Edgar Filing: Celanese Corp

CE-2012.9.30-10Q

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, 2012
	Or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(Commission File Number) 001-32410

CELANESE CORPORATION

(Exact Name of Registrant as Specified in its Charter)



Delaware (State or Other Jurisdiction of Incorporation or Organization)	98-0420726 (I.R.S. Employer Identification No.)

222 W. Las Colinas Blvd., Suite 900N Irving, TX (Address of Principal Executive Offices)	75039-5421 (Zip Code)

(972) 443-4000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ

Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of outstanding shares of the registrant’s Series A common stock, $0.0001 par value, as of October 18, 2012 was 159,532,052.

CELANESE CORPORATION AND SUBSIDIARIES

Form 10-Q

For the Quarterly Period Ended September 30, 2012

TABLE OF CONTENTS



		Page

	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	a) Unaudited Interim Consolidated Statements of Operations for the three and nine months ended September 30, 2012 and 2011	3
	b) Unaudited Interim Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2012 and 2011	4
	c) Unaudited Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011	5
	d) Unaudited Interim Consolidated Statement of Equity for the nine months ended September 30, 2012	6
	e) Unaudited Interim Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011	7
	f) Notes to the Unaudited Interim Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	43
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	60
Item 4.	Controls and Procedures	60

	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	61
Item 1A.	Risk Factors	61
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 3.	Defaults Upon Senior Securities	61
Item 4.	Mine Safety Disclosures	61
Item 5.	Other Information	61
Item 6.	Exhibits	62
Signatures		63

Item 1. Financial Statements

CELANESE CORPORATION AND SUBSIDIARIES

UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2012		2011		2012		2011
	(In $ millions, except share and per share data)
Net sales	1,609		1,807		4,917		5,149
Cost of sales	(1,285	)	(1,406	)	(3,992	)	(3,987	)
Gross profit	324		401		925		1,162
Selling, general and administrative expenses	(121	)	(140	)	(379	)	(408	)
Amortization of intangible assets	(12	)	(17	)	(38	)	(50	)
Research and development expenses	(24	)	(24	)	(76	)	(72	)
Other (charges) gains, net	2		(24	)	(1	)	(39	)
Foreign exchange gain (loss), net	(4	)	1		(4	)	1
Gain (loss) on disposition of businesses and assets, net	(2	)	(1	)	(2	)	(1	)
Operating profit (loss)	163		196		425		593
Equity in net earnings (loss) of affiliates	50		57		163		146
Interest expense	(44	)	(54	)	(134	)	(166	)
Refinancing expense	—		—		—		(3	)
Interest income	—		1		1		2
Dividend income - cost investments	1		1		85		80
Other income (expense), net	3		—		4		9
Earnings (loss) from continuing operations before tax	173		201		544		661
Income tax (provision) benefit	(54	)	(34	)	(32	)	(151	)
Earnings (loss) from continuing operations	119		167		512		510
Earnings (loss) from operation of discontinued operations	(3	)	—		(3	)	3
Gain (loss) on disposition of discontinued operations	—		—		—		—
Income tax (provision) benefit from discontinued operations	1		—		1		(1	)
Earnings (loss) from discontinued operations	(2	)	—		(2	)	2
Net earnings (loss)	117		167		510		512
Net (earnings) loss attributable to noncontrolling interests	—		—		—		—
Net earnings (loss) attributable to Celanese Corporation	117		167		510		512
Cumulative preferred stock dividends	—		—		—		—
Net earnings (loss) available to common stockholders	117		167		510		512
Amounts attributable to Celanese Corporation
Earnings (loss) from continuing operations	119		167		512		510
Earnings (loss) from discontinued operations	(2	)	—		(2	)	2
Net earnings (loss)	117		167		510		512
Earnings (loss) per common share - basic
Continuing operations	0.75		1.07		3.24		3.27
Discontinued operations	(0.01	)	—		(0.01	)	0.01
Net earnings (loss) - basic	0.74		1.07		3.23		3.28
Earnings (loss) per common share - diluted
Continuing operations	0.74		1.05		3.21		3.21
Discontinued operations	(0.01	)	—		(0.01	)	0.01
Net earnings (loss) - diluted	0.73		1.05		3.20		3.22
Weighted average shares - basic	159,123,808		156,194,459		157,936,063		156,147,982
Weighted average shares - diluted	160,094,904		159,018,839		159,644,166		158,965,811

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

CELANESE CORPORATION AND SUBSIDIARIES

UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME (LOSS)



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2012		2011		2012		2011
	(In $ millions)
Net earnings (loss)	117		167		510		512
Other comprehensive income (loss), net of tax
Unrealized gain (loss) on marketable securities	—		—		—		—
Foreign currency translation	28		(69	)	4		18
Unrealized gain (loss) on interest rate swaps	(2	)	5		(1	)	14
Pension and postretirement benefits	10		4		25		12
Total other comprehensive income (loss), net of tax	36		(60	)	28		44
Total comprehensive income (loss), net of tax	153		107		538		556
Comprehensive (income) loss attributable to noncontrolling interests	—		—		—		—
Comprehensive income (loss) attributable to Celanese Corporation	153		107		538		556

