UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________
Form 10-Q
| ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
| For the quarterly period ended | |||||
| September 30, 2022 | |||||
| Or | |||||
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
Commission File Number: 001-32410
 | ||
CELANESE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
| Delaware | 98-0420726 | ||||
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | ||||
222 W. Las Colinas Blvd., Suite 900N
Irving, TX 75039-5421
(Address of Principal Executive Offices and zip code)
(972) 443-4000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||||||
| Common Stock, par value $0.0001 per share | CE | The New York Stock Exchange | ||||||
| 1.125% Senior Notes due 2023 | CE /23 | The New York Stock Exchange | ||||||
| 1.250% Senior Notes due 2025 | CE /25 | The New York Stock Exchange | ||||||
| 4.777% Senior Notes due 2026 | CE /26A | The New York Stock Exchange | ||||||
| 2.125% Senior Notes due 2027 | CE /27 | The New York Stock Exchange | ||||||
| 0.625% Senior Notes due 2028 | CE /28 | The New York Stock Exchange | ||||||
| 5.337% Senior Notes due 2029 | CE /29A | The New York Stock Exchange | ||||||
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 ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The number of outstanding shares of the registrant's common stock, $0.0001 par value, as of October 28, 2022 was 108,428,071.
CELANESE CORPORATION AND SUBSIDIARIES
Form 10-Q
For the Quarterly Period Ended September 30, 2022
TABLE OF CONTENTS
| Page | ||||||||
2
Item 1. Financial Statements
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (In $ millions, except share and per share data) | |||||||||||||||||||||||
| Net sales | 2,301 | 2,266 | 7,325 | 6,262 | |||||||||||||||||||
| Cost of sales | (1,755) | (1,551) | (5,329) | (4,301) | |||||||||||||||||||
| Gross profit | 546 | 715 | 1,996 | 1,961 | |||||||||||||||||||
| Selling, general and administrative expenses | (184) | (165) | (555) | (463) | |||||||||||||||||||
| Amortization of intangible assets | (10) | (6) | (32) | (17) | |||||||||||||||||||
| Research and development expenses | (25) | (21) | (75) | (63) | |||||||||||||||||||
| Other (charges) gains, net | (15) | — | (15) | 3 | |||||||||||||||||||
| Foreign exchange gain (loss), net | (2) | 2 | (4) | 2 | |||||||||||||||||||
| Gain (loss) on disposition of businesses and assets, net | (2) | 11 | 7 | 6 | |||||||||||||||||||
| Operating profit (loss) | 308 | 536 | 1,322 | 1,429 | |||||||||||||||||||
| Equity in net earnings (loss) of affiliates | 73 | 44 | 189 | 110 | |||||||||||||||||||
| Non-operating pension and other postretirement employee benefit (expense) income | 25 | 37 | 74 | 113 | |||||||||||||||||||
| Interest expense | (154) | (21) | (237) | (70) | |||||||||||||||||||
| Refinancing expense | — | (9) | — | (9) | |||||||||||||||||||
| Interest income | 34 | 2 | 36 | 7 | |||||||||||||||||||
| Dividend income - equity investments | 30 | 35 | 103 | 114 | |||||||||||||||||||
| Other income (expense), net | 5 | (2) | 4 | (3) | |||||||||||||||||||
| Earnings (loss) from continuing operations before tax | 321 | 622 | 1,491 | 1,691 | |||||||||||||||||||
| Income tax (provision) benefit | (127) | (102) | (351) | (303) | |||||||||||||||||||
| Earnings (loss) from continuing operations | 194 | 520 | 1,140 | 1,388 | |||||||||||||||||||
| Earnings (loss) from operation of discontinued operations | — | (17) | (8) | (24) | |||||||||||||||||||
| Income tax (provision) benefit from discontinued operations | (1) | 4 | 1 | 6 | |||||||||||||||||||
| Earnings (loss) from discontinued operations | (1) | (13) | (7) | (18) | |||||||||||||||||||
| Net earnings (loss) | 193 | 507 | 1,133 | 1,370 | |||||||||||||||||||
| Net (earnings) loss attributable to noncontrolling interests | (2) | (1) | (6) | (4) | |||||||||||||||||||
| Net earnings (loss) attributable to Celanese Corporation | 191 | 506 | 1,127 | 1,366 | |||||||||||||||||||
| Amounts attributable to Celanese Corporation | |||||||||||||||||||||||
| Earnings (loss) from continuing operations | 192 | 519 | 1,134 | 1,384 | |||||||||||||||||||
| Earnings (loss) from discontinued operations | (1) | (13) | (7) | (18) | |||||||||||||||||||
| Net earnings (loss) | 191 | 506 | 1,127 | 1,366 | |||||||||||||||||||
| Earnings (loss) per common share - basic | |||||||||||||||||||||||
| Continuing operations | 1.77 | 4.70 | 10.47 | 12.35 | |||||||||||||||||||
| Discontinued operations | (0.01) | (0.12) | (0.07) | (0.16) | |||||||||||||||||||
| Net earnings (loss) - basic | 1.76 | 4.58 | 10.40 | 12.19 | |||||||||||||||||||
| Earnings (loss) per common share - diluted | |||||||||||||||||||||||
| Continuing operations | 1.76 | 4.67 | 10.39 | 12.28 | |||||||||||||||||||
| Discontinued operations | (0.01) | (0.11) | (0.07) | (0.16) | |||||||||||||||||||
| Net earnings (loss) - diluted | 1.75 | 4.56 | 10.32 | 12.12 | |||||||||||||||||||
| Weighted average shares - basic | 108,428,982 | 110,532,051 | 108,336,574 | 112,101,651 | |||||||||||||||||||
| Weighted average shares - diluted | 109,065,970 | 111,044,558 | 109,158,832 | 112,699,297 | |||||||||||||||||||
See the accompanying notes to the unaudited interim consolidated financial statements.
3
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (In $ millions) | |||||||||||||||||||||||
| Net earnings (loss) | 193 | 507 | 1,133 | 1,370 | |||||||||||||||||||
| Other comprehensive income (loss), net of tax | |||||||||||||||||||||||
| Foreign currency translation gain (loss) | (49) | (15) | (201) | (12) | |||||||||||||||||||
| Gain (loss) on cash flow hedges | (11) | (15) | 30 | 16 | |||||||||||||||||||
| Pension and postretirement benefits | — | — | 2 | (4) | |||||||||||||||||||
| Total other comprehensive income (loss), net of tax | (60) | (30) | (169) | — | |||||||||||||||||||
| Total comprehensive income (loss), net of tax | 133 | 477 | 964 | 1,370 | |||||||||||||||||||
Comprehensive (income) loss attributable to noncontrolling interests | (2) | (1) | (6) | (4) | |||||||||||||||||||
Comprehensive income (loss) attributable to Celanese Corporation | 131 | 476 | 958 | 1,366 | |||||||||||||||||||
See the accompanying notes to the unaudited interim consolidated financial statements.
4
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
| As of September 30, 2022 | As of December 31, 2021 | ||||||||||
| (In $ millions, except share data) | |||||||||||
| ASSETS | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | 9,671 | 536 | |||||||||
| Trade receivables - third party and affiliates | 1,120 | 1,161 | |||||||||
| Non-trade receivables, net | 492 | 506 | |||||||||
| Inventories | 1,723 | 1,524 | |||||||||
| Other assets | 186 | 80 | |||||||||
| Total current assets | 13,192 | 3,807 | |||||||||
| Investments in affiliates | 954 | 823 | |||||||||
Property, plant and equipment (net of accumulated depreciation - 2022: $3,475; 2021: $3,484) | 4,089 | 4,193 | |||||||||
| Operating lease right-of-use assets | 246 | 236 | |||||||||
| Deferred income taxes | 222 | 248 | |||||||||
| Other assets | 695 | 521 | |||||||||
| Goodwill | 1,294 | 1,412 | |||||||||
| Intangible assets, net | 645 | 735 | |||||||||
| Total assets | 21,337 | 11,975 | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current Liabilities | |||||||||||
Short-term borrowings and current installments of long-term debt - third party and affiliates | 977 | 791 | |||||||||
| Trade payables - third party and affiliates | 1,128 | 1,160 | |||||||||
| Other liabilities | 555 | 473 | |||||||||
| Income taxes payable | 128 | 81 | |||||||||
| Total current liabilities | 2,788 | 2,505 | |||||||||
| Long-term debt, net of unamortized deferred financing costs | 11,360 | 3,176 | |||||||||
| Deferred income taxes | 640 | 555 | |||||||||
| Uncertain tax positions | 314 | 280 | |||||||||
| Benefit obligations | 489 | 558 | |||||||||
| Operating lease liabilities | 205 | 200 | |||||||||
| Other liabilities | 247 | 164 | |||||||||
| Commitments and Contingencies | |||||||||||
| Stockholders' Equity | |||||||||||
Preferred stock, $0.01 par value, 100,000,000 shares authorized (2022 and 2021: 0 issued and outstanding) | — | — | |||||||||
Common stock, $0.0001 par value, 400,000,000 shares authorized (2022: 170,090,785 issued and 108,386,739 outstanding; 2021: 169,760,024 issued and 108,023,735 outstanding) | — | — | |||||||||
Treasury stock, at cost (2022: 61,704,046 shares; 2021: 61,736,289 shares) | (5,492) | (5,492) | |||||||||
| Additional paid-in capital | 356 | 333 | |||||||||
| Retained earnings | 10,584 | 9,677 | |||||||||
| Accumulated other comprehensive income (loss), net | (498) | (329) | |||||||||
| Total Celanese Corporation stockholders' equity | 4,950 | 4,189 | |||||||||
| Noncontrolling interests | 344 | 348 | |||||||||
| Total equity | 5,294 | 4,537 | |||||||||
| Total liabilities and equity | 21,337 | 11,975 | |||||||||
See the accompanying notes to the unaudited interim consolidated financial statements.
