XNYS:ROC Rockwood Holdings Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES
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, 2012

 

Or

 

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

 

Commission file number 001-32609

 

Rockwood Holdings, Inc.

(Exact name of Registrant as specified in its charter)

 

Delaware

 

52-2277366

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

100 Overlook Center, Princeton, New Jersey 08540

(Address of principal executive offices) (Zip Code)

 

(609) 514-0300

(Registrant’s telephone number, including area code)

 

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.  Yes x  No o

 

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 this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

 

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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

As of July 31, 2012, there were 77,637,009 outstanding shares of common stock, par value $0.01 per share, of the Registrant.

 

 

 



 

TABLE OF CONTENTS

 

FORM 10-Q

 

 

PART I- FINANCIAL INFORMATION

Item 1

Financial Statements (Unaudited)

 

Condensed Consolidated Statements of Operations for the three and six months ended June  30, 2012 and 2011

 

Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2012 and 2011

 

Condensed Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011

 

Condensed Consolidated Statements of Equity for the six months ended June 30, 2012 and 2011

 

Notes to Condensed Consolidated Financial Statements

Item 2

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

Item 3

Quantitative and Qualitative Disclosures about Market Risk

Item 4

Controls and Procedures

 

 

 

PART II- OTHER INFORMATION

Item 1

Legal Proceedings

Item 1A

Risk Factors

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3

Defaults Upon Senior Securities

Item 4

Mine Safety Disclosures

Item 5

Other Information

Item 6

Exhibits

 

 

 

Signatures

 

2



 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements (Unaudited).

 

ROCKWOOD HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in millions, except per share amounts;

shares in thousands)

(Unaudited)

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Net sales

 

$

905.6

 

$

1,000.0

 

$

1,815.1

 

$

1,914.0

 

Cost of products sold

 

585.3

 

654.4

 

1,152.0

 

1,247.3

 

Gross profit

 

320.3

 

345.6

 

663.1

 

666.7

 

Selling, general and administrative expenses

 

167.5

 

181.4

 

344.6

 

362.1

 

Restructuring and other severance costs

 

3.7

 

4.0

 

17.9

 

5.0

 

Operating income

 

149.1

 

160.2

 

300.6

 

299.6

 

Other expenses, net:

 

 

 

 

 

 

 

 

 

Interest expense, net (a)

 

(14.9

)

(24.7

)

(35.4

)

(47.7

)

Loss on early extinguishment/modification of debt

 

(2.7

)

(0.3

)

(12.4

)

(16.5

)

Foreign exchange (loss) gain on financing activities, net

 

(6.7

)

2.2

 

(7.7

)

4.2

 

Other, net

 

0.1

 

(0.1

)

0.1

 

(0.1

)

Other expenses, net

 

(24.2

)

(22.9

)

(55.4

)

(60.1

)

Income from continuing operations before taxes

 

124.9

 

137.3

 

245.2

 

239.5

 

Income tax (benefit) provision

 

(108.8

)

37.8

 

(78.2

)

66.6

 

Income from continuing operations

 

233.7

 

99.5

 

323.4

 

172.9

 

Income from discontinued operations, net of tax (b)

 

 

5.6

 

 

120.3

 

Net income

 

233.7

 

105.1

 

323.4

 

293.2

 

Net income attributable to noncontrolling interest

 

(8.8

)

(10.6

)

(22.7

)

(20.7

)

Net income attributable to Rockwood Holdings, Inc.

 

$

224.9

 

$

94.5

 

$

300.7

 

$

272.5

 

 

 

 

 

 

 

 

 

 

 

Amounts attributable to Rockwood Holdings, Inc.:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

224.9

 

$

88.9

 

$

300.7

 

$

152.2

 

Income from discontinued operations

 

 

5.6

 

 

120.3

 

Net income

 

$

224.9

 

$

94.5

 

$

300.7

 

$

272.5

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share attributable to Rockwood Holdings, Inc.:

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

2.90

 

$

1.16

 

$

3.88

 

$

1.99

 

Earnings from discontinued operations (b)

 

 

0.08

 

 

1.58

 

Basic earnings per share

 

$

2.90

 

$

1.24

 

$

3.88

 

$

3.57

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share attributable to Rockwood Holdings, Inc.:

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

2.81

 

$

1.11

 

$

3.76

 

$

1.91

 

Earnings from discontinued operations (b)

 

 

0.07

 

 

1.51

 

Diluted earnings per share

 

$

2.81

 

$

1.18

 

$

3.76

 

$

3.42

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of basic shares outstanding

 

77,600

 

76,446

 

77,492

 

76,292

 

Weighted average number of diluted shares outstanding

 

80,011

 

79,946

 

79,994

 

79,778

 

 


(a) Interest expense includes:

 

 

 

 

 

 

 

 

 

Interest expense on debt

 

$

(13.5

)

$

(22.1

)

$

(32.3

)

$

(50.1

)

Mark-to-market gains (losses) on interest rate swaps

 

0.2

 

(1.4

)

(0.2

)

4.9

 

Deferred financing costs

 

(1.6

)

(1.2

)

(2.9

)

(2.5

)

Total

 

$

(14.9

)

$

(24.7

)

$

(35.4

)

$

(47.7

)

 

(b) Primarily relates to the gain on sale of the plastic compounding business in January 2011.

 

See accompanying notes to condensed consolidated financial statements.