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

CELANESE CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS



	As of		As of
	September 30, 2012		December 31, 2011
	(In $ millions, except share data)
ASSETS
Current Assets
Cash and cash equivalents	928		682
Trade receivables - third party and affiliates (net of allowance for doubtful accounts - 2012: $9; 2011: $9)	932		871
Non-trade receivables, net	188		235
Inventories	711		712
Deferred income taxes	106		104
Marketable securities, at fair value	56		64
Other assets	47		35
Total current assets	2,968		2,703
Investments in affiliates	775		824
Property, plant and equipment (net of accumulated depreciation - 2012: $1,454; 2011: $1,316)	3,295		3,269
Deferred income taxes	539		421
Other assets	446		344
Goodwill	768		760
Intangible assets, net	174		197
Total assets	8,965		8,518
LIABILITIES AND EQUITY
Current Liabilities
Short-term borrowings and current installments of long-term debt - third party and affiliates	141		144
Trade payables - third party and affiliates	685		673
Other liabilities	507		539
Deferred income taxes	19		17
Income taxes payable	43		12
Total current liabilities	1,395		1,385
Long-term debt	2,839		2,873
Deferred income taxes	131		92
Uncertain tax positions	189		182
Benefit obligations	1,354		1,492
Other liabilities	1,142		1,153
Commitments and Contingencies
Stockholders’ Equity
Preferred stock, $0.01 par value, 100,000,000 shares authorized (2012 and 2011: 0 issued and outstanding)	—		—
Series A common stock, $0.0001 par value, 400,000,000 shares authorized (2012: 183,002,903 issued and 159,228,221 outstanding; 2011: 179,385,105 issued and 156,463,811 outstanding)	—		—
Series B common stock, $0.0001 par value, 100,000,000 shares authorized (2012 and 2011: 0 issued and outstanding)	—		—
Treasury stock, at cost (2012: 23,774,682 shares; 2011: 22,921,294 shares)	(897	)	(860	)
Additional paid-in capital	731		627
Retained earnings	2,903		2,424
Accumulated other comprehensive income (loss), net	(822	)	(850	)
Total Celanese Corporation stockholders’ equity	1,915		1,341
Noncontrolling interests	—		—
Total equity	1,915		1,341
Total liabilities and equity	8,965		8,518

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

CELANESE CORPORATION AND SUBSIDIARIES

UNAUDITED INTERIM CONSOLIDATED STATEMENT OF EQUITY



	Nine Months Ended
	September 30, 2012
	Shares		Amount
	(In $ millions, except share data)
Series A Common Stock
Balance as of the beginning of the period	156,463,811		—
Stock option exercises	3,515,105		—
Purchases of treasury stock	(853,388	)	—
Stock awards	102,693		—
Balance as of the end of the period	159,228,221		—
Treasury Stock
Balance as of the beginning of the period	22,921,294		(860	)
Purchases of treasury stock, including related fees	853,388		(37	)
Balance as of the end of the period	23,774,682		(897	)
Additional Paid-In Capital
Balance as of the beginning of the period			627
Stock-based compensation, net of tax			15
Stock option exercises, net of tax			89
Balance as of the end of the period			731
Retained Earnings
Balance as of the beginning of the period			2,424
Net earnings (loss) attributable to Celanese Corporation			510
Series A common stock dividends			(31	)
Balance as of the end of the period			2,903
Accumulated Other Comprehensive Income (Loss), Net
Balance as of the beginning of the period			(850	)
Other comprehensive income (loss)			28
Balance as of the end of the period			(822	)
Total Celanese Corporation stockholders’ equity			1,915
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 equity			1,915

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

CELANESE CORPORATION AND SUBSIDIARIES

UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS



	Nine Months Ended
	September 30,
	2012		2011
	(In $ millions)
Operating Activities
Net earnings (loss)	510		512
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities
Other charges (gains), net of amounts used	(13	)	(8	)
Depreciation, amortization and accretion	236		231
Deferred income taxes, net	(96	)	7
(Gain) loss on disposition of businesses and assets, net	2		—
Refinancing expense	—		3
Other, net	85		49
Operating cash provided by (used in) discontinued operations	—		(9	)
Changes in operating assets and liabilities
Trade receivables - third party and affiliates, net	(62	)	(175	)
Inventories	1		(167	)
Other assets	15		3
Trade payables - third party and affiliates	58		77
Other liabilities	(75	)	(42	)
Net cash provided by (used in) operating activities	661		481
Investing Activities
Capital expenditures on property, plant and equipment	(270	)	(241	)
Acquisitions, net of cash acquired	(23	)	(8	)
Proceeds from sale of businesses and assets, net	1		6
Deferred proceeds from Kelsterbach plant relocation	—		158
Capital expenditures related to Kelsterbach plant relocation	(43	)	(174	)
Other, net	(62	)	(37	)
Net cash provided by (used in) investing activities	(397	)	(296	)
Financing Activities
Short-term borrowings (repayments), net	(7	)	(20	)
Proceeds from long-term debt	—		411
Repayments of long-term debt	(32	)	(562	)
Refinancing costs	—		(8	)
Purchases of treasury stock, including related fees	(37	)	(28	)
Stock option exercises	58		19
Series A common stock dividends	(31	)	(25	)
Preferred stock dividends	—		—
Other, net	28		(11	)
Net cash provided by (used in) financing activities	(21	)	(224	)
Exchange rate effects on cash and cash equivalents	3		3
Net increase (decrease) in cash and cash equivalents	246		(36	)
Cash and cash equivalents as of beginning of period	682		740
Cash and cash equivalents as of end of period	928		704

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

CELANESE CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1. Description of the Company and Basis of Presentation

Description of the Company

Celanese Corporation and its subsidiaries (collectively, the "Company") is a global technology and specialty materials company. The Company’s business involves processing chemical raw materials, such as methanol, carbon monoxide and ethylene, and natural products, including wood pulp, into value-added chemicals, thermoplastic polymers and other chemical-based products.

