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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(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). o Yes   o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filed 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:

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CHEMTURA CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2009

INDEX

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PART I.     FINANCIAL INFORMATION

ITEM 1.     Financial Statements

CHEMTURA CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Consolidated Statements of Operations (Unaudited)

Quarters ended March 31, 2009 and 2008

 (In millions, except per share data)

(a) Interest expense excludes unrecorded contractual interest expense of $3 million for the quarter ended March 31, 2009.

See accompanying notes to consolidated financial statements.

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CHEMTURA CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Consolidated Balance Sheets

March 31, 2009 (Unaudited) and December 31, 2008

(In millions, except per share data)

See accompanying notes to consolidated financial statements.

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CHEMTURA CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Condensed Consolidated Statements of Cash Flows (Unaudited)

Quarter ended March 31, 2009 and 2008

(In millions)

See accompanying notes to consolidated financial statements.

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CHEMTURA CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Notes to Consolidated Financial Statements (Unaudited)

1) NATURE OF OPERATIONS AND BANKRUPTCY PROCEEDINGS

Nature of Operations

Chemtura Corporation, together with its consolidated subsidiaries, (the “Company”) is dedicated to delivering innovative, market-focused specialty chemical solutions and consumer product offerings.  Chemtura Corporation is headquartered in Middlebury, Connecticut and operates in a wide variety of end-use markets, including automotive, transportation, construction, packaging, agriculture, lubricants, plastics for durable and non-durable goods, electronics, and home pool and spa chemicals.

Chemtura Corporation is the successor to Crompton & Knowles Corporation, which was incorporated in Massachusetts in 1900 and engaged in the manufacture and sale of specialty chemicals beginning in 1954.  Chemtura Corporation expanded its 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”).

Liquidity and Bankruptcy Proceedings

The Company entered into the first quarter with significantly constrained liquidity.  The fourth quarter of 2008 had seen an unprecedented reduction in orders for the Company’s products as the global recession deepened and customers saw or anticipated reductions in demand in the industries they served.  The impact was more pronounced on those business segments that served cyclically exposed industries. As a result, the Company’s sales and overall financial performance deteriorated resulting in the Company’s inability to be in compliance with the two financial maintenance covenants under the Amended and Restated Credit Agreement, dated as of July 31, 2007, among the Company, the subsidiaries of the Company party thereto, the lenders party thereto and Citibank, N.A., as agent, as amended or supplemented from time to time (the “Credit Facility”) as of December 31, 2008.  On December 30, 2008, the Company obtained a 90-day waiver of compliance with these covenants from the lenders under the Credit Facility.  This waiver was to expire on March 30, 2009.

The Company’s liquidity was further constrained by changes in the availability under its accounts receivable facilities during the fourth quarter of 2008.  The eligibility criteria and reserve requirements under the Company’s prior U.S. accounts receivable facility tightened in the fourth quarter of 2008 following a credit rating downgrade, significantly reducing the value of accounts receivable that could be sold under the facility compared with September 30, 2008.  Additionally, the availability and access to the Company’s European accounts receivable facility was restricted in late December 2008 in light of its financial performance and it was unable to sell additional receivables under this existing program.

The crisis in the credit markets posed a continued challenge for 2009.  Under normal market conditions, the Company believed it would have had the ability to refinance its $370 million notes that were to come due on July 15, 2009 (“2009 Notes”) in the debt capital markets.  However, with the change in credit market conditions in the late summer of 2008 and the deterioration in the Company’s financial performance, the Company did not believe it would be able to do so on commercially reasonable terms, if at all.  As a result, the Company had launched a process to sell one of its businesses to raise the funds necessary to meet the maturity when due.

On January 23, 2009, a special-purpose subsidiary of the Company entered into a new three-year U.S. accounts receivable facility that restored much of the liquidity that the Company had pursuant to the prior U.S. accounts receivable facility before the 2008 fourth quarter events.  However, it was unable to recommence the sale of accounts receivable under its European accounts receivable facility during the quarter.  In February 2009, the provider of the facility made a proposal to the Company to revise certain terms of the facility including among other matters, significantly reducing the value of accounts receivable that could be sold under the facility from approximately $230 million (€175 million) to approximately $92 million (€70 million) and changes to the subsidiaries eligible to sell accounts receivable under the facility.  Despite good faith discussions between the parties, they were unable to conclude an agreement to restart sales of accounts receivable under the facility and the balance of accounts receivable previously sold under the facility continued to decline, offsetting much of the benefit to liquidity gained by the new U.S. accounts receivable facility.

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January 2009 saw no improvement in customer demand from the depressed levels in December 2008 and some business segments saw further deterioration.  Although February and March of 2009 saw incremental improvement in net sales compared to January 2009, business conditions remained difficult as is evidenced by the 43% reduction in sales in the first quarter of 2009 compared to the first quarter of 2008.  As awareness grew of the Company’s constrained liquidity and financial performance, suppliers started to restrict the credit they would provide to the Company and, as a result, liquidity dwindled.  Despite moderate cash generation through inventory reductions, the Company’s trade credit continued to tighten, resulting in unprecedented restrictions on trade credit.

In January and February of 2009, the Company worked to expedite its assets sale processes with additional intent to meet its short term liquidity needs as the July 15, 2009 maturity of its 2009 Notes.  Potential buyers conducted due diligence and worked towards submitting their final offers on several businesses.  However, with the continuing recession and speculation about the financial condition of the Company, potential buyers became progressively more cautious.  Certain potential buyers expressed concern about the ability of the Company to perform its obligations under a sale agreement, increased their diligence requirements or concluded not to proceed with a transaction.  In March 2009, the Company was forced to conclude that although there were potential buyers for the assets it was seeking to sell, a sale was unlikely to be concluded in sufficient time to offset the continued deterioration in its liquidity or at a value that would permit the Company to address in full its impending debt maturities and liquidity needs.