5
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF EQUITY
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||
| (In $ millions, except share data) | |||||||||||||||||||||||
| Common Stock | |||||||||||||||||||||||
| Balance as of the beginning of the period | 108,346,035 | — | 111,115,442 | — | |||||||||||||||||||
| Purchases of treasury stock | — | — | (1,938,179) | — | |||||||||||||||||||
| Stock awards | 40,704 | — | 3,060 | — | |||||||||||||||||||
| Balance as of the end of the period | 108,386,739 | — | 109,180,323 | — | |||||||||||||||||||
| Treasury Stock | |||||||||||||||||||||||
| Balance as of the beginning of the period | 61,704,046 | (5,492) | 58,601,877 | (4,993) | |||||||||||||||||||
| Purchases of treasury stock, including related fees | — | — | 1,938,179 | (300) | |||||||||||||||||||
| Balance as of the end of the period | 61,704,046 | (5,492) | 60,540,056 | (5,293) | |||||||||||||||||||
| Additional Paid-In Capital | |||||||||||||||||||||||
| Balance as of the beginning of the period | 344 | 292 | |||||||||||||||||||||
| Stock-based compensation, net of tax | 12 | 21 | |||||||||||||||||||||
| Balance as of the end of the period | 356 | 313 | |||||||||||||||||||||
| Retained Earnings | |||||||||||||||||||||||
| Balance as of the beginning of the period | 10,466 | 8,797 | |||||||||||||||||||||
| Net earnings (loss) attributable to Celanese Corporation | 191 | 506 | |||||||||||||||||||||
| Common stock dividends | (73) | (76) | |||||||||||||||||||||
| Balance as of the end of the period | 10,584 | 9,227 | |||||||||||||||||||||
| Accumulated Other Comprehensive Income (Loss), Net | |||||||||||||||||||||||
| Balance as of the beginning of the period | (438) | (298) | |||||||||||||||||||||
| Other comprehensive income (loss), net of tax | (60) | (30) | |||||||||||||||||||||
| Balance as of the end of the period | (498) | (328) | |||||||||||||||||||||
| Total Celanese Corporation stockholders' equity | 4,950 | 3,919 | |||||||||||||||||||||
| Noncontrolling Interests | |||||||||||||||||||||||
| Balance as of the beginning of the period | 345 | 359 | |||||||||||||||||||||
| Net earnings (loss) attributable to noncontrolling interests | 2 | 1 | |||||||||||||||||||||
Distributions to noncontrolling interests | (3) | (8) | |||||||||||||||||||||
| Balance as of the end of the period | 344 | 352 | |||||||||||||||||||||
| Total equity | 5,294 | 4,271 | |||||||||||||||||||||
See the accompanying notes to the unaudited interim consolidated financial statements.
6
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF EQUITY
| Nine Months Ended September 30, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||
| (In $ millions, except share data) | |||||||||||||||||||||||
| Common Stock | |||||||||||||||||||||||
| Balance as of the beginning of the period | 108,023,735 | — | 114,168,464 | — | |||||||||||||||||||
| Purchases of treasury stock | — | — | (5,332,727) | — | |||||||||||||||||||
| Stock awards | 363,004 | — | 344,586 | — | |||||||||||||||||||
| Balance as of the end of the period | 108,386,739 | — | 109,180,323 | — | |||||||||||||||||||
| Treasury Stock | |||||||||||||||||||||||
| Balance as of the beginning of the period | 61,736,289 | (5,492) | 55,234,515 | (4,494) | |||||||||||||||||||
| Purchases of treasury stock, including related fees | — | — | 5,332,727 | (800) | |||||||||||||||||||
| Issuance of treasury stock under stock plans | (32,243) | — | (27,186) | 1 | |||||||||||||||||||
| Balance as of the end of the period | 61,704,046 | (5,492) | 60,540,056 | (5,293) | |||||||||||||||||||
| Additional Paid-In Capital | |||||||||||||||||||||||
| Balance as of the beginning of the period | 333 | 257 | |||||||||||||||||||||
| Stock-based compensation, net of tax | 23 | 56 | |||||||||||||||||||||
| Balance as of the end of the period | 356 | 313 | |||||||||||||||||||||
| Retained Earnings | |||||||||||||||||||||||
| Balance as of the beginning of the period | 9,677 | 8,091 | |||||||||||||||||||||
| Net earnings (loss) attributable to Celanese Corporation | 1,127 | 1,366 | |||||||||||||||||||||
| Common stock dividends | (220) | (230) | |||||||||||||||||||||
| Balance as of the end of the period | 10,584 | 9,227 | |||||||||||||||||||||
| Accumulated Other Comprehensive Income (Loss), Net | |||||||||||||||||||||||
| Balance as of the beginning of the period | (329) | (328) | |||||||||||||||||||||
| Other comprehensive income (loss), net of tax | (169) | — | |||||||||||||||||||||
| Balance as of the end of the period | (498) | (328) | |||||||||||||||||||||
| Total Celanese Corporation stockholders' equity | 4,950 | 3,919 | |||||||||||||||||||||
| Noncontrolling Interests | |||||||||||||||||||||||
| Balance as of the beginning of the period | 348 | 369 | |||||||||||||||||||||
| Net earnings (loss) attributable to noncontrolling interests | 6 | 4 | |||||||||||||||||||||
| Distributions to noncontrolling interests | (10) | (21) | |||||||||||||||||||||
| Balance as of the end of the period | 344 | 352 | |||||||||||||||||||||
| Total equity | 5,294 | 4,271 | |||||||||||||||||||||
See the accompanying notes to the unaudited interim consolidated financial statements.
7
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
| Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| (In $ millions) | |||||||||||
| Operating Activities | |||||||||||
| Net earnings (loss) | 1,133 | 1,370 | |||||||||
| Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities | |||||||||||
| Asset impairments | 12 | 2 | |||||||||
| Depreciation, amortization and accretion | 318 | 278 | |||||||||
| Pension and postretirement net periodic benefit cost | (63) | (102) | |||||||||
| Pension and postretirement contributions | (34) | (36) | |||||||||
| Deferred income taxes, net | 14 | 9 | |||||||||
| (Gain) loss on disposition of businesses and assets, net | (6) | (7) | |||||||||
| Stock-based compensation | 47 | 76 | |||||||||
| Undistributed earnings in unconsolidated affiliates | (56) | (48) | |||||||||
| Other, net | 8 | 21 | |||||||||
| Operating cash provided by (used in) discontinued operations | (25) | 14 | |||||||||
| Changes in operating assets and liabilities | |||||||||||
| Trade receivables - third party and affiliates, net | (61) | (402) | |||||||||
| Inventories | (321) | (207) | |||||||||
| Other assets | 26 | (150) | |||||||||
| Trade payables - third party and affiliates | 97 | 259 | |||||||||
| Other liabilities | 189 | 96 | |||||||||
| Net cash provided by (used in) operating activities | 1,278 | 1,173 | |||||||||
| Investing Activities | |||||||||||
| Capital expenditures on property, plant and equipment | (400) | (304) | |||||||||
| Acquisitions, net of cash acquired | (14) | (15) | |||||||||
| Proceeds from sale of businesses and assets, net | 16 | 22 | |||||||||
| Proceeds from sale of marketable securities | — | 500 | |||||||||
| Other, net | (30) | (36) | |||||||||
| Net cash provided by (used in) investing activities | (428) | 167 | |||||||||
| Financing Activities | |||||||||||
| Net change in short-term borrowings with maturities of 3 months or less | (249) | 17 | |||||||||
| Repayments of short-term borrowings | — | (6) | |||||||||
| Proceeds from long-term debt | 9,019 | 991 | |||||||||
| Repayments of long-term debt | (21) | (778) | |||||||||
| Purchases of treasury stock, including related fees | (17) | (803) | |||||||||
| Common stock dividends | (220) | (230) | |||||||||
| Distributions to noncontrolling interests | (10) | (21) | |||||||||
| Settlement of forward-starting interest rate swaps | — | (72) | |||||||||
| Issuance cost of bridge facility | (63) | — | |||||||||
| Other, net | (93) | (41) | |||||||||
| Net cash provided by (used in) financing activities | 8,346 | (943) | |||||||||
| Exchange rate effects on cash and cash equivalents | (61) | (12) | |||||||||
| Net increase (decrease) in cash and cash equivalents | 9,135 | 385 | |||||||||
| Cash and cash equivalents as of beginning of period | 536 | 955 | |||||||||
| Cash and cash equivalents as of end of period | 9,671 | 1,340 | |||||||||
See the accompanying notes to the unaudited interim consolidated financial statements.
