e10vq
Table of Contents

 
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 March 31, 2011
    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.)
     
1601 West LBJ Freeway,
Dallas, TX
(Address of Principal Executive Offices)
  75234-6034
(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. (Check one):
 
Large accelerated filer þ Accelerated filer o Non-accelerated filer o Smaller reporting company o
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No þ
 
The number of outstanding shares of the registrant’s Series A common stock, $0.0001 par value, as of April 21, 2011 was 156,219,771.
 
 


 

 
CELANESE CORPORATION AND SUBSIDIARIES

Form 10-Q
For the Quarterly Period Ended March 31, 2011

TABLE OF CONTENTS
 
                 
        Page
 
        PART I - FINANCIAL INFORMATION        
  Item 1.     Financial Statements     3  
            3  
            4  
            5  
            6  
            7  
            8  
  Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations     45  
  Item 3.     Quantitative and Qualitative Disclosures about Market Risk     59  
  Item 4.     Controls and Procedures     59  
             
        PART II - OTHER INFORMATION        
  Item 1.     Legal Proceedings     60  
  Item 1A.     Risk Factors     60  
  Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds     61  
  Item 3.     Defaults Upon Senior Securities     61  
  Item 4.     [Removed and Reserved]     61  
  Item 5.     Other Information     61  
  Item 6.     Exhibits     62  
Signatures     63  
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT


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Item 1.  Financial Statements
 
CELANESE CORPORATION AND SUBSIDIARIES
 
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
 
                     
    Three Months Ended
 
    March 31,  
    2011     2010  
          As Adjusted
 
          (Note 3)  
    (In $ millions, except share
 
    and per share data)  
Net sales
    1,589         1,388    
Cost of sales
    (1,238 )       (1,170 )  
                     
Gross profit
    351         218    
Selling, general and administrative expenses
    (128 )       (124 )  
Amortization of intangible assets
    (16 )       (15 )  
Research and development expenses
    (23 )       (18 )  
Other (charges) gains, net
    3         (77 )  
Foreign exchange gain (loss), net
    1         2    
                     
Operating profit (loss)
    188         (14 )  
Equity in net earnings (loss) of affiliates
    43         49    
Interest expense
    (55 )       (49 )  
Interest income
    1         1    
Other income (expense), net
    3         6    
                     
Earnings (loss) from continuing operations before tax
    180         (7 )  
Income tax (provision) benefit
    (42 )       20    
                     
Earnings (loss) from continuing operations
    138         13    
                     
Earnings (loss) from operation of discontinued operations
    6         -    
Gain (loss) on disposition of discontinued operations
    -         2    
Income tax (provision) benefit from discontinued operations
    (2 )       (1 )  
                     
Earnings (loss) from discontinued operations
    4         1    
                     
Net earnings (loss)
    142         14    
Net (earnings) loss attributable to noncontrolling interests
    -         -    
                     
Net earnings (loss) attributable to Celanese Corporation
    142         14    
Cumulative preferred stock dividends
    -         (3 )  
                     
Net earnings (loss) available to common shareholders
    142         11    
                     
                     
Amounts attributable to Celanese Corporation
                   
Earnings (loss) from continuing operations
    138         13    
Earnings (loss) from discontinued operations
    4         1    
                     
Net earnings (loss)
    142         14    
                     
                     
Earnings (loss) per common share — basic
                   
Continuing operations
    0.88         0.06    
Discontinued operations
    0.03         0.01    
                     
Net earnings (loss) — basic
    0.91         0.07    
                     
                     
Earnings (loss) per common share — diluted
                   
Continuing operations
    0.87         0.06    
Discontinued operations
    0.03         0.01    
                     
Net earnings (loss) — diluted
    0.90         0.07    
                     
                     
Weighted average shares — basic
    155,966,259         150,272,227    
Weighted average shares — diluted
    158,666,687         152,642,371    
 
See the accompanying notes to the unaudited interim consolidated financial statements.


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CELANESE CORPORATION AND SUBSIDIARIES
 
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
 
                     
    Three Months Ended
 
    March 31,  
    2011     2010  
          As Adjusted
 
          (Note 3)  
    (In $ millions)  
Net earnings (loss)
    142         14    
Other comprehensive income (loss), net of tax
                   
Unrealized gain (loss) on marketable securities
    -         3    
Foreign currency translation
    58         (31 )  
Unrealized gain (loss) on interest rate swaps
    9         (3 )  
Pension and postretirement benefits
    3         4    
                     
Total other comprehensive income (loss), net of tax
    70         (27 )  
                     
Total comprehensive income (loss), net of tax
    212         (13 )  
                     
                     
Comprehensive (income) loss attributable to noncontrolling interests
    -         -    
                     
                     
Comprehensive income (loss) attributable to Celanese Corporation
    212         (13 )  
                     
 
See the accompanying notes to the unaudited interim consolidated financial statements.


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CELANESE CORPORATION AND SUBSIDIARIES
 
UNAUDITED CONSOLIDATED BALANCE SHEETS
 
                     
    As of
    As of
 
    March 31,
    December 31,
 
    2011     2010  
               
    (In $ millions, except share data)  
ASSETS
Current assets
                   
Cash and cash equivalents
    722         740    
Trade receivables — third party and affiliates (net of allowance for doubtful accounts — 2011: $9; 2010: $12)
    950         827    
Non-trade receivables, net
    269         253    
Inventories
    688         610    
Deferred income taxes
    94         92    
Marketable securities, at fair value
    74         78    
Assets held for sale
    9         9    
Other assets
    45         59    
                     
Total current assets
    2,851         2,668    
                     
Investments in affiliates
    822         838    
Property, plant and equipment (net of accumulated depreciation — 2011: $1,203; 2010: $1,131)
    3,153         3,017    
Deferred income taxes
    438         443    
Other assets
    302         289    
Goodwill
    804         774    
Intangible assets, net
    252         252    
                     
Total assets
    8,622         8,281    
                     
                     
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
                   
Short-term borrowings and current installments of long-term debt — third party and affiliates
    219         228    
Trade payables — third party and affiliates
    740         673    
Other liabilities
    554         596    
Deferred income taxes
    29         28    
Income taxes payable
    68         17    
                     
Total current liabilities
    1,610         1,542    
                     
Long-term debt
    3,003         2,990    
Deferred income taxes
    122         116    
Uncertain tax positions
    285         273    
Benefit obligations
    1,352         1,359    
Other liabilities
    1,114         1,075    
Commitments and contingencies
                   
Shareholders’ equity
                   
Preferred stock, $0.01 par value, 100,000,000 shares authorized (2011 and 2010: 0 issued and outstanding)
    -         -    
Series A common stock, $0.0001 par value, 400,000,000 shares authorized (2011: 178,384,999 issued and 156,046,321 outstanding; 2010: 178,028,571 issued and 155,759,293 outstanding)
    -         -    
Series B common stock, $0.0001 par value, 100,000,000 shares authorized (2011 and 2010: 0 issued and outstanding)
    -         -    
Treasury stock, at cost (2011: 22,338,678 shares; 2010: 22,269,278 shares)
    (832 )       (829 )  
Additional paid-in capital
    583         574    
Retained earnings
    1,985         1,851    
Accumulated other comprehensive income (loss), net
    (600 )       (670 )  
                     
Total Celanese Corporation shareholders’ equity
    1,136         926    
Noncontrolling interests
    -         -    
                     
Total shareholders’ equity
    1,136         926    
                     
Total liabilities and shareholders’ equity
    8,622         8,281    
                     
                     
 
See the accompanying notes to the unaudited interim consolidated financial statements.


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CELANESE CORPORATION AND SUBSIDIARIES
 
UNAUDITED INTERIM CONSOLIDATED STATEMENT OF
SHAREHOLDERS’ EQUITY
 
                     
    Three Months Ended
 
    March 31, 2011  
    Shares     Amount  
               
    (In $ millions, except share data)  
Preferred stock
                   
Balance as of the beginning of the period
    -         -    
Issuance of preferred stock
    -         -    
                     
Balance as of the end of the period
    -         -    
                     
                     
Series A common stock
                   
Balance as of the beginning of the period
    155,759,293         -    
Stock option exercises
    229,704         -    
Purchases of treasury stock
    (69,400 )       -    
Stock awards
    126,724         -    
                     
Balance as of the end of the period
    156,046,321         -    
                     
                     
Treasury stock
                   
Balance as of the beginning of the period
    22,269,278         (829 )  
Purchases of treasury stock, including related fees
    69,400         (3 )  
                     
Balance as of the end of the period
    22,338,678         (832 )  
                     
                     
Additional paid-in capital
                   
Balance as of the beginning of the period
              574    
Stock-based compensation, net of tax
              4    
Stock option exercises, net of tax
              5    
                     
Balance as of the end of the period
              583    
                     
                     
Retained earnings
                   
Balance as of the beginning of the period
              1,851    
Net earnings (loss) attributable to Celanese Corporation
              142    
Series A common stock dividends
              (8 )  
                     
Balance as of the end of the period
              1,985    
                     
                     
Accumulated other comprehensive income (loss), net
                   
Balance as of the beginning of the period
              (670 )  
Other comprehensive income (loss)
              70    
                     
Balance as of the end of the period
              (600 )  
                     
                     
Total Celanese Corporation shareholders’ equity
              1,136    
                     
                     
Noncontrolling interests
                   
Balance as of the beginning of the period
              -    
Net earnings (loss) attributable to noncontrolling interests
              -    
                     
Balance as of the end of the period
              -    
                     
                     
Total shareholders’ equity
              1,136    
                     
                     
 
See the accompanying notes to the unaudited interim consolidated financial statements.


