CE-2014.9.30-10Q
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 September 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
(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 October 16, 2014 was 153,632,466.
CELANESE CORPORATION AND SUBSIDIARIES
Form 10-Q
For the Quarterly Period Ended September 30, 2014
TABLE OF CONTENTS
Item 1. Financial Statements
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
|
| | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2014 | | 2013 | | 2014 | | 2013 |
| (In $ millions, except share and per share data) |
Net sales | 1,769 |
| | 1,636 |
| | 5,243 |
| | 4,894 |
|
Cost of sales | (1,333 | ) | | (1,290 | ) | | (4,021 | ) | | (3,896 | ) |
Gross profit | 436 |
| | 346 |
| | 1,222 |
| | 998 |
|
Selling, general and administrative expenses | (118 | ) | | (97 | ) | | (341 | ) | | (316 | ) |
Amortization of intangible assets | (5 | ) | | (6 | ) | | (16 | ) | | (26 | ) |
Research and development expenses | (22 | ) | | (24 | ) | | (68 | ) | | (73 | ) |
Other (charges) gains, net | 20 |
| | (4 | ) | | 21 |
| | (11 | ) |
Foreign exchange gain (loss), net | 1 |
| | (2 | ) | | (1 | ) | | (5 | ) |
Gain (loss) on disposition of businesses and assets, net | (2 | ) | | (2 | ) | | (5 | ) | | (3 | ) |
Operating profit (loss) | 310 |
| | 211 |
| | 812 |
| | 564 |
|
Equity in net earnings (loss) of affiliates | 52 |
| | 41 |
| | 193 |
| | 150 |
|
Interest expense | (41 | ) | | (43 | ) | | (120 | ) | | (130 | ) |
Refinancing expense | (4 | ) | | (1 | ) | | (4 | ) | | (1 | ) |
Interest income | 3 |
| | — |
| | 5 |
| | 1 |
|
Dividend income - cost investments | 29 |
| | 22 |
| | 87 |
| | 69 |
|
Other income (expense), net | (2 | ) | | (2 | ) | | (1 | ) | | 1 |
|
Earnings (loss) from continuing operations before tax | 347 |
| | 228 |
| | 972 |
| | 654 |
|
Income tax (provision) benefit | (90 | ) | | (57 | ) | | (262 | ) | | (209 | ) |
Earnings (loss) from continuing operations | 257 |
| | 171 |
| | 710 |
| | 445 |
|
Earnings (loss) from operation of discontinued operations | (7 | ) | | 1 |
| | (8 | ) | | 3 |
|
Gain (loss) on disposition of discontinued operations | — |
| | — |
| | — |
| | — |
|
Income tax (provision) benefit from discontinued operations | 2 |
| | — |
| | 3 |
| | (1 | ) |
Earnings (loss) from discontinued operations | (5 | ) | | 1 |
| | (5 | ) | | 2 |
|
Net earnings (loss) | 252 |
| | 172 |
| | 705 |
| | 447 |
|
Net (earnings) loss attributable to noncontrolling interests | 1 |
| | — |
| | 3 |
| | — |
|
Net earnings (loss) attributable to Celanese Corporation | 253 |
| | 172 |
| | 708 |
| | 447 |
|
Amounts attributable to Celanese Corporation | |
| | |
| | |
| | |
|
Earnings (loss) from continuing operations | 258 |
| | 171 |
| | 713 |
| | 445 |
|
Earnings (loss) from discontinued operations | (5 | ) | | 1 |
| | (5 | ) | | 2 |
|
Net earnings (loss) | 253 |
| | 172 |
| | 708 |
| | 447 |
|
Earnings (loss) per common share - basic | |
| | |
| | |
| | |
|
Continuing operations | 1.67 |
| | 1.08 |
| | 4.58 |
| | 2.80 |
|
Discontinued operations | (0.03 | ) | | 0.01 |
| | (0.03 | ) | | 0.01 |
|
Net earnings (loss) - basic | 1.64 |
| | 1.09 |
| | 4.55 |
| | 2.81 |
|
Earnings (loss) per common share - diluted | |
| | |
| | |
| | |
|
Continuing operations | 1.66 |
| | 1.07 |
| | 4.56 |
| | 2.79 |
|
Discontinued operations | (0.03 | ) | | 0.01 |
| | (0.03 | ) | | 0.01 |
|
Net earnings (loss) - diluted | 1.63 |
| | 1.08 |
| | 4.53 |
| | 2.80 |
|
Weighted average shares - basic | 154,427,554 |
| | 158,501,075 |
| | 155,552,777 |
| | 159,282,314 |
|
Weighted average shares - diluted | 155,174,528 |
| | 159,095,531 |
| | 156,325,511 |
| | 159,846,593 |
|
See the accompanying notes to the unaudited interim consolidated financial statements.
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
|
| | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2014 | | 2013 | | 2014 | | 2013 |
| (In $ millions) |
Net earnings (loss) | 252 |
| | 172 |
| | 705 |
| | 447 |
|
Other comprehensive income (loss), net of tax | |
| | |
| | |
| | |
|
Unrealized gain (loss) on marketable securities | — |
| | 1 |
| | — |
| | 1 |
|
Foreign currency translation | (124 | ) | | 42 |
| | (141 | ) | | 37 |
|
Gain (loss) from cash flow hedges | (5 | ) | | 1 |
| | (11 | ) | | 4 |
|
Pension and postretirement benefits | (8 | ) | | — |
| | (34 | ) | | — |
|
Total other comprehensive income (loss), net of tax | (137 | ) | | 44 |
| | (186 | ) | | 42 |
|
Total comprehensive income (loss), net of tax | 115 |
| | 216 |
| | 519 |
| | 489 |
|
Comprehensive (income) loss attributable to noncontrolling interests | 1 |
| | — |
| | 3 |
| | — |
|
Comprehensive income (loss) attributable to Celanese Corporation | 116 |
| | 216 |
| | 522 |
| | 489 |
|
See the accompanying notes to the unaudited interim consolidated financial statements.