8
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 chemical and specialty materials company. The Company produces high performance engineered polymers that are used in a variety of high-value applications, as well as acetyl products, which are intermediate chemicals, for nearly all major industries. The Company also engineers and manufactures a wide variety of products essential to everyday living. The Company's broad product portfolio serves a diverse set of end-use applications including automotive, chemical additives, construction, consumer and industrial adhesives, consumer and medical, energy storage, filtration, food and beverage, paints and coatings, paper and packaging, performance industrial and textiles.
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 U.S." 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, 2022 and 2021 contained in this Quarterly Report were prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. 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 U.S. GAAP. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in accordance with rules and regulations of the Securities and Exchange Commission ("SEC"). These unaudited interim consolidated financial statements should be read in conjunction with the Company's consolidated financial statements as of and for the year ended December 31, 2021, filed on February 10, 2022 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, 2022 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.
Estimates and Assumptions
The preparation of unaudited interim consolidated financial statements in conformity with U.S. 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
9
and other postretirement benefits, asset retirement obligations, environmental liabilities and loss contingencies, among others. Actual results could differ from those estimates.
2. Recent Accounting Pronouncements
There are no recent Accounting Standard Updates issued by the Financial Accounting Standards Board which are expected to materially impact the Company's financial position, operating results or financial disclosures.
3. Acquisitions, Dispositions and Plant Closures
Acquisitions
In December 2021, the Company acquired the Santoprene™ thermoplastic vulcanizates ("TPV") elastomers business of Exxon Mobil Corporation ("Santoprene") for a purchase price of $1.15 billion in an all-cash transaction. The Company acquired the Santoprene™, Dytron™ and Geolast™ trademarks and product portfolios, customer and supplier contracts and agreements, both production facilities producing TPV, the TPV intellectual property portfolio with associated technical and R&D assets and employees of the TPV elastomer business. The acquisition of Santoprene substantially strengthens the Company's existing elastomers portfolio, allowing the Company to bring a wider range of functionalized solutions into targeted growth areas including future mobility, medical and sustainability. The acquisition was accounted for as a business combination and the acquired operations are included in the Engineered Materials segment. The Company allocated the purchase price of the acquisition to identifiable assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The purchase price allocation was based upon preliminary information and is subject to change if additional information about the facts and circumstances that existed at the acquisition date becomes available. The Company is in the ongoing process of conducting a valuation of the assets acquired and liabilities assumed related to the acquisition, including deferred taxes. The final fair value of the net assets acquired may result in adjustments to these assets and liabilities, including goodwill. During the measurement period, there were no adjustments that materially impacted the Company's goodwill initially recorded.
On February 17, 2022, the Company signed a definitive agreement to acquire a majority of the Mobility & Materials business of DuPont de Nemours, Inc. (the "M&M Acquisition") for a purchase price of $11.0 billion, subject to certain adjustments, in an all-cash transaction. The Company will acquire a global production network of 29 facilities, including compounding and polymerization, customer and supplier contracts and agreements, an intellectual property portfolio including approximately 850 patents with associated technical and R&D assets, and expects to acquire approximately 5,000 employees across the manufacturing, technical, and commercial organizations. The acquired operations will be included in the Engineered Materials segment. The Company closed on the M&M Acquisition on November 1, 2022. See Note 19 for further information.
In connection with the planned M&M Acquisition, also on February 17, 2022, the Company entered into a bridge facility commitment letter with Bank of America, N.A. ("Bank of America") pursuant to which Bank of America has committed to provide, subject to the terms and conditions set forth therein, a 364-day $11.0 billion senior unsecured bridge term loan facility (the "Bridge Facility"). Subsequently, commitments in respect of the Bridge Facility were syndicated to additional financial institutions as contemplated thereby.
On March 18, 2022, Celanese, Celanese U.S. and certain subsidiaries entered into a term loan credit agreement (the "March 2022 Term Loan Credit Agreement"), pursuant to which lenders have committed to provide a tranche of delayed-draw term loans due 364 days from issuance in an amount equal to $500 million and a tranche of delayed-draw term loans due 5 years from issuance in an amount equal to $1.0 billion. On September 16, 2022, Celanese, Celanese U.S. and certain subsidiaries entered into an additional term loan credit agreement (the "September 2022 Term Loan Credit Agreement" and, together with the March 2022 Term Loan Credit Agreement, the "Term Loan Credit Agreements"), pursuant to which lenders have committed to provide delayed-draw term loans due 3 years from issuance in an amount equal to $750 million (the term loans represented by the Term Loan Credit Agreements collectively, the "Term Loan Facility").
Amounts outstanding under the 364-day tranche of the Term Loan Facility will accrue interest at a rate equal to Secured Overnight Financing Rate with an interest period of one or three months ("Term SOFR") plus a margin of 1.00% to 2.00% per annum, or the base rate plus a margin of 0.00% to 1.00%, in each case, based on the Company's senior unsecured debt rating. Amounts outstanding under the 5-year tranche of the Term Loan Facility and 3-year tranche of the Term Loan Facility will accrue interest at a rate equal to Term SOFR plus a margin of 1.125% to 2.125% per annum, or the base rate plus a margin of 0.125% to 1.125%, in each case, based on the Company's senior unsecured debt rating.
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The entry into the Term Loan Credit Agreements and offerings of USD- and euro-denominated notes reduced availability under the Bridge Facility to zero and the Company terminated the Bridge Facility. See Note 7 for further information.
The Term Loan Facility, subject to the terms and conditions set forth in the Term Loan Credit Agreements, together with the Acquisition Notes (as defined and described in Note 7) and additional debt financing, will be available to finance the M&M Acquisition, and to pay fees and expenses related thereto. The Term Loan Facility is guaranteed by Celanese and domestic subsidiaries representing substantially all of the Company's U.S. assets and business operations (the "Subsidiary Guarantors").
During the nine months ended September 30, 2022, the Company paid $66 million in fees related to the Bridge Facility commitment, amortizing these fees to interest expense in the nine months ended September 30, 2022.
Korea Engineering Plastics Co. Restructuring
On April 1, 2022, the Company completed the restructuring of Korea Engineering Plastics Co. ("KEPCO"), a joint venture owned 50% by the Company and 50% by Mitsubishi Gas Chemical Company, Inc. KEPCO was first formed in 1987 to manufacture and market polyoxymethylene ("POM") in Asia, with a particular focus on serving domestic demand in South Korea. KEPCO will now focus solely on manufacturing and supplying high quality products to its stockholders, who will independently market them globally. As part of the restructuring of KEPCO, the Company paid KEPCO $5 million and will pay 5 equal annual installments of €24 million on October 1 of each year beginning in 2022. This resulted in an increase to the Company's investment in KEPCO of $134 million. The Company's joint venture partner will be making similar payments to KEPCO. The restructuring did not result in a change in ownership percentage of KEPCO, nor a change in control, and KEPCO will continue to be accounted for as an equity method investment.
Plant Closures
• Silao, Mexico
In September 2022, the Company announced that it will cease manufacturing operations at the engineered materials compounding facility in Silao, Mexico by the end of 2022, with decommissioning taking place in 2023.
The exit and shutdown costs related to this closure are as follows:
| Nine Months Ended September 30, 2022 | |||||
| (In $ millions) | |||||
Asset impairments(1) | (8) | ||||
Restructuring(1) | (3) | ||||
| Accelerated amortization expense | (3) | ||||
| Total | (14) | ||||
______________________________
(1)Included in Other (charges) gains, net in the unaudited interim consolidated statement of operations (Note 18).
The Company expects to incur additional exit and shutdown costs related to Silao, Mexico of approximately $13 million through 2023.
4. Inventories
| As of September 30, 2022 | As of December 31, 2021 | ||||||||||
| (In $ millions) | |||||||||||
| Finished goods | 1,115 | 1,014 | |||||||||
| Work-in-process | 81 | 75 | |||||||||
| Raw materials and supplies | 527 | 435 | |||||||||
| Total | 1,723 | 1,524 | |||||||||
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5. Goodwill and Intangible Assets, Net
Goodwill
| Engineered Materials | Acetate Tow | Acetyl Chain | Total | |||||||||||||||||||||||
| (In $ millions) | ||||||||||||||||||||||||||
| As of December 31, 2021 | 1,030 | 149 | 233 | 1,412 | ||||||||||||||||||||||
| (5) | — | — | (5) | (1) | ||||||||||||||||||||||
| Exchange rate changes | (80) | (2) | (31) | (113) | ||||||||||||||||||||||
As of September 30, 2022(2) | 945 | 147 | 202 | 1,294 | ||||||||||||||||||||||
______________________________
(1)Related to the acquisition of Santoprene.
