CE-2014.6.30-10Q


 
 
 
 
 
UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
_______________________________________________________
Form 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2014
 
Or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Commission File Number) 001-32410
CELANESE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
98-0420726
(I.R.S. Employer
Identification No.)
 
 
222 W. Las Colinas Blvd., Suite 900N
Irving, TX
(Address of Principal Executive Offices)
75039-5421
(Zip Code)
(972) 443-4000
(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 þ  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 þ  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 the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No þ
The number of outstanding shares of the registrant’s Series A common stock, $0.0001 par value, as of July 14, 2014 was 155,248,348.
 
 
 
 
 



CELANESE CORPORATION AND SUBSIDIARIES
Form 10-Q
For the Quarterly Period Ended June 30, 2014
TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 


2




Item 1. Financial Statements 
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2014
 
2013
 
2014
 
2013
 
(In $ millions, except share and per share data)
Net sales
1,769

 
1,653

 
3,474

 
3,258

Cost of sales
(1,361
)
 
(1,334
)
 
(2,688
)
 
(2,606
)
Gross profit
408

 
319

 
786

 
652

Selling, general and administrative expenses
(119
)
 
(113
)
 
(223
)
 
(219
)
Amortization of intangible assets
(5
)
 
(9
)
 
(11
)
 
(20
)
Research and development expenses
(24
)
 
(23
)
 
(46
)
 
(49
)
Other (charges) gains, net
2

 
(3
)
 
1

 
(7
)
Foreign exchange gain (loss), net
(1
)
 
(2
)
 
(2
)
 
(3
)
Gain (loss) on disposition of businesses and assets, net
(2
)
 
—

 
(3
)
 
(1
)
Operating profit (loss)
259

 
169

 
502

 
353

Equity in net earnings (loss) of affiliates
101

 
55

 
141

 
109

Interest expense
(40
)
 
(44
)
 
(79
)
 
(87
)
Refinancing expense
—

 
—

 
—

 
—

Interest income
2

 
1

 
2

 
1

Dividend income - cost investments
29

 
23

 
58

 
47

Other income (expense), net
1

 
4

 
1

 
3

Earnings (loss) from continuing operations before tax
352

 
208

 
625

 
426

Income tax (provision) benefit
(94
)
 
(75
)
 
(172
)
 
(152
)
Earnings (loss) from continuing operations
258

 
133

 
453

 
274

Earnings (loss) from operation of discontinued operations
(1
)
 
—

 
(1
)
 
2

Gain (loss) on disposition of discontinued operations
—

 
—

 
—

 
—

Income tax (provision) benefit from discontinued operations
1

 
—

 
1

 
(1
)
Earnings (loss) from discontinued operations
—

 
—

 
—

 
1

Net earnings (loss)
258

 
133

 
453

 
275

Net (earnings) loss attributable to noncontrolling interests
1

 
—

 
2

 
—

Net earnings (loss) attributable to Celanese Corporation
259

 
133

 
455

 
275

Amounts attributable to Celanese Corporation
 

 
 

 
 

 
 

Earnings (loss) from continuing operations
259

 
133

 
455

 
274

Earnings (loss) from discontinued operations
—

 
—

 
—

 
1

Net earnings (loss)
259

 
133

 
455

 
275

Earnings (loss) per common share - basic
 

 
 

 
 

 
 

Continuing operations
1.66

 
0.83

 
2.91

 
1.71

Discontinued operations
—

 
—

 
—

 
0.01

Net earnings (loss) - basic
1.66

 
0.83

 
2.91

 
1.72

Earnings (loss) per common share - diluted
 

 
 

 
 

 
 

Continuing operations
1.66

 
0.83

 
2.91

 
1.71

Discontinued operations
—

 
—

 
—

 
0.01

Net earnings (loss) - diluted
1.66

 
0.83

 
2.91

 
1.72

Weighted average shares - basic
155,751,779

 
159,676,462

 
156,124,714

 
159,679,408

Weighted average shares - diluted
156,054,232

 
160,142,156

 
156,424,665

 
160,138,959


See the accompanying notes to the unaudited interim consolidated financial statements.

3



CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2014
 
2013
 
2014
 
2013
 
(In $ millions)
Net earnings (loss)
258

 
133

 
453

 
275

Other comprehensive income (loss), net of tax
 

 
 

 
 

 
 

Unrealized gain (loss) on marketable securities
—

 
—

 
—

 
—

Foreign currency translation
(22
)
 
26

 
(17
)
 
(5
)
Gain (loss) from cash flow hedges
(3
)
 
2

 
(6
)
 
3

Pension and postretirement benefits
(14
)
 
—

 
(26
)
 
—

Total other comprehensive income (loss), net of tax
(39
)
 
28

 
(49
)
 
(2
)
Total comprehensive income (loss), net of tax
219

 
161

 
404

 
273

Comprehensive (income) loss attributable to noncontrolling interests
1

 
—

 
2

 
—

Comprehensive income (loss) attributable to Celanese Corporation
220

 
161

 
406

 
273


See the accompanying notes to the unaudited interim consolidated financial statements.


4



CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
 
As of
June 30,
2014
 
As of
December 31,
2013
 
(In $ millions, except share data)
ASSETS
 
 
 
Current Assets
 

 
 

Cash and cash equivalents (variable interest entity restricted - 2014: $44)
1,064

 
984

Trade receivables - third party and affiliates (net of allowance for doubtful accounts - 2014: $9; 2013: $9)
1,045

 
867

Non-trade receivables, net
231

 
343

Inventories
816

 
804

Deferred income taxes
115

 
115

Marketable securities, at fair value
39

 
41

Other assets
29

 
28

Total current assets
3,339

 
3,182

Investments in affiliates
880

 
841

Property, plant and equipment (net of accumulated depreciation - 2014: $1,770; 2013: $1,672; variable interest entity restricted - 2014: $252)
3,577

 
3,425

Deferred income taxes
271

 
289

Other assets (variable interest entity restricted - 2014: $24)
332

 
341

Goodwill
794

 
798

Intangible assets, net
140

 
142

Total assets
9,333

 
9,018

LIABILITIES AND EQUITY
 
 
 
Current Liabilities
 

 
 

Short-term borrowings and current installments of long-term debt - third party and affiliates
158

 
177

Trade payables - third party and affiliates
839

 
799

Other liabilities
472

 
541

Deferred income taxes
10

 
10

Income taxes payable
64

 
18

Total current liabilities
1,543

 
1,545

Long-term debt
2,880

 
2,887

Deferred income taxes
228

 
225

Uncertain tax positions
158

 
200

Benefit obligations
1,125

 
1,175

Other liabilities
298

 
287

Commitments and Contingencies


 


Stockholders’ Equity
 

 
 

Preferred stock, $0.01 par value, 100,000,000 shares authorized (2014 and 2013: 0 issued and outstanding)
—

 
—

Series A common stock, $0.0001 par value, 400,000,000 shares authorized (2014: 166,038,983 issued and 155,240,549 outstanding; 2013: 165,867,965 issued and 156,939,828 outstanding)
—

 
—

Series B common stock, $0.0001 par value, 100,000,000 shares authorized (2014 and 2013: 0 issued and outstanding)
—

 
—

Treasury stock, at cost (2014: 10,798,434 shares; 2013: 8,928,137 shares)
(464
)
 
(361
)
Additional paid-in capital
73

 
53

Retained earnings
3,399

 
3,011

Accumulated other comprehensive income (loss), net
(53
)
 
(4
)
Total Celanese Corporation stockholders’ equity
2,955

 
2,699

Noncontrolling interests
146

 
—

Total equity
3,101

 
2,699

Total liabilities and equity
9,333

 
9,018


See the accompanying notes to the unaudited interim consolidated financial statements.