By March 2009, dwindling liquidity and growing restrictions on available trade credit started to result in production stoppages as raw materials could not be obtained on a timely basis.  At the same time, the Company concluded that it was improbable that it could recommence sales of accounts receivable under its European accounts receivable facility or complete the sale of a business in sufficient time to provide the immediate liquidity it needed to operate.  Absent such an infusion of liquidity, the Company would likely experience further suspensions or sustained limitations to its business operations that ultimately would have a disastrous effect on the value of the Company’s business as a whole.  Specifically, the inability to maintain and stabilize its business operations would result in depleted inventories, missed supply obligations and damaged customer relationships.

Having carefully explored and exhausted all possibilities to gain near-term access to liquidity, the Company determined that debtor-in-possession financing represented the best available alternative for the Company to meet its immediate and ongoing liquidity needs and to preserve value for all its constituents.  As a result, having obtained the commitment of a $400 million senior secured debtor-in-possession credit facility agreement (“DIP Credit Facility”), Chemtura Corporation, the parent company, and 26 of its U.S. affiliates (collectively, the “Debtors”) filed for relief under Chapter 11 of title 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) on March 18, 2009 in the United States Bankruptcy Court for the Southern District of New York (the “Court”).  The Chapter 11 cases are being jointly administered by the Court.  The Company’s non-U.S. subsidiaries and certain U.S. subsidiaries were not included in the filing and are not subject to the requirements of the Bankruptcy Code.  The Company’s U.S. and worldwide operations are expected to continue without interruption during the bankruptcy reorganization process.

The Debtors own substantially all of the Company’s U.S. assets.  The Debtors consist of Chemtura Corporation, the parent company, and the following subsidiaries:

The principal U.S. assets are located in the following entities: Chemtura Corporation; BioLab, Inc.; and Great Lakes Chemical Corporation.

On March 18, 2009, Raymond E. Dombrowski, Jr. was appointed as the Company’s Chief Restructuring Officer.  In connection with this appointment, the Company entered into an agreement with Alvarez & Marshal North America, LLC ("A&M") to compensate A&M for Mr. Dombrowski’s services as Chief Restructuring Officer on a monthly basis at a rate of $150 thousand per month and incentive compensation in the amount of $3 million payable upon the earlier of (a) the consummation of a Chapter 11 plan of reorganization and (b) the sale, transfer, or other disposition of all or a substantial portion of the assets or equity of the Company.  Mr. Dombrowski is independently compensated pursuant to arrangements with A&M, a financial advisory and consulting firm specializing in corporate restructuring. Mr. Dombrowski will not receive any compensation directly from the Company and will not participate in any of the Company’s employee benefit plans.

The Chapter 11 petitions were filed to gain liquidity for continuing operations while the Debtors restructure their balance sheets to allow the Company to be a viable going concern.  While the Company believes it will be able to achieve these objectives through the Chapter 11 process, there can be no certainty that it will be successful in doing so.

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Under Chapter 11, the Debtors are operating their U.S. businesses as a debtor-in-possession (“DIP”) under the protection of the Court from their pre-filing creditors and claimants.  Since the filing, all orders of the Court sufficient to enable the Debtors to conduct normal business activities, including “first day” motions and the interim and final approval of the DIP Credit Facility, have been entered by the Court.  While the Debtors are subject to Chapter 11, all transactions outside the ordinary course of their business will require the prior approval of the Court.

As a consequence of the Chapter 11 filings, pending litigation against the Debtors is generally subject to an automatic stay, and no party may take any action to collect pre-petition claims except pursuant to an order of the Court.

On March 20, 2009, the Court approved the Debtors’ “first day” motions.  Specifically, the Court granted the Debtors, among other things, interim approval to access $190 million of its $400 million DIP Credit Facility, approval to pay outstanding employee wages, health benefits, and certain other employee obligations and authority to continue to honor their current customer policies and programs, in order to ensure the reorganization process will not adversely impact their customers.  On April 29, 2009, the Court entered a final order providing full access to the $400 million DIP Credit Facility.

The Court has not yet established a general deadline for the filing of proofs of claim (“bar date”).  The Company will provide notice of the bar date once set by the Court.

As provided by the Bankruptcy Code, the Debtors have the exclusive right to file a plan of reorganization for 120 days after the petition date.  If necessary, the Company has the ability to file a motion with the Court to request an extension of exclusivity. There can be no assurance that the Court will grant such an extension of the exclusive period, that a reorganization plan will be filed by the Debtors or confirmed by the Court, or that any such plan will be consummated. After a plan of reorganization has been filed with the Court, the plan, along with a disclosure statement approved by the Court, will be sent to all creditors, equity holders and parties in interest. Following the solicitation period, the Court will consider whether to confirm the plan. In order to confirm a plan of reorganization, the Court must make certain findings as required by the Bankruptcy Code. The Court may confirm a plan of reorganization notwithstanding the non-acceptance of the plan by an impaired class of creditors or equity security holders if certain requirements of the Bankruptcy Code are met.

