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.
10
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 | |||||||||
11
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.
12
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 | |||||||||
13
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
14
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.
15
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.
16
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.
17
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.
18
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.
29
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 | |||||||||||||||||||
______________________________
(1)Excludes intersegment sales of $37 million and $35 million for the three months ended September 30, 2022 and 2021, respectively. Excludes intersegment sales of $109 million and $88 million for the nine months ended September 30, 2022 and 2021, respectively.
30
17. Earnings (Loss) Per Share
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (In $ millions, except share data) | |||||||||||||||||||||||
| 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 | |||||||||||||||||||
| Weighted average shares - basic | 108,428,982 | 110,532,051 | 108,336,574 | 112,101,651 | |||||||||||||||||||
Incremental shares attributable to equity awards(1) | 636,988 | 512,507 | 822,258 | 597,646 | |||||||||||||||||||
| Weighted average shares - diluted | 109,065,970 | 111,044,558 | 109,158,832 | 112,699,297 | |||||||||||||||||||
______________________________
(1)Excludes 181,027 and 0 equity award shares for the three months ended September 30, 2022 and 2021, respectfully, as their effect would have been antidilutive. Excludes 149,272 and 67 equity award shares for the nine months ended September 30, 2022 and 2021, respectfully, as their effect would have been antidilutive.
18. Other (Charges) Gains, Net
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (In $ millions) | |||||||||||||||||||||||
| Restructuring | (3) | (1) | (3) | (5) | |||||||||||||||||||
| Asset impairments | (12) | — | (12) | (2) | |||||||||||||||||||
| Plant/office closures | — | 1 | — | 10 | |||||||||||||||||||
| Total | (15) | — | (15) | 3 | |||||||||||||||||||
19. Subsequent Events
On November 1, 2022, the Company completed the M&M Acquisition pursuant to a definitive agreement entered into on February 17, 2022 between the Company and DuPont de Nemours, Inc. The M&M Acquisition was completed for $11.0 billion in cash, subject to transaction adjustments (the "Purchase Price"). The acquired operations will be included in the Engineered Materials segment (Note 3). The Company has not presented a purchase price allocation related to the fair values of assets acquired and liabilities assumed because the initial accounting for the acquisition was incomplete as of the issuance date of the financial statements. The Purchase Price was funded using net proceeds from the sale of the Acquisition Notes, the Term Loan Facility and cash on hand.
31
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
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 terms the "Company," "we," "our" and "us," refer to Celanese and its subsidiaries on a consolidated basis. The term "Celanese U.S." refers to the Company's subsidiary, Celanese US Holdings LLC, a Delaware limited liability company, and not its subsidiaries.
The following discussion should be read in conjunction with the Celanese Corporation and Subsidiaries consolidated financial statements as of and for the year ended December 31, 2021 filed on February 10, 2022 with the Securities and Exchange Commission ("SEC") as part of the Company's Annual Reporting on Form 10-K ("2021 Form 10-K") and the unaudited interim consolidated financial statements and notes to the unaudited interim consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").
Investors are cautioned that the forward-looking statements contained in this section and other parts of this Quarterly Report involve both risk and uncertainty. Several important factors could cause actual results to differ materially from those anticipated by these statements. Many of these statements are macroeconomic in nature and are, therefore, beyond the control of management. See "Forward-Looking Statements" below and at the beginning of our 2021 Form 10-K.
Forward-Looking Statements
Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") and other parts of this Quarterly Report contain certain forward-looking statements and information relating to us that are based on the beliefs of our management as well as assumptions made by, and information currently available to, us. Generally, words such as "believe," "expect," "intend," "estimate," "anticipate," "project," "plan," "may," "can," "could," "might," and "will," and similar expressions, as they relate to us are intended to identify forward-looking statements. These statements reflect our current views and beliefs with respect to future events at the time that the statements are made, are not historical facts or guarantees of future performance and involve risks and uncertainties that are difficult to predict and many of which are outside of our control. Further, certain forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. All forward-looking statements made in this Quarterly Report are made as of the date hereof, and the risk that actual results will differ materially from expectations expressed in this Quarterly Report will increase with the passage of time. We undertake no obligation, and disclaim any duty, to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changes in our expectations or otherwise.
Risk Factors
See Part I - Item 1A. Risk Factors of our 2021 Form 10-K for a description of certain risk factors that you should consider which could significantly affect our financial results. In addition, the following factors, among others, could cause our actual results to differ materially from those results, performance or achievements that may be expressed or implied by such forward-looking statements:
•changes in general economic, business, political and regulatory conditions in the countries or regions in which we operate;
•volatility or changes in the price and availability of raw materials and energy, particularly changes in the demand for, supply of, and market prices of ethylene, methanol, natural gas, wood pulp and fuel oil and the prices for electricity and other energy sources;
•the length and depth of product and industry business cycles particularly in the automotive, electrical, textiles, electronics and construction industries;
•the ability to pass increases in raw material prices, logistics costs and other costs on to customers or otherwise improve margins through price increases;
•the accuracy or inaccuracy of our beliefs or assumptions regarding anticipated benefits of the acquisition (the "M&M Acquisition") by us of the majority of the Mobility & Materials business (the "M&M Business") of DuPont de Nemours, Inc. ("DuPont"), including as a result of the performance of the M&M Business between signing and closing of the M&M Acquisition;
•the possibility that we will not be able to realize anticipated improvements in the M&M Business's financial performance – including optimizing pricing, currency mix and inventory – or realize the anticipated benefits of the M&M Acquisition, including synergies and growth opportunities, within the anticipated timeframe or at all, whether as a result of difficulties
32
arising from the operation or integration of the M&M Business or other unanticipated delays, costs, inefficiencies or liabilities;
•increased commercial, legal or regulatory complexity of entering into, or expanding our exposure to, certain end markets and geographies;
•risks in the global economy and equity and credit markets and their potential impact on our ability to pay down debt in the future and/or refinance at suitable rates, in a timely manner, or at all;
•diversion of management's attention from ongoing business operations and opportunities and other disruption caused by the M&M Acquisition and the integration processes and their impact on our existing business and relationships;
•risks and costs associated with increased leverage from the M&M Acquisition, including increased interest expense and potential reduction of business and strategic flexibility;
•the ability to maintain plant utilization rates and to implement planned capacity additions, expansions and maintenance;
•the ability to reduce or maintain current levels of production costs and to improve productivity by implementing technological improvements to existing plants;
•increased price competition and the introduction of competing products by other companies;
•the ability to identify desirable potential acquisition targets and to complete and integrate acquisition or investment transactions, including obtaining regulatory approvals, consistent with our strategy;
•market acceptance of our technology;
•compliance and other costs and potential disruption or interruption of production or operations due to accidents, interruptions in sources of raw materials, transportation, logistics or supply chain disruptions, cybersecurity incidents, terrorism or political unrest, public health crises (including, but not limited to, the COVID-19 pandemic), or other unforeseen events or delays in construction or operation of facilities, including as a result of geopolitical conditions, the occurrence of acts of war (such as the Russia-Ukraine conflict) or terrorist incidents or as a result of weather, natural disasters, or other crises;
•the ability to obtain governmental approvals and to construct facilities on terms and schedules acceptable to us;
•changes in applicable tariffs, duties and trade agreements, tax rates or legislation throughout the world including, but not limited to, adjustments, changes in estimates or interpretations or the resolution of tax examinations or audits that may impact recorded or future tax impacts and potential regulatory and legislative tax developments in the United States and other jurisdictions;
•changes in the degree of intellectual property and other legal protection afforded to our products or technologies, or the theft of such intellectual property;
•potential liability for remedial actions and increased costs under existing or future environmental, health and safety regulations, including those relating to climate change;
•the extent to which resurgences or variants of COVID-19 may adversely impact the economic environment, market demand, our operations, availability and cost of transportation and materials, the labor supply and pace of economic recovery;
•potential liability resulting from pending or future claims or litigation, including investigations or enforcement actions, or from changes in the laws, regulations or policies of governments or other governmental activities, in the countries in which we operate;
•changes in currency exchange rates and interest rates; and
•various other factors, both referenced and not referenced in this Quarterly Report.