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CELANESE CORPORATION AND SUBSIDIARIES
 
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                     
    Three Months Ended
 
    March 31,  
    2011     2010  
          As Adjusted
 
          (Note 3)  
    (In $ millions)  
Operating activities
                   
Net earnings (loss)
    142         14    
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities
                   
Other charges (gains), net of amounts used
    (9 )       48    
Depreciation, amortization and accretion
    75         93    
Deferred income taxes, net
    (2 )       (7 )  
Other, net
    38         33    
Operating cash provided by (used in) discontinued operations
    (2 )       (3 )  
Changes in operating assets and liabilities
                   
Trade receivables — third party and affiliates, net
    (108 )       (82 )  
Inventories
    (60 )       (38 )  
Other assets
    (18 )       23    
Trade payables — third party and affiliates
    75         32    
Other liabilities
    1         (58 )  
                     
Net cash provided by (used in) operating activities
    132         55    
Investing activities
                   
Capital expenditures on property, plant and equipment
    (77 )       (44 )  
Acquisitions, net of cash acquired
    (8 )       -    
Proceeds from sale of businesses and assets, net
    4         5    
Capital expenditures related to Ticona Kelsterbach plant relocation
    (54 )       (85 )  
Other, net
    (16 )       (8 )  
                     
Net cash provided by (used in) investing activities
    (151 )       (132 )  
Financing activities
                   
Short-term borrowings (repayments), net
    (5 )       1    
Proceeds from long-term debt
    11         -    
Repayments of long-term debt
    (9 )       (10 )  
Purchases of treasury stock, including related fees
    (3 )       -    
Stock option exercises
    5         3    
Series A common stock dividends
    (8 )       (6 )  
Preferred stock dividends
    -         (3 )  
Other, net
    (2 )       -    
                     
Net cash provided by (used in) financing activities
    (11 )       (15 )  
Exchange rate effects on cash and cash equivalents
    12         (23 )  
                     
Net increase (decrease) in cash and cash equivalents
    (18 )       (115 )  
Cash and cash equivalents at beginning of period
    740         1,254    
                     
Cash and cash equivalents at end of period
    722         1,139    
                     
                     
 
See the accompanying notes to the unaudited interim consolidated financial statements.


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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.
 
Basis of Presentation
 
The unaudited interim consolidated financial statements for the three months ended March 31, 2011 and 2010 contained in this Quarterly Report on Form 10-Q (“Quarterly Report”) were prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for all periods presented. 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 this 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.
 
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 shareholders’ 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 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, 2010, filed on February 11, 2011 with the SEC as part of the Company’s Annual Report on Form 10-K (the “2010 Form 10-K”).
 
Operating results for the three months ended March 31, 2011 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 in 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.
 
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.


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Reclassifications
 
The Company has reclassified certain prior period amounts to conform to the current period’s presentation.
 
2.  Recent Accounting Pronouncements
 
There were no new accounting pronouncements issued during the three months ended March 31, 2011 that had an impact on the Company.
 
3.  Acquisitions, Dispositions, Ventures and Plant Closures
 
Acquisitions
 
On February 6, 2011, the Company acquired a business primarily consisting of emulsions process technology from Crown Paints Limited. The acquired operations are included in the Industrial Specialties segment. Pro forma financial information since the acquisition date has not been provided as the acquisition did not have a material impact on the Company’s financial information.
 
The Company allocated the purchase price of the acquisition to developed technology acquired based on its estimated fair value. The excess of purchase price over the fair value of the developed technology was recorded as goodwill. Developed technology was valued using the relief from royalty methodology which is considered a Level 3 measurement under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“FASB ASC Topic 820”). The relief from royalty method estimates the Company’s theoretical royalty savings from ownership of the intangible asset. Key assumptions used in this model include discount rates, royalty rates, growth rates, sales projections and terminal value rates, all of which require significant management judgment and, therefore, are susceptible to change.
 
The consideration paid and the amounts of the intangible assets acquired recognized at the acquisition date are as follows:
 
                     
    Weighted
       
    Average Life        
    (In years)     (In $ millions)  
Cash consideration
              8    
                     
                     
Intangible assets acquired
                   
Developed technology
    4         7    
Goodwill
              1    
                     
Total
              8    
                     
                     
 
In May 2010, the Company acquired two product lines, Zenite® liquid crystal polymer (“LCP”) and Thermx® polycyclohexylene-dimethylene terephthalate (“PCT”), from DuPont Performance Polymers. The acquisition continues to build upon the Company’s position as a global supplier of high performance materials and technology-driven applications. These two product lines broaden the Company’s Ticona Engineering Polymers offerings within its Advanced Engineered Materials segment, enabling the Company to respond to a globalizing customer base, especially in the high growth electrical and electronics applications.


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In connection with the acquisition, the Company committed to purchase certain inventories at a future date valued at a range between $12 million and $17 million. Inventories purchased pursuant to the acquisition agreement are as follows:
 
                     
        Total From
    Three Months Ended
  Acquisition Through
    March 31, 2011   March 31, 2011
    (In $ Millions)
 
Inventories purchased
    9         12    
 
The Company has no further commitment to purchase additional inventory in connection with the acquisition agreement.
 
Ventures
 
The Company indirectly owns a 25% interest in its National Methanol Company (“Ibn Sina”) affiliate through CTE Petrochemicals Company (“CTE”), a joint venture with Texas Eastern Arabian Corporation Ltd. (which also indirectly owns 25%). The remaining interest in Ibn Sina is held by Saudi Basic Industries Corporation (“SABIC”). SABIC and CTE entered into an Ibn Sina joint venture agreement in 1981. In April 2010, the Company announced that Ibn Sina will construct a 50,000 ton polyacetal (“POM”) production facility in Saudi Arabia and that the term of the joint venture agreement was extended until 2032. Ibn Sina’s existing natural gas supply contract expires in 2022. Upon successful startup of the POM facility, the Company’s indirect economic interest in Ibn Sina will increase from 25% to 32.5%. SABIC’s economic interest will remain unchanged.
 
In connection with this transaction, the Company reassessed the factors surrounding the accounting method for this investment and changed from the cost method of accounting for investments to the equity method of accounting for investments beginning April 1, 2010. Financial information relating to this investment for prior periods has been retrospectively adjusted to apply the equity method of accounting. Effective April 1, 2010, the Company moved its investment in the Ibn Sina affiliate from its Acetyl Intermediates segment to its Advanced Engineered Materials segment to reflect the change in the affiliate’s business dynamics and growth opportunities as a result of the future construction of the POM facility. Business segment information for prior periods has been retrospectively adjusted to reflect the change and to conform to the current year presentation (Note 18).


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The retrospective effect of applying the equity method of accounting to this investment to the unaudited interim consolidated statements of operations is as follows:
 
                               
    Three Months Ended
 
    March 31, 2010  
    As
    As Adjusted for
       
    Originally
    Retrospective
    Effect of
 
    Reported     Application     Change  
                      
    (In $ millions, except per share data)  
Equity in net earnings (loss) of affiliates
    26         49         23    
Dividend income — cost investments
    27         -         (27 )  
Earnings (loss) from continuing operations before tax
    (3 )       (7 )       (4 )  
Earnings (loss) from continuing operations
    17         13         (4 )  
Net earnings (loss)
    18         14         (4 )  
Net earnings (loss) attributable to Celanese Corporation
    18         14         (4 )  
Net earnings (loss) available to common shareholders
    15         11         (4 )  
Earnings (loss) per common share — basic
                             
Continuing operations
    0.09         0.06         (0.03 )  
Discontinued operations
    0.01         0.01         -    
                               
Net earnings (loss) — basic
    0.10         0.07         (0.03 )  
                               
                               
Earnings (loss) per common share — diluted
                             
Continuing operations
    0.09         0.06         (0.03 )  
Discontinued operations
    0.01         0.01         -    
                               
Net earnings (loss) — diluted
    0.10         0.07         (0.03 )  
                               
                               
 
The retrospective effect of applying the equity method of accounting to this investment to the unaudited interim consolidated statement of cash flows is as follows:
 
                               
    Three Months Ended
    March 31, 2010
    As
  As Adjusted for
   
    Originally
  Retrospective
  Effect of
    Reported   Application   Change
                
    (In $ millions)
Net earnings (loss)
    18         14         (4 )  
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities
                             
Other, net
    29         33         4    
                               


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The retrospective effect of applying the equity method of accounting to this investment to the business segment financial information (Note 18) is as follows:
 
                               
    Three Months Ended
    March 31, 2010
    As
  As Adjusted for
   
    Originally
  Retrospective
  Effect of
    Reported   Application   Change
               
    (In $ millions)
Advanced Engineered Materials Earnings (loss) from continuing operations before tax
    67         92         25    
Acetyl Intermediates Earnings (loss) from continuing operations before tax
    30         1         (29 )  
 
Plant Closures
 
• Spondon, Derby, United Kingdom
 
During the first quarter of 2010, the Company assessed the possibility of consolidating its global acetate flake and tow manufacturing operations to strengthen the Company’s competitive position, reduce fixed costs and align future production capacities with anticipated industry demand trends. The assessment was also driven by a global shift in product consumption and included considering the probability of closing the Company’s acetate flake and tow manufacturing operations in Spondon, Derby, United Kingdom. Based on this assessment, the Company concluded that certain long-lived assets were partially impaired. Accordingly, in March 2010, the Company recorded long-lived asset impairment losses of $72 million (Note 13) to Other (charges) gains, net in the unaudited interim consolidated statements of operations. The Spondon, Derby, United Kingdom facility is included in the Consumer Specialties segment.
 
In April 2010, when the Company announced the proposed cessation of operations at the Spondon plant, the Company began the consulting process with employees and their representatives. These consultations did not result in a demonstrated basis for viable continuing operations for acetate flake and tow operations at the site. Accordingly, in August 2010, the Company announced that it would consolidate its global acetate manufacturing capabilities by closing its acetate flake and tow manufacturing operations in Spondon, Derby, United Kingdom. The Company expects to serve its acetate customers under this proposal by optimizing its global production network, which includes facilities in Lanaken, Belgium; Narrows, Virginia; and Ocotlan, Mexico, as well as the Company’s acetate affiliate facilities in China.
 
The exit costs and plant shutdown costs recorded in the unaudited interim consolidated statements of operations related to the closure of the Spondon, Derby, United Kingdom location (Note 13) are as follows:
 
                     
    Three Months Ended
 
    March 31,  
    2011     2010  
               
    (In $ millions)  
Employee termination benefits
    (2 )       -    
Asset impairments
    -         (72 )  
                     
Total exit costs recorded to Other (charges) gains, net
    (2 )       (72 )  
                     
                     
                     
Accelerated depreciation
    (4 )       -    
                     
Total plant shutdown costs
    (4 )       -    
                     
                     


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• Pardies, France
 
In July 2009, the Company’s wholly-owned French subsidiary, Acetex Chimie S.A., completed the consultation process with the workers council on its “Project of Closure” and social plan related to the Company’s Pardies, France facility pursuant to which the Company ceased all manufacturing operations and associated activities in December 2009. The Company agreed with the workers council on a set of measures of assistance aimed at minimizing the effects of the plant’s closing on the Pardies workforce, including training, outplacement and severance. The Pardies, France facility is included in the Acetyl Intermediates segment.
 
