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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended June 30, 2014

 

OR

 

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

 

For the transition period from                 to               

 

(Commission File Number) 1-15339

 

CHEMTURA CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

(203) 573-2000

(Registrant’s telephone number,

including area code)

 

 

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  x  Yes  o  No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of the chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  x  Yes  o  No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definition of “large accelerated filer,” “accelerated filer,” “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o  Yes  x  No

 

The number of shares of common stock outstanding as of the latest practicable date is as follows

 

Class		Number of shares outstanding at June 30, 2014
Common Stock - $.01 par value		90,574,540

 

 

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CHEMTURA CORPORATION AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 2014

 

INDEX				PAGE
PART I.	FINANCIAL INFORMATION			2
ITEM 1.		Financial Statements		2
Consolidated Statements of Operations (Unaudited)				2
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)				3
Consolidated Balance Sheets (Unaudited)				4
Condensed Consolidated Statements of Cash Flows (Unaudited)				5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)				6
ITEM 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		33
ITEM 3.		Quantitative and Qualitative Disclosures About Market Risk		48
ITEM 4.		Controls and Procedures		49
PART II.	OTHER INFORMATION			50
ITEM 1.		Legal Proceedings		50
ITEM 1A.		Risk Factors		50
ITEM 2.		Unregistered Sales of Equity Securities and Use of Proceeds		50
ITEM 4.		Mine Safety Disclosure		51
ITEM 5.		Other Information		51
ITEM 6.		Exhibits		51
SIGNATURE				52

 

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PART I.                                                  FINANCIAL INFORMATION

 

ITEM 1.                                                Financial Statements

 

CHEMTURA CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations (Unaudited)

Quarters and six months ended June 30, 2014 and 2013

(In millions, except per share data)

 

		Quarters ended June 30,						Six months ended June 30,
		2014			2013			2014			2013
Net sales		$	609		$	590		$	1,165		$	1,118
Cost of goods sold		451			444			887			862
Selling, general and administrative		67			53			127			111
Depreciation and amortization		25			26			53			52
Research and development		10			10			18			18
Facility closures, severance and related costs		4			11			6			25
Equity loss		—			1			—			3
Operating income		52			45			74			47
Interest expense		(11		)	(15		)	(23		)	(31		)
Other (expense) income, net		(2		)	12			1			15
Reorganization items, net		(1		)	(1		)	(1		)	(1		)
Earnings from continuing operations before income taxes		38			41			51			30
Income tax benefit (expense)		5			(14		)	2			(21		)
Earnings from continuing operations		43			27			53			9
Earnings from discontinued operations, net of tax		—			26			1			21
Loss on sale of discontinued operations, net of tax		(4		)	(146		)	(9		)	(146		)
Net earnings (loss)		$	39		$	(93	)	$	45		$	(116	)
Basic per share information
Earnings from continuing operations		$	0.46		$	0.27		$	0.56		$	0.09
Earnings from discontinued operations, net of tax		—			0.26			0.01			0.21
Loss on sale of discontinued operations, net of tax		(0.04		)	(1.48		)	(0.09		)	(1.48		)
Net earnings (loss)		$	0.42		$	(0.95	)	$	0.48		$	(1.18	)
Diluted per share information
Earnings from continuing operations		$	0.46		$	0.27		$	0.55		$	0.09
Earnings from discontinued operations, net of tax		—			0.26			0.01			0.21
Loss on sale of discontinued operations, net of tax		(0.04		)	(1.46		)	(0.09		)	(1.47		)
Net earnings (loss)		$	0.42		$	(0.93	)	$	0.47		$	(1.17	)
Weighted average shares outstanding - Basic		93.2			98.6			94.8			98.4
Weighted average shares outstanding - Diluted		94.4			99.7			96.1			99.6

 

See accompanying notes to Consolidated Financial Statements.

 

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CHEMTURA CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

Quarters and six months ended June 30, 2014 and 2013

(In millions)

 

		Quarters ended June 30,						Six months ended June 30,
		2014			2013			2014			2013
Net earnings (loss)		$	39		$	(93	)	$	45		$	(116	)
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments		12			(18		)	6			(41		)
Unrecognized pension and other post-retirement benefit costs		3			138			4			137
Comprehensive income (loss)		$	54		$	27		$	55		$	(20	)

 

See accompanying notes to Consolidated Financial Statements

 

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CHEMTURA CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

June 30, 2014 (Unaudited) and December 31, 2013

(In millions, except par value data)

 

