2. Special (Gains) and Charges

Special (gains) and charges reported on the Consolidated Statement of Income include the following:

	First Quarter Ended
	March 31
(millions)	2013			2012
Cost of sales
Restructuring charges	$	2.0		$	2.1
Recognition of Nalco inventory fair value step-up	—			73.9
Subtotal	2.0			76.0

Special (gains) and charges
Restructuring charges	18.5			26.5
Champion acquisition costs	7.8			—
Nalco merger and integration costs	3.8			14.9
Venezuela currency devaluation	23.4			—
Litigation related charges and other	(3.8		)	—
Subtotal	49.7			41.4

Operating income subtotal	51.7			117.4

Interest expense, net
Acquisition debt costs	2.2			—
Debt extinguishment costs	—			18.2
Subtotal	2.2			18.2

Net income attributable to noncontrolling interest
Venezuela currency devaluation	(0.5		)	—
Recognition of Nalco inventory fair value step-up	—			(4.5		)
Subtotal	(0.5		)	(4.5		)

Total special (gains) and charges	$	53.4		$	131.1

For segment reporting purposes, special (gains) and charges are included in the Corporate segment, which is consistent with the company’s internal management reporting.

Restructuring Charges

The company incurs costs for restructuring activities associated with plans to enhance its efficiency and effectiveness and sharpen its competitiveness. These restructuring plans include costs associated with significant actions involving employee-related severance charges, contract termination costs and asset write-downs. Employee termination costs are largely based on policies and severance plans, and include personnel reductions and related costs for severance, benefits and outplacement services. These charges are reflected in the quarter when the actions are probable and the amounts are estimable, which typically is when management approves the associated actions. Contract termination costs include charges to terminate leases prior to the end of their respective terms and other contract terminations. Asset write-downs include leasehold improvement write-downs and other asset write-downs associated with combining operations.

Restructuring charges have been included as a component of both cost of sales and special (gains) and charges on the Consolidated Statement of Income. Amounts included as a component of cost of sales include supply chain related severance and other asset write-downs associated with combining operations. Restructuring liabilities have been classified as a component of other current liabilities on the Consolidated Balance Sheet.

Combined Restructuring Plan

In February 2011, the company commenced a comprehensive plan to substantially improve the efficiency and effectiveness of its European business, sharpen its competitiveness and accelerate its growth and profitability. Additionally, restructuring has been and will continue to be undertaken outside of Europe (collectively, the “2011 Restructuring Plan”). Total anticipated charges under this Plan from 2011 through 2013 were expected to be $150 million ($125 million after tax). Through 2012, $134 million of charges ($100 million after tax) were incurred.

In January 2012, following the merger with Nalco Holding Company (“Nalco”), the company formally commenced plans to undertake restructuring actions related to the reduction of its global workforce and optimization of its supply chain and office facilities, including planned reductions of plant and distribution center locations (the “Merger Restructuring Plan”). Total anticipated charges from 2012 through 2013 were expected to be $180 million ($120 million after tax) under this Plan. Through 2012, $80 million of charges ($59 million after tax) were incurred.

As the company looks for opportunities to enhance the efficiency and effectiveness of its operations, it has decided that because the objectives of the plans discussed above are aligned, the previously separate restructuring plans should be combined into one plan.

The Combined Restructuring Plan (the “Combined Plan”) will combine opportunities and initiatives from both plans and is expected to be substantially completed by the end of 2013. The Combined Plan will continue to follow the original format of the Merger Restructuring Plan by focusing on global actions related to optimization of the supply chain and office facilities, including reductions of plant and distribution center locations and the global workforce. Through the completion of the Combined Plan, the company expects to incur total pretax restructuring charges of approximately $80 million to $100 million ($55 million to $70 million after tax).

The company anticipates that approximately $70 million to $85 million of the total pre-tax charges represent net cash expenditures. The remaining pre-tax charges represent estimated asset disposals. No decisions have been made for any remaining asset disposals and estimates could vary depending on the actual actions taken.

During the first quarter of 2013, the company recorded restructuring charges of $20.8 million ($14.3 million after tax) under the Combined Plan.

