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 | |||||
| March 31, 2024 | |||||
| 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 | ||||||
| 1.250% 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 May 3, 2024 was 109,219,856.
CELANESE CORPORATION AND SUBSIDIARIES
Form 10-Q
For the Quarterly Period Ended March 31, 2024
TABLE OF CONTENTS
| Page | ||||||||
2
Item 1. Financial Statements
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In $ millions, except share and per share data) | |||||||||||
| Net sales | 2,611 | 2,853 | |||||||||
| Cost of sales | (2,057) | (2,222) | |||||||||
| Gross profit | 554 | 631 | |||||||||
| Selling, general and administrative expenses | (265) | (285) | |||||||||
| Amortization of intangible assets | (41) | (41) | |||||||||
| Research and development expenses | (34) | (42) | |||||||||
| Other (charges) gains, net | (14) | (23) | |||||||||
| Foreign exchange gain (loss), net | 11 | 6 | |||||||||
| Gain (loss) on disposition of businesses and assets, net | (1) | 5 | |||||||||
| Operating profit (loss) | 210 | 251 | |||||||||
| Equity in net earnings (loss) of affiliates | 55 | 15 | |||||||||
| Non-operating pension and other postretirement employee benefit (expense) income | 2 | 1 | |||||||||
| Interest expense | (169) | (182) | |||||||||
| Interest income | 13 | 8 | |||||||||
| Dividend income - equity investments | 34 | 34 | |||||||||
| Other income (expense), net | 12 | (6) | |||||||||
| Earnings (loss) from continuing operations before tax | 157 | 121 | |||||||||
| Income tax (provision) benefit | (33) | (25) | |||||||||
| Earnings (loss) from continuing operations | 124 | 96 | |||||||||
| Earnings (loss) from operation of discontinued operations | — | (3) | |||||||||
| Income tax (provision) benefit from discontinued operations | — | — | |||||||||
| Earnings (loss) from discontinued operations | — | (3) | |||||||||
| Net earnings (loss) | 124 | 93 | |||||||||
| Net (earnings) loss attributable to noncontrolling interests | (3) | (2) | |||||||||
| Net earnings (loss) attributable to Celanese Corporation | 121 | 91 | |||||||||
| Amounts attributable to Celanese Corporation | |||||||||||
| Earnings (loss) from continuing operations | 121 | 94 | |||||||||
| Earnings (loss) from discontinued operations | — | (3) | |||||||||
| Net earnings (loss) | 121 | 91 | |||||||||
| Earnings (loss) per common share - basic | |||||||||||
| Continuing operations | 1.11 | 0.87 | |||||||||
| Discontinued operations | — | (0.03) | |||||||||
| Net earnings (loss) - basic | 1.11 | 0.84 | |||||||||
| Earnings (loss) per common share - diluted | |||||||||||
| Continuing operations | 1.10 | 0.86 | |||||||||
| Discontinued operations | — | (0.03) | |||||||||
| Net earnings (loss) - diluted | 1.10 | 0.83 | |||||||||
| Weighted average shares - basic | 109,069,060 | 108,634,068 | |||||||||
| Weighted average shares - diluted | 109,513,991 | 109,188,266 | |||||||||
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 March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In $ millions) | |||||||||||
| Net earnings (loss) | 124 | 93 | |||||||||
| Other comprehensive income (loss), net of tax | |||||||||||
| Foreign currency translation gain (loss) | (54) | 13 | |||||||||
| Gain (loss) on derivative hedges | 2 | 4 | |||||||||
| Pension and postretirement benefits | (1) | (1) | |||||||||
| Total other comprehensive income (loss), net of tax | (53) | 16 | |||||||||
| Total comprehensive income (loss), net of tax | 71 | 109 | |||||||||
Comprehensive (income) loss attributable to noncontrolling interests | (3) | (2) | |||||||||
Comprehensive income (loss) attributable to Celanese Corporation | 68 | 107 | |||||||||
See the accompanying notes to the unaudited interim consolidated financial statements.
4
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
| As of March 31, 2024 | As of December 31, 2023 | ||||||||||
| (In $ millions, except share data) | |||||||||||
| ASSETS | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | 1,483 | 1,805 | |||||||||
| Trade receivables - third party and affiliates | 1,289 | 1,243 | |||||||||
| Non-trade receivables, net | 536 | 541 | |||||||||
| Inventories | 2,354 | 2,357 | |||||||||
| Other assets | 283 | 272 | |||||||||
| Total current assets | 5,945 | 6,218 | |||||||||
| Investments in affiliates | 1,238 | 1,220 | |||||||||
Property, plant and equipment (net of accumulated depreciation - 2024: $4,243; 2023: $4,080) | 5,471 | 5,584 | |||||||||
| Operating lease right-of-use assets | 396 | 422 | |||||||||
| Deferred income taxes | 1,618 | 1,677 | |||||||||
| Other assets | 537 | 524 | |||||||||
| Goodwill | 6,926 | 6,977 | |||||||||
| Intangible assets, net | 3,902 | 3,975 | |||||||||
| Total assets | 26,033 | 26,597 | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current Liabilities | |||||||||||
| Short-term borrowings and current installments of long-term debt - third party and affiliates | 2,439 | 1,383 | |||||||||
| Trade payables - third party and affiliates | 1,447 | 1,510 | |||||||||
| Other liabilities | 1,011 | 1,154 | |||||||||
| Income taxes payable | 28 | 25 | |||||||||
| Total current liabilities | 4,925 | 4,072 | |||||||||
| Long-term debt, net of unamortized deferred financing costs | 11,018 | 12,301 | |||||||||
| Deferred income taxes | 1,016 | 999 | |||||||||
| Uncertain tax positions | 298 | 300 | |||||||||
| Benefit obligations | 444 | 457 | |||||||||
| Operating lease liabilities | 296 | 325 | |||||||||
| Other liabilities | 505 | 591 | |||||||||
| Commitments and Contingencies | |||||||||||
| Shareholders' Equity | |||||||||||
Preferred stock, $0.01 par value, 100,000,000 shares authorized (2024 and 2023: 0 issued and outstanding) | — | — | |||||||||
Common stock, $0.0001 par value, 400,000,000 shares authorized (2024: 170,780,600 issued and 109,210,286 outstanding; 2023: 170,476,740 issued and 108,906,426 outstanding) | — | — | |||||||||
Treasury stock, at cost (2024: 61,570,314 shares; 2023: 61,570,314 shares) | (5,488) | (5,488) | |||||||||
| Additional paid-in capital | 383 | 394 | |||||||||
| Retained earnings | 12,973 | 12,929 | |||||||||
| Accumulated other comprehensive income (loss), net | (797) | (744) | |||||||||
| Total Celanese Corporation shareholders' equity | 7,071 | 7,091 | |||||||||
| Noncontrolling interests | 460 | 461 | |||||||||
| Total equity | 7,531 | 7,552 | |||||||||
| Total liabilities and equity | 26,033 | 26,597 | |||||||||
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 March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||
| (In $ millions, except share data) | |||||||||||||||||||||||
| Common Stock | |||||||||||||||||||||||
| Balance as of the beginning of the period | 108,906,426 | — | 108,473,932 | — | |||||||||||||||||||
| Stock option exercises | 7,947 | — | — | — | |||||||||||||||||||
| Stock awards | 295,913 | — | 312,806 | — | |||||||||||||||||||
| Balance as of the end of the period | 109,210,286 | — | 108,786,738 | — | |||||||||||||||||||
| Treasury Stock | |||||||||||||||||||||||
| Balance as of the beginning of the period | 61,570,314 | (5,488) | 61,661,493 | (5,491) | |||||||||||||||||||
| Issuance of treasury stock under stock plans | — | — | — | — | |||||||||||||||||||
| Balance as of the end of the period | 61,570,314 | (5,488) | 61,661,493 | (5,491) | |||||||||||||||||||
| Additional Paid-In Capital | |||||||||||||||||||||||
| Balance as of the beginning of the period | 394 | 372 | |||||||||||||||||||||
| Stock-based compensation, net of tax | (12) | (7) | |||||||||||||||||||||
| Stock option exercises, net of tax | 1 | — | |||||||||||||||||||||
| Balance as of the end of the period | 383 | 365 | |||||||||||||||||||||
| Retained Earnings | |||||||||||||||||||||||
| Balance as of the beginning of the period | 12,929 | 11,274 | |||||||||||||||||||||
| Net earnings (loss) attributable to Celanese Corporation | 121 | 91 | |||||||||||||||||||||
| Common stock dividends | (77) | (76) | |||||||||||||||||||||
| Balance as of the end of the period | 12,973 | 11,289 | |||||||||||||||||||||
| Accumulated Other Comprehensive Income (Loss), Net | |||||||||||||||||||||||
| Balance as of the beginning of the period | (744) | (518) | |||||||||||||||||||||
| Other comprehensive income (loss), net of tax | (53) | 16 | |||||||||||||||||||||
| Balance as of the end of the period | (797) | (502) | |||||||||||||||||||||
| Total Celanese Corporation shareholders' equity | 7,071 | 5,661 | |||||||||||||||||||||
| Noncontrolling Interests | |||||||||||||||||||||||
| Balance as of the beginning of the period | 461 | 468 | |||||||||||||||||||||
| Net earnings (loss) attributable to noncontrolling interests | 3 | 2 | |||||||||||||||||||||
| Distributions/dividends to noncontrolling interests | (4) | (1) | |||||||||||||||||||||
| Balance as of the end of the period | 460 | 469 | |||||||||||||||||||||
| Total equity | 7,531 | 6,130 | |||||||||||||||||||||
See the accompanying notes to the unaudited interim consolidated financial statements.
