UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________
Form 10-Q
| ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
| For the quarterly period ended | |||||
| September 30, 2023 | |||||
| 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 November 3, 2023 was 108,855,167.
CELANESE CORPORATION AND SUBSIDIARIES
Form 10-Q
For the Quarterly Period Ended September 30, 2023
TABLE OF CONTENTS
| Page | ||||||||
2
Item 1. Financial Statements
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In $ millions, except share and per share data) | |||||||||||||||||||||||
| Net sales | 2,723 | 2,301 | 8,371 | 7,325 | |||||||||||||||||||
| Cost of sales | (2,050) | (1,755) | (6,381) | (5,329) | |||||||||||||||||||
| Gross profit | 673 | 546 | 1,990 | 1,996 | |||||||||||||||||||
| Selling, general and administrative expenses | (244) | (184) | (803) | (555) | |||||||||||||||||||
| Amortization of intangible assets | (41) | (10) | (124) | (32) | |||||||||||||||||||
| Research and development expenses | (32) | (25) | (114) | (75) | |||||||||||||||||||
| Other (charges) gains, net | (17) | (15) | (50) | (15) | |||||||||||||||||||
| Foreign exchange gain (loss), net | — | (2) | 21 | (4) | |||||||||||||||||||
| Gain (loss) on disposition of businesses and assets, net | 503 | (2) | 508 | 7 | |||||||||||||||||||
| Operating profit (loss) | 842 | 308 | 1,428 | 1,322 | |||||||||||||||||||
| Equity in net earnings (loss) of affiliates | 12 | 73 | 50 | 189 | |||||||||||||||||||
| Non-operating pension and other postretirement employee benefit (expense) income | (1) | 25 | (2) | 74 | |||||||||||||||||||
| Interest expense | (178) | (154) | (542) | (237) | |||||||||||||||||||
| Refinancing expense | (7) | — | (7) | — | |||||||||||||||||||
| Interest income | 12 | 34 | 27 | 36 | |||||||||||||||||||
| Dividend income - equity investments | 30 | 30 | 95 | 103 | |||||||||||||||||||
| Other income (expense), net | 4 | 5 | 2 | 4 | |||||||||||||||||||
| Earnings (loss) from continuing operations before tax | 714 | 321 | 1,051 | 1,491 | |||||||||||||||||||
| Income tax (provision) benefit | 236 | (127) | 215 | (351) | |||||||||||||||||||
| Earnings (loss) from continuing operations | 950 | 194 | 1,266 | 1,140 | |||||||||||||||||||
| Earnings (loss) from operation of discontinued operations | (1) | — | (4) | (8) | |||||||||||||||||||
| Income tax (provision) benefit from discontinued operations | — | (1) | 1 | 1 | |||||||||||||||||||
| Earnings (loss) from discontinued operations | (1) | (1) | (3) | (7) | |||||||||||||||||||
| Net earnings (loss) | 949 | 193 | 1,263 | 1,133 | |||||||||||||||||||
| Net (earnings) loss attributable to noncontrolling interests | 2 | (2) | (1) | (6) | |||||||||||||||||||
| Net earnings (loss) attributable to Celanese Corporation | 951 | 191 | 1,262 | 1,127 | |||||||||||||||||||
| Amounts attributable to Celanese Corporation | |||||||||||||||||||||||
| Earnings (loss) from continuing operations | 952 | 192 | 1,265 | 1,134 | |||||||||||||||||||
| Earnings (loss) from discontinued operations | (1) | (1) | (3) | (7) | |||||||||||||||||||
| Net earnings (loss) | 951 | 191 | 1,262 | 1,127 | |||||||||||||||||||
| Earnings (loss) per common share - basic | |||||||||||||||||||||||
| Continuing operations | 8.74 | 1.77 | 11.63 | 10.47 | |||||||||||||||||||
| Discontinued operations | (0.01) | (0.01) | (0.03) | (0.07) | |||||||||||||||||||
| Net earnings (loss) - basic | 8.73 | 1.76 | 11.60 | 10.40 | |||||||||||||||||||
| Earnings (loss) per common share - diluted | |||||||||||||||||||||||
| Continuing operations | 8.70 | 1.76 | 11.57 | 10.39 | |||||||||||||||||||
| Discontinued operations | (0.01) | (0.01) | (0.03) | (0.07) | |||||||||||||||||||
| Net earnings (loss) - diluted | 8.69 | 1.75 | 11.54 | 10.32 | |||||||||||||||||||
| Weighted average shares - basic | 108,918,986 | 108,428,982 | 108,814,288 | 108,336,574 | |||||||||||||||||||
| Weighted average shares - diluted | 109,439,486 | 109,065,970 | 109,338,040 | 109,158,832 | |||||||||||||||||||
See the accompanying notes to the unaudited interim consolidated financial statements.
3
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In $ millions) | |||||||||||||||||||||||
| Net earnings (loss) | 949 | 193 | 1,263 | 1,133 | |||||||||||||||||||
| Other comprehensive income (loss), net of tax | |||||||||||||||||||||||
| Foreign currency translation gain (loss) | 7 | (49) | (181) | (201) | |||||||||||||||||||
| Gain (loss) on derivative hedges | (17) | (11) | (13) | 30 | |||||||||||||||||||
| Pension and postretirement benefits | (1) | — | (1) | 2 | |||||||||||||||||||
| Total other comprehensive income (loss), net of tax | (11) | (60) | (195) | (169) | |||||||||||||||||||
| Total comprehensive income (loss), net of tax | 938 | 133 | 1,068 | 964 | |||||||||||||||||||
Comprehensive (income) loss attributable to noncontrolling interests | 2 | (2) | (1) | (6) | |||||||||||||||||||
Comprehensive income (loss) attributable to Celanese Corporation | 940 | 131 | 1,067 | 958 | |||||||||||||||||||
See the accompanying notes to the unaudited interim consolidated financial statements.