Combined restructuring charges and activity related to Combined Plan since inception of the underlying actions include the following:

	Combined Plan
	Employee
	Termination			Asset
(millions)	Costs			Disposals			Other			Total

2011 Activity:
Recorded expense and accrual	$	67.1		$	0.5		$	7.1		$	74.7
Cash payments	(22.5		)	—			(2.6		)	(25.1		)
Non-cash charges	—			(0.5		)	—			(0.5		)
Effect of foreign currency translation	(2.2		)	—			—			(2.2		)
Restructuring liability, December 31, 2011	42.4			—			4.5			46.9

2012 Activity:
Recorded expense and accrual	126.1			3.2			10.1			139.4
Cash payments	(62.0		)	—			(3.3		)	(65.3		)
Non-cash charges	—			(3.2		)	(3.9		)	(7.1		)
Effect of foreign currency translation	(0.7		)	—			—			(0.7		)
Restructuring liability, December 31, 2012	105.8			—			7.4			113.2

2013 Activity:
Recorded expense and accrual	9.7			1.6			9.5			20.8
Cash payments	(20.0		)	—			(9.3		)	(29.3		)
Non-cash charges	—			(1.6		)	(0.3		)	(1.9		)
Effect of foreign currency translation	0.1			—			—			0.1
Restructuring liability, March 31, 2013	$	95.6		$	—		$	7.3		$	102.9

Nalco Restructuring Plan

Prior to the Nalco merger, Nalco conducted various restructuring programs to redesign and optimize its business and work processes (the “Nalco Restructuring Plan”). As of March 31, 2013 and December 31, 2012, the remaining liability balance related to the Nalco Restructuring Plan was $2.8 million and $3.4 million, respectively. Cash payments during the three months of 2013 related to this Plan were $0.3 million. The company expects to utilize the remaining liability by the end of 2013.

Non-restructuring Special (Gains) and Charges

Nalco merger & integration costs

As a result of the Nalco merger, the company incurred charges of $3.8 million ($2.7 million after tax) and $102.5 million ($77.7 million after tax) during the first quarter of 2013 and 2012, respectively. Nalco related special charges for 2013 have been included as a component of special (gains) and charges on the Consolidated Statement of Income, and include integration charges. Nalco related special charges for 2012 have been included as a component of cost of sales, special (gains) and charges, net interest expense and net income (loss) attributable to noncontrolling interest on the Consolidated Statement of Income. Amounts within cost of sales and net income (loss) attributable to noncontrolling interest include the recognition of fair value step-up in Nalco international inventory, which is maintained on a FIFO basis. Amounts within special (gains) and charges include merger and integration charges. Amounts within net interest expense for 2012 include a loss on the extinguishment of Nalco’s senior notes, which were assumed as part of the merger.

Champion acquisition costs

In October 2012, the company entered into an agreement and plan of merger to acquire privately-held Champion Technologies and its related company Corsicana Technologies (collectively “Champion”). On April 10, 2013, subsequent to the close of the company’s first quarter, the company completed its acquisition of Champion.

As a result of the company’s efforts to acquire Champion, the company incurred charges of $10.0 million ($7.1 million after tax), during the first quarter of 2013. Champion acquisition related costs have been included as a component of special (gains) and charges and net interest expense on the Consolidated Statement of Income. Amounts included in special (gains) and charges include acquisition costs and advisory fees. Amounts included in net interest expense include the interest expense of the company’s $500 million public debt issuance in December 2012 and fees to secure term loans and short-term debt, all of which were initiated to fund the Champion acquisition. Further information related to the acquisition of Champion is included in Note 3.

Venezuelan currency devaluation

On February 8, 2013, the Venezuelan government devalued its currency, the Bolivar Fuerte. As a result of the devaluation, during the first quarter of 2013, the company recorded a charge of $22.9 million ($15.0 million after tax), reflected as a component of special (gains) and charges, due to the remeasurement of the local balance sheet. Due to the ownership structure in place in Venezuela, the company also reflected a portion of the impact of the devaluation as a component of net income (loss) attributable to noncontrolling interest on the Consolidated Statement of Income.