Form 8-K Celanese Corp For: Jul 22
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 22, 2019
CELANESE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware | 001-32410 | 98-0420726 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||
222 West Las Colinas Blvd. Suite 900N, Irving, TX 75039
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (972) 443-4000
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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 | New York Stock Exchange |
1.125% Senior Notes due 2023 | CE /23 | New York Stock Exchange |
1.250% Senior Notes due 2025 | CE /25 | New York Stock Exchange |
2.125% Senior Notes due 2027 | CE /27 | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.
Emerging growth company o
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. o
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Item 7.01 Regulation FD Disclosure
On July 23, 2019, Lori J. Ryerkerk, Chief Executive Officer and President of Celanese Corporation (the "Company"), will make a presentation to investors and analysts via a webcast hosted by the Company at 10:00 a.m. ET (9:00 a.m. CT). The webcast, press release and prepared remarks from management may be accessed on our website at investors.celanese.com under News & Events. A copy of the prepared remarks posted for the webcast are attached to this Current Report on Form 8-K ("Current Report") as Exhibit 99.1(a) and is incorporated herein solely for purposes of this Item 7.01 disclosure. During the webcast, management may make, and management's prepared remarks contain, references to certain Non-US GAAP financial measures. Non-US GAAP financial measures appearing in management's prepared remarks are accompanied by the most directly comparable US GAAP financial measure. In addition, those Non-US GAAP financial measures are defined and reconciled to the most comparable US GAAP financial measure in our Non-US GAAP Financial Measures and Supplemental Information document filed with this Current Report as Exhibit 99.2 (and available on our website) and is incorporated herein solely for purpose of this Item 7.01 disclosure.
Item 9.01 Financial Statements and Exhibits
(d) The following exhibits are being filed herewith:
Exhibit Number | ||
Description | ||
99.1(a) | ||
99.2 | ||
* In connection with the disclosure set forth in Item 7.01, the information in this Current Report, including the exhibits attached hereto, is being furnished and shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of such section. The information in this Current Report, including the exhibits, shall not be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any incorporation by reference language in any such filing. This Current Report will not be deemed an admission as to the materiality of any information in this Current Report that is required to be disclosed solely by Regulation FD.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
CELANESE CORPORATION | |||
By: | /s/ JAMES R. PEACOCK III | ||
Name: | James R. Peacock III | ||
Title: | Vice President, Deputy General Counsel and Corporate Secretary | ||
Date: | July 22, 2019 | ||
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Exhibit 99.1(a)
Q2 2019 Earnings Prepared Comments
Chuck Kyrish, Celanese Corporation, Vice President, Investor Relations and Treasurer
This is the Celanese Corporation second quarter 2019 earnings prepared comments. The Celanese Corporation second quarter 2019 earnings release was distributed via Business Wire this afternoon and posted on our investor relations website, investors.celanese.com. As a reminder, some of the matters discussed below may include forward-looking statements concerning, for example, our future objectives and plans. Please note the cautionary language contained at the end of these comments. Also, some of the matters discussed include references to non-GAAP financial measures. Explanations of these measures and reconciliations to the comparable GAAP measures are included on our investor relations website under Financial Information/Non-GAAP Financial Measures. The earnings release and non-GAAP information and the reconciliations are being furnished to the SEC in a Current Report on Form 8-K. These prepared comments are also being furnished to the SEC in a separate Current Report on Form 8-K.
On the earnings conference call tomorrow morning, management will be available to answer questions.
Lori Ryerkerk, Celanese Corporation, Chief Executive Officer
Today, Celanese reported second quarter 2019 GAAP diluted earnings of $1.67 per share and adjusted earnings of $2.38 per share, a decrease of 9 percent over the prior quarter. Amid the current weak environment, net sales of $1.6 billion were down 6 percent as the company effectively limited sequential declines in volume and price to 2 percent and 3 percent, respectively.
The Acetyl Chain (AC) reported segment income of $189 million, with a margin of 22 percent, turning in the seventh consecutive quarter of margin performance in excess of 20 percent and displaying its resilient earnings profile and an elevated foundational earnings level. Engineered Materials (EM) delivered
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segment income of $148 million in the second quarter at a margin of 25 percent despite a continuation of destocking, weak fundamentals in multiple end markets and a decline in affiliate performance. Acetate Tow (AT) generated segment income of $71 million in the quarter, consistent with prior quarter results, reflecting a stabilized earnings profile. In the quarter, we generated $356 million in free cash flow, lifting our year to date total to $580 million, compared to $555 million in the same period last year. We returned a total of $378 million to shareholders in the second quarter, through $300 million of share repurchases and $78 million in cash dividends.
Since joining Celanese early in the quarter, I have witnessed the ability and determination of our teams to collectively face challenging conditions and outperform underlying markets. Considering the multitude of macro influences at play currently, I believe that the second quarter is the most compelling proof to date of the resiliency and efficacy of the models we operate in both the Acetyl Chain and Engineered Materials. It also speaks to the excellence and resolve of the teams in place here at Celanese.
The demand environment in the second quarter was far more anemic than anyone anticipated at the end of the first quarter. In March and April, we were seeing signs that fundamentals were starting to improve with indications of meaningful progress in the US-China trade negotiations that had been ongoing for more than a year. However, market uncertainty was renewed and deepened in early May following an unexpected threat to increase the China tariffs from 10 percent to 25 percent. The initial tensions that centered on trade tariffs have since spread to retaliation via legal extraditions, export controls on certain technologies, and growing restrictions on international investments. While the direct impact of tariffs on our results remains manageable, these unpredictable exchanges have clearly undermined both industrial and consumer confidence, particularly in China where second quarter GDP growth of 6.2 percent was the lowest in nearly three decades. Additionally, by the end of May, a US threat of a 5 percent tariff on all Mexican imports rising to 25 percent by October, as well as the elimination of preferential trading rules on Indian exports worth $6 billion, added to prevailing uncertainty.
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Under these circumstances, all three of our businesses focused on controllable actions and execution of the respective business models, to mitigate the impacts of external challenges. The Acetyl Chain recorded adjusted EBIT of $189 million with a margin of 22 percent as they reduced the impact of two major planned turnarounds as well as weak market conditions in Asia. This weakness was seen in Chinese demand for acetic acid that fell by approximately 10 percent sequentially due to challenging industrial conditions, reduced export activity, and continued safety and environmental controls on some downstream customers. Demand levels dropped meaningfully below a first quarter that was already impacted by Chinese New Year and seasonally lighter activity in several end markets. Despite a number of acetic acid industry turnarounds in the quarter, acid utilization in China dropped to approximately 70 percent on weak demand. As a result, industry acetic acid pricing in China fell below $400 per ton for most of the second quarter with average pricing down 12 percent sequentially, and reached levels last seen in the first quarter of 2017.
In comparison, demand in the Western Hemisphere remained stable and improved sequentially across a variety of end markets including construction, adhesives, and paints and coatings. In response to these dynamics, our teams executed numerous activations within our global Acetyl Chain network to, among other things, pivot downstream to VAM and emulsions, where incremental value per ton could be generated. While similar actions were taken in the first quarter, we further positioned our efforts with customers in the second quarter to capitalize on seasonal strength in certain end markets to place sequentially higher volumes of both VAM and emulsions in every region, totaling an additional 9 percent over the first quarter. As a result of these and other commercial actions, total global volume for the Acetyl Chain grew 2 percent sequentially. More impressively, this downstream volume growth was accomplished concurrent with major second quarter VAM turnarounds in Bay City and Nanjing, each lasting roughly one month. In addition to rigorous planning and inventory management leading up to the turnarounds, our teams procured significant quantities of VAM within the quarter. These efforts reduced the direct impact of the second quarter turnarounds from a forecasted $20 million to approximately $15 million. Additional
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strength in the quarter came even further downstream in emulsions, where robust earnings contributions were captured.
