 2012, we determined that discontinued operations treatment applied.  Assets and liabilities included in the Antioxidant Sale have been presented as assets and liabilities of discontinued operations as of December 31, 2012.  Additionally, earnings and direct costs associated with the Antioxidant business for the periods prior to the date of sale have been presented as earnings (loss) from discontinued operations, net of tax for the current and comparative periods.  All applicable disclosures included in the accompanying footnotes have been updated to reflect the Antioxidant business as a discontinued operation.

 

The following is a summary of the assets and liabilities sold or settled related to the Antioxidant business as of April 30, 2013 and the assets and liabilities of discontinued operations as of December 31, 2012.

 

(In millions)

 

April 30, 2013

 

December 31, 2012

 

Cash and cash equivalents

 

$

2

 

$

2

 

Accounts and trade receivable

 

70

 

61

 

Inventories

 

76

 

78

 

Other current assets

 

2

 

4

 

Property, plant and equipment

 

48

 

44

 

Intangible assets, net

 

14

 

14

 

Other assets

 

33

 

31

 

Assets

 

245

 

234

 

 

 

 

 

 

 

Accounts payable

 

$

39

 

$

29

 

Accrued expenses

 

2

 

4

 

Income taxes payable

 

 

1

 

Pension and post-retirement health care liabilities

 

78

 

80

 

Other liabilities

 

11

 

11

 

Liabilities

 

130

 

125

 

Net Assets

 

$

115

 

$

109

 

 

Assets sold or settled consisted primarily of plant facilities located at Morgantown, West Virginia, Bay Minette, Alabama, Waldkraiburg, Germany and Catenoy, France; our shares in the Asia Stabilizers joint venture, located in Korea, a previously controlled consolidated entity; our shares in Gulf Stabilizers Industries, located in Saudi Arabia, a previously 49% owned equity method investment; certain dedicated operating equipment located at Latina, Italy and Elmira, Canada; intangible assets and working capital associated with the Antioxidants business.

 

We retained ownership of certain manufacturing assets that will be used to meet our performance obligations under the supply agreements in Canada, Italy, the United States, Taiwan, Mexico, and Brazil.  The minimum terms of the supply agreements range from two to five years.  Based on the terms of the supply agreements and the forecasted costs to meet our obligations under those agreements, we have fair valued the supply agreements using Level 3 fair value techniques and included a $13 million charge to the loss on sale of discontinued operations in our Consolidated Statement of Operations.

 

The following table reconciles the adjusted cash proceeds to the pre-tax loss on the sale:

 

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(In millions)

 

September 30, 2013

 

Cash consideration

 

$

97

 

Retained working capital and other adjustments

 

(10

)

Post-closing adjustments

 

(2

)

Cash proceeds

 

85

 

Preferred stock

 

9

 

Less direct items:

 

 

 

Net assets sold or settled

 

111

 

Transaction costs and other (1)

 

4

 

Post closing obligations and other, net

 

7

 

Fair value of supply agreements

 

13

 

Less non-cash items:

 

 

 

Release of AOCL - pension

 

122

 

Release of AOCL - cumulative translation adjustment

 

6

 

Release of non-controlling interest

 

(7

)

Pre-tax loss on sale of discontinued operations

 

$

(162

)

 


(1) Transaction costs include legal fees and other direct costs incurred to sell the business since April 1, 2013.

 

Discontinued Operations - Consumer Products (“Consumer”) and Antioxidant (“AOUV”) Divestitures

 

Earnings (loss) from discontinued operations for the quarters and nine months ended September 30, 2013 and 2012 consist of the following:

 

 

 

Quarters ended September 30,

 

Nine months ended September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

(In millions)

 

Consumer

 

Consumer

 

AOUV

 

Total

 

Consumer

 

AOUV

 

Total

 

Consumer

 

AOUV

 

Total

 

Net sales

 

$

101

 

$

102

 

$

95

 

$

197

 

$

324

 

$

123

 

$

447

 

$

344

 

$

289

 

$

633

 

Pre-tax earnings (loss) from discontinued operations

 

$

8

 

$

11

 

$

(29

)

$

(18

)

$

27

 

$

4

 

$

31

 

$

25

 

$

(37

)

$

(12

)

Income tax benefit

 

(1

)

(1

)

4

 

3

 

(3

)

 

(3

)

(2

)

10

 

8

 

Earnings (loss) from discontinued operations, net of taxes

 

7

 

10

 

(25

)

(15

)

24

 

4

 

28

 

23

 

(27

)

(4

)

Net earnings attributable to non-controlling interests

 

 

 

2

 

2

 

 

 

 

 

1

 

1

 

Earnings (loss) from discontinued operations

 

$

7

 

$

10

 

$

(23

)

$

(13

)

$

24

 

$

4

 

$

28

 

$

23

 

$

(26

)

$

(3

)

 

A portion of certain functional and other expenses that are managed company-wide that have been allocated to the Antioxidant and Consumer Products businesses have not or will not transfer directly under the respective sale agreements.  As such, in historic periods these costs are shown as part of continuing operations in the corporate segment and not included under earnings (loss) from discontinued operations, net of tax.  These costs are as follows:

 

 

 

Quarters Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Antioxidants

 

 

3

 

6

 

11

 

Consumer Products

 

5

 

4

 

10

 

9

 

Amortization expense (a)

 

(3

)

(4

)

(8

)

(11

)

Net increase in Corporate Segment

 

2

 

3

 

8

 

9

 

 


(a) Our Corporate segment included amortization expense which related directly to the Antioxidant business and the Consumer Products segment which is now included in earnings (loss) from discontinued operations, net of tax.

 

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Tetrabrom Joint Venture Divestiture

 

On November 28, 2011, we sold our 50% interest in Tetrabrom Technologies Ltd. for net consideration of $38 million. The consideration is being paid over a three year period.  The first and second payments, net of tax, were paid in April 2012 and April 2013.  A pre-tax gain of $27 million was recorded on the sale in the fourth quarter of 2011.

 

3 )           RESTRUCTURING AND ASSET IMPAIRMENT ACTIVITIES

 

Restructuring

 

On February 22, 2013, our Board of Directors (the “Board”) approved a restructuring plan providing for, among other things, actions to reduce stranded costs related to ongoing strategic initiatives.  This plan is expected to preserve pre-divestiture operating margins following our portfolio changes.  On October 9, 2013, the Board approved additional restructuring actions to consolidate our business’ organizational structure in an effort to streamline the organization and gain efficiencies and additional cost savings.  In October 2013, we commenced employee communications and the consultation process regarding the potential closure of our Droitwich, UK facility and consolidation of those operations into our Perth Amboy, NJ facility, in order to improve our competitiveness in the current economic environment.  The total cost of these restructuring plans are estimated to be between $45 million and $55 million, primarily for severance and related costs, accelerated depreciation of property, plant and equipment, and asset retirement obligations.  Non-cash charges are estimated to be between $5 million and $7 million with a net cash cost of between $40 million and $48 million.  We recorded a pre-tax charge of $14 million in the first quarter of 2013 which included $11 million for severance and related costs and $3 million related to professional fees.  We recorded a pre-tax charge of $11 million in the second quarter of 2013 which included $5 million for severance and related costs and $6 million related to professional fees.  We recorded a pre-tax charge of $3 million in the third quarter of 2013 related to professional fees.  The remainder relates primarily to severance, accelerated depreciation and decommissioning costs and expect all but approximately $4 million to $8 million to be incurred throughout 2013.

 

On April 30, 2012, our Board approved a restructuring plan providing for, among other things, the closure of our Antioxidant business manufacturing facility in Pedrengo, Italy.  The Board also approved actions to improve the operating effectiveness of certain global corporate functions.  This plan is intended to achieve significant gains in efficiency and costs.  The total cost of the restructuring plan was estimated to be approximately $40 million of which approximately $6 million will consist of non-cash charges.  During 2012, we recorded pre-tax charges of $33 million which included $4 million for accelerated depreciation of property, plant and equipment included in depreciation and amortization, $2 million for accelerated asset retirement obligations included in cost of goods sold, $12 million for severance and professional fees related to corporate initiatives, $5 million for severance and other obligations related to the Pedrengo closure and $10 million reflecting the write-off of a receivable for which collection is no longer probable as a result of these restructuring actions.  We recorded an additional pre-tax charge of $1 million in the nine months ended September 30, 2013, primarily for accelerated depreciation and relocation costs related to the Pedrengo closure.  All charges related to the Pedrengo closure have been included in loss from discontinued operations, net of tax, as this plant formed part of our Antioxidants business.  The Pedrengo plant ceased operations on March 31, 2013 and asset retirement work has begun.  We have retained this property under the terms of the sale of the Antioxidants business and anticipate selling it after all facility retirement and remediation work is completed.