(2)There were no accumulated impairment losses as of September 30, 2022.
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, 2022 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.
Intangible Assets, Net
Finite-lived intangible assets are as follows:
| Licenses | Customer- Related Intangible Assets | Developed Technology | Covenants Not to Compete and Other | Total | ||||||||||||||||||||||||||||
| (In $ millions) | ||||||||||||||||||||||||||||||||
| Gross Asset Value | ||||||||||||||||||||||||||||||||
| As of December 31, 2021 | 45 | 996 | 45 | 55 | 1,141 | |||||||||||||||||||||||||||
| — | 9 | — | — | 9 | (1) | |||||||||||||||||||||||||||
| Accumulated impairment losses | — | (4) | — | — | (4) | |||||||||||||||||||||||||||
| Exchange rate changes | (3) | (96) | (2) | (1) | (102) | |||||||||||||||||||||||||||
| As of September 30, 2022 | 42 | 905 | 43 | 54 | 1,044 | |||||||||||||||||||||||||||
| Accumulated Amortization | ||||||||||||||||||||||||||||||||
| As of December 31, 2021 | (41) | (543) | (42) | (39) | (665) | |||||||||||||||||||||||||||
| Amortization | — | (29) | (2) | (1) | (32) | |||||||||||||||||||||||||||
| Accumulated impairment losses | — | 2 | — | — | 2 | |||||||||||||||||||||||||||
| Exchange rate changes | 4 | 54 | 2 | 1 | 61 | |||||||||||||||||||||||||||
| As of September 30, 2022 | (37) | (516) | (42) | (39) | (634) | |||||||||||||||||||||||||||
| Net book value | 5 | 389 | 1 | 15 | 410 | |||||||||||||||||||||||||||
______________________________
(1)Represents intangible assets related to the acquisition of Santoprene.
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Indefinite-lived intangible assets are as follows:
| Trademarks and Trade Names | |||||
| (In $ millions) | |||||
| As of December 31, 2021 | 259 | ||||
| Exchange rate changes | (24) | ||||
| As of September 30, 2022 | 235 | ||||
The Company assesses the recoverability of the carrying amount of its indefinite-lived intangible assets 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 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, 2022 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.
During the nine months ended September 30, 2022, the Company did not renew or extend any intangible assets.
Estimated amortization expense for the succeeding five fiscal years is as follows:
| (In $ millions) | |||||
| 2023 | 39 | ||||
| 2024 | 39 | ||||
| 2025 | 39 | ||||
| 2026 | 39 | ||||
| 2027 | 38 | ||||
6. Current Other Liabilities
| As of September 30, 2022 | As of December 31, 2021 | ||||||||||
| (In $ millions) | |||||||||||
| 26 | 26 | ||||||||||
| Customer rebates | 61 | 96 | |||||||||
| 36 | 5 | ||||||||||
| 115 | 30 | ||||||||||
| 11 | 33 | ||||||||||
| Operating leases | 43 | 37 | |||||||||
| 3 | 7 | ||||||||||
| Salaries and benefits | 108 | 135 | |||||||||
| Sales and use tax/foreign withholding tax payable | 39 | 27 | |||||||||
| Other | 113 | 77 | |||||||||
| Total | 555 | 473 | |||||||||
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7. Debt
| As of September 30, 2022 | As of December 31, 2021 | ||||||||||
| (In $ millions) | |||||||||||
Short-Term Borrowings and Current Installments of Long-Term Debt - Third Party and Affiliates | |||||||||||
| Current installments of long-term debt | 962 | 527 | |||||||||
Short-term borrowings, including amounts due to affiliates(1) | 15 | 64 | |||||||||
Revolving credit facility(2) | — | 200 | |||||||||
| Total | 977 | 791 | |||||||||
______________________________
(1)The weighted average interest rate was 3.0% and 0.2% as of September 30, 2022 and December 31, 2021, respectively.
(2)The weighted average interest rate was 0.0% and 1.4% as of September 30, 2022 and December 31, 2021, respectively.
| As of September 30, 2022 | As of December 31, 2021 | ||||||||||
| (In $ millions) | |||||||||||
| Long-Term Debt | |||||||||||
Senior unsecured notes due 2022, interest rate of 4.625% | 500 | 500 | |||||||||
Senior unsecured notes due 2023, interest rate of 1.125% | 438 | 509 | |||||||||
Senior unsecured notes due 2024, interest rate of 3.500% | 499 | 499 | |||||||||
Senior unsecured notes due 2024, interest rate of 5.900% | 2,000 | — | |||||||||
Senior unsecured notes due 2025, interest rate of 1.250% | 292 | 339 | |||||||||
Senior unsecured notes due 2025, interest rate of 6.050% | 1,750 | — | |||||||||
Senior unsecured notes due 2026, interest rate of 1.400% | 400 | 400 | |||||||||
Senior unsecured notes due 2026, interest rate of 4.777% | 975 | — | |||||||||
Senior unsecured notes due 2027, interest rate of 2.125% | 485 | 564 | |||||||||
Senior unsecured notes due 2027, interest rate of 6.165% | 2,000 | — | |||||||||
Senior unsecured notes due 2028, interest rate of 0.625% | 487 | 566 | |||||||||
Senior unsecured notes due 2029, interest rate of 5.337% | 488 | — | |||||||||
Senior unsecured notes due 2029, interest rate of 6.330% | 750 | — | |||||||||
Senior unsecured notes due 2032, interest rate of 6.379% | 1,000 | — | |||||||||
Pollution control and industrial revenue bonds due at various dates through 2030, interest rates ranging from 4.05% to 5.00% | 164 | 166 | |||||||||
Bank loans due at various dates through 2026(1) | 4 | 6 | |||||||||
Obligations under finance leases due at various dates through 2054 | 166 | 173 | |||||||||
| Subtotal | 12,398 | 3,722 | |||||||||
Unamortized debt issuance costs(2) | (76) | (19) | |||||||||
| Current installments of long-term debt | (962) | (527) | |||||||||
| Total | 11,360 | 3,176 | |||||||||
______________________________
(1)The weighted average interest rate was 1.3% and 1.3% as of September 30, 2022 and December 31, 2021, respectively.
(2)Related to the Company's long-term debt, excluding obligations under finance leases.
Senior Credit Facilities
On March 18, 2022, Celanese, Celanese U.S. and certain subsidiaries entered into a new revolving credit agreement (the "New Revolving Credit Agreement" and, together with the Term Loan Credit Agreements, the "Credit Agreements") consisting of a $1.75 billion senior unsecured revolving credit facility (with a letter of credit sublimit), maturing in 2027. The proceeds of a $365 million borrowing under the new senior unsecured revolving credit facility were used to repay and terminate the
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Company's existing revolving credit facility. The Credit Agreements are guaranteed by Celanese, Celanese U.S. and the Subsidiary Guarantors. The Subsidiary Guarantors are listed in Exhibit 22.1 to this Quarterly Report.
The Credit Agreements contain certain covenants, including the maintenance of certain financial ratios (subject to adjustment following the M&M Acquisition and certain other qualifying acquisitions, as set forth in the Credit Agreements), events of default and change of control provisions.
The Company's debt balances and amounts available for borrowing under its new senior unsecured revolving credit facility are as follows:
| As of September 30, 2022 | |||||
| (In $ millions) | |||||
| Revolving Credit Facility | |||||
Borrowings outstanding(1) | — | ||||
Available for borrowing(2) | 1,750 | ||||
______________________________
(1)The Company borrowed $365 million under its new senior unsecured revolving credit facility to repay and terminate its previous unsecured revolving credit facility and repaid $365 million under its new senior unsecured revolving credit facility during the nine months ended September 30, 2022. The Company borrowed $165 million and repaid $365 million under its previous unsecured revolving credit facility during the three months ended March 31, 2022.
(2)The margin for borrowings under the senior unsecured revolving credit facility was 1.00% to 2.00% above certain interbank rates at current Company credit ratings.
On November 1, 2022, the Company borrowed $300 million under its senior unsecured revolving credit facility for general corporate purposes, reducing availability of borrowings under the facility to $1.45 billion.
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 U.S. and are guaranteed on a senior unsecured basis by Celanese and the Subsidiary Guarantors. Celanese U.S. may redeem some or all of each of the Senior Notes, prior to their respective maturity dates, at a redemption price of 100% of the principal amount, plus a "make-whole" premium as specified in the applicable indenture, plus accrued and unpaid interest, if any, to the redemption date.
