Notes to Consolidated Financial Statements
1) NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Chemtura Corporation, together with our consolidated subsidiaries, is a chemical company dedicated to delivering innovative, performance-driven engineered specialty chemical solutions which are used as additives, ingredients or intermediates that add value to our customers' end products. We are committed to global sustainability through “greener technology” and developing engineered chemical solutions that meet our customers’ evolving needs. We operate in a wide variety of end-use industries, including automotive, building and construction, electronics, energy, lubricants, packaging and transportation. We are a leader in many of our key product lines and transact business in more than
70
countries.
Our principal executive offices are located in Philadelphia, Pennsylvania and Middlebury, Connecticut.
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.
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. These changes did not have a material impact on previously reported results of operations, cash flows or financial position.
Accounting Policies
Revenue Recognition
Substantially all of our revenues are derived from the sale of products. Revenue is recognized when risk of loss and title to the product is transferred to the customer. Revenue is recorded net of taxes collected from customers that are remitted to governmental authorities with the collected taxes recorded as current liabilities until remitted to the respective governmental authorities. Our products are sold subject to various shipping terms. Our terms of delivery are included on our sales invoices and order confirmation documents.
We record the revenue and costs associated with our supply agreements for our Agrochemical Manufacturing segment on a gross basis. Additionally, included in revenue for this segment is the recognition of our fulfillment of the below market contract obligation associated with these supply agreements, net of discount accretion, on a straight-line basis based on our estimate of the timing of shipments.
Customer Rebates
We accrue for the estimated cost of customer rebates as a reduction of sales. Customer rebates are primarily based on customers achieving defined sales targets over a specified period of time. We estimate the cost of these rebates based on the likelihood of the rebate being achieved and recognize the cost as a deduction from sales when such sales are recognized. Rebate programs are monitored on a regular basis and adjusted as required. Customer rebates are included as a reduction to accounts receivable on our Consolidated Balance Sheet. Customer rebates in 2014 primarily related to activity within our Chemtura AgroSolutions business which has since been divested. Activity in our customer rebate accounts are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2016
|
|
2015
|
|
2014
|
|
Balance, January 1
|
|
$
|
3
|
|
|
$
|
2
|
|
|
$
|
10
|
|
|
Charged to costs and expenses
|
|
5
|
|
|
6
|
|
|
37
|
|
|
Payments to customers
|
|
(5
|
)
|
|
(5
|
)
|
|
(40
|
)
|
|
Other
1
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
|
Balance, December 31
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
2
|
|
1 Relates to the sale of Chemtura AgroSolutions in November 2014.
Operating Costs and Expenses
Cost of goods sold (“COGS”) includes all costs incurred in manufacturing goods, including raw materials, direct manufacturing costs and manufacturing overhead. COGS also includes warehousing, distribution, engineering, purchasing, customer service, environmental, health and safety functions, and shipping and handling costs for outbound product shipments. Selling, general and administrative (“SG&A”) expenses include costs and expenses related to the following functions and activities: selling, advertising, legal, provision for doubtful accounts, corporate facilities and corporate administration. SG&A also includes accounting, information technology, finance and human resources, excluding direct support in manufacturing operations, which is included as COGS. Research and development (“R&D”) expenses include basic and applied research and development activities of a technical and non-routine nature. R&D costs are expensed as incurred. COGS, SG&A and R&D expenses exclude depreciation and amortization expenses which are presented on a separate line in our Consolidated Statements of Operations.
Other Income (Expense), Net
Other income (expense), net includes:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2016
|
|
2015
|
|
2014
|
|
Foreign exchange (loss) gain
|
|
$
|
(1
|
)
|
|
$
|
6
|
|
|
$
|
10
|
|
|
Interest income
|
|
2
|
|
|
2
|
|
|
3
|
|
|
Release of cumulative foreign currency translation adjustments from liquidation of entities
|
|
(2
|
)
|
|
8
|
|
|
—
|
|
|
Gain on sale of Platform shares
|
|
—
|
|
|
3
|
|
|
—
|
|
|
Other
|
|
1
|
|
|
1
|
|
|
(1
|
)
|
|
|
|
$
|
—
|
|
|
$
|
20
|
|
|
$
|
12
|
|
Allowance for Doubtful Accounts
The allowance for doubtful accounts reflects a reserve representing our estimate of the amounts that may not be collectible. In addition to reviewing delinquent accounts receivable, we consider many factors in estimating our reserves, including historical data, experience, customer types, credit worthiness, and economic trends. From time to time, we may adjust our assumptions for anticipated changes in any of these or other factors expected to affect collection. Allowances for doubtful accounts are included as a reduction to accounts receivable in our Consolidated Balance Sheet. Activity in allowance for doubtful accounts is a follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2016
|
|
2015
|
|
2014
|
|
Balance, January 1
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
11
|
|
|
Charged to costs and expenses
|
|
1
|
|
|
1
|
|
|
8
|
|
|
Write-offs
|
|
—
|
|
|
(1
|
)
|
|
(3
|
)
|
|
Other
1
|
|
—
|
|
|
—
|
|
|
(14
|
)
|
|
Balance, December 31
|
|
$
|
3
|
|
|
$
|
2
|
|
|
$
|
2
|
|
1 Relates to the sale of Chemtura AgroSolutions in November 2014.
Inventory Valuation
Inventories are valued at the lower of cost or market. Cost is determined using the first-in, first-out (“FIFO”) method.
Property, Plant and Equipment
Property, plant and equipment are carried at cost, less accumulated depreciation. Depreciation expense is principally computed on the straight-line method using the following ranges of asset lives: land improvements -
3
to
20 years
; buildings and improvements -
2
to
40 years
; machinery and equipment -
2
to
25 years
; information systems and equipment -
2
to
10 years
; and furniture, fixtures and other -
1
to
10 years
. See Note 5 – Property, Plant and Equipment for further information.
Renewals and improvements that significantly extend the useful lives of the assets are capitalized. Capitalized leased assets and leasehold improvements are depreciated over the shorter of their useful lives or the remaining lease term. Expenditures for maintenance and repairs are charged to expense as incurred.
Intangible Assets
Patents, trademarks and other intangibles assets are being amortized principally on a straight-line basis using the following ranges for their estimated useful lives: patents -
10
to
20 years
; trademarks -
30
to
40 years
; customer relationships -
15
to
30 years
; and other intangibles -
5
to
50 years
. See Note 6 – Goodwill and Intangible Assets for further information.
Marketable Securities
We apply the provision of ASC Topic 360 -
Investments - Debt and Equity Securities
("ASC 320"), in evaluating and accounting for marketable securities. Our marketable security was
2 million
shares of Platform Specialty Products Corporation ("Platform") common stock which was acquired as part of the sale of our Chemtura AgroSolutions business in 2014. The stock was restricted from trading for a period of
six
months from the date of sale. We had deemed these securities as available-for-sale. The valuation of these securities was based upon Level 2 valuation techniques. Changes in the valuation of these securities were included in Accumulated Other Comprehensive Loss ("AOCL") on our Consolidated Balance Sheet. We sold all the shares of Platform common stock in 2015 and reported a gain on sale of
$3 million
which is included in Other income, net.
Asset Retirement Obligation
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 initially 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 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; legal obligations to close brine supply, brine disposal, waste disposal and hazardous waste injection wells and the removal of pipelines at the end of their useful lives; and decommissioning and decontamination obligations that are legally required to be fulfilled upon closure of our manufacturing facilities.
During
2016
and
2015
, accretion expense was
$2 million
(recorded primarily to COGS). At
December 31, 2016
,
$2 million
of the asset retirement obligation balance was included in accrued expenses and
$15 million
was included in other liabilities in our Consolidated Balance Sheet. At
December 31, 2015
,
$1 million
of the asset retirement obligation balance was included in accrued expenses and
$15 million
was included in other liabilities in our Consolidated Balance Sheet.
Recoverability of Long-Lived Assets and Goodwill
We evaluate the recoverability of the carrying value of long-lived assets, excluding goodwill, whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Under such circumstances, we assess whether the projected undiscounted cash flows of our long-lived assets are sufficient to recover the existing unamortized cost of our long-
lived assets. If the undiscounted projected cash flows are not sufficient, we calculate the impairment amount by discounting the projected cash flows using our weighted-average cost of capital. The amount of the impairment is written off against earnings in the period in which the impairment is determined.
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 at other times during the year, if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below the 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 a potential impairment is identified, step two to measure the impairment loss through a full fair valuation 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 our reviews in
2016
,
2015
and
2014
.
Income Taxes
We account for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities using enacted rates. The effect of a change in tax rates on deferred tax assets is recognized in income in the period that includes the enactment date.
We recognize the financial statement effects of an uncertain income tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. We accrue for other tax contingencies when it is probable that a liability to a taxing authority has been incurred and the amount of the contingency can be reasonably estimated.
Provision is made for taxes on undistributed earnings of foreign subsidiaries and related companies to the extent that such earnings are not deemed to be indefinitely reinvested.
Valuation allowances are established when we determine that it is more likely than not that the results of future operations will not generate sufficient taxable income to realize our deferred tax assets. We consider the scheduled reversal of deferred tax assets and liabilities, projected future taxable income, and tax planning strategies in making this assessment. Thus, changes in future results of operations could result in adjustments to our valuation allowances.
Environmental Liabilities
Each quarter, we evaluate and review our estimates for future remediation, operation and management costs directly related to environmental remediation, 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 to implement the remediation plan will occur. In regards to remediation costs, we accrue on an undiscounted basis, for a period of generally no more than
10 years
, those costs which are probable and estimable. At sites where we expect to incur ongoing operations and maintenance expenditures, we accrue on an undiscounted basis, for a period of generally no more than
10 years
, those costs which are probable and estimable.
Below-Market Obligation
Contemporaneously with the sale of our Chemtura AgroSolutions business, we entered into supply agreements with Platform to manufacture products of that business. The supply agreements were designed to recover the cash costs incurred to manufacture the products under the agreements and do not include reimbursement for depreciation and amortization of property, plant and equipment which we have retained to perform under these supply agreements. As such, we have determined that the supply agreements with Platform are below-market. To determine the undiscounted value of this obligation, we utilized a Level 3 fair value technique. Our fair value calculation was based upon taking the reduction in sales prices on a before and after basis factoring in the favorable cost benefit of reduced SG&A, R&D and distribution expense. Historical volumes under the supply agreements are anticipated to represent the requirements of Platform on a going forward basis. We did not consider depreciation or amortization as these amounts are not reimbursable under the terms of the supply agreements. We applied a growth factor to each year to represent inflation over the terms of the supply agreements. We discounted the calculated loss of profits for those products over the period of the supply agreements by applying our internal weighted average cost of capital to determine the amount of the initial obligation.
Accretion of the obligation to its undiscounted fair value and the recognition of our fulfillment of the below market contract obligation is recorded in net sales on a straight-line basis over the estimated
6
year life of the supply agreements based on the estimated timing of shipments on an annual basis.
Litigation and Contingencies
In accordance with guidance under ASC Topic 450,
Contingencies,
and ASC Topic 460,
Guarantees
, we record in our Consolidated Financial Statements amounts representing our probable and estimable liability for claims, litigation and guarantees. As information about current or future litigation or other contingencies becomes available, management assesses whether such information warrants the recording of additional or reduced expenses relating to those contingencies. See Note 15 - Legal Proceedings and Contingencies for further information.
Stock-Based Compensation
We recognize compensation expense for stock-based awards issued over the requisite service period for each separately vesting tranche, as if multiple awards were granted. Stock-based compensation expense is measured at the date of grant, based on the fair value of the award. We used the Monte-Carlo simulation model to determine the fair value of performance shares. We used the Black-Scholes option-pricing model to determine the fair value of nonqualified stock options. See Note 12 - Stock Incentive Plans for further information.
Translation of Foreign Currencies
Balance sheet accounts denominated in foreign currencies are translated at the current rate of exchange as of the balance sheet date, while revenues and expenses are translated at average rates of exchange during the periods presented. The cumulative foreign currency adjustments resulting from such translation are included in accumulated other comprehensive loss. Upon complete or substantial liquidation of any of our subsidiaries, the value of the cumulative translation adjustment of such subsidiaries prior to their liquidation is recorded in other income, net.
Derivatives and Hedging
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 and to manage energy price volatility. 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.
As of December 31, 2016, our financial instruments, subject to foreign currency exchange risk, consist of one forward contract with a total notional amount of
$10 million
, due August 2017. This contract limits our risk to changes in the U.S. Dollar against the China Yuan Renminbi ("CNY") through the period and represents a net asset position of less than
$1 million
which is included in Other current assets on our Consolidated Balance Sheet and in Other income, net on our Consolidated Statement of Operations as of and for the year ended December 31, 2016. There were
no
outstanding derivatives at December 31, 2015.
Cash Flows
Cash and cash equivalents include bank term deposits with original maturities of
three months
or less.
Cash payments included interest payments of
$30 million
in
2016
,
$31 million
in
2015
and
$46 million
in
2014
. Cash payments also included income tax payments, net of refunds of
$29 million
in
2016
,
$36 million
in
2015
and
$68 million
in
2014
.
Accounting Developments
In May 2014, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2014-09,
Revenue from Contracts with Customers
, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This ASU will replace most existing revenue
recognition guidance in U.S. GAAP when it becomes effective. In addition, this ASU requires certain additional disclosure around the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new standard is effective on January 1, 2018. Early application is permitted in 2017 for calendar year entities. The standard permits the use of either the retrospective or modified retrospective cumulative effect transition method. We assembled an implementation work team to gather, review and document contracts with our customers in order to identify key revenue streams. As of December 31, 2016, we have completed significant work in identifying, documenting and assessing how those key revenue streams may impact our Consolidated Financial Statements after the adoption of this ASU. At this time, although our evaluation and assessment is ongoing, we currently anticipate that the impact of the adoption of this ASU on many of our revenue streams in our Industrial Performance Products and Industrial Engineered Products segments will be immaterial. However, within our Agrochemical Manufacturing segment, our analysis of long term supply contracts indicates the potential for a change in the timing of our revenues which could result in a portion of these revenues, as well as the recognition of the amortization and accretion of our below-market contracts, being recognized in earlier periods. Based on our assessment to date, we do not anticipate adopting the provisions of this ASU early nor have we completed our determination of whether we will adopt this ASU under either the retrospective or modified retrospective cumulative effect transition method.
In April 2015, the FASB issued ASU No. 2015-03,
Simplifying the Presentation of Debt Issuance Costs
. Under current U.S. GAAP, debt issuance costs are reported on the balance sheet as assets and amortized as interest expense. This ASU requires that they be presented on the balance sheet as a direct deduction from the carrying amount of the related debt liability, which is similar to the presentation of debt discounts or premiums. The costs will continue to be amortized to interest expense using the effective interest method. We adopted the guidance retrospectively during the first quarter of 2016. As a result of the adoption of this guidance, total assets and total liabilities as of December 15, 2015 decreased as discussed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
(in millions)
|
|
Previously reported
|
Reclassification
|
Current presentation
|
|
Other assets
|
|
117
|
|
(6
|
)
|
111
|
|
|
Total assets
|
|
2,366
|
|
(6
|
)
|
2,360
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
471
|
|
(6
|
)
|
465
|
|
|
Total liabilities
|
|
1,364
|
|
(6
|
)
|
1,358
|
|
|
Total liabilities and equity
|
|
2,366
|
|
(6
|
)
|
2,360
|
|
In July 2015, the FASB issued ASU No. 2015-11,
Simplifying the Measurement of Inventory
, which requires inventory to be measured at the lower of cost and net realizable value. This guidance excludes inventory measured using the last-in first-out method or the retail inventory method. This new standard will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, and is to be applied prospectively. The adoption of the ASU on January 1, 2017 will not have a material impact on our Consolidated Financial Statements and related disclosures.
In February 2016, the FASB issued ASU No. 2016-02,
Leases
, which revises the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases with terms greater than 12 months. Leases will continue to be classified as either finance or operating, however, the criteria used to distinguish those types of classifications will change slightly. The provisions of ASU 2016-02 are effective for fiscal years and interim periods beginning after December 15, 2018 and should be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. We do not intend to adopt this ASU before its effective date. While we are still assessing the impact this accounting standard will have on our Consolidated Financial Statements and related disclosures, we currently anticipate this standard will have a material impact on our Consolidated Financial Statements and related disclosures but is not anticipated to have an impact on our liquidity position.
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting
, which changes several aspects of the accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities, employee tax withholding, calculation of shares for use in diluted earnings per share and classification on the statement of cash flows. The provisions of ASU 2016-09 are effective for fiscal years and interim periods beginning after December 15, 2016. The adoption of the ASU on January 1, 2017 will not have a material impact on our Consolidated Financial Statements and related disclosures.
In October 2016, the FASB issued ASU No. 2016-16,
Intra-Entity Transfers of Assets Other Than Inventory
. This ASU requires an entity to recognize the income tax consequences of intra-entity transfers of assets other than inventory at the time
that the transfer occurs. Current guidance does not require recognition of tax consequences until the asset is eventually sold to a third party. The provisions of ASU 2016-16 are effective for fiscal years and interim periods beginning after December 15, 2017. Early adoption is permitted. A reporting entity must apply the amendments in ASU 2016-16 using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption. We are still evaluating the impact of this ASU on our Consolidated Financial Statements and related disclosures.
In January 2017, the FASB issued ASU 2017-04,
Simplifying the Test for Goodwill Impairment,
which simplifies the accounting for goodwill impairment. This ASU removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The provisions of ASU No. 2017-04 are effective for fiscal years and interim periods beginning after December 15, 2019. Early adoption is permitted. We are still evaluating the impact of this ASU on our Consolidated Financial Statements and related disclosures.
Risks and Uncertainties
Our revenues are largely dependent on the continued operation of our manufacturing facilities. There are many risks involved in operating chemical manufacturing plants on a global basis, including the breakdown, failure or substandard performance of equipment, operating errors, natural disasters, the need to comply with directives of, and maintain all necessary permits from, government agencies as well as potential terrorist attacks. Our operations can be adversely affected by raw material shortages, labor force shortages or work stoppages and events impeding or increasing the cost of transporting our raw materials and finished products. The occurrence of material operational problems, including but not limited to the events described above, may have a material adverse effect on the productivity and profitability of a particular manufacturing facility. With respect to certain facilities, such events could have a material effect on Chemtura as a whole.
