CE-2015.6.30-10Q
Table of Contents

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________
Form 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2015
 
Or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Commission File Number) 001-32410
CELANESE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
98-0420726
(I.R.S. Employer
Identification No.)
 
 
222 W. Las Colinas Blvd., Suite 900N
Irving, TX
(Address of Principal Executive Offices)
75039-5421
(Zip Code)
(972) 443-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ  No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ  No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No þ
The number of outstanding shares of the registrant's Series A common stock, $0.0001 par value, as of July 13, 2015 was 153,343,205.
 
 
 
 
 

Table of Contents

CELANESE CORPORATION AND SUBSIDIARIES
Form 10-Q
For the Quarterly Period Ended June 30, 2015
TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 


2

Table of Contents


Item 1. Financial Statements 
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
 
(In $ millions, except share and per share data)
Net sales
1,477

 
1,769

 
2,927

 
3,474

Cost of sales
(1,102
)
 
(1,361
)
 
(2,171
)
 
(2,688
)
Gross profit
375

 
408

 
756

 
786

Selling, general and administrative expenses
(106
)
 
(119
)
 
(204
)
 
(223
)
Amortization of intangible assets
(3
)
 
(5
)
 
(6
)
 
(11
)
Research and development expenses
(59
)
 
(24
)
 
(79
)
 
(46
)
Other (charges) gains, net
(10
)
 
2

 
(15
)
 
1

Foreign exchange gain (loss), net
(3
)
 
(1
)
 
—

 
(2
)
Gain (loss) on disposition of businesses and assets, net
(6
)
 
(2
)
 
(7
)
 
(3
)
Operating profit (loss)
188

 
259

 
445

 
502

Equity in net earnings (loss) of affiliates
40

 
101

 
88

 
141

Interest expense
(30
)
 
(40
)
 
(57
)
 
(79
)
Interest income
1

 
2

 
1

 
2

Dividend income - cost investments
26

 
29

 
54

 
58

Other income (expense), net
2

 
1

 
2

 
1

Earnings (loss) from continuing operations before tax
227

 
352

 
533

 
625

Income tax (provision) benefit
(24
)
 
(94
)
 
(96
)
 
(172
)
Earnings (loss) from continuing operations
203

 
258

 
437

 
453

Earnings (loss) from operation of discontinued operations
(3
)
 
(1
)
 
(3
)
 
(1
)
Income tax (provision) benefit from discontinued operations
1

 
1

 
1

 
1

Earnings (loss) from discontinued operations
(2
)
 
—

 
(2
)
 
—

Net earnings (loss)
201

 
258

 
435

 
453

Net (earnings) loss attributable to noncontrolling interests
4

 
1

 
6

 
2

Net earnings (loss) attributable to Celanese Corporation
205

 
259

 
441

 
455

Amounts attributable to Celanese Corporation
 

 
 

 
 

 
 

Earnings (loss) from continuing operations
207

 
259

 
443

 
455

Earnings (loss) from discontinued operations
(2
)
 
—

 
(2
)
 
—

Net earnings (loss)
205

 
259

 
441

 
455

Earnings (loss) per common share - basic
 

 
 

 
 

 
 

Continuing operations
1.35

 
1.66

 
2.89

 
2.91

Discontinued operations
(0.01
)
 
—

 
(0.01
)
 
—

Net earnings (loss) - basic
1.34

 
1.66

 
2.88

 
2.91

Earnings (loss) per common share - diluted
 

 
 

 
 

 
 

Continuing operations
1.34

 
1.66

 
2.87

 
2.91

Discontinued operations
(0.01
)
 
—

 
(0.01
)
 
—

Net earnings (loss) - diluted
1.33

 
1.66

 
2.86

 
2.91

Weighted average shares - basic
153,480,175

 
155,751,779

 
153,349,071

 
156,124,714

Weighted average shares - diluted
153,990,933

 
156,054,232

 
153,945,466

 
156,424,665


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

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Table of Contents

CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
 
(In $ millions)
Net earnings (loss)
201

 
258

 
435

 
453

Other comprehensive income (loss), net of tax


 


 
 

 
 

Unrealized gain (loss) on marketable securities
(1
)
 
—

 
(1
)
 
—

Foreign currency translation
37

 
(22
)
 
(119
)
 
(17
)
Gain (loss) on cash flow hedges
1

 
(3
)
 
3

 
(6
)
Pension and postretirement benefits
4

 
(14
)
 
1

 
(26
)
Total other comprehensive income (loss), net of tax
41

 
(39
)
 
(116
)
 
(49
)
Total comprehensive income (loss), net of tax
242

 
219

 
319

 
404

Comprehensive (income) loss attributable to noncontrolling interests
4

 
1

 
6

 
2

Comprehensive income (loss) attributable to Celanese Corporation
246

 
220

 
325

 
406


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


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Table of Contents

CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
 
As of
June 30,
2015
 
As of
December 31,
2014
 
(In $ millions, except share data)
ASSETS
 
 
 
Current Assets
 

 
 

Cash and cash equivalents (variable interest entity restricted - 2015: $1; 2014: $1)
988

 
780

Trade receivables - third party and affiliates (net of allowance for doubtful accounts - 2015: $6; 2014: $9)
873

 
801

Non-trade receivables, net
226

 
241

Inventories
762

 
782

Deferred income taxes
15

 
29

Marketable securities, at fair value
29

 
32

Other assets
30

 
33

Total current assets
2,923

 
2,698

Investments in affiliates
821

 
876

Property, plant and equipment (net of accumulated depreciation - 2015: $1,930; 2014: $1,816; variable interest entity restricted - 2015: $716; 2014: $535)
3,771

 
3,733

Deferred income taxes
260

 
253

Other assets (variable interest entity restricted - 2015: $38; 2014: $24)
372

 
377

Goodwill
716

 
749

Intangible assets (net of accumulated amortization - 2015: $533; 2014: $556)
125

 
132

Total assets
8,988

 
8,818

LIABILITIES AND EQUITY
 
 
 
Current Liabilities
 

 
 

Short-term borrowings and current installments of long-term debt - third party and affiliates
123

 
137

Trade payables - third party and affiliates
736

 
757

Other liabilities
298

 
432

Deferred income taxes
6

 
7

Income taxes payable
105

 
5

Total current liabilities
1,268

 
1,338

Long-term debt
2,552

 
2,608

Deferred income taxes
127

 
141

Uncertain tax positions
164

 
159

Benefit obligations
1,130

 
1,211

Other liabilities
262

 
283

Commitments and Contingencies


 


Stockholders' Equity
 

 
 

Preferred stock, $0.01 par value, 100,000,000 shares authorized (2015 and 2014: 0 issued and outstanding)
—

 
—

Series A common stock, $0.0001 par value, 400,000,000 shares authorized (2015: 166,619,120 issued and 153,343,231 outstanding; 2014: 166,169,335 issued and 152,902,710 outstanding)
—