 

A summary of the changes in the liabilities established for restructuring programs is as follows:

 

(In millions)

 

Severance and
Related Costs

 

Other Facility
Closure Costs

 

Total

 

Balance at December 31, 2012

 

$

8

 

$

 

$

8

 

2013 charge

 

16

 

12

 

28

 

Cash payments

 

(10

)

(10

)

(20

)

Balance at September 30, 2013

 

$

14

 

$

2

 

$

16

 

 

At September 30, 2013, $15 million of these reserves were included in accrued expenses and $1 million were included in accounts payable in our Consolidated Balance Sheet.  At December 31, 2012, the balance of these reserves were included in accrued expenses in our Consolidated Balance Sheet.

 

Asset Impairment Review

 

During the first two quarters of 2013, we completed an assessment of the possible sale of the Consumer Products segment.  As of March 31, 2013 and June 30, 2013, we considered it more-likely-than-not that the initiative would become effective during 2013.  In performing the impairment analysis, we probability weighted the possible outcomes of the initiative as of March 31, 2013 and June 30, 2013.  Based on this analysis, the expected undiscounted cash flows were sufficient to recover the carrying

 

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values of assets of the Consumer Products segment.  As a result, we concluded that no impairment existed at March 31, 2013 or June 30, 2013.

 

In September 2013, when we met the criteria to record assets held for sale, we again performed an impairment analysis.  We probability weighted the fair value less cost to sell under different fair value models, as a proxy for an agreed upon purchase price, and found the fair value less cost to sell was sufficient to recover the carrying value of the net assets to be sold as of September 30, 2013.  As a result, we concluded that no impairment existed at September 30, 2013.  However, changes in the underlying details or fair value of the Consumer Products segment could impact the results of our analysis in future quarters.

 

4)            INVENTORIES

 

 

 

September 30,

 

December 31,

 

(In millions)

 

2013

 

2012

 

Finished goods

 

$

290

 

$

280

 

Work in process

 

35

 

27

 

Raw materials and supplies

 

103

 

91

 

 

 

$

428

 

$

398

 

 

Included in the above net inventory balances are inventory obsolescence reserves of approximately $22 million and $14 million at September 30, 2013 and December 31, 2012, respectively.

 

5)            PROPERTY, PLANT AND EQUIPMENT

 

 

 

September 30,

 

December 31,

 

(In millions)

 

2013

 

2012

 

Land and improvements

 

$

73

 

$

67

 

Buildings and improvements

 

215

 

190

 

Machinery and equipment

 

1,250

 

1,152

 

Information systems equipment

 

188

 

183

 

Furniture, fixtures and other

 

29

 

28

 

Construction in progress

 

88

 

108

 

 

 

1,843

 

1,728

 

Less: accumulated depreciation

 

1,127

 

1,073

 

 

 

$

716

 

$

655

 

 

Depreciation expense from continuing operations was $19 million and $21 million for the quarters ended September 30, 2013 and 2012, respectively, and $61 million and $60 million for the nine months ended September 30, 2013 and 2012, respectively.

 

6)            GOODWILL AND INTANGIBLE ASSETS

 

Our goodwill balance was $177 million at September 30, 2013 and December 31, 2012.  The goodwill is allocated to the Industrial Performance segment.  The goodwill balance at September 30, 2013 and December 31, 2012 reflected accumulated impairments of $90 million.

 

We have elected to perform our annual goodwill impairment procedures for all of our reporting units in accordance with ASC Subtopic 350-20,  Intangibles — Goodwill and Other - Goodwill (“ASC 350-20”) as of July 31, or sooner, if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.  We estimate the fair value of our reporting units utilizing income and market approaches through the application of discounted cash flow and market comparable methods (Level 3 inputs as described in Note 14— Financial Instruments and Fair Value Measurements).  The assessment is required to be performed in two steps: step one to test for a potential impairment of goodwill and, if potential impairments are identified, step two to measure the impairment loss through a full fair valuing of the assets and liabilities of the reporting unit utilizing the acquisition method of accounting.  We concluded that no goodwill impairment existed in any of our reporting units based on the annual review as of July 31, 2013.

 

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We continually monitor and evaluate business and competitive conditions that affect our operations and reflects the impact of these factors in our financial projections.  If permanent or sustained changes in business or competitive conditions occur, they can lead to revised projections that could potentially give rise to impairment charges.

 

Our intangible assets (excluding goodwill) are comprised of the following:

 

 

 

September 30, 2013

 

December 31, 2012

 

(In millions)

 

Gross
Cost

 

Accumulated
Amortization

 

Net
Intangibles

 

Gross
Cost

 

Accumulated
Amortization

 

Net
Intangibles

 

Patents

 

$

89

 

$

(51

)

$

38

 

$

85

 

$

(48

)

$

37

 

Trademarks

 

68

 

(34

)

34

 

68

 

(31

)

37

 

Customer relationships

 

42

 

(17

)

25

 

41

 

(15

)

26

 

Production rights

 

46

 

(36

)

10

 

46

 

(32

)

14

 

Other

 

75

 

(44

)

31

 

74

 

(42

)

32

 

Total

 

$

320

 

$

(182

)

$

138

 

$

314

 

$

(168

)

$

146

 

 

The increase in gross intangible assets since December 31, 2012 is primarily due to additions of $6 million and foreign currency translation of $2 million offset by retirements of $2 million.

 

Amortization expense from continuing operations related to intangible assets amounted to $5 million for the quarters ended September 30, 2013 and 2012, and $15 million for the nine months ended September 30, 2013 and 2012.

 

7)            DEBT

 

Our debt is comprised of the following:

 

 

 

September 30,

 

December 31,

 

(In millions)

 

2013

 

2012

 

5.75% Senior Notes due 2021

 

$

450

 

$

 

7.875% Senior Notes due 2018

 

100

 

452

 

Term Loan due 2016

 

316

 

418

 

Other borrowings

 

28

 

6

 

Total Debt

 

894

 

876

 

Less: Other short-term borrowings

 

(2

)

(3

)

Less: Current portion of Term Loan

 

 

(2

)

Total Long-term debt

 

$

892

 

$

871

 

 

Tender Offer & New Bond Offering

 

On June 10, 2013, we launched a cash tender offer and consent solicitation with respect to any and all of our outstanding $455 million aggregate principal amount of 7.875% Senior Notes due 2018 (the “2018 Senior Notes”) pursuant to our Offer to Purchase and Consent Solicitation Statement (the “Offer to Purchase”).  The requisite consent solicitation was required to adopt proposed amendments to the indenture governing the 2018 Senior Notes (the “2018 Indenture”) that would eliminate substantially all of the restrictive covenants, certain events of default and related provisions contained in the 2018 Indenture.  Subject to the terms and conditions set forth in the Offer to Purchase, holders who validly tendered their notes on or prior to June 21, 2013 (the “Consent Date”) received total consideration of $1,117.50 per $1,000 principal amount of the 2018 Senior Notes accepted for purchase, which included a consent payment of $30 per $1,000 principal amount of the notes.  As of July 5, 2013, holders of $348 million or approximately 76.56% of the 2018 Senior Notes, had tendered their 2018 Senior Notes and consented to the proposed amendments to the 2018 Indenture.

 

On July 8, 2013, we amended the terms of the Offer to Purchase to extend the expiration date to July 19, 2013 to meet the terms of the Financing Condition (as defined in the Offer to Purchase).  Holders who validly tendered their 2018 Senior Notes after the Consent Date but on or prior to July 19, 2013, received the tender offer consideration of $1,087.50 per $1,000 principal amount of the 2018 Senior Notes accepted for purchase but were not entitled to the consent payment.  As of July 19, 2013, additional holders of $6 million or approximately 1.33% of the 2018 Senior Notes, had tendered their 2018 Senior Notes and Solicitation and consented to the proposed amendments to the 2018 Indenture.