The exit costs and plant shutdown costs recorded in the unaudited interim consolidated statements of operations related to the Project of Closure (Note 13) are as follows:
 
                     
    Three Months Ended
 
    March 31,  
    2011     2010  
               
    (In $ millions)  
Employee termination benefits
    (1 )       (1 )  
Contract termination costs
    -         (3 )  
Reindustrialization costs
    -         (3 )  
                     
Total exit costs recorded to Other (charges) gains, net
    (1 )       (7 )  
                     
                     
                     
Inventory write-offs
    -         (4 )  
Other
    -         (5 )  
                     
Total plant shutdown costs
    -         (9 )  
                     
                     
 
Assets Held For Sale
 
Assets held for sale in the unaudited consolidated balance sheets as of March 31, 2011 and December 31, 2010 include plant assets with a net book value of $9 million. The plant assets held for sale relate to an agreement reached in July 2007 with Babcock & Brown, a worldwide investment firm that specializes in real estate and utilities development, to sell the Company’s Pampa, Texas facility. The plant assets are included in the Acetyl Intermediates segment.
 
4.  Marketable Securities, at Fair Value
 
The Company’s captive insurance companies and nonqualified pension trusts hold available-for-sale securities for capitalization and funding requirements, respectively. The Company reviews all investments for other-than-temporary impairment at least quarterly or as indicators of impairment exist. Indicators of impairment include the duration and severity of the decline in fair value below carrying value as well as the intent and ability to hold the investment to allow for a recovery in the market value of the investment. In addition, the Company considers qualitative factors that include, but are not limited to: (i) the financial condition and business plans of the investee including its future earnings potential, (ii) the investee’s credit rating, and (iii) the current and expected market and industry conditions in which the investee operates. If a decline in the fair value of an investment is deemed by management to be other-than-temporary, the Company writes down the carrying value of the investment to fair value, and the amount of the write-down is included in net earnings. Such a determination is dependent on the facts and circumstances relating to each investment.


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The amortized cost, gross unrealized gain, gross unrealized loss and fair values for available-for-sale securities by major security type are as follows:
 
                                         
          Gross
    Gross
       
    Amortized
    Unrealized
    Unrealized
    Fair
 
    Cost     Gain     Loss     Value  
                           
    (In $ millions)  
US corporate debt securities
    1         -         -         1    
Mutual funds
    73         -         -         73    
                                         
As of March 31, 2011
    74         -         -         74    
                                         
                                         
                                         
US corporate debt securities
    1         -         -         1    
Mutual funds
    77         -         -         77    
                                         
As of December 31, 2010
    78         -         -         78    
                                         
                                         
 
Fixed maturities of $1 million as of March 31, 2011 will mature in 2013. Actual maturities could differ from contractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepayment penalties.
 
5.  Inventories
 
                     
    As of
    As of
 
    March 31,
    December 31,
 
    2011     2010  
               
    (In $ millions)  
Finished goods
    502         442    
Work-in-process
    33         31    
Raw materials and supplies
    153         137    
                     
Total
    688         610    
                     
                     
 
6.  Goodwill and Intangible Assets, Net
 
Goodwill
 
                                                   
    Advanced
                         
    Engineered
    Consumer
    Industrial
    Acetyl
       
    Materials     Specialties     Specialties     Intermediates     Total  
                                 
    (In $ Millions)  
As of December 31, 2010
                                                 
Goodwill
    299         249         35         191         774    
Accumulated impairment losses
    -         -         -         -         -    
                                                   
Total
    299         249         35         191         774    
                                                   
Acquisitions (Note 3)
    -         -         1         -         1    
Exchange rate changes
    8         7         1         13         29    
                                                   
As of March 31, 2011
                                                 
Goodwill
    307         256         37         204         804    
Accumulated impairment losses
    -         -         -         -         -    
                                                   
Total
    307         256         37         204         804    
                                                   
                                                   


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Intangible Assets, Net
 
                                                             
                Customer-
          Covenants
       
    Trademarks
          Related
          Not to
       
    and Trade
          Intangible
    Developed
    Compete
       
    Names     Licenses     Assets     Technology     and Other     Total  
                                           
    (In $ Millions)  
Gross Asset Value
                                                           
As of December 31, 2010
    88         30         526         20         23         687    
Acquisitions (Note 3)
    -         -         -         7         -         7    
Exchange rate changes
    3         -         26         -         -         29    
                                                             
As of March 31, 2011
    91         30         552         27         23         723    
                                                             
Accumulated Amortization
                                                           
As of December 31, 2010
    (5 )       (10 )       (395 )       (11 )       (14 )       (435 )  
Amortization
    -         -         (14 )       (1 )       (1 )       (16 )  
Exchange rate changes
    -         -         (19 )       -         (1 )       (20 )  
                                                             
As of March 31, 2011
    (5 )       (10 )       (428 )       (12 )       (16 )       (471 )  
                                                             
Net book value
    86         20         124         15         7         252    
                                                             
                                                             
 
Amortization expense for intangible assets with finite lives is recorded in the unaudited interim consolidated statements of operations as follows:
 
                     
    Three Months Ended
    March 31,
    2011   2010
           
    (In $ millions)
Amortization of intangible assets
    16         15    
 
Estimated amortization expense for the succeeding five fiscal years is as follows:
 
           
    (In $ millions)
 
2012
    49    
2013
    31    
2014
    19    
2015
    8    
2016
    5    
 
The Company’s trademarks and trade names have an indefinite life. Accordingly, no amortization expense is recorded on these intangible assets. For the three months ended March 31, 2011, the Company did not renew or extend any intangible assets.


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7.  Current Other Liabilities
 
                     
    As of
    As of
 
    March 31,
    December 31,
 
    2011     2010  
               
    (In $ Millions)  
Salaries and benefits
    87         111    
Environmental (Note 11)
    20         16    
Restructuring (Note 13)
    49         57    
Insurance
    22         27    
Asset retirement obligations
    31         31    
Derivatives (Note 15)
    71         69    
Current portion of benefit obligations
    49         49    
Interest
    41         29    
Sales and use tax/foreign withholding tax payable
    9         15    
Uncertain tax positions (Note 14)
    12         15    
Other
    163         177    
                     
Total
    554         596    
                     
                     
 
8.  Noncurrent Other Liabilities
 
                     
    As of
    As of
 
    March 31,
    December 31,
 
    2011     2010  
               
    (In $ Millions)  
Environmental (Note 11)
    84         85    
Insurance
    72         69    
Deferred revenue
    40         41    
Deferred proceeds(1)
    835         786    
Asset retirement obligations
    46         46    
Derivatives (Note 15)
    -         14    
Income taxes payable
    4         4    
Other
    33         30    
                     
Total
    1,114         1,075    
                     
                     
 
 
(1) Primarily relates to proceeds received from the Frankfurt, Germany Airport as part of a settlement for the Company to relocate its Kelsterbach, Germany Ticona operations to a new site (Note 20). Such proceeds will be deferred until the transfer of title to the Frankfurt, Germany Airport.


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9. Debt
 
                     
    As of
    As of
 
    March 31,
    December 31,
 
    2011     2010  
               
    (In $ millions)  
Short-term borrowings and current installments of long-term debt — third party and affiliates
                   
Current installments of long-term debt
    78         74    
Short-term borrowings, including amounts due to affiliates, weighted average interest rate of 3.6%
    141         154    
                     
Total
    219         228    
                     
                     
Long-term debt
                   
Senior credit facilities
                   
Term B loan facility due 2014
    513         508    
Term C loan facility due 2016
    1,422         1,409    
Senior unsecured notes due 2018, interest rate of 6.6%
    600         600    
Pollution control and industrial revenue bonds, interest rates ranging from 5.7% to 6.7%, due at various dates through 2030
    181         181    
Obligations under capital leases and other secured and unsecured borrowings due at various dates through 2054
    233         245    
Other bank obligations, interest rates ranging from 1.6% to 6.3%, due at various dates through 2017
    132         121    
                     
Subtotal
    3,081         3,064    
Current installments of long-term debt
    (78 )       (74 )  
                     
Total
    3,003         2,990    
                     
                     
 
Senior Notes
 
In September 2010, Celanese US completed an offering of $600 million in aggregate principal amount of 65/8% Senior Notes due 2018 (the “Notes”) in a private placement conducted pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The 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 Notes were issued under an indenture dated September 24, 2010 (the “Indenture”) among Celanese US, Celanese, the Subsidiary Guarantors and Wells Fargo Bank, National Association, as trustee. Celanese US will pay interest on the Notes on April 15 and October 15 of each year commencing on April 15, 2011. Notes are redeemable, in whole or in part, at any time on or after October 15, 2014 at the redemption prices specified in the Indenture. Prior to October 15, 2014, Celanese US may redeem some or all of the Notes at a redemption price of 100% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, plus a “make-whole” premium as specified in the Indenture. The Notes are senior unsecured obligations of Celanese US and rank equally in right of payment with all other unsubordinated indebtedness of Celanese US.
 
The Indenture contains covenants, including, but not limited to, restrictions on the Company’s and its subsidiaries’ 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.
 
On February 18, 2011, Celanese US commenced an exchange offer (the “Exchange Offer”) in which up to $600 million aggregate principal amount of exchange notes (the “Exchange Notes”) registered under the Securities Act were offered in exchange for the same principal amount of the outstanding Notes. The terms of the Exchange Notes and the outstanding Notes were substantially identical, except that the transfer restrictions, registration rights, and rights to increased interest in addition to the stated interest rate on the provisions applicable to the outstanding


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Notes do not apply to the Exchange Notes. The Exchange Offer was commenced in order to satisfy Celanese US’ obligations under the registration rights agreement related to the outstanding Notes. The Exchange Offer expired on April 12, 2011 and all the Notes were tendered for exchange. On April 14, 2011, Celanese US issued $600 million aggregate principal amount of Exchange Notes in exchange for the tendered Notes.
 
Senior Credit Facilities
 
In September 2010, Celanese US, Celanese, and certain of the domestic subsidiaries of Celanese US entered into an amendment agreement (the “Amendment Agreement”) with the lenders under Celanese US’s existing senior secured credit facilities in order to amend and restate the corresponding Credit Agreement, dated as of April 2, 2007 (as previously amended, the “Existing Credit Agreement”, and as amended and restated by the Amendment Agreement, the “Amended Credit Agreement”). Our Amended Credit Agreement consists of the Term C loan facility having principal amounts of $1,140 million of US dollar-denominated and €204 million of Euro-denominated term loans, the Term B loan facility having principal amounts of $417 million US dollar-denominated and €69 million of Euro-denominated term loans, a $600 million revolving credit facility terminating in 2015 and a $228 million credit-linked revolving facility terminating in 2014.
 