33
Many of these factors are macroeconomic in nature and are, therefore, beyond our control. COVID-19 and responses to the pandemic by governments and businesses, have significantly increased financial, economic and cost volatility and uncertainty, exacerbating the risks and potential impact of these factors. Should one or more of these risks or uncertainties materialize, affect us in ways or to an extent that we currently do not expect or consider to be significant, or should underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from those described in this Quarterly Report as anticipated, believed, estimated, expected, intended, planned or projected. We neither intend nor assume any obligation to update these forward-looking statements, which speak only as of their dates.
Overview
We are a global chemical and specialty materials company. We are a leading global producer of high performance engineered polymers that are used in a variety of high-value applications, as well as one of the world's largest producers of acetyl products, which are intermediate chemicals, for nearly all major industries. As a recognized innovator in the chemicals industry, we engineer and manufacture a wide variety of products essential to everyday living. Our 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. Our products enjoy leading global positions due to our differentiated business models, large global production capacity, operating efficiencies, proprietary technology and competitive cost structures.
Our large and diverse global customer base primarily consists of major companies across a broad array of industries. We hold geographically balanced global positions and participate in diversified end-use applications. We combine a demonstrated track record of execution, strong performance built on differentiated business models and a clear focus on growth and value creation. Known for operational excellence, reliability and execution of our business strategies, we partner with our customers around the globe to deliver best-in-class technologies and solutions.
On February 17, 2022, we signed a definitive agreement to acquire a majority of the Mobility & Materials business of DuPont de Nemours, Inc. See Note 3 - Acquisitions, Dispositions and Plant Closures in the accompanying unaudited interim consolidated financial statements for further information. We closed on the M&M Acquisition on November 1, 2022. See Note 19 - Subsequent Events in the accompanying unaudited interim consolidated financial statements for further information.
34
Results of Operations
Financial Highlights
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Change | 2022 | 2021 | Change | ||||||||||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||||||||||||||
| (In $ millions, except percentages) | |||||||||||||||||||||||||||||||||||
| Statement of Operations Data | |||||||||||||||||||||||||||||||||||
| Net sales | 2,301 | 2,266 | 35 | 7,325 | 6,262 | 1,063 | |||||||||||||||||||||||||||||
| Gross profit | 546 | 715 | (169) | 1,996 | 1,961 | 35 | |||||||||||||||||||||||||||||
| Selling, general and administrative ("SG&A") expenses | (184) | (165) | (19) | (555) | (463) | (92) | |||||||||||||||||||||||||||||
| Other (charges) gains, net | (15) | — | (15) | (15) | 3 | (18) | |||||||||||||||||||||||||||||
| Operating profit (loss) | 308 | 536 | (228) | 1,322 | 1,429 | (107) | |||||||||||||||||||||||||||||
| Equity in net earnings (loss) of affiliates | 73 | 44 | 29 | 189 | 110 | 79 | |||||||||||||||||||||||||||||
| Non-operating pension and other postretirement employee benefit (expense) income | 25 | 37 | (12) | 74 | 113 | (39) | |||||||||||||||||||||||||||||
| Interest expense | (154) | (21) | (133) | (237) | (70) | (167) | |||||||||||||||||||||||||||||
| Interest income | 34 | 2 | 32 | 36 | 7 | 29 | |||||||||||||||||||||||||||||
| Dividend income - equity investments | 30 | 35 | (5) | 103 | 114 | (11) | |||||||||||||||||||||||||||||
| Earnings (loss) from continuing operations before tax | 321 | 622 | (301) | 1,491 | 1,691 | (200) | |||||||||||||||||||||||||||||
| Earnings (loss) from continuing operations | 194 | 520 | (326) | 1,140 | 1,388 | (248) | |||||||||||||||||||||||||||||
| Earnings (loss) from discontinued operations | (1) | (13) | 12 | (7) | (18) | 11 | |||||||||||||||||||||||||||||
| Net earnings (loss) | 193 | 507 | (314) | 1,133 | 1,370 | (237) | |||||||||||||||||||||||||||||
| Net earnings (loss) attributable to Celanese Corporation | 191 | 506 | (315) | 1,127 | 1,366 | (239) | |||||||||||||||||||||||||||||
| Other Data | |||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 100 | 93 | 7 | 309 | 274 | 35 | |||||||||||||||||||||||||||||
| SG&A expenses as a percentage of Net sales | 8.0 | % | 7.3 | % | 7.6 | % | 7.4 | % | |||||||||||||||||||||||||||
Operating margin(1) | 13.4 | % | 23.7 | % | 18.0 | % | 22.8 | % | |||||||||||||||||||||||||||
| Other (charges) gains, net | |||||||||||||||||||||||||||||||||||
Restructuring | (3) | (1) | (2) | (3) | (5) | 2 | |||||||||||||||||||||||||||||
Asset impairments | (12) | — | (12) | (12) | (2) | (10) | |||||||||||||||||||||||||||||
Plant/office closures | — | 1 | (1) | — | 10 | (10) | |||||||||||||||||||||||||||||
Total Other (charges) gains, net | (15) | — | (15) | (15) | 3 | (18) | |||||||||||||||||||||||||||||
______________________________
(1)Defined as Operating profit (loss) divided by Net sales.
| As of September 30, 2022 | As of December 31, 2021 | ||||||||||
| (unaudited) | |||||||||||
| (In $ millions) | |||||||||||
| Balance Sheet Data | |||||||||||
| Cash and cash equivalents | 9,671 | 536 | |||||||||
| Short-term borrowings and current installments of long-term debt - third party and affiliates | 977 | 791 | |||||||||
| Long-term debt, net of unamortized deferred financing costs | 11,360 | 3,176 | |||||||||
| Total debt | 12,337 | 3,967 | |||||||||
35
Factors Affecting Business Segment Net Sales
The percentage increase (decrease) in Net sales attributable to each of the factors indicated for each of our business segments is as follows:
Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021
| Volume | Price | Currency | Other | Total | |||||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||||||||
| (In percentages) | |||||||||||||||||||||||||||||
| Engineered Materials | 23 | 25 | (12) | — | 36 | ||||||||||||||||||||||||
| Acetate Tow | (3) | 8 | — | — | 5 | ||||||||||||||||||||||||
| Acetyl Chain | (13) | 2 | (3) | — | (14) | ||||||||||||||||||||||||
| Total Company | (2) | 9 | (5) | — | 2 | ||||||||||||||||||||||||
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
| Volume | Price | Currency | Other | Total | |||||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||||||||
| (In percentages) | |||||||||||||||||||||||||||||
| Engineered Materials | 22 | 25 | (8) | — | 39 | ||||||||||||||||||||||||
| Acetate Tow | (7) | 5 | — | — | (2) | ||||||||||||||||||||||||
| Acetyl Chain | (4) | 14 | (2) | — | 8 | ||||||||||||||||||||||||
| Total Company | 4 | 17 | (4) | — | 17 | ||||||||||||||||||||||||
Consolidated Results
Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021
Net sales increased $35 million, or 2%, for the three months ended September 30, 2022 compared to the same period in 2021, primarily due to:
•higher pricing in all of our segments, primarily driven by our Engineered Materials segment due to higher raw material costs, higher energy costs and product mix; and
•higher volume in our Engineered Materials segment, primarily in elastomers related to our acquisition of the Santoprene™ thermoplastic vulcanizates elastomers business of Exxon Mobil Corporation ("Santoprene");
partially offset by:
•lower volume in our Acetyl Chain segment due to decreased demand primarily in Asia and Europe; and
•an unfavorable currency impact resulting from a weaker euro relative to the U.S. dollar.