 
—

Series B common stock, $0.0001 par value, 100,000,000 shares authorized (2015 and 2014: 0 issued and outstanding)
—

 
—

Treasury stock, at cost (2015: 13,275,889 shares; 2014: 13,266,625 shares)
(611
)
 
(611
)
Additional paid-in capital
120

 
103

Retained earnings
3,848

 
3,491

Accumulated other comprehensive income (loss), net
(281
)
 
(165
)
Total Celanese Corporation stockholders' equity
3,076

 
2,818

Noncontrolling interests
409

 
260

Total equity
3,485

 
3,078

Total liabilities and equity
8,988

 
8,818

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

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Table of Contents

CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENT OF EQUITY
 
Six Months Ended
June 30, 2015
 
Shares
 
Amount
 
(In $ millions, except share data)
Series A Common Stock
 
 
 
Balance as of the beginning of the period
152,902,710

 
—

Stock option exercises
70,117

 
—

Purchases of treasury stock
(9,264
)
 
—

Stock awards
379,668

 
—

Balance as of the end of the period
153,343,231

 
—

Treasury Stock
 

 
 

Balance as of the beginning of the period
13,266,625

 
(611
)
Purchases of treasury stock, including related fees
9,264

 
—

Balance as of the end of the period
13,275,889

 
(611
)
Additional Paid-In Capital
 
 
 
Balance as of the beginning of the period
 
 
103

Stock-based compensation, net of tax
 
 
15

Stock option exercises, net of tax
 
 
2

Balance as of the end of the period
 
 
120

Retained Earnings
 
 
 
Balance as of the beginning of the period
 
 
3,491

Net earnings (loss) attributable to Celanese Corporation
 
 
441

Series A common stock dividends
 
 
(84
)
Balance as of the end of the period
 
 
3,848

Accumulated Other Comprehensive Income (Loss), Net
 
 
 
Balance as of the beginning of the period
 
 
(165
)
Other comprehensive income (loss), net of tax
 
 
(116
)
Balance as of the end of the period
 
 
(281
)
Total Celanese Corporation stockholders' equity
 
 
3,076

Noncontrolling Interests
 
 
 
Balance as of the beginning of the period
 
 
260

Net earnings (loss) attributable to noncontrolling interests
 
 
(6
)
Contributions from noncontrolling interests
 
 
155

Balance as of the end of the period
 
 
409

Total equity
 
 
3,485


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



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Table of Contents

CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Six Months Ended
June 30,
 
2015
 
2014
 
(In $ millions)
Operating Activities
 
 
 
Net earnings (loss)
435

 
453

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

 
—

Depreciation, amortization and accretion
175

 
151

Pension and postretirement net periodic benefit cost
(24
)
 
(55
)
Pension and postretirement contributions
(41
)
 
(62
)
Deferred income taxes, net
10

 
(9
)
(Gain) loss on disposition of businesses and assets, net
6

 
4

Stock-based compensation
25

 
17

Undistributed earnings in unconsolidated affiliates
29

 
(28
)
Other, net
6

 
6

Operating cash provided by (used in) discontinued operations
4

 
(1
)
Changes in operating assets and liabilities
 
 
 
Trade receivables - third party and affiliates, net
(92
)
 
(185
)
Inventories
(1
)
 
(15
)
Other assets
36

 
25

Trade payables - third party and affiliates
21

 
73

Other liabilities
(36
)
 
43

Net cash provided by (used in) operating activities
553

 
417

Investing Activities
 
 
 
Capital expenditures on property, plant and equipment
(117
)
 
(130
)
Acquisitions, net of cash acquired
(3
)
 
—

Proceeds from sale of businesses and assets, net
—

 
—

Capital expenditures related to Fairway Methanol LLC
(210
)
 
(143
)
Other, net
(24
)
 
(10
)
Net cash provided by (used in) investing activities
(354
)
 
(283
)
Financing Activities
 

 
 

Net change in short-term borrowings with maturities of 3 months or less
(2
)
 
1

Proceeds from short-term borrowings
26

 
25

Repayments of short-term borrowings
(39
)
 
(43
)
Proceeds from long-term debt
—

 
—

Repayments of long-term debt
(12
)
 
(13
)
Purchases of treasury stock, including related fees
—

 
(103
)
Stock option exercises
2

 
3

Series A common stock dividends
(84
)
 
(67
)
Contributions from noncontrolling interests
155

 
148

Other, net
(11
)
 
(1
)
Net cash provided by (used in) financing activities
35

 
(50
)
Exchange rate effects on cash and cash equivalents
(26
)
 
(4
)
Net increase (decrease) in cash and cash equivalents
208

 
80

Cash and cash equivalents as of beginning of period
780

 
984

Cash and cash equivalents as of end of period
988

 
1,064


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

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Table of Contents

CELANESE CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. Description of the Company and Basis of Presentation
Description of the Company
Celanese Corporation and its subsidiaries (collectively, the "Company") is a global technology and specialty materials company. The Company's business involves processing chemical raw materials, such as methanol, carbon monoxide and ethylene, and natural products, including wood pulp, into value-added chemicals, thermoplastic polymers and other chemical-based products.
Definitions
In this Quarterly Report on Form 10-Q ("Quarterly Report"), the term "Celanese" refers to Celanese Corporation, a Delaware corporation, and not its subsidiaries. The term "Celanese US" refers to the Company's subsidiary, Celanese US Holdings LLC, a Delaware limited liability company, and not its subsidiaries.
Basis of Presentation
The unaudited interim consolidated financial statements for the three and six months ended June 30, 2015 and 2014 contained in this Quarterly Report were prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP") for all periods presented and include the accounts of the Company, its majority owned subsidiaries over which the Company exercises control and, when applicable, variable interest entities in which the Company is the primary beneficiary. The unaudited interim consolidated financial statements and other financial information included in this Quarterly Report, unless otherwise specified, have been presented to separately show the effects of discontinued operations.
In the opinion of management, the accompanying unaudited consolidated balance sheets and related unaudited interim consolidated statements of operations, comprehensive income (loss), cash flows and equity include all adjustments, consisting only of normal recurring items necessary for their fair presentation in conformity with US GAAP. Certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP may have been condensed or omitted in accordance with rules and regulations of the Securities and Exchange Commission ("SEC"). These unaudited interim consolidated financial statements should be read in conjunction with the Company's consolidated financial statements as of and for the year ended December 31, 2014, filed on February 6, 2015 with the SEC as part of the Company's Annual Report on Form 10-K.
Operating results for the three and six months ended June 30, 2015 are not necessarily indicative of the results to be expected for the entire year.
In the ordinary course of business, the Company enters into contracts and agreements relative to a number of topics, including acquisitions, dispositions, joint ventures, supply agreements, product sales and other arrangements. The Company endeavors to describe those contracts or agreements that are material to its business, results of operations or financial position. The Company may also describe some arrangements that are not material but in which the Company believes investors may have an interest or which may have been included in a Form 8-K filing. Investors should not assume the Company has described all contracts and agreements relative to the Company's business in this Quarterly Report.
For those consolidated ventures in which the Company owns or is exposed to less than 100% of the economics, the outside stockholders' interests are shown as noncontrolling interests.
The Company has reclassified certain prior period amounts to conform to the current period's presentation.
Estimates and Assumptions
The preparation of unaudited interim consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the unaudited interim consolidated financial statements and the reported amounts of net sales, expenses and allocated charges during the reporting period. Significant estimates pertain to impairments of goodwill, intangible assets and other long-lived assets, purchase price allocations, restructuring costs and other (charges) gains, net, income taxes, pension and other postretirement benefits, asset retirement obligations, environmental liabilities and loss contingencies, among others. Actual results could differ from those estimates.