5



CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENT OF EQUITY
 
Six Months Ended
June 30, 2014
 
Shares
 
Amount
 
(In $ millions, except share data)
Series A Common Stock
 

 
 

Balance as of the beginning of the period
156,939,828

 
—

Stock option exercises
150,368

 
—

Purchases of treasury stock
(1,870,297
)
 
—

Stock awards
20,650

 
—

Balance as of the end of the period
155,240,549

 
—

Treasury Stock
 

 
 

Balance as of the beginning of the period
8,928,137

 
(361
)
Purchases of treasury stock, including related fees
1,870,297

 
(103
)
Balance as of the end of the period
10,798,434

 
(464
)
Additional Paid-In Capital
 

 
 

Balance as of the beginning of the period
 

 
53

Stock-based compensation, net of tax
 

 
17

Stock option exercises, net of tax
 

 
3

Balance as of the end of the period
 

 
73

Retained Earnings
 

 
 

Balance as of the beginning of the period
 

 
3,011

Net earnings (loss) attributable to Celanese Corporation
 

 
455

Series A common stock dividends
 

 
(67
)
Balance as of the end of the period
 

 
3,399

Accumulated Other Comprehensive Income (Loss), Net
 

 
 

Balance as of the beginning of the period
 

 
(4
)
Other comprehensive income (loss), net of tax
 

 
(49
)
Balance as of the end of the period
 

 
(53
)
Total Celanese Corporation stockholders’ equity
 

 
2,955

Noncontrolling Interests
 

 
 

Balance as of the beginning of the period
 

 
—

Net earnings (loss) attributable to noncontrolling interests
 

 
(2
)
Contributions from noncontrolling interests
 
 
148

Balance as of the end of the period
 

 
146

Total equity
 

 
3,101


See the accompanying notes to the unaudited interim consolidated financial statements.



6



CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Six Months Ended
June 30,
 
2014
 
2013
 
(In $ millions)
Operating Activities
 

 
 

Net earnings (loss)
453

 
275

Adjustments to reconcile net earnings (loss) to net cash provided by operating activities
 

 
 

Other charges (gains), net of amounts used
(22
)
 
(9
)
Depreciation, amortization and accretion
151

 
158

Pension and postretirement net periodic benefit cost
(55
)
 
(10
)
Pension and postretirement contributions
(62
)
 
(33
)
Deferred income taxes, net
(9
)
 
(6
)
(Gain) loss on disposition of businesses and assets, net
4

 
1

Refinancing expense
—

 
—

Other, net
(5
)
 
—

Operating cash provided by (used in) discontinued operations
(1
)
 
(5
)
Changes in operating assets and liabilities
 

 
 

Trade receivables - third party and affiliates, net
(175
)
 
(104
)
Inventories
(15
)
 
(29
)
Other assets
25

 
(55
)
Trade payables - third party and affiliates
55

 
72

Other liabilities
73

 
121

Net cash provided by (used in) operating activities
417

 
376

Investing Activities
 

 
 

Capital expenditures on property, plant and equipment
(130
)
 
(128
)
Acquisitions, net of cash acquired
—

 
—

Proceeds from sale of businesses and assets, net
—

 
12

Capital expenditures related to Kelsterbach plant relocation
—

 
(6
)
Capital expenditures related to Fairway Methanol LLC
(143
)
 
(21
)
Other, net
(10
)
 
(34
)
Net cash provided by (used in) investing activities
(283
)
 
(177
)
Financing Activities
 

 
 

Short-term borrowings (repayments), net
1

 
(11
)
Proceeds from short-term debt
25

 
27

Repayments of short-term debt
(43
)
 
(24
)
Proceeds from long-term debt
—

 
50

Repayments of long-term debt
(13
)
 
(62
)
Refinancing costs
—

 
—

Purchases of treasury stock, including related fees
(103
)
 
(6
)
Stock option exercises
3

 
3

Series A common stock dividends
(67
)
 
(26
)
Contributions from noncontrolling interests
148

 
—

Other, net
(1
)
 
—

Net cash provided by (used in) financing activities
(50
)
 
(49
)
Exchange rate effects on cash and cash equivalents
(4
)
 
(2
)
Net increase (decrease) in cash and cash equivalents
80

 
148

Cash and cash equivalents as of beginning of period
984

 
959

Cash and cash equivalents as of end of period
1,064

 
1,107


See the accompanying notes to the unaudited interim consolidated financial statements.

7



CELANESE CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. Description of the Company and Basis of Presentation
Description of the Company
Celanese Corporation and its subsidiaries (collectively, the "Company") is a global technology and specialty materials company. The Company’s business involves processing chemical raw materials, such as methanol, carbon monoxide and ethylene, and natural products, including wood pulp, into value-added chemicals, thermoplastic polymers and other chemical-based products.
Definitions
In this Quarterly Report on Form 10-Q ("Quarterly Report"), the term "Celanese" refers to Celanese Corporation, a Delaware corporation, and not its subsidiaries. The term "Celanese US" refers to the Company’s subsidiary, Celanese US Holdings LLC, a Delaware limited liability company, and not its subsidiaries.
Basis of Presentation
The unaudited interim consolidated financial statements for the three and six months ended June 30, 2014 and 2013 contained in this Quarterly Report were prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP") for all periods presented and include the accounts of the Company, its majority owned subsidiaries over which the Company exercises control and, when applicable, variable interest entities in which the Company is the primary beneficiary. The unaudited interim consolidated financial statements and other financial information included in this Quarterly Report, unless otherwise specified, have been presented to separately show the effects of discontinued operations.
In the opinion of management, the accompanying unaudited consolidated balance sheets and related unaudited interim consolidated statements of operations, comprehensive income (loss), cash flows and equity include all adjustments, consisting only of normal recurring items necessary for their fair presentation in conformity with US GAAP. Certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP may have been condensed or omitted in accordance with rules and regulations of the Securities and Exchange Commission ("SEC"). These unaudited interim consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements as of and for the year ended December 31, 2013, filed on February 7, 2014 with the SEC as part of the Company's Annual Report on Form 10-K.
Operating results for the three and six months ended June 30, 2014 are not necessarily indicative of the results to be expected for the entire year.
In the ordinary course of business, the Company enters into contracts and agreements relative to a number of topics, including acquisitions, dispositions, joint ventures, supply agreements, product sales and other arrangements. The Company endeavors to describe those contracts or agreements that are material to its business, results of operations or financial position. The Company may also describe some arrangements that are not material but in which the Company believes investors may have an interest or which may have been included in a Form 8-K filing. Investors should not assume the Company has described all contracts and agreements relative to the Company’s business in this Quarterly Report.
For those consolidated ventures in which the Company owns or is exposed to less than 100% of the economics, the outside stockholders' interests are shown as noncontrolling interests.
The Company has reclassified certain prior period amounts to conform to the current period’s presentation.
Estimates and Assumptions
The preparation of unaudited interim consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the unaudited interim consolidated financial statements and the reported amounts of revenues, expenses and allocated charges during the reporting period. Significant estimates pertain to impairments of goodwill, intangible assets and other long-lived assets, purchase price allocations, restructuring costs and other (charges) gains, net, income taxes, pension and other postretirement benefits, asset retirement obligations, environmental liabilities and loss contingencies, among others. Actual results could differ from those estimates.