The ultimate recovery by the Debtors’ creditors and the Company’s shareholders, if any, will not be determined until confirmation and implementation of a plan of reorganization.  No assurance can be given as to what recoveries, if any, will be assigned in the Chapter 11 proceeding to each of these constituencies. A plan of reorganization could result in the Company’s shareholders receiving little or no value for their interests and holders of the Debtors’ unsecured debt, including trade debt, receiving less, and potentially substantially less, than payment in full for their claims.  Because of such possibilities, the value of the common stock and unsecured debt is highly speculative. Accordingly, the Company urges that appropriate caution be exercised with respect to existing and future investments in any of these securities.  Although the shares of the Company’s common stock continue to trade on the Pink Sheets Electronic Quotation Service (“Pink Sheets”) under the symbol “CEMJQ,” the trading prices may have little or no relationship to the actual recovery, if any, by the holders under any eventual court-approved reorganization plan.  The opportunity for any recovery by holders of the Company’s common stock under such reorganization plan is uncertain and shares of the Company’s common stock may be cancelled without any compensation pursuant to such plan.

Continuation of the Company as a going concern is contingent upon, among other things, the Company’s and/or Debtors’ ability (i) to comply with the terms and conditions of the DIP Credit Facility; (ii) to obtain confirmation of a plan of reorganization under the Bankruptcy Code; (iii) to return to profitability; (iv) to generate sufficient cash flow from operations; and (v) to obtain financing sources to meet the Company’s future obligations.  These matters raise substantial doubt about the Company’s ability to continue as a going concern.  The consolidated financial statements do not reflect any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of these uncertainties.  Additionally, a plan of reorganization could materially change amounts reported in the consolidated financial statements, which do not give effect to all adjustments of the carrying value of assets and liabilities that are necessary as a consequence of reorganization under Chapter 11.  In addition, as part of our emergence from bankruptcy protection, the Company may be required to adopt fresh start accounting in a future period.  If fresh start accounting is applicable, our assets and liabilities will be recorded at fair value as of the fresh start reporting date.  The fair value of our assets and liabilities as of such fresh start reporting date may differ materially from the recorded values of assets and liabilities on our Consolidated Balance Sheets.  Further, if fresh start accounting is required, the financial results of the Company after the application of fresh start accounting may be different from historical trends.

2) BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Basis of Presentation

The information in the foregoing consolidated financial statements for the quarters ended March 31, 2009 and March 31, 2008 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 the consolidated financial statements.

The foregoing consolidated financial statements include the accounts of Chemtura Corporation and the wholly-owned and majority-owned subsidiaries that it controls.  Other affiliates in which the Company has 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 the Company has less than 20% ownership are recorded at cost.  All significant intercompany balances and transactions have been eliminated in consolidation.

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The consolidated financial statements have been prepared in accordance with American Institute of Certified Public Accountants Statement of Position 90-7, “Financial Reporting under the Bankruptcy Code” (“SOP 90-7”).  SOP 90-7 does not ordinarily affect or change the application of U.S. generally accepted accounting principles (“GAAP”), however it does require the Company to distinguish transactions and events that are directly associated with the reorganization in connection with the Chapter 11 proceedings from the ongoing operations of the business.  The pre-petition liabilities subject to compromise are disclosed separately on the March 31, 2009 Consolidated Balance Sheet.  Expenses incurred and settlement impacts due to the Chapter 11 proceedings are reported separately as reorganization items, net on the Consolidated Statement of Operations for the quarter ended March 31, 2009.  Interest expense related to pre-petition indebtedness has been reported only to the extent that it will be paid during the pendency of the bankruptcy cases or is permitted by the Court approval or is expected to be an allowed claim.

Certain reclassifications have been made to the prior period financial information to conform to the current period presentation.  The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s 2008 Annual Report on Form 10-K.  The consolidated results of operations for the quarter ended March 31, 2009 are not necessarily indicative of the results expected for the full year.

Accounting Policies

Operating Costs and Expenses

Cost of goods sold (“COGS”) includes all costs incurred in manufacturing goods, including raw materials, direct manufacturing costs and manufacturing overhead.  COGS also includes warehousing, distribution, engineering, purchasing, customer service, environmental, health and safety functions, and shipping and handling costs for outbound product shipments.  Selling, general and administrative expenses (“SG&A”) include costs and expenses related to the following functions and activities: selling, advertising, legal, provision for doubtful accounts, corporate facilities and corporate administration.  SG&A also includes accounting, information technology, finance and human resources, excluding direct support in manufacturing operations, which is included as COGS.  Research and development expenses (“R&D”) include basic and applied R&D activities of a technical and non-routine nature.  R&D costs are expensed as incurred.  COGS, SG&A and R&D expenses exclude depreciation and amortization expenses, which are presented on a separate line in the consolidated statements of operations.

Other income, net

Other income, net includes costs associated with the Company’s sale of accounts receivable facilities, foreign exchange gains (losses) and interest income.

Other Items

Cash and cash equivalents include bank term deposits with original maturities of three months or less.  Included in cash and cash equivalents in the Company’s consolidated balance sheets at March 31, 2009 and December 31, 2008 is $1 million of restricted cash that is required to be on deposit to support certain letters of credit and performance guarantees, the majority of which will be settled within one year.

Included in accounts receivable are allowances for doubtful accounts of $27 million and $26 million, as of March 31, 2009 and December 31, 2008, respectively.

During the quarters ended March 31, 2009 and 2008, the Company made interest payments of approximately $21 million.  During the quarters ended March 31, 2009 and 2008, the Company made payments for income taxes (net of refunds) of $7 million and $8 million, respectively.

