CE-2011.9.30-10Q


 
 
 
 
 
UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
_______________________________________________________
Form 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 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 (Do not check if a smaller reporting company)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No þ
The number of outstanding shares of the registrant’s Series A common stock, $0.0001 par value, as of October 20, 2011 was 156,101,709.
 
 
 
 
 


CELANESE CORPORATION AND SUBSIDIARIES

Form 10-Q
For the Quarterly Period Ended September 30, 2011

TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2



Item 1. Financial Statements 
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2011
 
2010
 
2011
 
2010
 
(In $ millions, except share and per share data)
Net sales
1,807

 
1,506

 
5,149

 
4,411

Cost of sales
(1,406
)
 
(1,160
)
 
(3,987
)
 
(3,544
)
Gross profit
401

 
346

 
1,162

 
867

Selling, general and administrative expenses
(140
)
 
(125
)
 
(408
)
 
(373
)
Amortization of intangible assets
(17
)
 
(15
)
 
(50
)
 
(45
)
Research and development expenses
(24
)
 
(17
)
 
(72
)
 
(52
)
Other (charges) gains, net
(24
)
 
36

 
(39
)
 
(47
)
Foreign exchange gain (loss), net
1

 
(1
)
 
1

 
1

Gain (loss) on disposition of businesses and assets, net
(1
)
 
(3
)
 
(1
)
 
12

Operating profit (loss)
196

 
221

 
593

 
363

Equity in net earnings (loss) of affiliates
57

 
37

 
146

 
131

Interest expense
(54
)
 
(48
)
 
(166
)
 
(146
)
Refinancing expense
—

 
(16
)
 
(3
)
 
(16
)
Interest income
1

 
—

 
2

 
2

Dividend income - cost investments
1

 
1

 
80

 
73

Other income (expense), net
—

 
(4
)
 
9

 
1

Earnings (loss) from continuing operations before tax
201

 
191

 
661

 
408

Income tax (provision) benefit
(34
)
 
(44
)
 
(151
)
 
(85
)
Earnings (loss) from continuing operations
167

 
147

 
510

 
323

Earnings (loss) from operation of discontinued operations
—

 
(3
)
 
3

 
(8
)
Gain (loss) on disposition of discontinued operations
—

 
—

 
—

 
2

Income tax (provision) benefit from discontinued operations
—

 
1

 
(1
)
 
2

Earnings (loss) from discontinued operations
—

 
(2
)
 
2

 
(4
)
Net earnings (loss)
167

 
145

 
512

 
319

Net (earnings) loss attributable to noncontrolling interests
—

 
—

 
—

 
—

Net earnings (loss) attributable to Celanese Corporation
167

 
145

 
512

 
319

Cumulative preferred stock dividends
—

 
—

 
—

 
(3
)
Net earnings (loss) available to common shareholders
167

 
145

 
512

 
316

Amounts attributable to Celanese Corporation
 

 
 

 
 

 
 

Earnings (loss) from continuing operations
167

 
147

 
510

 
323

Earnings (loss) from discontinued operations
—

 
(2
)
 
2

 
(4
)
Net earnings (loss)
167

 
145

 
512

 
319

Earnings (loss) per common share - basic
 

 
 

 
 

 
 

Continuing operations
1.07

 
0.94

 
3.27

 
2.08

Discontinued operations
—

 
(0.01
)
 
0.01

 
(0.03
)
Net earnings (loss) - basic
1.07

 
0.93

 
3.28

 
2.05

Earnings (loss) per common share - diluted
 

 
 

 
 

 
 

Continuing operations
1.05

 
0.93

 
3.21

 
2.04

Discontinued operations
—

 
(0.01
)
 
0.01

 
(0.03
)
Net earnings (loss) - diluted
1.05

 
0.92

 
3.22

 
2.01

Weighted average shares - basic
156,194,459

 
155,859,508

 
156,147,982

 
154,173,120

Weighted average shares - diluted
159,018,839

 
157,883,548

 
158,965,811

 
158,408,403


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

3


CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2011
 
2010
 
2011
 
2010
 
(In $ millions)
Net earnings (loss)
167

 
145

 
512

 
319

Other comprehensive income (loss), net of tax
 

 
 

 
 

 
 

Unrealized gain (loss) on marketable securities
—

 
5

 
—

 
6

Foreign currency translation
(69
)
 
98

 
18

 
39

Unrealized gain (loss) on interest rate swaps
5

 
(2
)
 
14

 
1

Pension and postretirement benefits
4

 
2

 
12

 
8

Total other comprehensive income (loss), net of tax
(60
)
 
103

 
44

 
54

Total comprehensive income (loss), net of tax
107

 
248

 
556

 
373

Comprehensive (income) loss attributable to noncontrolling interests
—

 
—

 
—

 
—

Comprehensive income (loss) attributable to Celanese Corporation
107

 
248

 
556

 
373

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


4


CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
 
As of
September 30,
2011
 
As of
December 31,
2010
 
(In $ millions, except share data)
ASSETS
 
 
 
Current assets
 

 
 