		June 30,  2014			December 31,  2013
		(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	235		$	549
Accounts receivable, net		259			234
Inventories, net		339			346
Other current assets		137			151
Assets held for sale		342			245
Total current assets		1,312			1,525
NON-CURRENT ASSETS
Property, plant and equipment, net		717			717
Goodwill		180			179
Intangible assets, net		108			114
Other assets		185			169
Total assets		$	2,502		$	2,704
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Short-term borrowings		$	10		$	117
Accounts payable		156			148
Accrued expenses		171			176
Income taxes payable		5			5
Liabilities held for sale		66			38
Total current liabilities		408			484
NON-CURRENT LIABILITIES
Long-term debt		790			781
Pension and post-retirement health care liabilities		232			246
Other liabilities		164			194
Total liabilities		1,594			1,705
STOCKHOLDERS’ EQUITY
Common stock - $0.01 par value Authorized - 500.0 shares Issued - 100.5 shares at June 30, 2014 and December 31, 2013		1			1
Additional paid-in capital		4,374			4,375
Accumulated deficit		(2,980		)	(3,025		)
Accumulated other comprehensive loss		(270		)	(280		)
Treasury stock- at cost - 9.9 shares at June 30, 2014 and 4.0 shares at December 31, 2013		(218		)	(73		)
Total Chemtura stockholders’ equity		907			998
Non-controlling interest		1			1
Total stockholders’ equity		908			999
Total liabilities and stockholders’ equity		$	2,502		$	2,704

 

See accompanying notes to Consolidated Financial Statements.

 

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CHEMTURA CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

Six months ended June 30, 2014 and 2013

(In millions)

 

		Six months ended June 30,
		2014			2013
Increase (decrease) in cash
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)		$	45		$	(116	)
Adjustments to reconcile net earnings (loss) to net cash used in operating activities:
Loss on sale of discontinued operations		9			146
Release of cumulative translation adjustment from liquidation of entities		—			(15		)
Depreciation and amortization		53			64
Stock-based compensation expense		7			8
Equity loss		—			1
Changes in assets and liabilities, net of assets acquired and liabilities assumed:
Accounts receivable		(105		)	(147		)
Inventories		(6		)	(60		)
Accounts payable		17			74
Pension and post-retirement health care liabilities		(25		)	(28		)
Other		(27		)	(4		)
Net cash used in operating activities		(32		)	(77		)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from divestments, net of transaction costs		16			91
Payments for acquisitions		—			(3		)
Capital expenditures		(48		)	(87		)
Net cash (used in) provided by investing activities		(32		)	1
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on Term Loan		(110		)	(2		)
Proceeds from other long-term borrowings		14			23
Payments on other long-term borrowings		(2		)	(2		)
Payments on other short-term borrowings, net		(1		)	(1		)
Common shares acquired		(157		)	—
Proceeds from exercise of stock options		6			4
Net cash (used in) provided by financing activities		(250		)	22
CASH AND CASH EQUIVALENTS
Effect of exchange rates on cash and cash equivalents		—			(5		)
Change in cash and cash equivalents		(314		)	(59		)
Cash and cash equivalents at beginning of period		549			365
Cash and cash equivalents at end of period		$	235		$	306

 

See accompanying notes to Consolidated Financial Statements.

 

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CHEMTURA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

1)                                     NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Operations

 

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

 

When we use the terms “Corporation,” “Company,” “Chemtura,” “Registrant,” “We,” “Us” and “Our,” unless otherwise indicated or the context otherwise requires, we are referring to Chemtura Corporation and our consolidated subsidiaries.

 

We are the successor to Crompton & Knowles Corporation (“Crompton & Knowles”), which was incorporated in Massachusetts in 1900 and engaged in the manufacture and sale of specialty chemicals beginning in 1954.  Crompton & Knowles traces its roots to the Crompton Loom Works which was incorporated in the 1840s.  We expanded the specialty chemical business through acquisitions in the United States and Europe, including the 1996 acquisition of Uniroyal Chemical Company, Inc. (“Uniroyal”), the 1999 merger with Witco Corporation (“Witco”) and the 2005 acquisition of Great Lakes Chemical Corporation (“Great Lakes”).  Since the Great Lakes acquisition, we have progressively focused our portfolio, divesting businesses that did not fit with the strategic criteria we have established for our portfolio.  As part of this initiative, we announced in April 2014 that we had signed a Stock and Asset Purchase Agreement (“SAPA”) with Platform Specialty Products Corporation to sell our Chemtura AgroSolutions business with an anticipated closing in the fourth quarter of 2014.  Additionally, in 2013 we divested our antioxidants and UV stabilizers (“Antioxidant”) and Consumer Products businesses.

 

The information in the foregoing Consolidated Financial Statements for the quarters and six months ended June 30, 2014 and 2013 is unaudited but reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of the results of operations for the interim periods presented.  All such adjustments are of a normal recurring nature, except as otherwise disclosed in the accompanying notes to our Consolidated Financial Statements.

 

Basis of Presentation

 

The accompanying Consolidated Financial Statements include the accounts of Chemtura and our wholly-owned and majority-owned subsidiaries that we control.  Other affiliates in which we have a 20% to 50% ownership interest or a non-controlling majority interest are accounted for in accordance with the equity method.  Other investments in which we have less than 20% ownership are recorded at cost.  All significant intercompany balances and transactions have been eliminated in consolidation.

 

Our Consolidated Financial Statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from these estimates.

 

Certain prior year amounts have been reclassified to conform to the current year’s presentation. These changes did not have a material impact on previously reported results of operations, cash flows or financial position.