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
|
| | | | | |
| As of September 30, 2014 | | As of December 31, 2013 |
| (In $ millions, except share data) |
ASSETS | | | |
Current Assets | |
| | |
|
Cash and cash equivalents (variable interest entity restricted - 2014: $6) | 1,510 |
| | 984 |
|
Trade receivables - third party and affiliates (net of allowance for doubtful accounts - 2014: $9; 2013: $9) | 1,016 |
| | 867 |
|
Non-trade receivables, net | 200 |
| | 343 |
|
Inventories | 771 |
| | 804 |
|
Deferred income taxes | 111 |
| | 115 |
|
Marketable securities, at fair value | 36 |
| | 41 |
|
Other assets | 43 |
| | 28 |
|
Total current assets | 3,687 |
| | 3,182 |
|
Investments in affiliates | 857 |
| | 841 |
|
Property, plant and equipment (net of accumulated depreciation - 2014: $1,785; 2013: $1,672; variable interest entity restricted - 2014: $388) | 3,618 |
| | 3,425 |
|
Deferred income taxes | 296 |
| | 289 |
|
Other assets (variable interest entity restricted - 2014: $24) | 365 |
| | 341 |
|
Goodwill | 756 |
| | 798 |
|
Intangible assets (net of accumulated amortization - 2014: $567; 2013: $588) | 131 |
| | 142 |
|
Total assets | 9,710 |
| | 9,018 |
|
LIABILITIES AND EQUITY | | | |
Current Liabilities | |
| | |
|
Short-term borrowings and current installments of long-term debt - third party and affiliates | 765 |
| | 177 |
|
Trade payables - third party and affiliates | 816 |
| | 799 |
|
Other liabilities | 483 |
| | 541 |
|
Deferred income taxes | 10 |
| | 10 |
|
Income taxes payable | 115 |
| | 18 |
|
Total current liabilities | 2,189 |
| | 1,545 |
|
Long-term debt | 2,639 |
| | 2,887 |
|
Deferred income taxes | 225 |
| | 225 |
|
Uncertain tax positions | 150 |
| | 200 |
|
Benefit obligations | 1,077 |
| | 1,175 |
|
Other liabilities | 295 |
| | 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: 166,075,904 issued and 153,632,466 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: 12,443,438 shares; 2013: 8,928,137 shares) | (562 | ) | | (361 | ) |
Additional paid-in capital | 83 |
| | 53 |
|
Retained earnings | 3,613 |
| | 3,011 |
|
Accumulated other comprehensive income (loss), net | (190 | ) | | (4 | ) |
Total Celanese Corporation stockholders' equity | 2,944 |
| | 2,699 |
|
Noncontrolling interests | 191 |
| | — |
|
Total equity | 3,135 |
| | 2,699 |
|
Total liabilities and equity | 9,710 |
| | 9,018 |
|
See the accompanying notes to the unaudited interim consolidated financial statements.
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENT OF EQUITY
|
| | | | | |
| Nine Months Ended September 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 | 177,499 |
| | — |
|
Purchases of treasury stock | (3,515,301 | ) | | — |
|
Stock awards | 30,440 |
| | — |
|
Balance as of the end of the period | 153,632,466 |
| | — |
|
Treasury Stock | |
| | |
|
Balance as of the beginning of the period | 8,928,137 |
| | (361 | ) |
Purchases of treasury stock, including related fees | 3,515,301 |
| | (201 | ) |
Balance as of the end of the period | 12,443,438 |
| | (562 | ) |
Additional Paid-In Capital | |
| | |
|
Balance as of the beginning of the period | |
| | 53 |
|
Stock-based compensation, net of tax | |
| | 26 |
|
Stock option exercises, net of tax | |
| | 4 |
|
Balance as of the end of the period | |
| | 83 |
|
Retained Earnings | |
| | |
|
Balance as of the beginning of the period | |
| | 3,011 |
|
Net earnings (loss) attributable to Celanese Corporation | |
| | 708 |
|
Series A common stock dividends | |
| | (106 | ) |
Balance as of the end of the period | |
| | 3,613 |
|
Accumulated Other Comprehensive Income (Loss), Net | |
| | |
|
Balance as of the beginning of the period | |
| | (4 | ) |
Other comprehensive income (loss), net of tax | |
| | (186 | ) |
Balance as of the end of the period | |
| | (190 | ) |
Total Celanese Corporation stockholders' equity | |
| | 2,944 |
|
Noncontrolling Interests | |
| | |
|
Balance as of the beginning of the period | |
| | — |
|
Net earnings (loss) attributable to noncontrolling interests | |
| | (3 | ) |
Contributions from noncontrolling interests | | | 194 |
|
Balance as of the end of the period | |
| | 191 |
|
Total equity | |
| | 3,135 |
|
See the accompanying notes to the unaudited interim consolidated financial statements.