Our operations are also subject to various hazards incident to the production of industrial chemicals. These include the use, handling, processing, storage and transportation of certain hazardous materials. Under certain circumstances, these hazards could cause personal injury and loss of life, severe damage to and destruction of property and equipment, environmental damage and suspension of operations. Claims arising from any future catastrophic occurrence at any one of our facilities may result in us being named as a defendant in lawsuits asserting potential claims.
We perform ongoing credit evaluations of our customers’ financial condition including an assessment of the impact, if any, of prevailing economic conditions. We generally do not require collateral from our customers. We are exposed to credit losses in the event of nonperformance by counterparties on derivative instruments when utilized. The counterparties to these transactions are major financial institutions, which may be adversely affected by global economic impacts. However, we consider the risk of default to be minimal.
International operations are subject to various risks which may or may not be present in U.S. operations. These risks include, among others, political instability, the possibility of expropriation, restrictions on dividends and remittances, instabilities of currencies, requirements for governmental approvals for new ventures and local participation in operations such as local equity ownership and workers' councils. Currency fluctuations between the U.S. dollar and the currencies in which we conduct business have caused and will continue to cause foreign currency transaction gains and losses, which may be material. Any of these events could have an adverse effect on our international operations.
2) MERGERS AND DIVESTITURES
Pending Merger Transaction with Lanxess
On
September 25, 2016
, we entered into an agreement and plan of merger (the "Merger Agreement") with Lanxess Deutschland GmbH, a limited liability company under the laws of Germany ("Lanxess"), and LANXESS Additives Inc., a Delaware corporation and an indirect, wholly owned subsidiary of Lanxess ("Merger Subsidiary"). Upon the terms, and subject to the conditions set forth in the Merger Agreement, Merger Subsidiary will merge with and into Chemtura (the "Merger"), with Chemtura surviving the merger in an all-cash transaction in which Chemtura stockholders will receive
$33.50
in cash, without interest, per share of Chemtura common stock, which represented an
18.9%
premium to the stock’s closing share price of
$28.18
on
September 23, 2016
, the last trading day prior to the announcement of the Merger.
Chemtura and Lanxess have each made customary representations, warranties and covenants in the Merger Agreement. On February 1, 2017, Chemtura's stockholders voted to approve and adopt the Merger Agreement. The Merger Agreement remains subject to customary closing conditions including, among others, the receipt of necessary antitrust and regulatory approvals, the accuracy of representations and warranties made in the Merger Agreement and the absence of a material adverse effect on our
financial condition, business, assets, liabilities or results of operations. Closing is not subject to any vote of Lanxess’s stockholders or any financing condition.
The Merger Agreement contains certain termination rights for both Chemtura and Lanxess and further provides that, upon termination of the Merger Agreement under certain circumstances, including if we terminate the Merger Agreement to accept a superior proposal, we may be required to pay Lanxess a termination fee equal to
$75 million
as a condition to our ability to exercise our right to terminate the Merger Agreement and accept the superior proposal as such term is defined in the Merger Agreement.
Until the Merger has occurred, we will continue to operate as an autonomous company from Lanxess. However, as a direct result of the Merger, changes to our common stock, strategic initiatives, structure, markets or locations may occur that would not have occurred if we were to continue as an independent entity. Additionally, there are interim operating covenants in the Merger Agreement that limit our ability to operate our business. The Merger Agreement prohibits us from declaring any cash dividends.
We filed a proxy statement with the SEC regarding the Merger on December 23, 2016. The description of the Merger Agreement and the Merger herein does not purport to be complete and is subject to, and qualified in its entirety, by the full text of the Merger Agreement attached as Exhibit 2.1 to the Current Report on Form 8-K filed with the SEC on September 26, 2016 and other information disclosed in our proxy statement dated December 23, 2016 and in a Current Report on Form 8-K filed with the SEC on January 17, 2017.
Contemporaneous with the execution of the Merger Agreement, we entered into an agreement with SK Blue Holdings, Ltd., and Addivant USA Holdings Corp. (collectively, "Addivant") that committed us to surrender our shares of Addivant preferred stock to Addivant, a cash payment of
$1 million
to Addivant and certain other changes to our continuing supply agreements with Addivant contingent upon the completion of the Merger in exchange for a modification of a non-compete agreement entered into in conjunction with the sale of our antioxidants business to Addivant in 2013. Reflecting the terms of this agreement, in the third quarter of 2016, we took a charge of
$5 million
which is included in merger and integration costs described below.
During 2016, we recorded
$13 million
of merger and integration costs, which primarily are comprised of legal and other fees associated with the signing of the Merger Agreement and the terms of the agreement with Addivant.
Divestitures
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 was paid in equal annual installments over a
three
-year period starting in 2012. The final installment of the purchase price was deposited into an escrow account in 2014 pending the resolution of certain regulatory matters. Those regulatory matters were resolved in 2016 and
$6 million
was released from the escrow account.
Chemtura AgroSolutions Business
In November 2014, we sold our Chemtura AgroSolutions business to Platform under a Stock and Asset Purchase Agreement ("SAPA") for approximately
$1 billion
, consisting of
$950 million
in cash and
2 million
shares of Platform's common stock. The purchase price was subject to customary post-closing adjustments, primarily for working capital which was settled during the second quarter of 2015.
Under the terms of the SAPA, we retained most of the property, plant and equipment used to manufacture products of the Chemtura AgroSolutions business and continue to manufacture products for Platform under several supply agreements and a tolling agreement (collectively, the "supply agreements"). The supply agreements have minimum terms of between
two
and
four
years.
The supply agreements with Platform are designed to recover the cash costs incurred to manufacture the products under those agreements. Accordingly, the supply agreements are considered below-market contracts for their full term. Contemporaneously with the sale, we recorded an obligation of
$230 million
on a discounted basis, which represented the loss of profit on these products over the terms of the supply agreements, including contractual obligations to continue to supply for a period of up to
2 years
after the termination of the supply agreements. The recognition of this obligation, along with the accretion of the obligation to its undiscounted value of
$345 million
, will be recorded as net sales on a straight-line basis over the term of each supply agreement based on our estimate of the timing of shipments. Although the recognition of our fulfillment
of this obligation will be recorded as net sales to the Agrochemical Manufacturing segment over this period, this recognition will not generate cash flows during the term of the supply agreements. We recognized
$38 million
,
$38 million
and
$6 million
of amortization, net of accretion, of this obligation for the years ended December 31, 2016, 2015 and 2014, respectively. As of
December 31, 2016
, the remaining below market obligation on a discounted basis was
$145 million
of which
$38 million
and
$107 million
were the current and long-term portions, respectively.
We evaluated whether the Chemtura AgroSolutions business met the criteria to be presented as a discontinued operation under the provisions of ASC 205-20-45. Due to the significant gross cash flows associated with the post-closing supply agreements, we concluded that the Chemtura AgroSolutions business did not meet the criteria to be presented as a discontinued operation. As a result, the historical results of the Chemtura AgroSolutions business through the date of sale as well as the results associated with the supply agreements from the date of sale are presented in continuing operations and represent the entire Agrochemical Manufacturing segment.
In 2014, we recognized a pre-tax gain on the sale of the business of
$529 million
in operating income, which included a
$3 million
non-cash gain related to the release of accumulated other comprehensive loss ("AOCL") associated with the release of cumulative translation adjustments of the entities sold. In 2015, we recognized a loss on sale of business of
$4 million
which included the working capital adjustment that was settled in the second quarter of 2015 and the sale of our wholly-owned subsidiary in Russia in the first quarter of 2015.
The following is a summary of the assets and liabilities sold or settled related to the Chemtura AgroSolutions business as of November 3, 2014 and the assets and liabilities held for sale as of December 31, 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
December 31, 2014
|
|
|
November 3, 2014
|
|
|
Cash and cash equivalents
|
|
$
|
—
|
|
|
$
|
7
|
|
|
Accounts receivable, net
|
|
3
|
|
|
158
|
|
|
Inventories, net
|
|
1
|
|
|
94
|
|
|
Other current assets
|
|
—
|
|
|
8
|
|
|
Property, plant and equipment
|
|
—
|
|
|
11
|
|
|
Intangible assets, net
|
|
—
|
|
|
32
|
|
|
Other assets
|
|
2
|
|
|
3
|
|
|
Assets
|
|
6
|
|
|
313
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
—
|
|
|
21
|
|
|
Accrued expenses
|
|
9
|
|
|
30
|
|
|
Income taxes payable
|
|
—
|
|
|
4
|
|
|
Liabilities
|
|
9
|
|
|
55
|
|
|
Net Assets
|
|
$
|
(3
|
)
|
|
$
|
258
|
|
The following table reconciles the adjusted cash proceeds to the 2014 pre-tax gain on the sale:
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2014
|
|
Cash consideration
|
|
$
|
950
|
|
|
Pre-closing working capital and other adjustments
|
|
28
|
|
|
Cash proceeds
|
|
978
|
|
|
Platform Stock
(1)
|
|
51
|
|
|
Less direct items:
|
|
|
|
Net assets sold or settled, excluding domestic tax liabilities reversed upon sale and included in tax effect
|
|
258
|
|
|
Below market supply contract
|
|
230
|
|
|
Transaction costs and other
(2)
|
|
21
|
|
|
Post-closing adjustments, obligations and other, net
|
|
(6
|
)
|
|
Less non-cash items:
|
|
|
|
Release of AOCL - cumulative translation adjustment
|
|
(3
|
)
|
|
Pre-tax gain on sale of Chemtura AgroSolutions
|
|
$
|
529
|
|
(1) Represents
2 million
shares of Platform common stock at
$26.00
per share discounted for the value of a restriction to sell of
$1 million
.
(2) Transaction costs included success fees to a financial adviser, legal fees and other direct costs incurred to sell the business since October 1, 2014.
During the second quarter of 2015, we sold
2 million
shares of Platform common stock for net proceeds of
$54 million
. As a result of holding these shares, which were accounted for as available for sale securities, we reported a net gain of
$3 million
in the second quarter of 2015 which is included in other income, net in the Consolidated Statement of Operations.
Divestitures Reported as Discontinued Operations
Consumer Products Divestiture
In
December 2013
, we sold our investment in the dedicated legal entities that constituted our Consumer Products business to KIK Customer Products Inc. ("KIK") for
$300 million
and the assumption by KIK of pension and other liabilities totaling approximately
$8 million
. The purchase price was subject to customary post-closing adjustments, primarily for working capital and assumed pension liabilities. We received an additional
$14 million
in cash from KIK in 2014 to settle these post-closing adjustments.
In 2014, we recognized a pre-tax loss of
$8 million
(
$8 million
after-tax), primarily for transaction costs and post-closing adjustments and obligations.
Antioxidant Divestiture
In
April 2013
, we sold substantially all the assets of our Antioxidant business (the "Antioxidant Sale") to SK Blue Holdings, Ltd. (“SK”), an affiliate of SK Capital Partners III, L.P., and Addivant USA Holdings Corp ("Addivant") for
$97 million
,
$9 million
in preferred stock issued by Addivant and the assumption by SK and Addivant of pension, environmental and other liabilities totaling approximately
$91 million
. Additionally, we paid
$2 million
in cash as part of a pre-closing adjustment. We received the final payment for the remaining working capital adjustment of
$4 million
in March 2014.
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
. Contemporaneously with the entry into the Merger Agreement we agreed to surrender our shares of Addivant preferred stock described above.
In 2014, we recognized a pre-tax loss of
$1 million
(
$1 million
after-tax) primarily related to the final settlement of the working capital component of the transaction.
3) RESTRUCTURING AND ASSET IMPAIRMENT ACTIVITIES
Restructuring
In
November 2014
, the Board of Directors (the "Board") approved a restructuring plan to reduce manufacturing costs, eliminate stranded costs arising from the sale of our Chemtura AgroSolutions business and reduce SG&A costs. The primary action
being implemented to achieve this plan was headcount reductions. We recorded
$21 million
in the fourth quarter of 2014 for severance and related costs. We recorded a pre-tax charge of
$2 million
in 2015 for professional fees and severance related costs primarily related to the closure of our West Lafayette, IN facility that was initiated in February 2015. We recorded a pre-tax charge of
$1 million
in 2016 for professional fees related to the closure of our West Lafayette, IN facility.
In
June 2014
, as a result of KIK not exercising its option to purchase the net assets of the Adrian, MI facility, our Board approved the closure of this facility, which occurred in mid-2015. Additionally, during the second quarter of 2014, our management approved further actions to consolidate our business' organizational structure. We recorded a pre-tax charge of
$4 million
in 2014, which included
$3 million
for severance and related costs and
$1 million
for accelerated asset retirement obligations related to the Adrian facility. We recorded a pre-tax charge of approximately
$1 million
in 2015, which included professional fees and demolition costs related to the Adrian, MI facility closure.
In 2013, our Board approved a restructuring plan providing for actions to reduce stranded costs related to divestitures and actions to consolidate our business' organizational structure in an effort to streamline the organization and gain efficiencies and additional cost savings. In
December 2013
, we substantially completed employee communications and the consultation process regarding the closure of our Droitwich, UK facility and consolidation of those operations into our Perth Amboy, NJ facility. Most of the charges for this plan were recorded in 2013, however, we recorded a pre-tax charge of
$7 million
in 2014 which included
$1 million
related to severance and professional fees,
$5 million
for accelerated depreciation of property, plant and equipment, and
$1 million
for accelerated asset retirement obligations.
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 January 1, 2014
|
|
$
|
14
|
|
|
$
|
2
|
|
|
$
|
16
|
|
|
Facility closure, severance and related costs
|
|
22
|
|
|
3
|
|
|
25
|
|
|
Cash payments
|
|
(15
|
)
|
|
(5
|
)
|
|
(20
|
)
|
|
Balance at December 31, 2014
|
|
21
|
|
|
—
|
|
|
21
|
|
|
Facility closure, severance and related costs
|
|
1
|
|
|
2
|
|
|
3
|
|
|
Cash payments
|
|
(18
|
)
|
|
(2
|
)
|
|
(20
|
)
|
|
Foreign currency translation
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
Balance at December 31, 2015
|
|
3
|
|
|
—
|
|
|
3
|
|
|
Facility closure, severance and related costs
|
|
—
|
|
|
1
|
|
|
1
|
|
|
Cash payments
|
|
(2
|
)
|
|
(1
|
)
|
|
(3
|
)
|
|
Balance at December 31, 2016
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
At
December 31, 2016
and 2015, the balance of these reserves was included in accrued expenses in our Consolidated Balance Sheet.
Asset Impairments
In accordance with ASC Topic 350,
Intangibles – Goodwill and Other
(“ASC 350”) and ASC Topic 360,
Property, Plant and Equipment
(“ASC 360”), we recorded a
$1 million
impairment of the land at our Droitwich, UK facility in 2015, which was closed as part of our 2013 restructuring programs, to bring the value of the property to its net realizable value less costs to sell as of December 31, 2015.
In February 2016, we made a decision to discontinue one of our product lines within the Industrial Engineered Products segment. Inventory associated with this product line had been written down to its net realizable value of
zero
in the fourth quarter of 2015. The value of the property, plant and equipment associated with this product line at
December 31, 2015
was approximately
$7 million
. Based upon review it was determined that certain of the property, plant and equipment had no alternate use and as such we recorded a
$1 million
impairment charge during the first quarter of 2016.
We continually monitor and evaluate business and competitive conditions that affect our operations and reflect 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.
4) INVENTORIES
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2016
|
|
2015
|
|
Finished goods
|
|
$
|
201
|
|
|
$
|
209
|
|
|
Work in process
|
|
37
|
|
|
38
|
|
|
Raw materials and supplies
|
|
72
|
|
|
68
|
|
|
|
|
$
|
310
|
|
|
$
|
315
|
|
Included in the above net inventory balances are inventory excess and obsolescence reserves of
$11 million
and
$20 million
at
December 31, 2016
and
2015
. Included in 2015 was a charge of
$8 million
related to an increase in our inventory reserves at December 31, 2015 for a discontinued product that was disposed in 2016.
5) PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2016
|
|
2015
|
|
Land and improvements
|
|
$
|
60
|
|
|
$
|
63
|
|
|
Buildings and improvements
|
|
198
|
|
|
200
|
|
|
Machinery and equipment
|
|
1,241
|
|
|
1,201
|
|
|
Information systems and equipment
|
|
151
|
|
|
161
|
|
|
Furniture, fixtures and other
|
|
18
|
|
|
19
|
|
|
Construction in progress
|
|
54
|
|
|
65
|
|
|
|
|
1,722
|
|
|
1,709
|
|
|
Less: accumulated depreciation
|
|
1,070
|
|
|
1,046
|
|
|
|
|
$
|
652
|
|
|
$
|
663
|
|
Depreciation expense amounted to
$78 million
,
$81 million
and
$87 million
for
2016
,
2015
and
2014
, respectively. Depreciation expense includes accelerated depreciation of certain fixed assets associated with our restructuring programs of
$2 million
for
2015
and
$4 million
for
2014
.