 

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On July 18, 2013, we undertook a registered public offering of $450 million of 5.75% Senior Notes due 2021 (“2021 Senior Notes”), for the purposes of funding the purchase under the terms of the Offer to Purchase all of the 2018 Senior Notes tendered, expenses related to the offering and a prepayment of our senior secured term loan facility due 2016 (the “Term Loan”).  On July 23, 2013, the 2021 Senior Notes offering closed and the majority of the proceeds were used to complete the purchase of the 2018 Senior Notes tendered in response to the Offer to Purchase.  With the purchase of the 2018 Senior Notes complete, the amendments to the 2018 Indenture that eliminated substantially all of the restrictive covenants, certain events of default and related provisions became effective.

 

In our third quarter of 2013, we recorded a loss on the early extinguishment of debt of $50 million.  The loss included $42 million for the difference between the principal amount of the 2018 Senior Notes tendered and the sum of the tender offer consideration and consent payments.  The loss also included $8 million for the write-off of unamortized capitalized financing costs and original issuance discount with respect to the 2018 Senior Notes purchased under the tender.

 

On July 23, 2013, we used the balance of the proceeds from the offering of the 2021 Senior Notes, after completing the purchase of the 2018 Senior Notes tendered and paying transaction costs of approximately $45 million, and approximately $5 million of cash on hand to prepay $50 million of principal of our Term Loan.  On July 31, 2013, we prepaid an additional $50 million of Term Loan principal with cash on hand.

 

At any time prior to July 15, 2016, we are permitted to redeem some or all of the 2021 Senior Notes at a redemption price equal to 100% of the principal amount thereof plus a make-whole premium (as defined in the indenture governing the 2021 Senior Notes (the “2021 Indenture”)) and accrued and unpaid interest up to, but excluding, the redemption date.  At any time after July 15, 2016, we are permitted to redeem some or all of the 2021 Senior Notes at any time, 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% plus any accrued and unpaid interest to the redemption date.  In addition, prior to July 15, 2016, we may redeem up to 35% of the 2021 Senior Notes from the proceeds of certain equity offerings at a redemption price of 105.75% plus accrued but unpaid interest to the redemption date.  If we experience certain kinds of changes in control, as defined in the 2021 Indenture, we may be required to offer to repurchase all of the 2021 Senior Notes.  The redemption price (subject to limitations as described in the 2021 Indenture) is 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.  As of September 30, 2013, we were in compliance with the covenant requirements of the 2021 Senior Notes.

 

Our 2021 Senior Notes are subject to certain events of default, including, among others, breach of other agreements in the 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.

 

Financing Facilities

 

On August 27, 2010, we completed a private placement offering under Securities and Exchange Commission (“SEC”) Rule 144A for the 2018 Senior Notes at an issue price of 99.269% in reliance on an exemption pursuant to Section 4(2) of the Securities Act of 1933.  In July 2013, we redeemed $354 million of the $455 million outstanding balance with proceeds from the 2021 Senior Notes offering.

 

On August 27, 2010, we also entered into 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%.  The Term Loan permits us to increase the size of the facility by up to $125 million.  On October 31, 2012, we exercised the accordion feature of our Term Loan and borrowed the additional $125 million for the purpose of funding potential investment opportunities and for general corporate purposes.  Accordingly, we recognized a $1 million charge for the year ended December 31, 2012 for loss on early extinguishment of debt resulting from the write-off of deferred financing costs and miscellaneous fees.  An additional $1 million in arranger fees were written-off to interest expense for the year end December 31, 2012.  During 2013, we repaid $102 million of the Term Loan with proceeds from the 2021 Senior Notes offering and cash on hand.

 

In October 2013, we entered into an amendment of our Term Loan.  The amendment to the Term Loan (the “Amendment”), among other things, (i) reduces the interest rate and LIBOR floor on the term loans outstanding under the Term Loan agreement (the “term loans”), (ii) provides for a 1% prepayment premium if the term loans are refinanced with certain specified refinancing debt within 6 months, (iii) introduces scheduled quarterly amortization of the term loans in the amount of 1% annually, and (iv) permit additional flexibility under certain of our operating covenants (including but not limited to additional

 

14



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flexibility for debt, investments, restricted payments and dispositions) in the Term Loan agreement.  The Amendment became effective on October 30, 2013.

 

On November 10, 2010, we entered into a five-year senior secured revolving credit facility available through 2015 (the “ABL Facility”) with Bank of America, N.A., as administrative agent and the other lenders party thereto for an amount up to $275 million, subject to availability under a borrowing base (with a $125 million letter of credit sub-facility).  The ABL Facility permits us to increase the size of the facility by up to $125 million subject to obtaining lender commitments to provide such increase.

 

At September 30, 2013 and December 31, 2012, we had no borrowings under the ABL Facility and $14 million of outstanding letters of credit (primarily related to insurance obligations, environmental obligations and banking credit facilities) which utilizes available capacity under the facility.   At September 30, 2013 and December 31, 2012, we had approximately $191 million and $199 million, respectively of undrawn availability under the ABL Facility.

 

These facilities contain 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.  The Term Loan requires that we meet certain quarterly financial maintenance covenants including a maximum Secured Leverage Ratio (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.  The ABL Facility contains a springing financial covenant requiring a minimum trailing 12-month fixed charge coverage ratio (as defined in the agreement) of 1.1 to 1.0 at all times during any period from the date when the amount available for borrowings under the ABL Facility falls below the greater of (i) $34 million and (ii) 12.5% of the aggregate commitments until such date such available amount has been equal to or greater than the greater of (i) $34 million and (ii) 12.5% of the aggregate commitments for 45 consecutive days.  As of September 30, 2013, we were in compliance with the covenant requirements of these financing facilities.

 

On March 29, 2013, we entered into a promissory note in the principal sum of $7 million with a term of six years bearing interest at a rate of 5.29% per annum to finance the cost of certain information technology software licenses.  The principal of note is to be repaid in equal monthly installments over its term.

 

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 (“ABC Bank”).  The China Bank Facility will be used for funding construction of our manufacturing facility in Nantong, China.  The China Bank Facility 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 base on the prevailing People Bank of China Lending Rate.  At September 30, 2013, we had borrowings of $17 million under the China Bank Facility.  Repayments of principal will be made in semi-annual installments from December 2014 through December 2017.

 

Accounts Receivable Financing Facility

 

On October 26, 2011, certain of our European subsidiaries (the “Sellers”) entered into a trade receivables financing facility (the “A/R Financing Facility”) with GE FactoFrance SAS as purchaser (the “Purchaser”).  Pursuant to the A/R Financing Facility, and subject to certain conditions stated therein, the Purchaser has agreed to purchase from the Sellers, on a revolving basis, certain trade receivables up to a maximum amount outstanding at any time of €68 million (approximately $92 million).  The monthly financing fee on the drawn portion of the A/R Financing Facility is the applicable Base Rate plus 1.50%.  In addition, the A/R Financing Facility is subject to a minimum commission on the annual volume of transferred receivables.  We had no outstanding advances under the A/R Financing Facility for the period ending December 31, 2012.  We utilized this facility during 2012, however, in December 2012 we agreed with the Purchaser to suspend the facility in light of internal plans to change which of our European entities invoice sales to customers.

 

8)            INCOME TAXES

 

We reported an income tax expense of $3 million and $5 million for the quarters ended September 30, 2013 and 2012, respectively.  For the nine months ended September 30, 2013 and 2012, we reported income tax expense of $24 million and $16 million, respectively.  The tax expense reported for the quarter and nine months ended September 30, 2013 relates to taxable income of certain of our international subsidiaries.  The tax expense reported for the quarter and nine months ended September 30, 2012 relates to taxable income of certain of our international subsidiaries reduced by the tax benefit of elements of the third quarter of 2012 restructuring charge.

 

In the quarter and nine months ended September 30, 2013, we established a valuation allowance against the tax benefits associated with our year-to-date U.S. losses. We will continue to adjust our tax provision through the establishment or

 

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reduction of non-cash valuation allowances until we determine that it is more-likely than not that the net deferred tax assets associated with our U.S. operations will be utilized.