6
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In $ millions) | |||||||||||
| Operating Activities | |||||||||||
| Net earnings (loss) | 124 | 93 | |||||||||
| Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities | |||||||||||
| Depreciation, amortization and accretion | 227 | 178 | |||||||||
| Pension and postretirement net periodic benefit cost | 1 | 3 | |||||||||
| Pension and postretirement contributions | (13) | (12) | |||||||||
| Deferred income taxes, net | (6) | 1 | |||||||||
| (Gain) loss on disposition of businesses and assets, net | 1 | (6) | |||||||||
| Stock-based compensation | 10 | 14 | |||||||||
| Undistributed earnings in unconsolidated affiliates | (28) | 25 | |||||||||
| Other, net | 3 | (1) | |||||||||
| Operating cash provided by (used in) discontinued operations | (8) | 1 | |||||||||
| Changes in operating assets and liabilities | |||||||||||
| Trade receivables - third party and affiliates, net | (55) | (216) | |||||||||
| Inventories | (19) | 45 | |||||||||
| Other assets | 34 | 99 | |||||||||
| Trade payables - third party and affiliates | (21) | (22) | |||||||||
| Other liabilities | (149) | (298) | |||||||||
| Net cash provided by (used in) operating activities | 101 | (96) | |||||||||
| Investing Activities | |||||||||||
| Capital expenditures on property, plant and equipment | (137) | (164) | |||||||||
| Proceeds from sale of businesses and assets, net | — | 9 | |||||||||
| Other, net | (14) | (23) | |||||||||
| Net cash provided by (used in) investing activities | (151) | (178) | |||||||||
| Financing Activities | |||||||||||
| Net change in short-term borrowings with maturities of 3 months or less | 10 | (300) | |||||||||
| Proceeds from short-term borrowings | 146 | 338 | |||||||||
| Repayments of short-term borrowings | (418) | — | |||||||||
| Proceeds from long-term debt | 111 | — | |||||||||
| Repayments of long-term debt | (6) | (7) | |||||||||
Stock option exercises | 1 | — | |||||||||
| Common stock dividends | (77) | (76) | |||||||||
Distributions/dividends to noncontrolling interests | (4) | (1) | |||||||||
| Other, net | (22) | (23) | |||||||||
| Net cash provided by (used in) financing activities | (259) | (69) | |||||||||
| Exchange rate effects on cash and cash equivalents | (13) | 2 | |||||||||
| Net increase (decrease) in cash and cash equivalents | (322) | (341) | |||||||||
| Cash and cash equivalents as of beginning of period | 1,805 | 1,508 | |||||||||
| Cash and cash equivalents as of end of period | 1,483 | 1,167 | |||||||||
See the accompanying notes to the unaudited interim consolidated financial statements.
7
CELANESE CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. Description of the Company and Basis of Presentation
Description of the Company
Celanese Corporation and its subsidiaries (collectively, the "Company") is a global 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, medical, consumer electronics, energy storage, filtration, paints and coatings, paper and packaging, industrial applications 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 months ended March 31, 2024 and 2023 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, 2023, filed on February 23, 2024 with the SEC as part of the Company's Annual Report on Form 10-K.
Operating results for the three months ended March 31, 2024 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 shareholders' 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 and other postretirement benefits, asset retirement obligations, environmental liabilities and loss contingencies, among others. Actual results could differ from those estimates.
8
2. Recent Accounting Pronouncements
The following table provides a brief description of recent Accounting Standard Updates ("ASU") issued by the Financial Accounting Standards Board ("FASB"):
| Standard | Description | Effective Date | Effect on the Financial Statements or Other Significant Matters | |||||||||||||||||
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures. | The new guidance requires an entity to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. Additionally, the guidance requires an entity to disclose annual income taxes paid (net of refunds received) disaggregated by federal (national), state and foreign taxes and disaggregate the information by jurisdiction based on a quantitative threshold. The guidance also requires an entity to disclose income (loss) from continuing operations before income tax expense (benefit) disaggregated between domestic and foreign and income tax expense (benefit) from continuing operations disaggregated by federal (national), state and foreign. | Effective for annual periods beginning after December 15, 2024. Early adoption is permitted. | The Company is currently evaluating the impact of the adoption on its financial statement disclosures. | |||||||||||||||||
In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures. | The new guidance requires an entity to disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") and included within segment profit or loss, as well as an amount of other segment items by reportable segment and a description of its composition. Additionally, the guidance requires an entity to disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. The update is required to be applied retrospectively to prior periods presented, based on the significant segment expense categories identified and disclosed in the period of adoption. | Effective for annual periods beginning after December 15, 2023, and for interim periods beginning after December 15, 2024. Early adoption is permitted. | The Company is currently evaluating the impact of the adoption on its financial statement disclosures. | |||||||||||||||||
9
3. Acquisitions, Dispositions and Plant Closures
Acquisitions
• Nutrinova Joint Venture
In September 2023, the Company formed a food ingredients joint venture with Mitsui & Co., Ltd. ("Mitsui") under the name Nutrinova. The Company contributed receivables, inventory, property, plant and equipment, certain other assets, liabilities, technology and employees of its food ingredients business while retaining a 30% interest in the joint venture. Mitsui acquired the remaining 70% interest in the food ingredients business for a purchase price of $503 million, subject to transaction adjustments. The Company is accounting for its interest in the joint venture as an equity method investment, and its portion of the results continues to be included in the Engineered Materials segment. A gain on the transaction of $515 million was included in Gain (loss) on disposition of businesses and assets, net in the consolidated statements of operations for the year ended December 31, 2023.
Plant Closures
•Uentrop, Germany
In October 2023, the Company announced the intended closure of its Polyamide 66 ("PA66") and High-Performance Nylon ("HPN") polymerization units at its facility in Uentrop, Germany to optimize production costs across its global network. These operations are included in the Company's Engineered Materials segment. The Company fully ceased operation of the PA66 polymerization unit and partially ceased operation of the HPN polymerization units during the three months ended March 31, 2024.
The exit and shutdown costs related to the closure of the PA66 and HPN polymerization units in Uentrop, Germany were as follows:
| Three Months Ended March 31, | |||||
| 2024 | |||||
| (In $ millions) | |||||
Restructuring(1) | 5 | ||||
Accelerated depreciation expense(2) | 37 | ||||
| Total | 42 | ||||
______________________________
(1)Included in Other (charges) gains, net in the unaudited interim consolidated statements of operations (Note 18).
(2)Included in Cost of sales in the unaudited interim consolidated statements of operations.
The Company expects to incur additional exit and shutdown costs related to the closure of the PA66 and HPN polymerization units in Uentrop, Germany of approximately $36 million, inclusive of estimated employee termination costs, through 2025.