Cash and cash equivalents
704

 
740

Trade receivables - third party and affiliates (net of allowance for doubtful accounts - 2011: $10; 2010: $12)
978

 
827

Non-trade receivables, net
203

 
253

Inventories
777

 
610

Deferred income taxes
101

 
92

Marketable securities, at fair value
64

 
78

Assets held for sale
—

 
9

Other assets
71

 
59

Total current assets
2,898

 
2,668

Investments in affiliates
841

 
838

Property, plant and equipment (net of accumulated depreciation - 2011: $1,284; 2010: $1,131)
3,233

 
3,017

Deferred income taxes
412

 
443

Other assets
334

 
289

Goodwill
780

 
774

Intangible assets, net
213

 
252

Total assets
8,711

 
8,281

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities
 

 
 

Short-term borrowings and current installments of long-term debt - third party and affiliates
161

 
228

Trade payables - third party and affiliates
713

 
673

Other liabilities
583

 
596

Deferred income taxes
27

 
28

Income taxes payable
129

 
17

Total current liabilities
1,613

 
1,542

Long-term debt
2,893

 
2,990

Deferred income taxes
116

 
116

Uncertain tax positions
205

 
273

Benefit obligations
1,214

 
1,359

Other liabilities
1,214

 
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: 178,962,353 issued and 156,101,719 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: 22,860,634 shares; 2010: 22,269,278 shares)
(857
)
 
(829
)
Additional paid-in capital
601

 
574

Retained earnings
2,338

 
1,851

Accumulated other comprehensive income (loss), net
(626
)
 
(670
)
Total Celanese Corporation shareholders’ equity
1,456

 
926

Noncontrolling interests
—

 
—

Total shareholders’ equity
1,456

 
926

Total liabilities and shareholders’ equity
8,711

 
8,281

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

5


CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENT OF
SHAREHOLDERS’ EQUITY

 
Nine Months Ended
 
September 30, 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
781,705

 
—

Purchases of treasury stock
(591,356
)
 
—

Stock awards
152,077

 
—

Balance as of the end of the period
156,101,719

 
—

Treasury stock
 

 
 

Balance as of the beginning of the period
22,269,278

 
(829
)
Purchases of treasury stock, including related fees
591,356

 
(28
)
Balance as of the end of the period
22,860,634

 
(857
)
Additional paid-in capital
 

 
 

Balance as of the beginning of the period
 

 
574

Stock-based compensation, net of tax
 

 
17

Stock option exercises, net of tax
 

 
10

Balance as of the end of the period
 

 
601

Retained earnings
 

 
 

Balance as of the beginning of the period
 

 
1,851

Net earnings (loss) attributable to Celanese Corporation
 

 
512

Series A common stock dividends
 

 
(25
)
Balance as of the end of the period
 

 
2,338

Accumulated other comprehensive income (loss), net
 

 
 

Balance as of the beginning of the period
 

 
(670
)
Other comprehensive income (loss)
 

 
44

Balance as of the end of the period
 

 
(626
)
Total Celanese Corporation shareholders’ equity
 

 
1,456

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
 

 
1,456

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



6


CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

 
Nine Months Ended
 
September 30,
 
2011
 
2010
 
(In $ millions)
Operating activities
 

 
 

Net earnings (loss)
512

 
319

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

 
 

Other charges (gains), net of amounts used
(8
)
 
17

Depreciation, amortization and accretion
231

 
226

Deferred income taxes, net
7

 
(24
)
(Gain) loss on disposition of businesses and assets, net
—

 
(12
)
Refinancing expense
3

 
16

Other, net
49

 
22

Operating cash provided by (used in) discontinued operations
(9
)
 
5

Changes in operating assets and liabilities
 

 
 

Trade receivables - third party and affiliates, net
(175
)
 
(162
)
Inventories
(167
)
 
(63
)
Other assets
3

 
11

Trade payables - third party and affiliates
77

 
15

Other liabilities
(42
)
 
(7
)
Net cash provided by (used in) operating activities
481

 
363

Investing activities
 

 
 

Capital expenditures on property, plant and equipment
(241
)
 
(122
)
Acquisitions, net of cash acquired
(8
)
 
(46
)
Proceeds from sale of businesses and assets, net
6

 
22

Deferred proceeds from Ticona Kelsterbach plant relocation
158

 
—

Capital expenditures related to Ticona Kelsterbach plant relocation
(174
)
 
(219
)
Other, net
(37
)
 
(16
)
Net cash provided by (used in) investing activities
(296
)
 
(381
)
Financing activities
 

 
 

Short-term borrowings (repayments), net
(20
)
 
(4
)
Proceeds from long-term debt
411

 
600

Repayments of long-term debt
(562
)
 
(848
)
Refinancing costs
(8
)
 
(24
)
Purchases of treasury stock, including related fees
(28
)
 
(41
)
Stock option exercises
19

 
8

Series A common stock dividends
(25
)
 
(20
)
Preferred stock dividends
—

 
(3
)
Other, net
(11
)
 
—

Net cash provided by (used in) financing activities
(224
)
 
(332
)
Exchange rate effects on cash and cash equivalents
3

 
(20
)
Net increase (decrease) in cash and cash equivalents
(36
)
 