The Acetyl Chain performance in the second quarter again demonstrated the elevated foundational earnings power of this business in a very lackluster environment. By annualizing both the first quarter and second quarter adjusted earnings performance, it is clear that the earnings profile of this business has been lifted several hundred million dollars above levels just a few years ago, when we saw industry dynamics similar to those we see today. We continue to strengthen this business by executing on capital and productivity projects that extend our operating flexibility. Critical future investments include the previously announced methanol expansion and acetic acid global reconfiguration projects, which are expected to deliver significant productivity savings, regardless of market conditions.
Acetate Tow delivered second quarter adjusted EBIT of $71 million at a margin of 43 percent, consistent with the prior quarter and reflective of a more sustained run-rate earnings level. Both price and volume were virtually flat year over year and sequentially. As part of our plan to continue offsetting the declining secular demand for tow, we recently announced further consolidation of our production facility in Ocotlán, Mexico by discontinuing acetate flake production by October 31. This move will strengthen our competitive position, reduce fixed costs, and align future production capacities with industry demand. We will continue to pursue productivity opportunities in this business as a key component of our outlook for stabilized earnings.
Engineered Materials recorded second quarter segment income of $148 million, a sequential decrease of $35 million over the first quarter, driven by acute demand softness that worsened in the quarter, resultant destocking across multiple end markets, timing of earnings in medical, and weaker affiliate performance. In the quarter, the volume impact on net sales showed a decline of 7 percent over the prior quarter, which was comprised of a 4 percent sequential volumetric decline as well as a mix impact including sequentially lower medical sales in the quarter. The timing of sales in our medical business can shift from quarter to
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quarter depending on project timing and, in this case, due to customers building inventories in the first quarter, in anticipation that the UK would formally withdraw from the EU in the second quarter. Pricing was down 3 percent sequentially, driven by the weak demand environment.
Soft demand was seen broadly across end markets, but most significantly in automotive and electronics. While sequential auto builds in the US were up slightly due to relatively strong demand for trucks, builds in both Europe and Asia were down sequentially by 1 percent and 5 percent, respectively. In Europe, weak auto demand caused several OEMs to extend shutdowns around the Easter holiday. In China, auto sales in June increased year over year for the first time in a year only due to significant dealer discounts intended to clear inventories ahead of new stricter emissions standards. Additional destocking occurred across the automotive tiers in the second quarter, reaching deeper into the value chain with a number of our Tier 2 and Tier 3 customers seeing declines of 20 to 30 percent year over year. In electronics, first half smartphone production is expected to decline 6 percent year over year, which is reflective of weakness across several electronic applications. Underlying softness in these markets was met with competitive pressure from integrated nylon producers to preserve volume in the face of overall declining demand in these and other large nylon end markets. Our teams worked diligently to execute our project pipeline model to offset much of the softness in automotive, electronics, and nylon, and to limit the sequential volumetric decline to 4 percent.
In the quarter, EM delivered 1,177 projects and is on track to commercialize over 4,000 projects in 2019. Customers’ preference to engage with Celanese in product development and material selection remains very strong. The average net sales contribution per project has fallen slightly in 2019 as a result of lower forecasted unit sales for customer products in the current environment. Project commercializations continue to drive reported volumes that are incrementally better than underlying end-market growth rates.
During the quarter, we successfully completed the addition of a new GUR® ultra-high molecular weight polyethylene (UHMW-PE) production line at the Nanjing, China manufacturing facility adding
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approximately 15 kt per year of capacity. This positions us to further serve the rapidly growing electric vehicle and battery markets in China. Today, China produces more electric vehicles than any other country in the world. China is already the global leader in battery production as well.
There remains tremendous additional opportunity for Engineered Materials to continue growing in China on a broad scale. In 2018, China, a $14 trillion economy, accounted for nearly as much global nominal GDP growth in dollars as the US and European Union combined. While consumption accounts for only a third of its GDP, about half the level of the US and European Union, China is already the world's largest market for many consumer goods including automobiles and consumer electronics. Our EM customers in China continue to develop more sophisticated and differentiated consumer products to meet the demands of a growing middle class that is already several hundred million strong. The EM model is perfectly designed to partner with our Chinese customers in this effort. In addition to the recently commissioned GUR® expansion, we are in the final stages of adding compounding capacity in both Nanjing and Suzhou. We are identifying further opportunities to expand our EM footprint in China that will allow us to more rapidly serve a Chinese customer base that is developing new products at a faster rate. This will allow us to capture meaningful productivity savings in logistics costs to serve China markets, and will simultaneously free up existing capacity in the US and Europe to serve future growth there.
Looking forward, given resilient performance in the first half despite challenging conditions, we still see a path to adjusted earnings of $10.50 per share for 2019. Our teams continue to effectively execute our differentiated business models and drive our ongoing productivity programs, including accelerated implementation of a number of cost reduction capital projects to help get us there. Reiterating what we said back in April, this outlook does assume some improvement in underlying demand later this year. Three weeks into July, we are seeing some early indications of improvement in certain areas, but it is still unclear whether a recovery will be sustained and at what pace it would progress. We are confident based on early indications that the acute destocking seen in the second quarter is unlikely to repeat to the same degree, and we therefore expect third quarter performance between first quarter and second quarter levels.
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We expect any lift from demand improvement would be more heavily reflected in an unseasonably strong fourth quarter.
As we look ahead to 2020, in addition to executing our plans for a strong 2019 finish, we will spend the remainder of this year also working the next phase of our strategic plan and financial targets going out three years. It is clear to me that the commercial models being employed in the Acetyl Chain and Engineered Materials are indeed unique, adaptable, and deliver differentiated results in any environment. We will continue to focus as an organization on strengthening these models and the global manufacturing and supply chain networks that support them. High-return organic investments will continue to be our top capital allocation priority as we look to drive returns through further productivity and growth by strengthening our ability to meet our customers’ needs in each region. Additionally, we will continue to look to allocate greater resources to accelerate our growth in key end markets such as medical, energy storage and electric vehicles. I am thrilled to be working alongside our teams in this endeavor.
Our ability to again deliver such differentiated results in the second quarter is the product of the persistent efforts of our teams across the globe. As I engage with our employees every day, I am increasingly encouraged about the opportunities ahead of us to continue driving robust growth and shareholder value together.
Scott Richardson, Celanese Corporation, Chief Financial Officer
Before addressing our free cash flow performance, I would like to reconcile GAAP diluted earnings per share and adjusted earnings per share for the quarter, which showed an unusually large difference. We impaired assets of $83 million related to the recently announced shutdown of flake production at our Ocotlán production facility, and we also accelerated certain productivity actions which drove an upfront outlay of $15 million.
Complementing the resilient earnings performance of our businesses, we continued to accelerate the conversion of earnings into cash. Through the first half of 2019, we generated $580 million in free cash
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flow compared with $555 million in the same period last year. The improvement in free cash flow conversion across the first half of 2019 was primarily due to controllable actions we have taken to optimize our working capital.
At a time when we see talk of some companies delaying capital deployment actions due to lower earnings and cash generation, we continue to produce ample cash to fund all of our organic and inorganic investments while also returning cash to shareholders at a rapid pace. Our cash flow is unencumbered by our capital structure and low leverage with no current need to reduce debt levels. As such, we are able to deploy all of our excess cash flow to drive future EBIT and earnings per share growth, for the benefit of our shareholders.
In the second quarter we spent $65 million on capital expenditures, and we expect that capex will approach $400 million for the full year. Throughout the first half of this year, we have fast-tracked a number of cost reduction capital projects, which represented about half of our non-maintenance capex over the period. These are projects with a rapid payback and high returns. Looking forward, we have a number of incremental investment opportunities in the Acetyl Chain and Engineered Materials that will bolster our ability to serve our customers in all regions. As a result, we expect annual capex to approach $500 million in 2020 and 2021.