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2. Recent Accounting Pronouncements
In May 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) ("ASU 2015-07"). ASU 2015-07 removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. This ASU also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. Rather, such disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient. This ASU is effective retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted. The Company does not expect the impact of adopting this ASU to be material to the Company's financial statements and related disclosures.
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03"). ASU 2015-03 requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying value of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by ASU 2015-03. The amendments in this ASU are effective retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted. The Company does not expect the impact of adopting this ASU to be material to the Company's financial statements and related disclosures.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"). ASU 2014-09 supersedes the revenue recognition requirements of FASB Accounting Standards Codification ("ASC") Topic 605, Revenue Recognition and most industry-specific guidance throughout the ASC, resulting in the creation of FASB ASC Topic 606, Revenue from Contracts with Customers. ASU 2014-09 requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. This ASU provides alternative methods of adoption. On July 9, 2015, the FASB voted to defer the effective date by one year to December 15, 2017 for fiscal years, and interim periods within those years, beginning after that date and permitted early adoption of the standard, but not before the original effective date of December 15, 2016. The Company is currently assessing the potential impact of adopting this ASU on its financial statements and related disclosures.
3. Ventures and Variable Interest Entities
Consolidated Variable Interest Entities
In February 2014, the Company formed a joint venture, Fairway Methanol LLC ("Fairway"), with Mitsui & Co., Ltd., of Tokyo, Japan ("Mitsui"), in which the Company owns 50% of Fairway, for the production of methanol at the Company's integrated chemical plant in Clear Lake, Texas. The planned methanol unit will utilize natural gas in the US Gulf Coast region as a feedstock and will benefit from the existing infrastructure at the Company's Clear Lake facility. Both Mitsui and the Company will supply their own natural gas to Fairway in exchange for methanol tolling under a cost-plus off-take arrangement. The planned methanol facility will have an annual capacity of 1.3 million tons.
The Company determined that Fairway is a variable interest entity ("VIE") in which the Company is the primary beneficiary. Under the terms of the joint venture agreements, the Company provides site services and day-to-day operations for the methanol facility. In addition, the joint venture agreements provide that the Company indemnifies Mitsui for environmental obligations that exceed a specified threshold, as well as an equity option between the partners. Accordingly, the Company consolidates the venture and records a noncontrolling interest for the share of the venture owned by Mitsui. Fairway is included in the Company's Acetyl Intermediates segment.

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The carrying amount of the assets and liabilities associated with Fairway included in the unaudited consolidated balance sheets are as follows:
 
As of
June 30,
2015
 
As of
December 31,
2014
 
(In $ millions)
Cash and cash equivalents
1

 
1

Property, plant and equipment
716

 
535

Other assets
38

 
24

Total assets(1)
755

 
560

 
 
 
 
Trade payables
2

 
—

Current liabilities(2)
24

 
40

Long-term debt
6

 
—

Total liabilities
32

 
40

______________________________
(1) 
Assets can only be used to settle the obligations of Fairway.
(2) 
Amounts owed by Fairway to the Company for reimbursement of expenditures.
Nonconsolidated Variable Interest Entities
The Company holds variable interests in entities that supply certain raw materials and services to the Company. The variable interests primarily relate to cost-plus contractual arrangements with the suppliers and recovery of capital expenditures for certain plant assets plus a rate of return on such assets. Liabilities for such supplier recoveries of capital expenditures have been recorded as capital lease obligations. The entities are not consolidated because the Company is not the primary beneficiary of the entities as it does not have the power to direct the activities of the entities that most significantly impact the entities' economic performance. The Company's maximum exposure to loss as a result of its involvement with these VIEs as of June 30, 2015 relates primarily to the recovery of capital expenditures for certain property, plant and equipment.
The carrying amount of the assets and liabilities associated with the obligations to nonconsolidated VIEs, as well as the maximum exposure to loss relating to these nonconsolidated VIEs are as follows:
 
As of
June 30,
2015
 
As of
December 31,
2014
 
(In $ millions)
Property, plant and equipment, net
90

 
96
 
 
 
 
Trade payables
49

 
43
Current installments of long-term debt
9

 
9
Long-term debt
120

 
125
Total liabilities
178

 
177
 
 
 
 
Maximum exposure to loss
315

 
291
The difference between the total liabilities associated with obligations to unconsolidated VIEs and the maximum exposure to loss primarily represents take-or-pay obligations for services included in the Company's unconditional purchase obligations (Note 16).

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4. Marketable Securities, at Fair Value
The Company's nonqualified trusts hold available-for-sale securities for funding requirements of the Company's nonqualified pension plans (Note 9) as follows:
 
As of
June 30,
2015
 
As of
December 31,
2014
 
(In $ millions)
Amortized cost
29

 
32

Gross unrealized gain
—

 
—

Gross unrealized loss
—

 
—

Fair value
29

 
32

See Note 15 - Fair Value Measurements for further information regarding the fair value of the Company's marketable securities.
5. Inventories
 
As of
June 30,
2015
 
As of
December 31,
2014
 
(In $ millions)
Finished goods
559

 
579

Work-in-process
51

 
53

Raw materials and supplies
152

 
150

Total
762

 
782

6. Current Other Liabilities
 
As of
June 30,
2015
 
As of
December 31,
2014
 
(In $ millions)
Asset retirement obligations
7

 
9

Benefit obligations (Note 9)
33

 
28

Customer rebates
33

 
53

Derivatives (Note 14)
5

 
13

Environmental (Note 10)
18

 
21

Insurance
9

 
9

Interest
15

 
19

Restructuring (Note 12)
15

 
21

Salaries and benefits
79

 
129

Sales and use tax/foreign withholding tax payable
16

 
13

Uncertain tax positions (Note 13)
—

 
59

Other
68

 
58

Total
298

 
432


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7. Noncurrent Other Liabilities
 
As of
June 30,
2015
 
As of
December 31,
2014
 
(In $ millions)
Asset retirement obligations
29

 
28

Deferred proceeds
43

 
47

Deferred revenue
18

 
21

Derivatives (Note 14)
—

 
10

Environmental (Note 10)
61

 
63

Income taxes payable
12

 
13

Insurance
52

 
51

Other
47

 
50

Total
262

 
283

8. Debt
 
As of
June 30,
2015
 
As of
December 31,
2014
 
(In $ millions)
Short-Term Borrowings and Current Installments of Long-Term Debt - Third Party and Affiliates
 
 
 
Current installments of long-term debt
26

 
25

Short-term borrowings, including amounts due to affiliates(1)
67

 
77

Accounts receivable securitization facility(2)
30

 
35

Total
123

 
137

______________________________
(1) 
The weighted average interest rate was 4.5% and 4.7% as of June 30, 2015 and December 31, 2014, respectively.
(2) 
The weighted average interest rate was 0.7% as of June 30, 2015 and December 31, 2014.
 
