Celanese Corp: Form 10-Q for the period ended Sep 30, 2020

In this Quarterly Report on Form 10-Q ("Quarterly Report"), the term "Celanese" refers to Celanese Corporation, a Delaware corporation, and not its subsidiaries. The terms the "Company," "we," "our" and "us," refer to Celanese and its subsidiaries on a consolidated basis. The term "Celanese US" refers to the Company's subsidiary, Celanese US Holdings LLC, a Delaware limited liability company, and not its subsidiaries.

The following discussion should be read in conjunction with the Celanese Corporation and Subsidiaries consolidated financial statements as of and for the year ended December 31, 2019 filed on February 6, 2020 with the Securities and Exchange Commission ("SEC") as part of the Company's Annual Reporting on Form 10-K ("2019 Form 10-K") and the unaudited interim consolidated financial statements and notes to the unaudited interim consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP").

Investors are cautioned that the forward-looking statements contained in this section and other parts of this Quarterly Report involve both risk and uncertainty. Several important factors could cause actual results to differ materially from those anticipated by these statements. Many of these statements are macroeconomic in nature and are, therefore, beyond the control of management. See "Forward-Looking Statements" below and at the beginning of our 2019 Form 10-K.

Forward-Looking Statements

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") and other parts of this Quarterly Report contain certain forward-looking statements and information relating to us that are based on the beliefs of our management as well as assumptions made by, and information currently available to, us. Generally, words such as "believe," "expect," "intend," "estimate," "anticipate," "project," "plan," "may," "can," "could," "might," and "will," and similar expressions, as they relate to us are intended to identify forward-looking statements. These statements reflect our current views and beliefs with respect to future events at the time that the statements are made, are not historical facts or guarantees of future performance and involve risks and uncertainties that are difficult to predict and many of which are outside of our control. Further, certain forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. All forward-looking statements made in this Quarterly Report are made as of the date hereof, and the risk that actual results will differ materially from expectations expressed in this Quarterly Report will increase with the passage of time. We undertake no obligation, and disclaim any duty, to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changes in our expectations or otherwise.

COVID-19 Update

On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus ("COVID-19") as a pandemic, which originated in China and has spread throughout the world to substantially all locations where we have offices, production facilities, customers and suppliers, creating a dynamic and challenging situation worldwide. The COVID-19 pandemic is evolving, and to date has led to the implementation of various responses, including government-imposed quarantines, stay-at-home restrictions, travel restrictions and other public health and safety measures.

Our employees' health and well-being continue to be of vital importance. For employees who are working in plants and who have returned to the office, we have implemented government recommended protocols and best practices related to social distancing and best hygiene practices, including the use of additional personal protective equipment and enhanced cleaning protocols, where appropriate. We have also restricted visitor access and non-essential business travel. We have a global crisis team in place monitoring the evolving situation and recommending risk mitigation actions, including workplace health and safety measures. We also have site activation teams at all locations to guide and implement our careful return-to-office efforts in accordance with government regulations and recommended protocols. Our presence in China provided us with an advance view of how COVID-19 scenarios can unfold as well as the importance of taking early action.

We operate within a geographically-balanced global footprint and have the ability to utilize different production and distribution strategies depending on the business and product to satisfy customer demands. We continue to pursue our existing operational strategy. Where we temporarily reduced run rates in prior quarters, our plants are now operating at more normalized levels, and we have been able to maintain a largely consistent supply chain. During the first half of 2020, the effects of COVID-19 and related actions to control its spread had a significant, negative impact on the operating results of our Engineered Materials and Acetyl Chain segments, as discussed in more detail in the individual reporting segment sections below. However, during the third quarter of 2020, consumer demand for certain applications has increased within many regions of the world, particularly in China, which has rebounded to pre-COVID-19 levels, and in the US. In Engineered Materials, demand has increased for consumer goods such as electronics and appliances, and applications including food and beverage, pharma and 5G infrastructure continue to be resilient. Demand for automobiles and medical applications remains at reduced levels with automotive beginning to show signs of recovery in the third quarter of 2020. In the Acetyl Chain, we benefit from a highly diversified set of end-uses with less exposure, relative to others in the industry, to end markets that have been most acutely impacted by COVID-19. However, the low acetic acid pricing, along with volatility with global oil markets, presented a deflationary environment for the Acetyl Chain business for the nine months ended September 30, 2020. That trend has begun to reverse as recent increases in raw material prices are expected to have a beneficial impact on pricing within the Acetyl Chain toward the end of 2020. Further, we see resiliency and even growth in some applications within all of our segments, including packaging, hygiene products, disinfectants, pharma, paints, bonding agents and cigarettes. We currently anticipate that customer demand and our results of operations should begin to normalize in 2021, absent a similar resurgence of COVID-19, as the economies in which we operate continue to recover.

We have taken, and will continue to take, actions to mitigate the impact of COVID-19 on our results of operations, financial condition and cash flow. We are managing inventory levels, reducing our manufacturing costs and optimizing our working capital. We have reduced discretionary spending such as travel and other corporate functional expenses. Although significant layoffs have not occurred within the Company during the three and nine months ended September 30, 2020, some positions have been eliminated under a global restructuring program implemented largely as a result of cost cutting initiatives due to the current global economic environment.