We delivered $378 million to shareholders during the second quarter. We remain committed to a strong and steadily growing dividend, and paid out $78 million in cash dividends in the quarter. Additionally, we repurchased another 2.3 percent of our shares, buying back 2.9 million shares for $300 million. This takes our year to date repurchases to $500 million, just under 4% of outstanding shares. We will remain opportunistic in reinvesting in Celanese and we strongly believe that the current valuation does not correctly reflect the earnings power of our business models.
The effective tax rate for the second quarter of 2019 was 12 percent compared to 22 percent in the second quarter of last year. The lower effective income tax rate was primarily due to 2019 reductions in the
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valuation allowance on foreign tax credits that resulted from greater forecasted utilization of credits prior to their carryforward period expiration. The tax rate for adjusted earnings per share remains unchanged year over year at 14 percent in the second quarter.
For the full year, we expect free cash flow generation of approximately $1.1 to $1.2 billion, driven by a slightly increased forecast for capex, cash expenditures related to the shutdown of Ocotlán flake production, and the acceleration of additional non-capitalized productivity projects. We continue on pace to achieve our commitment of $3.6 billion in cumulative free cash flow from 2018 through 2020.
This concludes our prepared remarks. We look forward to discussing our second quarter results and addressing your questions on our earnings call tomorrow.
Forward-Looking Statements
These prepared comments contain "forward-looking statements," which include information concerning the Company's plans, objectives, goals, strategies, future revenues, performance, capital expenditures, and other information that is not historical information. All forward-looking statements are based upon current expectations and beliefs and various assumptions. There can be no assurance that the Company will realize these expectations or that these beliefs will prove correct. There are a number of risks and uncertainties that could cause actual results to differ materially from the results expressed or implied in the forward-looking statements contained in these comments. These risks and uncertainties 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 and expansions; the ability to reduce or maintain current levels of production costs and to improve productivity by implementing technological improvements to existing plants; the ability to identify desirable potential acquisition targets and to consummate acquisition or investment transactions consistent with the Company's strategy; increased price competition and the introduction of competing products by other companies; market acceptance of our technology; the ability to obtain governmental approvals and to construct facilities on terms and schedules acceptable to the Company; changes in tariffs, tax rates or legislation; 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 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 or natural disasters; 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 litigation, 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 discussed from time to time in the Company's filings with the Securities and Exchange Commission. Any forward-looking statement speaks only as of the date on which it is made, and the Company undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances.
Results Unaudited
The results in this document, together with the adjustments made to present the results on a comparable basis, have not been audited and are based on internal financial data furnished to management. Quarterly results should not be taken as an indication of the results of operations to be reported for any subsequent period or for the full fiscal year.
Non-GAAP Financial Measures
These prepared comments, and statements made in connection with these prepared comments, refer to non-GAAP financial measures. For more information on the non-GAAP financial measures used by the Company, including the most directly comparable GAAP financial measure for each non-GAAP financial measures used, including definitions and reconciliations of the differences between such non-GAAP financial measures and the comparable GAAP financial measures, please refer to the Non-US GAAP Financial Measures and Supplemental Information document available on our website, investors.celanese.com, under Financial Information/Non-GAAP Financial Measures.
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Exhibit 99.2
Non-US GAAP Financial Measures and Supplemental Information
July 22, 2019
In this document, the terms the "Company," "we" and "our" refer to Celanese Corporation and its subsidiaries on a consolidated basis.
Purpose
The purpose of this document is to provide information of interest to investors, analysts and other parties including supplemental financial information and reconciliations and other information concerning our use of non-US GAAP financial measures. This document is updated quarterly.
Presentation
This document presents the Company's three business segments, Engineered Materials, Acetate Tow and Acetyl Chain.
Use of Non-US GAAP Financial Measures
From time to time, management may publicly disclose certain numerical "non-GAAP financial measures" in the course of our earnings releases, financial presentations, earnings conference calls, investor and analyst meetings and otherwise. For these purposes, the Securities and Exchange Commission ("SEC") defines a "non-GAAP financial measure" as a numerical measure of historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that effectively exclude amounts, included in the most directly comparable measure calculated and presented in accordance with US GAAP, and vice versa for measures that include amounts, or are subject to adjustments that effectively include amounts, that are excluded from the most directly comparable US GAAP measure so calculated and presented. For these purposes, "GAAP" refers to generally accepted accounting principles in the United States.
Non-GAAP financial measures disclosed by management are provided as additional information to investors, analysts and other parties because the Company believes them to be important supplemental measures for assessing our financial and operating results and as a means to evaluate our financial condition and period-to-period comparisons. These non-GAAP financial measures should be viewed as supplemental to, and should not be considered in isolation or as alternatives to, net earnings (loss), operating profit (loss), operating margin, cash flow from operating activities (together with cash flow from investing and financing activities), earnings per share or any other US GAAP financial measure. These non-GAAP financial measures should be considered within the context of our complete audited and unaudited financial results for the given period, which are available on the Financial Information/Financial Document Library page of our website, investors.celanese.com. The definition and method of calculation of the non-GAAP financial measures used herein may be different from other companies' methods for calculating measures with the same or similar titles. Investors, analysts and other parties should understand how another company calculates such non-GAAP financial measures before comparing the other company's non-GAAP financial measures to any of our own. These non-GAAP financial measures may not be indicative of the historical operating results of the Company nor are they intended to be predictive or projections of future results.
Pursuant to the requirements of SEC Regulation G, whenever we refer to a non-GAAP financial measure, we will also present in this document, in the presentation itself or on a Form 8-K in connection with the presentation on the Financial Information/Non-GAAP Financial Measures page of our website, investors.celanese.com, to the extent practicable, the most directly comparable financial measure calculated and presented in accordance with GAAP, along with a reconciliation of the differences between the non-GAAP financial measure we reference and such comparable GAAP financial measure.
This document includes definitions and reconciliations of non-GAAP financial measures used from time to time by the Company.
Specific Measures Used
This document provides information about the following non-GAAP measures: adjusted EBIT, adjusted EBIT margin, operating EBITDA, operating EBITDA margin, operating profit (loss) attributable to Celanese Corporation, adjusted earnings per share, net debt, free cash flow and return on invested capital (adjusted). The most directly comparable financial measure presented in accordance with US GAAP in our consolidated financial statements for adjusted EBIT and operating EBITDA is net earnings (loss) attributable to Celanese Corporation; for adjusted EBIT margin and operating EBITDA margin is operating margin; for operating profit (loss) attributable to Celanese Corporation is operating profit (loss); for adjusted earnings per share is earnings (loss) from continuing operations attributable to Celanese Corporation per common share-diluted; for net debt is total debt; for free
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cash flow is net cash provided by (used in) operations; and for return on invested capital (adjusted) is net earnings (loss) attributable to Celanese Corporation divided by the sum of the average of beginning and end of the year short- and long-term debt and Celanese Corporation stockholders' equity.