On July 14, 2022, Celanese U.S. completed an offering of $7.5 billion aggregate principal amount of notes of various maturities in a public offering registered under the Securities Act (the "Acquisition USD Notes"). On July 19, 2022, Celanese U.S. completed an offering of €1.5 billion in aggregate principal amount of euro-denominated senior unsecured notes due in 2026 and 2029 in a public offering registered under the Securities Act (collectively, the "Acquisition Euro Notes" and together with the Acquisition USD Notes, the "Acquisition Notes"). Certain of the Acquisition Notes were issued at a discount to par, which will be amortized to Interest expense in the consolidated statement of operations over the terms of the applicable Acquisition Notes. Fees and expenses of the offering of the Acquisition Notes, inclusive of underwriting discounts, were $65 million.
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Accounts Receivable Purchasing Facility
In June 2021, the Company entered into an amendment to the amended and restated receivables purchase agreement (the "Amended Receivables Purchase Agreement") under its U.S. accounts receivable purchasing facility among certain of the Company's subsidiaries, its wholly-owned, "bankruptcy remote" special purpose subsidiary ("SPE") and certain global financial institutions ("Purchasers"). The Amended Receivables Purchase Agreement extends the term of the accounts receivable purchasing facility such that the SPE may sell certain receivables until June 18, 2024. Under the Amended Receivables Purchase Agreement, transfers of U.S. accounts receivable from the SPE are treated as sales and are accounted for as a reduction in accounts receivable because the agreement transfers effective control over and risk related to the U.S. accounts receivable to the SPE. The Company and related subsidiaries have no continuing involvement in the transferred U.S. accounts receivable, other than collection and administrative responsibilities and, once sold, the U.S. accounts receivable are no longer available to satisfy creditors of the Company or the related subsidiaries in the event of bankruptcy. These sales are transacted at 100% of the face value of the relevant U.S. accounts receivable, resulting in derecognition of the U.S. accounts receivables from the Company's unaudited consolidated balance sheet. The Company de-recognized $802 million and $1.1 billion of accounts receivable under this agreement for the nine months ended September 30, 2022 and twelve months ended December 31, 2021, respectively, and collected $802 million and $1.1 billion of accounts receivable sold under this agreement during the same periods. Unsold U.S. accounts receivable of $130 million were pledged by the SPE as collateral to the Purchasers as of September 30, 2022.
Factoring and Discounting Agreements
The Company has factoring agreements in Europe and Singapore with financial institutions to sell 100% and 90% of certain accounts receivable, respectively, on a non-recourse basis. These transactions are treated as sales and are accounted for as reductions in accounts receivable because the agreements transfer effective control over and risk related to the receivables to the buyer. The Company has no continuing involvement in the transferred receivables, other than collection and administrative responsibilities and, once sold, the accounts receivable are no longer available to satisfy creditors in the event of bankruptcy. The Company de-recognized $228 million and $230 million of accounts receivable under these factoring agreements for the nine months ended September 30, 2022 and twelve months ended December 31, 2021, respectively, and collected $234 million and $185 million of accounts receivable sold under these factoring agreements during the same periods.
In March 2021, the Company entered into an agreement in Singapore with a financial institution to discount, on a non-recourse basis, documentary credits or other documents recorded as accounts receivable. These transactions are treated as a sale and are accounted for as a reduction in accounts receivable because the agreement transfers effective control over and risk related to the receivables to the buyer. The Company has no continuing involvement in the transferred receivables and, once sold, the accounts receivable are no longer available to satisfy creditors in the event of bankruptcy. The Company de-recognized $41 million and $70 million of accounts receivable under this agreement for the nine months ended September 30, 2022 and twelve months ended December 31, 2021, respectively.
Covenants
The Company's material financing arrangements contain customary covenants, including the maintenance of certain financial ratios (subject to adjustment following certain qualifying acquisitions, as set forth in the Credit Agreements), 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, 2022.
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8. Benefit Obligations
The components of net periodic benefit cost are as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||
| Pension Benefits | Post-retirement Benefits | Pension Benefits | Post-retirement Benefits | Pension Benefits | Post-retirement Benefits | Pension Benefits | Post-retirement Benefits | ||||||||||||||||||||||||||||||||||||||||
| (In $ millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Service cost | 3 | 1 | 3 | — | 10 | 1 | 10 | 1 | |||||||||||||||||||||||||||||||||||||||
| Interest cost | 17 | — | 13 | 1 | 50 | 1 | 40 | 1 | |||||||||||||||||||||||||||||||||||||||
Expected return on plan assets | (42) | — | (51) | — | (125) | — | (154) | — | |||||||||||||||||||||||||||||||||||||||
| Total | (22) | 1 | (35) | 1 | (65) | 2 | (104) | 2 | |||||||||||||||||||||||||||||||||||||||
Benefit obligation funding is as follows:
| As of September 30, 2022 | Total Expected 2022 | ||||||||||
| (In $ millions) | |||||||||||
| Cash contributions to defined benefit pension plans | 17 | 24 | |||||||||
| Benefit payments to nonqualified pension plans | 15 | 19 | |||||||||
| Benefit payments to other postretirement benefit plans | 2 | 4 | |||||||||
The Company's estimates of its U.S. defined benefit pension plan contributions reflect the provisions of the Pension Protection Act of 2006.
Pension and postretirement benefit plan balances recognized in the unaudited consolidated balance sheets consist of:
| As of September 30, 2022 | As of December 31, 2021 | ||||||||||||||||||||||
| Pension Benefits | Post-retirement Benefits | Pension Benefits | Post-retirement Benefits | ||||||||||||||||||||
| (In $ millions) | |||||||||||||||||||||||
| Noncurrent Other assets | 288 | — | 221 | — | |||||||||||||||||||
| Current Other liabilities | (22) | (4) | (22) | (4) | |||||||||||||||||||
| Benefit obligations | (439) | (45) | (504) | (47) | |||||||||||||||||||
| Net amount recognized | (173) | (49) | (305) | (51) | |||||||||||||||||||
9. 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 ongoing 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.
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The components of environmental remediation liabilities are as follows:
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 U.S. 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 14). Certain of these sites, at which the Company maintains continuing involvement, were and continue to be designated as discontinued operations when closed. 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.
U.S. Superfund Sites
In the U.S., the Company may be subject to substantial claims brought by U.S. 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 U.S. 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 U.S. 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 any probable and reasonably estimable liabilities. In establishing these liabilities, the Company considers the contaminants of concern, the potential impact thereof, the relationship of the contaminants of concern to its current and historic operations, 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 Diamond Alkali Superfund Site, which is comprised of a number of sub-sites, including the Lower Passaic River Study Area ("LPRSA"), which is the lower 17-mile stretch of the Passaic River ("Lower Passaic River Site"), and the Newark Bay Area. The Company and 70 other companies are parties to a May 2007 Administrative Order on Consent with the EPA to perform a Remedial Investigation/Feasibility Study ("RI/FS") at the Lower Passaic River Site in order to identify the levels of contaminants and potential cleanup actions, including the potential migration of contaminants between the LPRSA and the Newark Bay Area.
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In March 2016, the EPA issued its final Record of Decision concerning the remediation of the lower 8.3 miles of the Lower Passaic River Site ("Lower 8.3 Miles"). 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 EPA estimated cost of approximately $1.4 billion. In September 2021, the EPA issued a Record of Decision selecting an interim remedial plan for the upper 9 miles of the Lower Passaic River ("Upper 9 Miles"). Pursuant to the EPA's Record of Decision, targeted dredging will be conducted in the Upper 9 Miles to address surface sediments with elevated contamination followed by the installation of an engineered cap at an EPA estimated cost of $441 million.
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 contaminants of concern to the Passaic River. In June 2018, Occidental Chemical Corporation ("OCC"), the successor to the Diamond Alkali Company, sued a subsidiary of the Company and 119 other parties alleging claims for joint and several damages, contribution and declaratory relief under Section 107 and 113 of Superfund for costs to clean up the LPRSA portion of the Diamond Alkali Superfund Site, Occidental Chemical Corporation v. 21st Century Fox America, Inc., et al, No. 2:18-CV-11273-JLL-JAD (U.S. District Court New Jersey), alleging that each of the defendants owned or operated a facility that contributed contamination to the LPRSA. With respect to the Company, the OCC lawsuit is limited to the former Celanese facility that Essex County, New Jersey has agreed to indemnify the Company for and does not change the Company's estimated liability for LPRSA cleanup costs. The Company is vigorously defending these matters and currently estimates that its ultimate allocable share of the cleanup costs with respect to the Lower Passaic River Site is less than 1%. In February 2022, the EPA and a subgroup of defendants in the litigation, including Celanese, reached a settlement in principle with respect to the liability of those defendants for the LPRSA, which will not be material to the Company's results of operations, cash flows or financial position. The Company expects the settlement will be memorialized in a Consent Decree lodged with the U.S. District Court for the District of New Jersey prior to the end of the calendar year.