 

3



 

ROCKWOOD HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in millions)

(Unaudited)

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Net income

 

$

233.7

 

$

105.1

 

$

323.4

 

$

293.2

 

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

 

 

 

Pension related adjustments

 

3.4

 

(0.9

)

1.1

 

(3.1

)

Foreign currency translation (a)

 

(52.2

)

22.4

 

(18.9

)

54.2

 

Intercompany foreign currency loans

 

(39.4

)

20.0

 

(16.9

)

65.2

 

Net investment hedges

 

 

(2.2

)

(0.3

)

(12.1

)

Foreign exchange contracts

 

(0.3

)

(0.4

)

(0.3

)

1.9

 

Other comprehensive (loss) income

 

(88.5

)

38.9

 

(35.3

)

106.1

 

Comprehensive income

 

145.2

 

144.0

 

288.1

 

399.3

 

Comprehensive income attributable to noncontrolling interest

 

(0.1

)

(14.0

)

(18.4

)

(32.5

)

Comprehensive income attributable to Rockwood Holdings, Inc.

 

$

145.1

 

$

130.0

 

$

269.7

 

$

366.8

 

 


(a)                Excludes $10.1 million reclassified to net income in the six months ended June 30, 2011 related to the sale of the plastic compounding business in January 2011.

 

See accompanying notes to condensed consolidated financial statements.

 

4



 

ROCKWOOD HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions, except per share amounts;

shares in thousands)

(Unaudited)

 

 

 

June 30,

 

December 31,

 

 

 

2012

 

2011

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

343.4

 

$

321.5

 

Accounts receivable, net

 

532.2

 

454.1

 

Inventories

 

763.1

 

674.3

 

Deferred income taxes

 

13.8

 

10.2

 

Prepaid expenses and other current assets

 

64.1

 

75.1

 

Total current assets

 

1,716.6

 

1,535.2

 

Property, plant and equipment, net

 

1,617.4

 

1,618.5

 

Goodwill

 

830.6

 

849.6

 

Other intangible assets, net

 

462.2

 

509.7

 

Deferred financing costs, net

 

36.4

 

14.3

 

Deferred income taxes

 

155.2

 

19.3

 

Other assets

 

51.8

 

41.0

 

Total assets

 

$

4,870.2

 

$

4,587.6

 

LIABILITIES

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

213.7

 

$

249.1

 

Income taxes payable

 

68.1

 

45.8

 

Accrued compensation

 

109.8

 

161.4

 

Accrued expenses and other current liabilities

 

153.8

 

129.6

 

Deferred income taxes

 

3.7

 

3.8

 

Long-term debt, current portion

 

88.3

 

250.5

 

Total current liabilities

 

637.4

 

840.2

 

Long-term debt

 

1,678.5

 

1,437.2

 

Pension and related liabilities

 

447.8

 

450.7

 

Deferred income taxes

 

93.1

 

86.5

 

Other liabilities

 

110.4

 

100.6

 

Total liabilities

 

2,967.2

 

2,915.2

 

Restricted stock units

 

19.7

 

14.0

 

EQUITY

 

 

 

 

 

Rockwood Holdings, Inc. stockholders’ equity:

 

 

 

 

 

Common stock ($0.01 par value, 400,000 shares authorized, 77,731 shares issued and 77,637 shares outstanding at June 30, 2012; 400,000 shares authorized, 77,030 shares issued and 76,936 shares outstanding at December 31, 2011)

 

0.8

 

0.8

 

Paid-in capital

 

1,230.5

 

1,222.2

 

Accumulated other comprehensive (loss) income

 

(20.9

)

10.1

 

Retained earnings

 

401.2

 

128.5

 

Treasury stock, at cost

 

(1.4

)

(1.4

)

Total Rockwood Holdings, Inc. stockholders’ equity

 

1,610.2

 

1,360.2

 

Noncontrolling interest

 

273.1

 

298.2

 

Total equity

 

1,883.3

 

1,658.4

 

Total liabilities and equity

 

$

4,870.2

 

$

4,587.6

 

 

See accompanying notes to condensed consolidated financial statements.

 

5



 

ROCKWOOD HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)

(Unaudited)

 

 

 

Six months ended

 

 

 

June 30,

 

 

 

2012

 

2011

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net income

 

$

323.4

 

$

293.2

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Income from discontinued operations, net of tax (a)

 

 

(120.3

)

Depreciation and amortization

 

130.9

 

133.2

 

Deferred financing costs amortization

 

2.9

 

2.5

 

Loss on early extinguishment/modification of debt

 

12.4

 

16.5

 

Foreign exchange loss (gain) on financing activities, net

 

7.7

 

(4.2

)

Fair value adjustment of derivatives

 

0.2

 

(4.9

)

Bad debt provision

 

0.1

 

0.5

 

Stock-based compensation

 

5.8

 

6.4

 

Deferred income taxes

 

(131.2

)

14.8

 

Restructuring and other

 

11.7

 

0.3

 

Excess tax benefits from stock-based payment arrangements

 

(1.4

)

 

Changes in assets and liabilities, net of the effect of foreign currency translation and acquisitions:

 

 

 

 

 

Accounts receivable

 

(85.8

)

(106.1

)

Inventories

 

(100.4

)

(38.4

)

Prepaid expenses and other assets

 

(0.7

)

(0.8

)

Accounts payable

 

(12.1

)

(5.2

)

Income taxes payable

 

24.0

 

24.7

 

Accrued expenses and other liabilities

 

(39.0

)

(47.4

)

Net cash provided by operating activities of continuing operations

 

148.5

 

164.8

 

Net cash used in operating activities of discontinued operations

 

(1.9

)

(1.8

)

Net cash provided by operating activities

 

146.6

 

163.0

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Capital expenditures (b)

 

(144.0

)

(110.6

)

Acquisitions

 

(0.8

)

(0.8

)

Proceeds on sale of assets

 

1.7

 

0.3

 

Net cash used in investing activities of continuing operations

 

(143.1

)

(111.1

)

Net cash provided by investing activities of discontinued operations, representing net sale proceeds in 2011

 

 

300.8

 

Net cash (used in) provided by investing activities

 

(143.1

)

189.7

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Issuance of common stock, net of fees

 

