Edgar Filing: Celanese Corp

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________________________________

Form 10-Q



þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2018
	Or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(Commission File Number) 001-32410

CELANESE CORPORATION

(Exact Name of Registrant as Specified in its Charter)



Delaware (State or Other Jurisdiction of Incorporation or Organization)	98-0420726 (I.R.S. Employer Identification No.)

222 W. Las Colinas Blvd., Suite 900N Irving, TX (Address of Principal Executive Offices)	75039-5421 (Zip Code)

(972) 443-4000

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o	Emerging growth company o

(Do not check if a smaller reporting company)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of outstanding shares of the registrant's Series A common stock, $0.0001 par value, as of April 10, 2018 was 135,855,710.

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CELANESE CORPORATION AND SUBSIDIARIES

Form 10-Q

For the Quarterly Period Ended March 31, 2018

TABLE OF CONTENTS



		Page
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	a) Unaudited Interim Consolidated Statements of Operations for the three months ended March 31, 2018 and 2017	3
	b) Unaudited Interim Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2018 and 2017	4
	c) Unaudited Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017	5
	d) Unaudited Interim Consolidated Statement of Equity for the three months ended March 31, 2018	6
	e) Unaudited Interim Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017	7
	f) Notes to the Unaudited Interim Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	39
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	50
Item 4.	Controls and Procedures	51

	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	52
Item 1A.	Risk Factors	52
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 3.	Defaults Upon Senior Securities	52
Item 4.	Mine Safety Disclosures	52
Item 5.	Other Information	52
Item 6.	Exhibits	53
Signatures		54

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Item 1. Financial Statements

CELANESE CORPORATION AND SUBSIDIARIES

UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS



	Three Months Ended March 31,
	2018		2017
			As Adjusted (Note 2)
	(In $ millions, except share and per share data)
Net sales	1,851		1,471
Cost of sales	(1,336	)	(1,121	)
Gross profit	515		350
Selling, general and administrative expenses	(147	)	(103	)
Amortization of intangible assets	(6	)	(4	)
Research and development expenses	(18	)	(17	)
Other (charges) gains, net	—		(55	)
Foreign exchange gain (loss), net	(1	)	—
Gain (loss) on disposition of businesses and assets, net	—		(1	)
Operating profit (loss)	343		170
Equity in net earnings (loss) of affiliates	58		47
Non-operating pension and other postretirement employee benefit (expense) income	26		22
Interest expense	(33	)	(29	)
Interest income	2		—
Dividend income - cost investments	32		29
Other income (expense), net	4		1
Earnings (loss) from continuing operations before tax	432		240
Income tax (provision) benefit	(65	)	(56	)
Earnings (loss) from continuing operations	367		184
Earnings (loss) from operation of discontinued operations	(2	)	—
Income tax (provision) benefit from discontinued operations	—		—
Earnings (loss) from discontinued operations	(2	)	—
Net earnings (loss)	365		184
Net (earnings) loss attributable to noncontrolling interests	(2	)	(1	)
Net earnings (loss) attributable to Celanese Corporation	363		183
Amounts attributable to Celanese Corporation
Earnings (loss) from continuing operations	365		183
Earnings (loss) from discontinued operations	(2	)	—
Net earnings (loss)	363		183
Earnings (loss) per common share - basic
Continuing operations	2.69		1.30
Discontinued operations	(0.02	)	—
Net earnings (loss) - basic	2.67		1.30
Earnings (loss) per common share - diluted
Continuing operations	2.68		1.30
Discontinued operations	(0.02	)	—
Net earnings (loss) - diluted	2.66		1.30
Weighted average shares - basic	135,916,446		140,643,860
Weighted average shares - diluted	136,383,735		140,997,403

See the accompanying notes to the unaudited interim consolidated financial statements.

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CELANESE CORPORATION AND SUBSIDIARIES

UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME (LOSS)



	Three Months Ended March 31,
	2018		2017
	(In $ millions)
Net earnings (loss)	365		184
Other comprehensive income (loss), net of tax
Foreign currency translation	49		28
Gain (loss) on cash flow hedges	(1	)	(2	)
Pension and postretirement benefits	1		5
Total other comprehensive income (loss), net of tax	49		31
Total comprehensive income (loss), net of tax	414		215
Comprehensive (income) loss attributable to noncontrolling interests	(2	)	(1	)
Comprehensive income (loss) attributable to Celanese Corporation	412		214

See the accompanying notes to the unaudited interim consolidated financial statements.

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CELANESE CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS



	As of March 31, 2018		As of December 31, 2017
	(In $ millions, except share data)
ASSETS
Current Assets
Cash and cash equivalents (variable interest entity restricted - 2018: $18; 2017: $19)	490		576
Trade receivables - third party and affiliates (net of allowance for doubtful accounts - 2018: $9; 2017: $9; variable interest entity restricted - 2018: $5; 2017: $5)	1,205		986
Non-trade receivables, net (variable interest entity restricted - 2018: $1; 2017: $0)	271		244
Inventories	955		900
Marketable securities, at fair value	32		32
Other assets	53		54
Total current assets	3,006		2,792
Investments in affiliates	979		976
Property, plant and equipment (net of accumulated depreciation - 2018: $2,686; 2017: $2,584; variable interest entity restricted - 2018: $689; 2017: $697)	3,801		3,762
Deferred income taxes	182		366
Other assets (variable interest entity restricted - 2018: $7; 2017: $6)	369		338
Goodwill	1,107		1,003
Intangible assets (variable interest entity restricted - 2018: $25; 2017: $25)	336		301
Total assets	9,780		9,538
LIABILITIES AND EQUITY
Current Liabilities
Short-term borrowings and current installments of long-term debt - third party and affiliates	425		326
Trade payables - third party and affiliates	797		807
Other liabilities	266		354
Income taxes payable	114		72
Total current liabilities	1,602		1,559
Long-term debt, net of unamortized deferred financing costs	3,343		3,315
Deferred income taxes	219		211
Uncertain tax positions	152		156
Benefit obligations	582		585
Other liabilities	217		413
Commitments and Contingencies
Stockholders' Equity
Preferred stock, $0.01 par value, 100,000,000 shares authorized (2018 and 2017: 0 issued and outstanding)	—		—
Series A common stock, $0.0001 par value, 400,000,000 shares authorized (2018: 168,243,423 issued and 135,855,710 outstanding; 2017: 168,156,969 issued and 135,769,256 outstanding)	—		—
Series B common stock, $0.0001 par value, 100,000,000 shares authorized (2018 and 2017: 0 issued and outstanding)	—		—
Treasury stock, at cost (2018: 32,387,713 shares; 2017: 32,387,713 shares)	(2,031	)	(2,031	)
Additional paid-in capital	192		175
Retained earnings	5,220		4,920
Accumulated other comprehensive income (loss), net	(128	)	(177	)
Total Celanese Corporation stockholders' equity	3,253		2,887
Noncontrolling interests	412		412
Total equity	3,665		3,299
Total liabilities and equity	9,780		9,538

See the accompanying notes to the unaudited interim consolidated financial statements.

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CELANESE CORPORATION AND SUBSIDIARIES

UNAUDITED INTERIM CONSOLIDATED STATEMENT OF EQUITY



	Three Months Ended March 31, 2018
	Shares	Amount
	(In $ millions, except share data)
Series A Common Stock
Balance as of the beginning of the period	135,769,256	—
Stock option exercises	—	—
Purchases of treasury stock	—	—
Stock awards	86,454	—
Balance as of the end of the period	135,855,710	—
Treasury Stock
Balance as of the beginning of the period	32,387,713	(2,031	)
Purchases of treasury stock, including related fees	—	—
Balance as of the end of the period	32,387,713	(2,031	)
Additional Paid-In Capital
Balance as of the beginning of the period		175
Stock-based compensation, net of tax		17
Balance as of the end of the period		192
Retained Earnings
Balance as of the beginning of the period		4,920
Net earnings (loss) attributable to Celanese Corporation		363
Series A common stock dividends		(63	)
Balance as of the end of the period		5,220
Accumulated Other Comprehensive Income (Loss), Net
Balance as of the beginning of the period		(177	)
Other comprehensive income (loss), net of tax		49
Balance as of the end of the period		(128	)
Total Celanese Corporation stockholders' equity		3,253
Noncontrolling Interests
Balance as of the beginning of the period		412
Net earnings (loss) attributable to noncontrolling interests		2
(Distributions to) contributions from noncontrolling interests		(2	)
Balance as of the end of the period		412
Total equity		3,665

See the accompanying notes to the unaudited interim consolidated financial statements.