 

We operated as a debtor-in-possession (“DIP”) under the protection of the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) from March 18, 2009 (the “Petition Date”) through November 10, 2010 (the “Effective Date”).  From the Petition Date through the Effective Date, our Consolidated Financial Statements were prepared in accordance with Accounting Standards Codification (“ASC”) Section 852-10-45, Reorganizations — Other Presentation Matters (“ASC 852-10-45”) which requires that financial statements, for periods during the pendency of voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code (the “Chapter 11”) filings, distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business.  Accordingly, certain income, expenses, realized gains and losses and expenses for losses that are realized or incurred in the Chapter 11 cases are recorded in Reorganization items, net in our Consolidated Statements of Operations.  As of March 31, 2014, the Bankruptcy Court has entered orders granting final decrees closing all of the Debtors’ Chapter 11 cases.

 

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The interim Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes included in our Annual Report on Form 10-K for the period ended December 31, 2013 (the “2013 Annual Report on Form 10-K”).  The consolidated results of operations for the quarter and six months ended June 30, 2014 are not necessarily indicative of the results expected for the full year.

 

Accounting Policies and Other Items

 

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

 

Included in accounts receivable are allowances for doubtful accounts of $2 million as of June 30, 2014 and December 31, 2013.

 

During the six months ended June 30, 2014 and 2013, we made cash interest payments of approximately $22 million and $32 million, respectively.  During the six months ended June 30, 2014 and 2013, we made cash payments for income taxes (net of refunds) of $10 million and $8 million, respectively.

 

Recent Accounting Pronouncements

 

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

 

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

 

In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.  This guidance improves GAAP by more faithfully representing when a company or other organization discontinues its operations. ASU 2014-08 changed the criteria for reporting a discontinued operation.  Under the new guidance, a disposal of part of an organization that has a major effect on its operations and financial results is a discontinued operation.  ASU 2014-08 is effective on a prospective basis for interim and annual periods beginning on or after December 15, 2014 although early adoption is permitted.  We chose not to early adopt this standard in the quarter ended June 30, 2014 when evaluating the sale of our Chemtura AgroSolutions as a discontinued operation.  See Note 2 - Acquisitions and Divestitures for our analysis of that transaction.

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.  This ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective.  The new standard is effective on January 1, 2017.  Early application is not permitted.  The standard permits the use of either the retrospective or cumulative effect transition method.  We are evaluating the effect that the ASU will have on our consolidated financial statements and related disclosures.  We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.

 

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2)                                     ACQUISITIONS AND DIVESTITURES

 

Acquisitions

 

Solaris Acquisition

 

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

 

DayStar Acquisition

 

In May 2013, we purchased the remaining 50% interest in DayStar Materials L.L.C. (“DayStar”) from our joint venture partner, UP Chemical Co., Ltd. (“UP Chemical”).  As a result, DayStar became a consolidated entity.  The purchase price was $3 million in cash which approximated the fair value of the remaining share of the assets and liabilities, primarily inventory and fixed assets, as of the purchase date.  In addition, we reimbursed UP Chemical for a $3 million loan they had made to DayStar.

 

Divestitures

 

Chemtura AgroSolutions

 

In April 2014, we entered into a Stock and Asset Purchase Agreement (“SAPA”) to sell our Chemtura AgroSolutions business to Platform Specialty Products Corporation (“Platform”) for approximately $1 billion, consisting of $950 million in cash and 2 million shares of Platform’s common stock.  The transaction is subject to customary purchase price adjustments, closing conditions and regulatory approvals and is anticipated to close in the fourth quarter of 2014.  Under the terms of the SAPA, we will retain most of the property, plant and equipment used to manufacture products for the Chemtura AgroSolutions business and will continue to manufacture products for Platform under several supply agreements with minimum terms of between two and four years.

 

We evaluated the transaction and determined that it has met the criteria to report the assets and liabilities of the Chemtura AgroSolutions business that form part of the transaction under the SAPA as assets held for sale in April 2014.  We have segregated the assets and liabilities considered assets held for sale on our Consolidated Balance Sheet as of June 30, 2014 and December 31, 2013.  As of April 2014, we ceased recording depreciation and amortization on these assets.

 

We further evaluated whether the Chemtura AgroSolutions transaction 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 anticipated under the post-closing supply agreements with Platform, we concluded that the Chemtura AgroSolutions business does not meet the criteria to be presented as a discontinued operation.  As a result, we will continue to present the results of operations of the Chemtura AgroSolutions business as one of our segments and continue to reflect the business in net income from continuing operations until sold.  Following the sale, we will account for the supply agreements as part of our continuing operations.

 

As a result of this transaction, we evaluated the recoverability of both the assets and liabilities held for sale and the assets held and used of the Chemtura AgroSolutions business during the second quarter of 2014 and determined that no impairment existed as of that date.