10
•Mechelen, Belgium
On February 29, 2024, the Company announced the intended closure of its facility in Mechelen, Belgium to optimize production costs across its global network. This operation is included in the Company's Engineered Materials segment. The Company plans to cease operations in the fourth quarter of 2024.
| Three Months Ended March 31, | |||||
| 2024 | |||||
| (In $ millions) | |||||
Accelerated depreciation expense(1) | 8 | ||||
| Total | 8 | ||||
______________________________
(1)Included in Cost of sales in the unaudited interim consolidated statements of operations.
The Company expects to incur additional exit and shutdown costs related to the closure of the facility at Mechelen, Belgium of approximately $130 million, inclusive of estimated employee termination costs, through 2025.
4. Inventories
| As of March 31, 2024 | As of December 31, 2023 | ||||||||||
| (In $ millions) | |||||||||||
| Finished goods | 1,650 | 1,604 | |||||||||
| Work-in-process | 128 | 160 | |||||||||
| Raw materials and supplies | 576 | 593 | |||||||||
| Total | 2,354 | 2,357 | |||||||||
5. Goodwill and Intangible Assets, Net
Goodwill
| Engineered Materials | Acetyl Chain | Total | |||||||||||||||
| (In $ millions) | |||||||||||||||||
| As of December 31, 2023 | 6,602 | 375 | 6,977 | ||||||||||||||
| Exchange rate changes | (46) | (5) | (51) | ||||||||||||||
As of March 31, 2024(1) | 6,556 | 370 | 6,926 | ||||||||||||||
______________________________
(1)There were no accumulated impairment losses as of March 31, 2024.
11
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, 2023 | 41 | 2,437 | 601 | 55 | 3,134 | ||||||||||||||||||||||||
| Exchange rate changes | (1) | (28) | — | — | (29) | ||||||||||||||||||||||||
| As of March 31, 2024 | 40 | 2,409 | 601 | 55 | 3,105 | ||||||||||||||||||||||||
| Accumulated Amortization | |||||||||||||||||||||||||||||
| As of December 31, 2023 | (38) | (639) | (95) | (42) | (814) | ||||||||||||||||||||||||
| Amortization | — | (30) | (11) | — | (41) | ||||||||||||||||||||||||
| Exchange rate changes | — | 9 | 2 | 1 | 12 | ||||||||||||||||||||||||
| As of March 31, 2024 | (38) | (660) | (104) | (41) | (843) | ||||||||||||||||||||||||
| Net book value | 2 | 1,749 | 497 | 14 | 2,262 | ||||||||||||||||||||||||
Indefinite-lived intangible assets are as follows:
| Trademarks and Trade Names | |||||
| (In $ millions) | |||||
| As of December 31, 2023 | 1,655 | ||||
| Exchange rate changes | (15) | ||||
| As of March 31, 2024 | 1,640 | ||||
During the three months ended March 31, 2024, the Company did not renew or extend any intangible assets.
Estimated amortization expense for the succeeding five fiscal years is as follows:
| (In $ millions) | |||||
| 2025 | 161 | ||||
| 2026 | 160 | ||||
| 2027 | 160 | ||||
| 2028 | 160 | ||||
| 2029 | 155 | ||||
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6. Current Other Liabilities
| As of March 31, 2024 | As of December 31, 2023 | ||||||||||
| (In $ millions) | |||||||||||
| 25 | 25 | ||||||||||
| Customer rebates | 76 | 96 | |||||||||
| 58 | 90 | ||||||||||
| 194 | 246 | ||||||||||
| 12 | 34 | ||||||||||
| Operating leases | 86 | 89 | |||||||||
| 19 | 18 | ||||||||||
| Salaries and benefits | 133 | 175 | |||||||||
| Sales and use tax/foreign withholding tax payable | 133 | 128 | |||||||||
| Investment in affiliates | 96 | 96 | |||||||||
| Other | 179 | 157 | |||||||||
| Total | 1,011 | 1,154 | |||||||||
7. Debt
| As of March 31, 2024 | As of December 31, 2023 | ||||||||||
| (In $ millions) | |||||||||||
| Short-Term Borrowings and Current Installments of Long-Term Debt - Third Party and Affiliates | |||||||||||
| Current installments of long-term debt | 2,348 | 1,025 | |||||||||
Short-term borrowings, including amounts due to affiliates(1) | 50 | 146 | |||||||||
Revolving credit facilities(2) | 41 | 212 | |||||||||
| Total | 2,439 | 1,383 | |||||||||
______________________________
(1)The weighted average interest rate was 2.2% and 2.9% as of March 31, 2024 and December 31, 2023, respectively.
(2)The weighted average interest rate was 3.2% and 3.4% as of March 31, 2024 and December 31, 2023, respectively.
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| As of March 31, 2024 | As of December 31, 2023 | ||||||||||
| (In $ millions) | |||||||||||
| Long-Term Debt | |||||||||||
Senior unsecured notes due 2024, interest rate of 3.500% | 473 | 473 | |||||||||
Senior unsecured notes due 2024, interest rate of 5.900% | 527 | 527 | |||||||||
Senior unsecured notes due 2025, interest rate of 1.250% | 324 | 331 | |||||||||
Senior unsecured notes due 2025, interest rate of 6.050% | 1,000 | 1,000 | |||||||||
Senior unsecured notes due 2026, interest rate of 1.400% | 400 | 400 | |||||||||
Senior unsecured notes due 2026, interest rate of 4.777% | 1,081 | 1,105 | |||||||||
Senior unsecured notes due 2027, interest rate of 2.125% | 539 | 551 | |||||||||
Senior unsecured notes due 2027, interest rate of 6.165% | 2,000 | 2,000 | |||||||||
Senior unsecured term loan due 2027(1) | 880 | 880 | |||||||||
Senior unsecured notes due 2028, interest rate of 0.625% | 540 | 552 | |||||||||
Senior unsecured notes due 2028, interest rate of 6.350% | 1,000 | 1,000 | |||||||||
Senior unsecured notes due 2029, interest rate of 5.337% | 540 | 552 | |||||||||
Senior unsecured notes due 2029, interest rate of 6.330% | 750 | 750 | |||||||||
Senior unsecured notes due 2030, interest rate of 6.550% | 999 | 999 | |||||||||
Senior unsecured notes due 2032, interest rate of 6.379% | 1,000 | 1,000 | |||||||||
Senior unsecured notes due 2033, interest rate of 6.700% | 1,000 | 1,000 | |||||||||
Pollution control and industrial revenue bonds due at various dates through 2030(2) | 126 | 127 | |||||||||
Bank loan due 2026, interest rate of 2.8% | 111 | — | |||||||||
Bank loans due at various dates through 2030(3) | 5 | 5 | |||||||||
Obligations under finance leases due at various dates through 2054 | 140 | 148 | |||||||||
| Subtotal | 13,435 | 13,400 | |||||||||
Unamortized deferred financing costs(4) | (69) | (74) | |||||||||
| Current installments of long-term debt | (2,348) | (1,025) | |||||||||
| Total | 11,018 | 12,301 | |||||||||
______________________________
(1)The interest rate was 6.922% and 6.943% as of March 31, 2024 and December 31, 2023, respectively.
(2)Interest rates range from 4.05% to 5.00%.
(3)The weighted average interest rate was 2.7% and 2.6% as of March 31, 2024 and December 31, 2023, respectively.
(4)Related to the Company's long-term debt, excluding obligations under finance leases.
Senior Credit Facilities
In March 2022, Celanese, Celanese U.S. and certain subsidiaries entered into a term loan credit agreement (as amended to date, the "March 2022 U.S. Term Loan Credit Agreement"), pursuant to which lenders provided a tranche of delayed-draw term loans due 364 days from issuance in an amount equal to $500 million (the "364-day Term Loans") and a tranche of delayed-draw term loans due 5 years from issuance in an amount equal to $1.0 billion (the "5-year Term Loans"). The 364-day Term Loans have been fully repaid.