 

We have net liabilities related to unrecognized tax benefits of $44 million and $41 million at September 30, 2013 and December 31, 2012, respectively. The increase is primarily due to currency fluctuation.

 

We recognize interest and penalties related to unrecognized tax benefits as income tax expense.  Accrued interest and penalties are included within the related liability captions in our Consolidated Balance Sheet.

 

We believe it is reasonably possible that our unrecognized tax benefits may decrease by approximately $4 million within the next year.  This reduction may occur due to the expiration of the statute of limitations or conclusion of examinations by tax authorities.  We further expect that the amount of unrecognized tax benefits will continue to change as a result of ongoing operations, the outcomes of audits and the expiration of the statute of limitations.  This change is not expected to have a significant impact on our financial condition.

 

9)            ACCUMULATED OTHER COMPREHENSIVE LOSS

 

The components of accumulated other comprehensive loss (“AOCL”), net of tax at September 30, 2013 and December 31, 2012, are as follows:

 

(in millions)

 

Foreign
Currency
Translation
Adjustments

 

Unrecognized
Pension and
Other Post-
Retirement
Benefit Costs

 

Total

 

As of December 31, 2012

 

$

47

 

$

(475

)

$

(428

)

Other comprehensive (loss) income before reclassifications

 

(7

)

21

 

14

 

Amounts reclassified from AOCL

 

(9

)

121

 

112

 

Net current period other comprehensive (loss) income

 

(16

)

142

 

126

 

As of September 30, 2013

 

$

31

 

$

(333

)

$

(302

)

 

The following table summarizes the reclassifications from AOCL to the Condensed Consolidated Statement of Operations for the quarter and nine months ended September 30, 2013:

 

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Quarter Ended

 

Nine months ended

 

 

 

 

 

September 30, 2013

 

September 30, 2013

 

Affected line item in the

 

(in millions)

 

Amount Reclassified
from AOCL

 

Amount Reclassified
from AOCL

 

consolidated statement of
operations

 

Foreign currency translation items:

 

 

 

 

 

 

 

Liquidation of consolidated entities

 

$

 

$

15

 

Other income, net

 

Sale of discontinued operations (b)

 

 

(6

)

Loss on sale of discontinued operations, net of tax

 

Net of tax

 

 

9

 

 

 

Defined benefit pension plan items:

 

 

 

 

 

 

 

Amortization of prior-service costs (a)

 

1

 

3

 

See Note (a)

 

Amortization of actuarial losses (a)

 

(5

)

(17

)

See Note (a)

 

Sale of discontinued operations (b)

 

(2

)

(122

)

Loss on sale of discontinued operations, net of tax

 

Total before tax

 

(6

)

(136

)

 

 

Tax on continuing operations

 

 

1

 

Income Tax Expense

 

Tax on discontinued operations

 

 

14

 

Loss on sale of discontinued operations, net of tax

 

Total tax

 

 

15

 

 

 

Net of tax

 

(6

)

(121

)

 

 

Total reclassifications

 

$

(6

)

$

(112

)

 

 

 


(a) These items are included in the computation of net periodic benefit pension cost (see Note 12 - Pension and other Post-Retirement Plans for additional information).

(b) Sale of the Antioxidant Business (see Note 2 - Acquisitions and Divestitures)

 

10)          EARNINGS PER COMMON SHARE

 

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 quarter and nine months ended September 30, 2013, since the common stock equivalents were anti-dilutive as a result of a loss from continuing operations.  Common stock equivalents amounted to 1.2 million shares for the quarter and nine months ended September 30, 2013.

 

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)

 

2013

 

2012

 

2013

 

2012

 

Weighted average shares outstanding - Basic

 

97.5

 

97.9

 

98.1

 

98.4

 

Dilutive effect of common share equivalents

 

 

0.3

 

 

0.4

 

Weighted average shares outstanding - Diluted

 

97.5

 

98.2

 

98.1

 

98.8

 

 

On May 9, 2013, the Board authorized an increase in our share repurchase program by $41 million to $141 million of which $50 million remains as of September 30, 2013 and extended the program through March 31, 2014.  The shares are expected to be repurchased from time to time through open market purchases.  The program, which does not obligate us to repurchase any particular amount of common stock, 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 repurchased 2.2 million shares at a cost of $50 million during the quarter and nine months ended September 30, 2013.  As of September 30, 2013, we repurchased 5.6 million shares at a cost of $91 million under this program, which was originally approved in October 2011.

 

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11)          STOCK INCENTIVE PLANS

 

In 2010, we adopted the Chemtura Corporation 2010 Long-Term Incentive Plan (the “2010 LTIP”), which was approved by the Bankruptcy Court and became effective upon our emergence from Chapter 11.  The 2010 LTIP provides for grants of nonqualified 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-based compensation expense was $3 million and $4 million for the quarters ended September 30, 2013 and 2012, respectively, and $11 million and $14 million for the nine months ended September 30, 2013 and 2012, respectively.  Stock-based compensation expense was primarily reported in SG&A.

 

Stock Option Plans

 

In March 2013, the compensation committee of our Board (the “Compensation Committee”) approved the grant of 0.4 million NQOs under the 2013 long-term incentive awards (the “2013 Awards”).  These options vest ratably over a three-year period.

 

In March 2012, the Compensation Committee approved the grant of 0.8 million NQOs under the 2012 long-term incentive awards (the “2012 Awards”).  These options vest ratably over a three-year period.

 

We use the Black-Scholes option-pricing model to determine the fair value of NQOs.  We have elected to recognize compensation cost for awards of NQOs equally over the requisite service period for each separately vesting tranche, as if multiple awards were granted.  Using this method, the weighted average per share fair value of stock options granted during the nine months ended September 30, 2013 and 2012 was $9.92 and $8.14, respectively.

 

Total remaining unrecognized compensation expense associated with unvested NQOs at September 30, 2013 was $5 million, which will be recognized over the weighted average period of approximately 2 years.

 

Restricted Stock Units and Performance Shares

 

In March 2013, the Compensation Committee approved the grant of 0.2 million time-based RSUs under the 2013 Awards.  These RSUs vest ratably over a three-year period.

 

In March 2013, the Compensation Committee approved the grant of 0.2 million performance shares under the 2013 Awards.  The 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, 2015, the performance share metric used will be our relative total shareholder return against the companies comprising the Russell 3000 Index, and the performance shares will be settled on March 1, 2016.  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 $27.27.

 

In March 2012, the Compensation Committee approved the grant of 0.6 million time-based RSUs under the 2012 Awards.  These RSUs vest ratably over a three-year period.

 

In March 2012, the Compensation Committee approved the grant of 0.3 million performance shares under the 2012 Awards.  The 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, 2014, the performance share metric used will be our relative total shareholder return against the companies comprising the Russell 3000 Index, and the performance shares will be settled on March 1, 2015.  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 $25.38.

 

Total remaining unrecognized compensation expense associated with unvested time-based RSUs and performance shares at September 30, 2013 was $13 million, which will be recognized over the weighted average period of approximately 2 years.

 

Employee Stock Purchase Plan

 

In May 2012, our shareholders approved the Chemtura Corporation 2012 Employee Stock Purchase Plan (the “ESPP”).  This plan permits eligible employees to annually elect to have up to 10% of their compensation withheld and applied to the purchase of shares of Chemtura’s common stock.  Purchases are made at the end of quarterly offering periods and are based on the lower

 

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of the fair market value of the shares on the first and last trading days during the offering period.  The first offering period was for the calendar quarter ended September 30, 2012.  A total of one million shares are authorized to be issued under the ESPP, including up to 0.1 million shares per offering period and 0.3 million shares per plan year.  As of September 30, 2013, approximately 0.9 million shares are available for future issuance under this plan.