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| | | | | |
| Nine Months Ended September 30, |
| 2014 | | 2013 |
| (In $ millions) |
Operating Activities | |
| | |
|
Net earnings (loss) | 705 |
| | 447 |
|
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities | |
| | |
|
Asset impairments | — |
| | 2 |
|
Depreciation, amortization and accretion | 226 |
| | 238 |
|
Pension and postretirement net periodic benefit cost | (85 | ) | | (16 | ) |
Pension and postretirement contributions | (83 | ) | | (49 | ) |
Deferred income taxes, net | (8 | ) | | 7 |
|
(Gain) loss on disposition of businesses and assets, net | 5 |
| | 2 |
|
Stock-based compensation | 26 |
| | 18 |
|
Undistributed earnings in unconsolidated affiliates | (51 | ) | | (47 | ) |
Other, net | 15 |
| | 7 |
|
Operating cash provided by (used in) discontinued operations | 5 |
| | (5 | ) |
Changes in operating assets and liabilities | |
| | |
|
Trade receivables - third party and affiliates, net | (175 | ) | | (113 | ) |
Inventories | 7 |
| | (34 | ) |
Other assets | 22 |
| | (82 | ) |
Trade payables - third party and affiliates | 45 |
| | 100 |
|
Other liabilities | 142 |
| | 133 |
|
Net cash provided by (used in) operating activities | 796 |
| | 608 |
|
Investing Activities | |
| | |
|
Capital expenditures on property, plant and equipment | (189 | ) | | (199 | ) |
Proceeds from sale of businesses and assets, net | — |
| | 13 |
|
Capital expenditures related to Kelsterbach plant relocation | — |
| | (6 | ) |
Capital expenditures related to Fairway Methanol LLC | (275 | ) | | (60 | ) |
Other, net | (13 | ) | | (38 | ) |
Net cash provided by (used in) investing activities | (477 | ) | | (290 | ) |
Financing Activities | |
| | |
|
Short-term borrowings (repayments), net | 12 |
| | (12 | ) |
Proceeds from short-term debt | 47 |
| | 154 |
|
Repayments of short-term debt | (70 | ) | | (51 | ) |
Proceeds from long-term debt | 387 |
| | 74 |
|
Repayments of long-term debt | (19 | ) | | (192 | ) |
Purchases of treasury stock, including related fees | (201 | ) | | (102 | ) |
Stock option exercises | 4 |
| | 3 |
|
Series A common stock dividends | (106 | ) | | (55 | ) |
Contributions from noncontrolling interests | 194 |
| | — |
|
Other, net | (11 | ) | | (2 | ) |
Net cash provided by (used in) financing activities | 237 |
| | (183 | ) |
Exchange rate effects on cash and cash equivalents | (30 | ) | | 6 |
|
Net increase (decrease) in cash and cash equivalents | 526 |
| | 141 |
|
Cash and cash equivalents as of beginning of period | 984 |
| | 959 |
|
Cash and cash equivalents as of end of period | 1,510 |
| | 1,100 |
|
See the accompanying notes to the unaudited interim consolidated financial statements.
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 nine months ended September 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 nine months ended September 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.
Goodwill and Other Intangible Assets
The Company assesses the recoverability of the carrying amount of its reporting unit goodwill either qualitatively or quantitatively annually during the third quarter of its fiscal year using June 30 balances or whenever events or changes in circumstances indicate that the carrying amount of the asset may not be fully recoverable. In connection with the Company's annual goodwill impairment assessment, the Company did not record an impairment loss to goodwill during the nine months ended September 30, 2014 as the estimated fair value for each of the Company's reporting units exceeded the carrying amount of the underlying assets by a substantial margin.
The Company assesses the recoverability of the carrying amount of its indefinite-lived intangible assets either qualitatively or by utilizing the relief from royalty method under the income approach annually during the third quarter of its fiscal year using June 30 balances or whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. In connection with the Company's annual indefinite-lived intangible assets impairment assessment, the Company did not record an impairment loss to indefinite-lived intangible assets during the nine months ended September 30, 2014 as the estimated fair value of each of the Company's indefinite-lived intangible assets exceeded the carrying value of the underlying assets by a substantial margin.
The Company's trademarks and trade names have an indefinite life. For the nine months ended September 30, 2014, the Company did not renew or extend any intangible assets.
2. Recent Accounting Pronouncements
In August 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern ("ASU 2014-15"), an amendment to FASB Accounting Standards Codification ("ASC") Topic 205, Presentation of Financial Statements. This update provides guidance on management's responsibility in evaluating whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. This ASU is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted. The Company does not expect the adoption of this ASU to have a material impact on its financial statement disclosures.
In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"). ASU 2014-09 supersedes the revenue recognition requirements of FASB 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 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
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.
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 included in Other (charges) gains, net in the unaudited interim consolidated statements of operations (Note 13). 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 18). 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 included in the unaudited consolidated balance sheet are as follows: |
| | |
| As of September 30, 2014 |
| (In $ millions) |
Cash and cash equivalents | 6 |
|
Property, plant and equipment | 388 |
|
Other assets(1) | 24 |
|
Total assets(2) | 418 |
|
| |
Current liabilities | 37 |
|
Total liabilities(3) | 37 |
|
______________________________
| |
(1) | Includes prepaid intangible assets with a weighted average amortization period of 28 years. |
| |
(2) | Assets can only be used to settle the obligations of Fairway. |
| |
(3) | 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 September 30, 2014 relates primarily to the recovery of capital expenditures for certain property, plant and equipment.
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 September 30, 2014 | | As of December 31, 2013 |
| (In $ millions) |
Property, plant and equipment, net | 101 | | 111 |
| | | |
Trade payables | 45 | | 56 |
Current installments of long-term debt | 9 | | 8 |
Long-term debt | 128 | | 136 |
Total liabilities | 182 | | 200 |
| | | |
Maximum exposure to loss | 300 | | 318 |
The difference between the total liabilities associated with obligations to unconsolidated VIEs and the maximum exposure to loss primarily represents take-or-pay obligations for services included in the Company's unconditional purchase obligations (Note 17).