Borrowings under the Amended Credit Agreement will bear interest at a variable interest rate based on LIBOR (for US dollars) or EURIBOR (for Euros), or, for US dollar-denominated loans under certain circumstances, a base rate, in each case plus a margin. The margin may increase or decrease 0.25% based on the following:
 
                                       
        Estimated Margin   Estimated Total
    Estimated
  Decreases
  Increases
  Net Leverage
    Margin as of
  0.25% if
  0.25% if
  Ratio as of
    March 31, 2011   Estimated Total   Net Leverage   March 31, 2011
                   
Term B and credit-linked revolving facility
    1.50%         not applicable       > 2.25:1.00         2.00    
Term C
    3.00%         < = 1.75:1.00       > 2.25:1.00         2.00    
 
The margin for borrowings under the revolving credit facility is currently 2.50% above LIBOR or EURIBOR, as applicable, subject to increase or reduction 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.
 
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 as of April 2, 2007.
 
As a condition to borrowing funds or requesting letters of credit be issued under the revolving 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 maximum first lien senior secured leverage ratios, estimated first lien senior secured leverage ratios and the borrowing capacity under the revolving credit facility is as follows:
 
                                         
    First Lien Senior Secured Leverage Ratios        
                Estimate, if Fully
    Borrowing
 
    Maximum     Estimate     Drawn     Capacity  
                      (In $ millions)  
March 31, 2011 and thereafter
    3.90 to 1.00         1.71 to 1.00         2.23 to 1.00         600    


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As of March 31, 2011, the balances available for borrowing under the revolving credit facility and the credit-linked revolving facility are as follows:
 
         
    (In $ millions)  
 
Revolving credit facility
       
Borrowings outstanding
    -  
Letters of credit issued
    -  
Available for borrowing
    600  
Credit-linked revolving facility
       
Letters of credit issued
    80  
Available for borrowing
    148  
 
The Amended Credit Agreement contains covenants including, but not limited to, restrictions on the Company’s and its subsidiaries’ 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 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 March 31, 2011.
 
10. Benefit Obligations
 
The components of net periodic benefit costs recognized are as follows:
 
                                         
                Postretirement
 
    Pension Benefits     Benefits  
    Three Months Ended March 31,  
    2011     2010     2011     2010  
                           
    (In $ millions)  
Service cost
    7         8         -         -    
Interest cost
    46         48         4         4    
Expected return on plan assets
    (50 )       (50 )       -         -    
Recognized actuarial (gain) loss
    7         2         (1 )       (1 )  
Curtailment (gain) loss
    (1 )       (2 )       -         -    
                                         
Total
    9         6         3         3    
                                         
                                         
 
Company commitments to fund benefit obligations are as follows:
 
                     
    As of
   
    March 31, 2011   Expected for 2011
           
    (In $ millions)
Cash contributions to defined benefit pension plans
    13         164    
Benefit payments from nonqualified trusts related to nonqualified pension plans
    4         15    
Benefit payments to other postretirement benefit plans
    7         27    
                     
 
The Company’s estimates of its US defined benefit pension plan contributions reflect the provisions of the Pension Protection Act of 2006.


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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 $1 million for the three months ended March 31, 2011.
 
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.
 
Environmental remediation reserves are recorded in the unaudited consolidated balance sheets as follows:
 
                 
    As of
    As of
 
    March 31,
    December 31,
 
    2011     2010  
               
    (In $ millions)  
Current Other liabilities
    20       16  
Noncurrent Other liabilities
    84       85  
                 
Total
    104       101  
                 
                 
 
Environmental remediation reserves recorded in the unaudited consolidated balance sheets are categorized as follows:
 
                     
    As of
    As of
 
    March 31,
    December 31,
 
    2011     2010  
               
    (In $ millions)  
Demerger obligations (Note 17)
    37         36    
Divestiture obligations (Note 17)
    26         26    
US Superfund sites
    14         13    
Other environmental remediation reserves
    27         26    
                     
Total
    104         101    
                     
                     
 
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, 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 accounting 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 approximately 38 sites. At most of these sites, numerous companies, including the Company, or one of its


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predecessor companies, have been notified that the Environmental Protection Agency, 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 most 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.
 
12. Shareholders’ Equity
 
Preferred Stock
 
In February 2010, the Company delivered notice to the holders of its 4.25% Convertible Perpetual Preferred Stock (the “Preferred Stock”) that it was calling for the redemption of all 9.6 million outstanding shares of Preferred Stock. Holders of the Preferred Stock were entitled to convert each share of Preferred Stock into 1.2600 shares of the Company’s Series A Common Stock, par value $0.0001 per share (“Common Stock”), at any time prior to 5:00 p.m., New York City time, on February 19, 2010. As of such date, holders of Preferred Stock had elected to convert 9,591,276 shares of Preferred Stock into an aggregate of 12,084,942 shares of Common Stock. The 8,724 shares of Preferred Stock that remained outstanding after such conversions were redeemed by the Company on February 22, 2010 for 7,437 shares of Common Stock, in accordance with the terms of the Preferred Stock. In addition to the shares of Common Stock issued in respect of the shares of Preferred Stock converted and redeemed, the Company paid cash in lieu of fractional shares.
 
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 unless the Company’s Board of Directors, in its sole discretion, determines otherwise. Further, such dividends payable to holders of the Company’s Series A common stock cannot be declared or paid nor can any funds be set aside for the payment thereof, unless the Company has paid or set aside funds for the payment of all accumulated and unpaid dividends with respect to the shares of the Company’s Preferred Stock. As discussed above, all Preferred Stock was redeemed by the Company in February 2010 and no preferred stock or accumulated dividends remained outstanding as of March 31, 2011. The amount available to pay cash dividends is restricted by the Company’s Amended Credit Agreement and the Notes.
 
In April 2010, the Company announced that its Board of Directors approved a 25% increase in the Company’s quarterly Common Stock cash dividend. The Board of Directors increased the quarterly dividend rate from $0.04 to $0.05 per share of Common Stock on a quarterly basis and $0.16 to $0.20 per share of Common Stock on an annual basis. The new dividend rate was applicable to dividends payable beginning in August 2010.
 
Treasury Stock
 
In February 2008, the Company’s Board of Directors authorized the repurchase of up to $400 million of the Company’s Common Stock. This authorization was increased by the Board of Directors to $500 million in October 2008. The authorizations give management discretion in determining the conditions under which shares may be


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repurchased. The number of shares repurchased and the average purchase price paid per share pursuant to this authorization are as follows:
 
                         
    Three Months Ended
    Total From
 
    March 31,     Inception Through
 
    2011     2010     March 31, 2011  
Shares repurchased
    69,400       -            11,500,192  
Average purchase price per share
  $      43.42     $           -     $ 37.28  
Amount spent on repurchased shares (in millions)
  $ 3     $ -     $ 429  
 
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 Shareholders’ equity.
 
Other Comprehensive Income (Loss), Net
 
Components of Other comprehensive income (loss) with related tax effects are as follows:
 
                                                 
    Three Months Ended March 31,  
    2011     2010  
          Income
                Income
       
          Tax
                Tax
       
    Gross
    (Provision)
    Net
    Gross
    (Provision)
    Net
 
    Amount     Benefit     Amount     Amount     Benefit     Amount  
                                       
              (In $ millions)              
Unrealized gain (loss) on marketable securities
    -       -       -       3       -       3  
Foreign currency translation
    58       -       58       (31 )     -       (31 )
Unrealized gain (loss) on interest rate swaps
    14       (5 )     9       (2 )     (1 )     (3 )
Pension and postretirement benefits
    6       (3 )     3       5       (1 )     4  
                                                 
Total
    78       (8 )     70       (25 )     (2 )     (27 )
                                                 
                                                 
 
Adjustments to Accumulated other comprehensive income (loss) are as follows:
 
                                                   
                            Accumulated
 
    Unrealized
          Unrealized
    Pension and
    Other
 
    Gain (Loss) on
    Foreign
    Gain (Loss)
    Postretire-
    Comprehensive
 
    Marketable
    Currency
    on Interest
    ment
    Income
 
    Securities     Translation     Rate Swaps     Benefits     (Loss), Net  
                                 
    (In $ millions)  
Balance as of December 31, 2010
    (1 )       (1 )       (84 )       (584 )       (670 )  
Current period change
    -         58         14         6         78    
Income tax (provision) benefit
    -         -         (5 )       (3 )       (8 )  
                                                   
Balance as of March 31, 2011
    (1 )       57         (75 )       (581 )       (600 )  
                                                   
                                                   


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13.  Other (Charges) Gains, Net
 
                     
    Three Months Ended
 
    March 31,  
    2011     2010  
               
    (In $ millions)  
Employee termination benefits
    (4 )       (5 )  
Ticona Kelsterbach plant relocation (Note 20)
    (13 )       (6 )  
Plumbing actions (Note 17)
    -         12    
Asset impairments
    -         (72 )  
Plant/office closures
    -         (6 )  
Resolution of commercial disputes
    20         -    
                     
Total
    3         (77 )  
                     
                     
 
2011
 
As a result of the Company’s Pardies, France Project of Closure and the previously announced closure of the Company’s Spondon, Derby, United Kingdom facility (Note 3), the Company recorded $1 million and $2 million, respectively, of employee termination benefits. The Pardies, France facility is included in the Acetyl Intermediates segment and the Spondon, Derby, United Kingdom facility is included in the Consumer Specialties segment.
 
During March 2011, the Company received consideration of $16 million in connection with the settlement of a claim against a bankrupt supplier. In addition, the Company also recovered an additional $3 million from the settlement of an unrelated commercial dispute. These commercial dispute resolutions are included in the Acetyl Intermediates segment.
 
2010
 
During the first quarter of 2010, the Company concluded that certain long-lived assets were partially impaired at its acetate flake and tow manufacturing operations in Spondon, Derby, United Kingdom (Note 3). Accordingly, the Company wrote down the related property, plant and equipment to its fair value of $31 million, resulting in long-lived asset impairment losses of $72 million for the three months ended March 31, 2010. The Company calculated the fair value using a discounted cash flow model incorporating discount rates commensurate with the risks involved for the reporting unit which is classified as a Level 3 measurement under FASB ASC Topic 820. The key assumptions used in the discounted cash flow valuation model include discount rates, growth rates, cash flow projections and terminal value rates. Discount rates, growth rates and cash flow projections are the most sensitive and susceptible to change as they require significant management judgment. The Spondon, Derby, United Kingdom facility is included in the Consumer Specialties segment.
 