4
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
| As of September 30, 2023 | As of December 31, 2022 | ||||||||||
| (In $ millions, except share data) | |||||||||||
| ASSETS | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | 1,357 | 1,508 | |||||||||
| Trade receivables - third party and affiliates | 1,339 | 1,379 | |||||||||
| Non-trade receivables, net | 570 | 675 | |||||||||
| Inventories | 2,337 | 2,808 | |||||||||
| Other assets | 284 | 241 | |||||||||
| Total current assets | 5,887 | 6,611 | |||||||||
| Investments in affiliates | 1,245 | 1,062 | |||||||||
Property, plant and equipment (net of accumulated depreciation - 2023: $3,881; 2022: $3,687) | 5,467 | 5,584 | |||||||||
| Operating lease right-of-use assets | 395 | 413 | |||||||||
| Deferred income taxes | 1,074 | 808 | |||||||||
| Other assets | 535 | 547 | |||||||||
| Goodwill | 6,991 | 7,142 | |||||||||
| Intangible assets, net | 3,944 | 4,105 | |||||||||
| Total assets | 25,538 | 26,272 | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current Liabilities | |||||||||||
| Short-term borrowings and current installments of long-term debt - third party and affiliates | 1,408 | 1,306 | |||||||||
| Trade payables - third party and affiliates | 1,263 | 1,518 | |||||||||
| Other liabilities | 927 | 1,201 | |||||||||
| Income taxes payable | 18 | 43 | |||||||||
| Total current liabilities | 3,616 | 4,068 | |||||||||
| Long-term debt, net of unamortized deferred financing costs | 12,291 | 13,373 | |||||||||
| Deferred income taxes | 1,223 | 1,242 | |||||||||
| Uncertain tax positions | 276 | 322 | |||||||||
| Benefit obligations | 396 | 411 | |||||||||
| Operating lease liabilities | 334 | 364 | |||||||||
| Other liabilities | 453 | 387 | |||||||||
| Commitments and Contingencies | |||||||||||
| Shareholders' Equity | |||||||||||
Preferred stock, $0.01 par value, 100,000,000 shares authorized (2023 and 2022: 0 issued and outstanding) | — | — | |||||||||
Common stock, $0.0001 par value, 400,000,000 shares authorized (2023: 170,465,439 issued and 108,854,038 outstanding; 2022: 170,135,425 issued and 108,473,932 outstanding) | — | — | |||||||||
Treasury stock, at cost (2023: 61,611,401 shares; 2022: 61,661,493 shares) | (5,490) | (5,491) | |||||||||
| Additional paid-in capital | 386 | 372 | |||||||||
| Retained earnings | 12,308 | 11,274 | |||||||||
| Accumulated other comprehensive income (loss), net | (713) | (518) | |||||||||
| Total Celanese Corporation shareholders' equity | 6,491 | 5,637 | |||||||||
| Noncontrolling interests | 458 | 468 | |||||||||
| Total equity | 6,949 | 6,105 | |||||||||
| Total liabilities and equity | 25,538 | 26,272 | |||||||||
See the accompanying notes to the unaudited interim consolidated financial statements.
5
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF EQUITY
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||
| (In $ millions, except share data) | |||||||||||||||||||||||
| Common Stock | |||||||||||||||||||||||
| Balance as of the beginning of the period | 108,847,435 | — | 108,346,035 | — | |||||||||||||||||||
| Stock awards | 6,603 | — | 40,704 | — | |||||||||||||||||||
| Balance as of the end of the period | 108,854,038 | — | 108,386,739 | — | |||||||||||||||||||
| Treasury Stock | |||||||||||||||||||||||
| Balance as of the beginning of the period | 61,611,401 | (5,490) | 61,704,046 | (5,492) | |||||||||||||||||||
| Issuance of treasury stock under stock plans | — | — | — | — | |||||||||||||||||||
| Balance as of the end of the period | 61,611,401 | (5,490) | 61,704,046 | (5,492) | |||||||||||||||||||
| Additional Paid-In Capital | |||||||||||||||||||||||
| Balance as of the beginning of the period | 383 | 344 | |||||||||||||||||||||
| Stock-based compensation, net of tax | 3 | 12 | |||||||||||||||||||||
| Balance as of the end of the period | 386 | 356 | |||||||||||||||||||||
| Retained Earnings | |||||||||||||||||||||||
| Balance as of the beginning of the period | 11,433 | 10,466 | |||||||||||||||||||||
| Net earnings (loss) attributable to Celanese Corporation | 951 | 191 | |||||||||||||||||||||
| Common stock dividends | (76) | (73) | |||||||||||||||||||||
| Balance as of the end of the period | 12,308 | 10,584 | |||||||||||||||||||||
| Accumulated Other Comprehensive Income (Loss), Net | |||||||||||||||||||||||
| Balance as of the beginning of the period | (702) | (438) | |||||||||||||||||||||
| Other comprehensive income (loss), net of tax | (11) | (60) | |||||||||||||||||||||
| Balance as of the end of the period | (713) | (498) | |||||||||||||||||||||
| Total Celanese Corporation shareholders' equity | 6,491 | 4,950 | |||||||||||||||||||||
| Noncontrolling Interests | |||||||||||||||||||||||
| Balance as of the beginning of the period | 464 | 345 | |||||||||||||||||||||
| Net earnings (loss) attributable to noncontrolling interests | (2) | 2 | |||||||||||||||||||||
| Distributions/dividends to noncontrolling interests | (4) | (3) | |||||||||||||||||||||
| Balance as of the end of the period | 458 | 344 | |||||||||||||||||||||
| Total equity | 6,949 | 5,294 | |||||||||||||||||||||
See the accompanying notes to the unaudited interim consolidated financial statements.
6
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF EQUITY
| Nine Months Ended September 30, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||
| (In $ millions, except share data) | |||||||||||||||||||||||
| Common Stock | |||||||||||||||||||||||
| Balance as of the beginning of the period | 108,473,932 | — | 108,023,735 | — | |||||||||||||||||||
| Stock awards | 380,106 | — | 363,004 | — | |||||||||||||||||||
| Balance as of the end of the period | 108,854,038 | — | 108,386,739 | — | |||||||||||||||||||
| Treasury Stock | |||||||||||||||||||||||
| Balance as of the beginning of the period | 61,661,493 | (5,491) | 61,736,289 | (5,492) | |||||||||||||||||||
| Issuance of treasury stock under stock plans | (50,092) | 1 | (32,243) | — | |||||||||||||||||||
| Balance as of the end of the period | 61,611,401 | (5,490) | 61,704,046 | (5,492) | |||||||||||||||||||
| Additional Paid-In Capital | |||||||||||||||||||||||
| Balance as of the beginning of the period | 372 | 333 | |||||||||||||||||||||
| Stock-based compensation, net of tax | 14 | 23 | |||||||||||||||||||||
| Balance as of the end of the period | 386 | 356 | |||||||||||||||||||||
| Retained Earnings | |||||||||||||||||||||||
| Balance as of the beginning of the period | 11,274 | 9,677 | |||||||||||||||||||||
| Net earnings (loss) attributable to Celanese Corporation | 1,262 | 1,127 | |||||||||||||||||||||
| Common stock dividends | (228) | (220) | |||||||||||||||||||||
| Balance as of the end of the period | 12,308 | 10,584 | |||||||||||||||||||||
| Accumulated Other Comprehensive Income (Loss), Net | |||||||||||||||||||||||
| Balance as of the beginning of the period | (518) | (329) | |||||||||||||||||||||
| Other comprehensive income (loss), net of tax | (195) | (169) | |||||||||||||||||||||
| Balance as of the end of the period | (713) | (498) | |||||||||||||||||||||
| Total Celanese Corporation shareholders' equity | 6,491 | 4,950 | |||||||||||||||||||||
| Noncontrolling Interests | |||||||||||||||||||||||
| Balance as of the beginning of the period | 468 | 348 | |||||||||||||||||||||
| Net earnings (loss) attributable to noncontrolling interests | 1 | 6 | |||||||||||||||||||||
| Distributions/dividends to noncontrolling interests | (11) | (10) | |||||||||||||||||||||
| Balance as of the end of the period | 458 | 344 | |||||||||||||||||||||
| Total equity | 6,949 | 5,294 | |||||||||||||||||||||
See the accompanying notes to the unaudited interim consolidated financial statements.