6) GOODWILL AND INTANGIBLE ASSETS
Goodwill
Our remaining goodwill relates to the Industrial Performance Products segment. Changes in the carrying amount of goodwill were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Gross Goodwill
|
|
Accumulated Impairments
|
|
Net Goodwill
|
|
Balance at December 31, 2014
|
|
$
|
262
|
|
|
$
|
(90
|
)
|
|
$
|
172
|
|
|
Foreign currency translation
|
|
(6
|
)
|
|
—
|
|
|
(6
|
)
|
|
Balance at December 31, 2015
|
|
256
|
|
|
(90
|
)
|
|
166
|
|
|
Foreign currency translation
|
|
(8
|
)
|
|
—
|
|
|
(8
|
)
|
|
Balance at December 31, 2016
|
|
$
|
248
|
|
|
$
|
(90
|
)
|
|
$
|
158
|
|
Intangible Assets
Our intangible assets (excluding goodwill) are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
(In millions)
|
|
Gross
Value
|
|
Accumulated
Amortization
|
|
Net
Intangibles
|
|
Gross
Value
|
|
Accumulated
Amortization
|
|
Net
Intangibles
|
|
Patents
|
|
$
|
24
|
|
|
$
|
(18
|
)
|
|
$
|
6
|
|
|
$
|
26
|
|
|
$
|
(18
|
)
|
|
$
|
8
|
|
|
Trademarks
|
|
41
|
|
|
(15
|
)
|
|
26
|
|
|
43
|
|
|
(14
|
)
|
|
29
|
|
|
Customer relationships
|
|
40
|
|
|
(24
|
)
|
|
16
|
|
|
41
|
|
|
(22
|
)
|
|
19
|
|
|
Production rights
|
|
45
|
|
|
(45
|
)
|
|
—
|
|
|
45
|
|
|
(45
|
)
|
|
—
|
|
|
Other
|
|
69
|
|
|
(40
|
)
|
|
29
|
|
|
71
|
|
|
(39
|
)
|
|
32
|
|
|
Total
|
|
$
|
219
|
|
|
$
|
(142
|
)
|
|
$
|
77
|
|
|
$
|
226
|
|
|
$
|
(138
|
)
|
|
$
|
88
|
|
Amortization expense related to intangible assets amounted to
$7 million
in
2016
,
$12 million
in
2015
and
$15 million
in
2014
. Estimated amortization expense of intangible assets for the next five fiscal years is as follows:
$7 million
(
2017
),
$7 million
(
2018
),
$7 million
(
2019
)
$6 million
(
2020
) and
$6 million
(
2021
).
7) DEBT
Our debt is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
(In millions)
|
|
Carrying Value
|
Fair Value
|
|
Carrying Value
|
Fair Value
|
|
5.75% Senior Notes due 2021, with an effective interest rate of 5.95% in 2016 and 5.94% in 2015
|
|
$
|
445
|
|
$
|
468
|
|
|
$
|
444
|
|
$
|
452
|
|
|
Term Loan, with an effective interest rate of 3.52% in 2016 and 3.78% 2015
|
|
1
|
|
1
|
|
|
40
|
|
40
|
|
|
Other borrowings
|
|
30
|
|
30
|
|
|
27
|
|
27
|
|
|
Total Debt
|
|
476
|
|
$
|
499
|
|
|
511
|
|
$
|
519
|
|
|
Less: Other short-term borrowings
|
|
(18
|
)
|
|
|
(6
|
)
|
|
|
Less: Current portion of Term Loan
|
|
(1
|
)
|
|
|
(40
|
)
|
|
|
Total Long-Term Debt
|
|
$
|
457
|
|
|
|
$
|
465
|
|
|
Financing Facilities
2021 Senior Notes
In July 2013, we completed a registered public offering of
$450 million
of
5.75%
Senior Notes due 2021 (the "2021 Senior Notes"). 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%
of the principal amount, in each case plus any accrued and unpaid interest to the redemption date. If we experience certain kinds of changes in control coupled with certain kinds of credit rating downgrades of the 2021 Senior Notes, in each case as defined in the indenture governing the 2021 Senior Notes (the "2021 Indenture"), we may be required to offer to repurchase all of the 2021 Senior Notes at a redemption price (subject to limitations as described in the 2021 Indenture) equal to
101%
of the aggregate principal amount plus accrued and unpaid interest. Our Merger with Lanxess would constitute a change in control as defined in the 2021 Indenture.
Our 2021 Senior Notes contain covenants that limit our ability to enter into certain transactions, such as incurring secured debt and subsidiary debt and entering into sale and lease-back transactions. Our 2021 Senior Notes are subject to certain events of default, including, among others, breach of other agreements in the 2021 Indenture; any guarantee of a significant subsidiary ceasing to be in full force and effect; a default by us or our restricted subsidiaries under any bonds, debentures, notes or other evidences of indebtedness of a certain amount, resulting in the acceleration of the maturity of such indebtedness; and certain events of bankruptcy or insolvency.
Term Loan
In August 2010, we entered into the senior secured term loan facility due in 2016 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").
In 2013, we amended the terms of this agreement to, among other things, reduced the interest rate and LIBOR floor on the term loans outstanding under the Term Loan agreement and permitted additional flexibility under certain of our operating covenants (including but not limited to additional flexibility for debt, investments, restricted payments and dispositions) in the Term Loan agreement.
We prepaid
$39 million
,
$42 million
and
$236 million
of principal under the Term Loan in 2016, 2015 and 2014, respectively.
In July 2016, we further amended the Term Loan agreement to provide for a new
$1 million
term loan which was borrowed to refinance the remaining balance of the existing Term Loan. The interest rate for the new term loan (also referred to as the "Term Loan") is identical to and maintains substantially identical collateral, covenants, events of default, representations and warranties and other terms as the original Term Loan, but with an extended maturity date to July 2017, a waiver of the prepayment requirements for proceeds of asset sales and annual excess cash flow, and a reduction of the annual administrative agency fee. The balance outstanding under the Term Loan as of
December 31, 2016
was
$1 million
.
Borrowings under the Term Loan bear interest at a rate per annum equal to, at our election, (i)
1.75%
plus the
Base Rate
(defined as the higher of (a) the
Federal Funds rate
plus
0.5%
; (b) Bank of America’s published
prime rate
; and (c) the
Eurodollar Rate
plus
1%
) or (ii)
2.75%
plus the
Eurodollar Rate
(defined as the higher of (a)
0.75%
and (b) the current
LIBOR
adjusted for reserve requirements).
The Term Loan is secured by a first priority lien on substantially all of our U.S. tangible and intangible assets (excluding accounts receivable, inventory, deposit accounts and certain other related assets), including, without limitation, real property, equipment and intellectual property, together with a pledge of the equity interests of our first tier subsidiaries and the guarantors of the Term Loan, and a second priority lien on substantially all of our U.S. accounts receivable and inventory. Our obligations as borrower under the Term Loan are guaranteed by certain of our U.S. subsidiaries.
The Term Loan contains covenants that limit, among other things, our ability to enter into certain transactions, such as creating liens, incurring additional indebtedness or repaying certain indebtedness, making investments, paying dividends, and entering into acquisitions, dispositions and joint ventures. Additionally, the Term Loan requires that we meet certain financial maintenance covenants. As of
December 31, 2016
, we were in compliance with the financial covenant requirements of the Term Loan.
ABL Facility
In December 2013, we entered into a
five
-year senior secured revolving credit facility available through 2018 which provides for
$175 million
available to our domestic subsidiaries (the "US ABL Facility") and
€60 million
available to Chemtura Sales Europe B.V., a Netherlands subsidiary (the “Foreign ABL Facility”, and together with the US ABL Facility, the “2018 ABL Facility”), subject in each case to availability under a borrowing base. The 2018 ABL Facility provides a
$125 million
letter of credit sub-facility.
The revolving loans under the 2018 ABL Facility will bear interest at a rate per annum which, at our option, can be either: (a) a
base rate
(which varies depending on the currency in which the loans are borrowed) plus a margin of between
0.50%
and
1.00%
for loans denominated in U.S. dollars or between
1.50%
and
2.00%
for loans denominated in other currencies, in each case based on the average excess availability under the 2018 ABL Facility for the preceding quarter; or (b) the current reserve
adjusted Eurocurrency Rate
plus a margin of between
1.50%
and
2.00%
based on the average excess availability under the 2018 ABL Facility for the preceding quarter.
Our obligations (and the obligations of the other borrowing subsidiaries) under the US ABL Facility will continue to be guaranteed on a secured basis by all of the existing domestic subsidiaries that are borrowers or guarantors and by certain of our future direct and indirect domestic subsidiaries (collectively, the “US Loan Parties”). The obligations under the Foreign ABL Facility are guaranteed on a secured basis by Chemtura Europe GmbH, a Swiss subsidiary, and are guaranteed and secured on a junior priority basis by the US Loan Parties.
The obligations and guarantees under the US ABL Facility will continue to be secured by (i) a first-priority security interest in the US Loan Parties’ existing and future inventory and accounts receivable, together with general intangibles relating to inventory and accounts receivable, contract rights under agreements relating to inventory and accounts receivable, documents relating to inventory, supporting obligations and letter-of-credit rights relating to inventory and accounts receivable, instruments evidencing payment for inventory and accounts receivable; money, cash, cash equivalents, securities and other property held by the Administrative Agent, as defined in the agreement, or any lender under the US ABL Facility; deposit accounts, credits and balances with any financial institution with which any US Loan Party maintains deposits and which contain proceeds of, or collections on, inventory and accounts receivable; books, records and other property related to or referring to any of the foregoing and proceeds of any of the foregoing (the “US ABL Priority Collateral”); and (ii) a second-priority security interest in substantially all of the US Loan Parties’ other assets (the “Term Loan Priority Collateral”), including (x)
100%
of the capital stock of US Loan Parties’ direct domestic subsidiaries held by the US Loan Parties and
100%
of the non-voting capital stock of the US Loan Parties’ direct foreign subsidiaries held by the US Loan Parties, and (y)
65%
of the voting capital stock of the US Loan Parties’ direct foreign subsidiaries (to the extent held by the US Loan Parties), in each case subject to certain exceptions set forth in the 2018 ABL Facility Agreement and the related loan documentation. The obligations and guarantees under the Foreign ABL Facility are secured by (i) a first priority security interest on certain of Chemtura Sales Europe B.V., a Netherlands accounts receivable and receivables collection accounts and certain of Chemtura Europe GmbH’s inventory; (ii) a second-priority security interest in the US ABL Priority Collateral; and (iii) a third-priority security interest in the Term Loan Priority Collateral; in each case subject to certain exceptions set forth in the 2018 ABL Facility and the related loan documentation.
The 2018 ABL Facility Agreement contains certain events of default (applicable to us, the other borrowers, the guarantors and their respective restricted subsidiaries), including nonpayment of principal, interest, fees or other amounts, violation of covenants, material inaccuracy of representations and warranties, cross-default to material indebtedness, certain events of bankruptcy and insolvency, material judgments, certain ERISA events, a change in control, and actual or asserted invalidity of liens or guarantees or any collateral document, in certain cases subject to the threshold amounts and grace periods set forth in the 2018 ABL Facility Agreement. Our Merger with Lanxess would constitute a change in control under the 2018 ABL Facility Agreement.
At
December 31, 2016
and
2015
, we had
no
borrowings under the 2018 ABL Facility, but we had
$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
December 31, 2016
and
2015
. At
December 31, 2016
and
2015
, we had approximately
$154 million
and
$186 million
, respectively, of undrawn availability under the 2018 ABL Facility.
Other Facilities
In March 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 is to be repaid in equal monthly installments over its term.
In December 2012, we entered into a CNY
250 million
(approximately
$40 million
)
five
-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 is being 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 based on the prevailing People's Bank of China Lending Rate. At
December 31, 2016
and
2015
, we had borrowings of
$8 million
and
$12 million
, respectively, under the China Bank Facility. Repayments of principal will be made in semi-annual installments from December 2014 through December 2017. In December 2014, January 2015 and December 2016, we repaid
$5 million
and
$15 million
, and
$2 million
, respectively.
We have an uncommitted revolving facility with Bank of America, N.A., Shanghai Branch for supporting the general working capital requirements of our Chinese entities. The facility currently provides for borrowings of up to
$10 million
. The loans under the facility bear interest at a rate determined from time to time by the bank based on the prevailing People's Bank of China Lending Rate. At
December 31, 2016
and
December 31, 2015
, we had borrowings of
$8 million
and
$1 million
under the facility, respectively.
2018 Senior Notes
In December 2014, we called the remaining
$101 million
of the senior notes due 2018 (the "2018 Senior Notes") and recorded a
$6 million
loss on the early extinguishment of debt which included a tender premium of
$4 million
and the write-off of unamortized capitalized financing costs and original issuance discount with respect to the 2018 Senior Notes of
$2 million
.
Maturities
At
December 31, 2016
, the scheduled maturities of debt are as follows:
2017
-
$19 million
;
2018
-
$2 million
and
$450 million
in 2021.
8) LEASES
At
December 31, 2016
, minimum rental commitments, primarily for buildings, land and equipment under non-cancelable operating leases, net of sublease income, amounted to
$8 million
(
2017
),
$7 million
(
2018
),
$7 million
(
2019
),
$3 million
(
2020
),
$2 million
(
2021
),
$7 million
(
2022
and thereafter) and
$34 million
in the aggregate. Sublease income is not significant in future periods. Rental expenses under operating leases were
$16 million
(
2016
),
$16 million
(
2015
) and
$21 million
(
2014
).
Future minimum lease payments under capital leases at
December 31, 2016
were not significant.
Real estate taxes, insurance and maintenance expenses are generally our obligations and, accordingly, were not included as part of rental payments. It is expected that in the normal course of business, leases that expire will be renewed or replaced by similar leases.
9) INCOME TAXES
The components of earnings (loss) from continuing operations before income taxes and the income tax expense (benefit) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2016
|
|
2015
|
|
2014
|
|
Pre-tax Earnings (Loss) from Continuing Operations:
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
(75
|
)
|
|
$
|
54
|
|
|
$
|
388
|
|
|
Foreign
|
|
89
|
|
|
98
|
|
|
191
|
|
|
|
|
$
|
14
|
|
|
$
|
152
|
|
|
$
|
579
|
|
|
Income Tax Expense (Benefit)
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
34
|
|
|
Deferred
|
|
5
|
|
|
(3
|
)
|
|
(274
|
)
|
|
|
|
10
|
|
|
(3
|
)
|
|
(240
|
)
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
16
|
|
|
30
|
|
|
48
|
|
|
Deferred
|
|
3
|
|
|
(11
|
)
|
|
—
|
|
|
|
|
19
|
|
|
19
|
|
|
48
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
21
|
|
|
30
|
|
|
82
|
|
|
Deferred
|
|
8
|
|
|
(14
|
)
|
|
(274
|
)
|
|
|
|
$
|
29
|
|
|
$
|
16
|
|
|
$
|
(192
|
)
|
The expense (benefit) for income taxes from continuing operations differs from the Federal statutory rate for the following reasons:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2016
|
|
2015
|
|
2014
|
|
Income tax expense at the U.S. statutory rate
|
|
$
|
5
|
|
|
$
|
53
|
|
|
$
|
203
|
|
|
Foreign rate differential
|
|
(6
|
)
|
|
(9
|
)
|
|
(45
|
)
|
|
Valuation allowances
|
|
(10
|
)
|
|
(32
|
)
|
|
(389
|
)
|
|
U.S. tax on foreign earnings
|
|
7
|
|
|
17
|
|
|
92
|
|
|
Foreign withholding
|
|
—
|
|
|
2
|
|
|
40
|
|
|
Pension settlement
|
|
25
|
|
|
—
|
|
|
6
|
|
|
Nondeductible expenses, other
|
|
1
|
|
|
2
|
|
|
1
|
|
|
Nondeductible stock compensation
|
|
1
|
|
|
1
|
|
|
1
|
|
|
Nondeductible merger and integration costs
|
|
5
|
|
|
—
|
|
|
—
|
|
|
Depletion
|
|
(3
|
)
|
|
(3
|
)
|
|
(3
|
)
|
|
Income tax credits
|
|
8
|
|
|
(22
|
)
|
|
(85
|
)
|
|
State income taxes, net of federal benefit
|
|
2
|
|
|
(4
|
)
|
|
(12
|
)
|
|
Taxes attributable to prior periods
|
|
(5
|
)
|
|
14
|
|
|
(10
|
)
|
|
Other, net
|
|
(1
|
)
|
|
(3
|
)
|
|
9
|
|
|
Income tax expense (benefit)
|
|
$
|
29
|
|
|
$
|
16
|
|
|
$
|
(192
|
)
|
In 2016, we generated
$6 million
of foreign tax credits that will be carried forward and
$14 million
of pre-bankruptcy foreign tax credits expired. The expired foreign tax credits were written off as well as the associated valuation allowance. In 2015, we generated
$22 million
of foreign tax credits that were carried back to 2014 to offset previously paid taxes.
We evaluated additional positive evidence in 2015 that allowed us to release valuation allowance against our federal Low Income Housing ("LIH") credits and state net operating losses. The positive evidence that weighed in favor of releasing the valuation allowance as of December 31, 2015 included:
|
|
|
|
•
|
At
December 31, 2015
, our U.S. operations had a
three
year cumulative pretax income of
$244 million
(including discontinued operations).
|
|
|
|
|
•
|
For 2015, our U.S operations pretax income exceeded our forecasted 2015 U.S. pretax income.
|
|
|
|
|
•
|
Our 2016-2019 forecasted U.S. pretax income exceeds our prior year forecasted pretax income for the same period.
|
|
|
|
|
•
|
We had a full year of actual results on both a U.S. and state basis from our cost saving initiatives reflected in our 2015 pretax income.
|
The federal valuation allowance benefit included a
$10 million
release on general LIH credits that we believed, based on the positive evidence discussed above, are more likely than not to be realized before expiration. Additionally, a valuation allowance on pre-bankruptcy foreign tax credits which was offset by pre-bankruptcy foreign tax credit assets of
$21 million
, was written-off. The state income tax benefit included a net benefit of
$8 million
for the release of valuation allowance on net operating losses. Additionally, expired state net operating loss assets of
$3 million
were also written-off against the associated valuation allowance.
We recognize deferred tax assets and liabilities for future tax consequences arising from differences between the carrying amounts of existing assets and liabilities under GAAP and their respective tax bases, and for net operating loss carryforwards and tax credit carryforwards. We evaluate the recoverability of our deferred tax assets, by jurisdiction, as of the end of each quarter, weighing all positive and negative evidence, and are required to establish or maintain a valuation allowance for these assets if we determine that it is more likely than not that some or all of the deferred tax assets will not be realized. The weight given to the evidence is commensurate with the extent to which the evidence can be objectively verified. If negative evidence exists, positive evidence is necessary to support a conclusion that a valuation allowance is not needed.