As a result of the Company’s Pardies, France Project of Closure (Note 3), the Company recorded exit costs of $7 million during the three months ended March 31, 2010, which consisted of $1 million in employee termination benefits, $3 million of contract termination costs and $3 million of reindustrialization costs. The Pardies, France facility is included in the Acetyl Intermediates segment.
 
Other charges for the three months ended March 31, 2010 was partially offset by $11 million of recoveries and a $1 million decrease in legal reserves associated with plumbing cases which is included in the Company’s Advanced Engineered Materials business segment.


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The changes in the restructuring reserves by business segment are as follows:
 
                                                             
    Advanced
                               
    Engineered
    Consumer
    Industrial
    Acetyl
             
    Materials     Specialties     Specialties     Intermediates     Other     Total  
                                       
    (In $ millions)  
Employee Termination Benefits
                                                           
Reserve as of December 31, 2010
    3         16         -         24         10         53    
Additions
    -         2         -         -         1         3    
Cash payments
    -         -         -         (9 )       (1 )       (10 )  
Other changes
    -         -         -         -         (1 )       (1 )  
Exchange rate changes
    -         -         -         1         1         2    
                                                             
Reserve as of March 31, 2011
    3         18         -         16         10         47    
                                                             
Plant/Office Closures
                                                           
Reserve as of December 31, 2010
    -         -         -         3         1         4    
Additions
    -         -         -         -         -         -    
Cash payments
    -         -         -         (2 )       -         (2 )  
Exchange rate changes
    -         -         -         -         -         -    
                                                             
Reserve as of March 31, 2011
    -         -         -         1         1         2    
                                                             
Total
    3         18         -         17         11         49    
                                                             
                                                             
 
14. Income Taxes
 
The Company’s effective income tax rate for the three months ended March 31, 2011 was 23% compared to (286)% for the three months ended March 31, 2010. The lower effective rate in the prior year was primarily due to the effect of tax legislation in Mexico, partially offset by foreign losses not resulting in tax benefits and the effect of healthcare reform in the U.S.
 
In March 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 were enacted. Under the new legislation, in years subsequent to 2012, the tax deductible prescription coverage is reduced by the amount of the subsidy offered under Medicare Part D. As a result, the Company reduced its deferred tax asset related to postretirement prescription drug coverage by the amount of the subsidy to be received subsequent to 2012. This reduction of $7 million to the Company’s deferred tax asset was recorded to Income tax (provision) benefit in the unaudited interim consolidated statements of operations during the three months ended March 31, 2010.
 
In March 2010, the Mexican tax authorities issued Miscellaneous Tax Resolutions (“MTRs”) to clarify various provisions included in the 2010 Mexican Tax Reform Bill (“Tax Reform Bill”) related to recapture amounts for 2004 and prior years, including certain aspects of the recapture rules related to income tax loss carryforwards, intercompany dividends and differences between consolidated and individual Mexican tax earnings and profits. At March 31, 2010, the application of the MTRs resulted in a reduction of $43 million to the $73 million income tax impact of the Tax Reform Bill that was initially recorded by the Company during the year ended December 31, 2009.
 
In December 2010, the Mexican tax authorities issued additional MTRs addressing tax year 2005 and subsequent periods. The MTRs issued in March 2010 and December 2010 eliminated the recapture tax on losses for which no tax benefit was received in consolidation and also clarified certain other aspects of the Tax Reform Bill originally enacted in December 2009. The December 2010 MTRs resulted in an additional reduction of $27 million to the tax liability previously recorded by the Company. After inflation and exchange rate changes, the Company’s tax liability at March 31, 2011 related to the combined Tax Reform Bill and 2010 MTRs is $4 million payable from 2012 to 2018.
 
Liabilities for uncertain tax positions and related interest and penalties are recorded in Uncertain tax positions and


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current Other liabilities in the unaudited consolidated balance sheets. For the three months ended March 31, 2011, the total unrecognized tax benefits, interest and penalties related to uncertain tax positions decreased by $6 million for interest and changes in unrecognized tax benefits in US and foreign jurisdictions, and increased $13 million due to exchange rate changes.
 
The Company’s US tax returns for the years 2006, 2007 and 2008 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; however, an estimated range of the impact on the unrecognized tax benefits cannot be quantified at this time.
 
15.  Derivative Financial Instruments
 
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 debt into a fixed rate obligation. These interest rate swap agreements are designated as cash flow hedges. 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.
 
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. 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.
 
US-dollar interest rate swap derivative arrangements are as follows:
 
                     
As of March 31, 2011  
Notional Value     Effective Date   Expiration Date   Fixed Rate (1)  
(In $ millions)                
  800     April 2, 2007   January 2, 2012     4.92 %
  400     January 2, 2008   January 2, 2012     4.33 %
  200     April 2, 2009   January 2, 2012     1.92 %
  1,100     January 2, 2012   January 2, 2014     1.71 %
                     
  2,500                  
                     
                     
 
(1) Fixes the LIBOR portion of the Company’s US-dollar denominated variable rate borrowings (Note 9).
 


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As of December 31, 2010  
Notional Value     Effective Date   Expiration Date   Fixed Rate (1)  
(In $ millions)                
  100     April 2, 2007   January 2, 2011     4.92 %
  800     April 2, 2007   January 2, 2012     4.92 %
  400     January 2, 2008   January 2, 2012     4.33 %
  200     April 2, 2009   January 2, 2012     1.92 %
  1,100     January 2, 2012   January 2, 2014     1.71 %
                     
  2,600                  
                     
                     
 
(1) Fixes the LIBOR portion of the Company’s US-dollar denominated variable rate borrowings (Note 9).
 
Euro interest rate swap derivative arrangements are as follows:
 
                     
As of March 31, 2011 and December 31, 2010
Notional Value   Effective Date   Expiration Date   Fixed Rate (1)
(In € millions)            
 
  150     April 2, 2007   April 2, 2011     4.04 %
                     
 
 
(1) Fixes the EURIBOR portion of the Company’s Euro denominated variable rate borrowings (Note 9).
 
The Company did not enter into a new Euro interest rate swap arrangement upon the expiration of the existing Euro interest rate swap arrangement on April 2, 2011.
 
Notional values of the foreign currency forwards and swaps are as follows:
 
                 
    As of
  As of
    March 31,
  December 31,
    2011   2010
    (In $ millions)
 
Total
    885       751  
 
Information regarding changes in the fair value of the Company’s derivative arrangements is as follows:
 
                                                 
    Three Months Ended
      Three Months Ended
   
    March 31, 2011       March 31, 2010    
    Gain (Loss)
              Gain (Loss)
           
    Recognized in
              Recognized in
           
    Other
      Gain (Loss)
      Other
      Gain (Loss)
   
    Comprehensive
      Recognized in
      Comprehensive
      Recognized in
   
    Income       Income       Income       Income    
    (In $ millions)    
Derivatives designated as cash flow
                                               
hedging instruments
                                               
Interest rate swaps
    (1 (1 )       (16 (3 )       (16 (2 )       (18 (3 )  
Derivatives not designated as
                                               
hedging instruments
                                               
Foreign currency forwards and swaps
    -           (12 )         -           25      
                                                 
Total
    (1 )         (28 )         (16 )         7      
                                                 
                                                 
 
 
(1) Amount excludes $1 million of losses associated with the Company’s equity method investments’ derivative activity and $5 million of tax expense recognized in Other comprehensive income (loss).
(2) Amount excludes $4 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).
(3) Amount represents reclassification from Accumulated other comprehensive income (loss), net and is classified as Interest expense in the unaudited interim consolidated statements of operations.

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See Note 16 for additional information regarding the fair value of the Company’s derivative arrangements.
 
16. Fair Value Measurements
 
The Company follows the provisions of FASB ASC Topic 820 for nonrecurring fair value measurements of non-financial assets and liabilities, such as goodwill, indefinite-lived intangible assets, property, plant and equipment and asset retirement obligations.
 
FASB ASC Topic 820 establishes a three-tiered fair value hierarchy that prioritizes inputs to valuation techniques used in fair value calculations. 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
 
FASB ASC Topic 820 requires the Company 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 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 US government and corporate bonds and equity securities. Derivative financial instruments include interest rate 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 and US government bonds. 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 and other US government securities.
 
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 and foreign currency forwards and swaps are observable in the active markets and are classified as Level 2 in the hierarchy.
 
Mutual Funds. Valued at the net asset value per share or unit multiplied by the number of shares or units held as of the measurement date.


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Assets and liabilities measured at fair value on a recurring basis are as follows:
 
                               
    Fair Value Measurement Using  
    Quoted Prices in
             
    Active Markets for
    Significant Other
       
    Identical Assets
    Observable Inputs
       
    (Level 1)     (Level 2)     Total  
                     
    (In $ millions)  
Marketable securities, at fair value
                             
US corporate debt securities
    -         1         1    
Mutual funds
    73         -         73    
Derivatives not designated as hedging instruments
                             
Foreign currency forwards and swaps
    -         3         (1 )  
                               
Total assets as of March 31, 2011
    73         4         77    
                               
                               
Derivatives designated as cash flow hedging instruments
                             
Interest rate swaps
    -         (57 )       (57 (2 )
Derivatives not designated as hedging instruments
                             
Foreign currency forwards and swaps
    -         (14 )       (14 (2 )
                               
Total liabilities as of March 31, 2011
    -         (71 )       (71 )  
                               
                               
Marketable securities, at fair value
                             
US corporate debt securities
    -         1         1    
Mutual funds
    77         -         77    
Derivatives not designated as hedging instruments
                             
Foreign currency forwards and swaps
    -         3         (1 )  
                               
Total assets as of December 31, 2010
    77         4         81    
                               
                               
Derivatives designated as cash flow hedging instruments
                             
Interest rate swaps
    -         (59 )       (59 (2 )
Interest rate swaps
    -         (14 )       (14 (3 )
Derivatives not designated as hedging instruments
                             
Foreign currency forwards and swaps
    -         (10 )       (10 (2 )
                               
Total liabilities as of December 31, 2010
    -         (83 )       (83 )  
                               
                               
 
 
(1) Included in current Other assets in the unaudited consolidated balance sheets.
(2) Included in current Other liabilities in the unaudited consolidated balance sheets.
(3) Included in noncurrent Other liabilities in the unaudited consolidated balance sheets.
 