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CELANESE CORPORATION AND SUBSIDIARIES

UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS



	Three Months Ended March 31,
	2018		2017
	(In $ millions)
Operating Activities
Net earnings (loss)	365		184
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities
Depreciation, amortization and accretion	80		72
Pension and postretirement net periodic benefit cost	(24	)	(20	)
Pension and postretirement contributions	(12	)	(11	)
Deferred income taxes, net	(4	)	14
(Gain) loss on disposition of businesses and assets, net	1		1
Stock-based compensation	22		10
Undistributed earnings in unconsolidated affiliates	19		3
Other, net	5		2
Operating cash provided by (used in) discontinued operations	—		(1	)
Changes in operating assets and liabilities
Trade receivables - third party and affiliates, net	(190	)	(79	)
Inventories	(27	)	9
Other assets	(29	)	21
Trade payables - third party and affiliates	—		6
Other liabilities	(63	)	(19	)
Net cash provided by (used in) operating activities	143		192
Investing Activities
Capital expenditures on property, plant and equipment	(86	)	(62	)
Acquisitions, net of cash acquired	(144	)	—
Proceeds from sale of businesses and assets, net	9		1
Other, net	(14	)	(3	)
Net cash provided by (used in) investing activities	(235	)	(64	)
Financing Activities
Net change in short-term borrowings with maturities of 3 months or less	101		6
Proceeds from short-term borrowings	36		7
Repayments of short-term borrowings	(38	)	(29	)
Repayments of long-term debt	(31	)	(53	)
Purchases of treasury stock, including related fees	—		(128	)
Series A common stock dividends	(63	)	(51	)
(Distributions to) contributions from noncontrolling interests	(2	)	(4	)
Other, net	(5	)	(18	)
Net cash provided by (used in) financing activities	(2	)	(270	)
Exchange rate effects on cash and cash equivalents	8		5
Net increase (decrease) in cash and cash equivalents	(86	)	(137	)
Cash and cash equivalents as of beginning of period	576		638
Cash and cash equivalents as of end of period	490		501

See the accompanying notes to the unaudited interim consolidated financial statements.

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CELANESE CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1. Description of the Company and Basis of Presentation

Description of the Company

Celanese Corporation and its subsidiaries (collectively, the "Company") is a global technology and specialty materials company. The Company's business involves processing chemical raw materials, such as methanol, carbon monoxide and ethylene, and natural products, including wood pulp, into value-added chemicals, thermoplastic polymers and other chemical-based products.

Definitions

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

Basis of Presentation

The unaudited interim consolidated financial statements for the three months ended March 31, 2018 and 2017 contained in this Quarterly Report were prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP") for all periods presented and include the accounts of the Company, its majority owned subsidiaries over which the Company exercises control and, when applicable, variable interest entities in which the Company is the primary beneficiary. The unaudited interim consolidated financial statements and other financial information included in this Quarterly Report, unless otherwise specified, have been presented to separately show the effects of discontinued operations.

In the opinion of management, the accompanying unaudited consolidated balance sheets and related unaudited interim consolidated statements of operations, comprehensive income (loss), cash flows and equity include all adjustments, consisting only of normal recurring items necessary for their fair presentation in conformity with US GAAP. Certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted in accordance with rules and regulations of the Securities and Exchange Commission ("SEC"). These unaudited interim consolidated financial statements should be read in conjunction with the Company's consolidated financial statements as of and for the year ended December 31, 2017, filed on February 9, 2018 with the SEC as part of the Company's Annual Report on Form 10-K.

Operating results for the three months ended March 31, 2018 are not necessarily indicative of the results to be expected for the entire year.

In the ordinary course of business, the Company enters into contracts and agreements relative to a number of topics, including acquisitions, dispositions, joint ventures, supply agreements, product sales and other arrangements. The Company endeavors to describe those contracts or agreements that are material to its business, results of operations or financial position. The Company may also describe some arrangements that are not material but in which the Company believes investors may have an interest or which may have been included in a Form 8-K filing. Investors should not assume the Company has described all contracts and agreements relative to the Company's business in this Quarterly Report.

For those consolidated ventures in which the Company owns or is exposed to less than 100% of the economics, the outside stockholders' interests are shown as noncontrolling interests.

During the three months ended March 31, 2018, the Company settled its dispute concerning the exercise of an option right by a partner in two of the Company's InfraServ equity affiliate investments. As a result of the settlement, the Company's ownership in InfraServ GmbH & Co. Gendorf KG and InfraServ GmbH & Co. Knapsack KG was reduced from 39% and 27%, to 30% and 22%, respectively.

The Company has reclassified certain prior period amounts due to (1) the adoption of ASU 2017-07 (defined below in Note 2) and (2) to conform to the presentation of the Company's current reportable segments (Note 19).

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Estimates and Assumptions

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. Significant estimates pertain to impairments of goodwill, intangible assets and other long-lived assets, purchase price allocations, restructuring costs and other (charges) gains, net, income taxes, pension and other postretirement benefits, asset retirement obligations, environmental liabilities and loss contingencies, among others. Actual results could differ from those estimates.

2. Recent Accounting Pronouncements

The following table provides a brief description of recent Accounting Standard Updates ("ASU") issued by the Financial Accounting Standards Board ("FASB"):



Standard	Description	Effective Date	Effect on the Financial Statements or Other Significant Matters

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.	The new guidance allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users.	January 1, 2019. Early adoption is permitted.	The Company is currently evaluating the impact of adoption on its financial statements and related disclosures.

In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities.	The new guidance improves the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results.	January 1, 2019. Early adoption is permitted.	The Company adopted the new guidance effective January 1, 2018, as part of the FASB's simplification initiative. The adoption of the new guidance did not have a material impact to the Company.

In March 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.	The new guidance clarifies the presentation and classification of the components of net periodic benefit costs in the consolidated statement of operations.	January 1, 2018.	The Company adopted the new guidance effective January 1, 2018, using the retrospective transition method, as part of the FASB's simplification initiative. See Adoption of ASU 2017-07 section below for additional information.

In October 2016, the FASB issued ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory.	The new guidance requires the income tax consequences of an intra-entity transfer of assets other than inventory to be recognized when the transfer occurs rather than deferring until an outside sale has occurred.	January 1, 2018.	The Company adopted the new guidance effective January 1, 2018, as part of the FASB's simplification initiative. The adoption of the new guidance did not have a material impact to the Company.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments.	The new guidance clarifies the presentation and classification of certain cash receipts and cash payments in the statement of cash flows.	January 1, 2018.	The Company adopted the new guidance effective January 1, 2018, as part of the FASB's simplification initiative. The adoption of the new guidance did not have a material impact to the Company.

In February 2016, the FASB issued ASU 2016-02, Leases.	The new guidance supersedes the lease guidance under FASB Accounting Standards Codification ("ASC") Topic 840, Leases, resulting in the creation of FASB ASC Topic 842, Leases. The guidance requires a lessee to recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term for both finance and operating leases.	January 1, 2019. Early adoption is permitted.	The Company is currently evaluating its population of leases, and is continuing to assess all potential impacts of the standard, but currently believes the most significant impact relates to its accounting for manufacturing and logistics equipment, and real estate operating leases. The Company anticipates recognition of additional assets and corresponding liabilities related to leases upon adoption, but has not yet quantified these at this time. The Company plans to adopt the standard effective January 1, 2019, but has not yet selected a transition method.