6.0

 

9.2

 

Excess tax benefits from stock-based payment arrangements

 

1.4

 

 

Payments of long-term debt

 

(664.7

)

(432.1

)

Proceeds from long-term debt

 

737.4

 

 

Loan repayments to noncontrolling shareholders

 

 

(5.0

)

Deferred financing costs

 

(27.6

)

(5.3

)

Fees related to early extinguishment/modification of debt

 

(8.8

)

(12.9

)

Dividend distributions to noncontrolling shareholder

 

(41.3

)

(0.5

)

Net cash provided by (used in) financing activities

 

2.4

 

(446.6

)

Effect of exchange rate changes on cash and cash equivalents

 

16.0

 

(11.6

)

Net increase (decrease) in cash and cash equivalents

 

21.9

 

(105.5

)

Less net decrease in cash and cash equivalents from discontinued operations

 

 

(16.6

)

Increase (decrease) in cash and cash equivalents from continuing operations

 

21.9

 

(88.9

)

Cash and cash equivalents of continuing operations, beginning of period

 

321.5

 

324.1

 

Cash and cash equivalents of continuing operations, end of period

 

$

343.4

 

$

235.2

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Interest paid

 

$

38.1

 

$

62.0

 

Income taxes paid, net of refunds

 

29.0

 

27.1

 

Non-cash investing activities:

 

 

 

 

 

Acquisition of capital equipment

 

15.1

 

15.1

 

 


(a) Primarily relates to the gain on sale of the plastic compounding business in January 2011.

(b) Net of government grants of $7.6 million and $6.3 million for the six months ended June 30, 2012 and 2011, respectively.

 

See accompanying notes to condensed consolidated financial statements.

 

6



 

ROCKWOOD HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Dollars in millions)

(Unaudited)

 

 

 

 

 

Rockwood Holdings, Inc. Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

Retained

 

Treasury

 

 

 

 

 

 

 

Common Stock

 

Paid-in

 

Comprehensive

 

Earnings

 

Stock

 

Noncontrolling

 

 

 

Total

 

Shares

 

Amount

 

Capital

 

Income (Loss)

 

(Deficit)

 

Shares

 

Amount

 

Interest

 

Balance, January 1, 2012

 

$

1,658.4

 

76,936

 

$

0.8

 

$

1,222.2

 

$

10.1

 

$

128.5

 

94

 

$

(1.4

)

$

298.2

 

Issuance of common stock

 

6.0

 

701

 

 

6.0

 

 

 

 

 

 

Deferred compensation

 

1.5

 

 

 

1.5

 

 

 

 

 

 

Dividend declared to shareholders

 

(27.2

)

 

 

0.8

 

 

(28.0

)

 

 

 

Dividend distributions declared to noncontrolling shareholder

 

(2.2

)

 

 

 

 

 

 

 

(2.2

)

Dividend distributions to noncontrolling shareholders

 

(41.3

)

 

 

 

 

 

 

 

(41.3

)

Other comprehensive loss, net of tax

 

(35.3

)

 

 

 

(31.0

)

 

 

 

(4.3

)

Net income

 

323.4

 

 

 

 

 

300.7

 

 

 

22.7

 

Balance, June 30, 2012

 

$

1,883.3

 

77,637

 

$

0.8

 

$

1,230.5

 

$

(20.9

)

$

401.2

 

94

 

$

(1.4

)

$

273.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2011

 

$

1,341.3

 

75,897

 

$

0.8

 

$

1,202.6

 

$

132.7

 

$

(282.8

)

94

 

$

(1.4

)

$

289.4

 

Issuance of common stock

 

9.2

 

622

 

 

9.2

 

 

 

 

 

 

Deferred compensation

 

6.5

 

 

 

6.5

 

 

 

 

 

 

Dividend distributions declared to noncontrolling shareholder

 

(8.4

)

 

 

 

 

 

 

 

(8.4

)

Dividend distributions to noncontrolling shareholders

 

(0.5

)

 

 

 

 

 

 

 

(0.5

)

Other comprehensive income, net of tax

 

106.1

 

 

 

 

94.3

 

 

 

 

11.8

 

Net income

 

293.2

 

 

 

 

 

272.5

 

 

 

20.7

 

Balance, June 30, 2011

 

$

1,747.4

 

76,519

 

$

0.8

 

$

1,218.3

 

$

227.0

 

$

(10.3

)

94

 

$

(1.4

)

$

313.0

 

 

See accompanying notes to condensed consolidated financial statements.

 

7



 

ROCKWOOD HOLDINGS, INC. AND SUBSIDIARIES

Notes To Condensed Consolidated Financial Statements (Unaudited)

 

1.  BASIS OF PRESENTATION AND NEW ACCOUNTING STANDARDS:

 

Basis of Presentation— Rockwood Holdings, Inc., which may be referred to as “Rockwood” or the “Company” prepared these unaudited condensed consolidated financial statements following the requirements of the Securities and Exchange Commission and accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim reporting. Under those rules, certain footnotes and other financial information that are normally required for annual financial statements can be condensed or omitted. The Company is responsible for the condensed consolidated financial statements included in this Form 10-Q. These condensed consolidated financial statements include all normal and recurring adjustments necessary for a fair presentation of the financial position as of June 30, 2012 and December 31, 2011, the results of operations and comprehensive income for the three and six months ended June 30, 2012 and 2011, and cash flows and equity for the six months ended June 30, 2012 and 2011. All intercompany balances and transactions have been eliminated. Material subsequent events are evaluated through the report issuance date and disclosed where applicable. These unaudited condensed consolidated financial statements and the related notes should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2011 included in the Annual Report on Form 10-K. Revenues, expenses, assets and liabilities can vary during each quarter of the year. Accordingly, the results and trends in these unaudited condensed consolidated financial statements may not be indicative of the full year results.