Carrying values and estimated fair values of financial instruments that are not carried at fair value in the Company’s unaudited consolidated balance sheets are as follows:
 
                                       
    As of
  As of
 
    March 31,
  December 31,
 
    2011   2010  
    Carrying
    Fair
  Carrying
    Fair
 
    Amount     Value   Amount     Value  
    (In $ millions)        
 
Cost investments
    140         -       139         -    
Insurance contracts in nonqualified pension trusts
    67         67       70         70    
Long-term debt, including current installments of long-term debt
    3,081         3,104       3,064         3,087    
 
In general, the cost investments included in the table above are not publicly traded and their fair values are not readily determinable; however, the Company believes the carrying values approximate or are less than the fair values.


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As of March 31, 2011 and December 31, 2010, the fair values of cash and cash equivalents, receivables, trade payables, short-term debt and the current installments of long-term debt approximate carrying values due to the short-term nature of these instruments. These items have been excluded from the table with the exception of the current installments of long-term debt. Additionally, certain noncurrent receivables, principally insurance recoverables, are carried at net realizable value.
 
The fair value of long-term debt is based on valuations from third-party banks and market quotations.
 
17. Commitments and Contingencies
 
The Company is involved in legal and regulatory proceedings, lawsuits and claims incidental to the normal conduct of business, relating to such matters as product liability, land disputes, contracts, antitrust, intellectual property, workers’ compensation, chemical exposure, prior acquisitions and divestitures, past waste disposal practices and release of chemicals into the environment. While it is impossible at this time to determine with certainty the ultimate outcome of these proceedings, lawsuits and claims, the Company is actively defending those matters where the Company is named as a defendant. Additionally, the Company believes, based on the advice of legal counsel, that adequate reserves have been made and that the ultimate outcomes of all such litigation and claims will not have a material adverse effect on the financial position of the Company; however, the ultimate outcome of any given matter may have a material adverse impact on the results of operations or cash flows of the Company in any given reporting period.
 
Plumbing Actions
 
CNA Holdings LLC (“CNA Holdings”), a US subsidiary of the Company, which included the US business now conducted by the Ticona business that is included in the Advanced Engineered Materials segment, along with Shell Oil Company (“Shell”), E.I. DuPont de Nemours and Company (“DuPont”) and others, has been a defendant in a series of lawsuits, including a number of class actions, alleging that plastics manufactured by these companies that were utilized in the production of plumbing systems for residential property were defective or caused such plumbing systems to fail. Based on, among other things, the findings of outside experts and the successful use of Ticona’s acetal copolymer in similar applications, CNA Holdings does not believe Ticona’s acetal copolymer was defective or caused the plumbing systems to fail. In addition, in many cases CNA Holdings’ potential future exposure may be limited by invocation of the statute of limitations.
 
In November 1995, CNA Holdings, DuPont and Shell entered into national class action settlements that called for the replacement of plumbing systems of claimants who have had qualifying leaks, as well as reimbursements for certain leak damage. In connection with such settlements, the three companies had agreed to fund these replacements and reimbursements up to an aggregate amount of $950 million. As of March 31, 2011, the aggregate funding is $1,111 million due to additional contributions and funding commitments made primarily by other parties. The time to file claims for the class in Cox, et al. v. Hoechst Celanese Corporation, et al., No. 94-0047 (Chancery Ct., Obion County, Tennessee) has expired. Accordingly, the court ruled the terms of the Cox settlement have been fully performed. The entity previously established to administer all Cox related claims was dissolved on September 24, 2010.
 
The following cases remain pending against CNA Holdings:
 
•    Aaustad, et al. v. Shell Oil Company, et al., No. C994680 (British Columbia Supreme Court, Vancouver Registry, Canada).
 
•    Aitken, et al. v. Shell Oil Company, et al., No. 990317943 (Alberta Supreme Court, Judicial District, Edmonton, Canada).
 
•    Couture, et al. v. Shell Oil Company, et al., No. 200-06-000001-985 (Quebec Superior Court, Canada).
 
•    Furlan v. Shell Oil Company, et al., No. C967239 (British Columbia Supreme Court, Vancouver Registry, Canada).


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•    Gariepy, et al. v. Shell Oil Company, et al., No. 30781/99 (Ontario Court General Division, Canada) (pending final approval of nationwide Canadian class settlement).
 
•    St. Croix Ltd., et al. v. Shell Oil Company, et al., No. 1997/467 (Territorial Ct., St. Croix Division, the US Virgin Islands).
 
•    Tranter v. Shell Oil Company, et al., No. 46565/97 (Ontario Court General Division, Canada).
 
•    Williams v. E.I. du Pont de Nemours & Co., et al., No. VLCSS104060 (British Columbia Supreme Court, Vancouver Registry, Canada).
 
•    In re U.S. Brass Corp., No. 94-408235 (Bankruptcy Court, Eastern Division, Texas).
 
On January 24, 2011 and February 7, 2011, the Chancery Court for Weakley County, Tennessee entered judgments in Shelter General Insurance Co., et al., v. Shell Oil Company, et al., No. 16809 and Dilday, et al. v. Hoechst Celanese Corporation, et al. No. 15187, respectively, dismissing with prejudice all claims against the Company.
 
The class actions in Canada are subject to a pending settlement that would result in the dismissal of those actions. In all of these actions, the plaintiffs have sought recovery for alleged damages caused by leaking polybutylene plumbing. Damage amounts have generally not been specified but these actions generally do not involve (either individually or in the aggregate) a large number of homes.
 
The Company’s remaining plumbing action accruals recorded in the unaudited consolidated balance sheets as of March 31, 2011 and December 31, 2010 are $9 million. The Company recorded recoveries and reductions in legal reserves related to plumbing actions (Note 13) to Other (charges) gains, net in the unaudited interim consolidated statements of operations as follows:
 
                     
    Three Months Ended
 
    March 31,  
    2011     2010  
               
    (In $ millions)  
Recoveries
    -         11    
Legal reserve reductions
    -         1    
                     
Total
    -         12    
                     
                     
 
Plumbing Insurance Indemnifications
 
Celanese GmbH entered into agreements with insurance companies related to product liability settlements associated with plumbing action claims. These agreements, except those with insolvent insurance companies, require the Company to indemnify and/or defend these insurance companies in the event that third parties seek additional monies for matters released in these agreements. The indemnifications in these agreements do not provide for time limitations.
 
In certain of the agreements, Celanese GmbH received a fixed settlement amount. The indemnities under these agreements generally are limited to, but in some cases are greater than, the amount received in settlement from the insurance company. The maximum exposure under some of these indemnifications is $95 million, while other settlement agreements with fixed settlement amounts have no stated indemnification limits.
 
There are other agreements whereby the settling insurer agreed to pay a fixed percentage of claims that relate to that insurer’s policies. The Company has provided indemnifications to the insurers for amounts paid in excess of the settlement percentage. These indemnifications do not provide for monetary or time limitations.
 
Polyester Staple Antitrust Litigation
 
CNA Holdings, the successor in interest to Hoechst Celanese Corporation (“HCC”), Celanese Americas


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Corporation and Celanese GmbH (collectively, the “Celanese Entities”) and Hoechst, the former parent of HCC, were named as defendants in two actions (involving 25 individual participants) filed in September 2006 by US purchasers of polyester staple fibers manufactured and sold by HCC. The actions allege that the defendants participated in a conspiracy to fix prices, rig bids and allocate customers of polyester staple sold in the United States. These actions were consolidated in a proceeding by a Multi-District Litigation Panel in the United States District Court for the Western District of North Carolina styled In re Polyester Staple Antitrust Litigation, MDL 1516. On June 12, 2008 the court dismissed these actions with prejudice against all Celanese Entities in consideration of a payment by the Company. This proceeding related to sales by the polyester staple fibers business which Hoechst sold to KoSa B.V., f/k/a Arteva B.V., a subsidiary of Koch Industries, Inc. (“KoSa”) in 1998. Prior to December 31, 2008, the Company had entered into tolling arrangements with four other alleged US purchasers of polyester staple fibers manufactured and sold by the Celanese Entities. These purchasers were not included in the settlement and one such company filed suit against the Company in December 2008 in the Western District of North Carolina entitled Milliken & Company v. CNA Holdings, Inc., Celanese Americas Corporation and Hoechst AG (No. 8-SV-00578). The Company is actively defending this matter and has filed a motion to dismiss, which is pending with the court.
 
In November 2003 KoSa sought recovery from the Company in alleging a variety of claims, including indemnification and breach of representations, arising out of the 1998 sale in Koch Industries, Inc. et al. v. Hoechst Aktiengellschaft et al., (No. 03-cv-8679 Southern District NY). During the fourth quarter of 2010 the parties settled the case pursuant to a confidential agreement and the case was dismissed with prejudice.
 
Other Commercial Actions
 
In April 2007, Southern Chemical Corporation (“Southern”) filed a petition in the 190th Judicial District Court of Harris County, Texas styled Southern Chemical Corporation v. Celanese Ltd. (Cause No. 2007-25490), seeking declaratory judgment relating to the terms of a multi-year supply contract. The trial court granted the Company’s motion for summary judgment in March 2008 dismissing Southern’s claims. In September 2009, the intermediate Texas appellate court reversed the trial court decision and remanded the case to the trial court. The Texas Supreme Court subsequently declined both parties’ requests that it hear the case. On August 15, 2010, Southern filed a second amended petition adding a claim for breach of contract and seeking equitable damages in an unspecified amount from the Company. Southern amended its complaint again in November 2010. Trial has been set for August 2011. The Company believes that the contractual interpretations set forth by Southern lack merit and is actively defending the matter.
 