Selling, general and administrative expenses increased $19 million, or 12%, for the three months ended September 30, 2022 compared to the same period in 2021, primarily due to:
•higher functional and project spending of $51 million in Other Activities;
partially offset by:
•lower incentive compensation cost.
Operating profit decreased $228 million, or 43%, for the three months ended September 30, 2022 compared to the same period in 2021, primarily due to:
•higher raw material and energy costs across all of our segments;
36
•lower Net sales in our Acetyl Chain segment; and
•higher spending in our Engineered Materials segment as a result of our acquisition of Santoprene, as well as plant operating and administrative expenses;
partially offset by:
•higher Net sales in our Engineered Materials segment.
Equity in net earnings (loss) of affiliates increased $29 million for the three months ended September 30, 2022 compared to the same period in 2021, primarily due to:
•an increase in equity investment in earnings of $39 million from our Ibn Sina strategic affiliate, primarily as a result of tighter market conditions and stronger demand.
Our effective income tax rate for the three months ended September 30, 2022 was 40% compared to 16% for the same period in 2021. The higher effective income tax rate was 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. See Note 11 - Income Taxes in the accompanying unaudited interim consolidated financial statements for further information.
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
Net sales increased $1.1 billion, or 17%, for the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to:
•higher pricing in all of our segments, primarily driven by our Acetyl Chain segment due to tighter market conditions as a result of increased customer demand in the Western Hemisphere and supply constraints across most regions, as well as our Engineered Materials segment due to higher raw material costs, energy costs and product mix; and
•higher volume in our Engineered Materials segment, primarily in elastomers related to our acquisition of Santoprene;
partially offset by:
•an unfavorable currency impact resulting from a weaker euro relative to the U.S. dollar; and
•lower volume in our other segments, primarily driven by our Acetyl Chain segment due to decreased demand predominantly in Asia.
Selling, general and administrative expenses increased $92 million, or 20%, for the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to:
•higher functional and project spending of $117 million in Other Activities.
Operating profit decreased $107 million, or 7%, for the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to:
•higher raw material and energy costs across all of our segments; and
•higher spending across most of our segments, primarily driven by our Engineered Materials segment as a result of our acquisition of Santoprene, as well as plant operating and administrative expenses;
partially offset by:
•higher Net sales across most of our segments.
Non-operating pension and other postretirement employee benefit income decreased $39 million, or 35%, for the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to:
•lower expected return on plan assets and higher interest cost.
37
Equity in net earnings (loss) of affiliates increased $79 million for the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to:
•an increase in equity investment in earnings of $76 million from our Ibn Sina strategic affiliate, primarily as a result of tighter market conditions and stronger demand.
Our effective income tax rate for the nine months ended September 30, 2022 was 24% compared to 18% for the same period in 2021. The higher effective income tax rate was 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 and increased earnings in high tax jurisdictions. See Note 11 - Income Taxes in the accompanying unaudited interim consolidated financial statements for further information.
38
Business Segments
Engineered Materials
| Three Months Ended September 30, | Change | % Change | Nine Months Ended September 30, | Change | % Change | ||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||
| (In $ millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net sales | 929 | 684 | 245 | 35.8 | % | 2,787 | 2,011 | 776 | 38.6 | % | |||||||||||||||||||||||||||||||||||||
| Net Sales Variance | |||||||||||||||||||||||||||||||||||||||||||||||
| Volume | 23 | % | 22 | % | |||||||||||||||||||||||||||||||||||||||||||
| Price | 25 | % | 25 | % | |||||||||||||||||||||||||||||||||||||||||||
| Currency | (12) | % | (8) | % | |||||||||||||||||||||||||||||||||||||||||||
| Other | — | % | — | % | |||||||||||||||||||||||||||||||||||||||||||
| Other (charges) gains, net | (14) | — | (14) | (100.0) | % | (14) | 6 | (20) | (333.3) | % | |||||||||||||||||||||||||||||||||||||
| Operating profit (loss) | 114 | 91 | 23 | 25.3 | % | 404 | 344 | 60 | 17.4 | % | |||||||||||||||||||||||||||||||||||||
| Operating margin | 12.3 | % | 13.3 | % | 14.5 | % | 17.1 | % | |||||||||||||||||||||||||||||||||||||||
Equity in net earnings (loss) of affiliates | 69 | 39 | 30 | 76.9 | % | 171 | 96 | 75 | 78.1 | % | |||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 43 | 35 | 8 | 22.9 | % | 134 | 105 | 29 | 27.6 | % | |||||||||||||||||||||||||||||||||||||
Our Engineered Materials segment includes our engineered materials business, our food ingredients business and certain strategic affiliates. Our engineered materials business develops, produces and supplies a broad portfolio of high performance specialty polymers for automotive and medical applications, as well as industrial products and consumer electronics. Together with our strategic affiliates, our engineered materials business is a leading participant in the global specialty polymers industry. Our food ingredients business is a leading global supplier of acesulfame potassium for the food and beverage industry and is a leading producer of food protection ingredients, such as potassium sorbate and sorbic acid.
The pricing of products within the Engineered Materials segment is primarily based on the value of the material we produce and is generally independent of changes in the cost of raw materials, but may be impacted during periods of inflation and increased costs. Therefore, in general, margins may expand or contract in response to changes in raw material costs. We attempt to address increases in raw material costs through appropriate pricing actions.
Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021
Net sales increased for the three months ended September 30, 2022 compared to the same period in 2021, primarily due to:
•higher pricing for most of our products, primarily due to higher raw material costs, higher energy costs and product mix; and
•higher volume, primarily in elastomers related to our acquisition of Santoprene;
partially offset by:
•an unfavorable currency impact resulting from a weaker euro relative to the U.S. dollar.
Operating profit increased for the three months ended September 30, 2022 compared to the same period in 2021, primarily due to:
•higher Net sales;
largely offset by:
•higher raw material costs for most of our products and increased sourcing costs as a result of higher logistical costs and global shipping constraints;
•higher energy costs of $66 million, primarily for steam;
39
•higher spending of $37 million, primarily as a result of our acquisition of Santoprene, as well as plant operating and administrative expenses; and
•an unfavorable impact of $14 million to Other (charges) gains, net. During the three months ended September 30, 2022, we recorded an $8 million long-lived asset impairment loss related to certain fixed and intangible assets used in manufacturing operations in Silao, Mexico in the current year. See Note 3 - Acquisitions, Dispositions and Plant Closures in the accompanying unaudited interim consolidated financial statements for further information.
Equity in net earnings (loss) of affiliates increased for the three months ended September 30, 2022 compared to the same period in 2021, primarily due to:
•an increase in equity investment in earnings of $39 million from our Ibn Sina strategic affiliate, primarily as a result of tighter market conditions and stronger demand.
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
Net sales increased for the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to:
•higher pricing for most of our products, primarily due to higher raw material costs, higher energy costs and product mix; and
•higher volume, primarily in elastomers related to our acquisition of Santoprene;
partially offset by:
•an unfavorable currency impact resulting from a weaker euro relative to the U.S. dollar.