We are actively managing our business to maintain cash flow, and we believe that liquidity from (i) cash generated from operations; (ii) cash on hand; (iii) dividends from our portfolio of strategic investments; and (iv) cash available from our senior unsecured revolving credit facility and our accounts receivable securitization facility, will be sufficient to meet our operational and capital investment needs and financial obligations for the foreseeable future. We remain in compliance with the financial covenants under our senior unsecured revolving credit facility and expect to remain in compliance based on our current expectation of future results of operations.

To preserve our cash balances and maintain liquidity, we have reduced our capital expenditures forecast from $500 million to the range of $325 million to $350 million for the full year 2020, prioritizing those projects that continue to drive productivity for us in the near-term. We remain fully committed to our current cash dividend. During the three months ended September 30, 2020, we resumed share repurchases and expect to purchase approximately $400 million of additional shares during the fourth quarter of 2020 using our cash flow, including proceeds from the sale of our joint venture equity interest in Polyplastics Co., Ltd ("Polyplastics").

The extent to which COVID-19 will adversely impact our business, financial condition and results of operations will depend on numerous evolving factors, which are highly uncertain, rapidly changing and cannot be predicted. For further information regarding the impact COVID-19 could have on our business, financial condition and results of operations, see Part II - Item 1A. Risk Factors. For further discussion of our liquidity condition, see Liquidity and Capital Resources in this Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Risk Factors

See Part I - Item 1A. Risk Factors of our 2019 Form 10-K and subsequent periodic filings we make with the SEC for a description of certain risk factors that you should consider which could significantly affect our financial results. In addition, the following factors could cause our actual results to differ materially from those results, performance or achievements that may be expressed or implied by such forward-looking statements. These factors include, among other things:

• changes in general economic, business, political and regulatory conditions in the countries or regions in which we operate;
• the length and depth of product and industry business cycles particularly in the automotive, electrical, textiles, electronics and construction industries;
• changes in the price and availability of raw materials, particularly changes in the demand for, supply of, and market prices of ethylene, methanol, natural gas, wood pulp and fuel oil and the prices for electricity and other energy sources;
• the ability to pass increases in raw material prices on to customers or otherwise improve margins through price increases;
• the ability to maintain plant utilization rates and to implement planned capacity additions, expansions and maintenance;
• the ability to reduce or maintain current levels of production costs and to improve productivity by implementing technological improvements to existing plants;
• increased price competition and the introduction of competing products by other companies;
• the ability to identify desirable potential acquisition targets and to consummate acquisition or investment transactions, including obtaining regulatory approvals, consistent with our strategy;
• market acceptance of our technology;
• the ability to obtain governmental approvals and to construct facilities on terms and schedules acceptable to us;
• changes in applicable tariffs, duties and trade agreements, tax rates or legislation throughout the world including, but not limited to, adjustments, changes in estimates or interpretations that may impact recorded or future tax impacts associated with the Tax Cuts and Jobs Act (the "TCJA");
• changes in the degree of intellectual property and other legal protection afforded to our products or technologies, or the theft of such intellectual property;
• compliance and other costs and potential disruption or interruption of production or operations due to accidents, interruptions in sources of raw materials, cyber security incidents, terrorism or political unrest, public health crises (including, but not limited to, the COVID-19 outbreak), or other unforeseen events or delays in construction or operation of facilities, including as a result of geopolitical conditions, the occurrence of acts of war or terrorist incidents or as a result of weather, natural disasters, or other crises including public health crises;
• potential liability for remedial actions and increased costs under existing or future environmental regulations, including those relating to climate change;
• potential liability resulting from pending or future claims or litigation, including investigations or enforcement actions, or from changes in the laws, regulations or policies of governments or other governmental activities, in the countries in which we operate;
• changes in currency exchange rates and interest rates;
• our level of indebtedness, which could diminish our ability to raise additional capital to fund operations or limit our ability to react to changes in the economy or the chemicals industry; and
• various other factors, both referenced and not referenced in this Quarterly Report.

Many of these factors are macroeconomic in nature and are, therefore, beyond our control. In addition, COVID-19 and responses to the pandemic by governments and businesses, have significantly increased financial and economic volatility and uncertainty, exacerbating the risks and potential impact of these factors. Should one or more of these risks or uncertainties materialize, affect us in ways or to an extent that we currently do not expect or consider to be significant, or should underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from those described in this Quarterly Report as anticipated, believed, estimated, expected, intended, planned or projected. We neither intend nor assume any obligation to update these forward-looking statements, which speak only as of their dates.

Overview

We are a global chemical and specialty materials company. We are a leading global producer of high performance engineered polymers that are used in a variety of high-value applications, as well as one of the world's largest producers of acetyl products, which are intermediate chemicals, for nearly all major industries. As a recognized innovator in the chemicals industry, we engineer and manufacture a wide variety of products essential to everyday living. Our broad product portfolio serves a diverse set of end-use applications including automotive, chemical additives, construction, consumer and industrial adhesives, consumer and medical, energy storage, filtration, food and beverage, paints and coatings, paper and packaging, performance industrial and textiles. Our products enjoy leading global positions due to our differentiated business models, large global production capacity, operating efficiencies, proprietary technology and competitive cost structures.