Accounting Developments

Implemented in 2009

In December 2007, the FASB issued Statement No. 160, “Non-controlling Interests in Consolidated Financial Statements — an amendment of ARB No. 51” (“FAS 160”), which requires companies to treat non-controlling interests (commonly referred to as minority interest) as a separate component of shareholders’ equity and not as a liability.  The provisions of FAS 160 are effective as of the beginning of the Company’s 2009 fiscal year.  The presentation and disclosure requirements of FAS 160 were applied on a retrospective basis for all periods presented.

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In December 2007, the FASB issued Statement No. 141 (revised 2007), “Business Combinations” (“FAS 141(R)”), which requires, among other items, that identifiable assets, liabilities, non-controlling interests and goodwill acquired in a business combination be recorded at full fair value.  The provisions of FAS 141(R) are effective as of the beginning of the Company’s 2009 fiscal year. The adoption of FAS 141(R) did not have a material impact on the Company’s consolidated financial position and results of operations.  Future adjustments made to valuation allowances and acquired tax contingencies on deferred taxes associated with acquisitions made prior to 2009 will impact the statement of operations based on the provisions of FAS 141(R).

In February 2008, the FASB issued FSP FAS 157-2, which delays the effective date of  Statement No. 157, “Fair Value Measurements” (“FAS 157”) for all non-financial assets and liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) until fiscal years beginning after November 15, 2008.  The adoption of FAS 157 for non-financial assets did not have a material impact on the Company’s consolidated financial position and results of operations.

In March 2008, the FASB issued Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (“FAS 161”), which requires companies with derivative instruments to disclose information about how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under FAS 133, and how derivative instruments and related hedged items affect a company’s financial position, financial performance, and cash flows.  The provisions of FAS 161 are effective as of the beginning of the Company’s 2009 fiscal year.

3) CONDENSED DEBTOR COMBINED FINANCIAL STATEMENTS

Condensed combined financial statements for the Debtors as of March 31, 2009 and for the quarter then ended are presented below.  These condensed combined financial statements include investments in subsidiaries carried under the equity method.

Condensed Combined Statement of Operations

(Debtor-in-Possession)

Quarter ended March 31, 2009

(In millions)

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Condensed Combined Balance Sheet

(Debtor-in-Possession)

as of March 31, 2009

(In millions)

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Condensed Combined Statement of Cash Flows

(Debtor-in-Possession)

Quarter ended March 31, 2009

(In millions)

4) LIABILITIES SUBJECT TO COMPROMISE AND REORGANIZATION ITEMS, NET

Under Chapter 11 of the Bankruptcy Code, certain claims against the Debtors in existence prior to the filing of the petitions for relief are stayed while the Debtors continue business operations as a debtor-in-possession.  These estimated claims are reflected in the Consolidated Balance Sheet as liabilities subject to compromise as of March 31, 2009 and are summarized in the table below.  Such claims remain subject to future adjustments.  Adjustments may result from actions of the Court, negotiations, rejection or acceptance of executory contracts, determination as to the value of any collateral securing claims, proofs of claim or other events.

The Debtors have received approval from the Court to pay or otherwise honor certain of their pre-petition obligations, including approval to pay outstanding employee wages, health benefits, and certain other employee obligations.  Additionally, the Debtors are authorized to continue to honor their current customer policies and programs, to ensure the reorganization process will not impact customers.

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The amounts of liabilities subject to compromise consist of the following:

(a)         The carrying value of pre-petition debt has been adjusted to its respective face value as this represents the expected allowable claim under the bankruptcy proceedings.  As a result, debt issuance costs, discounts and premiums were charged to reorganization items, net on the Consolidated Statement of Operations.

Reorganization items are presented separately in the Consolidated Statement of Operations and represent items realized or incurred by the Company as a direct result of the Debtors’ petition filings under Chapter 11 of the Bankruptcy Code.

The Court entered a final order providing full access to the $400 million DIP Credit Facility on April 29, 2009.  On May 4, 2009, the Company drew the $85 million balance of the $250 million term loan and used the proceeds together with cash on hand to fund the $86 million “roll up” of certain outstanding secured amounts owed to certain lenders under the Credit Facility.

The reorganization items recorded in the Statements of Operations consist of the following:

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5) COMPREHENSIVE (LOSS) INCOME

An analysis of the Company’s comprehensive (loss) income follows:

The components of accumulated other comprehensive loss at March 31, 2009 and December 31, 2008 are as follows:

Reclassifications from other comprehensive loss to earnings related to the Company’s natural gas price swap contracts aggregated to a $1 million pre-tax loss and an immaterial pre-tax loss during the quarters ended March 31, 2009 and 2008, respectively.

6) SALE OF ACCOUNTS RECEIVABLE

At December 31, 2008, the Company had a committed U.S. accounts receivable facility which provided funding for the sale of up to $100 million of its eligible U.S. receivables to certain purchasers.  On January 23, 2009, the Company entered into a new U.S. accounts receivable facility with up to $150 million of capacity and a three-year term with certain lenders under its Amended and Restated Credit Agreement, dated as of July 31, 2007, among the Company, the subsidiaries of the Company party thereto, the lenders party thereto and Citibank, N.A., as agent, as amended or supplemented from time to time (the “Credit Facility”).  Lenders who participated reduced their commitments to the Credit Facility pro-rata to their commitments to purchase U.S. eligible accounts receivable under the new accounts receivable facility.  Accounts receivable sold under the former facility was $36 million as of December 31, 2008.  The former accounts receivable facility was terminated upon the effectiveness of the new U.S. accounts receivable facility.