(370
)
Cash and cash equivalents at beginning of period
740

 
1,254

Cash and cash equivalents at end of period
704

 
884

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


7


CELANESE CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1.
Description of the Company and Basis of Presentation
Description of the Company
Celanese Corporation and its subsidiaries (collectively, the “Company”) is a global technology and specialty materials company. The Company’s business involves processing chemical raw materials, such as methanol, carbon monoxide and ethylene, and natural products, including wood pulp, into value-added chemicals, thermoplastic polymers and other chemical-based products.
Basis of Presentation
The unaudited interim consolidated financial statements for the three and nine months ended September 30, 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.
Operating results for the three and nine months ended September 30, 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 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.
The Company has reclassified certain prior period amounts to conform to the current period’s presentation.
Estimates and Assumptions
The preparation of unaudited interim consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the unaudited interim consolidated financial statements and the reported amounts of revenues, expenses and allocated charges during the reporting period. Significant estimates pertain to impairments of goodwill, intangible assets and other long-lived assets, purchase price allocations, restructuring costs and other (charges) gains, net, income taxes, pension and other postretirement benefits, asset retirement obligations, environmental liabilities and loss contingencies, among others. Actual results could differ from those estimates.




8


2.
Recent Accounting Pronouncements
In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)2011-09, Disclosures about an Employer's Participation in a Multiemployer Plan, an amendment to FASB Accounting Standards Codification (“ASC”) Subtopic 715-80, Compensation-Retirement Benefits-Multiemployer Plans. The update requires additional disclosures regarding the significant multiemployer plans in which an employer participates, the level of an employer's participation including contributions made, and whether the contributions made represent more than five percent of the total contributions made to the plan by all contributing employers. The expanded disclosures also address the financial health of significant multiemployer plans including the funded status and existence of funding improvement plans, the existence of imposed surcharges on contributions to the plan, as well as the nature of employer commitments to the plan. The ASU is effective for the Company for annual periods for fiscal years ending after December 15, 2011. The amendments should be applied retrospectively for all prior periods presented. The Company expects to comply with the disclosure requirements of this ASU for the year ending December 31, 2011.
In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment, an amendment to FASB ASC Topic 350, Intangibles - Goodwill and Other (“FASB ASC Topic 350”). The update provides an entity with the option to first assess qualitative factors in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. After assessing the qualitative factors, if an entity determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. If an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test as described in FASB ASC Topic 350. Entities have the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step impairment test as well as resume performing the qualitative assessment in any subsequent period. The ASU is effective for the Company for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption was permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued. The Company did not early adopt the provisions of this ASU; however, the Company's annual goodwill impairment testing did not result in an impairment charge (Note 6). Accordingly, the Company does not expect the impact of adopting this ASU to be material to the Company's financial position, results of operations or cash flows.
In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income, an amendment to FASB ASC Topic 220, Comprehensive Income. The update gives companies the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments in the update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The ASU is effective for the Company for fiscal years, and interim periods within those years, beginning after December 15, 2011. The amendments should be applied retrospectively for all prior periods presented. Early adoption is permitted because compliance with the amendments is already permitted. The Company expects to comply with the disclosure requirements of this ASU for the year ending December 31, 2011.
In May 2011, the FASB issued FASB ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, an amendment to FASB ASC Topic 820, Fair Value Measurement (“FASB ASC Topic 820”). The update revises the application of the valuation premise of highest and best use of an asset, the application of premiums and discounts for fair value determination, as well as the required disclosures for transfers between Level 1 and Level 2 fair value measures and the highest and best use of nonfinancial assets. The update provides additional disclosures regarding Level 3 fair value measurements and clarifies certain other existing disclosure requirements. The ASU is effective for the Company for interim and annual periods beginning after December 15, 2011. The Company does not expect the impact of adopting this ASU to have a material effect on the Company's consolidated financial statements, but the adoption of this ASU may require additional disclosures.
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.


9


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 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.

In connection with the acquisition, the Company committed to purchase certain inventories at a future date. As of September 30, 2011, the Company purchased $12 million of inventories and has no further commitment to purchase additional inventories pursuant to 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 per year 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% although the Company's indirect ownership interest will remain unchanged. SABIC’s economic and ownership interest will remain unchanged. The Ibn Sina equity method investment is included in the Advanced Engineered Materials segment.
Plant Closures
• Spondon, Derby, United Kingdom

In March 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 operations are included in the Consumer Specialties segment.