Our large and diverse global customer base primarily consists of major companies across a broad array of industries. We hold geographically balanced global positions and participate in diversified end-use applications. We combine a demonstrated track record of execution, strong performance built on differentiated business models and a clear focus on growth and value creation. Known for operational excellence, reliability and execution of our business strategies, we partner with our customers around the globe to deliver best-in-class technologies and solutions.

Results of Operations

Financial Highlights

(unaudited)

(In $ millions, except percentages)

(1) Defined as Operating profit (loss) divided by Net sales.

(unaudited)

Factors Affecting Business Segment Net Sales

The percentage increase (decrease) in Net sales attributable to each of the factors indicated for each of our business segments is as follows:

Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019

(unaudited)

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

(unaudited)

36

Consolidated Results

Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019

Net sales decreased $175 million, or 11%, for the three months ended September 30, 2020 compared to the same period in 2019, primarily due to:

• lower volume across all of our segments, primarily driven by our Engineered Materials segment due to depressed global economic conditions as a result of the COVID-19 pandemic; and
• lower pricing across all of our segments, primarily driven by our Acetyl Chain segment due to the reduced global customer demand environment and an overall deflationary environment for raw materials as a result of the COVID-19 pandemic;

partially offset by:

• a favorable currency impact resulting from a stronger Euro relative to the US dollar.

Operating profit decreased $76 million, or 29%, for the three months ended September 30, 2020 compared to the same period in 2019, primarily due to:

• lower Net sales across all of our segments;

partially offset by:

• lower raw material costs within our Acetyl Chain and Engineered Materials segments;
• lower spending of $18 million in our Engineered Materials segment;
• lower costs of $10 million in our Acetate Tow segment; and
• lower incentive compensation cost and functional spending of $9 million within Other Activities.

Equity in net earnings (loss) of affiliates decreased $20 million for the three months ended September 30, 2020 compared to the same period in 2019, primarily due to:

• a decrease in equity investment in earnings of $10 million and $8 million from our Ibn Sina and Polyplastics strategic affiliates, respectively, primarily as a result of depressed global economic conditions.

Our effective income tax rate for the three months ended September 30, 2020 was 12% compared to 16% for the same period in 2019. The lower effective income tax rate for the three months ended September 30, 2020 compared to the same period in 2019 was primarily due to an income tax benefit of $16 million, related to the recognition of a net deferred tax asset, representing our excess tax basis in an equity affiliate, partially offset by an increase in the valuation allowance on US foreign tax credits. See Note 13 - Income Taxes in the accompanying unaudited interim consolidated financial statements for further information.

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

Net sales decreased $801 million, or 16%, for the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to:

• lower volume across all of our segments, primarily due to depressed global economic conditions and the reduced global customer demand environment as a result of the COVID-19 pandemic; and
• lower pricing across all of our segments, primarily driven by our Acetyl Chain segment due to the reduced global customer demand environment and an overall deflationary environment for raw materials as a result of the COVID-19 pandemic.

Operating profit decreased $305 million, or 40%, for the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to:

• lower Net sales across all of our segments; and
• higher plant turnaround and spending in our Acetyl Chain and Engineered Materials segments;

partially offset by:

• lower raw material costs within our Acetyl Chain and Engineered Materials segments;
• a favorable impact to Other (charges) gains, net. During the nine months ended September 30, 2019, we recorded an $83 million long-lived asset impairment loss related to the closure of our acetate flake manufacturing operations in Ocotlán, Mexico, which did not recur in the current year. See Note 12 - Other (Charges) Gains, Net in the accompanying unaudited interim consolidated financial statements for further information; and
• lower energy costs across all of our segments.

Equity in net earnings (loss) of affiliates decreased $21 million for the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to:

• a decrease in equity investment in earnings of $8 million, $7 million and $5 million from our Ibn Sina, Korea Engineering Plastics Co., Ltd. and Polyplastics strategic affiliates, respectively, primarily as a result of depressed global economic conditions.

Our effective income tax rate for the nine months ended September 30, 2020 was 19% compared to 13% for the same period in 2019. The higher effective income tax rate for the nine months ended September 30, 2020 compared to the same period in 2019 was primarily due to adjustments related to the impacts of certain uncertain tax positions due to available tax attribute carryforwards, the impact of functional currency differences in offshore jurisdictions and increases in the valuation allowance on US foreign tax credit carryforwards, partially offset by the income tax benefit recorded for an equity affiliate. See Note 13 - Income Taxes in the accompanying unaudited interim consolidated financial statements for further information.

Business Segments

Engineered Materials

(unaudited)

(In $ millions, except percentages)

Our Engineered Materials segment includes our engineered materials business, our food ingredients business and certain strategic affiliates. Our engineered materials business develops, produces and supplies a broad portfolio of high performance specialty polymers for automotive and medical applications, as well as industrial products and consumer electronics. Together with our strategic affiliates, our engineered materials business is a leading participant in the global specialty polymers industry. Our food ingredients business is a leading global supplier of acesulfame potassium for the food and beverage industry and is a leading producer of food protection ingredients, such as potassium sorbate and sorbic acid.