Also in March 2022, Celanese, Celanese U.S. and certain subsidiaries entered into a new revolving credit agreement (as amended to date, the "U.S. Revolving Credit Agreement" and, together with the March 2022 U.S. Term Loan Credit Agreement, the "U.S. Credit Agreements") consisting of a $1.75 billion senior unsecured revolving credit facility (with a letter of credit sublimit), maturing in 2027 (the "U.S. Revolving Credit Facility"). The margin for borrowings under the U.S. Revolving Credit Facility was 1.00% to 2.00% above certain interbank rates at current Company credit ratings.
In August 2023, the Company amended certain covenants in the March 2022 U.S. Term Loan Credit Agreement to permit refinancing of certain senior notes without requiring a mandatory prepayment under the March 2022 U.S. Term Loan Credit Agreement.
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On February 16, 2024 and February 21, 2023, the Company amended certain covenants in the U.S. Credit Agreements, including financial ratio maintenance covenants.
The U.S. Credit Agreements are guaranteed by Celanese, Celanese U.S. and domestic subsidiaries together representing substantially all of the Company's U.S. assets and business operations (the "Subsidiary Guarantors"). The Subsidiary Guarantors are listed in Exhibit 22.1 to this Quarterly Report.
In January 2023, Celanese (Shanghai) International Trading Co., Ltd ("CSIT"), a fully consolidated subsidiary, entered into a restatement of an existing credit facility agreement (the "China Revolving Credit Agreement") to upsize and modify the facility thereunder to consist of an aggregate CNY1.75 billion uncommitted senior unsecured revolving credit facility available under two tranches (with overdraft, bank guarantee and documentary credit sublimits) (the "China Revolving Credit Facility"). Obligations bear interest at certain fixed and floating rates. The China Revolving Credit Agreement is guaranteed by Celanese U.S.
Also in January 2023, CSIT entered into a senior unsecured working capital loan contract for CNY800 million (the "China Working Capital Term Loan Agreement"), payable 12 months from withdrawal date and bearing interest at 0.5% less than certain interbank rates. The loan under the China Working Capital Term Loan Agreement was fully drawn in January 2023 and was supported by a letter of comfort from the Company. The China Working Capital Term Loan Agreement was fully repaid in the three months ended March 31, 2024.
In December 2023, Celanese (Nanjing) Chemical Co., Ltd. ("CNC") entered into a senior unsecured working capital loan agreement for CNY800 million, payable on December 25, 2026 and bearing interest at 2.8% (the "CNC Working Capital Loan Agreement," together with the China Revolving Credit Agreement and the China Working Capital Term Loan Agreement, the "China Credit Agreements," and the China Credit Agreements together with the U.S. Credit Agreements, the "Global Credit Agreements"). The loan under the CNC Working Capital Loan Agreement was fully drawn during the three months ended March 31, 2024. The Company expects that the China Credit Agreements will continue to facilitate its efficient repatriation of cash to the U.S. to repay debt and effectively redomicile a portion of its U.S. debt to China at a lower average interest rate.
The Company's debt balances and amounts available for borrowing under its senior unsecured revolving credit facilities are as follows:
| As of March 31, 2024 | |||||
| (In $ millions) | |||||
| U.S. Revolving Credit Facility | |||||
| Borrowings outstanding | — | ||||
| Available for borrowing | 1,750 | ||||
| China Revolving Credit Facility | |||||
| Borrowings outstanding | 41 | ||||
| Available for borrowing | 201 | ||||
On May 8, 2024, the Company drew $300 million from its U.S. Revolving Credit Facility. This borrowing and cash on hand were used to repay in full the Company's senior unsecured notes due 2024, with an interest rate of 3.500%, due on May 8, 2024.
Senior Notes
The Company has outstanding senior unsecured notes, issued in public offerings registered under the Securities Act of 1933, as amended (the "Securities Act") (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.
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In August 2023, Celanese U.S. completed a public offering registered under the Securities Act of senior unsecured notes as follows (collectively, the "2023 Offering"):
| Maturity Date | Aggregate Principal Amount Issued | Discount to Par | Interest Rate | |||||||||||||||||
| (In $ millions) | ||||||||||||||||||||
| November 15, 2028 | 1,000 | 99.986% | 6.350% | |||||||||||||||||
| November 15, 2030 | 999 | 99.950% | 6.550% | |||||||||||||||||
| November 15, 2033 | 1,000 | 99.992% | 6.700% | |||||||||||||||||
In August 2023, Celanese U.S. completed a cash tender offer for $2.25 billion in aggregate principal amount (the "Tender Offer") as follows:
| Maturity Date | Aggregate Principal Amount Tendered | Purchase price per $1,000 principal amount | Total Tender Offer Consideration | Accrued and Unpaid Interest | ||||||||||||||||||||||
| (In $ millions) | (In $ millions) | |||||||||||||||||||||||||
| June 30, 2024 | 1,473 | $ | 999.92 | 1,473 | 12 | |||||||||||||||||||||
| March 15, 2025 | 750 | $ | 1,002.85 | 752 | 20 | |||||||||||||||||||||
| April 30, 2024 | 27 | $ | 983.95 | 27 | — | |||||||||||||||||||||
The net proceeds from the 2023 Offering were used (i) to fund the Tender Offer and (ii) for the repayment of other outstanding indebtedness, including the payment in full of the 364-day Term Loans and certain 3-year term loans pursuant to a term loan credit agreement entered into in September 2022.
Accounts Receivable Purchasing Facility
In June 2023, 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, 2025. 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. 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 $290 million and $1.4 billion of accounts receivable under this agreement for the three months ended March 31, 2024 and year ended December 31, 2023, respectively, and collected $318 million and $1.3 billion of accounts receivable sold under this agreement during the same periods. Unsold U.S. accounts receivable of $153 million were pledged by the SPE as collateral to the Purchasers as of March 31, 2024.
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. The Company also has a factoring agreement in China with a financial institution to sell 100% of certain accounts receivable on a limited 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 material 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 $164 million and $423 million of accounts receivable under these factoring agreements for the three months ended March 31, 2024 and year ended December 31, 2023, respectively, and collected $110 million and $407 million of accounts receivable sold under these factoring agreements during the same periods.
In December 2023, the Company entered into a Master Discounting Agreement (the "Master Discounting Agreement") with a financial institution in China to discount, on a non-recourse basis, banker's acceptance drafts ("BADs"), classified as accounts receivable. Under the Master Discounting Agreement, the transfer of BADs are treated as sales and are accounted for as a reduction in accounts receivable because the Master Discounting Agreement transfers effective control over and risk related to
16
the transferred BADs to the financial institution. The Company has no continuing involvement in the transferred BADs and the BADs are no longer available to satisfy creditors in the event of a bankruptcy. The Company received $15 million and $45 million from the accounts receivable transferred under the Master Discounting Agreement as of March 31, 2024 and December 31, 2023, respectively.
Covenants
The Company's material financing arrangements contain customary covenants, such as events of default and change of control provisions, and in the case of the U.S. Credit Agreements the maintenance of certain financial ratios (subject to adjustment following certain qualifying acquisitions and dispositions, as set forth in the U.S. Credit Agreements, as amended). 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 the covenants in its material financing arrangements as of March 31, 2024.
8. Benefit Obligations
The components of net periodic benefit cost are as follows:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Pension Benefits | Post-retirement Benefits | Pension Benefits | Post-retirement Benefits | ||||||||||||||||||||
| (In $ millions) | |||||||||||||||||||||||
| Service cost | 3 | — | 4 | — | |||||||||||||||||||
| Interest cost | 31 | 1 | 32 | — | |||||||||||||||||||
Expected return on plan assets | (34) | — | (33) | — | |||||||||||||||||||
| Total | — | 1 | 3 | — | |||||||||||||||||||
Benefit obligation funding is as follows:
| As of March 31, 2024 | Total Expected 2024 | ||||||||||
| (In $ millions) | |||||||||||
| Cash contributions to defined benefit pension plans | 7 | 29 | |||||||||
| Benefit payments to nonqualified pension plans | 5 | 19 | |||||||||
| Benefit payments to other postretirement benefit plans | 1 | 3 | |||||||||
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 the following:
| As of March 31, 2024 | As of December 31, 2023 | ||||||||||||||||||||||
| Pension Benefits | Post-retirement Benefits | Pension Benefits | Post-retirement Benefits | ||||||||||||||||||||
| (In $ millions) | |||||||||||||||||||||||
| Noncurrent Other assets | 169 | — | 166 | — | |||||||||||||||||||
| Current Other liabilities | (22) | (3) | (22) | (3) | |||||||||||||||||||
| Benefit obligations | (402) | (37) | (415) | (37) | |||||||||||||||||||
| Net amount recognized | (255) | (40) | (271) | (40) | |||||||||||||||||||
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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.