In 2014, after weighing all of the evidence, we determined that the positive evidence in favor of releasing the valuation allowance, particularly the evidence that was objectively verifiable, outweighed the negative evidence against releasing the allowance as of
December 31, 2014
. Therefore, we concluded that it was more likely than not that our U.S. deferred tax assets would be realized, except the deferred tax assets relating to certain long lived assets, pre-bankruptcy foreign tax and general business credits, and certain state net operating losses. As a result, we released net
$404 million
of the valuation allowance, including
$141 million
related to the release of a valuation allowance against the Chemtura AgroSolutions sale, of our U.S. deferred tax assets as of
December 31, 2014
. Of the net
$404 million
reduction in the total U.S. valuation allowance during
2014,
$406 million
was recorded to the income tax benefit in our Consolidated Statements of Operations and
$2 million
was recorded to other comprehensive loss in our Consolidated Balance Sheet.
The positive evidence that weighed in favor of releasing the U.S. valuation allowance as of December 31, 2014 and ultimately outweighed the negative evidence against releasing the allowance included the following:
|
|
|
|
•
|
At December 31, 2014, our U.S. operations had a
3
year cumulative pretax income of
$258 million
(including discontinued operations).
|
|
|
|
|
•
|
At December 31, 2014, our U.S. operations had a three year cumulative income of
$38 million
after excluding the contribution of the
three
businesses we divested in the period 2013-2014, the expense incurred to divest those businesses and of the gain/loss on those divestitures as well as including the benefit of lower interest expense arising from the pay down of debt with a portion of the proceeds from the divestitures.
|
|
|
|
|
•
|
The pay down of both third party and intercompany debt during 2013 and 2014 had reduced the interest expense (both third party and interest paid on loans from our foreign subsidiaries) of our U.S. operations by
$18 million
compared to what was incurred in 2013 and
$36 million
compared to what was incurred in 2012.
|
|
|
|
|
•
|
Our U.S. operations benefited from significant foreign source income from their international operations. A review of historic receipts of foreign source income, adjusted to exclude income from the divested businesses, or that arose from intercompany lending that has now been repaid, indicates that the U.S. operations can reasonably expect
$15
-
20
million of recurring foreign source income annually. The benefit of the foreign source income reduces the value of U.S. pretax income that is required to fully utilize the U.S. federal NOL released each year by an equal amount.
|
|
|
|
|
•
|
Our U.S. federal NOLs have a
20
year carryforward period and will expire in 2029 and 2030.
|
|
|
|
|
•
|
The U.S. federal NOL utilization is based on U.S. federal taxable income, which is comprised of pretax income, permanent items and reversals of temporary differences. As of December 31, 2014, we needed to generate approximately
$725 million
of pretax income over the next
16
years to realize all of our federal NOLs and absorb reversing temporary differences. The amount of pretax income needed to utilize the federal NOL was significantly less than our projected U.S. pretax income for the same time period. We believed our U.S. deferred tax liabilities would reverse in the same time period as our U.S. deferred tax assets.
|
|
|
|
|
•
|
The profitability of our U.S. operations are driven by the performance of our Great Lakes Solutions products manufactured in the U.S. Performance was expected to progressively improve in 2015 and in subsequent years initially led by our manufacturing and SG&A cost reduction programs. A significant portion of the actions to reduce manufacturing and SG&A costs (primarily reductions in headcount) had already been taken and in conjunction with improvement in manufacturing efficiencies and yields, were expected to yield cost reductions of
$26 million
annually in the U.S..
|
|
|
|
|
•
|
We were not relying on any tax planning strategies as a source of U.S. income necessary to utilize our U.S. federal NOLs.
|
The negative evidence that was considered in our determination that positive evidence is greater than negative evidence was the following:
|
|
|
|
•
|
We disposed of
two
profitable businesses in 2013 (Consumer Products) and 2014 (Chemtura AgroSolutions). However, we had already eliminated the stranded costs associated with the Consumer Products business and we anticipated the elimination of the stranded cost associated with the Chemtura AgroSolutions business by the end of the first quarter of 2015. We had used a portion of the net after-tax sale proceeds to repay debt, reducing U.S. interest expense. We had also transferred pension liabilities to the buyers of the Antioxidants and Consumer Products business. We also refinanced a significant portion of our debt in 2013, further reducing interest expense from that in 2012 and prior years.
|
|
|
|
|
•
|
If we excluded the profit contribution of the Antioxidants, Consumer Products and Chemtura AgroSolutions businesses, U.S. operations incurred a loss in both 2013 and 2014. However, as indicated in positive evidence, these U.S. operations, if adjusted for lower third party and intercompany interest expense in the U.S., eliminated costs incurred by the U.S. in support of the international operations of these businesses and the release of the obligations and the accretion related to the below market nature of the Supply Agreements would have been profitable in these periods and were profitable in 2012.
|
|
|
|
|
•
|
In 2012 and 2013, our forecast of pretax income of our U.S. operations was not fully achieved. However, the achievement of U.S. pretax income forecasts in full is not required to fully utilize the Company’s U.S. deferred tax assets as they become available to offset U.S. taxable income.
|
|
|
|
|
•
|
At September 30, 2014 and December 31, 2013, our U.S. operations had a three-year cumulative loss of
$105 million
and
$89 million
, respectively, (including discontinued operations). The cumulative loss was eliminated by the gain on the sale of our Chemtura AgroSolutions business in the quarter ended December 31, 2014.
|
|
|
|
|
•
|
As a result of our emergence from Chapter 11 Bankruptcy in 2010, we are be subject to annual U.S. federal NOL limitations under Internal Revenue Code (“IRC”) Section 382 in the future. Our federal NOL annual limitation was
$72 million
in 2015 and
$59 million
annually in the period 2016-2024 and
$8 million
in 2025.
|
|
|
|
|
•
|
At December 31, 2014, Chemtura had a deferred tax asset related to LIH credits in the amount of
$23 million
; post 1998 LIH credits have a
20
year carry forward (the oldest is pre-2003 in the amount of
$10 million
). LIH credits are not available for use until all pre-Chapter 11 federal NOLs are utilized. Therefore, we do not believe it was more likely than not that we would utilize pre-Chapter 11 LIH credits before they expired. As discussed above, we evaluated the additional evidence in 2015 that we believe allowed us to release valuation allowance against our federal LIH credits.
|
We had valuation allowances related to U.S. operations of
$45 million
,
$55 million
and
$102 million
at
December 31, 2016
,
2015
and
2014
, respectively. We had valuation allowances related to our foreign subsidiaries of
$35 million
,
$37 million
and
$25 million
at
December 31, 2016
,
2015
and
2014
, respectively. A valuation allowance has been provided for deferred tax assets where it is more likely than not that these assets will expire before we are able to realize their benefit. Of the
$12 million
worldwide reduction in the total valuation allowance during 2016,
$10 million
was recorded to income tax expense in our Consolidated Statements of Operations and
$2 million
was recorded to other comprehensive loss in our Consolidated Balance Sheet. Of the
$35 million
reduction in the total valuation allowance during
2015
,
$33 million
was recorded to the income tax expense in our Consolidated Statements of Operations and
$2 million
was recorded to other comprehensive loss in our Consolidated Balance Sheet.
The components of the deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2016
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
Pension and other post-retirement liabilities
|
|
$
|
50
|
|
|
$
|
72
|
|
|
Net operating loss carryforwards
|
|
259
|
|
|
274
|
|
|
Other accruals
|
|
20
|
|
|
19
|
|
|
Below market contracts, net of discount
|
|
53
|
|
|
67
|
|
|
Tax credit carryforwards
|
|
35
|
|
|
43
|
|
|
Accruals for environmental remediation
|
|
19
|
|
|
20
|
|
|
Inventories and other
|
|
12
|
|
|
17
|
|
|
Total deferred tax assets
|
|
448
|
|
|
512
|
|
|
Valuation allowance
|
|
(80
|
)
|
|
(92
|
)
|
|
Net deferred tax assets after valuation allowance
|
|
368
|
|
|
420
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
Unremitted foreign earnings of subsidiaries
|
|
2
|
|
|
(1
|
)
|
|
Property, plant and equipment
|
|
(63
|
)
|
|
(66
|
)
|
|
Intangibles
|
|
(2
|
)
|
|
—
|
|
|
Other
|
|
(6
|
)
|
|
(6
|
)
|
|
Total deferred tax liabilities
|
|
(69
|
)
|
|
(73
|
)
|
|
Net deferred tax asset after valuation allowance
|
|
$
|
299
|
|
|
$
|
347
|
|
We early adopted ASU 2015-17 Balance Sheet Classification of Deferred Taxes in the fourth quarter of 2015 which requires that deferred tax liabilities and assets and associated valuation allowances be classified as non-current in the balance sheet. These balances are shown as separate line items on our Consolidated Balance Sheet.
The components of our gross net operating loss (“NOL”) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2016
|
|
2015
|
|
Federal NOL
|
|
$
|
539
|
|
|
$
|
560
|
|
|
State NOL
|
|
$
|
824
|
|
|
$
|
867
|
|
|
Foreign NOL
|
|
$
|
161
|
|
|
$
|
181
|
|
State and foreign NOL and credits expire over the period 2017-2034, foreign tax credits expire over the period 2025-2026. LIH credits expire over the period 2019-2030 and federal NOL expire over the period 2029-2030. As a result of our emergence from Chapter 11 bankruptcy in 2010, we are subject to future annual federal NOL limitations under Internal Revenue Code (“IRC”) Section 382. Our federal annual limitations on the release of our NOLs are
$59 million
annually in the period 2017-2024 and
$8 million
in 2025, subject to adjustment upon audit, if any. At
December 31, 2016
, we had federal and state tax credit carryforwards of
$33 million
and
$2 million
, respectively. At
December 31, 2015
, we had federal and state tax credit carryforwards of
$41 million
and
$2 million
, respectively.
We anticipate that we will repatriate the undistributed earnings of certain foreign subsidiaries. For the year ended
December 31, 2016
, we decreased by
$3 million
the amount of the net deferred tax liability we provide for the U.S. tax consequences of these repatriations, primarily due to currency exchange fluctuations. For the year ended
December 31, 2015
, we decreased by
$10 million
, the amount of the net deferred tax liability we provide for the U.S. tax consequences of the repatriations completed in 2015 as a result of the sale of our Chemtura AgroSolutions business. We consider undistributed earnings of all other foreign subsidiaries to be indefinitely invested in their operations. At
December 31, 2016
, such undistributed earnings deemed to be indefinitely reinvested in foreign operations amounted to
$457 million
.
We also have not recognized a deferred tax liability for the difference between the book basis and tax basis of investments in the common stock of foreign subsidiaries. Such differences relate primarily to the unremitted earnings of both Witco’s and Great Lakes’ foreign subsidiaries prior to their mergers with us. The basis difference in subsidiaries of Witco, acquired on September 1, 1999, is approximately
$89 million
and the basis difference in subsidiaries of Great Lakes, acquired on July 1, 2005, is approximately
$11 million
. Estimating the tax liability for these entities that would arise if these earnings were repatriated is not practicable at this time.
During the year ended
December 31, 2016
, we recorded a decrease to our liability for unrecognized tax benefits of approximately
$1 million
. This net decrease is due to a
$3 million
decrease for settlements of tax audits in various foreign jurisdictions during the current year that relate to a liability established in prior years offset by a
$2 million
increase for unrecognized tax benefits identified during the current year. We recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense.
The beginning and ending amount of unrecognized tax benefits reconciles as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2016
|
|
2015
|
|
2014
|
|
Balance at January 1
|
|
$
|
27
|
|
|
$
|
28
|
|
|
$
|
44
|
|
|
Gross increases for tax positions taken during current year
|
|
2
|
|
|
—
|
|
|
2
|
|
|
Gross increases for tax positions taken during a prior period
|
|
1
|
|
|
3
|
|
|
2
|
|
|
Gross decreases for tax positions taken during a prior period
|
|
(1
|
)
|
|
(2
|
)
|
|
(19
|
)
|
|
Settlements / payments
|
|
(3
|
)
|
|
(1
|
)
|
|
(2
|
)
|
|
Foreign currency impact
|
|
—
|
|
|
(1
|
)
|
|
1
|
|
|
Balance at December 31
|
|
$
|
26
|
|
|
$
|
27
|
|
|
$
|
28
|
|
We recognized an insignificant amount of interest expense in
2016
and 2015 related to unrecognized tax benefits within tax expense in our Consolidated Statements of Operations and had interest expense of
$1 million
in
2014
. We also recognized, in our Consolidated Balance Sheets at
December 31, 2016
and
2015
, approximately
$10 million
and
$10 million
of interest, respectively, related to unrecognized tax benefits. We file income tax returns in the U.S., various U.S. states and certain foreign jurisdictions. The Internal Revenue Service has completed our federal examination through tax years ending December 31, 2012. There are no tax years currently under examination by the Internal Revenue Service.
United States and foreign jurisdictions have statutes of limitations generally ranging from
3
to
5
years. We have a number of state, local and foreign examinations currently in process. Major foreign exams in process include Germany and Canada.
We believe it is reasonably possible that our unrecognized tax benefits will remain unchanged during the next year. We do not project any measurable changes in our unrecognized tax benefits due to the statute of limitations expirations or conclusion of examinations by tax authorities. We further expect that the amount of unrecognized tax benefits will continue to change in the future 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 results of operations or financial condition.
10) CAPITAL STOCK AND EARNINGS (LOSS) PER COMMON SHARE
Capital Stock
Common Shares
We are authorized to issue
500 million
shares of
$0.01
par value common stock. There were
100.6 million
shares issued, of which
37.6 million
were held in treasury at
December 31, 2016
and there were
100.6 million
shares issued, of which
33.4 million
were held in treasury at
December 31, 2015
. We are authorized to issue
0.3 million
shares of
$0.01
par value preferred stock,
none
of which are outstanding.
Treasury Shares
In November 2013, the Board authorized an increase in our share repurchase program to
$291 million
and extended the program through November 9, 2014 (the "November 2014 Authorization"). In May 2014, the Board authorized a further increase in our share repurchase program by
$100 million
, up to
$391 million
when combined with the November 2013 authorization. During 2014, we purchased
12.1 million
shares for
$287 million
under this share repurchase program. Through October 2014, we purchased
17.9 million
shares for
$382 million
since inception of the share repurchase program in 2011. The remaining authorization of
$9 million
expired without any share repurchases in November 2014.
In October 2014, the Board approved a new share repurchase authorization of up to
$500 million
conditioned upon the sale of our Chemtura AgroSolutions business which authorization was scheduled to expire on December 1, 2015 (the "October 2014 Authorization"). In October 2014, we announced the commencement of a modified Dutch auction tender offer to purchase for cash shares of our common stock (the "Tender Offer"). In November 2014, we closed the sale of our Chemtura AgroSolutions business and in December 2014, we completed the Tender Offer and purchased
12.5 million
shares of our common stock at a purchase price of
$24.20
per share, for an aggregate cost of
$302 million
, excluding fees and expenses. In December 2014, we purchased an additional
1.2 million
shares for
$28 million
under our share repurchase program through open market purchases.
In
August 2015
, the Board authorized an increase to the October 2014 Authorization by
$150 million
, up to
$650 million
in the aggregate when combined with the October 2014 Authorization, and extended the program to December 1, 2016. During 2015, we repurchased a total of
6.2 million
shares of our common stock under our share repurchase program at a cost of
$150 million
. During 2016, we repurchased a total of
4.5 million
shares of our common stock under our share repurchase program at a cost of
$116 million
.
Due to the pending merger transaction with Lanxess, we ceased purchases of our common stock. The October 2014 Authorization program expired in December 2016.
We release the value of treasury shares at the weighted average price per share when shares are issued from treasury.
Earnings (Loss) per Common Share
The computation of basic earnings (loss) per common share is based on the weighted average number of common shares outstanding. The computation of diluted earnings (loss) per common share is based on the weighted average number of common and common share equivalents outstanding. For the year ended December 31, 2016, the computation of diluted earnings (loss) per share equals the basic earnings (loss) per common share calculation since common stock equivalents were antidilutive due to losses from continuing operations. Common stock equivalents amounted to
0.9 million
for the year ended December 31, 2016.
