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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 2016
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Or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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(Commission File Number) 001-32410
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(Exact Name of Registrant as Specified in its Charter)
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Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
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98-0420726
(I.R.S. Employer
Identification No.)
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222 W. Las Colinas Blvd., Suite 900N
Irving, TX
(Address of Principal Executive Offices)
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75039-5421
(Zip Code)
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(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 11, 2016
was
143,199,495
.
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CELANESE CORPORATION AND SUBSIDIARIES
Form 10-Q
For the Quarterly Period Ended
September 30, 2016
TABLE OF CONTENTS
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Page
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2
Item 1.
Financial Statements
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
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Three Months Ended
September 30, |
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Nine Months Ended
September 30, |
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2016
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2015
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2016
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2015
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(In $ millions, except share and per share data)
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Net sales
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1,323
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1,413
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4,078
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4,340
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Cost of sales
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(968
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)
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(1,110
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)
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(2,995
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)
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(3,281
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)
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Gross profit
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355
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303
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1,083
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1,059
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Selling, general and administrative expenses
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(81
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)
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(93
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)
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(232
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)
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(297
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)
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Amortization of intangible assets
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(3
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)
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(3
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)
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(7
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)
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(9
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)
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Research and development expenses
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(20
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)
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(19
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)
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(58
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)
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(98
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)
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Other (charges) gains, net
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(3
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)
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(4
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)
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(12
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)
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(19
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)
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Foreign exchange gain (loss), net
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(1
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)
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3
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1
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3
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Gain (loss) on disposition of businesses and assets, net
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(1
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)
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(1
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)
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1
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(8
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)
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Operating profit (loss)
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246
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186
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776
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631
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Equity in net earnings (loss) of affiliates
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41
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50
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114
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138
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Interest expense
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(28
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)
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(29
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)
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(91
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)
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(86
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)
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Refinancing expense
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(4
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)
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—
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(6
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)
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—
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Interest income
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—
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—
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1
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1
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Dividend income - cost investments
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26
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26
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82
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80
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Other income (expense), net
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—
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(8
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)
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(2
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)
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(6
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)
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Earnings (loss) from continuing operations before tax
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281
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225
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874
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758
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Income tax (provision) benefit
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(15
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)
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(74
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)
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(127
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)
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(170
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)
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Earnings (loss) from continuing operations
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266
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151
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747
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588
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Earnings (loss) from operation of discontinued operations
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(4
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)
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—
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(3
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)
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(3
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)
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Income tax (provision) benefit from discontinued operations
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1
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—
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1
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1
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Earnings (loss) from discontinued operations
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(3
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)
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—
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(2
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)
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(2
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)
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Net earnings (loss)
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263
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151
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745
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586
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Net (earnings) loss attributable to noncontrolling interests
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(1
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)
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10
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(5
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)
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16
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Net earnings (loss) attributable to Celanese Corporation
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262
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161
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740
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602
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Amounts attributable to Celanese Corporation
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Earnings (loss) from continuing operations
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265
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161
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742
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604
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Earnings (loss) from discontinued operations
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(3
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—
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(2
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(2
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Net earnings (loss)
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262
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161
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740
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602
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Earnings (loss) per common share - basic
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Continuing operations
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1.84
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1.07
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5.08
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3.97
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Discontinued operations
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(0.02
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)
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—
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(0.01
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)
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(0.01
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)
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Net earnings (loss) - basic
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1.82
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1.07
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5.07
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3.96
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Earnings (loss) per common share - diluted
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Continuing operations
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1.83
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1.07
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5.06
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3.93
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Discontinued operations
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(0.02
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)
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—
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(0.01
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)
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(0.01
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)
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Net earnings (loss) - diluted
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1.81
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1.07
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5.05
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3.92
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Weighted average shares - basic
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144,005,098
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149,800,029
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145,959,821
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152,153,057
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Weighted average shares - diluted
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144,601,465
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151,004,081
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146,585,560
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153,420,449
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See the accompanying notes to the unaudited interim consolidated financial statements.
3
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
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Three Months Ended
September 30, |
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Nine Months Ended
September 30, |
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2016
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2015
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2016
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2015
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(In $ millions)
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Net earnings (loss)
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263
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151
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745
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586
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Other comprehensive income (loss), net of tax
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Unrealized gain (loss) on marketable securities
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(1
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)
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1
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—
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—
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Foreign currency translation
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(8
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)
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(11
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)
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38
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(130
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)
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Gain (loss) on cash flow hedges
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—
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(1
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)
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1
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2
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Pension and postretirement benefits
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—
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—
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(1
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)
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1
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Total other comprehensive income (loss), net of tax
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(9
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)
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(11
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)
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38
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(127
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)
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Total comprehensive income (loss), net of tax
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254
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140
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783
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459
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Comprehensive (income) loss attributable to noncontrolling interests
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(1
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)
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10
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(5
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)
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16
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Comprehensive income (loss) attributable to Celanese Corporation
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253
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150
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778
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475
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See the accompanying notes to the unaudited interim consolidated financial statements.
4
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
See the accompanying notes to the unaudited interim consolidated financial statements.
5
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENT OF EQUITY
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Nine Months Ended
September 30, 2016 |
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Shares
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Amount
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(In $ millions, except share data)
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Series A Common Stock
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Balance as of the beginning of the period
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146,782,297
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—
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Stock option exercises
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93,520
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—
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Purchases of treasury stock
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(4,360,617
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)
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—
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Stock awards
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684,295
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—
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Balance as of the end of the period
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143,199,495
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—
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Treasury Stock
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Balance as of the beginning of the period
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19,916,490
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(1,031
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)
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Purchases of treasury stock, including related fees
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4,360,617
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(300
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)
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Balance as of the end of the period
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24,277,107
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(1,331
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)
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Additional Paid-In Capital
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Balance as of the beginning of the period
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136
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Stock-based compensation, net of tax
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1
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Stock option exercises, net of tax
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3
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Balance as of the end of the period
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140
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Retained Earnings
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Balance as of the beginning of the period
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3,621
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Net earnings (loss) attributable to Celanese Corporation
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740
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Series A common stock dividends
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(150
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)
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Balance as of the end of the period
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4,211
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Accumulated Other Comprehensive Income (Loss), Net
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Balance as of the beginning of the period
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(348
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)
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Other comprehensive income (loss), net of tax
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38
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Balance as of the end of the period
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(310
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)
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Total Celanese Corporation stockholders' equity
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2,710
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Noncontrolling Interests
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Balance as of the beginning of the period
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451
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Net earnings (loss) attributable to noncontrolling interests
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5
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(Distributions to) contributions from noncontrolling interests
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(15
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)
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Balance as of the end of the period
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|
|
441
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Total equity
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3,151
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See the accompanying notes to the unaudited interim consolidated financial statements.