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 (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
18
Newark Bay Study Area. The Company and 70 other companies are parties to a May 2007 Administrative Order on Consent with the EPA to perform a Remedial Investigation/Feasibility Study ("RI/FS") 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 Study Area.
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 (MCA) (LDW) (U.S. District Court New Jersey) (the "2018 OCC Lawsuit"), alleging that each of the defendants owned or operated a facility that contributed contamination to the LPRSA. With respect to the Company, the 2018 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.
Separately, the United States lodged a Consent Decree in U.S. District Court for the District of New Jersey in December 2022 that will resolve the Company's liability (and that of more than 80 other settling defendants) to the EPA for costs to clean up both the Lower 8.3 Miles and Upper 9 Miles of the Lower Passaic River Site in exchange for a collective payment of $150 million, United States v. Alden Leeds, Inc., No. 2:22-7326 (MCA) (LDW) (U.S. District Court New Jersey) ("Consent Decree Action"). The Consent Decree also will provide the Company protection from contribution claims by others for costs incurred to clean up both the Lower 8.3 Miles and Upper 9 Miles of the Lower Passaic River Site. The Company's proposed payment toward the $150 million collective settlement payment is not material to the Company's results of operations, cash flows or financial position. The Consent Decree is still subject to public comment and court approval.
In March 2023, the U.S. District Court for the District of New Jersey entered an order staying and administratively terminating the 2018 OCC Lawsuit, pending resolution of the request for judicial approval of the Consent Decree in the Consent Decree Action. Also in March 2023, OCC filed a new lawsuit against 40 parties, including a subsidiary of the Company, seeking to recover costs for remedial design work the EPA has ordered OCC to undertake for a portion of the LPRSA at an estimated cost of $71 million, Occidental Chemical Corporation v. Givaudan Fragrances Corporation, No. 2:23-cv-1699 (U.S. District Court New Jersey) (the "2023 OCC Lawsuit"). Like the earlier lawsuit, the 2023 OCC Lawsuit concerns the facility Essex County, New Jersey purchased and for which Essex County, New Jersey has agreed to defend and indemnify the Company. This new lawsuit does not change the Company's estimated liability for LPRSA cleanup costs.
The Company will continue to vigorously defend these matters and continues to believe that its ultimate allocable share of the cleanup costs with respect to the Lower Passaic River Site, previously estimated at less than 1%, will not be material.
Other Environmental Matters
In April 2022, a methanol leak on a pipeline to the Company's 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 remediation activities are now completed. 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 its financial condition or results of operations.
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10. Shareholders' 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 the Global Credit Agreements 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 April 17, 2024, amounting to $76 million. The cash dividend will be paid on May 13, 2024 to holders of record as of April 29, 2024.
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.
| Total From February 2008 Through March 31, 2024 | |||||
| Shares repurchased | 69,324,429 | ||||
| Average purchase price per share | $ | 83.71 | |||
| Shares repurchased (in $ millions) | 5,803 | ||||
Aggregate Board of Directors repurchase authorizations during the period (in $ millions) | 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 shareholders' equity.
The Company did not repurchase any Common Stock during the three months ended March 31, 2024 or 2023.
Other Comprehensive Income (Loss), Net
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||||||||||||||
| Gross Amount | Income Tax (Provision) Benefit | Net Amount | Gross Amount | Income Tax (Provision) Benefit | Net Amount | ||||||||||||||||||||||||||||||
| (In $ millions) | |||||||||||||||||||||||||||||||||||
| Foreign currency translation gain (loss) | (27) | (27) | (54) | (4) | 17 | 13 | |||||||||||||||||||||||||||||
| Gain (loss) on derivative hedges | 2 | — | 2 | 4 | — | 4 | |||||||||||||||||||||||||||||
| Pension and postretirement benefits gain (loss) | (1) | — | (1) | (1) | — | (1) | |||||||||||||||||||||||||||||
| Total | (26) | (27) | (53) | (1) | 17 | 16 | |||||||||||||||||||||||||||||
20
Adjustments to Accumulated other comprehensive income (loss), net, are as follows:
| Foreign Currency Translation Gain (Loss) | Gain (Loss) on Derivative Hedges | Pension and Postretirement Benefits Gain (Loss) | Accumulated Other Comprehensive Income (Loss), Net | ||||||||||||||||||||
| (In $ millions) | |||||||||||||||||||||||
| As of December 31, 2023 | (701) | (28) | (15) | (744) | |||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | (27) | 23 | (1) | (5) | |||||||||||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) | — | (21) | — | (21) | |||||||||||||||||||
| Income tax (provision) benefit | (27) | — | — | (27) | |||||||||||||||||||
| As of March 31, 2024 | (755) | (26) | (16) | (797) | |||||||||||||||||||
11. Income Taxes
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In percentages) | |||||||||||
| Effective income tax rate | 21 | 21 | |||||||||
The effective income tax rate for the three months ended March 31, 2024 was consistent with the same period in 2023. The effective income tax rate for the three months ended March 31, 2024 included the tax effects related to internal debt refinancing transactions. The effective income tax rate for the three months ended March 31, 2023 included the impacts of increased valuation allowance on U.S. foreign tax credit carryforwards due to changes in forecasts of foreign sourced income and deductions that did not re-occur in the three months ended March 31, 2024.
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 notices and final and proposed regulatory packages supplementing the TCJA provisions since 2018. There have been no material proposed or final regulatory packages during the three months ended March 31, 2024.
In August 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 regular tax liability exceeds the minimum tax in any given year. The U.S. Treasury issued two sets of proposed regulations related to Section 4501, Excise Tax on Share Repurchase, on April 12, 2024. The Company does not expect these provisions or proposed regulations 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 credit carryforwards. The Company is currently evaluating tax planning strategies to enable the use of the Company's foreign tax credit carryforwards that may decrease the Company's effective tax rate in future periods as the valuation allowance is reversed.
In December 2021, the Organization for Economic Co-operation and Development ("OECD") issued final Model Rules for Pillars One and Two of its Base Erosion and Profit Shifting ("BEPS") project. In general, Pillar One addresses nexus concerns and the allocation of profits among companies in which a multinational enterprise ("MNE") conducts its business. Pillar Two aims to ensure that all MNEs pay an effective tax rate of no less than 15% on their adjusted net income in each of the jurisdictions in which they have operations. Pillar Two is more impactful to the Company as it allows for assessment even if the individual countries do not enact its minimum tax provisions. In effect, Pillar Two allows any country within which an MNE operates to levy tax upon that MNE to the extent it determines that the MNE is paying less than a 15% effective tax rate on its adjusted net income. The taxes levied may then be allocated among the jurisdictions that conform to the OECD rules.
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In December 2022, the member states of the European Union ("EU") unanimously voted to adopt the OECD's minimum tax which was agreed to by consensus of the BEPS 2.0 (Pillars One and Two) signatory jurisdictions. Under the EU's minimum tax directive, member states are to adopt domestic legislation implementing the minimum tax rules effective for periods beginning on or after December 31, 2023, with Pillar Two's "under-taxed profit rule" to take effect for periods beginning on or after December 31, 2024. The EU effective dates are January 1, 2024, and January 1, 2025, for different aspects of the directive. Legislatures in multiple countries outside of the EU have also drafted legislation to implement the OECD's minimum tax proposals.
In July 2023, the OECD published Administrative Guidance proposing certain safe harbor provisions, including an effective rate test and a routine profits test, which if satisfied effectively will delay effective dates of Pillar Two to January 1, 2027. The EU and a significant number of other countries are expected to implement the safe harbor in local legislation. Based on these safe harbor provisions, the Company currently expects that, in several material jurisdictions, including the U.S., Netherlands, Switzerland, Germany, China, Singapore and Canada, it will qualify for the safe harbor effectively extending the application of the global minimum tax until January 1, 2027.