 

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The following is a summary of the Chemtura AgroSolutions assets and liabilities held for sale as of June 30, 2014 and December 31, 2013:

 

(In millions)		June 30, 2014			December 31, 2013
Accounts receivable, net		$	209		$	128
Inventories		84			71
Other current assets		6			7
Property, plant and equipment		9			8
Intangible assets, net		31			28
Other assets		3			3
Assets		342			245
Accounts payable		$	33		$	24
Accrued expenses		31			13
Income taxes payable		2			1
Liabilities		66			38
Net Assets		$	276		$	207

 

Consumer Products Business Divestiture

 

In December 2013, we sold our investment in the dedicated legal entities that constituted our Consumer Products business, including dedicated manufacturing plants in the U.S. and South Africa, to KIK Custom Products Inc. (“KIK”) for $300 million and the assumption by KIK of pension and other liabilities totaling approximately $8 million.  The purchase price is subject to customary post-closing adjustments, primarily for working capital and assumed pension liabilities.  The agreement specified a value of working capital based upon a twelve-month average against which working capital would be measured.  To the extent working capital at closing was lower than this value, KIK would be compensated for the difference.  If working capital was higher, we would be compensated.  The impact of some of these adjustments was estimated in the cash paid at closing.  In March 2014, KIK made an advance payment of $9 million ahead of the final adjustments.  In July 2014, the parties reached agreement on the post-closing working capital and indebtedness adjustments that resulted in a charge of $3 million pre-tax ($3 million after tax) recognized in loss on sale of discontinued operations, net of tax in our Consolidated Statement of Operations.  The remaining payment of $5 million due from KIK was received in July 2014.

 

In connection with the sale, we entered into a transition service agreement and supply contract with KIK to supply products from our Adrian, MI facility.  Under the terms of the supply contract, KIK had the option, exercisable for a period of six-months following the closing date, to purchase the net assets of the Adrian facility at a price that is below the carrying value of the net assets.  Accordingly, as of December 31, 2013, we concluded the net assets of the Adrian facility met the criteria to be classified as assets held for sale and we recorded an impairment charge in December 2013 of $7 million to write-down the property, plant and equipment to its fair value less costs to sell.  The option expired un-exercised as of June 30, 2014 and the assets and liabilities are now classified as held and used in both the current and prior periods.  See Note 3 - Restructuring and Asset Impairment for a further discussion of initiatives related to that plant.

 

During the quarter and six months ended June 30, 2014, we recognized a pre-tax loss of $3 million ($3 million after tax) and $7 million ($7 million after tax), respectively, primarily for transaction costs and post-closing adjustments and obligations which was recognized in loss on sale of discontinued operations, net of tax in the Consolidated Statement of Operations.

 

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

 

Antioxidant Business Divestiture

 

In April 2013, we sold our Antioxidant business to SK Blue Holdings, Ltd. (“SK”) 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.  In the six months ended June 30, 2014, we recognized a pre-tax loss of $2 million ($2 million after-tax) primarily related to the final settlement of the working capital component of the transaction which is included in loss

 

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on sale of discontinued operations, net of tax, in the Consolidated Statement of Operations.  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.  These shares accrue dividends at escalating rates beginning at 7% in the first year and up to 11% in the third year and beyond which are payable upon declaration and which become preferential payments in liquidation if not declared and paid by Addivant.  Addivant did not declare any dividends through June 30, 2014.

 

In connection with the sale, we entered into several ancillary agreements, including supply agreements, a distribution agreement, and a transition services agreement.

 

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

 

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

 

Earnings from discontinued operations and loss on the sale of discontinued operations for the quarters and six ended June 30, 2014 and 2013 consist of the following:

 

		Quarters ended June 30,																		Six months ended June 30,
		2014									2013									2014									2013
(In millions)		Consumer			AOUV			Total			Consumer			AOUV			Total			Consumer			AOUV			Total			Consumer			AOUV			Total
Net sales											$	145		$	33		$	178											$	223		$	123		$	346
Earnings from discontinued operations:
Pre-tax earnings		$	—		$	—		$	—		$	21		$	6		$	27		$	1		$	—		$	1		$	18		$	4		$	22
Income tax benefit		—			—			—			(1		)	—			(1		)	—			—			—			(1		)	—			(1		)
Earnings, net of taxes		$	—		$	—		$	—		$	20		$	6		$	26		$	1		$	—		$	1		$	17		$	4		$	21
Loss on sale of discontinued operations:
Pre-tax loss		$	(3	)	$	(1	)	$	(4	)	$	—		$	(159	)	$	(159	)	$	(7	)	$	(2	)	$	(9	)	$	—		$	(159	)	$	(159	)
Income tax benefit		—			—			—			—			13			13			—			—			—			—			13			13
Net loss		$	(3	)	$	(1	)	$	(4	)	$	—		$	(146	)	$	(146	)	$	(7	)	$	(2	)	$	(9	)	$	—		$	(146	)	$	(146	)

 

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

 

		Quarters ended June 30,						Six months ended June 30,
		2014			2013			2014			2013
Antioxidants		$	—		$	2		$	—		$	6
Consumer Products		—			2			—			5
Amortization expense (a)		—			(2		)	—			(5		)
Net increase in Corporate Segment		$	—		$	2		$	—		$	6

 

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

 

3)                                     RESTRUCTURING AND ASSET IMPAIRMENT ACTIVITIES

 

Restructuring

 

In June 2014, as a result of KIK not exercising its option to purchase the net assets of the Adrian, MI facility, the Board of Directors (the “Board”) approved the closure of this facility, which is expected to occur in mid-2015.  Additionally, during the second quarter of 2014, our management approved further actions to consolidate our business’ organizational structure, which are in line with the restructuring actions approved by the Board in 2013.  We expect the total cost of these initiatives to be approximately $7 million to $9 million, of which we recorded a pre-tax charge of $4 million in the second quarter of 2014, which included $3 million for severance and related costs and $1 million for accelerated asset retirement obligations related to

 

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the Adrian facility.  We expect to incur the remaining costs primarily for decommissioning and accelerated depreciation over the next year.