Definitions

In this Quarterly Report, the term "Celanese" refers to Celanese Corporation, a Delaware corporation, and not its subsidiaries. The term "Celanese US" refers to the Company’s subsidiary, Celanese US Holdings LLC, a Delaware limited liability company, and not its subsidiaries.

Basis of Presentation

The unaudited interim consolidated financial statements for the three and nine months ended September 30, 2012 and 2011 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 the opinion of management, the accompanying unaudited consolidated balance sheets and related unaudited interim consolidated statements of operations, comprehensive income (loss), cash flows and equity include all adjustments, consisting only of normal recurring items necessary for their fair presentation in conformity with US GAAP. Certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP 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, 2011, filed on February 10, 2012 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, 2012 are not necessarily indicative of the results to be expected for the entire year.

In the ordinary course of business, the Company enters into contracts and agreements relative to a number of topics, including acquisitions, dispositions, joint ventures, supply agreements, product sales and other arrangements. The Company endeavors to describe those contracts or agreements that are material to its business, results of operations or financial position. The Company may also describe some arrangements that are not material but in which the Company believes investors may have an interest or which may have been included in a Form 8-K filing. Investors should not assume the Company has described all contracts and agreements relative to the Company’s business in this Quarterly Report.

For those consolidated subsidiaries in which the Company's ownership is less than 100%, the outside stockholders' interests are shown as noncontrolling interests.

The Company has reclassified certain prior period amounts to conform to the current period’s presentation.

Estimates and Assumptions

The preparation of unaudited interim consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the unaudited interim consolidated financial statements and the reported amounts of revenues, expenses and allocated charges during the reporting period. Significant estimates pertain to impairments of goodwill, intangible assets and other long-lived assets, purchase price allocations, restructuring costs and other (charges) gains, net, income taxes, pension and other postretirement benefits, asset retirement obligations, environmental liabilities and loss contingencies, among others. Actual results could differ from those estimates.

2. Recent Accounting Pronouncements

In July 2012, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment, an amendment to FASB Accounting Standards Codification ("ASC") Topic 350, Intangibles - Goodwill and Other ("FASB ASC Topic 350"). The update provides an entity with the option first to assess qualitative factors in determining whether it is more likely than not that the indefinite-lived intangible asset is impaired. After assessing the qualitative factors, if an entity determines that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. If an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test. The ASU is effective for the Company for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption was permitted. The Company did not early adopt the provisions of this ASU; however, 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.

3. Acquisitions, Dispositions, Ventures and Plant Closures

Acquisitions

On January 3, 2012, the Company completed the acquisition of certain assets from Ashland Inc., including two product lines, Vinac^® and Flexbond^®, to support the strategic growth of the Company's Emulsions business (Note 6). In February 2011, the Company acquired a business primarily consisting of emulsions process technology from Crown Paints Limited. Both of the acquired operations are included in the Industrial Specialties segment. Pro forma financial information since the respective acquisition dates has not been provided as the acquisitions did not have a material impact on the Company’s financial information.

The Company allocated the purchase price of the acquisitions to identifiable intangible assets acquired based on their estimated fair values. The excess of purchase price over the aggregate fair values was recorded as goodwill. Intangible assets were valued using the relief from royalty and discounted cash flow methodologies which are considered Level 3 measurements under FASB ASC Topic 820, Fair Value Measurement ("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 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 Company, with the assistance of third-party valuation consultants, calculated the fair value of the intangible assets acquired to allocate the purchase price at the respective acquisition date.

Plant Closures

• Spondon, Derby, United Kingdom

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 the three months ending December 31, 2012. The Spondon, Derby, United Kingdom operations are included in the Consumer Specialties segment.

• 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.

4. Marketable Securities, at Fair Value

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

The amortized cost, gross unrealized gain, gross unrealized loss and fair values for available-for-sale securities by major security type are as follows:



	As of	As of
	September 30, 2012	December 31, 2011
	(In $ millions)
Mutual Funds
Amortized cost	56	64
Gross unrealized gain	—	—
Gross unrealized loss	—	—
Fair value	56	64

See Note 16, Fair Value Measurements, for additional information regarding the fair value of the Company's marketable securities.

5. Inventories



	As of	As of
	September 30, 2012	December 31, 2011
	(In $ millions)
Finished goods	511	511
Work-in-process	40	38
Raw materials and supplies	160	163
Total	711	712

6. Goodwill and Intangible Assets, Net

Goodwill



	Advanced Engineered Materials	Consumer Specialties	Industrial Specialties	Acetyl Intermediates	Total
	(In $ millions)
As of December 31, 2011
Goodwill	294	246	35	185	760
Accumulated impairment losses	—	—	—	—	—
Net book value	294	246	35	185	760
Acquisitions (Note 3)	—	—	7	—	7
Exchange rate changes	—	1	—	—	1
As of September 30, 2012
Goodwill	294	247	42	185	768
Accumulated impairment losses	—	—	—	—	—
Net book value	294	247	42	185	768

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, 2012.

Intangible Assets, Net

Finite-lived intangibles are as follows:



	Licenses		Customer- Related Intangible Assets		Developed Technology		Covenants Not to Compete and Other		Total
	(In $ millions)
Gross Asset Value
As of December 31, 2011	32		513		27		22		594
Acquisitions (Note 3)	—		4		3		6		13		⁽¹⁾
Exchange rate changes	—		—		—		—		—
As of September 30, 2012	32		517		30		28		607
Accumulated Amortization
As of December 31, 2011	(13	)	(433	)	(14	)	(18	)	(478	)
Amortization	(2	)	(30	)	(2	)	(4	)	(38	)
Exchange rate changes	—		—		—		—		—
As of September 30, 2012	(15	)	(463	)	(16	)	(22	)	(516	)
Net book value	17		54		14		6		91

______________________________


⁽¹⁾	Weighted average amortization period of intangible assets acquired was 6 years.