8



2. Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"). ASU 2014-09 supersedes the revenue recognition requirements of FASB Accounting Standards Codification ("ASC") Topic 605, Revenue Recognition and most industry-specific guidance throughout the Accounting Standards Codification, resulting in the creation of FASB ASC Topic 606, Revenue from Contracts with Customers. ASU 2014-09 requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. This ASU provides alternative methods of retrospective adoption and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is not permitted. The Company is currently assessing the potential impact of adopting this ASU on its financial statements and related disclosures.
In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, an amendment to FASB ASC Topic 205, Presentation of Financial Statements and FASB ASC Topic 360, Property, Plant and Equipment. The update revises the definition of discontinued operations by limiting discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity's operations and financial results, removing the lack of continuing involvement criteria and requiring discontinued operations reporting for the disposal of an equity method investment that meets the definition of discontinued operations. The update also requires expanded disclosures for discontinued operations, including disclosure of pretax profit or loss of an individually significant component of an entity that does not qualify for discontinued operations reporting. This ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2014. The Company will apply the guidance prospectively to disposal activity occurring after the effective date of this ASU.
3. Acquisitions, Dispositions and Plant Closures
Plant Closures
•
Roussillon, France
In November 2013, the Company announced its intent to initiate an information and consultation process on the contemplated closure of its acetic anhydride facility in Roussillon, France. In December 2013, the Company announced it had completed the consultation process pursuant to which the Company ceased all manufacturing operations in December 2013. The Roussillon, France acetic anhydride operations are included in the Company's Acetyl Intermediates segment.
•
Tarragona, Spain
In November 2013, the Company announced its intent to initiate an information and consultation process on the contemplated closure of its vinyl acetate monomer ("VAM") facility in Tarragona, Spain. In December 2013, the Company announced it had completed the consultation process pursuant to which the Company ceased all manufacturing operations in December 2013. The Tarragona, Spain VAM operations are included in the Company's Acetyl Intermediates segment.
Exit costs related to the closure of the Company's Roussillon acetic anhydride operations and Tarragona VAM operations are recorded to Other (charges) gains, net in the unaudited interim consolidated statements of operations (Note 14).
4. Ventures and Variable Interest Entities
Ventures
The Company's equity method investment, InfraServ GmbH & Co. Hoechst KG, is owned primarily by an entity included in Other Activities. The Company's Consumer Specialties and Acetyl Intermediates segments also each hold an ownership percentage. During the three months ended June 30, 2014, InfraServ GmbH & Co. Hoechst KG restructured the debt of a subsidiary resulting in additional equity in net earnings of affiliates of $29 million attributable to Other Activities and $6 million and $13 million attributable to the Company's Consumer Specialties and Acetyl Intermediates segments, respectively (Note 19).

9



Consolidated Variable Interest Entities
On February 4, 2014, the Company and Mitsui & Co., Ltd., of Tokyo, Japan (“Mitsui”) formed a 50%-owned joint venture, Fairway Methanol LLC ("Fairway"), for the production of methanol at the Company's integrated chemical plant in Clear Lake, Texas. The planned methanol unit will utilize natural gas in the US Gulf Coast region as a feedstock and will benefit from the existing infrastructure at the Company's Clear Lake facility. Both Mitsui and the Company will supply their own natural gas to Fairway in exchange for methanol tolling under a cost-plus off-take arrangement. The planned methanol facility will have an annual capacity of 1.3 million tons and is expected to be operational in the second half of 2015. In exchange for ownership in the venture, the Company contributed net cash of $6 million and pre-formation costs, including costs for long lead time materials, of $103 million of which $70 million was subject to reimbursement from Mitsui should the venture not form and was included in Non-trade receivables at December 31, 2013. Upon consolidation of the venture, the non-trade receivable was settled. Mitsui contributed cash in exchange for ownership in the venture.
The Company determined that Fairway is a variable interest entity (“VIE”) in which the Company is the primary beneficiary. Under the terms of the joint venture agreements, the Company provides site services and day-to-day operations for the methanol facility. In addition, the joint venture agreements provide that the Company indemnifies Mitsui for environmental obligations that exceed a specified threshold, as well as an equity option between the partners. Accordingly, the Company consolidates the venture and records a noncontrolling interest for the share of the venture owned by Mitsui. Fairway is included in the Company's Acetyl Intermediates segment.
The carrying amount of the assets and liabilities associated with Fairway that are included in the unaudited consolidated balance sheet are as follows:
 
As of
June 30,
2014
 
(In $ millions)
Cash and cash equivalents
44

Property, plant and equipment
252

Other assets
24

Total assets(1)
320

 
 
Current liabilities
28

Total liabilities(2)
28

______________________________
(1) 
Assets can only be used to settle the obligations of Fairway.
(2) 
Represents amounts owed by Fairway for reimbursement of expenditures.
Nonconsolidated Variable Interest Entities
The Company holds variable interests in entities that supply certain raw materials and services to the Company. The variable interests primarily relate to cost-plus contractual arrangements with the suppliers and recovery of capital expenditures for certain plant assets plus a rate of return on such assets. Liabilities for such supplier recoveries of capital expenditures have been recorded as capital lease obligations. The entities are not consolidated because the Company is not the primary beneficiary of the entities as it does not have the power to direct the activities of the entities that most significantly impact the entities' economic performance. The Company's maximum exposure to loss as a result of its involvement with these VIEs as of June 30, 2014 relates primarily to the recovery of capital expenditures for certain plant assets.

10



The carrying amount of the assets and liabilities associated with the obligations to nonconsolidated VIEs, as well as the maximum exposure to loss relating to these nonconsolidated VIEs are as follows:
 
As of
June 30,
2014
 
As of
December 31,
2013
 
(In $ millions)
Property, plant and equipment, net
102
 
111
 
 
 
 
Trade payables
54
 
56
Current installments of long-term debt
9
 
8
Long-term debt
128
 
136
Total liabilities
191
 
200
 
 
 
 
Maximum exposure to loss
309
 
318
The difference between the total liabilities associated with obligations to VIEs and the maximum exposure to loss primarily represents take-or-pay obligations for services included in the Company's unconditional purchase obligations (Note 18).
5. Marketable Securities, at Fair Value
The Company’s nonqualified trusts hold available-for-sale securities for funding requirements of the Company's nonqualified pension plans (Note 11).
The amortized cost, gross unrealized gain, gross unrealized loss and fair values for available-for-sale securities by major security type are as follows:
 
As of
June 30,
2014
 
As of
December 31,
2013
 
(In $ millions)
Mutual Funds
 
 
 
Amortized cost
39

 
41

Gross unrealized gain
—

 
—

Gross unrealized loss
—

 
—

Fair value
39

 
41

See Note 17 - Fair Value Measurements for additional information regarding the fair value of the Company's marketable securities.
6. Inventories
 
As of
June 30,
2014
 
As of
December 31,
2013
 
(In $ millions)
Finished goods
600

 
571

Work-in-process
52

 
59

Raw materials and supplies
164

 
174

Total
816

 
804


11



7. Goodwill and Intangible Assets, Net
Goodwill
 
Advanced
Engineered
Materials
 
Consumer
Specialties
 
Industrial
Specialties
 
Acetyl
Intermediates
 
Total
 
(In $ millions)
As of December 31, 2013
 

 
 

 
 

 
 

 
 

Goodwill
303

 
254

 
43

 
198

 
798

Accumulated impairment losses
—

 
—

 
—

 
—

 
—

Net book value
303

 
254

 
43

 
198

 
798

Exchange rate changes
(1
)
 
(1
)
 
—

 
(2
)
 
(4
)
As of June 30, 2014
 
 
 
 
 
 
 
 
 
Goodwill
302

 
253

 
43

 
196

 
794

Accumulated impairment losses
—

 
—

 
—

 
—

 
—

Net book value
302

 
253

 
43

 
196

 
794

Intangible Assets, Net
Finite-lived intangible assets are as follows:
 
Licenses
 
Customer-
Related
Intangible
Assets
 
Developed
Technology
 
Covenants
Not to
Compete
and Other
 
Total
 
 
(In $ millions)
 
Gross Asset Value
 

 
 

 
 

 
 

 
 

 
As of December 31, 2013
33

 
544

 
30

 
39

 
646

 
Acquisitions
—

 
—

 
—

 
10

 
10

(1) 
Exchange rate changes
(1
)
 
(4
)
 
—

 
—

 
(5
)
 
As of June 30, 2014
32

 
540

 
30

 
49

 
651

 
Accumulated Amortization
 
 
 
 
 
 
 
 
 
 
As of December 31, 2013
(20
)
 
(521
)
 
(21
)
 
(25
)
 
(587
)
 
Amortization
(2
)
 