6
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
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Nine Months Ended
September 30, |
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2016
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2015
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(In $ millions)
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Operating Activities
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Net earnings (loss)
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745
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586
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Adjustments to reconcile net earnings (loss) to net cash provided by operating activities
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Asset impairments
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1
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1
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Depreciation, amortization and accretion
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223
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257
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Pension and postretirement net periodic benefit cost
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(40
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)
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(37
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)
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Pension and postretirement contributions
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(38
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)
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(53
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)
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Deferred income taxes, net
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39
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4
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(Gain) loss on disposition of businesses and assets, net
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1
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7
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Stock-based compensation
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23
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32
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Undistributed earnings in unconsolidated affiliates
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2
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(16
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)
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Other, net
|
11
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6
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Operating cash provided by (used in) discontinued operations
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—
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3
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Changes in operating assets and liabilities
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Trade receivables - third party and affiliates, net
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(82
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)
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(16
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)
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Inventories
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36
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|
20
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Other assets
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53
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13
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Trade payables - third party and affiliates
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16
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(98
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)
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Other liabilities
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(50
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)
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17
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Net cash provided by (used in) operating activities
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940
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726
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Investing Activities
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Capital expenditures on property, plant and equipment
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(186
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)
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|
(168
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)
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Acquisitions, net of cash acquired
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—
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|
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(3
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)
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Proceeds from sale of businesses and assets, net
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8
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|
|
—
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|
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Capital expenditures related to Fairway Methanol LLC
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—
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|
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(263
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)
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Other, net
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(14
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)
|
|
(27
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)
|
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Net cash provided by (used in) investing activities
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(192
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)
|
|
(461
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)
|
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Financing Activities
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|
|
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Net change in short-term borrowings with maturities of 3 months or less
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(347
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)
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346
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Proceeds from short-term borrowings
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39
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|
|
40
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|
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Repayments of short-term borrowings
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(76
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)
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|
(60
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)
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Proceeds from long-term debt
|
1,509
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|
|
—
|
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Repayments of long-term debt
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(1,095
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)
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|
(18
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)
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Purchases of treasury stock, including related fees
|
(300
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)
|
|
(420
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)
|
|
Stock option exercises
|
3
|
|
|
2
|
|
|
Series A common stock dividends
|
(150
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)
|
|
(131
|
)
|
|
(Distributions to) contributions from noncontrolling interests
|
(15
|
)
|
|
187
|
|
|
Other, net
|
(35
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)
|
|
(10
|
)
|
|
Net cash provided by (used in) financing activities
|
(467
|
)
|
|
(64
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)
|
|
Exchange rate effects on cash and cash equivalents
|
4
|
|
|
(29
|
)
|
|
Net increase (decrease) in cash and cash equivalents
|
285
|
|
|
172
|
|
|
Cash and cash equivalents as of beginning of period
|
967
|
|
|
780
|
|
|
Cash and cash equivalents as of end of period
|
1,252
|
|
|
952
|
|
See the accompanying notes to the unaudited interim consolidated financial statements.
7
CELANESE CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. Description of the Company and Basis of Presentation
Description of the Company
Celanese Corporation and its subsidiaries (collectively, the "Company") is a global technology and specialty materials company. The Company's business involves processing chemical raw materials, such as methanol, carbon monoxide and ethylene, and natural products, including wood pulp, into value-added chemicals, thermoplastic polymers and other chemical-based products.
Definitions
In this Quarterly Report on Form 10-Q ("Quarterly Report"), the term "Celanese" refers to Celanese Corporation, a Delaware corporation, and not its subsidiaries. The term "Celanese US" refers to the Company's subsidiary, Celanese US Holdings LLC, a Delaware limited liability company, and not its subsidiaries.
Basis of Presentation
The unaudited interim consolidated financial statements for the three and
nine months ended
September 30, 2016
and
2015
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, 2015
, filed on
February 5, 2016
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, 2016
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
8
and other postretirement benefits, asset retirement obligations, environmental liabilities and loss contingencies, among others. Actual results could differ from those estimates.
Goodwill and Other Intangible Assets
The Company assesses the recoverability of the carrying amount of its reporting unit goodwill either qualitatively or quantitatively annually during the third quarter of its fiscal year using June 30 balances or whenever events or changes in circumstances indicate that the carrying amount of the asset may not be fully recoverable. In connection with the Company's annual goodwill impairment assessment, the Company did not record an impairment loss to goodwill during the nine months ended September 30, 2016 as the estimated fair value for each of the Company's reporting units exceeded the carrying amount of the underlying assets by a substantial margin.
The Company assesses the recoverability of the carrying amount of its indefinite-lived intangible assets either qualitatively or by utilizing the relief from royalty method under the income approach annually during the third quarter of its fiscal year using June 30 balances or whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. In connection with the Company's annual indefinite-lived intangible assets impairment assessment, the Company did not record an impairment loss to indefinite-lived intangible assets during the nine months ended September 30, 2016 as the estimated fair value of each of the Company's indefinite-lived intangible assets exceeded the carrying value of the underlying assets by a substantial margin.
The Company's trademarks and trade names have an indefinite life. For the nine months ended September 30, 2016, the Company did not renew or extend any intangible assets.
Change in estimate regarding pension and other postretirement benefits
Beginning in 2016, the Company elected to change the method used to estimate the service and interest cost components of net periodic benefit cost for its significant defined benefit pension plans and other postretirement benefit plans. Previously, the Company estimated the service and interest cost components utilizing a single weighted average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. The Company has elected to use a full yield curve approach in the estimation of these components of net periodic benefit cost by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. This change improves the correlation between projected benefit cash flows and the corresponding yield curve spot rates and provides a more precise measurement of service and interest costs. This change does not affect the measurement of the Company's total benefit obligations as the change in service and interest cost will be completely offset in the annual actuarial (gain) loss reported. The Company has accounted for this change as a change in estimate and, accordingly, has accounted for it prospectively beginning in 2016. The Company's adoption of the full yield curve approach will reduce 2016 service and interest cost by approximately
$29 million
as compared to the previous method.