Operating profit increased for the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to:
•higher Net sales;
largely offset by:
•higher raw material costs for all of our products and increased sourcing costs as a result of higher logistical costs and global shipping constraints;
•higher energy costs of $146 million, primarily for steam;
•higher spending of $113 million, primarily as a result of our acquisition of Santoprene, as well as plant operating and administrative expenses; and
•an unfavorable impact of $20 million to Other (charges) gains, net. During the nine months ended September 30, 2021, we recorded a $9 million gain on the termination of our Ferrara Marconi, Italy office lease, which did not recur in the current year. During the nine months ended September 30, 2022, we recorded an $8 million long-lived asset impairment loss related to certain fixed and intangible assets used in manufacturing operations in Silao, Mexico in the current year.
Equity in net earnings (loss) of affiliates increased for the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to:
•an increase in equity investment in earnings of $76 million from our Ibn Sina strategic affiliate, primarily as a result of tighter market conditions and stronger demand.
40
Acetate Tow
| Three Months Ended September 30, | Change | % Change | Nine Months Ended September 30, | Change | % Change | ||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||
| (In $ millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net sales | 135 | 128 | 7 | 5.5 | % | 379 | 385 | (6) | (1.6) | % | |||||||||||||||||||||||||||||||||||||
| Net Sales Variance | |||||||||||||||||||||||||||||||||||||||||||||||
| Volume | (3) | % | (7) | % | |||||||||||||||||||||||||||||||||||||||||||
| Price | 8 | % | 5 | % | |||||||||||||||||||||||||||||||||||||||||||
| Currency | — | % | — | % | |||||||||||||||||||||||||||||||||||||||||||
| Other | — | % | — | % | |||||||||||||||||||||||||||||||||||||||||||
| Operating profit (loss) | (3) | 12 | (15) | (125.0) | % | — | 52 | (52) | (100.0) | % | |||||||||||||||||||||||||||||||||||||
| Operating margin | (2.2) | % | 9.4 | % | — | % | 13.5 | % | |||||||||||||||||||||||||||||||||||||||
Dividend income - equity investments | 30 | 34 | (4) | (11.8) | % | 102 | 112 | (10) | (8.9) | % | |||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 10 | 10 | — | — | % | 31 | 29 | 2 | 6.9 | % | |||||||||||||||||||||||||||||||||||||
Our Acetate Tow segment serves consumer-driven applications. We are a leading global producer and supplier of acetate tow and acetate flake, primarily used in filter products applications.
The pricing of products within the Acetate Tow segment is sensitive to demand and is primarily based on the value of the product we produce. Many sales in this business are conducted under contracts with pricing for one or more years. As a result, margins may expand or contract in response to changes in market conditions over these similar periods, and we may be unable to adjust pricing due to other factors, such as the intense level of competition in the industry.
Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021
Net sales increased for the three months ended September 30, 2022 compared to the same period in 2021, primarily due to:
•higher pricing, primarily due to higher raw material and energy costs.
Operating profit decreased for the three months ended September 30, 2022 compared to the same period in 2021, primarily due to:
•higher energy costs of $10 million, primarily related to natural gas pricing; and
•higher raw material costs of $7 million as a result of cost inflation and global shipping constraints;
partially offset by:
•higher Net sales.
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
Net sales decreased for the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to:
•lower acetate tow volume primarily related to dynamic market conditions, as well as supply constraints and shipping vessel disruptions;
partially offset by:
•higher pricing, primarily due to higher raw material and energy costs.
41
Operating profit decreased for the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to:
•higher energy costs of $34 million, primarily related to natural gas pricing;
•higher raw material costs of $20 million as a result of cost inflation and global shipping constraints; and
•lower Net sales.
42
Acetyl Chain
| Three Months Ended September 30, | Change | % Change | Nine Months Ended September 30, | Change | % Change | ||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||
| (In $ millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net sales | 1,274 | 1,489 | (215) | (14.4) | % | 4,268 | 3,954 | 314 | 7.9 | % | |||||||||||||||||||||||||||||||||||||
| Net Sales Variance | |||||||||||||||||||||||||||||||||||||||||||||||
| Volume | (13) | % | (4) | % | |||||||||||||||||||||||||||||||||||||||||||
| Price | 2 | % | 14 | % | |||||||||||||||||||||||||||||||||||||||||||
| Currency | (3) | % | (2) | % | |||||||||||||||||||||||||||||||||||||||||||
| Other | — | % | — | % | |||||||||||||||||||||||||||||||||||||||||||
| Operating profit (loss) | 315 | 517 | (202) | (39.1) | % | 1,243 | 1,284 | (41) | (3.2) | % | |||||||||||||||||||||||||||||||||||||
| Operating margin | 24.7 | % | 34.7 | % | 29.1 | % | 32.5 | % | |||||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 43 | 44 | (1) | (2.3) | % | 130 | 128 | 2 | 1.6 | % | |||||||||||||||||||||||||||||||||||||
Our Acetyl Chain segment includes the integrated chain of our intermediate chemistry, emulsion polymers, ethylene vinyl acetate ("EVA") polymers and redispersible powders ("RDP") businesses. Our intermediate chemistry business produces and supplies acetyl products, including acetic acid, vinyl acetate monomer ("VAM"), acetic anhydride and acetate esters. These products are generally used as starting materials for colorants, paints, adhesives, coatings and pharmaceuticals. It also produces organic solvents and intermediates for pharmaceutical, agricultural and chemical products. Our emulsion polymers business is a leading global producer of vinyl acetate-based emulsions and develops products and application technologies to improve performance, create value and drive innovation in applications such as paints and coatings, adhesives, construction, glass fiber, textiles and paper. Our EVA polymers business is a leading North American manufacturer of a full range of specialty EVA resins and compounds, as well as select grades of low-density polyethylene. Our EVA polymers products are used in many applications, including flexible packaging films, lamination film products, hot melt adhesives, automotive parts and carpeting. Our RDP business is a leading manufacturer of redispersible polymer powders, sold under the Elotex® brand. The business produces polymer emulsions which are converted into powdered thermoplastic resin materials. RDP products are used in a variety of applications in the mortar industry, including decorative mortar, exterior insulation and finish systems, gypsum-based materials, plaster and render, self-leveling floor systems, skim coat and tile adhesives.
The pricing of products within the Acetyl Chain is influenced by industry utilization rates and changes in the cost of raw materials. Therefore, in general, there is a directional correlation between these factors and our Net sales for most Acetyl Chain products. This impact to pricing typically lags changes in raw material costs over months or quarters.
Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021
Net sales decreased for the three months ended September 30, 2022 compared to the same period in 2021, primarily due to:
•lower volume for most of our products due to decreased demand primarily in Asia and Europe;
•lower pricing for acid, primarily due to weaker economic conditions particularly in China; and
•an unfavorable currency impact resulting from a weaker euro relative to the U.S. dollar;
partially offset by:
•higher pricing for most of our other products, primarily due to tighter market conditions as a result of increased customer demand in the Western Hemisphere and supply constraints across most regions.
Operating profit decreased for the three months ended September 30, 2022 compared to the same period in 2021, primarily due to:
•lower Net sales;
43
•higher raw material and sourcing costs, primarily for methanol and carbon monoxide due to stronger demand and tighter market conditions, as well as higher distribution costs due to global shipping constraints; and
•higher energy costs of $27 million, primarily due to price increases for natural gas and electricity.
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
Net sales increased for the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to:
•higher pricing for most of our products, primarily due to tighter market conditions as a result of increased customer demand in the Western Hemisphere and supply constraints across most regions; and
•higher volume, primarily for VAM due to lower competitor utilization in the Western Hemisphere;
partially offset by:
•lower volume for most of our other products due to decreased demand, primarily in Asia; and
•an unfavorable currency impact resulting from a weaker euro relative to the U.S. dollar.