The pricing of products within the Engineered Materials segment is primarily based on the value of the material we produce and is generally independent of changes in the cost of raw materials. Therefore, in general, margins may expand or contract in response to changes in raw material costs.

Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019

Net sales decreased for the three months ended September 30, 2020 compared to the same period in 2019, primarily due to:

• lower volume for most of our products driven by depressed global economic conditions as a result of the COVID-19 pandemic; and
• lower pricing for most of our products, primarily due to a continued reduction in customer demand, as well as customer and product mix;

partially offset by:

• a favorable currency impact resulting from a stronger Euro relative to the US dollar.

Operating profit decreased for the three months ended September 30, 2020 compared to the same period in 2019, primarily due to:

• lower Net sales; and
• an unfavorable impact of $9 million to Other (charges) gains, net. During the three months ended September 30, 2020, we recorded $8 million in employee termination benefits, primarily related to business optimization projects in the current year. See Note 12 - Other (Charges) Gains, Net in the accompanying unaudited interim consolidated financial statements for further information;

partially offset by:

• lower spending of $18 million, primarily as a result of reduced plant production and inventory costs; and
• lower raw material costs for most of our products.

Equity in net earnings (loss) of affiliates decreased for the three months ended September 30, 2020 compared to the same period in 2019, primarily due to:

• a decrease in equity investment in earnings of $10 million and $8 million from our Ibn Sina and Polyplastics strategic affiliates, respectively, primarily as a result of depressed global economic conditions.

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

Net sales decreased for the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to:

• lower volume for most of our products driven by depressed global economic conditions as a result of the COVID-19 pandemic; and
• lower pricing for most of our products, primarily due to a continued reduction in customer demand, as well as customer and product mix.

Operating profit decreased for the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to:

• lower Net sales;
• an unfavorable impact of $41 million to Other (charges) gains, net. During the nine months ended September 30, 2020, we recorded a $26 million long-lived asset impairment loss related to certain fixed assets used in compounding operations at our facilities in Kaiserslautern, Germany; Wehr, Germany and Ferrara Marconi, Italy. During the nine months ended September 30, 2019, we also recorded a $15 million gain related to a settlement of a commercial dispute from a previous acquisition, which did not recur in the current year. See Note 12 - Other (Charges) Gains, Net in the accompanying unaudited interim consolidated financial statements for further information; and
• higher spending of $22 million, primarily as a result of plant turnaround activity and associated inventory costs, partially offset by reduced spending on lower plant production;

partially offset by:

• lower raw material costs for most of our products; and
• lower energy costs of $15 million, primarily related to favorable pricing.

Equity in net earnings (loss) of affiliates decreased for the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to:

• a decrease in equity investment in earnings of $8 million, $7 million and $5 million from our Ibn Sina, Korea Engineering Plastics Co., Ltd. and Polyplastics strategic affiliates, respectively, primarily as a result of depressed global economic conditions.

Acetate Tow

(unaudited)

(In $ millions, except percentages)

Our Acetate Tow segment serves consumer-driven applications. We are a leading global producer and supplier of acetate tow and acetate flake, primarily used in filter products applications.

The pricing of products within the Acetate Tow segment is sensitive to demand and is primarily based on the value of the product we produce. Many sales in this business are conducted under contracts with pricing for one or more years. As a result, margins may expand or contract in response to changes in market conditions over these similar periods, and we may be unable to adjust pricing also due to other factors, such as the intense level of competition in the industry.

Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019

Net sales decreased for the three months ended September 30, 2020 compared to the same period in 2019, primarily due to:

• lower acetate flake volume, primarily due to the expiration of an acetate flake contract;
• lower acetate tow volume, consistent with global demand reduction; and
• lower acetate tow pricing, primarily due to customer mix.

Operating profit decreased for the three months ended September 30, 2020 compared to the same period in 2019, primarily due to:

• lower Net sales.

partially offset by:

• lower energy costs, accelerated depreciation and amortization expense and spending of $6 million, $5 million and $4 million, respectively, primarily related to the closure of our acetate flake manufacturing unit in Ocotlán, Mexico in the prior year.

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

Net sales decreased for the nine months ended September 30, 2020 compared to the same period in 2019.

• lower acetate flake volume, primarily due to the expiration of an acetate flake contract;
• lower acetate tow volume, consistent with global demand reduction; and
• lower acetate tow pricing, primarily due to customer mix.

Operating profit increased for the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to:

• a favorable impact of $86 million to Other (charges) gains, net. During the nine months ended September 30, 2019, we recorded an $83 million long-lived asset impairment loss related to the closure of our acetate flake manufacturing operations in Ocotlán, Mexico, which did not recur in the current year. See Note 12 - Other (Charges) Gains, Net in the accompanying unaudited interim consolidated financial statements for further information; and
• lower energy costs, accelerated depreciation and amortization expense and spending of $20 million, $9 million and $8 million, respectively, primarily related to the closure of our acetate flake manufacturing unit in Ocotlán, Mexico in the prior year;

partially offset by:

• lower Net sales.

Dividend income from equity investments increased for the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to:

• higher earnings from our acetate tow joint ventures related to the expiration of an acetate flake contract, which was assumed by Nantong Cellulose Fibers Co. Ltd.