Under the respective U.S. facilities, certain subsidiaries of the Company were able to sell their accounts receivable to a special purpose entity (“SPE”) that was created for the purpose of acquiring such receivables and selling an undivided interest therein to certain purchasers.  In accordance with the receivables purchase agreements, the purchasers were granted an undivided ownership interest in the accounts receivable owned by the SPE.  The amount of such undivided ownership interest will vary based on the level of eligible accounts receivable as defined in the agreement.  In addition, the purchasers retain a security interest in all the receivables owned by the SPE, which was $209 million as of December 31, 2008.  The balance of the unsold receivables owned by the SPE was included in the Company’s accounts receivable balance on the consolidated balance sheet.

The U.S. accounts receivable facility was terminated on March 23, 2009 as a condition of the Debtors entering into the DIP Credit Facility.  All accounts receivables were sold back by the purchasers and the SPE to their original selling entity using proceeds of $117 million from the DIP Credit Facility.

Following the termination, of the U.S. accounts receivable facility, deferred financing costs of approximately $4 million related to the new U.S. accounts receivable facility were charged to reorganization items, net in the Consolidated Statement of Operations.

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Certain of the Company’s European subsidiaries maintained a separate facility to sell up to approximately $229 million of the eligible accounts receivable directly to a purchaser.  International accounts receivable sold under this facility were $10 million and $67 million as of March 31, 2009 and December 31, 2008, respectively.  The availability and access to the Company’s European accounts receivable facility were restricted by the purchaser in late December 2008 in light of its financial performance.  As a result, the Company was unable to sell additional accounts receivables under this program during the first quarter of 2009.  In February 2009, the provider of the facility made a proposal to the Company to revise certain terms of the facility including among other matters, significantly reducing the value of accounts receivable that could be sold under the facility from approximately $230 million (€175 million) to approximately $92 million (€70 million) and changes to the subsidiaries eligible to sell accounts receivable under the facility.  Despite good faith discussions between the parties, they have been unable to conclude an agreement to restart sales of accounts receivable under the facility and the balance of accounts receivable previously sold under the facility continued to decline.

7) INVENTORIES

Components of inventories are as follows:

Included in the above net inventory balances are inventory obsolescence reserves of approximately $33 million and $31 million at March 31, 2009 and December 31, 2008, respectively.

8) PROPERTY, PLANT AND EQUIPMENT

Depreciation expense amounted to $35 million and $59 million for the quarters ended March 31, 2009 and 2008, respectively.  Depreciation expense includes accelerated depreciation of certain fixed assets associated with the Company’s restructuring programs, divestment activities and the consolidation of its legacy ERP systems of $2 million and $22 million for the quarters ended March 31, 2009 and 2008, respectively.

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9) GOODWILL AND INTANGIBLE ASSETS

Goodwill by reportable segment is as follows:

The Company has elected to perform its annual goodwill impairment procedures for all of its reporting units in accordance with FASB Statement No. 142, “Goodwill and Other Intangible Assets” (“FAS 142”) as of July 31, or sooner, if events occur or circumstances change that could reduce the fair value of a reporting unit below its carrying value.  The Company estimates the fair value of its reporting units utilizing income and market approaches through the application of discounted cash flow and market comparable methods.  The assessment is required to be performed in two steps, step one to test for a potential impairment of goodwill and, if potential losses 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.

During the quarter ended March 31, 2009, there was continued weakness in the global financial markets, resulting in additional decreases in the valuation of public companies and restricted availability of capital.  Additionally, the Company’s stock price continued to decrease due to constrained liquidity, deteriorating financial performance and the Debtors filing of a petition for relief under Chapter 11 of the Bankruptcy Code.  These events were of sufficient magnitude to the Company to conclude it was appropriate to perform a goodwill impairment review as of March 31, 2009.  The Company used its own estimates of the effects of the macroeconomic changes on the markets it serves to develop an updated view of its projections.  Those updated projections have been used to compute updated estimated fair values of its reporting units.  Based on these estimated fair values used to test goodwill for impairment in accordance with FAS 142, the Company concluded that no impairment existed in any of its reporting units at March 31, 2009.

The Company continually monitors and evaluates business and competitive conditions that affect its operations and reflects the impact of these factors in its 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.

The Company’s intangible assets (excluding goodwill) are comprised of the following:

The decrease in gross intangible assets since December 31, 2008 is primarily due to translation.

Amortization expense related to intangible assets amounted to $9 million and $10 million for the quarters ended March 31, 2009 and 2008, respectively.

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10) DEBT

The Company’s debt is comprised of the following:

(a)          Outstanding balance is classified as liabilities subject to compromise on the Consolidated Balance Sheet at March 31, 2009.

(b)         $20 million of the other borrowings is classified as liabilities subject to compromise on the Consolidated Balance Sheet at March 31, 2009.

Debtor-in-Possession Credit Facility

On March 18, 2009, the Debtors entered into a $400 million senior secured DIP Credit Facility arranged by Citigroup Global Markets Inc. with Citibank, N.A. as Administrative Agent subject to approval by the Court.  On March 20, 2009, the Court entered an interim order providing approval for the Debtors to access $190 million of the DIP Credit Facility in the form of a $165 million term loan and $25 million revolving credit facility.  The DIP Credit Facility closed on March 23, 2009 with the drawing of the $165 million term loan.  The initial use of proceeds was to fund the termination of the U.S. accounts receivable facility and pay fees and expenses associated with the transaction.