 

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, 2013 and 2012 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)

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

Service cost

 

$

 

$

1

 

$

1

 

$

 

$

 

$

 

Interest cost

 

7

 

10

 

5

 

5

 

1

 

2

 

Expected return on plan assets

 

(10

)

(14

)

(6

)

(5

)

 

 

Amortization of prior service cost

 

 

 

 

 

(1

)

(1

)

Amortization of actuarial losses

 

3

 

4

 

1

 

1

 

1

 

 

Net periodic benefit cost

 

$

 

$

1

 

$

1

 

$

1

 

$

1

 

$

1

 

 

 

 

Defined Benefit Plans

 

 

 

Qualified

 

International and

 

Post-Retirement

 

 

 

U.S. Plans

 

Non-Qualified Plans

 

Health Care Plans

 

 

 

Nine months ended

 

Nine months ended

 

Nine months ended

 

 

 

September 30,

 

September 30,

 

September 30,

 

(In millions)

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

Service cost

 

$

 

$

1

 

$

3

 

$

2

 

$

 

$

 

Interest cost

 

24

 

32

 

15

 

15

 

3

 

4

 

Expected return on plan assets

 

(35

)

(41

)

(18

)

(16

)

 

 

Amortization of prior service cost

 

 

 

 

 

(3

)

(4

)

Amortization of actuarial losses

 

11

 

11

 

3

 

2

 

3

 

2

 

Net periodic benefit cost

 

$

 

$

3

 

$

3

 

$

3

 

$

3

 

$

2

 

 

In addition to the net periodic benefit (credit) cost summarized above, in the second quarter of 2013 we recorded a gain related to an adjustment for a legacy pension plan of $2 million to SG&A and $4 million to Loss from discontinued operations on our Consolidated Statement of Operations.

 

We contributed $10 million to our U.S. qualified pension plans, $2 million to our U.S. non-qualified pension plans and $17 million to our international pension plans for the nine months ended September 30, 2013.  Contributions to post-retirement health care plans for the nine months ended September 30, 2013 were $8 million.

 

On November 18, 2009, the Bankruptcy Court entered an order (the “2009 OPEB Order”) approving, in part, our motion (the “2009 OPEB Motion”) requesting authorization to modify certain post-retirement welfare benefits (the “OPEB Benefits”) under our post-retirement welfare benefit plans (the “OPEB Plans”), including the OPEB Benefits of certain Uniroyal salaried retirees (the “Uniroyal Salaried Retirees”).  On April 5, 2010, the Bankruptcy Court entered an order denying the Uniroyal Salaried Retirees’ motion to reconsider the 2009 OPEB Order based, among other things, on the Uniroyal Salaried Retirees’ failure to file a timely objection to the 2009 OPEB Motion.  On April 8, 2010, the Uniroyal Salaried Retirees appealed the Bankruptcy Court’s April 5, 2010 order and on April 14, 2010, sought a stay pending their appeal (the “Stay”) of the 2009 OPEB Order as to our right to modify the OPEB Benefits.  On April 21, 2010, the Bankruptcy Court ordered us not to modify the Uniroyal Salaried Retirees’ OPEB Benefits pending a hearing and decision as to the Stay.  After consulting with the official committees of unsecured creditors and equity security holders, we requested that the Bankruptcy Court have a hearing to decide, as a matter of law, whether we have the right to modify the OPEB Benefits of the Uniroyal Salaried Retirees as requested in the 2009 OPEB Motion.  In November 2011, we reached an agreement in principle with a steering committee of the Uniroyal Salaried Retirees resolving all disputes concerning the 2009 OPEB Motion.  On February 21, 2012, we filed a motion with the Bankruptcy Court seeking approval of a settlement stipulation with the steering committee of the Uniroyal

 

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Salaried Retirees based upon the prior agreement in principle and authorizing us to implement changes to the OPEB Benefits of all Uniroyal Salaried Retirees based upon the settlement stipulation and as a partial grant of the relief requested in the 2009 OPEB Motion.  The Bankruptcy Court approved the motion at a hearing held on March 29, 2012.  The changes were communicated to the participants in May 2012.  The impact of the change was an $8 million increase to the projected benefit obligation, which we recorded in the second quarter of 2012 as an increase to the pension and post-retirement healthcare liabilities, with an offset to AOCL on our Consolidated Balance Sheet at December 31, 2012.

 

On May 9, 2011, one of our UK subsidiaries entered into definitive agreements with the trustees of the Great Lakes U.K. Limited Pension Plan (“the UK Pension Plan”) over the terms of a “recovery plan” which provided for a series of additional cash contributions to be made to reduce the underfunding over time.  The agreements provided, among other things, for our UK subsidiary to make cash contributions of £60 million (approximately $96 million) in just over a three year period, with the initial contribution of £30 million ($49 million) made in the second quarter of 2011, the second contribution of £15 million ($24 million) made in the second quarter of 2012 and the third contribution of £8 million ($11 million) made in the second quarter of 2013.  The final contribution of  £8 million ($11 million) is expected to be made in the second quarter of 2014.  The agreements also provided for the granting of both a security interest and a guarantee to support certain of the liabilities under the UK Pension Plan.

 

There was also an evaluation being undertaken as to whether additional benefit obligations exist in connection with the equalization of certain benefits under the UK Pension Plan that occurred in the early 1990s.  Based on the results of the evaluation in 2011, $8 million of expense was recorded in the fourth quarter of 2011, which was subject to adjustment as further information is gathered as part of the evaluation.   Additional information has been gathered and evaluated during the second quarter of 2013 and resulted in a reduction of the estimated liability from that originally estimated. Accordingly we recorded $2 million of income to SG&A in the second quarter of 2013.  When we reach agreement with the trustees of the UK Pension Plan as to what additional benefit obligations exist, our UK subsidiary is required to make additional cash contributions to the UK Pension Plan.

 

13)          DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

 

Our activities expose our earnings, cash flows and financial condition to a variety of market risks, including the effects of changes in foreign currency exchange rates, interest rates and energy prices.  We maintain a risk management strategy that may utilize derivative instruments to mitigate risk against foreign currency movements.  We do not enter into derivative instruments for trading or speculative purposes.

 

We have exposure to changes in foreign currency exchange rates resulting from transactions entered into by us and our foreign subsidiaries in currencies other than their functional currency (primarily trade payables and receivables).  We are also exposed to currency risk on intercompany transactions (including intercompany loans).  We manage these currency risks on a consolidated basis, which allows us to net our exposure.

 

In September 2013, we entered into a €25 million notional put option and €25 million notional value forward contract to reduce the risk of currency exposure related to the Euro in one of our consolidated subsidiaries.  These contracts matured in October 2013.  We use fair value accounting methods for these contracts and have recorded unrealized losses of $1 million reflecting the changes in fair market value of these contracts in other income, net in our Consolidated Statement of Operations for the quarter and nine months ended September 30, 2013.  The resulting net liability of the changes in fair market value of the remaining contracts of $1 million has been accounted for in other current liabilities in our Consolidated Balance Sheet.

 

During the first half of 2013, we entered into a zero cost collar contract and two additional forward contracts to reduce the risk of currency exposure related to the Euro in one of our consolidated subsidiaries.  These contracts matured at various times during the second quarter of 2013.  We use fair value accounting methods for these contracts and have recorded losses of less than $1 million and gains of $3 million reflecting the changes in fair market value of these contracts in other income, net in our Consolidated Statement of Operations for the quarter ended June 30, 2013 and nine months ended September 30, 2013.

 

In April 2012, we purchased two forward contracts with a notional amount totaling $25 million to reduce the risk of currency exposure related to the remaining two annual installments of proceeds from the sale of our 50% interest in Tetrabrom Technologies Ltd. in 2011.  We use fair value accounting methods for these contracts.  During the quarter ended June 30, 2013, one of these contracts settled and we recorded a realized gain of less than $1 million in other income, net.  We have recorded an unrealized gain of less than $1 million reflecting the changes in the fair market value on the remaining contract in other income, net in our Consolidated Statement of Operations for the quarter and nine months ended September 30, 2013.  The resulting net liability of the changes in fair market value of the remaining contract of less than $1 million has been accounted for in other current assets in our Consolidated Balance Sheet.

 

In June 2012, we purchased and settled a forward contract with a notional amount totaling $8 million to reduce the risk of currency exposure related to the payment of an intercompany payable denominated in Mexican Pesos.  We used fair value

 

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accounting methods for these contracts and have recorded a gain of less than $1 million reflecting the changes in the fair market value of these contracts in other expense, net in our Consolidated Statement of Operations for the nine months ended September 30, 2012.