 

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and revenue and expenses during the periods reported. These estimates include, among other things, assessing the collectability of accounts receivable, the use and recoverability of inventory, the valuation of deferred tax assets, the measurement of the accrual for uncertain tax benefits, impairment of goodwill as well as property, plant and equipment and other intangible assets, the accrual of environmental and legal reserves and the useful lives of tangible and intangible assets, among others. Actual results could differ from those estimates. Such estimates also include the fair value of assets acquired and liabilities assumed allocated to the purchase price of business combinations consummated.

 

The Company’s noncontrolling interest represents the total of the noncontrolling party’s interest in certain investments (principally the Titanium Dioxide Pigments venture and the Viance, LLC timber treatment joint venture) that are consolidated but less than 100% owned.

 

In the first quarter of 2012, the Company reorganized its Specialty Chemicals segment into two reportable segments: Lithium and Surface Treatment. The metal sulfides business that was previously reported in the Specialty Chemicals segment is now included in the “Corporate and other” category.  All prior-period amounts related to the segment change have been retrospectively reclassified throughout these condensed consolidated financial statements.  See Note 3, “Segment Information,” for further details.

 

On June 11, 2012, the Company’s Board of Directors adopted a policy to commence a quarterly cash dividend program and declared an initial quarterly cash dividend of $0.35 per share which was paid on July 11, 2012 to all common shareholders of record as of June 26, 2012. Accordingly, a dividend payable of $27.2 million has been reflected in our condensed consolidated balance sheet as of June 30, 2012.

 

Unless otherwise noted, all balance sheet-related items which are denominated in Euros are translated at the June 30, 2012 exchange rate of €1.00 = $1.2667.  For the three months ended June 30, 2012 and 2011 and the six months ended June 30, 2012 and 2011, the average rate of exchange of the Euro to the U.S. dollar is $1.28 and $1.44, respectively, and $1.30 and $1.40, respectively.

 

Recently Issued Accounting Standards:

 

In May 2011, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) that substantially converged the requirements for fair value measurement and disclosure between the FASB and the International Accounting Standards Board (“IASB”). This ASU is largely consistent with existing fair value measurement principles under U.S. GAAP. The Company began providing the required additional disclosures from this ASU beginning with its Form 10-Q for the period ended March 31, 2012 for items that are not measured at fair value in the condensed consolidated balance sheets but for which fair value is required to be disclosed in the footnotes (see Note 5, “Financial Instruments and Fair Value Measurements”).

 

In June 2011, the FASB issued an ASU that addressed the presentation of comprehensive income in the financial statements. This accounting update allows an entity the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In addition, this ASU eliminates the option to present the components of other comprehensive income as part

 

8



 

of the statement of changes in stockholders’ equity and does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The Company began providing the required additional disclosures from this ASU beginning with its Form 10-Q for the period ended March 31, 2012 by adding a condensed consolidated statement of comprehensive income.

 

2.  DISCONTINUED OPERATIONS:

 

As discussed in the Company’s 2011 Annual Report on Form 10-K, the Company completed the sale of its plastic compounding business on January 7, 2011. Income from discontinued operations, net of tax for the six months ended June 30, 2011 of $120.3 million primarily includes the net gain on the sale of the plastic compounding business of $119.4 million (net of taxes of $77.8 million). In addition, net income for the six months ended June 30, 2011 includes $0.7 million related to the reversal of certain reserves in connection with the sale of the Electronics business in December 2007 and $0.2 million from operating the plastic compounding business.

 

3.  SEGMENT INFORMATION:

 

Rockwood operates in five reportable segments according to the nature and economic characteristics of its products and services as well as the manner in which the information is used internally by the Company’s key decision maker, who is the Company’s Chief Executive Officer. The five segments are: (1) Lithium; (2) Surface Treatment; (3) Performance Additives, which consists of Color Pigments and Services, Timber Treatment Chemicals and Clay-based Additives; (4) Titanium Dioxide Pigments; and (5) Advanced Ceramics.

 

Items that cannot be readily attributed to individual segments have been classified as “Corporate and other.” Corporate and other operating loss primarily represents payroll, professional fees and other operating expenses of centralized functions such as treasury, tax, legal, internal audit and consolidation accounting as well as the cost of operating the Company’s central offices (including some costs maintained based on legal or tax considerations). The Corporate and other classification also includes the results of operations of the metal sulfides business, rubber/thermoplastics compounding business and the wafer reclaim business.

 

Summarized financial information for each of the reportable segments is provided in the following tables:

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

($ in millions)

 

2012

 

2011

 

2012

 

2011

 

Net Sales:

 

 

 

 

 

 

 

 

 

Lithium

 

$

124.6

 

$

124.3

 

$

239.3

 

$

237.6

 

Surface Treatment

 

183.8

 

194.3

 

372.4

 

376.7

 

Performance Additives

 

205.5

 

221.2

 

402.0

 

414.0

 

Titanium Dioxide Pigments

 

211.7

 

256.2

 

436.8

 

482.8

 

Advanced Ceramics

 

142.8

 

155.0

 

287.4

 

309.1

 

Corporate and other

 

37.2

 

49.0

 

77.2

 

93.8

 

Total

 

$

905.6

 

$

1,000.0

 

$

1,815.1

 

$

1,914.0

 

 

The Company uses Adjusted EBITDA on a segment basis to assess the ongoing performance of the Company’s business segments and reporting units. Because the Company views Adjusted EBITDA on a segment basis as an operating performance measure, the Company uses income (loss) from continuing operations before taxes as the most comparable U.S. GAAP measure. The summary of segment information below includes “Adjusted EBITDA,” a financial measure used by the Company’s chief decision maker and senior management to evaluate the operating performance of each segment. See Note 3, “Segment Information,” in the Company’s 2011 Annual Report on Form 10-K for a discussion of the use of Adjusted EBITDA as a non-GAAP financial measure.