The Company will continue to monitor the developments and implementation of the OECD BEPS projects. Currently the Company does not meet the requirements for the application of Pillar One. The Company analyzed the application of the safe harbor provisions and does not expect a material impact in 2024 from the local adoption of the OECD Pillar Two proposals, but is continuing to model the effect of these provisions on its future effective tax rate and cash taxes.
The Company's tax returns have been under 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 proposed to apply these adjustments to open tax years through 2019. The Company and the Authorities were unable to reach an agreement jointly and therefore the audits continued on a separate jurisdictional basis. In the fourth quarter of 2022, the Company concluded settlement discussions with the Dutch tax authority. The Company is engaged in continuing discussions with the other Authorities and is currently evaluating all additional potential remedies regarding the ongoing examinations.
In addition, the Company's income tax returns in Mexico are under audit for the year 2018, and in Canada for the years 2016 through 2022. In August 2023, the Company negotiated a partial settlement with the Mexico tax authority for its audit for the year 2018. The partial settlement did not have a material impact on income tax expense in the consolidated statements of operations for the year ended December 31, 2023. In September 2023, the Canadian tax authority opened tax audits for the years 2019 through 2022, and the audits are in the preliminary stages. The Company is in ongoing discussions regarding the audit findings with the Canadian tax authority for the years 2016 through 2018 and does not expect a material impact to income tax expense.
As of March 31, 2024, the Company believes that an adequate provision for income taxes has been made for all open tax years related to the examinations by government authorities. However, the outcome of tax audits cannot be predicted with certainty. If any issues raised in the audits described above are resolved in a manner inconsistent with the Company's expectations or the Company is unsuccessful in defending its positions, 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.
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12. Derivative Financial Instruments
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 March 31, | Statement of Operations Classification | ||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||
| (In $ millions) | |||||||||||||||||||||||||||||
Designated as Cash Flow Hedges | |||||||||||||||||||||||||||||
| Commodity swaps | 3 | — | (1) | 1 | |||||||||||||||||||||||||
| Interest rate swaps | — | — | (2) | (2) | |||||||||||||||||||||||||
| Foreign currency forwards | — | 2 | — | (1) | |||||||||||||||||||||||||
| Total | 3 | 2 | (3) | (2) | |||||||||||||||||||||||||
| Designated as Fair Value Hedges | |||||||||||||||||||||||||||||
Cross-currency swaps(1) | 19 | — | 24 | — | |||||||||||||||||||||||||
| Designated as Net Investment Hedges | |||||||||||||||||||||||||||||
| Foreign currency denominated debt | 67 | (56) | — | — | N/A | ||||||||||||||||||||||||
| Cross-currency swaps | 70 | (19) | — | — | N/A | ||||||||||||||||||||||||
| Total | 137 | (75) | — | — | |||||||||||||||||||||||||
| Not Designated as Hedges | |||||||||||||||||||||||||||||
| Foreign currency forwards and swaps | — | — | 16 | 2 | |||||||||||||||||||||||||
______________________________
(1)In conjunction with the 2023 Offering (Note 7) in August 2023, the Company entered into a cross-currency swap to effectively convert $500 million of the issued notes into a Japanese yen-denominated borrowing at prevailing yen interest rates, maturing on July 15, 2029. The swap qualifies and has been designated as a fair value hedge of the Company's foreign currency exchange rate exposure on the long-term debt of its Japanese yen-denominated subsidiary.
Additionally, in conjunction with the 2023 Offering (Note 7) in August 2023, the Company entered into cross-currency swaps to effectively convert $1.0 billion of the issued notes into 5-year and 7-year euro-denominated borrowings at prevailing euro interest rates, maturing on November 15, 2028 and November 15, 2030, respectively. The swaps qualify and have been designated as fair value hedges of the Company's foreign currency exchange rate exposure on the long-term debt of its euro-denominated subsidiary.
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.
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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 March 31, 2024 | As of December 31, 2023 | ||||||||||
| (In $ millions) | |||||||||||
| Gross amount recognized | 201 | 183 | |||||||||
| Gross amount offset in the consolidated balance sheets | — | — | |||||||||
| Net amount presented in the consolidated balance sheets | 201 | 183 | |||||||||
| Gross amount not offset in the consolidated balance sheets | 32 | 40 | |||||||||
| Net amount | 169 | 143 | |||||||||
| As of March 31, 2024 | As of December 31, 2023 | ||||||||||
| (In $ millions) | |||||||||||
| Gross amount recognized | 316 | 440 | |||||||||
| Gross amount offset in the consolidated balance sheets | — | — | |||||||||
| Net amount presented in the consolidated balance sheets | 316 | 440 | |||||||||
| Gross amount not offset in the consolidated balance sheets | 32 | 40 | |||||||||
| Net amount | 284 | 400 | |||||||||
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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.
| Fair Value Measurement | ||||||||||||||||||||
| Significant Other Observable Inputs (Level 2) | ||||||||||||||||||||
| Notional Amount | Current | Noncurrent | Current | Noncurrent | ||||||||||||||||
| (In millions) | (In $ millions) | |||||||||||||||||||
| As of March 31, 2024 | ||||||||||||||||||||
| Derivatives Designated as Cash Flow Hedges | ||||||||||||||||||||
| Commodity swaps | $ | 59 | 5 | 40 | 2 | — | ||||||||||||||
| Designated as Fair Value Hedges | ||||||||||||||||||||
| Cross-currency swaps | $ | 1,500 | 54 | 2 | 22 | 16 | ||||||||||||||
| Derivatives Designated as Net Investment Hedges | ||||||||||||||||||||
| Cross-currency swaps | € | 5,712 | 77 | — | 29 | 230 | ||||||||||||||
| Derivatives Not Designated as Hedges | ||||||||||||||||||||
| Foreign currency forwards and swaps | $ | 2,137 | 23 | — | 5 | 12 | ||||||||||||||
| Total | 159 | 42 | 58 | 258 | ||||||||||||||||
| As of December 31, 2023 | ||||||||||||||||||||
| Derivatives Designated as Cash Flow Hedges | ||||||||||||||||||||
| Commodity swaps | $ | 67 | 5 | 36 | 2 | — | ||||||||||||||
Designated as Fair Value Hedges | ||||||||||||||||||||
| Cross-currency swaps | $ | 1,500 | 40 | — | 11 | 61 | ||||||||||||||
| Derivatives Designated as Net Investment Hedges | ||||||||||||||||||||
| Cross-currency swaps | € | 5,712 | 93 | — | 61 | 281 | ||||||||||||||
| Derivatives Not Designated as Hedges | ||||||||||||||||||||
| Foreign currency forwards and swaps | $ | 1,954 | 9 | — | 16 | 8 | ||||||||||||||
| Total | 147 | 36 | 90 | 350 | ||||||||||||||||
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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 March 31, 2024 | |||||||||||||||||||||||
Equity investments without readily determinable fair values | 170 | — | — | — | |||||||||||||||||||
| Insurance contracts in nonqualified trusts | 18 | 18 | — | 18 | |||||||||||||||||||
Long-term debt, including current installments of long-term debt | 13,435 | 13,472 | 140 | 13,612 | |||||||||||||||||||
| As of December 31, 2023 | |||||||||||||||||||||||
Equity investments without readily determinable fair values | 170 | — | — | — | |||||||||||||||||||
| Insurance contracts in nonqualified trusts | 21 | 21 | — | 21 | |||||||||||||||||||
Long-term debt, including current installments of long-term debt | 13,400 | 13,514 | 148 | 13,662 | |||||||||||||||||||
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 in the unaudited consolidated balance sheets, 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 March 31, 2024 and December 31, 2023, the fair values of cash and cash equivalents, receivables, trade payables, short-term borrowings and the current installments of long-term debt approximate carrying values due to the short-term nature of these instruments. These items have been excluded from the table with the exception of the current installments of long-term debt.
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).
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
26
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 March 31, 2024 are $114 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 $116 million as of March 31, 2024. 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 March 31, 2024, the Company had unconditional purchase obligations of $4.2 billion, of which $530 million will be paid in 2024, $592 million in 2025, $483 million in 2026, $429 million in 2027, $289 million in 2028 and the balance thereafter 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, 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 shareholders, 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.