10


In April 2010, the Company announced the proposed cessation of operations at the acetate flake and tow manufacturing operations in Spondon, Derby, United Kingdom and began the consulting process with employees and their representatives. As a result, in August 2010, the Company announced 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 Company expects the closure of the acetate flake and tow manufacturing operations in Spondon, Derby, United Kingdom to occur during 2012.
The exit costs and plant shutdown costs related to the closure of the acetate flake and tow manufacturing operations in Spondon, Derby, United Kingdom (Note 13) are as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2011
 
2010
 
2011
 
2010
 
(In $ millions)
Employee termination benefits
2

 
(14
)
 
(3
)
 
(14
)
Asset impairments
—

 
—

 
—

 
(72
)
Total exit costs recorded to Other (charges) gains, net
2

 
(14
)
 
(3
)
 
(86
)
 
 
 
 
 
 
 
 
Accelerated depreciation
—

 
(2
)
 
(7
)
 
(2
)
Other
(2
)
 
—

 
(2
)
 
—

Total plant shutdown costs
(2
)
 
(2
)
 
(9
)
 
(2
)
• Pardies, France
In July 2009, the Company 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 Pardies, France operations are included in the Acetyl Intermediates segment.
The exit costs and plant shutdown costs related to the Project of Closure (Note 13) are as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2011
 
2010
 
2011
 
2010
 
(In $ millions)
Employee termination benefits
(2
)
 
(2
)
 
(4
)
 
(4
)
Asset impairments
—

 
—

 
—

 
(1
)
Contract termination costs
—

 
—

 
—

 
(3
)
Reindustrialization costs
—

 
—

 
—

 
(3
)
Other
—

 
1

 
—

 
1

Total exit costs recorded to Other (charges) gains, net
(2
)
 
(1
)
 
(4
)
 
(10
)
 
 
 
 
 
 
 
 
Gain (loss) on disposition of assets, net
1

 
1

 
1

 
1

Inventory write-offs
—

 
—

 
—

 
(4
)
Other
(1
)
 
(1
)
 
(3
)
 
(6
)
Total plant shutdown costs
—

 
—

 
(2
)
 
(9
)








11


4.
Marketable Securities, at Fair Value

 
Amortized
Cost
 
Gross
Unrealized
Gain
 
Gross
Unrealized
Loss
 
Fair
Value
 
(In $ millions)
Mutual funds
64

 
—

 
—

 
64

As of September 30, 2011
64

 
—

 
—

 
64

 
 
 
 
 
 
 
 
US corporate debt securities
1

 
—

 
—

 
1

Mutual funds
77

 
—

 
—

 
77

As of December 31, 2010
78

 
—

 
—

 
78

The Company’s captive insurance companies and nonqualified pension trusts hold available-for-sale securities for capitalization and funding requirements, respectively.

5.
Inventories
 
As of
September 30,
2011
 
As of
December 31,
2010
 
(In $ millions)
Finished goods
573

 
442

Work-in-process
43

 
31

Raw materials and supplies
161

 
137

Total
777

 
610

6.
Goodwill and Intangible Assets, Net
Goodwill
 
Advanced
Engineered
Materials
 
Consumer
Specialties
 
Industrial
Specialties
 
Acetyl
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
1

 
1

 
—

 
3

 
5

As of September 30, 2011
 
 
 
 
 
 
 
 
 
Goodwill
300

 
250

 
36

 
194

 
780

Accumulated impairment losses
—

 
—

 
—

 
—

 
—

Total
300

 
250

 
36

 
194

 
780

The Company assesses the recoverability of the carrying value of its reporting unit goodwill annually during the third quarter of its fiscal year using June 30 balances or whenever events or changes in circumstances indicate that the carrying amount of the asset may not be fully recoverable. In connection with the Company's annual goodwill impairment test, the Company did not record an impairment loss to goodwill during the nine months ended September 30, 2011.

12


Intangible Assets, Net
 
Trademarks
and Trade
Names
 
Licenses
 
Customer-
Related
Intangible
Assets
 
Developed
Technology
 
Covenants
Not to
Compete
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
1

 
1

 
5

 
—

 
(1
)
 
6

As of September 30, 2011
89

 
31

 
531

 
27

 
22

 
700

Accumulated Amortization
 
 


 


 


 


 


As of December 31, 2010
(5
)
 
(10
)
 
(395
)
 
(11
)
 
(14
)
 
(435
)
Amortization
—

 
(2
)
 
(42
)
 
(2
)
 
(4
)
 
(50
)
Exchange rate changes
—

 
—

 
(1
)
 
(1
)
 
—

 
(2
)
As of September 30, 2011
(5
)
 
(12
)
 
(438
)
 
(14
)
 
(18
)
 
(487
)
Net book value
84

 
19

 
93

 
13

 
4

 
213

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 assesses the recoverability of the carrying value of its indefinite-lived intangible assets annually during the third quarter of its fiscal year using June 30 balances or whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. In connection with the Company's annual indefinite-lived intangible assets impairment test, the Company did not record an impairment loss to indefinite-lived intangible assets during the nine months ended September 30, 2011.
The Company’s trademarks and trade names have an indefinite life. Accordingly, no amortization expense is recorded on these intangible assets. For the nine months ended September 30, 2011, the Company did not renew or extend any intangible assets.