Indefinite-lived intangibles are as follows:



	Trademarks and Trade Names
	(In $ millions)
As of December 31, 2011	81
Acquisitions (Note 3)	2
Exchange rate changes	—
As of September 30, 2012	83

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, 2012, the Company did not renew or extend any intangible assets.

Estimated amortization expense for the succeeding five fiscal years is as follows:



	(In $ millions)
2013	32
2014	21
2015	10
2016	7
2017	6

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, 2012.

7. Current Other Liabilities



	As of	As of
	September 30, 2012	December 31, 2011
	(In $ millions)
Salaries and benefits	85	101
Environmental (Note 11)	19	25
Restructuring (Note 13)	37	44
Insurance	17	19
Asset retirement obligations	39	22
Derivatives (Note 15)	19	26
Current portion of benefit obligations	47	47
Interest	41	25
Sales and use tax/foreign withholding tax payable	23	16
Uncertain tax positions	64	70
Other	116	144
Total	507	539

8. Noncurrent Other Liabilities



	As of	As of
	September 30, 2012	December 31, 2011
	(In $ millions)
Environmental (Note 11)	83	71
Insurance	59	64
Deferred revenue	36	40
Deferred proceeds⁽¹⁾	891	892
Asset retirement obligations	28	42
Derivatives (Note 15)	12	13
Income taxes payable	3	2
Other	30	29
Total	1,142	1,153

______________________________


⁽¹⁾	Primarily relates to proceeds received from the Frankfurt, Germany Airport as part of a settlement for the Company to cease operations and sell its Kelsterbach, Germany manufacturing site, included in the Advanced Engineered Materials segment (Note 20). Such proceeds will be deferred until the transfer of title to the Frankfurt, Germany Airport.

9. Debt



	As of	As of
	September 30, 2012	December 31, 2011
	(In $ millions)
Short-Term Borrowings and Current Installments of Long-term Debt - Third Party and Affiliates
Current installments of long-term debt	42	38
Short-term borrowings, including amounts due to affiliates	99	106
Total	141	144

The Company's weighted average interest rate on short-term borrowings, including amounts due to affiliates, was 4.4% as of September 30, 2012 compared to 4.3% as of December 31, 2011.



	As of		As of
	September 30, 2012		December 31, 2011
	(In $ millions)
Long-Term Debt
Senior credit facilities - Term C loan due 2016	1,375		1,386
Senior unsecured notes due 2018, interest rate of 6.625%	600		600
Senior unsecured notes due 2021, interest rate of 5.875%	400		400
Pollution control and industrial revenue bonds, interest rates ranging from 5.7% to 6.7%, due at various dates through 2030	182		182
Obligations under capital leases due at various dates through 2054	237		248
Other bank obligations, interest rates ranging from 6.2% to 6.3%, due at various dates through 2017	87		95
Subtotal	2,881		2,911
Current installments of long-term debt	(42	)	(38	)
Total	2,839		2,873

Senior Notes

In September 2010, Celanese US completed the private placement of $600 million in aggregate principal amount of 6.625% senior unsecured notes due 2018 (the "6.625% Notes") under an indenture dated September 24, 2010 (the "Indenture") among Celanese US, Celanese, the Subsidiary Guarantors and Wells Fargo Bank, National Association, as trustee. In April 2011, Celanese US registered the 6.625% Notes under the Securities Act of 1933, as amended (the "Securities Act"). Celanese US pays interest on the 6.625% Notes on April 15 and October 15 of each year which commenced 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 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 Indenture contains covenants, including, but not limited to, restrictions on the Company’s ability to incur indebtedness; grant liens on assets; merge, consolidate, or sell assets; pay dividends or make other restricted payments; engage in transactions with affiliates; or engage in other businesses.

In May 2011, Celanese US completed an offering of $400 million in aggregate principal amount of 5.875% senior unsecured notes due 2021 (the "5.875% Notes") in a public offering registered under the Securities Act. 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 pays interest on the 5.875% Notes on June 15 and December 15 of each year which commenced 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.

The First Supplemental Indenture contains covenants, including, but not limited to, restrictions on the Company’s ability to incur indebtedness; grant liens on assets; merge, consolidate, or sell assets; pay dividends or make other restricted payments; 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, the Term B loan facility, a $600 million revolving credit facility terminating in 2015 and a $228 million credit-linked revolving facility terminating in 2014.

In May 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.

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. Borrowings under the credit-linked revolving facility and the Term C loan facility bear interest at a variable interest rate based on LIBOR (for US dollars) or EURIBOR (for Euros), plus a margin which varies based on the Company's net leverage ratio.

The estimated net leverage ratio and margin are as follows:



	As of September 30, 2012
	Estimated Total Net Leverage Ratio	Estimated Margin
Credit-linked revolving facility	1.50	1.50	%
Term C	1.50	2.75	%

The margin on each facility may increase or decrease 0.25% based on the following:



Credit-Linked Revolving Facility		Term C Loan Facility
Total Net Leverage Ratio	Margin over LIBOR or EURIBOR	Total Net Leverage Ratio	Margin over LIBOR or EURIBOR
< = 2.25	1.50%	< = 1.75	2.75%
> 2.25	1.75%	> 1.75 and < = 2.25	3.00%
		> 2.25	3.25%

Term loan borrowings under the Amended Credit Agreement are subject to amortization at 1% of the initial principal amount per annum, payable quarterly. In addition, the Company pays quarterly commitment fees on the unused portions of the revolving credit facility and credit-linked revolving facility of 0.25% and 1.50% per annum, respectively.