As previously reported, in July 2020, the Company settled a European Commission competition law investigation involving certain of its subsidiaries and three other companies related to certain past ethylene purchases. Shell Chemicals Europe and another group of corporate claimants have filed claims for damages with the District Court of Amsterdam against four companies, including Celanese, arising from those activities, and the first court hearing was held in late September 2023. The Company intends to vigorously defend itself against these claims. While it is possible that additional parties could assert
27
demands or claims related to this matter, based on information available at this time, the Company does not expect ultimate resolution of this matter to have a material impact on its financial condition or results of operations.
15. Segment Information
| Engineered Materials | Acetyl Chain | Other Activities | Eliminations | Consolidated | ||||||||||||||||||||||||||||
| (In $ millions) | ||||||||||||||||||||||||||||||||
| Three Months Ended March 31, 2024 | ||||||||||||||||||||||||||||||||
| Net sales | 1,378 | 1,261 | — | (28) | (1) | 2,611 | ||||||||||||||||||||||||||
| (11) | — | (3) | — | (14) | ||||||||||||||||||||||||||||
| Operating profit (loss) | 89 | 254 | (133) | — | 210 | |||||||||||||||||||||||||||
Equity in net earnings (loss) of affiliates | 49 | 2 | 4 | — | 55 | |||||||||||||||||||||||||||
| Depreciation and amortization | 147 | 57 | 17 | — | 221 | |||||||||||||||||||||||||||
| Capital expenditures | 37 | 40 | 28 | — | 105 | (2) | ||||||||||||||||||||||||||
| As of March 31, 2024 | ||||||||||||||||||||||||||||||||
Goodwill and intangible assets, net | 10,407 | 421 | — | — | 10,828 | |||||||||||||||||||||||||||
Total assets | 17,620 | 5,520 | 2,893 | — | 26,033 | |||||||||||||||||||||||||||
| Three Months Ended March 31, 2023 | ||||||||||||||||||||||||||||||||
Net sales | 1,630 | 1,250 | — | (27) | (1) | 2,853 | ||||||||||||||||||||||||||
| (21) | (1) | (1) | — | (23) | ||||||||||||||||||||||||||||
Operating profit (loss) | 112 | 278 | (139) | — | 251 | |||||||||||||||||||||||||||
Equity in net earnings (loss) of affiliates | 11 | 1 | 3 | — | 15 | |||||||||||||||||||||||||||
Depreciation and amortization | 112 | 54 | 6 | — | 172 | |||||||||||||||||||||||||||
Capital expenditures | 45 | 51 | 12 | — | 108 | (2) | ||||||||||||||||||||||||||
| As of December 31, 2023 | ||||||||||||||||||||||||||||||||
Goodwill and intangible assets, net | 10,525 | 427 | — | — | 10,952 | |||||||||||||||||||||||||||
Total assets | 17,930 | 5,538 | 3,129 | — | 26,597 | |||||||||||||||||||||||||||
______________________________
(1)Includes intersegment sales primarily related to the Acetyl Chain.
(2)Includes a decrease in accrued capital expenditures of $32 million and $56 million for the three months ended March 31, 2024 and 2023, 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 March 31, 2024, the Company had $1.3 billion of remaining performance obligations related to take-or-pay contracts. The Company expects to recognize approximately $458 million of its remaining performance obligations as Net sales in 2024, $423 million in 2025, $195 million in 2026 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 March 31, 2024.
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.
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The Company manages its Engineered Materials business segment through its project management pipeline, which is comprised of a broad range of projects that are solutions-based and are tailored to each customer's 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.
The Company manages its Acetyl Chain business segment by leveraging its ability to sell chemicals externally to end-use markets or downstream to its acetate tow, intermediate chemistry, emulsion polymers, redispersible powders and ethylene vinyl acetate 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 March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In $ millions) | |||||||||||
| Engineered Materials | |||||||||||
| North America | 372 | 479 | |||||||||
| Europe and Africa | 456 | 560 | |||||||||
| Asia-Pacific | 516 | 548 | |||||||||
| South America | 34 | 43 | |||||||||
| Total | 1,378 | 1,630 | |||||||||
| Acetyl Chain | |||||||||||
| North America | 388 | 365 | |||||||||
| Europe and Africa | 423 | 460 | |||||||||
| Asia-Pacific | 394 | 367 | |||||||||
| South America | 28 | 31 | |||||||||
Total(1) | 1,233 | 1,223 | |||||||||
______________________________
(1)Excludes intersegment sales of $28 million and $27 million for the three months ended March 31, 2024 and 2023, respectively.
17. Earnings (Loss) Per Share
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In $ millions, except share data) | |||||||||||
| Amounts attributable to Celanese Corporation | |||||||||||
| Earnings (loss) from continuing operations | 121 | 94 | |||||||||
| Earnings (loss) from discontinued operations | — | (3) | |||||||||
| Net earnings (loss) | 121 | 91 | |||||||||
| Weighted average shares - basic | 109,069,060 | 108,634,068 | |||||||||
Incremental shares attributable to equity awards(1) | 444,931 | 554,198 | |||||||||
| Weighted average shares - diluted | 109,513,991 | 109,188,266 | |||||||||
______________________________
(1)Excludes stock options to purchase 68,415, and 86,194 shares of Common Stock for the three months ended March 31, 2024 and 2023, respectively; and 0 and 72,574 equity award shares for the three months ended March 31, 2024 and 2023, respectively, as their effect would have been antidilutive.
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18. Other (Charges) Gains, Net
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In $ millions) | |||||||||||
Restructuring(1) | (14) | (23) | |||||||||
| Total | (14) | (23) | |||||||||
______________________________
(1)Includes employee termination benefits related to Company-wide business optimization projects and the previously announced closure of its polymerization units in Uentrop, Germany (Note 3).
The changes in the restructuring liabilities by business segment are as follows:
| Engineered Materials | Acetyl Chain | Other | Total | ||||||||||||||||||||
| (In $ millions) | |||||||||||||||||||||||
| Employee Termination Benefits | |||||||||||||||||||||||
| As of December 31, 2023 | 13 | 2 | 3 | 18 | |||||||||||||||||||
| Additions | 12 | — | 3 | 15 | |||||||||||||||||||
| Cash payments | (8) | (1) | (4) | (13) | |||||||||||||||||||
| Other changes | (1) | — | — | (1) | |||||||||||||||||||
| As of March 31, 2024 | 16 | 1 | 2 | 19 | |||||||||||||||||||
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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, 2023 filed on February 23, 2024 with the Securities and Exchange Commission ("SEC") as part of the Company's Annual Report on Form 10-K ("2023 Form 10-K") and the unaudited interim consolidated financial statements and notes to the unaudited interim consolidated financial statements herein, 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 2023 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 2023 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;
•the length and depth of product and industry business cycles particularly in the automotive, electrical, textiles, electronics and construction industries;
•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 ability to pass increases in raw materials prices, logistics costs and other costs on to customers or otherwise improve margins through price increases;
•the possibility that we will not be able to timely or effectively continue to integrate the Mobility & Materials business (the "M&M Business") we acquired from DuPont de Nemours, Inc. (the "M&M Acquisition") in order to realize the anticipated benefits of the M&M Acquisition, including synergies and growth opportunities, whether as a result of difficulties arising from the operation 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;
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•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;
•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 or divestiture opportunities and to complete such transactions, including obtaining regulatory approvals, consistent with our strategy;
•market acceptance of our products and 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 direct or indirect consequences of acts of war or conflict (such as the Russia-Ukraine conflict or the Israel-Hamas 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 or other sustainability matters;
•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.
Many of these factors are macroeconomic in nature and are, therefore, beyond our control. 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, medical, consumer electronics, energy storage, filtration, paints and coatings, paper and packaging, industrial applications and textiles.
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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.