 

In February 2013, our Board approved a restructuring plan providing for, among other things, actions to reduce stranded costs related to divestitures.  This plan is expected to preserve pre-divestiture operating margins following our portfolio changes.  On October 9, 2013, the Board approved additional restructuring actions to consolidate our business’ organizational structure in an effort to streamline the organization and gain efficiencies and additional cost savings.  In 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, in order to improve our competitiveness in the current economic environment.  We recorded a pre-tax charge of $44 million in the year ended December 31, 2013, which included $27 million for severance and related costs, $15 million for professional fees, $1 million for accelerated depreciation of property, plant and equipment and $1 million for accelerated asset retirement obligations.  We recorded a pre-tax charge of $5 million in the first quarter of 2014 which included $1 million for severance and related costs, $1 million related to professional fees and $3 million for accelerated depreciation of property, plant and equipment.  We recorded a pre-tax charge of $2 million in the second quarter of 2014 which included $1 million for severance and professional fees, and $1 million for accelerated depreciation of property, plant and equipment.  We expect to incur approximately $2 million to $3 million for the remainder of 2014 primarily for accelerated depreciation and decommissioning costs.

 

In April 2012, our Board approved a restructuring plan providing for, among other things, the closure of our Antioxidant business manufacturing facility in Pedrengo, Italy.  The Board also approved actions to improve the operating effectiveness of certain global corporate functions.  In 2013, we recorded an additional pre-tax charge of $1 million, primarily for accelerated depreciation and relocation costs related to the Pedrengo closure.  All charges related to the Pedrengo closure have been included in loss from discontinued operations, net of tax, as this plant formed part of our Antioxidants business.  The Pedrengo plant ceased operations on March 31, 2013 and asset retirement work has been substantially completed.  We have retained this property under the terms of the sale of our Antioxidants business and anticipate selling it after all decommissioning and remediation work is completed.

 

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

 

(In millions)		Severance and Related Costs			Other Facility Closure Costs			Total
Balance at December 31, 2013		$	14		$	2		$	16
2014 charge		4			2			6
Cash payments		(10		)	(3		)	(13		)
Balance at June 30, 2014		$	8		$	1		$	9

 

At June 30, 2014, the balance of these reserves were included in accrued expenses in our Consolidated Balance Sheet.  At December 31, 2013, $15 million of these reserves were included in accrued expenses and $1 million were included in accounts payable in our Consolidated Balance Sheet.

 

Asset Impairment Review

 

During the first two quarters of 2013, we completed an assessment of the possible sale of the Consumer Products business.  As of March 31, 2013 and June 30, 2013, we considered it more-likely-than-not that the sale initiative would become effective during 2013.  In performing the impairment analysis, we probability weighted the possible outcomes of the sale initiative as of March 31, 2013 and June 30, 2013.  Based on this analysis, the expected undiscounted cash flows were sufficient to recover the carrying values of the assets of the Consumer Products business.  As a result, we concluded that no impairment existed at March 31, 2013 or June 30, 2013.

 

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

 

On December 31, 2013, we completed a stock sale of our investment in dedicated legal entities of our Consumer Products business.  In connection with the sale, we entered into a supply contract with KIK to supply products from our Adrian, MI facility.  Under the terms of the supply contract, KIK had the option, exercisable for a period of six-months following the

 

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closing date, to purchase the net assets of the Adrian facility at a price below the carrying value of the net assets.  Accordingly, we concluded that the net assets of the Adrian facility met the criteria to be classified as assets held for sale and based on the expected selling price we recorded an impairment charge in December 2013 of $7 million to write-down the property, plant and equipment to its estimated fair value which is included in earnings from discontinued operations, net of tax in our Consolidated Statement of Operations.  The option expired un-exercised as of June 30, 2014 and the assets are now classified as held and used in both the current and prior periods.

 

4)                                     INVENTORIES

 

		June 30,			December 31,
(In millions)		2014			2013
Finished goods		$	199		$	223
Work in process		37			35
Raw materials and supplies		103			88
		$	339		$	346

 

Included in the above net inventory balances are inventory obsolescence reserves of approximately $22 million and $19 million at June 30, 2014 and December 31, 2013, respectively.