Other Environmental Matters
In April 2022, a methanol leak on a pipeline to our Bishop, Texas facility was discovered. The release has been contained, the leak has been repaired and the pipeline has resumed operation. The Company promptly disclosed the incident to state and federal authorities, including the Texas Commission on Environmental Quality and the EPA, and are cooperating in ongoing remediation activities. While the Company has not received a notice of violation nor been assessed any fines or penalties to date, the Company recorded a reserve in Other current liabilities based on anticipated clean-up costs and possible penalties to state or federal authorities. The Company does not believe that resolution of this matter will have a material impact on our financial condition or results of operations.
10. 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 Common Stock, par value $0.0001 per share ("Common Stock"), unless the Company's Board of Directors, in its sole discretion, determines otherwise. The amount available to the Company to pay cash dividends is not currently restricted by its existing senior credit facility and its indentures governing its senior unsecured notes. Any decision to declare and pay dividends in the future will be made at the discretion of the Company's Board of Directors and will depend on, among other things, the results of operations, cash requirements, financial condition, contractual restrictions and other factors that the Company's Board of Directors may deem relevant.
The Company declared a quarterly cash dividend of $0.70 per share on its Common Stock on October 19, 2022, amounting to $76 million. The cash dividend will be paid on November 14, 2022 to holders of record as of October 31, 2022.
Treasury Stock
The Company's Board of Directors authorizes repurchases of Common Stock from time to time. These authorizations give management discretion in determining the timing and conditions under which shares may be repurchased. This repurchase program does not have an expiration date.
19
| Nine Months Ended September 30, | Total From February 2008 Through September 30, 2022 | ||||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| Shares repurchased | — | 5,332,727 | 69,324,429 | ||||||||||||||
| Average purchase price per share | $ | — | $ | 150.02 | $ | 83.71 | |||||||||||
| Shares repurchased (in $ millions) | $ | — | $ | 800 | $ | 5,803 | |||||||||||
Aggregate Board of Directors repurchase authorizations during the period (in $ millions) | $ | — | $ | 1,000 | $ | 6,866 | |||||||||||
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.
Other Comprehensive Income (Loss), Net
| Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||
| Gross Amount | Income Tax (Provision) Benefit | Net Amount | Gross Amount | Income Tax (Provision) Benefit | Net Amount | ||||||||||||||||||||||||||||||
| (In $ millions) | |||||||||||||||||||||||||||||||||||
| Foreign currency translation gain (loss) | 3 | (52) | (49) | (6) | (9) | (15) | |||||||||||||||||||||||||||||
| Gain (loss) on cash flow hedges | (15) | 4 | (11) | 1 | (16) | (15) | |||||||||||||||||||||||||||||
| Total | (12) | (48) | (60) | (5) | (25) | (30) | |||||||||||||||||||||||||||||
| Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||
| Gross Amount | Income Tax (Provision) Benefit | Net Amount | Gross Amount | Income Tax (Provision) Benefit | Net Amount | ||||||||||||||||||||||||||||||
| (In $ millions) | |||||||||||||||||||||||||||||||||||
| Foreign currency translation gain (loss) | (119) | (82) | (201) | 3 | (15) | (12) | |||||||||||||||||||||||||||||
| Gain (loss) on cash flow hedges | 37 | (7) | 30 | 41 | (25) | 16 | |||||||||||||||||||||||||||||
| Pension and postretirement benefits gain (loss) | 2 | — | 2 | (4) | — | (4) | |||||||||||||||||||||||||||||
| Total | (80) | (89) | (169) | 40 | (40) | — | |||||||||||||||||||||||||||||
Adjustments to Accumulated other comprehensive income (loss), net, are as follows:
| Foreign Currency Translation Gain (Loss) | Gain (Loss) on Cash Flow Hedges | Pension and Postretirement Benefits Gain (Loss) | Accumulated Other Comprehensive Income (Loss), Net | ||||||||||||||||||||
| (In $ millions) | |||||||||||||||||||||||
| As of December 31, 2021 | (271) | (43) | (15) | (329) | |||||||||||||||||||
Other comprehensive income (loss) before reclassifications | (119) | 54 | 2 | (63) | |||||||||||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) | — | (17) | — | (17) | |||||||||||||||||||
| Income tax (provision) benefit | (82) | (7) | — | (89) | |||||||||||||||||||
| As of September 30, 2022 | (472) | (13) | (13) | (498) | |||||||||||||||||||
20
11. Income Taxes
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (In percentages) | |||||||||||||||||||||||
| Effective income tax rate | 40 | 16 | 24 | 18 | |||||||||||||||||||
The effective income tax rate for the three and nine months ended September 30, 2022, was higher compared to the same periods in 2021, primarily due to increases in valuation allowances on U.S. foreign tax credit carryforwards due to revised forecasts of foreign sourced income and expenses during the carryforward period and increases in tax reserves related to ongoing income tax examinations, each during the three months ended September 30, 2022, and increased year to date earnings in high taxed jurisdictions for the nine months ended September 30, 2022.
In December 2017, the Tax Cuts and Jobs Act (the "TCJA") was enacted and was effective January 1, 2018. The U.S. Treasury has issued various final and proposed regulatory packages supplementing the TCJA provisions since 2018, which the Company does not expect to have a material impact on current or future income tax expense.
In December 2021, the U.S. Treasury and the IRS released final regulations addressing various aspects of the foreign tax credit regime. The regulation was published in the federal register on January 4, 2022, and became effective in the nine months ended September 30, 2022. The final regulations included guidance with respect to the definition of foreign income taxes, the eligibility of foreign taxes for the foreign tax credit, and the allocation and apportionment of interest expense. The impact of the retroactive effect of the interest expense apportionment rules for the 2020 and 2021 tax years was not material to the Company's results of operations.
In August of 2022, the Inflation Reduction Act (the "IRA") was enacted and included a 1% excise tax on share repurchases in excess of $1 million, and a corporate minimum tax of 15% on adjusted book earnings. The corporate minimum tax paid is creditable in future years to the extent that regular tax liability exceeds the minimum tax in any given year. The Company does not expect these provisions will have a material impact to future income tax expense. The IRA also provides various beneficial credits for energy efficient related manufacturing, transportation and fuels, hydrogen/carbon recapture, and renewable energy, which the Company is evaluating in regard to planned projects.
The Company will continue to monitor the expected impacts of any new guidance on the Company's filing positions and will record the impacts as discrete income tax expense adjustments in the period the guidance is finalized or becomes effective.
Due to the TCJA and uncertainty as to future foreign source income, the Company previously recorded a valuation allowance on a substantial portion of its foreign tax credits. The Company is currently evaluating tax planning strategies that would allow utilization of the Company's foreign tax credit carryforwards. Implementation of these strategies in future periods could reduce the level of valuation allowance that is needed, thereby decreasing the Company's effective tax rate.
The Company's tax returns are under joint audit for the years 2013 through 2015 by the United States, Netherlands and Germany (the "Authorities"). In September 2021, the Company received a draft joint audit report proposing adjustments to transfer pricing and the reallocation of income between the related jurisdictions. The Authorities also propose to apply these adjustments to open tax years through 2019. The Company is engaged in discussions with the Authorities to evaluate the proposals. During the three months ended September 30, 2022, the Company recorded additional tax reserves of $25 million for years prior to 2022 based on unilateral discussions with one of the relevant authorities. The Company is currently evaluating all additional potential remedies.
As of September 30, 2022, the Company believes that an adequate provision for income taxes has been made for all open tax years related to the joint examination. However, the outcome of tax audits cannot be predicted with certainty. If any issues raised by the Authorities are resolved in a manner inconsistent with the Company's expectations or the Company is unsuccessful in defending its position, the Company could be required to adjust its provision for income taxes in the period such resolution occurs. If required, any such adjustments could be material to the statements of operations and cash flows in the period(s) recorded.
In addition, the Company's income tax returns in Mexico are under audit for the years 2017 and 2018, and in Canada for the years 2016 through 2018. On January 14, 2022, the Mexico tax authorities issued preliminary findings for disallowance of operating expenses on several of the applicable tax returns. The Company has analyzed the preliminary findings and does not
21
expect any material impact to income tax expense. Related to Canada, the Company is discussing preliminary findings with the Canadian authorities and does not expect a material impact to income tax expense.
12. Derivative Financial Instruments
Derivatives Designated As Hedges
Net Investment Hedges
The total notional amount of foreign currency denominated debt and cross-currency swaps designated as net investment hedges are as follows:
| As of September 30, 2022 | As of December 31, 2021 | ||||||||||
| (In € millions) | |||||||||||
| Total | 6,017 | 1,653 | |||||||||
Concurrently with the offering of the Acquisition USD Notes (Note 7), the Company entered into cross-currency swaps to effectively convert $2.0 billion and $500 million of the Acquisition USD Notes into a euro-denominated borrowing at prevailing euro interest rates, maturing on July 15, 2027 and July 15, 2032, respectively. The swaps and €1.5 billion of the Acquisition Euro Notes qualify and have been designated as net investment hedges of the Company's foreign currency exchange rate exposure on the net investments of certain of its euro-denominated subsidiaries.