 

14)          FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

 

Financial Instruments

 

The carrying amounts for cash and cash equivalents, accounts receivable, other current assets, accounts payable and other current liabilities, approximate their fair value because of the short-term maturities of these instruments.  The fair value of debt is based primarily on quoted market values.

 

The following table presents the carrying amounts and estimated fair values of material financial instruments used by us in the normal course of business:

 

 

 

As of September 30, 2013

 

As of December 31, 2012

 

 

 

Carrying

 

Fair

 

Carrying

 

Fair

 

(In millions)

 

Amount

 

Value

 

Amount

 

Value

 

Total debt

 

$

894

 

$

907

 

$

876

 

$

920

 

 

Fair Value Measurements

 

We apply the provisions of ASC 820 with respect to our financial assets and liabilities that are measured at fair value within the financial statements on a recurring basis.  ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable.  Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions.  The fair value hierarchy specified by ASC 820 is as follows:

 

·                   Level 1 — Quoted prices in active markets for identical assets and liabilities.

·                   Level 2 — Quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market date.

·                   Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.

 

Level 1 fair value measurements in 2013 and 2012 included securities purchased in connection with the deferral of compensation, our match and investment earnings related to the supplemental savings plan.  These securities are considered our general assets until distributed to the participant and are included in other assets in our Consolidated Balance Sheets.  A corresponding liability is included in other liabilities at September 30, 2013 and December 31, 2012 in our Consolidated Balance Sheets.  Quoted market prices were used to determine fair values of these Level 1 investments which are held in a trust with a third-party brokerage firm.  The fair value of the asset and corresponding liability was $2 million at September 30, 2013 and December 31, 2012.

 

Level 2 fair value measurements are used to value our financial instruments subject to foreign currency exchange risk (see Note 13 — Derivative Instruments and Hedging Activities.)  For the nine months ended September 30, 2013, there were no transfers into or out of Levels 1 and 2.

 

Level 3 fair value measurements are utilized in our impairment reviews of Goodwill (see Note 6 — Goodwill and Intangible Assets).

 

During the second quarter of 2013, we obtained an investment in non-public preferred equity securities with a face value of $9 million.  We have estimated the fair value to be $4 million, utilizing Level 3 measurements, where the fair value estimate is determined internally based on business and market sector fundamentals.  We have reported the fair value of this investment in Other Non-Current Assets and reported the difference between the face value and fair value in loss on sale of discontinued operations.

 

Level 1, 2 and 3 fair value measurements are utilized for defined benefit plan assets in determining the funded status of our pension and post-retirement benefit plan liabilities on an annual basis (at December 31).

 

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15)          ASSET RETIREMENT OBLIGATIONS

 

We apply the provisions of ASC Topic 410, Asset Retirements and Environmental Obligations (“ASC 410”), which requires us to make estimates regarding future events in order to record a liability for asset retirement obligations in the period in which a legal obligation is created.  Such liabilities are recorded at fair value, with an offsetting increase to the carrying value of the related long-lived assets.  The fair value is estimated by discounting projected cash flows over the estimated life of the assets using our credit adjusted risk-free rate applicable at the time the obligation is initially recorded.  In future periods, the liability is accreted to its present value and the capitalized cost is depreciated over the useful life of the related asset.  We also adjust the liability for changes resulting from revisions to the timing of future cash flows or the amount of the original estimate.  Upon retirement of the long-lived asset, we either settle the obligation for its recorded amount or incur a gain or loss.

 

Our asset retirement obligations include estimates for all asset retirement obligations identified for our worldwide facilities.  Our asset retirement obligations are primarily the result of legal obligations for the removal of leasehold improvements and restoration of premises to their original condition upon termination of leases at approximately 25 facilities; legal obligations to close approximately 89 brine supply, brine disposal, waste disposal, and hazardous waste injection wells and the related pipelines at the end of their useful lives; and decommissioning and decontamination obligations that are legally required to be fulfilled upon closure of approximately 30 of our manufacturing facilities.

 

The following is a summary of the change in the carrying amount of the asset retirement obligations for the quarters and nine months ended September 30, 2013 and 2012 and the net book value of assets related to the asset retirement obligations at September 30, 2013 and 2012:

 

 

 

Quarters ended September 30,

 

Nine months ended September 30,

 

(In millions)

 

2013

 

2012

 

2013

 

2012

 

Asset retirement obligation balance at beginning of period

 

$

17

 

$

22

 

$

20

 

$

21

 

Accretion expense (income) — cost of goods sold (a)(b)

 

3

 

1

 

3

 

3

 

Payments

 

(2

)

 

(5

)

(1

)

Asset retirement obligation balance at end of period

 

$

18

 

$

23

 

$

18

 

$

23

 

Net book value of asset retirement obligation assets at end of period

 

$

 

$

1

 

$

 

$

1

 

 


(a)   The accretion expense for the quarter and nine months ended September 30, 2013 reflects the increase due to additional cleanup costs required at the Upton Road, Canada facility.

(b)   The accretion expense for the nine months ended September 30, 2012 reflects the acceleration of obligations related to the Pedrengo, Italy facility due to the shutdown approved on April 30, 2012.

 

Depreciation expense for the nine months ended September 30, 2013 and 2012 was less than $1 million.

 

At September 30, 2013 and December 31, 2012, $3 million and $6 million, respectively, of asset retirement obligations were included in accrued expenses and $15 million and  $14 million, respectively, were included in other liabilities in our Consolidated Balance Sheet.

 

16)          EMERGENCE FROM CHAPTER 11

 

On March 18, 2009 (the “Petition Date”) Chemtura and 26 of our U.S. affiliates (collectively the “U.S. Debtors” or the “Debtors” when used in relation to matters before August 8, 2010) filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code (“Chapter 11”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”).

 

On August 8, 2010, our Canadian subsidiary, Chemtura Canada Co/Cie (“Chemtura Canada”), filed a voluntary petition for relief under Chapter 11.  On August 11, 2010, Chemtura Canada commenced ancillary recognition proceedings under Part IV of the Companies’ Creditors Arrangement Act (the “CCAA”) in the Ontario Superior Court of Justice, (the “Canadian Court” and such proceedings, the “Canadian Case”).  The U.S. Debtors along with Chemtura Canada after it filed for Chapter 11 (collectively the “Debtors”) requested the Bankruptcy Court to enter an order jointly administering Chemtura Canada’s Chapter 11 case with the previously filed Chapter 11 cases and appoint Chemtura Canada as the “foreign representative” for the purposes of the Canadian Case.  Such orders were granted on August 9, 2010.  On August 11, 2010, the Canadian Court entered an order recognizing the Chapter 11 cases as a “foreign proceedings” under the CCAA.

 

On November 3, 2010, the Bankruptcy Court entered an order confirming the Debtors’ plan of reorganization (the “Plan”).  On November 10, 2010 (the “Effective Date”), the Debtors substantially consummated their reorganization through a series of transactions contemplated by the Plan and the Plan became effective.

 

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On June 10, 2011, we filed a closing report in Chemtura Canada’s Chapter 11 case and a motion seeking a final decree closing that Chapter 11 case.  On June 23, 2011, the Bankruptcy Court granted our motion and entered a final decree closing the Chapter 11 case of Chemtura Canada.

 

On December 1, 2011, we filed a motion requesting entry of an order granting a final decree closing the Chapter 11 cases of 22 Debtors (the “Fully Administered Debtors”):

 

· A&M Cleaning Products LLC

 

· Crompton Colors Incorporated

 

· Laurel Industries Holdings, Inc.

· Aqua Clear Industries, LLC

 

· Crompton Holding Corporation

 

· Monochem, Inc.

· ASEPSIS, Inc.

 

· Crompton Monochem, Inc.

 

· Naugatuck Treatment Company

· ASCK, Inc.

 

· Great Lakes Chemical Global, Inc.

 

· Recreational Water Products, Inc.

· BioLab Company Store, LLC

 

· GT Seed Treatment, Inc.

 

· Weber City Road LLC

· Biolab Franchise Company, LLC

 

· HomeCare Labs, Inc

 

· WRL of Indiana, Inc.