13


7.
Current Other Liabilities
 
As of
September 30,
2011
 
As of December 31,
2010
 
(In $ millions)
Salaries and benefits
111

 
111

Environmental (Note 11)
20

 
16

Restructuring (Note 13)
45

 
57

Insurance
18

 
27

Asset retirement obligations
18

 
31

Derivatives (Note 15)
42

 
69

Current portion of benefit obligations
49

 
49

Interest
45

 
29

Sales and use tax/foreign withholding tax payable
11

 
15

Uncertain tax positions
64

 
15

Other
160

 
177

Total
583

 
596


14


8.
Noncurrent Other Liabilities
 
As of
September 30,
2011
 
As of December 31,
2010
 
(In $ millions)
Environmental (Note 11)
79

 
85

Insurance
65

 
69

Deferred revenue
37

 
41

Deferred proceeds(1)
935

 
786

Asset retirement obligations
49

 
46

Derivatives (Note 15)
17

 
14

Income taxes payable
4

 
4

Other
28

 
30

Total
1,214

 
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, included in the Advanced Engineered Materials segment, to a new site (Note 20). Such proceeds will be deferred until the transfer of title to the Frankfurt, Germany Airport. The Company recognized $8 million of deferred proceeds during the three months ended June 30, 2011 related to the completed sale of its Pampa, Texas facility included in the Acetyl Intermediates segment. Plant assets with a net book value of $9 million related to the Company's Pampa, Texas facility were included in Assets Held for Sale as of December 31, 2010.




15


9.
Debt

 
As of
September 30,
2011
 
As of
December 31,
2010
 
(In $ millions)
Short term borrowings and current installments of long-term debt - third party and affiliates
 
 
 
Current installments of long-term debt
55

 
74

Short-term borrowings, including amounts due to affiliates, weighted average interest rate of 4.0% as of September 30, 2011
106

 
154

Total
161

 
228

 
As of
September 30,
2011
 
As of
December 31,
2010
 
(In $ millions)
Long-term debt
 
 
 
Senior credit facilities
 
 
 
Term B loan facility due 2014
—

 
508

Term C loan facility due 2016
1,401

 
1,409

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

 
600

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

 
—

Pollution control and industrial revenue bonds, interest rates ranging from 5.7% to 6.7%, due at various dates through 2030
182

 
181

Obligations under capital leases due at various dates through 2054
251

 
245

Other bank obligations, interest rates ranging from 1.5% to 6.3%, due at various dates through 2017
114

 
121

Subtotal
2,948

 
3,064

Current installments of long-term debt
(55
)
 
(74
)
Total
2,893

 
2,990

Senior Notes

In September 2010, Celanese US completed an offering of $600 million in aggregate principal amount of 6.625% senior unsecured notes due 2018 in a private placement conducted pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). On April 14, 2011, Celanese US issued $600 million aggregate principal amount of 6.625% senior unsecured notes (the “6.625% Notes”) in exchange for tendered 6.625% senior unsecured notes issued under the private placement in an exchange offer registered under the Securities Act. The 6.625% Notes have substantially identical terms as the notes issued under the private placement except the transfer restrictions, registration rights and rights to increased interest in addition to the stated interest rate do not apply to the exchange notes. The 6.625% 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 6.625% 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 6.625% Notes on April 15 and October 15 of each year commencing on April 15, 2011. The 6.625% 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 6.625% 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 6.625% 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.


16


On May 6, 2011, Celanese US completed an offering of $400 million in aggregate principal amount of 5.875% senior unsecured notes due 2021 (the “5.875% Notes”) in a public offering registered under the Securities Act. The 5.875% Notes are guaranteed on a senior unsecured basis by Celanese and the Subsidiary Guarantors.
The 5.875% Notes were issued under an indenture and a first supplemental indenture, each dated May 6, 2011 (the “First Supplemental Indenture”) among Celanese US, Celanese, the Subsidiary Guarantors and Wells Fargo Bank, National Association, as trustee. Celanese US will pay interest on the 5.875% Notes on June 15 and December 15 of each year commencing on December 15, 2011. Prior to June 15, 2021, Celanese US may redeem some or all of the 5.875% 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 First Supplemental Indenture. The 5.875% Notes are senior unsecured obligations of Celanese US and rank equally in right of payment with all other unsubordinated indebtedness of Celanese US.
As a result of the issuance of the 5.875% Notes, the Company accelerated amortization of deferred financing costs of $3 million which is recorded as Refinancing expense in the unaudited interim consolidated statements of operations. In addition, the Company recorded deferred financing costs of $8 million which are being amortized over the term of the 5.875% Notes. As of September 30, 2011, $29 million of deferred financing costs are included in noncurrent Other assets on the unaudited consolidated balance sheet.
The First Supplemental 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.
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.
On May 6, 2011, Celanese US, through its subsidiaries, prepaid its outstanding Term B loan facility under the Amendment Agreement set to mature in 2014 with an aggregate principal amount of $516 million using proceeds from the 5.875% Notes and cash on hand.
Borrowings under the Amended Credit Agreement 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
Margin as of
September 30, 2011
 
Decreases .25%
 
Increases .25%
 
Estimated Total Net
Leverage Ratio as of
September 30, 2011
 
 
If the Estimated Total Net Leverage is:
 
Credit-linked revolving facility
1.50
%
 
 not applicable
 
  > 2.25:1.00
 
1.57

Term C
2.75
%
 
  < = 1.75:1.00
 
  > 2.25:1.00
 
1.57

The margin for borrowings under the revolving credit facility is currently 2.5% 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.