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 10). 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 September 30, 2014 | | As of December 31, 2013 |
| (In $ millions) |
Mutual Funds | | | |
Amortized cost | 36 |
| | 41 |
|
Gross unrealized gain | — |
| | — |
|
Gross unrealized loss | — |
| | — |
|
Fair value | 36 |
| | 41 |
|
6. Inventories |
| | | | | |
| As of September 30, 2014 | | As of December 31, 2013 |
| (In $ millions) |
Finished goods | 570 |
| | 571 |
|
Work-in-process | 49 |
| | 59 |
|
Raw materials and supplies | 152 |
| | 174 |
|
Total | 771 |
| | 804 |
|
7. Current Other Liabilities |
| | | | | |
| As of September 30, 2014 | | As of December 31, 2013 |
| (In $ millions) |
Asset retirement obligations | 8 |
| | 29 |
|
Current portion of benefit obligations | 46 |
| | 78 |
|
Customer rebates | 45 |
| | 48 |
|
| 11 |
| | 12 |
|
| 20 |
| | 30 |
|
Insurance | 12 |
| | 14 |
|
Interest | 31 |
| | 24 |
|
| 29 |
| | 60 |
|
Salaries and benefits | 122 |
| | 96 |
|
Sales and use tax/foreign withholding tax payable | 14 |
| | 12 |
|
Uncertain tax positions | 58 |
| | 64 |
|
Other | 87 |
| | 74 |
|
Total | 483 |
| | 541 |
|
8. Noncurrent Other Liabilities |
| | | | | |
| As of September 30, 2014 | | As of December 31, 2013 |
| (In $ millions) |
Asset retirement obligations | 26 |
| | 18 |
|
Deferred proceeds | 48 |
| | 53 |
|
Deferred revenue | 24 |
| | 28 |
|
| 13 |
| | 3 |
|
| 71 |
| | 67 |
|
Income taxes payable | 20 |
| | 20 |
|
Insurance | 50 |
| | 50 |
|
| — |
| | 2 |
|
Other | 43 |
| | 46 |
|
Total | 295 |
| | 287 |
|
9. Debt |
| | | | | |
| As of September 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 | 625 |
| | 24 |
|
Short-term borrowings, including amounts due to affiliates(1) | 105 |
| | 103 |
|
Accounts receivable securitization facility(2) | 35 |
| | 50 |
|
Total | 765 |
| | 177 |
|
______________________________ | |
(1) | The weighted average interest rate was 3.9% and 4.4% as of September 30, 2014 and December 31, 2013, respectively. |
| |
(2) | The weighted average interest rate was 0.7% as of September 30, 2014 and December 31, 2013. |
|
| | | | | |
| As of September 30, 2014 | | As of December 31, 2013 |
| (In $ millions) |
Long-Term Debt | | | |
Senior credit facilities - Term C-2 loan due 2016 | 35 |
| | 978 |
|
Senior credit facilities - Term C-3 loan due 2018 | 914 |
| | — |
|
Senior unsecured notes due 2018, interest rate of 6.625% | 600 |
| | 600 |
|
Senior unsecured notes due 2019, interest rate of 3.250% | 378 |
| | — |
|
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 | 268 |
| | 264 |
|
Subtotal | 3,264 |
| | 2,911 |
|
Current installments of long-term debt | (625 | ) | | (24 | ) |
Total | 2,639 |
| | 2,887 |
|
Senior Notes
On September 24, 2014, Celanese US completed an offering of €300 million in principal amount of 3.250% senior unsecured notes due 2019 ("3.250% Notes") in a public offering registered under the Securities Act of 1933, as amended ("Securities Act"). In connection with the 3.250% Notes offering, the Company recorded deferred financing costs of $6 million during the three months ended September 30, 2014, which are being amortized over the term of the 3.250% Notes. Deferred financing costs are included in noncurrent Other assets in the unaudited consolidated balance sheets.
The 3.250% Notes were issued under a base indenture dated May 6, 2011 and a third supplemental indenture dated September 24, 2014 ("Third Supplemental Indenture") among Celanese US, Celanese, each of the domestic subsidiaries of Celanese US that guarantee its obligations under its senior secured credit facilities ("Subsidiary Guarantors") and Wells Fargo Bank, National Association, as trustee. Celanese US will pay interest on the 3.250% Notes on April 15 and October 15 of each year commencing on April 15, 2015. Prior to October 15, 2019, Celanese US may redeem some or all of the 3.250% Notes at a redemption price of 100% of the principal amount, plus a "make-whole" premium as specified in the Third Supplemental Indenture, plus accrued and unpaid interest, if any, to the redemption date.
On September 15, 2014, Celanese US issued an irrevocable notice of redemption of the $600 million principal amount of 6.625% senior unsecured notes due 2018 registered under the Securities Act ("6.625% Notes") under the terms of the indenture dated September 24, 2010. On October 15, 2014, Celanese US redeemed the 6.625% Notes at a redemption price of 103.313% of the face amount for a total principal and premium payment of $620 million plus accrued interest of $20 million. Proceeds from the issuance of the 3.250% Notes were used to partially fund the redemption of the 6.625% Notes, as well as cash on hand. The Company will accelerate amortization of deferred financing costs of $5 million, which will be included in Refinancing expense in the unaudited interim consolidated statements of operations during the three months ended December 31, 2014. The 6.625% Notes are included in Short-term borrowings and current installments of long-term debt - third party and affiliates in the unaudited consolidated balance sheet as of September 30, 2014.
In November 2012, Celanese US completed an offering of $500 million in principal amount of 4.625% senior unsecured notes due 2022 ("4.625% Notes") in a public offering registered under the Securities Act.
In May 2011, Celanese US completed an offering of $400 million in principal amount of 5.875% senior unsecured notes due 2021 ("5.875% Notes" and, together with the 6.625% Notes, the 4.625% Notes and the 3.250% Notes, collectively the "Senior Notes") in a public offering registered 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 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.