 

9



 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

($ in millions)

 

2012

 

2011

 

2012

 

2011

 

Adjusted EBITDA:

 

 

 

 

 

 

 

 

 

Lithium

 

$

48.1

 

$

46.1

 

$

92.5

 

$

87.2

 

Surface Treatment

 

39.0

 

39.9

 

78.7

 

77.1

 

Performance Additives

 

38.3

 

46.0

 

77.1

 

80.9

 

Titanium Dioxide Pigments

 

54.8

 

63.5

 

130.4

 

118.2

 

Advanced Ceramics

 

47.7

 

50.6

 

94.0

 

98.9

 

Corporate and other

 

(6.8

)

(12.5

)

(16.7

)

(22.1

)

Total

 

$

221.1

 

$

233.6

 

$

456.0

 

$

440.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Identifiable Assets as of

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

 

 

 

 

($ in millions)

 

2012

 

2011

 

 

 

 

 

 

Lithium

 

$

1,225.8

 

$

1,189.5

 

 

 

 

 

 

Surface Treatment

 

978.3

 

947.5

 

 

 

 

 

 

Performance Additives

 

758.6

 

745.7

 

 

 

 

 

 

Titanium Dioxide Pigments

 

1,119.2

 

929.6

 

 

 

 

 

 

Advanced Ceramics

 

797.8

 

810.9

 

 

 

 

 

 

Corporate and other (a)

 

463.8

 

409.6

 

 

 

 

 

 

Eliminations (b)

 

(473.3

)

(445.2

)

 

 

 

 

 

Total

 

$

4,870.2

 

$

4,587.6

 

 

 

 

 

 

 


(a)                Corporate and other identifiable assets primarily represent the operating assets of the businesses included herein described above, assets (primarily real estate) of legacy businesses formerly belonging to the Dynamit Nobel businesses acquired in 2004, deferred income tax assets and cash balances maintained in accordance with centralized cash management techniques.

 

(b)                 Amounts contained in the “Eliminations” column represent the individual subsidiaries’ retained interest in their cumulative net cash balance (deposits less withdrawals) included in the corporate centralized cash system and within the identifiable assets of the respective segment. These amounts are eliminated as the corporate centralized cash system is included in the Corporate and other segment’s identifiable assets.

 

Geographic information regarding net sales based on seller’s location and long-lived assets are described in Note 3, “Segment Information,” in the Company’s 2011 Annual Report on Form 10-K.

 

Major components within the reconciliation of income (loss) from continuing operations before taxes to Adjusted EBITDA are described more fully below:

 

10



 

 

 

 

 

 

 

 

 

Titanium

 

 

 

 

 

 

 

 

 

 

 

Surface

 

Performance

 

Dioxide

 

Advanced

 

Corporate

 

 

 

($ in millions)

 

Lithium

 

Treatment

 

Additives

 

Pigments

 

Ceramics

 

and other

 

Consolidated

 

Three months ended June 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations before taxes

 

$

36.4

 

$

23.7

 

$

20.0

 

$

29.6

 

$

31.3

 

$

(16.1

)

$

124.9

 

Interest expense, net

 

0.9

 

3.6

 

1.8

 

3.6

 

3.6

 

1.4

 

14.9

 

Depreciation and amortization

 

10.8

 

7.9

 

14.7

 

17.0

 

12.6

 

2.1

 

65.1

 

Restructuring and other severance costs (a)

 

0.8

 

1.2

 

1.6

 

 

0.1

 

 

3.7

 

Systems/organization establishment expenses (b)

 

0.3

 

 

0.1

 

 

 

 

0.4

 

Acquisition and disposal costs (c)

 

 

0.1

 

 

1.7

 

 

0.2

 

2.0

 

Loss on early extinguishment/modification of debt (d)

 

 

 

 

2.7

 

 

 

2.7

 

Foreign exchange (gain) loss on financing activities, net

 

(1.2

)

2.1

 

(0.1

)

 

0.2

 

5.7

 

6.7

 

Other

 

0.1

 

0.4

 

0.2

 

0.2

 

(0.1

)

(0.1

)

0.7

 

Total Adjusted EBITDA

 

$

48.1

 

$

39.0

 

$

38.3

 

$

54.8

 

$

47.7

 

$

(6.8

)

$

221.1

 

Three months ended June 30, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations before taxes

 

$

31.9

 

$

25.2

 

$

28.4

 

$

40.7

 

$

31.4

 

$

(20.3

)

$

137.3

 

Interest expense, net

 

2.0

 

4.9

 

2.2

 

4.2

 

5.4

 

6.0

 

24.7

 

Depreciation and amortization

 

10.4

 

8.7

 

14.5

 

18.3

 

13.7

 

2.2

 

67.8

 

Restructuring and other severance costs (a)

 

1.9

 

1.3

 

0.7

 

 

0.1

 

 

4.0

 

Systems/organization establishment expenses (b)

 

 

0.2

 

0.2

 

0.3

 

 

 

0.7

 

Acquisition and disposal costs

 

 

 

 

 

 

0.1

 

0.1

 

Loss on early extinguishment/modification of debt (d)

 

(0.2

)

0.2

 

 

 

 

0.3

 

0.3

 

Foreign exchange loss (gain) on financing activities, net

 

0.1

 

(1.0

)

 

 

(0.1

)

(1.2

)

(2.2

)

Other

 

 

0.4

 

 

 

0.1

 

0.4

 

0.9

 

Total Adjusted EBITDA

 

$

46.1

 

$

39.9

 

$

46.0

 

$

63.5

 

$

50.6

 

$

(12.5

)

$

233.6

 

Six months ended June 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations before taxes

 

$

52.4

 