(7
)
 
(1
)
 
(1
)
 
(11
)
 
Exchange rate changes
—

 
4

 
—

 
—

 
4

 
As of June 30, 2014
(22
)
 
(524
)
 
(22
)
 
(26
)
 
(594
)
 
Net book value
10

 
16

 
8

 
23

 
57

 
______________________________
(1) 
Primarily represents intangible assets acquired related to Fairway with a weighted average amortization period of 27 years (Note 4).
Indefinite-lived intangible assets are as follows:
 
Trademarks
and Trade Names
 
(In $ millions)
As of December 31, 2013
83

Acquisitions
—

Accumulated impairment losses
—

Exchange rate changes
—

As of June 30, 2014
83


12



The Company's trademarks and trade names have an indefinite life. For the six months ended June 30, 2014, the Company did not renew or extend any intangible assets.
Estimated amortization expense for the succeeding five fiscal years is as follows:
 
(In $ millions)
2015
11

2016
8

2017
7

2018
4

2019
3

8. Current Other Liabilities
 
As of
June 30,
2014
 
As of
December 31,
2013
 
(In $ millions)
Asset retirement obligations
18

 
29

Current portion of benefit obligations
47

 
78

Customer rebates
38

 
48

Derivatives (Note 16)
7

 
12

Environmental (Note 12)
26

 
30

Insurance
10

 
14

Interest
24

 
24

Restructuring (Note 14)
39

 
60

Salaries and benefits
94

 
96

Sales and use tax/foreign withholding tax payable
14

 
12

Uncertain tax positions
64

 
64

Other
91

 
74

Total
472

 
541

9. Noncurrent Other Liabilities
 
As of
June 30,
2014
 
As of
December 31,
2013
 
(In $ millions)
Asset retirement obligations
19

 
18

Deferred proceeds
52

 
53

Deferred revenue
26

 
28

Derivatives (Note 16)
6

 
3

Environmental (Note 12)
66

 
67

Income taxes payable
21

 
20

Insurance
55

 
50

Restructuring (Note 14)
1

 
2

Other
52

 
46

Total
298

 
287


13



10. Debt
 
As of
June 30,
2014
 
As of
December 31,
2013
 
(In $ millions)
Short-Term Borrowings and Current Installments of Long-Term Debt - Third Party and Affiliates
 
 
 
Current installments of long-term debt
23

 
24

Short-term borrowings, including amounts due to affiliates
100

 
103

Accounts receivable securitization facility
35

 
50

Total
158

 
177

The Company's weighted average interest rate on short-term borrowings, including amounts due to affiliates and borrowing under the accounts receivable securitization facility, was 3.4% as of June 30, 2014 compared to 3.2% as of December 31, 2013. The weighted average interest rate on the accounts receivable securitization facility was 0.7% as of June 30, 2014 and December 31, 2013.
 
As of
June 30,
2014
 
As of
December 31,
2013
 
(In $ millions)
Long-Term Debt
 
 
 
Senior credit facilities - Term C-2 loan due 2016
971

 
978

Senior unsecured notes due 2018, interest rate of 6.625%
600

 
600

Senior unsecured notes due 2021, interest rate of 5.875%
400

 
400

Senior unsecured notes due 2022, interest rate of 4.625%
500

 
500

Pollution control and industrial revenue bonds due at various dates through 2030, interest rates ranging from 5.7% to 6.7%
169

 
169

Obligations under capital leases due at various dates through 2054
263

 
264

Subtotal
2,903

 
2,911

Current installments of long-term debt
(23
)
 
(24
)
Total
2,880

 
2,887

Senior Notes
In November 2012, Celanese US completed an offering of $500 million in aggregate principal amount of 4.625% senior unsecured notes due 2022 (the "4.625% Notes") in a public offering registered under the Securities Act of 1933, as amended (the "Securities Act").
In May 2011, Celanese US completed an offering of $400 million in aggregate principal amount of 5.875% senior unsecured notes due 2021 (the "5.875% Notes") in a public offering registered under the Securities Act.
In September 2010, Celanese US completed the private placement of $600 million in aggregate principal amount of 6.625% senior unsecured notes due 2018 (the "6.625% Notes" and, together with the 4.625% Notes and the 5.875% Notes, collectively the "Senior Notes"). In April 2011, Celanese US registered the 6.625% Notes under the Securities Act.
The Senior Notes are senior unsecured obligations of Celanese US and rank equally in right of payment with all other unsubordinated indebtedness of Celanese US. The Senior Notes are guaranteed on a senior unsecured basis by Celanese and each of the domestic subsidiaries of Celanese US that guarantee its obligations under its senior secured credit facilities (the "Subsidiary Guarantors"). The indentures under which the Senior Notes were issued contain covenants, including, but not limited to, restrictions on the Company’s ability to incur indebtedness; grant liens on assets; merge, consolidate, or sell assets; pay dividends or make other restricted payments; engage in transactions with affiliates; or engage in other businesses.

14



Senior Credit Facilities
In September 2013, Celanese US, Celanese, and certain of the domestic subsidiaries of Celanese US entered into an amendment agreement with the lenders under Celanese US’s existing senior secured credit facilities in order to amend and restate the Company's 2010 amended credit agreement (as amended and restated by the 2013 amendment agreement, the "Amended Credit Agreement"). The Amended Credit Agreement consists of a Term C-2 loan facility due 2016, a $600 million revolving credit facility terminating in 2015 and an $81 million credit-linked revolving facility, which was terminated on March 28, 2014.
As of June 30, 2014, the margin for borrowings under the Term C-2 loan facility was 2.0% above LIBOR (for US dollars) and 2.0% above the Euro Interbank Offered Rate ("EURIBOR") (for Euros), as applicable. As of June 30, 2014, the margin for borrowings under the revolving credit facility was 2.5% above LIBOR. The margin for borrowings under the revolving credit facility is subject to increase or decrease in certain circumstances based on changes in the Company’s corporate credit ratings.
Term loan borrowings under the Amended Credit Agreement are subject to amortization at 1% of the initial principal amount per annum, payable quarterly. In addition, the Company pays quarterly commitment fees on the unused portions of the revolving credit facility of 0.25% per annum.
The Amended Credit Agreement is guaranteed by Celanese and certain domestic subsidiaries of Celanese US and is secured by a lien on substantially all assets of Celanese US and such guarantors, subject to certain agreed exceptions (including for certain real property and certain shares of foreign subsidiaries), pursuant to the Guarantee and Collateral Agreement, dated April 2, 2007.
As a condition to borrowing funds or requesting letters of credit be issued under the revolving credit facility, the Company’s first lien senior secured leverage ratio (as calculated as of the last day of the most recent fiscal quarter for which financial statements have been delivered under the revolving facility) cannot exceed the threshold as specified below. Further, the Company’s first lien senior secured leverage ratio must be maintained at or below that threshold while any amounts are outstanding under the revolving credit facility.
The Company’s amended first lien senior secured leverage ratios under the revolving credit facility are as follows:
As of June 30, 2014
Maximum
 
Estimate
 
Estimate, If Fully Drawn
3.90
 
0.75
 
1.18
The Amended Credit Agreement contains covenants including, but not limited to, restrictions on the Company’s ability to incur indebtedness; grant liens on assets; merge, consolidate, or sell assets; pay dividends or make other restricted payments; make investments; prepay or modify certain indebtedness; engage in transactions with affiliates; enter into sale-leaseback transactions or hedge transactions; or engage in other businesses.
The Amended Credit Agreement also maintains a number of events of default, including a cross default to other debt of Celanese, Celanese US, or their subsidiaries, including the Senior Notes, in an aggregate amount equal to more than $40 million and the occurrence of a change of control. Failure to comply with these covenants, or the occurrence of any other event of default, could result in acceleration of the borrowings and other financial obligations under the Amended Credit Agreement.
The Company is in compliance with all of the covenants related to its debt agreements as of June 30, 2014.
Accounts Receivable Securitization Facility
In August 2013, the Company entered into a $135 million US accounts receivable securitization facility pursuant to (i) a Purchase and Sale Agreement (the "Sale Agreement") among certain US subsidiaries of the Company (each an "Originator"), Celanese International Corporation ("CIC") and CE Receivables LLC, a wholly-owned, "bankruptcy remote" special purpose subsidiary of an Originator (the "Transferor") and (ii) a Receivables Purchase Agreement (the "Purchase Agreement"), among CIC, as servicer, the Transferor, various third-party purchasers (collectively, the "Purchasers") and The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as administrator (the "Administrator").
As of June 30, 2014, the borrowing base was $135 million. The Purchase Agreement expires in 2016, but may be extended for successive one year terms by agreement of the parties. All of the Transferor's assets have been pledged to the Administrator in