The following is a reconciliation of the shares used in the computation of earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
(In millions)
|
|
2016
|
|
2015
|
|
2014
|
|
Weighted average shares outstanding - Basic
|
|
63.8
|
|
|
67.8
|
|
|
90.2
|
|
|
Dilutive effect of common share equivalents
|
|
—
|
|
|
1.0
|
|
|
1.3
|
|
|
Weighted average shares outstanding - Diluted
|
|
63.8
|
|
|
68.8
|
|
|
91.5
|
|
11) ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss (“AOCL”), net of tax at
December 31, 2016
and
2015
, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Foreign Currency Translation Adjustments
|
|
Unrecognized Pension and Other Post-Retirement Benefit Costs
|
|
Available for Sale Securities - Adjustments
|
|
Total
|
|
As of December 31, 2014
|
|
$
|
(86
|
)
|
|
$
|
(306
|
)
|
|
$
|
(5
|
)
|
|
$
|
(397
|
)
|
|
Other comprehensive (loss) income before reclassifications
|
|
(52
|
)
|
|
(26
|
)
|
|
7
|
|
|
(71
|
)
|
|
Amounts reclassified from AOCL
|
|
(3
|
)
|
|
11
|
|
|
(2
|
)
|
|
6
|
|
|
Net current period other comprehensive (loss) income
|
|
(55
|
)
|
|
(15
|
)
|
|
5
|
|
|
(65
|
)
|
|
As of December 31, 2015
|
|
(141
|
)
|
|
(321
|
)
|
|
—
|
|
|
(462
|
)
|
|
Other comprehensive (loss) income before reclassifications
|
|
(44
|
)
|
|
5
|
|
|
—
|
|
|
(39
|
)
|
|
Amounts reclassified from AOCL
|
|
2
|
|
|
133
|
|
|
—
|
|
|
135
|
|
|
Net current period other comprehensive (loss) income
|
|
(42
|
)
|
|
138
|
|
|
—
|
|
|
96
|
|
|
As of December 31, 2016
|
|
$
|
(183
|
)
|
|
$
|
(183
|
)
|
|
$
|
—
|
|
|
$
|
(366
|
)
|
The following table summarizes the reclassifications from AOCL to the Consolidated Statement of Operations for the periods ending
December 31, 2016
,
2015
and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Reclassified from AOCL
|
|
|
|
(in millions)
|
|
2016
|
|
2015
|
|
2014
|
|
Affected line item in the consolidated statement of operations
|
|
Foreign currency translation items:
|
|
|
|
|
|
|
|
|
|
Liquidation of consolidated entities
|
|
$
|
(2
|
)
|
|
$
|
8
|
|
|
$
|
—
|
|
|
Other income, net
|
|
(Loss) gain on sale of business (b)
|
|
—
|
|
|
(5
|
)
|
|
3
|
|
|
(Loss) gain on sale of business
|
|
Net of tax
|
|
(2
|
)
|
|
3
|
|
|
3
|
|
|
|
|
Defined benefit pension plan items:
|
|
|
|
|
|
|
|
|
|
Amortization of prior-service credits (a)
|
|
5
|
|
|
5
|
|
|
5
|
|
|
Primarily SG&A
|
|
Amortization of actuarial losses (a)
|
|
(10
|
)
|
|
(22
|
)
|
|
(18
|
)
|
|
Primarily SG&A
|
|
Settlement loss (a)
|
|
(162
|
)
|
|
—
|
|
|
(21
|
)
|
|
Pension settlement
|
|
Total before tax
|
|
(167
|
)
|
|
(17
|
)
|
|
(34
|
)
|
|
|
|
Total tax
|
|
34
|
|
|
6
|
|
|
3
|
|
|
Income tax (expense) benefit
|
|
Net of tax
|
|
(133
|
)
|
|
(11
|
)
|
|
(31
|
)
|
|
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
Gain on sale of Platform shares
|
|
—
|
|
|
2
|
|
|
—
|
|
|
Other income, net
|
|
Net of tax
|
|
—
|
|
|
2
|
|
|
—
|
|
|
|
|
Total reclassifications
|
|
$
|
(135
|
)
|
|
$
|
(6
|
)
|
|
$
|
(28
|
)
|
|
|
(a) These items are included in the computation of net periodic benefit pension cost (see Note 13 - Pension and Other Post-Retirement Plans for additional information).
(b) Sale of the Chemtura AgroSolutions business (see Note 2 - Mergers and Divestitures)
12) STOCK INCENTIVE PLANS
We utilize various employee stock-based compensation plans. Awards under these plans are granted to eligible officers, employees and non-employee directors. Awards may be made in the form of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock and/or restricted stock units ("RSUs"). Under the plans, we issue additional shares of common stock upon the exercise of stock options, the vesting of RSUs and achieving the performance metrics in performance shares. Stock issuances can be from treasury shares or newly issued shares.
Description of the Plans
In 2010, we adopted the Chemtura Corporation 2010 Long-Term Incentive Plan (the “2010 LTIP”). 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 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.
During the years ended
December 31, 2016
and
2015
, we had
4.0 million
and
4.3 million
shares available for grant, respectively.
A summary of our share-based compensation expense is shown below 2016, 2015 and 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Selling, General & Administrative
|
12
|
|
|
11
|
|
|
13
|
|
|
Cost of goods sold
|
1
|
|
|
1
|
|
|
1
|
|
|
Total share-based compensation
|
13
|
|
|
12
|
|
|
14
|
|
|
|
|
|
|
|
|
|
Percentage of expense allocated to Corporate segment
|
81
|
%
|
|
81
|
%
|
|
77
|
%
|
|
Percentage of expense allocated to Operating segments
|
19
|
%
|
|
19
|
%
|
|
23
|
%
|
Stock Options
The Compensation & Governance Committee of the Board (the "Compensation Committee") did not grant any stock options during the years ended December 31, 2016, 2015 and 2014. All previously granted stock options have vested under their terms.
A summary of our stock option balances for
2016
is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price Per Share
|
|
Shares
|
|
Weighted
Average
Remaining
Contractual
|
|
Aggregate
Intrinsic
Value
|
|
|
|
Average
|
|
(in millions)
|
|
Life
|
|
(in millions)
|
|
Outstanding at 12/31/15
|
|
$
|
17.38
|
|
|
0.9
|
|
|
5.8
|
|
$
|
9
|
|
|
Outstanding at 12/31/16
|
|
$
|
17.35
|
|
|
0.9
|
|
|
4.9
|
|
$
|
14
|
|
|
Exercisable at 12/31/16
|
|
$
|
17.35
|
|
|
0.9
|
|
|
4.9
|
|
$
|
14
|
|
The intrinsic value of the exercised options was less than
$1 million
for
2016
, and
$17 million
and
$5 million
for
2015
and
2014
, respectively.
Restricted Stock Awards
In March 2016, 2015 and 2014, the Compensation Committee approved the grant of
0.2 million
,
0.2 million
and
0.4 million
, respectively, time-based RSUs under the 2016, 2015 and 2014 long-term incentive awards. These RSUs vest ratably over a
three
-year period.
In March 2016, 2015 and 2014, the Compensation Committee approved the grant of
0.2 million
performance shares under the 2016, 2015 and 2014 long-term incentive awards. The share grants are subject to a performance multiplier of up to
2
times the targeted award. The performance measurement period for these grants is the end of the
third
calendar year, including the year of issuance, ending on December 31. The performance share metric is our relative total shareholder return against the companies comprising the Dow Jones Chemical Index for the 2016, 2015 and 2014 long-term incentive awards. The performance shares will be settled as soon as practicable after the performance period but no later than March 15, 2018 for the 2015 long-term incentive awards and March 15, 2019 for the 2016 long-term incentive awards. The 2014 long-term incentive awards were settled in January 2017. We used the Monte-Carlo simulation model to determine the fair value of the performance shares. Using this method, the average per share fair value of these awards was
$28.89
,
$34.91
and
$26.98
for the 2016, 2015 and 2014 incentive awards, respectively.
RSUs award activity for
2016
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
(in millions)
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Aggregate
Fair Value
(in millions)
|
|
Unvested RSU awards, December 31, 2015
|
|
1.0
|
|
|
26.89
|
|
|
$
|
28
|
|
|
Granted
1
|
|
0.4
|
|
|
26.68
|
|
|
|
|
Vested
|
|
(0.4
|
)
|
|
25.04
|
|
|
9
|
|
|
Unvested RSU awards, December 31, 2016
|
|
1.0
|
|
|
$
|
27.40
|
|
|
$
|
35
|
|
1) Includes performance multiplier adjustments for actual payout received on the performance shares.
The weighted average grant date fair value of RSUs granted was
$26.68
,
$29.61
and
$25.56
for
2016
,
2015
and
2014
, respectively. The fair value of RSUs at time of vesting was
$9 million
,
$16 million
and
$8 million
for
2016
,
2015
and
2014
, respectively.
Total remaining unrecognized compensation expense associated with unvested RSUs at
December 31, 2016
was
$10 million
, which will be recognized over the weighted average period of approximately
2 years
.
Tax Benefits of Stock-Based Compensation Plans
ASC 718
Stock Compensation
requires the benefits of tax deductions in excess of grant-date fair value be presented in the cash flows from financing section of our Consolidated Statements of Cash Flows. We recognized a cash tax benefit in the amount of
$5 million
associated with shares exercised during the year ended December 31, 2014. The cash tax benefit associated with shares exercised during the years ended December 31, 2016 and 2015 was not material. Cash proceeds received from stock option exercises during
2016
,
2015
and
2014
was
$1 million
,
$20 million
and
$10 million
, respectively.
13) PENSION AND OTHER POST-RETIREMENT PLANS
We have several defined benefit and defined contribution pension plans covering substantially all of our domestic employees and certain international employees. Benefits under the defined benefit plans are primarily based on the employees' years of service and compensation during employment. Effective January 1, 2006, we eliminated future earnings benefits to participants of our domestic defined benefit plans for non-bargained employees. All active non-bargained employees would subsequently earn benefits under defined contribution plans for all service incurred on or after January 1, 2006. Our funding policy for the defined benefit plans is based on contributions at the minimum annual amounts required by law plus such additional amounts as we may deem appropriate. Contributions for the defined contribution plans are determined as a percentage of the covered employee’s salary. Plan assets consist of publicly traded securities and mutual funds and investments in commingled funds administered by independent investment advisors.
International employees are covered by various pension benefit arrangements, some of which are considered to be defined benefit plans for financial reporting purposes. Assets of these plans are comprised primarily of equity investments and fixed-income investments. Benefits under these plans are primarily based upon levels of compensation. Funding policies are based on legal requirements, tax considerations and local practices.
We also provide health and life insurance benefits for substantially all of our active domestic employees and certain retired and international employees. These plans are generally not prefunded and are paid by us as incurred.
On February 22, 2016, we announced that, in accordance with the selection made by Evercore Trust Company, N.A. ("Evercore Trust"), the independent fiduciary for the Chemtura Corporation Retirement Plan (the “US Qualified Plan”), our US Qualified Plan entered into a purchase agreement with Voya Retirement Insurance and Annuity Company ("Voya"), a member of the Voya Financial, Inc. family of companies, for a group annuity contract transferring payment responsibility for the pension benefits of approximately
5,000
U.S. retirees, or their designated beneficiaries, to Voya.
By irrevocably transferring these pension benefit payment obligations to Voya, our overall projected pension benefit obligation has been reduced by
$363 million
, based on the valuation date of February 17, 2016. The annuity purchase price was
$354 million
and was funded by the assets of the US Qualified Plan. As a result, we recorded a pre-tax non-cash pension settlement charge of
$162 million
to pension settlement in the first quarter of 2016. Additionally, we contributed
$35 million
of cash to the US Qualified Plan during the first quarter of 2016 to maintain the US Qualified Plan’s funded status at the approximate level that existed prior to the pension annuity transaction.
In September 2014, we offered vested pension plan participants in our U.S. qualified pension plan who are no longer employed at the Company a limited-time opportunity to take their pension benefits as a one-time single lump sum or an immediate annuity. Based on the elections received, we reduced our projected benefit obligation and plan assets by
$52 million
which resulted in a settlement charge in the fourth quarter of 2014 of
$21 million
.
In May 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
) between 2011 and 2014. The final
contribution of
£8 million
(
$12 million
) was made in the first 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.
We also completed the evaluation as to whether additional benefit obligations existed in connection with the equalization of certain benefits under the UK Pension Plan that occurred in the early 1990s. As of December 31, 2013, we had an estimated liability of
$6 million
. During the third quarter of 2014, we obtained a recovery from third parties that reduced our estimated net liability by
$4 million
which was released to SG&A. During the first quarter of 2016, we reached a final agreement with the trustees of the UK Pension Plan as to the contribution our UK subsidiary should make to fund this benefit obligation. Therefore, in the first quarter of 2016, our UK subsidiary made a contribution of under
$1 million
to the UK Pension Plan in accordance with the agreement reached with the trustees and released the
$2 million
remainder of the estimated liability as a credit to SG&A.
Benefit Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Pension Plans
|
|
|
|
|
|
Qualified
Domestic Plans
|
|
International and
Non-Qualified Plans
|
|
Post-Retirement
Health Care Plans
|
|
(In millions)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year
|
|
$
|
598
|
|
|
$
|
652
|
|
|
$
|
495
|
|
|
$
|
542
|
|
|
$
|
94
|
|
|
$
|
108
|
|
|
Service cost
|
|
—
|
|
|
—
|
|
|
2
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
Interest cost
|
|
11
|
|
|
24
|
|
|
16
|
|
|
17
|
|
|
4
|
|
|
4
|
|
|
Actuarial (gains) losses (a)
|
|
(9
|
)
|
|
(32
|
)
|
|
78
|
|
|
(6
|
)
|
|
(5
|
)
|
|
(8
|
)
|
|
Benefits paid
|
|
(20
|
)
|
|
(46
|
)
|
|
(22
|
)
|
|
(20
|
)
|
|
(7
|
)
|
|
(7
|
)
|
|
Settlements
|
|
(363
|
)
|
|
—
|
|
|
(2
|
)
|
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
Foreign currency exchange rate changes (b)
|
|
—
|
|
|
—
|
|
|
(70
|
)
|
|
(36
|
)
|
|
—
|
|
|
(3
|
)
|
|
Other
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Projected benefit obligation at end of year
|
|
$
|
217
|
|
|
$
|
598
|
|
|
$
|
499
|
|
|
$
|
495
|
|
|
$
|
86
|
|
|
$
|
94
|
|
|
Accumulated benefit obligation at end of year
|
|
$
|
217
|
|
|
$
|
598
|
|
|
$
|
499
|
|
|
$
|
494
|
|
|
|
|
|
|
|
|
Weighted-average year-end assumptions used to determine benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
4.00
|
%
|
|
4.10
|
%
|
|
2.57
|
%
|
|
3.46
|
%
|
|
3.77
|
%
|
|
3.97
|
%
|
|
Rate of compensation increase
|
|
3.00
|
%
|
|
3.00
|
%
|
|
2.44
|
%
|
|
2.42
|
%
|
|
N/A
|
|
|
N/A
|
|
|
Health care cost trend rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.25
|
%
|
|
4.87
|
%
|
|
|
|
|
(a)
|
The gains for 2016 primarily related to an update to the revised mortality tables for the U.S. pension plans and the losses primarily related to decreases in discount rates for the international plans. The gains for 2015 primarily related to an update to the revised mortality tables for the U.S. pension plans, and increases in discount rates.
|
|
|
|
|
(b)
|
The significant foreign currency decrease in 2016 and 2015 is due to decreases in Euro and British Pound exchange rates from December 2015 to December 2016 and from December 2014 to December 2015, respectively.
|
A
6.25%
weighted-average rate of increase in the health care cost trend rate was assumed for the accumulated post-retirement benefit obligation as of
December 31, 2016
. The rate was assumed to decrease gradually to a weighted average rate of
5.0%
over approximately the next
3
to
8
years. Assumed health care cost trend rates have a significant effect on the post-retirement benefit obligation reported for the health care plans. A one percentage point increase in assumed health care cost trend rates would increase the accumulated post-retirement benefit obligation by
$4 million
for health care benefits as of
December 31, 2016
. A one percentage point decrease in assumed health care cost trend rates would decrease the accumulated post-retirement benefit obligation by
$3 million
for health care benefits as of
December 31, 2016
.
Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Pension Plans
|
|
|
|
|
|
Qualified
Domestic Plans
|
|
International and
Non-Qualified Plans
|
|
Post-Retirement
Health Care Plans
|
|
(In millions)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
531
|
|
|
$
|
570
|
|
|
$
|
416
|
|
|
$
|
455
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Actual return on plan assets
|
|
14
|
|
|
(7
|
)
|
|
87
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
Employer contributions
|
|
35
|
|
|
14
|
|
|
18
|
|
|
9
|
|
|
7
|
|
|
7
|
|
|
Benefits paid
|
|
(20
|
)
|
|
(46
|
)
|
|
(22
|
)
|
|
(20
|
)
|
|
(7
|
)
|
|
(7
|
)
|
|
Settlements
|
|
(354
|
)
|
|
—
|
|
|
(2
|
)
|
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
Foreign currency exchange rate changes (a)
|
|
—
|
|
|
—
|
|
|
(73
|
)
|
|
(27
|
)
|
|
—
|
|
|
—
|
|
|
Other
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Fair value of plan assets at end of year
|
|
$
|
206
|
|
|
$
|
531
|
|
|
$
|
426
|
|
|
$
|
416
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
(a)
|
The significant foreign currency decrease in 2016 and 2015 is due to decreases in Euro and British Pound exchange rates from December 2015 to December 2016 and from December 2014 to December 2015, respectively.
|
Our pension plan assets are managed by outside investment managers as appointed by the Employee Investment Committee (the "EIC"). Our investment managers are SEI Investments Management Corporation ("SEI") for our U.S. qualified pension plans, Northern Trust for our Canadian non-qualified pension plans and Mercer Limited for our UK pension plans. Assets are monitored regularly to ensure they are within the range of parameters as set forth by the EIC. Our investment strategy with respect to pension assets is to achieve the expected rate of return within an acceptable or appropriate level of risk. Our investment strategy is designed to promote diversification, to moderate volatility and to attempt to balance the expected return with risk levels. The target allocations for qualified domestic plans are
32%
equity securities,
58%
fixed income securities and
10%
to all other types of investments. The weighted average target allocations for international pension plans are
25%
equity securities,
66%
fixed income securities and
9%
to all other types of investments.