Acetic Acid Patent Infringement Matters
 
On May 9, 1999, Celanese International Corporation filed a private criminal action styled Celanese International Corporation v. China Petrochemical Development Corporation against China Petrochemical Development Corporation (“CPDC”) in the Taiwan Kaoshiung District Court alleging that CPDC infringed Celanese International Corporation’s patent covering the manufacture of acetic acid. Celanese International Corporation also filed a supplementary civil brief that, in view of changes in Taiwanese patent laws, was subsequently converted to a civil action alleging damages against CPDC based on a period of infringement of ten years, 1991-2000, and based on CPDC’s own data that was reported to the Taiwanese securities and exchange commission. Celanese International Corporation’s patent was held valid by the Taiwanese patent office. On August 31, 2005, the District Court held that CPDC infringed Celanese International Corporation’s acetic acid patent and awarded Celanese International Corporation approximately $28 million (plus interest) for the period of 1995 through 1999. In October 2008, the High Court, on appeal, reversed the District Court’s $28 million award to the Company. The Company appealed to the Superior Court in November 2008, and the court remanded the case to the Intellectual Property Court in June 2009. On January 16, 2006, the District Court awarded Celanese International Corporation $800,000 (plus interest) for the year 1990. In January 2009, the High Court, on appeal, affirmed the District Court’s award and CPDC appealed on February 5, 2009 to the Supreme Court. During the quarter ended March 31, 2010, this case was remanded to the Intellectual Property Court. In August 2010, the Intellectual Property Court ruled in CPDC’s favor and Celanese filed an appeal to the Supreme Court. The Supreme Court ruled in CPDC’s favor on March 4, 2011, and the case was dismissed. On June 29, 2007, the District Court awarded Celanese International Corporation


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$60 million (plus interest) for the period of 2000 through 2005. CPDC appealed this ruling and in July 2009, the High Court ruled in CPDC’s favor. The Company appealed to the Supreme Court and in December 2009, the case was remanded to the Intellectual Property Court.
 
Workers Compensation Claims
 
The Company has been provided with notices of claims filed with the South Carolina Workers’ Compensation Commission and the North Carolina Industrial Commission. The notices of claims identify various alleged injuries to current and former employees arising from alleged exposure to undefined chemicals at current and former plant sites in South Carolina and North Carolina. As of March 31, 2011, there were 1,350 claims pending. The Company has reserves for defense costs related to these matters.
 
Asbestos Claims
 
The Company and several of its US subsidiaries are defendants in asbestos cases. During the three months ended March 31, 2011, asbestos case activity is as follows:
 
             
      Asbestos Cases  
As of December 31, 2010
      499    
Case adjustments
      -    
New cases filed
      16    
Resolved cases
      (7 )  
             
As of March 31, 2011
      508    
             
             
 
Because many of these cases involve numerous plaintiffs, the Company is subject to claims significantly in excess of the number of actual cases. The Company has reserves for defense costs related to claims arising from these matters.
 
Award Proceedings in relation to Domination Agreement and Squeeze-Out
 
On October 1, 2004, Celanese GmbH and the Company’s subsidiary, BCP Holdings GmbH (“BCP Holdings”), a German limited liability company, entered into a Domination Agreement pursuant to which the BCP Holdings became obligated to offer to acquire all outstanding Celanese GmbH shares from the minority shareholders of Celanese GmbH in return for payment of fair cash compensation (the “Purchaser Offer”). The amount of this fair cash compensation was determined to be €41.92 per share in accordance with applicable German law. All minority shareholders who elected not to sell their shares to the BCP Holdings under the Purchaser Offer were entitled to remain shareholders of Celanese GmbH and to receive from the BCP Holdings a gross guaranteed annual payment of €3.27 per Celanese GmbH share less certain corporate taxes in lieu of any dividend.
 
As of March 30, 2005, several minority shareholders of Celanese GmbH had initiated special award proceedings seeking the court’s review of the amounts of the fair cash compensation and of the guaranteed annual payment offered in the Purchaser Offer under the Domination Agreement. In the Purchaser Offer, 145,387 shares were tendered at the fair cash compensation of €41.92, and 924,078 shares initially remained outstanding and were entitled to the guaranteed annual payment under the Domination Agreement. As a result of these proceedings, the amount of the fair cash consideration and the guaranteed annual payment paid under the Domination Agreement could be increased by the court so that all minority shareholders, including those who have already tendered their shares in the Purchaser Offer for the fair cash compensation, could claim the respective higher amounts. On December 12, 2006, the court of first instance appointed an expert to assist the court in determining the value of Celanese GmbH.
 
On May 30, 2006 the majority shareholder of Celanese GmbH adopted a squeeze-out resolution under which all outstanding shares held by minority shareholders should be transferred to BCP Holdings for a fair cash compensation of €66.99 per share (the “Squeeze-Out”). This shareholder resolution was challenged by shareholders but the Squeeze-Out became effective after the disputes were settled on December 22, 2006.


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Award proceedings were subsequently filed by 79 shareholders against BCP Holdings with the Frankfurt District Court requesting the court to set a higher amount for the Squeeze-Out compensation.
 
Pursuant to a settlement agreement between BCP Holdings and certain former Celanese GmbH shareholders, if the court sets a higher value for the fair cash compensation or the guaranteed payment under the Purchaser Offer or the Squeeze-Out compensation, former Celanese GmbH shareholders who ceased to be shareholders of Celanese GmbH due to the Squeeze-Out will be entitled to claim for their shares the higher of the compensation amounts determined by the court in these different proceedings related to the Purchaser Offer and the Squeeze-Out. If the fair cash compensation determined by the court is higher than the Squeeze-Out compensation of €66.99, then 1,069,465 shares will be entitled to an adjustment. If the court confirms the value of the fair cash compensation under the Domination Agreement but determines a higher value for the Squeeze-Out compensation, 924,078 shares would be entitled to an adjustment. Payments already received by these shareholders as compensation for their shares will be offset so that persons who ceased to be shareholders of Celanese GmbH due to the Squeeze-Out are not entitled to more than the higher of the amount set in the two court proceedings.
 
Guarantees
 
The Company has agreed to guarantee or indemnify third parties for environmental and other liabilities pursuant to a variety of agreements, including asset and business divestiture agreements, leases, settlement agreements and various agreements with affiliated companies. Although many of these obligations contain monetary and/or time limitations, others do not provide such limitations.
 
As indemnification obligations often depend on the occurrence of unpredictable future events, the future costs associated with them cannot be determined at this time.
 
The Company has accrued for all probable and reasonably estimable losses associated with all known matters or claims that have been brought to its attention. These known obligations include the following:
 
• Demerger Obligations
 
In connection with the Hoechst demerger, the Company agreed to indemnify Hoechst, and its legal successors, for various liabilities under the Demerger Agreement, including for environmental liabilities associated with contamination arising under 19 divestiture agreements entered into by Hoechst prior to the demerger.
 
The Company’s obligation to indemnify Hoechst, and its legal successors, for environmental liabilities associated with contamination arising under these 19 divestiture agreements is subject to the following thresholds:
 
•     The Company will indemnify Hoechst, and its legal successors, against those liabilities up to €250 million;
 
•     Hoechst, and its legal successors, will bear those liabilities exceeding €250 million; provided, however, that the Company will reimburse Hoechst, and its legal successors, for one-third of liabilities exceeding €750 million in the aggregate.
 
The aggregate maximum amount of environmental indemnifications under the remaining divestiture agreements that provide for monetary limits is approximately €750 million. Three of the divestiture agreements do not provide for monetary limits. Cumulative payments under the divestiture agreements as of March 31, 2011 are $54 million.
 
Based on the estimate of the probability of loss under this indemnification, the Company had reserves of $37 million and $36 million as of March 31, 2011 and December 31, 2010, respectively, for this contingency. Where the Company is unable to reasonably determine the probability of loss or estimate such loss under an indemnification, the Company has not recognized any related liabilities.
 
The Company has also undertaken in the Demerger Agreement to indemnify Hoechst and its legal successors for (i) one-third of any and all liabilities that result from Hoechst being held as the responsible party pursuant to public


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law or current or future environmental law or by third parties pursuant to private or public law relates to contamination and (ii) liabilities that Hoechst is required to discharge, including tax liabilities, which are associated with businesses that were included in the demerger but were not demerged due to legal restrictions on the transfers of such items. These indemnities do not provide for any monetary or time limitations. The Company has not provided for any significant reserves associated with this indemnification as it is not probable or estimable. The Company has not made any payments to Hoechst and its legal successors during the three months ended March 31, 2011 and 2010 in connection with this indemnification.
 
• Divestiture Obligations
 
The Company and its predecessor companies agreed to indemnify third-party purchasers of former businesses and assets for various pre-closing conditions, as well as for breaches of representations, warranties and covenants. Such liabilities also include environmental liability, product liability, antitrust and other liabilities. These indemnifications and guarantees represent standard contractual terms associated with typical divestiture agreements and, other than environmental liabilities, the Company does not believe that they expose the Company to any significant risk. As of March 31, 2011 and December 31, 2010, the Company had reserves in the aggregate of $26 million for these matters.
 
The Company has divested numerous businesses, investments and facilities through agreements containing indemnifications or guarantees to the purchasers. Many of the obligations contain monetary and/or time limitations, ranging from one year to thirty years. The aggregate amount of indemnifications and guarantees provided for under these agreements is approximately $198 million as of March 31, 2011. Other agreements do not provide for any monetary or time limitations.
 
Purchase Obligations
 
In the normal course of business, the Company enters into commitments to purchase goods and services over a fixed period of time. The Company maintains a number of “take-or-pay” contracts for purchases of raw materials, utilities and other services. As of March 31, 2011, there were outstanding future commitments of $1.9 billion under take-or-pay contracts. The Company does not expect to incur any material losses under take-or-pay contractual arrangements. Additionally, as of March 31, 2011, there were other outstanding commitments of $598 million representing maintenance and service agreements, energy and utility agreements, consulting contracts and software agreements.
 
During March 2010, the Company successfully completed an amended raw material purchase agreement with a supplier who had filed for bankruptcy. Under the original contract, the Company made advance payments in exchange for preferential pricing on certain volumes of material purchases over the life of the contract. The cancellation of the original contract and the terms of the subsequent amendment resulted in the Company accelerating amortization on the unamortized prepayment balance of $22 million during the three months ended March 31, 2010. The accelerated amortization was recorded to Cost of sales in the unaudited interim consolidated statements of operations as follows: $20 million was recorded in the Acetyl Intermediates segment and $2 million was recorded in the Advanced Engineered Materials segment.
 
During March 2011, the Company received consideration of $16 million in connection with the settlement of a claim against a bankrupt supplier. The consideration was recorded to Other charges (gains), net in the unaudited interim consolidated statements of operations in the Acetyl Intermediates segment. During April 2011, the Company received additional consideration of $1 million related to the same settlement.
 
18. Segment Information
 
Effective April 1, 2010, the Company moved its Ibn Sina affiliate from its Acetyl Intermediates segment to its Advanced Engineered Materials segment to reflect the change the affiliate’s business dynamics and growth opportunities. The Company has retrospectively adjusted its reportable segments for its Advanced Engineered


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Materials segment and its Acetyl Intermediates segment for the three months ended March 31, 2010 to conform to the three months ended March 31, 2011 presentation.
 