$

46.4

 

$

38.5

 

$

83.2

 

$

59.9

 

$

(35.2

)

$

245.2

 

Interest expense, net

 

1.9

 

8.8

 

4.0

 

5.5

 

8.2

 

7.0

 

35.4

 

Depreciation and amortization

 

21.5

 

15.8

 

29.8

 

34.3

 

25.4

 

4.1

 

130.9

 

Restructuring and other severance costs (a)

 

12.1

 

2.0

 

3.6

 

 

0.1

 

0.1

 

17.9

 

Systems/organization establishment expenses (f)

 

0.3

 

 

0.2

 

1.5

 

 

 

2.0

 

Acquisition and disposal costs (c)

 

 

0.1

 

 

1.7

 

 

0.2

 

2.0

 

Loss on early extinguishment/modification of debt (d)

 

2.2

 

3.0

 

0.9

 

2.7

 

0.7

 

2.9

 

12.4

 

Foreign exchange loss (gain) on financing activities, net

 

2.0

 

2.1

 

(0.1

)

 

(0.3

)

4.0

 

7.7

 

Other (e)

 

0.1

 

0.5

 

0.2

 

1.5

 

 

0.2

 

2.5

 

Total Adjusted EBITDA

 

$

92.5

 

$

78.7

 

$

77.1

 

$

130.4

 

$

94.0

 

$

(16.7

)

$

456.0

 

Six months ended June 30, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations before taxes

 

$

57.6

 

$

42.4

 

$

43.5

 

$

79.4

 

$

56.2

 

$

(39.6

)

$

239.5

 

Interest expense, net

 

4.2

 

10.8

 

4.7

 

3.1

 

11.6

 

13.3

 

47.7

 

Depreciation and amortization

 

20.1

 

17.5

 

28.7

 

35.4

 

27.1

 

4.4

 

133.2

 

Restructuring and other severance costs (a)

 

1.9

 

2.2

 

0.8

 

 

0.1

 

 

5.0

 

Systems/organization establishment expenses (b)

 

 

0.3

 

0.4

 

0.3

 

 

 

1.0

 

Acquisition and disposal costs

 

 

0.1

 

 

 

 

0.1

 

0.2

 

Loss on early extinguishment/modification of debt (d)

 

2.9

 

4.7

 

1.7

 

 

4.0

 

3.2

 

16.5

 

Foreign exchange loss (gain) on financing activities, net

 

0.4

 

(1.4

)

1.0

 

 

(0.2

)

(4.0

)

(4.2

)

Other

 

0.1

 

0.5

 

0.1

 

 

0.1

 

0.5

 

1.3

 

Total Adjusted EBITDA

 

$

87.2

 

$

77.1

 

$

80.9

 

$

118.2

 

$

98.9

 

$

(22.1

)

$

440.2

 

 


(a)     See Note 14, “Restructuring and Other Severance Costs,” for further details.

 

(b)     Primarily relates to costs incurred in conjunction with the integration of businesses acquired.

 

(c)     Primarily relates to fees incurred in connection with the acquisition of certain business assets, including production assets and inventory, of crenox GmbH, a German titanium dioxide producer.

 

(d)     See Note 9, “Long-Term Debt,” for further details.

 

(e)      Primarily relates to professional fees incurred in connection with exploring strategic options in the Company’s Titanium Dioxide Pigments segment.

 

(f)      Primarily relates to settlement costs associated with the termination of a supply agreement related to the formation of the Company’s Titanium Dioxide Pigments venture.

 

4.  VARIABLE INTEREST ENTITIES:

 

See Note 4, “Variable Interest Entities,” in the Company’s 2011 Annual Report on Form 10-K for a detailed discussion of the Company’s evaluation of variable interest entities.

 

11



 

Viance LLC Joint Venture

 

At June 30, 2012 and December 31, 2011, no consolidated assets of the Company were pledged as collateral for any obligations of Viance and the general creditors of Viance had no recourse against the Company. All intercompany accounts, balances and transactions have been eliminated. Viance’s assets can only be used to settle direct obligations of Viance.

 

The carrying values of the assets and liabilities of the Viance joint venture included in the condensed consolidated balance sheets are as follows:

 

 

 

June 30,

 

December 31,

 

($ in millions)

 

2012

 

2011

 

Cash and cash equivalents

 

$

7.2

 

$

2.9

 

Other current assets

 

11.3

 

10.8

 

Total current assets

 

18.5

 

13.7

 

Other intangible assets, net

 

61.8

 

65.1

 

Other assets

 

2.9

 

3.1

 

Total assets

 

$

83.2

 

$

81.9

 

 

 

 

 

 

 

Total liabilities

 

$

4.6

 

$

4.8

 

 

Titanium Dioxide Pigments Venture

 

In conjunction with this venture, there is a power plant that is legally owned and operated by a Finnish power cooperative (“PVO”).  Kemira Oyj (“Kemira”), the noncontrolling shareholder in the venture, is a cooperative participant and has an interest in the power plant via ownership of a special share class. The venture purchased energy from Kemira of $8.5 million and $10.6 million in the three months ended June 30, 2012 and 2011, respectively, and $19.6 million and $21.5 million in the six months ended June 30, 2012 and 2011, respectively. Apart from routine payables to Kemira or PVO in connection with this agreement, no results or balances of the power plant are reflected in the condensed consolidated financial statements.

 

Other

 

As of June 30, 2012 and December 31, 2011, Rockwood’s aggregate net investment in ventures, particularly in the Surface Treatment segment, that are considered variable interest entities but are not consolidated as Rockwood is not the primary beneficiary, was $20.9 million and $18.6 million, respectively. These investments are classified as “Other assets” in the condensed consolidated balance sheets and represent Rockwood’s approximate exposure to losses on these investments. Rockwood does not guarantee debt for or have other financial support obligations to these ventures.