Definitions
• | Adjusted EBIT is a performance measure used by the Company and is defined by the Company as net earnings (loss) attributable to Celanese Corporation, plus (earnings) loss from discontinued operations, less interest income, plus interest expense, plus refinancing expense and taxes, and further adjusted for Certain Items (refer to Table 8). We believe that adjusted EBIT provides transparent and useful information to management, investors, analysts and other parties in evaluating and assessing our primary operating results from period-to-period after removing the impact of unusual, non-operational or restructuring-related activities that affect comparability. Our management recognizes that adjusted EBIT has inherent limitations because of the excluded items. Adjusted EBIT is one of the measures management uses for planning and budgeting, monitoring and evaluating financial and operating results and as a performance metric in the Company's incentive compensation plan. We do not provide reconciliations for adjusted EBIT on a forward-looking basis (including those contained in this document) when we are unable to provide a meaningful or accurate calculation or estimation of reconciling items and the information is not available without unreasonable effort. This is due to the inherent difficulty of forecasting the timing and amount of Certain Items, such as mark-to-market pension gains and losses, that have not yet occurred, are out of our control and/or cannot be reasonably predicted. For the same reasons, we are unable to address the probable significance of the unavailable information. Adjusted EBIT margin is defined by the Company as adjusted EBIT divided by net sales. Adjusted EBIT margin has the same uses and limitations as Adjusted EBIT. |
• | Adjusted EBIT by business segment may also be referred to by management as segment income. Adjusted EBIT margin by business segment may also be referred to by management as segment income margin. |
• | Operating EBITDA is a performance measure used by the Company and is defined by the Company as net earnings (loss) attributable to Celanese Corporation, plus (earnings) loss from discontinued operations, less interest income, plus interest expense, plus refinancing expense, taxes and depreciation and amortization, and further adjusted for Certain Items, which Certain Items include accelerated depreciation and amortization expense. Operating EBITDA is equal to adjusted EBIT plus depreciation and amortization. We believe that Operating EBITDA provides transparent and useful information to investors, analysts and other parties in evaluating our operating performance relative to our peer companies. Operating EBITDA margin is defined by the Company as Operating EBITDA divided by net sales. Operating EBITDA margin has the same uses and limitations as Operating EBITDA. |
• | Operating profit (loss) attributable to Celanese Corporation is defined by the Company as operating profit (loss), less earnings (loss) attributable to noncontrolling interests ("NCI"). We believe that operating profit (loss) attributable to Celanese Corporation provides transparent and useful information to management, investors, analysts and other parties in evaluating our core operational performance. Operating margin attributable to Celanese Corporation is defined by the Company as operating profit (loss) attributable to Celanese Corporation divided by net sales. Operating margin attributable to Celanese Corporation has the same uses and limitations as Operating profit (loss) attributable to Celanese Corporation. |
• | Adjusted earnings per share is a performance measure used by the Company and is defined by the Company as earnings (loss) from continuing operations attributable to Celanese Corporation, adjusted for income tax (provision) benefit, Certain Items, and refinancing and related expenses, divided by the number of basic common shares and dilutive restricted stock units and stock options calculated using the treasury method. We believe that adjusted earnings per share provides transparent and useful information to management, investors, analysts and other parties in evaluating and assessing our primary operating results from period-to-period after removing the impact of the above stated items that affect comparability and as a performance metric in the Company's incentive compensation plan. We do not provide reconciliations for adjusted earnings per share on a forward-looking basis (including those contained in this document) when we are unable to provide a meaningful or accurate calculation or estimation of reconciling items and the information is not available without unreasonable effort. This is due to the inherent difficulty of forecasting the timing and amount of Certain Items, such as mark-to-market pension gains and losses, that have not yet occurred, are out of our control and/or cannot be reasonably predicted. For the same reasons, we are unable to address the probable significance of the unavailable information. |
Note: The income tax expense (benefit) on Certain Items ("Non-GAAP adjustments") is determined using the applicable rates in the taxing jurisdictions in which the Non-GAAP adjustments occurred and includes both current and deferred income tax expense (benefit). The income tax rate used for adjusted earnings per share approximates the midpoint in a range of forecasted tax rates for the year. This range may include certain partial or full-year forecasted tax opportunities and related costs, where applicable, and specifically excludes changes in uncertain tax positions, discrete recognition of GAAP items on a quarterly basis, other pre-tax items adjusted out of our GAAP earnings for adjusted earnings per share purposes and changes in management's assessments regarding the ability to realize deferred tax assets for GAAP. In determining the adjusted earnings per share tax rate, we reflect the impact of foreign tax credits when utilized, or expected to be utilized, absent discrete events impacting the timing of foreign tax credit utilization. We analyze this rate quarterly and adjust it if there is a material change in the range of forecasted tax rates; an updated forecast would not necessarily result in a change to our tax rate used for adjusted earnings per share. The adjusted tax rate is an estimate and may differ from the actual tax rate used for GAAP reporting in any given reporting period. Table 3a summarizes the reconciliation of our estimated GAAP effective tax rate to the adjusted tax rate. The
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estimated GAAP rate excludes discrete recognition of GAAP items due to our inability to forecast such items. As part of the year-end reconciliation, we will update the reconciliation of the GAAP effective tax rate to the adjusted tax rate for actual results.
• | Free cash flow is a liquidity measure used by the Company and is defined by the Company as net cash provided by (used in) operations, less capital expenditures on property, plant and equipment, and adjusted for capital contributions from or distributions to Mitsui & Co., Ltd. ("Mitsui") related to our methanol joint venture, Fairway Methanol LLC ("Fairway"). We believe that free cash flow provides useful information to management, investors, analysts and other parties in evaluating the Company's liquidity and credit quality assessment because it provides an indication of the long-term cash generating ability of our business. Although we use free cash flow as a measure to assess the liquidity generated by our business, the use of free cash flow has important limitations, including that free cash flow does not reflect the cash requirements necessary to service our indebtedness, lease obligations, unconditional purchase obligations or pension and postretirement funding obligations. |
• | Net debt is defined by the Company as total debt less cash and cash equivalents. We believe that net debt provides useful information to management, investors, analysts and other parties in evaluating changes to the Company's capital structure and credit quality assessment. |
• | Return on invested capital (adjusted) is defined by the Company as adjusted EBIT, tax effected using the adjusted tax rate, divided by the sum of the average of beginning and end of the year short- and long-term debt and Celanese Corporation stockholders' equity. We believe that return on invested capital (adjusted) provides useful information to management, investors, analysts and other parties in order to assess our income generation from the point of view of our stockholders and creditors who provide us with capital in the form of equity and debt and whether capital invested in the Company yields competitive returns. |
Supplemental Information
Supplemental Information we believe to be of interest to investors, analysts and other parties includes the following:
• | Net sales for each of our business segments and the percentage increase or decrease in net sales attributable to price, volume, currency and other factors for each of our business segments. |
• | Cash dividends received from our equity investments. |
• | For those consolidated ventures in which the Company owns or is exposed to less than 100% of the economics, the outside stockholders' interests are shown as NCI. Beginning in 2014, this includes Fairway for which the Company's ownership percentage is 50%. Amounts referred to as "attributable to Celanese Corporation" are net of any applicable NCI. |
Results Unaudited
The results in this document, together with the adjustments made to present the results on a comparable basis, have not been audited and are based on internal financial data furnished to management. Quarterly results should not be taken as an indication of the results of operations to be reported for any subsequent period or for the full fiscal year.