 

5)                                     PROPERTY, PLANT AND EQUIPMENT

 

		June 30,			December 31,
(In millions)		2014			2013
Land and improvements		$	74		$	74
Buildings and improvements		213			212
Machinery and equipment		1,270			1,225
Information systems equipment		176			171
Furniture, fixtures and other		24			24
Construction in progress		82			94
		1,839			1,800
Less: accumulated depreciation		1,122			1,083
		$	717		$	717

 

Depreciation expense from continuing operations was $21 million for the quarters ended June 30, 2014 and 2013, and $44 million and $42 million for the six months ended June 30, 2014 and 2013, respectively.  Depreciation expense from continuing operations included accelerated depreciation of certain fixed assets associated with our restructuring programs of $1 million and $4 million for the quarter and six months ended June 30, 2014, respectively.

 

6)                                     GOODWILL AND INTANGIBLE ASSETS

 

Our goodwill balance was $180 million and $179 million at June 30, 2014 and December 31, 2013, respectively.  The goodwill is allocated to the Industrial Performance Products segment.  The goodwill balance at June 30, 2014 and December 31, 2013 reflected accumulated impairments of $90 million.

 

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

 

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

 

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

 

		June 30, 2014									December 31, 2013
(In millions)		Gross Cost			Accumulated Amortization			Net Intangibles			Gross Cost			Accumulated Amortization			Net Intangibles
Patents		$	27		$	(16	)	$	11		$	33		$	(21	)	$	12
Trademarks		46			(13		)	33			45			(12		)	33
Customer relationships		42			(19		)	23			42			(18		)	24
Production rights		45			(39		)	6			45			(36		)	9
Other		74			(39		)	35			74			(38		)	36
Total		$	234		$	(126	)	$	108		$	239		$	(125	)	$	114

 

The decrease in gross intangible assets since December 31, 2013 is primarily due to retirements of $5 million.

 

Amortization expense from continuing operations related to intangible assets was $4 million and $5 million for the quarters ended June 30, 2014 and 2013, and $9 million and$10 million for the six months ended June 30, 2014 and 2013.

 

7)                                     DEBT

 

Our debt is comprised of the following:

 

		June 30,			December 31,
(In millions)		2014			2013
5.75% Senior Notes due 2021		$	450		$	450
7.875% Senior Notes due 2018		100			100
Term Loan due 2016		207			316
Other borrowings		43			32
Total Debt		800			898
Less: Other short-term borrowings		(10		)	(7		)
Less: Current portion of Term Loan		—			(110		)
Total Long-term debt		$	790		$	781

 

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”).  The purpose of the 2021 Senior Notes was to fund the tender for any and all of our outstanding $455 million aggregate principal amount of 7.875% Senior Notes due 2018 (the “2018 Senior Notes”) pursuant to our Offer to Purchase and Consent Solicitation Statement (the “Offer to Purchase”), pay expenses related to the offering and prepay a portion of our senior secured term loan facility due 2016 (the “Term Loan”).  In July 2013, we completed the purchase of $354 million of the 2018 Senior Notes tendered in response to the Offer to Purchase.

 

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

 

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

 

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At any time prior to July 15, 2016, we are permitted to redeem some or all of the 2021 Senior Notes at a redemption price equal to 100% of the principal amount thereof plus a make-whole premium (as defined in the indenture governing the 2021 Senior Notes (the “2021 Indenture”)) and accrued and unpaid interest up to, but excluding, the redemption date.  At any time after July 15, 2016, we are permitted to redeem some or all of the 2021 Senior Notes at any time, with the redemption prices being, prior to July 15, 2017, 104.313% of the principal amount; on or after July 15, 2017 and prior to July 15, 2018, 102.875% of the principal amount; on or after July 15, 2018 and prior to July 15, 2019, 101.438% of the principal amount; and thereafter 100% of the principal amount, in each case plus any accrued and unpaid interest to the redemption date.  In addition, prior to July 15, 2016, we may redeem up to 35% of the 2021 Senior Notes from the proceeds of certain equity offerings at a redemption price of 105.75% plus accrued but unpaid interest to the redemption date.  If we experience certain kinds of changes in control, as defined in the 2021 Indenture, we may be required to offer to repurchase all of the 2021 Senior Notes at a redemption price (subject to limitations as described in the 2021 Indenture) equal to 101% of the aggregate principal amount plus accrued and unpaid interest.

 

Our 2021 Senior Notes contain covenants that limit our ability to enter into certain transactions, such as incurring secured debt and subsidiary debt and entering into sale and lease-back transactions.

 

Our 2021 Senior Notes are subject to certain events of default, including, among others, breach of other agreements in the 2021 Indenture; any guarantee of a significant subsidiary ceasing to be in full force and effect; a default by us or our restricted subsidiaries under any bonds, debentures, notes or other evidences of indebtedness of a certain amount, resulting in its acceleration; and certain events of bankruptcy or insolvency.

 

2018 Senior Notes

 

In August 2010, we completed a $455 million private placement offering under Securities and Exchange Commission (“SEC”) Rule 144A for the 2018 Senior Notes at an issue price of 99.269% in reliance on an exemption pursuant to Section 4(2) of the Securities Act of 1933.  The 2018 Senior Notes were exchanged in June 2011 for identical registered 2018 Senior Notes.  In July 2013, we purchased $354 million of the $455 million outstanding balance with proceeds from the 2021 Senior Notes offering.