15



support of its obligations under the Purchase Agreement. During the six months ended June 30, 2014, the Company repaid $15 million of borrowings outstanding under the accounts receivable securitization facility using cash on hand. As of June 30, 2014, the outstanding amount of accounts receivable transferred by the Originators to the Transferor was $229 million.
The Company's balances available for borrowing are as follows:
 
As of
June 30,
2014
 
(In $ millions)
Revolving Credit Facility
 

Borrowings outstanding
—

Letters of credit issued
—

Available for borrowing
600

Accounts Receivable Securitization Facility
 
Borrowings outstanding
35

Letters of credit issued
79

Available for borrowing
21

11. Benefit Obligations
In November 2013, the Company announced it would amend its US postretirement health care plan to (a) eliminate eligibility for all current and future US non-union employees; (b) terminate its US postretirement health care plan on December 31, 2014 for all US participants; and (c) offer certain eligible US participants a lump-sum buyout payment if they irrevocably waive all future benefits under the US postretirement health care plan and end their participation before December 31, 2014. These actions generated a prior service credit of $92 million, which was recorded to Accumulated other comprehensive income (loss), net in the consolidated balance sheets.
Effective March 27, 2014, the Company eliminated eligibility for all current and future union employees at the Company's Narrows, Virginia facility in its US postretirement health care plan. These actions generated a prior service credit of $5 million, which was recorded to Accumulated other comprehensive income (loss), net in the consolidated balance sheets.
The prior service credits attributable to the Company's US postretirement health care plan are being amortized ratably into the consolidated statements of operations through December 31, 2014. The Company recognized $21 million and $41 million of prior service credit amortization during the three and six months ended June 30, 2014, respectively, and made $1 million and $31 million in lump-sum buyout payments during the three and six months ended June 30, 2014, respectively.
The components of net periodic benefit cost are as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
 
Pension
Benefits
 
Post-retirement
Benefits
 
Pension
Benefits
 
Post-retirement
Benefits
 
Pension
Benefits
 
Post-retirement
Benefits
 
Pension
Benefits
 
Post-retirement
Benefits
 
(In $ millions)
 
(In $ millions)
Service cost
3

 
1

 
8

 
1

 
6

 
1

 
17

 
2

Interest cost
43

 
—

 
38

 
3

 
85

 
2

 
77

 
5

Expected return on plan assets
(54
)
 
—

 
(56
)
 
—

 
(108
)
 
—

 
(112
)
 
—

Amortization of prior service cost (credit), net
—

 
(22
)
 
1

 
—

 
—

 
(41
)
 
1

 
—

Total
(8
)
 
(21
)
 
(9
)
 
4

 
(17
)
 
(38
)
 
(17
)
 
7


16



Benefit obligation funding is as follows:
 
As of
June 30,
2014
 
Total
Expected
2014
 
(In $ millions)
Cash contributions to defined benefit pension plans
12

 
47

Benefit payments to nonqualified pension plans
11

 
22

Benefit payments to other postretirement benefit plans
39

 
54

The Company’s estimates of its US defined benefit pension plan contributions reflect the provisions of the Pension Protection Act of 2006.
The Company participates in a multiemployer defined benefit plan in Germany covering certain employees. The Company’s contributions to the multiemployer defined benefit plan are based on specified percentages of employee contributions and totaled $4 million for the six months ended June 30, 2014.
12. Environmental
General
The Company is subject to environmental laws and regulations worldwide that impose limitations on the discharge of pollutants into the air and water and establish standards for the treatment, storage and disposal of solid and hazardous wastes. The Company believes that it is in substantial compliance with all applicable environmental laws and regulations. The Company is also subject to retained environmental obligations specified in various contractual agreements arising from the divestiture of certain businesses by the Company or one of its predecessor companies.
The components of environmental remediation reserves are as follows:
 
As of
June 30,
2014
 
As of
December 31,
2013
 
(In $ millions)
Demerger obligations (Note 18)
25

 
27

Divestiture obligations (Note 18)
21

 
21

Active sites
31

 
32

US Superfund sites
12

 
13

Other environmental remediation reserves
3

 
4

Total
92

 
97

Remediation
Due to its industrial history and through retained contractual and legal obligations, the Company has the obligation to remediate specific areas on its own sites as well as on divested, demerger, orphan or US Superfund sites (as defined below). In addition, as part of the demerger agreement between the Company and Hoechst AG ("Hoechst"), a specified portion of the responsibility for environmental liabilities from a number of Hoechst divestitures was transferred to the Company (Note 18). The Company provides for such obligations when the event of loss is probable and reasonably estimable. The Company believes that environmental remediation costs will not have a material adverse effect on the financial position of the Company, but may have a material adverse effect on the results of operations or cash flows in any given period.
US Superfund Sites
In the US, the Company may be subject to substantial claims brought by US federal or state regulatory agencies or private individuals pursuant to statutory authority or common law. In particular, the Company has a potential liability under the US Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, and related state laws (collectively referred to as "Superfund") for investigation and cleanup costs at certain sites. At most of these sites, numerous companies, including the Company, or one of its predecessor companies, have been notified that the US Environmental Protection Agency ("EPA"), state governing bodies or private individuals consider such companies to be potentially responsible

17



parties ("PRP") under Superfund or related laws. The proceedings relating to these sites are in various stages. The cleanup process has not been completed at most sites, and the status of the insurance coverage for some of these proceedings is uncertain. Consequently, the Company cannot accurately determine its ultimate liability for investigation or cleanup costs at these sites.
As events progress at each site for which it has been named a PRP, the Company accrues, as appropriate, a liability for site cleanup. Such liabilities include all costs that are probable and can be reasonably estimated. In establishing these liabilities, the Company considers its shipment of waste to a site, its percentage of total waste shipped to the site, the types of wastes involved, the conclusions of any studies, the magnitude of any remedial actions that may be necessary and the number and viability of other PRPs. Often the Company joins with other PRPs to sign joint defense agreements that settle, among PRPs, each party’s percentage allocation of costs at the site. Although the ultimate liability may differ from the estimate, the Company routinely reviews the liabilities and revises the estimate, as appropriate, based on the most current information available.
One such site is the Lower Passaic River Study Area. The Company and 70 other companies are parties to a May 2007 Administrative Order on Consent with the EPA to perform a Remedial Investigation/Feasibility Study ("RI/FS") of the contaminants in the lower 17-mile stretch known as the Lower Passaic River Study Area. The RI/FS is ongoing and is scheduled to be completed next year. The Company is among a group of settling parties to a June 2012 Administrative Order on Consent with the EPA to perform a removal action on a small section of the river. The Company was named as a third-party defendant along with more than 200 other entities in an action initially brought by the New Jersey Department of Environmental Protection ("NJDEP") in the Supreme Court of New Jersey against Occidental Chemical Corporation and several other companies. This suit by the NJDEP sought recovery of costs arising from alleged discharges into the Lower Passaic River and was resolved as to the Company in December 2013.
The EPA issued a proposed plan for remedial alternatives to address cleanup of the lower 8-mile stretch of the Passaic River on April 11, 2014. The EPA estimates the cost for the alternatives will range from $365 million to $3.2 billion. The EPA's preferred alternative would involve dredging the Passaic River bank to bank and installing an engineered cap at an estimated cost of $1.7 billion. The public comment period was extended and ends August 21, 2014, after which the EPA will evaluate all the input and make its final record of decision, which is expected in early 2015. Currently, the RI/FS is still ongoing and the EPA has not considered comments or determined the scope of the requested cleanup, nor have the final remedy and costs been determined. Additionally, the Company has found no evidence that it contributed any of the primary contaminants of concern to the Passaic River. Accordingly, the Company cannot reliably estimate its portion of the final costs for this matter at this time. The Company is vigorously defending these and all related matters and believes its ultimate allocable share of the cleanup costs will not be material.
Environmental Proceedings
In January 2013, following self-disclosures by the Company, the Company's Meredosia, Illinois site received a Notice of Violation/Finding of Violation from the EPA Region 5 alleging Clean Air Act violations. The Company is working with the EPA and with the state agency to reach a resolution of this matter. Based on currently available information and the Company's past experience, it does not believe that resolution of this matter will have a significant impact on the Company, even though the Company cannot conclude that a penalty will be less than $100,000. The Meredosia, Illinois site is included in the Company's Industrial Specialties segment.
13. Stockholders’ Equity
Common Stock
The Company’s Board of Directors follows a policy of declaring, subject to legally available funds, a quarterly cash dividend on each share of the Company’s Series A Common Stock, par value $0.0001 per share ("Common Stock"), unless the Company’s Board of Directors, in its sole discretion, determines otherwise. The amount available to pay cash dividends is restricted by the Company’s Amended Credit Agreement and the Senior Notes.