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Standard	Description	Effective Date	Effect on the Financial Statements or Other Significant Matters

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities.	The new guidance updates certain aspects of recognition, measurement, presentation and disclosure of financial instruments.	January 1, 2018.	The Company adopted the new guidance effective January 1, 2018, using the modified retrospective approach, as part of the FASB's simplification initiative. The new guidance resulted in a cumulative-effect adjustment of less than $1 million to January 1, 2018 Retained earnings.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. Since that date, the FASB has issued additional ASUs clarifying certain aspects of ASU 2014-09.	The new guidance requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The new guidance provides alternative methods of adoption. Subsequent guidance issued after May 2014 did not change the core principle of ASU 2014-09.	January 1, 2018.	The Company adopted the new guidance effective January 1, 2018, using the modified retrospective approach, as part of the FASB's simplification initiative. The adoption of the new guidance resulted in less than $1 million impact to the consolidated financial statements and related disclosures (See Note 20).

Adoption of ASU 2017-07

ASU 2017-07 requires an entity to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the statement of operations separately from the service cost component and outside a subtotal of Operating profit (loss). The new guidance represents a change in accounting principle. The Company adopted ASU 2017-07 on January 1, 2018 using the retrospective transition method. The adoption of this accounting standard resulted in a change in certain previously reported amounts, as follows:



	Three Months Ended March 31, 2017
	As previously reported		Adoption of ASU 2017-07		As Adjusted
	(In $ millions)
Cost of sales	(1,119	)	(2	)	(1,121	)
Selling, general and administrative expenses	(83	)	(20	)	(103	)
Operating profit (loss)	192		(22	)	170
Non-operating pension and other postretirement employee benefit (expense) income	—		22		22

The adoption of this accounting standard had no impact on the previously reported Earnings (loss) from continuing operations or Net earnings (loss) for this period.

3. Acquisitions, Dispositions and Plant Closures

Acquisitions


•	Omni Plastics

On February 1, 2018, using cash on hand and borrowings under the Company's senior unsecured revolving credit facility, the Company acquired 100% of the ownership interests of Omni Plastics, L.L.C. and its subsidiaries ("Omni Plastics"). Omni Plastics specializes in custom compounding of various engineered thermoplastic materials. The acquisition further strengthens the Company's global asset base by adding compounding capacity in the Americas. The acquisition was accounted for as a business combination and the acquired operations are included in the Engineered Materials segment.

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Pro forma financial information since the respective acquisition date has not been provided as the acquisition did not have a material impact on the Company's financial information. The Company allocated the purchase price of the acquisition to identifiable assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The excess of the purchase price over the aggregate fair values was recorded as goodwill. The Company calculated the fair value of the assets acquired using the income, market or cost approach (or a combination thereof). Fair values were determined based on Level 3 inputs including estimated future cash flows, discount rates, royalty rates, growth rates, sales projections, retention rates and terminal values, all of which require significant management judgment and are susceptible to change. The purchase price allocation is based upon preliminary information and is subject to change if additional information about the facts and circumstances that existed at the acquisition date becomes available. The final fair value of the net assets acquired may result in adjustments to the assets and liabilities, including goodwill. However, any subsequent measurement period adjustments are not expected to have a material impact on the Company's results of operations.

The preliminary purchase price allocation for the Omni Plastics acquisition is as follows:



	As of February 1, 2018
	(In $ millions)
Cash and cash equivalents	2
Trade receivables - third party and affiliates	12
Inventories	13
Property, plant and equipment, net	19
Intangible assets (Note 7)	35
Goodwill⁽¹⁾(Note 7)	84
Other assets	1
Total fair value of assets acquired	166

Trade payables - third party and affiliates	(8	)
Total debt	(12	)
Total fair value of liabilities assumed	(20	)
Net assets acquired	146

______________________________


⁽¹⁾	Goodwill consists of expected revenue and operating synergies resulting from the acquisition, all of which is deductible for income tax purposes.

The amount of pro forma Net earnings (loss) of Omni Plastics included in the Company's unaudited interim consolidated statement of operations was less than 1% (unaudited) of its consolidated Net earnings (loss) had the acquisition occurred as of the beginning of 2018. The amount of Omni Plastics' Net earnings (loss) consolidated by the Company since the acquisition date was not material.


•	Acetate Tow Joint Venture

In June 2017, Celanese, through various subsidiaries, entered into an agreement with affiliates of The Blackstone Group L.P. (the "Blackstone Entities") to form a joint venture which would combine substantially all of the operations of the Company's cellulose derivatives business and the operations of the Rhodia Acetow cellulose acetate business formerly operated by Solvay S.A. and acquired by the Blackstone Entities in June 2017. The parties were subsequently unable to reach an agreement with the European Commission on acceptable conditions to allow the proposed joint venture to proceed. The demands by the European Commission eliminated the advantages at the heart of the transaction. As a result, on March 19, 2018, the Company and the Blackstone Entities abandoned their agreement to form the proposed joint venture.

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•	Nilit Plastics

In May 2017, using cash on hand and borrowings under the Company's senior unsecured revolving credit facility, the Company acquired the nylon compounding division of Nilit Group ("Nilit"), an independent producer of high performance nylon resins, fibers and compounds. Celanese acquired the nylon compounding product portfolio, customer agreements and manufacturing, technology and commercial facilities. The acquisition of Nilit increases the Company's global engineered materials product platforms, extends the operational model, technical and industry solutions capabilities and expands project pipelines. The acquisition was accounted for as a business combination and the acquired operations are included in the Engineered Materials segment. The purchase price allocation was based on preliminary information and is subject to change if additional information about the facts and circumstances that existed at the acquisition date becomes available. The final fair value of the net assets acquired may result in adjustments to the assets and liabilities, including goodwill. Since the acquisition date, the Company made certain adjustments to its purchase price allocation to adjust taxes and working capital, which resulted in a $2 million reduction to goodwill. Any subsequent measurement period adjustments are not expected to have a material impact on the Company's results of operations.

4. Ventures and Variable Interest Entities

Consolidated Variable Interest Entities

The Company has a joint venture, Fairway Methanol LLC ("Fairway"), with Mitsui & Co., Ltd., of Tokyo, Japan ("Mitsui"), in which the Company owns 50% of Fairway, for the production of methanol at the Company's integrated chemical plant in Clear Lake, Texas. The methanol unit utilizes natural gas in the US Gulf Coast region as a feedstock and benefits from the existing infrastructure at the Company's Clear Lake facility. Both Mitsui and the Company supply their own natural gas to Fairway in exchange for methanol tolling under a cost-plus off-take arrangement.

The Company determined that Fairway is a variable interest entity ("VIE") in which the Company is the primary beneficiary. Under the terms of the joint venture agreements, the Company provides site services and day-to-day operations for the methanol facility. In addition, the joint venture agreements provide that the Company indemnifies Mitsui for environmental obligations that exceed a specified threshold, as well as an equity option between the partners. Accordingly, the Company consolidates the venture and records a noncontrolling interest for the share of the venture owned by Mitsui. Fairway is included in the Company's Acetyl Intermediates segment.

The carrying amount of the assets and liabilities associated with Fairway included in the unaudited consolidated balance sheets are as follows:



	As of March 31, 2018	As of December 31, 2017
	(In $ millions)
Cash and cash equivalents	18	19
Trade receivables, net - third party & affiliate	9	9
Non-trade receivables, net	1	—
Property, plant and equipment (net of accumulated depreciation - 2018: $100; 2017: $90)	689	697
Intangible assets (net of accumulated amortization - 2018: $3; 2017: $2)	25	25
Other assets	7	6
Total assets⁽¹⁾	749	756

Trade payables	7	16
Other liabilities⁽²⁾	5	4
Total debt	5	5
Deferred income taxes	3	3
Total liabilities	20	28

______________________________


⁽¹⁾	Assets can only be used to settle the obligations of Fairway.


⁽²⁾	Primarily represents amounts owed by Fairway to the Company for reimbursement of expenditures.