 

At any time prior to September 1, 2014, we may redeem some or all of the remaining 2018 Senior Notes at a redemption price equal to 100% of the principal amount thereof plus a make-whole premium (as defined in the indenture) and accrued and unpaid interest up to, but excluding, the redemption date.  We may also redeem some or all of the remaining 2018 Senior Notes at any time on or after September 1, 2014, with the redemption prices being, prior to September 1, 2015, 103.938% of the principal amount, on or after September 1, 2015 and prior to September 1, 2016, 101.969% of the principal amount and thereafter 100% plus any accrued and unpaid interest to the redemption date.

 

When issued in 2010, our 2018 Senior Notes contained covenants that limited our ability to enter into certain transactions, such as incurring additional indebtedness, creating liens, paying dividends, and entering into dispositions and joint ventures.  With the purchase of the tendered 2018 Senior Notes under the Offer to Purchase complete, the amendments to the 2018 Indenture that eliminated substantially all of the restrictive covenants as well as certain events of default and related provisions became effective.

 

Our 2018 Senior Notes are now subject to only limited events of default including failure to pay principal or interest.

 

Term Loan

 

In August 2010, we entered into the Term Loan due 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 permitted us to increase the size of the facility with an accordion feature by up to $125 million.  On October 31, 2012, we exercised the accordion feature of our Term Loan and borrowed the additional $125 million for the purpose of funding potential investment opportunities and for general corporate purposes.  During 2013, we repaid $102 million of the Term Loan with proceeds from the 2021 Senior Notes offering and cash on hand.  In January 2014, we repaid an additional $110 million of the Term Loan with proceeds from the sale of the Consumer Products business.  In light of this transaction, we classified the $110 million as short-term borrowings in our Consolidated Balance Sheet as of December 31, 2013.

 

In October 2013, we entered into Amendment No. 2 to the Term Loan which, among other things, (i) reduced the interest rate and LIBOR floor on the term loans outstanding under the Term Loan agreement (the “term loans”), (ii) provided for a 1% prepayment premium if the term loans are refinanced with certain specified refinancing debt within 6 months, (iii) introduced scheduled quarterly amortization of the term loans in the amount of 1% annually, and (iv) permitted additional flexibility under

 

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certain of our operating covenants (including but not limited to additional flexibility for debt, investments, restricted payments and dispositions) in the Term Loan agreement.  The amendment became effective on October 30, 2013.

 

Borrowings under the amended 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 contains covenants that limit, among other things, our ability to enter into certain transactions, such as creating liens, incurring additional indebtedness or repaying certain indebtedness, making investments, paying dividends, and entering into acquisitions, dispositions and joint ventures.

 

Additionally, the Term Loan requires that we meet certain financial maintenance covenants including a maximum Secured Leverage Ratio (net of unrestricted cash, as defined in the agreement) of 2.5:1.0 and a minimum Consolidated Interest Coverage Ratio (as defined in the agreement) of 3.0:1.0.  Additionally, the Term Loan contains a covenant related to the repayment of excess cash flow (as defined in the agreement).  As of June 30, 2014, we were in compliance with the covenant requirements of the Term Loan.

 

ABL Facility

 

In November 2010, we entered into a five-year senior secured revolving credit facility available through 2015 (the “ABL Facility”) with Bank of America, N.A., as administrative agent and the other lenders party thereto for an amount up to $275 million, subject to availability under a borrowing base, and included a $125 million letter of credit sub-facility.

 

In December 2013, we amended and restated the ABL Facility.  The new five-year senior secured revolving credit facility available through 2018 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.

 

The 2018 ABL Facility Agreement contains certain affirmative and negative covenants (applicable to us, the other borrowing subsidiaries, the guarantors and their respective subsidiaries other than unrestricted subsidiaries), including, without limitation, covenants requiring financial reporting and notices of certain events, and covenants imposing limitations on incurrence of indebtedness and guaranties; liens; loans and investments; asset dispositions; dividends, redemptions, and repurchases of stock and prepayments, redemptions and repurchases of certain indebtedness; mergers, consolidations, acquisitions, joint ventures or creation of subsidiaries; material changes in business; transactions with affiliates; restrictions on distributions from restricted subsidiaries and granting of negative pledges; changes in accounting and reporting; sale leasebacks; and speculative transactions, and a springing financial covenant requiring a minimum trailing four quarter fixed charge coverage ratio of 1.0 to 1.0 at all times during (A) any period from the date when the amount available for borrowings under the 2018 ABL Facility falls below the greater of (i) $25 million and (ii) 10% of the aggregate commitments to the date such available amount has been equal to or greater than the greater of (i) $25 million and (ii) 10% of the aggregate commitments for 30 consecutive days, or (B) any period from the date when the amount available for borrowings under the US ABL Facility falls below the greater of (i) $18 million and (ii) 10% of the aggregate commitments under the US ABL Facility to the date such available amount has been equal to or greater than the greater of (i) $18 million and (ii) 10% of the aggregate commitments under the US ABL Facility for 30 consecutive days.