The discount rates used to measure service and interest cost during 2016 and the discount rates that would have been used for service and interest cost under the Company's previous estimation methodology are as follows:
______________________________
|
|
Pension Benefits
|
|
Postretirement Benefits
|
||||
|
|
US
|
|
International
|
|
US
|
|
International
|
|
|
(In percentages)
|
||||||
|
Single weighted average discount rate approach
|
|
|
|
|
|
|
|
|
Service and interest cost
|
4.2
|
|
2.6
|
|
4.0
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
Full yield curve approach
(1)
|
|
|
|
|
|
|
|
|
Service cost
|
4.5
|
|
3.1
|
|
4.2
|
|
3.8
|
|
Interest cost
|
3.4
|
|
2.2
|
|
3.1
|
|
3.1
|
|
(1)
|
Represents the weighted average effective interest rate.
|
9
2. Recent Accounting Pronouncements
In August 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-15,
Classification of Certain Cash Receipts and Cash Payments
("ASU 2016-15"). ASU 2016-15 clarifies the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted. The Company is currently assessing the potential impact of ASU 2016-15 on its financial statements and related disclosures.
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting
("ASU 2016-09"). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is permitted. The Company does not expect the adoption of ASU 2016-09 to have a material impact on its financial statements and related disclosures.
In February 2016, the FASB issued ASU 2016-02,
Leases
("ASU 2016-02"). ASU 2016-02 supersedes the lease guidance under FASB Accounting Standards Codification ("ASC") Topic 840,
Leases
, resulting in the creation of FASB ASC Topic 842,
Leases
. ASU 2016-02 requires a lessee to recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term for both finance and operating leases. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently assessing the potential impact of adopting ASU 2016-02 on its financial statements and related disclosures.
In November 2015, the FASB issued ASU 2015-17,
Balance Sheet Classification of Deferred Taxes
("ASU 2015-17"). ASU 2015-17 requires deferred tax liabilities and assets to be classified as noncurrent in a classified statement of financial position. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is permitted. The Company elected to early adopt ASU 2015-17 prospectively during the three months ended March 31, 2016 in accordance with the FASB's disclosure simplification initiatives. The adoption of this ASU resulted in a reclassification from current to noncurrent deferred tax assets and deferred tax liabilities as of March 31, 2016 of
$68 million
and
$30 million
, respectively. Prior periods were not adjusted.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
("ASU 2014-09")
.
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. In August 2015, the FASB issued ASU 2015-14,
Revenue from
Contracts with Customers, Deferral of the Effective Date
("ASU 2015-14"). ASU 2015-14 defers the effective date of ASU 2014-09 by one year to December 15, 2017 for fiscal years, and interim periods within those years, beginning after that date and permits early adoption of the standard, but not before the original effective date for fiscal years beginning after December 15, 2016. Since that date, the FASB has issued additional ASUs clarifying certain aspects of ASU 2014-09. The core principle of ASU 2014-09 was not changed by the additional guidance. The Company is currently assessing the potential impact of adopting ASU 2014-09 on its financial statements and related disclosures.
10
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 methanol unit utilizes natural gas in the US Gulf Coast region as a feedstock and benefits from the existing infrastructure at the Company's Clear Lake facility. Both Mitsui and the Company supply their own natural gas to Fairway in exchange for methanol tolling under a cost-plus off-take arrangement.
The Company determined that Fairway is a variable interest entity ("VIE") in which the Company is the primary beneficiary. Under the terms of the joint venture agreements, the Company provides site services and day-to-day operations for the methanol facility. In addition, the joint venture agreements provide that the Company indemnifies Mitsui for environmental obligations that exceed a specified threshold, as well as an equity option between the partners. Accordingly, the Company consolidates the venture and records a noncontrolling interest for the share of the venture owned by Mitsui. Fairway is included in the Company's Acetyl Intermediates segment.
The carrying amount of the assets and liabilities associated with Fairway included in the unaudited consolidated balance sheets are as follows:
______________________________
|
|
As of
September 30, 2016 |
|
As of
December 31, 2015 |
||
|
|
(In $ millions)
|
||||
|
Cash and cash equivalents
|
22
|
|
|
7
|
|
|
Trade receivables, net - third party & affiliate
|
10
|
|
|
12
|
|
|
Property, plant and equipment (net of accumulated depreciation - 2016: $40; 2015: $10)
|
744
|
|
|
772
|
|
|
Intangible assets (net of accumulated amortization - 2016: $1; 2015: $0)
|
26
|
|
|
27
|
|
|
Other assets
|
9
|
|
|
13
|
|
|
Total assets
(1)
|
811
|
|
|
831
|
|
|
|
|
|
|
||
|
Trade payables
|
15
|
|
|
9
|
|
|
Other liabilities
(2)
|
3
|
|
|
5
|
|
|
Long-term debt
|
5
|
|
|
5
|
|
|
Deferred income taxes
|
2
|
|
|
2
|
|
|
Total liabilities
|
25
|
|
|
21
|
|
|
(1)
|
Assets can only be used to settle the obligations of Fairway.
|
|
(2)
|
Primarily represents 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
September 30, 2016
relates primarily to the recovery of capital expenditures for certain property, plant and equipment.
11
The carrying amount of the assets and liabilities associated with the obligations to nonconsolidated VIEs, as well as the maximum exposure to loss relating to these nonconsolidated VIEs are as follows:
|
|
As of
September 30, 2016 |
|
As of
December 31, 2015 |
||
|
|
(In $ millions)
|
||||
|
Property, plant and equipment, net
|
65
|
|
|
73
|
|
|
|
|
|
|
||
|
Trade payables
|
51
|
|
|
47
|
|
|
Current installments of long-term debt
|
11
|
|
|
10
|
|
|
Long-term debt
|
97
|
|
|
109
|
|
|
Total liabilities
|
159
|
|
|
166
|
|
|
|
|
|
|
||
|
Maximum exposure to loss
|
250
|
|
|
268
|
|
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
).