 

5.  FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS:

 

Financial instruments include cash and cash equivalents, accounts receivable, accounts payable, debt instruments and derivatives. Due to their short term maturity, the carrying amount of receivables and payables approximates fair value. Cash equivalents primarily consist of highly liquid investments with original maturities of three months or less at the time of purchase and are recorded at cost, which approximates fair value. The Company has exposure to market risk from changes in interest rates and foreign currency exchange rates. As a result, certain derivative financial instruments may be used when available on a cost-effective basis to hedge the underlying economic exposure. Certain of these instruments qualify as cash flow and net investment hedges upon meeting the requisite criteria, including effectiveness of offsetting hedged exposures. Changes in the fair value of derivatives that do not qualify for hedge accounting are recognized in earnings as they occur. Derivative financial instruments are not used for trading purposes.

 

Qualifying Hedges

 

Cash Flow Hedges

 

Foreign currency forward contracts are utilized to hedge forecasted transactions for certain foreign currencies in the Company’s Surface Treatment segment. These contracts are designated as foreign currency cash flow hedges. The effective portion of changes in fair value for the designated foreign currency hedges is temporarily reported in accumulated other comprehensive income and recognized in earnings when the hedged item affects earnings. The net deferred losses on foreign currency contracts for cash flow hedge accounting are expected to be reclassified into earnings by the end of December 2012.

 

12



 

Effectiveness is assessed at inception of the hedge and on a quarterly basis. These assessments determine whether derivatives designated as qualifying hedges continue to be highly effective in offsetting changes in the cash flows of hedged items. Any ineffective portion of change in fair value is included in current period earnings. There was no impact of ineffectiveness on earnings during the three and six months ended June 30, 2012.

 

Net Investment Hedges

 

In prior periods, the Company designated a portion of its Euro-denominated debt that is recorded on its U.S. books as a net investment hedge of its Euro-denominated investments (Euro debt of €14.1 million at December 31, 2011). In March 2012, the Company dedesignated this net investment hedge.  Prior to the dedesignation, foreign currency gains and losses resulting from the Euro-denominated debt discussed above were accounted for as a component of accumulated other comprehensive income.  After the dedesignation, such foreign currency gains and losses resulting from the Euro-denominated debt have been recorded in the consolidated statements of operations.

 

Interest Rate Swaps Not Designated as Hedging Instruments

 

The Company is not required under the terms of its senior credit facility to hedge, or otherwise protect against interest rate fluctuations in its variable-rate debt. However, in June 2012, the Company’s Titanium Dioxide Pigments venture (Sachtleben) entered into a new facility agreement (See Note 9, “Long-Term Debt”) which requires Sachtleben to convert 50% of the term loan balances from variable to fixed interest rates for a period of two years.

 

Prior to executing the new facility agreement, Sachtleben had entered into interest rate swaps to manage its exposure to changes in interest rates related to certain variable-rate debt. These contracts effectively converted all of the obligations under the titanium dioxide pigments venture’s term loan facility to fixed rate obligations. The Company has not applied hedge accounting for these interest rate swaps and has recorded the mark-to-market adjustment of these derivatives as a component of interest expense in its condensed consolidated statements of operations. Including interest rate swaps, the Company had $1,479.3 million ($841.5 million of which was subject to a Libor floor of 1.00%) and $855.0 million (the majority of which was subject to a Libor floor of 1.00%) of variable-rate debt outstanding as of June 30, 2012 and December 31, 2011, respectively.

 

To comply with the requirement to convert 50% of the term loan balances from variable to fixed interest rates under the new facility agreement, Sachtleben entered into interest rate swaps in July 2012 with an aggregate notional amount of €400.0 million. The new swaps mature in September 2014. The Company may in the future consider adjusting the amounts covered by these derivative contracts to better suit its capital structure and may allow all or a portion of these swaps to lapse, enter into replacement swaps or settle these swaps prior to expiration.

 

In February 2011, in connection with the refinancing of the senior secured credit facility, an interest rate swap with a notional amount of €262.9 million ($354.6 million based on the exchange rate in effect on the date of the payment) was terminated resulting in a payment of €10.8 million ($14.6 million based on the exchange rate in effect on the date of the payment).

 

The following table provides the fair value and balance sheet location of the Company’s derivative instruments as of June 30, 2012 and December 31, 2011:

 

13



 

 

 

 

 

 

June 30, 2012

 

December 31, 2011

 

($ in millions)

 

Balance Sheet Location

 

Notional

 

Fair Value

 

Notional

 

Fair Value

 

Derivatives Designated as Hedging Instruments:

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

Accrued expenses and other current liabilities

 

$

7.2

 

$

0.3

 

 

 

$

 

Total derivatives designated as hedging instruments

 

 

 

 

 

$

0.3

 

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives Not Designated as Hedging Instruments:

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

Accrued expenses and other current liabilities

 

$

228.0

 

$

2.4

 

$

252.7

 

$

1.5

 

 

 

Other liabilities

 

 

 

 

 

 

0.7

 

Total derivatives not designated as hedging instruments

 

 

 

 

 

$

2.4

 

 

 

$

2.2

 

 

All financial instruments, including derivatives, are subject to counterparty credit risk which is considered as part of the overall fair value measurement.  Counterparty credit risk is mitigated by entering into derivative contracts with only major financial institutions of investment grade quality and by limiting the amount of exposure to each financial institution. The Company has considered credit adjustments in its determination of the fair value of its derivative assets and liabilities as of June 30, 2012 and December 31, 2011 based on market participant assumptions. In addition, based on the credit evaluation of each counter-party institution as of June 30, 2012 and December 31, 2011, the Company believes the carrying values to be fully realizable. No counterparty has experienced a significant downgrade in 2012 and the condensed consolidated financial statements would not be materially impacted if any counterparties failed to perform according to the terms of its agreement. Under the terms of the agreements, posting of collateral is not required by any party whether derivatives are in an asset or liability position.