On April 29, 2009, the Company, certain of its subsidiaries that are guarantors under the DIP Credit Facility, the banks, financial institutions and other institutional lenders party to the DIP Credit Facility (the “Lenders”), and Citibank, N.A., as Administrative Agent for the Lenders, entered into Amendment No. 1 to the DIP Credit Facility.  Pursuant to such Amendment No. 1, the DIP Credit Facility was amended to (i) increase the outstanding amount of intercompany loans the Debtors could make to the non-debtor foreign subsidiaries of the Company from $8 million to $40 million; (ii) reduce required level of borrowing availability under the minimum availability covenant; and (iii) eliminate the requirement to pay additional interest expense if a specified level of accounts receivable financing was not available to the Company’s European subsidiaries.

On the same date, the Court granted final approval of the DIP Credit Facility, as amended pursuant to Amendment No. 1 thereto.  The DIP Credit Facility matures on the earlier of (i) March 17, 2010; (ii) the effective date of a reorganization plan; or (iii) upon an event of default.

The DIP Credit Facility is comprised of the following:  (i) $250 million of non-amortizing term loans; (ii) a $64 million revolving credit facility; and (iii) an $86 million revolving credit facility representing the “roll-up” of certain outstanding secured amounts owed to lenders under the existing Credit Facility who have commitments under the DIP Credit Facility.  In addition, a letter of credit subfacility for letters of credit (“Letters of Credit”) in an aggregate amount of $50 million is available under the unused commitments of the revolving credit facilities.  As of March 31, 2009, drawings under the DIP Credit Facility were $165 million of term loans.

The Court entered a final order providing full access to the $400 million DIP Credit Facility on April 29, 2009.  On May 4, 2009, the Company drew the $85 million balance of the $250 million term loan and used the proceeds together with cash on hand to fund the $86 million “roll up” of certain outstanding secured amounts owed to certain lenders under the Credit Facility.

The DIP Credit Facility is secured by a superpriority lien on substantially all of the Company’s U.S. assets, including (i) accounts receivable; (ii) inventory; (iii) machinery, plant and equipment; (iv) intellectual property; (v) pledges of the equity of first tier subsidiaries; and (vi) pledges of debt and other instruments.

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Availability of credit under the DIP Credit Facility is equal to (i) the lesser of (a) the Borrowing Base (as defined below) and (b) the effective commitments under the DIP Credit Facility minus (ii) the aggregate amount of the DIP Loans and any undrawn or unreimbursed Letters of Credit.  Borrowing Base is the sum of (i) 80% of the Debtors’ eligible accounts receivable, plus (ii) the lesser of (a) 85% of the net orderly liquidation value percentage (as defined in the DIP Credit Facility) of the Debtors’ eligible inventory and (b) 75% of the cost of the Debtors’ eligible inventory, plus (iii) $125 million, less certain reserves determined by the discretion of the Administrative Agent to preserve and protect the value of the collateral.

Borrowings under the term loans and the $64 million revolving facility bear interest at a rate per annum equal to, at the Company’s election, (i) 6.5% plus the Base Rate (defined as the higher of (a) 4%; (b) Citibank N.A.’s published rate; or (c) the Federal Funds rate plus 0.5%) or (ii) 7.5% plus the Eurodollar Rate (defined as the higher of (a) 3% or (b) the current LIBOR rate adjusted for reserve requirements).  Borrowings under the $86 million revolving facility bear interest at a rate per annum equal to, at the Company’s election, (i) 2.5% plus the Base Rate or (ii) 3.5% plus the Eurodollar Rate.  Additionally, the Company will pay a unused commitment fee of 1.5% per annum on the average daily unused portion of the revolving facilities and a letter of credit on the average daily balance of the maximum daily amount available to be drawn under Letters of Credit equal to the applicable margin above the Eurodollar Rate applicable for borrowings under the applicable revolving facility.  Certain fees are payable to the lenders upon the reduction or termination of the commitment and upon the substantial consummation of a plan of reorganization as described more fully in the agreement including an exit fee payable to the Lenders of 2% of “roll-up” commitments and  3% of all other commitments.

The obligations of the Company as borrower under the DIP Credit Facility are guaranteed by the Company’s other U.S. subsidiaries who are Debtors in the Chapter 11 cases, which own substantially all of the Company’s U.S. assets.  The obligations must also be guaranteed by each of the Company’s subsidiaries that becomes party to the Chapter 11 cases, subject to specified exceptions.

All amounts owing by the Company and the guarantors under the DIP Credit Facility and certain hedging arrangements and cash management services are secured, subject to a carve-out as set forth in the DIP Credit Facility (the “Carve-Out”) for professional fees and expenses (as well as other fees and expenses customarily subject to such Carve-Out), by (i) a first priority perfected pledge of (a) all notes owned by the Company and the guarantors and (b) all capital stock owned by the Company and the guarantors (subject to certain exceptions relating to their respective foreign subsidiaries) and (ii) a first priority perfected security interest in all other assets owned by the Company and the guarantors, in each case, junior only to liens as set forth in the DIP Credit Facility and the Carve-Out.

The DIP Credit Facility requires the Company to meet certain financial covenants including the following: (a) minimum cumulative monthly earnings before interest, taxes, and depreciation (“EBITDA”), after certain adjustments, on a consolidated basis; (b) a maximum variance of the weekly cumulative cash flows of the Debtors, compared to an agreed upon forecast; (c) minimum borrowing availability of $25 million until June 30, 2009, and $30 million thereafter; and (d) maximum quarterly capital expenditures.  In addition, the DIP Credit Facility contains covenants which, among other things, limit the incurrence of additional debt, operating leases, issuance of capital stock, issuance of guarantees, liens, investments, disposition of assets, dividends, certain payments, mergers, change of business, transactions with affiliates, prepayments of debt, repurchases of stock and redemptions of certain other indebtedness and other matters customarily restricted in such agreements.  As of March 31, 2009, the Company was in compliance with the covenant requirements of the DIP Credit Facility.