Operating profit decreased for the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to:
•higher raw material and sourcing costs, primarily for methanol, carbon monoxide and ethylene due to stronger demand and tighter market conditions, as well as higher distribution costs due to global shipping constraints;
•higher energy costs of $62 million, primarily due to price increases for natural gas and electricity; and
•higher spending of $49 million, primarily as a result of increased plant operating and maintenance expenses;
largely offset by:
•higher Net sales.
44
Other Activities
| Three Months Ended September 30, | Change | % Change | Nine Months Ended September 30, | Change | % Change | ||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||
| (In $ millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
| Operating profit (loss) | (118) | (84) | (34) | (40.5) | % | (325) | (251) | (74) | (29.5) | % | |||||||||||||||||||||||||||||||||||||
Non-operating pension and other postretirement employee benefit (expense) income | 25 | 37 | (12) | (32.4) | % | 74 | 113 | (39) | (34.5) | % | |||||||||||||||||||||||||||||||||||||
Other Activities primarily consists of corporate center costs, including administrative activities such as finance, information technology and human resource functions, interest income and expense associated with financing activities and results of our captive insurance companies. Other Activities also includes the components of net periodic benefit cost (interest cost, expected return on assets and net actuarial gains and losses) for our defined benefit pension plans and other postretirement plans not allocated to our business segments.
Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021
Operating loss increased for the three months ended September 30, 2022 compared to the same period in 2021, primarily due to:
•higher functional and project spending of $51 million;
partially offset by:
•lower incentive compensation cost.
Non-operating pension and other postretirement employee benefit income decreased for the three months ended September 30, 2022 compared to the same period in 2021, primarily due to:
•lower expected return on plan assets and higher interest cost.
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
Operating loss increased for the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to:
•higher functional and project spending of $117 million;
partially offset by:
•lower incentive compensation cost.
Non-operating pension and other postretirement employee benefit income decreased for the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to:
•lower expected return on plan assets and higher interest cost.
45
Liquidity and Capital Resources
Our primary sources of liquidity are cash generated from operations, available cash and cash equivalents, dividends from our portfolio of strategic investments and available borrowings under our senior unsecured revolving credit facility. As of September 30, 2022, we have $1.75 billion available for borrowing under our senior unsecured revolving credit facility, if required, in meeting our working capital needs and other contractual obligations. In addition, we held cash and cash equivalents of $9.7 billion as of September 30, 2022. We are actively managing our business to maintain cash flow, and we believe that liquidity from the above-referenced sources will be sufficient to meet our operational and capital investment needs and financial obligations for the foreseeable future.
On February 17, 2022, we 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. For further information regarding the acquisition and related financing transactions, see Debt and Other Obligations in this Liquidity and Capital Resources and Note 3 - Acquisitions, Dispositions and Plant Closures in the accompanying unaudited interim consolidated financial statements. We closed on the M&M Acquisition on November 1, 2022. See Note 19 - Subsequent Events in the accompanying unaudited interim consolidated financial statements for further information.
Our incurrence of debt to finance the purchase price for the M&M Acquisition has increased our leverage and will increase, as of the closing of the M&M Acquisition, our ratio of indebtedness to consolidated EBITDA as set forth in our senior unsecured credit facilities. We believe that cash flows from our operations, together with cash generation, synergy opportunities from the M&M Acquisition and cost reduction initiatives, will support our deleveraging efforts over the next few years. In furtherance of these deleveraging efforts, we have paused our share repurchase program, reevaluated and reduced our anticipated 2022 capital expenditures by approximately $50 million and are in the process of evaluating additional cash generation opportunities which may include the opportunistic disposition or monetization of product or business lines or other assets. We are committed to rapid deleveraging and to maintaining our investment grade debt rating.
While our contractual obligations, commitments and debt service requirements over the next several years are significant, we continue to believe we will have available resources to meet our liquidity requirements, including debt service, for the next twelve months. If our cash flow from operations is insufficient to fund our debt service and other obligations, we may be required to use other means available to us such as increasing our borrowings, reducing or delaying capital expenditures, seeking additional capital or seeking to restructure or refinance our indebtedness. There can be no assurance, however, that we will continue to generate cash flows at or above current levels.
We continue to prioritize those projects expected to drive productivity in the near term and expect capital expenditures to be approximately $550 million in 2022, primarily due to certain investments in growth opportunities and productivity improvements. In Engineered Materials, our planned expansion of the compounding capacity at our facilities in China is experiencing some delays due to certain permitting issues. In the Acetyl Chain, our planned expansion of (1) the capacity of our vinyl acetate ethylene ("VAE") and emulsions plants in Nanjing, China, (2) the capacity of our vinyl acetate monomer ("VAM") plant in Bay City, Texas and (3) the sustainable production of methanol at our Fairway joint venture in Clear Lake, Texas using captured carbon dioxide as feedstock, are on schedule. Lastly, our planned acetic acid expansion in Clear Lake, Texas and our VAE emulsion plant expansion in Frankfurt, Germany, are still in construction and on schedule. We continue to see the incremental capacity from investments made in recent years strengthen our manufacturing network reliability to best serve our customers.
On a stand-alone basis, Celanese and its immediate 100% owned subsidiary, Celanese U.S., have no independent external operations of their own. Accordingly, they generally depend on the cash flow of their subsidiaries and their ability to pay dividends and make other distributions to Celanese and Celanese U.S. in order to meet their obligations, including their obligations under senior credit facilities and senior notes, and to pay dividends on our Common Stock.
We are subject to capital controls and exchange restrictions imposed by the local governments in certain jurisdictions where we operate, such as China, India and Indonesia. Capital controls impose limitations on our ability to exchange currencies, repatriate earnings or capital, lend via intercompany loans or create cross-border cash pooling arrangements. Our largest exposure to a country with capital controls is in China. Pursuant to applicable regulations, foreign-invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, the Chinese government imposes certain currency exchange controls on cash transfers out of China, puts certain limitations on duration, purpose and amount of intercompany loans, and restricts cross-border cash pooling. While it is possible that future tightening of these restrictions or application of new similar restrictions could impact us, these limitations do not currently restrict our operations.
46
We remain in compliance with the financial covenants under our senior unsecured credit facilities and expect to remain in compliance based on our current expectation of future results of operations. If our actual future results of operations differ materially from these expectations, we may be required to seek an amendment or waiver of such covenants which may increase our borrowing costs under those debt instruments.
Cash Flows
Cash and cash equivalents increased $9.1 billion to $9.7 billion as of September 30, 2022 compared to December 31, 2021. As of September 30, 2022, $825 million of the $9.7 billion of cash and cash equivalents was held by our foreign subsidiaries. Under the TCJA, we have incurred a prior year charge associated with the deemed repatriation of previously unremitted foreign earnings, including foreign held cash. These funds are largely accessible without additional material tax consequences, if needed in the U.S., to fund operations.
•Net Cash Provided by (Used in) Operating Activities
Net cash provided by operating activities increased $105 million to $1.3 billion for the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to:
•a decrease in VAT taxes receivable primarily due to the receipt of refunds during the nine months ended September 30, 2022;
•a payment for the European Commission settlement of $100 million, which did not recur in the current year; and
•favorable trade working capital of $65 million, primarily due to a decrease in trade receivables and trade payables, partially offset by an increase in inventory. Trade receivables decreased primarily as a result of the timing of trade receivable collections during the nine months ended September 30, 2022 and trade payables decreased as a result of the timing of settlement of trade payables. Inventory increased primarily as a result of higher costs for raw materials during the nine months ended September 30, 2022;
partially offset by:
•a decrease in Net earnings.