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Nonconsolidated Variable Interest Entities

The Company holds variable interests in entities that supply certain raw materials and services to the Company. The variable interests primarily relate to cost-plus contractual arrangements with the suppliers and recovery of capital expenditures for certain plant assets plus a rate of return on such assets. Liabilities for such supplier recoveries of capital expenditures have been recorded as capital lease obligations. The entities are not consolidated because the Company is not the primary beneficiary of the entities as it does not have the power to direct the activities of the entities that most significantly impact the entities' economic performance. The Company's maximum exposure to loss as a result of its involvement with these VIEs as of March 31, 2018, relates primarily to the recovery of capital expenditures for certain property, plant and equipment.

The carrying amount of the assets and liabilities associated with the obligations to nonconsolidated VIEs, as well as the maximum exposure to loss relating to these nonconsolidated VIEs are as follows:



	As of March 31, 2018	As of December 31, 2017
	(In $ millions)
Property, plant and equipment, net	49	53

Trade payables	33	25
Current installments of long-term debt	13	18
Long-term debt	74	76
Total liabilities	120	119

Maximum exposure to loss	165	164

The difference between the total liabilities associated with obligations to nonconsolidated VIEs and the maximum exposure to loss primarily represents take-or-pay obligations for services included in the Company's unconditional purchase obligations (Note 18).

5. Marketable Securities, at Fair Value

The Company's nonqualified trusts hold available-for-sale securities for funding requirements of the Company's nonqualified pension plans (Note 11) as follows:



	As of March 31, 2018	As of December 31, 2017
	(In $ millions)
Amortized cost	32	32
Gross unrealized gain	—	—
Gross unrealized loss	—	—
Fair value	32	32

6. Inventories



	As of March 31, 2018	As of December 31, 2017
	(In $ millions)
Finished goods	610	591
Work-in-process	58	57
Raw materials and supplies	287	252
Total	955	900

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7. Goodwill and Intangible Assets, Net

Goodwill



	Engineered Materials	Acetate Tow	Industrial Specialties	Acetyl Intermediates	Total
	(In $ millions)
As of December 31, 2017	643	149	40	171	1,003
Acquisitions (Note 3)	84	—	—	—	84
Exchange rate changes	14	1	—	5	20
As of March 31, 2018⁽¹⁾	741	150	40	176	1,107

______________________________


⁽¹⁾	There were $0 million of accumulated impairment losses as of March 31, 2018.

Intangible Assets, Net

Finite-lived intangible assets are as follows:



	Licenses		Customer- Related Intangible Assets		Developed Technology		Covenants Not to Compete and Other		Total
	(In $ millions)
Gross Asset Value
As of December 31, 2017	38		640		45		54		777
Acquisitions (Note 3)	—		32		—		3		35		⁽¹⁾
Exchange rate changes	1		14		1		—		16
As of March 31, 2018	39		686		46		57		828
Accumulated Amortization
As of December 31, 2017	(33	)	(496	)	(30	)	(32	)	(591	)
Amortization	—		(4	)	(1	)	(1	)	(6	)
Exchange rate changes	(1	)	(10	)	(1	)	—		(12	)
As of March 31, 2018	(34	)	(510	)	(32	)	(33	)	(609	)
Net book value	5		176		14		24		219

______________________________


⁽¹⁾	Represents intangible assets acquired related to Omni Plastics (Note 3) with a weighted average amortization period of 11 years.

Indefinite-lived intangible assets are as follows:



	Trademarks and Trade Names
	(In $ millions)
As of December 31, 2017	115
Acquisitions (Note 3)	—
Accumulated impairment losses	—
Exchange rate changes	2
As of March 31, 2018	117

For the three months ended March 31, 2018, the Company did not renew or extend any intangible assets.

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Estimated amortization expense for the succeeding five fiscal years is as follows:



	(In $ millions)
2019	21
2020	19
2021	18
2022	17
2023	15

8. Current Other Liabilities



	As of March 31, 2018	As of December 31, 2017
	(In $ millions)
Asset retirement obligations	11	19
Benefit obligations (Note 11)	30	30
Customer rebates	46	65
Derivatives (Note 16)	3	3
Environmental (Note 12)	18	14
Insurance	4	5
Interest	25	17
Restructuring (Note 14)	4	5
Salaries and benefits	65	113
Sales and use tax/foreign withholding tax payable	19	16
Other	41	67
Total	266	354

9. Noncurrent Other Liabilities



	As of March 31, 2018	As of December 31, 2017
	(In $ millions)
Asset retirement obligations	7	7
Deferred proceeds	48	47
Deferred revenue	6	6
Environmental (Note 12)	57	59
Income taxes payable	—	197
Insurance	43	43
Other	56	54
Total	217	413

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10. Debt



	As of March 31, 2018	As of December 31, 2017
	(In $ millions)
Short-Term Borrowings and Current Installments of Long-Term Debt - Third Party and Affiliates
Current installments of long-term debt	62	63
Short-term borrowings, including amounts due to affiliates⁽¹⁾	89	86
Revolving credit facility⁽²⁾	197	97
Accounts receivable securitization facility⁽³⁾	77	80
Total	425	326

______________________________


⁽¹⁾	The weighted average interest rate was 2.8% and 2.8% as of March 31, 2018 and December 31, 2017, respectively.


⁽²⁾	The weighted average interest rate was 3.3% and 4.1% as of March 31, 2018 and December 31, 2017, respectively.


⁽³⁾	The weighted average interest rate was 2.4% and 2.1% as of March 31, 2018 and December 31, 2017, respectively.



	As of March 31, 2018		As of December 31, 2017
	(In $ millions)
Long-Term Debt
Senior unsecured term loan due 2021⁽¹⁾	488		494
Senior unsecured notes due 2019, interest rate of 3.250%	370		360
Senior unsecured notes due 2021, interest rate of 5.875%	400		400
Senior unsecured notes due 2022, interest rate of 4.625%	500		500
Senior unsecured notes due 2023, interest rate of 1.125%	922		897
Senior unsecured notes due 2025, interest rate of 1.250%	369		359
Pollution control and industrial revenue bonds due at various dates through 2030, interest rates ranging from 4.05% to 5.00%	169		169
Nilit bank loans due at various dates through 2026 (Note 3)⁽²⁾	12		11
Obligations under capital leases due at various dates through 2054	194		208
Subtotal	3,424		3,398
Unamortized debt issuance costs⁽³⁾	(19	)	(20	)
Current installments of long-term debt	(62	)	(63	)
Total	3,343		3,315

______________________________


⁽¹⁾	The margin for borrowings under the senior unsecured term loan due 2021 was 1.5% above LIBOR at current Company credit ratings.


⁽²⁾	The weighted average interest rate was 1.3% and 1.3% as of March 31, 2018 and December 31, 2017, respectively.


⁽³⁾	Related to the Company's long-term debt, excluding obligations under capital leases.

Senior Credit Facilities

In July 2016, Celanese, Celanese US and certain subsidiaries entered into a new senior credit agreement ("Credit Agreement") consisting of a $500 million senior unsecured term loan and a $1.0 billion senior unsecured revolving credit facility (with a letter of credit sublimit), each maturing in 2021. The Credit Agreement is guaranteed by Celanese, Celanese US and substantially all of its domestic subsidiaries (the "Subsidiary Guarantors").

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The Company's debt balances and amounts available for borrowing under its senior unsecured revolving credit facility are as follows:



	As of March 31, 2018
	(In $ millions)
Revolving Credit Facility
Borrowings outstanding⁽¹⁾	197
Letters of credit issued	—
Available for borrowing⁽²⁾	803

______________________________


⁽¹⁾	The Company borrowed $435 million and repaid $335 million under its senior unsecured revolving credit facility during the three months ended March 31, 2018.


⁽²⁾	The margin for borrowings under the senior unsecured revolving credit facility was 1.5% above LIBOR at current Company credit ratings.

Senior Notes

The Company has outstanding senior unsecured notes, issued in public offerings registered under the Securities Act of 1933 ("Securities Act"), as amended (collectively, the "Senior Notes"). The Senior Notes were issued by Celanese US and are guaranteed on a senior unsecured basis by Celanese and the Subsidiary Guarantors.