Senior Credit Facilities
On September 24, 2014, Celanese US, Celanese and the Subsidiary Guarantors entered into an amendment agreement with the lenders under Celanese US's existing senior secured credit facilities in order to amend and restate the amended credit agreement dated September 16, 2013 (as amended and restated by the 2014 amendment agreement, the "Amended Credit Agreement"). Under the Amended Credit Agreement, all of the US dollar-denominated Term C-2 term loans and all but €28 million of the Euro-denominated Term C-2 term loans under the 2013 amended credit agreement were converted into, or refinanced by, the Term C-3 loan facility with an extended maturity date of October 2018. The non-extended portions of the Term C-2 loan facility continue to have a maturity date of October 2016. In addition, the maturity date of the Company's revolving credit facility was extended to October 2018 and the facility was increased to $900 million. Accordingly, the Amended Credit Agreement consists of the Term C-2 loan facility, the Term C-3 loan facility and a $900 million revolving credit facility.
As a result of the Amended Credit Agreement, the Company recorded $4 million of Refinancing expense in the unaudited interim consolidated statements of operations during the three months ended September 30, 2014, which includes accelerated amortization of deferred financing costs and other refinancing expenses. In addition, the Company recorded deferred financing costs of $4 million during the three months ended September 30, 2014, which are being amortized over the term of the Term C-3 loans and revolving credit facility.
As of September 30, 2014, the margin for borrowings under the Term C-2 loan facility was 2.0% above the Euro Interbank Offered Rate ("EURIBOR") and the margin for borrowings under the Term C-3 loan facility was 2.25% above LIBOR (for US
dollars) and 2.25% above EURIBOR (for Euros), as applicable. As of September 30, 2014, the margin for borrowings under the revolving credit facility was 1.5% 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 corporate credit ratings of Celanese or Celanese US.
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 September 30, 2014 |
Maximum | | Estimate | | Estimate, If Fully Drawn |
3.90 | | 0.67 | | 1.27 |
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 $50 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 September 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 ("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 ("Transferor") and (ii) a Receivables Purchase Agreement ("Purchase Agreement"), among CIC, as servicer, the Transferor, various third-party purchasers (collectively, "Purchasers") and The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as administrator ("Administrator").
As of September 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 support of its obligations under the Purchase Agreement. During the nine months ended September 30, 2014, the Company repaid $15 million of borrowings outstanding under the accounts receivable securitization facility using cash on hand. As of September 30, 2014, the outstanding amount of accounts receivable transferred by the Originators to the Transferor was $239 million.
The Company's balances available for borrowing are as follows: |
| | |
| As of September 30, 2014 |
| (In $ millions) |
Revolving Credit Facility | |
|
Borrowings outstanding | — |
|
Letters of credit issued | — |
|
Available for borrowing | 900 |
|
Accounts Receivable Securitization Facility | |
Borrowings outstanding | 35 |
|
Letters of credit issued | 79 |
|
Available for borrowing | 21 |
|
10. 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 is included in Pension and postretirement benefits within Accumulated other comprehensive income (loss), net in the unaudited 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 is included in Pension and postretirement benefits within Accumulated other comprehensive income (loss), net in the unaudited 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 $62 million of prior service credit amortization during the three and nine months ended September 30, 2014, respectively, and made $1 million and $32 million in lump-sum buyout payments during the three and nine months ended September 30, 2014, respectively.
The components of net periodic benefit cost are as follows: |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 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 |
| | — |
| | 9 |
| | — |
| | 9 |
| | 1 |
| | 26 |
| | 2 |
|
Interest cost | 41 |
| | 1 |
| | 39 |
| | 3 |
| | 126 |
| | 3 |
| | 116 |
| | 8 |
|
Expected return on plan assets | (54 | ) | | — |
| | (57 | ) | | — |
| | (162 | ) | | — |
| | (169 | ) | | — |
|
Amortization of prior service cost (credit), net | — |
| | (21 | ) | | — |
| | — |
| | — |
| | (62 | ) | | 1 |
| | — |
|
Total | (10 | ) | | (20 | ) | | (9 | ) | | 3 |
| | (27 | ) | | (58 | ) | | (26 | ) | | 10 |
|
Benefit obligation funding is as follows: |
| | | | | |
| As of September 30, 2014 | | Total Expected 2014 |
| (In $ millions) |
Cash contributions to defined benefit pension plans | 24 |
| | 47 |
|
Benefit payments to nonqualified pension plans | 17 |
| | 22 |
|
Benefit payments to other postretirement benefit plans | 42 |
| | 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 $5 million for the nine months ended September 30, 2014.
11. 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 September 30, 2014 | | As of December 31, 2013 |
| (In $ millions) |
| 27 |
| | 27 |
|
| 22 |
| | 21 |
|
Active sites | 27 |
| | 32 |
|
US Superfund sites | 12 |
| | 13 |
|
Other environmental remediation reserves | 3 |
| | 4 |
|
Total | 91 |
| | 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 17). 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
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") in the lower 17-mile stretch of the Passaic River in order to identify the levels of contaminants and potential cleanup actions. The parties are still working on the RI/FS with a goal to complete it in 2015. On April 11, 2014, the EPA issued its proposed evaluation of remediation alternatives for the lower 8-mile stretch of the Passaic River. The EPA estimates the cost for the various alternatives will range from $365 million to $3.2 billion. The EPA's preferred plan would involve dredging the Passaic River bank to bank and installing an engineered cap at an estimated cost of $1.7 billion.
The parties involved have submitted comments to the EPA challenging the science, scope, necessity and viability of the EPA's proposed plan as the EPA's preferred remedy for the lower 8-mile stretch is inconsistent with the remedy being developed in the RI/FS for the full 17-mile stretch of the river. The EPA will evaluate all the input and is expected to issue a final decision concerning the lower 8-mile stretch of the river in 2015. Any subsequent order from the EPA requiring clean-up actions could be judicially challenged.