Acetyl Chain

(unaudited)

(In $ millions, except percentages)

Our Acetyl Chain segment includes the integrated chain of our intermediate chemistry, emulsion polymers, ethylene vinyl acetate ("EVA") polymers and redispersible powders businesses. Our intermediate chemistry business produces and supplies acetyl products, including acetic acid, vinyl acetate monomer ("VAM"), acetic anhydride and acetate esters. These products are generally used as starting materials for colorants, paints, adhesives, coatings and pharmaceuticals. It also produces organic solvents and intermediates for pharmaceutical, agricultural and chemical products. Our emulsion polymers business is a leading global producer of vinyl acetate-based emulsions and develops products and application technologies to improve performance, create value and drive innovation in applications such as paints and coatings, adhesives, construction, glass fiber, textiles and paper. Our EVA polymers business is a leading North American manufacturer of a full range of specialty EVA resins and compounds, as well as select grades of low-density polyethylene. Our EVA polymers products are used in many applications, including flexible packaging films, lamination film products, hot melt adhesives, automotive parts and carpeting. Our redispersible powders business produces polymer emulsions which are converted into powdered thermoplastic resin materials. Redispersible powders products are used in a variety of applications in the mortar industry, including decorative mortar, exterior insulation and finish systems, gypsum-based materials, plaster and render, self-leveling floor systems, skim coat and tile adhesives.

The pricing of products within the Acetyl Chain is influenced by industry utilization rates and changes in the cost of raw materials. Therefore, in general, there is a directional correlation between these factors and our Net sales for most Acetyl Chain products. This impact to pricing typically lags changes in raw material costs over months or quarters.

Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019

Net sales decreased for the three months ended September 30, 2020 compared to the same period in 2019, primarily due to:

• lower pricing for most of our products, primarily due to the reduced global customer demand environment and an overall deflationary environment for raw materials as a result of the COVID-19 pandemic.

Operating profit decreased for the three months ended September 30, 2020 compared to the same period in 2019, primarily due to:

• lower Net sales; and
• higher costs of $8 million, primarily related to our acquisition of Elotex;

partially offset by:

• lower raw material costs, primarily for methanol and ethylene; and
• a favorable impact of $4 million, primarily related to productivity initiatives.

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

Net sales decreased for the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to:

• lower pricing for most of our products, primarily due to the reduced global customer demand environment and an overall deflationary environment for raw materials as a result of the COVID-19 pandemic; and
• lower volume for most of our products primarily due to the reduced global customer demand environment as a result of the COVID-19 pandemic, partially offset by higher volume for redispersible powders due to our acquisition of Elotex.

Operating profit decreased for the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to:

• lower Net sales;
• higher costs of $16 million, primarily related to our acquisition of Elotex; and
• higher plant turnaround costs of $14 million, primarily related to our joint venture, Fairway Methanol LLC ("Fairway").

partially offset by:

• lower raw material costs, primarily for methanol, ethylene and carbon monoxide; and
• lower energy costs of $18 million, primarily related to lower energy prices.

Other Activities

(unaudited)

(In $ millions, except percentages)

Other Activities primarily consists of corporate center costs, including administrative activities such as finance, information technology and human resource functions, interest income and expense associated with financing activities and results of our captive insurance companies. Other Activities also includes the components of net periodic benefit cost (interest cost, expected return on assets and net actuarial gains and losses) for our defined benefit pension plans and other postretirement plans not allocated to our business segments.

Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019

Operating loss decreased for the three months ended September 30, 2020 compared to the same period in 2019, primarily due to:

• lower incentive compensation cost and functional spending of $9 million; and
• a favorable impact of $2 million to Other (charges) gains, net, primarily due to lower employee termination benefits related to business optimization projects in the current year. See Note 12 - Other (Charges) Gains, Net in the accompanying unaudited interim consolidated financial statements for further information.

Non-operating pension and other postretirement employee benefit income increased for the three months ended September 30, 2020 compared to the same period in 2019, primarily due to:

• lower interest cost and higher expected return on plan assets.

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

Operating loss decreased for the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to:

• a favorable impact of $12 million to Other (charges) gains, net. During the nine months ended September 30, 2019, we recorded an $11 million loss related to a settlement by our captive insurer with a former third-party customer, which did not recur in the current year. See Note 12 - Other (Charges) Gains, Net in the accompanying unaudited interim consolidated financial statements for further information; and
• lower incentive compensation cost and functional spending of $10 million;

partially offset by:

• an unfavorable impact of $7 million resulting from losses on foreign currency forwards and swaps.

Non-operating pension and other postretirement employee benefit income increased for the nine months ended September 30, 2020 compared to the same period in 2019, primarily due to:

• lower interest cost and higher expected return on plan assets.

Liquidity and Capital Resources

Our primary source of liquidity is cash generated from operations, available cash and cash equivalents and dividends from our portfolio of strategic investments. In addition, as of September 30, 2020, we have $791 million available for borrowing under our senior unsecured revolving credit facility, if required, in meeting our working capital needs and other contractual obligations.

While our contractual obligations, commitments and debt service requirements over the next several years are significant, we continue to believe we will have available resources to meet our liquidity requirements, including debt service, for the next twelve months. If our cash flow from operations is insufficient to fund our debt service and other obligations, we may be required to use other means available to us such as increasing our borrowings, reducing or delaying capital expenditures, seeking additional capital or seeking to restructure or refinance our indebtedness. There can be no assurance, however, that we will continue to generate cash flows at or above current levels.