7
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
| Nine Months Ended September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| (In $ millions) | |||||||||||
| Operating Activities | |||||||||||
| Net earnings (loss) | 1,263 | 1,133 | |||||||||
| Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities | |||||||||||
| Asset impairments | 9 | 12 | |||||||||
| Depreciation, amortization and accretion | 544 | 318 | |||||||||
| Pension and postretirement net periodic benefit cost | 10 | (63) | |||||||||
| Pension and postretirement contributions | (37) | (34) | |||||||||
| Deferred income taxes, net | (282) | 14 | |||||||||
| (Gain) loss on disposition of businesses and assets, net | (498) | (6) | |||||||||
| Stock-based compensation | 36 | 47 | |||||||||
| Undistributed earnings in unconsolidated affiliates | 20 | (56) | |||||||||
| Other, net | 2 | 8 | |||||||||
| Operating cash provided by (used in) discontinued operations | (5) | (25) | |||||||||
| Changes in operating assets and liabilities | |||||||||||
| Trade receivables - third party and affiliates, net | (16) | (61) | |||||||||
| Inventories | 373 | (321) | |||||||||
| Other assets | 219 | 26 | |||||||||
| Trade payables - third party and affiliates | (171) | 97 | |||||||||
| Other liabilities | (398) | 189 | |||||||||
| Net cash provided by (used in) operating activities | 1,069 | 1,278 | |||||||||
| Investing Activities | |||||||||||
| Capital expenditures on property, plant and equipment | (440) | (400) | |||||||||
| Acquisitions, net of cash acquired | 52 | (14) | |||||||||
| Proceeds from sale of businesses and assets, net | 480 | 16 | |||||||||
| Other, net | (58) | (30) | |||||||||
| Net cash provided by (used in) investing activities | 34 | (428) | |||||||||
| Financing Activities | |||||||||||
| Net change in short-term borrowings with maturities of 3 months or less | (278) | (249) | |||||||||
| Proceeds from short-term borrowings | 452 | — | |||||||||
| Repayments of short-term borrowings | (603) | — | |||||||||
| Proceeds from long-term debt | 3,001 | 9,019 | |||||||||
| Repayments of long-term debt | (3,497) | (21) | |||||||||
| Purchases of treasury stock, including related fees | — | (17) | |||||||||
| Common stock dividends | (228) | (220) | |||||||||
| Distributions to noncontrolling interests | (11) | (10) | |||||||||
| Issuance cost of bridge facility | — | (63) | |||||||||
| Other, net | (52) | (93) | |||||||||
| Net cash provided by (used in) financing activities | (1,216) | 8,346 | |||||||||
| Exchange rate effects on cash and cash equivalents | (38) | (61) | |||||||||
| Net increase (decrease) in cash and cash equivalents | (151) | 9,135 | |||||||||
| Cash and cash equivalents as of beginning of period | 1,508 | 536 | |||||||||
| Cash and cash equivalents as of end of period | 1,357 | 9,671 | |||||||||
See the accompanying notes to the unaudited interim consolidated financial statements.
8
CELANESE CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. Description of the Company and Basis of Presentation
Description of the Company
Celanese Corporation and its subsidiaries (collectively, the "Company") is a global chemical and specialty materials company. The Company produces high performance engineered polymers that are used in a variety of high-value applications, as well as acetyl products, which are intermediate chemicals, for nearly all major industries. The Company also engineers and manufactures a wide variety of products essential to everyday living. The Company's broad product portfolio serves a diverse set of end-use applications including automotive, chemical additives, construction, consumer and industrial adhesives, consumer and medical, energy storage, filtration, food and beverage, paints and coatings, paper and packaging, performance industrial and textiles.
Definitions
In this Quarterly Report on Form 10-Q ("Quarterly Report"), the term "Celanese" refers to Celanese Corporation, a Delaware corporation, and not its subsidiaries. The term "Celanese U.S." refers to the Company's subsidiary, Celanese US Holdings LLC, a Delaware limited liability company, and not its subsidiaries.
Basis of Presentation
The unaudited interim consolidated financial statements for the three and nine months ended September 30, 2023 and 2022 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, 2022, filed on February 24, 2023 with the SEC as part of the Company's Annual Report on Form 10-K.
Operating results for the three and nine months ended September 30, 2023 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
9
and other postretirement benefits, asset retirement obligations, environmental liabilities and loss contingencies, among others. Actual results could differ from those estimates.
2. Recent Accounting Pronouncements
There are no recent Accounting Standard Updates issued by the Financial Accounting Standards Board which are expected to materially impact the Company's financial position, operating results or financial disclosures.
3. Acquisitions, Dispositions and Plant Closures
Acquisitions
In November 2022, the Company acquired 100% ownership of entities and assets consisting of a majority of the Mobility & Materials business ("M&M") of DuPont de Nemours, Inc. ("DuPont") (the "M&M Acquisition") for a purchase price of $11.0 billion, subject to transaction adjustments, in an all-cash transaction. The Company acquired a global production network of 29 facilities, including compounding and polymerization, customer and supplier contracts and agreements, an intellectual property portfolio, including approximately 850 patents with associated technical and R&D assets, and approximately 5,000 employees across the manufacturing, technical and commercial organizations. This acquisition of M&M enhances the engineered materials product portfolio by adding new polymers, brands, product technology and backward integration in critical polymers, allowing the Company to accelerate growth in high-value applications including future mobility, connectivity and medical. The acquisition was accounted for as a business combination and the acquired operations are included in the Engineered Materials segment.
The Company preliminarily allocated the purchase price of the acquisition to identifiable assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The purchase price allocation was based upon preliminary information and is subject to change if additional information about the facts and circumstances that existed at the acquisition date becomes available. The Company is in the ongoing process of conducting a valuation of the assets acquired and liabilities assumed related to the acquisition, including customer relationships, personal and real property and deferred taxes. The final fair value of the net assets acquired may result in adjustments to these assets and liabilities, including goodwill. During the measurement period to date, there were no adjustments that materially impacted the Company's goodwill initially recorded.
The following unaudited pro forma financial information presents the consolidated results of operations as if the M&M Acquisition had occurred at the beginning of 2022. M&M's pre-acquisition results have been added to the Company's historical results. The pro forma results contained in the table below include adjustments for (i) increased depreciation expense as a result of acquisition date fair value adjustments, (ii) amortization of acquired intangibles, (iii) interest expense and amortization of debt issuance costs of $57 million and $400 million related to borrowings under the U.S. Term Loan Facility (defined below) and the issuance of Acquisition Notes (defined below) as if these had taken place at the beginning of 2022 for the three and nine months ended September 30, 2022, respectively, and (iv) net total step up of inventory amortized to Cost of sales of $131 million for the nine months ended September 30, 2022. There was no net total step up of inventory amortized to Cost of sales for the three months ended September 30, 2022.
These pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results of operations as they would have been had the acquisitions occurred on the assumed dates, nor are they necessarily an indication of future operating results. The unaudited consolidated pro forma results are as follows:
| Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2022 | ||||||||||
| (In $ millions) | |||||||||||
Proforma Net sales | 3,141 | 9,965 | |||||||||
Proforma Earnings (loss) from continuing operations before tax | 163 | 760 | |||||||||
Nutrinova Joint Venture
On September 27, 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, other 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
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adjustments. The Company is accounting for its interest in the joint venture as an equity method investment, and its portion of the results will continue to be included in the Engineered Materials segment. A gain on the transaction of $508 million is included in Gain (loss) on disposition of businesses and assets, net in the unaudited interim consolidated statements of operations for three and nine months ended September 30, 2023.
Korea Engineering Plastics Co. Restructuring
In April 2022, the Company completed the restructuring of Korea Engineering Plastics Co. ("KEPCO"), a joint venture owned 50% by the Company and 50% by Mitsubishi Gas Chemical Company, Inc. KEPCO was first formed in 1987 to manufacture and market polyoxymethylene ("POM") in Asia, with a particular focus on serving domestic demand in South Korea. KEPCO will now focus solely on manufacturing and supplying high quality products to its shareholders, who will independently market them globally. As part of the restructuring of KEPCO, the Company paid KEPCO $5 million and will pay 5 equal annual installments of €24 million on October 1 of each year beginning in 2022. This resulted in an increase to the Company's investment in KEPCO of $134 million. The Company's joint venture partner will make similar payments to KEPCO. The restructuring did not result in a change in ownership percentage of KEPCO, nor a change in control, and KEPCO will continue to be accounted for as an equity method investment.
4. Inventories
| As of September 30, 2023 | As of December 31, 2022 | ||||||||||
| (In $ millions) | |||||||||||
| Finished goods | 1,573 | 1,820 | |||||||||
| Work-in-process | 169 | 202 | |||||||||
| Raw materials and supplies | 595 | 786 | |||||||||
| Total | 2,337 | 2,808 | |||||||||
5. Goodwill and Intangible Assets, Net
Goodwill
| Engineered Materials | Acetyl Chain | Total | |||||||||||||||
| (In $ millions) | |||||||||||||||||
| As of December 31, 2022 | 6,775 | 367 | 7,142 | ||||||||||||||
| (24) | — | (24) | |||||||||||||||
Disposition(1) | (80) | — | (80) | ||||||||||||||
| Exchange rate changes | (45) | (2) | (47) | ||||||||||||||
As of September 30, 2023(2) | 6,626 | 365 | 6,991 | ||||||||||||||
______________________________
(2)There were no accumulated impairment losses as of September 30, 2023.
The Company assesses the recoverability of the carrying amount of its reporting unit goodwill either qualitatively or quantitatively annually during the third quarter of its fiscal year using June 30 balances or whenever events or changes in circumstances indicate that the carrying amount of the asset may not be fully recoverable. In connection with the Company's annual goodwill impairment assessment, the Company did not record an impairment loss to goodwill during the nine months ended September 30, 2023 as the estimated fair value for each of the Company's reporting units exceeded the carrying amount of the underlying assets by a substantial margin.
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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, 2022 | 42 | 2,455 | 601 | 55 | 3,153 | ||||||||||||||||||||||||
Disposition(1) | — | (58) | — | — | (58) | ||||||||||||||||||||||||
| Exchange rate changes | (2) | (23) | (10) | — | (35) | ||||||||||||||||||||||||
| As of September 30, 2023 | 40 | 2,374 | 591 | 55 | 3,060 | ||||||||||||||||||||||||
| Accumulated Amortization | |||||||||||||||||||||||||||||
| As of December 31, 2022 | (39) | (567) | (50) | (40) | (696) | ||||||||||||||||||||||||
| Amortization | — | (93) | (30) | (1) | (124) | ||||||||||||||||||||||||
Disposition(1) | — | 58 | — | — | 58 | ||||||||||||||||||||||||
| Exchange rate changes | 2 | 10 | — | — | 12 | ||||||||||||||||||||||||
| As of September 30, 2023 | (37) | (592) | (80) | (41) | (750) | ||||||||||||||||||||||||
| Net book value | 3 | 1,782 | 511 | 14 | 2,310 | ||||||||||||||||||||||||
______________________________
Indefinite-lived intangible assets are as follows:
______________________________
| Trademarks and Trade Names | |||||
| (In $ millions) | |||||
| As of December 31, 2022 | 1,648 | ||||
Disposition(1) | (14) | ||||
| Exchange rate changes | — | ||||
| As of September 30, 2023 | 1,634 | ||||
The Company assesses the recoverability of the carrying amount of its indefinite-lived intangible assets either qualitatively or quantitatively annually during the third quarter of its fiscal year using June 30 balances or whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. In connection with the Company's annual indefinite-lived intangible assets impairment assessment, the Company did not record an impairment loss to indefinite-lived intangible assets during the nine months ended September 30, 2023 as the estimated fair value of each of the Company's indefinite-lived intangible assets exceeded the carrying value of the underlying assets by a substantial margin.
During the nine months ended September 30, 2023, the Company did not renew or extend any intangible assets.
Estimated amortization expense for the succeeding five fiscal years is as follows:
| (In $ millions) | |||||
| 2024 | 161 | ||||
| 2025 | 161 | ||||
| 2026 | 160 | ||||
| 2027 | 160 | ||||
| 2028 | 160 | ||||
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6. Current Other Liabilities
| As of September 30, 2023 | As of December 31, 2022 | ||||||||||
| (In $ millions) | |||||||||||
| 25 | 25 | ||||||||||
| Customer rebates | 79 | 101 | |||||||||
| 46 | 63 | ||||||||||
| 137 | 265 | ||||||||||
| 25 | 21 | ||||||||||
| Operating leases | 88 | 83 | |||||||||
| 21 | 6 | ||||||||||
| Salaries and benefits | 149 | 151 | |||||||||
| Sales and use tax/foreign withholding tax payable | 104 | 108 | |||||||||
| Investment in affiliates | 91 | 79 | |||||||||
Other(1) | 162 | 299 | |||||||||
| Total | 927 | 1,201 | |||||||||
(1)Includes $27 million and $166 million payable to DuPont related to the M&M Acquisition and transition activities as of September 30, 2023 and December 31, 2022, respectively.