Results of Operations
Financial Highlights
| Three Months Ended March 31, | |||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| (unaudited) | |||||||||||||||||
| (In $ millions, except percentages) | |||||||||||||||||
| Statement of Operations Data | |||||||||||||||||
| Net sales | 2,611 | 2,853 | (242) | ||||||||||||||
| Gross profit | 554 | 631 | (77) | ||||||||||||||
| Selling, general and administrative ("SG&A") expenses | (265) | (285) | 20 | ||||||||||||||
| Other (charges) gains, net | (14) | (23) | 9 | ||||||||||||||
| Gain (loss) on disposition of businesses and assets, net | (1) | 5 | (6) | ||||||||||||||
| Operating profit (loss) | 210 | 251 | (41) | ||||||||||||||
| Equity in net earnings (loss) of affiliates | 55 | 15 | 40 | ||||||||||||||
| Non-operating pension and other postretirement employee benefit (expense) income | 2 | 1 | 1 | ||||||||||||||
| Interest expense | (169) | (182) | 13 | ||||||||||||||
| Interest income | 13 | 8 | 5 | ||||||||||||||
| Dividend income - equity investments | 34 | 34 | — | ||||||||||||||
| Earnings (loss) from continuing operations before tax | 157 | 121 | 36 | ||||||||||||||
| Earnings (loss) from continuing operations | 124 | 96 | 28 | ||||||||||||||
| Earnings (loss) from discontinued operations | — | (3) | 3 | ||||||||||||||
| Net earnings (loss) | 124 | 93 | 31 | ||||||||||||||
| Net earnings (loss) attributable to Celanese Corporation | 121 | 91 | 30 | ||||||||||||||
| Other Data | |||||||||||||||||
| Depreciation and amortization | 221 | 172 | 49 | ||||||||||||||
| SG&A expenses as a percentage of Net sales | 10.1 | % | 10.0 | % | |||||||||||||
Operating margin(1) | 8.0 | % | 8.8 | % | |||||||||||||
| Other (charges) gains, net | |||||||||||||||||
Restructuring | (14) | (23) | 9 | ||||||||||||||
Total Other (charges) gains, net | (14) | (23) | 9 | ||||||||||||||
______________________________
(1)Defined as Operating profit (loss) divided by Net sales.
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| As of March 31, 2024 | As of December 31, 2023 | ||||||||||
| (unaudited) | |||||||||||
| (In $ millions) | |||||||||||
| Balance Sheet Data | |||||||||||
| Cash and cash equivalents | 1,483 | 1,805 | |||||||||
| Short-term borrowings and current installments of long-term debt - third party and affiliates | 2,439 | 1,383 | |||||||||
| Long-term debt, net of unamortized deferred financing costs | 11,018 | 12,301 | |||||||||
| Total debt | 13,457 | 13,684 | |||||||||
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 March 31, 2024 Compared to Three Months Ended March 31, 2023
| Volume | Price | Currency | Total | ||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||
| (In percentages) | |||||||||||||||||||||||
| Engineered Materials | (12) | (2) | (1) | (15) | |||||||||||||||||||
| Acetyl Chain | 11 | (10) | — | 1 | |||||||||||||||||||
| Total Company | (2) | (5) | (1) | (8) | |||||||||||||||||||
Consolidated Results
Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023
Net sales decreased $242 million, or 8%, for the three months ended March 31, 2024 compared to the same period in 2023, primarily due to:
•lower volume in our Engineered Materials segment, primarily driven by weaker global economic conditions, the formation of the Nutrinova joint venture (see Note 3 - Acquisitions, Dispositions and Plant Closures in the accompanying unaudited interim consolidated financial statements for further information) and customer destocking;
•lower pricing, primarily driven by our Acetyl Chain segment due to a more balanced global demand and supply environment, as well as our Engineered Materials segment due to competitive markets, product mix, and decreased energy surcharges; and
•an unfavorable currency impact, primarily resulting from a weaker Chinese Yuan ("CNY") relative to the U.S. dollar;
partially offset by:
•higher volume in our Acetyl Chain segment due to increased demand for most of our products, primarily in Asia.
Operating profit decreased $41 million, or 16%, for the three months ended March 31, 2024 compared to the same period in 2023, primarily due to:
•lower Net sales in our Engineered Materials segment;
•higher spending in our Acetyl Chain segment of $43 million, primarily as a result of plant turnaround costs related to our joint venture, Fairway Methanol LLC, and inventory impacts of increased demand in downstream derivative products;
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•higher accelerated depreciation expense of $37 million in our Engineered Materials segment, related to the previously announced closure of our polymerization units in Uentrop, Germany (see Note 3 - Acquisitions, Dispositions and Plant Closures in the accompanying unaudited interim consolidated financial statements for further information); and
•higher functional spending of $24 million in our Other Activities segment, primarily due to IT integration costs;
partially offset by:
•lower raw materials costs in our Engineered Materials and Acetyl Chain segments and favorable raw materials mix in our Engineered Materials segment;
•lower spending in our Engineered Materials segment primarily driven by distribution and administrative costs;
•lower merger and acquisition project spending of $23 million in our Other Activities segment; and
•higher Net sales in our Acetyl Chain segment.
Equity in net earnings (loss) of affiliates increased $40 million for the three months ended March 31, 2024 compared to the same period in 2023, primarily due to:
•an increase in earnings from our Mylar Specialty Films strategic affiliates of $18 million primarily due to increased restructuring costs incurred in the three months ended March 31, 2023; and
•an increase in earnings from our Ibn Sina strategic affiliate primarily as a result of higher methyl tertiary-butyl ether volume and margin.
Our effective income tax rate of 21% for the three months ended March 31, 2024 was consistent with the same period in 2023. The effective income tax rate for the current period included the tax effects related to internal debt refinancing transactions. The effective income tax rate for the three months ended March 31, 2023 included the impacts of increased valuation allowance on U.S. foreign tax credit carryforwards due to changes in forecasts of foreign sourced income and deductions that did not re-occur in the current year. See Note 11 - Income Taxes in the accompanying unaudited interim consolidated financial statements for further information.
Business Segments
Engineered Materials
| Three Months Ended March 31, | Change | % Change | |||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||
| (In $ millions, except percentages) | |||||||||||||||||||||||
| Net sales | 1,378 | 1,630 | (252) | (15.5) | % | ||||||||||||||||||
| Net Sales Variance | |||||||||||||||||||||||
| Volume | (12) | % | |||||||||||||||||||||
| Price | (2) | % | |||||||||||||||||||||
| Currency | (1) | % | |||||||||||||||||||||
| Other (charges) gains, net | (11) | (21) | 10 | 47.6 | % | ||||||||||||||||||
| Operating profit (loss) | 89 | 112 | (23) | (20.5) | % | ||||||||||||||||||
| Operating margin | 6.5 | % | 6.9 | % | |||||||||||||||||||
Equity in net earnings (loss) of affiliates | 49 | 11 | 38 | 345.5 | % | ||||||||||||||||||
Depreciation and amortization | 147 | 112 | 35 | 31.3 | % | ||||||||||||||||||
Our Engineered Materials segment includes our engineered materials 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.
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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 materials costs. We attempt to address increases in raw materials costs through appropriate pricing actions.
Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023
Net sales decreased for the three months ended March 31, 2024 compared to the same period in 2023, primarily due to:
•lower volume, primarily driven by weaker global economic conditions, the formation of the Nutrinova joint venture (see Note 3 - Acquisitions, Dispositions and Plant Closures in the accompanying unaudited interim consolidated financial statements for further information) and customer destocking;
•lower pricing for most of our products, primarily due to competitive markets, product mix, and decreased energy surcharges; and
•an unfavorable currency impact, primarily resulting from a weaker CNY relative to the U.S. dollar.
Operating profit decreased for the three months ended March 31, 2024 compared to the same period in 2023, primarily due to:
•lower Net sales; and
•higher accelerated depreciation expense of $37 million, related to the previously announced closure of our polymerization units in Uentrop, Germany (see Note 3 - Acquisitions, Dispositions and Plant Closures in the accompanying unaudited interim consolidated financial statements for further information);
partially offset by:
•lower raw materials costs and favorable raw materials mix; and
•lower spending of $38 million, primarily driven by distribution and administrative costs.
Equity in net earnings (loss) of affiliates increased for the three months ended March 31, 2024 compared to the same period in 2023, primarily due to:
•an increase in earnings from our Mylar Specialty Films strategic affiliates of $18 million primarily due to increased restructuring cost incurred in the three months ended March 31, 2023; and
•an increase in earnings from our Ibn Sina strategic affiliate, primarily as a result of higher methyl tertiary-butyl ether volume and margin.
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Acetyl Chain