As the cost of the final remedy remains uncertain and the Company has found no evidence that it contributed any of the primary contaminants of concern to the Passaic River, 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. On September 22, 2014, the Company and the EPA entered into an administrative settlement agreement, which included a penalty payment of $380,000 and funding of $175,000 for a specific supplemental environmental project. The Meredosia, Illinois site is included in the Company's Industrial Specialties segment.
12. 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.
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 September 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: |
| | | | | | | | | | | | |
|
Nine Months Ended September 30, | | Total From February 2008 Through September 30, 2014 | |
| 2014 | | 2013 | | |
Shares repurchased | 3,515,301 |
| | 2,096,320 |
| (1) | 19,844,008 |
| (2) |
Average purchase price per share | $ | 57.19 |
| | $ | 48.58 |
| | $ | 43.64 |
| |
Amount spent on repurchased shares (in millions) | $ | 201 |
| | $ | 102 |
| | $ | 866 |
| |
______________________________
| |
(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. Accordingly, 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. Accordingly, 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.
Other Comprehensive Income (Loss), Net |
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 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 | — |
|
| — |
| | — |
| | 1 |
| (1) | — |
| | 1 |
|
Foreign currency translation | (127 | ) | | 3 |
| | (124 | ) | | 44 |
| | (2 | ) | | 42 |
|
Gain (loss) from cash flow hedges | (8 | ) |
| 3 |
| | (5 | ) | | 2 |
| (2) | (1 | ) | | 1 |
|
Pension and postretirement benefits | (16 | ) | | 8 |
| | (8 | ) | | — |
|
| — |
| | — |
|
Total | (151 | ) | | 14 |
| | (137 | ) | | 47 |
| | (3 | ) | | 44 |
|
______________________________
| |
(1) | Amount includes $1 million of unrealized gains related to the Company's equity method investments. |
| |
(2) | Amount includes $1 million of gains associated with the Company's equity method investments. |
|
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 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 | — |
| | — |
| | — |
| | 1 |
| (1) | — |
| | 1 |
|
Foreign currency translation | (142 | ) | | 1 |
| | (141 | ) | | 41 |
| | (4 | ) | | 37 |
|
Gain (loss) from cash flow hedges | (11 | ) | | — |
| | (11 | ) | | 7 |
| | (3 | ) | | 4 |
|
Pension and postretirement benefits | (57 | ) | | 23 |
| | (34 | ) | | — |
| (2) | — |
| | — |
|
Total | (210 | ) | | 24 |
| | (186 | ) | | 49 |
| | (7 | ) | | 42 |
|
______________________________
| |
(1) | Amount includes $1 million of unrealized gains related to the Company's equity method investments. |
| |
(2) | Amount includes amortization of actuarial gains of $1 million related to the Company's equity method investments. |
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 | — |
| | (142 | ) | | (14 | ) | | — |
| | (156 | ) |
Amounts reclassified from accumulated other comprehensive income (loss) | — |
| | — |
| | 3 |
|
| (57 | ) |
| (54 | ) |
Income tax (provision) benefit | — |
| | 1 |
| | — |
| | 23 |
| | 24 |
|
As of September 30, 2014 | — |
| | (144 | ) | | (55 | ) | | 9 |
| | (190 | ) |
13. Other (Charges) Gains, Net |
| | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2014 | | 2013 | | 2014 | | 2013 |
| (In $ millions) |
Employee termination benefits | (3 | ) | | — |
| | (6 | ) | | (3 | ) |
Kelsterbach plant relocation | — |
| | (2 | ) | | — |
| | (6 | ) |
Asset impairments | — |
| | (2 | ) | | — |
| | (2 | ) |
Plant/office closures | 1 |
| | — |
| | 2 |
| | — |
|
Commercial disputes | 21 |
| | — |
| | 21 |
| | — |
|
Other | 1 |
| | — |
| | 4 |
| | — |
|
Total | 20 |
| | (4 | ) | | 21 |
| | (11 | ) |
2014
During the three months ended September 30, 2014, the Company received consideration of $6 million in connection with the settlement of a claim against a bankrupt supplier. The resolution of this commercial dispute is included in the Acetyl Intermediates segment. In addition, the Company recovered $15 million from an arbitration award against a former utility operator at its cellulose derivatives manufacturing facility in Narrows, Virginia, which is included in the Consumer Specialties segment.
During the nine months ended September 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 facility in Roussillon, France and its VAM facility in Tarragona, Spain (Note 3). Also, during the nine months ended September 30, 2014, the Company recorded $4 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). 2013
During the nine months ended September 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. In addition, during the nine months ended September 30, 2013, the Company recorded $6 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 |
| | — |
| | 1 |
| | 4 |
| | — |
| | 6 |
|
Cash payments | (1 | ) | | (1 | ) | | (2 | ) | | (13 | ) | | (1 | ) | | (18 | ) |
Other changes |
|
| | — |
| | — |
| | — |
| | — |
| | — |
|
Exchange rate changes | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
As of September 30, 2014 | 4 |
| | 2 |
| | 1 |
| | 7 |
| | 3 |
| | 17 |
|
Plant/Office Closures | |
| | |
| | |
| | |
| | |
| | |
|
As of December 31, 2013 | — |
| | — |
| | — |
| | 33 |
| | — |
| | 33 |
|
Additions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Cash payments | — |
| | — |
| | — |
| | (7 | ) | | — |
| | (7 | ) |
Other changes | — |
| | — |
| | — |
| | (12 | ) | (1) | — |
| | (12 | ) |
Exchange rate changes | — |
| | — |
| | — |
| | (2 | ) | | — |
| | (2 | ) |
As of September 30, 2014 | — |
| | — |
| | — |
| | 12 |
| | — |
| | 12 |
|
Total | 4 |
| | 2 |
| | 1 |
| | 19 |
| | 3 |
| | 29 |
|
______________________________ | |
(1) | Includes a $10 million non-cash reduction to take-or-pay contract termination penalties resulting from the closure of the Company's VAM facility in Tarragona, Spain (Note 3). |
14. Income Taxes |
| | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2014 | | 2013 | | 2014 | | 2013 |
| (In percentages) |
Effective income tax rate | 26 | | 25 | | 27 | | 32 |
The effective income tax rate for the three months ended September 30, 2014 was comparable to the rate for the three months ended September 30, 2013. The decrease in the effective income tax rate for the nine months ended September 30, 2014 was primarily due to decreased earnings in high income tax jurisdictions combined with decreases in losses in jurisdictions without income tax benefit.