•Net Cash Provided by (Used in) Investing Activities
Net cash used in investing activities increased $595 million to $428 million for the nine months ended September 30, 2022 compared to net cash provided by investing activities of $167 million for the same period in 2021, primarily due to:
•proceeds from the sale of marketable securities of $500 million, which did not recur in the current year; and
•an increase of $96 million in capital expenditures during the nine months ended September 30, 2022.
•Net Cash Provided by (Used in) Financing Activities
Net cash provided by financing activities increased $9.3 billion to $8.3 billion for the nine months ended September 30, 2022 compared to net cash used in financing activities of $943 million for the same period in 2021, primarily due to:
•an increase in net proceeds of long-term debt of $8.8 billion, primarily due to the issuance of senior unsecured notes consisting of $2.0 billion in principal amount of 5.900% notes due July 5, 2024, $1.75 billion in principal amount of 6.050% notes due March 15, 2025, $2.0 billion in principal amount of 6.165% notes due July 15, 2027, $750 million in principal amount of 6.330% notes due July 15, 2029 and $1.0 billion in principal amount of 6.379% notes due July 15, 2032 (collectively, the "Acquisition USD Notes"), as well as senior unsecured notes consisting of €1.0 billion in principal amount of 4.777% notes due July 19, 2026 and €500 million in principal amount of 5.337% notes due January 19, 2029 (collectively, the "Acquisition Euro Notes" and, together with the Acquisition USD Notes, the "Acquisition Notes"), partially offset by the maturity of the 5.875% senior unsecured notes ("5.875% Notes") which were repaid during the nine months ended September 30, 2021;
•a decrease in share repurchases of our Common Stock of $786 million during the nine months ended September 30, 2022; and
47
•settlement of a forward-starting interest rate swap of $72 million, which did not recur in the current year;
partially offset by:
•a decrease in net borrowings on short-term debt of $260 million, primarily due to borrowing under the senior unsecured revolving credit facility to repay the 5.875% Notes which matured during the nine months ended September 30, 2021; and
•a payment of $63 million during the nine months ended September 30, 2022 for fees related to 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 therein, a 364-day $11.0 billion senior unsecured bridge term loan facility (the "Bridge Facility").
Debt and Other Obligations
On March 18, 2022, we 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"). The Term Loan Facility is guaranteed by Celanese and domestic subsidiaries representing substantially all of our U.S. assets and business operations.
On March 18, 2022, we 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 our existing revolving credit facility.
On July 14, 2022 and July 19, 2022, Celanese U.S. completed the offerings of the Acquisition USD Notes and Acquisition Euro Notes, respectively. Fees and expenses of the offering of the Acquisition Notes, inclusive of underwriting discounts, were $65 million.
The entry into the Term Loan Credit Agreements and the offerings of the Acquisition Notes reduced availability under the Bridge Facility to zero, and we terminated the Bridge Facility. 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.
The Term Loan Facility, subject to the terms and conditions set forth in the Term Loan Credit Agreements, together with the Acquisition Notes and additional debt financing, will be available to finance the M&M Acquisition, and to pay fees and expenses related thereto.
On November 1, 2022, we borrowed $300 million under our senior unsecured revolving credit facility for general corporate purposes, reducing availability of borrowings under the facility to $1.45 billion.
See Note 3 - Acquisitions, Dispositions and Plant Closures and Note 7 - Debt in the accompanying unaudited interim consolidated financial statements for further information.
There have been no material changes to our debt or other obligations described in our 2021 Form 10-K other than those disclosed above and in Note 7 - Debt in the accompanying unaudited interim consolidated financial statements.
Accounts Receivable Purchasing Facility
In June 2021, we entered into an amendment to the amended and restated receivables purchase agreement under our U.S. accounts receivable purchasing facility among certain of our subsidiaries, our wholly-owned, "bankruptcy remote" special purpose subsidiary ("SPE") and certain global financial institutions ("Purchasers"). We 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.
48
Factoring and Discounting Agreements
We have factoring agreements in Europe and Singapore with financial institutions to sell 100% and 90% of certain accounts receivable, respectively, on a non-recourse basis. We 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, we 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. We 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.
See Note 7 - Debt in the accompanying unaudited interim consolidated financial statements for further information.
Guarantor Financial Information
We have outstanding senior unsecured notes, issued in public offerings registered under the Securities Act of 1933, as amended (collectively, the "Senior Notes"). The Senior Notes were issued by Celanese U.S. ("Issuer") and are guaranteed by Celanese Corporation ("Parent Guarantor") and the Subsidiary Guarantors (collectively the "Obligor Group"). See Note 7 - Debt in the accompanying unaudited interim consolidated financial statements for further information. The Issuer and Subsidiary Guarantors are 100% owned subsidiaries of the Parent Guarantor. The Subsidiary Guarantors are listed in Exhibit 22.1 to this Quarterly Report.
The Parent Guarantor and the Subsidiary Guarantors have guaranteed the Senior Notes on a full and unconditional, joint and several, senior unsecured basis. The guarantees are subject to certain customary release provisions, including that a Subsidiary Guarantor will be released from its respective guarantee in specified circumstances, including (i) the sale or transfer of all of its assets or capital stock; (ii) its merger or consolidation with, or transfer of all or substantially all of its assets to, another person; or (iii) its ceasing to be a majority-owned subsidiary of the Issuer in connection with any sale of its capital stock or other transaction. Additionally, a Subsidiary Guarantor will be released from its guarantee of the Senior Notes at such time that it ceases to guarantee the Issuer's obligations under the Credit Agreements (subject to the satisfaction of customary document delivery requirements). The obligations of the Subsidiary Guarantors under their guarantees are limited as necessary to prevent such guarantees from constituting a fraudulent conveyance or fraudulent transfer under applicable law.
The Parent Guarantor and the Issuer are holding companies that conduct substantially all of their operations through their subsidiaries, which own substantially all of our consolidated assets. The Parent Guarantor has no material assets other than the stock of its immediate 100% owned subsidiary, the Issuer. The principal source of cash to pay the Parent Guarantor's and the Issuer's obligations, including obligations under the Senior Notes and the guarantee of the Issuer's obligations under the Credit Agreement, is the cash that our subsidiaries generate from their operations. Each of the Subsidiary Guarantors and our non-guarantor subsidiaries is a distinct legal entity and, under certain circumstances, applicable country or state laws, regulatory limitations and terms of other debt instruments may limit our subsidiaries' ability to distribute cash to the Issuer and the Parent Guarantor.
For cash management purposes, we transfer cash among the Parent Guarantor, Issuer, Subsidiary Guarantors and non-guarantors through intercompany financing arrangements, contributions or declaration of dividends between the respective parent and its subsidiaries. While the non-guarantor subsidiaries do not guarantee the Issuer's obligations under our outstanding debt, the transfer of cash under these activities facilitates the ability of the recipient to make specified third-party payments for principal and interest on the Senior Notes, Credit Agreement, other outstanding debt, Common Stock dividends and Common Stock repurchases.
The summarized financial information of the Obligor Group is presented below on a combined basis after the elimination of: (i) intercompany transactions among such entities and (ii) equity in earnings from and investments in the non-guarantor subsidiaries. Transactions with, and amounts due to or from, non-guarantor subsidiaries and affiliates are separately disclosed.