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
September 30, 2016 |
|
As of
December 31, 2015 |
||
|
|
(In $ millions)
|
||||
|
Amortized cost
|
34
|
|
|
30
|
|
|
Gross unrealized gain
|
—
|
|
|
—
|
|
|
Gross unrealized loss
|
—
|
|
|
—
|
|
|
Fair value
|
34
|
|
|
30
|
|
5. Inventories
|
|
As of
September 30, 2016 |
|
As of
December 31, 2015 |
||
|
|
(In $ millions)
|
||||
|
Finished goods
|
477
|
|
|
498
|
|
|
Work-in-process
|
43
|
|
|
43
|
|
|
Raw materials and supplies
|
132
|
|
|
141
|
|
|
Total
|
652
|
|
|
682
|
|
12
6. Current Other Liabilities
|
|
As of
September 30, 2016 |
|
As of
December 31, 2015 |
||
|
|
(In $ millions)
|
||||
|
Asset retirement obligations
|
8
|
|
|
10
|
|
|
Benefit obligations (
Note 9
)
|
31
|
|
|
31
|
|
|
Customer rebates
|
40
|
|
|
45
|
|
|
Derivatives (
Note 14
)
|
1
|
|
|
2
|
|
|
Environmental (
Note 10
)
|
15
|
|
|
11
|
|
|
Insurance
|
6
|
|
|
10
|
|
|
Interest
|
17
|
|
|
16
|
|
|
Restructuring (
Note 12
)
|
20
|
|
|
30
|
|
|
Salaries and benefits
|
88
|
|
|
109
|
|
|
Sales and use tax/foreign withholding tax payable
|
24
|
|
|
13
|
|
|
Uncertain tax positions (
Note 13
)
|
—
|
|
|
—
|
|
|
Other
|
49
|
|
|
53
|
|
|
Total
|
299
|
|
|
330
|
|
7. Noncurrent Other Liabilities
|
|
As of
September 30, 2016 |
|
As of
December 31, 2015 |
||
|
|
(In $ millions)
|
||||
|
Asset retirement obligations
|
22
|
|
|
26
|
|
|
Deferred proceeds
|
43
|
|
|
43
|
|
|
Deferred revenue
|
10
|
|
|
13
|
|
|
Environmental (
Note 10
)
|
54
|
|
|
61
|
|
|
Income taxes payable
|
6
|
|
|
7
|
|
|
Insurance
|
46
|
|
|
50
|
|
|
Other
|
40
|
|
|
47
|
|
|
Total
|
221
|
|
|
247
|
|
13
8. Debt
______________________________
|
|
As of
September 30, 2016 |
|
As of
December 31, 2015 |
||
|
|
(In $ millions)
|
||||
|
Short-Term Borrowings and Current Installments of Long-Term Debt - Third Party and Affiliates
|
|
|
|
||
|
Current installments of long-term debt
|
19
|
|
|
56
|
|
|
Short-term borrowings, including amounts due to affiliates
(1)
|
73
|
|
|
52
|
|
|
Revolving credit facility
(2)
|
—
|
|
|
350
|
|
|
Accounts receivable securitization facility
(3)
|
—
|
|
|
55
|
|
|
Total
|
92
|
|
|
513
|
|
|
(1)
|
The weighted average interest rate was
3.0%
and
3.3%
as of
September 30, 2016
and
December 31, 2015
, respectively.
|
|
(2)
|
The weighted average interest rate was
1.8%
as of
December 31, 2015
.
|
|
(3)
|
The weighted average interest rate was
0.8%
as of
December 31, 2015
.
|
|
|
As of
September 30, 2016 |
|
As of
December 31, 2015 |
||
|
|
(In $ millions)
|
||||
|
Long-Term Debt
|
|
|
|
||
|
Senior credit facilities - Term C-2 loan due 2016
(1)
|
—
|
|
|
30
|
|
|
Senior credit facilities - Term C-3 loan due 2018
(2)
|
—
|
|
|
878
|
|
|
Senior unsecured term loan due 2021
(3)
|
500
|
|
|
—
|
|
|
Senior unsecured notes due 2019, interest rate of 3.250%
|
335
|
|
|
327
|
|
|
Senior unsecured notes due 2021, interest rate of 5.875%
|
400
|
|
|
400
|
|
|
Senior unsecured notes due 2022, interest rate of 4.625%
|
500
|
|
|
500
|
|
|
Senior unsecured notes due 2023, interest rate of 1.125%
|
835
|
|
|
—
|
|
|
Pollution control and industrial revenue bonds due at various dates through 2030, interest rates ranging from 5.70% to 6.70%
|
—
|
|
|
169
|
|
|
Pollution control and industrial revenue bonds due at various dates through 2030, interest rates ranging from 4.05% to 5.00%
|
170
|
|
|
—
|
|
|
Obligations under capital leases due at various dates through 2054
|
224
|
|
|
238
|
|
|
Subtotal
|
2,964
|
|
|
2,542
|
|
|
Unamortized debt issuance costs
(4)
|
(22
|
)
|
|
(18
|
)
|
|
Current installments of long-term debt
|
(19
|
)
|
|
(56
|
)
|
|
Total
|
2,923
|
|
|
2,468
|
|
|
(1)
|
The margin for borrowings under the Term C-2 loan facility was
2.0%
above the Euro Interbank Offered Rate ("EURIBOR").
|
|
(2)
|
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.
|
|
(3)
|
The margin for borrowings under the senior unsecured term loan due 2021 was
1.5%
above LIBOR.
|
|
(4)
|
Related to the Company's long-term debt, excluding obligations under capital leases.
|
14
Senior Credit Facilities
On July 15, 2016, Celanese, Celanese US and certain subsidiaries entered into a new senior credit agreement ("New Credit Agreement") consisting of a
$500 million
senior unsecured term loan and a
$1.0 billion
senior unsecured revolving credit facility (with a letter of credit sublimit), each maturing in 2021. The proceeds from the new senior unsecured term loan and
$409 million
of borrowings under the new senior unsecured revolving credit facility were used to repay the Company's Term C-2 and C-3 loans under its existing senior secured credit facilities. The New Credit Agreement is guaranteed by Celanese, Celanese US and substantially all of its domestic subsidiaries (the "Subsidiary Guarantors").