7. Debt
| As of September 30, 2023 | As of December 31, 2022 | ||||||||||
| (In $ millions) | |||||||||||
| Short-Term Borrowings and Current Installments of Long-Term Debt - Third Party and Affiliates | |||||||||||
| Current installments of long-term debt | 1,061 | 506 | |||||||||
Short-term borrowings, including amounts due to affiliates(1) | 142 | 500 | |||||||||
Revolving credit facilities(2) | 205 | 300 | |||||||||
| Total | 1,408 | 1,306 | |||||||||
______________________________
(1)The weighted average interest rate was 2.9% and 5.8% as of September 30, 2023 and December 31, 2022, respectively.
(2)The weighted average interest rate was 3.4% and 5.8% as of September 30, 2023 and December 31, 2022, respectively.
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| As of September 30, 2023 | As of December 31, 2022 | ||||||||||
| (In $ millions) | |||||||||||
| Long-Term Debt | |||||||||||
Senior unsecured notes due 2023, interest rate of 1.125% | — | 480 | |||||||||
Senior unsecured notes due 2024, interest rate of 3.500% | 473 | 499 | |||||||||
Senior unsecured notes due 2024, interest rate of 5.900% | 527 | 2,000 | |||||||||
Senior unsecured notes due 2025, interest rate of 1.250% | 318 | 320 | |||||||||
Senior unsecured notes due 2025, interest rate of 6.050% | 1,000 | 1,750 | |||||||||
Senior unsecured term loan due 2025(1) | — | 750 | |||||||||
Senior unsecured notes due 2026, interest rate of 1.400% | 400 | 400 | |||||||||
Senior unsecured notes due 2026, interest rate of 4.777% | 1,060 | 1,067 | |||||||||
Senior unsecured notes due 2027, interest rate of 2.125% | 528 | 531 | |||||||||
Senior unsecured notes due 2027, interest rate of 6.165% | 2,000 | 2,000 | |||||||||
Senior unsecured term loan due 2027(1) | 1,000 | 1,000 | |||||||||
Senior unsecured notes due 2028, interest rate of 0.625% | 529 | 533 | |||||||||
Senior unsecured notes due 2028, interest rate of 6.350% | 1,000 | — | |||||||||
Senior unsecured notes due 2029, interest rate of 5.337% | 529 | 533 | |||||||||
Senior unsecured notes due 2029, interest rate of 6.330% | 750 | 750 | |||||||||
Senior unsecured notes due 2030, interest rate of 6.550% | 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 | — | |||||||||
Pollution control and industrial revenue bonds due at various dates through 2030(2) | 163 | 164 | |||||||||
Bank loans due at various dates through 2030(3) | 5 | 4 | |||||||||
Obligations under finance leases due at various dates through 2054 | 150 | 172 | |||||||||
| Subtotal | 13,431 | 13,953 | |||||||||
Unamortized deferred financing costs(4) | (79) | (74) | |||||||||
| Current installments of long-term debt | (1,061) | (506) | |||||||||
| Total | 12,291 | 13,373 | |||||||||
______________________________
(1)The interest rate was 6.930% and 5.934% as of September 30, 2023 and December 31, 2022, respectively.
(2)Interest rates range from 4.05% and 5.00%.
(3)The weighted average interest rate was 2.6% and 1.3% as of September 30, 2023 and December 31, 2022, 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 (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"). In September 2022, Celanese, Celanese U.S. and certain subsidiaries entered into an additional term loan credit agreement (the "September 2022 U.S. Term Loan Credit Agreement" and, together with the March 2022 U.S. Term Loan Credit Agreement, the "U.S. Term Loan Credit Agreements"), pursuant to which lenders provided delayed-draw term loans due 3 years from issuance in an amount equal to $750 million (the "3-year Term Loans" and collectively with the 364-day Term Loans and the 5-year Term Loans, the "U.S. Term Loan Facility"). The U.S. Term Loan Facility was fully drawn during the three months ended December 31, 2022.
Also in March 2022, Celanese, Celanese U.S. and certain subsidiaries entered into a new revolving credit agreement (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").
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On 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.
On January 4, 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.
On January 6, 2023, CSIT entered into a senior unsecured working capital loan contract for CNY800 million (the "China Working Capital Term Loan Agreement," together with the China Revolving Credit Agreement, the "China Credit Agreements," and the China Credit Agreements together with the U.S. Credit Agreements, the "Global Credit Agreements"), 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 on January 10, 2023 and is supported by a letter of comfort from the Company. The Company expects that the China Credit Agreements will 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 September 30, 2023 | |||||
| (In $ millions) | |||||
| U.S. Revolving Credit Facility | |||||
| Borrowings outstanding | — | ||||
| Available for borrowing | 1,750 | ||||
| China Revolving Credit Facility | |||||
| Borrowings outstanding | 205 | ||||
| Available for borrowing | 35 | ||||
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.
In July 2022, Celanese U.S. completed an offering of $7.5 billion aggregate principal amount of notes of various maturities in a public offering registered under the Securities Act (the "Acquisition USD Notes"). In July 2022, Celanese U.S. completed an offering of €1.5 billion in aggregate principal amount of euro-denominated senior unsecured notes due in 2026 and 2029 in a public offering registered under the Securities Act (collectively, the "Acquisition Euro Notes" and together with the Acquisition USD Notes, the "Acquisition Notes"). Certain of the Acquisition Notes were issued at a discount to par, which is being amortized to Interest expense in the unaudited interim consolidated statements of operations over the terms of the applicable Acquisition Notes. Fees and expenses of the offering of the Acquisition Notes, inclusive of underwriting discounts, were $65 million.
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On August 24, 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% | |||||||||||||||||
Deferred financing costs related to the 2023 Offering, including underwriting discounts, were $26 million for the three and nine months ended September 30, 2023 and are being amortized to Interest expense in the unaudited interim consolidated statements of operations over the terms of the applicable notes.
On August 25, 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 repayment of other outstanding indebtedness, including the payment in full of the 364-day Term Loans and the 3-year Term Loans.
Refinancing expense in the unaudited interim consolidated statements of operations includes fees and expenses related to the Tender Offer, including accelerated amortization of deferred financing costs associated with the principal amounts tendered, was $7 million for the three and nine months ended September 30, 2023.
Accounts Receivable Purchasing Facility
On June 1, 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 $1.0 billion and $1.1 billion of accounts receivable under this agreement for the nine months ended September 30, 2023 and year ended December 31, 2022, respectively, and collected $977 million and $1.1 billion of accounts receivable sold under this agreement during the same periods. Unsold U.S. accounts receivable of $110 million were pledged by the SPE as collateral to the Purchasers as of September 30, 2023.
Factoring and Discounting Agreements
The Company has factoring agreements in Europe and Singapore with financial institutions to sell 100% and 90% of certain accounts receivable, respectively, on a non-recourse basis. These transactions are treated as sales and are accounted for as reductions in accounts receivable because the agreements transfer effective control over and risk related to the receivables to the buyer. The Company has no continuing involvement in the transferred receivables, other than collection and administrative responsibilities and, once sold, the accounts receivable are no longer available to satisfy creditors in the event of bankruptcy. The Company de-recognized $305 million and $320 million of accounts receivable under these factoring agreements for the
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nine months ended September 30, 2023 and year ended December 31, 2022, respectively, and collected $294 million and $325 million of accounts receivable sold under these factoring agreements during the same periods.