Total cash outflows for capital expenditures are expected to be in the range of $325 million to $350 million in 2020, primarily due to additional investments in growth opportunities and productivity improvements primarily in our Engineered Materials and Acetyl Chain segments.

On a stand-alone basis, Celanese and its immediate 100% owned subsidiary, Celanese US, have no independent external operations of their own. Accordingly, they generally depend on the cash flow of their subsidiaries and their ability to pay dividends and make other distributions to Celanese and Celanese US in order to meet their obligations, including their obligations under senior credit facilities and senior notes, and to pay dividends on our Common stock, par value $0.0001 per share ("Common Stock").

We are subject to capital controls and exchange restrictions imposed by the local governments in certain jurisdictions where we operate, such as China, India and Indonesia. Capital controls impose limitations on our ability to exchange currencies, repatriate earnings or capital, lend via intercompany loans or create cross-border cash pooling arrangements. Our largest exposure to a country with capital controls is in China. Pursuant to applicable regulations, foreign-invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, the Chinese government imposes certain currency exchange controls on cash transfers out of China, puts certain limitations on duration, purpose and amount of intercompany loans, and restricts cross-border cash pooling.

We remain in compliance with the financial covenants under our senior unsecured revolving credit facility and expect to remain in compliance based on our current expectation of future results of operations. If our actual future results of operations differ materially from these expectations, including if a material and prolonged economic downturn results in increased indebtedness or substantially lower EBITDA, we may be required to seek an amendment or waiver of such covenant which may increase our borrowing costs under those debt instruments.

Cash Flows

Cash and cash equivalents increased $152 million to $615 million as of September 30, 2020 compared to December 31, 2019. As of September 30, 2020, $540 million of the $615 million of cash and cash equivalents was held by our foreign subsidiaries. Under the TCJA, we have incurred a prior year charge associated with the deemed repatriation of previously unremitted foreign earnings, including foreign held cash. These funds are largely accessible without additional material tax consequences, if needed in the US, to fund operations. See Note 13 - Income Taxes in the accompanying unaudited interim consolidated financial statements for further information.

• Net Cash Provided by (Used in) Operating Activities

Net cash provided by operating activities decreased $59 million to $1.1 billion for the nine months ended September 30, 2020 compared to $1.1 billion for the same period in 2019. Net cash provided by operating activities for the nine months ended September 30, 2020 decreased, primarily due to:

• a decrease in net earnings;

largely offset by:

• favorable trade working capital of $172 million, primarily due to a decrease in trade receivables and inventory. Trade receivables decreased as a result of the decrease in Net sales during the nine months ended September 30, 2020. Inventory decreased as a result of lower costs for raw materials and reduced operational rates in the current year; and
• a decrease in incentive compensation payouts of $48 million.
• Net Cash Provided by (Used in) Investing Activities

Net cash used in investing activities increased $62 million to $387 million for the nine months ended September 30, 2020 compared to $325 million for the same period in 2019, primarily due to:

• an increase of $53 million in capital expenditures related to growth and productivity improvements in our Engineered Materials and Acetyl Chain segments.
• Net Cash Provided by (Used in) Financing Activities

Net cash used in financing activities decreased $198 million to $538 million for the nine months ended September 30, 2020 compared to $736 million for the same period in 2019, primarily due to:

• lower share repurchases of our Common Stock of $491 million during the nine months ended September 30, 2020;

partially offset by:

• a decrease in net proceeds from long-term debt of $168 million, primarily due to the issuance of $500 million in principal amount of the 3.500% senior unsecured notes due May 8, 2024, partially offset by the redemption of the 3.250% senior unsecured notes, during the nine months ended September 30, 2019, which did not recur in the current year; and
• a decrease in net borrowings on short-term debt of $128 million, primarily as a result of higher borrowings under our revolving credit facility during the nine months ended September 30, 2019 related to the timing of share repurchases of our Common Stock.

Debt and Other Obligations

There have been no material changes to our debt or other obligations described in our 2019 Form 10-K other than those disclosed above and in Note 8 - Debt in the accompanying unaudited interim consolidated financial statements.

Guarantor Financial Information

The Senior Notes were issued by Celanese US ("Issuer") and are guaranteed by Celanese Corporation ("Parent Guarantor") and the Subsidiary Guarantors (collectively the "Obligor Group"). See Note 8 - Debt in the accompanying unaudited interim consolidated financial statements for further information. The Issuer and Subsidiary Guarantors are 100% owned subsidiaries of the Parent Guarantor. The Parent Guarantor and Subsidiary Guarantors represent substantially all of the Company's US assets and business operations. The Subsidiary Guarantors are listed in Exhibit 22.1 to this Quarterly Report.