For the nine months ended September 30, 2014, the Company's uncertain tax positions decreased $55 million primarily as a result of a $42 million decrease for 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, and a decrease of $16 million due to exchange rate changes.
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 7). 15. 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 9). Accordingly, to the extent the cash flow hedge is effective, changes in the fair value of interest rate swaps are included in Gain (loss) from cash flow hedges within Accumulated other comprehensive income (loss), net in the unaudited consolidated balance sheets. Hedge accounting is discontinued when the interest rate swap is no longer effective in offsetting cash flows attributable to the hedged risk, the interest rate swap expires or the cash flow hedge is dedesignated because it is probable that the forecasted transaction will not occur according to the original strategy. When a cash flow hedge is dedesignated, any related amounts previously included in Accumulated other comprehensive income (loss), net would be reclassified to earnings immediately. US-dollar interest rate swap derivative arrangements are as follows: |
| | | | | | |
As of September 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 9). |
|
| | | | | | |
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 9). |
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 is exposed to foreign currency fluctuations on transactions with third-party entities as well as intercompany transactions. The Company minimizes its exposure to foreign currency fluctuations by entering into foreign currency forwards and swaps. These foreign currency forwards and swaps are not designated as hedges. Gains and losses on foreign currency forwards and swaps entered into to offset foreign exchange impacts on intercompany balances are included in 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 included in 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 September 30, 2014 | | As of December 31, 2013 |
| (In $ millions) |
Total | 608 |
| | 869 |
|
The Company uses non-derivative financial instruments that may give rise to foreign currency transaction gains or losses to hedge the foreign currency exposure of net investments in foreign operations. During the three months ended September 30, 2014, the Company designated the €300 million of the principal amount of its 3.250% Notes as a net investment hedge of its investment in a wholly-owned international subsidiary whose functional currency is the Euro to mitigate the volatility caused by the changes in foreign currency exchange rates of the Euro with respect to the US dollar. Accordingly, the effective portion of gains and losses from remeasurement of the 3.250% Notes is included in foreign currency translation within Accumulated other comprehensive income (loss), net in the unaudited consolidated balance sheets. Gains and losses are reclassified to earnings in the period the hedged investment is sold or liquidated.
The Company uses cross-currency swap contracts to hedge its exposure to foreign currency exchange rate risk associated with certain intercompany loans. Under the terms of the contracts, 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 contracts. In addition, the Company pays Euros to and receives US dollars from the counterparty on the notional amount at the maturity of the contract. The terms of the contracts correspond to the related hedged intercompany loans. The cross-currency swap contracts have been designated as cash flow hedges. Accordingly, the effective portion of the unrealized gains and losses on the contracts is included in gain (loss) from cash flow hedges within Accumulated other comprehensive income (loss), net in the unaudited consolidated balance sheets. Gains and losses are reclassified to earnings over the period that the hedged loans affect earnings. The Euro notional values are marked-to-market based on the current spot rate and gains and losses are included in Other income (expense), net in the unaudited interim consolidated statements of operations.
The cross-currency swap agreements are as follows: |
| | | | | | |
As of September 30, 2014 |
Notional Value | | Effective Date | | Expiration Date | | Fixed Rate |
(In millions) | | | | | | (In percentages) |
$250 | (1) | September 11, 2014 | | September 11, 2020 | | 4.27 |
€193 | (2) | September 11, 2014 | | September 11, 2020 | | 2.63 |
$225 | (1) | April 17, 2014 | | April 17, 2019 | | 3.62 |
€162 | (2) | April 17, 2014 | | April 17, 2019 | | 2.77 |
______________________________ | |
(1) | Represents the notional amount due from the counterparty at the maturity of the contract. |
| |
(2) | Represents the notional amount due to the counterparty at the maturity of the contract. |
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 based on the probability at the inception and throughout the term of the contract that the Company would not net settle and the transaction would result in the physical delivery of the commodity. Accordingly, realized gains and losses on these contracts are included in the cost of the commodity upon the settlement of the contract.