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 September 30, 2023.
8. Benefit Obligations
The components of net periodic benefit cost are as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| Pension Benefits | Post-retirement Benefits | Pension Benefits | Post-retirement Benefits | Pension Benefits | Post-retirement Benefits | Pension Benefits | Post-retirement Benefits | ||||||||||||||||||||||||||||||||||||||||
| (In $ millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Service cost | 2 | — | 3 | 1 | 8 | — | 10 | 1 | |||||||||||||||||||||||||||||||||||||||
| Interest cost | 32 | 1 | 17 | — | 98 | 2 | 50 | 1 | |||||||||||||||||||||||||||||||||||||||
Expected return on plan assets | (32) | — | (42) | — | (98) | — | (125) | — | |||||||||||||||||||||||||||||||||||||||
| Total | 2 | 1 | (22) | 1 | 8 | 2 | (65) | 2 | |||||||||||||||||||||||||||||||||||||||
Benefit obligation funding is as follows:
| As of September 30, 2023 | Total Expected 2023 | ||||||||||
| (In $ millions) | |||||||||||
| Cash contributions to defined benefit pension plans | 20 | 27 | |||||||||
| Benefit payments to nonqualified pension plans | 15 | 18 | |||||||||
| Benefit payments to other postretirement benefit plans | 2 | 4 | |||||||||
The Company's estimates of its U.S. defined benefit pension plan contributions reflect the provisions of the Pension Protection Act of 2006.
Pension and postretirement benefit plan balances recognized in the unaudited consolidated balance sheets consist of the following:
| As of September 30, 2023 | As of December 31, 2022 | ||||||||||||||||||||||
| Pension Benefits | Post-retirement Benefits | Pension Benefits | Post-retirement Benefits | ||||||||||||||||||||
| (In $ millions) | |||||||||||||||||||||||
| Noncurrent Other assets | 167 | — | 160 | — | |||||||||||||||||||
| Current Other liabilities | (21) | (3) | (21) | (3) | |||||||||||||||||||
| Benefit obligations | (357) | (35) | (372) | (35) | |||||||||||||||||||
| Net amount recognized | (211) | (38) | (233) | (38) | |||||||||||||||||||
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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
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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 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 on December 16, 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.
On March 7, 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. On March 24, 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 its existing 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 October 18, 2023, amounting to $76 million. The cash dividend will be paid on November 13, 2023 to holders of record as of October 30, 2023.
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 September 30, 2023 | |||||
| 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 nine months ended September 30, 2023 or 2022.
Other Comprehensive Income (Loss), Net
| Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||||||||||||||
| Gross Amount | Income Tax (Provision) Benefit | Net Amount | Gross Amount | Income Tax (Provision) Benefit | Net Amount | ||||||||||||||||||||||||||||||
| (In $ millions) | |||||||||||||||||||||||||||||||||||
| Foreign currency translation gain (loss) | 34 | (27) | 7 | 3 | (52) | (49) | |||||||||||||||||||||||||||||
| Gain (loss) on derivative hedges | (21) | 4 | (17) | (15) | 4 | (11) | |||||||||||||||||||||||||||||
| Pension and postretirement benefits gain (loss) | (1) | — | (1) | — | — | — | |||||||||||||||||||||||||||||
| Total | 12 | (23) | (11) | (12) | (48) | (60) | |||||||||||||||||||||||||||||
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| Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||||||||||||||
| Gross Amount | Income Tax (Provision) Benefit | Net Amount | Gross Amount | Income Tax (Provision) Benefit | Net Amount | ||||||||||||||||||||||||||||||
| (In $ millions) | |||||||||||||||||||||||||||||||||||
| Foreign currency translation gain (loss) | (184) | 3 | (181) | (119) | (82) | (201) | |||||||||||||||||||||||||||||
| Gain (loss) on derivative hedges | (18) | 5 | (13) | 37 | (7) | 30 | |||||||||||||||||||||||||||||
| Pension and postretirement benefits gain (loss) | (2) | 1 | (1) | 2 | — | 2 | |||||||||||||||||||||||||||||
| Total | (204) | 9 | (195) | (80) | (89) | (169) | |||||||||||||||||||||||||||||
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, 2022 | (488) | (22) | (8) | (518) | |||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | (184) | 20 | (2) | (166) | |||||||||||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) | — | (38) | — | (38) | |||||||||||||||||||
| Income tax (provision) benefit | 3 | 5 | 1 | 9 | |||||||||||||||||||
| As of September 30, 2023 | (669) | (35) | (9) | (713) | |||||||||||||||||||
11. Income Taxes
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In percentages) | |||||||||||||||||||||||
| Effective income tax rate | (33) | 40 | (20) | 24 | |||||||||||||||||||
The effective income tax rate for the three and nine months ended September 30, 2023 was lower compared to the same periods in 2022, primarily due to deferred tax benefits of $293 million from the relocation of certain intangible assets to align with the foreign operations acquired in the M&M Acquisition, differences in the tax and U.S. GAAP gain from the formation of the Nutrinova joint venture, decreased earnings in high taxed jurisdictions related to current demand conditions and a decrease in valuation allowances on U.S. foreign tax credit carryforwards due to revised forecasts of foreign sourced income and expenses during the carryforward period.
In December 2017, the Tax Cuts and Jobs Act (the "TCJA") was enacted and was effective January 1, 2018. The U.S. Treasury has issued various final and proposed regulatory packages supplementing the TCJA provisions since 2018. There have been no material proposed or final regulatory packages during the three months ended September 30, 2023.
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 that regular tax liability exceeds the minimum tax in any given year. The Company does not expect these provisions and any newly issued administrative guidance to 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 regards 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 or benefit in the period the guidance is finalized or becomes effective.
21
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.
The Company's tax returns have been under joint audit for the years 2013 through 2015 by the United States, Netherlands and Germany (the "Authorities"). In September 2021, the Company received a draft joint audit report proposing adjustments to transfer pricing and the reallocation of income between the related jurisdictions. The 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 mutually concluded settlement discussions with the Dutch tax authorities. The Company is engaged in discussions with the other authorities regarding the ongoing examinations and will evaluate all additional potential remedies as the discussions progress.
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 authorities for its audit for the year 2018. The partial settlement did not have a material impact on income tax expense in the unaudited interim consolidated statements of operations for the three and nine months ended September 30, 2023. In September 2023, the Canadian tax authorities 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 authorities for the years 2016 through 2018 and does not expect a material impact to income tax expense.
As of September 30, 2023, 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.