The Parent Guarantor and the Subsidiary Guarantors have guaranteed the Senior Notes on a full and unconditional, joint and several, senior unsecured basis. The guarantees are subject to certain customary release provisions, including that a Subsidiary Guarantor will be released from its respective guarantee in specified circumstances, including (i) the sale or transfer of all of its assets or capital stock; (ii) its merger or consolidation with, or transfer of all or substantially all of its assets to, another person; or (iii) its ceasing to be a majority-owned subsidiary of the Issuer in connection with any sale of its capital stock or other transaction. Additionally, a Subsidiary Guarantor will be released from its guarantee of the Senior Notes at such time that it ceases to guarantee the Issuer's obligations under the Credit Agreement (subject to the satisfaction of customary document delivery requirements). The obligations of the Subsidiary Guarantors under their guarantees are limited as necessary to prevent such guarantees from constituting a fraudulent conveyance or fraudulent transfer under applicable law.

The Parent Guarantor and the Issuer are holding companies that conduct substantially all of their operations through their subsidiaries, which own substantially all of our consolidated assets. The principal source of cash to pay the Parent Guarantor's and the Issuer's obligations, including obligations under the Senior Notes and the guarantee of the Issuer's obligations under the Credit Agreement, is the cash that our subsidiaries generate from their operations. Each of the Subsidiary Guarantors and our non-guarantor subsidiaries is a distinct legal entity and, under certain circumstances, applicable country or state laws, regulatory limitations and terms of other debt instruments may limit our subsidiaries' ability to distribute cash to the Issuer and the Parent Guarantor. While the Credit Agreement and the Indentures generally limit the ability of our subsidiaries to restrict payment of dividends or other distributions to us, these limitations are subject to certain qualifications and exceptions, which may have the effect of significantly limiting the applicability of those restrictions.

For cash management purposes, the Company transfers cash between the Parent Guarantor, Issuer, Subsidiary Guarantors and non-guarantors through intercompany financing arrangements, contributions or declaration of dividends between the respective parent and its subsidiaries. While the non-guarantor subsidiaries do not guarantee the Issuer's obligations under our outstanding debt, the transfer of cash under these activities facilitates the ability of the recipient to make specified third party payments for principal and interest on the Senior Notes, Credit Agreement, the Company's other outstanding debt, Common Stock dividends and Common Stock repurchases.

The summarized financial information of the Obligor Group is presented below on a combined basis after the elimination of: (i) intercompany transactions among such entities and (ii) equity in earnings from and investments in the non-guarantor subsidiaries. Transactions with, and amounts due to or from, non-guarantor subsidiaries and affiliates are separately disclosed.

(unaudited)

(unaudited)

48

Accounts Receivable Securitization Facility

On July 6, 2020, we entered into an amended and restated receivables purchase agreement (the "Amended Receivables Purchase Agreement") under our US accounts receivable securitization facility among certain of our subsidiaries, our wholly-owned, "bankruptcy remote" special purpose subsidiary ("SPE") and certain global financial institutions ("Purchasers"). The Amended Receivables Purchase Agreement extends the term of the securitization facility such that the SPE may sell certain receivables until July 2, 2021. Under the Amended Receivables Purchase Agreement, transfers of US 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 US accounts receivable to the SPE. We have no continuing involvement in the transferred US accounts receivable, other than collection and administrative responsibilities and, once sold, the US accounts receivable are no longer available to satisfy our creditors. On July 6, 2020, we sold $87 million of our US accounts receivable and repaid $87 million of borrowings from the US accounts receivable securitization facility. These sales were transacted at 100% of the face value of the relevant US accounts receivable. We de-recognized $337 million of accounts receivable under this agreement through September 30, 2020. Unsold US accounts receivable of $43 million were pledged by the SPE as collateral to the Purchasers as of September 30, 2020.

European Factoring Agreement

We have a factoring agreement with a global financial institution to sell certain accounts receivable on a non-recourse basis. These transactions are treated as a sale and are accounted for as a reduction in accounts receivable because the agreement transfers effective control over and risk related to the receivables to the buyer. We have 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. We de-recognized $164 million and $257 million of accounts receivable through September 30, 2020 and December 31, 2019, respectively.

Share Capital

On July 15, 2020, our Board of Directors approved a $500 million increase in our Common Stock repurchase authorization. We also declared a quarterly cash dividend of $0.62 per share on our Common Stock on October 14, 2020, amounting to $73 million.

There have been no material changes to our share capital described in our 2019 Form 10-K other than those disclosed above and in Note 11 - Stockholders' Equity in the accompanying unaudited interim consolidated financial statements.

Contractual Obligations

Except as otherwise described in this report, there have been no material revisions outside the ordinary course of business to our contractual obligations as described in our 2019 Form 10-K.

Sale of Polyplastics Co., Ltd. Joint Venture Equity Interest

On October 9, 2020, we completed the previously announced sale of our 45% joint venture equity interest in Polyplastics, to our joint venture partner, Daicel Corporation, for a purchase price of approximately $1.6 billion in cash. See Note 20 - Subsequent Events in the accompanying unaudited interim consolidated financial statements.

Off-Balance Sheet Arrangements

We have not entered into any material off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Our unaudited interim consolidated financial statements are based on the selection and application of significant accounting policies. The preparation of unaudited interim consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the unaudited interim consolidated financial statements and the reported amounts of net sales, expenses and allocated charges during the reporting period. Actual results could differ from those estimates. However, we are not currently aware of any reasonably likely events or circumstances that would result in materially different results.