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 first lien senior secured leverage ratios and the borrowing capacity under the revolving credit facility are as follows:



	As of September 30, 2012
	First Lien Senior Secured Leverage Ratio
			Estimate, if Fully	Borrowing
	Maximum	Estimate	Drawn	Capacity
				(In $ millions)
Revolving credit facility	3.90	1.15	1.63	600

The balances available for borrowing are as follows:



	As of
	September 30, 2012
	(In $ millions)
Revolving Credit Facility
Borrowings outstanding	—
Letters of credit issued	—
Available for borrowing	600
Credit-Linked Revolving Facility
Letters of credit issued	70
Available for borrowing	158

The Amended Credit Agreement contains covenants including, but not limited to, restrictions on the Company’s ability to incur indebtedness; grant liens on assets; merge, consolidate, or sell assets; pay dividends or make other restricted payments; make investments; prepay or modify certain indebtedness; engage in transactions with affiliates; enter into sale-leaseback transactions or hedge transactions; or engage in other businesses.

The Amended Credit Agreement also maintains a number of events of default, including a failure to make any payment of principal or interest when due, 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, 2012.

10. Benefit Obligations

The components of net periodic benefit costs are as follows:



	Pension Benefits				Postretirement Benefits			Pension Benefits				Postretirement Benefits
	Three Months Ended September 30,							Nine Months Ended September 30,
	2012		2011		2012	2011		2012		2011		2012		2011
	(In $ millions)							(In $ millions)
Service cost	7		7		—	—		21		21		1		1
Interest cost	42		45		3	3		127		136		9		9
Expected return on plan assets	(51	)	(50	)	—	—		(154	)	(151	)	—		—
Recognized actuarial (gain) loss	14		7		—	(1	)	43		22		(1	)	(2	)
Prior service credit	—		1		—	—		1		1		—		—
Curtailment (gain) loss	—		—		—	—		—		(1	)	—		—
Total	12		10		3	2		38		28		9		8

Commitments to fund benefit obligations during 2012 are as follows:



	As of
	September 30, 2012	Expected for 2012
	(In $ millions)
Cash contributions to defined benefit pension plans⁽¹⁾	119	144
Benefit payments to nonqualified pension plans	17	21
Benefit payments to other postretirement benefit plans	18	25

______________________________


⁽¹⁾	Includes $15 million of discretionary contributions as of September 30, 2012 and $15 million of expected discretionary contributions.

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

The Company participates in a multiemployer defined benefit plan in Germany covering certain employees. The Company’s contributions to the multiemployer defined benefit plan are based on specified percentages of employee contributions and totaled $4 million for the nine months ended September 30, 2012.

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	As of
	September 30, 2012	December 31, 2011
	(In $ millions)
Demerger obligations (Note 17)	34	34
Divestiture obligations (Note 17)	22	24
Active sites	28	20
US Superfund sites	15	14
Other environmental remediation reserves	3	4
Total	102	96

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 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.

One such site is the Lower Passaic River Study Area. The Company and 70 other companies are parties to a May 2007 Administrative Order on Consent with the US Environmental Protection Agency ("EPA") to perform a Remedial Investigation/Feasibility Study ("RI/FS") of the contaminants in the lower 17-mile stretch known as the Lower Passaic River Study Area. The RI/FS is ongoing and may take several more years to complete. The Company is among a group of settling parties to a June 2012 Administrative Order on Consent with the EPA to perform a removal action within a small section of the river. The Company has also been named as a third-party defendant along with more than 200 other entities in an action initially brought by the New Jersey Department of Environmental Protection ("NJDEP") in the Supreme Court of New Jersey against Occidental Chemical Corporation and several other companies. This suit by the NJDEP seeks recovery of past and future clean-up costs, as well as unspecified economic damages, punitive damages, penalties and a variety of other forms of relief arising from alleged discharges into the Lower Passaic River.

In 2007, the EPA issued a draft study that evaluated alternatives for early remedial action of a portion of the Passaic River at an estimated cost of $900 million to $2.3 billion. Several parties commented on the draft study, and to date, the EPA has not taken further action. The contamination allegedly released by the Company is likely an insignificant aspect of the final remedy, which would consequently limit the ultimate contribution from the Company. Because the RI/FS is still ongoing, and the EPA has not finalized its study or the scope of requested cleanup, and the Company's assessment that the contamination allegedly released by the Company is likely an insignificant aspect of the final remedy, the Company cannot reliably estimate its portion of the final remedial costs for this matter at this time. However, the Company currently believes that its portion of the costs would be less than approximately 1% to 2%. The Company is vigorously defending these and all related matters.

12. Stockholders’ Equity

Common Stock

The Company’s Board of Directors follows a policy of declaring, subject to legally available funds, a quarterly cash dividend on each share of the Company’s Series A Common Stock, par value $0.0001 per share ("Common Stock") unless the Company’s Board of Directors, in its sole discretion, determines otherwise. The amount available to pay cash dividends is restricted by the Company’s Amended Credit Agreement, the 6.625% Notes and the 5.875% Notes.

