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MarketScreener Homepage  >  Equities  >  Nyse  >  Celanese Corporation    CE

CELANESE CORPORATION

(CE)
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CELANESE : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

10/26/2020 | 03:53pm EST
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





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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;





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•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.





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