In connection with entering into the New Credit Agreement, the Company recorded deferred financing costs of
$5 million
during the three months ended September 30, 2016, which are being amortized through 2021. The Company accelerated amortization of deferred financing costs and other expenses of
$4 million
related to the senior secured credit facilities, which are included in Refinancing expense in the unaudited interim consolidated statements of operations during the three months ended September 30, 2016.
The Company's debt balances and amounts available for borrowing under its senior unsecured revolving credit facility are as follows:
______________________________
|
|
As of
September 30, 2016 |
|
|
|
(In $ millions)
|
|
|
Revolving Credit Facility
|
|
|
|
Borrowings outstanding
(1)
|
—
|
|
|
Letters of credit issued
|
—
|
|
|
Available for borrowing
(2)
|
1,000
|
|
|
(1)
|
The Company borrowed
$409 million
and repaid
$411 million
under its new senior unsecured revolving credit facility during the three months ended September 30, 2016. The Company borrowed
$245 million
and repaid
$595 million
under its previous secured revolving credit facility during the
nine months ended
September 30, 2016
.
|
|
(2)
|
The margin for borrowings under the senior unsecured revolving credit facility was
1.5%
above LIBOR.
|
Senior Notes
The Company has outstanding senior unsecured notes, issued in public offerings registered under the Securities Act of 1933 ("Securities Act"), as amended (collectively, the "Senior Notes"). The Senior Notes were issued by Celanese US and are guaranteed by Celanese and the Subsidiary Guarantors.
On September 26, 2016, Celanese US completed an offering of
€750 million
in principal amount of 1.125% senior unsecured notes due September 26, 2023 (the "1.125% Notes") in a public offering registered under the Securities Act. The 1.125% Notes were issued under a base indenture dated May 6, 2011. The 1.125% Notes were issued at a discount to par at a price of
99.713%
, which is being amortized to Interest expense in the unaudited interim consolidated statements of operations over the term of the 1.125% Notes. Net proceeds from the sale of the 1.125% Notes were used to repay
$411 million
of outstanding borrowings under the new senior unsecured revolving credit facility and for general corporate purposes. Deferred financing costs of
$6 million
were recorded during the three months ended
September 30, 2016
, which are being amortized over the term of the 1.125% Notes.
Pollution Control and Industrial Revenue Bonds
On March 3, 2016, the State of Wisconsin Public Finance Authority completed an offering of pollution control and industrial revenue bonds, the proceeds of which were loaned to Celanese US and used to repay the pollution control and industrial revenue bonds previously issued for the benefit of the Company. In connection with the refinancing, the Company recorded deferred financing costs of
$2 million
during the three months ended March 31, 2016, which are being amortized over the terms of the bonds. The Company accelerated amortization of deferred financing costs and other expenses of
$2 million
related to the refinancing, which are included in Refinancing expense in the unaudited interim consolidated statements of operations.
15
Accounts Receivable Securitization Facility
The Company has a US accounts receivable securitization facility involving receivables of certain of its domestic subsidiaries of the Company transferred to a wholly-owned, "bankruptcy remote" special purpose subsidiary of the Company ("SPE"). The securitization facility, which permits cash borrowings and letters of credit, was scheduled to expire on August 28, 2016, but may be extended for successive one year terms by agreement of the parties. All of the SPE's assets have been pledged to the administrative agent in support of the SPE's obligations under the facility. On July 8, 2016, certain of the Company's subsidiaries entered into an amendment of the accounts receivable securitization facility ("Amendment"), extending its maturity to July 2019 and decreasing the available amount to
$120 million
.
The Company's debt balances and amounts available for borrowing under its securitization facility are as follows:
______________________________
|
(1)
|
The Company repaid
$55 million
during the
nine months ended
September 30, 2016
.
|
|
(2)
|
Outstanding accounts receivable transferred to the SPE was
$154 million
.
|
Covenants
The Company's material financing arrangements contain customary covenants, including the maintenance of certain financial ratios, events of default and change of control provisions. 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. The Company is in compliance with all of the covenants related to its debt agreements as of
September 30, 2016
.
9. Benefit Obligations
Beginning in 2016, the Company elected to use a full yield curve approach in the estimation of the service and interest cost components of net periodic benefit cost by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows (
Note 1
). The Company's adoption of the full yield curve approach will reduce 2016 service and interest cost by approximately
$29 million
as compared to the previous method.
16
The components of net periodic benefit cost are as follows:
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||||||||||
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||||||||||
|
|
Pension
Benefits |
|
Post-retirement
Benefits |
|
Pension
Benefits |
|
Post-retirement
Benefits |
|
Pension
Benefits |
|
Post-retirement
Benefits |
|
Pension
Benefits |
|
Post-retirement
Benefits |
||||||||
|
|
(In $ millions)
|
||||||||||||||||||||||
|
Service cost
|
2
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
6
|
|
|
—
|
|
|
10
|
|
|
1
|
|
|
Interest cost
|
28
|
|
|
1
|
|
|
34
|
|
|
1
|
|
|
84
|
|
|
2
|
|
|
105
|
|
|
2
|
|
|
Expected return on plan assets
|
(44
|
)
|
|
—
|
|
|
(53
|
)
|
|
—
|
|
|
(132
|
)
|
|
—
|
|
|
(158
|
)
|
|
—
|
|
|
Recognized actuarial (gain) loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
Amortization of prior service cost (credit), net
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
Special termination benefit
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
Total
|
(14
|
)
|
|
—
|
|
|
(14
|
)
|
|
1
|
|
|
(39
|
)
|
|
(1
|
)
|
|
(41
|
)
|
|
4
|
|
Benefit obligation funding is as follows:
______________________________
|
|
As of
September 30, 2016 |
|
Total
Expected
2016
|
||
|
|
(In $ millions)
|
||||
|
Cash contributions to defined benefit pension plans
|
18
|
|
|
23
|
|
|
Benefit payments to nonqualified pension plans
|
17
|
|
|
22
|
|
|
Benefit payments to other postretirement benefit plans
|
3
|
|
|
4
|
|
|
Cash contributions to German multiemployer defined benefit pension plans
(1)
|
5
|
|
|
8
|
|
|
(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, establish standards for the treatment, storage and disposal of solid and hazardous wastes, and impose record keeping and notification requirements. Failure to timely comply with these laws and regulations may expose the Company to penalties. The Company believes that it is in substantial compliance with all applicable environmental laws and regulations and engages in an on going process of updating its controls to mitigate compliance risks. 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.