3
Table 1
Adjusted EBIT and Operating EBITDA - Reconciliation of Non-GAAP Measures - Unaudited
Q2 '19 | Q1 '19 | 2018 | Q4 '18 | Q3 '18 | Q2 '18 | Q1 '18 | ||||||||||||||
(In $ millions) | ||||||||||||||||||||
Net earnings (loss) attributable to Celanese Corporation | 209 | 337 | 1,207 | 99 | 401 | 344 | 363 | |||||||||||||
(Earnings) loss from discontinued operations | 1 | 1 | 5 | (3 | ) | 6 | — | 2 | ||||||||||||
Interest income | (2 | ) | (1 | ) | (6 | ) | (2 | ) | (2 | ) | — | (2 | ) | |||||||
Interest expense | 29 | 31 | 125 | 30 | 30 | 32 | 33 | |||||||||||||
Refinancing expense | 4 | — | 1 | 1 | — | — | — | |||||||||||||
Income tax provision (benefit) | 28 | 46 | 292 | 76 | 54 | 97 | 65 | |||||||||||||
Certain Items attributable to Celanese Corporation (Table 8) | 107 | 7 | 228 | 192 | 5 | 18 | 13 | |||||||||||||
Adjusted EBIT | 376 | 421 | 1,852 | 393 | 494 | 491 | 474 | |||||||||||||
Depreciation and amortization expense(1) | 82 | 81 | 316 | 78 | 77 | 82 | 79 | |||||||||||||
Operating EBITDA | 458 | 502 | 2,168 | 471 | 571 | 573 | 553 | |||||||||||||
Q2 '19 | Q1 '19 | 2018 | Q4 '18 | Q3 '18 | Q2 '18 | Q1 '18 | ||||||||||||||
(In $ millions) | ||||||||||||||||||||
Engineered Materials | — | 1 | 1 | — | — | 1 | — | |||||||||||||
Acetate Tow | 2 | — | 19 | 5 | 11 | 3 | — | |||||||||||||
Acetyl Chain | — | 1 | 7 | 5 | 2 | — | — | |||||||||||||
Other Activities(2) | — | — | — | — | — | — | — | |||||||||||||
Accelerated depreciation and amortization expense | 2 | 2 | 27 | 10 | 13 | 4 | — | |||||||||||||
Depreciation and amortization expense(1) | 82 | 81 | 316 | 78 | 77 | 82 | 79 | |||||||||||||
Total depreciation and amortization expense | 84 | 83 | 343 | 88 | 90 | 86 | 79 | |||||||||||||
(1) | Excludes accelerated depreciation and amortization expense as detailed in the table above, which amounts are included in Certain Items above. |
(2) | Other Activities includes corporate Selling, general and administrative ("SG&A") expenses, the results of captive insurance companies and certain components of net periodic benefit cost (interest cost, expected return on plan assets and net actuarial gains and losses). |
4
Table 2 - Supplemental Segment Data and Reconciliation of Segment Adjusted EBIT and Operating EBITDA - Non-GAAP Measures - Unaudited |  | |
Q2 '19 | Q1 '19 | 2018 | Q4 '18 | Q3 '18 | Q2 '18 | Q1 '18 | |||||||||||||||||||||||||||||||||||
(In $ millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||
Operating Profit (Loss) / Operating Margin | |||||||||||||||||||||||||||||||||||||||||
Engineered Materials | 103 | 17.4 | % | 144 | 21.7 | % | 460 | 17.7 | % | 95 | 15.3 | % | 124 | 19.3 | % | 114 | 17.2 | % | 127 | 19.1 | % | ||||||||||||||||||||
Acetate Tow | (44 | ) | (26.8 | )% | 40 | 24.1 | % | 130 | 20.0 | % | 19 | 11.8 | % | 26 | 16.5 | % | 39 | 24.1 | % | 46 | 27.4 | % | |||||||||||||||||||
Acetyl Chain(1) | 188 | 21.7 | % | 202 | 22.7 | % | 1,024 | 25.3 | % | 211 | 22.5 | % | 287 | 28.5 | % | 273 | 26.0 | % | 253 | 24.1 | % | ||||||||||||||||||||
Other Activities(2) | (61 | ) | (66 | ) | (280 | ) | (66 | ) | (63 | ) | (68 | ) | (83 | ) | |||||||||||||||||||||||||||
Total | 186 | 11.7 | % | 320 | 19.0 | % | 1,334 | 18.6 | % | 259 | 15.3 | % | 374 | 21.1 | % | 358 | 19.4 | % | 343 | 18.5 | % | ||||||||||||||||||||
Less: Net Earnings (Loss) Attributable to NCI(1) | 1 | 1 | 6 | 2 | 1 | 1 | 2 | ||||||||||||||||||||||||||||||||||
Operating Profit (Loss) Attributable to Celanese Corporation | 185 | 11.6 | % | 319 | 18.9 | % | 1,328 | 18.6 | % | 257 | 15.2 | % | 373 | 21.1 | % | 357 | 19.4 | % | 341 | 18.4 | % | ||||||||||||||||||||
Operating Profit (Loss) / Operating Margin Attributable to Celanese Corporation | |||||||||||||||||||||||||||||||||||||||||
Engineered Materials | 103 | 17.4 | % | 144 | 21.7 | % | 460 | 17.7 | % | 95 | 15.3 | % | 124 | 19.3 | % | 114 | 17.2 | % | 127 | 19.1 | % | ||||||||||||||||||||
Acetate Tow | (44 | ) | (26.8 | )% | 40 | 24.1 | % | 130 | 20.0 | % | 19 | 11.8 | % | 26 | 16.5 | % | 39 | 24.1 | % | 46 | 27.4 | % | |||||||||||||||||||
Acetyl Chain(1) | 187 | 21.6 | % | 201 | 22.6 | % | 1,018 | 25.2 | % | 209 | 22.3 | % | 286 | 28.4 | % | 272 | 25.9 | % | 251 | 23.9 | % | ||||||||||||||||||||
Other Activities(2) | (61 | ) | (66 | ) | (280 | ) | (66 | ) | (63 | ) | (68 | ) | (83 | ) | |||||||||||||||||||||||||||
Total | 185 | 11.6 | % | 319 | 18.9 | % | 1,328 | 18.6 | % | 257 | 15.2 | % | 373 | 21.1 | % | 357 | 19.4 | % | 341 | 18.4 | % | ||||||||||||||||||||
Equity Earnings and Dividend Income, Other Income (Expense) Attributable to Celanese Corporation | |||||||||||||||||||||||||||||||||||||||||
Engineered Materials | 36 | 46 | 219 | (3) | 49 | 62 | 54 | 54 | |||||||||||||||||||||||||||||||||
Acetate Tow | 29 | 32 | 116 | 25 | 26 | 33 | 32 | ||||||||||||||||||||||||||||||||||
Acetyl Chain | 1 | 1 | 8 | 1 | 2 | 3 | 2 | ||||||||||||||||||||||||||||||||||
Other Activities(2) | 1 | (1 | ) | 15 | 8 | 1 | — | 6 | |||||||||||||||||||||||||||||||||
Total | 67 | 78 | 358 | 83 | 91 | 90 | 94 | ||||||||||||||||||||||||||||||||||
Non-Operating Pension and Other Post-Retirement Employee Benefit (Expense) Income Attributable to Celanese Corporation | |||||||||||||||||||||||||||||||||||||||||
Engineered Materials | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
Acetate Tow | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
Acetyl Chain | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
Other Activities(2) | 17 | 17 | (62 | ) | (139 | ) | 25 | 26 | 26 | ||||||||||||||||||||||||||||||||
Total | 17 | 17 | (62 | ) | (139 | ) | 25 | 26 | 26 | ||||||||||||||||||||||||||||||||
Certain Items Attributable to Celanese Corporation (Table 8) | |||||||||||||||||||||||||||||||||||||||||
Engineered Materials | 9 | (7 | ) | 15 | 6 | 1 | 7 | 1 | |||||||||||||||||||||||||||||||||
Acetate Tow | 86 | — | 27 | 9 | 13 | 5 | — | ||||||||||||||||||||||||||||||||||
Acetyl Chain | 1 | 1 | (4 | ) | 5 | (11 | ) | 2 | — | ||||||||||||||||||||||||||||||||
Other Activities(2) | 11 | 13 | 190 | 172 | 2 | 4 | 12 | ||||||||||||||||||||||||||||||||||
Total | 107 | 7 | 228 | 192 | 5 | 18 | 13 | ||||||||||||||||||||||||||||||||||
Adjusted EBIT / Adjusted EBIT Margin | |||||||||||||||||||||||||||||||||||||||||
Engineered Materials | 148 | 25.0 | % | 183 | 27.6 | % | 694 | 26.8 | % | 150 | 24.1 | % | 187 | 29.1 | % | 175 | 26.4 | % | 182 | 27.4 | % | ||||||||||||||||||||