Accounts Receivable Securitization Facility

The Company has a US accounts receivable securitization facility involving receivables of certain of its domestic subsidiaries of the Company transferred to a wholly-owned, "bankruptcy remote" special purpose subsidiary of the Company ("SPE"). The securitization facility, which permits cash borrowings and letters of credit, expires in July 2019. All of the SPE's assets have been pledged to the administrative agent in support of the SPE's obligations under the facility.

The Company's debt balances and amounts available for borrowing under its securitization facility are as follows:



	As of March 31, 2018
	(In $ millions)
Accounts Receivable Securitization Facility
Borrowings outstanding⁽¹⁾	77
Letters of credit issued	29
Available for borrowing	3
Total borrowing base	109

Maximum borrowing base⁽²⁾	120

______________________________


⁽¹⁾	The Company borrowed $25 million and repaid $28 million during the three months ended March 31, 2018.


⁽²⁾	Outstanding accounts receivable transferred to the SPE was $166 million.

Covenants

The Company's material financing arrangements contain customary covenants, including the maintenance of certain financial ratios, events of default and change of control provisions. Failure to comply with these covenants, or the occurrence of any other event of default, could result in acceleration of the borrowings and other financial obligations. The Company is in compliance with all covenants related to its debt agreements as of March 31, 2018.

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11. Benefit Obligations

The components of net periodic benefit cost are as follows:



	Three Months Ended March 31,
	2018			2017
	Pension Benefits		Post-retirement Benefits	Pension Benefits		Post-retirement Benefits
	(In $ millions)
Service cost	2		—	2		—
Interest cost	26		—	27		—
Expected return on plan assets	(52	)	—	(49	)	—
Total	(24	)	—	(20	)	—

Benefit obligation funding is as follows:



	As of March 31, 2018	Total Expected 2018
	(In $ millions)
Cash contributions to defined benefit pension plans	6	23
Benefit payments to nonqualified pension plans	5	21
Benefit payments to other postretirement benefit plans	1	5
Cash contributions to German multiemployer defined benefit pension plans⁽¹⁾	2	8

______________________________


⁽¹⁾	The Company makes contributions based on specified percentages of employee contributions.

The Company's estimates of its US defined benefit pension plan contributions reflect the provisions of the Pension Protection Act of 2006.

12. Environmental

The Company is subject to environmental laws and regulations worldwide that impose limitations on the discharge of pollutants into the air and water, establish standards for the treatment, storage and disposal of solid and hazardous wastes, and impose record keeping and notification requirements. Failure to timely comply with these laws and regulations may expose the Company to penalties. The Company believes that it is in substantial compliance with all applicable environmental laws and regulations and engages in an ongoing process of updating its controls to mitigate compliance risks. The Company is also subject to retained environmental obligations specified in various contractual agreements arising from the divestiture of certain businesses by the Company or one of its predecessor companies.

The components of environmental remediation reserves are as follows:



	As of March 31, 2018	As of December 31, 2017
	(In $ millions)
Demerger obligations (Note 18)	28	28
Divestiture obligations (Note 18)	18	17
Active sites	15	15
US Superfund sites	12	11
Other environmental remediation reserves	2	2
Total	75	73

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Remediation

Due to its industrial history and through retained contractual and legal obligations, the Company has the obligation to remediate specific areas on its own sites as well as on divested, demerger, orphan or US Superfund sites (as defined below). In addition, as part of the demerger agreement between the Company and Hoechst AG ("Hoechst"), a specified portion of the responsibility for environmental liabilities from a number of Hoechst divestitures was transferred to the Company (Note 18). Certain of these sites, at which the Company maintains continuing involvement, were and continue to be designated as discontinued operations when closed. The Company provides for such obligations when the event of loss is probable and reasonably estimable. The Company believes that environmental remediation costs will not have a material adverse effect on the financial position of the Company, but may have a material adverse effect on the results of operations or cash flows in any given period.

US Superfund Sites

In the US, the Company may be subject to substantial claims brought by US federal or state regulatory agencies or private individuals pursuant to statutory authority or common law. In particular, the Company has a potential liability under the US Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, and related state laws (collectively referred to as "Superfund") for investigation and cleanup costs at certain sites. At most of these sites, numerous companies, including the Company, or one of its predecessor companies, have been notified that the US Environmental Protection Agency ("EPA"), state governing bodies or private individuals consider such companies to be potentially responsible parties ("PRP") under Superfund or related laws. The proceedings relating to these sites are in various stages. The cleanup process has not been completed at most sites, and the status of the insurance coverage for some of these proceedings is uncertain. Consequently, the Company cannot accurately determine its ultimate liability for investigation or cleanup costs at these sites.

As events progress at each site for which it has been named a PRP, the Company accrues, as appropriate, a liability for site cleanup. Such liabilities include all costs that are probable and can be reasonably estimated. In establishing these liabilities, the Company considers the contaminants of concern, the potential impact thereof, the relationship of the contaminants of concern to its current and historic operations, its shipment of waste to a site, its percentage of total waste shipped to the site, the types of wastes involved, the conclusions of any studies, the magnitude of any remedial actions that may be necessary and the number and viability of other PRPs. Often the Company joins with other PRPs to sign joint defense agreements that settle, among PRPs, each party's percentage allocation of costs at the site. Although the ultimate liability may differ from the estimate, the Company routinely reviews the liabilities and revises the estimate, as appropriate, based on the most current information available.

One such site is the Diamond Alkali Superfund Site, which is comprised of a number of sub-sites, including the Lower Passaic River Study Area, which is the lower 17-mile stretch of the Passaic River ("Lower Passaic River Site"), and the Newark Bay Area. The Company and 70 other companies are parties to a May 2007 Administrative Order on Consent with the EPA to perform a Remedial Investigation/Feasibility Study ("RI/FS") at the Lower Passaic River Site in order to identify the levels of contaminants and potential cleanup actions, including the potential migration of contaminants between the Lower Passaic River Site and the Newark Bay Area. Work on the RI/FS is ongoing, with a goal to complete it in 2018.

In March 2016, the EPA issued its final Record of Decision concerning the remediation of the lower 8.3 miles of the Lower Passaic River Site ("Lower 8.3 Miles"). Pursuant to the EPA's Record of Decision, the Lower 8.3 Miles must be dredged bank to bank and an engineered cap must be installed at an EPA estimated cost of approximately $1.4 billion. The Company owned and/or operated facilities in the vicinity of the Lower 8.3 Miles, but has found no evidence that it contributed any of the contaminants of concern to the Passaic River. The Company is vigorously defending this matter and currently believes that its ultimate allocable share of the cleanup costs with respect to the Lower Passaic River Site, estimated at less than 1%, will not be material to the Company's results of operations, cash flows or financial position.

13. Stockholders' Equity

Common Stock

The Company's Board of Directors follows a policy of declaring, subject to legally available funds, a quarterly cash dividend on each share of the Company's Series A common stock, par value $0.0001 per share ("Common Stock"), unless the Company's Board of Directors, in its sole discretion, determines otherwise.

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The Company's Board of Directors approved increases in the Company's Common Stock cash dividend rates as follows:



	Increase	Quarterly Common Stock Cash Dividend	Annual Common Stock Cash Dividend	Effective Date
	(In percentages)	(In $ per share)
April 2017	28	0.46	1.84	May 2017

Treasury Stock



	Three Months Ended March 31,				Total From February 2008 Through March 31, 2018
	2018		2017		Total From February 2008 Through March 31, 2018
Shares repurchased	—		1,461,966		39,779,019
Average purchase price per share	$	—	$	89.95	$	58.71
Shares repurchased (in $ millions)	$	—	$	131	$	2,335
Aggregate Board of Directors repurchase authorizations during the period (in $ millions)⁽¹⁾	$	—	$	—	$	3,866

______________________________


⁽¹⁾	These authorizations give management discretion in determining the timing and conditions under which shares may be repurchased. This repurchase program began in February 2008 and does not have an expiration date.