22
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 September 30, | Statement of Operations Classification | ||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||
| (In $ millions) | |||||||||||||||||||||||||||||
Designated as Cash Flow Hedges | |||||||||||||||||||||||||||||
| Commodity swaps | 5 | (9) | 1 | 11 | |||||||||||||||||||||||||
| Interest rate swaps | — | — | (2) | (1) | |||||||||||||||||||||||||
| Foreign currency forwards | — | 2 | 4 | — | |||||||||||||||||||||||||
| Total | 5 | (7) | 3 | 10 | |||||||||||||||||||||||||
| Designated as Fair Value Hedges | |||||||||||||||||||||||||||||
Cross-currency swaps(1) | 18 | — | 40 | — | |||||||||||||||||||||||||
| Designated as Net Investment Hedges | |||||||||||||||||||||||||||||
| Foreign currency denominated debt | 61 | 148 | — | — | N/A | ||||||||||||||||||||||||
| Cross-currency swaps | 77 | 90 | — | — | N/A | ||||||||||||||||||||||||
| Total | 138 | 238 | — | — | |||||||||||||||||||||||||
| Not Designated as Hedges | |||||||||||||||||||||||||||||
| Foreign currency forwards and swaps | — | — | (23) | (8) | |||||||||||||||||||||||||
______________________________
(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.
23
| Gain (Loss) Recognized in Other Comprehensive Income (Loss) | Gain (Loss) Recognized in Earnings (Loss) | ||||||||||||||||||||||||||||
| Nine Months Ended September 30, | Statement of Operations Classification | ||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||
| (In $ millions) | |||||||||||||||||||||||||||||
| Designated as Cash Flow Hedges | |||||||||||||||||||||||||||||
| Commodity swaps | (2) | 50 | 2 | 22 | |||||||||||||||||||||||||
| Interest rate swaps | — | — | (6) | (5) | |||||||||||||||||||||||||
| Foreign currency forwards | 4 | 2 | 2 | — | |||||||||||||||||||||||||
| Total | 2 | 52 | (2) | 17 | |||||||||||||||||||||||||
| Designated as Fair Value Hedges | |||||||||||||||||||||||||||||
| Cross-currency swaps | 18 | — | 40 | — | |||||||||||||||||||||||||
Designated as Net Investment Hedges(1) | |||||||||||||||||||||||||||||
| Foreign currency denominated debt | — | 269 | — | — | N/A | ||||||||||||||||||||||||
| Cross-currency swaps | (16) | 117 | — | — | N/A | ||||||||||||||||||||||||
| Total | (16) | 386 | — | — | |||||||||||||||||||||||||
| Not Designated as Hedges | |||||||||||||||||||||||||||||
| Foreign currency forwards and swaps | — | — | (22) | (12) | |||||||||||||||||||||||||
______________________________
(1)Concurrently with offering of the Acquisition USD Notes in July 2022 (Note 7), the Company entered into cross-currency swaps to effectively convert $2.0 billion and $500 million of the Acquisition USD Notes into a euro-denominated borrowing at prevailing euro interest rates, maturing on July 15, 2027 and July 15, 2032, respectively. The swaps and €1.5 billion of the Acquisition Euro Notes qualify and have been designated as net investment hedges of the Company's foreign currency exchange rate exposure on the net investments of certain of its euro-denominated subsidiaries.
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.
Information regarding the gross amounts of the Company's derivative instruments and the amounts offset in the unaudited consolidated balance sheets is as follows:
| As of September 30, 2023 | As of December 31, 2022 | ||||||||||
| (In $ millions) | |||||||||||
| Gross amount recognized | 187 | 169 | |||||||||
| Gross amount offset in the consolidated balance sheets | — | — | |||||||||
| Net amount presented in the consolidated balance sheets | 187 | 169 | |||||||||
| Gross amount not offset in the consolidated balance sheets | 44 | 16 | |||||||||
| Net amount | 143 | 153 | |||||||||
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| As of September 30, 2023 | As of December 31, 2022 | ||||||||||
| (In $ millions) | |||||||||||
| Gross amount recognized | 226 | 189 | |||||||||
| Gross amount offset in the consolidated balance sheets | — | — | |||||||||
| Net amount presented in the consolidated balance sheets | 226 | 189 | |||||||||
| Gross amount not offset in the consolidated balance sheets | 44 | 16 | |||||||||
| Net amount | 182 | 173 | |||||||||
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 September 30, 2023 | ||||||||||||||||||||
| Derivatives Designated as Cash Flow Hedges | ||||||||||||||||||||
| Commodity swaps | $ | 63 | 6 | 36 | — | — | ||||||||||||||
| Foreign currency forwards and swaps | $ | 27 | 2 | — | — | — | ||||||||||||||
Designated as Fair Value Hedges(1) | ||||||||||||||||||||
| Cross-currency swaps | $ | 1,500 | 33 | 10 | 6 | 18 | ||||||||||||||
| Derivatives Designated as Net Investment Hedges | ||||||||||||||||||||
| Cross-currency swaps | € | 5,367 | 91 | — | 29 | 152 | ||||||||||||||
| Derivatives Not Designated as Hedges | ||||||||||||||||||||
| Foreign currency forwards and swaps | $ | 2,098 | 9 | — | 11 | 10 | ||||||||||||||
| Total | 141 | 46 | 46 | 180 | ||||||||||||||||
| As of December 31, 2022 | ||||||||||||||||||||
| Derivatives Designated as Cash Flow Hedges | ||||||||||||||||||||
| Commodity swaps | $ | 82 | 9 | 39 | 2 | — | ||||||||||||||
| Foreign currency forwards and swaps | $ | 49 | — | — | — | — | ||||||||||||||
| Derivatives Designated as Net Investment Hedges | ||||||||||||||||||||
| Cross-currency swaps | € | 5,639 | 99 | 13 | 58 | 126 | ||||||||||||||
| Derivatives Not Designated as Hedges | ||||||||||||||||||||
| Foreign currency forwards and swaps | $ | 1,265 | 9 | — | 3 | — | ||||||||||||||
| Total | 117 | 52 | 63 | 126 | ||||||||||||||||
______________________________
(1)The Company has intercompany loans that are exposed to volatility in currency exchange rates. The Company utilizes cross-currency swaps to hedge these exposures (Note 12).
25
Carrying values and fair values of financial instruments that are not carried at fair value are as follows:
| Fair Value Measurement | |||||||||||||||||||||||
| Carrying Amount | Significant Other Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | Total | ||||||||||||||||||||
| (In $ millions) | |||||||||||||||||||||||
| As of September 30, 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 | 13,431 | 12,894 | 150 | 13,044 | |||||||||||||||||||
| As of December 31, 2022 | |||||||||||||||||||||||
Equity investments without readily determinable fair values | 170 | — | — | — | |||||||||||||||||||
| Insurance contracts in nonqualified trusts | 22 | 23 | — | 23 | |||||||||||||||||||
Long-term debt, including current installments of long-term debt | 13,953 | 13,247 | 172 | 13,419 | |||||||||||||||||||
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 September 30, 2023 and December 31, 2022, the fair values of cash and cash equivalents, receivables, marketable securities, trade payables, short-term borrowings and the current installments of long-term debt approximate carrying values due to the short-term nature of these instruments. 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 September 30, 2023 are $110 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 September 30, 2023. Other agreements do not provide for any monetary or time limitations.