17
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, which is the lower 17-mile stretch of the Passaic River ("Site"). 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") at the Site in order to identify the levels of contaminants and potential cleanup actions. Work on the RI/FS is ongoing, with a goal to complete it in 2017.
On March 3, 2016, the EPA issued its final Record of Decision concerning the remediation of the lower 8.3 miles of the Site ("Lower 8.3 Miles"). The Company owned and/or operated facilities in the vicinity of the Lower 8.3 Miles, but has found no evidence that it contributed any of the primary contaminants of concern to the Passaic River. Pursuant to the EPA's Record of Decision, the Lower 8.3 Miles must be dredged bank to bank and an engineered cap must be installed at an estimated cost of approximately
$1.4 billion
. The Company is vigorously defending this matter and currently believes that its ultimate allocable share of the cleanup costs, estimated at less than
1%
, will not be material.
18
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 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 2015
|
20
|
|
0.30
|
|
1.20
|
|
May 2015
|
|
April 2016
|
20
|
|
0.36
|
|
1.44
|
|
May 2016
|
Treasury Stock
______________________________
|
|
Nine Months Ended
September 30, |
|
Total From
February 2008 Through September 30, 2016 |
||||||||
|
|
2016
|
|
2015
|
|
|||||||
|
Shares repurchased
|
4,360,617
|
|
|
6,640,601
|
|
|
31,668,413
|
|
|||
|
Average purchase price per share
|
$
|
68.80
|
|
|
$
|
63.31
|
|
|
$
|
51.64
|
|
|
Cash paid for repurchased shares (in millions)
|
$
|
300
|
|
|
$
|
420
|
|
|
$
|
1,635
|
|
|
Aggregate Board of Directors repurchase authorizations during the period (in millions)
(1)
|
$
|
—
|
|
|
$
|
1,000
|
|
|
$
|
2,366
|
|
|
(1)
|
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.
19
Other Comprehensive Income (Loss), Net
|
|
Three Months Ended September 30,
|
||||||||||||||||
|
|
2016
|
|
2015
|
||||||||||||||
|
|
Gross
Amount
|
|
Income
Tax
(Provision)
Benefit
|
|
Net
Amount
|
|
Gross
Amount
|
|
Income
Tax
(Provision)
Benefit
|
|
Net
Amount |
||||||
|
|
(In $ millions)
|
||||||||||||||||
|
Unrealized gain (loss) on marketable securities
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
1
|
|
|
—
|
|
|
1
|
|
|
Foreign currency translation
|
(2
|
)
|
|
(6
|
)
|
|
(8
|
)
|
|
(8
|
)
|
|
(3
|
)
|
|
(11
|
)
|
|
Gain (loss) on cash flow hedges
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
Pension and postretirement benefits
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
(3
|
)
|
|
(6
|
)
|
|
(9
|
)
|
|
(8
|
)
|
|
(3
|
)
|
|
(11
|
)
|
|
|
Nine Months Ended September 30,
|
||||||||||||||||
|
|
2016
|
|
2015
|
||||||||||||||
|
|
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
|
51
|
|
|
(13
|
)
|
|
38
|
|
|
(125
|
)
|
|
(5
|
)
|
|
(130
|
)
|
|
Gain (loss) on cash flow hedges
|
1
|
|
|
—
|
|
|
1
|
|
|
3
|
|
|
(1
|
)
|
|
2
|
|
|
Pension and postretirement benefits
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
1
|
|
|
1
|
|
|
Total
|
51
|
|
|
(13
|
)
|
|
38
|
|
|
(121
|
)
|
|
(6
|
)
|
|
(127
|
)
|
Adjustments to Accumulated other comprehensive income (loss), net, are as follows:
|
|
Unrealized
Gain (Loss)
on
Marketable
Securities
(
Note 4
)
|
|
Foreign
Currency
Translation
|
|
Gain (Loss)
on Cash
Flow
Hedges
(
Note 14
)
|
|
Pension
and
Postretirement
Benefits
(
Note 9
)
|
|
Accumulated
Other
Comprehensive
Income
(Loss), Net
|
|||||
|
|
(In $ millions)
|
|||||||||||||
|
As of December 31, 2015
|
1
|
|
|
(339
|
)
|
|
(2
|
)
|
|
(8
|
)
|
|
(348
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
—
|
|
|
51
|
|
|
1
|
|
|
—
|
|
|
52
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
|
Income tax (provision) benefit
|
—
|
|
|
(13
|
)
|
|
—
|
|
|
—
|
|
|
(13
|
)
|
|
As of September 30, 2016
|
1
|
|
|
(301
|
)
|
|
(1
|
)
|
|
(9
|
)
|
|
(310
|
)
|
20
12. Other (Charges) Gains, Net
______________________________
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||
|
|
(In $ millions)
|
||||||||||
|
Employee termination benefits
|
(3
|
)
|
|
(6
|
)
|
|
(11
|
)
|
(1)
|
(20
|
)
|
|
Asset impairments
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
Commercial disputes
|
—
|
|
|
3
|
|
|
—
|
|
|
2
|
|
|
Total
|
(3
|
)
|
|
(4
|
)
|
|
(12
|
)
|
|
(19
|
)
|
|
(1)
|
Includes
$3 million
of special termination benefits included in Benefit obligations in the unaudited consolidated balance sheets.
|
2016
During the
nine months ended
September 30, 2016 and 2015, the Company recorded
$11 million
and
$20 million
, respectively, of employee termination benefits primarily related to the Company's ongoing efforts to align its businesses around its core value drivers.
2015
During the three months ended September 30, 2015, the Company recorded
$6 million
and
$4 million
, respectively, in accelerated depreciation related to the Company's vinyl acetate ethylene ("VAE") emulsions unit in Meredosia, Illinois and its VAE and conventional emulsions units in Tarragona, Spain. The accelerated depreciation is included in Cost of sales in the unaudited interim consolidated statements of operations and is included in the Company's Industrial Specialties segment.
During the nine months ended September 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.