The purchase of treasury stock reduces the number of shares outstanding. The repurchased shares may be used by the Company for compensation programs utilizing the Company's stock and other corporate purposes. The Company accounts for treasury stock using the cost method and includes treasury stock as a component of stockholders' equity.

Other Comprehensive Income (Loss), Net



	Three Months Ended March 31,
	2018					2017
	Gross Amount		Income Tax (Provision) Benefit	Net Amount		Gross Amount		Income Tax (Provision) Benefit	Net Amount
	(In $ millions)
Foreign currency translation	45		4	49		28		—	28
Gain (loss) on cash flow hedges	(2	)	1	(1	)	(2	)	—	(2	)
Pension and postretirement benefits	1		—	1		5		—	5
Total	44		5	49		31		—	31

Adjustments to Accumulated other comprehensive income (loss), net, are as follows:



	Foreign Currency Translation		Gain (Loss) on Cash Flow Hedges (Note 16)		Pension and Postretirement Benefits (Note 11)		Accumulated Other Comprehensive Income (Loss), Net
	(In $ millions)
As of December 31, 2017	(176	)	2		(3	)	(177	)
Other comprehensive income (loss) before reclassifications	45		(2	)	1		44
Amounts reclassified from accumulated other comprehensive income (loss)	—		—		—		—
Income tax (provision) benefit	4		1		—		5
As of March 31, 2018	(127	)	1		(2	)	(128	)

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14. Other (Charges) Gains, Net



	Three Months Ended March 31,
	2018	2017
	(In $ millions)
Restructuring	—	(2	)
Plant/office closures	—	(53	)
Total	—	(55	)

During the three months ended March 31, 2017, the Company recorded $2 million of employee termination benefits primarily related to the Company's ongoing efforts to align its businesses around its core value drivers.

During the three months ended March 31, 2017, the Company provided notice of termination of a contract with a key raw materials supplier at its ethanol production unit in Nanjing, China. As a result, the Company recorded an estimated $53 million of plant/office closure costs primarily consisting of a $27 million contract termination charge and an $18 million reduction to its non-income tax receivable. The Nanjing, China ethanol production unit is included in the Company's Acetyl Intermediates segment.

The changes in the restructuring reserves by business segment are as follows:



	Engineered Materials		Acetate Tow	Industrial Specialties	Acetyl Intermediates	Other	Total
	(In $ millions)
Employee Termination Benefits
As of December 31, 2017	1		—	—	1	1	3
Additions	—		—	—	—	—	—
Cash payments	(1	)	—	—	—	—	(1	)
Other changes	—		—	—	—	—	—
Exchange rate changes	—		—	—	—	—	—
As of March 31, 2018	—		—	—	1	1	2
Other Plant/Office Closures
As of December 31, 2017	—		—	—	2	—	2
Additions	—		—	—	—	—	—
Cash payments	—		—	—	—	—	—
Other changes	—		—	—	—	—	—
Exchange rate changes	—		—	—	—	—	—
As of March 31, 2018	—		—	—	2	—	2
Total	—		—	—	3	1	4

15. Income Taxes



	Three Months Ended March 31,
	2018	2017
	(In percentages)
Effective income tax rate	15	23

The lower effective income tax rate for the three months ended March 31, 2018 compared to the same period in 2017 is primarily due to the corporate tax rate reduction in the US from enacted tax legislation commonly referred to as the Tax Cuts and Jobs Act ("TCJA") and decreases in losses in jurisdictions not providing tax benefit.

In December 2017, the TCJA was enacted and is effective January 1, 2018. ASC 740, Accounting for Income Taxes, requires companies to recognize the effects of tax law changes in the period of enactment. This overhaul of the US tax law made a number of substantial changes, including the reduction of the corporate tax rate from 35% to 21%, establishing a dividends received deduction for dividends paid by foreign subsidiaries to the US, elimination or limitation of certain deductions (interest, domestic production activities and executive compensation), imposing a mandatory tax on previously unrepatriated earnings

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accumulated offshore since 1986 and establishing global minimum income tax and base erosion tax provisions related to offshore activities and affiliated party payments.

Due to the timing of the new tax law and the substantial changes it brings, the SEC issued Staff Accounting Bulletin No. 118 ("SAB 118"), which provides registrants a measurement period to report the impact of the new US tax law. During the measurement period, provisional amounts for the effects of the law are recorded to the extent a reasonable estimate can be made. To the extent that all information necessary is not available, prepared or analyzed, companies may recognize provisional estimated amounts for a period of up to one year following enactment of the TCJA.

For year-end 2017, the Company recorded provisional amounts for impacts of the new tax law including: the deemed repatriation tax on post 1986 accumulated earnings and profits, the deferred tax rate change effect of the new law, gross foreign tax credit carryforwards and related valuation allowances to offset foreign tax credit carryforwards. Certain items or estimates that result in impacts of the TCJA being provisional include: detailed foreign earnings calculations for 2017 and 2018, projected foreign cash balances for certain foreign subsidiaries and finalized computations of foreign tax credit availability. Finally, the Company considers it likely that further technical guidance regarding certain components of the new provisions included in the TCJA, as well as clarity regarding state income tax conformity to current federal tax code, may be issued. During the three months ended March 31, 2018, the Company recorded increases to provisional amounts for valuation allowances on foreign tax credits of $24 million. The changes in provisional amounts are primarily due to refined estimates of foreign source income and expense apportionment during the credit carryforward period. The Company will continue to refine provisional amounts for the impacts of the TCJA as more refined information and further guidance become available.

During the three months ended March 31, 2018, the Company's uncertain tax positions decreased $5 million, primarily due to favorable technical clarifications in Germany, partially offset by an increase in US positions and foreign currency exchange fluctuations.

In connection with the Company's US federal income tax audit for 2009 and 2010, the Company has received $192 million of proposed pre-tax adjustments related to various intercompany charges. In January 2018, the Company received proposed pre-tax adjustments for its 2011 and 2012 audit cycle in the amount of $198 million. In the event the Company is wholly unsuccessful in its defense and absent expected offsetting adjustments from foreign tax authorities, the proposed adjustments would result in the consumption of approximately $136 million of prior foreign tax credit carryforwards, which are substantially offset with a valuation allowance due to uncertain recoverability. The Company believes these proposed adjustments to be without merit and is vigorously defending its position.

16. Derivative Financial Instruments

Net Investment Hedges

The Company uses derivative instruments, such as foreign currency forwards, and non-derivative financial instruments, such as foreign currency denominated debt, that may give rise to foreign currency transaction gains or losses to hedge the foreign currency exposure of net investments in foreign operations. Accordingly, the effective portion of gains and losses from remeasurement of derivative and non-derivative financial instruments is included in foreign currency translation within Accumulated other comprehensive income (loss), net in the unaudited consolidated balance sheets. Gains and losses are reclassified to earnings in the period the hedged investment is sold or liquidated.

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The total notional amount of foreign currency denominated debt designated as a net investment hedge of net investments in foreign operations are as follows:



	As of March 31, 2018	As of December 31, 2017
	(In € millions)
Total	1,050	1,050

Derivatives Not Designated As Hedges

Foreign Currency Forwards and Swaps

Gross notional values of the foreign currency forwards and swaps not designated as hedges are as follows:



	As of March 31, 2018	As of December 31, 2017
	(In $ millions)
Total	935	740

Information regarding changes in the fair value of the Company's derivative and non-derivative instruments is as follows:



	Gain (Loss) Recognized in Other Comprehensive Income (Loss)				Gain (Loss) Recognized in Earnings (Loss)
	Three Months Ended March 31,							Statement of Operations Classification
	2018		2017		2018		2017	Statement of Operations Classification
	(In $ millions)
Designated as Cash Flow Hedges
Commodity swaps	(2	)	(1	)	—		1	Cost of sales
Total	(2	)	(1	)	—		1

Designated as Net Investment Hedges
Foreign currency denominated debt (Note 10)	(35	)	(13	)	—		—	N/A
Total	(35	)	(13	)	—		—

Not Designated as Hedges
Foreign currency forwards and swaps	—		—		(4	)	1	Foreign exchange gain (loss), net; Other income (expense), net
Total	—		—		(4	)	1

See Note 17 for further information regarding the fair value of the Company's derivative instruments.