On April 23, 2012, 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 $0.06 to $0.075 per share of Common Stock on a quarterly basis and $0.24 to $0.30 per share of Common Stock on an annual basis beginning in August 2012.

Treasury Stock

The Company’s Board of Directors authorized the repurchase of Common Stock as follows:



	Authorized Amount
	(In $ millions)
February 2008	400
October 2008	100
April 2011	129
As of September 30, 2012	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				Total From February 2008 Through
	September 30,				Total From February 2008 Through
	2012		2011		September 30, 2012
Shares repurchased	853,388		591,356		12,936,196
Average purchase price per share	$	43.19	$	47.37	$	38.12
Amount spent on repurchased shares (in millions)	$	37	$	28	$	493

The purchase of treasury stock reduces the number of shares outstanding and the repurchased shares may be used by the Company for compensation programs utilizing the Company’s stock and other corporate purposes. The Company accounts for treasury stock using the cost method and includes treasury stock as a component of stockholders’ equity.

Other Comprehensive Income (Loss), Net



	Three Months Ended September 30,
	2012						2011
	Gross Amount		Income Tax (Provision) Benefit		Net Amount		Gross Amount		Income Tax (Provision) Benefit		Net Amount
	(In $ millions)
Unrealized gain (loss) on marketable securities	—		—		—		—		—		—
Foreign currency translation	28		—		28		(69	)	—		(69	)
Unrealized gain (loss) on interest rate swaps	(2	)	—		(2	)	7		(2	)	5
Pension and postretirement benefits	15		(5	)	10		6		(2	)	4
Total	41		(5	)	36		(56	)	(4	)	(60	)



	Nine Months Ended September 30,
	2012						2011
	Gross Amount		Income Tax (Provision) Benefit		Net Amount		Gross Amount	Income Tax (Provision) Benefit		Net Amount
	(In $ millions)
Unrealized gain (loss) on marketable securities	—		—		—		—	—		—
Foreign currency translation	4		—		4		18	—		18
Unrealized gain (loss) on interest rate swaps	(1	)	—		(1	)	22	(8	)	14
Pension and postretirement benefits	41		(16	)	25		19	(7	)	12
Total	44		(16	)	28		59	(15	)	44

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)
As of December 31, 2011	(1	)	(28	)	(57	)	(764	)	(850	)
Current period change	—		4		(1	)	41		44
Income tax (provision) benefit	—		—		—		(16	)	(16	)
As of September 30, 2012	(1	)	(24	)	(58	)	(739	)	(822	)

13. Other (Charges) Gains, Net



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2012		2011		2012		2011
	(In $ millions)
Employee termination benefits	(1	)	(5	)	(2	)	(18	)
Kelsterbach plant relocation (Note 20)	(3	)	(14	)	(5	)	(43	)
Plumbing actions (Note 17)	4		2		4		6
Commercial disputes	2		(7	)	2		15
Other	—		—		—		1
Total	2		(24	)	(1	)	(39	)

2012

No significant Other (charges) gains, net were incurred during the nine months ended September 30, 2012.

2011

As a result of the Company's Pardies, France Project of Closure and the planned 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 polyacetal ("POM") operations located in Kelsterbach, 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 (Note 17). In addition, the Company also recovered an additional $4 million from the settlement of an unrelated commercial dispute. These commercial dispute resolutions are included in the Acetyl Intermediates segment.

The changes in the restructuring reserves by business segment are as follows:



	Advanced Engineered Materials		Consumer Specialties		Industrial Specialties	Acetyl Intermediates		Other		Total
	(In $ millions)
Employee Termination Benefits
As of December 31, 2011	8		18		—	5		11		42
Additions	—		4		—	—		—		4
Cash payments	(2	)	(1	)	—	(3	)	(3	)	(9	)
Other changes	—		—		—	—		(2	)	(2	)
Exchange rate changes	—		1		—	—		—		1
As of September 30, 2012	6		22		—	2		6		36
Plant/Office Closures
As of December 31, 2011	—		—		—	1		1		2
Additions	—		—		—	—		—		—
Cash payments	—		—		—	—		—		—
Other changes	—		—		—	—		(1	)	(1	)
Exchange rate changes	—		—		—	—		—		—
As of September 30, 2012	—		—		—	1		—		1
Total	6		22		—	3		6		37

14. Income Taxes



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2012		2011		2012		2011
Effective income tax rate	31	%	17	%	6	%	23	%

For the three months ended September 30, 2012, the higher effective tax rate is primarily due to changes in uncertain tax positions and increases in losses in jurisdictions not providing tax benefits. The lower effective rate for the nine months ended September 30, 2012 is primarily due to foreign tax credit carryforwards partially offset by deferred tax charges related to changes in assessment regarding permanent reinvestment of certain foreign earnings.

During the three months ended March 31, 2012, the Company determined that it was beneficial to amend certain prior year income tax returns to recognize the benefit of available foreign tax credit carryforwards. As a result, the Company recognized a tax benefit of $142 million. The available foreign tax credits are subject to a ten year carryforward period and expire beginning 2014 through 2021. The Company expects to fully utilize the credits within the prescribed carryforward period.

On February 15, 2012, the Company amended its existing joint venture and other related agreements with its venture partner in Polyplastics Co., Ltd ("Polyplastics"). The amended agreements ("Agreements"), among other items, modified certain dividend rights, resulting in a cash dividend payment to the Company of $72 million during the three months ended March 31, 2012. In addition, as a result of the Agreements, Polyplastics is required to pay certain annual dividends to the venture partners.