Acetate Tow | 71 | 43.3 | % | 72 | 43.4 | % | 273 | 42.1 | % | 53 | 32.9 | % | 65 | 41.1 | % | 77 | 47.5 | % | 78 | 46.4 | % | ||||||||||||||||||||
Acetyl Chain | 189 | 21.8 | % | 203 | 22.8 | % | 1,022 | 25.3 | % | 215 | 23.0 | % | 277 | 27.5 | % | 277 | 26.4 | % | 253 | 24.1 | % | ||||||||||||||||||||
Other Activities(2) | (32 | ) | (37 | ) | (137 | ) | (25 | ) | (35 | ) | (38 | ) | (39 | ) | |||||||||||||||||||||||||||
Total | 376 | 23.6 | % | 421 | 25.0 | % | 1,852 | 25.9 | % | 393 | 23.3 | % | 494 | 27.9 | % | 491 | 26.6 | % | 474 | 25.6 | % | ||||||||||||||||||||
(1) | Net earnings (loss) attributable to NCI is included within the Acetyl Chain segment. |
(2) | Other Activities includes corporate SG&A expenses, the results of captive insurance companies and certain components of net periodic benefit cost (interest cost, expected return on plan assets and net actuarial gains and losses). |
(3) | Includes $218 million of Equity in net earnings (loss) of affiliates and $1 million of Other income. |
5
Table 2 - Supplemental Segment Data and Reconciliation of Segment Adjusted EBIT and Operating EBITDA - Non-GAAP Measures - Unaudited (cont.) |  | |
Q2 '19 | Q1 '19 | 2018 | Q4 '18 | Q3 '18 | Q2 '18 | Q1 '18 | |||||||||||||||||||||||||||||||||||
(In $ millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||
Depreciation and Amortization Expense(1) | |||||||||||||||||||||||||||||||||||||||||
Engineered Materials | 31 | 31 | 125 | 30 | 31 | 32 | 32 | ||||||||||||||||||||||||||||||||||
Acetate Tow | 9 | 10 | 39 | 9 | 10 | 10 | 10 | ||||||||||||||||||||||||||||||||||
Acetyl Chain | 38 | 37 | 141 | 36 | 34 | 36 | 35 | ||||||||||||||||||||||||||||||||||
Other Activities(2) | 4 | 3 | 11 | 3 | 2 | 4 | 2 | ||||||||||||||||||||||||||||||||||
Total | 82 | 81 | 316 | 78 | 77 | 82 | 79 | ||||||||||||||||||||||||||||||||||
Operating EBITDA / Operating EBITDA Margin | |||||||||||||||||||||||||||||||||||||||||
Engineered Materials | 179 | 30.2 | % | 214 | 32.3 | % | 819 | 31.6 | % | 180 | 28.9 | % | 218 | 34.0 | % | 207 | 31.2 | % | 214 | 32.2 | % | ||||||||||||||||||||
Acetate Tow | 80 | 48.8 | % | 82 | 49.4 | % | 312 | 48.1 | % | 62 | 38.5 | % | 75 | 47.5 | % | 87 | 53.7 | % | 88 | 52.4 | % | ||||||||||||||||||||
Acetyl Chain | 227 | 26.2 | % | 240 | 27.0 | % | 1,163 | 28.8 | % | 251 | 26.8 | % | 311 | 30.9 | % | 313 | 29.8 | % | 288 | 27.4 | % | ||||||||||||||||||||
Other Activities(2) | (28 | ) | (34 | ) | (126 | ) | (22 | ) | (33 | ) | (34 | ) | (37 | ) | |||||||||||||||||||||||||||
Total | 458 | 28.8 | % | 502 | 29.8 | % | 2,168 | 30.3 | % | 471 | 27.9 | % | 571 | 32.2 | % | 573 | 31.1 | % | 553 | 29.9 | % | ||||||||||||||||||||
___________________________
(1) | Excludes accelerated depreciation and amortization expense, which amounts are included in Certain Items above. See Table 1 for details. |
(2) | Other Activities includes corporate SG&A expenses, the results of captive insurance companies and certain components of net periodic benefit cost (interest cost, expected return on plan assets and net actuarial gains and losses). |
6
Table 3
Adjusted Earnings (Loss) per Share - Reconciliation of a Non-GAAP Measure - Unaudited
Q2 '19 | Q1 '19 | 2018 | Q4 '18 | Q3 '18 | Q2 '18 | Q1 '18 | |||||||||||||||||||||||||||||||||||
per share | per share | per share | per share | per share | per share | per share | |||||||||||||||||||||||||||||||||||
(In $ millions, except per share data) | |||||||||||||||||||||||||||||||||||||||||
Earnings (loss) from continuing operations attributable to Celanese Corporation | 210 | 1.67 | 338 | 2.64 | 1,212 | 8.95 | 96 | 0.73 | 407 | 3.00 | 344 | 2.52 | 365 | 2.68 | |||||||||||||||||||||||||||
Income tax provision (benefit) | 28 | 46 | 292 | 76 | 54 | 97 | 65 | ||||||||||||||||||||||||||||||||||
Earnings (loss) from continuing operations before tax | 238 | 384 | 1,504 | 172 | 461 | 441 | 430 | ||||||||||||||||||||||||||||||||||
Certain Items attributable to Celanese Corporation (Table 8) | 107 | 7 | 228 | 192 | 5 | 18 | 13 | ||||||||||||||||||||||||||||||||||
Refinancing and related expenses | 4 | — | 1 | 1 | — | — | — | ||||||||||||||||||||||||||||||||||
Adjusted earnings (loss) from continuing operations before tax | 349 | 391 | 1,733 | 365 | 466 | 459 | 443 | ||||||||||||||||||||||||||||||||||
Income tax (provision) benefit on adjusted earnings(1) | (49 | ) | (55 | ) | (243 | ) | (51 | ) | (65 | ) | (64 | ) | (62 | ) | |||||||||||||||||||||||||||
Adjusted earnings (loss) from continuing operations(2) | 300 | 2.38 | 336 | 2.62 | 1,490 | 11.00 | 314 | 2.38 | 401 | 2.96 | 395 | 2.90 | 381 | 2.79 | |||||||||||||||||||||||||||
Diluted shares (in millions)(3) | |||||||||||||||||||||||||||||||||||||||||
Weighted average shares outstanding | 125.3 | 127.5 | 134.3 | 131.2 | 134.5 | 135.6 | 135.9 | ||||||||||||||||||||||||||||||||||
Incremental shares attributable to equity awards | 0.5 | 0.7 | 1.1 | 0.9 | 1.0 | 0.7 | 0.5 | ||||||||||||||||||||||||||||||||||
Total diluted shares | 125.8 | 128.2 | 135.4 | 132.1 | 135.5 | 136.3 | 136.4 | ||||||||||||||||||||||||||||||||||
______________________________
(1) | Calculated using adjusted effective tax rates (Table 3a) as follows: |
Q2 '19 | Q1 '19 | 2018 | Q4 '18 | Q3 '18 | Q2 '18 | Q1 '18 | |||||||||||||||||||||
(In percentages) | |||||||||||||||||||||||||||
Adjusted effective tax rate | 14 | 14 | 14 | 14 | 14 | 14 | 14 | ||||||||||||||||||||
(2) | Excludes the immediate recognition of actuarial gains and losses and the impact of actual vs. expected plan asset returns. |
Actual Plan Asset Returns | Expected Plan Asset Returns | |||||
(In percentages) | ||||||
2018 | (3.9 | ) | 6.7 | |||
(3) | Potentially dilutive shares are included in the adjusted earnings per share calculation when adjusted earnings are positive. |
7
Table 3a
Adjusted Tax Rate - Reconciliation of a Non-GAAP Measure - Unaudited
Estimated | Actual | ||||
2019 | 2018 | ||||
(In percentages) | |||||
US GAAP annual effective tax rate | 13 | 19 | |||
Discrete quarterly recognition of GAAP items(1) | 1 | — | |||
Utilization of foreign tax credits | (2 | ) | — | ||
Changes in valuation allowances, excluding impact of other charges and adjustments(2) | 1 | (5 | ) | ||
Other(3) | 1 | — | |||
Adjusted tax rate | 14 | 14 | |||
______________________________
Note: As part of the year-end reconciliation, we will update the reconciliation of the GAAP effective tax rate for actual results.