Certain of the Company's commodity swaps and foreign currency forwards and swaps permit the Company to net settle all contracts with the counterparty through a single payment in an agreed upon currency in the event of default or early termination of the contract, similar to a master netting arrangement.

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Information regarding the gross amounts of the Company's derivative instruments and the amounts offset in the unaudited consolidated balance sheets is as follows:



	As of March 31, 2018	As of December 31, 2017
	(In $ millions)
Derivative Assets
Gross amount recognized	8	13
Gross amount offset in the consolidated balance sheets	5	4
Net amount presented in the consolidated balance sheets	3	9
Gross amount not offset in the consolidated balance sheets	1	3
Net amount	2	6



	As of March 31, 2018	As of December 31, 2017
	(In $ millions)
Derivative Liabilities
Gross amount recognized	8	7
Gross amount offset in the consolidated balance sheets	5	4
Net amount presented in the consolidated balance sheets	3	3
Gross amount not offset in the consolidated balance sheets	1	3
Net amount	2	—

17. Fair Value Measurements

The Company's financial assets and liabilities are measured at fair value on a recurring basis as follows:

Derivatives. Derivative financial instruments, including commodity swaps and foreign currency forwards and swaps, are valued in the market using discounted cash flow techniques. These techniques incorporate Level 1 and Level 2 fair value measurement inputs such as spot rates and foreign currency exchange rates. These market inputs are utilized in the discounted cash flow calculation considering the instrument's term, notional amount, discount rate and credit risk. Significant inputs to the derivative valuation for commodity swaps and foreign currency forwards and swaps are observable in the active markets and are classified as Level 2 in the fair value measurement hierarchy.

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	Fair Value Measurement
	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)		Total		Balance Sheet Classification
	(In $ millions)
As of March 31, 2018
Derivatives Designated as Cash Flow Hedges
Commodity swaps	—	1		1		Current Other assets
Derivatives Not Designated as Hedges
Foreign currency forwards and swaps	—	2		2		Current Other assets
Total assets	—	3		3
Derivatives Not Designated as Hedges
Foreign currency forwards and swaps	—	(3	)	(3	)	Current Other liabilities
Total liabilities	—	(3	)	(3	)
As of December 31, 2017
Derivatives Designated as Cash Flow Hedges
Commodity swaps	—	2		2		Current Other assets
Commodity swaps	—	2		2		Noncurrent Other assets
Derivatives Not Designated as Hedges
Foreign currency forwards and swaps	—	5		5		Current Other assets
Total assets	—	9		9
Derivatives Not Designated as Hedges
Foreign currency forwards and swaps	—	(3	)	(3	)	Current Other liabilities
Total liabilities	—	(3	)	(3	)

Carrying values and fair values of financial instruments that are not carried at fair value are as follows:



		Fair Value Measurement
	Carrying Amount	Significant Other Observable Inputs (Level 2)	Unobservable Inputs (Level 3)	Total
	(In $ millions)
As of March 31, 2018
Cost investments	165	—	—	—
Insurance contracts in nonqualified trusts	42	42	—	42
Long-term debt, including current installments of long-term debt	3,424	3,310	194	3,504
As of December 31, 2017
Cost investments	159	—	—	—
Insurance contracts in nonqualified trusts	42	42	—	42
Long-term debt, including current installments of long-term debt	3,398	3,299	208	3,507

In general, the cost investments included in the table above are not publicly traded and their fair values are not readily determinable. As such, the Company believes the carrying values approximate fair value. Insurance contracts in nonqualified trusts consist of long-term fixed income securities, which are valued using independent vendor pricing models with observable inputs in the active market and therefore represent a Level 2 fair value measurement. The fair value of long-term debt is based on valuations from third-party banks and market quotations and is classified as Level 2 in the fair value measurement hierarchy. The fair value of obligations under capital leases, which are included in long-term debt, is based on lease payments and discount rates, which are not observable in the market and therefore represents a Level 3 fair value measurement.

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As of March 31, 2018, and December 31, 2017, the fair values of cash and cash equivalents, receivables, trade payables, short-term borrowings and the current installments of long-term debt approximate carrying values due to the short-term nature of these instruments. These items have been excluded from the table with the exception of the current installments of long-term debt.

18. Commitments and Contingencies

Commitments

Guarantees

The Company has agreed to guarantee or indemnify third parties for environmental and other liabilities pursuant to a variety of agreements, including asset and business divestiture agreements, leases, settlement agreements and various agreements with affiliated companies. Although many of these obligations contain monetary and/or time limitations, others do not provide such limitations. The Company has accrued for all probable and reasonably estimable losses associated with all known matters or claims. These known obligations include the following:


•	Demerger Obligations

In connection with the Hoechst demerger, the Company agreed to indemnify Hoechst, and its legal successors, for various liabilities under the demerger agreement, including for environmental liabilities associated with contamination arising either from environmental damage in general ("Category A") or under 19 divestiture agreements entered into by Hoechst prior to the demerger ("Category B") (Note 12).

The Company's obligation to indemnify Hoechst, and its legal successors, is capped under Category B at €250 million. If and to the extent the environmental damage should exceed €750 million in aggregate, the Company's obligation to indemnify Hoechst and its legal successors applies, but is then limited to 33.33% of the remediation cost without further limitations. Cumulative payments under the divestiture agreements as of March 31, 2018, are $82 million. Most of the divestiture agreements have become time barred and/or any notified environmental damage claims have been partially settled.

The Company has also undertaken in the demerger agreement to indemnify Hoechst and its legal successors for (i) 33.33% of any and all Category A liabilities that result from Hoechst being held as the responsible party pursuant to public law or current or future environmental law or by third parties pursuant to private or public law related to contamination and (ii) liabilities that Hoechst is required to discharge, including tax liabilities, which are associated with businesses that were included in the demerger but were not demerged due to legal restrictions on the transfers of such items. These indemnities do not provide for any monetary or time limitations. The Company has not been requested by Hoechst to make any payments in connection with this indemnification. Accordingly, the Company has not made any payments to Hoechst and its legal successors.

Based on the Company's evaluation of currently available information, including the lack of requests for indemnification, the Company cannot estimate the Possible Loss for the remaining demerger obligations, if any, in excess of amounts accrued.


•	Divestiture Obligations

The Company and its predecessor companies agreed to indemnify third-party purchasers of former businesses and assets for various pre-closing conditions, as well as for breaches of representations, warranties and covenants. Such liabilities also include environmental liability, product liability, antitrust and other liabilities. These indemnifications and guarantees represent standard contractual terms associated with typical divestiture agreements and, other than environmental liabilities, the Company does not believe that they expose the Company to significant risk (Note 12).

The Company has divested numerous businesses, investments and facilities through agreements containing indemnifications or guarantees to the purchasers. Many of the obligations contain monetary and/or time limitations, which extend through 2037. The aggregate amount of outstanding indemnifications and guarantees provided for under these agreements is $123 million as of March 31, 2018. Other agreements do not provide for any monetary or time limitations.

Based on the Company's evaluation of currently available information, including the number of requests for indemnification or other payment received by the Company, the Company cannot estimate the Possible Loss for the remaining divestiture obligations, if any, in excess of amounts accrued.

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Purchase Obligations

In the normal course of business, the Company enters into various purchase commitments for goods and services. The Company maintains a number of "take-or-pay" contracts for purchases of raw materials, utilities and other services. Certain of the contracts contain a contract termination buy-out provision that allows for the Company to exit the contracts for amounts less than the remaining take-or-pay obligations. Additionally, the Company has other outstanding commitments representing maintenance and service agreements, energy and utility agreements, consulting contracts and software agreements. As of March 31, 2018, the Company had unconditional purchase obligations of $1.7 billion, which extend through 2036.