49
| Nine Months Ended September 30, 2022 | |||||
| (In $ millions) | |||||
| (unaudited) | |||||
| Net sales to third parties | 1,550 | ||||
| Net sales to non-guarantor subsidiaries | 743 | ||||
| Total net sales | 2,293 | ||||
| Gross profit | 379 | ||||
| Earnings (loss) from continuing operations | (218) | ||||
| Net earnings (loss) | (222) | ||||
| Net earnings (loss) attributable to the Obligor Group | (222) | ||||
| As of September 30, 2022 | As of December 31, 2021 | ||||||||||
| (In $ millions) | |||||||||||
| (unaudited) | |||||||||||
| Receivables from non-guarantor subsidiaries | 511 | 624 | |||||||||
| Other current assets | 10,139 | 1,236 | |||||||||
| Total current assets | 10,650 | 1,860 | |||||||||
| Goodwill | 578 | 578 | |||||||||
| Other noncurrent assets | 2,892 | 2,584 | |||||||||
| Total noncurrent assets | 3,470 | 3,162 | |||||||||
| Current liabilities due to non-guarantor subsidiaries | 3,097 | 2,493 | |||||||||
| Current liabilities due to affiliates | 15 | 64 | |||||||||
| Other current liabilities | 1,721 | 1,347 | |||||||||
| Total current liabilities | 4,833 | 3,904 | |||||||||
| Noncurrent liabilities due to non-guarantor subsidiaries | 2,316 | 2,348 | |||||||||
| Other noncurrent liabilities | 11,902 | 3,610 | |||||||||
| Total noncurrent liabilities | 14,218 | 5,958 | |||||||||
Share Capital
We declared a quarterly cash dividend of $0.70 per share on our Common Stock on October 19, 2022, amounting to $76 million.
There have been no material changes to our share capital described in our 2021 Form 10-K other than those disclosed above and in Note 10 - Stockholders' Equity in the accompanying unaudited interim consolidated financial statements.
Contractual Obligations
We have not entered into any material off-balance sheet arrangements.
Except as otherwise described in this report, there have been no material revisions outside the ordinary course of business to our contractual obligations as described in our 2021 Form 10-K.
Tax Return Audits
Our tax returns are under joint audit for the years 2013 through 2015 by the United States, Netherlands and Germany (the "Authorities"). In September 2021, we 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. We are engaged in discussions with the Authorities to evaluate the proposals. During the three months ended September 30, 2022, we recorded additional tax reserves of $25 million for years prior to 2022 based on unilateral discussions with one of the relevant authorities. We are currently evaluating all additional potential remedies. See Note 11 - Income Taxes in the accompanying unaudited interim consolidated financial statements for further information.
50
Business Environment
We continue to experience significant cost inflation, inflationary pressure and supply disruptions related to the sourcing of raw materials, energy, logistics and labor in 2022. We continue to closely monitor the impact of, and responses to, COVID-19 variants, including government imposed lockdowns in China and elsewhere, and geopolitical effects on demand conditions and the supply chain. Demand conditions across certain regions in the Western Hemisphere and China have deteriorated, creating uncertainty, impacting consumer activity and driving customer destocking. Average prices of energy feedstocks, particularly natural gas, which are a significant input and source of energy for our manufacturing operations, have continued to increase in the Western Hemisphere and particularly in Europe. We also experienced cost pressure on raw material inputs. We have continued pricing actions intended to offset these inflationary headwinds. Continued moderation of acetyls pricing is expected to trend to more normalized levels through the end of 2022. We expect that sourcing costs and inflationary pressures will continue to be significant across the business throughout the rest of the year.
We continue to monitor and respond to the situation in Ukraine. While the conflict has not had a material impact on our business, financial condition or results of operations to date, we have experienced shortages in materials and increased costs for transportation, energy and raw materials as well as other supply chain challenges, particularly in Europe, due in part to the effects of the conflict, and government responses thereto, including sanctions, on the global economy. We continue to monitor these developments.
Following Russia's invasion, we have suspended sales into Russia, Belarus and the sanctioned regions of Ukraine. Revenue from these countries and regions constituted less than 1% of our consolidated Net sales in fiscal year 2021 and we have no manufacturing assets in these countries or regions.
We do not currently expect the situation to result in a material impact on our business or financial results, but the full impact of the conflict remains uncertain and will depend on future geopolitical and economic developments that are impossible to predict. Potential risks we may face include increased volatility in capital and commodity markets, rapid changes to sanctions, continued supply chain and transportation disruptions, exacerbation of inflationary conditions, impacts to consumer or business sentiment and an increased risk of cyber security incidents as well as the impacts referenced above.
Critical Accounting Policies and Estimates
Our unaudited interim consolidated financial statements are based on the selection and application of significant accounting policies. 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. Actual results could differ from those estimates. However, we are not currently aware of any reasonably likely events or circumstances that would result in materially different results.
We describe our significant accounting policies in Note 2 - Summary of Accounting Policies, of the Notes to the Consolidated Financial Statements included in our 2021 Form 10-K. We discuss our critical accounting policies and estimates in MD&A in our 2021 Form 10-K.
Recent Accounting Pronouncements
See Note 2 - Recent Accounting Pronouncements in the accompanying unaudited interim consolidated financial statements included in this Quarterly Report for information regarding recent accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk for the Company has not changed materially from the foreign exchange, interest rate and commodity risks disclosed in Item 7A. Quantitative and Qualitative Disclosures about Market Risk in our 2021 Form 10-K. See also Note 12 - Derivative Financial Instruments in the accompanying unaudited interim consolidated financial statements for further discussion of our market risk management and the related impact on the Company's financial position and results of operations.
51
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on that evaluation, as of September 30, 2022, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective.
Changes in Internal Control Over Financial Reporting
During the period covered by this report, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
52
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in legal and regulatory proceedings, lawsuits, claims and investigations incidental to the normal conduct of its business, relating to such matters as product liability, land disputes, insurance coverage disputes, contracts, employment, antitrust and competition, 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 it is named as a defendant. Due to the inherent subjectivity of assessments and unpredictability of outcomes of legal proceedings, the Company's litigation accruals and estimates of possible loss or range of possible loss may not represent the ultimate loss to the Company from legal proceedings. See Note 9 - Environmental and Note 14 - Commitments and Contingencies in the accompanying unaudited interim consolidated financial statements for a discussion of material environmental matters and material commitments and contingencies related to legal and regulatory proceedings. There have been no significant developments in the "Legal Proceedings" described in our 2021 Form 10-K other than those disclosed in Note 9 - Environmental and Note 14 - Commitments and Contingencies in the accompanying unaudited interim consolidated financial statements. See Part I - Item 1A. Risk Factors of our 2021 Form 10-K for certain risk factors relating to these legal proceedings.
Item 1A. Risk Factors
Additional risk factors are described below and should be read in conjunction with Part I, Item 1A of our 2021 Form 10-K.
Risks Relating to the acquisition of the majority of the Mobility & Materials business (the "M&M Acquisition" and such business being acquired, the "M&M Business") of DuPont de Nemours, Inc. ("DuPont")
We have made certain assumptions relating to the M&M Acquisition which may prove to be materially inaccurate and we may fail to realize all of the anticipated benefits of the acquisition.