                                                         
    Advanced
                       
    Engineered
  Consumer
  Industrial
  Acetyl
  Other
       
    Materials   Specialties   Specialties   Intermediates   Activities   Eliminations   Consolidated
                               
    (In $ millions)
    Three Months Ended March 31, 2011
Net sales
    328       266   (1)     290       813   (1)     1       (109 )     1,589  
Other (charges) gains, net
    (13 )     (1 )     -       18       (1 )     -       3  
Equity in net earnings (loss) of affiliates
    34       1       -       2       6       -       43  
Earnings (loss) from continuing operations before tax
    73       55       25       114       (87 )     -       180  
Depreciation and amortization
    21       12       10       25       4       -       72  
Capital expenditures
    17       13       12       15       2       -       59   (2)
                                                         
                                                         
    As of March 31, 2011
Goodwill and intangibles, net
    428       292       62       274       -       -       1,056  
Total assets
    2,882       1,028       909       2,013       1,790       -       8,622  
                                                         
                                                         
    Three Months Ended March 31, 2010 - As Adjusted (Note 3)
Net sales
    282       238   (1)     242       724   (1)     -       (98 )     1,388  
Other (charges) gains, net
    5       (73 )     -       (7 )     (2 )     -       (77 )
Equity in net earnings (loss) of affiliates
    44       -       -       1       4       -       49  
Earnings (loss) from continuing operations before tax
    92       (30 )     12       1       (82 )     -       (7 )
Depreciation and amortization
    20   (3)     11       10       45   (3)     3       -       89  
Capital expenditures
    5       6       5       5       2       -       23   (2)
                                                         
                                                         
    As of December 31, 2010
Goodwill and intangibles, net
    423       284       55       264       -       -       1,026  
Total assets
    2,765       998       841       1,909       1,768       -       8,281  
 
 
(1) Net sales for Acetyl Intermediates and Consumer Specialties include inter-segment sales of $108 million and $1 million, respectively, for the three months ended March 31, 2011 and $94 million and $4 million, respectively, for the three months ended March 31, 2010.
(2) Excludes expenditures related to the relocation of the Company’s Ticona plant in Kelsterbach (Note 20) and includes a decrease in accrued capital expenditures of $18 million and $21 million for the three months ended March 31, 2011 and 2010, respectively.
(3) Includes $2 million for Advanced Engineered Materials and $20 million for Acetyl Intermediates for the accelerated amortization of the unamortized prepayment related to a raw material purchase agreement (Note 17).


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19. Earnings (Loss) Per Share
 
                                 
    Three Months Ended March 31,  
    2011     2010  
    Basic     Diluted     Basic     Diluted  
                           
                As Adjusted
 
                (Note 3)  
    (In $ millions, except share and per share data)  
Amounts attributable to Celanese Corporation
                               
Earnings (loss) from continuing operations
    138       138       13       13  
Earnings (loss) from discontinued operations
    4       4       1       1  
                                 
Net earnings (loss)
    142       142       14       14  
Cumulative preferred stock dividends
    -       -       (3 )     (3 )
                                 
Net earnings (loss) available to common shareholders
    142       142       11       11  
                                 
                                 
Weighted-average shares — basic
    155,966,259       155,966,259       150,272,227       150,272,227  
Dilutive stock options
            1,992,598               1,921,121  
Dilutive restricted stock units
            707,830               449,023  
Assumed conversion of preferred stock
            -               -  
                                 
Weighted-average shares — diluted
            158,666,687               152,642,371  
                                 
                                 
Per share
                               
Earnings (loss) from continuing operations
    0.88       0.87       0.06       0.06  
Earnings (loss) from discontinued operations
    0.03       0.03       0.01       0.01  
                                 
Net earnings (loss)
    0.91       0.90       0.07       0.07  
                                 
                                 
 
Securities not included in the computation of diluted net earnings per share as their effect would have been antidilutive are as follows:
 
                 
    Three Months Ended
 
    March 31,  
    2011     2010  
Stock options
    180,625       611,250  
Restricted stock units
    -       -  
Convertible preferred stock
    -       6,302,027  
                 
Total
    180,625       6,913,277  
                 
                 
 
20. Ticona Kelsterbach Plant Relocation
 
In November 2006, the Company finalized a settlement agreement with the Frankfurt, Germany Airport (“Fraport”) to relocate the Kelsterbach, Germany Ticona operations, included in the Advanced Engineered Materials segment, resolving several years of legal disputes related to the planned Fraport expansion. As a result of the settlement, the Company will transition Ticona’s operations from Kelsterbach to the Hoechst Industrial Park in the Rhine Main area in Germany. Under the original agreement, Fraport agreed to pay the Company a total of €670 million over a five-year period to offset costs associated with the transition of the operations from its current location and the closure of the Kelsterbach plant. The Company subsequently decided to expand the scope of the new production facilities.
 
Amounts received from Fraport through March 31, 2011 were $749 million and are accounted for as deferred proceeds in noncurrent Other liabilities in the unaudited consolidated balance sheets.
 
On March 30, 2011, the Company provided notice to Fraport indicating the Company will cease operations at the Kelsterbach, Germany facility by July 31, 2011. The Kelsterbach, Germany Ticona operations are included in the Advanced Engineered Materials segment.


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A summary of the financial statement impact associated with the Ticona Kelsterbach plant relocation is as follows:
 
                         
    Three Months Ended
    Total From
 
    March 31,     Inception Through
 
    2011     2010     March 31, 2011  
    (In $ millions)  
 
Deferred proceeds
    -       -       749  
Costs expensed
    13       6       72  
Costs capitalized (1)
    49       68       970  
Lease buyout
    -       -       22  
 
 
(1) Includes a decrease in accrued capital expenditures of $5 million and $17 million for the three months ended March 31, 2011 and 2010, respectively.
 
21. Consolidating Guarantor Financial Information
 
In September 2010, the Company completed the issuance of the Notes (Note 9) by Celanese US (the “Issuer”). The Notes are guaranteed by Celanese Corporation (the “Parent Guarantor”) and substantially all of its US subsidiaries (the “Subsidiary Guarantors”). For cash management purposes, the Company transfers cash between Parent Guarantor, Issuer, Subsidiary Guarantors and non-guarantors through intercompany financing arrangements or declaration of dividends between the respective parent and its subsidiaries. The transfer of cash under these activities facilitates the ability of the recipient to make specified third-party payments. As a result, the Company presents such intercompany financing activities and dividends within the category where the ultimate use of cash to third parties is presented in the accompanying unaudited interim consolidated statements of cash flows. The unaudited interim consolidating financial statements for the Parent Guarantor, the Issuer, the Subsidiary Guarantors and the non-guarantors are as follows:


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CELANESE CORPORATION AND SUBSIDIARIES
 
UNAUDITED INTERIM CONSOLIDATING STATEMENTS OF OPERATIONS
 
                                                 
    Three Months Ended March 31, 2011  
    Parent
          Subsidiary
    Non-
             
    Guarantor     Issuer     Guarantors     Guarantors     Eliminations     Consolidated  
                                       
    (In $ millions)  
Net sales
    -       -       615       1,231       (257 )     1,589  
Cost of sales
                    (436 )     (1,051 )     249       (1,238 )
                                                 
Gross profit
    -       -       179       180       (8 )     351  
Selling, general and administrative expenses
    -       -       (39 )     (89 )     -       (128 )
Amortization of intangible assets
    -       -       (4 )     (12 )     -       (16 )
Research and development expenses
    -       -       (13 )     (10 )     -       (23 )
Other (charges) gains, net
    -       -       19       (16 )     -       3  
Foreign exchange gain (loss), net
    -       -       -       1       -       1  
                                                 
Operating profit
    -       -       142       54       (8 )     188  
Equity in net earnings (loss) of affiliates
    142       178       28       36       (341 )     43  
Interest expense
    -       (51 )     (12 )     (10 )     18       (55 )
Interest income
    -       6       9       4       (18 )     1  
Other income (expense), net
    -       2       -       1       -       3  
                                                 
Earnings (loss) from continuing operations before tax
    142       135       167       85       (349 )     180  
Income tax (provision) benefit
    -       7       (44 )     (6 )     1       (42 )
                                                 
Earnings (loss) from continuing operations
    142       142       123       79       (348 )     138  
                                                 
Earnings (loss) from operation of discontinued operations
    -       -       6       -       -       6  
Income tax (provision) benefit from discontinued operations
    -       -       (2 )     -       -       (2 )
                                                 
Earnings (loss) from discontinued operations
    -       -       4       -       -       4  
                                                 
Net earnings (loss)
    142       142       127       79       (348 )     142  
Net (earnings) loss attributable to noncontrolling interests
    -       -       -       -       -       -  
                                                 
Net earnings (loss) attributable to Celanese Corporation
    142       142       127       79       (348 )     142  
                                                 
                                                 


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CELANESE CORPORATION AND SUBSIDIARIES
 
UNAUDITED INTERIM CONSOLIDATING STATEMENTS OF OPERATIONS
 
                                                 
    Three Months Ended March 31, 2010  
    Parent
          Subsidiary
    Non-
             
    Guarantor     Issuer     Guarantors     Guarantors     Eliminations     Consolidated  
                                       
    (In $ millions) (As Adjusted, Note 3)  
Net sales
    -       -       552       1,067       (231 )     1,388  
Cost of sales
    -       -       (430 )     (977 )     237       (1,170 )
                                                 
Gross profit
    -       -       122       90       6       218  
Selling, general and administrative expenses
    -       -       (47 )     (77 )     -       (124 )
Amortization of intangible assets
    -       -       (2 )     (13 )     -       (15 )
Research and development expenses
    -       -       (10 )     (8 )     -       (18 )
Other (charges) gains, net
    -       -       9       (86 )     -       (77 )
Foreign exchange gain (loss), net
    -       -       -       2       -       2  
                                                 
Operating profit
    -       -       72       (92 )     6       (14 )
Equity in net earnings (loss) of affiliates
    14       39       27       33       (64 )     49  
Interest expense
    -       (39 )     (9 )     (12 )     11       (49 )
Interest income
    -       5       6       1       (11 )     1  
Other income (expense), net
    -       1       (1 )     6       -       6  
                                                 
Earnings (loss) from continuing operations before tax
    14       6       95       (64 )     (58 )     (7 )
Income tax (provision) benefit
    -       8       (12 )     23       1       20  
                                                 
Earnings (loss) from continuing operations
    14       14       83       (41 )     (57 )     13  
                                                 
Gain (loss) on disposal of discontinued operations
    -       -       2       -       -       2  
Income tax (provision) benefit from discontinued operations
    -       -       (1 )     -       -       (1 )