Contingencies

The Company is involved in legal and regulatory proceedings, lawsuits, claims and investigations incidental to the normal conduct of business, relating to such matters as product liability, land disputes, insurance coverage disputes, commercial contracts, employment, antitrust or competition compliance, intellectual property, personal injury and other actions in tort, workers' compensation, chemical exposure, asbestos exposure, taxes, trade compliance, acquisitions and divestitures, claims of legacy stockholders, past waste disposal practices and release of chemicals into the environment. The Company is actively defending those matters where the Company is named as a defendant and, based on the current facts, does not believe the outcomes from these matters will be material to the Company's results of operations, cash flows or financial position.

European Commission

In May 2017, the Company learned that the European Commission opened a competition law investigation involving certain subsidiaries of the Company with respect to certain ethylene purchases. The Company is cooperating with the European Commission. Because the investigation is on-going and the many uncertainties and variables involved, the Company is unable at this time to determine the outcome of this investigation and whether, and in what amount, any potential fines would be assessed.

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19. Segment Information

Effective January 1, 2018, the Company reorganized its operating and reportable segments to align with recent structural and management reporting changes. The change reflects the movement of its food ingredients business from the Consumer Specialties reportable segment into the Engineered Materials reportable segment. The former Consumer Specialties reportable segment was renamed the Acetate Tow segment, and the former Advanced Engineered Materials reportable segment was renamed the Engineered Materials segment. This reorganization better reflects how the Company manages its food ingredients' related products commercially. Engineered Materials and food ingredients are both project-based models which focus on delivering customized solutions and are led by the same senior management team.



	Engineered Materials	Acetate Tow		Industrial Specialties		Acetyl Intermediates			Other Activities		Eliminations		Consolidated
	(In $ millions)
	Three Months Ended March 31, 2018
Net sales	665	168		274	⁽¹⁾	871		⁽²⁾	—		(127	)	1,851
Other (charges) gains, net (Note 14)	—	—		—		—			—		—		—
Operating profit (loss)	127	46		23		231			(83	)	(1	)	343
Equity in net earnings (loss) of affiliates	54	—		—		1			3		—		58
Depreciation and amortization	32	10		9		26			2		—		79
Capital expenditures	21	—		4		30			2		—		57		⁽³⁾
	As of March 31, 2018
Goodwill and intangible assets, net	1,035	155		46		207			—		—		1,443
Total assets	4,111	1,063		834		2,680			1,092		—		9,780
	Three Months Ended March 31, 2017 - As Adjusted (Note 2)
Net sales	514	191		245	⁽¹⁾	619		⁽²⁾	—		(98	)	1,471
Other (charges) gains, net (Note 14)	—	(1	)	—		(53	)		(1	)	—		(55	)
Operating profit (loss)	104	62		25		27			(48	)	—		170
Equity in net earnings (loss) of affiliates	43	—		—		1			3		—		47
Depreciation and amortization	25	10		8		26			2		—		71
Capital expenditures	10	6		4		20			1		—		41		⁽³⁾
	As of December 31, 2017
Goodwill and intangible assets, net	902	154		46		202			—		—		1,304
Total assets	3,866	1,163		861		2,657			991		—		9,538

______________________________


⁽¹⁾	Includes intersegment sales of $2 million and $1 million for the three months ended March 31, 2018 and 2017, respectively.


⁽²⁾	Includes intersegment sales of $125 million and $97 million for the three months ended March 31, 2018 and 2017, respectively.


⁽³⁾	Includes a decrease in accrued capital expenditures of $29 million and $21 million for the three months ended March 31, 2018 and 2017, respectively.

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20. Revenue Recognition

Accounting Policies

Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied. The majority of the Company's contracts have a single performance obligation to transfer products. Accordingly, the Company recognizes revenue when title and risk of loss have been transferred to the customer, generally at the time of shipment of products. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products and is generally based upon a negotiated, formula, list or fixed price. The Company sells its products both directly to customers and through distributors generally under agreements with payment terms typically less than 90 days.

The Company has elected to account for shipping and handling as activities to fulfill the promise to transfer the good. As such, shipping and handling fees billed to customers in a sales transaction are recorded in Net sales and shipping and handling costs incurred are recorded in Cost of sales. The Company has elected to exclude from Net sales any value add, sales and other taxes which it collects concurrent with revenue-producing activities. These accounting policy elections are consistent with the manner in which the Company historically recorded shipping and handling fees and taxes.

The adoption of ASU 2014-09 resulted in an immaterial impact to the individual financial statement line items of the Company's unaudited interim consolidated statement of operations during the three months ended March 31, 2017.

Contract Estimates

The nature of certain of the Company's contracts gives rise to variable consideration, which may be constrained, including retrospective volume-based rebates to certain customers. The Company issues retrospective volume-based rebates to customers when they purchase a certain volume level, and the rebates are applied retroactively to prior purchases. The Company also issues prospective volume-based rebates to customers when they purchase a certain volume level, and the rebates are applied to future purchases. Prospective volume-based rebates represent a material right within the contract and therefore are considered to be separate performance obligations. For both retrospective and prospective volume-based rebates, the Company estimates the level of volumes based on anticipated purchases at the beginning of the period and records a rebate accrual for each purchase toward the requisite rebate volume. These estimated rebates are included in the transaction price of the Company's contracts with customers as a reduction to Net sales and are included in Current Other liabilities in the Consolidated Balance Sheets (Note 8). This methodology is consistent with the manner in which the Company historically estimated and recorded volume-based rebates.

The majority of the Company's revenue is derived from contracts (i) with an original expected length of one year or less and (ii) contracts for which it recognizes revenue at the amount in which it has the right to invoice as product is delivered. The Company has elected the practical expedient not to disclose the value of remaining performance obligations associated with these types of contracts. However, the Company has certain contracts that represent take-or-pay revenue arrangements in which the Company's performance obligations extend over multiple years. As of March 31, 2018, the Company had $910 million of remaining performance obligations related to take-or-pay contracts. The Company expects to recognize approximately $198 million of its remaining performance obligations as Net sales in 2018, $220 million in 2019, an additional $180 million in 2020 and the balance thereafter.

The Company has certain contracts which contain performance obligations which are immaterial in the context of the contract with the customer. The Company has elected the practical expedient not to assess whether these promised goods or services are performance obligations.

Contract Balances

Contract liabilities primarily relate to advances or deposits received from the Company's customers before revenue is recognized. These amounts are recorded as deferred revenue and are included in Noncurrent Other liabilities in the Consolidated Balance Sheets (Note 9).

The Company does not have any material contract assets as of March 31, 2018.

Disaggregated Revenue

In general, the Company's business segmentation is aligned according to the nature and economic characteristics of its products and customer relationships and provides meaningful disaggregation of each business segment's results of operations.

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The Company manages its Engineered Materials business segment through its project management pipeline, which is comprised of a broad range of projects which are solutions-based and are tailored to each customers' unique needs. Projects are identified and selected based on success rate and may involve a number of different polymers per project for use in multiple end-use applications. Therefore, the Company is agnostic toward products and end-use markets for the Engineered Materials business segment.

Within the Acetate Tow business segment, the Company's primary product is acetate tow, which is managed through contracts with a few major tobacco companies and accounts for a significant amount of filters used in cigarette production worldwide.

The Company manages its Industrial Specialties and Acetyl Intermediates business segments by leveraging its ability to sell chemicals upstream to end-use markets or downstream to its emulsion polymers business (within its Industrial Specialties segment). Decisions to sell upstream and geographically or downstream and along the acetyl chain are based on market demand, trade flows and maximizing the value of its chemicals. Therefore, the Company's strategic focus is on executing within this integrated chain model and less on driving product-specific revenue.

Further disaggregation of Net sales by business segment and geographic destination is as follows:



	Three Months Ended March 31,
	2018
	(In $ millions)
Engineered Materials
North America	179
Europe and Africa	337
Asia-Pacific	132
South America	17
Total	665

Acetate Tow
North America	35
Europe and Africa	70