The DIP Credit Facility contains events of default, including, among others, payment defaults, breaches of representations and warranties, and covenant defaults.

Credit Facility Guarantees

The Chapter 11 filing constituted an event of default under, or otherwise triggered repayment obligations with respect to, a number of debt instruments and agreements relating to direct and indirect financial obligations of the Debtors (collectively “Pre-petition Debt”).  All obligations under the Pre-petition Debt have become automatically and immediately due and payable.  The Debtors believe that any efforts to enforce the payment obligations under the Pre-petition Debt have been stayed as a result of the Company’s filing for relief under Chapter 11 of the U.S. Bankruptcy Code.  As a result, interest accruals and payments for the Pre-petition Debt have ceased as of the petition date.  The amount of contractual interest expense not recorded in the first quarter of 2009 was approximately $3 million.  The Pre-petition Debt and the approximate principal amount of debt currently outstanding thereunder, include $500 million of 6.875% Notes due 2016 (“2016 Notes”), $370 million of 7% Notes due July 15, 2009 (“2009 Notes”), $150 million 6.875% Debentures due 2026 (“2026 Debentures”) and $189 million due 2009 under the Credit Facility and $20 million of other borrowings.

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The Credit Facility is guaranteed by certain U.S. subsidiaries of the Company (the “Domestic Subsidiary Guarantors”).  Pursuant to a Credit Facility covenant, the Company and the Domestic Subsidiary Guarantors were, in June of 2007, required to provide a security interest in the equity of their first tier subsidiaries (limited to 66% of the voting stock of first-tier foreign subsidiaries).  Under the terms of the indentures for the 2009 Notes, 2016 Notes and the 2026 Debentures (collectively, the “Notes”), the Company is required to provide security for the Notes on an equal and ratable basis if (and for so long as) the principal amount of secured debt exceeds certain thresholds related to the Company’s assets.  The thresholds vary under each of the indentures.  In order to avoid having the Notes become equally and ratably secured with the Credit Facility obligations, the lenders agreed to limit the amount secured by the pledged equity to the maximum amount that would not require the notes to become equally and ratably secured (the “Maximum Amount”).  In connection with the amendment and waiver agreement dated December 30, 2008, the Company and the Domestic Subsidiary Guarantors entered into a Second Amended and Restated Pledge and Security Agreement.  In addition to the prior pledge of equity granted to secure the Credit Facility obligations, the Company and the Domestic Subsidiary Guarantors granted a security interest in their inventory.  The value of this security interest continues to be limited to the Maximum Amount.

Borrowings under the Credit Facility revolver at March 31, 2009 were $189 million.  The Company has standby letters of credit and guarantees with various financial institutions the majority of which were issued under the Credit Facility and are pre-petition liabilities.  At March 31, 2009, the Company had $101 million of outstanding letters of credit and guarantees primarily related to liabilities for environmental remediation, insurance obligations and European value added tax obligations of which $88 million were issued under the Credit Facility and are pre-petition liabilities.  The Company also had $19 million of third party guarantees at March 31, 2009 for which it has reserved for $2 million at March 31, 2009, which represents the probability weighted fair value of these guarantees.

11) INCOME TAXES

The Company reported income tax expense of $6 million and $9 million for the quarters ended March 31, 2009 and March 31, 2008, respectively.  The Company has established a valuation allowance against the tax benefits associated with the Company’s year to date U.S. net operating loss.  The Company will continue to adjust its tax provision through the establishment, or release, of the non-cash valuation allowance attributable to currently generated U.S. pre-tax losses until such time as the U.S. operations have evidenced the ability to consistently generate income such that in future periods the Company can expect that the deferred tax assets can be utilized on a more-likely-than-not basis.

The Company has net liabilities related to unrecognized tax benefits of $84 million at March 31, 2009 and $85 million at December 31, 2008.  At March 31, 2009, $35 million of the net tax liability has been classified as liabilities subject to compromise.

In accordance with FIN 48, the Company recognizes interest and penalties related to unrecognized tax benefits as income tax expense.  Accrued interest and penalties are included within the related liability lines in the consolidated balance sheet.

The Company believes it is reasonably possible that its unrecognized tax benefits may decrease approximately $2 million within the next year.  This reduction may occur due to the conclusion of examinations by tax authorities.  The Company further expects that the amount of unrecognized tax benefits will continue to change as the result of ongoing operations, the outcomes of tax audits, and the passing of statutes of limitations.  This change is not expected to have a significant impact on the results of operations or the financial position of the Company.

12) EARNINGS (LOSS) PER COMMON SHARE

The computation of basic earnings (loss) per common share is based on the weighted average number of common shares outstanding.  The computation of diluted earnings (loss) per common share is based on the weighted average number of common and common share equivalents outstanding.  The Company had no outstanding common stock equivalents for the quarters ended March 31, 2009 and 2008 for purposes of computing diluted earnings (loss) per share.

The weighted average common shares outstanding for the quarters ended March 31, 2009 and 2008 were 242.8 million and 242.1 million, respectively.