As of
June 30,
2015
 
As of
December 31,
2014
 
(In $ millions)
Long-Term Debt
 
 
 
Senior credit facilities - Term C-2 loan due 2016
31

 
34

Senior credit facilities - Term C-3 loan due 2018
886

 
906

Senior unsecured notes due 2019, interest rate of 3.250%
336

 
364

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

 
400

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

 
500

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

 
169

Obligations under capital leases due at various dates through 2054
256

 
260

Subtotal
2,578

 
2,633

Current installments of long-term debt
(26
)
 
(25
)
Total
2,552

 
2,608


12

Table of Contents

Senior Notes
The Company has outstanding senior unsecured notes issued in public offerings registered under the Securities Act of 1933, as amended, as follows (collectively, the "Senior Notes"):
Senior Notes
 
Issue Date
 
Principal
 
Interest Rate
 
Interest Pay Dates
 
Maturity Date
 
 
 
 
(In millions)
 
(In percentages)
 
 
 
 
 
 
3.250% Notes
 
September 2014
 
€300
 
3.250
 
April 15
 
October 15
 
October 15, 2019
4.625% Notes
 
November 2012
 
$500
 
4.625
 
March 15
 
September 15
 
November 15, 2022
5.875% Notes
 
May 2011
 
$400
 
5.875
 
June 15
 
December 15
 
June 15, 2021
The Senior Notes are senior unsecured obligations of Celanese US and rank equally in right of payment with all other unsubordinated indebtedness of Celanese US. The Senior Notes were issued under indentures (collectively, "Indentures") among Celanese US, Celanese and each of the domestic subsidiaries of Celanese US that guarantee its obligations under its senior secured credit facilities ("Subsidiary Guarantors") and Wells Fargo Bank, National Association, as trustee. The Senior Notes are guaranteed on a senior unsecured basis by Celanese and the Subsidiary Guarantors. The Indentures contain covenants, including, but not limited to, restrictions on the Company's ability to incur indebtedness; grant liens on assets; merge, consolidate, or sell assets; pay dividends or make other restricted payments; engage in transactions with affiliates; or engage in other businesses. Celanese US may redeem some or all of each of the Senior Notes, prior to their respective maturity dates, at a redemption price of 100% of the principal amount, plus a "make-whole" premium as specified in the applicable indenture, plus accrued and unpaid interest, if any, to the redemption date.
Senior Credit Facilities
In September 2014, Celanese US, Celanese and the Subsidiary Guarantors entered into an amendment agreement with the lenders under Celanese US's existing senior secured credit facilities in order to amend and restate the amended credit agreement dated September 16, 2013 (as amended and restated by the 2014 amendment agreement, the "Amended Credit Agreement"). Under the Amended Credit Agreement, all of the US dollar-denominated Term C-2 term loans and all but €28 million of the Euro-denominated Term C-2 term loans under the 2013 amended credit agreement were converted into, or refinanced by, the Term C-3 loan facility with an extended maturity date of October 2018. The non-extended portions of the Term C-2 loan facility continue to have a maturity date of October 2016. In addition, the maturity date of the Company's revolving credit facility was extended to October 2018 and the facility was increased to $900 million. Accordingly, the Amended Credit Agreement consists of the Term C-2 loan facility, the Term C-3 loan facility and a $900 million revolving credit facility.
As of June 30, 2015, the margin for borrowings under the Term C-2 loan facility was 2.0% above the Euro Interbank Offered Rate ("EURIBOR") and the margin for borrowings under the Term C-3 loan facility was 2.25% above LIBOR (for US dollars) and 2.25% above EURIBOR (for Euros), as applicable. As of June 30, 2015, the margin for borrowings under the revolving credit facility was 1.5% above LIBOR. The margin for borrowings under the revolving credit facility is subject to increase or decrease in certain circumstances based on changes in the corporate credit ratings of Celanese or Celanese US.
Term loan borrowings under the Amended Credit Agreement are subject to amortization at 1% of the initial principal amount per annum, payable quarterly. In addition, the Company pays quarterly commitment fees on the unused portions of the revolving credit facility of 0.25% per annum.
The Amended Credit Agreement is guaranteed by Celanese and certain domestic subsidiaries of Celanese US and is secured by a lien on substantially all assets of Celanese US and such guarantors, subject to certain agreed exceptions (including for certain real property and certain shares of foreign subsidiaries), pursuant to the Guarantee and Collateral Agreement dated April 2, 2007.
As a condition to borrowing funds or requesting letters of credit be issued under the revolving credit facility, the Company's first lien senior secured leverage ratio (as calculated as of the last day of the most recent fiscal quarter for which financial statements have been delivered under the revolving facility) cannot exceed the threshold as specified below. Further, the Company's first lien senior secured leverage ratio must be maintained at or below that threshold while any amounts are outstanding under the revolving credit facility.

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Table of Contents

The Company's amended first lien senior secured leverage ratios under the revolving credit facility are as follows:
As of June 30, 2015
Maximum
 
Estimate
 
Estimate, If Fully Drawn
3.90
 
0.61
 
1.18
The Amended Credit Agreement contains covenants including, but not limited to, restrictions on the Company's ability to incur indebtedness; grant liens on assets; merge, consolidate, or sell assets; pay dividends or make other restricted payments; make investments; prepay or modify certain indebtedness; engage in transactions with affiliates; enter into sale-leaseback transactions or hedge transactions; or engage in other businesses; as well as a covenant requiring maintenance of a maximum first lien senior secured leverage ratio.
The Amended Credit Agreement also maintains a number of events of default, including a cross default to other debt of Celanese, Celanese US, or their subsidiaries, including the Senior Notes, in an aggregate amount equal to more than $50 million and the occurrence of a change of control. Failure to comply with these covenants, or the occurrence of any other event of default, could result in acceleration of the borrowings and other financial obligations under the Amended Credit Agreement.
The Company is in compliance with all of the covenants related to its debt agreements as of June 30, 2015.
Accounts Receivable Securitization Facility
In August 2013, the Company entered into a US accounts receivable securitization facility pursuant to (i) a Purchase and Sale Agreement ("Sale Agreement") among certain US subsidiaries of the Company (each an "Originator"), Celanese International Corporation ("CIC") and CE Receivables LLC, a wholly-owned, "bankruptcy remote" special purpose subsidiary of an Originator ("Transferor") and (ii) a Receivables Purchase Agreement ("Purchase Agreement"), among CIC, as servicer, the Transferor, various third-party purchasers (collectively, "Purchasers") and The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as administrator ("Administrator"). The Purchase Agreement expires in 2016, but may be extended for successive one year terms by agreement of the parties. All of the Transferor's assets have been pledged to the Administrator in support of its obligations under the Purchase Agreement.
The Company's balances available for borrowing are as follows:
 