18



The Company's Board of Directors approved increases in the Company's Common Stock cash dividend rates as follows:
 
Increase
 
Quarterly Common
Stock Cash Dividend
 
Annual Common
Stock Cash Dividend
 
Effective Date
 
(In percentages)
 
(In $ per share)
 
 
April 2013
20
 
0.09
 
0.36
 
May 2013
July 2013
100
 
0.18
 
0.72
 
August 2013
April 2014
39
 
0.25
 
1.00
 
May 2014
Treasury Stock
The Company’s Board of Directors authorized the repurchase of Common Stock as follows:
 
Authorized Amount
 
(In $ millions)
February 2008
400

October 2008
100

April 2011
129

October 2012
264

February 2014
172

As of June 30, 2014
1,065

These authorizations give management discretion in determining the timing and conditions under which shares may be repurchased. This repurchase program does not have an expiration date.
The share repurchase activity pursuant to this authorization is as follows:
 
Six Months Ended
June 30,
 
Total From
February 2008
Through
June 30, 2014
 
 
2014
 
2013
 
 
Shares repurchased
1,870,297

 
137,692

(1) 
18,199,004

(2) 
Average purchase price per share
$
55.13

 
$
46.24

 
$
42.21

 
Amount spent on repurchased shares (in millions)
$
103

 
$
6

 
$
768

 
______________________________
(1) 
Excludes 6,021 shares withheld from an executive officer to cover statutory minimum withholding requirements for personal income taxes related to the vesting of restricted stock. Restricted stock awards are considered outstanding at the time of issuance and therefore, the shares withheld are treated as treasury shares.
(2) 
Excludes 11,844 shares withheld from an executive officer to cover statutory minimum withholding requirements for personal income taxes related to the vesting of restricted stock. Restricted stock awards are considered outstanding at the time of issuance and therefore, the shares withheld are treated as treasury shares.
The purchase of treasury stock reduces the number of shares outstanding, and the repurchased shares may be used by the Company for compensation programs utilizing the Company’s stock and other corporate purposes. The Company accounts for treasury stock using the cost method and includes treasury stock as a component of stockholders’ equity.

19



Other Comprehensive Income (Loss), Net
 
Three Months Ended June 30,
 
2014
 
2013
 
Gross
Amount
 
Income
Tax
(Provision)
Benefit
 
Net
Amount
 
Gross
Amount
 
Income
Tax
(Provision)
Benefit
 
Net
Amount
 
(In $ millions)
Unrealized gain (loss) on marketable securities
—


—

 
—

 
—

 
—

 
—

Foreign currency translation
(12
)
 
(10
)
 
(22
)
 
28

 
(2
)
 
26

Gain (loss) from cash flow hedges
(3
)

—

 
(3
)
 
3

(1) 
(1
)
 
2

Pension and postretirement benefits
(22
)
 
8

 
(14
)
 
—

(2) 
—

 
—

Total
(37
)
 
(2
)
 
(39
)
 
31

 
(3
)
 
28

______________________________
(1) 
Amount includes $1 million of losses associated with the Company's equity method investments' derivative activity.
(2) 
Amount includes amortization of actuarial gains of $1 million related to the Company's equity method investments' pension plans.
 
Six Months Ended June 30,
 
2014
 
2013
 
Gross
Amount
 
Income
Tax
(Provision)
Benefit
 
Net
Amount
 
Gross
Amount
 
Income
Tax
(Provision)
Benefit
 
Net
Amount
 
(In $ millions)
Unrealized gain (loss) on marketable securities
—

 
—

 
—

 
—

 
—

 
—

Foreign currency translation
(15
)
 
(2
)
 
(17
)
 
(3
)
 
(2
)
 
(5
)
Gain (loss) from cash flow hedges
(3
)
 
(3
)
 
(6
)
 
5

(1) 
(2
)
 
3

Pension and postretirement benefits
(41
)
 
15

 
(26
)
 
—

(2) 
—

 
—

Total
(59
)
 
10

 
(49
)
 
2

 
(4
)
 
(2
)
______________________________
(1) 
Amount includes $1 million of losses associated with the Company's equity method investments' derivative activity.
(2) 
Amount includes amortization of actuarial gains of $1 million related to the Company's equity method investments' pension plans.
Adjustments to Accumulated other comprehensive income (loss), net, are as follows:
 
Unrealized
Gain (Loss)
on
Marketable
Securities
 
Foreign
Currency
Translation
 
Gain (Loss)
from Cash
Flow
Hedges
 
Pension
and
Postretire-
ment
Benefits
 
Accumulated
Other
Comprehensive
Income
(Loss), Net
 
(In $ millions)
As of December 31, 2013
—

 
(3
)
 
(44
)
 
43

 
(4
)
Other comprehensive income before reclassifications
—

 
(15
)
 
(5
)
 
—

 
(20
)
Amounts reclassified from accumulated other comprehensive income (loss)
—

 
—

 
2


(41
)

(39
)
Income tax (provision) benefit
—

 
(2
)
 
(3
)
 
15

 
10

As of June 30, 2014
—

 
(20
)
 
(50
)
 
17

 
(53
)

20



14. Other (Charges) Gains, Net
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2014
 
2013
 
2014
 
2013
 
(In $ millions)
Employee termination benefits
(1
)
 
(1
)
 
(3
)
 
(3
)
Kelsterbach plant relocation
—

 
(2
)
 
—

 
(4
)
Plant/office closures
—

 
—

 
1

 
—

Other
3

 
—

 
3

 
—

Total
2

 
(3
)
 
1

 
(7
)
2014
During the three months ended June 30, 2014, the Company recorded a $3 million adjustment to its initial estimate for asset retirement obligations related to the closure of its acetic anhydride operations in Roussillon, France and its VAM operations in Tarragona, Spain (Note 3).
During the six months ended June 30, 2014, the Company recorded $2 million of employee termination benefits related to the closure of its acetic anhydride facility in Roussillon, France and its VAM facility in Tarragona, Spain (Note 3) and $1 million for employee termination benefits related to a business optimization project included in the Company's Advanced Engineered Materials segment.
2013
During the six months ended June 30, 2013, the Company recorded $3 million of employee termination benefits related to a business optimization project which is included in the Company's Industrial Specialties and Acetyl Intermediates segments.
During the six months ended June 30, 2013, the Company recorded $4 million of costs related to the relocation of the Company's polyacetal ("POM") operations from Kelsterbach, Germany to Frankfurt Hoechst Industrial Park, Germany, which is included in the Company's Advanced Engineered Materials segment.
The changes in the restructuring reserves by business segment are as follows:
 