 

The following table provides the gains and losses reported in “Other Comprehensive Income” (“OCI”) within Equity for the three and six months ended June 30, 2012 and 2011:

 

 

 

Amount of Gain or (Loss) Recognized in OCI on Derivatives

 

 

 

and Other Financial Instruments (Effective Portion)

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

($ in millions)

 

2012

 

2011

 

2012

 

2011

 

Derivatives Designated as Cash Flow Hedges:

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

$

(0.4

)

$

(1.0

)

$

(0.3

)

$

2.0

 

 

 

 

 

 

 

 

 

 

 

Non-Derivative Debt Designated as Net Investment Hedge:

 

 

 

 

 

 

 

 

 

Euro-denominated debt

 

$

 

$

(2.2

)

$

(0.3

)

$

(12.1

)

 

For the three and six months ended June 30, 2012, losses of $0.1 million were reclassified from accumulated other comprehensive income into income. For the three and six months ended June 30, 2011, gains of $1.1 million and $1.4 million, respectively, were reclassified from accumulated other comprehensive income into income.

 

The following table provides the gains and losses reported in the condensed consolidated statements of operations for the three and six months ended June 30, 2012 and 2011:

 

14



 

 

 

Amount of Gain or (Loss) Recognized in Income on Derivatives

 

Location of Gain or (Loss)

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

Recognized in Income on

 

($ in millions)

 

2012

 

2011

 

2012

 

2011

 

Derivatives

 

Derivatives Not Designated as Hedging Instruments:

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

$

0.2

 

$

(1.4

)

$

(0.2

)

$

4.9

 

Interest expense

 

Total derivatives

 

$

0.2

 

$

(1.4

)

$

(0.2

)

$

4.9

 

 

 

 

The Company follows a fair value measurement hierarchy to measure assets and liabilities. As of June 30, 2012 and December 31, 2011, the assets and liabilities measured at fair value on a recurring basis are derivatives, cash equivalents and government debt securities. In addition, the Company measures its pension plan assets at fair value (see Item 8. Financial Statements and Supplementary Data - Note 14, “Employee Benefit Plans” in the Company’s 2011 Annual Report on Form 10-K for further details). The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy as follows:

 

Level 1 —                  Inputs are unadjusted quoted market prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. The fair values of money market funds are based on unadjusted quoted market prices from various financial information service providers and securities exchanges.

 

Level 2 —                  Inputs are directly or indirectly observable, which include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means. The fair values of derivatives are based on quoted market prices from various banks for similar instruments. The valuation of these instruments reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including forward curves.

 

Level 3 —                  Inputs are unobservable inputs that are used to measure fair value to the extent observable inputs are not available. The Company does not have any financial assets or liabilities that are recorded on its condensed consolidated balance sheets as of June 30, 2012 and December 31, 2011 that are classified as Level 3 inputs.

 

In accordance with the fair value hierarchy, the following table provides the fair value of the Company’s financial assets and liabilities that are measured at fair value in the condensed consolidated balance sheets as of June 30, 2012 and December 31, 2011:

 

 

 

As of June 30, 2012

 

As of December 31, 2011

 

($ in millions)

 

Total

 

Level 1

 

Level 2

 

Total

 

Level 1

 

Level 2

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

60.9

 

$

60.9

 

$

 

$

154.7

 

$

154.7

 

$

 

Government debt securities

 

0.9

 

0.9

 

 

0.9

 

0.9

 

 

Total assets at fair value

 

$

61.8

 

$

61.8

 

$

 

$

155.6

 

$

155.6

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

$

2.4

 

$

 

$

2.4

 

$

2.2

 

$

 

$

2.2

 

Foreign exchange contracts

 

0.3

 

 

0.3

 

 

 

 

Total liabilities at fair value

 

$

2.7

 

$

 

$

2.7

 

$

2.2

 

$

 

$

2.2

 

 

Note Receivable

 

The Company has a non-interest bearing note receivable from its titanium dioxide pigments venture partner that is due in August 2028 with a carrying value of $5.9 million as of June 30, 2012. The fair value of the note receivable is approximately $9.8 million at June 30, 2012 and is categorized as Level 3 in the fair value hierarchy. The fair value is determined based on an internally developed valuation that uses current interest rates in developing a present value of the receivable.

 

15



 

Debt

 

The carrying value of the Company’s term loans under the senior secured credit facilities and Titanium Dioxide Pigments venture facility agreement approximates fair value as they bear interest based on prevailing variable market rates currently available. As a result, the Company categorizes these term loans as Level 2 in the fair value hierarchy.

 

6.  INVENTORIES:

 

Inventories are comprised of the following:

 

 

 

June 30,

 

December 31,

 

($ in millions)

 

2012

 

2011

 

Raw materials

 

$

236.2

 

$

222.9

 

Work-in-process

 

103.7

 

88.9

 

Finished goods

 

416.4

 

355.3

 

Packaging materials

 

6.8

 

7.2

 

Total

 

$

763.1

 

$

674.3

 

 

7.  GOODWILL:

 

Below are goodwill balances and activity by segment:

 

 

 

 

 

Surface

 

Advanced

 

Corporate

 

 

 

($ in millions)

 

Lithium

 

Treatment

 

Ceramics

 

and other

 

Total

 

Balance, December 31, 2011

 

$

259.3

 

$

336.2

 

$

249.4

 

$

4.7

 

$

849.6

 

Foreign exchange

 

(6.1

)

(7.0

)

(5.7

)

(0.2

)

(19.0

)

Balance, June 30, 2012

 

$

253.2

 

$

329.2

 

$

243.7

 

$

4.5