As of
June 30,
2015
 
 
(In $ millions)
 
Revolving Credit Facility
 
 
Borrowings outstanding
—

 
Letters of credit issued
—

 
Available for borrowing
900

 
Accounts Receivable Securitization Facility
 
 
Borrowings outstanding
30

(1) 
Letters of credit issued
74

 
Available for borrowing
16

 
Total borrowing base
120

 
 
 
 
Maximum borrowing base
135

(2) 
______________________________
(1) 
The Company repaid $15 million of borrowings outstanding during the six months ended June 30, 2015.
(2) 
Outstanding accounts receivable transferred by the Originators to the Transferor was $173 million.


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Table of Contents

9. Benefit Obligations
The components of net periodic benefit cost are as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
 
 
Pension
Benefits
 
Post-retirement
Benefits
 
Pension
Benefits
 
Post-retirement
Benefits
 
Pension
Benefits
 
Post-retirement
Benefits
 
Pension
Benefits
 
Post-retirement
Benefits
 
 
(In $ millions)
 
(In $ millions)
 
Service cost
3

 
1

 
3

 
1

 
6

 
1

 
6

 
1

 
Interest cost
36

 
—

 
43

 
—

 
71

 
1

 
85

 
2

 
Expected return on plan assets
(53
)
 
—

 
(54
)
 
—

 
(105
)
 
—

 
(108
)
 
—

 
Recognized actuarial (gain) loss
—

 
1

 
—

 
—

 
—

 
1

 
—

 
—

 
Amortization of prior service cost (credit), net
—

 
—

 
—

 
(22
)
(1) 
—

 
—

 
—

 
(41
)
(1) 
Special termination benefit
—

 
—

 
—

 
—

 
1

 
—

 
—

 
—

 
Total
(14
)
 
2

 
(8
)
 
(21
)
 
(27
)
 
3

 
(17
)
 
(38
)
 
______________________________
(1) 
Primarily related to the elimination of eligibility for all current and future US employees to participate in the Company's US postretirement health care plan.
Benefit obligation funding is as follows:
 
As of
June 30,
2015
 
Total
Expected
2015
 
(In $ millions)
Cash contributions to defined benefit pension plans
27

 
28

Benefit payments to nonqualified pension plans
11

 
22

Benefit payments to other postretirement benefit plans
3

 
17

Cash contributions to German multiemployer defined benefit pension plans(1)
3

 
6

______________________________
(1) 
The Company makes contributions based on specified percentages of employee contributions.
The Company's estimates of its US defined benefit pension plan contributions reflect the provisions of the Pension Protection Act of 2006.
10. Environmental
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.

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Table of Contents

The components of environmental remediation reserves are as follows:
 
As of
June 30,
2015
 
As of
December 31,
2014
 
(In $ millions)
Demerger obligations (Note 16)
24

 
25

Divestiture obligations (Note 16)
19

 
21

Active sites
20

 
23

US Superfund sites
14

 
12

Other environmental remediation reserves
2

 
3

Total
79

 
84

Remediation
Due to its industrial history and through retained contractual and legal obligations, the Company has the obligation to remediate specific areas on its own sites as well as on divested, demerger, orphan or US Superfund sites (as defined below). In addition, as part of the demerger agreement between the Company and Hoechst AG ("Hoechst"), a specified portion of the responsibility for environmental liabilities from a number of Hoechst divestitures was transferred to the Company (Note 16). The Company provides for such obligations when the event of loss is probable and reasonably estimable. The Company believes that environmental remediation costs will not have a material adverse effect on the financial position of the Company, but may have a material adverse effect on the results of operations or cash flows in any given period.
US Superfund Sites
In the US, the Company may be subject to substantial claims brought by US federal or state regulatory agencies or private individuals pursuant to statutory authority or common law. In particular, the Company has a potential liability under the US Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, and related state laws (collectively referred to as "Superfund") for investigation and cleanup costs at certain sites. At most of these sites, numerous companies, including the Company, or one of its predecessor companies, have been notified that the US Environmental Protection Agency ("EPA"), state governing bodies or private individuals consider such companies to be potentially responsible parties ("PRP") under Superfund or related laws. The proceedings relating to these sites are in various stages. The cleanup process has not been completed at most sites, and the status of the insurance coverage for some of these proceedings is uncertain. Consequently, the Company cannot accurately determine its ultimate liability for investigation or cleanup costs at these sites.
As events progress at each site for which it has been named a PRP, the Company accrues, as appropriate, a liability for site cleanup. Such liabilities include all costs that are probable and can be reasonably estimated. In establishing these liabilities, the Company considers its shipment of waste to a site, its percentage of total waste shipped to the site, the types of wastes involved, the conclusions of any studies, the magnitude of any remedial actions that may be necessary and the number and viability of other PRPs. Often the Company joins with other PRPs to sign joint defense agreements that settle, among PRPs, each party's percentage allocation of costs at the site. Although the ultimate liability may differ from the estimate, the Company routinely reviews the liabilities and revises the estimate, as appropriate, based on the most current information available.
One such site is the Lower Passaic River Study Area. The Company and 70 other companies are parties to a May 2007 Administrative Order on Consent with the EPA to perform a Remedial Investigation/Feasibility Study ("RI/FS") in the lower 17-mile stretch of the Passaic River in order to identify the levels of contaminants and potential cleanup actions. The parties are still working on the RI/FS with a goal to complete it in 2015. On April 11, 2014, the EPA issued its proposed evaluation of remediation alternatives for the lower 8-mile stretch of the Passaic River. Cost estimates for the various alternatives of the Passaic River range from $365 million to $3.2 billion. The EPA's preferred plan for the lower 8-mile stretch of the Passaic River would involve dredging bank to bank and installing an engineered cap at an estimated cost of $1.7 billion.
The parties involved have submitted comments to the EPA challenging the science, scope, necessity and viability of the EPA's proposed plan as the EPA's preferred remedy for the lower 8-mile stretch is inconsistent with the remedy being developed in the RI/FS for the full 17-mile stretch of the river. The EPA will evaluate all the inputs and is expected to issue a final decision concerning the lower 8-mile stretch of the river in 2015. Any subsequent order from the EPA requiring clean-up actions could be judicially challenged.