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, 2022 | As of December 31, 2021 | ||||||||||
| (In $ millions) | |||||||||||
| Total | 686 | 663 | |||||||||
22
Information regarding changes in the fair value of the Company's derivative and non-derivative instruments is as follows:
| Gain (Loss) Recognized in Other Comprehensive Income (Loss) | Gain (Loss) Recognized in Earnings (Loss) | ||||||||||||||||||||||||||||
| Three Months Ended September 30, | Statement of Operations Classification | ||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||
| (In $ millions) | |||||||||||||||||||||||||||||
Designated as Cash Flow Hedges | |||||||||||||||||||||||||||||
| Commodity swaps | (9) | 10 | 11 | (1) | |||||||||||||||||||||||||
| Interest rate swaps | — | (7) | (1) | (1) | |||||||||||||||||||||||||
| Foreign currency forwards | 2 | — | — | — | |||||||||||||||||||||||||
| Total | (7) | 3 | 10 | (2) | |||||||||||||||||||||||||
Designated as Net Investment Hedges | |||||||||||||||||||||||||||||
| 148 | 37 | — | — | N/A | |||||||||||||||||||||||||
| Cross-currency swaps | 90 | 10 | — | — | N/A | ||||||||||||||||||||||||
| Total | 238 | 47 | — | — | |||||||||||||||||||||||||
Not Designated as Hedges | |||||||||||||||||||||||||||||
Foreign currency forwards and swaps | — | — | (8) | (2) | |||||||||||||||||||||||||
| Total | — | — | (8) | (2) | |||||||||||||||||||||||||
| Gain (Loss) Recognized in Other Comprehensive Income (Loss) | Gain (Loss) Recognized in Earnings (Loss) | ||||||||||||||||||||||||||||
| Nine Months Ended September 30, | Statement of Operations Classification | ||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||
| (In $ millions) | |||||||||||||||||||||||||||||
| Designated as Cash Flow Hedges | |||||||||||||||||||||||||||||
| Commodity swaps | 50 | 33 | 22 | (1) | |||||||||||||||||||||||||
| Interest rate swaps | — | 10 | (5) | (1) | |||||||||||||||||||||||||
| Foreign currency forwards | 2 | — | — | — | |||||||||||||||||||||||||
| Total | 52 | 43 | 17 | (2) | |||||||||||||||||||||||||
| Designated as Net Investment Hedges | |||||||||||||||||||||||||||||
| 269 | 72 | — | — | N/A | |||||||||||||||||||||||||
| Cross-currency swaps | 117 | 21 | — | — | N/A | ||||||||||||||||||||||||
| Total | 386 | 93 | — | — | |||||||||||||||||||||||||
| Not Designated as Hedges | |||||||||||||||||||||||||||||
| Foreign currency forwards and swaps | — | — | (12) | (6) | |||||||||||||||||||||||||
| Total | — | — | (12) | (6) | |||||||||||||||||||||||||
See Note 13 for additional information regarding the fair value of the Company's derivative instruments.
Certain of the Company's commodity swaps, interest rate swaps, cross-currency 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, 2022 | As of December 31, 2021 | ||||||||||
| (In $ millions) | |||||||||||
| Derivative Assets | |||||||||||
| Gross amount recognized | 227 | 40 | |||||||||
| Gross amount offset in the consolidated balance sheets | — | — | |||||||||
| Net amount presented in the consolidated balance sheets | 227 | 40 | |||||||||
| Gross amount not offset in the consolidated balance sheets | 2 | 2 | |||||||||
| Net amount | 225 | 38 | |||||||||
| As of September 30, 2022 | As of December 31, 2021 | ||||||||||
| (In $ millions) | |||||||||||
| Derivative Liabilities | |||||||||||
| Gross amount recognized | 36 | 5 | |||||||||
| Gross amount offset in the consolidated balance sheets | — | — | |||||||||
| Net amount presented in the consolidated balance sheets | 36 | 5 | |||||||||
| Gross amount not offset in the consolidated balance sheets | 2 | 2 | |||||||||
| Net amount | 34 | 3 | |||||||||
13. Fair Value Measurements
The Company's financial assets and liabilities are measured at fair value on a recurring basis as follows:
Derivative financial instruments include interest rate swaps, commodity swaps, cross-currency swaps and foreign currency forwards and swaps and are valued in the market using discounted cash flow techniques. These techniques incorporate Level 1 and Level 2 fair value measurement inputs such as interest rates and foreign currency exchange rates. These market inputs are utilized in the discounted cash flow calculation considering the instrument's term, notional amount, discount rate and credit risk. Significant inputs to the derivative valuation for interest rate swaps, commodity swaps, cross-currency swaps and foreign currency forwards and swaps are observable in the active markets and are classified as Level 2 in the fair value measurement hierarchy.
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, 2022 | |||||||||||||||||||||||
Derivatives Designated as Cash Flow Hedges | |||||||||||||||||||||||
| Commodity swaps | — | 16 | 16 | ||||||||||||||||||||
| Commodity swaps | — | 43 | 43 | ||||||||||||||||||||
| Foreign currency forwards and swaps | — | 1 | 1 | Current Other assets | |||||||||||||||||||
| Derivatives Designated as Net Investment Hedges | |||||||||||||||||||||||
| Cross-currency swaps | — | 77 | 77 | Current Other assets | |||||||||||||||||||
| Cross-currency swaps | — | 84 | 84 | Noncurrent Other assets | |||||||||||||||||||
| Derivatives Not Designated as Hedges | |||||||||||||||||||||||
| Foreign currency forwards and swaps | — | 6 | 6 | Current Other assets | |||||||||||||||||||
| Total assets | — | 227 | 227 | ||||||||||||||||||||
| Derivatives Designated as Cash Flow Hedges | |||||||||||||||||||||||
| Commodity swaps | — | (3) | (3) | ||||||||||||||||||||
Derivatives Designated as Net Investment Hedges | |||||||||||||||||||||||
| Cross-currency swaps | — | (27) | (27) | Current Other liabilities | |||||||||||||||||||
| Derivatives Not Designated as Hedges | |||||||||||||||||||||||
| Foreign currency forwards and swaps | — | (6) | (6) | Current Other liabilities | |||||||||||||||||||
| Total liabilities | — | (36) | (36) | ||||||||||||||||||||
| 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 December 31, 2021 | |||||||||||||||||||||||
| Derivatives Designated as Cash Flow Hedges | |||||||||||||||||||||||
| Commodity swaps | — | 8 | 8 | ||||||||||||||||||||
| Commodity swaps | — | 23 | 23 | ||||||||||||||||||||
Derivatives Designated as Net Investment Hedges | |||||||||||||||||||||||
| Cross-currency swaps | — | 2 | 2 | Current Other assets | |||||||||||||||||||
| Cross-currency swaps | — | 5 | 5 | Noncurrent Other assets | |||||||||||||||||||
Derivatives Not Designated as Hedges | |||||||||||||||||||||||
| Foreign currency forwards and swaps | — | 2 | 2 | Current Other assets | |||||||||||||||||||
| Total assets | — | 40 | 40 | ||||||||||||||||||||
Derivatives Designated as Net Investment Hedges | |||||||||||||||||||||||
| Cross-currency swaps | — | (2) | (2) | Current Other liabilities | |||||||||||||||||||
| Derivatives Not Designated as Hedges | |||||||||||||||||||||||
| Foreign currency forwards and swaps | — | (3) | (3) | Current Other liabilities | |||||||||||||||||||
| Total liabilities | — | (5) | (5) | ||||||||||||||||||||
25
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, 2022 | |||||||||||||||||||||||
Equity investments without readily determinable fair values | 170 | — | — | — | |||||||||||||||||||
| Insurance contracts in nonqualified trusts | 24 | 24 | — | 24 | |||||||||||||||||||
Long-term debt, including current installments of long-term debt | 12,398 | 11,467 | 166 | 11,633 | |||||||||||||||||||
| As of December 31, 2021 | |||||||||||||||||||||||
Equity investments without readily determinable fair values | 170 | — | — | — | |||||||||||||||||||
| Insurance contracts in nonqualified trusts | 28 | 28 | — | 28 | |||||||||||||||||||
Long-term debt, including current installments of long-term debt | 3,722 | 3,639 | 173 | 3,812 | |||||||||||||||||||
In general, the equity investments included in the table above are not publicly traded and their fair values are not readily determinable. The Company believes the carrying values approximate fair value. Insurance contracts in nonqualified trusts consist of long-term fixed income securities, which are valued using independent vendor pricing models with observable inputs in the active market and therefore represent a Level 2 fair value measurement. The fair value of long-term debt is based on valuations from third-party banks and market quotations and is classified as Level 2 in the fair value measurement hierarchy. The fair value of obligations under finance 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, 2022, and December 31, 2021, the fair values of cash and cash equivalents, receivables, marketable securities, 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. Cash and cash equivalents includes $2.9 billion of U.S. treasury bills purchased during the three months ended September 30, 2022, which will be held to maturity. Unrealized gains and losses on the U.S. treasury bills were not significant as of September 30, 2022 and therefore, the amortized cost of the U.S. treasury bills approximated their fair value. These items have been excluded from the table with the exception of the current installments of long-term debt.