17


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 first lien senior secured leverage ratios and the borrowing capacity under the revolving credit facility are as follows:
 
As of September 30, 2011
 
 
 
 
 
 
 
Estimate, if Fully
 
Borrowing
 
Maximum
 
Estimate
 
Drawn
 
Capacity
 
 
 
 
 
 
 
(In $ millions)
First lien senior secured leverage ratio
3.90 to 1.00
 
1.06 to 1.00
 
1.49 to 1.00
 
600

The balances available for borrowing are as follows:
 
As of
September 30,
2011
 
(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 6.625% Notes and 5.875% 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 September 30, 2011.


18


10.
Benefit Obligations
The components of net periodic benefit costs are as follows:
 
 
 
 
 
Postretirement
 
 
 
 
 
Postretirement
 
Pension Benefits
 
Benefits
 
Pension Benefits
 
Benefits
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2011
 
2010
 
2011
 
2010
 
2011
 
2010
 
2011
 
2010
 
(In $ millions)
 
(In $ millions)
Service cost
7

 
7

 
—

 
—

 
21

 
23

 
1

 
1

Interest cost
45

 
46

 
3

 
4

 
136

 
142

 
9

 
11

Expected return on plan assets
(50
)
 
(48
)
 
—

 
—

 
(151
)
 
(148
)
 
—

 
—

Recognized actuarial (gain) loss
7

 
1

 
(1
)
 
(1
)
 
22

 
5

 
(2
)
 
(3
)
Prior service credit
1

 
1

 
—

 
—

 
1

 
1

 
—

 
—

Curtailment (gain) loss
—

 
(1
)
 
—

 
—

 
(1
)
 
(4
)
 
—

 
—

Total
10

 
6

 
2

 
3

 
28

 
19

 
8

 
9

Commitments to fund benefit obligations during 2011 are as follows:
 
As of September 30,
2011
 
Expected for 2011
 
(In $ millions)
Cash contributions to defined benefit pension plans
133

 
164

Benefit payments from nonqualified trusts related to nonqualified pension plans
11

 
15

Benefit payments to other postretirement benefit plans
22

 
27

The Company’s estimates of its US defined benefit pension plan contributions reflect the provisions of the Pension Protection Act of 2006.

The Company participates in a multiemployer defined benefit plan in Germany covering certain employees. The Company’s contributions to the multiemployer defined benefit plan are based on specified percentages of employee contributions and totaled $5 million for the nine months ended September 30, 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.

The components of environmental remediation reserves are as follows:
 
As of
September 30,
2011
 
As of
December 31,
2010
 
(In $ millions)
Demerger obligations (Note 17)
36

 
36

Divestiture obligations (Note 17)
24

 
26

US Superfund sites
14

 
13

Other environmental remediation reserves
25

 
26

Total
99

 
101



19


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 certain sites. At most of these sites, numerous companies, including the Company, or one of its 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 some of these proceedings is uncertain. Consequently, the Company cannot accurately determine its ultimate liability for investigation or cleanup costs at these sites.
As events progress at each site for which it has been named a PRP, the Company accrues, as appropriate, a liability for site cleanup. Such liabilities include all costs that are probable and can be reasonably estimated. In establishing these liabilities, the Company considers its shipment of waste to a site, its percentage of total waste shipped to the site, the types of wastes involved, the conclusions of any studies, the magnitude of any remedial actions that may be necessary and the number and viability of other PRPs. Often the Company joins with other PRPs to sign joint defense agreements that settle, among PRPs, each party’s percentage allocation of costs at the site. Although the ultimate liability may differ from the estimate, the Company routinely reviews the liabilities and revises the estimate, as appropriate, based on the most current information available.
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 9,600,000 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”). Holders of the Preferred Stock 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 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. The amount available to pay cash dividends is restricted by the Company’s Amended Credit Agreement, the 6.625% Notes and the 5.875% Notes.
On April 25, 2011, the Company announced that its Board of Directors approved a 20% increase in the Company’s quarterly Common Stock cash dividend. The Board of Directors increased the quarterly dividend rate from $0.05 to $0.06 per share of Common Stock on a quarterly basis and $0.20 to $0.24 per share of Common Stock on an annual basis. The new dividend rate is applicable to dividends payable beginning in August 2011.

20


Treasury Stock
The Company’s Board of Directors authorized the repurchase of the Company’s Common Stock as follows:
Date of Board Authorization
 
Authorization Amount
 
 
(In $ millions)
February 2008
 
400

October 2008
 
100

April 2011
 
129

As of September 30, 2011
 
629

The authorization gives management discretion in determining the timing and conditions under which shares may be repurchased.
The share repurchase activity pursuant to this authorization is as follows:
 
Nine Months Ended
September 30,
 
Total From
February 2008 Through
 
2011
 
2010
 
September 30, 2011
Shares repurchased
591,356

 
1,473,492

 
12,022,148

Average purchase price per share
$
47.37

 
$
27.82

 
$
37.74

Amount spent on repurchased shares (in millions)
$
28

 
$
41

 
$
454

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
 
Three Months Ended September 30,
 
2011
 
2010
 
Gross
Amount
 
Income
Tax
(Provision)
Benefit
 
Net
Amount
 
Gross
Amount
 
Income
Tax
(Provision)
Benefit
 
Net
Amount
 
(In $ millions)
Unrealized gain (loss) on marketable securities
—

 
—

 
—

 
8

 
(3
)
 