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Table of Contents

While the final remedy remains uncertain, the Company has found no evidence that it contributed any of the primary contaminants of concern to the Passaic River. The Company is vigorously defending this matter and currently believes that its ultimate allocable share of the cleanup costs, estimated at substantially less than 1%, will not be material.
11. Stockholders' Equity
Common Stock
The Company's Board of Directors follows a policy of declaring, subject to legally available funds, a quarterly cash dividend on each share of the Company's Series A common stock, par value $0.0001 per share ("Common Stock"), unless the Company's Board of Directors, in its sole discretion, determines otherwise. The amount available to pay cash dividends is restricted by the Company's Amended Credit Agreement and the Indentures.
The Company's Board of Directors approved increases in the Company's Common Stock cash dividend rates as follows:
 
Increase
 
Quarterly Common
Stock Cash Dividend
 
Annual Common
Stock Cash Dividend
 
Effective Date
 
(In percentages)
 
(In $ per share)
 
 
April 2014
39
 
0.25
 
1.00
 
May 2014
April 2015
20
 
0.30
 
1.20
 
May 2015
Treasury Stock
 
Six Months Ended
June 30,
 
Total From
February 2008
Through
June 30, 2015
 
 
2015
 
2014
 
 
Shares repurchased
—

(1) 
1,870,297

 
20,667,195

(2) 
Average purchase price per share
$
—

 
$
55.13

 
$
44.27

 
Cash paid for repurchased shares (in millions)
$
—

 
$
103

 
$
915

 
Aggregate Board of Directors repurchase authorizations (in millions)(3)
$
—

 
$
172

 
$
1,366

 
______________________________
(1) 
Excludes 9,264 shares withheld from an executive officer to cover statutory minimum withholding requirements for personal income taxes related to the vesting of restricted stock. Restricted stock awards are considered outstanding at the time of issuance. Accordingly, the shares withheld are treated as treasury shares.
(2) 
Excludes 21,108 shares withheld from an executive officer to cover statutory minimum withholding requirements for personal income taxes related to the vesting of restricted stock. Restricted stock awards are considered outstanding at the time of issuance. Accordingly, the shares withheld are treated as treasury shares.
(3) 
These authorizations give management discretion in determining the timing and conditions under which shares may be repurchased. This repurchase program began in February 2008 and does not have an expiration date.
The purchase of treasury stock reduces the number of shares outstanding. 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.

17

Table of Contents

Other Comprehensive Income (Loss), Net
 
Three Months Ended June 30,
 
2015
 
2014
 
Gross
Amount
 
Income
Tax
(Provision)
Benefit
 
Net
Amount
 
Gross
Amount
 
Income
Tax
(Provision)
Benefit
 
Net
Amount
 
(In $ millions)
Unrealized gain (loss) on marketable securities
—


(1
)
 
(1
)
 
—

 
—

 
—

Foreign currency translation
33

 
4

 
37

 
(12
)
 
(10
)
 
(22
)
Gain (loss) on cash flow hedges
1


—

 
1

 
(3
)

—

 
(3
)
Pension and postretirement benefits
—

 
4

 
4

 
(22
)

8

 
(14
)
Total
34

 
7

 
41

 
(37
)
 
(2
)
 
(39
)
 
Six Months Ended June 30,
 
2015
 
2014
 
Gross
Amount
 
Income
Tax
(Provision)
Benefit
 
Net
Amount
 
Gross
Amount
 
Income
Tax
(Provision)
Benefit
 
Net
Amount
 
(In $ millions)
Unrealized gain (loss) on marketable securities
—

 
(1
)
 
(1
)
 
—

 
—

 
—

Foreign currency translation
(117
)
 
(2
)
 
(119
)
 
(15
)
 
(2
)
 
(17
)
Gain (loss) on cash flow hedges
4

 
(1
)
 
3

 
(3
)
 
(3
)
 
(6
)
Pension and postretirement benefits
—

 
1

 
1

 
(41
)
 
15

 
(26
)
Total
(113
)
 
(3
)
 
(116
)
 
(59
)
 
10

 
(49
)
Adjustments to Accumulated other comprehensive income (loss), net, are as follows:
 
Unrealized
Gain (Loss)
on
Marketable
Securities
 
Foreign
Currency
Translation
 
Gain (Loss)
on Cash
Flow
Hedges
 
Pension
and
Postretire-
ment
Benefits
 
Accumulated
Other
Comprehensive
Income
(Loss), Net
 
(In $ millions)
As of December 31, 2014
1

 
(151
)
 
(4
)
 
(11
)
 
(165
)
Other comprehensive income (loss) before reclassifications
—

 
(117
)
 
(1
)
 
—

 
(118
)
Amounts reclassified from accumulated other comprehensive income (loss)
—

 
—

 
5


—


5

Income tax (provision) benefit
(1
)
 
(2
)
 
(1
)
 
1

 
(3
)
As of June 30, 2015
—

 
(270
)
 
(1
)
 
(10
)
 
(281
)
12. Other (Charges) Gains, Net
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(In $ millions)
Employee termination benefits
(10
)
 
(1
)
 
(14
)
 
(3
)
Plant/office closures
—

 
—

 
—

 
1

Commercial disputes
—

 
—

 
(1
)
 
—

Other
—

 
3

 
—

 
3

Total
(10
)
 
2

 
(15
)
 
1


18

Table of Contents

2015
During the three and six months ended June 30, 2015, the Company recorded $10 million and $14 million, respectively, of employee termination benefits related to the Company's ongoing efforts to align its businesses around its core value drivers.
During the three months ended June 30, 2015, the Company also recorded $39 million in accelerated depreciation expense related to property, plant and equipment no longer in use at the Company's ethanol technology development unit in Clear Lake, Texas. The Company believes that further development of its ethanol technology can be achieved through the utilization of other existing assets. The accelerated depreciation is included in Research and development expenses in the unaudited interim consolidated statements of operations and is included in the Company's Acetyl Intermediates segment.
2014
During the three months ended June 30, 2014, the Company recorded a $3 million adjustment to its initial estimate for asset retirement obligations related to the closure of its acetic anhydride facility in Roussillon, France and its vinyl acetate monomer ("VAM") facility in Tarragona, Spain. The Roussillon, France acetic anhydride operations and the Tarragona, Spain VAM operations are included in the Company's Acetyl Intermediates segment.
During the six months ended June 30, 2014, the Company recorded $2 million of employee termination benefits related to the closure of its acetic anhydride facility in Roussillon, France and its VAM facility in Tarragona, Spain and $1 million of employee termination benefits related to a business optimization project included in the Company's Advanced Engineered Materials segment.
The changes in the restructuring reserves by business segment are as follows:
 
Advanced
Engineered
Materials
 
Consumer
Specialties
 
Industrial
Specialties
 
Acetyl
Intermediates
 
Other
 
Total
 
(In $ millions)
Employee Termination Benefits
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2014
4

 
1

 
1

 
5

 
3

 
14

Additions
4

 
1

 
2

 
1

 
6

 
14

Cash payments
(1
)
 
(1
)
 
(1
)
 
(3
)
 
—

 
(6
)
Other changes
(3
)
 
—

 
—

 
—

 
(3
)
 
(6
)
Exchange rate changes
(1
)
 