14. 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 9).
26
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, 2022 are $106 million. Though the Company is significantly under its obligation cap under Category B, 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 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 significant risk (Note 9).
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 $125 million as of September 30, 2022. Other agreements do not provide for any monetary or time limitations.
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 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. 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, 2022, the Company had unconditional purchase obligations of $4.0 billion, which extend through 2042.
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, insurance coverage disputes, contracts, employment, antitrust or competition compliance, intellectual property, personal injury and other actions in tort, workers' compensation, chemical exposure, asbestos exposure, taxes, trade compliance, acquisitions and divestitures, claims of current and legacy stockholders, past waste disposal practices and release of chemicals into the environment. The Company is actively defending those matters where the Company is named as a defendant and, based on the current facts, does not believe the outcomes from these matters would be material to the Company's results of operations, cash flows or financial position.
27
15. Segment Information
Engineered Materials | Acetate Tow | Acetyl Chain | Other Activities | Eliminations | Consolidated | |||||||||||||||||||||||||||||||||
| (In $ millions) | ||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||||||||||
| Net sales | 929 | 135 | 1,274 | — | (37) | (1) | 2,301 | |||||||||||||||||||||||||||||||
| (14) | — | — | (1) | — | (15) | |||||||||||||||||||||||||||||||||
| Operating profit (loss) | 114 | (3) | 315 | (118) | — | 308 | ||||||||||||||||||||||||||||||||
Equity in net earnings (loss) of affiliates | 69 | — | 1 | 3 | — | 73 | ||||||||||||||||||||||||||||||||
| Depreciation and amortization | 43 | 10 | 43 | 4 | — | 100 | ||||||||||||||||||||||||||||||||
| Capital expenditures | 34 | 9 | 65 | 15 | — | 123 | (2) | |||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||||||
Net sales | 684 | 128 | 1,489 | — | (35) | (1) | 2,266 | |||||||||||||||||||||||||||||||
| — | — | 1 | (1) | — | — | |||||||||||||||||||||||||||||||||
Operating profit (loss) | 91 | 12 | 517 | (84) | — | 536 | ||||||||||||||||||||||||||||||||
Equity in net earnings (loss) of affiliates | 39 | — | 1 | 4 | — | 44 | ||||||||||||||||||||||||||||||||
Depreciation and amortization | 35 | 10 | 44 | 4 | — | 93 | ||||||||||||||||||||||||||||||||
Capital expenditures | 36 | 10 | 73 | 4 | — | 123 | (2) | |||||||||||||||||||||||||||||||
______________________________
(1)Includes intersegment sales primarily related to the Acetyl Chain.
(2)Includes a decrease in accrued capital expenditures of $16 million and an increase of $21 million for the three months ended September 30, 2022 and 2021, respectively.
28
Engineered Materials | Acetate Tow | Acetyl Chain | Other Activities | Eliminations | Consolidated | |||||||||||||||||||||||||||||||||
| (In $ millions) | ||||||||||||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||||||||||
| Net sales | 2,787 | 379 | 4,268 | — | (109) | (1) | 7,325 | |||||||||||||||||||||||||||||||
| (14) | — | — | (1) | — | (15) | |||||||||||||||||||||||||||||||||
| Operating profit (loss) | 404 | — | 1,243 | (325) | — | 1,322 | ||||||||||||||||||||||||||||||||
Equity in net earnings (loss) of affiliates | 171 | — | 8 | 10 | — | 189 | ||||||||||||||||||||||||||||||||
| Depreciation and amortization | 134 | 31 | 130 | 14 | — | 309 | ||||||||||||||||||||||||||||||||
| Capital expenditures | 99 | 26 | 205 | 39 | — | 369 | (2) | |||||||||||||||||||||||||||||||
| As of September 30, 2022 | ||||||||||||||||||||||||||||||||||||||
Goodwill and intangible assets, net | 1,544 | 152 | 243 | — | — | 1,939 | ||||||||||||||||||||||||||||||||
Total assets | 5,672 | 1,202 | 4,307 | 10,156 | — | 21,337 | ||||||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||||||
Net sales | 2,011 | 385 | 3,954 | — | (88) | (1) | 6,262 | |||||||||||||||||||||||||||||||
| 6 | — | 1 | (4) | — | 3 | |||||||||||||||||||||||||||||||||
Operating profit (loss) | 344 | 52 | 1,284 | (251) | — | 1,429 | ||||||||||||||||||||||||||||||||
Equity in net earnings (loss) of affiliates | 96 | — | 5 | 9 | — | 110 | ||||||||||||||||||||||||||||||||
Depreciation and amortization | 105 | 29 | 128 | 12 | — | 274 | ||||||||||||||||||||||||||||||||
Capital expenditures | 92 | 31 | 171 | 15 | — | 309 | (2) | |||||||||||||||||||||||||||||||
| As of December 31, 2021 | ||||||||||||||||||||||||||||||||||||||
Goodwill and intangible assets, net | 1,714 | 154 | 279 | — | — | 2,147 | ||||||||||||||||||||||||||||||||
Total assets | 5,363 | 1,098 | 4,428 | 1,086 | — | 11,975 | ||||||||||||||||||||||||||||||||
______________________________
(1)Includes intersegment sales primarily related to the Acetyl Chain.
(2)Includes a decrease in accrued capital expenditures of $31 million and an increase of $5 million for the nine months ended September 30, 2022 and 2021, respectively.
16. Revenue Recognition
The Company has certain contracts that represent take-or-pay revenue arrangements in which the Company's performance obligations extend over multiple years. As of September 30, 2022, the Company had $1.3 billion of remaining performance obligations related to take-or-pay contracts. The Company expects to recognize approximately $86 million of its remaining performance obligations as Net sales in 2022, $348 million in 2023, $351 million in 2024 and the balance thereafter.
Contract Balances
Contract liabilities primarily relate to advances or deposits received from the Company's customers before revenue is recognized. These amounts are recorded as deferred revenue and are included in Current and Noncurrent Other liabilities in the unaudited consolidated balance sheets.
The Company does not have any material contract assets as of September 30, 2022.
Disaggregated Revenue
In general, the Company's business segmentation is aligned according to the nature and economic characteristics of its products and customer relationships and provides meaningful disaggregation of each business segment's results of operations.
The Company manages its Engineered Materials business segment through its project management pipeline, which is comprised of a broad range of projects which are solutions-based and are tailored to each customers' unique needs. Projects are identified and selected based on success rate and may involve a number of different polymers per project for use in multiple end-use applications. Therefore, the Company is agnostic toward products and end-use markets for the Engineered Materials business segment.
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Within the Acetate Tow business segment, the Company's primary product is acetate tow, which is managed through contracts with a few major tobacco companies and accounts for a significant amount of filters used in cigarette production worldwide.
The Company manages its Acetyl Chain business segment by leveraging its ability to sell chemicals externally to end-use markets or downstream to its emulsion polymers, redispersible powders and ethylene vinyl acetate ("EVA") polymers businesses. Decisions to sell externally and geographically or downstream and along the Acetyl Chain are based on market demand, trade flows and maximizing the value of its chemicals. Therefore, the Company's strategic focus is on executing within this integrated chain model and less on driving product-specific revenue.
Further disaggregation of Net sales by business segment and geographic destination is as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (In $ millions) | |||||||||||||||||||||||
| Engineered Materials | |||||||||||||||||||||||
| North America | 292 | 194 | 865 | 546 | |||||||||||||||||||
| Europe and Africa | 355 | 282 | 1,112 | 882 | |||||||||||||||||||
| Asia-Pacific | 256 | 185 | 733 | 518 | |||||||||||||||||||
| South America | 26 | 23 | 77 | 65 | |||||||||||||||||||
| Total | 929 | 684 | 2,787 | 2,011 | |||||||||||||||||||
| Acetate Tow | |||||||||||||||||||||||
| North America | 24 | 24 | 75 | 77 | |||||||||||||||||||
| Europe and Africa | 65 | 64 | 181 | 204 | |||||||||||||||||||
| Asia-Pacific | 44 | 39 | 118 | 99 | |||||||||||||||||||
| South America | 2 | 1 | 5 | 5 | |||||||||||||||||||
| Total | 135 | 128 | 379 | 385 | |||||||||||||||||||
| Acetyl Chain | |||||||||||||||||||||||
| North America | 437 | 405 | 1,262 | 1,046 | |||||||||||||||||||
| Europe and Africa | 396 | 458 | 1,417 | 1,188 | |||||||||||||||||||
| Asia-Pacific | 357 | 540 | 1,354 | 1,530 | |||||||||||||||||||
| South America | 47 | 51 | 126 | 102 | |||||||||||||||||||
Total(1) | 1,237 | 1,454 | 4,159 | 3,866 | |||||||||||||||||||