Based on the Company's evaluation of currently available information, including the number of requests for indemnification or other payment received by the Company, the Company cannot estimate the remaining divestiture obligations, if any, in excess of amounts accrued.
Purchase Obligations
In the normal course of business, the Company enters into various purchase commitments for goods and services. The Company maintains a number of "take-or-pay" contracts for purchases of raw materials, utilities and other services. Certain of the contracts contain a contract termination buy-out provision that allows for the Company to exit the contracts for amounts less than the remaining take-or-pay obligations. Additionally, the Company has other outstanding commitments representing maintenance and service agreements, energy and utility agreements, consulting contracts and software agreements. As of September 30, 2023, the Company had unconditional purchase obligations of $3.9 billion, of which $172 million will be paid in 2023, $635 million in 2024, $555 million in 2025, $436 million in 2026, $353 million in 2027 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 has filed a claim 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 this claim. While it is possible that additional parties could assert demands or claims related to this matter, based on information
27
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 September 30, 2023 | ||||||||||||||||||||||||||||||||
| Net sales | 1,528 | 1,220 | — | (25) | (1) | 2,723 | ||||||||||||||||||||||||||
| (15) | — | (2) | — | (17) | ||||||||||||||||||||||||||||
| Operating profit (loss) | 691 | (2) | 272 | (121) | — | 842 | ||||||||||||||||||||||||||
Equity in net earnings (loss) of affiliates | 8 | 1 | 3 | — | 12 | |||||||||||||||||||||||||||
| Depreciation and amortization | 111 | 55 | 7 | — | 173 | |||||||||||||||||||||||||||
| Capital expenditures | 51 | 44 | 24 | — | 119 | (3) | ||||||||||||||||||||||||||
| Three Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||||
Net sales | 929 | 1,397 | — | (25) | (1) | 2,301 | ||||||||||||||||||||||||||
| (14) | — | (1) | — | (15) | ||||||||||||||||||||||||||||
Operating profit (loss) | 114 | 312 | (118) | — | 308 | |||||||||||||||||||||||||||
Equity in net earnings (loss) of affiliates | 69 | 1 | 3 | — | 73 | |||||||||||||||||||||||||||
Depreciation and amortization | 43 | 53 | 4 | — | 100 | |||||||||||||||||||||||||||
Capital expenditures | 34 | 74 | 15 | — | 123 | (3) | ||||||||||||||||||||||||||
______________________________
(1)Includes intersegment sales primarily related to the Acetyl Chain.
(2)Includes a $508 million gain related to the formation of the Nutrinova joint venture included in Gain (loss) on disposition of businesses and assets, net in the unaudited interim consolidated statements of operations (Note 3).
(3)Includes a decrease in accrued capital expenditures of $12 million and $16 million for the three months ended September 30, 2023 and 2022, respectively.
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| Engineered Materials | Acetyl Chain | Other Activities | Eliminations | Consolidated | ||||||||||||||||||||||||||||
| (In $ millions) | ||||||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||
| Net sales | 4,743 | 3,703 | — | (75) | (1) | 8,371 | ||||||||||||||||||||||||||
| (44) | (1) | (5) | — | (50) | ||||||||||||||||||||||||||||
| Operating profit (loss) | 961 | (2) | 845 | (378) | — | 1,428 | ||||||||||||||||||||||||||
Equity in net earnings (loss) of affiliates | 37 | 4 | 9 | — | 50 | |||||||||||||||||||||||||||
| Depreciation and amortization | 335 | 163 | 19 | — | 517 | |||||||||||||||||||||||||||
| Capital expenditures | 154 | 162 | 63 | — | 379 | (3) | ||||||||||||||||||||||||||
| As of September 30, 2023 | ||||||||||||||||||||||||||||||||
Goodwill and intangible assets, net | 10,518 | 417 | — | — | 10,935 | |||||||||||||||||||||||||||
Total assets | 17,478 | 5,528 | 2,532 | — | 25,538 | |||||||||||||||||||||||||||
| Nine Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||||
Net sales | 2,787 | 4,608 | — | (70) | (1) | 7,325 | ||||||||||||||||||||||||||
| (14) | — | (1) | — | (15) | ||||||||||||||||||||||||||||
Operating profit (loss) | 404 | 1,243 | (325) | — | 1,322 | |||||||||||||||||||||||||||
Equity in net earnings (loss) of affiliates | 171 | 8 | 10 | — | 189 | |||||||||||||||||||||||||||
Depreciation and amortization | 134 | 161 | 14 | — | 309 | |||||||||||||||||||||||||||
Capital expenditures | 99 | 231 | 39 | — | 369 | (3) | ||||||||||||||||||||||||||
| As of December 31, 2022 | ||||||||||||||||||||||||||||||||
Goodwill and intangible assets, net | 10,826 | 421 | — | — | 11,247 | |||||||||||||||||||||||||||
Total assets | 20,611 | 5,471 | 190 | — | 26,272 | |||||||||||||||||||||||||||
______________________________
(1)Includes intersegment sales primarily related to the Acetyl Chain.
(2)Includes a $508 million gain related to the formation of the Nutrinova joint venture included in Gain (loss) on disposition of businesses and assets, net in the unaudited interim consolidated statements of operations (Note 3).
(3)Includes a decrease in accrued capital expenditures of $61 million and $31 million for the nine months ended September 30, 2023 and 2022, respectively.
16. Revenue Recognition
The Company has certain contracts that represent take-or-pay revenue arrangements in which the Company's performance obligations extend over multiple years. As of September 30, 2023, the Company had $1.1 billion of remaining performance obligations related to take-or-pay contracts. The Company expects to recognize approximately $156 million of its remaining performance obligations as Net sales in 2023, $418 million in 2024, $256 million in 2025 and the balance thereafter.
Contract Balances
Contract liabilities primarily relate to advances or deposits received from the Company's customers before revenue is recognized. These amounts are recorded as deferred revenue and are included in Current and Noncurrent Other liabilities in the unaudited consolidated balance sheets.
The Company does not have any material contract assets as of September 30, 2023.
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 which 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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (In $ millions) | |||||||||||||||||||||||
| Engineered Materials | |||||||||||||||||||||||
| North America | 449 | 292 | 1,399 | 865 | |||||||||||||||||||
| Europe and Africa | 462 | 355 | 1,541 | 1,112 | |||||||||||||||||||
| Asia-Pacific | 580 | 256 | 1,682 | 733 | |||||||||||||||||||
| South America | 37 | 26 | 121 | 77 | |||||||||||||||||||
| Total | 1,528 | 929 | 4,743 | 2,787 | |||||||||||||||||||
| Acetyl Chain | |||||||||||||||||||||||