—

 
—

 
(1
)
 
—

 
(2
)
As of June 30, 2015
3

 
1

 
2

 
2

 
6

 
14

Plant/Office Closures
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2014
—

 
—

 
—

 
7

 
—

 
7

Additions
—

 
—

 
—

 
—

 
—

 
—

Cash payments
—

 
—

 
—

 
(5
)
 
—

 
(5
)
Other changes
—

 
—

 
—

 
—

 
—

 
—

Exchange rate changes
—

 
—

 
—

 
(1
)
 
—

 
(1
)
As of June 30, 2015
—

 
—

 
—

 
1

 
—

 
1

Total
3

 
1

 
2

 
3

 
6

 
15


19

Table of Contents

13. Income Taxes
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(In percentages)
Effective income tax rate
11
 
27
 
18
 
28
The lower effective income tax rate for the three and six months ended June 30, 2015 is primarily attributable to a $30 million reduction of prior year tax positions due to audit closures and technical judicial clarifications. The rate was also impacted by changes in jurisdictional earnings, a portion of which related to the implementation of the Company's centralized European operating company.
In February 2015, the Company established a centralized European operating company for the purpose of improving the operational efficiencies and profitability of its European operations and certain global product lines. These activities will directly impact the Company's mix of earnings and product flows and will result in both favorable and unfavorable tax rate impacts in the jurisdictions in which the Company operates.
For the six months ended June 30, 2015, the Company's uncertain tax positions decreased $73 million, primarily due to a $59 million decrease in uncertain tax positions resulting from reductions for audit closures and technical judicial clarifications (Note 6) and exchange rate fluctuations of $14 million, partially offset by interest and other changes in uncertain tax positions.
The Company's US tax returns for the years 2009 through 2012 are currently under audit by the US Internal Revenue Service and certain of the Company's subsidiaries are under audit in jurisdictions outside of the US. The Company does not expect any material changes in the unrecognized tax benefits within the next twelve months related to the settlement of one or more of these audits or lapse of applicable statutes of limitations.
14. Derivative Financial Instruments
Interest Rate Swaps
The Company fixes the LIBOR portion of its US dollar denominated variable rate borrowings (Note 8) with interest rate swap derivative arrangements as follows:
As of June 30, 2015
Notional Value
 
Effective Date
 
Expiration Date
 
Fixed Rate
(In $ millions)
 
 
 
 
 
(In percentages)
500
 
January 2, 2014
 
January 2, 2016
 
0.94
As of December 31, 2014
Notional Value
 
Effective Date
 
Expiration Date
 
Fixed Rate
(In $ millions)
 
 
 
 
 
(In percentages)
500
 
January 2, 2014
 
January 2, 2016
 
1.02
Foreign Currency Forwards and Swaps
Gross notional values of the foreign currency forwards and swaps are as follows:
 
As of
June 30,
2015
 
As of
December 31,
2014
 
(In $ millions)
Total
609

 
1,336


20

Table of Contents

Cross-currency Swaps
On March 31, 2015, the Company settled its cross-currency swap agreements with notional values of $250 million/€193 million, expiring September 11, 2020, and $225 million/€162 million, expiring April 17, 2019, in exchange for cash of $88 million. The Company recorded a net loss of $1 million, which is included in Other income (expense), net in the unaudited interim consolidated statement of operations. The Company classifies cash flows from derivative instruments designated as cash flow hedges in the same category of the consolidated statement of cash flows as the cash flows from the items being hedged. Accordingly, the settlement of the cross-currency swap agreements is included in Net cash provided by (used in) operating activities in the unaudited interim consolidated statement of cash flows for the six months ended June 30, 2015.
Information regarding changes in the fair value of the Company's derivative and non-derivative instruments is as follows:
 
Gain (Loss) Recognized in Other Comprehensive Income (Loss)
 
Gain (Loss) Recognized in Earnings (Loss)
 
 
 
Three Months Ended June 30,
 
Statement of Operations Classification
 
2015
 
2014
 
2015
 
2014
 
 
(In $ millions)
 
 
Designated as Cash Flow Hedges
 
 
 
 
 
 
 
 
 
Interest rate swaps
—

 
(1
)
 
—

 
(2
)

Interest expense
Cross-currency swaps
—

 
(4
)
 
—

 
3

 
Other income (expense), net; Interest expense
Total
—

 
(5
)
 
—

 
1

 
 
 
 
 
 
 
 
 
 
 
 
Designated as Net Investment Hedges
 
 
 
 
 
 
 
 
 
3.250% Notes
(13
)
 
—

 
—

 
—

 
Foreign currency translation
Term C-2 and Term C-3 loans
(8
)
 
—

 
—

 
—

 
Foreign currency translation
Total
(21
)
 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Not Designated as Hedges
 
 
 
 
 
 
 
 
 
Interest rate swaps
—

 
—

 
(1
)
 
—

 
Interest expense
Foreign currency forwards and swaps
—

 
—

 
—

 
(3
)

Foreign exchange gain (loss), net; Other income (expense), net
Total
—

 
—

 
(1
)
 
(3
)
 
 

21

Table of Contents

 
Gain (Loss) Recognized in Other Comprehensive Income (Loss)
 
Gain (Loss) Recognized in Earnings (Loss)
 
 
 
Six Months Ended June 30,
 
Statement of Operations Classification
 
2015
 
2014
 
2015
 
2014
 
 
(In $ millions)
 
 
Designated as Cash Flow Hedges
 
 
 
 
 
 
 
 
 
Interest rate swaps
—

 
(1
)
 
—

 
(2
)
 
Interest expense
Cross-currency swaps
—

 
(4
)
 
46

 
3

 
Other income (expense), net; Interest expense
Total
—

 
(5
)
 
46

 
1

 
 
 
 
 
 
 
 
 
 
 
 
Designated as Net Investment Hedges
 
 
 
 
 
 
 
 
 
3.250% Notes
28

 
—

 
—

 
—

 
Foreign currency translation
Term C-2 and Term C-3 loans(1)
—

 
—

 
—

 
—

 
Foreign currency translation
Total
28

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Not Designated as Hedges
 
 
 
 
 
 
 
 
 
Interest rate swaps
—

 
—

 
(1
)
 
—

 
Interest expense
Foreign currency forwards and swaps
—

 
—

 
(68
)
 
(5
)
 
Foreign exchange gain (loss), net; Other income (expense), net
Total
—

 
—

 
(69
)
 
(5
)
 
 
______________________________
(1) 
During the three months ended March 31, 2015, the Company designated the Euro-based principal amount of its Term C-2 loan and its Term C-3 loan as a net investment hedge of its investment in a wholly-owned international subsidiary whose functional currency is the Euro to mitigate the volatility caused by the changes in foreign currency exchange rates of the Euro with respect to the US dollar.
See Note 15 - Fair Value Measurements for further information regarding the fair value of the Company's derivative instruments.
Certain of the Company's foreign currency forwards and swaps and interest rate swaps permit the Company to net settle all contracts with the counterparty through a single payment in an agreed upon currency in the event of default or early termination of the contract, similar to a master netting arrangement. The Company's interest rate swap agreements are subject to cross collateralization under the Guarantee and Collateral Agreement entered into in conjunction with the Term loan borrowings (Note 8).
Information regarding the gross amounts of the Company's derivative instruments and the amounts offset in the unaudited consolidated balance sheets is as follows:
 