Advanced
Engineered
Materials
 
Consumer
Specialties
 
Industrial
Specialties
 
Acetyl
Intermediates
 
Other
 
Total
 
(In $ millions)
Employee Termination Benefits
 

 
 

 
 

 
 

 
 

 
 

As of December 31, 2013
4

 
3

 
2

 
16

 
4

 
29

Additions
1

 
—

 
—

 
2

 
—

 
3

Cash payments
(1
)
 
—

 
(1
)
 
(10
)
 
(1
)
 
(13
)
Other changes
—

 
—

 
—

 
—

 
—

 
—

Exchange rate changes
—

 
—

 
—

 
—

 
—

 
—

As of June 30, 2014
4

 
3

 
1

 
8

 
3

 
19

Plant/Office Closures
 

 
 

 
 

 
 

 
 

 
 

As of December 31, 2013
—

 
—

 
—

 
33

 
—

 
33

Additions
—

 
—

 
—

 
—

 
—

 
—

Cash payments
—

 
—

 
—

 
(7
)
 
—

 
(7
)
Other changes
—

 
—

 
—

 
(5
)
 
—

 
(5
)
Exchange rate changes
—

 
—

 
—

 
—

 
—

 
—

As of June 30, 2014
—

 
—

 
—

 
21

 
—

 
21

Total
4

 
3

 
1

 
29

 
3

 
40


21



15. Income Taxes
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2014
 
2013
 
2014
 
2013
 
(In percentages)
Effective income tax rate
27
 
36
 
28
 
36
The decrease in the effective income tax rate for the three and six months ended June 30, 2014 was primarily due to lower losses in jurisdictions without income tax benefit and fewer valuation allowances established in certain jurisdictions against net deferred tax assets compared to the three and six months ended June 30, 2013.
Liabilities for uncertain tax positions and related interest and penalties are recorded in Uncertain tax positions and current Other liabilities in the unaudited consolidated balance sheets. For the six months ended June 30, 2014, the Company's uncertain tax positions decreased $42 million primarily as a result of the reclassification of uncertain tax positions for net operating loss carryforwards in certain jurisdictions to deferred income tax assets in accordance with ASU 2013-11, Presentation of Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, which was effective January 1, 2014.
The Company's US tax returns for the years 2009 through 2012 are currently under audit by the US Internal Revenue Service and certain of the Company's subsidiaries are under audit in jurisdictions outside of the US. In addition, certain statutes of limitations are scheduled to expire in the near future. It is reasonably possible that a further change in the unrecognized tax benefits may occur within the next twelve months related to the settlement of one or more of these audits or the lapse of applicable statutes of limitations. Such amounts have been reflected in the current portion of uncertain tax positions (Note 8).
16. Derivative Financial Instruments
Interest Rate Risk Management
To reduce the interest rate risk inherent in the Company’s variable rate debt, the Company utilizes interest rate swap agreements to convert a portion of its variable rate borrowings into a fixed rate obligation. These interest rate swap agreements are designated as cash flow hedges and fix the LIBOR portion of the Company’s US-dollar denominated variable rate borrowings (Note 10). If an interest rate swap agreement is terminated prior to its maturity, the amount previously recorded in Accumulated other comprehensive income (loss), net is recognized into earnings over the period that the hedged transaction impacts earnings. If the hedging relationship is discontinued because it is probable that the forecasted transaction will not occur according to the original strategy, any related amounts previously recorded in Accumulated other comprehensive income (loss), net are recognized into earnings immediately.
US-dollar interest rate swap derivative arrangements are as follows:
As of June 30, 2014
Notional Value
 
Effective Date
 
Expiration Date
 
Fixed Rate (1)
(In $ millions)
 
 
 
 
 
(In percentages)
500
 
January 2, 2014
 
January 2, 2016
 
1.02
______________________________
(1) 
Fixes the LIBOR portion of the Company's US-dollar denominated variable rate borrowings (Note 10).
As of December 31, 2013
Notional Value
 
Effective Date
 
Expiration Date
 
Fixed Rate (1)
(In $ millions)
 
 
 
 
 
(In percentages)
1,100
 
January 2, 2012
 
January 2, 2014
 
1.71
500
 
January 2, 2014
 
January 2, 2016
 
1.02
______________________________
(1) 
Fixes the LIBOR portion of the Company's US-dollar denominated variable rate borrowings (Note 10).

22



Foreign Exchange Risk Management
Certain subsidiaries have assets and liabilities denominated in currencies other than their respective functional currencies, which creates foreign exchange risk. The Company also enters into foreign currency forwards and swaps to minimize its exposure to foreign currency fluctuations. Through these instruments, the Company mitigates its foreign currency exposure on transactions with third party entities as well as intercompany transactions. The foreign currency forwards and swaps are not designated as hedges under FASB ASC Topic 815, Derivatives and Hedging ("FASB ASC Topic 815"). Gains and losses on foreign currency forwards and swaps entered into to offset foreign exchange impacts on intercompany balances are classified as Other income (expense), net, in the unaudited interim consolidated statements of operations. Gains and losses on foreign currency forwards and swaps entered into to offset foreign exchange impacts on all other assets and liabilities are classified as Foreign exchange gain (loss), net, in the unaudited interim consolidated statements of operations.
Gross notional values of the foreign currency forwards and swaps are as follows:
 
As of
June 30,
2014
 
As of
December 31,
2013
 
(In $ millions)
Total
748

 
869

In April 2014, the Company entered into a cross-currency swap contract to hedge its exposure to foreign currency exchange rate risk associated with certain intercompany loans. Under the terms of the contract, the Company makes interest payments in euros and receives interest in US dollars based on a notional amount at fixed rates over the life of the contract. In addition, the Company will pay euros to and receive US dollars from the counterparty at the maturity of the contract. The terms of the contract correspond to the related hedged intercompany loans. The cross-currency swap contract has been designated as a cash flow hedge, and accordingly, the effective portion of the unrealized gains and losses on the contract is reported in Accumulated other comprehensive income (loss) and reclassified to earnings over the period that the hedged loans affect earnings. The euro notional value is marked-to-market each reporting period based on the current spot rate and gains and losses are classified as Other income (expense), net in the unaudited interim consolidated statements of operations.
The cross-currency swap agreement is as follows:
As of June 30, 2014
Notional Value
 
Effective Date
 
Expiration Date
 
Fixed Rate
(In millions)
 
 
 
 
 
(In percentages)
$225
 
April 17, 2014
 
April 17, 2019
 
3.62
€162
 
April 17, 2014
 
April 17, 2019
 
2.77
Commodity Risk Management
The Company has exposure to the prices of commodities in its procurement of certain raw materials. The Company manages its exposure to commodity risk primarily through the use of long-term supply agreements, multi-year purchasing and sales agreements and forward purchase contracts. The Company regularly assesses its practice of using forward purchase contracts and other raw material hedging instruments in accordance with changes in economic conditions. Forward purchases and swap contracts for raw materials are principally settled through physical delivery of the commodity. For qualifying contracts, the Company has elected to apply the normal purchases and normal sales exception of FASB ASC Topic 815 based on the probability at the inception and throughout the term of the contract that the Company would not settle net and the transaction would result in the physical delivery of the commodity. As such, realized gains and losses on these contracts are included in the cost of the commodity upon the settlement of the contract.