Information regarding changes in the fair value of the Company's derivative and non-derivative instruments is as follows: |
| | | | | | | | | | | | |
| Three Months Ended September 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 | ) | (2) | (2 | ) | (5) | (3 | ) | (2) |
Cross-currency swaps | (9 | ) | (1) | 25 |
| (3) | — |
| | — |
| |
Total | (9 | ) | | 24 |
| | (2 | ) | | (3 | ) | |
| | | | | | | | |
Designated as a Net Investment Hedge | | | | | | | | |
3.250% Notes | 9 |
| | — |
| | — |
| | — |
| |
Not Designated as Hedges | |
| | |
| | |
| | |
| |
Foreign currency forwards and swaps | — |
| | (4 | ) | (4) | — |
| | (10 | ) | (4) |
______________________________
| |
(1) | Excludes $3 million of tax benefit recognized in Other comprehensive income (loss). |
| |
(2) | Reclassified from Accumulated other comprehensive income (loss), net to Interest income (expense) in the unaudited interim consolidated statements of operations. |
| |
(3) | Included in Other income (expense), net for non-operating activity or Interest income (expense) for coupon interest in the unaudited interim consolidated statements of operations. |
| |
(4) | 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. |
| |
(5) | Excludes $1 million of gains associated with the Company's equity method investments' derivative activity and $1 million of tax expense recognized in Other comprehensive income (loss). |
|
| | | | | | | | | | | | |
| Nine Months Ended September 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) | (3 | ) | (3) | (1 | ) | (6) | (8 | ) | (3) |
Cross-currency swaps | (13 | ) | (2) | 28 |
| (4) | — |
| | — |
| |
Total | (14 | ) | | 25 |
| | (1 | ) | | (8 | ) | |
| | | | | | | | |
Designated as a Net Investment Hedge | | | | | | | | |
3.250% Notes | 9 |
| | — |
| | — |
| | — |
| |
Not Designated as Hedges | |
| | |
| | |
| | |
| |
Foreign currency forwards and swaps | — |
| | (9 | ) | (5) | — |
| | (14 | ) | (5) |
______________________________
| |
(1) | Excludes $4 million of tax expense recognized in Other comprehensive income (loss). |
| |
(2) | Excludes $4 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 for non-operating activity or Interest income (expense) for coupon interest 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 $3 million of tax expense recognized in Other comprehensive income (loss). |
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 9). |
| | | | | |
| As of September 30, 2014 | | As of December 31, 2013 |
| (In $ millions) |
Derivative Assets | | | |
Gross amount recognized | 33 |
| | 1 |
|
Gross amount offset in the consolidated balance sheets | — |
| | — |
|
Net amount presented in the consolidated balance sheets | 33 |
| | 1 |
|
Gross amount not offset in the consolidated balance sheets | 5 |
| | 1 |
|
Net amount | 28 |
| | — |
|
|
| | | | | |
| As of September 30, 2014 | | As of December 31, 2013 |
| (In $ millions) |
Derivative Liabilities | | | |
Gross amount recognized | 24 |
| | 16 |
|
Gross amount offset in the consolidated balance sheets | — |
| | 1 |
|
Net amount presented in the consolidated balance sheets | 24 |
| | 15 |
|
Gross amount not offset in the consolidated balance sheets | 5 |
| | 1 |
|
Net amount | 19 |
| | 14 |
|
16. Fair Value Measurements
The Company determines fair value based on the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers assumptions that market participants would use when pricing the asset or liability. Market participant assumptions are categorized by a three-tiered fair value hierarchy which 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.
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. 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.
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.
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) |
As of September 30, 2014 | | | | | | | |
Mutual funds | Marketable securities, at fair value | | 36 |
| | — |
| | 36 |
|
Derivatives Designated as Cash Flow Hedges | | | | | | | |
Cross-currency swaps | Current Other assets | | — |
| | 2 |
| | 2 |
|
Cross-currency swaps | Noncurrent Other assets | | — |
| | 27 |
| | 27 |
|
Derivatives Not Designated as Hedges | | | | | | |
|
|
Foreign currency forwards and swaps | Current Other assets | | — |
| | 4 |
| | 4 |
|
Total assets | | 36 |
| | 33 |
| | 69 |
|
Derivatives Designated as Cash Flow Hedges | | | |
| | |
| | |
|
Interest rate swaps | Current Other liabilities | | — |
| | (4 | ) | | (4 | ) |
Interest rate swaps | Noncurrent Other liabilities | | — |
| | (1 | ) | | (1 | ) |
Cross-currency swaps | Current Other liabilities | | — |
| | (2 | ) | | (2 | ) |
Cross-currency swaps | Noncurrent Other liabilities | | — |
| | (12 | ) | | (12 | ) |
Designated as a Net Investment Hedge | | | | | | | |
3.250% Notes(1) | Long-term Debt | | — |
| | — |
| | — |
|
Derivatives Not Designated as Hedges | | | | | | | |
Foreign currency forwards and swaps | Current Other liabilities | | — |
| | (5 | ) | | (5 | ) |
Total liabilities | | — |
| | (24 | ) | | (24 | ) |
As of December 31, 2013 | | | | | | | |
Mutual funds | Marketable securities, at fair value | | 41 |
| | — |
| | 41 |
|
Derivatives Not Designated as Hedges | | | | | | | |
Foreign currency forwards and swaps | Current Other assets | | — |
| | 1 |
| | 1 |
|
Total assets | | 41 |
| | 1 |
| | 42 |
|
Derivatives Designated as Cash Flow Hedges | | | |
| | |
| | |
|
Interest rate swaps | Current Other liabilities | | — |
| | (5 | ) | | (5 | ) |
Interest rate swaps | Noncurrent Other liabilities | | — |
| | (3 | ) | | (3 | ) |
Derivatives Not Designated as Hedges | | | | | | | |
Interest rate swaps | Current Other liabilities | | — |
| | (2 | ) | | (2 | ) |
Foreign currency forwards and swaps | Current Other liabilities | | — |
| | (5 | ) | | (5 | ) |
Total liabilities | | — |
| | (15 | ) | | (15 | ) |
______________________________ | |
(1) | Included in the unaudited consolidated balance sheets at carrying amount. |
Carrying values and fair values of financial instruments that are not carried at fair value are as follows: |
| | | | | | | | | | | |
| | | Fair Value Measurement |
| Carrying Amount | | Significant Other Observable Inputs (Level 2) | | Unobservable Inputs (Level 3) | | Total |
| | | (In $ millions) |
As of September 30, 2014 | | | | | | | |
Cost investments | 145 |
| | — |
| | — |
| | — |
|
Insurance contracts in nonqualified trusts | 57 |
| | 57 |
| | — |
| | 57 |
|
Long-term debt, including current installments of long-term debt | 3,264 |
| | 3,028 |
| | 268 |
| | 3,296 |
|
As of December 31, 2013 | | | | | | | |
Cost investments | 145 |
| | — |
| | — |
| | — |
|
Insurance contracts in nonqualified trusts | 62 |
| | 62 | |