As of
June 30,
2015
 
As of
December 31,
2014
 
(In $ millions)
Derivative Assets
 
 
 
Gross amount recognized
3

 
55

Gross amount offset in the consolidated balance sheets
—

 
—

Net amount presented in the consolidated balance sheets
3

 
55

Gross amount not offset in the consolidated balance sheets
1

 
4

Net amount
2

 
51


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As of
June 30,
2015
 
As of
December 31,
2014
 
(In $ millions)
Derivative Liabilities
 
 
 
Gross amount recognized
5

 
23

Gross amount offset in the consolidated balance sheets
—

 
—

Net amount presented in the consolidated balance sheets
5

 
23

Gross amount not offset in the consolidated balance sheets
1

 
4

Net amount
4

 
19

15. Fair Value Measurements
The Company's financial assets and liabilities are measured at fair value on a recurring basis as follows:
Marketable Securities. Where possible, the Company utilizes quoted prices in active markets to measure available-for-sale equity securities, including mutual funds. Such items are classified as Level 1 in the fair value measurement hierarchy. 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, including interest rate swaps, cross-currency swaps and foreign currency forwards and swaps, are valued in the market using discounted cash flow techniques. These techniques incorporate Level 1 and Level 2 fair value measurement inputs such as interest rates and foreign currency exchange rates. These market inputs are utilized in the discounted cash flow calculation considering the instrument's term, notional amount, discount rate and credit risk. Significant inputs to the derivative valuation for interest rate swaps, cross-currency swaps and foreign currency forwards and swaps are observable in the active markets and are classified as Level 2 in the fair value measurement hierarchy.

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Table of Contents

 
Fair Value Measurement
 
 
 
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Total
 
Balance Sheet Classification
 
(In $ millions)
 
 
As of June 30, 2015
 
 
 
 
 
 
 
Mutual funds
29

 
—

 
29

 
Marketable securities, at fair value
Derivatives Not Designated as Hedges
 
 
 
 


 
 
Foreign currency forwards and swaps
—

 
3

 
3

 
Current Other assets
Total assets
29

 
3

 
32

 
 
Designated as Net Investment Hedges
 
 
 
 
 
 
 
3.250% Notes(1)
—

 
—

 
—

 
Long-term Debt
Term C-2 and Term C-3 loans(1)
—

 
—

 
—

 
Long-term Debt
Derivatives Not Designated as Hedges
 
 
 
 
 
 
 
Interest rate swaps
—

 
(2
)
 
(2
)
 
Current Other liabilities
Foreign currency forwards and swaps
—

 
(3
)
 
(3
)
 
Current Other liabilities
Total liabilities
—

 
(5
)
 
(5
)
 
 
As of December 31, 2014
 
 
 
 
 
 
 
Mutual funds
32

 
—

 
32

 
Marketable securities, at fair value
Derivatives Designated as Cash Flow Hedges
 
 
 
 
 
 
 
Cross-currency swaps
—

 
9

 
9

 
Current Other assets
Cross-currency swaps
—

 
43

 
43

 
Noncurrent Other assets
Derivatives Not Designated as Hedges
 
 
 
 
 
 
 
Foreign currency forwards and swaps
—

 
3

 
3

 
Current Other assets
Total assets
32

 
55

 
87

 
 
Derivatives Designated as Cash Flow Hedges
 
 
 
 
 
 
 
Cross-currency swaps
—

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

 
(10
)
 
(10
)
 
Noncurrent Other liabilities
Designated as a Net Investment Hedge
 
 
 
 
 
 
 
3.250% Notes(1)
—

 
—

 
—

 
Long-term Debt
Derivatives Not Designated as Hedges
 
 
 
 
 
 
 
Interest rate swaps
—

 
(4
)
 
(4
)
 
Current Other liabilities
Foreign currency forwards and swaps
—

 
(7
)
 
(7
)
 
Current Other liabilities
Total liabilities
—

 
(23
)
 
(23
)
 
 
______________________________
(1) 
Included in the unaudited consolidated balance sheets at carrying amount.

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Table of Contents

Carrying values and fair values of financial instruments that are not carried at fair value are as follows:
 
 
 
Fair Value Measurement
 
Carrying
Amount
 
Significant Other
Observable
Inputs
(Level 2)
 
Unobservable
Inputs
(Level 3)
 
Total
 
(In $ millions)
As of June 30, 2015
 
 
 
 
 
 
 
Cost investments
147

 
—

 
—

 
—

Insurance contracts in nonqualified trusts
52

 
52

 
—

 
52

Long-term debt, including current installments of long-term debt
2,578

 
2,364

 
256

 
2,620

As of December 31, 2014
 
 
 
 
 
 
 
Cost investments
145

 
—

 
—

 
—

Insurance contracts in nonqualified trusts
56

 
56

 
—

 
56

Long-term debt, including current installments of long-term debt
2,633

 
2,398

 
260

 
2,658

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 fair value 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 fair value measurement hierarchy. The fair value of obligations under capital leases, which are included in long-term debt, is based on lease payments and discount rates, which are not observable in the market and therefore represents a Level 3 fair value measurement.
As of June 30, 2015 and December 31, 2014, 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.
16. Commitments and Contingencies
The Company is involved in legal and regulatory proceedings, lawsuits, claims and investigations incidental to the normal conduct of business, relating to such matters as product liability, land disputes, commercial contracts, employment, antitrust, intellectual property, workers' compensation, chemical exposure, asbestos exposure, trade compliance, prior acquisitions and divestitures, claims of legacy stockholders, 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.
Guarantees
The Company has agreed to guarantee or indemnify third parties for environmental and other liabilities pursuant to a variety of agreements, including asset and business divestiture agreements, leases, settlement agreements and various agreements with affiliated companies. Although many of these obligations contain monetary and/or time limitations, others do not provide such limitations.
As indemnification obligations often depend on the occurrence of unpredictable future events, the future costs associated with them cannot be determined at this time.
The Company has accrued for all probable and reasonably estimable losses associated with all known matters or claims that have been brought to its attention. These known obligations include the following:

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Table of Contents

•
Demerger Obligations
In connection with the Hoechst demerger, the Company agreed to indemnify Hoechst, and its legal successors, for various liabilities under the demerger agreement, including for environmental liabilities associated with contamination arising either from environmental damage in general ("Category A") or under 19 divestiture agreements entered into by Hoechst prior to the demerger ("Category B") (Note 10).
The Company's obligation to indemnify Hoechst, and its legal successors, is capped under Category B at €250 million. If and to the extent the environmental damage should exceed