The fair values of our defined benefit pension plan assets at
December 31, 2016
and
2015
, by asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2016
|
|
|
|
Defined Benefit Pension Plans
|
|
|
|
Qualified Domestic Plans
|
|
International and Non-Qualified Plans
|
|
(In millions)
|
|
Total
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pooled equity (a)
|
|
$
|
83
|
|
|
$
|
83
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
88
|
|
|
$
|
5
|
|
|
$
|
83
|
|
|
$
|
—
|
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government bonds (b)
|
|
16
|
|
|
—
|
|
|
16
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
International government bonds (b)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17
|
|
|
—
|
|
|
17
|
|
|
—
|
|
|
Pooled fixed income funds (c)
|
|
86
|
|
|
86
|
|
|
—
|
|
|
—
|
|
|
307
|
|
|
—
|
|
|
305
|
|
|
2
|
|
|
Alternative collective funds (d)
|
|
21
|
|
|
—
|
|
|
—
|
|
|
21
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other instruments (e)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
14
|
|
|
|
|
$
|
206
|
|
|
$
|
169
|
|
|
$
|
16
|
|
|
$
|
21
|
|
|
$
|
426
|
|
|
$
|
5
|
|
|
$
|
405
|
|
|
$
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2015
|
|
|
|
Defined Benefit Pension Plans
|
|
|
|
Qualified Domestic Plans
|
|
International and Non-Qualified Plans
|
|
|
|
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
|
|
Significant
Observable
Inputs
|
|
Significant
Unobservable
Inputs
|
|
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
|
|
Significant
Observable
Inputs
|
|
Significant
Unobservable
Inputs
|
|
(in millions)
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pooled equity (a)
|
|
$
|
146
|
|
|
$
|
146
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
120
|
|
|
$
|
5
|
|
|
$
|
115
|
|
|
$
|
—
|
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government bonds (b)
|
|
62
|
|
|
—
|
|
|
62
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
International government bonds (b)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16
|
|
|
—
|
|
|
16
|
|
|
—
|
|
|
Pooled fixed income funds (c)
|
|
263
|
|
|
263
|
|
|
—
|
|
|
—
|
|
|
265
|
|
|
—
|
|
|
264
|
|
|
1
|
|
|
Alternative collective funds (d)
|
|
60
|
|
|
—
|
|
|
—
|
|
|
60
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other instruments (e)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
14
|
|
|
Cash & cash equivalents
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
|
|
$
|
531
|
|
|
$
|
409
|
|
|
$
|
62
|
|
|
$
|
60
|
|
|
$
|
416
|
|
|
$
|
6
|
|
|
$
|
395
|
|
|
$
|
15
|
|
|
|
|
|
(a)
|
Pooled equity funds include mutual and collective funds that invest primarily in marketable equity securities of various sized companies in a diverse set of industries in various regions of the world. Shares of publicly-traded mutual funds are valued at the closing price reported on the U.S. and international exchanges where the underlying securities are actively traded. Units of collective funds are valued at the per unit value determined by the fund manager, which is based on market price of the underlying securities.
|
|
|
|
|
(b)
|
U.S. and international government bonds include U.S. treasury, municipal and agency obligations and international government debt. Such instruments are valued at quoted market prices for those instruments or on institutional bid valuations.
|
|
|
|
|
(c)
|
Pooled fixed income funds are fixed income funds that invest primarily in corporate and government bonds. Publicly traded funds are valued at the closing price in active markets and observable data, whereas collective funds are valued by broker or dealer quotations, which are based on the market price of the underlying securities.
|
|
|
|
|
(d)
|
Alternative collective funds include funds that invest mainly in asset backed securities, real estate funds, hedge funds and other alternative investments. The underlying funds are valued based on the net asset values of the investments as determined by the respective individual fund administrators on a daily, weekly or monthly basis depending on the fund. Such valuations are reviewed by the portfolio managers who determine the value of collective funds based on these inputs. Certain of these funds have lock up periods and all of them have notification periods. Due to the process used to value these funds and the restricted trading, we have categorized these funds as level 3.
|
|
|
|
|
(e)
|
Other instruments include primarily annuities and real estate funds instruments for which there are significant unobservable inputs and therefore have been classified as level 3.
|
Below is the roll-forward of the activity in the pension plan assets classified as Level 3 above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternative Collective Funds (d)
|
Other Instruments (e)
|
Total Level 3 Investments
|
|
Balance at December 31, 2015
|
|
$
|
60
|
|
$
|
15
|
|
$
|
75
|
|
|
Purchases
|
|
—
|
|
1
|
|
1
|
|
|
Transfers to Level 1
|
|
(41
|
)
|
—
|
|
(41
|
)
|
|
Unrealized gains
|
|
2
|
|
—
|
|
2
|
|
|
Balance at December 31, 2016
|
|
$
|
21
|
|
$
|
16
|
|
$
|
37
|
|
Funded Status
The funded status at the end of the year, and the related amounts recognized on the Consolidated Balance Sheet, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Pension Plans
|
|
|
|
|
|
Qualified
Domestic Plans
|
|
International and
Non-Qualified Plans
|
|
Post-Retirement
Health Care Plans
|
|
(In millions)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Funded status, end of year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
$
|
206
|
|
|
$
|
531
|
|
|
$
|
426
|
|
|
$
|
416
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Benefit obligations
|
|
217
|
|
|
598
|
|
|
499
|
|
|
495
|
|
|
86
|
|
|
94
|
|
|
Net amount recognized
|
|
$
|
(11
|
)
|
|
$
|
(67
|
)
|
|
$
|
(73
|
)
|
|
$
|
(79
|
)
|
|
$
|
(86
|
)
|
|
$
|
(94
|
)
|
|
Amounts recognized in the Consolidated Balance Sheets at the end of year consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
51
|
|
|
$
|
46
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Current liability
|
|
—
|
|
|
—
|
|
|
(7
|
)
|
|
(8
|
)
|
|
(7
|
)
|
|
(8
|
)
|
|
Noncurrent liability
|
|
(11
|
)
|
|
(67
|
)
|
|
(117
|
)
|
|
(117
|
)
|
|
(79
|
)
|
|
(86
|
)
|
|
Net amount recognized
|
|
$
|
(11
|
)
|
|
$
|
(67
|
)
|
|
$
|
(73
|
)
|
|
$
|
(79
|
)
|
|
$
|
(86
|
)
|
|
$
|
(94
|
)
|
|
Amounts recognized in accumulated other comprehensive loss consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
92
|
|
|
$
|
270
|
|
|
$
|
143
|
|
|
$
|
137
|
|
|
$
|
31
|
|
|
$
|
38
|
|
|
Prior service credit
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(25
|
)
|
|
(30
|
)
|
|
|
|
$
|
92
|
|
|
$
|
270
|
|
|
$
|
143
|
|
|
$
|
137
|
|
|
$
|
6
|
|
|
$
|
8
|
|
As of
December 31, 2016
and
2015
, the current liability positions are included in accrued expenses, the noncurrent assets are included in other assets, and the noncurrent liability positions are shown as pension and post-retirement health care liabilities in our Consolidated Balance Sheets.
The estimated amounts that will be amortized from AOCL into net periodic benefit cost (credit) in
2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified
Domestic
|
|
International
and Non-
Qualified
|
|
Post-
Retirement
Health Care
|
|
(In millions)
|
|
Plans
|
|
Plans
|
|
Plans
|
|
Actuarial loss
|
|
$
|
2
|
|
|
$
|
6
|
|
|
$
|
2
|
|
|
Prior service credit
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
Total amortization cost (credit)
|
|
$
|
2
|
|
|
$
|
6
|
|
|
$
|
(2
|
)
|
Our funding assumptions for our domestic pension plans assume no significant change with regard to demographics, legislation, plan provisions, or actuarial assumptions or methods to determine the estimated funding requirements. We contributed
$60 million
and
$31 million
to our pension and post retirement plans in
2016
and
2015
, respectively. The
2016
contribution includes a
$35 million
discretionary contribution to
one
of our domestic qualified plans. The
2015
contribution included a
$14 million
discretionary contribution to one of our domestic qualified plans.
The projected benefit obligation and fair value of plan assets for pension and post-retirement plans with a projected benefit obligation in excess of plan assets at
December 31, 2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2016
|
|
2015
|
|
Projected benefit obligation in excess of plan assets at end of year:
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
439
|
|
|
$
|
820
|
|
|
Fair value of plan assets
|
|
217
|
|
|
534
|
|
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension and post-retirement plans with an accumulated benefit obligation in excess of plan assets at
December 31, 2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2016
|
|
2015
|
|
Accumulated benefit obligation in excess of plan assets at end of year:
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
345
|
|
|
$
|
725
|
|
|
Accumulated benefit obligation
|
|
344
|
|
|
725
|
|
|
Fair value of plan assets
|
|
210
|
|
|
533
|
|
Expected Cash Flows
Information about the expected cash flows for the domestic qualified defined benefit plans, international and non-qualified defined benefit plans and post-retirement health care plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Pension Plans
|
|
|
|
|
|
Qualified
Domestic
|
|
International
and
Non-Qualified
|
|
Post-
Retirement
Health Care
|
|
(in millions)
|
|
Plans
|
|
Plans
|
|
Plans
|
|
Expected Employer Contributions: (a)
|
|
|
|
|
|
|
|
2017
|
|
$
|
—
|
|
|
$
|
15
|
|
|
$
|
8
|
|
|
Expected Benefit Payments (b):
|
|
|
|
|
|
|
|
2017
|
|
12
|
|
|
21
|
|
|
8
|
|
|
2018
|
|
13
|
|
|
22
|
|
|
7
|
|
|
2019
|
|
13
|
|
|
23
|
|
|
7
|
|
|
2020
|
|
13
|
|
|
25
|
|
|
7
|
|
|
2021
|
|
14
|
|
|
24
|
|
|
6
|
|
|
2022-2026
|
|
70
|
|
|
133
|
|
|
27
|
|
|
|
|
|
(a)
|
The expected employer contributions reflect the minimum required by law or contractual obligation, including benefits paid directly by employer. We may elect to make additional discretionary contributions as deemed appropriate consistent with past practice.
|
|
|
|
|
(b)
|
The expected benefit payments are based on the same assumptions used to measure our benefit obligation at the end of the year and include benefits attributable to estimated future employee service.
|
Net Periodic Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Pension Plans
|
|
|
|
|
|
Qualified
Domestic Plans
|
|
International and
Non-Qualified Plans
|
|
Post-Retirement
Health Care Plans
|
|
(In millions)
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
|
Components of net periodic benefit cost (credit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Interest cost
|
|
11
|
|
|
24
|
|
|
28
|
|
|
16
|
|
|
17
|
|
|
21
|
|
|
4
|
|
|
4
|
|
|
4
|
|
|
Expected return on plan assets
|
|
(20
|
)
|
|
(39
|
)
|
|
(41
|
)
|
|
(19
|
)
|
|
(22
|
)
|
|
(26
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Amortization of prior service cost
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
|
(5
|
)
|
|
(5
|
)
|
|
Recognized actuarial losses
|
|
4
|
|
|
13
|
|
|
11
|
|
|
4
|
|
|
6
|
|
|
4
|
|
|
2
|
|
|
3
|
|
|
3
|
|
|
Settlement loss recognized (a)
|
|
162
|
|
|
—
|
|
|
21
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net periodic benefit cost
|
|
$
|
157
|
|
|
$
|
(2
|
)
|
|
$
|
19
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
|
|
|
(a)
|
The settlement loss recognized in 2016 of
$162 million
related to the retiree annuity purchase transaction in our U.S. qualified pension plan (included in Pension settlement). The settlement loss recognized in 2014 of
$21 million
related to the lump sum payout made to certain participants in our U.S. qualified pension plan (included in Pension settlement).
|
Weighted-average assumptions used to determine net cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Pension Plans
|
|
|
|
|
|
Qualified
Domestic Plans
|
|
International and
Non-Qualified Plans
|
|
Post-Retirement
Health Care Plans
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
|
Discount rate
|
|
4.10
|
%
|
|
3.80
|
%
|
|
4.60
|
%
|
|
3.63
|
%
|
|
3.47
|
%
|
|
4.20
|
%
|
|
3.83
|
%
|
|
3.70
|
%
|
|
4.45
|
%
|
|
Expected return on plan assets
|
|
7.50
|
%
|
|
7.50
|
%
|
|
7.50
|
%
|
|
5.13
|
%
|
|
5.66
|
%
|
|
6.68
|
%
|
|
|
|
|
|
|
|
Rate of compensation increase
|
|
3.00
|
%
|
|
3.00
|
%
|
|
3.00
|
%
|
|
2.42
|
%
|
|
2.41
|
%
|
|
2.85
|
%
|
|
|
|
|
|
|
The expected return on pension plan assets is based on our investment strategy, historical experience, and our expectations for long-term rates of return. We determine the long-term rate of return assumptions for the domestic and international pension plans based on investment allocation between various asset classes. The expected rate of return on plan assets is derived by applying the expected returns on various asset classes to our target asset allocation. The expected returns are based on the expected performance of the various asset classes and are further supported by historical investment returns.
Assumed health care cost trend rates have a significant effect on the service and interest cost components reported for the health care plans. A one percentage point increase or decrease in assumed health care cost trend rates increases or decreases the service and interest cost components of net periodic post-retirement health care benefit cost by less than
$1 million
for
2016
.
Our cost of the defined contribution plans was
$11 million
for
2016
,
$9 million
for
2015
and
$11 million
for
2014
.
We participate in a multi-employer pension plan that provides defined benefits to certain employees covered under a collective bargaining agreement. The risks of participating in a multi-employer plan differ from those of a single employer plan. The net pension cost of a multi-employer plan is equal to the annual contribution determined in accordance with the provisions of the collective bargaining agreement. Contributions that we make to the plan are not segregated and may be used to fund benefits to employees of other participating employers. The future cost of the plan is dependent on a number of factors, including the funded status of the plan and the ability of other participating companies to meet ongoing funding obligations. If one employer stops contributing to the plan the unfunded obligation of the plan may have to be assumed by the remaining participating employers.
Our contributions to the plan for 2016 and prior years have been insignificant. However, due to the withdrawal of certain employers from the plan, there is uncertainty regarding the impact on our future contributions, although any incremental future contributions are not expected to have a significant impact on our financial statements.
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.
Fair Value Measurements
We apply 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
2016
and
2015
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
December 31, 2016
and
2015
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
$5 million
and
$4 million
at
December 31, 2016
and
2015
, respectively.
For the year ended
December 31, 2016
, there were
no
transfers into or out of Level 1 and Level 2, except for certain pension plan assets (see Note 13 – Pension and Other Post-Retirement Plans).
Level 3 fair value measurements are utilized in our impairment reviews of Goodwill. We also used Level 3 fair value measurements to determine the undiscounted value of our below-market contract obligation with Platform in 2014 (see Note 1 – Nature of Operations and Summary of Significant Accounting Policies).
Level 1, 2 and 3 fair value measurements are utilized for defined benefit plan assets, depending on their nature, in determining the funded status of our pension and post-retirement benefit plan liabilities on an annual basis at December 31 (see Note 13 – Pension and Other Post-Retirement Plans).
15) LEGAL PROCEEDINGS AND CONTINGENCIES
We are involved in claims, litigation, administrative proceedings and investigations of various types in a number of jurisdictions. A number of such matters involve, or may involve, claims for a material amount of damages and relate to or allege, among other things, environmental liabilities, including clean-up costs associated with hazardous waste disposal sites, natural resource damages, property damage and personal injury.
Litigation and Claims
Environmental Liabilities
As part of the Chapter 11 cases that we filed in 2009, under the Plan of Reorganization, the Debtors in the Chapter 11 cases retained responsibility for environmental cleanup liabilities relating to currently owned or operated sites (i.e. sites that were part of the Debtors' estates) and, with certain exceptions, discharged or settled liabilities relating to formerly owned or operated sites (i.e., sites that were no longer part of the Debtors' estates) and third-party sites (i.e., sites that were never part of the Debtors' estates).
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 site, including Chemtura, despite the involvement of other PRPs. 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 estimable.
The total amount accrued for environmental liabilities as of
December 31, 2016
and
December 31, 2015
, was
$61 million
and
$63 million
, respectively. At
December 31, 2016
and
December 31, 2015
,
$13 million
and
$16 million
, respectively, of these environmental liabilities were reflected as accrued expenses and
$48 million
and
$47 million
, respectively, were reflected as other liabilities in our Consolidated Balance Sheets. We estimate that ongoing environmental liabilities could range up to
$71 million
at
December 31, 2016
. Our accruals for environmental liabilities include estimates for determinable clean-up costs. We recorded a pre-tax charge of
$7 million
in
2016
,
$8 million
in
2015
, and
$6 million
in
2014
, to increase our environmental liabilities and made payments of
$8 million
in
2016
,
$14 million
in
2015
and
$18 million
in
2014
. At certain sites, we have contractual agreements with certain other parties to share remediation costs. As of
December 31, 2016
,
no
receivables are outstanding related to these agreements. At a number of these sites, the extent of contamination has not yet been fully investigated or the final scope of remediation is not yet determinable. We intend to assert all meritorious legal defenses and will pursue other equitable factors that are available with respect to these matters. However, the final cost of clean-up at these sites could exceed our present estimates, and could have, individually or in the aggregate, a material adverse effect on our financial condition, results of operations or cash flows. Our estimates for environmental remediation liabilities may change in the future 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 historic products and asbestos-related claims concerning premises and historic products of our corporate affiliates and predecessors.
Guarantees
In addition to the letters of credit of
$14 million
outstanding at
December 31, 2016
and
2015
, we have guarantees that have been provided to various financial institutions. At
December 31, 2016
and
2015
, we had
$5 million
and
$6 million
in 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.
In the ordinary course of business, we enter into contractual arrangements under which we may agree to indemnify a third party to such arrangement from any losses incurred relating to the services they perform on our behalf or for losses arising from certain events as defined within the particular contract, which may include, for example, litigation, claims or environmental matters relating to our past performance. For any losses that we believe are probable and estimable, we have accrued for such amounts in our Consolidated Balance Sheets.
16) BUSINESS SEGMENTS
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 adjusted for: (1) general corporate expense; (2) amortization; (3) facility closures, severance and related costs; (4) merger and integration costs; (5) gain or loss on sale of business; (6) impairment charges; and (7) pension settlement charge. Pursuant to ASC Topic 280,
Segment Reporting
(“ASC 280”), these items have been excluded from our 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 as well as synthetic lubricant base-stocks and greases; castable urethane prepolymers engineered to provide superior abrasion resistance and durability in many industrial and recreational applications; and polyurethane dispersions and urethane prepolymers used in various types of coatings such as clear floor finishes, high-gloss paints and textiles treatments. These products are sold directly to manufacturers and through distribution channels.
Industrial Engineered Products
Industrial Engineered Products are chemical additives designed to improve the performance of polymers in their end-use applications. Industrial Engineered Products include brominated performance products, flame retardants, fumigants and organometallics. The products are sold across the entire value chain ranging from direct sales to monomer producers, polymer manufacturers, compounders and fabricators, manufacturers of electronic components, fine chemical manufacturers, utilities, pharmaceutical manufacturers and oilfield service companies to industry distributors.
Agrochemical Manufacturing
In November 2014, we completed the sale of the Chemtura AgroSolutions business to Platform. Under the terms of the SAPA, we have retained most of the property, plant and equipment used to manufacture products of the Chemtura AgroSolutions business and have continued to manufacture products for Platform under several supply agreements. These supply agreements have minimum terms of between
two
and
four
years.