5

Foreign currency translation
(69
)
 
—

 
(69
)
 
98

 
—

 
98

Unrealized gain (loss) on interest rate swaps
7

 
(2
)
 
5

 
(2
)
 
—

 
(2
)
Pension and postretirement benefits
6

 
(2
)
 
4

 
3

 
(1
)
 
2

Total
(56
)
 
(4
)
 
(60
)
 
107

 
(4
)
 
103

 
Nine Months Ended September 30,
 
2011
 
2010
 
Gross
Amount
 
Income
Tax
(Provision)
Benefit
 
Net
Amount
 
Gross
Amount
 
Income
Tax
(Provision)
Benefit
 
Net
Amount
 
(In $ millions)
Unrealized gain (loss) on marketable securities
—

 
—

 
—

 
9

 
(3
)
 
6

Foreign currency translation
18

 
—

 
18

 
39

 
—

 
39

Unrealized gain (loss) on interest rate swaps
22

 
(8
)
 
14

 
5

 
(4
)
 
1

Pension and postretirement benefits
19

 
(7
)
 
12

 
10

 
(2
)
 
8

Total
59

 
(15
)
 
44

 
63

 
(9
)
 
54


21


Adjustments to Accumulated other comprehensive income (loss) are as follows:
 
Unrealized
Gain (Loss) on
Marketable
Securities
 
Foreign
Currency
Translation
 
Unrealized
Gain (Loss)
on Interest
Rate Swaps
 
Pension and
Postretire-
ment
Benefits
 
Accumulated
Other
Comprehensive
Income
(Loss), Net
 
(In $ millions)
Balance as of December 31, 2010
(1
)
 
(1
)
 
(84
)
 
(584
)
 
(670
)
Current period change
—

 
18

 
22

 
19

 
59

Income tax (provision) benefit
—

 
—

 
(8
)
 
(7
)
 
(15
)
Balance as of September 30, 2011
(1
)
 
17

 
(70
)
 
(572
)
 
(626
)

13.
Other (Charges) Gains, Net

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2011
 
2010
 
2011
 
2010
 
(In $ millions)
Employee termination benefits
(5
)
 
(17
)
 
(18
)
 
(26
)
Ticona Kelsterbach plant relocation (Note 20)
(14
)
 
(7
)
 
(43
)
 
(17
)
Plumbing actions (Note 17)
2

 
26

 
6

 
40

Insurance recoveries
—

 
18

 
—

 
18

Asset impairments
—

 
—

 
—

 
(73
)
Plant/office closures
—

 
1

 
—

 
(4
)
Commercial disputes
(7
)
 
15

 
15

 
15

Other
—

 
—

 
1

 
—

Total
(24
)
 
36

 
(39
)
 
(47
)
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 $4 million and $3 million, respectively, of employee termination benefits during the nine months ended September 30, 2011. Additionally, the Company recorded $5 million of employee termination benefits during the nine months ended September 30, 2011 related to the relocation of the Company's Ticona Kelsterbach, Germany operations to Frankfurt Hoechst Industrial Park, Germany (Note 20).
During the nine months ended September 30, 2011, the Company received consideration of $17 million in connection with the settlement of a claim against a bankrupt supplier. The resolution of this commercial dispute is included in the Acetyl Intermediates segment.
2010
In 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, 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.

22


The changes in the restructuring reserves by business segment are as follows:
 
Advanced
Engineered
Materials
 
Consumer
Specialties
 
Industrial
Specialties
 
Acetyl
Intermediates
 
Other
 
Total
 
(In $ millions)
Employee Termination Benefits
 

 
 

 
 

 
 

 
 

 
 

Reserve as of December 31, 2010
3

 
16

 
—

 
24

 
10

 
53

Additions
5

 
3

 
—

 
2

 
6

 
16

Cash payments
(2
)
 
(1
)
 
—

 
(19
)
 
(3
)
 
(25
)
Other changes
—

 
—

 
—

 
—

 
(1
)
 
(1
)
Exchange rate changes
—

 
—

 
—

 
—

 
—

 
—

Reserve as of September 30, 2011
6

 
18

 
—

 
7

 
12

 
43

Plant/Office Closures
 

 
 

 
 

 
 

 
 

 
 

Reserve as of December 31, 2010
—

 
—

 
—

 
3

 
1

 
4

Additions
—

 
—

 
—

 
—

 
—

 
—

Cash payments
—

 
—

 
—

 
(2
)
 
—

 
(2
)
Exchange rate changes
—

 
—

 
—

 
—

 
—

 
—

Reserve as of September 30, 2011
—

 
—

 
—

 
1

 
1

 
2

Total
6

 
18

 
—

 
8

 
13

 
45

14.
Income Taxes
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2011
 
2010
 
2011
 
2010
 
(In percentages)
Effective income tax rate
17
 
23
 
23
 
21

The effective tax rate for the three and nine months ended September 30, 2011 differs from the statutory rate due to foreign rate differentials and changes in uncertain tax positions, partially offset by foreign losses providing no tax benefit.