We describe our significant accounting policies in Note 2 - Summary of Accounting Policies, of the Notes to the Consolidated Financial Statements included in our 2019 Form 10-K. We discuss our critical accounting policies and estimates in MD&A in our 2019 Form 10-K.

Recent Accounting Pronouncements

See Note 2 - Recent Accounting Pronouncements in the accompanying unaudited interim consolidated financial statements included in this Quarterly Report for information regarding recent accounting pronouncements.

Market risk for the Company has not changed materially from the foreign exchange, interest rate and commodity risks disclosed in Item 7A. Quantitative and Qualitative Disclosures about Market Risk in our 2019 Form 10-K. See also Note 14 - Derivative Financial Instruments in the accompanying unaudited interim consolidated financial statements for further discussion of our market risk management and the related impact on the Company's financial position and results of operations.

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on that evaluation, as of September 30, 2020, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting

During the period covered by this report, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The Company is supplementing the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission on February 6, 2020 (the "2019 Form 10-K"), to include the following risk factor under the heading "Risks Related to Our Business."

The extent to which the novel coronavirus ("COVID-19") pandemic or similar public health crises will adversely impact our business, financial condition and results of operations remains highly uncertain and cannot be predicted.

Public health crises such as pandemics or similar outbreaks could adversely impact our business. In December 2019, a novel strain of a virus named SARS-CoV-2 (severe acute respiratory syndrome coronavirus 2), or coronavirus, which causes coronavirus disease 2019, or COVID-19, surfaced in Wuhan, China and has reached substantially all locations where we and our customers and suppliers have offices and production facilities. The COVID-19 pandemic is evolving, and to date has led to the implementation of various responses, including government-imposed quarantines, stay-at-home restrictions, travel restrictions and other public health and safety measures, as well as reported adverse impacts on healthcare resources, facilities and providers. COVID-19 has significantly impacted our operations, and the extent to which COVID-19 will continue to impact our operations or those of our customers or suppliers will depend on future developments and numerous factors, which are highly uncertain and cannot be predicted with confidence, including the duration and geographic spread of the outbreak, additional or modified government actions, new information that may emerge concerning the severity and impact of COVID-19 and the actions to contain COVID-19 or address its impact in the short and long term, among others.

The extent to which COVID-19 will adversely impact our business, financial condition and results of operations will depend on numerous evolving factors, which are highly uncertain, rapidly changing and cannot be predicted, including:

• the duration, scope, severity and geographic spread of the outbreak;
• governmental, business and individual actions that have been and continue to be taken in response to the outbreak, including social distancing, work-at-home, stay-at-home and shelter-in-place orders and shutdowns, travel restrictions and quarantines;
• the effect of the outbreak on our customers, suppliers, supply chain and other business partners;
• our ability during the outbreak to provide our products and services, and protect the health and well-being of our employees;
• business disruptions caused by actual or potential plant, workplace and office closures, and an increased reliance on employees working from home, disruptions to or delays in ongoing laboratory and product testing, experiments and operations, staffing shortages, travel limitations, employee health issues, cyber security and data accessibility, or communication or mass transit disruptions, any of which could adversely impact our business operations or delay necessary interactions with local regulators, manufacturing sites and other important agencies and contractors;
• the risk that we could be exposed to liability, negative publicity or reputational harm related to any incidents of actual or perceived transmission of COVID-19 among employees at our facilities;
• the ability of our customers to pay for our products and services during and following the outbreak;
• the impact of the outbreak on the financial markets and economic activity generally;
• our ability to access usual sources of liquidity on reasonable terms; and
• our ability to comply with the financial covenant in our Credit Agreement if a material and prolonged economic downturn results in increased indebtedness or substantially lower EBITDA.

The COVID-19 pandemic has significantly increased financial and economic volatility and uncertainty. The slowdown or downturn in the economy has had, and may continue to have, a negative impact on many of our customers, as well as the end customers of products for which our products serve as materials and inputs. Our operations and financial results could be materially adversely impacted to the extent that the decline in certain customer orders continues or is materially greater than we have experienced to date during the COVID-19 pandemic or that we expect, or our expenses increase due to the impact of the pandemic, including as a result of impacts on our labor costs or productivity, supply chain disruptions or future actions by governments or businesses.

The COVID-19 pandemic continues to evolve, and it is unknown how long disruptions to our business operations resulting from the COVID-19 pandemic, including any disruptions relating to the ultimate geographic spread of the disease. However, any prolonging of the pandemic-related disruptions could have a material adverse impact on our business, financial condition and results of operations. We have monitored and will continue to monitor the situation closely.

In addition, the trading prices for our common stock and other chemical companies have been at certain times highly volatile as a result of the COVID-19 pandemic. If such volatility were to recur, we could face difficulties raising capital through equity or debt financings, or such financing transactions may be on unfavorable terms.

Please also refer to the complete Item 1A of the 2019 Form 10-K filed for additional risks and uncertainties facing the Company that may have a material adverse effect on the Company's business prospects, financial condition and results of operations. The COVID-19 pandemic, and responses to the pandemic by governments and businesses, have exacerbated many of the risks and potential impact of the factors addressed in Item 1A of the 2019 Form 10-K, and may affect us in additional ways or to an extent that we currently do not expect or consider to be significant.