The supply agreements with Platform are designed to recover the cash costs incurred to manufacture the products under the agreement. Because of this, the supply agreements are considered below-market contracts for their full term and we recorded an obligation, on a discounted basis, which represents the loss of profit on these products over the terms of the supply agreements, including contractual obligations to continue to supply for a period of up to
2
years after the termination of the contracts. The recognition of our fulfillment of this obligation, along with the accretion of the obligation to its undiscounted value, is being recorded as net sales on a straight-line basis over the term of each supply agreement based on our estimate of the timing of shipments. Although the recognition of our fulfillment of this obligation is being recorded as net sales to the Agrochemical Manufacturing segment over this period, this recognition will not generate cash flows during the term of the supply agreements.
Prior to the sale, Chemtura AgroSolutions developed, supplied, registered and sold agricultural chemicals formulated for specific crops in various geographic regions for the purpose of enhancing quality and improving yields. The business was focused on specific target markets in
six
major product lines: seed treatments, fungicides, miticides, insecticides, growth regulators and herbicides, which were mainly sold to distributors and retailers in the agricultural sector.
Corporate and Other Charges
Corporate includes costs and expenses that are of a general corporate nature or managed on a corporate basis. These costs (net of allocations to the business segments) primarily represent corporate stewardship and administration activities together with costs associated with legacy activities and intangible asset amortization. Functional costs are allocated between the business segments and general corporate expense. Facility closures, severance and related costs are primarily for severance costs related to our cost savings initiatives. Merger and integration costs primarily are comprised of legal and other fees associated with the signing of the Merger Agreement with Lanxess and the charge related to the modification of the non-compete agreement with Addivant. The (loss) gain on sale of business primarily relates to the sale of our Chemtura AgroSolutions business in 2014. The pension settlement in 2016 related to the transfer of certain pension benefit obligations to Voya which occurred in the first quarter of 2016. The pension settlement charge in 2014 related to a one-time single lump sum or an immediate annuity offered to certain former employees who participated in our U.S. qualified pension plan.
Corporate assets are principally cash and cash equivalents, intangible assets (including goodwill) and other assets (including deferred tax assets) maintained for general corporate purposes.
A summary of business data for our reportable segments for the years
2016
,
2015
and
2014
is as follows:
Information by Business Segment
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
2016
|
|
2015
|
|
2014
|
|
Petroleum additives
|
|
$
|
576
|
|
|
$
|
614
|
|
|
$
|
687
|
|
|
Urethanes
|
|
247
|
|
|
272
|
|
|
300
|
|
|
Industrial Performance Products
|
|
823
|
|
|
886
|
|
|
987
|
|
|
Bromine based & related products
|
|
555
|
|
|
575
|
|
|
641
|
|
|
Organometallics
|
|
166
|
|
|
147
|
|
|
159
|
|
|
Industrial Engineered Products
|
|
721
|
|
|
722
|
|
|
800
|
|
|
Agrochemical Manufacturing
|
|
110
|
|
|
137
|
|
|
403
|
|
|
Net Sales
|
|
$
|
1,654
|
|
|
$
|
1,745
|
|
|
$
|
2,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
2016
|
|
2015
|
|
2014
|
|
Industrial Performance Products
|
|
$
|
148
|
|
|
$
|
141
|
|
|
$
|
106
|
|
|
Industrial Engineered Products
|
|
94
|
|
|
58
|
|
|
16
|
|
|
Agrochemical Manufacturing
|
|
37
|
|
|
35
|
|
|
86
|
|
|
Segment Operating Income
|
|
279
|
|
|
234
|
|
|
208
|
|
|
General corporate expense
|
|
(48
|
)
|
|
(52
|
)
|
|
(59
|
)
|
|
Amortization
|
|
(7
|
)
|
|
(12
|
)
|
|
(13
|
)
|
|
Facility closures, severance and related costs
|
|
(1
|
)
|
|
(3
|
)
|
|
(25
|
)
|
|
Merger and integration costs
|
|
(13
|
)
|
|
—
|
|
|
—
|
|
|
(Loss) gain on sale of business
|
|
(1
|
)
|
|
(4
|
)
|
|
529
|
|
|
Impairment charges
|
|
(1
|
)
|
|
(1
|
)
|
|
—
|
|
|
Pension settlement
|
|
(162
|
)
|
|
—
|
|
|
(21
|
)
|
|
Total Operating Income
|
|
$
|
46
|
|
|
$
|
162
|
|
|
$
|
619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
2016
|
|
2015
|
|
2014
|
|
Industrial Performance Products
|
|
$
|
30
|
|
|
$
|
28
|
|
|
$
|
34
|
|
|
Industrial Engineered Products
|
|
42
|
|
|
47
|
|
|
44
|
|
|
Agrochemical Manufacturing
|
|
4
|
|
|
4
|
|
|
8
|
|
|
|
|
76
|
|
|
79
|
|
|
86
|
|
|
Corporate
|
|
9
|
|
|
14
|
|
|
16
|
|
|
|
|
$
|
85
|
|
|
$
|
93
|
|
|
$
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Assets
|
|
2016
|
|
2015
|
|
2014
|
|
Industrial Performance Products
|
|
$
|
547
|
|
|
$
|
578
|
|
|
$
|
642
|
|
|
Industrial Engineered Products
|
|
681
|
|
|
670
|
|
|
696
|
|
|
Agrochemical Manufacturing
|
|
49
|
|
|
50
|
|
|
87
|
|
|
|
|
1,277
|
|
|
1,298
|
|
|
1,425
|
|
|
Corporate
|
|
891
|
|
|
1,062
|
|
|
1,235
|
|
|
|
|
$
|
2,168
|
|
|
$
|
2,360
|
|
|
$
|
2,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
2016
|
|
2015
|
|
2014
|
|
Industrial Performance Products
|
|
$
|
26
|
|
|
$
|
31
|
|
|
$
|
54
|
|
|
Industrial Engineered Products
|
|
57
|
|
|
47
|
|
|
51
|
|
|
Agrochemical Manufacturing
|
|
1
|
|
|
1
|
|
|
6
|
|
|
|
|
84
|
|
|
79
|
|
|
111
|
|
|
Corporate
|
|
4
|
|
|
1
|
|
|
2
|
|
|
|
|
$
|
88
|
|
|
$
|
80
|
|
|
$
|
113
|
|
Information by Geographic Area
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales (based on location of customer)
|
|
2016
|
|
2015
|
|
2014
|
|
United States
|
|
$
|
674
|
|
|
$
|
751
|
|
|
$
|
888
|
|
|
Canada
|
|
40
|
|
|
46
|
|
|
48
|
|
|
Latin America
|
|
37
|
|
|
74
|
|
|
174
|
|
|
Europe
|
|
510
|
|
|
504
|
|
|
639
|
|
|
Asia/Pacific
|
|
393
|
|
|
370
|
|
|
441
|
|
|
|
|
$
|
1,654
|
|
|
$
|
1,745
|
|
|
$
|
2,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment
|
|
2016
|
|
2015
|
|
2014
|
|
United States
|
|
$
|
343
|
|
|
$
|
333
|
|
|
$
|
338
|
|
|
Canada
|
|
47
|
|
|
44
|
|
|
54
|
|
|
Latin America
|
|
7
|
|
|
8
|
|
|
10
|
|
|
Europe
|
|
144
|
|
|
156
|
|
|
181
|
|
|
Asia/Pacific
|
|
111
|
|
|
122
|
|
|
121
|
|
|
|
|
$
|
652
|
|
|
$
|
663
|
|
|
$
|
704
|
|
17) GUARANTOR CONDENSED CONSOLIDATING FINANCIAL DATA
Our obligations under the 2021 Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis, jointly and severally, by each current and future domestic restricted subsidiary, other than excluded subsidiaries that do not guarantee any indebtedness of Chemtura or our restricted subsidiaries. Our subsidiaries that do not guarantee the 2021 Senior Notes are referred to as the “Non-Guarantor Subsidiaries.” The Guarantor Condensed Consolidating Financial Data presented below presents the statements of operations, statements of comprehensive income, balance sheets and statements of cash flow data 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
Year ended
December 31, 2016
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
Eliminations
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Net sales
|
|
$
|
1,654
|
|
|
$
|
(1,270
|
)
|
|
$
|
1,046
|
|
|
$
|
341
|
|
|
$
|
1,537
|
|
|
Cost of goods sold
|
|
1,181
|
|
|
(1,270
|
)
|
|
795
|
|
|
283
|
|
|
1,373
|
|
|
Selling, general and administrative
|
|
143
|
|
|
—
|
|
|
91
|
|
|
8
|
|
|
44
|
|
|
Depreciation and amortization
|
|
85
|
|
|
—
|
|
|
20
|
|
|
29
|
|
|
36
|
|
|
Research and development
|
|
21
|
|
|
—
|
|
|
14
|
|
|
1
|
|
|
6
|
|
|
Facility closures, severance and related costs
|
|
1
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
(1
|
)
|
|
Merger and integration costs
|
|
13
|
|
|
—
|
|
|
13
|
|
|
—
|
|
|
—
|
|
|
Loss on sale of business
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
Impairment charges
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
Pension settlement
|
|
162
|
|
|
—
|
|
|
162
|
|
|
—
|
|
|
—
|
|
|
Operating income (loss)
|
|
46
|
|
|
—
|
|
|
(50
|
)
|
|
18
|
|
|
78
|
|
|
Interest expense
|
|
(32
|
)
|
|
—
|
|
|
(32
|
)
|
|
—
|
|
|
—
|
|
|
Other (expense) income, net
|
|
—
|
|
|
—
|
|
|
(14
|
)
|
|
7
|
|
|
7
|
|
|
Equity in net earnings (loss) of subsidiaries
|
|
—
|
|
|
(89
|
)
|
|
90
|
|
|
(1
|
)
|
|
—
|
|
|
Earnings (loss) from continuing operations before income taxes
|
|
14
|
|
|
(89
|
)
|
|
(6
|
)
|
|
24
|
|
|
85
|
|
|
Income tax expense
|
|
(29
|
)
|
|
—
|
|
|
(9
|
)
|
|
(1
|
)
|
|
(19
|
)
|
|
Net (loss) earnings
|
|
$
|
(15
|
)
|
|
$
|
(89
|
)
|
|
$
|
(15
|
)
|
|
$
|
23
|
|
|
$
|
66
|
|
Condensed Consolidating Statement of Comprehensive Income (Loss)
As of
December 31, 2016
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
Eliminations
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Net (loss) earnings
|
|
$
|
(15
|
)
|
|
$
|
(89
|
)
|
|
$
|
(15
|
)
|
|
$
|
23
|
|
|
$
|
66
|
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
(42
|
)
|
|
—
|
|
|
17
|
|
|
—
|
|
|
(59
|
)
|
|
Unrecognized pension and other post-retirement benefit changes
|
|
138
|
|
|
—
|
|
|
141
|
|
|
—
|
|
|
(3
|
)
|
|
Comprehensive income (loss)
|
|
$
|
81
|
|
|
$
|
(89
|
)
|
|
$
|
143
|
|
|
$
|
23
|
|
|
$
|
4
|
|
Condensed Consolidating Balance Sheet
As of
December 31, 2016
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
Eliminations
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
865
|
|
|
$
|
—
|
|
|
$
|
259
|
|
|
$
|
93
|
|
|
$
|
513
|
|
|
Intercompany receivables
|
|
—
|
|
|
(1,473
|
)
|
|
519
|
|
|
223
|
|
|
731
|
|
|
Investment in subsidiaries
|
|
—
|
|
|
(4,669
|
)
|
|
795
|
|
|
1,132
|
|
|
2,742
|
|
|
Property, plant and equipment
|
|
652
|
|
|
—
|
|
|
111
|
|
|
232
|
|
|
309
|
|
|
Goodwill
|
|
158
|
|
|
—
|
|
|
93
|
|
|
3
|
|
|
62
|
|
|
Other assets
|
|
493
|
|
|
—
|
|
|
388
|
|
|
25
|
|
|
80
|
|
|
Total assets
|
|
$
|
2,168
|
|
|
$
|
(6,142
|
)
|
|
$
|
2,165
|
|
|
$
|
1,708
|
|
|
$
|
4,437
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
310
|
|
|
$
|
—
|
|
|
$
|
140
|
|
|
$
|
34
|
|
|
$
|
136
|
|
|
Intercompany payables
|
|
—
|
|
|
(1,473
|
)
|
|
370
|
|
|
461
|
|
|
642
|
|
|
Long-term debt
|
|
457
|
|
|
—
|
|
|
456
|
|
|
—
|
|
|
1
|
|
|
Other long-term liabilities
|
|
423
|
|
|
—
|
|
|
221
|
|
|
69
|
|
|
133
|
|
|
Total liabilities
|
|
1,190
|
|
|
(1,473
|
)
|
|
1,187
|
|
|
564
|
|
|
912
|
|
|
Total equity
|
|
978
|
|
|
(4,669
|
)
|
|
978
|
|
|
1,144
|
|
|
3,525
|
|
|
Total liabilities and equity
|
|
$
|
2,168
|
|
|
$
|
(6,142
|
)
|
|
$
|
2,165
|
|
|
$
|
1,708
|
|
|
$
|
4,437
|
|
Condensed Consolidating Statement of Cash Flows
Year ended
December 31, 2016
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
Eliminations
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Increase (decrease) to cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings
|
|
$
|
(15
|
)
|
|
$
|
(89
|
)
|
|
$
|
(15
|
)
|
|
$
|
23
|
|
|
$
|
66
|
|
|
Adjustments to reconcile net (loss) earnings to net cash provided by operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of business
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
Merger and integration costs
|
|
4
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
Impairment charges
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
Agrochemical Manufacturing supply agreements
|
|
(38
|
)
|
|
—
|
|
|
(35
|
)
|
|
—
|
|
|
(3
|
)
|
|
Pension settlement
|
|
162
|
|
|
—
|
|
|
162
|
|
|
—
|
|
|
—
|
|
|
Release of translation adjustment from liquidation of entities
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
Depreciation and amortization
|
|
85
|
|
|
—
|
|
|
20
|
|
|
29
|
|
|
36
|
|
|
Stock-based compensation expense
|
|
13
|
|
|
—
|
|
|
13
|
|
|
—
|
|
|
—
|
|
|
Deferred tax benefit
|
|
8
|
|
|
—
|
|
|
4
|
|
|
1
|
|
|
3
|
|
|
Changes in assets and liabilities, net
|
|
(86
|
)
|
|
89
|
|
|
(118
|
)
|
|
(14
|
)
|
|
(43
|
)
|
|
Net cash provided by operations
|
|
137
|
|
|
—
|
|
|
35
|
|
|
40
|
|
|
62
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from divestments, net
|
|
6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
Capital expenditures
|
|
(88
|
)
|
|
—
|
|
|
(17
|
)
|
|
(40
|
)
|
|
(31
|
)
|
|
Net cash used in investing activities
|
|
(82
|
)
|
|
—
|
|
|
(17
|
)
|
|
(40
|
)
|
|
(25
|
)
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt
|
|
(44
|
)
|
|
—
|
|
|
(41
|
)
|
|
—
|
|
|
(3
|
)
|
|
Proceeds from short-term borrowings, net
|
|
8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
Common shares acquired
|
|
(116
|
)
|
|
—
|
|
|
(116
|
)
|
|
—
|
|
|
—
|
|
|
Proceeds from the exercise of stock options
|
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
Net cash (used in) provided by financing activities
|
|
(151
|
)
|
|
—
|
|
|
(156
|
)
|
|
—
|
|
|
5
|
|
|
CASH AND CASH EQUIVALENTS
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7
|
)
|
|
Change in cash and cash equivalents
|
|
(103
|
)
|
|
—
|
|
|
(138
|
)
|
|
—
|
|
|
35
|
|
|
Cash and cash equivalents at beginning of year
|
|
323
|
|
|
—
|
|
|
$
|
171
|
|
|
$
|
—
|
|
|
$
|
152
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
220
|
|
|
$
|
—
|
|
|
$
|
33
|
|
|
$
|
—
|
|
|
$
|
187
|
|
Condensed Consolidating Statement of Operations
Year ended
December 31, 2015
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
Eliminations
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Net sales
|
|
$
|
1,745
|
|
|
$
|
(1,320
|
)
|
|
$
|
1,139
|
|
|
$
|
378
|
|
|
$
|
1,548
|
|
|
Cost of goods sold
|
|
1,312
|
|
|
(1,320
|
)
|
|
928
|
|
|
308
|
|
|
1,396
|
|
|
Selling, general and administrative
|
|
151
|
|
|
—
|
|
|
96
|
|
|
11
|
|
|
44
|
|
|
Depreciation and amortization
|
|
93
|
|
|
—
|
|
|
22
|
|
|
37
|
|
|
34
|
|
|
Research and development
|
|
20
|
|
|
—
|
|
|
11
|
|
|
4
|
|
|
5
|
|
|
Facility closures, severance and related costs
|
|
3
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
(1
|
)
|
|
Loss (gain) on sale of business
|
|
4
|
|
|
—
|
|
|
13
|
|
|
—
|
|
|
(9
|
)
|
|
Impairment charges
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
Equity income
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
Operating income
|
|
162
|
|
|
—
|
|
|
70
|
|
|
14
|
|
|
78
|
|
|
Interest expense
|
|
(30
|
)
|
|
—
|
|
|
(33
|
)
|
|
—
|
|
|
3
|
|
|
Other income, net
|
|
20
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
18
|
|
|
Equity in net earnings of subsidiaries
|
|
—
|
|
|
(96
|
)
|
|
96
|
|
|
—
|
|
|
—
|
|
|
Earnings from continuing operations before income taxes
|
|
152
|
|
|
(96
|
)
|
|
134
|
|
|
15
|
|
|
99
|
|
|
Income tax (expense) benefit
|
|
(16
|
)
|
|
—
|
|
|
2
|
|
|
2
|
|
|
(20
|
)
|
|