The higher effective tax rate for the nine months ended September 30, 2011 was primarily due to the 2010 effect of tax legislation in Mexico, partially offset by foreign losses not resulting in tax benefits and the effect of healthcare reform in the US.
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.

23


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 as of September 30, 2011 related to the combined Tax Reform Bill and 2010 MTRs is $4 million payable from 2012 to 2018.
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 and fix the LIBOR portion of the Company’s US-dollar denominated variable rate borrowings (Note 9). If an interest rate swap agreement is terminated prior to its maturity, the amount previously recorded in Accumulated other comprehensive income (loss), net is recognized into earnings over the period that the hedged transaction impacts earnings. If the hedging relationship is discontinued because it is probable that the forecasted transaction will not occur according to the original strategy, any related amounts previously recorded in Accumulated other comprehensive income (loss), net are recognized into earnings immediately.
US-dollar interest rate swap derivative arrangements are as follows:
As of September 30, 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
%
______________________________
(1)
Fixes the LIBOR portion of the Company's US-dollar denominated variable rate borrowings (Note 9).
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
%
______________________________
(1)
Fixes the LIBOR portion of the Company's US-dollar denominated variable rate borrowings (Note 9).


24


Euro interest rate swap derivative arrangements are as follows:
As of 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.
The Company held US-dollar variable rate to fixed rate interest rate swaps with a notional value of $1.4 billion that were effective as of May 6, 2011. Upon issuance of the 5.875% Notes and prepayment of the Term B loan facility (Note 9), it became probable that the hedged interest payments associated with $275 million of variable rate debt would not occur. The Company, therefore, dedesignated as cash flow hedges US-dollar interest rate swaps with a notional value of $275 million. Accordingly, a loss of $3 million related to the dedesignated US-dollar interest rate swaps, which was previously included in Accumulated other comprehensive income (loss), net, was reclassified into Interest expense in the unaudited interim consolidated statements of operations during the three months ended June 30, 2011. Future mark-to-market adjustments on these dedesignated interest rate swaps will be recorded in Interest expense through their maturity on January 2, 2012. The interest rate swaps fixed rates are 4.33% for $75 million of notional value and 1.92% for $200 million of notional value.
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.
Gross notional values of the foreign currency forwards and swaps are as follows:
 
As of
September 30,
2011
 
As of December 31,
2010
 
(In $ millions)
Total
1,442

 
751



25


Information regarding changes in the fair value of the Company’s derivative arrangements is as follows:
 
Three Months Ended
September 30, 2011
 
Nine Months Ended
September 30, 2011
 
 
Gain (Loss)
Recognized in
Other
Comprehensive
Income
 
Gain (Loss)
Recognized in
Income
 
Gain (Loss)
Recognized in
Other
Comprehensive
Income
 
Gain (Loss)
Recognized in
Income
 
 
(In $ millions)
Derivatives designated as cash flow hedging instruments
 

 
 

 
 

 
 

 
Interest rate swaps
(9
)
(1) 
(15
)
(2) 
(26
)
(3) 
(45
)
(2) 
Derivatives not designated as hedging instruments
 

 
 

 
 

 
 

 
Interest rate swaps
—

 
1

(4) 
—

 
(2
)
(4) 
Foreign currency forwards and swaps
—

 
5

(5) 
—

 
(10
)
(5) 
Total
(9
)
 
(9
)
 
(26
)
 
(57
)
 
______________________________
(1) 
Amount excludes $2 million of gains associated with the Company’s equity method investments’ derivative activity and $2 million of tax expense recognized in Other comprehensive income (loss).
(2) 
Amount represents reclassification from Accumulated other comprehensive income (loss), net and is included in Interest expense in the unaudited interim consolidated statements of operations.
(3) 
Amount excludes $1 million of gains associated with the Company’s equity method investments’ derivative activity and $8 million of tax expense recognized in Other comprehensive income (loss).
(4) 
Included in Interest expense in the unaudited interim consolidated statements of operations.
(5) 
Included in Foreign exchange gain (loss), net for operating activity or Other income (expense), net for non-operating activity in the unaudited interim consolidated statements of operations.

 
Three Months Ended
September 30, 2010
 
Nine Months Ended
September 30, 2010
 
 
Gain (Loss)
Recognized in
Other
Comprehensive
Income
 
Gain (Loss)
Recognized in
Income
 
Gain (Loss)
Recognized in
Other
Comprehensive
Income
 
Gain (Loss)
Recognized in
Income
 
 
(In $ millions)
Derivatives designated as cash flow hedging instruments
 

 
 

 
 

 
 

 
Interest rate swaps
(17
)
(1) 
(16
)
(2) 
(40
)
(3) 
(51
)
(2) 
Derivatives not designated as hedging instruments
 

 
 

 
 

 
 

 
Foreign currency forwards and swaps
—

 
(8
)
(4) 
—