(1) | Such as changes in tax laws (including US tax reform), deferred taxes on outside basis differences, changes in uncertain tax positions and prior year audit adjustments. |
(2) | Reflects changes in valuation allowances related to changes in judgment regarding the realizability of deferred tax assets or current year operations, excluding other charges and adjustments. |
(3) | Tax impacts related to full-year forecasted tax opportunities and related costs. |
8
Table 4
Net Sales by Segment - Unaudited
Q2 '19 | Q1 '19 | 2018 | Q4 '18 | Q3 '18 | Q2 '18 | Q1 '18 | ||||||||||||||
(In $ millions) | ||||||||||||||||||||
Engineered Materials | 593 | 663 | 2,593 | 622 | 642 | 664 | 665 | |||||||||||||
Acetate Tow | 164 | 166 | 649 | 161 | 158 | 162 | 168 | |||||||||||||
Acetyl Chain | 865 | 889 | 4,042 | 936 | 1,006 | 1,049 | 1,051 | |||||||||||||
Intersegment eliminations(1) | (30 | ) | (31 | ) | (129 | ) | (30 | ) | (35 | ) | (31 | ) | (33 | ) | ||||||
Net sales | 1,592 | 1,687 | 7,155 | 1,689 | 1,771 | 1,844 | 1,851 | |||||||||||||
___________________________
(1) | Includes intersegment sales primarily related to the Acetyl Chain. |
9
Table 4a
Factors Affecting Segment Net Sales Sequentially - Unaudited
Three Months Ended June 30, 2019 Compared to Three Months Ended March 31, 2019
Volume | Price | Currency | Other | Total | ||||||||||
(In percentages) | ||||||||||||||
Engineered Materials | (7 | ) | (3 | ) | (1 | ) | — | (11 | ) | |||||
Acetate Tow | (1 | ) | — | — | — | (1 | ) | |||||||
Acetyl Chain | 2 | (4 | ) | (1 | ) | — | (3 | ) | ||||||
Total Company | (2 | ) | (3 | ) | (1 | ) | — | (6 | ) | |||||
Three Months Ended March 31, 2019 Compared to Three Months Ended December 31, 2018
Volume | Price | Currency | Other | Total | ||||||||
(In percentages) | ||||||||||||
Engineered Materials | 5 | 2 | — | — | 7 | (1) | ||||||
Acetate Tow | 1 | 2 | — | — | 3 | |||||||
Acetyl Chain | 5 | (10 | ) | — | — | (5 | ) | |||||
Total Company | 5 | (5 | ) | — | — | — | ||||||
Three Months Ended December 31, 2018 Compared to Three Months Ended September 30, 2018
Volume | Price | Currency | Other | Total | ||||||||||
(In percentages) | ||||||||||||||
Engineered Materials | (4 | ) | 2 | (1 | ) | — | (3 | ) | ||||||
Acetate Tow | 2 | (1 | ) | — | — | 1 | ||||||||
Acetyl Chain | (3 | ) | (4 | ) | (1 | ) | 1 | (7 | ) | |||||
Total Company | (3 | ) | (2 | ) | (1 | ) | 1 | (5 | ) | |||||
Three Months Ended September 30, 2018 Compared to Three Months Ended June 30, 2018
Volume | Price | Currency | Other | Total | |||||||||
(In percentages) | |||||||||||||
Engineered Materials | (2 | ) | — | (1 | ) | — | (3 | ) | |||||
Acetate Tow | (2 | ) | — | — | — | (2 | ) | ||||||
Acetyl Chain | (4 | ) | 2 | (2 | ) | — | (4 | ) | |||||
Total Company | (3 | ) | 1 | (2 | ) | — | (4 | ) | |||||
Three Months Ended June 30, 2018 Compared to Three Months Ended March 31, 2018
Volume | Price | Currency | Other | Total | ||||||||||
(In percentages) | ||||||||||||||
Engineered Materials | (1 | ) | 3 | (2 | ) | — | — | |||||||
Acetate Tow | (3 | ) | — | (1 | ) | — | (4 | ) | ||||||
Acetyl Chain | (2 | ) | 4 | (1 | ) | (1 | ) | — | ||||||
Total Company | (2 | ) | 3 | (1 | ) | — | — | |||||||
Three Months Ended March 31, 2018 Compared to Three Months Ended December 31, 2017
_________________________
Volume | Price | Currency | Other | Total | ||||||||||
(In percentages) | ||||||||||||||
Engineered Materials | 10 | 3 | 2 | — | 15 | (2) | ||||||||
Acetate Tow | 8 | — | — | — | 8 | |||||||||
Acetyl Chain | 8 | 9 | 3 | (2 | ) | 18 | ||||||||
Total Company | 9 | 6 | 2 | (1 | ) | 16 | ||||||||
(1) | 2019 includes the effect of the acquisition of Next Polymers Ltd. |
(2) | 2018 includes the effect of the acquisition of Omni Plastics, L.L.C. |
10
Table 4b
Factors Affecting Segment Net Sales Year Over Year - Unaudited
Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018
Volume | Price | Currency | Other | Total | |||||||||
(In percentages) | |||||||||||||
Engineered Materials | (8 | ) | — | (3 | ) | — | (11 | ) | |||||
Acetate Tow | 1 | 1 | (1 | ) | — | 1 | |||||||
Acetyl Chain | (1 | ) | (14 | ) | (3 | ) | — | (18 | ) | ||||
Total Company | (3 | ) | (8 | ) | (3 | ) | — | (14 | ) | ||||
Three Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018
Volume | Price | Currency | Other | Total | |||||||||
(In percentages) | |||||||||||||
Engineered Materials | (3 | ) | 7 | (4 | ) | — | — | ||||||
Acetate Tow | (1 | ) | — | — | — | (1 | ) | ||||||
Acetyl Chain | (4 | ) | (8 | ) | (3 | ) | — | (15 | ) | ||||
Total Company | (3 | ) | (2 | ) | (4 | ) | — | (9 | ) | ||||
Three Months Ended December 31, 2018 Compared to Three Months Ended December 31, 2017
Volume | Price | Currency | Other | Total | |||||||||
(In percentages) | |||||||||||||
Engineered Materials | 2 | 7 | (2 | ) | — | 7 | |||||||
Acetate Tow | 5 | (2 | ) | — | — | 3 | |||||||
Acetyl Chain | (2 | ) | 10 | (2 | ) | (1 | ) | 5 | |||||
Total Company | — | 8 | (2 | ) | — | 6 | |||||||
Three Months Ended September 30, 2018 Compared to Three Months Ended September 30, 2017
Volume | Price | Currency | Other | Total | |||||||||
(In percentages) | |||||||||||||
Engineered Materials | 7 | 6 | (1 | ) | — | 12 | |||||||
Acetate Tow | 5 | (3 | ) | — | (1 | ) | 1 | ||||||
Acetyl Chain | (3 | ) | 22 | — | (2 | ) | 17 | ||||||
Total Company | 1 | 14 | (1 | ) | (1 | ) | 13 | ||||||
Three Months Ended June 30, 2018 Compared to Three Months Ended June 30, 2017
Volume | Price | Currency | Other | Total | ||||||||
(In percentages) | ||||||||||||
Engineered Materials | 11 | 7 | 4 | — | 22 | |||||||
Acetate Tow | 1 | (2 | ) | — | — | (1 | ) | |||||
Acetyl Chain | 6 | 19 | 5 | (3 | ) | 27 | ||||||
Total Company | 7 | 13 | 4 | (2 | ) | 22 | ||||||
Three Months Ended March 31, 2018 Compared to Three Months Ended March 31, 2017