 

At June 30, 2014 and December 31, 2013, we had no borrowings under the 2018 ABL Facility.  However, we had $15 million and $14 million, respectively, of outstanding letters of credit (primarily related to insurance obligations, environmental obligations and banking credit facilities) which utilizes available capacity under the facility.  At June 30, 2014 and December 31, 2013, we had approximately $238 million and $237 million, respectively, of undrawn availability under the 2018 ABL Facility.

 

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Other Facilities

 

In December 2012, we entered into a CNY 250 million (approximately $40 million) 5 year secured credit facility available through December 2017 (the “China Bank Facility”) with Agricultural Bank of China, Nantong Branch (“ABC Bank”).  The China Bank Facility will be used for funding construction of our manufacturing facility in Nantong, China.  The China Bank Facility is secured by land, property and machinery of our subsidiary Chemtura Advanced Materials (Nantong) Co., Ltd.  The loans under the China Bank Facility bear interest at a rate determined from time to time by ABC Bank based on the prevailing People Bank of China Lending Rate.  At June 30, 2014 and December 31, 2013, we had borrowings of $28 million and $17 million, respectively, under the China Bank Facility.  Repayments of principal will be made in semi-annual installments from December 2014 through December 2017.

 

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.

 

8)                                     INCOME TAXES

 

We reported an income tax benefit of $5 million and expense of $14 million for the quarters ended June 30, 2014 and 2013, respectively.  For the six months ended June 30, 2014 and 2013, we reported an income tax benefit of $2 million and expense of $21 million, respectively.  The tax benefit reported for the quarter and six months ended June 30, 2014 included a decrease in foreign income taxes of approximately $15 million related to an unrecognized tax benefit that had been recorded for an international jurisdiction in prior years.  The tax benefit was recorded after reaching an agreement with the international jurisdiction that effectively settles the prior year liability.  The tax expense reported for the quarters and six months ended June 30, 2013 related to taxable income of certain of our international subsidiaries.

 

In the quarter and six months ended June 30, 2014, we established a valuation allowance against the tax benefits associated with our year-to-date U.S. losses.  We will continue to adjust our tax provision through the establishment or reduction of non-cash valuation allowances until we determine that it is more-likely than not that the net deferred tax assets associated with our U.S. operations will be utilized.

 

We have net liabilities related to unrecognized tax benefits of $39 million and $44 million at June 30, 2014 and December 31, 2013, respectively.

 

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

 

We believe it is reasonably possible that our unrecognized tax benefits may decrease by approximately $3 million within the next year.  This reduction may occur 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 as a result of ongoing operations, the outcomes of audits and the expiration of the statutes of limitations.  This change is not expected to have a significant impact on our financial condition.

 

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9)                                     ACCUMULATED OTHER COMPREHENSIVE LOSS

 

The components of accumulated other comprehensive loss (“AOCL”), net of tax at June 30, 2014 and December 31, 2013, are as follows:

 

(in millions)		Foreign Currency Translation Adjustments			Unrecognized Pension and Other Post- Retirement Benefit Costs			Total
As of December 31, 2013		$	(13	)	$	(267	)	$	(280	)
Other comprehensive income (loss) before reclassifications		6			(1		)	5
Amounts reclassified from AOCL		—			5			5
Net current period other comprehensive income		6			4			10
As of June 30, 2014		$	(7	)	$	(263	)	$	(270	)

 

The following table summarizes the reclassifications from AOCL to the Consolidated Statement of Operations for the quarters and six months ended June 30, 2014 and 2013:

 

		Amount Reclassified from AOCL
		Quarters ended June 30,						Six months ended June 30,						Affected line item in the
(in millions)		2014			2013			2014			2013			consolidated statement of operations
Foreign currency translation items:
Liquidation of consolidated entities		$	—		$	15		$	—		$	15		Other income, net
Sale of discontinued operations (b)		—			(6		)	—			(6		)	Loss on sale of discontinued operations, net of tax
Net of tax		—			9			—			9
Defined benefit pension plan items:
Amortization of prior-service costs (a)		$	1		$	1		2			2			See Note (a)
Amortization of actuarial losses (a)		(4		)	(6		)	(8		)	(12		)	See Note (a)
Sale of discontinued operations (b)		—			(120		)	—			(120		)	Loss on sale of discontinued operations, net of tax
Total before tax		(3		)	(125		)	(6		)	(130		)
Tax on continuing operations		1			1			1			1			Income Tax Expense
Tax on discontinued operations		—			14			—			14			Loss on sale of discontinued operations, net of tax
Total tax		1			15			1			15
Net of tax		(2		)	(110		)	(5		)	(115		)
Total reclassifications		$	(2	)	$	(101	)	$	(5	)	$	(106	)

 

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

 

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

 

10)                              EARNINGS PER COMMON SHARE

 

The computation of basic earnings per common share is based on the weighted average number of common shares outstanding.  The computation of diluted earnings per common share is based on the weighted average number of common and common share equivalents outstanding.

 

The following is a reconciliation of the shares used in the computation of earnings per share:

 

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