· BioLab Textile Additives, LLC

 

· ISCI, Inc.

 

 

· CNK Chemical Realty Corporation

 

· Kem Manufacturing Corporation

 

 

 

On December 15, 2011, the Bankruptcy Court entered an order granting a final decree closing the Fully Administered Debtors’ Chapter 11 cases.

 

On January 5, 2012, we filed a motion with the Bankruptcy Court seeking authority to make a third supplemental distribution to Holders of Interests, which was granted by the Bankruptcy Court on January 26, 2012.  The Bankruptcy Court extended the time to make the third supplemental distribution by order dated March 2, 2012 and authorized an increase to the third supplemental distribution by order dated March 8, 2012.  The third supplemental distribution was made in March 2012 and included payments of $3 million in cash and $20 million in stock, valuing the stock at the Plan valuation.

 

On February 7, 2012, we filed a motion requesting entry of an order granting a final decree closing the Chapter 11 cases for Bio-Lab, Inc. and GLCC Laurel, LLC, which was granted by the Bankruptcy Court on February 22, 2012.

 

On March 16, 2012, we filed a motion requesting entry of an order granting a final decree closing the Chapter 11 cases for Great Lakes Chemical Corporation and Uniroyal Chemical Company Limited (Delaware), which was granted by the Bankruptcy Court on March 29, 2012.

 

On May 4, 2012, the Bankruptcy Court entered an order disallowing and expunging the last two general unsecured claims in Chemtura’s Chapter 11 case.

 

In July 2012, we made a final distribution to Holders of Interests under the Plan including all amounts remaining in the Disputed Claims Reserve.  The final distribution included $3 million in stock valued at the Plan valuation.

 

On October 2, 2012, the Bankruptcy Court granted the motion of Momentive Performance Materials, Inc. (“Momentive”) for an order granting our prior motion under the Plan to assume our executory contract with Momentive and directing payment of a purportedly agreed cure claim.  After a contested hearing, the Bankruptcy Court granted the motion by order dated October 17, 2012.  The payment of the cure claim resolved all claims of default under the agreement through October 2, 2012.

 

As of December 31, 2012, there were no remaining undisbursed amounts in the Disputed Claims Reserve.

 

On January 31, 2013, the Bankruptcy Court granted Chemtura’s motion to enforce the discharge injunction under the Plan against certain tort claimants.  On February 7, 2013, the Bankruptcy Court entered a written order consistent with its ruling.  On February 20, 2013, the claimants appealed the Bankruptcy Court’s February 7, 2013 order, and the appeal is pending in the District Court for the Southern District of New York.

 

As of September 30, 2013, the Bankruptcy Court has entered orders granting final decrees closing all of the Debtors’ Chapter 11 cases except the Chapter 11 case of Chemtura Corporation.

 

Reorganization items, net was $1 million for the nine months ended September 30, 2013, primarily for professional fees.  Reorganization items, net was $1 million and $4 million for the quarter and nine months ended September 30, 2012, respectively, which included $3 million for professional fees and $1 million for claim settlements.  Claim settlements represent the difference between the settlement amount of certain pre-petition obligations (which for obligations settled in common stock are based on the fair value of our stock at the issuance date) and the corresponding carrying value of the recorded liabilities.

 

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17)          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.

 

As a result of the Chapter 11 cases, substantially all prepetition litigation and claims against us and our subsidiaries that were Debtors in the Chapter 11 cases have been discharged and permanently enjoined from further prosecution and are described below under the subheading “Prepetition Litigation and Claims Discharged Under the Plan.”

 

Claims and legal actions asserted against non-Debtors or relating to events occurring after the Effective Date, certain regulatory and administrative proceedings and certain contractual and other claims assumed with the authorization of the Bankruptcy Court, were not discharged in the Chapter 11 cases and are described below under the subheading “Litigation and Claims Not Discharged Under the Plan.”

 

Prepetition Litigation and Claims Discharged Under the Plan

 

Chapter 11 Plan and Establishment of Claims Reserves

 

On March 18, 2009, the Debtors filed voluntary petitions in the Bankruptcy Court seeking relief under Chapter 11.  The Debtors’ Chapter 11 cases were assigned to the Honorable Robert E. Gerber and are being jointly administered as Case No. 09-11233.  The Debtors continued to operate their business as debtors in possession under the jurisdiction of the Bankruptcy Court until their emergence from Chapter 11 on November 10, 2010.

 

Pursuant to the Plan, and by orders of the Bankruptcy Court dated September 24, 2010, October 19, 2010 and October 29, 2010, the Debtors established the Diacetyl Reserve, the Environmental Reserve and the Disputed Claims Reserve, each as defined in the Plan, on account of claims that were not yet allowed in the Chapter 11 cases as of the Effective Date, including proofs of claim asserted against the Debtors that were subject to objection as of the Effective Date (the “Disputed Claims”).  The Diacetyl Reserve was approved by the Bankruptcy Court in the amount of $7 million, comprised of separate segregated reserves, and has since been reduced as settlement agreements have been approved by the Bankruptcy Court.  The Environmental Reserve was approved by the Bankruptcy Court in the amount of $38 million, a portion of which was further segregated into certain separate reserves established to account for settlements that were pending Bankruptcy Court approval, and has since been reduced as settlement agreements have been approved by the Bankruptcy Court.  The Disputed Claims Reserve was approved by the Bankruptcy Court in the amount of $42 million, plus additional segregated individual reserves for certain creditors’ claims in the aggregate amount of approximately $30 million, all of which have been reduced as settlement agreements have been approved by the Bankruptcy Court.

 

On June 24, 2011, we resolved the final disputed Environmental Claim.  As a result, under the Plan, the amounts remaining in the Environmental Reserve were transferred to the Disputed Claims Reserve.  Any remaining Disputed Claims, to the extent they were ultimately allowed by the Bankruptcy Court, were satisfied (to the extent allowed and not covered by insurance) from the Disputed Claims Reserve.  Holders of the Disputed Claims are permanently enjoined under the Plan from pursuing their claims against us.  On May 4, 2012, the Bankruptcy Court entered an order disallowing the last Disputed Claim subject to the Disputed Claims Reserve.  In July 2012, we made a final distribution to Holders of Interests in accordance with the Plan that included all amounts remaining in the Disputed Claims Reserve.

 

Litigation and Claims Not Discharged Under the Plan

 

Environmental Liabilities

 

We are involved in environmental matters of various types in a number of jurisdictions.  A number of such matters 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.  Chemtura and several of our subsidiaries have been identified by federal, state or local governmental agencies or by other PRPs, as a PRP at various locations in the United States.  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

 

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site, including Chemtura, despite the involvement of other PRPs.  In many cases, we are one of a large number of PRPs with respect to a site.  In a few instances, we are the sole or one of only a handful of PRPs performing investigation and remediation.  Where other financially responsible PRPs are involved, we expect that any ultimate liability resulting from such matters will be apportioned between us and such other parties.  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 reasonably estimable.

 

On September 17, 2012, our subsidiary Great Lakes Chemical Corporation received an enforcement notice from the United States Department of Justice acting on behalf of the Environmental Protection Agency (“EPA”) which has alleged violations of a National Pollution Discharge Elimination System Permit issued under the Clean Water Act in conjunction with its facility in El Dorado, Arkansas.  The EPA sought injunctive relief and civil penalties.   We negotiated a consent decree with the EPA, including a penalty of less than $1 million, to resolve the alleged violations, which was paid on September 6, 2013 in full satisfaction of the decree.

 

The total amount accrued for environmental liabilities as of September 30, 2013 and December 31, 2012 was $95 million and $84 million, respectively.  At September 30, 2013 and December 31, 2012, $18 million and $15 million, respectively, of these environmental liabilities were reflected as accrued expenses and $77 million and $69 million, respectively, were reflected as other liabilities.  We estimate that the reasonably possible ongoing environmental liabilities could range up to $109 million at September 30, 2013.  Our accruals for environmental liabilities include estimates for determinable clean-up costs.  We recorded  pre-tax charges of $26 million for the nine months ended September 30, 2013 which included a $21 million charge related to a legacy non-operating site in France, and made payments of $9 million during the nine months ended September 30, 2013 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, 2013, 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 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.