Volume | Price | Currency | Other | Total | |||||||||
(In percentages) | |||||||||||||
Engineered Materials | 19 | 3 | 7 | — | 29 | ||||||||
Acetate Tow | (9 | ) | (4 | ) | 1 | — | (12 | ) | |||||
Acetyl Chain | 3 | 25 | 7 | (3 | ) | 32 | |||||||
Total Company | 7 | 14 | 6 | (1 | ) | 26 | |||||||
11
Table 4c
Factors Affecting Segment Net Sales Year Over Year - Unaudited
Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
Volume | Price | Currency | Other | Total | ||||||||
(In percentages) | ||||||||||||
Engineered Materials | 9 | 6 | 2 | — | 17 | |||||||
Acetate Tow | — | (3 | ) | — | — | (3 | ) | |||||
Acetyl Chain | 1 | 19 | 2 | (2 | ) | 20 | ||||||
Total Company | 4 | 12 | 2 | (1 | ) | 17 | ||||||
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Table 5
Free Cash Flow - Reconciliation of a Non-GAAP Measure - Unaudited
Q2 '19 | Q1 '19 | 2018 | Q4 '18 | Q3 '18 | Q2 '18 | Q1 '18 | ||||||||||||||
(In $ millions, except percentages) | ||||||||||||||||||||
Net cash provided by (used in) investing activities | (66 | ) | (177 | ) | (507 | ) | (98 | ) | (78 | ) | (96 | ) | (235 | ) | ||||||
Net cash provided by (used in) financing activities | (307 | ) | (130 | ) | (1,165 | ) | (526 | ) | (383 | ) | (254 | ) | (2 | ) | ||||||
Net cash provided by (used in) operating activities | 424 | 307 | 1,558 | 363 | 467 | 585 | 143 | |||||||||||||
Capital expenditures on property, plant and equipment | (65 | ) | (79 | ) | (337 | ) | (93 | ) | (79 | ) | (79 | ) | (86 | ) | ||||||
Capital (distributions to) contributions from NCI | (3 | ) | (4 | ) | (23 | ) | (9 | ) | (6 | ) | (6 | ) | (2 | ) | ||||||
Free cash flow(1)(2) | 356 | 224 | 1,198 | 261 | 382 | 500 | 55 | |||||||||||||
Net sales | 1,592 | 1,687 | 7,155 | 1,689 | 1,771 | 1,844 | 1,851 | |||||||||||||
Free cash flow as % of Net sales | 22.4 | % | 13.3 | % | 16.7 | % | 15.5 | % | 21.6 | % | 27.1 | % | 3.0 | % | ||||||
______________________________
(1) | Free cash flow is a liquidity measure used by the Company and is defined by the Company as net cash provided by (used in) operating activities, less capital expenditures on property, plant and equipment, and adjusted for capital contributions from or distributions to Mitsui & Co., Ltd. ("Mitsui") related to our joint venture, Fairway Methanol LLC ("Fairway"). |
(2) | Excludes required debt service and finance lease payments of $24 million and $63 million for the years ending December 31, 2019 and 2018, respectively. |
13
Table 6
Cash Dividends Received - Unaudited
Q2 '19 | Q1 '19 | 2018 | Q4 '18 | Q3 '18 | Q2 '18 | Q1 '18 | ||||||||||||||
(In $ millions) | ||||||||||||||||||||
Dividends from equity method investments | 41 | 70 | 221 | 62 | 44 | 39 | 76 | |||||||||||||
Dividends from equity investments without readily determinable fair values | 30 | 32 | 117 | 25 | 26 | 34 | 32 | |||||||||||||
Total | 71 | 102 | 338 | 87 | 70 | 73 | 108 | |||||||||||||
Table 7
Net Debt - Reconciliation of a Non-GAAP Measure - Unaudited
Q2 '19 | Q1 '19 | 2018 | Q4 '18 | Q3 '18 | Q2 '18 | Q1 '18 | ||||||||||||||
(In $ millions) | ||||||||||||||||||||
Short-term borrowings and current installments of long-term debt - third party and affiliates | 319 | 743 | 561 | 561 | 229 | 366 | 425 | |||||||||||||
Long-term debt, net of unamortized deferred financing costs | 3,444 | 2,933 | 2,970 | 2,970 | 3,196 | 3,228 | 3,343 | |||||||||||||
Total debt | 3,763 | 3,676 | 3,531 | 3,531 | 3,425 | 3,594 | 3,768 | |||||||||||||
Cash and cash equivalents | (491 | ) | (441 | ) | (439 | ) | (439 | ) | (703 | ) | (708 | ) | (490 | ) | ||||||
Net debt | 3,272 | 3,235 | 3,092 | 3,092 | 2,722 | 2,886 | 3,278 | |||||||||||||
14
Table 8
Certain Items - Unaudited
The following Certain Items attributable to Celanese Corporation are included in Net earnings (loss) and are adjustments to non-GAAP measures:
Q2 '19 | Q1 '19 | 2018 | Q4 '18 | Q3 '18 | Q2 '18 | Q1 '18 | Income Statement Classification | |||||||||||||||
(In $ millions) | ||||||||||||||||||||||
Plant/office closures | 2 | 3 | 19 | 16 | — | 3 | — | Cost of sales / Other charges (gains), net | ||||||||||||||
Asset impairments | 83 | — | — | — | Other charges (gains), net | |||||||||||||||||
Mergers and acquisitions | 4 | 3 | 33 | 6 | 3 | 11 | 13 | Cost of sales / SG&A | ||||||||||||||
Actuarial (gain) loss on pension and postretirement plans | — | — | 166 | 166 | — | — | — | Cost of sales / SG&A / Non-operating pension and other postretirement employee benefit expense (income) | ||||||||||||||
Restructuring | 15 | (1 | ) | 9 | 4 | 2 | 3 | — | SG&A / Other charges (gains), net / Non-operating pension and other postretirement employee benefit expense (income) | |||||||||||||
Other | 3 | 2 | 1 | — | — | 1 | — | Cost of sales / SG&A / Other charges (gains), net | ||||||||||||||
Certain Items attributable to Celanese Corporation | 107 | 7 | 228 | 192 | 5 | 18 | 13 | |||||||||||||||
15
Table 9
Return on Invested Capital (Adjusted) - Presentation of a Non-GAAP Measure - Unaudited
2018 | ||||||||
(In $ millions, except percentages) | ||||||||
Net earnings (loss) attributable to Celanese Corporation | 1,207 | |||||||
Adjusted EBIT (Table 1) | 1,852 | |||||||
Adjusted effective tax rate (Table 3a) | 14 | % | ||||||
Adjusted EBIT tax effected | 1,593 | |||||||
2018 | 2017 | Average | ||||||
(In $ millions, except percentages) | ||||||||
Short-term borrowings and current installments of long-term debt - third parties and affiliates | 561 | 326 | 444 | |||||
Long-term debt, net of unamortized deferred financing costs | 2,970 | 3,315 | 3,143 | |||||
Celanese Corporation stockholders' equity | 2,984 | 2,887 | 2,936 | |||||
Invested capital | 6,523 | |||||||
Return on invested capital (adjusted) | 24.4 | % | ||||||
Net earnings (loss) attributable to Celanese Corporation as a percentage of invested capital | 18.5 | % | ||||||
16