23



Information regarding changes in the fair value of the Company’s derivative arrangements is as follows:
 
Three Months Ended June 30,
 
 
2014
 
2013
 
 
Gain (Loss)
Recognized in
Other
Comprehensive
Income (Loss)
 
Gain (Loss)
Recognized in
Earnings
(Loss)
 
Gain (Loss)
Recognized in
Other
Comprehensive
Income (Loss)
 
Gain (Loss)
Recognized in
Earnings
(Loss)
 
 
(In $ millions)
 
Designated as Cash Flow Hedges
 

 
 

 
 

 
 

 
Interest rate swaps
(1
)
(1) 
(2
)
(3) 
1

(6) 
(3
)
(3) 
Cross-currency swap
(4
)
(2) 
3

(4) 
—

 
—

 
Not Designated as Hedges
 

 
 

 
 

 
 

 
Foreign currency forwards and swaps
—

 
(3
)
(5) 
—

 
(7
)
(5) 
Total
(5
)
 
(2
)
 
1

 
(10
)
 
______________________________
(1) 
Excludes $1 million of tax expense recognized in Other comprehensive income (loss).
(2) 
Excludes $1 million of tax benefit recognized in Other comprehensive income (loss).
(3) 
Reclassified from Accumulated other comprehensive income (loss), net to Interest income (expense) in the unaudited interim consolidated statements of operations.
(4) 
Included in Other income (expense), net in the unaudited interim consolidated statements of operations.
(5) 
Included in Foreign exchange gain (loss), net for operating activity or Other income (expense), net for non-operating activity in the unaudited interim consolidated statements of operations.
(6) 
Excludes $1 million of losses associated with the Company's equity method investments' derivative activity and $1 million of tax expense recognized in Other comprehensive income (loss).
 
Six Months Ended June 30,
 
 
2014
 
2013
 
 
Gain (Loss)
Recognized in
Other
Comprehensive
Income (Loss)
 
Gain (Loss)
Recognized in
Earnings
(Loss)
 
Gain (Loss)
Recognized in
Other
Comprehensive
Income (Loss)
 
Gain (Loss)
Recognized in
Earnings
(Loss)
 
 
(In $ millions)
 
Designated as Cash Flow Hedges
 

 
 

  
 

 
 

 
Interest rate swaps
(1
)
(1) 
(2
)
(3) 
1

(6) 
(5
)
(3) 
Cross-currency swap
(4
)
(2) 
3

(4) 
—

 
—

 
Not Designated as Hedges
 

 
 

 
 

 
 

 
Foreign currency forwards and swaps
—

 
(5
)
(5) 
—

 
(4
)
(5) 
Total
(5
)
 
(4
)
 
1

 
(9
)
 
______________________________
(1)
Excludes $4 million of tax expense recognized in Other comprehensive income (loss).
(2) 
Excludes $1 million of tax benefit recognized in Other comprehensive income (loss).
(3) 
Reclassified from Accumulated other comprehensive income (loss), net to Interest income (expense) in the unaudited interim consolidated statements of operations.
(4) 
Included in Other income (expense), net in the unaudited interim consolidated statements of operations.
(5) 
Included in Foreign exchange gain (loss), net for operating activity or Other income (expense), net for non-operating activity in the unaudited interim consolidated statements of operations.
(6) 
Excludes $1 million of losses associated with the Company's equity method investments' derivative activity and $2 million of tax expense recognized in Other comprehensive income (loss).

24



See Note 17 - Fair Value Measurements for additional information regarding the fair value of the Company’s derivative arrangements.
Certain of the Company's foreign currency forwards and swaps, interest rate swaps and cross-currency swap arrangements permit the Company to net settle all contracts with the counterparty through a single payment in an agreed upon currency in the event of default or early termination of the contract, similar to a master netting arrangement. The Company's interest rate swap agreements are subject to cross collateralization under the Guarantee and Collateral Agreement entered into in conjunction with the Term loan borrowings (Note 10).
 
As of
June 30,
2014
 
As of
December 31,
2013
 
(In $ millions)
Derivative Assets
 
 
 
Gross amount recognized
6

 
1

Gross amount offset in the consolidated balance sheets
—

 
—

Net amount presented in the consolidated balance sheets
6

 
1

Gross amount not offset in the consolidated balance sheets
2

 
1

Net amount
4

 
—

 
As of
June 30,
2014
 
As of
December 31,
2013
 
(In $ millions)
Derivative Liabilities
 
 
 
Gross amount recognized
13

 
16

Gross amount offset in the consolidated balance sheets
—

 
1

Net amount presented in the consolidated balance sheets
13

 
15

Gross amount not offset in the consolidated balance sheets
2

 
1

Net amount
11

 
14


25



17. Fair Value Measurements
The Company follows the provisions of FASB ASC Topic 820, Fair Value Measurement ("FASB ASC Topic 820") for financial assets and liabilities. FASB ASC Topic 820 establishes a three-tiered fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument will be categorized based upon the lowest level of input that is significant to the fair value calculation. Valuations for fund investments such as common/collective trusts and registered investment companies, which do not have readily determinable fair values, are typically estimated using a net asset value provided by a third party as a practical expedient.
The three levels of inputs are defined as follows:
Level 1 - unadjusted quoted prices for identical assets or liabilities in active markets accessible by the Company
Level 2 - inputs that are observable in the marketplace other than those inputs classified as Level 1
Level 3 - inputs that are unobservable in the marketplace and significant to the valuation
The Company’s financial assets and liabilities are measured at fair value on a recurring basis and include securities available for sale and derivative financial instruments. Securities available for sale include mutual funds. Derivative financial instruments include interest rate swaps, cross-currency swaps and foreign currency forwards and swaps.
Marketable Securities. Where possible, the Company utilizes quoted prices in active markets to measure debt and equity securities; such items are classified as Level 1 in the hierarchy and include equity securities. When quoted market prices for identical assets are unavailable, varying valuation techniques are used. Common inputs in valuing these assets include, among others, benchmark yields, issuer spreads and recently reported trades. Such assets are classified as Level 2 in the hierarchy and typically include corporate bonds. Mutual funds are valued at the net asset value per share or unit multiplied by the number of shares or units held as of the measurement date.
Derivatives. Derivative financial instruments are valued in the market using discounted cash flow techniques. These techniques incorporate Level 1 and Level 2 inputs such as interest rates and foreign currency exchange rates. These market inputs are utilized in the discounted cash flow calculation considering the instrument’s term, notional amount, discount rate and credit risk. Significant inputs to the derivative valuation for interest rate swaps, cross-currency swaps and foreign currency forwards and swaps are observable in the active markets and are classified as Level 2 in the hierarchy.

26



Assets and liabilities measured at fair value on a recurring basis are as follows:
 
 
 
Fair Value Measurement
 
Balance Sheet Classification
 
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Total
 
 
 
(In $ millions)
Mutual funds
Marketable securities, at fair value
 
39

 
—

 
39

Derivatives Designated as Cash Flow Hedges
 
 
 
 
 
 
 
Cross-currency swap
Current Other assets
 
—

 
2

 
2

Cross-currency swap
Noncurrent Other assets
 
—

 
3

 
3

Derivatives Not Designated as Hedges
 
 
 
 
 
 


Foreign currency forwards and swaps
Current Other assets
 
—

 
1

 
1

Total assets as of June 30, 2014
 
39

 
6

 
45

Derivatives Designated as Cash Flow Hedges
 
 
 

 
 

 
 

Interest rate swaps
Current Other liabilities
 
—

 
(4
)
 
(4
)
Interest rate swaps
Noncurrent Other liabilities
 
—

 
(2
)
 
(2
)
Cross-currency swap
Current Other liabilities
 
—

 
(1
)
 
(1
)
Cross-currency swap
Noncurrent Other liabilities
 
—

 
(4
)
 
(4
)
Derivatives Not Designated as Hedges
 
 
 
 
 
 
 
Foreign currency forwards and swaps
Current Other liabilities
 
—

 
(2
)
 
(2
)
Total liabilities as of June 30, 2014
 
—

 
(13
)
 
(13
)
 
 
 
 
 
 
 
 
Mutual funds
Marketable securities, at fair value
 
41

 
—

 
41

Derivatives Not Designated as Hedges