 

Other

 

We are routinely subject to other civil claims, litigation and arbitration, 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 and asbestos-related claims concerning premises and historic products of our corporate affiliates and predecessors.  We believe the claims relating to the period before the filing of the Chapter 11 cases are subject to discharge pursuant to the Plan and have been satisfied, to the extent they were timely filed in the Chapter 11 cases and allowed by the Bankruptcy Court, solely from the Disputed Claims Reserve.  Further, we believe that we have strong defenses to these claims.  These claims have not had a material impact on us to date and we believe the likelihood that a future material adverse outcome will result from these claims is remote.

 

However, we cannot be certain that an adverse outcome of one or more of these claims, to the extent not discharged in the Chapter 11 cases, would not have a material adverse effect on our financial condition, results of operations or cash flows.

 

Guarantees

 

In addition to the letters of credit of $14 million outstanding at September 30, 2013 and December 31, 2012, respectively, we have guarantees that have been provided to various financial institutions.  At September 30, 2013 and December 31, 2012, we had $12 million of outstanding guarantees.  The letters of credit and guarantees were primarily related to liabilities for insurance obligations, environmental obligations, banking and credit facilities, vendor deposits and European value added tax (“VAT”) obligations.

 

We have applied the disclosure provisions of ASC Topic 460, Guarantees (“ASC 460”), to our agreements that contain guarantee or indemnification clauses.  We are a party to several agreements pursuant to which we may be obligated to

 

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indemnify a third party with respect to certain loan obligations of joint venture companies in which we previously had an equity interest.  These obligations arose to provide initial financing for a joint venture start-up, fund an acquisition and/or provide project capital.  Such obligations mature through May 2016.  In the event that any of the joint venture companies were to default on these loan obligations, we would indemnify the other party up to its proportionate share of the obligation based upon its ownership interest in the joint venture.  At September 30, 2013 and December 31, 2012, the maximum potential future principal and interest payments due under these guarantees were $3 million.  In accordance with ASC 460, we have accrued less than $1 million in reserves, which represents the probability weighted fair value of these guarantees at September 30, 2013 and December 31, 2012.  The reserve has been included in other liabilities on our Consolidated Balance Sheet at September 30, 2013 and December 31, 2012 with an offset to other assets.

 

In addition, we have financing agreements with banks in Brazil for certain customers under which we receive funds from the banks at invoice date, and in turn, the customer agrees to pay the banks on the due date.  We provide a full recourse guarantee to the banks in the event of customer non-payment.

 

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.

 

18)          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; and (4) changes in estimates related to expected allowable claims.  Pursuant to ASC Topic 280, Segment Reporting (“ASC 280”), these items have been excluded from our presentation of segment 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; 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, fine chemical manufacturers, utilities, pharmaceutical manufactures and oilfield service companies to industry distributors.

 

Chemtura AgroSolutions

 

Chemtura AgroSolutions develops, supplies, registers and sells agricultural chemicals formulated for specific crops in various geographic regions for the purpose of enhancing quality and improving yields.  The business focuses on specific target markets in six major product lines: seed treatments, fungicides, miticides, insecticides, growth regulators and herbicides.  These products are sold directly to growers and to major distributors in the agricultural sector.

 

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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.  Certain functional and other expenses that are managed company-wide that were allocated to the Antioxidant and Consumer Product businesses do not transfer directly under the sale agreements.  As such, in historic periods these costs are shown as part of continuing operations in the corporate segment and not included under loss from discontinued operations, net of tax.  These costs approximate $5 million and $7 million for the quarters ended September 30, 2013 and 2012, and $16 million and $20 million for the nine months ended September 30, 2013 and 2012, respectively. Additionally, our Corporate segment included $3 million and $4 million for the quarters ended September 30, 2013 and 2012, respectively and $8 million and $11 million for the nine months ended September 30, 2013 and 2012, respectively of amortization expense related directly to our Antioxidants business and Consumer Products segment which has been included in loss on discontinued operations, net of tax in our Consolidated Statement of Operations. Facility closures, severance and related costs are primarily for severance costs related to our cost savings initiatives.  Change in estimates related to expected allowable claims relates to adjustments to resolve disputed claims.

 

Discontinued Operations

 

Antioxidant Business

 

On November 9, 2012, we announced the sale of our Antioxidant business, which closed on April 30, 2013.  As a result of entering into this transaction, the assets and liabilities included in the Antioxidant Sale have been presented as assets and liabilities of discontinued operations and earnings and direct costs associated with the Antioxidant business have been presented as earnings (loss) from discontinued operations, net of tax.  The Antioxidant business was formerly included in the Industrial Performance Product segment.

 

Consumer Products

 

In September 2013, our Board approved the sale of our Consumer Products segment subject to the completion of definitive transaction documents and in October 2013, we entered into a stock purchase agreement to sell our Consumer Products business, including dedicated manufacturing plants in the U.S. and South Africa, to KIK Custom Products Inc. (“KIK”) for $315 million in cash at closing subject to certain customary pre- and post-closing adjustments, primarily for working capital and assumed pension liabilities.

 

As a result of the Board approval, the assets and liabilities of the Consumer Products segment have been presented as assets and liabilities held for sale.  Additionally, we determined that discontinued operations treatment applied and earnings and direct costs associated with Consumer Products segment have been presented as earnings (loss) from discontinued operations, net of tax in our Consolidated Statements of Operations for the current and comparative periods.

 

The Antioxidant business and Consumer Products segment have therefore, been excluded from the following segment information.

 

A summary of business data for our reportable segments for the quarters and nine months ended September 30, 2013 and 2012 are as follows:

 

 

 

Quarters ended September 30,

 

Nine months ended September 30,

 

(In millions)

 

2013

 

2012

 

2013

 

2012

 

Net Sales

 

 

 

 

 

 

 

 

 

Petroleum additives

 

$

168

 

$

144

 

$

519

 

$

454

 

Urethanes

 

74

 

75

 

218

 

223

 

Industrial Performance Products

 

242

 

219

 

737

 

677

 

Bromine based & related products

 

166

 

169

 

485

 

549

 

Organometallics

 

42

 

44

 

123

 

126

 

Industrial Engineered Products

 

208

 

213

 

608

 

675

 

Chemtura AgroSolutions

 

119

 

114

 

342

 

311

 

Total net sales

 

$

569

 

$

546

 

$

1,687

 

$

1,663

 

 

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Quarters ended September 30,

 

Nine months ended September 30,

 

(In millions)

 

2013

 

2012

 

2013

 

2012

 

Operating Income

 

 

 

 

 

 

 

 

 

Industrial Performance Products

 

$

24

 

$

28

 

$

84

 

$

82

 

Industrial Engineered Products

 

1

 

30

 

34

 

112

 

Chemtura AgroSolutions

 

24

 

21

 

69

 

54

 

 

 

49

 

79

 

187

 

248

 

General corporate expense, including amortization

 

(19

)

(28

)

(85

)

(85

)

Facility closures, severance and related costs

 

(3

)

(2

)

(28

)

(8

)

Changes in estimates related to expected allowable claims

 

 

1

 

 

(1

)

Total operating income

 

$

27

 

$

50

 

$

74

 

$

154

 

 

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19)          GUARANTOR CONDENSED CONSOLIDATING FINANCIAL DATA

 

Our obligations under the 2018 Senior Notes and 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 2018 Senior Notes and 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 (loss) income, balance sheets and statements of cash flow 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, 2013

(In millions)

 

 

 

Consolidated

 

Eliminations

 

Parent
Company

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Net sales

 

$

569

 

$

(509

)

$

362

 

$

129

 

$

587

 

Cost of goods sold

 

448

 

(509

)

330

 

113

 

514

 

Selling, general and administrative

 

58

 

 

27

 

4

 

27

 

Depreciation and amortization

 

24

 

 

7

 

9

 

8

 

Research and development

 

9

 

 

4

 

1

 

4

 

Facility closures, severance and related costs

 

3

 

 

3

 

 

 

Operating income (loss)

 

27

 

 

(9

)

2

 

34

 

Interest expense

 

(14

)

 

(16

)

 

2

 

Loss on early extinguishment of debt

 

(50

)