Consequently, Polyplastics' undistributed earnings will no longer be invested indefinitely. Accordingly, the Company recognized a deferred tax liability of $38 million that was recorded to Income tax provision (benefit) in the unaudited interim consolidated statement of operations during the three months ended March 31, 2012, related to the taxable outside basis difference of its investment in Polyplastics.

The Company's US tax returns for the years 2009 and 2010 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 any of these audits or the lapse of applicable statutes of limitations. Such amounts have been reflected as the current portion of uncertain tax positions (Note 7).

15. Derivative Financial Instruments

Interest Rate Risk Management

To reduce the interest rate risk inherent in the Company’s variable rate debt, the Company utilizes interest rate swap agreements to convert a portion of its variable rate borrowings into a fixed rate obligation. These interest rate swap agreements are designated as cash flow hedges and fix the LIBOR portion of the Company’s US-dollar denominated variable rate borrowings (Note 9). 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, 2012
Notional Value	Effective Date	Expiration Date	Fixed Rate ⁽¹⁾
(In $ millions)
1,100	January 2, 2012	January 2, 2014	1.71	%
500	January 2, 2014	January 2, 2016	1.02	%

______________________________


⁽¹⁾	Fixes the LIBOR portion of the Company's US-dollar denominated variable rate borrowings (Note 9).



As of December 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	%

______________________________


⁽¹⁾	Fixes the LIBOR portion of the Company's US-dollar denominated variable rate borrowings (Note 9).

Foreign Exchange Risk Management

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

Gross notional values of the foreign currency forwards and swaps are as follows:



	As of	As of
	September 30, 2012	December 31, 2011
	(In $ millions)
Total	858	896

Commodity Risk Management

The Company has exposure to the prices of commodities in its procurement of certain raw materials. The Company manages its exposure to commodity risk primarily through the use of long-term supply agreements, multi-year purchasing and sales agreements and forward purchase contracts. The Company regularly assesses its practice of using forward purchase contracts and other raw material hedging instruments in accordance with changes in economic conditions. Forward purchases and swap contracts for raw materials are principally settled through physical delivery of the commodity. For qualifying contracts, the Company has elected to apply the normal purchases and normal sales exception of FASB ASC Topic 815 based on the probability at the inception and throughout the term of the contract that the Company would not settle net and the transaction would result in the physical delivery of the commodity. As such, realized gains and losses on these contracts are included in the cost of the commodity upon the settlement of the contract.

In addition, the Company occasionally enters into financial derivatives to hedge a component of a raw material or energy source. Typically, these types of transactions do not qualify for hedge accounting. These instruments are marked to market at each reporting period and gains (losses) are included in Cost of sales in the unaudited interim consolidated statements of operations. The Company recognized no gain or loss from these types of contracts during nine months ended September 30, 2012 and 2011. As of September 30, 2012, the Company did not have any open financial derivative contracts for commodities.

Information regarding changes in the fair value of the Company’s derivative arrangements is as follows:



	Three Months Ended					Three Months Ended
	September 30, 2012					September 30, 2011
	Gain (Loss) Recognized in Other Comprehensive Income (Loss)		Gain (Loss) Recognized in Earnings (Loss)			Gain (Loss) Recognized in Other Comprehensive Income (Loss)			Gain (Loss) Recognized in Earnings (Loss)
	(In $ millions)
Derivatives Designated as Cash Flow Hedges
Interest rate swaps	(6	)	(4	)	⁽¹⁾	(9	)	⁽²⁾	(15	)	⁽¹⁾
Derivatives Not Designated as Hedges
Interest rate swaps	—		—		⁽³⁾	—			1		⁽³⁾
Foreign currency forwards and swaps	—		(13	)	⁽⁴⁾	—			17		⁽⁴⁾
Total	(6	)	(17	)		(9	)		3

______________________________


⁽¹⁾	Amount represents reclassification from Accumulated other comprehensive income (loss), net and is included in Interest expense in the unaudited interim consolidated statements of operations.


⁽²⁾	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).


⁽³⁾	Included in Interest expense in the unaudited interim consolidated statements of operations.


⁽⁴⁾	Included in Foreign exchange gain (loss), net for operating activity or Other income (expense), net for non-operating activity in the unaudited interim consolidated statements of operations.



	Nine Months Ended					Nine Months Ended
	September 30, 2012					September 30, 2011
	Gain (Loss) Recognized in Other Comprehensive Income (Loss)		Gain (Loss) Recognized in Earnings (Loss)			Gain (Loss) Recognized in Other Comprehensive Income (Loss)			Gain (Loss) Recognized in Earnings (Loss)
	(In $ millions)
Derivatives Designated as Cash Flow Hedges
Interest rate swaps	(12	)	(11	)	⁽¹⁾	(26	)	⁽²⁾	(45	)	⁽¹⁾
Derivatives Not Designated as Hedges
Interest rate swaps	—		—		⁽³⁾	—			(2	)	⁽³⁾
Foreign currency forwards and swaps	—		—		⁽⁴⁾	—			2		⁽⁴⁾
Total	(12	)	(11	)		(26	)		(45	)

______________________________


⁽¹⁾	Amount represents reclassification from Accumulated other comprehensive income (loss), net and is included in Interest expense in the unaudited interim consolidated statements of operations.


⁽²⁾	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).


⁽³⁾	Included in Interest expense in the unaudited interim consolidated statements of operations.


⁽⁴⁾	Included in Foreign exchange gain (loss), net for operating activity or Other income (expense), net for non-operating activity in the unaudited interim consolidated statements of operations.