We have made certain assumptions relating to the M&M Acquisition, which may prove to be inaccurate. Our failure to identify or understand the magnitude of the problems, liabilities or other challenges associated with the M&M Acquisition could result in incorrect expectations of future results and increased risk of unanticipated or unknown issues or liabilities. Our mitigation strategies for such risks that are identified may be ineffective. These assumptions relate to numerous matters, including:
•general economic and business conditions, and performance of the M&M Business against this backdrop;
•potential unknown liabilities and unforeseen delays or regulatory conditions associated with the M&M Acquisition;
•faulty assumptions or incorrect expectations regarding the process of integrating the M&M Business with ours, including unanticipated delays, costs or inefficiencies;
•the anticipated benefits and synergies, including timing for when such benefits and synergies may be realized through combining the M&M Business with ours;
•the amount of attention and resources needed to successfully align our and the M&M Business's practices and operations which may disrupt our business, including challenges relating to integrating commercial activities, technologies, procedures, policies, retaining key personnel and addressing differences in the business cultures of our business and the M&M Business;
•the complexities associated with managing the combined businesses;
•potential increases in the challenges and risks, including commercial and financial risks, associated with our broader international business footprint, and increased exposure to certain end markets and geographies, as a result of the M&M Acquisition which will expand our presence to markets in which we may not have previously done business; and
•other financial and strategic risks of the M&M Acquisition.
53
We cannot guarantee that we will achieve our goals or meet our expectations with respect to the M&M Acquisition. Through our review to-date since the November 1, 2022 closing, we have learned that for the remainder of 2022 the M&M Business is expected to underperform prior expectations, and its financial performance from signing through the closing has been lower than anticipated. We cannot be certain when we will be able to realize improvements in the underlying M&M Business performance and as we proceed with integration, we may identify additional risks and challenges. The benefits of the M&M Acquisition, including the anticipated financial benefits and the synergies and growth opportunities, may not be realized as expected or may not be achieved within the anticipated timeframe, or at all. If our assumptions are inaccurate or we are unable to meet our expectations (including our expectations regarding financial targets), our business, financial performance and operating results could be materially and adversely affected.
Financing the M&M Acquisition has resulted in an increase in our indebtedness, which could adversely affect us, including by decreasing our business flexibility and increasing our interest expense.
The increase in our indebtedness to finance the M&M Acquisition may, among other things, reduce our flexibility to respond to changing business and economic conditions or to fund capital expenditures or working capital needs. In addition, the amount of cash required to pay interest on our increased indebtedness, and thus the demands on our cash resources, has materially increased as a result of the indebtedness to finance the M&M Acquisition.
We will incur direct and indirect costs as a result of the M&M Acquisition.
We have incurred and expect to continue to incur a number of non-recurring costs associated with negotiating and completing the M&M Acquisition, combining the operations of our business and the M&M Business and achieving desired synergies. These fees and costs have been, and will continue to be, substantial. Non-recurring expenses include, among others, employee retention costs, fees paid to financial, legal, integration and accounting advisors, severance and benefit costs. We will also incur transaction fees and costs related to formulating and implementing integration plans, including facilities and systems consolidation costs and employment-related costs. We will continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred in the M&M Acquisition and the integration of the M&M Business into our business. Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the M&M Business, should allow us to offset integration-related costs over time, this net benefit may not be achieved in the near term, or at all. The costs described above, as well as other unanticipated costs and expenses, could have a material adverse effect on our financial condition and results of operations following the completion of the M&M Acquisition. Factors beyond our control could affect the total amount or timing of these expenses, many of which, by their nature, are difficult to estimate accurately.
The risk of non-compliance with non-U.S. laws, regulations and policies could adversely affect our results of operations, financial condition or strategic objectives.
The M&M Acquisition will introduce us into a number of new geographic markets, subjecting us to additional non-U.S. laws, regulations and policies which do not currently apply to us, and will increase our exposure to certain other geographic markets as well as their laws and regulations. These laws and regulations are complex, change frequently, have become more stringent over time, could increase our cost of doing business, and could result in conflicting legal requirements. These laws and regulations include international labor and employment laws, environmental regulations and reporting requirements, data privacy requirements, and local laws prohibiting corrupt payments to government officials, antitrust and other regulatory laws. We will be subject to the risk that we, our employees, our agents, or our affiliated entities, or their respective officers, directors, employees and agents, may take actions determined to be in violation of any of these laws, regulations or policies, for which we might be held responsible. Actual or alleged violations could result in substantial fines, sanctions, civil or criminal penalties, debarment from government contracts, curtailment of operations in certain jurisdictions, competitive or reputational harm, litigation or regulatory action and other consequences that might adversely affect our results of operations, financial condition or strategic objectives.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
We did not repurchase any Common Stock during the three months ended September 30, 2022. As of September 30, 2022, our Board of Directors had authorized the repurchase of $6.9 billion of our Common Stock since February 2008, with approximately $1.1 billion value of shares remaining that may be purchased under the program. See Note 10 - Stockholders' Equity in the accompanying unaudited interim consolidated financial statements for further information.
54
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
On November 2, 2022, the Company's Board of Directors adopted and approved, effective immediately, amended and restated by-laws (as amended and restated, the "Seventh Amended and Restated By-laws") of the Company. The Seventh Amended and Restated By-laws, among other things:
•revise procedures and disclosure requirements for stockholders to provide notice of the nomination of directors (outside of "proxy access") and the submission of proposals for consideration at meetings of the stockholders of the Company;
•clarify the power of the Board to set rules and procedures for, postpone, reschedule or cancel any meeting of stockholders previously scheduled, and clarify the power of the chair of a stockholder meeting to adjourn any meeting of stockholders,
•clarify the powers of the Board and the chair of a stockholder meeting to establish rules for the conduct of any meeting of stockholders;
•revise the majority voting provision to clarify when an election will be deemed contested; and
•make certain other administrative, modernizing, clarifying and conforming changes, including making updates to reflect recent amendments to the Delaware General Corporation Law.
The foregoing description of the Seventh Amended and Restated By-laws is not complete and is qualified in its entirety by reference to the complete text of the Seventh Amended and Restated By-laws, which is filed as Exhibit 3.2 hereto and are incorporated herein by reference.
55
Item 6. Exhibits(1)
| Exhibit Number | ||||||||
| Description | ||||||||
| 2.1 | ||||||||
| 3.1 | ||||||||
| 3.1(a) | ||||||||
| 3.1(b) | ||||||||
| 3.1(c) | ||||||||
| 3.2* | ||||||||
| 4.1 | ||||||||
| 4.2 | ||||||||
| 22.1* | ||||||||
| 31.1* | ||||||||
| 31.2* | ||||||||
| 32.1* | ||||||||
| 32.2* | ||||||||
| 101.INS* | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document. | |||||||
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||||||
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document. | |||||||
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||
| 104 | The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 has been formatted in Inline XBRL. | |||||||
56
* Filed herewith.
‡ Indicates a management contract or compensatory plan or arrangement.
† The Company has omitted certain schedules and similar attachments to such agreements pursuant to Item 601(a)(5) of Regulation S-K. The Company will furnish a copy of such omitted documents to the SEC upon request.
(1)The Company and its subsidiaries have in the past issued, and may in the future issue from time to time, long-term debt. The Company may not file with the applicable report copies of the instruments defining the rights of holders of long-term debt to the extent that the aggregate principal amount of the debt instruments of any one series of such debt instruments for which the instruments have not been filed has not exceeded or will not exceed 10% of the assets of the Company at any pertinent time. The Company hereby agrees to furnish a copy of any such instrument(s) to the SEC upon request.
57
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CELANESE CORPORATION | ||||||||||||||
| By: | /s/ LORI J. RYERKERK | |||||||||||||
| Lori J. Ryerkerk | ||||||||||||||
| Chairman of the Board of Directors, | ||||||||||||||
| Chief Executive Officer and President | ||||||||||||||
| Date: | November 4, 2022 | |||||||||||||
| By: | /s/ SCOTT A. RICHARDSON | |||||||||||||
| Scott A. Richardson | ||||||||||||||
| Executive Vice President and | ||||||||||||||
| Chief Financial Officer | ||||||||||||||
| Date: | November 4, 2022 | |||||||||||||
58