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, 2015
|
3
|
|
|
14
|
|
|
6
|
|
|
1
|
|
|
6
|
|
|
30
|
|
|
Additions
|
1
|
|
|
1
|
|
|
2
|
|
|
1
|
|
|
3
|
|
|
8
|
|
|
Cash payments
|
(2
|
)
|
|
(5
|
)
|
|
(6
|
)
|
|
(1
|
)
|
|
(4
|
)
|
|
(18
|
)
|
|
Other changes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Exchange rate changes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
As of September 30, 2016
|
2
|
|
|
10
|
|
|
2
|
|
|
1
|
|
|
5
|
|
|
20
|
|
|
Other Plant/Office Closures
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
As of December 31, 2015
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Additions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Cash payments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other changes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Exchange rate changes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
As of September 30, 2016
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
2
|
|
|
10
|
|
|
2
|
|
|
1
|
|
|
5
|
|
|
20
|
|
21
13. Income Taxes
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
(In percentages)
|
||||||
|
Effective income tax rate
|
5
|
|
33
|
|
15
|
|
22
|
The
lower
effective income tax rate for the three and nine months ended
September 30, 2016
compared to the same period in 2015 is primarily due to remeasurement of prior year tax positions due to audit closures and technical clarifications in certain jurisdictions of
$52 million
.
For the
nine months ended
September 30, 2016
, the Company's uncertain tax positions decreased
$61 million
, primarily due to audit closures in the US and in certain foreign jurisdictions.
The Company's US tax returns for the years 2009 through 2012 are currently under audit by the US Internal Revenue Service and certain of the Company's subsidiaries are under audit in jurisdictions outside of the US. In connection with the Company's US federal income tax audit for 2009 and 2010, the Company has received
$192 million
of proposed pre-tax adjustments related to various intercompany charges. In the event the Company is wholly unsuccessful in its defense, an actual tax assessment would result in the consumption of up to
$67 million
of prior foreign tax credit carryforwards. The Company believes these proposed adjustments to be without merit and is vigorously defending its position.
14. Derivative Financial Instruments
Cash Flow Hedges
Cross-currency Swaps
In March 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
nine months ended
September 30, 2015
.
Net Investment Hedges
The Company uses derivative instruments, such as foreign currency forwards, and non-derivative financial instruments, such as foreign currency denominated debt, that may give rise to foreign currency transaction gains or losses to hedge the foreign currency exposure of net investments in foreign operations. Accordingly, the effective portion of gains and losses from remeasurement of derivative and non-derivative financial instruments is included in foreign currency translation within Accumulated other comprehensive income (loss), net in the unaudited consolidated balance sheets. Gains and losses are reclassified to earnings in the period the hedged investment is sold or liquidated.
The total notional amount of foreign currency denominated debt designated as a net investment hedge of net investments in foreign operations are as follows:
|
|
As of
September 30, 2016 |
|
As of
December 31, 2015 |
||
|
|
(In € millions)
|
||||
|
Total
|
940
|
|
|
328
|
|
22
Derivatives Not Designated As Hedges
Foreign Currency Forwards and Swaps
Gross notional values of the foreign currency forwards and swaps not designated as hedges are as follows:
|
|
As of
September 30, 2016 |
|
As of
December 31, 2015 |
||
|
|
(In $ millions)
|
||||
|
Total
|
490
|
|
|
502
|
|
No significant changes in the fair value of the Company's derivative and non-derivative instruments occurred during the
three months ended
September 30, 2016
and
2015
.
Information regarding changes in the fair value of the Company's derivative and non-derivative instruments during the
nine months ended
September 30, 2016
and
2015
is as follows:
|
|
Gain (Loss) Recognized in Other Comprehensive Income (Loss)
|
|
Gain (Loss) Recognized in Earnings (Loss)
|
|
|
||||||||
|
|
Nine Months Ended September 30,
|
|
Statement of Operations Classification
|
||||||||||
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|||||
|
|
(In $ millions)
|
|
|
||||||||||
|
Designated as Cash Flow Hedges
|
|
|
|
|
|
|
|
|
|
||||
|
Cross-currency swaps
|
—
|
|
|
—
|
|
|
—
|
|
|
46
|
|
|
Other income (expense), net; Interest expense
|
|
Total
|
—
|
|
|
—
|
|
|
—
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Designated as Net Investment Hedges
|
|
|
|
|
|
|
|
|
|
||||
|
Foreign currency denominated debt (
Note 8
)
|
2
|
|
|
28
|
|
|
—
|
|
|
—
|
|
|
N/A
|
|
Total
|
2
|
|
|
28
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Not Designated as Hedges
|
|
|
|
|
|
|
|
|
|
||||
|
Foreign currency forwards and swaps
|
—
|
|
|
—
|
|
|
12
|
|
|
(68
|
)
|
|
Foreign exchange gain (loss), net; Other income (expense), net
|
|
Total
|
—
|
|
|
—
|
|
|
12
|
|
|
(68
|
)
|
|
|
See
Note 15 - Fair Value Measurements
for further information regarding the fair value of the Company's derivative instruments.
Certain of the Company's commodity swaps and foreign currency forwards and 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.
23
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
September 30, 2016 |
|
As of
December 31, 2015 |
||
|
|
(In $ millions)
|
||||
|
Derivative Assets
|
|
|
|
||
|
Gross amount recognized
|
5
|
|
|
2
|
|
|
Gross amount offset in the consolidated balance sheets
|
1
|
|
|
—
|
|
|
Net amount presented in the consolidated balance sheets
|
4
|
|
|
2
|
|
|
Gross amount not offset in the consolidated balance sheets
|
1
|
|
|
—
|
|
|
Net amount
|
3
|
|
|
2
|
|
|
|
As of
September 30, 2016 |
|
As of
December 31, 2015 |
||
|
|
(In $ millions)
|
||||
|
Derivative Liabilities
|
|
|
|
||
|
Gross amount recognized
|
2
|
|
|
2
|
|
|
Gross amount offset in the consolidated balance sheets
|
1
|
|
|
—
|
|
|
Net amount presented in the consolidated balance sheets
|
1
|
|
|
2
|
|
|
Gross amount not offset in the consolidated balance sheets
|
1
|
|
|
—
|
|
|
Net amount
|
—
|
|
|
2
|
|
15. Fair Value Measurements
The Company's financial assets and liabilities are measured at fair value on a recurring basis as follows:
Derivatives.
Derivative financial instruments, including commodity 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 spot 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 commodity 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.