See Note 16, Fair Value Measurements, 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 financial assets and liabilities. FASB ASC Topic 820 establishes a three-tiered fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument will be categorized based upon the lowest level of input that is significant to the fair value calculation.

The three levels of inputs are defined as follows:

Level 1 - unadjusted quoted prices for identical assets or liabilities in active markets accessible by the Company

Level 2 - inputs that are observable in the marketplace other than those inputs classified as Level 1

Level 3 - inputs that are unobservable in the marketplace and significant to the valuation

The Company’s financial assets and liabilities are measured at fair value on a recurring basis and include securities available for sale and derivative financial instruments. Securities available for sale include mutual funds. Derivative financial instruments include interest rate swaps and foreign currency forwards and swaps.

Marketable Securities. Where possible, the Company utilizes quoted prices in active markets to measure equity securities; such items are classified as Level 1 in the hierarchy and include mutual funds. Mutual funds are valued at the net asset value per share or unit multiplied by the number of shares or units held as of the measurement date.

Derivatives. Derivative financial instruments are valued in the market using discounted cash flow techniques. These techniques incorporate Level 1 and Level 2 inputs such as interest rates and foreign currency exchange rates. These market inputs are utilized in the discounted cash flow calculation considering the instrument’s term, notional amount, discount rate and credit risk. Significant inputs to the derivative valuation for interest rate swaps and foreign currency forwards and swaps are observable in the active markets and are classified as Level 2 in the hierarchy.

Assets and liabilities measured at fair value on a recurring basis are as follows:



		Fair Value Measurement Using
	Balance Sheet Classification	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)		Total
		(In $ millions)
Mutual funds	Marketable securities, at fair value	56	—		56
Derivatives Not Designated as Hedges
Foreign currency forwards and swaps	Current other assets	—	1		1
Total assets as of September 30, 2012		56	1		57
Derivatives Designated as Cash Flow Hedges
Interest rate swaps	Current other liabilities	—	(15	)	(15	)
Interest rate swaps	Noncurrent other liabilities	—	(12	)	(12	)
Derivatives Not Designated as Hedges
Foreign currency forwards and swaps	Current other liabilities	—	(4	)	(4	)
Total liabilities as of September 30, 2012		—	(31	)	(31	)

Mutual funds	Marketable securities, at fair value	64	—		64
Derivatives Not Designated as Hedges
Foreign currency forwards and swaps	Current other assets	—	9		9
Total assets as of December 31, 2011		64	9		73
Derivatives Designated as Cash Flow Hedges
Interest rate swaps	Current other liabilities	—	(21	)	(21	)
Interest rate swaps	Noncurrent other liabilities	—	(13	)	(13	)
Derivatives Not Designated as Hedges
Interest rate swaps	Current other liabilities	—	(2	)	(2	)
Foreign currency forwards and swaps	Current other liabilities	—	(3	)	(3	)
Total liabilities as of December 31, 2011		—	(39	)	(39	)

Carrying values and fair values of financial instruments that are not carried at fair value are as follows:



		Fair Value Measurement Using
	Carrying Amount	Significant Other Observable Inputs (Level 2)	Unobservable Inputs (Level 3)	Total
		(In $ millions)
As of September 30, 2012
Cost investments	155	—	—	—
Insurance contracts in nonqualified trusts	66	66	—	66
Long-term debt, including current installments of long-term debt	2,881	2,749	237	2,986
As of December 31, 2011
Cost investments	147	—	—	—
Insurance contracts in nonqualified trusts	69	69	—	69
Long-term debt, including current installments of long-term debt	2,911	2,719	248	2,967

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. Insurance contracts in nonqualified trusts consist of long-term fixed income securities, which are valued using independent vendor pricing models with observable inputs in the active market and therefore represent a Level 2 measurement. The fair value of long-term debt is based on valuations from third-party banks and market quotations and is classified as Level 2 in the hierarchy. The fair value of obligations under capital leases is based on lease payments and discount rates, which are not observable in the market and therefore represents a Level 3 measurement.

As of September 30, 2012 and December 31, 2011, the fair values of cash and cash equivalents, receivables, trade payables, short-term borrowings 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.

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, asbestos exposure, prior acquisitions and divestitures, past waste disposal practices and release of chemicals into the environment. The Company is actively defending those matters where the Company is named as a defendant. Due to the inherent subjectivity of assessments and unpredictability of outcomes of legal proceedings, the Company's litigation accruals and estimates of possible loss or range of possible loss ("Possible Loss") may not represent the ultimate loss to the Company from legal proceedings. For reasonably possible loss contingencies that may be material and when determinable, the Company estimates its Possible Loss, considering that the Company could incur no loss in certain matters. Thus, the Company's exposure and ultimate losses may be higher or lower, and possibly materially so, than the Company's litigation accruals and estimates of Possible Loss. For some matters, the Company is unable, at this time, to estimate its Possible Loss that is reasonably possible of occurring. Generally, the less progress that has been made in the proceedings or the broader the range of potential results, the more difficult for the Company to estimate the Possible Loss that it is reasonably possible the Company could incur. The Company may disclose certain information related to a plaintiff's claim against the Company alleged in the plaintiff's pleadings or otherwise publicly available. While information of this type may provide insight into the potential magnitude of a matter, it does not necessarily represent the Company's estimate of reasonably possible or probable loss. Some of the Company's exposure in legal matters may be offset by applicable insurance coverage. The Company does not consider the possible availability of insurance coverage in determining the amounts of any accruals or any estimates of Possible Loss.

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CNA Holdings LLC ("CNA Holdings"), a US subsidi