Net earnings
|
|
$
|
136
|
|
|
$
|
(96
|
)
|
|
$
|
136
|
|
|
$
|
17
|
|
|
$
|
79
|
|
Condensed Consolidating Statement of Comprehensive Income (Loss)
As of
December 31, 2015
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
Eliminations
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Net earnings
|
|
$
|
136
|
|
|
$
|
(96
|
)
|
|
$
|
136
|
|
|
$
|
17
|
|
|
$
|
79
|
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
(55
|
)
|
|
—
|
|
|
24
|
|
|
—
|
|
|
(79
|
)
|
|
Unrecognized pension and other post-retirement benefit costs
|
|
(15
|
)
|
|
—
|
|
|
(6
|
)
|
|
—
|
|
|
(9
|
)
|
|
Available for sale securities adjustments
|
|
5
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
Comprehensive income (loss)
|
|
$
|
71
|
|
|
$
|
(96
|
)
|
|
$
|
159
|
|
|
$
|
17
|
|
|
$
|
(9
|
)
|
Condensed Consolidating Balance Sheet
As of
December 31, 2015
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
Eliminations
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
978
|
|
|
$
|
—
|
|
|
$
|
402
|
|
|
$
|
108
|
|
|
$
|
468
|
|
|
Intercompany receivables
|
|
—
|
|
|
(1,610
|
)
|
|
541
|
|
|
223
|
|
|
846
|
|
|
Investment in subsidiaries
|
|
—
|
|
|
(4,799
|
)
|
|
782
|
|
|
1,135
|
|
|
2,882
|
|
|
Property, plant and equipment
|
|
663
|
|
|
—
|
|
|
112
|
|
|
221
|
|
|
330
|
|
|
Goodwill
|
|
166
|
|
|
—
|
|
|
93
|
|
|
3
|
|
|
70
|
|
|
Other assets
|
|
553
|
|
|
—
|
|
|
440
|
|
|
29
|
|
|
84
|
|
|
Total assets
|
|
$
|
2,360
|
|
|
$
|
(6,409
|
)
|
|
$
|
2,370
|
|
|
$
|
1,719
|
|
|
$
|
4,680
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
361
|
|
|
$
|
—
|
|
|
$
|
180
|
|
|
$
|
41
|
|
|
$
|
140
|
|
|
Intercompany payables
|
|
—
|
|
|
(1,610
|
)
|
|
407
|
|
|
488
|
|
|
715
|
|
|
Long-term debt
|
|
465
|
|
|
—
|
|
|
455
|
|
|
—
|
|
|
10
|
|
|
Other long-term liabilities
|
|
532
|
|
|
—
|
|
|
326
|
|
|
71
|
|
|
135
|
|
|
Total liabilities
|
|
1,358
|
|
|
(1,610
|
)
|
|
1,368
|
|
|
600
|
|
|
1,000
|
|
|
Total equity
|
|
1,002
|
|
|
(4,799
|
)
|
|
1,002
|
|
|
1,119
|
|
|
3,680
|
|
|
Total liabilities and equity
|
|
$
|
2,360
|
|
|
$
|
(6,409
|
)
|
|
$
|
2,370
|
|
|
$
|
1,719
|
|
|
$
|
4,680
|
|
Condensed Consolidating Statement of Cash Flows
Year ended
December 31, 2015
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
Eliminations
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Increase (decrease) to cash
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
136
|
|
|
$
|
(96
|
)
|
|
$
|
136
|
|
|
$
|
17
|
|
|
$
|
79
|
|
|
Adjustments to reconcile net earnings to net cash provided by operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) on sale of business
|
|
4
|
|
|
—
|
|
|
13
|
|
|
—
|
|
|
(9
|
)
|
|
Impairment charges
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
Agrochemical Manufacturing supply agreements
|
|
(38
|
)
|
|
—
|
|
|
(35
|
)
|
|
—
|
|
|
(3
|
)
|
|
Release of translation adjustment from liquidation of entities
|
|
(8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
|
Depreciation and amortization
|
|
93
|
|
|
—
|
|
|
22
|
|
|
37
|
|
|
34
|
|
|
Stock-based compensation expense
|
|
12
|
|
|
—
|
|
|
12
|
|
|
—
|
|
|
—
|
|
|
Deferred tax benefit
|
|
(14
|
)
|
|
—
|
|
|
(1
|
)
|
|
(2
|
)
|
|
(11
|
)
|
|
Changes in assets and liabilities, net
|
|
(27
|
)
|
|
96
|
|
|
(74
|
)
|
|
(18
|
)
|
|
(31
|
)
|
|
Net cash provided by operations
|
|
159
|
|
|
—
|
|
|
73
|
|
|
34
|
|
|
52
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from divestments, net
|
|
3
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
(1
|
)
|
|
Sale of Platform Specialty Products Corporation shares
|
|
54
|
|
|
—
|
|
|
54
|
|
|
—
|
|
|
—
|
|
|
Capital expenditures
|
|
(80
|
)
|
|
—
|
|
|
(13
|
)
|
|
(34
|
)
|
|
(33
|
)
|
|
Net cash (used in) provided by investing activities
|
|
(23
|
)
|
|
—
|
|
|
45
|
|
|
(34
|
)
|
|
(34
|
)
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
Payments on long-term debt, includes premium on tendering of notes
|
|
(60
|
)
|
|
—
|
|
|
(44
|
)
|
|
—
|
|
|
(16
|
)
|
|
Common shares acquired
|
|
(150
|
)
|
|
—
|
|
|
(150
|
)
|
|
—
|
|
|
—
|
|
|
Proceeds from exercise of stock options
|
|
20
|
|
|
—
|
|
|
20
|
|
|
—
|
|
|
—
|
|
|
Net cash used in financing activities
|
|
(189
|
)
|
|
—
|
|
|
(174
|
)
|
|
—
|
|
|
(15
|
)
|
|
CASH AND CASH EQUIVALENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents
|
|
(16
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(16
|
)
|
|
Change in cash and cash equivalents
|
|
(69
|
)
|
|
—
|
|
|
(56
|
)
|
|
—
|
|
|
(13
|
)
|
|
Cash and cash equivalents at beginning of year
|
|
392
|
|
|
—
|
|
|
227
|
|
|
—
|
|
|
165
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
323
|
|
|
$
|
—
|
|
|
$
|
171
|
|
|
$
|
—
|
|
|
$
|
152
|
|
Condensed Consolidating Statement of Operations
Year ended
December 31, 2014
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
Eliminations
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Net sales
|
|
$
|
2,190
|
|
|
$
|
(1,878
|
)
|
|
$
|
1,346
|
|
|
$
|
437
|
|
|
$
|
2,285
|
|
|
Cost of goods sold
|
|
1,682
|
|
|
(1,878
|
)
|
|
1,112
|
|
|
370
|
|
|
2,078
|
|
|
Selling, general and administrative
|
|
234
|
|
|
—
|
|
|
129
|
|
|
16
|
|
|
89
|
|
|
Depreciation and amortization
|
|
102
|
|
|
—
|
|
|
25
|
|
|
32
|
|
|
45
|
|
|
Research and development
|
|
36
|
|
|
—
|
|
|
14
|
|
|
6
|
|
|
16
|
|
|
Facility closures, severance and related costs
|
|
25
|
|
|
—
|
|
|
3
|
|
|
2
|
|
|
20
|
|
|
Gain on sale of business
|
|
(529
|
)
|
|
—
|
|
|
(399
|
)
|
|
—
|
|
|
(130
|
)
|
|
Pension settlement
|
|
21
|
|
|
—
|
|
|
21
|
|
|
—
|
|
|
—
|
|
|
Operating income
|
|
619
|
|
|
—
|
|
|
441
|
|
|
11
|
|
|
167
|
|
|
Interest expense
|
|
(45
|
)
|
|
—
|
|
|
(50
|
)
|
|
—
|
|
|
5
|
|
|
Loss on early extinguishment of debt
|
|
(7
|
)
|
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
Other income (expense), net
|
|
12
|
|
|
—
|
|
|
(11
|
)
|
|
2
|
|
|
21
|
|
|
Equity in net earnings of subsidiaries
|
|
—
|
|
|
(145
|
)
|
|
145
|
|
|
—
|
|
|
—
|
|
|
Earnings from continuing operations before income taxes
|
|
579
|
|
|
(145
|
)
|
|
518
|
|
|
13
|
|
|
193
|
|
|
Income tax benefit (expense)
|
|
192
|
|
|
—
|
|
|
244
|
|
|
(4
|
)
|
|
(48
|
)
|
|
Earnings from continuing operations
|
|
771
|
|
|
(145
|
)
|
|
762
|
|
|
9
|
|
|
145
|
|
|
Earnings from discontinued operations, net of tax
|
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
Loss on sale of discontinued operations, net of tax
|
|
(9
|
)
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
|
(1
|
)
|
|
Net earnings
|
|
$
|
763
|
|
|
$
|
(145
|
)
|
|
$
|
763
|
|
|
$
|
1
|
|
|
$
|
144
|
|
Condensed Consolidating Statement of Comprehensive Income (Loss)
As of
December 31, 2014
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
Eliminations
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Net earnings
|
|
$
|
763
|
|
|
$
|
(145
|
)
|
|
$
|
763
|
|
|
$
|
1
|
|
|
$
|
144
|
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
(73
|
)
|
|
—
|
|
|
45
|
|
|
—
|
|
|
(118
|
)
|
|
Unrecognized pension and other post-retirement benefit costs
|
|
(39
|
)
|
|
—
|
|
|
(32
|
)
|
|
—
|
|
|
(7
|
)
|
|
Available for sale securities adjustments
|
|
(5
|
)
|
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
Comprehensive income (loss)
|
|
$
|
646
|
|
|
$
|
(145
|
)
|
|
$
|
771
|
|
|
$
|
1
|
|
|
$
|
19
|
|
Condensed Consolidating Statement of Cash Flows
Year ended
December 31, 2014
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
Eliminations
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Increase (decrease) to cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
763
|
|
|
$
|
(145
|
)
|
|
$
|
763
|
|
|
$
|
1
|
|
|
$
|
144
|
|
|
Adjustments to reconcile net earnings to net cash (used in) provided by operations:
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of discontinued operations
|
|
9
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
1
|
|
|
Gain on sale of business
|
|
(529
|
)
|
|
—
|
|
|
(399
|
)
|
|
—
|
|
|
(130
|
)
|
|
Agrochemical Manufacturing supply agreements
|
|
(6
|
)
|
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
(1
|
)
|
|
Loss on early extinguishment of debt
|
|
7
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
Depreciation and amortization
|
|
102
|
|
|
—
|
|
|
25
|
|
|
32
|
|
|
45
|
|
|
Stock-based compensation expense
|
|
14
|
|
|
—
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
Pension settlement
|
|
21
|
|
|
—
|
|
|
21
|
|
|
—
|
|
|
—
|
|
|
Deferred tax (benefit) expense
|
|
(274
|
)
|
|
—
|
|
|
(278
|
)
|
|
4
|
|
|
—
|
|
|
Changes in assets and liabilities, net
|
|
(185
|
)
|
|
145
|
|
|
(239
|
)
|
|
(27
|
)
|
|
(64
|
)
|
|
Net cash (used in) provided by operations
|
|
(78
|
)
|
|
—
|
|
|
(91
|
)
|
|
18
|
|
|
(5
|
)
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from divestments, net
|
|
984
|
|
|
—
|
|
|
964
|
|
|
15
|
|
|
5
|
|
|
Capital expenditures
|
|
(113
|
)
|
|
—
|
|
|
(18
|
)
|
|
(33
|
)
|
|
(62
|
)
|
|
Net cash provided by (used in) investing activities
|
|
871
|
|
|
—
|
|
|
946
|
|
|
(18
|
)
|
|
(57
|
)
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
19
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19
|
|
|
Payments on long-term debt, includes premium on tendering of notes
|
|
(350
|
)
|
|
—
|
|
|
(342
|
)
|
|
—
|
|
|
(8
|
)
|
|
Payments on other short-term borrowings, net
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
Common shares acquired
|
|
(618
|
)
|
|
—
|
|
|
(618
|
)
|
|
—
|
|
|
—
|
|
|
Proceeds from exercise of stock options
|
|
10
|
|
|
—
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
Other financing activities
|
|
5
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
Net cash (used in) provided by financing activities
|
|
(935
|
)
|
|
—
|
|
|
(945
|
)
|
|
—
|
|
|
10
|
|
|
CASH AND CASH EQUIVALENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents
|
|
(15
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15
|
)
|
|
Change in cash and cash equivalents
|
|
(157
|
)
|
|
—
|
|
|
(90
|
)
|
|
—
|
|
|
(67
|
)
|
|
Cash and cash equivalents at beginning of year
|
|
549
|
|
|
—
|
|
|
317
|
|
|
—
|
|
|
232
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
392
|
|
|
$
|
—
|
|
|
$
|
227
|
|
|
$
|
—
|
|
|
$
|
165
|
|
18) SUMMARIZED UNAUDITED QUARTERLY FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions, except per share data)
|
|
2016
|
|
|
|
|
|
First
|
|
|
|
Second
|
|
|
|
Third
|
|
|
|
Fourth
|
|
|
|
Net sales
|
|
$
|
414
|
|
|
(a)
|
|
$
|
441
|
|
|
(a)
|
|
$
|
414
|
|
|
(a)
|
|
$
|
385
|
|
|
(a)
|
|
Gross profit
|
|
$
|
121
|
|
|
|
|
$
|
119
|
|
|
|
|
$
|
125
|
|
|
|
|
$
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings
|
|
$
|
(96
|
)
|
|
(b)
|
|
$
|
34
|
|
|
|
|
$
|
25
|
|
|
(c)
|
|
$
|
22
|
|
|
(c)
|
|
BASIC PER SHARE (e):
|
|
|
|
Net (loss) earnings
|
|
$
|
(1.46
|
)
|
|
|
|
$
|
0.54
|
|
|
|
|
$
|
0.40
|
|
|
|
|
$
|
0.35
|
|
|
|
|
DILUTED PER SHARE (e):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings
|
|
$
|
(1.46
|
)
|
|
|
|
$
|
0.53
|
|
|
|
|
$
|
0.39
|
|
|
|
|
$
|
0.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average shares outstanding
|
|
65.7
|
|
|
|
|
63.5
|
|
|
|
|
63.0
|
|
|
|
|
63.0
|
|
|
|
|
Diluted weighted-average shares outstanding
|
|
65.7
|
|
|
|
|
64.2
|
|
|
|
|
63.9
|
|
|
|
|
64.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
First
|
|
|
|
Second
|
|
|
|
Third
|
|
|
|
Fourth
|
|
|
|
Net sales
|
|
$
|
438
|
|
|
(d)
|
|
$
|
464
|
|
|
(d)
|
|
$
|
444
|
|
|
(d)
|
|
$
|
399
|
|
|
(d)
|
|
Gross profit
|
|
$
|
98
|
|
|
|
|
$
|
114
|
|
|
|
|
$
|
117
|
|
|
|
|
$
|
104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations, net of tax
|
|
$
|
21
|
|
|
|
|
$
|
18
|
|
|
|
|
$
|
31
|
|
|
|
|
$
|
66
|
|
|
|
|
Loss on sale of discontinued operations, net of tax
|
|
(1
|
)
|
|
|
|
1
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
Net earnings
|
|
$
|
20
|
|
|
|
|
$
|
19
|
|
|
|
|
$
|
31
|
|
|
|
|
$
|
66
|
|
|
|
|
BASIC PER SHARE (e):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations, net of tax
|
|
$
|
0.31
|
|
|
|
|
$
|
0.27
|
|
|
|
|
$
|
0.46
|
|
|
|
|
$
|
0.98
|
|
|
|
|
(Loss) gain on sale of discontinued operations, net of tax
|
|
(0.01
|
)
|
|
|
|
0.01
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
Net earnings
|
|
$
|
0.30
|
|
|
|
|
$
|
0.28
|
|
|
|
|
$
|
0.46
|
|
|
|
|
$
|
0.98
|
|
|
|
|
DILUTED PER SHARE (e):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations, net of tax
|
|
$
|
0.30
|
|
|
|
|
$
|
0.26
|
|
|
|
|
$
|
0.45
|
|
|
|
|
$
|
0.96
|
|
|
|
|
(Loss) gain on sale of discontinued operations, net of tax
|
|
(0.01
|
)
|
|
|
|
0.01
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
Net earnings
|
|
$
|
0.29
|
|
|
|
|
$
|
0.27
|
|
|
|
|
$
|
0.45
|
|
|
|
|
$
|
0.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average shares outstanding
|
|
68.8
|
|
|
|
|
67.6
|
|
|
|
|
67.5
|
|
|
|
|
67.4
|
|
|
|
|
Diluted weighted-average shares outstanding
|
|
69.8
|
|
|
|
|
68.5
|
|
|
|
|
68.3
|
|
|
|
|
68.5
|
|
|
|
|
|
|
|
(a)
|
Net sales included
$9 million
,
$10 million
,
$10 million
and
$9 million
in the first, second, third and fourth quarters of 2016, respectively, related to the non-cash portion of the amortization, net of accretion, of the below-market contract obligation with Platform.
|
|
|
|
|
(b)
|
The net loss for the first quarter of 2016 included a pre-tax non-cash pension settlement charge of
$162 million
.
|
|
|
|
|
(c)
|
The net earnings included pre-tax charges of
$11 million
and
$2 million
in the third and fourth quarters of 2016, respectively, related to merger and integration costs.
|
|
|
|
|
(d)
|
Net sales included
$9 million
,
$10 million
,
$10 million
and
$9 million
in the first, second, third and fourth quarters of 2015, respectively, related to the non-cash portion of the amortization, net of accretion, of the below-market contract obligation with Platform.
|
|
|
|
|
(e)
|
The sum of the earnings (loss) per common share for the four quarters may not equal the total earnings (loss) per common share for the full year due to quarterly changes in the average number of shares outstanding.
|
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Chemtura Corporation:
We have audited the accompanying consolidated balance sheets of Chemtura Corporation and subsidiaries (the Company) as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2016. We also have audited the Company’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting (Item 9A(b)). Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Chemtura Corporation and subsidiaries as of December 31, 2016 and 2015, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also in our opinion, Chemtura Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) .
/s/ KPMG LLP
Stamford, Connecticut
February 22, 2017