24
|
|
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 September 30, 2016
|
|
|
|
|
|
|
|
|||
|
Derivatives Designated as Cash Flow Hedges
|
|
|
|
|
|
|
|
|||
|
Commodity swaps
|
—
|
|
|
1
|
|
|
1
|
|
|
Current Other assets
|
|
Derivatives Not Designated as Hedges
|
|
|
|
|
|
|
|
|
||
|
Foreign currency forwards and swaps
|
—
|
|
|
3
|
|
|
3
|
|
|
Current Other assets
|
|
Total assets
|
—
|
|
|
4
|
|
|
4
|
|
|
|
|
Designated as Net Investment Hedges
|
|
|
|
|
|
|
|
|||
|
Foreign currency denominated debt
(1)
|
—
|
|
|
—
|
|
|
—
|
|
|
Long-term debt
|
|
Derivatives Not Designated as Hedges
|
|
|
|
|
|
|
|
|||
|
Foreign currency forwards and swaps
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
|
Current Other liabilities
|
|
Total liabilities
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
|
|
|
As of December 31, 2015
|
|
|
|
|
|
|
|
|||
|
Derivatives Not Designated as Hedges
|
|
|
|
|
|
|
|
|||
|
Foreign currency forwards and swaps
|
—
|
|
|
2
|
|
|
2
|
|
|
Current Other assets
|
|
Total assets
|
—
|
|
|
2
|
|
|
2
|
|
|
|
|
Designated as a Net Investment Hedge
|
|
|
|
|
|
|
|
|||
|
Foreign currency denominated debt
(1)
|
—
|
|
|
—
|
|
|
—
|
|
|
Long-term debt
|
|
Derivatives Not Designated as Hedges
|
|
|
|
|
|
|
|
|||
|
Foreign currency forwards and swaps
|
—
|
|
|
(2
|
)
|
|
(2
|
)
|
|
Current Other liabilities
|
|
Total liabilities
|
—
|
|
|
(2
|
)
|
|
(2
|
)
|
|
|
|
(1)
|
Included in the unaudited consolidated balance sheets at carrying amount.
|
Carrying values and fair values of financial instruments that are not carried at fair value are as follows:
|
|
|
|
Fair Value Measurement
|
||||||||
|
|
Carrying
Amount
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
Unobservable
Inputs
(Level 3)
|
|
Total
|
||||
|
|
(In $ millions)
|
||||||||||
|
As of September 30, 2016
|
|
|
|
|
|
|
|
||||
|
Cost investments
|
148
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Insurance contracts in nonqualified trusts
|
49
|
|
|
49
|
|
|
—
|
|
|
49
|
|
|
Long-term debt, including current installments of long-term debt
|
2,964
|
|
|
2,910
|
|
|
224
|
|
|
3,134
|
|
|
As of December 31, 2015
|
|
|
|
|
|
|
|
||||
|
Cost investments
|
151
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Insurance contracts in nonqualified trusts
|
55
|
|
|
55
|
|
|
—
|
|
|
55
|
|
|
Long-term debt, including current installments of long-term debt
|
2,542
|
|
|
2,348
|
|
|
238
|
|
|
2,586
|
|
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
25
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
September 30, 2016
and
December 31, 2015
, 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
Commitments
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. The Company has accrued for all probable and reasonably estimable losses associated with all known matters or claims. These known obligations include the following:
|
•
|
Demerger Obligations
|
In connection with the Hoechst demerger, the Company agreed to indemnify Hoechst, and its legal successors, for various liabilities under the demerger agreement, including for environmental liabilities associated with contamination arising 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
€750 million
in aggregate, the Company's obligation to indemnify Hoechst and its legal successors applies, but is then limited to
33.33%
of the remediation cost without further limitations. Cumulative payments under the divestiture agreements as of
September 30, 2016
are
$74 million
. Most of the divestiture agreements have become time barred and/or any notified environmental damage claims have been partially settled.
The Company has also undertaken in the demerger agreement to indemnify Hoechst and its legal successors for (i)
33.33%
of any and all Category A liabilities that result from Hoechst being held as the responsible party pursuant to public law or current or future environmental law or by third parties pursuant to private or public law related to contamination and (ii) liabilities that Hoechst is required to discharge, including tax liabilities, which are associated with businesses that were included in the demerger but were not demerged due to legal restrictions on the transfers of such items. These indemnities do not provide for any monetary or time limitations. The Company has not been requested by Hoechst to make any payments in connection with this indemnification. Accordingly, the Company has not made any payments to Hoechst and its legal successors.
Based on the Company's evaluation of currently available information, including the lack of requests for indemnification, the Company cannot estimate the Possible Loss for the remaining demerger obligations, if any, in excess of amounts accrued.
|
•
|
Divestiture Obligations
|
The Company and its predecessor companies agreed to indemnify third-party purchasers of former businesses and assets for various pre-closing conditions, as well as for breaches of representations, warranties and covenants. Such liabilities also include environmental liability, product liability, antitrust and other liabilities. These indemnifications and guarantees represent standard contractual terms associated with typical divestiture agreements and, other than environmental liabilities, the Company does not believe that they expose the Company to any significant risk (
Note 10
).
The Company has divested numerous businesses, investments and facilities through agreements containing indemnifications or guarantees to the purchasers. Many of the obligations contain monetary and/or time limitations, which extend through
2037
. The aggregate amount of outstanding indemnifications and guarantees provided for under these agreements is
$202 million
as of
September 30, 2016
. Other agreements do not provide for any monetary or time limitations.
26
Based on the Company's evaluation of currently available information, including the number of requests for indemnification or other payment received by the Company, the Company cannot estimate the Possible Loss for the remaining divestiture obligations, if any, in excess of amounts accrued.
Purchase Obligations
In the normal course of business, the Company enters into various purchase commitments for goods and services. The Company maintains a number of "take-or-pay" contracts for purchases of raw materials, utilities and other services. Certain of the contracts contain a contract termination buy-out provision that allows for the Company to exit the contracts for amounts less than the remaining take-or-pay obligations. The Company does not expect to incur any material losses under take-or-pay contractual arrangements. Additionally, the Company has other outstanding commitments representing maintenance and service agreements, energy and utility agreements, consulting contracts and software agreements. As of
September 30, 2016
, the Company had unconditional purchase obligations of
$2.6 billion
, which extend through
2036
.
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, taxes, trade compliance, prior acquisitions and divestitures, claims of legacy stockholders, past waste disposal practices and release of chem