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The shares of common stock underlying the Company’s outstanding stock options of 11.2 million and 12.2 million shares at March 31, 2009 and 2008, respectively, were excluded from the calculation of diluted earnings (loss) per share because the exercise prices of the stock options were greater than or equal to the average price of the common shares as of such dates.  These options could be dilutive if the average share price increases and is greater than the exercise price of these options.  The Company’s performance-based restricted shares of 0.6 million and 2.2 million at March 31, 2009 and 2008, respectively, were also excluded from the calculation of diluted earnings (loss) per share because the specified performance criteria for the vesting of these shares had not yet been met.  These restricted shares could be dilutive in the future if the specified performance criteria are met.

13) STOCK-BASED COMPENSATION

Stock-based compensation expense, including amounts for restricted stock and options, was $1 million and $3 million for the quarters ended March 31, 2009 and 2008, respectively.  In 2009 and 2008, stock-based compensation expense was primarily reported in SG&A.

The Company uses the Black-Scholes option-pricing model to determine the compensation expense related to stock options.  The Company has elected to recognize compensation cost for option awards granted equally over the requisite service period for each separately vesting tranche, as if multiple awards were granted.  Using this method, the weighted average fair value of stock options granted during the quarter ended March 31, 2008 was $3.40.  Total remaining unrecognized compensation costs associated with unvested stock options and restricted stock awards at March 31, 2009 were $4 million and $2 million, respectively, which will be recognized over the weighted average period of approximately one year.

The Company did not grant any stock options or restricted stock during the quarter ended March 31, 2009.

14) PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS

Components of the Company’s defined benefit plans net periodic benefit (credit) cost for the quarter ended March 31, 2009 and 2008 are as follows:

The Company contributed $2 million to its U.S. non-qualified pension plans and immaterial amount to its international pension plans, respectively, for the quarter ended March 31, 2009.  Contributions to post-retirement health care plans for the quarter ended March 31, 2009 were $5 million.

Liabilities subject to compromise as of March 31, 2009, includes $357 million related to all of the U.S. pension and post-retirement health care plans.

15) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company’s activities expose its earnings, cash flows and financial position to a variety of market risks, including the effects of changes in foreign currency exchange rates, interest rates and energy prices.  The Company maintains a risk management strategy that may utilize derivative instruments to mitigate risk against foreign currency movements and to manage energy price volatility.  In accordance with FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities,” FASB Statement No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities,” FASB Statement No. 149, “Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities,” and FASB Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” (collectively, “FAS 133”), the Company recognizes in earnings changes in the fair value of all derivatives designated as fair value hedging instruments that are highly effective and recognizes in accumulated other comprehensive loss (“AOCL”) any changes in the fair value of all derivatives designated as cash flow hedging instruments that are highly effective.  The Company does not enter into derivative instruments for trading or speculative purposes.

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The Company uses price swap contracts as cash flow hedges to convert a portion of its forecasted natural gas purchases from variable price to fixed price purchases.  These contracts are designated as hedges of a portion of the Company’s forecasted natural gas purchases and these contracts involve the exchange of payments over the life of the contracts without an exchange of the notional amount upon which the payments are based.  The differential paid or received as natural gas prices change is reported in AOCL.  These amounts are subsequently reclassified into cost of products sold when the related inventory layer is sold.  At March 31, 2009, the Company had outstanding price swaps with an aggregate notional amount of approximately $4 million, based on the contract price and outstanding quantities of 640 million BTU’s (British Thermal Units).  At March 31, 2008, the Company had outstanding price swaps with an aggregate notional amount of approximately $13 million, based on the contract price and outstanding quantities of 2,280 million BTU’s.  Based on the March 31, 2009 market prices of these natural gas contracts, the Company expects to recognize a loss of approximately $2 million in 2009.

All price swap contracts have been entered into with major financial institutions.  The risk associated with these transactions is the cost of replacing these agreements at current market rates in the event of default by the counterparties.  Management believes the risk of incurring such losses is remote.  In the fourth quarter of 2007, the Company ceased the purchase of additional price swap contracts as a cash flow hedge of forecasted natural gas purchases and established fixed price contracts with physical delivery with its natural gas vendor.  The existing price swap contracts mature through 2009.

The Company has exposure to changes in foreign currency exchange rates resulting from transactions entered into by the Company and its foreign subsidiaries in currencies other than their local currency (primarily trade payables and receivables).  The Company is also exposed to currency risk on intercompany transactions (including intercompany loans).  The Company manages these transactional currency risks on a consolidated basis, which allows it to net its exposure.  The Company has traditionally purchased foreign currency forward contracts, primarily denominated in Euros, British Pound Sterling, Canadian dollars, Mexican Pesos, and Australian dollars to manage its transaction exposure.  The aggregate notional amount of these contracts at March 31, 2008 was approximately $400 million.  These contracts are generally recognized in other income, net to offset the impact of valuing recorded foreign currency trade payables, receivables and intercompany transactions.  The Company has not designated these derivatives as hedges, although it believes these instruments reduce the Company’s exposure to foreign currency risk.  However, as a result of the changes in the Company’s financial condition, it no longer has financing arrangements that provide for the capacity to purchase of foreign currency forward contracts or hedging instruments to continue its prior practice.  As a result, the Company’s ability to hedge changes in foreign currency exchange rates resulting from transactions was limited as of March 31, 2009.  The net effect of the realized and unrealized gains and losses on these derivatives and the underlying transactions is a gain of $1 million and $18 million for the quarters ended March 31, 2009 and 2008, respectively.

The following table summarizes the unrealized (gains) and losses related to certain cash flow hedging for the quarters ended March 31, 2009 and 2008: