CELANESE CORP
10-Ks and 10-Qs
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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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For the fiscal
year ended December 31, 2010
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OR
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o
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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.) |
|
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1601 West LBJ Freeway, Dallas, TX
(Address of Principal Executive Offices) |
75234-6034
(Zip Code) |
(972) 443-4000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act
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Name of Each Exchange
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||
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Title of Each Class
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on Which Registered
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Series A Common Stock, par
value $0.0001 per share
|
New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the
Act
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
þ
No
o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
o
No
þ
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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K.
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in
Rule 12b-2
of the Exchange Act. (Check one):
| Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes
o
No
þ
The aggregate market value of the registrant’s
Series A Common Stock held by non-affiliates as of
June 30, 2010 (the last business day of the
registrants’ most recently completed second fiscal quarter)
was $3,865,760,182.
The number of outstanding shares of the registrant’s
Series A Common Stock, $0.0001 par value, as of
February 4, 2011 was 155,976,657.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant’s Definitive Proxy
Statement relating to the 2011 annual meeting of shareholders,
to be filed with the Securities and Exchange Commission, are
incorporated by reference into Part III.
CELANESE
CORPORATION
Form 10-K
For the Fiscal Year Ended December 31, 2010
TABLE OF CONTENTS
2
Table of Contents
Special
Note Regarding Forward-Looking Statements
Certain statements in this Annual Report on
Form 10-K
(“Annual Report”) or in other materials we have filed
or will file with the Securities and Exchange Commission
(“SEC”), and incorporated herein by reference, are
forward-looking in nature as defined in Section 27A of the
Securities Act of 1933, Section 21E of the Securities
Exchange Act of 1934, and the Private Securities Litigation
Reform Act of 1995. You can identify these statements by the
fact that they do not relate to matters of a strictly factual or
historical nature and generally discuss or relate to forecasts,
estimates or other expectations regarding future events.
Generally, the words “believe,” “expect,”
“intend,” “estimate,”
“anticipate,” “project,” “may,”
“can,” “could,” “might,”
“will” and similar expressions identify
forward-looking statements, including statements that relate to,
such matters as planned and expected capacity increases and
utilization; anticipated capital spending; environmental
matters; legal proceedings; exposure to, and effects of hedging
of, raw material and energy costs and foreign currencies; global
and regional economic, political, and business conditions;
expectations, strategies, and plans for individual assets and
products, business segments, as well as for the whole Company;
cash requirements and uses of available cash; financing plans;
pension expenses and funding; anticipated restructuring,
divestiture, and consolidation activities; cost reduction and
control efforts and targets and integration of acquired
businesses.
Forward-looking statements are not historical facts or
guarantees of future performance but instead represent only our
beliefs at the time the statements were made regarding future
events, which are subject to significant risks, uncertainties,
and other factors, many of which are outside of our control and
certain of which are listed above. Any or all of the
forward-looking statements included in this Annual Report and in
any other materials incorporated by reference herein may turn
out to be materially inaccurate. This can occur as a result of
incorrect assumptions, in some cases based upon internal
estimates and analyses of current market conditions and trends,
management plans and strategies, economic conditions, or as a
consequence of known or unknown risks and uncertainties. Many of
the risks and uncertainties mentioned in this Annual Report,
such as those discussed in
Item 1A. Risk Factors,
Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
will be
important in determining whether these forward-looking
statements prove to be accurate. Consequently, neither our
shareholders nor any other person should place undue reliance on
our forward-looking statements and should recognize that actual
results may differ materially from those anticipated by us.
All forward-looking statements made in this Annual Report are
made as of the date hereof, and the risk that actual results
will differ materially from expectations expressed in this
Annual 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. However, we may make further
disclosures regarding future events, trends and uncertainties in
our subsequent reports on
Forms 10-K,
10-Q
and
8-K
to the
extent required under the Exchange Act. The above cautionary
discussion of risks, uncertainties and possible inaccurate
assumptions relevant to our business include factors we believe
could cause our actual results to differ materially from
expected and historical results. Other factors beyond those
listed above or in
Item 3. Legal Proceedings
below,
including factors unknown to us and factors known to us which we
have not determined to be material, could also adversely
affect us.
| Item 1. | Business |
Basis
of Presentation
In this Annual Report on
Form 10-K,
the term “Celanese” refers to Celanese Corporation, a
Delaware corporation, and not its subsidiaries. The terms
“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.
Overview
Celanese Corporation was formed in 2004 when affiliates of The
Blackstone Group purchased 84% of the ordinary shares of
Celanese GmbH, formerly known as Celanese AG, a diversified
German chemical company. Celanese
3
Table of Contents
Corporation was incorporated in 2005 under the laws of the state
of Delaware and its shares are traded on the New York Stock
Exchange under the symbol “CE”. During the period from
2005 through 2007, Celanese Corporation acquired the remaining
16% interest in Celanese GmbH.
We are a global technology and specialty materials company. We
are one of the world’s largest producers of acetyl
products, which are intermediate chemicals, for nearly all major
industries, as well as a leading global producer of high
performance engineered polymers that are used in a variety of
high-value applications. 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
paints and coatings, textiles, automotive applications, consumer
and medical applications, performance industrial applications,
filter media, paper and packaging, chemical additives,
construction, consumer and industrial adhesives, and food and
beverage applications. Our products enjoy leading global
positions due to our large global production capacity, operating
efficiencies, proprietary production technology and competitive
cost structures.
Our large and diverse global customer base primarily consists of
major companies in 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 shared
principles and objectives, and a clear focus on growth and value
creation. Known for operational excellence and execution of our
business strategies, we deliver value to customers around the
globe with
best-in-class
technologies.
Industry
This Annual Report on
Form 10-K
includes industry data obtained from industry publications and
surveys as well as our own internal company surveys. Third-party
industry publications, surveys and forecasts generally state
that the information contained therein has been obtained from
sources believed to be reliable. The statements regarding
Celanese’s industry position in this document are based on
information derived from, among others, the
2009 Stanford
Research Institute International Chemical Economics Handbook
.
Business
Segment Overview
We operate principally through four business segments: Advanced
Engineered Materials, Consumer Specialties, Industrial
Specialties and Acetyl Intermediates. See Note 25 to the
accompanying consolidated financial statements for further
details on our business segments. The table below illustrates
each business segment’s net sales to external customers for
the year ended December 31, 2010, as well as each business
segment’s major products and
end-use
applications.
4
Table of Contents
|
Advanced
|
||||||||
| Engineered Materials | Consumer Specialties | Industrial Specialties | Acetyl Intermediates | |||||
|
2010 Net
Sales
(1)
|
$1,109 million |
$1,089 million
|
$1,036 million | $2,682 million | ||||
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Key Products
|
• Polyacetal products (“POM”)
• Ultra-high molecular weight polyethylene (“GUR ® ”) • Liquid crystal polymers (“LCP”) • Polyphenylene sulfide (“PPS”) • Polybutylene terephthalate (“PBT”) • Polyethylene terephthalate (“PET”) • Long-fiber reinforced thermoplastics (“LFT”) |
• Acetate tow
• Acetate flake • Sunett ® sweetener • Sorbates |
• Conventional emulsions
• Vinyl acetate ethylene emulsions (“VAE”) • Low-density polyethylene resins (“LDPE”) • Ethylene vinyl acetate (“EVA”) resins and compounds |
• Acetic acid
• Vinyl acetate monomer (“VAM”) • Acetic anhydride • Acetaldehyde • Ethyl acetate • Butyl acetate • Formaldehyde |
||||
|
Major End-Use
Applications |
• Fuel system components
• Conveyor belts • Battery separators • Electronics • Automotive safety systems • Appliances • Filtrations • Medical Devices • Telecommunications |
• Filter products
• Beverages • Confections • Baked goods |
• Photovoltaic cell systems
• Paints • Coatings • Adhesives • Textiles • Paper finishing • Flexible packaging • Lamination products • Medical tubing • Automotive parts |
• Paints
• Coatings • Adhesives • Lubricants • Pharmaceuticals • Films • Textiles • Inks • Plasticizers • Esters • Solvents |
| (1) | Consolidated net sales of $5,918 million for the year ended December 31, 2010 also includes $2 million in net sales from Other Activities, which is attributable to our captive insurance companies. Net sales for Acetyl Intermediates and Consumer Specialties exclude inter-segment sales of $400 million and $9 million, respectively, for the year ended December 31, 2010. |
5
Table of Contents
Competitive
Strengths
We benefit from a number of competitive strengths, including the
following:
Leading
Positions
We hold a leading position in the major product industries that
we serve. Our positions are based on our operating efficiencies,
proprietary production technology and competitive cost
structures in our major product lines.
| • | Advanced Engineered Materials —Our Advanced Engineered Materials business is a leading participant in the global technical polymers industry. Approximately 70% of its business is specification-based, which drives sustainable value for its performance polymers. Advanced Engineered Materials maintains its competitive advantage with high-quality products and services, as well as its technical knowledge in application development and product technology. Its substantial strategic affiliates also enhance its global reach. |
| • | Consumer Specialties —Our Acetate Products business is a leading producer of acetate tow, used in the production of filter products. We also hold approximately 30% ownership interests in three separate Acetate Products production entities in China. Our Nutrinova business is a leading international supplier of the high intensity sweetener Sunett ® (acesulfame potassium) for the food, beverage and pharmaceutical industries and is also one of the world’s largest producers of sorbates used in food preservatives. |
| • | Industrial Specialties —Our Industrial Specialties business is active in every major global industrial sector and has manufacturing plants across North America, Europe and Asia. Our expertise in vinyl-based technology enables us to drive value into our customers’ products. We are a leading global producer of VAE emulsions and a recognized authority on low VOC (volatile organic compound) technology. |
| • | Acetyl Intermediates —As an industry leader, our Acetyl Intermediates business has built on its leading technology, an advantaged feedstock position, and attractive industry structure to drive growth. With decades of experience, advanced proprietary process technology and favorable production costs, we are a leading global producer of acetic acid and VAM. In 2007, we strengthened our global positions with the opening of an integrated chemical complex in Nanjing, China, that brings world-class scale to one site for the production of acetic acid, VAM, acetic anhydride and other products. |
Highly
Diversified Products and End-Use Applications
We offer our customers a broad range of products in a wide
variety of end-use applications including paints and coatings,
textiles, automotive applications, consumer and medical
applications, performance industrial applications, filter media,
paper and packaging, chemical additives, construction, consumer
and industrial adhesives, and food and beverage applications.
Our net sales are also geographically balanced across the global
regions. For the year ended December 31, 2010,
approximately 28% of our net sales were to customers located in
North America, 40% to customers in Europe and Africa, 29% to
customers in Asia-Pacific and 3% to customers in South America.
We have property, plant and equipment, net in the United States
of $650 million and outside the United States of
$2,367 million.
Attractive
Near-Term Growth Prospects
We continue to make significant progress toward our stated
growth objectives and aim to increase the earnings power of our
portfolio over the near term. We intend to continue to grow the
earnings power of the business through four key strategic levers:
| • | Geographic Growth —We continue to accelerate growth in emerging regions, including Asia. Our integrated chemical complex in Nanjing, China, the largest integrated acetyls complex in the world, serves as a foundation for our expansion in Asia and supports the region’s increasing demand. Our strategic affiliates will further accelerate this growth. |
6
Table of Contents
| • | Innovation —We expect innovation through new product and application development to enhance revenue growth, particularly in our Advanced Engineered Materials and Industrial Specialties businesses. Advanced Engineered Materials has industry-leading polymer technologies used in high performance applications and Industrial Specialties provides attractive economic solutions for environmentally-sensitive low-VOC applications, including paints, coatings and adhesives. Innovation and application development strategies in these businesses bolster the company’s operating earnings. |
| • | Productivity —We have a track record of executing on our productivity commitments. Energy reduction, business process excellence, manufacturing optimization and other productivity initiatives will enable us to offset fixed cost inflation, improve our operating performance and fuel reinvestment in our businesses. We expect to realize our productivity commitments for fixed cost reductions in the near term. |
| • | Portfolio Enhancements —We continuously pursue opportunities that meet our investment criteria and shift our current product base towards technology-focused and specialty materials businesses. In December 2009, we completed the acquisition of the LFT business of FACT GmbH (Future Advanced Composites Technology). We also acquired two product lines, Zenite ® LCP and Thermx ® polycyclohexylene-dimethylene terephthalate (“PCT”), from DuPont Performance Polymers in May 2010. Through our 25%-owned strategic venture in Saudi Arabia, known as National Methanol Company or “Ibn Sina,” we are also investing in a new POM facility in Saudi Arabia to strengthen our specialty materials portfolio. |
Strategic
Affiliates
Our equity and cost investments represent an important component
of our strategy for accelerated growth and expansion of our
global reach. These investments have provided our core
businesses with a large presence in Asia and the Middle East,
and have also contributed significantly to earnings and cash
flow. These ventures, some of which date back as far as the
1960s, have sizeable operations and are significant within their
industries.
Proprietary
Production Technology and Operating Expertise
Our production of acetyl products employs industry-leading
proprietary and licensed technologies, including our proprietary
AOPlus
®
and
AOPlus
®
2
technologies for the production of acetic acid and
VAntage
®
and VAntage
Plus
tm
vinyl acetate monomer technology.
AOPlus
®
2
builds on the industry benchmark with the ability to increase
acetic acid production from our current capacity of
1.2 million tons per reactor per year to approximately
1.5 million tons per reactor per year at a fraction of the
cost of a new facility. This technology is applicable to
existing and new greenfield units.
AOPlus
®
enables increased raw material efficiencies, lower operating
costs and the ability to expand plant capacity with minimal
investment.
VAntage
®
and VAntage
Plus
tm
enable significant increases in production efficiencies, lower
operating costs and increases in capacity at ten to fifteen
percent of the cost of building a new plant.
Low
Cost Producer
Our competitive cost structures are based on production and
purchasing economies of scale, vertical integration, technical
expertise and the use of advanced technologies.
Global
Reach
We own or lease thirty production facilities throughout the
world, of which three sites are no longer operating as of
December 31, 2010. We participate in strategic ventures
which operate eight additional facilities. Our infrastructure of
manufacturing plants, terminals, warehouses and sales offices
provides us with a competitive advantage in anticipating and
meeting the needs of our global and local customers in
well-established and growing industries, while our geographic
diversity reduces the potential impact of volatility in any
individual country or region. We have a strong, growing presence
in Asia, particularly in China, and we have a defined strategy
to continue this growth. See Note 25 to the accompanying
consolidated financial statements for further information
regarding our geographic areas.
7
Table of Contents
Business
Strategies
Our strategic foundation is based on the following three pillars
which are focused on increasing operating cash flows, improving
profitability, delivering high return on investments and
increasing shareholder value:
Business
Focus
We focus on businesses where we have a clear, sustainable,
competitive advantage. We continue to optimize our business
portfolio in order to achieve industry, cost and technology
leadership while expanding our product mix into higher
value-added products.
Strategic
Results
We have created a unique portfolio of technology and specialty
materials businesses that will enable Celanese to deliver
sustainable results that yield premier financial performance.
Our advantaged portfolio is well positioned for sustained
earnings growth, relatively higher margins, modest earnings
volatility and high capital return.
Strategic
Levers
We will deliver earnings growth, further strengthen our
businesses and increase shareholder value through premier
execution of our four key strategic earnings growth levers:
Geographic Growth, Innovation, Productivity and Portfolio
Enhancements.
Business
Segments
Advanced
Engineered Materials
Our Advanced Engineered Materials segment develops, produces and
supplies a broad portfolio of high performance specialty
polymers for application in automotive, medical and electronics
products, as well as other consumer and industrial applications.
Together with our strategic affiliates, we are a leading
participant in the global specialty polymers industry. The
primary products of Advanced Engineered Materials are POM, PPS,
PBT, LFT,
GUR
®
and LCP. POM, PPS, PBT and LFT are used in a broad range of
products including automotive components, medical devices,
electronics, appliances and industrial applications.
GUR
®
is used in battery separators, conveyor belts, filtration
equipment, coatings and medical devices. Primary end uses for
LCP are electrical and electronics.
Advanced Engineered Materials’ specialty polymers have
chemical and physical properties enabling them, among other
things, to withstand elevated temperatures, resist adverse
chemical interactions with solvents and withstand deformation.
These products are used in a wide range of performance-demanding
applications in the automotive and electronics sectors as well
as in other consumer and industrial goods.
Advanced Engineered Materials works in concert with its
customers to enable innovations and develop new or enhanced
products. Advanced Engineered Materials focuses its efforts on
developing new applications for its product lines, often
creating custom formulations to satisfy the technical and
processing requirements of a customer’s applications. For
example, Advanced Engineered Materials has collaborated with
fuel system suppliers to develop an acetal copolymer with the
chemical and impact resistance necessary to withstand exposure
to hot diesel fuels in the new generation of common rail diesel
engines. The product can also be used in automotive fuel sender
units where it remains stable at the operating temperatures
present in direct-injection diesel engines and can meet the
requirements of the new generation of biofuels.
Prices for most of these products, particularly specialized
product grades for targeted applications, generally reflect the
value added in complex polymer chemistry, precision formulation
and compounding, and the extensive application development
services provided. These specialized products are not typically
susceptible to cyclical swings in pricing.
8
Table of Contents
| • | Key Products |
POM.
Polyacetal, as POM is commonly known in the
chemical industry, is sold by Advanced Engineered Materials
under the trademark
Hostaform
®
in all regions but North America, where it is sold under the
trademark
Celcon
®
.
POM is used for mechanical parts, including door locks and seat
belt mechanisms, in automotive applications and in electrical,
medical and consumer applications such as drug delivery systems
and gears for large appliances. POM and other engineering resins
are manufactured in the Asia-Pacific region by Polyplastics Co.,
Ltd., our
45%-owned
strategic venture (“Polyplastics”), and Korea
Engineering Plastics Co., Ltd., our 50%-owned strategic venture
(“KEPCO”).
The primary raw material for POM is formaldehyde, which is
manufactured from methanol. Advanced Engineered Materials
currently purchases formaldehyde in the United States from our
Acetyl Intermediates segment and, in Europe, manufactures
formaldehyde from purchased methanol.
Ibn Sina produces methanol and methyl tertiary-butyl ether
(“MTBE”). We recently announced the extension of our
Ibn Sina strategic venture, including the construction of a new
50,000 ton POM manufacturing facility in Saudi Arabia.
Engineering on the facility began in 2010.
LFT.
Celstran
®
and
Compel
®
are long-fiber reinforced thermoplastics, which impart extra
strength and stiffness, making them more suitable for larger
parts than conventional thermoplastics and both products are
used in automotive, transportation and industrial applications.
GUR
®
. A
highly engineered material designed for heavy-duty industrial
and automotive applications,
GUR
®
is used in items such as industrial conveyor belts, car battery
separator panels and specialty medical and consumer
applications, such as sports prostheses and equipment.
GUR
®
micro powder grades are used for high-performance filters,
membranes, diagnostic devices, coatings and additives for
thermoplastics and elastomers.
GUR
®
fibers are also used in protective ballistic applications.
Polyesters.
Our products also include certain
polyesters such as
Celanex
®
PBT,
Celanex
®
PET,
Vandar
®
,
a series of PBT-polyester blends and
Riteflex
®
,
a thermoplastic polyester elastomer, used in a wide variety of
automotive, electrical and consumer applications, including
ignition system parts, radiator grilles, electrical switches,
appliance and sensor housings, light emitting diodes
(“LEDs”) and technical fibers. Raw materials for
polyesters vary. Base monomers, such as dimethyl terephthalate
and purified terephthalic acid (“PTA”), are widely
available with pricing dependent on broader polyester fiber and
packaging resins industry conditions. Smaller volume specialty
co-monomers for these products are typically supplied to us by a
limited number of companies.
Liquid crystal polymers, such as
Vectra
®
and
Zenite
®
,
are primarily used in electrical and electronics applications
for precision parts with thin walls and complex shapes as well
as in high heat cookware applications.
Fortron
®
,
a PPS product, is used in a wide variety of automotive and other
applications, especially those requiring heat
and/or
chemical resistance, including fuel system parts, radiator pipes
and halogen lamp housings, often replacing metal. Other
application fields include non-woven filtration devices used in
coal fired power plants.
Fortron
®
is manufactured by Fortron Industries LLC (“Fortron”),
our 50%-owned strategic venture with Kureha Corporation of Japan.
| • | Facilities |
Advanced Engineered Materials has polymerization, compounding
and research and technology centers in Germany, Brazil, China
and the United States.
9
Table of Contents
| • | Geographic Regions |
The following table illustrates the destination of the net sales
of the Advanced Engineered Materials segment by geographic
region.
Net Sales
to External Customers by Destination — Advanced
Engineered Materials
| Year Ended December 31, | ||||||||||||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||||||||||||
|
% of
|
% of
|
% of
|
||||||||||||||||||||||
| $ | Segment | $ | Segment | $ | Segment | |||||||||||||||||||
| (In millions, except percentages) | ||||||||||||||||||||||||
|
North America
|
384 | 34 | 285 | 35 | 365 | 34 | ||||||||||||||||||
|
Europe and Africa
|
530 | 48 | 403 | 50 | 553 | 52 | ||||||||||||||||||
|
Asia-Pacific
|
152 | 14 | 82 | 10 | 106 | 10 | ||||||||||||||||||
|
South America
|
43 | 4 | 38 | 5 | 37 | 4 | ||||||||||||||||||
|
Total
|
1,109 | 808 | 1,061 | |||||||||||||||||||||
| • | Customers |
Advanced Engineered Materials’ sales in Asia are made
directly and through distributors including its strategic
affiliates. Polyplastics, KEPCO and Fortron are accounted for
under the equity method of accounting and therefore not included
in Advanced Engineered Materials’ consolidated net sales.
If Advanced Engineered Materials’ portion of the sales made
by these strategic affiliates were included in the table above,
the percentage of sales sold in Asia-Pacific would be
substantially higher. A number of Advanced Engineered
Materials’ POM customers, particularly in the appliance,
electrical components and certain sections of the
electronics/telecommunications fields, have moved tooling and
molding operations to Asia, particularly southern China. In
addition to our Advanced Engineered Materials affiliates, we
directly service Asian demand by offering our customers global
solutions.
Advanced Engineered Materials’ principal customers are
consumer product manufacturers and suppliers to the automotive
industry. These customers primarily produce engineered products,
and Advanced Engineered Materials collaborates with its
customers to assist in developing and improving specialized
applications and systems. Advanced Engineered Materials has
long-standing relationships with most of its major customers,
but also uses distributors for its major products, as well as a
number of electronic marketplaces to reach a larger customer
base. For most of Advanced Engineered Materials’ products,
contracts with customers typically have a term of one to
two years.
| • | Competition |
Advanced Engineered Materials’ principal competitors
include BASF AG (“BASF”), E. I. DuPont de Nemours and
Company (“DuPont”), DSM N.V., SABIC Innovative
Plastics and Solvay S.A. Other regional competitors include
Asahi Kasei Corporation, Mitsubishi Gas Chemicals, Inc., Chevron
Phillips Chemical Company, L.P., Braskem S.A., Lanxess AG,
Teijin, Sumitomo, Inc. and Toray Industries Inc.
Consumer
Specialties
The Consumer Specialties segment consists of our Acetate
Products and Nutrinova businesses. Our Acetate Products business
primarily produces and supplies acetate tow, which is used in
the production of filter products. We also produce acetate flake
which is processed into acetate fiber in the form of a tow band.
Our Nutrinova business produces and sells
Sunett
®
,
a high intensity sweetener, and food protection ingredients,
such as sorbates and sorbic acid, for the food, beverage and
pharmaceutical industries.
10
Table of Contents
| • | Key Products |
Acetate flake and tow.
According to the 2009
Stanford Research Institute International Chemical Economics
Handbook, as of 2008 we were the world’s leading producer
of acetate tow (inclusive of the production of our China
ventures). Acetate tow is used primarily in cigarette filters.
To produce acetate tow, we first produce acetate flake by
processing wood pulp with acetic acid and acetic anhydride. Wood
pulp comes from reforested trees and is purchased externally
from a variety of sources and acetic anhydride is an
intermediate chemical we produce internally from acetic acid.
The acetate flake is then further processed into acetate fiber
in the form of a tow band.
Sales of acetate tow amounted to approximately 15%, 16% and 12%
of our consolidated net sales for the years ended
December 31, 2010, 2009 and 2008, respectively.
We have an approximate 30% interest in three manufacturing
ventures in China that produce acetate flake and tow. Our
partner in each of the ventures is the Chinese state-owned
tobacco entity, China National Tobacco Corporation. In addition
to being our venture partner, China National Tobacco accounted
for approximately 12% of our 2010 acetate tow sales.
Sunett
®
sweetener.
Acesulfame potassium, a high intensity
sweetener marketed under the trademark
Sunett
®
,
is used in a variety of beverages, confections and dairy
products throughout the world.
Sunett
®
sweetener is known for its consistent product quality and
reliable supply. Nutrinova’s strategy is to be the most
reliable and highest quality producer of this product, to
develop new product applications and to expand into new regions.
Food protection ingredients.
Nutrinova’s food
protection ingredients are mainly used in foods, beverages and
personal care products. The primary raw materials for these
products are ketene and crotonaldehyde. Sorbates pricing is
extremely sensitive to demand and industry capacity and is not
necessarily dependent on the prices of raw materials.
| • | Facilities |
Acetate Products has production sites in the United States,
Mexico, the United Kingdom and Belgium, and participates in
three manufacturing ventures in China. During 2010, we announced
the shutdown of our acetate tow and flake manufacturing
operations at our Spondon, Derby, United Kingdom site. We will
continue to maintain our Clarifoil manufacturing operations at
this site.
Nutrinova has a production facility in Germany, as well as sales
and distribution facilities in all major regions of the world.
11
Table of Contents
| • | Geographic Regions |
The following table illustrates the destination of the net sales
of the Consumer Specialties segment by geographic region.
Net Sales
to External Customers by Destination — Consumer
Specialties
| Year Ended December 31, | ||||||||||||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||||||||||||
|
% of
|
% of
|
% of
|
||||||||||||||||||||||
| $ | Segment | $ | Segment | $ | Segment | |||||||||||||||||||
| (In millions, except percentages) | ||||||||||||||||||||||||
|
North America
|
186 | 17 | 176 | 16 | 194 | 17 | ||||||||||||||||||
|
Europe and Africa
|
448 | 41 | 452 | 42 | 497 | 43 | ||||||||||||||||||
|
Asia-Pacific
|
394 | 36 | 402 | 37 | 413 | 36 | ||||||||||||||||||
|
South America
|
61 | 6 | 48 | 5 | 51 | 4 | ||||||||||||||||||
|
Total
|
1,089 | (1) | 1,078 | (1) | 1,155 | (1) | ||||||||||||||||||
| (1) | Excludes inter-segment sales of $9 million, $6 million and $0 million for the years ended December 31, 2010, 2009 and 2008, respectively. |
| • | Customers |
Sales of acetate tow are principally to the major tobacco
companies that account for a majority of worldwide cigarette
production. Our contracts with most of our customers are entered
into on an annual basis.
Nutrinova primarily markets
Sunett
®
sweetener to a limited number of large multinational and
regional customers in the beverage and food industry under
long-term and annual contracts. Nutrinova markets food
protection ingredients primarily through regional distributors
to small and medium sized customers and directly through
regional sales offices to large multinational customers in the
food industry.
| • | Competition |
Acetate Products’ principal competitors include Daicel
Chemical Industries Ltd. (“Daicel”), Eastman Chemical
Corporation (“Eastman”) and Rhodia S.A.
The principal competitors for Nutrinova’s
Sunett
®
sweetener are Holland Sweetener Company, The NutraSweet Company,
Ajinomoto Co., Inc., Tate & Lyle PLC and several
Chinese manufacturers. In sorbates, Nutrinova competes with
Nantong AA, Daicel, Yu Yao/Ningbo, Yancheng AmeriPac and other
Chinese manufacturers of sorbates.
Industrial
Specialties
Our Industrial Specialties segment is comprised of our Emulsions
and EVA Performance Polymers businesses and is a leading
producer of environmentally sensitive, low volatile organic
compound (“VOC”) applications. Our emulsions products
are used in a wide array of applications, including paints and
coatings, adhesives, construction, glass fiber, textiles and
paper. EVA Performance Polymers offers a complete line of
low-density polyethylene and specialty EVA resins and compounds
used in many applications including flexible packaging films,
lamination film products, hot melt adhesives, medical devices
and tubing, automotive, carpeting and solar cell encapsulation
films. Our polyvinyl alcohol (“PVOH”) business was
included in our Industrial Specialties segment until it was sold
in July 2009 to Sekisui Chemical Co., Ltd. (“Sekisui”)
for a net cash purchase price of $168 million.
12
Table of Contents
Primary raw materials for our emulsions and EVA products are VAM
which is produced by our Acetyl Intermediates segment and
ethylene which we purchase externally from a variety of sources.
| • | Key Products |
Our Emulsions business produces conventional vinyl- and
acrylate-based emulsions and high-pressure VAE. Emulsions are
made from VAM, acrylate esters and styrene. Our Emulsions
business is a leading producer of VAE in Europe. VAE is a key
component of water-based architectural coatings, adhesives,
nonwovens, textiles, glass fiber and other applications.
EVA Performance Polymers produces low-density polyethylene and
EVA resins and compounds. EVA resins and compounds are produced
in high-pressure reactors from ethylene and VAM.
| • | Facilities |
The Emulsions business has production sites in the United
States, Canada, China, Spain, Sweden, the Netherlands and
Germany. EVA Performance Polymers has a production facility in
Edmonton, Alberta, Canada.
| • | Geographic Regions |
The following table illustrates the destination of the net sales
of the Industrial Specialties segment by geographic region.
Net Sales
to External Customers by Destination — Industrial
Specialties
| Year Ended December 31, | ||||||||||||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||||||||||||
|
% of
|
% of
|
% of
|
||||||||||||||||||||||
| $ | Segment | $ | Segment | $ | Segment | |||||||||||||||||||
| (In millions, except percentages) | ||||||||||||||||||||||||
|
North America
|
450 | 43 | 382 | 39 | 617 | 44 | ||||||||||||||||||
|
Europe and Africa
|
481 | 47 | 504 | 52 | 684 | 48 | ||||||||||||||||||
|
Asia-Pacific
|
97 | 9 | 78 | 8 | 81 | 6 | ||||||||||||||||||
|
South America
|
8 | 1 | 10 | 1 | 24 | 2 | ||||||||||||||||||
|
Total
|
1,036 | 974 | 1,406 | |||||||||||||||||||||
| • | Customers |
Industrial Specialties’ products are sold to a diverse
group of regional and multinational customers. Customers for
emulsions products are manufacturers of water-based paints and
coatings, adhesives, paper, building and construction products,
glass fiber, non-wovens and textiles. Customers of EVA
Performance Polymers products are primarily engaged in the
manufacture of adhesives, automotive components, packaging
materials, print media and solar energy products.
| • | Competition |
Principal competitors in the Emulsions business include The Dow
Chemical Company (“Dow”), BASF, Dairen Chemical,
Wacker Chemie AG and several smaller regional manufacturers.
Principal competitors for the EVA Performance Polymers business
include DuPont, ExxonMobil Chemical, Arkema and several Asian
manufacturers.
13
Table of Contents
Acetyl
Intermediates
Our Acetyl Intermediates segment produces and supplies acetyl
products, including acetic acid, VAM, acetic anhydride and
acetate esters. These products are generally used as starting
materials for colorants, paints, adhesives, coatings and
medicines. Other chemicals produced in this business segment are
organic solvents and intermediates for pharmaceutical,
agricultural and chemical products.
In November 2010, we announced our newly developed advanced
technology to produce ethanol, which will be included in our
Acetyl Intermediates segment. This innovative, new process
combines our proprietary and leading acetyl platform with highly
advanced manufacturing technology to produce ethanol from
hydrocarbon-sourced feedstocks. In January 2011, we signed
letters of intent for projects to construct and operate
industrial ethanol production facilities and signed a memorandum
of understanding for production of certain feedstocks used in
our advanced ethanol production process.
| • | Key Products |
Acetyl Products.
Acetyl products include acetic
acid, VAM and acetic anhydride. Acetic acid is primarily used to
manufacture VAM, PTA and other acetyl derivatives. VAM is used
in a variety of adhesives, paints, films, coatings and textiles.
Acetic anhydride is a raw material used in the production of
cellulose acetate, detergents and pharmaceuticals. Acetaldehyde
is a major feedstock for the production of a variety of
derivatives, such as pyridines, which are used in agricultural
products. We manufacture acetic acid, VAM and acetic anhydride
for our own use, as well as for sale to third parties.
Our basic acetyl intermediates products, acetic acid and VAM,
are impacted by global supply and demand fundamentals and are
cyclical in nature. The principal raw materials in these
products are: carbon monoxide, which we generally purchase under
long-term contracts; methanol, which we generally purchase under
long-term and short-term contracts; and ethylene, which we
purchase from numerous sources. With the exception of carbon
monoxide, these raw materials are commodity products available
from a wide variety of sources.
Our production of acetyl products employs leading proprietary
and licensed technologies, including our proprietary
AOPlus
®
and
AOPlus
®
2
technologies for the production of acetic acid and
VAntage
®
and VAntage
Plus
tm
VAM technology. We believe our production technology is one of
the lowest cost in the industry and provides us a cost advantage
over our competitors.
Sales from acetyl products amounted to 34%, 34% and 35% of our
consolidated net sales for the years ended December 31,
2010, 2009 and 2008, respectively.
Solvents and Derivatives.
These include a variety of
solvents, formaldehyde and other chemicals, which in turn are
used in the manufacture of paints, coatings, adhesives and other
products. Many solvents and derivatives products are derived
from our production of acetic acid. Primary products are:
| • | Ethyl acetate, an acetate ester that is a solvent used in coatings, inks and adhesives and in the manufacture of photographic films and coated papers; and |
| • | Butyl acetate, an acetate ester that is a solvent used in inks, pharmaceuticals and perfume. |
Formaldehyde and formaldehyde derivative products are
derivatives of methanol and are made up of the following
products:
| • | Formaldehyde, paraformaldehyde and formcels are primarily used to produce adhesive resins for plywood, particle board, coatings, POM engineering resins and a compound used in making polyurethane; and |
| • | Other chemicals, such as crotonaldehyde, are used by the Nutrinova line for the production of sorbates, as well as raw materials for the fragrance and food ingredients industry. |
14
Table of Contents
Solvents and derivatives are products characterized by
cyclicality in pricing. The principal raw materials used in
solvents and derivatives products are acetic acid, various
alcohols, methanol, ethylene and ammonia. We purchase ethylene
from a variety of sources.
Sales from solvents and derivatives products amounted to 11%,
10% and 12% of our consolidated net sales for the years ended
December 31, 2010, 2009 and 2008, respectively.
| • | Facilities |
Acetyl Intermediates has production sites in the United States,
China, Mexico, Singapore, Spain, France and Germany. As of
December 31, 2009, acetic acid and VAM production at our
Pardies, France location had ceased. In addition, our
Cangrejera, Mexico site no longer produced VAM as of
December 31, 2009. Over the last few years, we have
continued to shift our production capacity to lower cost
production facilities while expanding in growth regions, such as
China.
| • | Geographic Regions |
The following table illustrates net sales by destination of the
Acetyl Intermediates segment by geographic region.
Net Sales
to External Customers by Destination — Acetyl
Intermediates
| Year Ended December 31, | ||||||||||||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||||||||||||
|
% of
|
% of
|
% of
|
||||||||||||||||||||||
| $ | Segment | $ | Segment | $ | Segment | |||||||||||||||||||
| (In millions, except percentages) | ||||||||||||||||||||||||
|
North America
|
654 | 24 | 501 | 22 | 743 | 23 | ||||||||||||||||||
|
Europe and Africa
|
897 | 34 | 771 | 35 | 1,198 | 37 | ||||||||||||||||||
|
Asia-Pacific
|
1,046 | 39 | 884 | 40 | 1,142 | 36 | ||||||||||||||||||
|
South America
|
85 | 3 | 64 | 3 | 116 | 4 | ||||||||||||||||||
|
Total
|
2,682 | (1) | 2,220 | (1) | 3,199 | (1) | ||||||||||||||||||
| (1) | Excludes inter-segment sales of $400 million, $383 million and $676 million for the years ended December 31, 2010, 2009 and 2008, respectively. |
| • | Customers |
Acetyl Intermediates markets its products both directly to
customers and through distributors.
Acetic acid, VAM and acetic anhydride are global businesses
which have several large customers. Generally, we supply these
global customers under multi-year contracts. The customers of
acetic acid, VAM and acetic anhydride produce polymers used in
water-based paints, adhesives, paper coatings, polyesters, film
modifiers, pharmaceuticals, cellulose acetate and textiles. We
have long-standing relationships with most of these customers.
Solvents and derivatives are sold to a diverse group of regional
and multinational customers both under multi-year contracts and
on the basis of long-standing relationships. The customers of
solvents and derivatives are primarily engaged in the production
of paints, coatings and adhesives. We manufacture formaldehyde
for our own use as well as for sale to a few regional customers
that include manufacturers in the wood products and chemical
derivatives industries. The sale of formaldehyde is based on
both long and short-term agreements. Specialty solvents are sold
globally to a wide variety of customers, primarily in the
coatings and resins and the specialty products industries. These
products serve global regions in the synthetic lubricant,
agrochemical, rubber processing and other specialty chemical
areas.
15
Table of Contents
| • | Competition |
Our principal competitors in the Acetyl Intermediates segment
include Atofina S.A., BASF, BP PLC, Chang Chun Petrochemical
Co., Ltd., Daicel, Dow, Eastman, DuPont, LyondellBasell
Industries, Nippon Gohsei, Perstorp Inc., Jiangsu Sopo
Corporation (Group) Ltd., Showa Denko K.K. and Kuraray
Co. Ltd.
Other
Activities
Other Activities primarily consists of corporate center costs,
including financing and administrative activities such as legal,
accounting and treasury functions, interest income and expense
associated with our financing activities, and our captive
insurance companies. Our two wholly-owned captive insurance
companies are a key component of our global risk management
program, as well as a form of self-insurance for our property,
liability and workers compensation risks. The captive insurance
companies issue insurance policies to our subsidiaries to
provide consistent coverage amid fluctuating costs in the
insurance market and to lower long-term insurance costs by
avoiding or reducing commercial carrier overhead and regulatory
fees. The captive insurance companies retain risk at levels
approved by management and obtain reinsurance coverage from
third parties to limit the net risk retained. One of the captive
insurance companies also insures certain third-party risks.
Strategic
Ventures & Affiliates
We have a significant portfolio of strategic relationships and
ventures in various regions, including Asia-Pacific, North
America, the Middle East and Europe. Historically, we have
entered into these strategic investments in order to gain access
to local demand, minimize costs and accelerate growth in areas
we believe have significant future business potential. Depending
on the level of investment and other factors, we account for our
strategic ventures using either the equity method or cost method
of accounting.
In aggregate, our strategic investments generate significant
sales, earnings and cash flows. For example, during the year
ended December 31, 2010, our equity affiliates generated
combined sales of $4.5 billion resulting in
$168 million of equity in earnings from affiliates during
the same period.
Our significant strategic ventures as of December 31, 2010
are as follows:
|
Year
|
||||||||||||||
| Location | Ownership | Business Segment | Partner(s) | Entered | ||||||||||
|
Equity Method Investments
|
||||||||||||||
|
National Methanol Company
|
Saudi Arabia | 25 | % | Advanced Engineered Materials | Saudi Basic Industries Corporation (“SABIC”)/ Texas Eastern Arabian Corporation Ltd. | 1981 | ||||||||
|
Korea Engineering Plastics Co., Ltd
|
South Korea | 50 | % | Advanced Engineered Materials | Mitsubishi Gas Chemical Company, Inc./Mitsubishi Corporation | 1999 | ||||||||
|
Polyplastics Co., Ltd.
|
Japan | 45 | % | Advanced Engineered Materials | Daicel Chemical Industries Ltd. | 1964 | ||||||||
|
Fortron Industries LLC
|
US | 50 | % | Advanced Engineered Materials | Kureha Corporation | 1992 | ||||||||
|
Cost Method Investments
|
||||||||||||||
|
Kunming Cellulose Fibers Co. Ltd.
|
China | 30 | % | Consumer Specialties | China National Tobacco Corporation | 1993 | ||||||||
|
Nantong Cellulose Fibers Co. Ltd.
|
China | 31 | % | Consumer Specialties | China National Tobacco Corporation | 1986 | ||||||||
|
Zhuhai Cellulose Fibers Co. Ltd.
|
China | 30 | % | Consumer Specialties | China National Tobacco Corporation | 1993 | ||||||||
National Methanol Company (Ibn Sina).
With
production facilities in Saudi Arabia, Ibn Sina represents
approximately 2% of the world’s methanol production
capacity and is one of the world’s largest producers of
MTBE, a gasoline additive. We indirectly own a 25% interest in
Ibn Sina through CTE Petrochemicals Company, a
16
Table of Contents
joint venture with Texas Eastern Arabian Corporation Ltd. Texas
Eastern Arabian Corporation Ltd. indirectly owns an additional
25% interest in Ibn Sina, and the remaining 50% interest is held
by SABIC. SABIC is responsible for all product marketing.
In April 2010, we announced that Ibn Sina will construct a
50,000 ton POM production facility in Saudi Arabia and that the
term of the joint venture agreement was extended until 2032. Ibn
Sina’s existing natural gas supply contract expires in
2022. The purpose of the plant is to supply POM to support
Celanese’s Advanced Engineered Materials segment growth as
well as our venture partners’ regional business
development. Upon successful startup of the POM facility, our
indirect economic interest in Ibn Sina will increase from 25% to
32.5%. SABIC’s economic interest will remain unchanged.
In connection with the extension of the venture, we reassessed
the factors surrounding the accounting method for this
investment and changed from the cost method of accounting for
investments to the equity method of accounting for investments
beginning April 1, 2010.
Korea Engineering Plastics Co., Ltd.
Founded in
1987, KEPCO is the leading producer of POM in South Korea.
Mitsubishi Gas Chemical Company, Inc. owns 40% and Mitsubishi
Corporation owns 10% of KEPCO. KEPCO operates a POM plant in
Ulsan, South Korea and participates with Polyplastics and
Mitsubishi Gas Chemical Company, Inc. in a POM facility in
Nantong, China.
Polyplastics Co., Ltd.
Polyplastics is a leading
supplier of engineered plastics in the Asia-Pacific region.
Polyplastics’ principal production facilities are located
in Japan, Taiwan, Malaysia and China. Polyplastics is a producer
and marketer of POM in the Asia-Pacific region.
Fortron Industries LLC.
Fortron is a leading global
producer of PPS. Fortron’s facility is located in
Wilmington, North Carolina.
China acetate strategic ventures.
We hold an
approximately 30% ownership interest (50% board representation)
in three separate Acetate Products production entities in China:
the Nantong, Kunming and Zhuhai Cellulose Fiber Companies. In
each instance, the Chinese state-owned tobacco entity, China
National Tobacco Corporation, controls the remainder. With an
estimated 30% share of the world’s cigarette production and
consumption, China is the world’s largest and fastest
growing area for acetate tow products according to the 2009
Stanford Research Institute International Chemical Economics
Handbook. Combined, these ventures are a leader in Chinese
domestic acetate production and are well positioned to supply
Chinese cigarette producers.
In December 2009, we announced plans with China National Tobacco
to expand our acetate flake and tow capacity at our Nantong
facility. During 2010 we received formal approval to expand
flake and tow capacities, each by 30,000 tons. Our Chinese
acetate ventures fund their operations using operating cash
flow. We made contributions during 2010 of $12 million and
have committed to contributions of $17 million in 2011
related to the capacity expansion in Nantong.
Our Chinese acetate ventures pay a dividend in the second
quarter of each fiscal year, based on the ventures’
performance for the preceding year. In 2010, 2009 and 2008, we
received cash dividends of $71 million, $56 million
and $46 million, respectively.
Despite the fact that our ownership interest exceeds 20% in each
of our China Acetate Products ventures, we account for these
investments using the cost method of accounting because we
cannot exercise significant influence over these entities. We
determined that we cannot exercise significant influence over
these entities due to local government investment in and
influence over these entities, limitations on our involvement in
the
day-to-day
operations and the present inability of the entities to provide
timely financial information prepared in accordance with
generally accepted accounting principles in the United States
(“US GAAP”).
17
Table of Contents
| • | Other Equity Investments |
InfraServs.
We hold ownership interests in several
InfraServ entities located in Germany that own and develop
industrial parks and provide
on-site
general and administrative support to tenants. The table below
represents our equity investments in InfraServ ventures as of
December 31, 2010:
| Ownership % | ||||
|
InfraServ GmbH & Co. Gendorf KG
|
39 | |||
|
InfraServ GmbH & Co. Knapsack KG
|
27 | |||
|
InfraServ GmbH & Co. Hoechst KG
|
32 | |||
Raw
Materials and Energy
We purchase a variety of raw materials and energy from sources
in many countries for use in our production processes. We have a
policy of maintaining, when available, multiple sources of
supply for materials. However, some of our individual plants may
have single sources of supply for some of their raw materials,
such as carbon monoxide, steam and acetaldehyde. Although we
have been able to obtain sufficient supplies of raw materials,
there can be no assurance that unforeseen developments will not
affect our raw material supply. Even if we have multiple sources
of supply for a raw material, there can be no assurance that
these sources can make up for the loss of a major supplier.
There cannot be any guarantee that profitability will not be
affected should we be required to qualify additional sources of
supply to our specifications in the event of the loss of a sole
supplier. In addition, the price of raw materials varies, often
substantially, from year to year.
A substantial portion of our products and raw materials are
commodities whose prices fluctuate as supply and demand
fundamentals change. Our production facilities rely largely on
fuel oil, natural gas, coal and electricity for energy. Most of
the raw materials for our European operations are centrally
purchased by one of our subsidiaries, which also buys raw
materials on behalf of third parties. We manage our exposure to
commodity risk primarily through the use of long-term supply
agreements, multi-year purchasing and sales agreements and
forward purchase contracts.
We also currently purchase and lease supplies of various
precious metals, such as rhodium, used as catalysts for the
manufacture of Acetyl Intermediates products. For precious
metals, the leases are distributed between a minimum of three
lessors per product and are divided into several contracts.
Research
and Development
All of our businesses conduct research and development
activities to increase competitiveness. Our businesses are
innovation-oriented and conduct research and development
activities to develop new, and optimize existing, production
technologies, as well as to develop commercially viable new
products and applications. We consider the amounts spent during
each of the last three fiscal years on research and development
activities to be sufficient to drive our current strategic
initiatives.
Intellectual
Property
We attach great importance to patents, trademarks, copyrights
and product designs in order to protect our investment in
research and development, manufacturing and marketing. Patents
may cover processes, products, intermediate products and product
uses. We also seek to register trademarks extensively as a means
of protecting the brand names of our products. We protect our
intellectual property vigorously against infringement and also
seek to register design protection where appropriate.
Patents.
In most industrial countries, patent
protection exists for new substances and formulations, as well
as for unique applications and production processes. However, we
do business in regions of the world where intellectual property
protection may be limited and difficult to enforce. We maintain
strict information security policies and procedures wherever we
do business. Such information security policies and procedures
include data encryption,
18
Table of Contents
controls over the disclosure and safekeeping of confidential
information, as well as employee awareness training. Moreover,
we monitor competitive developments and vigorously defend
against infringements on our intellectual property rights.
Trademarks.
AOPlus
®
,
AOPlus
®
2,
VAntage
®
,
VAntage
Plus
tm
,
BuyTiconaDirect
tm
,
Celanex
®
,
Celcon
®
,
Celstran
®
,
Celvolit
®
,
Compel
®
,
Erkol
®
,
GUR
®
,
Hostaform
®
,
Impet
®
,
Mowilith
®
,
Nutrinova
®
,
Riteflex
®
,
Sunett
®
,
Thermx
®
,
Zenite
®
,
Vandar
®
,
Vectra
®
,
Vinamul
®
,
EcoVAE
®
,
Duroset
®
,
Ateva
®
,
Acetex
®
and certain other products and services named in this document
are trademarks, service marks or registered trademarks of
Celanese. The foregoing is not intended to be an exhaustive or
comprehensive list of all trademarks, service marks or
registered trademarks owned by Celanese.
Fortron
®
is a registered trademark of Fortron Industries LLC, one of
Celanese’s equity investments.
Neither Celanese nor any particular business segment is
materially dependent upon any one patent, trademark, copyright
or trade secret.
Environmental
and Other Regulation
Matters pertaining to environmental and other regulations are
discussed in
Item 1A. Risk Factors
,
Item 7.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations – Critical Accounting
Policies and Estimates – Accounting for Commitments
and Contingencies
, and Note 15 and Note 23 to the
accompanying consolidated financial statements.
Employees
The approximate number of employees employed by Celanese on a
continuing basis throughout the world is as follows:
|
Employees as of
|
||||
| December 31, 2010 | ||||
|
North America
|
||||
|
US
|
2,350 | |||
|
Canada
|
250 | |||
|
Mexico
|
700 | |||
|
Total
|
3,300 | |||
|
Europe
|
||||
|
Germany
|
1,600 | |||
|
Other Europe
|
1,500 | |||
|
Total
|
3,100 | |||
|
Asia
|
800 | |||
|
Rest of World
|
50 | |||
|
Total
|
7,250 | |||
Many of our employees are unionized, particularly in Germany,
Canada, Mexico, the United Kingdom, Brazil and Belgium. In the
United States, however, less than one quarter of our employees
are unionized. Moreover, in Germany and France, wages and
general working conditions are often the subject of centrally
negotiated collective bargaining agreements. Within the limits
established by these agreements, our various subsidiaries
negotiate directly with the unions and other labor
organizations, such as workers’ councils, representing the
employees. Collective bargaining agreements between the German
chemical employers associations and unions relating to
remuneration generally have a term of one year, while in the
United States a three year term for collective bargaining
agreements is typical. We offer comprehensive benefit plans for
employees and their families and believe our relations with
employees are satisfactory.
19
Table of Contents
Backlog
We do not consider backlog to be a significant indicator of the
level of future sales activity. In general, we do not
manufacture our products against a backlog of orders. Production
and inventory levels are based on the level of incoming orders
as well as projections of future demand. Therefore, we believe
that backlog information is not material to understanding our
overall business and should not be considered a reliable
indicator of our ability to achieve any particular level of
revenue or financial performance.
Available
Information — Securities and Exchange Commission
(“SEC”) Filings and Corporate Governance
Materials
We make available free of charge, through our internet website
(http://www.celanese.com),
our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as well as ownership reports on Form 3 and
Form 4, as soon as reasonably practicable after
electronically filing such material with, or furnishing it to,
the SEC. The SEC maintains an internet site that contains
reports, proxy and information statements, and other information
regarding issuers, including Celanese Corporation, that
electronically file with the SEC at
http://www.sec.gov.
We also make available free of charge, through our internet
website, our Corporate Governance Guidelines of our Board of
Directors and the charters of each of the committees of the
Board. Such materials are also available in print upon the
written request of any shareholder to Celanese Corporation,
1601 West LBJ Freeway, Dallas, Texas,
75234-6034,
Attention: Investor Relations.
| Item 1A. | Risk Factors |
Many factors could have an effect on our financial condition,
cash flows and results of operations. We are subject to various
risks resulting from changing economic, environmental,
political, industry, business and financial conditions. The
factors described below represent our principal risks.
Risks
Related to Our Business
Our
business is exposed to risks associated with the
creditworthiness of our suppliers, customers and business
partners and the industries in which our suppliers and customers
participate are cyclical in nature, both of which may adversely
affect our business and results of operations.
Some of the industries in which our end-use customers
participate, such as the automotive, electrical, construction
and textile industries, are cyclical in nature, thus posing a
risk to us which is beyond our control. The industries in which
these customers participate are highly competitive, to a large
extent driven by end-use applications, and may experience
overcapacity, all of which may affect demand for and pricing of
our products. Our business is exposed to risks associated with
the creditworthiness of our key suppliers, customers and
business partners and reductions in demand for our
customers’ products. The consequences of this could include
the interruption of production at the facilities of our
customers, the reduction, delay or cancellation of customer
orders, delays in or the inability of customers to obtain
financing to purchase our products, delays or interruptions of
the supply of raw materials we purchase and bankruptcy of
customers, suppliers or other creditors. The occurrence of any
of these events may adversely affect our cash flow,
profitability and financial condition.
We are
a company with operations around the world and are exposed to
general economic, political and regulatory conditions and risks
in the countries in which we have significant
operations.
We operate globally and have customers in many countries. We
have major facilities primarily located in North America, Europe
and Asia, and hold interests in ventures that operate in the US,
Germany, China, Japan, South Korea, Taiwan and Saudi Arabia. Our
principal customers are similarly global in scope, and the
prices of our most significant products are typically world
market prices. Also, our operations in certain foreign
jurisdictions are subject to nationalization and expropriation
risk, and some of our contractual relationships within these
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jurisdictions are subject to cancellation without full
compensation for loss. Consequently, our business and financial
results are affected, directly and indirectly, by world
economic, political and regulatory conditions.
In addition to the worldwide economic downturn, conditions such
as the uncertainties associated with war, terrorist activities,
civil unrest, epidemics, pandemics, weather, the effects of
climate change or political instability in any of the countries
in which we operate could affect us by causing delays or losses
in the supply or delivery of raw materials and products, as well
as increasing security costs, insurance premiums and other
expenses. These conditions could also result in or lengthen
economic recession in the United States, Europe, Asia or
elsewhere.
Failure to comply with applicable laws, rules, regulations or
court decisions could expose us to fines, penalties and other
costs. Moreover, changes in laws or regulations, such as
unexpected changes in regulatory requirements (including import
or export licensing requirements), or changes in the reporting
requirements of the United States, German, European Union
(“EU”) or Asian governmental agencies, could increase
the cost of doing business in these regions. Any of these
conditions may have an effect on our business and financial
results as a whole and may result in volatile current and future
prices for our securities, including our stock. Although we
maintain insurance to cover risks associated with the operation
of our business, there can be no assurance that the types of
insurance we obtain or the level of coverage is adequate or that
we will be able to continue to maintain our existing insurance
or obtain comparable insurance at a reasonable cost, if at all.
In particular, we have invested significant resources in China
and other Asian countries. This region’s growth has slowed
and we may fail to realize the anticipated benefits associated
with our investment there and our financial results may be
adversely impacted.
We are
subject to risks associated with the increased volatility in the
prices and availability of key raw materials and
energy.
We purchase significant amounts of natural gas, ethylene and
methanol from third parties for use in our production of basic
chemicals in the Acetyl Intermediates segment, principally
acetic acid, VAM and formaldehyde. We use a portion of our
output of these chemicals, in turn, as inputs in the production
of further products in all our business segments. We also
purchase significant amounts of wood pulp for use in our
production of cellulose acetate in the Consumer Specialties
segment. The price of many of these items is dependent on the
available supply of such item and may increase significantly as
a result of production disruptions or strikes. In particular, to
the extent of our vertical integration in the production of
chemicals, shortages in the availability of raw material
chemicals, such as natural gas, ethylene and methanol, can have
an increased adverse impact on us as it can cause a shortage in
intermediate and finished products. Such shortages would
adversely impact our ability to produce certain products and
increase our costs.
We are exposed to volatility in the prices of our raw materials
and energy. Although we have agreements providing for the supply
of natural gas, ethylene, wood pulp, electricity and fuel oil,
the contractual prices for these raw materials and energy vary
with economic conditions and may be highly volatile. Factors
that have caused volatility in our raw material prices in the
past and which may do so in the future include:
| • | Shortages of raw materials due to increasing demand, e.g., from growing uses or new uses; |
| • | Capacity constraints, e.g., due to construction delays, labor disruption or involuntary shutdowns; |
| • | The general level of business and economic activity; and |
| • | The direct or indirect effect of governmental regulation. |
If we are not able to fully offset the effects of higher energy
and raw material costs, or if such commodities were unavailable,
it could have a significant adverse effect on our financial
results.
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Failure
to develop new products and production technologies or to
implement productivity and cost reduction initiatives
successfully may harm our competitive position.
Our operating results depend significantly on the development of
commercially viable new products, product grades and
applications, as well as production technologies. If we are
unsuccessful in developing new products, applications and
production processes in the future, our competitive position and
operating results may be negatively affected. For example, we
recently announced our intention to construct new ethanol
manufacturing facilities in China and the US that will utilize
advanced technology developed with elements of our proprietary
advanced acetyl platform. However, as we invest in the
commercialization of this new process technology, we face the
risk of unanticipated operational or commercialization
difficulties, including an inability to obtain necessary permits
or governmental approvals, failure of facilities or processes to
operate in accordance with specifications or expectations,
construction delays, cost over-runs, the unavailability of
required materials and equipment and various other factors.
Likewise, we have undertaken and are continuing to undertake
initiatives in all business segments to improve productivity and
performance and to generate cost savings. These initiatives may
not be completed or beneficial or the estimated cost savings
from such activities may not be realized.
US
federal regulations aimed at increasing security at certain
chemical production plants and similar legislation that may be
proposed in the future could, if passed into law, require us to
relocate certain manufacturing activities and require us to
alter or discontinue our production of certain chemical
products, thereby increasing our operating costs and causing an
adverse effect on our results of operations.
Regulations are being implemented by the US Department of
Homeland Security (“DHS”) aimed at decreasing the
risk, and effects, of potential terrorist attacks on chemical
plants located within the United States. Pursuant to these
regulations, these goals would be accomplished in part through
the requirement that certain high-priority facilities develop a
prevention, preparedness, and response plan after conducting a
vulnerability assessment. In addition, companies may be required
to evaluate the possibility of using less dangerous chemicals
and technologies as part of their vulnerability assessments and
security plans and implementing feasible safer technologies in
order to minimize potential damage to their facilities from a
terrorist attack. We have registered certain of our sites with
DHS in accordance with these regulations, have conducted
vulnerability assessments at applicable sites and are awaiting
DHS review and approval of security plans. Until that is done we
cannot determine with certainty the costs associated with any
security measures that DHS may require.
Environmental
regulations and other obligations relating to environmental
matters could subject us to liability for fines,
clean-ups
and other damages, require us to incur significant costs to
modify our operations and increase our manufacturing and
delivery costs.
Costs related to our compliance with environmental laws and
regulations, and potential obligations with respect to
contaminated sites may have a significant negative impact on our
operating results. These obligations include the Comprehensive
Environmental Response, Compensation and Liability Act of 1980
(“CERCLA”) and the Resource Conservation and Recovery
Act of 1976 (“RCRA”) related to sites currently or
formerly owned or operated by us, or where waste from our
operations was disposed. We also have obligations related to the
indemnity agreement contained in the demerger and transfer
agreement between Celanese GmbH and Hoechst AG, also referred to
as the demerger agreement, for environmental matters arising out
of certain divestitures that took place prior to the demerger.
Our operations are subject to extensive international, national,
state, local and other supranational laws and regulations that
govern environmental and health and safety matters, including
CERCLA and RCRA. We incur substantial capital and other costs to
comply with these requirements. If we violate any one of those
laws or regulations, we can be held liable for substantial fines
and other sanctions, including limitations on our operations as
a result of changes to or revocations of environmental permits
involved. Stricter environmental, safety and health laws,
regulations and enforcement policies could result in substantial
costs and liabilities to us or limitations on our operations and
could subject our handling, manufacture, transport, use, reuse
or disposal of substances or pollutants to more rigorous
scrutiny than at present. One example of such regulations is the
National Emission Standard for Hazardous Air Pollutants
(“NESHAP”) for Industrial, Commercial, and
Institutional Boilers, which was issued in
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draft form by the Environmental Protection Agency
(“EPA”) on April 29, 2010. In its current draft
form, these rules could require us to make significant capital
expenditures to comply with stricter emissions requirements for
industrial boilers at our facilities. Consequently, compliance
with these laws and regulations could result in significant
capital expenditures as well as other costs and liabilities,
which could adversely affect our business and cause our
operating results to be less favorable than expected. An adverse
outcome in these claim procedures may negatively affect our
earnings and cash flows in a particular reporting period.
Changes
in environmental, health and safety regulations in the
jurisdictions where we manufacture and sell our products could
lead to a decrease in demand for our products.
New or revised governmental regulations and independent studies
relating to the effect of our products on health, safety and the
environment may affect demand for our products and the cost of
producing our products.
In June 2009, the California Office of Environmental Health
Hazard Assessment (“OEHHA”) formally proposed to add
VAM, along with 11 other substances, to a list of chemicals
“known to the state of California” to cause cancer.
OEHHA is required to maintain this list under the Safe Drinking
Water and Toxic Enforcement Act of 1986 (“Proposition
65”). Celanese filed comments in opposition to the proposed
listing because the listing was not based on a scientific review
of the relevant data and the legal standard for adding VAM to
the Proposition 65 list had not been met. Celanese also filed an
action in the Sacramento County Superior Court seeking
declaration that OEHHA’s proposed listing of VAM would be
contrary to law. The Superior Court granted Celanese’s
request for relief. An appeal filed by OEHHA is pending in the
California Court of Appeal.
We can provide no assurance that the Sacramento County Superior
Court decision will be affirmed on appeal, or that VAM or other
chemicals we produce will not be classified in other
jurisdictions in a manner that would adversely affect demand for
such products.
We are a producer of formaldehyde and plastics derived from
formaldehyde. Several studies have investigated possible links
between formaldehyde exposure and various end points including
leukemia. The International Agency for Research on Cancer
(“IARC”), a private research agency, has reclassified
formaldehyde from Group 2A (probable human carcinogen) to Group
1 (known human carcinogen) based on studies linking formaldehyde
exposure to nasopharyngeal cancer, a rare cancer in humans. In
October 2009, IARC also concluded based on a recent study that
there is sufficient evidence for a casual association between
formaldehyde and the development of leukemia. We expect the
results of IARC’s review will be examined and considered by
government agencies with responsibility for setting worker and
environmental exposure standards and labeling requirements.
Other pending initiatives will potentially require toxicological
testing and risk assessments of a wide variety of chemicals,
including chemicals used or produced by us. These initiatives
include the Voluntary Children’s Chemical Evaluation
Program, High Production Volume Chemical Initiative and expected
modifications to the Toxic Substances Control Act
(“TSCA”) in the United States, as well as various
European Commission programs, such as the Registration,
Evaluation, Authorization and Restriction of Chemicals
(“REACh”).
The above-mentioned assessments in the United States and Europe
may result in heightened concerns about the chemicals involved
and additional requirements being placed on the production,
handling, labeling or use of the subject chemicals. Such
concerns and additional requirements could also increase the
cost incurred by our customers to use our chemical products and
otherwise limit the use of these products, which could lead to a
decrease in demand for these products. Such a decrease in demand
would likely have an adverse impact on our business and results
of operations.
Our
business exposes us to potential product liability claims and
recalls, which could adversely affect our financial condition
and performance.
The development, manufacture and sales of specialty chemical
products by us, including products produced for the food,
beverage, cigarette, and pharmaceutical industries, involve an
inherent risk of exposure to product liability claims, product
recalls, product seizures and related adverse publicity. A
product liability claim or judgment against
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us could also result in substantial and unexpected expenditures,
affect consumer or customer confidence in our products, and
divert management’s attention from other responsibilities.
Although we maintain product liability insurance, there can be
no assurance that this type or the level of coverage is adequate
or that we will be able to continue to maintain its existing
insurance or obtain comparable insurance at a reasonable cost,
if at all. A product recall or a partially or completely
uninsured judgment against us could have a material adverse
effect on our results of operations or financial condition.
We are
subject to risks associated with possible climate change
legislation, regulation and international accords.
Greenhouse gas emissions have increasingly become the subject of
a large amount of international, national, regional, state and
local attention. Cap and trade initiatives to limit greenhouse
gas emissions have been introduced in the EU. Similarly,
numerous bills related to climate change have been introduced in
the US Congress, which could adversely impact all industries. In
addition, the EPA has promulgated rules limiting greenhouse gas
emissions and regulation of greenhouse gas also could occur
pursuant to future US treaty obligations, statutory or
regulatory changes under the Clean Air Act or new climate change
legislation.
While not all are likely to become law, this is a strong
indication that additional climate change related mandates will
be forthcoming, and it is expected that they may adversely
impact our costs by increasing energy costs and raw material
prices, establishing costly emissions trading schemes and
requiring modification of equipment to limit greenhouse gas
emissions.
A step toward potential federal restriction on greenhouse gas
emissions was taken on December 7, 2009 when the
Environmental Protection Agency (“EPA”) issued its
Endangerment Finding in response to a decision of the Supreme
Court of the United States. The EPA found that the emission of
six greenhouse gases, including carbon dioxide (which is emitted
from the combustion of fossil fuels), may reasonably be
anticipated to endanger public health and welfare. Based on this
finding, the EPA defined the mix of these six greenhouse gases
to be “air pollution” subject to regulation under the
Clean Air Act. Although the EPA has stated a preference that
greenhouse gas regulation be based on new federal legislation
rather than the existing Clean Air Act, absent legislative
action, the EPA has begun to regulate many sources of greenhouse
gas emissions.
For example, on January 2, 2011, many large sources of
greenhouse gas emissions became subject to the requirements of
the Prevention of Significant Deterioration (“PSD”)
permitting program. The PSD permitting program requires these
large sources of greenhouse gas emissions to install Best
Available Control Technology (“BACT”) to limit
greenhouse gas emissions when modifying equipment if the
increased greenhouse gas emissions will exceed 75,000 tons per
year. Texas, however, has refused to implement the PSD
permitting program for greenhouse gas emissions, which prompted
the EPA to attempt to take over GHG permitting from the state
regulators late last year. On December 30, 2010, an
Appellate Court stayed EPA’s action pending a determination
of whether EPA’s take-over complies with the
U.S. Clean Air Act. Additionally, the EPA announced on
December 23, 2010 that it would impose further greenhouse
gas emission limits on electric generating units and petroleum
refineries through the establishment of New Source Performance
Standards (“NSPS”).
The US Congress recently considered legislation that would
create an economy-wide
“cap-and-trade”
system that would establish a limit (or cap) on overall
greenhouse gas emissions and create a market for the purchase
and/or
sale
of emissions permits or “allowances.” Under these
proposals, the chemical industry likely would be affected due to
anticipated increases in energy costs as fuel providers pass on
the cost of the emissions allowances, which they would be
required to obtain, to cover the emissions from fuel production
and the eventual use of fuel by the Company or its energy
suppliers. In addition,
cap-and-trade
proposals would likely increase the cost of energy, including
purchases of steam and electricity, and certain raw materials
used by the Company.
Other countries are also considering or have implemented
regulatory programs to reduce greenhouse gas emissions. Future
environmental legislative and regulatory developments related to
climate change are possible, which could materially increase
operating costs in the chemical industry and thereby increase
our manufacturing and delivery costs.
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Our
production facilities handle the processing of some volatile and
hazardous materials that subject us to operating risks that
could have a negative effect on our operating
results.
Our operations are subject to operating risks associated with
chemical manufacturing, including the related storage and
transportation of raw materials, finished products and waste.
These risks include, among other things, pipeline and storage
tank leaks and ruptures, explosions and fires and discharges or
releases of toxic or hazardous substances.
These operating risks can cause personal injury, property damage
and environmental contamination, and may result in the shutdown
of affected facilities and the imposition of civil or criminal
penalties. The occurrence of any of these events may disrupt
production and have a negative effect on the productivity and
profitability of a particular manufacturing facility and our
operating results and cash flows.
Production
at our manufacturing facilities could be disrupted for a variety
of reasons, which could prevent us from producing enough of our
products to maintain our sales and satisfy our customers’
demands.
A disruption in production at one or more of our manufacturing
facilities could have a material adverse effect on our business.
Disruptions could occur for many reasons, including fire,
natural disasters, weather, unplanned maintenance or other
manufacturing problems, disease, strikes, transportation
interruption, government regulation or terrorism. Alternative
facilities with sufficient capacity or capabilities may not be
available, may cost substantially more or may take a significant
time to start production, each of which could negatively affect
our business and financial performance. If one of our key
manufacturing facilities is unable to produce our products for
an extended period of time, our sales may be reduced by the
shortfall caused by the disruption and we may not be able to
meet our customers’ needs, which could cause them to seek
other suppliers. In particular, production disruptions at our
manufacturing facilities that produce chemicals used as inputs
in the production of chemicals in other business segments, such
as acetic acid, VAM and formaldehyde, could have a more
significant adverse effect on our business and financial
performance and results of operation to the extent of such
vertical integration. Furthermore, to the extent a production
disruption occurs at a manufacturing facility that has been
operating at or near full capacity, the resulting shortage of
our product could be particularly harmful because production at
the manufacturing facility may not be able to be sufficiently
increased in the future.
Our
business and financial results may be adversely affected by
various legal and regulatory proceedings.
We are subject to legal and regulatory proceedings, lawsuits and
claims in the normal course of business and could become subject
to additional claims in the future, some of which could be
material. The outcome of existing proceedings, lawsuits and
claims may differ from our expectations because the outcomes of
litigation, including regulatory matters, are often difficult to
reliably predict. Various factors or developments can lead us to
change current estimates of liabilities and related insurance
receivables where applicable, or permit us to make such
estimates for matters previously not susceptible to reasonable
estimates, such as a significant judicial ruling or judgment, a
significant settlement, significant regulatory developments, or
changes in applicable law. A future adverse ruling, settlement,
or unfavorable development could result in charges that could
have a material adverse effect on our business, results of
operations or financial condition in any particular period. For
a more detailed discussion of our legal proceedings, see
Item 3. Legal Proceedings
below.
Our
success depends upon our ability to attract and retain key
employees and the identification and development of talent to
succeed senior management.
Our success depends on our ability to attract and retain key
personnel, and we rely heavily on our management team. The
inability to recruit and retain key personnel or the unexpected
loss of key personnel may adversely affect our operations. In
addition, because of the reliance on our management team, our
future success depends in part on our ability to identify and
develop talent to succeed senior management. The retention of
key personnel and appropriate senior management succession
planning will continue to be critically important to the
successful implementation of our strategies.
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We may
not be able to complete future acquisitions or successfully
integrate future acquisitions into our business, which could
affect adversely our business or results of
operations.
As part of our growth strategy, we intend to pursue acquisitions
and joint venture opportunities. Successful accomplishment of
this objective may be limited by the availability and
suitability of acquisition candidates and by our financial
resources, including available cash and borrowing capacity.
Acquisitions involve numerous risks, including difficulty
determining appropriate valuation, integrating operations,
technologies, services and products of the acquired lines or
businesses, personnel turnover and the diversion of
management’s attention from other business matters. In
addition, we may be unable to achieve anticipated benefits from
these acquisitions in the timeframe that we anticipate, or at
all, which could affect adversely our business or results of
operations.
We may
experience unexpected difficulties and incur unexpected costs in
the relocation of our Ticona plant from Kelsterbach to the Rhine
Main area, which may increase our costs, delay the transition or
disrupt our ability to supply our customers.
We have agreed with Frankfurt, Germany Airport
(“Fraport”) to relocate our Kelsterbach, Germany
operations to another location, resolving several years of legal
disputes related to the planned Frankfurt airport expansion. In
July 2007, we announced that we would relocate the Kelsterbach,
Germany operations to the Hoechst Industrial Park in the Rhine
Main area. Fraport agreed to pay Ticona a total of
€670 million over a
5-year
period to offset costs associated with the closure of the
Kelsterbach plant and the transition of the operations from its
current location. As the relocation project progressed, we
decided to expand the scope of the new production facilities and
now expect to spend in excess of the proceeds to be received
from Fraport. Because the relocation of our Kelsterbach, Germany
operations represents a major logistical undertaking, the
construction of our new facilities may be delayed, actual costs
may exceed our revised estimates and we may be subject to
penalties if we have not timely vacated the Kelsterbach
location. If the relocation causes other unexpected
difficulties, our costs may increase or supplies to our
customers may be disrupted.
Our
significant non-US operations expose us to global exchange rate
fluctuations that could adversely impact our
profitability.
Because we conduct a significant portion of our operations
outside the United States, fluctuations in currencies of other
countries, especially the Euro, may materially affect our
operating results. For example, changes in currency exchange
rates may decrease our profits in comparison to the profits of
our competitors on the same products sold in the same markets
and increase the cost of items required in our operations.
A substantial portion of our net sales is denominated in
currencies other than the US dollar. In our consolidated
financial statements, we translate our local currency financial
results into US dollars based on average exchange rates
prevailing during a reporting period or the exchange rate at the
end of that period. During times of a strengthening US dollar
our reported international sales, earnings, assets and
liabilities will be reduced because the local currency will
translate into fewer US dollars.
In addition to currency translation risks, we incur a currency
transaction risk whenever one of our operating subsidiaries
enters into either a purchase or a sales transaction using a
currency different from the operating subsidiary’s
functional currency. Given the volatility of exchange rates, we
may not be able to manage our currency transaction and
translation risks effectively, and volatility in currency
exchange rates may expose our financial condition or results of
operations to a significant additional risk. Since a portion of
our indebtedness is and will be denominated in currencies other
than US dollars, a weakening of the US dollar could make it more
difficult for us to repay our indebtedness denominated in
foreign currencies unless we have cash flows in those foreign
currencies from our foreign operations sufficient to repay that
indebtedness out of those cash flows.
We use financial instruments to hedge certain exposure to
foreign currency fluctuations, but we cannot guarantee that our
hedging strategies will be effective. Failure to effectively
manage these risks could have an adverse impact on our financial
position, results of operations and cash flows.
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Significant
changes in pension fund investment performance or assumptions
relating to pension costs may have a material effect on the
valuation of pension obligations, the funded status of pension
plans and our pension cost.
The cost of our pension plans is incurred over long periods of
time and involves many uncertainties during those periods of
time. Our funding policy for pension plans is to accumulate plan
assets that, over the long run, will approximate the present
value of projected benefit obligations. Our pension cost is
materially affected by the discount rate used to measure pension
obligations, the level and value of plan assets available to
fund those obligations at the measurement date and the expected
long-term rate of return on plan assets. Significant changes in
investment performance or a change in the portfolio mix of
invested assets can result in corresponding increases and
decreases in the valuation of plan assets, particularly equity
securities, or in a change of the expected or actual rate of
return on plan assets. A change in the discount rate would
result in a significant increase or decrease in the valuation of
pension obligations, affecting the reported funded status of our
pension plans as well as the net periodic pension cost in the
following fiscal years. In recent years, an extended duration
strategy in the asset portfolio has been implemented to minimize
the influence of liability volatility due to interest rate
movements. Similarly, changes in the expected return on plan
assets can result in significant changes in the net periodic
pension cost for subsequent fiscal years. If the value of our
pension fund’s portfolio declines we may be required to
contribute capital in addition to those contributions for which
we have already planned.
Our future success will depend in part on our ability to
protect our intellectual property rights. Our inability to
protect and enforce these rights could reduce our ability to
maintain our market position and our profit margins.
We attach great importance to our patents, trademarks,
copyrights and know-how and trade secrets in order to protect
our investment in research and development, manufacturing and
marketing. We have also adopted rigorous internal policies for
protecting our valuable know-how and trade secrets. We sometimes
license patents and other technology from third parties. Our
policy is to seek the widest possible protection for significant
developments that provide us competitive advantages in our major
markets. Patents may cover catalysts, processes, products,
intermediate products and product uses. These patents provide
varying periods of protection based on the filing date of the
patent application, and the legal life of patents, type of
patent and its scope in the various countries in which we seek
protection. As patents expire, the catalysts, processes and
products described and claimed in those patents become generally
available for use by the public subject to our continued
protection for associated know-how and trade secrets. We also
seek to register trademarks extensively as a means of protecting
the brand names of our products, which brand names become more
important once the corresponding product or process patents have
expired. We operate in regions of the world where intellectual
property protection may be limited and difficult to enforce and
our continued growth strategy may bring us to additional regions
with similar challenges. If we are not successful in protecting
or maintaining our patent, license, trademark or other
intellectual property rights, our revenues, results of
operations and cash flows may be adversely affected.
Provisions
in our certificate of incorporation and bylaws, as well as any
shareholders’ rights plan, may discourage a takeover
attempt.
Provisions contained in our certificate of incorporation and
bylaws could make it more difficult for a third party to acquire
us, even if doing so might be beneficial to our shareholders.
Provisions of our certificate of incorporation and bylaws impose
various procedural and other requirements, which could make it
more difficult for shareholders to effect certain corporate
actions. For example, our certificate of incorporation
authorizes our Board of Directors to determine the rights,
preferences, privileges and restrictions of unissued series of
preferred stock, without any vote or action by our shareholders.
Thus, our Board of Directors can authorize and issue shares of
preferred stock with voting or conversion rights that could
adversely affect the voting or other rights of holders of our
Series A common stock. These rights may have the effect of
delaying or deterring a change of control of our Company. In
addition, a change of control of our company may be delayed or
deterred as a result of our having three classes of directors
(each class elected for a three year term) or as a result of any
shareholders’ rights plan that our Board of Directors may
adopt. These provisions could limit the price that certain
investors might be willing to pay in the future for shares of
our Series A common stock.
27
Table of Contents
Risks
Related to the Acquisition of Celanese GmbH, formerly Celanese
AG
The
amounts of the fair cash compensation and of the guaranteed
annual payment offered under the domination and profit and loss
transfer agreement (the “Domination Agreement”) and/or
the compensation paid in connection with the squeeze out may be
increased, which may further reduce the funds that our
subsidiary, BCP Holdings GmbH, a German limited liability
company (“BCP Holdings”), can otherwise make available
to us.
Several minority shareholders of Celanese GmbH have initiated
special award proceedings seeking the court’s review of the
amounts of the fair cash compensation and of the guaranteed
annual payment offered under the Domination Agreement. On
December 12, 2006, the Frankfurt District Court appointed
an expert to help determine the value of Celanese AG as of
July 31, 2004, on which date an extraordinary shareholder
meeting of Celanese AG was held to resolve the Domination
Agreement. As a result of these proceedings, the amounts of the
fair cash compensation and of the guaranteed annual payment
could be increased by the court, and BCP Holdings would be
required to make such payments within two months after the
publication of the court’s ruling. Any such increase may be
substantial. All minority shareholders would be entitled to
claim the respective higher amounts. This may reduce the funds
BCP Holdings can make available to us and, accordingly, diminish
our ability to make payments on our indebtedness. See
Note 23 to the accompanying consolidated financial
statements for further information.
The Company also received applications for the commencement of
award proceedings filed by 79 shareholders against BCP
Holdings with the Frankfurt District Court requesting the court
to set a higher amount for the Squeeze-Out compensation. Should
the court set a higher value for the Squeeze-Out compensation,
former Celanese AG shareholders who ceased to be shareholders of
Celanese AG due to the Squeeze-Out are entitled, pursuant to a
settlement agreement between BCP Holdings and certain former
Celanese AG shareholders, to claim for their shares the higher
of the compensation amounts determined by the court in these
different proceedings. Previously received compensation for
their shares will be offset so that those shareholders who
ceased to be shareholders of Celanese AG due to the Squeeze-Out
are not entitled to more than higher of the amount set in the
two court proceedings.
Celanese
Deutschland Holding GmbH (“CDH”) may be required to
compensate BCP Holdings for annual losses, which may reduce the
funds CDH can otherwise make available to us.
CDH and BCP Holdings have entered into a profit and loss
transfer agreement on December 3, 2009 which became
effective on December 10, 2009 (the “PLTA”).
Under the PLTA, CDH is required, among other things, to
compensate BCP Holdings for any annual loss incurred, determined
in accordance with German accounting requirements, by BCP
Holdings at the end of the fiscal year in which the loss was
incurred. This obligation to compensate BCP Holdings for annual
losses will apply during the entire term of the PLTA. If BCP
Holdings incurs losses during any period of the operative term
of the PLTA and if such losses lead to an annual loss of BCP
Holdings at the end of any given fiscal year during the term of
the PLTA, CDH will be obligated to make a corresponding cash
payment to BCP Holdings to the extent that the respective annual
loss is not fully compensated for by the dissolution of profit
reserves accrued at the level of BCP Holdings during the term of
the PLTA. CDH may be able to reduce or avoid cash payments to
BCP Holdings by off-setting against such loss compensation
claims made by BCP Holdings any valuable counterclaims against
BCP Holdings that CDH may have. If CDH is obligated to make cash
payments to BCP Holdings to cover an annual loss, we may not
have sufficient funds to make payments on our indebtedness when
due and, unless CDH is able to obtain funds from a source other
than annual profits of BCP Holdings, CDH may not be able to
satisfy its obligation to fund such shortfall.
BCP
Holdings may be required to compensate Celanese GmbH for annual
losses, which may reduce the funds BCP Holdings can otherwise
make available to us.
BCP Holdings and Celanese GmbH have entered into a new
domination agreement on March 26, 2010 which became
effective on April 9, 2010 (the “Domination Agreement
II”). Under the Domination Agreement II, BCP Holdings is
required, among other things, to compensate Celanese GmbH for
any annual loss incurred, determined in accordance with German
accounting requirements, by Celanese GmbH at the end of the
fiscal year in which the
28
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loss was incurred. This obligation to compensate Celanese GmbH
for annual losses will apply during the entire term of the
Domination Agreement II. If Celanese GmbH incurs losses during
any period of the operative term of the Domination
Agreement II and if such losses lead to an annual loss of
Celanese GmbH at the end of any given fiscal year during the
term of the Domination Agreement II, BCP Holdings will be
obligated to make a corresponding cash payment to Celanese GmbH
to the extent that the respective annual loss is not fully
compensated for by the dissolution of profit reserves accrued at
the level of Celanese GmbH during the term of the Domination
Agreement II. BCP Holdings may be able to reduce or avoid
cash payments to Celanese GmbH by off-setting against such loss
compensation claims by Celanese GmbH any valuable counterclaims
against Celanese GmbH that BCP Holdings may have. If BCP
Holdings is obligated to make cash payments to Celanese GmbH to
cover an annual loss, we may not have sufficient funds to make
payments on our indebtedness when due and, unless BCP Holdings
is able to obtain funds from a source other than annual profits
of Celanese GmbH, BCP Holdings may not be able to satisfy its
obligation to fund such shortfall.
Our
level of indebtedness could diminish our ability to raise
additional capital to fund our operations, limit our ability to
react to changes in the economy or the chemicals industry and
prevent us from meeting obligations under our
indebtedness.
Our total indebtedness is approximately $3.2 billion as of
December 31, 2010. See Note 13 to the accompanying
consolidated financial statements for further information.
Our level of indebtedness could have important consequences,
including:
| • | increasing our vulnerability to general economic and industry conditions including exacerbating the impact of any adverse business effects that are determined to be material adverse events under our existing senior credit facilities (the “Senior Credit Agreement”); |
| • | requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on indebtedness, therefore reducing our ability to use our cash flow to fund operations, capital expenditures and future business opportunities or pay dividends on our common stock; |
| • | exposing us to the risk of increased interest rates as certain of our borrowings are at variable rates of interest; |
| • | limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions and general corporate or other purposes; and |
| • | limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who have less debt. |
We may
be able to incur additional indebtedness in the future, which
could increase the risks described above.
Although covenants under the Senior Credit Agreement and the
Indenture governing the $600 million in aggregate principal
amount of
6
5
/
8
% Senior
Notes due 2018 (the “Notes”) limit our ability to
incur certain additional indebtedness, these restrictions are
subject to a number of qualifications and exceptions, and the
indebtedness we could incur in compliance with these
restrictions could be significant. To the extent that we incur
additional indebtedness, the risks associated with our leverage
described above, including our possible inability to service our
debt, including the Notes, would increase.
Our
variable rate indebtedness subjects us to interest rate risk,
which could cause our debt service obligations to increase
significantly and affect our operating results.
Certain of our borrowings are at variable rates of interest and
expose us to interest rate risk. If interest rates were to
increase, our debt service obligations on our variable rate
indebtedness would increase. As of December 31, 2010,
29
Table of Contents
we had $1.6 billion, €296 million and CNY
1.5 billion of variable rate debt, of which
$1.5 billion and €150 million is hedged with
interest rate swaps, which leaves $73 million,
€146 million and CNY 1.5 billion of variable rate
debt subject to interest rate exposure. Accordingly, a 1%
increase in interest rates would increase annual interest
expense by approximately $5 million. See
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Quantitative and
Qualitative Disclosures About Market Risk” and Note 21
to the accompanying consolidated financial statements for
further information.
We may
not be able to generate sufficient cash to service our
indebtedness, and may be forced to take other actions to satisfy
obligations under our indebtedness, which may not be
successful.
Our ability to make scheduled payments on or to refinance our
debt obligations depends on the financial condition and
operating performance of our subsidiaries, which is subject to
prevailing economic and competitive conditions and to certain
financial, business and other factors beyond our control. We may
not be able to maintain a level of cash flows from operating
activities sufficient to permit us to pay the principal,
premium, if any, and interest on our indebtedness.
If our cash flows and capital resources are insufficient to fund
our debt service obligations, we may be forced to reduce or
delay capital expenditures, sell assets, seek additional capital
or restructure or refinance our indebtedness. These alternative
measures may not be successful and may not permit us to meet our
scheduled debt service obligations. In the absence of such
operating results and resources, we could face substantial
liquidity problems and might be required to dispose of material
assets or operations to meet our debt service and other
obligations. The Senior Credit Agreement restricts our ability
to dispose of assets and use the proceeds from the disposition.
We may not be able to consummate those dispositions or to obtain
the proceeds which we could realize from them and these proceeds
may not be adequate to meet any debt service obligations then
due.
Restrictive
covenants in our debt agreements may limit our ability to engage
in certain transactions and may diminish our ability to make
payments on our indebtedness.
The Senior Credit Agreement and the Indenture governing the
Notes each contain various covenants that limit our ability to
engage in specified types of transactions. The Indenture
governing the Notes will limit Celanese US’s and certain of
its subsidiaries’ ability to, among other things, incur
additional debt; pay dividends or make other restricted
payments; consummate specified asset sales; enter into
transactions with affiliates; incur liens, impose restrictions
on the ability of a subsidiary to pay dividends or make payments
to Celanese US and its restricted subsidiaries; merge or
consolidate with any other person; and sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all
of Celanese US’s assets or the assets of its restricted
subsidiaries.
In addition, the Senior Credit Agreement requires us to maintain
a maximum first lien senior secured leverage ratio if there are
outstanding borrowings under the revolving credit facility. Our
ability to meet this financial ratio can be affected by events
beyond our control, and we may not be able to meet this test at
all.
Such restrictions in our debt instruments could result in us
having to obtain the consent of holders of the Notes and of our
lenders in order to take certain actions. Disruptions in credit
markets may prevent us from obtaining or make it more difficult
or more costly for us to obtain such consents. Our ability to
expand our business or to address declines in our business may
be limited if we are unable to obtain such consents.
A breach of any of these covenants could result in a default,
which, if not cured or waived, could have a material adverse
effect on our business, financial condition and results of
operations. Furthermore, a default under the Senior Credit
Agreement could permit lenders to accelerate the maturity of our
indebtedness under the Senior Credit Agreement and to terminate
any commitments to lend. If we were unable to repay such
indebtedness, the lenders under the Senior Credit Agreement
could proceed against the collateral granted to them to secure
that indebtedness. Our subsidiaries have pledged a significant
portion of our assets as collateral to secure our indebtedness
under the Senior Credit Agreement. If the lenders under the
Senior Credit Agreement accelerate the repayment of such
indebtedness, we may not have sufficient assets to repay such
amounts or our other indebtedness, including the Notes. In such
event, we could be forced into bankruptcy or liquidation.
30
Table of Contents
Celanese
and Celanese US are holding companies and depend on subsidiaries
to satisfy their obligations under the Notes and the guarantee
of Celanese US’s obligations under the Notes by
Celanese.
As holding companies, Celanese and Celanese US conduct
substantially all of their operations through their
subsidiaries, which own substantially all of our consolidated
assets. Consequently, the principal source of cash to pay
Celanese and Celanese US’s obligations, including
obligations under the Notes and the guarantee of the Celanese
US’s obligations under the Notes by Celanese, is the cash
that our subsidiaries generate from their operations. We cannot
assure that our subsidiaries will be able to, or be permitted
to, make distributions to enable Celanese US
and/or
Celanese to make payments in respect of their obligations. Each
of our subsidiaries is a distinct legal entity and, under
certain circumstances, applicable state laws, regulatory
limitations and terms of our debt instruments may limit Celanese
US’s and Celanese’s ability to obtain cash from our
subsidiaries. While the Indenture governing the Notes limits the
ability of our subsidiaries to restrict their ability to pay
dividends or make other intercompany payments to us, these
limitations are subject to certain qualifications and
exceptions, which may have the effect of significantly
restricting the applicability of those limits. In the event
Celanese US
and/or
Celanese do not receive distributions from our subsidiaries,
Celanese US
and/or
Celanese may be unable to make required payments on the Notes,
the guarantee of Celanese US’s obligations under the Notes
by Celanese, or our other indebtedness.
| Item 1B. | Unresolved Staff Comments |
None.
31
Table of Contents
| Item 2. | Properties |
Description
of Property
We own or lease numerous production and manufacturing facilities
throughout the world. We also own or lease other properties,
including office buildings, warehouses, pipelines, research and
development facilities and sales offices. We continuously review
and evaluate our facilities as a part of our strategy to
optimize our business portfolio. The following table sets forth
a list of our principal production and other facilities
throughout the world as of December 31, 2010.
| Site | Leased/Owned | Products/Functions | ||
|
Corporate Offices
|
||||
|
Budapest, Hungary
|
Leased | Administrative offices | ||
|
Dallas, Texas, US
|
Leased | Corporate headquarters | ||
|
Kelsterbach, Germany
|
Owned | Administrative offices | ||
|
Shanghai, China
|
Leased | Administrative offices | ||
|
Advanced Engineered Materials
|
||||
|
Auburn Hills, Michigan, US
|
Leased | Automotive Development Center | ||
|
Bishop, Texas, US
|
Owned | POM, GUR ® , Compounding | ||
|
Florence, Kentucky, US
|
Owned | Compounding | ||
|
Fuji City, Japan
|
Owned by Polyplastics Co., Ltd. (6) | POM, PBT, LCP, Compounding | ||
|
Frankfurt am Main,
Germany
(7)
|
Owned by InfraServ GmbH & Co. Hoechst KG (6) | No operations in 2010; relocation site | ||
|
Jubail, Saudi
Arabia
(9)
|
Owned by National Methanol Company (6) | MTBE, Methanol | ||
|
Kaiserslautern,
Germany
(1)
|
Leased | LFT | ||
|
Kelsterbach,
Germany
(7)
|
Owned | LFT, POM, Compounding | ||
|
Kuantan, Malaysia
|
Owned by Polyplastics Co., Ltd. (6) | POM, Compounding | ||
|
Nanjing,
China
(2)
|
Leased | LFT, GUR ® , Compounding | ||
|
Oberhausen,
Germany
(1)
|
Leased | GUR ® | ||
|
Shelby, North Carolina, US
|
Owned | LCP, Compounding | ||
|
Suzano,
Brazil
(1)
|
Leased | Compounding | ||
|
Ulsan, South Korea
|
Owned by Korea Engineering Plastics Co., Ltd. (6) | POM | ||
|
Wilmington, North Carolina, US
|
Owned by Fortron Industries LLC (6) | PPS | ||
|
Winona, Minnesota, US
|
Owned | LFT | ||
|
Consumer Specialties
|
||||
|
Frankfurt am Main,
Germany
(3)
|
Owned by InfraServ GmbH & Co. Hoechst KG (6) | Sorbates, Sunett ® sweetener | ||
|
Kunming, China
|
Owned by Kunming Cellulose Fibers Co. Ltd. (5) | Acetate tow | ||
|
Lanaken, Belgium
|
Owned | Acetate tow | ||
|
Nantong, China
|
Owned by Nantong Cellulose Fibers Co. Ltd. (5) | Acetate tow, Acetate flake | ||
|
Narrows, Virginia, US
|
Owned | Acetate tow, Acetate flake | ||
|
Ocotlán, Mexico
|
Owned | Acetate tow, Acetate flake | ||
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Table of Contents
| Site | Leased/Owned | Products/Functions | ||
|
Spondon, Derby, United Kingdom
|
Owned | Acetate tow, Acetate flake, Acetate film | ||
|
Zhuhai, China
|
Owned by Zhuhai Cellulose Fibers Co. Ltd. (5) | Acetate tow | ||
|
Industrial Specialties
|
||||
|
Boucherville, Quebec, Canada
|
Owned | Conventional emulsions | ||
|
Enoree, South Carolina, US
|
Owned | Conventional emulsions, VAE emulsions | ||
|
Edmonton, Alberta, Canada
|
Owned | LDPE, EVA | ||
|
Frankfurt am Main,
Germany
(3)
|
Owned by InfraServ GmbH & Co. Hoechst KG (6) | Conventional emulsions, VAE emulsions | ||
|
Geleen, Netherlands
|
Owned | VAE emulsions | ||
|
Meredosia, Illinois, US
|
Owned | Conventional emulsions, VAE emulsions | ||
|
Nanjing,
China
(2)
|
Leased | Conventional emulsions, VAE emulsions | ||
|
Perstorp, Sweden
|
Owned | Conventional emulsions, VAE emulsions | ||
|
Tarragona,
Spain
(4)
|
Owned by Complejo Industrial Taqsa AIE (5) | Conventional emulsions, VAE emulsions | ||
|
Acetyl Intermediates
|
||||
|
Bay City, Texas, US
|
Leased | VAM | ||
|
Bishop, Texas, US
|
Owned | Formaldehyde | ||
|
Cangrejera, Mexico
|
Owned | Acetic anhydride, Ethyl acetate | ||
|
Clear Lake, Texas, US
|
Owned | Acetic acid, VAM | ||
|
Frankfurt am Main,
Germany
(3)
|
Owned by InfraServ GmbH & Co. Hoechst KG (6) | Acetaldehyde, VAM, Butyl acetate | ||
|
Jurong Island,
Singapore
(1)
|
Leased | Acetic acid, Butyl acetate, Ethyl acetate, VAM | ||
|
Nanjing,
China
(2)
|
Leased | Acetic acid, Acetic anhydride, VAM | ||
|
Pampa, Texas,
US
(8)
|
Owned | Site is no longer operating | ||
|
Pardies, France
|
Owned | Site is no longer operating | ||
|
Roussillon,
France
(1)
|
Leased | Acetic anhydride | ||
|
Tarragona,
Spain
(4)
|
Owned by Complejo Industrial Taqsa AIE (5) | VAM |
| (1) | Celanese owns the assets on this site, but utilizes the land through the terms of a long-term land lease. |
| (2) | Multiple Celanese business segments conduct operations at the Nanjing facility. Celanese owns the assets on this site, but utilizes the land through the terms of a long-term land lease. |
| (3) | Multiple Celanese business segments conduct operations at the Frankfurt am Main facility. |
| (4) | Multiple Celanese business segments conduct operations at the Tarragona site. Celanese owns the assets on this site but shares ownership in the land. Celanese’s ownership percentage in the land is 15%. |
| (5) | A Celanese cost method investment. |
| (6) | A Celanese equity method investment. |
33
Table of Contents
| (7) | Celanese is relocating the Kelsterbach plant to the Frankfurt am Main facility. Celanese will own the assets, but utilize the land through the terms of a long-term land lease. |
| (8) | Site is no longer operational and is currently held for sale. |
| (9) | Site moved from Acetyl Intermediates segment to Advanced Engineered Materials segment to reflect the change in the affiliate’s business dynamics and growth opportunities as a result of the future construction of the POM facility. |
| Item 3. | Legal Proceedings |
We are involved in a number of legal and regulatory proceedings,
lawsuits and claims incidental to the normal conduct of our
business, relating to such matters as product liability,
contract antitrust, intellectual property, workers’
compensation, chemical exposure, prior acquisitions, past waste
disposal practices and release of chemicals into the
environment. While it is impossible at this time to determine
with certainty the ultimate outcome of these proceedings,
lawsuits and claims, we are actively defending those matters
where the Company is named as a defendant. Additionally, we
believe, based on the advice of legal counsel, that adequate
reserves have been made and that the ultimate outcomes of all
such litigation claims will not have a material adverse effect
on our financial position, but may have a material adverse
effect on our results of operations or cash flows in any given
accounting period. See Note 23 to the accompanying
consolidated financial statements for a discussion of
commitments and contingencies related to legal and regulatory
proceedings.
| Item 4. | [Removed and Reserved] |
Executive
Officers of the Registrant
The names, ages and biographies of our executive officers as of
February 11, 2011 are as follows:
| Name | Age | Position | ||||
|
David N. Weidman
|
55 | Chairman of the Board, President and Chief Executive Officer | ||||
|
Douglas M. Madden
|
58 | Chief Operating Officer | ||||
|
Steven M. Sterin
|
39 | Senior Vice President and Chief Financial Officer | ||||
|
James S. Alder
|
62 | Senior Vice President, Operations and Technical | ||||
|
Gjon N. Nivica, Jr.
|
46 | Senior Vice President, General Counsel and Corporate Secretary | ||||
|
Mark W. Oberle
|
45 | Senior Vice President, Corporate Affairs | ||||
|
Jay C. Townsend
|
52 | Senior Vice President, Business Strategy Development and Procurement | ||||
|
Jacquelyn H. Wolf
|
49 | Senior Vice President, Human Resources | ||||
|
Christopher W. Jensen
|
44 | Senior Vice President, Finance and Treasurer | ||||
David N. Weidman
has been our Chief Executive
Officer and a member of our board of directors since December
2004. He became Chairman of the board of directors in February
2007. Mr. Weidman joined Celanese AG (the Company’s
predecessor) in September 2000 where he held a number of
executive positions, most recently Vice Chairman and a member of
its board of management. Before joining Celanese AG,
Mr. Weidman held various leadership positions with
AlliedSignal, most recently as the President of its performance
polymers business. Mr. Weidman began his career in the
chemical industry with American Cyanamid in 1980. He is a member
of the board of the American Chemistry Council, the National
Advisory Council of the Marriott School of Management and the
Society of Chemical Industry. He is also a member of the
Advancement Counsel for Engineering and Technology for the Ira
A. Fulton College of Engineering and Technology and a member of
the board and Chairman of the finance committee of The
Conservation Fund.
Douglas M. Madden
has served as our Chief
Operating Officer since December 2009. Prior to that time,
Mr. Madden served as Corporate Executive Vice President
with responsibility for the Company’s Acetyl Intermediates
and Industrial Specialties Segments since February 2009. He was
the Executive Vice President and President, Acetate, EVA
Performance Polymers and Emulsions & PVOH from 2006
through February 2009.
34
Table of Contents
Mr. Madden previously served as President of Celanese
Acetate from October 2003 to 2006. Prior to assuming leadership
for Celanese Acetate, Mr. Madden served as Vice President
and General Manager of the acrylates business and head of global
supply chain for Celanese Chemicals from 2000 to October 2003.
Prior to 2000, Mr. Madden held various vice president level
positions in finance, global procurement and business support
with the Hoechst Celanese Life Sciences Group, Celanese Fibers
and Celanese Chemicals businesses. In 1990, he served as
business director for Ticona’s GUR business and held prior
responsibilities as director of quality management for Specialty
Products. Mr. Madden started his career with American
Hoechst Corporation in 1984 as manager of corporate
distribution. His prior experience included operational and
distribution management with Warner-Lambert and
Johnson & Johnson. Mr. Madden received a Bachelor
of Science degree in business administration from the University
of Illinois.
Steven M. Sterin
has served as our Senior Vice
President and Chief Financial Officer since July 2007.
Mr. Sterin previously served as our Vice President,
Controller and Principal Accounting Officer from September 2005
to July 2007 and Director of Finance for Celanese Chemicals from
2003 to 2005 and Controller of Celanese Chemicals from 2004 to
2005. Prior to joining Celanese, Mr. Sterin worked for
Reichhold, Inc., a subsidiary of Dainnippon Ink and Chemicals,
Incorporated, beginning in 1997. There he held a variety of
leadership positions in the finance organization before serving
as Treasurer from 2000 to 2001 and later as Vice President of
Finance, Coating Resins from 2001 to 2003. Mr. Sterin
began his career at Price Waterhouse LLP, currently known as
PricewaterhouseCoopers LLP. Mr. Sterin, a Certified Public
Accountant, graduated from the University of Texas at Austin in
May 1995, receiving both a Bachelor of Arts degree in business
and a masters degree in professional accounting.
James S. Alder
has served as our Senior Vice
President, Operations and Technical since February 2008. In this
capacity he oversees our global manufacturing, supply chain and
environmental, health and safety operations, as well as the
Company’s overall productivity efforts, including Six Sigma
and operational excellence. Mr. Alder previously served as
our Vice President, Operations and Technical from 2000 to
February 2008. Prior to 2000, Mr. Alder held various roles
within the Company’s manufacturing, research and
development and business management operations. He joined
Celanese in 1974 as a process engineer and received a Bachelor
of Science degree in Chemical Engineering from MIT in 1972.
Gjon N. Nivica, Jr.
has served as our Senior
Vice President, General Counsel and Corporate Secretary since
April 2009. Prior to that time, Mr. Nivica served as Vice
President and General Counsel of the $5 billion Honeywell
Transportation Systems business group from 2005 to 2009, during
which time he also served as Deputy General Counsel and
Assistant Secretary to Honeywell International Inc. Prior to
that time, he was the Vice President and General Counsel to
Honeywell Aerospace Electronic Systems from 2002 to 2005 and to
Honeywell Engines Systems and Services from 1996 to 2002.
Mr. Nivica began his career in 1989 as a corporate
associate in the Los Angeles office of Gibson, Dunn &
Crutcher, where he specialized in acquisitions, divestitures and
general corporate and securities work, before becoming M&A
Senior Counsel to AlliedSignal Aerospace Inc. from 1994 to 1996.
Mr. Nivica received his J.D., magna cum laude, from Boston
University Law School.
Mark W. Oberle
has served as our Senior Vice
President, Corporate Affairs since February 2010. From April
2005 to February 2010, Mr. Oberle served as our Vice
President, Investor Relations. He assumed overall responsibility
for global communications and public affairs in 2006. Prior to
joining Celanese, Mr. Oberle was Director of Investor
Relations for Navistar International Corporation, where he
served in a variety of financial and commercial roles. Prior to
that time, he was a management consultant with KPMG.
Mr. Oberle earned a bachelor’s and master’s
degrees in business administration from Bradley University.
Jay C. Townsend
has served as our Senior Vice
President, Business Strategy Development and Procurement since
2010. Mr. Townsend previously served as our Senior Vice
President, Strategy and Business Development from 2007 to 2010,
and as our Vice President of Business Strategy and Development
from 2005 to 2006. Mr. Townsend joined Celanese in 1986 as
a Business Analyst and has held several roles of increasing
responsibility within the US and Europe. Mr. Townsend
received his Bachelor of Science degree in international finance
from Widener University in 1980.
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Table of Contents
Jacquelyn H. Wolf
has served as our Senior Vice
President, Human Resources since December 2009. Prior to that
time, she was the Executive Vice President, Chief Human
Resources Officer for Comerica, Incorporated from January 2006
to December 2009. Ms. Wolf also held the position as Global
Human Resources Director for General Motor’s Finance, Asset
Management, and Economic Development & Enterprise
Services organizations from May 1, 2002. Prior to this
position, she supported the Information Systems &
Services upon joining General Motors in July 2000 to January
2006. Before joining General Motors, she served as Vice
President of Human Resources for Honeywell’s (previously
AlliedSignal) Aerospace Market Segments in Phoenix, AZ. Prior to
this role, she was Vice President, Human Resources at the
Honeywell AlliedSignal Truck Brakes Division in Cleveland. Prior
to Honeywell (AlliedSignal), she spent 12 years in human
resource management and labor relations positions at the General
Electric Corporation. Ms. Wolf earned a Ph.D. and a
master’s degree in organizational and human systems from
Fielding Graduate University (Santa Barbara, California), a
master’s degree in management from Baker University
(Overland Park, Kansas) and a bachelor’s degree in
Organizational Communications from Youngstown State University
(Youngstown, Ohio).
Christopher W. Jensen
has served as our Senior
Vice President, Finance and Treasurer since August 2010. Prior
to August 2010, Mr. Jensen served as our Vice President and
Corporate Controller from March 2009 to July 2010. From May 2008
to February 2009, he served as Vice President of Finance and
Treasurer. In his current capacity, Mr. Jensen has global
responsibility for corporate finance, treasury operations,
insurance risk management, pensions, business planning and
analysis, corporate accounting, tax and general ledger
accounting. Mr. Jensen was previously the Assistant
Corporate Controller from March 2007 through April 2008, where
he was responsible for SEC reporting, internal reporting, and
technical accounting. In his initial role at Celanese from
October 2005 through March 2007, he built and directed the
company’s technical accounting function. From August 2004
to October 2005, Mr. Jensen worked in the inspections and
registration division of the Public Company Accounting Oversight
Board. He spent 13 years of his career at
PricewaterhouseCoopers LLP in various positions in both the
auditing and mergers & acquisitions groups.
Mr. Jensen earned master’s and bachelor’s degrees
in accounting from Brigham Young University and is a Certified
Public Accountant.
36
Table of Contents
| Item 5. | Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Market
Information
Our Series A common stock has traded on the New York Stock
Exchange under the symbol “CE” since January 21,
2005. The closing sale price of our Series A common stock,
as reported by the New York Stock Exchange, on February 4,
2011 was $42.93. The following table sets forth the high and low
intraday sales prices per share of our Series A common
stock, as reported by the New York Stock Exchange, for the
periods indicated.
| Price Range | ||||||||
| High | Low | |||||||
|
2010
|
||||||||
|
Quarter ended March 31, 2010
|
$ | 34.77 | $ | 28.20 | ||||
|
Quarter ended June 30, 2010
|
$ | 35.83 | $ | 24.84 | ||||
|
Quarter ended September 30, 2010
|
$ | 33.00 | $ | 23.47 | ||||
|
Quarter ended December 31, 2010
|
$ | 41.74 | $ | 31.22 | ||||
|
2009
|
||||||||
|
Quarter ended March 31, 2009
|
$ | 15.27 | $ | 7.44 | ||||
|
Quarter ended June 30, 2009
|
$ | 24.30 | $ | 12.67 | ||||
|
Quarter ended September 30, 2009
|
$ | 27.93 | $ | 19.72 | ||||
|
Quarter ended December 31, 2009
|
$ | 33.41 | $ | 23.65 | ||||
Holders
No shares of Celanese’s Series B common stock and no
shares of Celanese’s 4.25% convertible perpetual preferred
stock (“Preferred Stock”) are issued and outstanding.
As of February 4, 2011, there were 46 holders of record of
our Series A common stock. By including persons holding
shares in broker accounts under street names, however, we
estimate our shareholder base to be approximately 33,500.
On February 1, 2010, we delivered notice to the holders of
our Preferred Stock that we were calling for the redemption of
all of our 9,600,000 outstanding shares of Preferred Stock.
Holders of the Preferred Stock were entitled to convert each
share of Preferred Stock into 1.2600 shares of our
Series A common stock, par value $0.0001 per share, at any
time prior to 5:00 p.m., New York City time, on
February 19, 2010. As of such date, holders of Preferred
Stock had elected to convert 9,591,276 shares of Preferred
Stock into an aggregate of 12,084,942 shares of
Series A common stock. The 8,724 shares of Preferred
Stock that remained outstanding after such conversions were
redeemed by us on February 22, 2010 for 7,437 shares
of Series A common stock, in accordance with the terms of
the Preferred Stock. In addition to the shares of Series A
common stock issued in respect of the shares of Preferred Stock
converted and redeemed, we paid cash in lieu of fractional
shares. See Note 16 to the accompanying consolidated
financial statements for further discussion of the Preferred
Stock redemption.
Dividend
Policy
Our Board of Directors has a policy of declaring, subject to
legally available funds, a quarterly cash dividend on each share
of our Series A common stock as determined in its sole
discretion. Pursuant to this policy, we paid quarterly dividends
of $0.04 per share on February 1, 2010 and May 1, 2010
and similar quarterly dividends during each quarter of 2009. In
April 2010, our Board of Directors approved a 25% increase in
the quarterly dividend rate from $0.04 to $0.05 per share of
Series A common stock, which equates to $0.20 per share
annually. Pursuant to this policy change, we paid quarterly
dividends of $0.05 per share on August 2, 2010 and
November 1, 2010. The annual
37
Table of Contents
cash dividend declared and paid during the years ended
December 31, 2010 and 2009 were $28 million and
$23 million, respectively. Our Board of Directors may, at
any time, modify or revoke our dividend policy on our
Series A common stock.
We were required under the terms of our Preferred Stock to pay
scheduled quarterly dividends, subject to legally available
funds for so long as the Preferred Stock remains outstanding.
Pursuant to this policy, we paid quarterly dividends of
$0.265625 per share on our Preferred Stock on February 1,
2010 and similar quarterly dividends during each quarter of
2009. No dividends were declared or paid subsequent to
February 1, 2010 as a result of the Preferred Stock
redemption as described above. The annual cash dividend declared
and paid during the years ended December 31, 2010 and 2009
were $3 million and $10 million, respectively.
On January 6, 2011, we declared a cash dividend of $0.05
per share on our Series A common stock amounting to
$8 million. The cash dividend is for the period from
November 2, 2010 to January 31, 2011 and was paid on
February 1, 2011 to holders of record as of
January 18, 2011.
Based on the increase in the quarterly dividend rate from $0.04
to $0.05 per share of Series A common stock beginning
August 2010, number of outstanding shares as of
December 31, 2010 and considering the redemption of our
Preferred Stock, cash dividends to be paid in 2011 are expected
to be comparable to those paid in 2010.
The amount available to us to pay cash dividends is restricted
by our Senior Credit Agreement and the terms of our Notes. Any
decision to declare and pay dividends in the future will be made
at the discretion of our Board of Directors and will depend on,
among other things, our results of operations, cash
requirements, financial condition, contractual restrictions and
other factors that our Board of Directors may deem relevant.
Celanese
Purchases of its Equity Securities
The table below sets forth information regarding repurchases of
our Series A common stock during the three months ended
December 31, 2010:
|
Approximate Dollar
|
||||||||||||||||
|
Total Number of
|
Value of Shares
|
|||||||||||||||
|
Total Number
|
Average
|
Shares Purchased as
|
Remaining that may be
|
|||||||||||||
|
of Shares
|
Price Paid
|
Part of Publicly
|
Purchased Under
|
|||||||||||||
| Period | Purchased | per Share | Announced Program | the Program | ||||||||||||
|
October 1-31, 2010
|
41,129 | (1) | $ | 32.35 | - | $ | 81,300,000 | |||||||||
|
November 1-30, 2010
|
194,100 | $ | 36.05 | 194,100 | $ | 74,300,000 | ||||||||||
|
December 1-31, 2010
|
335 | (1) | $ | 39.09 | - | $ | 74,300,000 | |||||||||
|
Total
|
235,564 | $ | 35.41 | 194,100 | 74,300,000 | |||||||||||
| (1) | Relates to shares the Company has elected to withhold from employees to cover their statutory minimum withholding requirements for personal income taxes related to the vesting of restricted stock units. |
38
Table of Contents
Performance
Graph
The following Performance Graph and related information shall
not be deemed “soliciting material” or to be
“filed” with the SEC, nor shall such information be
incorporated by reference into any future filing under the
Securities Act of 1933 or Securities Exchange Act of 1934, each
as amended, except to the extent that we specifically
incorporate it by reference into such filing.
Comparison
of Cumulative Total Return
39
Table of Contents
Equity
Compensation Plans
Securities
Authorized for Issuance Under Equity Compensation
Plans
The following information is provided as of December 31,
2010 with respect to equity compensation plans:
|
Number of Securities
|
||||||||||||
|
Remaining Available for
|
||||||||||||
|
Number of Securities to be
|
Weighted Average
|
Future Issuance Under
|
||||||||||
|
Issued upon Exercise of
|
Exercise Price of
|
Equity Compensation
|
||||||||||
|
Outstanding Options,
|
Outstanding Options,
|
Plans (excluding securities
|
||||||||||
| Plan Category | Warrants and Rights | Warrants and Rights | reflected in column (a)) | |||||||||
| (a) | (b) | (c) | ||||||||||
|
Equity compensation plans approved by security holders
|
||||||||||||
|
Stock options
|
302,125 | $ | 27.36 | 2,322,450 | ||||||||
|
Restricted stock units
|
2,228,329 | - | 2,322,450 | |||||||||
|
Equity compensation plans not approved by security
holders
(1)
|
||||||||||||
|
Stock options
|
4,970,842 | $ | 20.44 | - | ||||||||
|
Restricted stock units
|
952,305 | - | - | |||||||||
|
Total
|
8,453,601 | 2,322,450 | ||||||||||
| (1) | The shares to be issued under plans not approved by shareholders relate to the Celanese Corporation 2004 Stock Incentive Plan, which is our former broad-based stock incentive plan for executive officers, key employees and directors. The 2004 Stock Incentive Plan allowed for the issuance or delivery of shares of our common stock through the award of stock options, restricted stock units and other stock-based awards as approved by the compensation committee of the board of directors. The 2004 Stock Incentive Plan was effectively replaced by the Celanese Corporation 2009 Global Incentive Plan. No further awards were made pursuant to the 2004 Stock Incentive Plan upon shareholder approval of the 2009 Global Incentive Plan in April 2009. Both the 2004 Stock Incentive Plan and the 2009 Global Incentive Plan are described in more detail in Note 19 of the accompanying notes to the consolidated financial statements. |
Recent
Sales of Unregistered Securities
Our deferred compensation plan offers certain of our senior
employees and directors the opportunity to defer a portion of
their compensation in exchange for a future payment amount equal
to their deferments plus or minus certain amounts based upon the
market-performance of specified measurement funds selected by
the participant. These deferred compensation obligations may be
considered securities of Celanese. Participants were required to
make deferral elections under the plan prior to January 1 of the
year such deferrals will be withheld from their compensation. We
relied on the exemption from registration provided by
Section 4(2) of the Securities Act in making this offer to
a select group of employees, fewer than 35 of which were
non-accredited investors under the rules promulgated by the
Securities and Exchange Commission.
40
Table of Contents
| Item 6. | Selected Financial Data |
The balance sheet data as of December 31, 2010 and 2009,
and the statements of operations data for the years ended
December 31, 2010, 2009 and 2008, all of which are set
forth below, are derived from the consolidated financial
statements included elsewhere in this Annual Report and should
be read in conjunction with those financial statements and the
notes thereto. The balance sheet data as of December 31,
2008, 2007 and 2006 and the statements of operations data for
the years ended December 31, 2007 and 2006 shown below were
derived from previously issued financial statements, adjusted
for applicable discontinued operations and the Ibn Sina
accounting change described below.
Ibn
Sina
We indirectly own a 25% interest in Ibn Sina through CTE
Petrochemicals Company (“CTE”), a venture with Texas
Eastern Arabian Corporation Ltd. (which also indirectly owns
25%). The remaining interest in Ibn Sina is held by Saudi Basic
Industries Corporation (“SABIC”). SABIC and CTE
entered into the Ibn Sina joint venture agreement in 1981. In
April 2010, we announced that Ibn Sina will construct a 50,000
ton POM production facility in Saudi Arabia and that the term of
the joint venture agreement was extended until 2032. Ibn
Sina’s existing natural gas supply contract expires in
2022. Upon successful startup of the POM facility, our indirect
economic interest in Ibn Sina will increase from 25% to 32.5%.
SABIC’s economic interest will remain unchanged.
In connection with this transaction, we reassessed the factors
surrounding the accounting method for this investment and
changed from the cost method of accounting for investments to
the equity method of accounting for investments beginning
April 1, 2010. Financial information relating to this
investment for periods prior to 2010 has been retrospectively
adjusted to apply the equity method of accounting.
In addition, effective April 1, 2010, we moved our
investment in the Ibn Sina affiliate from our Acetyl
Intermediates segment to our Advanced Engineered Materials
segment to reflect the change in the affiliate’s business
dynamics and growth opportunities as a result of the future
construction of the POM facility.
41
Table of Contents
| Year Ended December 31, | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
| As Adjusted | ||||||||||||||||||||
| (In $ millions, except per share data) | ||||||||||||||||||||
|
Statement of Operations Data
|
||||||||||||||||||||
|
Net sales
|
5,918 | 5,082 | 6,823 | 6,444 | 5,778 | |||||||||||||||
|
Other (charges) gains, net
|
(46 | ) | (136 | ) | (108 | ) | (58 | ) | (10 | ) | ||||||||||
|
Operating profit
|
503 | 290 | 440 | 748 | 620 | |||||||||||||||
|
Earnings (loss) from continuing operations before tax
|
538 | 251 | 433 | 437 | 549 | |||||||||||||||
|
Earnings (loss) from continuing operations
|
426 | 494 | 370 | 327 | 342 | |||||||||||||||
|
Earnings (loss) from discontinued operations
|
(49 | ) | 4 | (90 | ) | 90 | 87 | |||||||||||||
|
Net earnings (loss) attributable to Celanese Corporation
|
377 | 498 | 281 | 416 | 429 | |||||||||||||||
|
Earnings (loss) per common share
|
||||||||||||||||||||
|
Continuing operations — basic
|
2.73 | 3.37 | 2.44 | 2.05 | 2.09 | |||||||||||||||
|
Continuing operations — diluted
|
2.69 | 3.14 | 2.27 | 1.90 | 1.99 | |||||||||||||||
|
Balance Sheet Data (at the end of period)
|
||||||||||||||||||||
|
Trade working
capital
(1)
|
764 | 594 | 685 | 827 | 824 | |||||||||||||||
|
Total assets
|
8,281 | 8,412 | 7,158 | 8,051 | 7,898 | |||||||||||||||
|
Total debt
|
3,218 | 3,501 | 3,533 | 3,556 | 3,498 | |||||||||||||||
|
Total Celanese Corporation shareholders’ equity (deficit)
|
926 | 586 | 174 | 1,055 | 790 | |||||||||||||||
|
Other Financial Data
|
||||||||||||||||||||
|
Depreciation and amortization
|
287 | 308 | 350 | 291 | 269 | |||||||||||||||
|
Capital
expenditures
(2)
|
222 | 167 | 267 | 306 | 244 | |||||||||||||||
|
Dividends paid per common
share
(3)
|
0.18 | 0.16 | 0.16 | 0.16 | 0.16 | |||||||||||||||
| (1) | Trade working capital is defined as trade accounts receivable from third parties and affiliates net of allowance for doubtful accounts, plus inventories, less trade accounts payable to third parties and affiliates. Trade working capital is calculated in the table below: |
| As of December 31, | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
| (In $ millions) | ||||||||||||||||||||
|
Trade receivables, net
|
827 | 721 | 631 | 1,009 | 1,001 | |||||||||||||||
|
Inventories
|
610 | 522 | 577 | 636 | 653 | |||||||||||||||
|
Trade payables
|
(673 | ) | (649 | ) | (523 | ) | (818 | ) | (830 | ) | ||||||||||
|
Trade working capital
|
764 | 594 | 685 | 827 | 824 | |||||||||||||||
| (2) | Amounts include accrued capital expenditures. Amounts do not include capital expenditures related to capital lease obligations or capital expenditures related to the relocation of our Ticona plant in Kelsterbach. See Note 24 and Note 28 to the accompanying consolidated financial statements. |
| (3) | Annual dividends for the year ended December 31, 2010 consists of two quarterly dividend payments of $0.04 and two quarterly dividend payments of $0.05 per share. In April 2010 the Board of Directors approved a 25% increase in our quarterly dividend rate from $0.04 to $0.05 per share of Series A common stock applicable to dividends payable beginning in August 2010. |
42
Table of Contents
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
In this Annual Report on
Form 10-K
(“Annual 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.
You should read the following discussion and analysis of the
financial condition and the results of operations together with
the consolidated financial statements and the accompanying notes
to the consolidated financial statements, which were 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 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 May Prove Inaccurate” below.
Forward-Looking
Statements May Prove Inaccurate
Management’s Discussion and Analysis of Financial Condition
and Results of Operations (“MD&A”) and other
parts of this Annual 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. When used in this
document, words such as “anticipate,”
“believe,” “estimate,” “expect,”
“intend,” “plan” and “project” and
similar expressions, as they relate to us are intended to
identify forward-looking statements. These statements reflect
our current views with respect to future events, are not
guarantees of future performance and involve risks and
uncertainties that are difficult to predict. Further, certain
forward-looking statements are based upon assumptions as to
future events that may not prove to be accurate.
See
Item 1A. Risk Factors
for a description of
certain risk factors that 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 and expansions; |
| • | the ability to reduce or maintain at their current levels production costs and improve productivity by implementing technological improvements to existing plants; |
| • | increased price competition and the introduction of competing products by other companies; |
| • | changes in the degree of intellectual property and other legal protection afforded to our products; |
43
Table of Contents
| • | costs and potential disruption or interruption of production due to accidents or other unforeseen events or delays in construction of facilities; |
| • | potential liability for remedial actions and increased costs under existing or future environmental regulations, including those related to climate change; |
| • | potential liability resulting from pending or future litigation, or from changes in the laws, regulations or policies of governments or other governmental activities in the countries in which we operate; |
| • | changes in currency exchange rates and interest rates; and |
| • | 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; |
| • | various other factors, both referenced and not referenced in this document. |
Many of these factors are macroeconomic in nature and are,
therefore, beyond our control. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions
prove incorrect, our actual results, performance or achievements
may vary materially from those described in this Annual 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
During 2010, we made significant progress in executing our
strategic objectives. As detailed below, we optimized our
portfolio, realigned our manufacturing footprint, continued our
expansion efforts in Asia, improved our financing arrangements,
made technological advancements, and took other strategic
actions to deliver value for our shareholders.
2010
Highlights:
| • | We announced our newly developed advanced technology to produce ethanol. This innovative, new process combines our proprietary and leading acetyl platform with highly advanced manufacturing technology to produce ethanol from hydrocarbon-sourced feedstocks. |
| • | We launched VitalDose tm , an ethylene vinyl acetate (“EVA”) polymer-based excipient that facilitates drug makers’ efforts to develop and commercialize controlled-release pharmaceutical solutions. |
| • | We announced that Fortron Industries, LLC, one of our strategic affiliates, will increase its production at its Wilmington, North Carolina plant to meet an increased global demand for Fortron ® polyphenylene sulfide (“PPS”), a high-performance polymer used in demanding industrial applications. The Fortron Industries plant is the world’s largest linear PPS operation with a 15,000 metric ton annual capacity. |
| • | We announced a plan to close our acetate flake and tow manufacturing operations in Spondon, Derby, United Kingdom in the latter part of 2011. We expect the project to cost between $80 million and $120 million, with annual cash savings of $40 million to $60 million. |
| • | We completed an amendment and extension to our senior secured credit facility and completed an offering of $600 million of senior unsecured notes. We used the proceeds from the sale of the notes and $200 million of cash on hand to repay $800 million of borrowings under our term loan facility. These actions resulted in a reduction of our previous $2.7 billion term loan facility maturing in 2014 to $2.5 billion of secured and unsecured debt with staggered maturities in 2014, 2016 and 2018. |
| • | We acquired two product lines, Zenite ® liquid crystal polymer (“LCP”) and Thermx ® polycyclohexylene-dimethylene terephthalate (“PCT”), from DuPont Performance Polymers (“DuPont”). |
44
Table of Contents
| • | We announced five-year Environmental Health and Safety sustainability goals for occupational safety performance, energy intensity, greenhouse gases and waste management intended to be achieved by the year 2015. |
| • | We received American Chemistry Council’s (“ACC”) 2010 Responsible Care Initiative of the Year Award. This award recognizes companies that demonstrate leadership in the areas of employee health and safety, security or environmental protection in the chemistry industry. |
| • | We announced the construction of a 50,000 ton polyacetal (“POM”) production facility by our National Methanol Company affiliate (“Ibn Sina”) in Saudi Arabia and extended the term of the joint venture, which will now run until 2032. Upon successful startup of the POM facility, our indirect economic interest in Ibn Sina will increase from 25% to a total of 32.5%. |
| • | We received formal approval of our previously announced plans to expand flake and tow capacities, each by 30,000 tons, at our affiliate facility in Nantong, China, with our affiliate partner, China National Tobacco Corporation. |
| • | We announced a 25% increase in our quarterly Series A common stock cash dividend beginning August 2010. Accordingly, the annual dividend rate increased from $0.16 to $0.20 per share of Series A common stock and the quarterly rate increased from $0.04 to $0.05 per share of Series A common stock. |
| • | We redeemed all of our Convertible Perpetual Preferred Stock for Series A common stock on February 22, 2010. |
2011
Outlook
Based on the strength of our 2010 performance, our confidence in
our earnings growth programs and our expectations for a
continued, modest global economic recovery, we expect 2011
results to improve as compared to 2010. We expect our unique
portfolio of technology and specialty materials businesses,
coupled with our ongoing growth, innovation and productivity
initiatives, will enable us to deliver earnings improvement. We
anticipate healthy demand across all of our business segments
and expect to see earnings growth in every segment in 2011.
In January 2011, we signed letters of intent for projects to
construct and operate industrial ethanol production facilities
in Nanjing, China, at the Nanjing Chemical Industrial Park, and
in Zhuhai, China, at the Gaolan Port Economic Zone. We also
signed a memorandum of understanding with Wison (China) Holding
Co., Ltd., a Chinese synthesis gas supplier, for production of
certain feedstocks used in our advanced ethanol production
process.
Results
of Operations
Ibn
Sina
We indirectly own a 25% interest in Ibn Sina through CTE
Petrochemicals Company (“CTE”), a joint venture with
Texas Eastern Arabian Corporation Ltd. (which also indirectly
owns 25%). The remaining interest in Ibn Sina is held by Saudi
Basic Industries Corporation (“SABIC”). SABIC and CTE
entered into the Ibn Sina joint venture agreement in 1981. In
April 2010, we announced that Ibn Sina will construct a 50,000
ton POM production facility in Saudi Arabia and that the term of
the joint venture agreement was extended until 2032. Ibn
Sina’s existing natural gas supply contract expires in
2022. Upon successful startup of the POM facility, our indirect
economic interest in Ibn Sina will increase from 25% to 32.5%.
SABIC’s economic interest will remain unchanged.
In connection with this transaction, we reassessed the factors
surrounding the accounting method for this investment and
changed the accounting from the cost method of accounting for
investments to the equity method of accounting for investments
beginning April 1, 2010. Financial information relating to
this investment for prior periods has been retrospectively
adjusted to apply the equity method of accounting.
45
Table of Contents
In addition, effective April 1, 2010, we moved our
investment in the Ibn Sina affiliate from our Acetyl
Intermediates segment to our Advanced Engineered Materials
segment to reflect the change in the affiliate’s business
dynamics and growth opportunities. Business segment information
for prior periods included below has been retrospectively
adjusted to reflect the change and to conform to the current
year presentation.
Financial
Highlights
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| As Adjusted | ||||||||||||
| (In $ millions, except percentages) | ||||||||||||
|
Statement of Operations Data
|
||||||||||||
|
Net sales
|
5,918 | 5,082 | 6,823 | |||||||||
|
Gross profit
|
1,180 | 1,003 | 1,256 | |||||||||
|
Selling, general and administrative expenses
|
(505 | ) | (474 | ) | (545 | ) | ||||||
|
Other (charges) gains, net
|
(46 | ) | (136 | ) | (108 | ) | ||||||
|
Operating profit
|
503 | 290 | 440 | |||||||||
|
Equity in net earnings of affiliates
|
168 | 99 | 172 | |||||||||
|
Interest expense
|
(204 | ) | (207 | ) | (261 | ) | ||||||
|
Refinancing expense
|
(16 | ) | - | - | ||||||||
|
Dividend income — cost investments
|
73 | 57 | 48 | |||||||||
|
Earnings (loss) from continuing operations before tax
|
538 | 251 | 433 | |||||||||
|
Amounts attributable to Celanese Corporation
|
||||||||||||
|
Earnings (loss) from continuing operations
|
426 | 494 | 371 | |||||||||
|
Earnings (loss) from discontinued operations
|
(49 | ) | 4 | (90 | ) | |||||||
|
Net earnings (loss)
|
377 | 498 | 281 | |||||||||
|
Other Data
|
||||||||||||
|
Depreciation and amortization
|
287 | 308 | 350 | |||||||||
|
Earnings from continuing operations before tax as a percentage
of net sales
|
9.1 | % | 4.9 | % | 6.3 | % | ||||||
| As of December 31, | ||||||
| 2010 | 2009 | |||||
| (In $ millions) | ||||||
|
Balance Sheet Data
|
||||||
|
Cash and cash equivalents
|
740 | 1,254 | ||||
|
Short-term borrowings and current installments of long-term
debt — third party and affiliates
|
228 | 242 | ||||
|
Long-term debt
|
2,990 | 3,259 | ||||
|
Total debt
|
3,218 | 3,501 | ||||
Consolidated
Results — Year Ended December 31, 2010 compared
with Year Ended December 31, 2009
During 2010 the global economy gradually began to recover from
the challenging economic environment we experienced during the
second half of 2008 and throughout 2009. Net sales increased in
2010 from 2009 primarily due to increased volumes as a result of
the gradual recovery and increased selling prices across the
majority of our business segments. The increase in net sales
resulting from our acquisition of FACT GmbH (Future Advanced
Composites Technology) (“FACT”) in December 2009 only
slightly offset the decrease in net sales due to the sale of
46
Table of Contents
our polyvinyl alcohol (“PVOH”) business in July 2009
within our Industrial Specialties segment. Unfavorable foreign
currency impacts only slightly offset the increase in net sales.
Gross profit increased due to higher net sales. Gross profit as
a percentage of sales remained consistent with prior year as
increased pricing offset increased raw material and energy costs.
During the year ended December 31, 2010, we wrote-off other
productive assets of $18 million related to our Singapore
and Nanjing, China facilities. In March 2010, we recorded
$22 million of accelerated amortization to write-off the
asset associated with a raw material purchase agreement with a
supplier who filed for bankruptcy during 2009. The accelerated
amortization was recorded as $20 million to our Acetyl
Intermediates segment and $2 million to our Advanced
Engineered Materials segment. Both the write-off of other
productive assets and accelerated amortization were recorded to
Cost of sales in the accompanying consolidated statements of
operations during the year ended December 31, 2010.
Selling, general and administrative expenses increased during
2010 primarily due to the increase in net sales and higher legal
costs and costs associated with business optimization
initiatives. As a percentage of sales, selling, general and
administrative expenses declined slightly as compared to 2009
due to our continued fixed spending reduction efforts,
restructuring efficiencies and a positive impact from foreign
currency.
Other (charges) gains, net decreased $90 million during
2010 as compared to 2009:
| Year Ended December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In $ millions) | ||||||||
|
Employee termination benefits
|
(32 | ) | (105 | ) | ||||
|
Plant/office closures
|
(4 | ) | (17 | ) | ||||
|
Asset impairments
|
(74 | ) | (14 | ) | ||||
|
Ticona Kelsterbach plant relocation
|
(26 | ) | (16 | ) | ||||
|
Insurance recoveries, net
|
18 | 6 | ||||||
|
Resolution of commercial disputes
|
13 | - | ||||||
|
Plumbing actions
|
59 | 10 | ||||||
|
Total Other (charges) gains, net
|
(46 | ) | (136 | ) | ||||
In March 2010, we concluded that certain long-lived assets were
partially impaired at our acetate flake and tow manufacturing
operations in Spondon, Derby, United Kingdom. Accordingly, we
wrote down the related property, plant and equipment to its fair
value of $31 million, resulting in long-lived asset
impairment losses of $72 million during the year ended
December 31, 2010. As a result of the announced closure of
our acetate flake and tow manufacturing operations in Spondon,
Derby, United Kingdom, we recorded $15 million of employee
termination benefits during the year ended December 31,
2010.
As a result of our Pardies, France “Project of
Closure”, we recorded exit costs of $12 million during
the year ended December 31, 2010, which consisted of
$6 million in employee termination benefits,
$1 million of long-lived asset impairment losses,
$2 million of contract termination costs and other plant
closure costs and $3 million of reindustrialization costs.
Due to certain events in October 2008 and subsequent periodic
cessations of production of our specialty polymers products
produced at our EVA Performance Polymers facility in Edmonton,
Alberta, Canada, we declared two events of force majeure. During
2009, we replaced long-lived assets damaged in October 2008. As
a result of these events and subsequent periodic cessations of
production, we recorded $18 million of net insurance
recoveries consisting of $8 million related to property
damage and $10 million related to business interruption.
47
Table of Contents
As a result of several business optimization projects undertaken
by us beginning in 2009 and continuing throughout 2010, we
recorded $11 million in employee termination costs during
the year ended December 31, 2010.
During the year ended December 31, 2010 we recorded
$14 million of recoveries and $45 million of
reductions in legal reserves related to lawsuits alleging that
certain plastics utilized in the production of plumbing systems
for residential property were defective or caused such plumbing
systems to fail. See Note 23 to the accompanying
consolidated financial statements for further information
regarding the plumbing actions.
In November 2006, we finalized a settlement agreement with the
Frankfurt, Germany Airport (“Fraport”) to relocate the
Kelsterbach, Germany Ticona operations resolving several years
of legal disputes related to the planned Fraport expansion.
During 2010, we recorded $26 million of expenses related to
the Ticona Kelsterbach relocation. See Note 28 to the
accompanying consolidated financial statements for further
information regarding the Ticona Kelsterbach plant relocation.
Other charges for the year ended December 31, 2010 also
included gains of $13 million, net, related to settlements
in resolution of a commercial disputes.
Equity in net earnings of affiliates and dividend income from
cost investments increased during 2010 as compared to the same
period in 2009. Our strategic affiliates have experienced
similar volume increases due to increased demand during the year
ended December 31, 2010. As a result, our proportional
share of net earnings from equity affiliates increased
$69 million and our dividend income from cost investments
increased $16 million for the year ended December 31,
2010 as compared to the same period in 2009.
Our effective tax rate for continuing operations for the year
ended December 31, 2010 was 21% compared to (97)% for the
year ended December 31, 2009. Our effective tax rate for
2009 was favorably impacted by the release of the US valuation
allowance on net deferred tax assets, partially offset by
increases in valuation allowances on certain foreign net
deferred tax assets and the effect of new tax legislation in
Mexico. The effective rate for the year ended December 31,
2010 was favorably impacted by amendments to tax legislation in
Mexico.
Consolidated
Results — Year Ended December 31, 2009 compared
with Year Ended December 31, 2008
The challenging economic environment in the United States and
Europe during the second half of 2008 continued throughout 2009.
Net sales declined in 2009 from 2008 primarily as a result of
decreased demand due to the significant weakness of the global
economy. In July 2009, we completed the sale of our PVOH
business which also contributed to the declines in our sales
volumes. In the fourth quarter of 2009, we began to see a
gradual recovery in the global economy with increasing demand
within some of our business segments. A decrease in selling
prices was also a significant factor on the decrease in net
sales. Decreases in key raw material and energy costs were the
primary factors in lower selling prices. A slightly unfavorable
foreign currency impact also contributed to the decrease in net
sales.
Gross profit declined due to lower net sales. As a percentage of
sales, gross profit increased as lower raw material and energy
costs more than offset decreases in net sales during the period.
Selling, general and administrative expenses decreased during
2009 primarily due to business optimization and finance
improvement initiatives.
48
Table of Contents
Other (charges) gains, net increased $28 million during
2009 as compared to 2008:
| Year Ended December 31, | ||||||||
| 2009 | 2008 | |||||||
| (In $ millions) | ||||||||
|
Employee termination benefits
|
(105 | ) | (21 | ) | ||||
|
Plant/office closures
|
(17 | ) | (7 | ) | ||||
|
Asset impairments
|
(14 | ) | (115 | ) | ||||
|
Ticona Kelsterbach plant relocation
|
(16 | ) | (12 | ) | ||||
|
Insurance recoveries, net
|
6 | 38 | ||||||
|
Plumbing actions
|
10 | - | ||||||
|
Sorbates antitrust actions
|
- | 8 | ||||||
|
Other
|
- | 1 | ||||||
|
Total Other (charges) gains, net
|
(136 | ) | (108 | ) | ||||
During the first quarter of 2009, we began efforts to align
production capacity and staffing levels with our view of an
economic environment of prolonged lower demand. For the year
ended December 31, 2009, other charges included employee
termination benefits of $40 million related to this
endeavor. As a result of the shutdown of the vinyl acetate
monomer (“VAM”) production unit in Cangrejera, Mexico,
we recognized employee termination benefits of $1 million
and long-lived asset impairment losses of $1 million during
the year ended December 31, 2009.
As a result of the “Project of Closure” at our
Pardies, France facility, other charges included exit costs of
$89 million during the year ended December 31, 2009,
which consisted of $60 million in employee termination
benefits, $17 million of contract termination costs and
$12 million of long-lived asset impairment losses.
Due to continued declines in demand in automotive and electronic
sectors, we announced plans to reduce capacity by ceasing
polyester polymer production at our Ticona manufacturing plant
in Shelby, North Carolina. Other charges for the year ended
December 31, 2009 included employee termination benefits of
$2 million and long-lived asset impairment losses of
$1 million related to this event.
Other charges for the year ended December 31, 2009 was
partially offset by $6 million of net insurance recoveries
in satisfaction of claims we made related to the unplanned
outage of our Clear Lake, Texas acetic acid facility during
2007, a $9 million decrease in legal reserves for plumbing
claims due to the Company’s ongoing assessment of the
likely outcome of the plumbing actions and the expiration of the
statute of limitation.
In November 2006, we finalized a settlement agreement with the
Frankfurt, Germany Airport (“Fraport”) to relocate the
Kelsterbach, Germany Ticona operations resolving several years
of legal disputes related to the planned Fraport expansion.
During 2009, we recorded $16 million of expenses related to
the Ticona Kelsterbach relocation.
Operating profit decreased due to lower gross profit and higher
other charges partially offset by lower selling, general and
administrative costs.
Equity in net earnings of affiliates decreased during 2009,
primarily due to reduced earnings from our Advanced Engineered
Materials’ affiliates resulting from decreased demand.
Our effective tax rate for continuing operations for the year
ended December 31, 2009 was (97)% compared to 15% for the
year ended December 31, 2008. Our effective tax rate for
2009 was favorably impacted by the release of the US valuation
allowance, partially offset by lower earnings in jurisdictions
participating in tax holidays, increases in valuation allowances
on certain foreign net deferred tax assets and the effect of new
tax legislation in Mexico.
49
Table of Contents
Selected
Data by Business Segment — 2010 Compared with 2009 and
2009 Compared with 2008
|
Year Ended
|
Year Ended
|
|||||||||||||||||||||||||||||
| December 31, |
Change
|
December 31, |
Change
|
|||||||||||||||||||||||||||
| 2010 | 2009 | in $ | 2009 | 2008 | in $ | |||||||||||||||||||||||||
| As Adjusted | As Adjusted | |||||||||||||||||||||||||||||
| (In $ millions) | ||||||||||||||||||||||||||||||
|
Net sales
|
||||||||||||||||||||||||||||||
|
Advanced Engineered Materials
|
1,109 | 808 | 301 | 808 | 1,061 | (253 | ) | |||||||||||||||||||||||
|
Consumer Specialties
|
1,098 | 1,084 | 14 | 1,084 | 1,155 | (71 | ) | |||||||||||||||||||||||
|
Industrial Specialties
|
1,036 | 974 | 62 | 974 | 1,406 | (432 | ) | |||||||||||||||||||||||
|
Acetyl Intermediates
|
3,082 | 2,603 | 479 | 2,603 | 3,875 | (1,272 | ) | |||||||||||||||||||||||
|
Other Activities
|
2 | 2 | - | 2 | 2 | - | ||||||||||||||||||||||||
|
Inter-segment Eliminations
|
(409 | ) | (389 | ) | (20 | ) | (389 | ) | (676 | ) | 287 | |||||||||||||||||||
|
Total
|
5,918 | 5,082 | 836 | 5,082 | 6,823 | (1,741 | ) | |||||||||||||||||||||||
|
Other (charges) gains, net
|
||||||||||||||||||||||||||||||
|
Advanced Engineered Materials
|
31 | (18 | ) | 49 | (18 | ) | (29 | ) | 11 | |||||||||||||||||||||
|
Consumer Specialties
|
(76 | ) | (9 | ) | (67 | ) | (9 | ) | (2 | ) | (7 | ) | ||||||||||||||||||
|
Industrial Specialties
|
25 | 4 | 21 | 4 | (3 | ) | 7 | |||||||||||||||||||||||
|
Acetyl Intermediates
|
(12 | ) | (91 | ) | 79 | (91 | ) | (78 | ) | (13 | ) | |||||||||||||||||||
|
Other Activities
|
(14 | ) | (22 | ) | 8 | (22 | ) | 4 | (26 | ) | ||||||||||||||||||||
|
Total
|
(46 | ) | (136 | ) | 90 | (136 | ) | (108 | ) | (28 | ) | |||||||||||||||||||
|
Operating profit (loss)
|
||||||||||||||||||||||||||||||
|
Advanced Engineered Materials
|
186 | 38 | 148 | 38 | 37 | 1 | ||||||||||||||||||||||||
|
Consumer Specialties
|
164 | 231 | (67 | ) | 231 | 190 | 41 | |||||||||||||||||||||||
|
Industrial Specialties
|
89 | 89 | - | 89 | 47 | 42 | ||||||||||||||||||||||||
|
Acetyl Intermediates
|
243 | 92 | 151 | 92 | 304 | (212 | ) | |||||||||||||||||||||||
|
Other Activities
|
(179 | ) | (160 | ) | (19 | ) | (160 | ) | (138 | ) | (22 | ) | ||||||||||||||||||
|
Total
|
503 | 290 | 213 | 290 | 440 | (150 | ) | |||||||||||||||||||||||
|
Earnings (loss) from continuing operations before tax
|
||||||||||||||||||||||||||||||
|
Advanced Engineered Materials
|
329 | 114 | 215 | 114 | 190 | (76 | ) | |||||||||||||||||||||||
|
Consumer Specialties
|
237 | 288 | (51 | ) | 288 | 237 | 51 | |||||||||||||||||||||||
|
Industrial Specialties
|
89 | 89 | - | 89 | 47 | 42 | ||||||||||||||||||||||||
|
Acetyl Intermediates
|
252 | 102 | 150 | 102 | 312 | (210 | ) | |||||||||||||||||||||||
|
Other Activities
|
(369 | ) | (342 | ) | (27 | ) | (342 | ) | (353 | ) | 11 | |||||||||||||||||||
|
Total
|
538 | 251 | 287 | 251 | 433 | (182 | ) | |||||||||||||||||||||||
|
Depreciation and amortization
|
||||||||||||||||||||||||||||||
|
Advanced Engineered Materials
|
76 | 73 | 3 | 73 | 76 | (3 | ) | |||||||||||||||||||||||
|
Consumer Specialties
|
42 | 50 | (8 | ) | 50 | 53 | (3 | ) | ||||||||||||||||||||||
|
Industrial Specialties
|
41 | 51 | (10 | ) | 51 | 62 | (11 | ) | ||||||||||||||||||||||
|
Acetyl Intermediates
|
117 | 123 | (6 | ) | 123 | 150 | (27 | ) | ||||||||||||||||||||||
|
Other Activities
|
11 | 11 | - | 11 | 9 | 2 | ||||||||||||||||||||||||
|
Total
|
287 | 308 | (21 | ) | 308 | 350 | (42 | ) | ||||||||||||||||||||||
|
Operating margin
(1)
|
||||||||||||||||||||||||||||||
|
Advanced Engineered Materials
|
16.8 | % | 4.7 | % | 12.1 | % | 4.7 | % | 3.5 | % | 1.2 | % | ||||||||||||||||||
|
Consumer Specialties
|
14.9 | % | 21.3 | % | (6.4 | ) | % | 21.3 | % | 16.5 | % | 4.8 | % | |||||||||||||||||
|
Industrial Specialties
|
8.6 | % | 9.1 | % | (0.5 | ) | % | 9.1 | % | 3.3 | % | 5.8 | % | |||||||||||||||||
|
Acetyl Intermediates
|
7.9 | % | 3.5 | % | 4.4 | % | 3.5 | % | 7.8 | % | (4.3 | ) | % | |||||||||||||||||
|
Total
|
8.5 | % | 5.7 | % | 2.8 | % | 5.7 | % | 6.4 | % | (0.7 | ) | % | |||||||||||||||||
(1)
Defined
as operating profit (loss) divided by net sales.
50
Table of Contents
Factors
Affecting Business Segment Net Sales
The table below sets forth the percentage increase (decrease) in
net sales for the years ended December 31 attributable to each
of the factors indicated for the following business segments.
| Volume | Price | Currency | Other | Total | ||||||||||||||||
| (In percentages) | ||||||||||||||||||||
|
2010 Compared to 2009
|
||||||||||||||||||||
|
Advanced Engineered Materials
|
35 | 1 | (3 | ) | 4 | (2) | 37 | |||||||||||||
|
Consumer Specialties
|
2 | - | (1 | ) | - | 1 | ||||||||||||||
|
Industrial Specialties
|
11 | 6 | (3 | ) | (8 | ) (3) | 6 | |||||||||||||
|
Acetyl Intermediates
|
10 | 10 | (2 | ) | - | 18 | ||||||||||||||
|
Total Company
|
13 | 7 | (2 | ) | (2 | ) (1) | 16 | |||||||||||||
|
2009 Compared to 2008
|
||||||||||||||||||||
|
Advanced Engineered Materials
|
(21 | ) | (1 | ) | (2 | ) | - | (24 | ) | |||||||||||
|
Consumer Specialties
|
(12 | ) | 7 | (1 | ) | - | (6 | ) | ||||||||||||
|
Industrial Specialties
|
(10 | ) | (10 | ) | (2 | ) | (9 | ) (3) | (31 | ) | ||||||||||
|
Acetyl Intermediates
|
(6 | ) | (26 | ) | (1 | ) | - | (33 | ) | |||||||||||
|
Total Company
|
(10 | ) | (16 | ) | (2 | ) | 2 | (1) | (26 | ) | ||||||||||
| (1) | Includes the effects of the captive insurance companies and the impact of fluctuations in intersegment eliminations. |
| (2) | 2010 includes the effects of the FACT and DuPont acquisitions. |
| (3) | 2010 does not include the effects of the PVOH business, which was sold on July 1, 2009. |
Business
Segment — Year Ended December 31, 2010 Compared
with Year Ended December 31, 2009
Advanced
Engineered Materials
| Year Ended December 31, |
Change
|
|||||||||||
| 2010 | 2009 | in $ | ||||||||||
| As Adjusted | ||||||||||||
| (In $ millions, except percentages) | ||||||||||||
|
Net sales
|
1,109 | 808 | 301 | |||||||||
|
Net sales variance
|
||||||||||||
|
Volume
|
35 | % | ||||||||||
|
Price
|
1 | % | ||||||||||
|
Currency
|
(3 | )% | ||||||||||
|
Other
|
4 | % | ||||||||||
|
Operating profit
|
186 | 38 | 148 | |||||||||
|
Operating margin
|
16.8 | % | 4.7 | % | ||||||||
|
Other (charges) gains, net
|
31 | (18 | ) | 49 | ||||||||
|
Equity in net earnings (loss) of affiliates
|
144 | 78 | 66 | |||||||||
|
Earnings (loss) from continuing operations before tax
|
329 | 114 | 215 | |||||||||
|
Depreciation and amortization
|
76 | 73 | 3 | |||||||||
Our Advanced Engineered Materials segment develops, produces and
supplies a broad portfolio of high performance specialty
polymers for application in automotive, medical and electronics
products, as well as other consumer and industrial applications.
Together with our strategic affiliates, our Advanced Engineered
51
Table of Contents
Materials segment is a leading participant in the global
specialty polymers industry. The primary products of Advanced
Engineered Materials are POM, PPS, long-fiber reinforced
thermoplastics (“LFT”), polybutylene terephthalate
(“PBT”), polyethylene terephthalate (“PET”),
ultra-high molecular weight polyethylene
(“GUR
®
”)
and LCP. POM, PPS, LFT, PBT and PET are used in a broad range of
products including automotive components, electronics,
appliances and industrial applications.
GUR
®
is used in battery separators, conveyor belts, filtration
equipment, coatings and medical devices. Primary end markets for
LCP are electrical and electronics.
Advanced Engineered Materials’ net sales increased
$301 million for the year ended December 31, 2010
compared to the same period in 2009. The increase in net sales
is primarily related to significant increases in volume which
are due to the gradual recovery in the global economy, continued
success in the innovation and commercialization of new products
and applications and the acquisition of FACT in December 2009.
Net sales was also positively impacted by increases in average
pricing as a result of implemented price increases in addition
to integrating the DuPont product lines LCP and PCT that were
acquired in May 2010 into our sales process during the fourth
quarter. These increases were only partially offset by
unfavorable foreign currency impacts.
Operating profit increased $148 million for the year ended
December 31, 2010 as compared to the same period in 2009.
The positive impact from higher sales volumes, increased pricing
for our high performance polymers and higher production volumes,
including a planned inventory build for the relocation of our
facility in Kelsterbach, Germany, more than offset higher raw
material and energy costs. Other charges positively impacted
operating profit for the year ended December 31, 2010
driven by a $45 million decrease in legal reserves and
$14 million of recoveries associated with plumbing actions
partially offset by expenses related to our European expansion
and Kelsterbach relocation. Depreciation and amortization
includes $2 million of accelerated amortization for the
year ended December 31, 2010 to write-off the asset
associated with a raw material purchase agreement with a
supplier who filed for bankruptcy during 2009.
Earnings from continuing operations before tax increased for the
year ended December 31, 2010 as compared to the same period
in 2009 due to increased operating profit and increased equity
in net earnings of affiliates. Our equity affiliates, including
Ibn Sina, have experienced similar volume increases due to
increased demand during the year ended December 31, 2010.
As a result, our proportional share of net earnings of these
affiliates increased $66 million for the year ended
December 31, 2010 compared to the same period in 2009.
The economic outlook within the automotive and electronic
industries continues to look favorable entering into 2011 with
seasonally strong demand. We are anticipating a continued strong
value-in-use
pricing environment supported by higher raw material costs. As
we progress with the relocation of our Kelsterbach, Germany
operations and expansion of capacity in Europe, we will continue
to build inventory to support our customers in their product
qualification process.
52
Table of Contents
Consumer
Specialties
| Year Ended December 31, |
Change
|
|||||||||||
| 2010 | 2009 | in $ | ||||||||||
| (In $ millions, except percentages) | ||||||||||||
|
Net sales
|
1,098 | 1,084 | 14 | |||||||||
|
Net sales variance
|
||||||||||||
|
Volume
|
2 | % | ||||||||||
|
Price
|
- | % | ||||||||||
|
Currency
|
(1 | )% | ||||||||||
|
Other
|
- | % | ||||||||||
|
Operating profit
|
164 | 231 | (67 | ) | ||||||||
|
Operating margin
|
14.9 | % | 21.3 | % | ||||||||
|
Other (charges) gains, net
|
(76 | ) | (9 | ) | (67 | ) | ||||||
|
Equity in net earnings (loss) of affiliates
|
2 | 1 | 1 | |||||||||
|
Dividend income — cost investments
|
71 | 56 | 15 | |||||||||
|
Earnings (loss) from continuing operations before tax
|
237 | 288 | (51 | ) | ||||||||
|
Depreciation and amortization
|
42 | 50 | (8 | ) | ||||||||
Our Consumer Specialties segment consists of our Acetate
Products and Nutrinova businesses. Our Acetate Products business
primarily produces and supplies acetate tow, which is used in
the production of filter products. We also produce acetate
flake, which is processed into acetate tow and acetate film. Our
Nutrinova business produces and sells
Sunett
®
,
a high intensity sweetener, and food protection ingredients,
such as sorbates and sorbic acid, for the food, beverage and
pharmaceuticals industries.
Net sales for Consumer Specialties increased $14 million
for the year ended December 31, 2010 as compared to the
same period in 2009. The increase in volume and price in our
Acetate Products business more than offset the decline in volume
and price in our Nutrinova business as lower demand in
Sunett
®
negatively impacted net sales.
During the first half of 2010, we experienced a decline in net
sales related to an electrical disruption and subsequent
production outage at our Acetate Products manufacturing facility
in Narrows, Virginia. The facility resumed normal operations
during the second quarter of 2010 and we recovered the impacted
volume during the second half of 2010 as we experienced
increased volumes in our Acetate Products business due to higher
demand in acetate tow and improved business in acetate film.
Operating profit decreased for the year ended December 31,
2010 as compared to the same period in 2009. An increase in
other charges for the year ended December 31, 2010 had the
most significant impact on operating profit as it was
unfavorably impacted by long-lived asset impairment losses of
$72 million associated with management’s assessment of
the closure of our acetate flake and tow production operations
in Spondon, Derby, United Kingdom during the three months ended
March 31, 2010.
During the year ended December 31, 2010, earnings from
continuing operations before tax decreased due to lower
operating profit, which was partially offset by higher dividends
from our China ventures of $15 million compared to 2009.
We expect demand to be relatively flat during the first quarter
of 2011; however, slightly lower sales are expected due to
seasonal trends. Margin expansion driven by sustainable
productivity initiatives is expected to continue in 2011. In
addition, we expect spending to be higher during the first
quarter of 2011 as compared to the same period in 2010 due to
plant turnaround costs.
53
Table of Contents
Industrial
Specialties
| Year Ended December 31, |
Change
|
|||||||||||
| 2010 | 2009 | in $ | ||||||||||
| (In $ millions, except percentages) | ||||||||||||
|
Net sales
|
1,036 | 974 | 62 | |||||||||
|
Net sales variance
|
||||||||||||
|
Volume
|
11 | % | ||||||||||
|
Price
|
6 | % | ||||||||||
|
Currency
|
(3 | )% | ||||||||||
|
Other
|
(8 | )% | ||||||||||
|
Operating profit
|
89 | 89 | - | |||||||||
|
Operating margin
|
8.6 | % | 9.1 | % | ||||||||
|
Other (charges) gains, net
|
25 | 4 | 21 | |||||||||
|
Earnings (loss) from continuing operations before tax
|
89 | 89 | - | |||||||||
|
Depreciation and amortization
|
41 | 51 | (10 | ) | ||||||||
Our Industrial Specialties segment includes our Emulsions and
EVA Performance Polymers businesses. Our Emulsions business is a
global leader that produces a broad product portfolio,
specializing in vinyl acetate ethylene emulsions, and is a
recognized authority on low volatile organic compounds, an
environmentally-friendly technology. Our emulsions products are
used in a wide array of applications including paints and
coatings, adhesives, construction, glass fiber, textiles and
paper. EVA Performance Polymers business offers a complete line
of low-density polyethylene and specialty EVA resins and
compounds. EVA Performance Polymers’ products are used in
many applications including flexible packaging films, lamination
film products, hot melt adhesives, medical devices and tubing,
automotive carpeting and solar cell encapsulation films.
In July 2009, we completed the sale of our PVOH business to
Sekisui Chemical Co., Ltd. (“Sekisui”) for a net cash
purchase price of $168 million, excluding the value of
accounts receivable and payable we retained. The transaction
resulted in a gain on disposition of $34 million and
includes long-term supply agreements between Sekisui and
Celanese.
Net sales increased for the year ended December 31, 2010
compared to the same period in 2009. Increased net sales were a
result of higher growth and innovation volumes from our
Emulsions business and higher volumes from our EVA Performance
Polymers business partially offset by impacts resulting from the
sale of our PVOH business in July 2009. The increase in our EVA
Performance Polymers business’ volumes was partly as a
result of our Edmonton, Alberta, Canada plant being fully
operational during 2010. Volumes were lower during 2009 due to
technical issues at our Edmonton, Alberta, Canada plant. Such
technical production issues were resolved and normal operations
resumed prior to the end of the third quarter of 2009. Higher
prices in our EVA Performance Polymers business due to price
increases and favorable product mix were partially offset by
lower prices in our Emulsions business due to unfavorable
foreign exchange rates.
Due to certain events in October 2008 and subsequent periodic
cessations of production of our specialty polymers products
produced at our EVA Performance Polymers facility in Edmonton,
Alberta, Canada, we declared two events of force majeure. During
2009, we replaced long-lived assets damaged in October 2008. As
a result of these events and subsequent periodic cessation of
production, we recorded $25 million and $10 million of
insurance recoveries to other charges during the years ended
December 31, 2010 and 2009, respectively. These amounts
were partially offset by $7 million and $10 million,
respectively, recorded as a charge by our captive insurance
companies included in the Other Activities segment. The net
insurance recoveries recorded during the year ended
December 31, 2010 of $18 million consisted of
$8 million related to property damage and $10 million
related to business interruption.
Operating profit remained unchanged for the year ended
December 31, 2010 compared to the same period in 2009.
Increases in operating profit in 2010 are primarily due to the
resumption of normal operations at our EVA
54
Table of Contents
Performance Polymers facility, net insurance proceeds received
in 2010 and increases in sales volumes and prices. These
increases were offset by the 2009 gain on disposition of assets
related to the divestiture of our PVOH business and higher raw
material costs in both our EVA Performance Polymers and
Emulsions businesses.
In 2011 we expect to see positive industry conditions with
volume demands continuing to increase from those levels
experienced in 2010. We also anticipate margin expansion due to
a robust pricing environment and higher margins on new products.
Acetyl
Intermediates
| Year Ended December 31, |
Change
|
|||||||||||
| 2010 | 2009 | in $ | ||||||||||
| As Adjusted | ||||||||||||
| (In $ millions, except percentages) | ||||||||||||
|
Net sales
|
3,082 | 2,603 | 479 | |||||||||
|
Net sales variance
|
||||||||||||
|
Volume
|
10 | % | ||||||||||
|
Price
|
10 | % | ||||||||||
|
Currency
|
(2 | )% | ||||||||||
|
Other
|
- | % | ||||||||||
|
Operating profit
|
243 | 92 | 151 | |||||||||
|
Operating margin
|
7.9 | % | 3.5 | % | ||||||||
|
Other (charges) gains, net
|
(12 | ) | (91 | ) | 79 | |||||||
|
Equity in net earnings (loss) of affiliates
|
5 | 5 | - | |||||||||
|
Earnings (loss) from continuing operations before tax
|
252 | 102 | 150 | |||||||||
|
Depreciation and amortization
|
117 | 123 | (6 | ) | ||||||||
Our Acetyl Intermediates segment produces and supplies acetyl
products, including acetic acid, VAM, acetic anhydride and
acetate esters. These products are generally used as starting
materials for colorants, paints, adhesives, coatings, textiles,
medicines and more. Other chemicals produced in this business
segment are organic solvents and intermediates for
pharmaceutical, agricultural and chemical products. To meet the
growing demand for acetic acid in China and to support ongoing
site optimization efforts, we successfully expanded our acetic
acid unit in Nanjing, China from 600,000 tons per reactor
annually to 1.2 million tons per reactor annually during
the fourth quarter of 2009. Using new
AOPlus
®
2
capability, the acetic acid unit could be further expanded to
1.5 million tons per reactor annually with only modest
additional capital.
Acetyl Intermediates’ net sales increased $479 million
during the year ended December 31, 2010 as compared to the
same period in 2009 due to improvement in the global economy
resulting in increased overall demand across all regions for the
major acetyl derivative product lines. Increases in volume were
also a direct result of our successful acetic acid expansion at
our Nanjing, China plant. We also experienced favorable pricing
which was driven by rising raw material costs and price
increases in acetic acid and VAM across all regions. The
increase in net sales was only slightly offset by unfavorable
foreign currency impacts.
Operating profit increased during the year ended
December 31, 2010 compared to the same period in 2009. The
increase in operating profit is primarily due to higher volumes
and prices and reduction in plant costs resulting from the
closure of our less advantaged acetic acid and VAM production
operations in Pardies, France. A decrease in other charges, due
primarily to the reduction of plant closure costs related to the
2009 closure of our Pardies, France facility, also had a
favorable impact on operating profit. These increases to
operating profit were only slightly offset by higher variable
costs and unfavorable foreign currency impacts. Higher variable
costs were a direct result of price increases in all major raw
materials. Depreciation and amortization includes
$20 million of accelerated amortization for the year ended
December 31, 2010 to write-off the asset associated with a
raw material purchase agreement with a supplier who filed for
bankruptcy during 2009.
55
Table of Contents
Earnings from continuing operations before tax increased during
the year ended December 31, 2010 compared to the same
period in 2009 due to increased operating profit.
Entering into 2011, we expect to see a relatively flat first
quarter. Decreasing volumes in Asia as a result of the Chinese
new year are expected to offset seasonal increases in demand in
the US and Europe. Overall growth in Asia for 2011 is
anticipated. In addition, our advanced acetyl technology is
expected to sustain acetic acid margins and process innovation
and productivity are expected to positively impact 2011.
Other
Activities
Other Activities primarily consists of corporate center costs,
including financing and administrative activities, and our
captive insurance companies.
The operating loss for Other Activities increased
$19 million for the year ended December 31, 2010
compared to the same period in 2009. The increase was primarily
due to a $38 million increase in selling, general and
administrative costs, which was only partially offset by a
$14 million gain on the sale of an office building. Higher
selling, general and administrative expenses were primarily due
to higher legal costs and costs associated with business
optimization initiatives.
The loss from continuing operations before tax increased
$27 million for the year ended December 31, 2010
compared to the same period in 2009. The increase is primarily
related to $16 million of fees associated with our debt
refinancing that occurred during the three months ended
September 30, 2010.
Business
Segment — Year Ended December 31, 2009 Compared
with Year Ended December 31, 2008
Advanced
Engineered Materials
| Year Ended December 31, |
Change
|
|||||||||||
| 2009 | 2008 | in $ | ||||||||||
| As Adjusted | ||||||||||||
| (In $ millions, except percentages) | ||||||||||||
|
Net sales
|
808 | 1,061 | (253 | ) | ||||||||
|
Net sales variance
|
||||||||||||
|
Volume
|
(21 | )% | ||||||||||
|
Price
|
(1 | )% | ||||||||||
|
Currency
|
(2 | )% | ||||||||||
|
Other
|
- | % | ||||||||||
|
Operating profit
|
38 | 37 | 1 | |||||||||
|
Operating margin
|
4.7 | % | 3.5 | % | ||||||||
|
Other (charges) gains, net
|
(18 | ) | (29 | ) | 11 | |||||||
|
Equity in net earnings (loss) of affiliates
|
78 | 155 | (77 | ) | ||||||||
|
Earnings (loss) from continuing operations before tax
|
114 | 190 | (76 | ) | ||||||||
|
Depreciation and amortization
|
73 | 76 | (3 | ) | ||||||||
Net sales decreased during 2009 compared to 2008 primarily as a
result of lower sales volumes. Significant weakness in the
global economy experienced during the first half of the year
resulted in a dramatic decline in demand for automotive,
electrical and electronic products as well as for other
industrial products. As a result, sales volumes dropped
significantly across all product lines. During the second half
of 2009, we experienced a continued increase in demand compared
with the first half of the year as a result of programs like
“Cash for Clunkers” in the United States during the
third quarter of 2009 and a gradual recovery in the global
economy during the fourth quarter of 2009.
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Table of Contents
Operating profit increased in 2009 as compared to 2008. Lower
raw material and energy costs and decreased overall spending
more than offset the decline in net sales. Decreased overall
spending was the result of our fixed spending reduction efforts.
Non-capital spending incurred on the relocation of our Ticona
Kelsterbach plant was flat compared to 2008. See Note 28 to
the accompanying consolidated financial statements for further
information regarding the Ticona Kelsterbach plant relocation.
Earnings from continuing operations before tax was down due to a
drop in equity in net earnings of affiliates as compared to
2008. Equity in net earnings of affiliates was lower in 2009
primarily due to reduced earnings from our Advanced Engineered
Materials’ affiliates resulting from decreased demand and a
biennial shutdown at one of our affiliate’s plants.
Consumer
Specialties
| Year Ended December 31, |
Change
|
|||||||||||
| 2009 | 2008 | in $ | ||||||||||
| (In $ millions, except percentages) | ||||||||||||
|
Net sales
|
1,084 | 1,155 | (71 | ) | ||||||||
|
Net sales variance
|
||||||||||||
|
Volume
|
(12 | )% | ||||||||||
|
Price
|
7 | % | ||||||||||
|
Currency
|
(1 | )% | ||||||||||
|
Other
|
- | % | ||||||||||
|
Operating profit
|
231 | 190 | 41 | |||||||||
|
Operating margin
|
21.3 | % | 16.5 | % | ||||||||
|
Other (charges) gains, net
|
(9 | ) | (2 | ) | (7 | ) | ||||||
|
Equity in net earnings (loss) of affiliates
|
1 | - | 1 | |||||||||
|
Dividend income — cost investments
|
56 | 46 | 10 | |||||||||
|
Earnings (loss) from continuing operations before tax
|
288 | 237 | 51 | |||||||||
|
Depreciation and amortization
|
50 | 53 | (3 | ) | ||||||||
Net sales decreased $71 million during 2009 when compared
with 2008. The decrease in net sales was driven primarily by
decreased volume due to softening demand largely in tow with
less significant decreases experienced in flake. Decreased
volumes were primarily due to weakness in underlying demand
resulting from the global economic downturn. The decrease in
volume was partially offset by an increase in selling prices. A
slightly unfavorable foreign currency impact also contributed to
the decrease in net sales.
Operating profit increased from $190 million in 2008 to
$231 million in 2009. Fixed cost reduction efforts,
improved energy costs and a favorable currency impact on costs
had a significant impact on the increase to operating profit.
Earnings from continuing operations before tax of
$288 million increased from 2008 primarily due to the
increase in operating profit and an increase in dividends from
our China ventures of $10 million. Increased dividends are
the result of increased volumes and higher prices, as well as
efficiency improvements.
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Table of Contents
Industrial
Specialties
| Year Ended December 31, |
Change
|
|||||||||||
| 2009 | 2008 | in $ | ||||||||||
| (In $ millions, except percentages) | ||||||||||||
|
Net sales
|
974 | 1,406 | (432 | ) | ||||||||
|
Net sales variance
|
||||||||||||
|
Volume
|
(10 | )% | ||||||||||
|
Price
|
(10 | )% | ||||||||||
|
Currency
|
(2 | )% | ||||||||||
|
Other
|
(9 | )% | ||||||||||
|
Operating profit
|
89 | 47 | 42 | |||||||||
|
Operating margin
|
9.1 | % | 3.3 | % | ||||||||
|
Other (charges) gains, net
|
4 | (3 | ) | 7 | ||||||||
|
Earnings (loss) from continuing operations before tax
|
89 | 47 | 42 | |||||||||
|
Depreciation and amortization
|
51 | 62 | (11 | ) | ||||||||
Net sales declined $432 million during 2009 compared to
2008 primarily due to the sale of our PVOH business and lower
demand due to the economic downturn. The decline in our
emulsions volumes was concentrated in North America and Europe,
offset partially by volume increases in Asia. EVA Performance
Polymers’ volumes declined due to the impact of the force
majeure event at our Edmonton, Alberta, Canada plant which is
offset in other charges in our Other Activities segment. Repairs
to the plant were completed at the end of the second quarter
2009 and normal operations have resumed. Both decreases in key
raw material costs resulting in lower selling prices and
unfavorable currency impacts also contributed to the decline in
net sales for 2009 compared to 2008.
Operating profit increased $42 million in 2009 compared to
2008 as decreases in volume and selling prices were more than
offset by lower raw material and energy costs and reduced
overall spending. Reduced spending is attributable to our fixed
spending reduction efforts, restructuring efficiencies and
favorable foreign currency impacts on costs. Energy is favorable
due to lower natural gas costs and lower usage resulting from a
decline in volumes. Our EVA Performance Polymers business
contributed to the increase in Other (charges) gains, net as a
result of receiving $10 million in insurance recoveries in
partial satisfaction of the losses resulting from the force
majeure event at our Edmonton, Alberta, Canada plant. The gain
on the sale of our PVOH business of $34 million had a
significant impact to the increase in operating profit.
Depreciation and amortization also had a favorable impact on
operating profit due to the PVOH divestiture and the shutdown of
our Warrington, UK emulsions facility.
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Table of Contents
Acetyl
Intermediates
| Year Ended December 31, |
Change
|
|||||||||||
| 2009 | 2008 | in $ | ||||||||||
| As Adjusted | ||||||||||||
| (In $ millions, except percentages) | ||||||||||||
|
Net sales
|
2,603 | 3,875 | (1,272 | ) | ||||||||
|
Net sales variance
|
||||||||||||
|
Volume
|
(6 | )% | ||||||||||
|
Price
|
(26 | )% | ||||||||||
|
Currency
|
(1 | )% | ||||||||||
|
Other
|
- | % | ||||||||||
|
Operating profit
|
92 | 304 | (212 | ) | ||||||||
|
Operating margin
|
3.5 | % | 7.8 | % | ||||||||
|
Other (charges) gains, net
|
(91 | ) | (78 | ) | (13 | ) | ||||||
|
Equity in net earnings (loss) of affiliates
|
5 | 3 | 2 | |||||||||
|
Earnings (loss) from continuing operations before tax
|
102 | 312 | (210 | ) | ||||||||
|
Depreciation and amortization
|
123 | 150 | (27 | ) | ||||||||
Net sales decreased 33% during 2009 as compared to 2008
primarily due to lower selling prices across all regions and
major product lines, lower volumes and unfavorable foreign
currency impacts. Lower volumes were driven by a reduction in
underlying demand in Europe and in the Americas, which was only
partially offset by significant increases in demand in Asia.
Lower pricing was driven by lower raw material and energy
prices, which also negatively impacted our formula-based pricing
arrangements for VAM in the US. There were a number of
production issues in Asia among the major acetic acid producers
(other than Celanese), which coupled with planned outages,
caused periodic and short-term market tightness.
Operating profit declined $212 million primarily as a
result of lower prices across all regions and major product
lines. Significantly lower realized pricing was partially offset
by favorable raw material and energy prices, reduced spending
due to the shutdown of our Pampa, Texas facility and other
reductions in fixed spending. Depreciation and amortization
expense declined primarily as a result of the long-lived asset
impairment losses recognized in the fourth quarter of 2008
related to our acetic acid and VAM production facility in
Pardies, France, the closure of our VAM production unit in
Cangrejera, Mexico in February 2009, together with lower
depreciation expense resulting from the shutdown of our Pampa,
Texas facility. Our operating profit was also negatively
impacted by a $13 million increase in Other charges for
2009 compared to 2008, relating primarily to the shutdown of our
Pardies, France facility.
The decrease in earnings from continuing operations before tax
of $210 million is consistent with the decline in operating
profit.
Other
Activities
Net sales remained flat in 2009 as compared to 2008. We do not
expect third-party revenues from our captive insurance companies
to increase significantly in the near future.
The operating loss for Other Activities increased from an
operating loss of $138 million in 2008 to an operating loss
of $160 million in 2009. The increase was primarily related
to higher other charges. The increase in other charges was
related to insurance retention costs as a result of our force
majeure event at our Edmonton, Alberta, Canada plant which is
offset in our Industrial Specialties segment and severance costs
as a result of business optimization and finance improvement
initiatives. The increase in other charges was partially offset
by lower selling, general and administrative expenses primarily
attributable to our fixed spending reduction efforts and
restructuring efficiencies.
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Table of Contents
The loss from continuing operations before tax decreased
$11 million in 2009 compared to 2008. This decrease was
primarily due to reduced interest expense resulting from lower
interest rates on our senior credit facilities and favorable
currency impact.
Liquidity
and Capital Resources
Our primary source of liquidity is cash generated from
operations, available cash and cash equivalents and dividends
from our portfolio of strategic investments. In addition, as of
December 31, 2010 we have $145 million available for
borrowing under our credit-linked revolving facility and
$600 million available under our revolving credit facility
to assist, if required, in meeting our working capital needs and
other contractual obligations. We have 17 lenders who
participate in our revolving credit facility, each with a
commitment of not more than 10% of the $600 million
commitment.
While our contractual obligations, commitments and debt service
requirements over the next several years are significant, we
continue to believe we will have available resources to meet our
liquidity requirements, including debt service, in 2011. If our
cash flow from operations is insufficient to fund our debt
service and other obligations, we may be required to use other
means available to us such as increasing our borrowings,
reducing or delaying capital expenditures, seeking additional
capital or seeking to restructure or refinance our indebtedness.
There can be no assurance, however, that we will continue to
generate cash flows at or above current levels.
In January 2011, our wholly-owned subsidiary, Celanese Far East
Limited, signed letters of intent to construct and operate
industrial ethanol production facilities in Nanjing, China, at
the Nanjing Chemical Industrial Park, and in Zhuhai, China, at
the Gaolan Port Economic Zone. Pending project approvals, we
could begin industrial ethanol production within the next
30 months with expected nameplate capacity of 400,000 tons
per year per plant with an initial investment of approximately
$300 million per plant. We are pursuing approval at two
locations to ensure our ability to effectively grow with future
demand.
In April 2010, we announced that, through our strategic venture
Ibn Sina, we will construct a 50,000 ton POM production facility
in Saudi Arabia. Our pro rata share of invested capital in the
POM expansion is expected to total approximately
$165 million over a three year period which began in late
2010. For the year ended December 31, 2010, we incurred
$2 million of capital expenditures. We anticipate related
cash outflows for capital expenditures in 2011 will be
$10 million.
Cash outflows for capital expenditures are expected to be
approximately $350 million in 2011, excluding amounts
related to the relocation of our Ticona plant in Kelsterbach and
capacity expansion in Europe. Per the terms of our agreement
with Fraport, we expect to receive the final cash installment of
€110 million in 2011 subject to downward adjustments
based on our readiness to close our operations at our
Kelsterbach, Germany facility. As the relocation project
progressed, we decided to expand the scope of the new production
facilities and now expect to spend in excess of total proceeds
to be received from Fraport. We anticipate related cash outflows
for capital expenditures in 2011 will be €186 million.
In December 2009, we announced plans with China National Tobacco
to expand our acetate flake and tow capacity at our Nantong
facility. During 2010 we received formal approval to expand
flake and tow capacities, each by 30,000 tons. Our Chinese
acetate ventures fund their operations using operating cash
flow. We made contributions during 2010 of $12 million and
have committed to contributions of $17 million in 2011
related to the capacity expansion in Nantong.
As a result of the planned closure of our acetate flake and tow
manufacturing operations at the Spondon, Derby, United Kingdom
site, we expect to record total expenses of approximately $35 to
$45 million, consisting of approximately $20 million
for personnel-related exit costs and approximately
$20 million of other facility-related shutdown costs such
as contract termination costs and accelerated depreciation of
fixed assets. We expect that substantially all of the exit costs
(except for accelerated depreciation of fixed assets of
approximately $15 million) will result in future cash
expenditures. Cash outflows are expected to occur through 2011.
For the year ended December 31, 2010, we recorded exit
costs of $15 million related to personnel-related costs and
$6 million related
60
Table of Contents
to accelerated depreciation. See Note 4 and Note 17 to
the accompanying consolidated financial statements for further
information.
In addition to exit-related costs associated with the closure of
the Spondon, Derby, United Kingdom acetate flake and tow
manufacturing operations, we expect to incur capital
expenditures of approximately $35 million in certain
capacity and efficiency improvements, principally at our
Lanaken, Belgium facility, to optimize our global production
network.
On a stand-alone basis, Celanese has no material assets other
than the stock of its subsidiaries and no independent external
operations of its own. As such, Celanese generally will depend
on the cash flow of its subsidiaries and their ability to pay
dividends and make other distributions to Celanese in order for
Celanese to meet its obligations, including its obligations
under its Series A common stock, senior credit facilities
and senior notes.
Cash
Flows
Cash and cash equivalents as of December 31, 2010 were
$740 million, which was a decrease of $514 million
from December 31, 2009. Cash and cash equivalents as of
December 31, 2009 were $1,254 million, which was an
increase of $578 million from December 31, 2008.
Net Cash
Provided by Operating Activities
Cash flow provided by operating activities decreased
$144 million to a cash inflow of $452 million in 2010
from a cash inflow of $596 million for the same period in
2009. The increase in trade working capital and the increases in
cash paid for taxes and legal settlements, which negatively
affected cash provided by operating activities, more than offset
the increase in earnings and the increase in cash from our
foreign currency hedges.
Cash flow provided by operating activities increased
$10 million to a cash inflow of $596 million in 2009
from a cash inflow of $586 million for the same period in
2008. Operating cash flows were favorably impacted by less cash
paid for interest, taxes, and legal settlements coupled with a
favorable change in trade working capital which helped to offset
lower operating performance.
Net Cash
Provided by (Used in) Investing Activities
Net cash from investing activities decreased from a cash inflow
of $31 million in 2009 to a cash outflow of
$560 million for the same period in 2010. The decrease is
primarily related to the receipt of proceeds of
$412 million related to the Ticona Kelsterbach plant
relocation and the receipt of $168 million for the sale of
our PVOH business that were both received in 2009. There were no
such proceeds in 2010. Adding to the decrease was cash outflows
of $46 million incurred in 2010 related to our acquisition
of two product lines,
Zenite
®
LCP and
Thermx
®
PCT, from DuPont Performance Polymers as compared to the cash
outflows for our FACT business acquired in 2009 which were only
$8 million.
Net cash from investing activities increased from a cash outflow
of $201 million in 2008 to a cash inflow of
$31 million in 2009. Net cash from investing activities
increased primarily due to lower capital expenditures on
property, plant and equipment, proceeds received from the sale
of our PVOH business and increased deferred proceeds received on
our Ticona Kelsterbach relocation. These cash inflows were
offset slightly by in increase on our capital expenditures
related to our Ticona Kelsterbach plant relocation.
Our cash outflows for capital expenditures were
$201 million, $176 million and $274 million for
the years ended December 31, 2010, 2009 and 2008,
respectively, excluding amounts related to the relocation of our
Ticona plant in Kelsterbach. Capital expenditures were primarily
related to major replacements of equipment, capacity expansions,
major investments to reduce future operating costs and
environmental and health and safety initiatives. Cash outflows
for capital expenditures for our Ticona plant in Kelsterbach
were €236 million for the year ended December 31,
2010.
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Table of Contents
Net Cash
Used in Financing Activities
Net cash used in financing activities increased from a cash
outflow of $112 million in 2009 to a cash outflow of
$388 million for the same period in 2010. The
$276 million increase primarily relates to the net pay down
on long-term debt of $297 million and $48 million used
to repurchase shares of the Company’s Series A common
stock.
Net cash for financing activities decreased from a cash outflow
of $499 million in 2008 to a cash outflow of
$112 million in 2009. The $387 million decrease in
cash used in financing activities primarily related to cash
outflows attributable to the repurchase of shares during 2008 of
$378 million as compared to no shares repurchased during
2009.
In addition, exchange rate effects on cash and cash equivalents
was an unfavorable currency effect of $18 million in 2010
compared to a favorable impact of $63 million in 2009 and
an unfavorable impact of $35 million in 2008.
Debt
and Other Obligations
Senior
Notes
On September 24, 2010, we completed an offering of
$600 million aggregate principal amount of 6
5/8% Senior Notes due 2018 (the “Notes”). The
Notes are senior unsecured obligations of Celanese US and rank
equally in right of payment and other subordinated indebtedness
of Celanese US. The Notes are guaranteed on a senior unsecured
basis by Celanese and each of the domestic subsidiaries of
Celanese US that guarantee its obligations under its senior
secured credit facilities (the “Subsidiary
Guarantors”).
The Notes were issued under an indenture dated as of
September 24, 2010 (the “Indenture”) among
Celanese US, Celanese, the Subsidiary Guarantors and Wells Fargo
Bank, National Association, as trustee. The Notes bear interest
at a rate of 6 5/8% per annum and were priced at 100% of par.
Celanese US will pay interest on the Notes on April 15 and
October 15 of each year commencing on April 15, 2011. The
Notes will mature on October 15, 2018. The Notes are
redeemable, in whole or in part, at any time on or after
October 15, 2014 at the redemption prices specified in the
Indenture. Prior to October 15, 2014, Celanese US may
redeem some or all of the Notes at a redemption price of 100% of
the principal amount, plus accrued and unpaid interest, if any,
to the redemption date, plus a “make-whole” premium as
specified in the Indenture.
The Indenture contains covenants, including, but not limited to,
restrictions on the Company’s and its subsidiaries’
ability to incur indebtedness; grant liens on assets; merge,
consolidate, or sell assets; pay dividends or make other
restricted payments; engage in transactions with affiliates; or
engage in other businesses.
Senior
Credit Agreement
On September 29, 2010, we entered into an amendment
agreement with the lenders under our existing senior secured
credit facilities in order to amend and restate the
corresponding credit agreement, dated as of April 2, 2007
(as previously amended, the “Existing Credit
Agreement”, and as amended and restated by the amendment
agreement, the “Amended Credit Agreement”). Our
Amended Credit Agreement consists of the Term C loan facility
having principal amounts of $1,140 million of US
dollar-denominated and €204 million of
Euro-denominated term loans due 2016, the Term B loan facility
having principal amounts of $417 million US
dollar-denominated and €69 million of Euro-denominated
term loans due 2014, a $600 million revolving credit
facility terminating in 2015 and a $228 million
credit-linked revolving facility terminating in 2014. Prior to
entering into the Amendment Agreement, we used the proceeds from
the offering of the Notes along with $200 million of cash
on hand to pay down the Term B loan facility borrowings under
the Existing Credit Agreement. See Note 13 to the
accompanying consolidated financial statements for further
information regarding our senior credit facilities.
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As of December 31, 2010, the balances available for
borrowing under the revolving credit facility and the
credit-linked revolving facility are as follows:
| (In $ millions) | ||||
|
Revolving credit facility
|
||||
|
Borrowings outstanding
|
- | |||
|
Letters of credit issued
|
- | |||
|
Available for borrowing
|
600 | |||
|
Credit-linked revolving facility
|
||||
|
Letters of credit issued
|
83 | |||
|
Available for borrowing
|
145 | |||
As a condition to borrowing funds or requesting that letters of
credit be issued under the revolving credit facility, our first
lien senior secured leverage ratio (as calculated as of the last
day of the most recent fiscal quarter for which financial
statements have been delivered under the revolving facility)
cannot exceed the threshold as specified below. Further, our
first lien senior secured leverage ratio must be maintained at
or below that threshold while any amounts are outstanding under
the revolving credit facility.
Our amended maximum first lien senior secured leverage ratios,
estimated first lien senior secured leverage ratios and the
borrowing capacity under the revolving credit facility as of
December 31, 2010 are as follows:
| First Lien Senior Secured Leverage Ratios | ||||||||
|
Estimate, if Fully
|
Borrowing
|
|||||||
| Maximum | Estimate | Drawn | Capacity | |||||
| (In $ millions) | ||||||||
|
December 31, 2010 and thereafter
|
3.9 to 1.00 | 1.8 to 1.00 | 2.4 to 1.00 | 600 | ||||
The Amended Credit Agreement contains covenants that are
substantially similar to those found in the Existing Credit
Agreement, including, but not limited to, restrictions on our
ability to incur indebtedness; grant liens on assets; merge,
consolidate, or sell assets; pay dividends or make other
restricted payments; make investments; prepay or modify certain
indebtedness; engage in transactions with affiliates; enter into
sale-leaseback transactions or hedge transactions; or engage in
other businesses; as well as a covenant requiring maintenance of
a maximum first lien senior secured leverage ratio.
We are in compliance with all of the covenants related to our
debt agreements as of December 31, 2010.
Commitments
Relating to Share Capital
We have a policy of declaring, subject to legally available
funds, a quarterly cash dividend on each share of Series A
common stock, par value $0.0001 per share. In April 2010, we
announced that our Board of Directors approved a 25% increase in
the Celanese quarterly Series A common stock cash dividend.
The Board of Directors increased the quarterly dividend rate
from $0.04 to $0.05 per share of Series A common stock on a
quarterly basis, which equates to $0.16 to $0.20 per share of
Series A common stock annually. The new dividend rate was
applicable to dividends payable beginning in August 2010. For
the years ended December 31, 2010, 2009 and 2008, we paid
$28 million, $23 million and $24 million,
respectively, in cash dividends on our Series A common
stock. On January 6, 2011, we declared an $8 million
cash dividend which was paid on February 1, 2011.
In February 2008, our Board of Directors authorized the
repurchase of up to $400 million of our Series A
common stock. This authorization was increased to
$500 million in October 2008. The authorization gives
management discretion in determining the conditions under which
shares may be repurchased. This repurchase program does not
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have an expiration date. The number or shares repurchased and
the average purchase price paid per share pursuant to this
authorization are as follows:
|
Total From
|
||||||||||||||||
| Year Ended December 31, |
Inception Through
|
|||||||||||||||
| 2010 | 2009 | 2008 | December 31, 2010 | |||||||||||||
|
Shares repurchased
|
1,667,592 | - | 9,763,200 | 11,430,792 | ||||||||||||
|
Average purchase price per share
|
$ | 28.77 | $ | - | $ | 38.68 | $ | 37.24 | ||||||||
|
Amount spent on repurchased shares (in millions)
|
$ | 48 | $ | - | $ | 378 | $ | 426 | ||||||||
The purchase of treasury stock will reduce the number of shares
outstanding and the repurchased shares may be used by us for
compensation programs utilizing our stock and other corporate
purposes. We account for treasury stock using the cost method
and include treasury stock as a component of Shareholders’
equity.
Contractual
Debt and Cash Obligations
The following table sets forth our fixed contractual debt and
cash obligations as of December 31, 2010.
| Payments due by period | ||||||||||||||||||||||
|
Less Than
|
After 5
|
|||||||||||||||||||||
| Total | 1 Year | Years 2 & 3 | Years 4 & 5 | Years | ||||||||||||||||||
| (In $ millions) | ||||||||||||||||||||||
|
Fixed contractual debt obligations
|
||||||||||||||||||||||
|
Senior notes
|
600 | - | - | - | 600 | |||||||||||||||||
|
Term B loans facility
|
508 | 5 | 10 | 493 | - | |||||||||||||||||
|
Term C loans facility
|
1,409 | 14 | 28 | 28 | 1,339 | |||||||||||||||||
|
Interest payments on debt and other obligations
|
1,199 | (1) | 208 | 309 | 244 | 438 | ||||||||||||||||
|
Capital lease obligations
|
245 | 15 | 32 | 31 | 167 | |||||||||||||||||
|
Other debt
|
456 | (2) | 194 | 21 | 28 | 213 | ||||||||||||||||
|
Total
|
4,417 | 436 | 400 | 824 | 2,757 | |||||||||||||||||
|
Operating leases
|
336 | 62 | 92 | 83 | 99 | |||||||||||||||||
|
Uncertain tax obligations, including interest and penalties
|
288 | 15 | - | - | 273 | (3) | ||||||||||||||||
|
Unconditional purchase obligations
|
1,642 | (4) | 241 | 470 | 250 | 681 | ||||||||||||||||
|
Other commitments
|
308 | (5) | 80 | 100 | 39 | 89 | ||||||||||||||||
|
Pension and other postretirement funding obligations
|
1,347 | 205 | 413 | 391 | 338 | |||||||||||||||||
|
Environmental and asset retirement obligations
|
185 | 53 | 57 | 23 | 52 | |||||||||||||||||
|
Total
|
8,523 | 1,092 | 1,532 | 1,610 | 4,289 | |||||||||||||||||
| (1) | We have outstanding interest rate swap agreements accounted for as cash flow hedges that have the economic effect of modifying the variable rate obligations associated with our term loans into fixed interest obligations. The impact of these interest rate swaps was factored into the calculation of the future interest payments on long-term debt. Future interest expense is calculated using the rate in effect on December 31, 2010. | |
| (2) | Other debt of $456 million is primarily made up of fixed rate pollution control and industrial revenue bonds, short-term borrowings from affiliated companies and other bank obligations. |
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| (3) | Due to uncertainties in the timing of the effective settlement of tax positions with the respective taxing authorities, we are unable to determine the timing of payments related to our uncertain tax obligations, including interest and penalties. These amounts are therefore reflected in “After 5 Years”. | |
| (4) | Represents the take-or-pay provisions included in certain long-term purchase agreements. We do not expect to incur material losses under these arrangements. | |
| (5) | Includes other purchase obligations such as maintenance and service agreements, energy and utility agreements, consulting contracts, software agreements and other miscellaneous agreements and contracts, obtained via a survey of the Company. |
Contractual
Guarantees and Commitments
As of December 31, 2010, we have current standby letters of
credit of $83 million and bank guarantees of
$10 million outstanding which are irrevocable obligations
of an issuing bank that ensure payment to third parties in the
event that certain subsidiaries fail to perform in accordance
with specified contractual obligations. The likelihood is remote
that material payments will be required under these agreements.
In addition, the senior notes issued by Celanese US are
guaranteed by Celanese and certain domestic subsidiaries of
Celanese US. See Note 13 to the accompanying consolidated
financial statements for a description of this guarantee and the
guarantees under our senior credit facility.
See Note 23 to the accompanying consolidated financial
statements for a discussion of commitments and contingencies
related to legal and regulatory proceedings.
Off-Balance
Sheet Arrangements
We have not entered into any material off-balance sheet
arrangements.
Market
Risks
Please see
Item 7A. Quantitative and Qualitative
Disclosure about Market Risk
of this
Form 10-K
for additional information about our Market Risks.
| Critical Accounting Policies and Estimates |
Our consolidated financial statements are based on the selection
and application of significant accounting policies. The
preparation of consolidated financial statements in conformity
with US Generally Accepted Accounting Principles (“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 consolidated financial statements and the
reported amounts of revenues, expenses and allocated charges
during the reporting period. Actual results could differ from
those estimates. However, we are not currently aware of any
reasonably likely events or circumstances that would result in
materially different results.
We believe the following accounting policies and estimates are
critical to understanding the financial reporting risks present
in the current economic environment. These matters, and the
judgments and uncertainties affecting them, are also essential
to understanding our reported and future operating results. See
Note 2 to the accompanying consolidated financial
statements for further discussion of our significant accounting
policies.
| • | Recoverability of Long-Lived Assets |
Recoverability
of Goodwill and Indefinite-Lived Assets
We test for impairment of goodwill at the reporting unit level.
Our reporting units are either our operating business segments
or one level below our operating business segments where
discrete financial information is available for our reporting
units and operating results are regularly reviewed by business
segment management. Our business units have been designated as
our reporting units based on business segment management’s
review of and reliance
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on the business unit financial information and include Advanced
Engineered Materials, Acetate Products, Nutrinova, Emulsions,
Celanese EVA Performance Polymers (formerly AT Plastics) and
Acetyl Intermediates businesses. We assess the recoverability of
the carrying value of our goodwill and other indefinite-lived
intangible assets annually during the third quarter of our
fiscal year using June 30 balances or whenever events or changes
in circumstances indicate that the carrying amount of the asset
may not be fully recoverable. Recoverability of goodwill and
other indefinite-lived intangible assets is measured using a
discounted cash flow model incorporating discount rates
commensurate with the risks involved for each reporting unit.
Use of a discounted cash flow model is common practice in
impairment testing in the absence of available transactional
market evidence to determine the fair value.
The key assumptions used in the discounted cash flow valuation
model include discount rates, growth rates, cash flow
projections and terminal value rates. Discount rates, growth
rates and cash flow projections are the most sensitive and
susceptible to change as they require significant management
judgment. Discount rates are determined by using a weighted
average cost of capital (“WACC”). The WACC considers
market and industry data as well as company-specific risk
factors for each reporting unit in determining the appropriate
discount rate to be used. The discount rate utilized for each
reporting unit is indicative of the return an investor would
expect to receive for investing in such a business. Operational
management, considering industry and company-specific historical
and projected data, develops growth rates and cash flow
projections for each reporting unit. Terminal value rate
determination follows common methodology of capturing the
present value of perpetual cash flow estimates beyond the last
projected period assuming a constant WACC and low long-term
growth rates. If the calculated fair value is less than the
current carrying value, impairment of the reporting unit may
exist. If the recoverability test indicates potential
impairment, we calculate an implied fair value of goodwill for
the reporting unit. The implied fair value of goodwill is
determined in a manner similar to how goodwill is calculated in
a business combination. If the implied fair value of goodwill
exceeds the carrying value of goodwill assigned to the reporting
unit, there is no impairment. If the carrying value of goodwill
assigned to a reporting unit exceeds the implied fair value of
the goodwill, an impairment charge is recorded to write down the
carrying value. An impairment loss cannot exceed the carrying
value of goodwill assigned to a reporting unit but may indicate
certain long-lived and amortizable intangible assets associated
with the reporting unit may require additional impairment
testing.
Management tests indefinite-lived intangible assets utilizing
the relief from royalty method to determine the estimated fair
value for each indefinite-lived intangible asset. The relief
from royalty method estimates the Company’s theoretical
royalty savings from ownership of the intangible asset. Key
assumptions used in this model include discount rates, royalty
rates, growth rates, sales projections and terminal value rates.
Discount rates, royalty rates, growth rates and sales
projections are the assumptions most sensitive and susceptible
to change as they require significant management judgment.
Discount rates used are similar to the rates estimated by the
WACC considering any differences in company-specific risk
factors. Royalty rates are established by management and are
periodically substantiated by third-party valuation consultants.
Operational management, considering industry and
company-specific historical and projected data, develops growth
rates and sales projections associated with each
indefinite-lived intangible asset. Terminal value rate
determination follows common methodology of capturing the
present value of perpetual sales estimates beyond the last
projected period assuming a constant WACC and low long-term
growth rates.
For all significant goodwill and indefinite-lived intangible
assets, the estimated fair value of the asset exceeded the
carrying value of the asset by a substantial margin at the date
of the most recent impairment test. Our methodology for
determining impairment for both goodwill and indefinite-lived
intangible assets was consistent with that used in the prior
year.
Recoverability
of Long-Lived and Amortizable Intangible Assets
We assess the recoverability of long-lived and amortizable
intangible assets whenever events or circumstances indicate that
the carrying value of the asset may not be recoverable. Examples
of a change in events or circumstances include, but are not
limited to, a decrease in the market price of the asset, a
history of cash flow losses related to the use of the asset or a
significant adverse change in the extent or manner in which an
asset is
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being used. To assess the recoverability of long-lived and
amortizable intangible assets we compare the carrying amount of
the asset or group of assets to the future net undiscounted cash
flows expected to be generated by the asset or asset group.
Long-lived and amortizable intangible assets are tested for
recognition and measurement of an impairment loss at the lowest
level for which identifiable cash flows are largely independent
of the cash flows of other assets and liabilities. If such
assets are considered impaired, the impairment recognized is
measured as the amount by which the carrying amount of the asset
exceeds the fair value of the asset.
The development of future net undiscounted cash flow projections
require management projections related to sales and
profitability trends and the remaining useful life of the asset.
Projections of sales and profitability trends are the
assumptions most sensitive and susceptible to change as they
require significant management judgment. These projections are
consistent with projections we use to manage our operations
internally. When impairment is indicated, a discounted cash flow
valuation model similar to that used to value goodwill at the
reporting unit level, incorporating discount rates commensurate
with risks associated with each asset, is used to determine the
fair value of the asset to measure potential impairment. We
believe the assumptions used are reflective of what a market
participant would have used in calculating fair value.
Valuation methodologies utilized to evaluate goodwill and
indefinite-lived intangible, amortizable intangible and
long-lived assets for impairment were consistent with prior
periods. We periodically engage third-party valuation
consultants to assist us with this process. Specific assumptions
discussed above are updated at the date of each test to consider
current industry and company-specific risk factors from the
perspective of a market participant. The current business
environment is subject to evolving market conditions and
requires significant management judgment to interpret the
potential impact to the Company’s assumptions. To the
extent that changes in the current business environment result
in adjusted management projections, impairment losses may occur
in future periods.
| • | Income Taxes |
We regularly review our deferred tax assets for recoverability
and establish a valuation allowance if needed based on
historical taxable income, projected future taxable income,
applicable tax planning strategies, and the expected timing of
the reversals of existing temporary differences. A valuation
allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
In forming our judgment regarding the recoverability of deferred
tax assets related to deductible temporary differences and tax
attribute carryforwards, we give weight to positive and negative
evidence based on the extent to which the forms of evidence can
be objectively verified. We attach the most weight to historical
earnings due to its verifiable nature. Weight is attached to tax
planning strategies if the strategies are prudent and feasible
and implementable without significant obstacles. Less weight is
attached to forecasted future earnings due to its subjective
nature, and expected timing of reversal of taxable temporary
differences is given little weight unless the reversal of
taxable and deductible temporary differences coincide. Valuation
allowances have been established primarily on net operating loss
carryforwards and other deferred tax assets in the US,
Netherlands, Luxembourg, France, Spain, China, the United
Kingdom and Canada. We have appropriately reflected increases
and decreases in our valuation allowance based on the overall
weight of positive versus negative evidence on a jurisdiction by
jurisdiction basis. In 2009, based on cumulative profitability,
the Company concluded that the US valuation allowance should be
reversed except for a portion related to certain federal and
state net operating loss carryforwards that are not likely to be
realized.
We record accruals for income taxes and associated interest that
may become payable in future years as a result of audits by tax
authorities. We recognize tax benefits when it is more likely
than not (likelihood of greater than 50%), based on technical
merits, that the position will be sustained upon examination.
Tax positions that meet the more-likely-than-not threshold are
measured using a probability weighted approach as the largest
amount of tax benefit that is greater than 50% likely of being
realized upon settlement. Whether the more-likely-than-not
recognition threshold is met for a tax position is a matter of
judgment based on the individual facts and circumstances of that
position evaluated in light of all available evidence.
The recoverability of deferred tax assets and the recognition
and measurement of uncertain tax positions are subject to
various assumptions and management judgment. If actual results
differ from the estimates made by management in establishing or
maintaining valuation allowances against deferred tax assets,
the resulting change in the valuation
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allowance would generally impact earnings or Other comprehensive
income depending on the nature of the respective deferred tax
asset. In addition, the positions taken with regard to tax
contingencies may be subject to audit and review by tax
authorities which may result in future taxes, interest and
penalties.
| • | Benefit Obligations |
We have pension and other postretirement benefit plans covering
substantially all employees who meet eligibility requirements.
With respect to its US qualified defined benefit pension plan,
minimum funding requirements are determined by the Pension
Protection Act of 2006 based on years of service
and/or
compensation. Various assumptions are used in the calculation of
the actuarial valuation of the employee benefit plans. These
assumptions include the weighted average discount rate,
compensation levels, expected long-term rates of return on plan
assets and trends in health care costs. In addition to the above
mentioned assumptions, actuarial consultants use factors such as
withdrawal and mortality rates to estimate the projected benefit
obligation. The actuarial assumptions used may differ materially
from actual results due to changing market and economic
conditions, higher or lower withdrawal rates or longer or
shorter life spans of participants. These differences may result
in a significant impact to the amount of pension expense
recorded in future periods.
The amounts recognized in the consolidated financial statements
related to pension and other postretirement benefits are
determined on an actuarial basis. A significant assumption used
in determining our pension expense is the expected long-term
rate of return on plan assets. As of December 31, 2010, we
assumed an expected long-term rate of return on plan assets of
8.5% for the US defined benefit pension plans, which represent
approximately 82% and 85% of our fair value of pension plan
assets and projected benefit obligation, respectively. On
average, the actual return on the US qualified defined pension
plans’ assets over the long-term (20 years) has
exceeded 8.5%.
We estimate a 25 basis point decline in the expected
long-term rate of return for the US qualified defined benefit
pension plan to increase pension expense by an estimated
$5 million in 2011. Another estimate that affects our
pension and other postretirement benefit expense is the discount
rate used in the annual actuarial valuations of pension and
other postretirement benefit plan obligations. At the end of
each year, we determine the appropriate discount rate, used to
determine the present value of future cash flows currently
expected to be required to settle the pension and other
postretirement benefit obligations. The discount rate is
generally based on the yield on high-quality corporate
fixed-income securities. As of December 31, 2010, we
decreased the discount rate to 5.30% from 5.90% as of
December 31, 2009 for the US plans. We estimate that a
50 basis point decline in our discount rate will increase
our annual pension expenses by an estimated $6 million, and
increase our benefit obligations by approximately
$146 million for our US pension plans. In addition, the
same basis point decline in our discount rate will also increase
our annual expenses and benefit obligations by less than
$1 million and $9 million respectively, for our US
postretirement medical plans. We estimate that a 50 basis
point decline in the discount rate for the non-US pension and
postretirement medical plans will increase pension and other
postretirement benefit annual expenses by approximately
$1 million and less than $1 million, respectively, and
will increase our benefit obligations by approximately
$32 million and $2 million, respectively.
Other postretirement benefit plans provide medical and life
insurance benefits to retirees who meet minimum age and service
requirements. The key determinants of the accumulated
postretirement benefit obligation (“APBO”) are the
discount rate and the healthcare cost trend rate. The healthcare
cost trend rate has a significant effect on the reported amounts
of APBO and related expense. For example, increasing or
decreasing the healthcare cost trend rate by one percentage
point in each year would result in the APBO as of
December 31, 2010 increasing by approximately
$4 million and decreasing by $4 million, respectively.
Additionally, increasing or decreasing the healthcare cost trend
rate by one percentage point in each year would result in the
2010 postretirement benefit cost changing by less than
$1 million.
Pension assumptions are reviewed annually on a plan and
country-specific basis by third-party actuaries and senior
management. Such assumptions are adjusted as appropriate to
reflect changes in market rates and outlook. We determine the
long-term expected rate of return on plan assets by considering
the current target asset allocation, as well as the historical
and expected rates of return on various asset categories in
which the plans are invested. A single long-term expected rate
of return on plan assets is then calculated for each plan as the
weighted average of the
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target asset allocation and the long-term expected rate of
return assumptions for each asset category within each plan.
Differences between actual rates of return of plan assets and
the long-term expected rate of return on plan assets are
generally not recognized in pension expense in the year that the
difference occurs. These differences are deferred and amortized
into pension expense over the average remaining future service
of employees. We apply the long-term expected rate of return on
plan assets to a market-related value of plan assets to
stabilize variability in the plan asset values.
| • | Accounting for Commitments and Contingencies |
We are subject to a number of legal proceedings, lawsuits,
claims, and investigations, incidental to the normal conduct of
our business, relating to and including product liability,
patent and intellectual property, commercial, contract,
antitrust, past waste disposal practices, release of chemicals
into the environment and employment matters, which are handled
and defended in the ordinary course of business. We routinely
assess the likelihood of any adverse judgments or outcomes to
these matters as well as ranges of probable and reasonably
estimable losses. Reasonable estimates involve judgments made by
us after considering a broad range of information including:
notifications, demands, settlements which have been received
from a regulatory authority or private party, estimates
performed by independent consultants and outside counsel,
available facts, identification of other potentially responsible
parties and their ability to contribute, as well as prior
experience. With respect to environmental remediation
liabilities, it is our policy to accrue through fifteen years,
unless we have government orders or other agreements that extend
beyond fifteen years. A determination of the amount of loss
contingency required, if any, is assessed in accordance with
FASB Accounting Standards Codification (“FASB ASC”)
Topic 450,
Contingencies,
and recorded if probable and
estimable after careful analysis of each individual matter. The
required reserves may change in the future due to new
developments in each matter and as additional information
becomes available.
Financial
Reporting Changes
See Note 3 to the accompanying consolidated financial
statements for information regarding recent accounting
pronouncements.
| Item 7A. | Quantitative and Qualitative Disclosures about Market Risk |
Market
Risks
Our financial market risk consists principally of exposure to
currency exchange rates, interest rates and commodity prices.
Exchange rate and interest rate risks are managed with a variety
of techniques, including use of derivatives. We have in place
policies of hedging against changes in currency exchange rates,
interest rates and commodity prices as described below.
Contracts to hedge exposures are primarily accounted for under
FASB ASC Topic 815,
Derivatives and Hedging
(“FASB
ASC Topic 815”).
See Note 21 to the accompanying consolidated financial
statements for further discussion of our market risk management
and the related impact on our financial position and results of
operations.
Interest
Rate Risk Management
We use interest rate swap agreements to manage the interest rate
risk of our total debt portfolio and related overall cost of
borrowing. To reduce the interest rate risk inherent in our
variable rate debt, we utilize interest rate swap agreements to
convert a portion of our variable rate debt to a fixed rate
obligation. These interest rate swap agreements are designated
as cash flow hedges.
In August 2010, we executed a forward-starting interest rate
swap with a notional amount of $1.1 billion. As a result of
the swap, we have fixed the LIBOR portion of $1.1 billion
of the Company’s floating rate debt at 1.7125% effective
January 2, 2012 through January 2, 2014.
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Our US-dollar interest rate swap derivative arrangements are as
follows:
| As of December 31, 2010 | |||||||
| Notional Value | Effective Date | Expiration Date | Fixed Rate (1) | ||||
| (In $ millions) | |||||||
|
100
|
April 2, 2007 | January 2, 2011 | 4.92% | ||||
|
800
|
April 2, 2007 | January 2, 2012 | 4.92% | ||||
|
400
|
January 2, 2008 | January 2, 2012 | 4.33% | ||||
|
200
|
April 2, 2009 | January 2, 2012 | 1.92% | ||||
|
1,100
|
January 2, 2012 | January 2, 2014 | 1.71% | ||||
|
2,600
|
|||||||
| (1) | Fixes the LIBOR portion of the Company’s US-dollar denominated variable rate borrowings (Note 13). |
| As of December 31, 2009 | |||||||
| Notional Value | Effective Date | Expiration Date | Fixed Rate (1) | ||||
| (In $ millions) | |||||||
|
100
|
April 2, 2007 | January 4, 2010 | 4.92% | ||||
|
100
|
April 2, 2007 | January 2, 2011 | 4.92% | ||||
|
800
|
April 2, 2007 | January 2, 2012 | 4.92% | ||||
|
400
|
January 2, 2008 | January 2, 2012 | 4.33% | ||||
|
200
|
April 2, 2009 | January 2, 2012 | 1.92% | ||||
|
1,600
|
|||||||
| (1) | Fixes the LIBOR portion of the Company’s US-dollar denominated variable rate borrowings (Note 13). |
Our Euro interest rate swap derivative arrangements are as
follows:
| As of December 31, 2010 and December 31, 2009 | |||||||
| Notional Value | Effective Date | Expiration Date | Fixed Rate (1) | ||||
| (In € millions) | |||||||
|
150
|
April 2, 2007 | April 2, 2011 | 4.04% | ||||
| (1) | Fixes the EURIBOR portion of the Company’s Euro denominated variable rate borrowings (Note 13). |
As of December 31, 2010, we had $1.6 billion,
€296 million and CNY 1.5 billion of variable rate
debt, of which $1.5 billion and €150 million is
hedged with interest rate swaps, which leaves $73 million,
€146 million and CNY 1.5 billion of variable rate
debt subject to interest rate exposure. Accordingly, a 1%
increase in interest rates would increase annual interest
expense by approximately $5 million.
Foreign
Exchange Risk Management
The primary business objective of this hedging program is to
maintain an approximately balanced position in foreign
currencies so that exchange gains and losses resulting from
exchange rate changes, net of related tax effects, are
minimized. It is our policy to minimize currency exposures and
to conduct operations either within functional currencies or
using the protection of hedge strategies. Accordingly, we enter
into foreign currency forwards and swaps to minimize our
exposure to foreign currency fluctuations. From time to time we
may also hedge our currency exposure related to forecasted
transactions. Forward contracts are not designated as hedges
under FASB ASC Topic 815.
70
Table of Contents
The following table indicates the total US dollar equivalents of
net foreign exchange exposure related to (short) long foreign
exchange forward contracts outstanding by currency. All of the
contracts included in the table below will have approximately
offsetting effects from actual underlying payables, receivables,
intercompany loans or other assets or liabilities subject to
foreign exchange remeasurement.
| 2011 Maturity | ||||
| (In $ millions) | ||||
|
Currency
|
||||
|
Euro
|
(217 | ) | ||
|
British pound sterling
|
(43 | ) | ||
|
Chinese renminbi
|
(265 | ) | ||
|
Mexican peso
|
22 | |||
|
Singapore dollar
|
26 | |||
|
Canadian dollar
|
35 | |||
|
Japanese yen
|
1 | |||
|
Brazilian real
|
(12 | ) | ||
|
Swedish krona
|
14 | |||
|
Other
|
6 | |||
|
Total
|
(433 | ) | ||
Additionally, a portion of our assets, liabilities, revenues and
expenses are denominated in currencies other than the US dollar.
Fluctuations in the value of these currencies against the US
dollar can have a direct and material impact on the business and
financial results. For example, a decline in the value of the
Euro versus the US dollar results in a decline in the US dollar
value of our sales and earnings denominated in Euros due to
translation effects. Likewise, an increase in the value of the
Euro versus the US dollar would result in an opposite effect.
In 2009, we dedesignated the foreign currency exposure created
by the Euro-denominated term loan which is expected to offset
the foreign currency exposure on certain intercompany loans,
decreasing the need for external derivative contracts and
reducing our exposure to external counterparties.
Commodity
Risk Management
We have exposure to the prices of commodities in our procurement
of certain raw materials. We manage our exposure to commodity
risk primarily through the use of long-term supply agreements,
multi-year purchasing and sales agreements and forward purchase
agreements. We regularly assess our practice of purchasing a
portion of our commodity requirements under forward purchase
agreements and other raw material hedging instruments in
accordance with changes in market conditions. Forward purchases
and swap contracts for raw materials are principally settled
through actual delivery of the physical commodity. For
qualifying contracts, we have elected to apply the normal
purchases and normal sales exception of FASB ASC Topic 815 based
on the probability at the inception and throughout the term of
the contract that we would not settle net and the transaction
would settle by physical delivery of the commodity. As such,
realized gains and losses on these contracts are included in the
cost of the commodity upon the settlement of the contract.
In addition, we occasionally enter into financial derivatives to
hedge a component of a raw material or energy source. Typically,
these types of transactions do not qualify for hedge accounting.
These instruments are marked to market at each reporting period
and gains (losses) are included in Cost of sales in the
accompanying consolidated statements of operations. We
recognized no gain or loss from these types of contracts during
the years ended December 31, 2010, 2009 and 2008. As of
December 31, 2010, we did not have any open financial
derivative contracts for commodities.
71
Table of Contents
| Item 8. | Financial Statements and Supplementary Data |
Our consolidated financial statements and supplementary data are
included in
Item 15. Exhibits and Financial Statement
Schedules
of this Annual Report on
Form 10-K.
Quarterly
Financial Information
CONSOLIDATED STATEMENTS OF OPERATIONS
| Three Months Ended | ||||||||||||||||
|
March 31,
|
June 30,
|
September 30,
|
December 31,
|
|||||||||||||
| 2010 | 2010 | 2010 | 2010 | |||||||||||||
| As Adjusted | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| (In $ millions, except per share data) | ||||||||||||||||
|
Net sales
|
1,388 | 1,517 | 1,506 | 1,507 | ||||||||||||
|
Gross profit
|
218 | 303 | 346 | 313 | ||||||||||||
|
Other (charges) gains, net
|
(77 | ) (1) | (6 | ) | 36 | (2) | 1 | |||||||||
|
Operating profit (loss)
|
(14 | ) | 156 | 221 | 140 | |||||||||||
|
Earnings (loss) from continuing operations
before tax |
(7 | ) | 224 | 191 | 130 | |||||||||||
|
Amounts attributable to Celanese Corporation
|
||||||||||||||||
|
Earnings (loss) from continuing operations
|
13 | 163 | 147 | 103 | ||||||||||||
|
Earnings (loss) from discontinued operations
|
1 | (3 | ) | (2 | ) | (45 | ) | |||||||||
|
Net earnings (loss)
|
14 | 160 | 145 | 58 | ||||||||||||
|
Earnings (loss) per share — basic
|
0.07 | 1.02 | 0.93 | 0.37 | ||||||||||||
|
Earnings (loss) per share — diluted
|
0.07 | 1.01 | 0.92 | 0.36 | ||||||||||||
| Three Months Ended | ||||||||||||||||
|
March 31,
|
June 30,
|
September 30,
|
December 31,
|
|||||||||||||
| 2009 | 2009 | 2009 | 2009 | |||||||||||||
| As Adjusted | ||||||||||||||||
|
(Unaudited)
|
||||||||||||||||
| (In $ millions, except per share data) | ||||||||||||||||
|
Net sales
|
1,146 | 1,244 | 1,304 | 1,388 | ||||||||||||
|
Gross profit
|
200 | 248 | 266 | 289 | ||||||||||||
|
Other (charges) gains, net
|
(21 | ) (3) | (6 | ) | (96 | ) (4) | (13 | ) | ||||||||
|
Operating profit (loss)
|
27 | 89 | 65 | 109 | ||||||||||||
|
Earnings (loss) from continuing operations
before tax |
(11 | ) | 127 | 48 | 87 | |||||||||||
|
Amounts attributable to Celanese Corporation
|
||||||||||||||||
|
Earnings (loss) from continuing operations
|
(16 | ) | 110 | 398 | 2 | |||||||||||
|
Earnings (loss) from discontinued operations
|
1 | (1 | ) | - | 4 | |||||||||||
|
Net earnings (loss)
|
(15 | ) | 109 | 398 | 6 | |||||||||||
|
Earnings (loss) per share — basic
|
(0.12 | ) | 0.74 | 2.75 | 0.03 | |||||||||||
|
Earnings (loss) per share — diluted
|
(0.12 | ) | 0.69 | 2.53 | 0.03 | |||||||||||
72
Table of Contents
| (1) | Consists principally of $72 million in long-lived asset impairment losses. The long-lived asset impairment losses are associated with the proposed closure of the Spondon, Derby, United Kingdom acetate production facility. | |
| (2) | Consists principally of $18 million in net insurance recoveries, a $26 million reduction in plumbing legal reserves, and a $15 million favorable settlement in a resolution of a commercial dispute, partially offset by $16 million of employee termination costs related to the closures of the Pardies, France and Spondon, Derby, United Kingdom plant locations. | |
| (3) | Consists principally of $24 million in employee termination benefits due to our efforts to align production capacity and staffing levels with our view of an economic environment of prolonged lower demand. | |
| (4) | Consists principally of $58 million in employee termination benefits, $20 million of contract termination costs and $7 million of long-lived impairment losses related to the Project of Closure at our Pardies, France plant location. |
For a discussion of material events affecting performance in
each quarter, see
Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of
Operations
. All amounts in the table above have been
properly adjusted for the effects of discontinued operations and
the Ibn Sina accounting change described below.
Ibn
Sina
We indirectly own a 25% interest in Ibn Sina through CTE
Petrochemicals Company (“CTE”), a venture with Texas
Eastern Arabian Corporation Ltd. (which also indirectly owns
25%). The remaining interest in Ibn Sina is held by Saudi Basic
Industries Corporation (“SABIC”). SABIC and CTE
entered into the Ibn Sina joint venture agreement in 1981. In
April 2010, we announced that Ibn Sina will construct a 50,000
ton POM production facility in Saudi Arabia and that the term of
the joint venture agreement was extended until 2032. Ibn
Sina’s existing natural gas supply contract expires in
2022. Upon successful startup of the POM facility, our indirect
economic interest in Ibn Sina will increase from 25% to 32.5%.
SABIC’s economic interest will remain unchanged.
In connection with this transaction, we reassessed the factors
surrounding the accounting method for this investment and
changed from the cost method of accounting for investments to
the equity method of accounting for investments beginning
April 1, 2010. Financial information relating to this
investment for periods prior to 2010 has been retrospectively
adjusted to apply the equity method of accounting.
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
| Item 9A. | Controls and Procedures |
Under the supervision and with the participation of our
management, including the Chief Executive Officer and Chief
Financial Officer, we have evaluated the effectiveness of our
disclosure controls and procedures pursuant to Exchange Act
Rule 13a-15(b)
as of the end of the period covered by this Annual Report. Based
on that evaluation, as of December 31, 2010, the Chief
Executive Officer and Chief Financial Officer have concluded
that our disclosure controls and procedures are effective.
| Changes in Internal Control Over Financial Reporting |
During the three months ended December 31, 2010, there were
no changes in our internal control over financial reporting that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
73
Table of Contents
REPORT OF
MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
Our management is responsible for establishing and maintaining
adequate internal controls over financial reporting for the
Company. Internal control over financial reporting is a process
to provide reasonable assurance regarding the reliability of our
financial reporting for external purposes in accordance with
accounting principles generally accepted in the United States of
America. Internal control over financial reporting includes
maintaining records that in reasonable detail accurately and
fairly reflect our transactions; providing reasonable assurance
that transactions are recorded as necessary for preparation of
our consolidated financial statements; providing reasonable
assurance that receipts and expenditures of company assets are
made in accordance with management authorization; and providing
reasonable assurance that unauthorized acquisition, use or
disposition of company assets that could have a material effect
on our consolidated financial statements would be prevented or
detected on a timely basis. Because of its inherent limitations,
internal control over financial reporting is not intended to
provide absolute assurance that a misstatement of our
consolidated financial statements would be prevented or detected.
Management conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework
in Internal Control — Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, management concluded that
the Company’s internal control over financial reporting was
effective as of December 31, 2010. KPMG LLP has audited
this assessment of our internal control over financial
reporting; its report is included below.
74
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Celanese Corporation:
We have audited Celanese Corporation and subsidiaries’ (the
“Company”) internal control over financial reporting
as of December 31, 2010, based on criteria established in
Internal Control — Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Company’s management is responsible
for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the
accompanying report of management on internal control over
financial reporting. Our responsibility is to express an opinion
on the Company’s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Celanese Corporation and subsidiaries
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2010, based on
criteria established in
Internal Control —
Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Celanese Corporation and
subsidiaries as of December 31, 2010 and 2009, and the
related consolidated statements of operations,
shareholders’ equity and comprehensive income (loss), and
cash flows for each of the years in the three-year period ended
December 31, 2010, and our report dated February 11,
2011 expressed an unqualified opinion on those consolidated
financial statements.
/s/
KPMG LLP
Dallas, Texas
February 11, 2011
75
Table of Contents
| Item 9B. | Other Information |
None.
| Item 10. | Directors, Executive Officers and Corporate Governance |
The information required by this Item 10 is incorporated
herein by reference from the sections captioned
“Item 1: Election of Directors,” “Corporate
Governance” and “Section 16(a) Beneficial
Ownership Reporting Compliance” of the Company’s
definitive proxy statement for the 2011 annual meeting of
shareholders to be filed not later than March 11, 2011 with
the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934,
as amended (the “2011 Proxy Statement”). Information
about executive officers of the Company is contained in
Part I of this Annual Report and it incorporated by
reference.
| Item 11. | Executive Compensation |
The information required by this Item 11 is incorporated by
reference from the sections captioned “Executive
Compensation Discussion and Analysis,” “Compensation
Tables,” “Potential Payments upon Termination and
Change in Control,” and “Compensation Committee
Interlocks and Insider Participation” and
“Compensation Committee Report” of the 2011 Proxy
Statement.
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The information required by this Item 12 is incorporated by
reference from the section captioned “Stock Ownership
Information” of the 2011 Proxy Statement. The information
required by Item 201(d) of
Regulation S-K
is submitted in a separate section of this
Form 10-K.
See
Item 5. Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity
Securities
, above.
| Item 13. | Certain Relationships and Related Transactions, and Director Independence |
The information required by this Item 13 is incorporated by
reference from the section captioned “Certain Relationships
and Related Person Transactions” and “Corporate
Governance — Director Independence” of the 2011
Proxy Statement.
| Item 14. | Principal Accounting Fees and Services |
The information required by this Item 14 is incorporated by
reference from the section captioned “Ratification of
Independent Registered Public Accounting Firm” of the 2011
Proxy Statement.
76
Table of Contents
| Item 15. | Exhibits and Financial Statement Schedules |
1.
Financial Statements.
The report of our
independent registered public accounting firm and our
consolidated financial statements are listed below and begin on
page 81 of this Annual Report on
Form 10-K.
| Page Number | ||||
|
Report of Independent Registered Public Accounting Firm
|
81 | |||
|
Consolidated Statements of Operations
|
82 | |||
|
Consolidated Balance Sheets
|
83 | |||
|
Consolidated Statements of Shareholders Equity and Comprehensive
Income (Loss)
|
84 | |||
|
Consolidated Statements of Cash Flows
|
86 | |||
|
Notes to Consolidated Financial Statements
|
87 |
2.
Financial Statement Schedule.
The financial statement schedule required by this item is
included as an Exhibit to this Annual Report on
Form 10-K.
3.
Exhibit List.
See Index to Exhibits following our consolidated financial
statements contained in this Annual Report on
Form 10-K.
77
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
the report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CELANESE CORPORATION
| By: |
/s/ David
N. Weidman
|
Name: David N. Weidman
| Title: | Chairman of the Board of Directors and |
Chief Executive Officer
Date: February 11, 2011
POWER OF
ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Steven M.
Sterin, his true and lawful attorney-in-fact with power of
substitution and resubstitution to sign in his name, place and
stead, in any and all capacities, to do any and all things and
execute any and all instruments that such attorney may deem
necessary or advisable under the Securities Exchange Act of 1934
and any rules, regulations and requirements of the US Securities
and Exchange Commission in connection with the Annual Report on
Form 10-K
and any and all amendments hereto, as fully for all intents and
purposes as he might or could do in person, and hereby ratifies
and confirms said attorney-in-fact, acting alone, and his
substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons in
the capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
||||
|
/s/ David
N. Weidman
|
Chairman of the Board of Directors,
Chief Executive Officer (Principal Executive Officer) |
February 11, 2011 | ||||
|
/s/ Steven
M. Sterin
|
Senior Vice President, Chief Financial
Officer (Principal Financial Officer) |
February 11, 2011 | ||||
|
/s/ Christopher
W. Jensen
|
Senior Vice President, Finance and Treasurer
(Principal Accounting Officer) |
February 11, 2011 | ||||
|
/s/ James
E. Barlett
|
Director | February 11, 2011 | ||||
|
/s/ David
F. Hoffmeister
|
Director | February 11, 2011 | ||||
|
/s/ Martin
G. McGuinn
|
Director | February 11, 2011 | ||||
78
Table of Contents
|
Signature
|
Title
|
Date
|
||||
|
/s/ Paul
H. O’Neill
|
Director | February 11, 2011 | ||||
|
/s/ Mark
C. Rohr
|
Director | February 11, 2011 | ||||
|
/s/ Daniel
S. Sanders
|
Director | February 11, 2011 | ||||
|
/s/ Farah
M. Walters
|
Director | February 11, 2011 | ||||
|
/s/ John
K. Wulff
|
Director | February 11, 2011 | ||||
79
Table of Contents
CELANESE
CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
Page Number
|
||
|
Report of Independent Registered Public Accounting Firm
|
81 | |
|
Consolidated Statements of Operations for the years ended
December 31, 2010, 2009 and 2008
|
82 | |
|
Consolidated Balance Sheets as of December 31, 2010 and 2009
|
83 | |
|
Consolidated Statements of Shareholders’ Equity and
Comprehensive Income (Loss) for the
years ended December 31, 2010, 2009 and 2008 |
84 | |
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2010, 2009 and 2008
|
86 | |
|
Notes to Consolidated Financial Statements
|
87 | |
|
1. Description of the Company and Basis of Presentation
|
87 | |
|
2. Summary of Accounting Policies
|
87 | |
|
3. Recent Accounting Pronouncements
|
93 | |
|
4. Acquisitions, Dispositions, Ventures and Plant Closures
|
94 | |
|
5. Marketable Securities, at Fair Value
|
99 | |
|
6. Receivables, Net
|
100 | |
|
7. Inventories
|
100 | |
|
8. Investments in Affiliates
|
101 | |
|
9. Property, Plant and Equipment, Net
|
102 | |
|
10. Goodwill and Intangible Assets, Net
|
103 | |
|
11. Current Other Liabilities
|
105 | |
|
12. Noncurrent Other Liabilities
|
105 | |
|
13. Debt
|
107 | |
|
14. Benefit Obligations
|
111 | |
|
15. Environmental
|
120 | |
|
16. Shareholders’ Equity
|
123 | |
|
17. Other (Charges) Gains, Net
|
125 | |
|
18. Income Taxes
|
127 | |
|
19. Stock-Based and Other Management Compensation Plans
|
132 | |
|
20. Leases
|
137 | |
|
21. Derivative Financial Instruments
|
137 | |
|
22. Fair Value Measurements
|
141 | |
|
23. Commitments and Contingencies
|
144 | |
|
24. Supplemental Cash Flow Information
|
150 | |
|
25. Segment Information
|
151 | |
|
26. Transactions and Relationships with Affiliates and
Related Parties
|
153 | |
|
27. Earnings (Loss) Per Share
|
155 | |
|
28. Ticona Kelsterbach Plant Relocation
|
155 | |
|
29. Insurance Recoveries
|
156 | |
|
30. Consolidating Guarantor Financial Information
|
156 | |
|
31. Subsequent Events
|
165 |
80
Table of Contents
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Celanese Corporation:
We have audited the accompanying consolidated balance sheets of
Celanese Corporation and subsidiaries (the “Company”)
as of December 31, 2010 and 2009, and the related
consolidated statements of operations, shareholders’ equity
and comprehensive income (loss), and cash flows for each of the
years in the three-year period ended December 31, 2010.
These consolidated financial statements are the responsibility
of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Celanese Corporation and subsidiaries as of
December 31, 2010 and 2009, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2010, in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Company’s internal control over financial reporting as of
December 31, 2010, based on criteria established in
Internal Control — Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated February 11, 2011
expressed an unqualified opinion on the effectiveness of the
Company’s internal control over financial reporting.
As discussed in Note 14 to the consolidated financial
statements, the Company adopted Financial Accounting Standards
Board (“FASB”) Staff Position No. 132(R)-1,
Employers’ Disclosures about Postretirement Benefit Plan
Assets
(included in FASB Accounting Standards Codification
(“ASC”) Subtopic
715-20,
Defined Benefit Plans
), during the year ended
December 31, 2009.
As discussed in Note 22 to the consolidated financial
statements, the Company adopted FASB Statement of Financial
Accounting Standards No. 157,
Fair Value Measurements
(included in FASB ASC Subtopic
820-10,
Fair Value Measurements and Disclosures
), during the year
ended December 31, 2008.
/s/
KPMG LLP
Dallas, Texas
February 11, 2011
81
Table of Contents
CELANESE
CORPORATION AND SUBSIDIARIES
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| As Adjusted (Note 4) | ||||||||||||
| (In $ millions, except for share and per share data) | ||||||||||||
|
Net sales
|
5,918 | 5,082 | 6,823 | |||||||||
|
Cost of sales
|
(4,738 | ) | (4,079 | ) | (5,567 | ) | ||||||
|
Gross profit
|
1,180 | 1,003 | 1,256 | |||||||||
|
Selling, general and administrative expenses
|
(505 | ) | (474 | ) | (545 | ) | ||||||
|
Amortization of intangible assets
|
(61 | ) | (77 | ) | (76 | ) | ||||||
|
Research and development expenses
|
(70 | ) | (70 | ) | (75 | ) | ||||||
|
Other (charges) gains, net
|
(46 | ) | (136 | ) | (108 | ) | ||||||
|
Foreign exchange gain (loss), net
|
(3 | ) | 2 | (4 | ) | |||||||
|
Gain (loss) on disposition of businesses and assets, net
|
8 | 42 | (8 | ) | ||||||||
|
Operating profit
|
503 | 290 | 440 | |||||||||
|
Equity in net earnings (loss) of affiliates
|
168 | 99 | 172 | |||||||||
|
Interest expense
|
(204 | ) | (207 | ) | (261 | ) | ||||||
|
Refinancing expense
|
(16 | ) | - | - | ||||||||
|
Interest income
|
7 | 8 | 31 | |||||||||
|
Dividend income — cost investments
|
73 | 57 | 48 | |||||||||
|
Other income (expense), net
|
7 | 4 | 3 | |||||||||
|
Earnings (loss) from continuing operations before tax
|
538 | 251 | 433 | |||||||||
|
Income tax (provision) benefit
|
(112 | ) | 243 | (63 | ) | |||||||
|
Earnings (loss) from continuing operations
|
426 | 494 | 370 | |||||||||
|
Earnings (loss) from operation of discontinued operations
|
(80 | ) | 6 | (120 | ) | |||||||
|
Gain (loss) on disposition of discontinued operations
|
2 | - | 6 | |||||||||
|
Income tax (provision) benefit from discontinued operations
|
29 | (2 | ) | 24 | ||||||||
|
Earnings (loss) from discontinued operations
|
(49 | ) | 4 | (90 | ) | |||||||
|
Net earnings (loss)
|
377 | 498 | 280 | |||||||||
|
Net (earnings) loss attributable to noncontrolling interests
|
- | - | 1 | |||||||||
|
Net earnings (loss) attributable to Celanese Corporation
|
377 | 498 | 281 | |||||||||
|
Cumulative preferred stock dividends
|
(3 | ) | (10 | ) | (10 | ) | ||||||
|
Net earnings (loss) available to common shareholders
|
374 | 488 | 271 | |||||||||
|
Amounts attributable to Celanese Corporation
|
||||||||||||
|
Earnings (loss) from continuing operations
|
426 | 494 | 371 | |||||||||
|
Earnings (loss) from discontinued operations
|
(49 | ) | 4 | (90 | ) | |||||||
|
Net earnings (loss)
|
377 | 498 | 281 | |||||||||
|
Earnings (loss) per common share — basic
|
||||||||||||
|
Continuing operations
|
2.73 | 3.37 | 2.44 | |||||||||
|
Discontinued operations
|
(0.31 | ) | 0.03 | (0.61 | ) | |||||||
|
Net earnings (loss) — basic
|
2.42 | 3.40 | 1.83 | |||||||||
|
Earnings (loss) per common share — diluted
|
||||||||||||
|
Continuing operations
|
2.69 | 3.14 | 2.27 | |||||||||
|
Discontinued operations
|
(0.31 | ) | 0.03 | (0.55 | ) | |||||||
|
Net earnings (loss) — diluted
|
2.38 | 3.17 | 1.72 | |||||||||
|
Weighted average shares — basic
|
154,564,136 | 143,688,749 | 148,350,273 | |||||||||
|
Weighted average shares — diluted
|
158,372,192 | 157,115,521 | 163,471,873 | |||||||||
See the accompanying notes to the
consolidated financial statements.
82
Table of Contents
CELANESE
CORPORATION AND SUBSIDIARIES
| As of December 31, | ||||||||
| 2010 | 2009 | |||||||
|
As Adjusted
|
||||||||
| (Note 4) | ||||||||
| (In $ millions, except share amounts) | ||||||||
|
ASSETS
|
||||||||
|
Current assets
|
||||||||
|
Cash and cash equivalents
|
740 | 1,254 | ||||||
|
Trade receivables — third party and affiliates (net of
allowance for doubtful accounts — 2010: $12;
2009: $18)
|
827 | 721 | ||||||
|
Non-trade receivables, net
|
253 | 262 | ||||||
|
Inventories
|
610 | 522 | ||||||
|
Deferred income taxes
|
92 | 42 | ||||||
|
Marketable securities, at fair value
|
78 | 3 | ||||||
|
Assets held for sale
|
9 | 2 | ||||||
|
Other assets
|
59 | 50 | ||||||
|
Total current assets
|
2,668 | 2,856 | ||||||
|
Investments in affiliates
|
838 | 792 | ||||||
|
Property, plant and equipment (net of accumulated
depreciation — 2010: $1,131; 2009: $1,130)
|
3,017 | 2,797 | ||||||
|
Deferred income taxes
|
443 | 484 | ||||||
|
Marketable securities, at fair value
|
- | 80 | ||||||
|
Other assets
|
289 | 311 | ||||||
|
Goodwill
|
774 | 798 | ||||||
|
Intangible assets, net
|
252 | 294 | ||||||
|
Total assets
|
8,281 | 8,412 | ||||||
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
||||||||
|
Current liabilities
|
||||||||
|
Short-term borrowings and current installments of
long-term debt — third party and affiliates
|
228 | 242 | ||||||
|
Trade payables — third party and affiliates
|
673 | 649 | ||||||
|
Other liabilities
|
596 | 611 | ||||||
|
Deferred income taxes
|
28 | 33 | ||||||
|
Income taxes payable
|
17 | 72 | ||||||
|
Total current liabilities
|
1,542 | 1,607 | ||||||
|
Long-term debt
|
2,990 | 3,259 | ||||||
|
Deferred income taxes
|
116 | 137 | ||||||
|
Uncertain tax positions
|
273 | 229 | ||||||
|
Benefit obligations
|
1,359 | 1,288 | ||||||
|
Other liabilities
|
1,075 | 1,306 | ||||||
|
Commitments and contingencies
|
||||||||
|
Shareholders’ equity
|
||||||||
|
Preferred stock, $0.01 par value,
100,000,000 shares authorized (2010: 0 issued and
outstanding; 2009: 9,600,000 issued and outstanding)
|
- | - | ||||||
|
Series A common stock, $0.0001 par value,
400,000,000 shares authorized (2010: 178,028,571
issued and 155,759,293 outstanding; 2009: 164,995,755 issued and
144,394,069 outstanding)
|
- | - | ||||||
|
Series B common stock, $0.0001 par value,
100,000,000 shares authorized (2010 and 2009: 0 issued
and outstanding)
|
- | - | ||||||
|
Treasury stock, at cost (2010: 22,269,278 shares; 2009:
20,601,686 shares)
|
(829 | ) | (781 | ) | ||||
|
Additional paid-in capital
|
574 | 522 | ||||||
|
Retained earnings
|
1,851 | 1,505 | ||||||
|
Accumulated other comprehensive income (loss), net
|
(670 | ) | (660 | ) | ||||
|
Total Celanese Corporation shareholders’ equity
|
926 | 586 | ||||||
|
Noncontrolling interests
|
- | - | ||||||
|
Total shareholders’ equity
|
926 | 586 | ||||||
|
Total liabilities and shareholders’ equity
|
8,281 | 8,412 | ||||||
See the accompanying notes to the
consolidated financial statements.
83
Table of Contents
CELANESE
CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)
| 2010 | 2009 | 2008 | ||||||||||||||||||||||
|
Shares
|
Shares
|
Shares
|
||||||||||||||||||||||
| Outstanding | Amount | Outstanding | Amount | Outstanding | Amount | |||||||||||||||||||
| As Adjusted (Note 4) | ||||||||||||||||||||||||
| (In $ millions, except share data) | ||||||||||||||||||||||||
|
Preferred stock
|
||||||||||||||||||||||||
|
Balance as of the beginning of the period
|
9,600,000 | - | 9,600,000 | - | 9,600,000 | - | ||||||||||||||||||
|
Redemption of preferred stock
|
(9,600,000 | ) | - | - | - | - | - | |||||||||||||||||
|
Balance as of the end of the period
|
- | - | 9,600,000 | - | 9,600,000 | - | ||||||||||||||||||
|
Series A common stock
|
||||||||||||||||||||||||
|
Balance as of the beginning of the period
|
144,394,069 | - | 143,505,708 | - | 152,102,801 | - | ||||||||||||||||||
|
Conversion of preferred stock
|
12,084,942 | - | - | - | - | - | ||||||||||||||||||
|
Redemption of preferred stock
|
7,437 | - | - | - | - | - | ||||||||||||||||||
|
Stock option exercises
|
800,347 | - | 806,580 | - | 1,056,368 | - | ||||||||||||||||||
|
Purchases of treasury stock
|
(1,667,592 | ) | - | - | - | (9,763,200 | ) | - | ||||||||||||||||
|
Stock awards
|
140,090 | - | 81,781 | - | 109,739 | - | ||||||||||||||||||
|
Balance as of the end of the period
|
155,759,293 | - | 144,394,069 | - | 143,505,708 | - | ||||||||||||||||||
|
Treasury stock
|
||||||||||||||||||||||||
|
Balance as of the beginning of the period
|
20,601,686 | (781 | ) | 20,601,686 | (781 | ) | 10,838,486 | (403 | ) | |||||||||||||||
|
Purchases of treasury stock, including related fees
|
1,667,592 | (48 | ) | - | - | 9,763,200 | (378 | ) | ||||||||||||||||
|
Balance as of the end of the period
|
22,269,278 | (829 | ) | 20,601,686 | (781 | ) | 20,601,686 | (781 | ) | |||||||||||||||
|
Additional paid-in capital
|
||||||||||||||||||||||||
|
Balance as of the beginning of the period
|
522 | 495 | 469 | |||||||||||||||||||||
|
Indemnification of demerger liability
|
- | - | 2 | |||||||||||||||||||||
|
Stock-based compensation, net of tax
|
19 | 13 | 14 | |||||||||||||||||||||
|
Stock option exercises, net of tax
|
33 | 14 | 10 | |||||||||||||||||||||
|
Balance as of the end of the period
|
574 | 522 | 495 | |||||||||||||||||||||
|
Retained earnings
|
||||||||||||||||||||||||
|
Balance as of the beginning of the period
|
1,505 | 1,040 | 793 | |||||||||||||||||||||
|
Net earnings (loss) attributable to Celanese Corporation
|
377 | 498 | 281 | |||||||||||||||||||||
|
Series A common stock dividends
|
(28 | ) | (23 | ) | (24 | ) | ||||||||||||||||||
|
Preferred stock dividends
|
(3 | ) | (10 | ) | (10 | ) | ||||||||||||||||||
|
Balance as of the end of the period
|
1,851 | 1,505 | 1,040 | |||||||||||||||||||||
|
Accumulated other comprehensive income (loss), net
|
||||||||||||||||||||||||
|
Balance as of the beginning of the period
|
(660 | ) | (580 | ) | 196 | |||||||||||||||||||
|
Unrealized gain (loss) on securities
|
(1 | ) | (3 | ) | (23 | ) | ||||||||||||||||||
|
Foreign currency translation
|
37 | 5 | (130 | ) | ||||||||||||||||||||
|
Unrealized gain (loss) on interest rate swaps
|
17 | 15 | (79 | ) | ||||||||||||||||||||
|
Pension and postretirement benefits
|
(63 | ) | (97 | ) | (544 | ) | ||||||||||||||||||
|
Balance as of the end of the period
|
(670 | ) | (660 | ) | (580 | ) | ||||||||||||||||||
|
Total Celanese Corporation shareholders’ equity
|
926 | 586 | 174 | |||||||||||||||||||||
|
Noncontrolling interests
|
||||||||||||||||||||||||
|
Balance as of the beginning of the period
|
- | 2 | 5 | |||||||||||||||||||||
|
Divestiture of noncontrolling interests
|
- | (2 | ) | (2 | ) | |||||||||||||||||||
|
Net earnings (loss) attributable to
noncontrolling interests
|
- | - | (1 | ) | ||||||||||||||||||||
|
Balance as of the end of the period
|
- | - | 2 | |||||||||||||||||||||
|
Total shareholders’ equity
|
926 | 586 | 176 | |||||||||||||||||||||
See the accompanying notes to the
consolidated financial statements.
84
Table of Contents
CELANESE
CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)
| 2010 | 2009 | 2008 | ||||||||||||||||||||||||||
|
Shares
|
Shares
|
Shares
|
||||||||||||||||||||||||||
| Outstanding | Amount | Outstanding | Amount | Outstanding | Amount | |||||||||||||||||||||||
| As Adjusted (Note 4) | ||||||||||||||||||||||||||||
| (In $ millions, except share data) | ||||||||||||||||||||||||||||
|
Comprehensive income (loss)
|
||||||||||||||||||||||||||||
|
Net earnings (loss)
|
377 | 498 | 280 | |||||||||||||||||||||||||
|
Other comprehensive income (loss), net of tax
|
||||||||||||||||||||||||||||
|
Unrealized gain (loss) on securities
|
(1 | ) | (3 | ) | (23 | ) | ||||||||||||||||||||||
|
Foreign currency translation
|
37 | 5 | (130 | ) | ||||||||||||||||||||||||
|
Unrealized gain (loss) on interest rate swaps
|
17 | 15 | (79 | ) | ||||||||||||||||||||||||
|
Pension and postretirement benefits
|
(63 | ) | (97 | ) | (544 | ) | ||||||||||||||||||||||
|
Total comprehensive income (loss), net of tax
|
367 | 418 | (496 | ) | ||||||||||||||||||||||||
|
Comprehensive (income) loss attributable to noncontrolling
interests
|
- | - | 1 | |||||||||||||||||||||||||
|
Comprehensive income (loss) attributable to Celanese Corporation
|
367 | 418 | (495 | ) | ||||||||||||||||||||||||
See the accompanying notes to the
consolidated financial statements.
85
Table of Contents
CELANESE
CORPORATION AND SUBSIDIARIES
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| As Adjusted (Note 4) | ||||||||||||
| (In $ millions) | ||||||||||||
|
Operating activities
|
||||||||||||
|
Net earnings (loss)
|
377 | 498 | 280 | |||||||||
|
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities
|
||||||||||||
|
Other charges (gains), net of amounts used
|
(5 | ) | 73 | 111 | ||||||||
|
Depreciation, amortization and accretion
|
300 | 319 | 360 | |||||||||
|
Deferred income taxes, net
|
15 | (402 | ) | (69 | ) | |||||||
|
(Gain) loss on disposition of businesses and assets, net
|
(8 | ) | (40 | ) | 1 | |||||||
|
Refinancing expense
|
16 | - | - | |||||||||
|
Other, net
|
11 | 12 | 37 | |||||||||
|
Operating cash provided by (used in) discontinued operations
|
8 | (2 | ) | 3 | ||||||||
|
Changes in operating assets and liabilities
|
||||||||||||
|
Trade receivables — third party and
affiliates, net
|
(90 | ) | (79 | ) | 339 | |||||||
|
Inventories
|
(98 | ) | 30 | 21 | ||||||||
|
Other assets
|
9 | 9 | 53 | |||||||||
|
Trade payables — third party and affiliates
|
19 | 104 | (265 | ) | ||||||||
|
Other liabilities
|
(102 | ) | 74 | (285 | ) | |||||||
|
Net cash provided by (used in) operating activities
|
452 | 596 | 586 | |||||||||
|
Investing activities
|
||||||||||||
|
Capital expenditures on property, plant and equipment
|
(201 | ) | (176 | ) | (274 | ) | ||||||
|
Acquisitions, net of cash acquired
|
(46 | ) | (9 | ) | - | |||||||
|
Proceeds from sale of businesses and assets, net
|
26 | 171 | 9 | |||||||||
|
Deferred proceeds on Ticona Kelsterbach plant relocation
|
- | 412 | 311 | |||||||||
|
Capital expenditures related to Ticona Kelsterbach
plant relocation
|
(312 | ) | (351 | ) | (185 | ) | ||||||
|
Proceeds from sale of marketable securities
|
- | 15 | 202 | |||||||||
|
Purchases of marketable securities
|
- | - | (91 | ) | ||||||||
|
Settlement of cross currency swap agreements
|
- | - | (93 | ) | ||||||||
|
Other, net
|
(27 | ) | (31 | ) | (80 | ) | ||||||
|
Net cash provided by (used in) investing activities
|
(560 | ) | 31 | (201 | ) | |||||||
|
Financing activities
|
||||||||||||
|
Short-term borrowings (repayments), net
|
(16 | ) | (9 | ) | (64 | ) | ||||||
|
Proceeds from long-term debt
|
600 | - | 13 | |||||||||
|
Repayments of long-term debt
|
(897 | ) | (80 | ) | (47 | ) | ||||||
|
Refinancing costs
|
(24 | ) | (3 | ) | - | |||||||
|
Purchases of treasury stock, including related fees
|
(48 | ) | - | (378 | ) | |||||||
|
Stock option exercises
|
14 | 14 | 18 | |||||||||
|
Series A common stock dividends
|
(28 | ) | (23 | ) | (24 | ) | ||||||
|
Preferred stock dividends
|
(3 | ) | (10 | ) | (10 | ) | ||||||
|
Other, net
|
14 | (1 | ) | (7 | ) | |||||||
|
Net cash provided by (used in) financing activities
|
(388 | ) | (112 | ) | (499 | ) | ||||||
|
Exchange rate effects on cash and cash equivalents
|
(18 | ) | 63 | (35 | ) | |||||||
|
Net increase (decrease) in cash and cash equivalents
|
(514 | ) | 578 | (149 | ) | |||||||
|
Cash and cash equivalents at beginning of period
|
1,254 | 676 | 825 | |||||||||
|
Cash and cash equivalents at end of period
|
740 | 1,254 | 676 | |||||||||
See the accompanying notes to the
consolidated financial statements.
86
Table of Contents
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 1. | Description of the Company and Basis of Presentation |
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 Annual Report on
Form 10-K
(“Annual 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 consolidated financial statements contained in this Annual
Report were prepared in accordance with accounting principles
generally accepted in the United States of America (“US
GAAP”) for all periods presented. The consolidated
financial statements and other financial information included in
this Annual Report, unless otherwise specified, have been
presented to separately show the effects of discontinued
operations.
In the ordinary course of the 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 which the Company believes investors may
have an interest in or which may have been subject to 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 Annual Report.
| 2. | Summary of Accounting Policies |
| • | Consolidation principles |
The consolidated financial statements have been prepared in
accordance with US GAAP for all periods presented and include
the accounts of the Company and its majority owned subsidiaries
over which the Company exercises control. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
| • | Estimates and assumptions |
The preparation of 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 consolidated financial statements and the
reported amounts of revenues, 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.
| • | Cash and cash equivalents |
All highly liquid investments with original maturities of three
months or less are considered cash equivalents.
87
Table of Contents
| • | Inventories |
Inventories, including stores and supplies, are stated at the
lower of cost or market. Cost for inventories is determined
using the
first-in,
first-out (“FIFO”) method. Cost includes raw
materials, direct labor and manufacturing overhead. Cost for
stores and supplies is primarily determined by the average cost
method.
| • | Investments in marketable securities |
The Company classifies its investments in debt and equity
securities as
“available-for-sale”
and reports those investments at their fair market values in the
consolidated balance sheets as Marketable Securities, at fair
value. Unrealized gains or losses, net of the related tax effect
on
available-for-sale
securities, are excluded from earnings and are reported as a
component of Accumulated other comprehensive income (loss), net
until realized. The cost of securities sold is determined by
using the specific identification method.
A decline in the market value of any
available-for-sale
security below cost that is deemed to be
other-than-temporary
results in a reduction in the carrying amount to fair value. The
impairment is charged to earnings and a new cost basis for the
security is established. To determine whether impairment is
other-than-temporary,
the Company considers whether it has the ability and intent to
hold the investment until a market price recovery and evidence
indicating the cost of the investment is recoverable outweighs
evidence to the contrary. Evidence considered in this assessment
includes the reasons for the impairment, the severity and
duration of the impairment, changes in value subsequent to year
end and forecasted performance of the investee.
| • | Investments in affiliates |
Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) Topic 323,
Investments – Equity Method and Joint Ventures
(“FASB ASC Topic 323”), stipulates that the equity
method should be used to account for investments whereby an
investor has “the ability to exercise significant influence
over operating and financial policies of an investee”, but
does not exercise control. FASB ASC Topic 323 generally
considers an investor to have the ability to exercise
significant influence when it owns 20% or more of the voting
stock of an investee. In certain instances, the financial
information of the Company’s equity investees is not
available timely. Accordingly, the Company records its
proportional share of the investee’s earnings or losses on
a consistent lag of no more than one quarter. FASB ASC Topic 323
lists circumstances under which, despite 20% ownership, an
investor may not be able to exercise significant influence.
Certain investments where the Company owns greater than a 20%
ownership and cannot exercise significant influence or control
are accounted for under the cost method of accounting
(Note 8).
The Company assesses the recoverability of the carrying value of
its investments whenever events or changes in circumstances
indicate a loss in value that is other than a temporary decline.
A loss in value of an equity method or cost method investment
which is other than a temporary decline will be recognized as
the difference between the carrying amount of the investment and
its fair value.
The Company’s estimates of fair value are determined based
on a discounted cash flow model. The Company periodically
engages third-party valuation consultants to assist with this
process.
| • | Property, plant and equipment, net |
Land is recorded at historical cost. Buildings, machinery and
equipment, including capitalized interest, and property under
capital lease agreements, are recorded at cost less accumulated
depreciation. The Company records depreciation and amortization
in its consolidated statements of operations as either Cost of
sales or Selling, general and administrative expenses consistent
with the utilization of the underlying assets. Depreciation is
calculated on a straight-line basis over the following estimated
useful lives of depreciable assets:
|
Land improvements
|
20 years | |
|
Buildings and improvements
|
30 years | |
|
Machinery and equipment
|
20 years |
88
Table of Contents
Leasehold improvements are amortized over ten years or the
remaining life of the respective lease, whichever is shorter.
Accelerated depreciation is recorded when the estimated useful
life is shortened. Ordinary repair and maintenance costs,
including costs for planned maintenance turnarounds, that do not
extend the useful life of the asset are charged to earnings as
incurred. Fully depreciated assets are retained in property and
depreciation accounts until sold or otherwise disposed. In the
case of disposals, assets and related depreciation are removed
from the accounts, and the net amounts, less proceeds from
disposal, are included in earnings.
The Company also leases property, plant and equipment under
operating and capital leases. Rent expense for operating leases,
which may have escalating rentals or rent holidays over the term
of the lease, is recorded on a straight-line basis over the
lease term. Amortization of capital lease assets is included as
a component of depreciation expense.
Assets acquired in business combinations are recorded at their
fair values and depreciated over the assets’ remaining
useful lives or the Company’s policy lives, whichever is
shorter.
The Company assesses the recoverability of the carrying amount
of its property, plant and equipment whenever events or changes
in circumstances indicate that the carrying amount of an asset
or asset group may not be recoverable. An impairment loss would
be assessed when estimated undiscounted future cash flows from
the operation and disposition of the asset group are less than
the carrying amount of the asset group. Asset groups have
identifiable cash flows and are largely independent of other
asset groups. Measurement of an impairment loss is based on the
excess of the carrying amount of the asset group over its fair
value. Fair value is measured using discounted cash flows or
independent appraisals, as appropriate. Impairment losses are
recorded primarily to Other (charges) gains, net.
| • | Goodwill and other intangible assets |
Trademarks and trade names, customer-related intangible assets
and other intangibles with finite lives are amortized on a
straight-line basis over their estimated useful lives. The
excess of the purchase price over fair value of net identifiable
assets and liabilities of an acquired business
(“goodwill”) and other indefinite-lived intangible
assets are not amortized, but rather tested for impairment, at
least annually. The Company tests for goodwill and
indefinite-lived intangible asset impairment during the third
quarter of its fiscal year using June 30 balances.
The Company assesses the recoverability of the carrying value of
goodwill at least annually or whenever events or changes in
circumstances indicate that the carrying amount of the goodwill
of a reporting unit may not be fully recoverable. Recoverability
is measured at the reporting unit level based on the provisions
of FASB ASC Topic 350,
Intangibles — Goodwill and
Other
(“FASB ASC Topic 350”). The Company
periodically engages third-party valuation consultants to assist
with this process. Impairment losses are recorded primarily to
Other (charges) gains, net.
Recoverability of goodwill for each reporting unit is measured
using a discounted cash flow model incorporating discount rates
commensurate with the risks involved, which is classified as a
Level 3 measurement under FASB ASC Topic 820,
Fair
Value Measurements and Disclosures
(“FASB ASC Topic
820”). The key assumptions used in the discounted cash flow
valuation model include discount rates, growth rates, cash flow
projections and terminal value rates. Discount rates, growth
rates and cash flow projections are the most sensitive and
susceptible to change as they require significant management
judgment. If the calculated fair value is less than the current
carrying value, impairment of the reporting unit may exist. When
the recoverability test indicates potential impairment, the
Company, or in certain circumstances, a third-party valuation
consultant, will calculate an implied fair value of goodwill for
the reporting unit. The implied fair value of goodwill is
determined in a manner similar to how goodwill is calculated in
a business combination. If the implied fair value of goodwill
exceeds the carrying value of goodwill assigned to the reporting
unit, there is no impairment. If the carrying value of goodwill
assigned to a reporting unit exceeds the implied fair value of
the goodwill, an impairment loss is recorded to write
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down the carrying value. An impairment loss cannot exceed the
carrying value of goodwill assigned to a reporting unit but may
indicate certain long-lived and amortizable intangible assets
associated with the reporting unit may require additional
impairment testing.
The Company assesses recoverability of other indefinite-lived
intangible assets at least annually or whenever events or
changes in circumstances indicate that the carrying amount of
the indefinite-lived intangible asset may not be fully
recoverable. Recoverability is measured by a comparison of the
carrying value of the indefinite-lived intangible asset over its
fair value. Any excess of the carrying value of the
indefinite-lived intangible asset over its fair value is
recognized as an impairment loss. The Company periodically
engages third-party valuation consultants to assist with this
process. Impairment losses are recorded primarily to Other
(charges) gains, net.
Management tests indefinite-lived intangible assets utilizing
the relief from royalty method to determine the estimated fair
value for each indefinite-lived intangible asset which is
classified as a Level 3 measurement under FASB ASC Topic
820. The relief from royalty method estimates the Company’s
theoretical royalty savings from ownership of the intangible
asset. Key assumptions used in this model include discount
rates, royalty rates, growth rates, sales projections and
terminal value rates. Discount rates, royalty rates, growth
rates and sales projections are the assumptions most sensitive
and susceptible to change as they require significant management
judgment. Discount rates used are similar to the rates estimated
by the weighted-average cost of capital (“WACC”)
considering any differences in company-specific risk factors.
Royalty rates are established by management and are periodically
substantiated by third-party valuation consultants. Operational
management, considering industry and company-specific historical
and projected data, develops growth rates and sales projections
associated with each indefinite-lived intangible asset. Terminal
value rate determination follows common methodology of capturing
the present value of perpetual sales estimates beyond the last
projected period assuming a constant WACC and low long-term
growth rates.
The Company assesses the recoverability of finite-lived
intangible assets in the same manner as for property, plant and
equipment as described above. Impairment losses are recorded
primarily to Other (charges) gains, net.
| • | Financial instruments |
On January 1, 2008, the Company adopted the provisions of
FASB ASC Topic 820 for financial assets and liabilities. On
January 1, 2009, the Company applied the provisions of FASB
ASC Topic 820 for non-recurring fair value measurements of
non-financial assets and liabilities, such as goodwill,
indefinite-lived intangible assets, property, plant and
equipment and asset retirement obligations. The adoptions of
FASB ASC Topic 820 did not have a material impact on the
Company’s financial position, results of operations or cash
flows. FASB ASC Topic 820 defines fair value, and increases
disclosures surrounding fair value calculations.
The Company manages its exposures to currency exchange rates,
interest rates and commodity prices through a risk management
program that includes the use of derivative financial
instruments (Note 21). The Company does not use derivative
financial instruments for speculative trading purposes. The fair
value of all derivative instruments is recorded as assets or
liabilities at the balance sheet date. Changes in the fair value
of these instruments are reported in income or Accumulated other
comprehensive income (loss), net, depending on the use of the
derivative and whether it qualifies for hedge accounting
treatment under the provisions of FASB ASC Topic 815,
Derivatives and Hedging
(“FASB ASC Topic 815”).
Gains and losses on derivative instruments qualifying as cash
flow hedges are recorded in Accumulated other comprehensive
income (loss), net, to the extent the hedges are effective,
until the underlying transactions are recognized in earnings. To
the extent effective, gains and losses on derivative and
non-derivative instruments used as hedges of the Company’s
net investment in foreign operations are recorded in Accumulated
other comprehensive income (loss), net as part of the foreign
currency translation adjustment. The ineffective portions of
cash flow hedges and hedges of net investment in foreign
operations, if any, are recognized in earnings immediately.
Derivative instruments not designated as hedges are marked to
market at the end of each accounting period with the change in
fair value recorded in earnings.
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| • | Concentrations of credit risk |
The Company is exposed to credit risk in the event of nonpayment
by customers and counterparties. The creditworthiness of
customers and counterparties is subject to continuing review,
including the use of master netting agreements, where the
Company deems appropriate. The Company minimizes concentrations
of credit risk through its global orientation in diverse
businesses with a large number of diverse customers and
suppliers. In addition, credit risk arising from derivative
instruments is not significant because the counterparties to
these contracts are primarily major international financial
institutions and, to a lesser extent, major chemical companies.
Where appropriate, the Company has diversified its selection of
counterparties. Generally, collateral is not required from
customers and counterparties and allowances are provided for
specific risks inherent in receivables.
| • | Allowance for doubtful accounts |
The Company maintains allowances for doubtful accounts for
estimated losses resulting from the inability of its customers
to make required payments. The Company believes, based on
historical results, the likelihood of actual write-offs having a
material impact on financial results is low. The allowance for
doubtful accounts is estimated using factors such as customer
credit ratings, past collection history and general risk
profile. Receivables are charged against the allowance for
doubtful accounts when it is probable that the receivable will
not be recovered.
| • | Deferred financing costs |
The Company capitalizes direct costs incurred to obtain debt
financings and amortizes these costs using a method that
approximates the effective interest rate method over the terms
of the related debt. Upon the extinguishment of the related
debt, any unamortized capitalized debt financing costs are
immediately expensed.
| • | Environmental liabilities |
The Company manufactures and sells a diverse line of chemical
products throughout the world. Accordingly, the Company’s
operations are subject to various hazards incidental to the
production of industrial chemicals including the use, handling,
processing, storage and transportation of hazardous materials.
The Company recognizes losses and accrues liabilities relating
to environmental matters if available information indicates that
it is probable that a liability has been incurred and the amount
of loss can be reasonably estimated. Depending on the nature of
the site, the Company accrues through fifteen years, unless the
Company has government orders or other agreements that extend
beyond fifteen years. If the event of loss is neither probable
nor reasonably estimable, but is reasonably possible, the
Company provides appropriate disclosure in the notes to the
consolidated financial statements if the contingency is
considered material. The Company estimates environmental
liabilities on a
case-by-case
basis using the most current status of available facts, existing
technology, presently enacted laws and regulations and prior
experience in remediation of contaminated sites. Recoveries of
environmental costs from other parties are recorded as assets
when their receipt is deemed probable.
An environmental reserve related to cleanup of a contaminated
site might include, for example, a provision for one or more of
the following types of costs: site investigation and testing
costs, cleanup costs, costs related to soil and water
contamination resulting from tank ruptures and post-remediation
monitoring costs. These reserves do not take into account any
claims or recoveries from insurance. There are no pending
insurance claims for any environmental liability that are
expected to be material. The measurement of environmental
liabilities is based on the Company’s periodic estimate of
what it will cost to perform each of the elements of the
remediation effort. The Company utilizes third parties to assist
in the management and development of cost estimates for its
sites. Changes to environmental regulations or other factors
affecting environmental liabilities are reflected in the
consolidated financial statements in the period in which they
occur (Note 15).
| • | Legal fees |
The Company accrues for legal fees related to loss contingency
matters when the costs associated with defending these matters
can be reasonably estimated and are probable of occurring. All
other legal fees are expensed as incurred.
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| • | Revenue recognition |
The Company recognizes revenue when title and risk of loss have
been transferred to the customer, generally at the time of
shipment of products, and provided that four basic criteria are
met: (a) persuasive evidence of an arrangement exists;
(b) delivery has occurred or services have been rendered;
(c) the fee is fixed or determinable; and
(d) collectibility is reasonably assured. Should changes in
conditions cause the Company to determine revenue recognition
criteria are not met for certain transactions, revenue
recognition would be delayed until such time that the
transactions become realizable and fully earned. Payments
received in advance of meeting the above revenue recognition
criteria are recorded as deferred revenue.
| • | Research and development |
The costs of research and development are charged as an expense
in the period in which they are incurred.
| • | Insurance loss reserves |
The Company has two wholly-owned insurance companies (the
“Captives”) that are used as a form of self insurance
for property, liability and workers compensation risks. One of
the Captives also insures certain third-party risks. The
liabilities recorded by the Captives relate to the estimated
risk of loss, which is based on management estimates and
actuarial valuations, and unearned premiums, which represent the
portion of the third-party premiums written applicable to the
unexpired terms of the policies in-force. Liabilities are
recognized for known claims when sufficient information has been
developed to indicate involvement of a specific policy and the
Company can reasonably estimate its liability. In addition,
liabilities have been established to cover additional exposure
on both known and unasserted claims. Estimates of the
liabilities are reviewed and updated regularly. It is possible
that actual results could differ significantly from the recorded
liabilities. Premiums written are recognized as revenue based on
the terms of the policies. Capitalization of the Captives is
determined by regulatory guidelines.
| • | Reinsurance receivables |
The Captives enter into reinsurance arrangements to reduce their
risk of loss. The reinsurance arrangements do not relieve the
Captives from their obligations to policyholders. Failure of the
reinsurers to honor their obligations could result in losses to
the Captives. The Captives evaluate the financial condition of
their reinsurers and monitor concentrations of credit risk to
minimize their exposure to significant losses from reinsurer
insolvencies and to establish allowances for amounts deemed
non-collectible.
| • | Income taxes |
The provision for income taxes has been determined using the
asset and liability approach of accounting for income taxes.
Under this approach, deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes and net operating loss and
tax credit carryforwards. The amount of deferred taxes on these
temporary differences is determined using the tax rates that are
expected to apply to the period when the asset is realized or
the liability is settled, as applicable, based on tax rates and
laws in the respective tax jurisdiction enacted as of the
balance sheet date.
The Company reviews its deferred tax assets for recoverability
and establishes a valuation allowance based on historical
taxable income, projected future taxable income, applicable tax
strategies and the expected timing of the reversals of existing
temporary differences. A valuation allowance is provided when it
is more likely than not (likelihood of greater than 50%) that
some portion or all of the deferred tax assets will not be
realized.
The Company considers many factors when evaluating and
estimating its tax positions and tax benefits, which may require
periodic adjustments and which may not accurately anticipate
actual outcomes. Tax positions are recognized only when it is
more likely than not, based on technical merits, that the
positions will be sustained upon examination. Tax positions that
meet the more-likely-than-not threshold are measured using a
probability weighted approach as the largest amount of tax
benefit that is greater than 50% likely of being realized upon
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settlement. Whether the more-likely-than-not recognition
threshold is met for a tax position is a matter of judgment
based on the individual facts and circumstances of that position
evaluated in light of all available evidence.
| • | Noncontrolling interests |
Noncontrolling interests in the equity and results of operations
of the entities consolidated by the Company are shown as a
separate line item in the consolidated financial statements.
| • | Accounting for purchasing agent agreements |
A subsidiary of the Company acts as a purchasing agent on behalf
of the Company, as well as third parties. The entity arranges
sale and purchase agreements for raw materials on a commission
basis. Accordingly, the commissions earned on these third-party
sales are classified as a reduction to Selling, general and
administrative expenses.
| • | Functional and reporting currencies |
For the Company’s international operations where the
functional currency is other than the US dollar, assets and
liabilities are translated using period-end exchange rates,
while the statement of operations amounts are translated using
the average exchange rates for the respective period.
Differences arising from the translation of assets and
liabilities in comparison with the translation of the previous
periods or from initial recognition during the period are
included as a separate component of Accumulated other
comprehensive income (loss), net.
| • | Reclassifications |
The Company has reclassified certain prior period amounts to
conform to the current year presentation.
| 3. | Recent Accounting Pronouncements |
In December 2010, the FASB issued FASB Accounting Standards
Updated (“ASU”)
2010-29,
Business Combinations: Disclosure of Supplementary Pro Forma
Information for Business Combinations
(“ASU 2010-29”),
which amends FASB ASC Topic 805,
Business Combinations
.
The update addresses diversity in the interpretation of the pro
forma revenue and earnings disclosure requirements for business
combinations. If a public entity presents comparative financial
statements, the entity should disclose revenue and earnings of
the combined entity as though the business combination that
occurred during the current year had occurred as of the
beginning of the comparable prior annual reporting period only.
The Company adopted ASU
2010-29
on
January 1, 2011. This update had no impact on the
Company’s financial position, results of operations or cash
flows.
In December 2010, the FASB issued FASB ASU
2010-28,
Intangible – Goodwill and Other: When to Perform
Step 2 of the Goodwill Impairment Test for Reporting Units
with Zero or Negative Carrying Amounts
(“ASU 2010-28”),
which amends FASB ASC Topic 350. The update modifies Step 1 of
the goodwill impairment test for reporting units with zero or
negative carrying amounts. For these reporting units, an entity
is required to perform Step 2 of the goodwill impairment test if
it is more likely than not that a goodwill impairment exists.
The Company adopted ASU
2010-28
on
January 1, 2011. This update had no impact on the
Company’s financial position, results of operations or cash
flows.
In April 2010, the FASB issued FASB ASU
2010-17,
Revenue Recognition – Milestone Method: Milestone
Method of Revenue Recognition
(“ASU
2010-17”),
which amends FASB ASC Topic 605,
Revenue
Recognition – Milestone Method.
The update
provides guidance on the criteria that should be met for
determining whether the milestone method of revenue recognition
is appropriate for research or development transactions.
Authoritative guidance on the use of the milestone method did
not previously exist. The Company adopted ASU
2010-17
on
January 1, 2011. This update had no impact on the
Company’s financial position, results of operations or cash
flows.
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Table of Contents
In January 2010, the FASB issued FASB ASU
2010-06,
Fair Value Measurements and Disclosures: Improving
Disclosures about Fair Value Measurements
(“ASU
2010-06”),
which amends FASB ASC Topic 820. The update provides additional
disclosures for transfers in and out of Level 1 and 2 and
for activity in Level 3 and clarifies certain other
existing disclosure requirements. The Company adopted ASU
2010-06
beginning January 15, 2010. This update had no impact on
the Company’s financial position, results of operations or
cash flows.
| 4. | Acquisitions, Dispositions, Ventures and Plant Closures |
Acquisitions
In May 2010, the Company acquired two product lines,
Zenite
®
liquid crystal polymer (“LCP”) and
Thermx
®
polycyclohexylene-dimethylene terephthalate (“PCT”),
from DuPont Performance Polymers. The acquisition will continue
to build upon the Company’s position as a global supplier
of high performance materials and technology-driven
applications. These two product lines broaden the Company’s
Ticona Engineering Polymers offerings within its Advanced
Engineered Materials segment, enabling the Company to respond to
a globalizing customer base, especially in the high growth
electrical and electronics application markets. Pro forma
financial information since the acquisition date has not been
provided as the acquisition did not have a material impact on
the Company’s financial information. The Company incurred
$1 million in direct transaction costs as a result of this
acquisition.
The Company allocated the purchase price of the acquisition to
identifiable intangible assets acquired based on their estimated
fair values. The excess of purchase price over the aggregate
fair values was recorded as goodwill. Intangible assets were
valued using the relief from royalty and discounted cash flow
methodologies which are considered a Level 3 measurement
under FASB ASC Topic 820. The relief from royalty method
estimates the Company’s theoretical royalty savings from
ownership of the intangible asset. Key assumptions used in this
model include discount rates, royalty rates, growth rates, sales
projections and terminal value rates. Discount rates, royalty
rates, growth rates and sales projections are the assumptions
most sensitive and susceptible to change as they require
significant management judgment. The key assumptions used in the
discounted cash flow valuation model include discount rates,
growth rates, cash flow projections and terminal value rates.
Discount rates, growth rates and cash flow projections are the
most sensitive and susceptible to change as they require
significant management judgment. The Company, with the
assistance of third-party valuation consultants, calculated the
fair value of the intangible assets acquired to allocate the
purchase price at the respective acquisition date.
The consideration paid for the product lines and the amounts of
the intangible assets acquired recognized at the acquisition
date are as follows:
|
Weighted
|
||||||
| Average Life | ||||||
| (In years) | (In $ millions) | |||||
|
Cash consideration
|
46 | |||||
|
Intangible assets acquired
|
||||||
|
Trademarks and trade names
|
indefinite | 9 | ||||
|
Customer-related intangible assets
|
10 | 6 | ||||
|
Developed technology
|
10 | 7 | ||||
|
Covenant not to compete and other
|
3 | 11 | ||||
|
Goodwill
|
13 | |||||
|
Total
|
46 | |||||
In connection with the acquisition, the Company committed to
purchase certain inventory at a future date valued at between
$12 million and $17 million. During the three months
ended December 31, 2010, the Company purchased
$3 million of inventory in Europe and the US, leaving
additional inventory of between $9 million and
$14 million expected to be purchased in Asia during the
first half of 2011.
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Table of Contents
In December 2009, the Company acquired the business and assets
of FACT GmbH (Future Advanced Composites Technology)
(“FACT”), a German company, for a purchase price of
€5 million ($8 million). FACT is in the business
of developing, producing and marketing long-fiber reinforced
thermoplastics. As part of the acquisition, the Company has
entered into a ten year lease agreement with the seller for the
property and buildings on which the FACT business is located
with the option to purchase the property at various times
throughout the lease. The acquired business is included in the
Advanced Engineered Materials segment.
Dispositions
In July 2009, the Company completed the sale of its polyvinyl
alcohol (“PVOH”) business to Sekisui Chemical Co.,
Ltd. (“Sekisui”) for a net cash purchase price of
$168 million, resulting in a gain on disposition of
$34 million. The net cash purchase price excludes the
accounts receivable and payable retained by the Company. The
transaction includes long-term supply agreements between Sekisui
and the Company and therefore, does not qualify for treatment as
a discontinued operation. The PVOH business is included in the
Industrial Specialties segment.
Ventures
The Company indirectly owns a 25% interest in its National
Methanol Company (“Ibn Sina”) affiliate through CTE
Petrochemicals Company (“CTE”), a joint venture with
Texas Eastern Arabian Corporation Ltd. (which also indirectly
owns 25%). The remaining interest in Ibn Sina is held by Saudi
Basic Industries Corporation (“SABIC”). SABIC and CTE
entered into the Ibn Sina joint venture agreement in 1981. In
April 2010, the Company announced that Ibn Sina will construct a
50,000 ton polyacetal (“POM”) production facility in
Saudi Arabia and that the term of the joint venture agreement
was extended until 2032. Ibn Sina’s existing natural gas
supply contract expires in 2022. Upon successful startup of the
POM facility, the Company’s indirect economic interest in
Ibn Sina will increase from 25% to 32.5%. SABIC’s economic
interest will remain unchanged.
In connection with this transaction, the Company reassessed the
factors surrounding the accounting method for this investment
and changed from the cost method of accounting for investments
to the equity method of accounting for investments beginning
April 1, 2010. Financial information relating to this
investment for prior periods has been retrospectively adjusted
to apply the equity method of accounting. Effective
April 1, 2010, the Company moved its investment in the Ibn
Sina affiliate from its Acetyl Intermediates segment to its
Advanced Engineered Materials segment to reflect the change in
the affiliate’s business dynamics and growth opportunities
as a result of the future construction of the POM facility.
Business segment information for prior periods has been
retrospectively adjusted to reflect this change and to conform
to the current year presentation (Note 25).
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Table of Contents
The retrospective effect of applying the equity method of
accounting to this investment to the consolidated statements of
operations is as follows:
| Year Ended December 31, 2009 | Year Ended December 31, 2008 | |||||||||||||||||||||||
|
As
|
As Adjusted for
|
As
|
As Adjusted for
|
|||||||||||||||||||||
|
Originally
|
Retrospective
|
Effect of
|
Originally
|
Retrospective
|
Effect of
|
|||||||||||||||||||
| Reported | Application | Change | Reported | Application | Change | |||||||||||||||||||
| (In $ millions, except per share data) | ||||||||||||||||||||||||
|
Equity in net earnings (loss) of affiliates
|
48 | 99 | 51 | 54 | 172 | 118 | ||||||||||||||||||
|
Dividend income — cost investments
|
98 | 57 | (41 | ) | 167 | 48 | (119 | ) | ||||||||||||||||
|
Earnings (loss) from continuing operations before tax
|
241 | 251 | 10 | 434 | 433 | (1 | ) | |||||||||||||||||
|
Earnings (loss) from continuing operations
|
484 | 494 | 10 | 371 | 370 | (1 | ) | |||||||||||||||||
|
Net earnings (loss)
|
488 | 498 | 10 | 281 | 280 | (1 | ) | |||||||||||||||||
|
Net earnings (loss) attributable to Celanese Corporation
|
488 | 498 | 10 | 282 | 281 | (1 | ) | |||||||||||||||||
|
Net earnings (loss) available to common shareholders
|
478 | 488 | 10 | 272 | 271 | (1 | ) | |||||||||||||||||
|
Earnings (loss) per common share — basic Continuing
operations
|
3.30 | 3.37 | 0.07 | 2.44 | 2.44 | - | ||||||||||||||||||
|
Discontinued operations
|
0.03 | 0.03 | - | (0.61 | ) | (0.61 | ) | - | ||||||||||||||||
|
Net earnings (loss) — basic
|
3.33 | 3.40 | 0.07 | 1.83 | 1.83 | - | ||||||||||||||||||
|
Earnings (loss) per common share — diluted Continuing
operations
|
3.08 | 3.14 | 0.06 | 2.28 | 2.27 | (0.01 | ) | |||||||||||||||||
|
Discontinued operations
|
0.03 | 0.03 | - | (0.55 | ) | (0.55 | ) | - | ||||||||||||||||
|
Net earnings (loss) — diluted
|
3.11 | 3.17 | 0.06 | 1.73 | 1.72 | (0.01 | ) | |||||||||||||||||
The retrospective effect of applying the equity method of
accounting to this investment to the consolidated balance sheets
is as follows:
| As of December 31, 2009 | ||||||||||||
|
As
|
As Adjusted for
|
|||||||||||
|
Originally
|
Retrospective
|
Effect of
|
||||||||||
| Reported | Application | Change | ||||||||||
| (In $ millions) | ||||||||||||
|
Investments in affiliates
|
790 | 792 | 2 | |||||||||
|
Total assets
|
8,410 | 8,412 | 2 | |||||||||
|
Retained earnings
|
1,502 | 1,505 | 3 | |||||||||
|
Accumulated other comprehensive income (loss), net
|
(659 | ) | (660 | ) | (1 | ) | ||||||
|
Total Celanese Corporation shareholders’ equity
|
584 | 586 | 2 | |||||||||
|
Total shareholders’ equity
|
584 | 586 | 2 | |||||||||
|
Total liabilities and shareholders’ equity
|
8,410 | 8,412 | 2 | |||||||||
As a result of the accounting change, Retained earnings as of
January 1, 2008 decreased from $799 million, as
originally reported using the cost method of accounting for
investments, to $793 million using the equity method of
accounting for investments.
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Table of Contents
The retrospective effect of applying the equity method of
accounting to this investment to the consolidated statements of
cash flows is as follows:
| Year Ended December 31, | ||||||||||||||||||||||||
| 2009 | 2008 | |||||||||||||||||||||||
|
As
|
As Adjusted for
|
As
|
As Adjusted for
|
|||||||||||||||||||||
|
Originally
|
Retrospective
|
Effect of
|
Originally
|
Retrospective
|
Effect of
|
|||||||||||||||||||
| Reported | Application | Change | Reported | Application | Change | |||||||||||||||||||
| (In $ millions) | ||||||||||||||||||||||||
|
Net earnings (loss)
|
488 | 498 | 10 | 281 | 280 | (1 | ) | |||||||||||||||||
|
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities
|
||||||||||||||||||||||||
|
Other, net
|
22 | 12 | (10 | ) | 36 | 37 | 1 | |||||||||||||||||
The retrospective effect of applying the equity method of
accounting to this investment to the business segment financial
information (Note 25) is as follows:
| Year Ended December 31, | ||||||||||||||||||||||||
| 2009 | 2008 | |||||||||||||||||||||||
|
As
|
As Adjusted for
|
As
|
As Adjusted for
|
|||||||||||||||||||||
|
Originally
|
Retrospective
|
Effect of
|
Originally
|
Retrospective
|
Effect of
|
|||||||||||||||||||
| Reported | Application | Change | Reported | Application | Change | |||||||||||||||||||
| (In $ millions) | ||||||||||||||||||||||||
|
Advanced Engineered Materials
Earnings (loss) from continuing operations before tax |
62 | 114 | 52 | 69 | 190 | 121 | ||||||||||||||||||
|
Acetyl Intermediates
Earnings (loss) from continuing operations before tax |
144 | 102 | (42 | ) | 434 | 312 | (122 | ) | ||||||||||||||||
Plant
Closures
| • | Spondon, Derby, United Kingdom |
During the first quarter of 2010, the Company began to assess
the possibility of consolidating its global acetate flake and
tow manufacturing operations to strengthen the Company’s
competitive position, reduce fixed costs and align future
production capacities with anticipated industry demand trends.
The assessment was also driven by a global shift in product
consumption and included considering the probability of closing
the Company’s acetate flake and tow manufacturing
operations in Spondon, Derby, United Kingdom. Based on this
assessment, the Company concluded that certain long-lived assets
were partially impaired. Accordingly, in March 2010, the Company
recorded long-lived asset impairment losses of $72 million
(Note 17) to Other (charges) gains, net in the
consolidated statements of operations. The Spondon, Derby,
United Kingdom facility is included in the Consumer Specialties
segment.
In April 2010, when the Company announced the proposed cessation
of operations at the Spondon plant, the Company began the
consulting process with employees and their representatives .
These consultations did not result in a demonstrated basis for
viable continuing operations for acetate flake and tow
operations at the site. Accordingly, in August 2010, the Company
announced that it will consolidate its global acetate
manufacturing capabilities by closing its acetate flake and tow
manufacturing operations in Spondon, Derby, United Kingdom, with
operations expecting to cease in the latter part of 2011. The
Company expects to serve its acetate customers under this
proposal by optimizing its global production network, which
includes facilities in Lanaken, Belgium; Narrows, Virginia; and
Ocotlan, Mexico, as well as the Company’s acetate affiliate
facilities in China.
97
Table of Contents
The exit costs and plant shutdown costs recorded in the
consolidated statements of operations related to the closure of
the Spondon, Derby, United Kingdom location
(Note 17) are as follows:
| Year Ended December 31, 2010 | ||||
| (In $ millions) | ||||
|
Employee termination benefits
|
(15 | ) | ||
|
Asset impairments
|
(72 | ) | ||
|
Total exit costs recorded to Other (charges) gains, net
|
(87 | ) | ||
|
Accelerated depreciation
|
(6 | ) | ||
|
Total plant shutdown costs
|
(6 | ) | ||
| • | Pardies, France |
In July 2009, the Company’s wholly-owned French subsidiary,
Acetex Chimie S.A., completed the consultation process with the
workers council on its “Project of Closure” and social
plan related to the Company’s Pardies, France facility
pursuant to which the Company ceased all manufacturing
operations and associated activities in December 2009. The
Company agreed with the workers council on a set of measures of
assistance aimed at minimizing the effects of the plant’s
closing on the Pardies workforce, including training,
outplacement and severance. The Pardies, France facility is
included in the Acetyl Intermediates segment.
The exit costs and plant shutdown costs recorded in the
consolidated statements of operations related to the
“Project of Closure” (Note 17) are as
follows:
| Year Ended December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In $ millions) | ||||||||
|
Employee termination benefits
|
(6 | ) | (60 | ) | ||||
|
Asset impairments
|
(1 | ) | (12 | ) | ||||
|
Contract termination costs
|
(3 | ) | (17 | ) | ||||
|
Reindustrialization costs
|
(3 | ) | - | |||||
|
Other
|
1 | - | ||||||
|
Total exit costs recorded to Other (charges) gains, net
|
(12 | ) | (89 | ) | ||||
|
Asset sale
|
- | - | ||||||
|
Inventory write-offs
|
(4 | ) | - | |||||
|
Accelerated depreciation
|
- | (9 | ) | |||||
|
Other
|
(8 | ) | (8 | ) | ||||
|
Total plant shutdown costs
|
(12 | ) | (17 | ) | ||||
Assets
Held for Sale
Assets held for sale in the consolidated balance sheet as of
December 31, 2010 include plant assets with a net book
value of $9 million. The plant assets held for sale relate
to an agreement reached in July 2007 with Babcock &
Brown, a worldwide investment firm that specializes in real
estate and utilities development, to sell the Company’s
Pampa, Texas facility. The plant assets are included in the
Acetyl Intermediates segment.
98
Table of Contents
Assets held for sale in the consolidated balance sheet as of
December 31, 2009 include an office building the Company
sold during the year ended December 31, 2010. The office
building had a net book value of $2 million and the Company
recorded a gain of $14 million to Gain (loss) on
disposition of businesses and assets, net, in the consolidated
statements of operations during the year ended December 31,
2010. The office building was included in the Other Activities
segment.
| 5. | Marketable Securities, at Fair Value |
The Captives and nonqualified pension trusts hold
available-for-sale
securities for capitalization and funding requirements,
respectively. The Company recorded realized gains (losses) as
follows:
| Year ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In $ millions) | ||||||||||||
|
Realized gain on sale of securities
|
8 | 5 | 10 | |||||||||
|
Realized loss on sale of securities
|
- | - | (10 | ) | ||||||||
|
Net realized gain (loss) on sale of securities
|
8 | 5 | - | |||||||||
The Company reviews all investments for
other-than-temporary
impairment at least quarterly or as indicators of impairment
exist. Indicators of impairment include the duration and
severity of the decline in fair value below carrying value as
well as the intent and ability to hold the investment to allow
for a recovery in the market value of the investment. In
addition, the Company considers qualitative factors that
include, but are not limited to: (i) the financial
condition and business plans of the investee including its
future earnings potential, (ii) the investee’s credit
rating, and (iii) the current and expected market and
industry conditions in which the investee operates. If a decline
in the fair value of an investment is deemed by management to be
other-than-temporary,
the Company writes down the carrying value of the investment to
fair value, and the amount of the write-down is included in net
earnings. Such a determination is dependent on the facts and
circumstances relating to each investment. The Company
recognized $0 million, $1 million and $0 million
of
other-than-temporary
impairment losses related to equity securities in the
consolidated statements of operations for the years ended
December 31, 2010, 2009, and 2008, respectively.
The amortized cost, gross unrealized gain, gross unrealized loss
and fair values for
available-for-sale
securities by major security type are as follows:
|
Gross
|
Gross
|
|||||||||||||||
|
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|||||||||||||
| Cost | Gain | Loss | Value | |||||||||||||
| (In $ millions) | ||||||||||||||||
|
US corporate debt securities
|
1 | - | - | 1 | ||||||||||||
|
Mutual funds
|
77 | - | - | 77 | ||||||||||||
|
As of December 31, 2010
|
78 | - | - | 78 | ||||||||||||
|
US government debt securities
|
26 | 2 | - | 28 | ||||||||||||
|
US corporate debt securities
|
1 | - | - | 1 | ||||||||||||
|
Total debt securities
|
27 | 2 | - | 29 | ||||||||||||
|
Equity securities
|
55 | - | (3 | ) | 52 | |||||||||||
|
Mutual funds
|
2 | - | - | 2 | ||||||||||||
|
As of December 31, 2009
|
84 | 2 | (3 | ) | 83 | |||||||||||
Fixed maturities of $1 million as of December 31, 2010
will mature in 2013. Actual maturities could differ from
contractual maturities because borrowers may have the right to
call or prepay obligations, with or without call or prepayment
penalties.
99
Table of Contents
| 6. | Receivables, Net |
| As of December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In $ millions) | ||||||||
|
Trade receivables — third party and affiliates
|
839 | 739 | ||||||
|
Allowance for doubtful accounts — third party and
affiliates
|
(12 | ) | (18 | ) | ||||
|
Trade receivables — third party and affiliates, net
|
827 | 721 | ||||||
|
Reinsurance receivables
|
31 | 49 | ||||||
|
Income taxes receivable
|
60 | 64 | ||||||
|
Other
|
163 | 149 | ||||||
|
Allowance for doubtful accounts — other
|
(1 | ) | - | |||||
|
Non-trade receivables, net
|
253 | 262 | ||||||
As of December 31, 2010 and 2009, the Company had no
significant concentrations of credit risk since the
Company’s customer base is dispersed across many different
industries and geographies.
| 7. | Inventories |
| As of December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In $ millions) | ||||||||
|
Finished goods
|
442 | 367 | ||||||
|
Work-in-process
|
31 | 28 | ||||||
|
Raw materials and supplies
|
137 | 127 | ||||||
|
Total
|
610 | 522 | ||||||
100
Table of Contents
| 8. | Investments in Affiliates |
Equity
Method
Equity method investments and ownership interests are as follows:
|
Share of
|
||||||||||||||||||||||||||||||
|
Ownership
|
Carrying
|
Earnings (Loss)
|
||||||||||||||||||||||||||||
|
Percentage
|
Value
|
Year Ended
|
||||||||||||||||||||||||||||
| as of December 31, | as of December 31, | December 31, | ||||||||||||||||||||||||||||
| Business Segment | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2008 | |||||||||||||||||||||||
| (In percentages) | (In $ millions) | |||||||||||||||||||||||||||||
|
Erfei,
A.I.E.
(1)
|
Acetyl Intermediates | - | - | - | - | - | - | - | ||||||||||||||||||||||
|
National Methanol Company (“Ibn Sina”) (Note 4)
|
Advanced Engineered Materials | 25 | 25 | 53 | 56 | 81 | 51 | 118 | ||||||||||||||||||||||
|
Fortron Industries LLC
|
Advanced Engineered Materials | 50 | 50 | 79 | 74 | 5 | (3 | ) | 4 | |||||||||||||||||||||
|
Korea Engineering Plastics Co., Ltd.
|
Advanced Engineered Materials | 50 | 50 | 153 | 159 | 20 | 14 | 12 | ||||||||||||||||||||||
|
Polyplastics Co., Ltd.
|
Advanced Engineered Materials | 45 | 45 | 229 | 175 | 37 | 15 | 19 | ||||||||||||||||||||||
|
Una SA
|
Advanced Engineered Materials | 50 | 50 | 3 | 2 | 1 | - | 2 | ||||||||||||||||||||||
|
InfraServ GmbH & Co. Gendorf KG
|
Other Activities | 39 | 39 | 27 | 27 | 4 | 3 | 4 | ||||||||||||||||||||||
|
InfraServ GmbH & Co. Hoechst KG
|
Other Activities | 32 | 32 | 128 | 142 | 16 | 15 | 10 | ||||||||||||||||||||||
|
InfraServ GmbH & Co. Knapsack KG
|
Other Activities | 27 | 27 | 22 | 24 | 4 | 5 | 4 | ||||||||||||||||||||||
|
Sherbrooke Capital Health and
Wellness, L.P. (2) |
Consumer Specialties | 10 | 10 | 5 | 4 | - | (1 | ) | (1 | ) | ||||||||||||||||||||
|
Total (As Adjusted Note 4)
|
699 | 663 | 168 | 99 | 172 | |||||||||||||||||||||||||
| (1) | The Company divested this investment in July 2009 as part of the sale of PVOH (Note 4). | |
| (2) | The Company accounts for its 10% ownership interest in Sherbrooke Capital Health and Wellness, L.P. under the equity method of accounting because the Company is able to exercise significant influence. |
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| As Adjusted (Note 4) | ||||||||||||
| (In $ millions) | ||||||||||||
|
Affiliate net earnings
|
566 | 336 | 633 | |||||||||
|
Company’s proportional share
|
||||||||||||
|
Net earnings
|
168 | 99 | 172 | |||||||||
|
Dividends and other distributions
|
138 | 78 | 183 | |||||||||
Financial information for Ibn Sina is not provided to the
Company timely and as a result, the Company’s proportional
share is reported on a one quarter lag. Accordingly, summarized
financial information of Ibn Sina presented below is as of and
for the 12 months ended September 30 as follows:
| 2010 | 2009 | |||||||
| (In $ millions) | ||||||||
|
Current assets
|
226 | 223 | ||||||
|
Noncurrent assets
|
202 | 212 | ||||||
|
Current liabilities
|
108 | 98 | ||||||
|
Noncurrent liabilities
|
39 | 43 | ||||||
101
Table of Contents
| 2010 | 2009 | 2008 | ||||||||||
| (In $ millions) | ||||||||||||
|
Revenues
|
923 | 630 | 1,235 | |||||||||
|
Gross profit
|
403 | 256 | 578 | |||||||||
|
Net income
|
357 | 222 | 512 | |||||||||
Cost
Method
Cost method investments and ownership interests are as follows:
|
Ownership
|
Dividend
|
|||||||||||||||||||||||||||||
|
Percentage as of
|
Carrying Value as of
|
Income for the
|
||||||||||||||||||||||||||||
| December 31, | December 31, | Year Ended December 31, | ||||||||||||||||||||||||||||
| Business Segment | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2008 | |||||||||||||||||||||||
| (In percentages) | (In $ millions) | |||||||||||||||||||||||||||||
|
Kunming Cellulose Fibers Co. Ltd.
|
Consumer Specialties | 30 | 30 | 14 | 14 | 11 | 10 | 8 | ||||||||||||||||||||||
|
Nantong Cellulose Fibers Co. Ltd.
|
Consumer Specialties | 31 | 31 | 89 | 77 | 51 | 38 | 32 | ||||||||||||||||||||||
|
Zhuhai Cellulose Fibers Co. Ltd.
|
Consumer Specialties | 30 | 30 | 14 | 14 | 9 | 8 | 6 | ||||||||||||||||||||||
|
InfraServ GmbH & Co. Wiesbaden KG
|
Other Activities | 8 | 8 | 6 | 6 | 2 | 1 | 2 | ||||||||||||||||||||||
|
Other
|
16 | 18 | - | - | - | |||||||||||||||||||||||||
|
Total (As Adjusted Note 4)
|
139 | 129 | 73 | 57 | 48 | |||||||||||||||||||||||||
Certain investments where the Company owns greater than a 20%
ownership interest are accounted for under the cost method of
accounting because the Company cannot exercise significant
influence over these entities. The Company determined that it
cannot exercise significant influence over these entities due to
local government investment in and influence over these
entities, limitations on the Company’s involvement in the
day-to-day
operations and the present inability of the entities to provide
timely financial information prepared in accordance with US GAAP.
| 9. | Property, Plant and Equipment, Net |
| As of December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In $ millions) | ||||||||
|
Land
|
57 | 62 | ||||||
|
Land improvements
|
39 | 44 | ||||||
|
Buildings and building improvements
|
334 | 360 | ||||||
|
Machinery and equipment
|
2,589 | 2,669 | ||||||
|
Construction in progress
|
1,129 | 792 | ||||||
|
Gross asset value
|
4,148 | 3,927 | ||||||
|
Accumulated depreciation
|
(1,131 | ) | (1,130 | ) | ||||
|
Property, plant and equipment, net
|
3,017 | 2,797 | ||||||
102
Table of Contents
Assets under capital leases included in the amounts above are as
follows:
| As of December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In $ millions) | ||||||||
|
Buildings
|
23 | 46 | ||||||
|
Machinery and equipment
|
263 | 226 | ||||||
|
Accumulated depreciation
|
(74 | ) | (55 | ) | ||||
|
Assets under capital leases, net
|
212 | 217 | ||||||
Capitalized interest costs and depreciation expense recorded in
the consolidated financial statements are as follows:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In $ millions) | ||||||||||||
|
Capitalized interest
|
2 | 2 | 6 | |||||||||
|
Depreciation expense
|
195 | 213 | 255 | |||||||||
During 2010 and 2009, certain long-lived assets were impaired
(Note 4 and Note 17).
| 10. | Goodwill and Intangible Assets, Net |
Goodwill
|
Advanced
|
||||||||||||||||||||
|
Engineered
|
Consumer
|
Industrial
|
Acetyl
|
|||||||||||||||||
| Materials | Specialties | Specialties | Intermediates | Total | ||||||||||||||||
| (In $ millions) | ||||||||||||||||||||
|
As of December 31, 2008
|
||||||||||||||||||||
|
Goodwill
|
258 | 252 | 40 | 235 | 785 | |||||||||||||||
|
Accumulated impairment losses
|
- | - | (6 | ) | - | (6 | ) | |||||||||||||
|
Total
|
258 | 252 | 34 | 235 | 779 | |||||||||||||||
|
Sale of
PVOH
(1)
|
- | - | - | - | - | |||||||||||||||
|
Exchange rate changes
|
5 | 5 | 1 | 8 | 19 | |||||||||||||||
|
As of December 31, 2009
|
||||||||||||||||||||
|
Goodwill
|
263 | 257 | 35 | 243 | 798 | |||||||||||||||
|
Accumulated impairment losses
|
- | - | - | - | - | |||||||||||||||
|
Total
|
263 | 257 | 35 | 243 | 798 | |||||||||||||||
|
Acquisitions (Note 4)
|
13 | - | - | - | 13 | |||||||||||||||
|
Reallocation of Ibn Sina goodwill (Note 4)
|
34 | - | - | (34 | ) | - | ||||||||||||||
|
Exchange rate changes
|
(11 | ) | (8 | ) | - | (18 | ) | (37 | ) | |||||||||||
|
As of December 31, 2010
|
||||||||||||||||||||
|
Goodwill
|
299 | 249 | 35 | 191 | 774 | |||||||||||||||
|
Accumulated impairment losses
|
- | - | - | - | - | |||||||||||||||
|
Total
|
299 | 249 | 35 | 191 | 774 | |||||||||||||||
| (1) | Fully impaired goodwill of $6 million was written off related to the sale of PVOH. |
103
Table of Contents
In connection with the Company’s annual goodwill impairment
test performed during the three months ended September 30,
2010 using June 30 balances, the Company did not record an
impairment loss related to goodwill as the estimated fair value
for each of the Company’s reporting units exceeded the
carrying value of the underlying assets by a substantial margin.
No events or changes in circumstances occurred during the three
months ended December 31, 2010 that would indicate that the
carrying amount of the assets may not be fully recoverable.
Accordingly, no additional impairment analysis was performed
during that period.
Intangible
Assets, Net
|
Customer-
|
Covenants
|
|||||||||||||||||||||||
|
Trademarks
|
Related
|
not to
|
||||||||||||||||||||||
|
and
|
Intangible
|
Developed
|
Compete
|
|||||||||||||||||||||
| Trade names | Licenses | Assets | Technology | and Other | Total | |||||||||||||||||||
| (In $ millions) | ||||||||||||||||||||||||
|
Gross Asset Value
|
||||||||||||||||||||||||
|
As of December 31, 2008
|
82 | 29 | 537 | 12 | 12 | 672 | ||||||||||||||||||
|
Acquisitions
|
- | - | - | 1 | - | 1 | ||||||||||||||||||
|
Exchange rate changes
|
1 | - | 15 | - | - | 16 | ||||||||||||||||||
|
As of December 31, 2009
|
83 | 29 | 552 | 13 | 12 | 689 | ||||||||||||||||||
|
Acquisitions (Note 4)
|
9 | - | 6 | 7 | 11 | 33 | ||||||||||||||||||
|
Exchange rate changes
|
(4 | ) | 1 | (32 | ) | - | - | (35 | ) | |||||||||||||||
|
As of December 31, 2010
|
88 | 30 | 526 | 20 | 23 | 687 | ||||||||||||||||||
|
Accumulated Amortization
|
||||||||||||||||||||||||
|
As of December 31, 2008
|
- | (3 | ) | (285 | ) | (10 | ) | (10 | ) | (308 | ) | |||||||||||||
|
Amortization
|
(5 | ) | (3 | ) | (67 | ) | (1 | ) | (1 | ) | (77 | ) | ||||||||||||
|
Exchange rate changes
|
- | - | (10 | ) | - | - | (10 | ) | ||||||||||||||||
|
As of December 31, 2009
|
(5 | ) | (6 | ) | (362 | ) | (11 | ) | (11 | ) | (395 | ) | ||||||||||||
|
Amortization
|
- | (3 | ) | (54 | ) | (1 | ) | (3 | ) | (61 | ) | |||||||||||||
|
Exchange rate changes
|
- | (1 | ) | 21 | 1 | - | 21 | |||||||||||||||||
|
As of December 31, 2010
|
(5 | ) | (10 | ) | (395 | ) | (11 | ) | (14 | ) | (435 | ) | ||||||||||||
|
Net book value
|
83 | 20 | 131 | 9 | 9 | 252 | ||||||||||||||||||
Amortization expense for intangible assets with finite lives is
recorded in the consolidated statements of operations as follows:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In $ millions) | ||||||||||||
|
Amortization of intangible assets
|
61 | 72 | 76 | |||||||||
In addition, during the year ended December 31, 2009 the
Company recorded accelerated amortization expense to
Amortization of intangible assets in the consolidated statements
of operations of $5 million related to the AT Plastics
trade name, which was discontinued August 1, 2009. The
trade name is now fully amortized.
104
Table of Contents
Estimated amortization expense for the succeeding five fiscal
years is as follows:
| (In $ millions) | ||||
|
2011
|
63 | |||
|
2012
|
47 | |||
|
2013
|
29 | |||
|
2014
|
18 | |||
|
2015
|
8 | |||
The Company’s trademarks and trade names have an indefinite
life. Accordingly, no amortization expense is recorded on these
intangible assets.
In connection with the Company’s annual indefinite-lived
intangible assets impairment test performed during the three
months ended September 30, 2010 using June 30 balances, the
Company did not record an impairment loss to indefinite-lived
intangible assets as the estimated fair value for each of the
Company’s indefinite-lived intangible assets exceeded the
carrying value of the underlying asset. No events or changes in
circumstances occurred during the three months ended
December 31, 2010 that would indicate that the carrying
amount of the assets may not be fully recoverable. Accordingly,
no additional impairment analysis was performed during that
period. For the year ended December 31, 2010, the Company
did not renew or extend any intangible assets.
| 11. | Current Other Liabilities |
| As of December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In $ millions) | ||||||||
|
Salaries and benefits
|
111 | 100 | ||||||
|
Environmental (Note 15)
|
16 | 13 | ||||||
|
Restructuring (Note 17)
|
57 | 99 | ||||||
|
Insurance
|
27 | 37 | ||||||
|
Asset retirement obligations
|
31 | 22 | ||||||
|
Derivatives (Note 21)
|
69 | 75 | ||||||
|
Current portion of benefit obligations (Note 14)
|
49 | 49 | ||||||
|
Sales and use tax/foreign withholding tax payable
|
15 | 15 | ||||||
|
Interest
|
29 | 20 | ||||||
|
Uncertain tax positions (Note 18)
|
15 | 5 | ||||||
|
Other
|
177 | 176 | ||||||
|
Total
|
596 | 611 | ||||||
| 12. | Noncurrent Other Liabilities |
| As of December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In $ millions) | ||||||||
|
Environmental (Note 15)
|
85 | 93 | ||||||
|
Insurance
|
69 | 85 | ||||||
|
Deferred revenue
|
41 | 47 | ||||||
|
Deferred
proceeds
(1)
|
786 | 848 | ||||||
|
Asset retirement obligations
|
46 | 45 | ||||||
|
Derivatives (Note 21)
|
14 | 44 | ||||||
|
Income taxes payable
|
4 | 61 | ||||||
|
Other
|
30 | 83 | ||||||
|
Total
|
1,075 | 1,306 | ||||||
105
Table of Contents
| (1) | Primarily relates to proceeds received from the Frankfurt, Germany Airport as part of a settlement for the Company to relocate its Kelsterbach, Germany Ticona operations to a new site (Note 28). Such proceeds will be deferred until the transfer of title to the Frankfurt, Germany Airport. |
Changes in asset retirement obligations are as follows:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In $ millions) | ||||||||||||
|
Balance at beginning of year
|
67 | 49 | 47 | |||||||||
|
Additions
(1)
|
- | 14 | 6 | |||||||||
|
Accretion
|
3 | 2 | 3 | |||||||||
|
Payments
|
(15 | ) | (14 | ) | (6 | ) | ||||||
|
Revisions to cash flow
estimates
(2)
|
23 | 15 | 1 | |||||||||
|
Exchange rate changes
|
(1 | ) | 1 | (2 | ) | |||||||
|
Balance at end of year
|
77 | 67 | 49 | |||||||||
| (1) | Primarily relates to sites and impaired long-lived assets (Note 17) which management no longer considers to have an indeterminate life. | |
| (2) | Primarily relates to revisions to the estimated cost of future plant closures. |
Included in the asset retirement obligations for each of the
years ended December 31, 2010 and 2009 is $10 million
related to a business acquired in 2005. The Company has a
corresponding receivable of $10 million included in
noncurrent Other assets in the consolidated balance sheets as of
December 31, 2010.
The Company concluded several sites no longer had an
indeterminate life based on long-lived asset impairment
triggering events and decisions made by the Company.
Accordingly, the Company recorded asset retirement obligations
associated with these sites. To measure the fair value of the
asset retirement obligations, the Company uses the expected
present value technique which is classified as a Level 3
measurement under FASB ASC Topic 820. The expected present value
technique uses a set of cash flows that represent the
probability-weighted average of all possible cash flows based on
the Company’s judgment. The Company uses the following
inputs to determine the fair value of the asset retirement
obligations based on the Company’s experience with
fulfilling obligations of this type and the Company’s
knowledge of market conditions: a) labor costs;
b) allocation of overhead costs; c) profit on labor
and overhead costs; d) effect of inflation on estimated
costs and profits; e) risk premium for bearing the
uncertainty inherent in cash flows, other than inflation;
f) time value of money represented by the risk-free
interest rate commensurate with the timing of the associated
cash flows; and g) nonperformance risk relating to the
liability which includes the Company’s own credit risk.
The Company has identified but not recognized asset retirement
obligations related to certain of its existing operating
facilities. Examples of these types of obligations include
demolition, decommissioning, disposal and restoration
activities. Legal obligations exist in connection with the
retirement of these assets upon closure of the facilities or
abandonment of the existing operations. However, the Company
currently plans on continuing operations at these facilities
indefinitely and therefore a reasonable estimate of fair value
cannot be determined at this time. In the event the Company
considers plans to abandon or cease operations at these sites,
an asset retirement obligation will be reassessed at that time.
If certain operating facilities were to close, the related asset
retirement obligations could significantly affect the
Company’s results of operations and cash flows.
106
Table of Contents
| 13. | Debt |
| As of December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In $ millions) | ||||||||
|
Short-term borrowings and current installments of long-term
debt — third party and affiliates
|
||||||||
|
Current installments of long-term debt
|
74 | 102 | ||||||
|
Short-term borrowings, including amounts due to affiliates,
weighted average interest rate of 3.3%
|
154 | 140 | ||||||
|
Total
|
228 | 242 | ||||||
|
Long-term debt
|
||||||||
|
Senior credit facilities
|
||||||||
|
Term B loan facility due 2014
|
508 | 2,785 | ||||||
|
Term C loan facility due 2016
|
1,409 | - | ||||||
|
Senior unsecured notes due 2018
|
600 | - | ||||||
|
Pollution control and industrial revenue bonds, interest rates
ranging from 5.7% to 6.7%, due at various dates through 2030
|
181 | 181 | ||||||
|
Obligations under capital leases and other secured and unsecured
borrowings, interest rates ranging from 6.3% to 25.7%, due at
various dates through 2054
|
245 | 242 | ||||||
|
Other bank obligations, interest rates ranging from 1.2% to
5.5%, due at various dates through 2017
|
121 | 153 | ||||||
|
Subtotal
|
3,064 | 3,361 | ||||||
|
Current installments of long-term debt
|
(74 | ) | (102 | ) | ||||
|
Total
|
2,990 | 3,259 | ||||||
Senior
Notes
On September 24, 2010, Celanese US completed an offering of
$600 million in aggregate principal amount of
6 5/8%
Senior Notes due 2018 (the “Notes”) in a private
placement conducted pursuant to Rule 144A under the
Securities Act of 1933, as amended (the “Securities
Act”). The Notes are guaranteed on a senior unsecured basis
by Celanese and each of the domestic subsidiaries of Celanese US
that guarantee its obligations under its senior secured credit
facilities (the “Subsidiary Guarantors”).
The Notes were issued under an indenture dated
September 24, 2010 (the “Indenture”) among
Celanese US, Celanese, the Subsidiary Guarantors and Wells Fargo
Bank, National Association, as trustee. The Notes bear interest
at a rate of
6 5/8%
per annum and were priced at 100% of par. Celanese US will pay
interest on the Notes on April 15 and October 15 of each year
commencing on April 15, 2011. The Notes will mature on
October 15, 2018 and the Notes are redeemable, in whole or
in part, at any time on or after October 15, 2014 at the
redemption prices specified in the Indenture. Prior to
October 15, 2014, Celanese US may redeem some or all of the
Notes at a redemption price of 100% of the principal amount,
plus accrued and unpaid interest, if any, to the redemption
date, plus a “make-whole” premium as specified in the
Indenture. The Notes are senior unsecured obligations of
Celanese US and rank equally in right of payment with all other
unsubordinated indebtedness of Celanese US.
The holders of the Notes are entitled to the benefits of a
registration rights agreement dated September 24, 2010 (the
“Registration Rights Agreement”), by and among
Celanese US and the initial purchasers listed therein. Pursuant
to the Registration Rights Agreement, Celanese US has agreed to
use commercially reasonable efforts to file a registration
statement (an “Exchange Offer Registration Statement”)
with respect to a registered exchange offer (an “Exchange
Offer”) to exchange the Notes for new notes with terms
substantially identical in all material respects to the Notes
(except that the new notes will not have transfer restrictions,
registration rights or be entitled to Additional
107
Table of Contents
Interest (as defined below)), to cause the Exchange Offer
Registration Statement to be declared effective by the
Securities and Exchange Commission under the Securities Act and
to consummate the Exchange Offer by the 270th day after the
date of the initial issuance of the Notes (June 21, 2011).
If, on or before the 270th day after the original issue
date of the Notes, (a) Celanese US has not exchanged the
new notes for all Notes validly tendered in accordance with the
terms of an Exchange Offer or, if required, a shelf registration
statement covering resales of the Notes has not been declared
effective, or (b) a shelf registration statement covering
resales of the Notes is required and becomes effective but such
shelf registration statement ceases to be effective during the
period specified in the Registration Rights Agreement (subject
to certain exceptions) (each such event referred to in
clauses (a) and (b) of this paragraph, a
“Registration Default”), then additional interest
(“Additional Interest”) shall accrue on the
outstanding principal amount of the Notes from and including the
date on which such Registration Default has occurred at a rate
of 0.25% per annum for the first 90 day period immediately
following such date and will increase by an additional 0.25% per
annum at the end of each subsequent 90 day period, up to a
maximum rate of 1.00% per annum; provided, however, that
Additional Interest will not accrue in respect of more than one
Registration Default at any time. Additional Interest will cease
to accrue upon the earliest to occur of (i) the date on
which the Registration Default giving rise to such Additional
Interest shall have been cured and (ii) the date that is
the second anniversary of the closing date of the offering.
The Indenture contains covenants, including, but not limited to,
restrictions on the Company’s and its subsidiaries’
ability to incur indebtedness; grant liens on assets; merge,
consolidate, or sell assets; pay dividends or make other
restricted payments; engage in transactions with affiliates; or
engage in other businesses.
Senior
Credit Facilities
On September 29, 2010, Celanese US, Celanese, and certain
of the domestic subsidiaries of Celanese US entered into an
amendment agreement (the “Amendment Agreement”) with
the lenders under Celanese US’s existing senior secured
credit facilities in order to amend and restate the
corresponding Credit Agreement, dated as of April 2, 2007
(as previously amended, the “Existing Credit
Agreement”, and as amended and restated by the Amendment
Agreement, the “Amended Credit Agreement”).
Prior to entering into the Amendment Agreement, Celanese US,
through its subsidiaries, prepaid outstanding term loan
borrowings under the Existing Credit Agreement in an aggregate
principal amount of $800 million using the proceeds from
the issuance of the Notes and cash on hand. The prepaid
principal amount was comprised of $649 million of US
dollar-denominated term loan facility and €114 million
of Euro-denominated term loan facility.
As part of the Amendment Agreement, $1,140 million of US
dollar-denominated term loan facility and €204 million
of Euro-denominated term loan facility under the Existing Credit
Agreement were converted into the Term C loan facility having an
extended maturity of October 31, 2016. The non-extended
portions of the Term B loan facility were continued under the
Amended Credit Agreement as the Term B loan facility, having
principal amounts of $417 million and
€69 million, respectively, without change to the
maturity date of April 2, 2014. Additionally, Celanese US
extended $600 million of revolving credit facility
commitments to October 31, 2015. The maturity date of the
revolving credit facility will be accelerated to January 1,
2014 if, on such date, the aggregate principal amount of the
Term B loan facility outstanding is $450 million or more.
The maturity of the $228 million credit-linked revolving
facility terminating in 2014 was not extended under the
Amendment Agreement.
108
Table of Contents
A summary of the Amendment Agreement changes from the Existing
Credit Agreement to the Amended Credit Agreement is as follows:
|
US dollar-
|
Euro dollar-
|
|||||||||
|
denominated
|
denominated
|
|||||||||
| term loan | term loan | Maturity Date | ||||||||
| (In millions) | ||||||||||
|
Existing Credit Agreement
|
||||||||||
|
Balance as of September 23, 2010
|
$ | 2,212 | € | 388 | April 2, 2014 | |||||
|
Principal paydown on September 24, 2010
|
(649 | ) | (114 | ) | ||||||
|
1% annual amortization payment of principal paid quarterly,
pro-rated from July 2, 2010 to September 29, 2010
|
(6 | ) | (1 | ) | ||||||
|
Balance as of September 29, 2010
|
$ | 1,557 | € | 273 | ||||||
|
Amended Credit Agreement
|
||||||||||
|
Term C loan facility
|
$ | 1,140 | € | 204 | October 31, 2016 | |||||
|
Term B loan facility
|
417 | 69 | April 2, 2014 | |||||||
|
Total
|
$ | 1,557 | € | 273 | ||||||
As of December 31, 2010, the balances available for
borrowing under the revolving credit facility and the
credit-linked revolving facility are as follows:
| (In $ millions) | ||||
|
Revolving credit facility
|
||||
|
Borrowings outstanding
|
- | |||
|
Letters of credit issued
|
- | |||
|
Available for borrowing
|
600 | |||
|
Credit-linked revolving facility
|
||||
|
Letters of credit issued
|
83 | |||
|
Available for borrowing
|
145 | |||
Borrowings under the Amended Credit Agreement will continue to
bear interest at a variable interest rate based on LIBOR (for US
dollars) or EURIBOR (for Euros), as applicable, or, for US
dollar-denominated loans under certain circumstances, a base
rate, in each case plus an applicable margin. The applicable
margin for the Term B loan facility and any borrowings under the
credit-linked revolving facility is 1.75% above LIBOR or
EURIBOR, as applicable, subject to reduction by 0.25% if the
Company’s total net leverage ratio is 2.25:1.00 or less.
The applicable margin for the Term C loan facility is 3.00%
above LIBOR or EURIBOR, as applicable, subject to increase by
0.25% if the Company’s total net leverage ratio is above
2.25:1.00, and subject to reduction by 0.25% if the
Company’s total net leverage ratio is 1.75:1.00 or less.
The applicable margin for the Term B loan facility and any
borrowings under the credit-linked revolving facility is 1.5% as
of December 31, 2010. The applicable margin for the Term C
loan facility is 3.0%, as of December 31, 2010. The
applicable margin for borrowings under the revolving credit
facility is currently 2.50% above LIBOR or EURIBOR, as
applicable, subject to increase or reduction in certain
circumstances based on changes in the Company’s corporate
credit ratings. Term loan borrowings under the Amended Credit
Agreement are subject to amortization at 1% of the initial
principal amount per annum, payable quarterly.
The Amended Credit Agreement is guaranteed by Celanese and
certain domestic subsidiaries of Celanese US and is secured by a
lien on substantially all assets of Celanese US and such
guarantors, subject to certain agreed exceptions (including for
certain real property and certain shares of foreign
subsidiaries), pursuant to the Guarantee and Collateral
Agreement, dated as of April 2, 2007.
109
Table of Contents
As a condition to borrowing funds or requesting that letters of
credit be issued under the revolving facility, the
Company’s first lien senior secured leverage ratio (as
calculated as of the last day of the most recent fiscal quarter
for which financial statements have been delivered under the
revolving facility) cannot exceed the threshold as specified
below. Further, the Company’s first lien senior secured
leverage ratio must be maintained at or below that threshold
while any amounts are outstanding under the revolving credit
facility.
The Company’s amended maximum first lien senior secured
leverage ratios, estimated first lien senior secured leverage
ratios and the borrowing capacity under the revolving credit
facility as of December 31, 2010 are as follows:
| First Lien Senior Secured Leverage Ratios | ||||||||||||||||
| Maximum | Estimate | Estimate, if Fully Drawn | Borrowing Capacity | |||||||||||||
| (In $ millions) | ||||||||||||||||
|
December 31, 2010 and thereafter
|
3.9 to 1.00 | 1.8 to 1.00 | 2.4 to 1.00 | 600 | ||||||||||||
The Amended Credit Agreement contains covenants that are
substantially similar to those found in the Existing Credit
Agreement, including, but not limited to, restrictions on the
Company’s and its subsidiaries’ ability to incur
indebtedness; grant liens on assets; merge, consolidate, or sell
assets; pay dividends or make other restricted payments; make
investments; prepay or modify certain indebtedness; engage in
transactions with affiliates; enter into sale-leaseback
transactions or hedge transactions; or engage in other
businesses.
The Amended Credit Agreement also maintains, from the Existing
Credit Agreement, a number of events of default, including a
cross default to other debt of Celanese, Celanese US, or their
subsidiaries, including the Notes, in an aggregate amount equal
to more than $40 million and the occurrence of a change of
control. 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
under the Amended Credit Agreement.
As a result of the Amendment Agreement and the issuance of the
Notes, the Company accelerated amortization of deferred
financing costs of $8 million and incurred other
refinancing expenses of $8 million which combined are
recorded to Refinancing expense in the consolidated statements
of operations. In addition, the Company recorded deferred
financing costs of $7 million related to the Amendment
Agreement and $9 million related to the issuance of the
Notes. These deferred financing costs combined with existing
deferred financing costs are included in noncurrent Other assets
in the consolidated balance sheet as of December 31, 2010.
Deferred financing costs of $18 million and $9 million
are being amortized over the terms of the Amendment Agreement
and the Notes, respectively.
Amortization of deferred financing costs recorded in the
consolidated statements of operations is as follows:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In $ millions) | ||||||||||||
|
Interest expense
|
7 | 7 | 7 | |||||||||
Net deferred financing costs recorded in the consolidated
balance sheets are as follows:
| As of December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In $ millions) | ||||||||
|
Noncurrent Other assets
|
27 | 27 | ||||||
110
Table of Contents
Principal payments scheduled to be made on the Company’s
debt, including short-term borrowings, are as follows:
| (In $ millions) | |||||
|
2011
|
228 | ||||
|
2012
|
45 | ||||
|
2013
|
46 | ||||
|
2014
|
538 | ||||
|
2015
|
42 | ||||
|
Thereafter
|
2,319 | ||||
|
Total
|
3,218 | ||||
The Company is in compliance with all of the covenants related
to its debt agreements as of December 31, 2010.
14.
Benefit Obligations
Pension obligations.
Pension obligations are
established for benefits payable in the form of retirement,
disability and surviving dependent pensions. The commitments
result from participation in defined contribution and defined
benefit plans, primarily in the US. Benefits are dependent on
years of service and the employee’s compensation.
Supplemental retirement benefits provided to certain employees
are nonqualified for US tax purposes. Separate trusts have been
established for some nonqualified plans. Pension costs under the
Company’s retirement plans are actuarially determined.
The Company sponsors defined benefit pension plans in North
America, Europe and Asia. Independent trusts or insurance
companies administer the majority of these plans.
The Company sponsors various defined contribution plans in North
America, Europe and Asia covering certain employees. Employees
may contribute to these plans and the Company will match these
contributions in varying amounts. The Company’s matching
contribution to the defined contribution plans are based on
specified percentages of employee contributions.
The Company participates in multiemployer defined benefit
pension plans in Europe covering certain employees. The
Company’s contributions to the multiemployer defined
benefit pension plans are based on specified percentages of
employee contributions.
Contributions to the defined contribution plans and
multiemployer defined benefit pension plans are as follows:
| Year Ended December 31, | |||||||||||||||
| 2010 | 2009 | 2008 | |||||||||||||
| (In $ millions) | |||||||||||||||
|
Defined contribution plans
|
14 | 11 | 13 | ||||||||||||
|
Multiemployer defined benefit plans
|
6 | 6 | 7 | ||||||||||||
Other postretirement obligations.
Certain retired
employees receive postretirement healthcare and life insurance
benefits under plans sponsored by the Company, which has the
right to modify or terminate these plans at any time. The cost
for coverage is shared between the Company and the retiree. The
cost of providing retiree health care and life insurance
benefits is actuarially determined and accrued over the service
period of the active employee group. The Company’s policy
is to fund benefits as claims and premiums are paid. The US plan
was closed to new participants effective January 1, 2006.
111
Table of Contents
The following tables set forth the benefit obligations, the fair
value of the plan assets and the funded status of the
Company’s pension and postretirement benefit plans; and the
amounts recognized in the consolidated financial statements:
|
Pension Benefits
|
Postretirement Benefits
|
|||||||||||||||
| As of December 31, | As of December 31, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| (In $ millions) | ||||||||||||||||
|
Change in projected benefit obligation
|
||||||||||||||||
|
Projected benefit obligation at beginning of period
|
3,342 | 3,073 | 281 | 275 | ||||||||||||
|
Service cost
|
30 | 29 | 1 | 1 | ||||||||||||
|
Interest cost
|
188 | 193 | 15 | 17 | ||||||||||||
|
Participant contributions
|
- | - | 22 | 25 | ||||||||||||
|
Plan amendments
|
- | 5 | - | - | ||||||||||||
|
Actuarial (gain)
loss
(1)
|
210 | 230 | 11 | 12 | ||||||||||||
|
Divestitures
|
- | (3 | ) | - | - | |||||||||||
|
Settlements
|
- | (1 | ) | - | - | |||||||||||
|
Benefits paid
|
(227 | ) | (222 | ) | (56 | ) | (59 | ) | ||||||||
|
Federal subsidy on Medicare Part D
|
- | - | 7 | 6 | ||||||||||||
|
Curtailments
|
(3 | ) | (2 | ) | - | - | ||||||||||
|
Exchange rate changes
|
(7 | ) | 40 | 1 | 4 | |||||||||||
|
Projected benefit obligation at end of period
|
3,533 | 3,342 | 282 | 281 | ||||||||||||
|
Change in plan assets
|
||||||||||||||||
|
Fair value of plan assets at beginning of period
|
2,329 | 2,170 | - | - | ||||||||||||
|
Actual return on plan assets
|
308 | 306 | - | - | ||||||||||||
|
Employer contributions
|
52 | 44 | 34 | 34 | ||||||||||||
|
Participant contributions
|
- | - | 22 | 25 | ||||||||||||
|
Divestitures
|
- | (2 | ) | - | - | |||||||||||
|
Settlements
|
- | (3 | ) | - | - | |||||||||||
|
Benefits paid
|
(227 | ) | (222 | ) | (56 | ) | (59 | ) | ||||||||
|
Exchange rate changes
|
(2 | ) | 36 | - | - | |||||||||||
|
Fair value of plan assets at end of period
|
2,460 | 2,329 | - | - | ||||||||||||
|
Funded status and net amounts recognized
|
||||||||||||||||
|
Plan assets less than benefit obligation
|
(1,073 | ) | (1,013 | ) | (282 | ) | (281 | ) | ||||||||
|
Unrecognized prior service cost
|
5 | 6 | 1 | 1 | ||||||||||||
|
Unrecognized actuarial (gain) loss
|
720 | 630 | (50 | ) | (63 | ) | ||||||||||
|
Net amount recognized in the consolidated balance sheets
|
(348 | ) | (377 | ) | (331 | ) | (343 | ) | ||||||||
|
Amounts recognized in the consolidated balance sheets consist of
|
||||||||||||||||
|
Noncurrent Other assets
|
18 | 5 | - | - | ||||||||||||
|
Current Other liabilities
|
(22 | ) | (22 | ) | (27 | ) | (27 | ) | ||||||||
|
Pension obligations
|
(1,069 | ) | (996 | ) | (255 | ) | (254 | ) | ||||||||
|
Accrued benefit liability
|
(1,073 | ) | (1,013 | ) | (282 | ) | (281 | ) | ||||||||
|
Net actuarial (gain) loss
|
720 | 630 | (50 | ) | (63 | ) | ||||||||||
|
Prior service (benefit) cost
|
5 | 6 | 1 | 1 | ||||||||||||
|
Other comprehensive (income)
loss
(2)
|
725 | 636 | (49 | ) | (62 | ) | ||||||||||
|
Net amount recognized in the consolidated balance
|
||||||||||||||||
|
sheets
|
(348 | ) | (377 | ) | (331 | ) | (343 | ) | ||||||||
| (1) | Primarily relates to change in discount rates. | |
| (2) | Amount shown net of tax of $93 million and $54 million as of December 31, 2010 and 2009, respectively, in the consolidated statements of shareholders’ equity and comprehensive income (loss). See Note 16 for the related tax associated with the pension and postretirement benefit obligations. |
112
Table of Contents
The percentage of US and international projected benefit
obligation at the end of the period is as follows:
|
Pension Benefits
|
Postretirement Benefits
|
|||||||||||||||
| As of December 31, | As of December 31, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| (In percentages) | ||||||||||||||||
|
US plans
|
85 | 85 | 89 | 90 | ||||||||||||
|
International plans
|
15 | 15 | 11 | 10 | ||||||||||||
|
Total
|
100 | 100 | 100 | 100 | ||||||||||||
The percentage of US and international fair value of plan assets
at the end of the period is as follows:
|
Pension Benefits
|
||||||||
| As of December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In percentages) | ||||||||
|
US plans
|
82 | 83 | ||||||
|
International plans
|
18 | 17 | ||||||
|
Total
|
100 | 100 | ||||||
Pension plans with projected benefit obligations in excess of
plan assets are as follows:
| As of December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In $ millions) | ||||||||
|
Projected benefit obligation
|
3,320 | 3,280 | ||||||
|
Fair value of plan assets
|
2,228 | 2,262 | ||||||
Included in the above table are pension plans with accumulated
benefit obligations in excess of plan assets as follows:
| As of December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In $ millions) | ||||||||
|
Accumulated benefit obligation
|
3,216 | 3,169 | ||||||
|
Fair value of plan assets
|
2,215 | 2,249 | ||||||
The accumulated benefit obligation for all defined benefit
pension plans is as follows:
| As of December 31, | ||||||
| 2010 | 2009 | |||||
| (In $ millions) | ||||||
|
Accumulated benefit obligation
|
3,436 | 3,218 | ||||
113
Table of Contents
Net periodic benefit cost is as follows:
|
Pension Benefits
|
Postretirement Benefits
|
|||||||||||||||||||||||
| Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||
| 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | |||||||||||||||||||
| (In $ millions) | ||||||||||||||||||||||||
|
Service cost
|
30 | 29 | 31 | 1 | 1 | 1 | ||||||||||||||||||
|
Interest cost
|
188 | 193 | 195 | 15 | 17 | 17 | ||||||||||||||||||
|
Expected return on plan assets
|
(197 | ) | (207 | ) | (218 | ) | - | - | - | |||||||||||||||
|
Amortization of prior service cost
|
1 | - | - | - | - | - | ||||||||||||||||||
|
Recognized actuarial (gain) loss
|
8 | 1 | 1 | (4 | ) | (5 | ) | (4 | ) | |||||||||||||||
|
Curtailment (gain) loss
|
(4 | ) | (1 | ) | (2 | ) | - | - | - | |||||||||||||||
|
Settlement (gain) loss
|
- | - | 3 | - | - | - | ||||||||||||||||||
|
Special termination benefits
|
- | 2 | - | - | - | - | ||||||||||||||||||
|
Total
|
26 | 17 | 10 | 12 | 13 | 14 | ||||||||||||||||||
Amortization of Accumulated other comprehensive income (loss),
net into net periodic benefit cost in 2011 is expected to be as
follows:
|
Pension
|
Postretirement
|
|||||||
| Benefits | Benefits | |||||||
| (In $ millions) | ||||||||
|
Net actuarial (gain) loss
|
29 | (3 | ) | |||||
|
Prior service cost
|
1 | - | ||||||
|
Total
|
30 | (3 | ) | |||||
The Company maintains two nonqualified pension plans funded with
nonqualified trusts for certain US employees included in the
consolidated balance sheets as follows:
| As of December 31, | ||||||
| 2010 | 2009 | |||||
| (In $ millions) | ||||||
|
Marketable securities, at fair value
|
77 | 82 | ||||
|
Noncurrent Other assets, consisting of insurance contracts
|
70 | 66 | ||||
|
Current Other liabilities
|
20 | 19 | ||||
|
Benefit obligations
|
223 | 216 | ||||
Expense relating to the nonqualified pension plans included in
net periodic benefit cost, excluding returns on the assets held
by the nonqualified pension trusts, is as follows:
| Year Ended December 31, | |||||||||
| 2010 | 2009 | 2008 | |||||||
| (In $ millions) | |||||||||
|
Total
|
16 | 15 | 15 | ||||||
Valuation
The Company uses the corridor approach in the valuation of its
defined benefit plans and other postretirement benefits. The
corridor approach defers all actuarial gains and losses
resulting from variances between actual results and economic
estimates or actuarial assumptions. For defined benefit pension
plans, these unrecognized gains and losses are amortized when
the net gains and losses exceed 10% of the greater of the
market-related value of plan assets or the projected benefit
obligation at the beginning of the year. For other
postretirement benefits,
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Table of Contents
amortization occurs when the net gains and losses exceed 10% of
the accumulated postretirement benefit obligation at the
beginning of the year. The amount in excess of the corridor is
amortized over the average remaining service period to
retirement date for active plan participants or, for retired
participants, the average remaining life expectancy.
The principal weighted-average assumptions used to determine
benefit obligation are as follows:
|
Pension Benefits
|
Postretirement Benefits
|
|||||||||||||||
| As of December 31, | As of December 31, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| (In percentages) | ||||||||||||||||
|
Discount rate obligations
|
||||||||||||||||
|
US plans
|
5.30 | 5.90 | 4.90 | 5.50 | ||||||||||||
|
International plans
|
5.05 | 5.41 | 4.95 | 5.49 | ||||||||||||
|
Combined
|
5.26 | 5.83 | 4.91 | 5.50 | ||||||||||||
|
Rate of compensation increase
|
||||||||||||||||
|
US plans
|
4.00 | 4.00 | ||||||||||||||
|
International plans
|
2.66 | 2.94 | ||||||||||||||
|
Combined
|
3.58 | 3.84 | ||||||||||||||
The principal weighted-average assumptions used to determine
benefit cost are as follows:
|
Pension Benefits
|
Postretirement Benefits
|
|||||||||||||||||||||||
| Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||
| 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | |||||||||||||||||||
| (In percentages) | ||||||||||||||||||||||||
|
Discount rate obligations
|
||||||||||||||||||||||||
|
US plans
|
5.90 | 6.50 | 6.30 | 5.50 | 6.40 | 6.00 | ||||||||||||||||||
|
International plans
|
5.41 | 5.84 | 5.42 | 5.49 | 6.11 | 5.31 | ||||||||||||||||||
|
Combined
|
5.83 | 6.41 | 6.16 | 5.50 | 6.37 | 5.93 | ||||||||||||||||||
|
Expected return on plan assets
|
||||||||||||||||||||||||
|
US plans
|
8.50 | 8.50 | 8.50 | |||||||||||||||||||||
|
International plans
|
6.07 | 5.29 | 5.68 | |||||||||||||||||||||
|
Combined
|
8.06 | 7.94 | 8.05 | |||||||||||||||||||||
|
Rate of compensation increase
|
||||||||||||||||||||||||
|
US plans
|
4.00 | 4.00 | 4.00 | |||||||||||||||||||||
|
International plans
|
2.94 | 3.24 | 3.15 | |||||||||||||||||||||
|
Combined
|
3.84 | 3.90 | 3.66 | |||||||||||||||||||||
The expected rate of return is assessed annually and is based on
long-term relationships among major asset classes and the level
of incremental returns that can be earned by the successful
implementation of different active investment management
strategies. Equity returns are based on estimates of long-term
inflation rate, real rate of return,
10-year
Treasury bond premium over cash and equity risk premium. Fixed
income returns are based on maturity, long-term inflation, real
rate of return and credit spreads. The US qualified defined
benefit plans’ actual return on assets for the year ended
December 31, 2010 was 15% versus an expected long-term rate
of asset return assumption of 8.5%.
In the US, the rate used to discount pension and other
postretirement benefit plan liabilities was based on a yield
curve developed from market data of over 300 Aa-grade
non-callable bonds at December 31, 2010. This yield curve
has discount rates that vary based on the duration of the
obligations. The estimated future cash flows for the pension and
other benefit obligations were matched to the corresponding
rates on the yield curve to derive a weighted average discount
rate.
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Table of Contents
The Company determines its discount rates in the Euro zone using
the iBoxx Euro Corporate AA Bond indices with appropriate
adjustments for the duration of the plan obligations. In other
international locations, the Company determines its discount
rates based on the yields of high quality government bonds with
a duration appropriate to the duration of the plan obligations.
On January 1, 2010, the Company’s health care cost
trend assumption for US postretirement medical plan’s net
periodic benefit cost was 8.5% for the first year declining 0.5%
per year to an ultimate rate of 5%. On January 1, 2009, the
Company’s health care cost trend assumption for US
postretirement medical plan’s net periodic benefit cost was
9% for the first year declining 0.5% per year to an ultimate
rate of 5%. On January 1, 2008, the Company’s health
care cost trend assumption for US postretirement medical
plan’s net periodic benefit cost was 9% for the first two
years declining 0.5% per year to an ultimate rate of 5%.
Assumed health care cost trend rates have a significant effect
on the amounts reported for the health care plans. A
one-percentage-point increase or decrease in the assumed health
care cost trend rate would impact postretirement obligations by
$4 million and $(4) million, respectively. The effect
of a one percent increase or decrease in the assumed health care
cost trend rate would have a less than $1 million impact on
service and interest cost.
Plan
Assets
The investment objective for the plans are to earn, over moving
twenty-year periods, the long-term expected rate of return, net
of investment fees and transaction costs, to satisfy the benefit
obligations of the plan, while at the same time maintaining
sufficient liquidity to pay benefit obligations and proper
expenses, and meet any other cash needs, in the short- to
medium-term.
The weighted average target asset allocations for the
Company’s pension plans are as follows (in percentages):
|
US Plans
|
2011 | |||
|
Domestic bonds
|
53 | |||
|
Domestic equities
|
26 | |||
|
Overseas equities
|
20 | |||
|
Other
|
1 | |||
|
Total
|
100 | |||
|
International Plans
|
2011 | |||
|
Domestic bonds
|
74 | |||
|
Domestic equities
|
17 | |||
|
Overseas equities
|
5 | |||
|
Other
|
4 | |||
|
Total
|
100 | |||
The equity and debt securities objectives are to provide
diversified exposure across the US and Global equity markets and
to manage the plan’s risks and returns through the use of
multiple managers and strategies. The fixed income strategy is
designed to reduce liability-related interest rate risk by
investing in bonds that match the duration and credit quality of
the plan liabilities. Derivatives based strategies may be used
to improve the effectiveness of the hedges. Other types of
investments include investments in real estate and insurance
contracts.
The Company adopted certain provisions of FASB ASC Topic
715-20-50,
Compensation – Retirement Benefits: Defined Benefit
Plans – General: Disclosure
(“FASB ASC Topic
715-20-50”),
on January 1, 2009. FASB ASC Topic
715-20-50
requires enhanced disclosures about the plan assets of a
company’s defined benefit pension and other postretirement
plans intended to provide financial statement users with a
greater understanding of the inputs and valuation techniques
used to measure the fair value of plan assets and the effect of
fair value measurements using significant unobservable inputs on
changes in plan assets for the period using the framework
established
116
Table of Contents
under FASB ASC Topic 820. FASB ASC Topic 820 establishes a fair
value hierarchy that prioritizes the inputs used to measure fair
value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or
liabilities (Level 1 measurement) and the lowest priority
to unobservable inputs (Level 3 measurement). This
hierarchy requires entities to maximize the use of observable
inputs and minimize the use of unobservable inputs. If a
financial instrument uses inputs that fall in different levels
of the hierarchy, the instrument will be categorized based upon
the lowest level of input that is significant to the fair value
calculation. Valuations for fund investments such as
common/collective trusts and registered investment companies,
which do not have readily determinable fair values, are
typically estimated using a net asset value provided by a third
party as a practical expedient.
The three levels of inputs used to measure fair value are as
follows:
Level 1 — unadjusted quoted prices for identical
assets or liabilities in active markets accessible by the Company
Level 2 — inputs that are observable in the
marketplace other than those inputs classified as Level 1
Level 3 — inputs that are unobservable in the
marketplace and significant to the valuation
The Company’s defined benefit plan assets are measured at
fair value on a recurring basis and include the following items:
Cash and Cash Equivalents:
Foreign and domestic
currencies as well as short term securities are valued at cost
plus accrued interest, which approximates fair value.
Common/Collective Trusts:
Composed of various funds
whose diversified portfolio is comprised of foreign and domestic
equities, fixed income securities, and short term investments.
Investments are valued at the net asset value of units held by
the plan at year-end.
Corporate stock and government and corporate
debt:
Valued at the closing price reported on the
active market in which the individual securities are traded.
Automated quotes are provided by multiple pricing services and
validated by the plan custodian. These securities are traded on
exchanges as well as in the over the counter market.
Registered Investment Companies:
Composed of various
mutual funds and other investment companies whose diversified
portfolio is comprised of foreign and domestic equities, fixed
income securities, and short term investments. Investments are
valued at the net asset value of units held by the plan at
year-end.
Mortgage Backed Securities:
Fair value is estimated
based on valuations obtained from third-party pricing services
for identical or comparable assets. Mortgage Backed Securities
are traded in the over the counter broker/dealer market.
Derivatives:
Derivative financial instruments are
valued in the market using discounted cash flow techniques.
These techniques incorporate Level 1 and Level 2
inputs such as interest rates and foreign currency exchange
rates. These market inputs are utilized in the discounted cash
flow calculation considering the instrument’s term,
notional amount, discount rate and credit risk. Significant
inputs to the derivative valuation for interest rate swaps,
foreign currency forwards and swaps, and options are observable
in the active markets and are classified as Level 2 in the
hierarchy.
Insurance contracts:
Valued at contributions made,
plus earnings, less participant withdrawals and administrative
expenses, which approximates fair value.
117
Table of Contents
The fair values of pension plan assets are as follows:
|
December 31, 2010
|
||||||||||||||||||||
| Fair Value Measurement Using | ||||||||||||||||||||
|
Quoted Prices in
|
Significant Other
|
Significant
|
||||||||||||||||||
|
Active Markets for
|
Observable
|
Unobservable
|
||||||||||||||||||
|
Identical Assets
|
Inputs
|
Inputs
|
||||||||||||||||||
| (Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||||||
| (In $ millions) | ||||||||||||||||||||
|
Assets
|
||||||||||||||||||||
|
Cash and cash equivalents
|
9 | - | - | 9 | ||||||||||||||||
|
Collateralized mortgage obligations
|
- | 21 | - | 21 | ||||||||||||||||
|
Common/collective trusts
|
- | 200 | 26 | 226 | ||||||||||||||||
|
Corporate debt
|
2 | 778 | - | 780 | ||||||||||||||||
|
Corporate stock-common & preferred
|
737 | - | - | 737 | ||||||||||||||||
|
Derivatives
|
- | 9 | - | 9 | ||||||||||||||||
|
Government debt
|
||||||||||||||||||||
|
Treasuries, other debt
|
33 | 236 | - | 269 | ||||||||||||||||
|
Mortgage backed securities
|
- | 68 | - | 68 | ||||||||||||||||
|
Real estate
|
- | 9 | - | 9 | ||||||||||||||||
|
Registered investment companies
|
- | 293 | - | 293 | ||||||||||||||||
|
Short-term investments
|
- | 58 | - | 58 | ||||||||||||||||
|
Insurance contracts
|
- | 29 | - | 29 | ||||||||||||||||
|
Other
|
7 | - | - | 7 | ||||||||||||||||
|
Total assets
|
788 | 1,701 | 26 | 2,515 | ||||||||||||||||
|
Liabilities
|
||||||||||||||||||||
|
Derivatives
|
- | (9 | ) | - | (9 | ) | ||||||||||||||
|
Total liabilities
|
- | (9 | ) | - | (9 | ) | ||||||||||||||
|
Total net
assets
(1)
|
788 | 1,692 | 26 | 2,506 | ||||||||||||||||
| (1) | Total net assets excludes non-financial plan receivables and payables of $26 million and $72 million, respectively. Non-financial items include due to/from broker, interest receivables and accrued expenses. |
118
Table of Contents
|
December 31, 2009
|
||||||||||||||||||||
| Fair Value Measurement Using | ||||||||||||||||||||
|
Quoted Prices in
|
Significant Other
|
Significant
|
||||||||||||||||||
|
Active Markets for
|
Observable
|
Unobservable
|
||||||||||||||||||
|
Identical Assets
|
Inputs
|
Inputs
|
||||||||||||||||||
| (Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||||||
| (In $ millions) | ||||||||||||||||||||
|
Assets
|
||||||||||||||||||||
|
Cash and cash equivalents
|
2 | - | - | 2 | ||||||||||||||||
|
Collateralized mortgage obligations
|
- | 16 | - | 16 | ||||||||||||||||
|
Common/collective trusts
|
- | 210 | 19 | 229 | ||||||||||||||||
|
Corporate debt
|
- | 819 | - | 819 | ||||||||||||||||
|
Corporate stock-common & preferred
|
521 | - | - | 521 | ||||||||||||||||
|
Derivatives
|
- | 258 | - | 258 | ||||||||||||||||
|
Government debt
|
||||||||||||||||||||
|
Treasuries, other debt
|
88 | 211 | - | 299 | ||||||||||||||||
|
Mortgage backed securities
|
- | 53 | - | 53 | ||||||||||||||||
|
Real estate
|
- | 7 | - | 7 | ||||||||||||||||
|
Registered investment companies
|
- | 298 | - | 298 | ||||||||||||||||
|
Short-term investments
|
- | 64 | - | 64 | ||||||||||||||||
|
Other
|
6 | - | - | 6 | ||||||||||||||||
|
Insurance contracts
|
- | 28 | - | 28 | ||||||||||||||||
|
Total assets
|
617 | 1,964 | 19 | 2,600 | ||||||||||||||||
|
Liabilities
|
||||||||||||||||||||
|
Derivatives
|
- | (283 | ) | - | (283 | ) | ||||||||||||||
|
Total liabilities
|
- | (283 | ) | - | (283 | ) | ||||||||||||||
|
Total net
assets
(1)
|
617 | 1,681 | 19 | 2,317 | ||||||||||||||||
| (1) | Total net assets excludes non-financial plan receivables and payables of $129 million and $117 million, respectively. Non-financial items include due to/from broker, interest receivables and accrued expenses. |
The Company’s Level 3 investment in common/collective
trusts was valued using significant unobservable inputs. Inputs
to this valuation include characteristics and quantitative data
relating to the asset, investment cost, position size,
liquidity, current financial condition of the company and other
relevant market data. Level 3 fair value measurements using
significant unobservable inputs are as follows:
| As of December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In $ millions) | ||||||||
|
As of the beginning of the year
|
19 | 7 | ||||||
|
Unrealized gains (losses)
|
8 | 10 | ||||||
|
Purchases, sales, issuances and settlements, net
|
(1 | ) | 2 | |||||
|
As of the end of the year
|
26 | 19 | ||||||
The financial objectives of the qualified pension plans are
established in conjunction with a comprehensive review of each
plan’s liability structure. The Company’s asset
allocation policy is based on detailed asset/liability analyses.
In developing investment policy and financial goals,
consideration is given to each plan’s demographics, the
returns and risks associated with current and alternative
investment strategies and the current and projected cash,
expense and funding ratios of each plan. Investment policies
must also comply with local statutory requirements as determined
by each country. A formal asset/liability study of each plan is
undertaken every 3 to 5 years or whenever there has been a
material change in plan demographics, benefit structure or
funding status and investment market.
119
Table of Contents
The Company has adopted a long-term investment horizon such that
the risk and duration of investment losses are weighed against
the long-term potential for appreciation of assets. Although
there cannot be complete assurance that these objectives will be
realized, it is believed that the likelihood for their
realization is reasonably high, based upon the asset allocation
chosen and the historical and expected performance of the asset
classes utilized by the plans. The intent is for investments to
be broadly diversified across asset classes, investment styles,
market sectors, investment managers, developed and emerging
markets and securities in order to moderate portfolio volatility
and risk. Investments may be in separate accounts, commingled
trusts, mutual funds and other pooled asset portfolios provided
they all conform to fiduciary standards.
External investment managers are hired to manage pension assets.
Investment consultants assist with the screening process for
each new manager hired. Over the long-term, the investment
portfolio is expected to earn returns that exceed a composite of
market indices that are weighted to match each plan’s
target asset allocation. The portfolio return should also (over
the long-term) meet or exceed the return used for actuarial
calculations in order to meet the future needs of each plan.
Employer contributions for pension benefits and postretirement
benefits are estimated to be $178 million and
$27 million, respectively, in 2011. The table below
reflects pension benefits expected to be paid from the plans or
from the Company’s assets. The postretirement benefits
represent the Company’s share of the benefit cost.
|
Postretirement
|
||||||||||||
| Benefit | ||||||||||||
|
Pension
|
Expected
|
|||||||||||
|
Benefit
|
Federal
|
|||||||||||
| Payments (1) | Payments | Subsidy | ||||||||||
| (In $ millions) | ||||||||||||
|
2011
|
232 | 57 | 7 | |||||||||
|
2012
|
230 | 57 | 7 | |||||||||
|
2013
|
228 | 58 | 7 | |||||||||
|
2014
|
227 | 59 | 3 | |||||||||
|
2015
|
226 | 60 | 3 | |||||||||
|
2016-2020
|
1,165 | 290 | 12 | |||||||||
| (1) | Payments are expected to be made primarily from plan assets. |
Other
Obligations
Additional benefit liabilities and other similar obligations are
as follows:
| As of December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In $ millions) | ||||||||
|
Long-term disability
|
27 | 30 | ||||||
|
Other
|
8 | 8 | ||||||
15.
Environmental
General
The Company is subject to environmental laws and regulations
worldwide which impose limitations on the discharge of
pollutants into the air and water and establish standards for
the treatment, storage and disposal of solid and hazardous
wastes. The Company believes that it is in substantial
compliance with all applicable environmental laws and
regulations. 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.
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Table of Contents
Expenditures, including expenditures for legal compliance,
internal environmental initiatives, remediation of active,
divested, demerger and US Superfund sites (as defined below) and
capital projects are as follows:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In $ millions) | ||||||||||||
|
Environmental expenditures
|
66 | 78 | 78 | |||||||||
|
Capital project-related environmental expenditures
|
19 | 22 | 13 | |||||||||
Environmental remediation reserves are recorded in the
consolidated balance sheets as follows:
| As of December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In $ millions) | ||||||||
|
Current Other liabilities
|
16 | 13 | ||||||
|
Noncurrent Other liabilities
|
85 | 93 | ||||||
|
Total
|
101 | 106 | ||||||
Environmental remediation reserves recorded in the consolidated
balance sheets are categorized as follows:
| As of December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In $ millions) | ||||||||
|
Demerger obligations (Note 23)
|
36 | 36 | ||||||
|
Divestiture obligations (Note 23)
|
26 | 28 | ||||||
|
US Superfund sites
|
13 | 10 | ||||||
|
Other environmental remediation reserves
|
26 | 32 | ||||||
|
Total
|
101 | 106 | ||||||
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 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 23). The Company provides for such obligations when
the event of loss is probable and reasonably estimable.
Remediation efforts recorded in the consolidated statements of
operations are as follows:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In $ millions) | ||||||||||||
|
Cost of sales
|
1 | 9 | 3 | |||||||||
|
Selling, general and administrative expenses
|
8 | 6 | 1 | |||||||||
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 accounting
period.
The Company did not record any insurance recoveries related to
these matters for the reported periods and there are no
receivables for insurance recoveries as of December 31,
2010. As of December 31, 2010 and 2009, there were
121
Table of Contents
receivables of $7 million and $9 million,
respectively, from the former owner of the Company’s
cellulose Spondon, Derby, United Kingdom acetate flake, tow and
film business, which was acquired in 2007, and is included in
the Company’s Consumer Specialties segment.
German
InfraServs
On January 1, 1997, coinciding with a reorganization of the
Hoechst businesses in Germany, real estate service companies
(“InfraServs”) were created to own directly the land
and property and to provide various technical and administrative
services at each of the manufacturing locations. The Company
holds an interest in manufacturing operations at the InfraServ
location in Frankfurt am Main-Hoechst, Germany and holds
interests in the companies which own and operate the former
Hoechst sites in Gendorf, Knapsack and Wiesbaden.
InfraServs are liable for any residual contamination and other
pollution because they own the real estate on which the
individual facilities operate. In addition, Hoechst, and its
legal successors, as the responsible party under German public
law, is liable to third parties for all environmental damage
that occurred while it was still the owner of the plants and
real estate. The contribution agreements entered into in 1997
between Hoechst and the respective operating companies, as part
of the divestiture of these companies, provide that the
operating companies will indemnify Hoechst, and its legal
successors, against environmental liabilities resulting from the
transferred businesses. Additionally, the InfraServs have agreed
to indemnify Hoechst, and its legal successors, against any
environmental liability arising out of or in connection with
environmental pollution of any site. Likewise, in certain
circumstances the Company could be responsible for the
elimination of residual contamination on a few sites that were
not transferred to InfraServ companies, in which case Hoechst,
and its legal successors, must reimburse the Company for
two-thirds of any costs so incurred.
The InfraServ partnership agreements provide that, as between
the partners, each partner is responsible for any contamination
caused predominantly by such partner. Any liability, which
cannot be attributed to an InfraServ partner and for which no
third party is responsible, is required to be borne by the
InfraServ partnership. In view of this potential obligation to
eliminate residual contamination, the InfraServs, primarily
relating to equity and cost investments which are not
consolidated by the Company, have reserves of $94 million
as of December 31, 2010 and 2009.
If an InfraServ partner defaults on its respective
indemnification obligations to eliminate residual contamination,
the owners of the remaining participation in the InfraServ
companies have agreed to fund such liabilities, subject to a
number of limitations. To the extent that any liabilities are
not satisfied by either the InfraServs or their owners, these
liabilities are to be borne by the Company in accordance with
the demerger agreement. However, Hoechst, and its legal
successors, will reimburse the Company for two-thirds of any
such costs. Likewise, in certain circumstances the Company could
be responsible for the elimination of residual contamination on
several sites that were not transferred to InfraServ companies,
in which case Hoechst, and its legal successors, must also
reimburse the Company for two-thirds of any costs so incurred.
The German InfraServs are owned partially by the Company, as
noted below, and the remaining ownership is held by various
other companies. The Company’s ownership interest and
environmental liability participation percentages for such
liabilities which cannot be attributed to an InfraServ partner
were as follows as of December 31, 2010:
| Ownership % | Liability % | |||||||
|
InfraServ GmbH & Co. Gendorf KG
|
39 | 10 | ||||||
|
InfraServ GmbH & Co. Knapsack KG
|
27 | 22 | ||||||
|
InfraServ GmbH & Co. Hoechst KG
|
32 | 40 | ||||||
|
InfraServ GmbH & Co. Wiesbaden KG
|
8 | - | ||||||
|
InfraServ Verwaltungs GmbH
|
100 | - | ||||||
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Table of Contents
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 approximately 36 sites. At
most of these sites, numerous companies, including the Company,
or one of its predecessor companies, have been notified that the
Environmental Protection Agency, 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 most 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 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 will join
with other PRPs to sign joint defense agreements that will
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.
US Superfund site reserves were utilized as follows:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In $ millions) | ||||||||||||
|
Total
|
2 | 1 | 2 | |||||||||
Additional provisions and adjustments recorded during the years
ended December 31, 2010, 2009 and 2008 approximately offset
these expenditures.
16.
Shareholders’ Equity
Preferred
Stock
On February 1, 2010, the Company delivered notice to the
holders of its 4.25% Convertible Perpetual Preferred Stock
(the “Preferred Stock”) that it was calling for the
redemption of all 9.6 million outstanding shares of
Preferred Stock. Holders of the Preferred Stock were entitled to
convert each share of Preferred Stock into 1.2600 shares of
the Company’s Series A common stock, par value $0.0001
per share, at any time prior to 5:00 p.m., New York City
time, on February 19, 2010. As of such date, holders of
Preferred Stock had elected to convert 9,591,276 shares of
Preferred Stock into an aggregate of 12,084,942 shares of
Series A common stock. The 8,724 shares of Preferred
Stock that remained outstanding after such conversions were
redeemed by the Company on February 22, 2010 for
7,437 shares of Series A common stock, in accordance
with the terms of the Preferred Stock. In addition to the shares
of Series A common stock issued in respect of the shares of
Preferred Stock converted and redeemed, the Company paid cash in
lieu of fractional shares. The Company recorded expense of less
than $1 million to Additional paid-in capital in the
consolidated statements of shareholders’ equity and
comprehensive income (loss) for the year ended December 31,
2010 related to the conversion and redemption of the Preferred
Stock.
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 unless the Company’s Board of Directors, in
its
123
Table of Contents
sole discretion, determines otherwise. Further, such dividends
payable to holders of the Company’s Series A common
stock cannot be declared or paid nor can any funds be set aside
for the payment thereof, unless the Company has paid or set
aside funds for the payment of all accumulated and unpaid
dividends with respect to the shares of the Company’s
Preferred Stock. As discussed above, all Preferred Stock was
redeemed by the Company in February 2010 and no preferred stock
or accumulated dividends remained outstanding as of December,
31, 2010. The amount available to pay cash dividends is
restricted by the Company’s senior credit agreement and the
Notes.
In April 2010, the Company announced that its Board of Directors
approved a 25% increase in the Company’s quarterly
Series A common stock cash dividend. The Board of Directors
increased the quarterly dividend rate from $0.04 to $0.05 per
share of Series A common stock on a quarterly basis. The
new dividend rate was applicable to dividends payable beginning
in August 2010.
The Company declared and paid cash dividends to holders of its
Series A common stock as follows:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In $ millions) | ||||||||||||
|
Total
|
28 | 23 | 24 | |||||||||
Treasury
Stock
In February 2008, the Company’s Board of Directors
authorized the repurchase of up to $400 million of the
Company’s Series A common stock. This authorization
was increased to $500 million in October 2008. The
authorization gives management discretion in determining the
conditions under which shares may be repurchased. The number of
shares repurchased and the average purchase price paid per share
pursuant to this authorization are as follows:
|
Total From
|
||||||||||||||||
| Year Ended December 31, |
Inception Through
|
|||||||||||||||
| 2010 | 2009 | 2008 | December 31, 2010 | |||||||||||||
|
Shares repurchased
|
1,667,592 | - | 9,763,200 | 11,430,792 | ||||||||||||
|
Average purchase price per share
|
$ | 28.77 | $ | - | $ | 38.68 | $ | 37.24 | ||||||||
|
Amount spent on repurchased
|
||||||||||||||||
|
shares (in millions)
|
$ | 48 | $ | - | $ | 378 | $ | 426 | ||||||||
The purchase of treasury stock reduces the number of shares
outstanding and the repurchased shares may be used by the
Company for compensation programs utilizing the Company’s
stock and other corporate purposes. The Company accounts for
treasury stock using the cost method and includes treasury stock
as a component of Shareholders’ equity.
Accumulated
Other Comprehensive Income (Loss), Net
Accumulated other comprehensive income (loss), net, which is
displayed in the consolidated statements of shareholders’
equity, represents net earnings (loss) plus the results of
certain shareholders’ equity changes not reflected in the
consolidated statements of operations. Such items include
unrealized gain (loss) on marketable securities, foreign
currency translation, certain pension and postretirement benefit
obligations and unrealized gain (loss) on interest rate swaps.
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Table of Contents
The components of Accumulated other comprehensive income (loss),
net are as follows:
|
Accumulated
|
||||||||||||||||||||
|
Unrealized
|
Unrealized
|
Pension and
|
Other
|
|||||||||||||||||
|
Gain (Loss) on
|
Foreign
|
Gain (Loss)
|
Postretire-
|
Comprehensive
|
||||||||||||||||
|
Marketable
|
Currency
|
on Interest
|
ment
|
Income
|
||||||||||||||||
| Securities | Translation | Rate Swaps | Benefits | (Loss), Net | ||||||||||||||||
| As Adjusted (Note 4) | ||||||||||||||||||||
| (In $ millions) | ||||||||||||||||||||
|
Balance as of December 31, 2007
|
26 | 87 | (37 | ) | 120 | 196 | ||||||||||||||
|
Current period change
|
(23 | ) (1) | (130 | ) | (79 | ) | (549 | ) | (781 | ) | ||||||||||
|
Tax benefit (expense)
|
- | - | - | 5 | 5 | |||||||||||||||
|
Balance as of December 31, 2008
|
3 | (43 | ) | (116 | ) | (424 | ) | (580 | ) | |||||||||||
|
Current period change
|
(5 | ) | 10 | 23 | (150 | ) | (122 | ) | ||||||||||||
|
Tax benefit (expense)
|
2 | (5 | ) | (8 | ) | 53 | 42 | |||||||||||||
|
Balance as of December 31, 2009
|
- | (38 | ) | (101 | ) | (521 | ) | (660 | ) | |||||||||||
|
Current period change
|
- | 26 | 32 | (102 | ) | (44 | ) | |||||||||||||
|
Tax benefit (expense)
|
(1 | ) | 11 | (15 | ) | 39 | 34 | |||||||||||||
|
Balance as of December 31, 2010
|
(1 | ) | (1 | ) | (84 | ) | (584 | ) | (670 | ) | ||||||||||
| (1) | Includes a net reclassification adjustment of ($2) million to the consolidated statements of operations. |
17. Other
(Charges) Gains, Net
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In $ millions) | ||||||||||||
|
Employee termination benefits
|
(32 | ) | (105 | ) | (21 | ) | ||||||
|
Plant/office closures
|
(4 | ) | (17 | ) | (7 | ) | ||||||
|
Asset impairments
|
(74 | ) | (14 | ) | (115 | ) | ||||||
|
Ticona Kelsterbach plant relocation (Note 28)
|
(26 | ) | (16 | ) | (12 | ) | ||||||
|
Insurance recoveries, net (Note 29)
|
18 | 6 | 38 | |||||||||
|
Resolution of commercial disputes
|
13 | - | - | |||||||||
|
Plumbing actions (Note 23)
|
59 | 10 | - | |||||||||
|
Sorbates antitrust actions
|
- | - | 8 | |||||||||
|
Other
|
- | - | 1 | |||||||||
|
Total
|
(46 | ) | (136 | ) | (108 | ) | ||||||
2010
In March 2010, the Company concluded that certain long-lived
assets were partially impaired at its acetate flake and tow
manufacturing operations in Spondon, Derby, United Kingdom
(Note 4). Accordingly, the Company wrote down the related
property, plant and equipment to its fair value of
$31 million, resulting in long-lived asset impairment
losses of $72 million during the year ended
December 31, 2010. The Company calculated the fair value
for the reporting unit using a discounted cash flow model
incorporating discount rates commensurate with the risks
involved which is classified as a Level 3 measurement under
FASB ASC Topic 820. The key assumptions used in the discounted
cash flow valuation model included discount rates, growth rates,
cash flow projections and terminal value rates. Discount rates,
growth rates and cash flow projections are the most sensitive
and susceptible to change as they require significant management
judgment.
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Table of Contents
As a result of the announced closure of the Company’s
acetate flake and tow manufacturing operations in Spondon,
Derby, United Kingdom (Note 4), the Company recorded
$15 million of employee termination benefits during the
year ended December 31, 2010. The Spondon, Derby, United
Kingdom facility is included in the Consumer Specialties segment.
As a result of the Company’s Pardies, France “Project
of Closure” (Note 4), the Company recorded exit costs
of $12 million during the year ended December 31,
2010, which consisted of $6 million in employee termination
benefits, $1 million of long-lived asset impairment losses,
$2 million of contract termination costs and other plant
closure costs and $3 million of reindustrialization costs.
The Pardies, France facility is included in the Acetyl
Intermediates segment.
As a result of several business optimization projects undertaken
by the Company beginning in 2009 and continuing throughout 2010,
the Company recorded $11 million in employee termination
costs during the year ended December 31, 2010.
Other charges for the year ended December 31, 2010 also
included gains of $13 million, net, related to settlements
in resolution of a commercial disputes. The settlements were
recorded in the Company’s Consumer Specialties segment.
2009
During the first quarter of 2009, the Company began efforts to
align production capacity and staffing levels with the
Company’s view of an economic environment of prolonged
lower demand. For the year ended December 31, 2009, Other
charges included employee termination benefits of
$40 million related to this endeavor. As a result of the
shutdown of the vinyl acetate monomer (“VAM”)
production unit in Cangrejera, Mexico, the Company recognized
employee termination benefits of $1 million and long-lived
asset impairment losses of $1 million during the year ended
December 31, 2009. The VAM production unit in Cangrejera,
Mexico is included in the Company’s Acetyl Intermediates
segment.
As a result of the “Project of Closure” (Note 4),
Other charges for the Company included exit costs of
$89 million during the year ended December 31, 2009,
which consisted of $60 million in employee termination
benefits, $17 million of contract termination costs and
$12 million of long-lived asset impairment losses related
to capitalized costs associated with asset retirement
obligations (Note 12). The Pardies, France facility is
included in the Acetyl Intermediates segment.
Due to continued declines in demand in automotive and electronic
sectors during 2009, the Company announced plans to reduce
capacity by ceasing polyester polymer production at its Ticona
manufacturing plant in Shelby, North Carolina. Other charges for
the year ended December 31, 2009 included employee
termination benefits of $2 million and long-lived asset
impairment losses of $1 million related to this event. The
Shelby, North Carolina facility is included in the Advanced
Engineered Materials segment.
Other charges for the year ended December 31, 2009 was
partially offset by $6 million of insurance recoveries in
satisfaction of claims the Company made related to the unplanned
outage of the Company’s Clear Lake, Texas acetic acid
facility during 2007, a $9 million decrease in legal
reserves for plumbing claims due to the Company’s ongoing
assessment of the likely outcome of the plumbing actions and the
expiration of the statute of limitation.
2008
Other (charges) gains, net for asset impairments includes
long-lived asset impairment losses of $92 million related
to the potential closure of the Company’s acetic acid and
VAM production facility in Pardies, France, the VAM production
unit in Cangrejera, Mexico (which the Company subsequently
decided to shut down effective at the end of February
2009) and certain other facilities. Of the $92 million
recorded in December 2008, $76 million relates to the
Acetyl Intermediates segment and $16 million relates to the
Advanced Engineered Materials segment. Consideration of this
potential capacity reduction was necessitated by the significant
change in the global economic environment and anticipated lower
customer demand.
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Table of Contents
Additionally, the Company recognized $23 million of
long-lived asset impairment losses related to the shutdown of
the Company’s Pampa, Texas facility (Acetyl Intermediates
segment).
Other (charges) gains, net for employee termination benefits
includes severance and retention charges of $13 million
related to the sale of the Company’s Pampa, Texas facility
and $8 million of severance and retention charges related
to other business optimization plans undertaken by the Company.
The changes in the restructuring reserves by business segment
are as follows:
|
Advanced
|
||||||||||||||||||||||||
|
Engineered
|
Consumer
|
Industrial
|
Acetyl
|
|||||||||||||||||||||
| Materials | Specialties | Specialties | Intermediates | Other | Total | |||||||||||||||||||
| (In $ millions) | ||||||||||||||||||||||||
|
Employee Termination Benefits
|
||||||||||||||||||||||||
|
Reserve as of December 31, 2008
|
2 | 2 | 6 | 17 | 2 | 29 | ||||||||||||||||||
|
Additions
|
12 | 9 | 6 | 66 | 12 | 105 | ||||||||||||||||||
|
Cash payments
|
(8 | ) | (7 | ) | (9 | ) | (23 | ) | (7 | ) | (54 | ) | ||||||||||||
|
Exchange rate changes
|
1 | - | - | - | - | 1 | ||||||||||||||||||
|
Reserve as of December 31, 2009
|
7 | 4 | 3 | 60 | 7 | 81 | ||||||||||||||||||
|
Additions
|
2 | 17 | - | 6 | 7 | 32 | ||||||||||||||||||
|
Cash payments
|
(6 | ) | (3 | ) | (3 | ) | (37 | ) | (4 | ) | (53 | ) | ||||||||||||
|
Other changes
|
- | (1 | ) | - | - | - | (1 | ) | ||||||||||||||||
|
Exchange rate changes
|
- | (1 | ) | - | (5 | ) | - | (6 | ) | |||||||||||||||
|
Reserve as of December 31, 2010
|
3 | 16 | - | 24 | 10 | 53 | ||||||||||||||||||
|
Plant/Office Closures
|
||||||||||||||||||||||||
|
Reserve as of December 31, 2008
|
- | 2 | - | - | 1 | 3 | ||||||||||||||||||
|
Additions
|
- | - | - | 17 | - | 17 | ||||||||||||||||||
|
Transfers
|
- | (2 | ) | - | - | - | (2 | ) | ||||||||||||||||
|
Cash payments
|
- | - | - | - | - | - | ||||||||||||||||||
|
Reserve as of December 31, 2009
|
- | - | - | 17 | 1 | 18 | ||||||||||||||||||
|
Additions
|
- | - | - | 6 | - | 6 | ||||||||||||||||||
|
Cash payments
|
- | - | - | (18 | ) | - | (18 | ) | ||||||||||||||||
|
Exchange rate changes
|
- | - | - | (2 | ) | - | (2 | ) | ||||||||||||||||
|
Reserve as of December 31, 2010
|
- | - | - | 3 | 1 | 4 | ||||||||||||||||||
|
Total
|
3 | 16 | - | 27 | 11 | 57 | ||||||||||||||||||
18.
Income Taxes
Earnings (loss) from continuing operations before tax by
jurisdiction are as follows:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| As Adjusted (Note 4) | ||||||||||||
| (In $ millions) | ||||||||||||
|
US
|
214 | 294 | 135 | |||||||||
|
International
|
324 | (43 | ) | 298 | ||||||||
|
Total
|
538 | 251 | 433 | |||||||||
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Table of Contents
The income tax provision (benefit) consists of the following:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In $ millions) | ||||||||||||
|
Current
|
||||||||||||
|
US
|
62 | 11 | 62 | |||||||||
|
International
|
35 | 148 | 92 | |||||||||
|
Total
|
97 | 159 | 154 | |||||||||
|
Deferred
|
||||||||||||
|
US
|
16 | (404 | ) | (37 | ) | |||||||
|
International
|
(1 | ) | 2 | (54 | ) | |||||||
|
Total
|
15 | (402 | ) | (91 | ) | |||||||
|
Income tax provision (benefit)
|
112 | (243 | ) | 63 | ||||||||
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
consolidated deferred tax assets and liabilities are as follows:
| As of December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In $ millions) | ||||||||
|
Deferred tax assets
|
||||||||
|
Pension and postretirement obligations
|
356 | 361 | ||||||
|
Accrued expenses
|
233 | 195 | ||||||
|
Inventory
|
10 | 10 | ||||||
|
Net operating loss and tax credit carryforwards
|
422 | 375 | ||||||
|
Other
|
193 | 220 | ||||||
|
Subtotal
|
1,214 | 1,161 | ||||||
|
Valuation allowance
|
(385 | ) | (334 | ) (1) | ||||
|
Total
|
829 | 827 | ||||||
|
Deferred tax liabilities
|
||||||||
|
Depreciation and amortization
|
323 | 336 | ||||||
|
Investments
|
47 | 45 | ||||||
|
Other
|
68 | 90 | ||||||
|
Total
|
438 | 471 | ||||||
|
Net deferred tax assets (liabilities)
|
391 | 356 | ||||||
| (1) | Includes deferred tax asset valuation allowances primarily for the Company’s deferred tax assets in the US, Luxembourg, France, Spain, China, the United Kingdom and Germany, as well as other foreign jurisdictions. These valuation allowances relate primarily to net operating loss carryforward benefits and other net deferred tax assets, all of which may not be realizable. |
The Company maintained a valuation allowance against its US net
deferred tax assets since 2004. During 2009, the Company
concluded that, due to cumulative profitability, it is more
likely than not that it will realize its net US deferred tax
assets with the exception of certain state net operating loss
carryforwards. Accordingly, during the year ended
December 31, 2009, the Company recorded a deferred tax
benefit of $492 million for the release of the
beginning-of-the-year
US valuation allowance associated with those US net deferred tax
assets expected to be realized in 2009 and subsequent years.
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Table of Contents
For the year ended December 31, 2010, the valuation
allowance increased by $51 million consisting of:
(a) income tax expense, net, of $39 million,
(b) a decrease of $13 million related to foreign
currency translation adjustments and (c) $25 million
of other increases related to unrecognized tax benefits and
other adjustments to deferred taxes. The change in valuation
allowance associated with foreign currency translation
adjustments is related to changes in deferred tax assets for
unrealized foreign exchange gains and losses on effective hedges
and on foreign income previously taxed but not yet received in
the US. The benefit also relates to foreign currency translation
adjustments for deferred tax assets recorded in various foreign
jurisdictions. The increase related to unrecognized tax benefits
and other adjustments to deferred taxes includes adjustments to
temporary differences and net operating loss carryforwards due
to changes in uncertain tax positions.
A reconciliation of the significant differences between the US
federal statutory tax rate of 35% and the effective income tax
rate on income from continuing operations is as follows:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In $ millions) | ||||||||||||
|
Income tax provision computed at US federal statutory tax rate
|
188 | 88 | 152 | |||||||||
|
Change in valuation allowance
|
39 | (314 | ) | (5 | ) | |||||||
|
Equity income and dividends
|
(41 | ) | (20 | ) | (17 | ) | ||||||
|
(Income) expense not resulting in tax impact
|
8 | 4 | 18 | |||||||||
|
US tax effect of foreign earnings and dividends
|
28 | 10 | (5 | ) | ||||||||
|
Other foreign tax rate
differentials
(1)
|
(48 | ) | (15 | ) | (84 | ) | ||||||
|
Legislative changes
|
(71 | ) | 71 | 3 | ||||||||
|
Tax-deductible interest on foreign equity investments and other
related items
|
(3 | ) | (76 | ) | - | |||||||
|
State income taxes and other
|
12 | 9 | 1 | |||||||||
|
Income tax provision (benefit)
|
112 | (243 | ) | 63 | ||||||||
| (1) | Includes impact of earnings from China and Singapore subject to tax holidays which expire between 2008 and 2013 and favorable tax rates in other jurisdictions. |
Federal and state income taxes have not been provided on
accumulated but undistributed earnings of $2.9 billion as
of December 31, 2010 as such earnings have been permanently
reinvested in the business. The determination of the amount of
the unrecognized deferred tax liability related to the
undistributed earnings is not practicable.
The effective tax rate for continuing operations for the year
ended December 31, 2010 was 21% compared to (97)% for the
year ended December 31, 2009. The effective tax rate for
2009 was favorably impacted by the release of the US valuation
allowance on net deferred tax assets, partially offset by
increases in valuation allowances on certain foreign net
deferred tax assets and the effect of new tax legislation in
Mexico. The effective rate for the year ended December 31,
2010 was favorably impacted by amendments to tax legislation in
Mexico.
The Company operates under tax holidays in various countries
which are effective through December 2013. In China, one of the
Company’s entities has a tax holiday that provided for a
zero percent tax rate in 2008. For 2009 through 2011, the
Company’s tax rate is 50% of the statutory rate, or 12.5%
based on the 2010 statutory rate of 25%. In Singapore, one of
the Company’s entities has a tax holiday that provides for
a zero percent tax rate through 2011. The Company realized no
material benefits from tax holidays for the year ended
December 31, 2010.
Mexico enacted the 2008 Fiscal Reform Bill on October 1,
2007. Effective January 1, 2008, the bill repealed the
existing asset-based tax and established a dual income tax
system consisting of a new minimum flat tax (the
“IETU”) and the existing regular income tax system.
The IETU system taxes companies on cash basis net income,
consisting only of certain specified items of revenue and
expense, at a rate of 16.5%, 17% and 17.5% for 2008, 2009 and
2010 forward, respectively. In general, companies must pay the
higher of the income tax or the IETU, although the IETU is not
creditable against future income tax liabilities. The Company
has determined that it will primarily
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Table of Contents
be subject to the IETU in future periods. Accordingly, the
Company has recorded tax expense (benefit) of $19 million,
$(5) million and $7 million for the years ended
December 31, 2010, 2009 and 2008, respectively, for the tax
effects of the IETU system.
In December 2009, Mexico enacted the 2010 Mexican Tax Reform
Bill (“Tax Reform Bill”) to be effective
January 1, 2010. Under this legislation, the corporate
income tax rate was temporarily increased from 28% to 30% for
2010 through 2012, reduced to 29% in 2013 and reduced to 28% in
2014 and future years. These rate changes would impact the
Company in the event that it reverts to paying taxes on a
regular income tax basis versus on the IETU basis. Further,
under current law, income tax loss carryforwards reported in the
tax consolidation that were not utilized on an individual
company basis within 10 years were subject to recapture.
The Tax Reform Bill as enacted accelerated this recapture period
from 10 years to 5 years and effectively required
payment of taxes even if no benefit was obtained through the tax
consolidation regime. Finally, significant modifications were
made to the rules for income taxes previously deferred on
intercompany dividends, as well as to income taxes related to
differences between consolidated and individual Mexican tax
earnings and profits. The estimated income tax impact to the
Company of the Tax Reform Bill at December 31, 2009 was
$73 million and was recorded to Income tax (provision)
benefit in the consolidated statements of operations.
In March 2010, the Mexican tax authorities issued Miscellaneous
Tax Resolutions (“MTRs”) to clarify various provisions
included in the Tax Reform Bill related to recapture amounts for
2004 and prior years, including certain aspects of the recapture
rules related to income tax loss carryforwards, intercompany
dividends and differences between consolidated and individual
Mexican tax earnings and profits. At March 31, 2010, the
application of the MTRs resulted in a reduction of
$43 million to the estimated income tax impact of the Tax
Reform Bill that was initially recorded by the Company during
the year ended December 31, 2009.
In December 2010, the Mexican tax authorities issued an
additional MTR addressing tax year 2005 and subsequent periods.
The MTRs issued in March 2010 and December 2010 eliminated the
recapture tax on losses for which no tax benefit was received in
consolidation and also clarified certain other aspects of the
Tax Reform Bill originally enacted in December 2009. The
December 2010 MTR resulted in an additional reduction of
$27 million to the estimated tax liability previously
recorded by the Company. After inflation and exchange rate
changes, the Company’s estimated tax liability at
December 31, 2010 related to the combined Tax Reform Bill
and 2010 MTRs is $6 million, payable from 2011 to 2018.
In March 2010, the President of the United States signed into
law the Patient Protection and Affordable Care Act and the
Health Care and Education Reconciliation Act of 2010. Currently,
employers providing retiree prescription drug coverage that is
at least as valuable as the coverage offered under Medicare
Part D are entitled to a subsidy from the government. Prior
to the new law, employers were entitled to deduct the entire
cost of providing the retiree prescription drug coverage, even
though a portion was offset by the subsidy. Under the new
legislation, in years subsequent to 2012, the tax deductible
prescription coverage is reduced by the amount of the subsidy.
As a result, the Company reduced its deferred tax asset related
to postretirement prescription drug coverage by the amount of
the subsidy to be received subsequent to 2012. This reduction of
$7 million to the Company’s deferred tax asset was
recorded to Income tax (provision) benefit in the consolidated
statements of operations during the three months ended
March 31, 2010.
On December 17, 2010, the President of the United States
signed a multi-billion dollar tax package, the Tax Relief,
Unemployment Reauthorization and Job Creation Act of 2010 (2010
Tax Relief Act or act). The 2010 Tax Relief Act extends the
Bush-era individual and capital gains/dividend tax cuts for all
individual taxpayers for two years and includes a one year
payroll tax cut for individuals. The act also increases
50 percent bonus depreciation to 100 percent for
qualified investments made after September 8, 2010 and
before January 1, 2012, and the act also makes
50 percent bonus depreciation available for qualified
property placed in service after December 31, 2011 and
before January 1, 2013. The 2010 Tax Relief Act also
provided a two year extension of expired provisions that were
relevant to the Company including the research tax credit and
look through treatment for controlled foreign corporations. The
impact to the company of the new legislation was not material
for the year ended December 31, 2010, but the items noted
will provide additional tax benefits to the company in 2011 and
2012.
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As of December 31, 2010, the Company had US federal net
operating loss carryforwards of $39 million that are
subject to limitation. These net operating loss carryforwards
begin to expire in 2021. At December 31, 2010, the Company
also had state net operating loss carryforwards, net of federal
tax impact, of $52 million, $48 million of which are
offset by a valuation allowance due to uncertain recoverability.
A portion of these loss carryforwards will begin to expire in
2011.
The Company also had foreign net operating loss carryforwards as
of December 31, 2010 of $1.0 billion for Luxembourg,
France, Spain, Canada, China, the United Kingdom, Germany and
other foreign jurisdictions with various expiration dates. Net
operating losses in China have various carryforward periods and
begin expiring in 2011. Net operating losses in most other
foreign jurisdictions have no expiration date. Net operating
losses in Mexico have a ten year carryforward period and began
to expire in 2009. However, these losses are not available for
use under the new IETU tax regulations in Mexico. As the IETU is
the primary system upon which the Company will be subject to tax
in future periods, no deferred tax asset has been reflected in
the consolidated balance sheets as of December 31, 2010 for
these income tax loss carryforwards.
FASB ASC Topic 740
Income Taxes
(“FASB ASC Topic
740”), clarifies the accounting for income taxes by
prescribing a minimum recognition threshold a tax benefit is
required to meet before being recognized in the financial
statements. FASB ASC Topic 740 also provides guidance on
derecognition, measurement, classification, interest and
penalties, accounting in interim periods, disclosure and
transition.
A reconciliation of the amount of unrecognized tax benefits
included in Uncertain tax positions in the consolidated balance
sheets is as follows:
| Year Ended December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In $ millions) | ||||||||
|
As of the beginning of the year
|
208 | 195 | ||||||
|
Increases in tax positions for the current year
|
- | 19 | ||||||
|
Increases in tax positions for prior years
|
85 | 39 | ||||||
|
Decreases in tax positions of prior years
|
(48 | ) | (38 | ) | ||||
|
Settlements
|
(1 | ) | (7 | ) | ||||
|
As of the end of the year
|
244 | 208 | ||||||
Included in the unrecognized tax benefits as of
December 31, 2010 are $264 million of tax benefits
that, if recognized, would reduce the Company’s effective
tax rate. As of December 31, 2010, $15 million of
unrecognized tax benefits are included in current Other
liabilities (Note 11) in the consolidated balance
sheets.
The Company recognizes interest and penalties related to
unrecognized tax benefits in Income tax (provision) benefit in
the consolidated statements of operations as follows:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In $ millions) | ||||||||||||
|
Interest and penalties related to unrecognized tax benefits
|
12 | 7 | 2 | |||||||||
As of December 31, 2010 and 2009, cumulative interest and
penalties included in Uncertain tax positions in the
consolidated balance sheets were $56 million and
$45 million, respectively.
The Company operates in the US (including multiple state
jurisdictions), Germany and approximately 40 other foreign
jurisdictions including Canada, China, France, Mexico and
Singapore. Examinations are ongoing in a number of those
jurisdictions including, most significantly, in Germany for the
years 2001 to 2004 and 2005 to 2007, and in the US for the years
2006 to 2008, which were selected for audit in 2010. The
Company’s US federal income tax returns for 2003 and beyond
are open for examination under statute. The Company’s
German corporate
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tax returns for 2001 and beyond are open for examination under
statute. Currently, unrecognized tax benefits are not expected
to change significantly over the next 12 months.
| 19. | Stock-Based and Other Management Compensation Plans |
In April 2009, the Company approved a global incentive plan
which replaces the Company’s 2004 stock incentive plan. The
2009 Global Incentive Plan (“GIP”) enables the
compensation committee of the Board of Directors to award
incentive and nonqualified stock options, stock appreciation
rights, shares of Series A common stock, restricted stock,
restricted stock units (“RSUs”) and incentive bonuses
(which may be paid in cash or stock or a combination thereof),
any of which may be performance-based, with vesting and other
award provisions that provide effective incentive to Company
employees (including officers), non-management directors and
other service providers. Under the 2009 GIP, the Company no
longer can grant RSUs with the right to participate in dividends
or dividend equivalents.
The maximum number of shares that may be issued under the 2009
GIP is equal to 5,350,000 shares plus (a) any shares
of Series A common stock that remain available for issuance
under the 2004 Stock Incentive Plan (“SIP”) (not
including any shares of Series A common stock that are
subject to outstanding awards under the 2004 SIP or any shares
of Series A common stock that were issued pursuant to
awards under the 2004 SIP) and (b) any awards under the
2004 stock incentive plan that remain outstanding that cease for
any reason to be subject to such awards (other than by reason of
exercise or settlement of the award to the extent that such
award is exercised for or settled in vested and non-forfeitable
shares). As of December 31, 2010, total shares available
for awards and total shares subject to outstanding awards are as
follows:
|
Shares Available for
|
Shares Subject to
|
|||||||
| Awards | Outstanding Awards | |||||||
|
2009 Global Incentive Plan
|
2,322,450 | 2,530,454 | ||||||
|
2004 Stock Incentive Plan
|
- | 5,923,147 | ||||||
Upon the termination of a participant’s employment with the
Company by reason of death or disability or by the Company
without cause (as defined in the respective award agreements),
an award in amount equal to (i) the value of the award
granted multiplied by (ii) a fraction, (x) the
numerator of which is the number of full months between grant
date and the date of such termination, and (y) the
denominator of which is the term of the award, such product to
be rounded down to the nearest whole number, and reduced by
(iii) the value of any award that previously vested, shall
immediately vest and become payable to the Participant. Upon the
termination of a Participant’s employment with the Company
for any other reason, any unvested portion of the award shall be
forfeited and cancelled without consideration.
There was $19 million and $0 million of tax benefit
realized from stock option exercises and vesting of RSUs during
the years ended December 31, 2010 and 2009, respectively.
During the year ended December 31, 2008 the Company
reversed $8 million of the $19 million tax benefit
that was realized during the year ended December 31, 2007.
Deferred
Compensation
In April 2007, certain participants in the Company’s 2004
deferred compensation plan elected to participate in a revised
program, which includes both cash awards and restricted stock
units (see Restricted Stock Units below). Based on participation
in the revised program, the Company expensed $9 million,
$10 million and $8 million during the years ended
December 31, 2010, 2009 and 2008, respectively, related to
the revised program and made payments of $4 million during
the year ended December 31, 2010 to participants who left
the Company and $28 million to active employees during
December 2010. As of December 31, 2010, $1 million
remains to be paid during 2011 under the revised program.
As of December 31, 2009, there was no deferred compensation
payable remaining associated with the 2004 deferred compensation
plan. The Company recorded expense related to participants
continuing in the 2004 deferred
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compensation plan of $0 million, $1 million and
$3 million during the years ended December 31, 2010,
2009 and 2008, respectively.
In December 2007, the Company adopted a deferred compensation
plan whereby certain of the Company’s senior employees and
directors were offered the opportunity to defer a portion of
their compensation in exchange for a future payment amount equal
to their deferments plus or minus certain amounts based upon the
market performance of specified measurement funds selected by
the participant. Participants are required to make deferral
elections under the plan prior to January 1 of the year such
deferrals will be withheld from their compensation. The Company
expensed less than $1 million during each of the years
ended December 31, 2010, 2009 and 2008 related to this plan.
Long-Term
Incentive Plan
In December 2008, the Company granted time-vesting cash awards
of $22 million to the Company’s executive officers and
certain other key employees. Each award of cash vests 30% on
October 14, 2009, 30% on October 14, 2010 and 40% on
October 14, 2011. In its sole discretion, the compensation
committee of the Board of Directors may at any time convert all
or a portion of the cash award to an award of time-vesting
restricted stock units. The liability cash awards are being
accrued and expensed over the term of the agreements outlined
above.
Activity recorded in the consolidated financial statements
related to the time-vesting cash awards is as follows:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In $ millions) | ||||||||||||
|
Expense
|
7 | 7 | 1 | |||||||||
|
Payments to active employees
|
5 | 6 | - | |||||||||
|
Payments to terminated employees
|
1 | 1 | - | |||||||||
Stock
Options
The Company has a stock-based compensation plan that makes
awards of stock options to the Company’s executives and
certain employees. It is the Company’s policy to grant
options with an exercise price equal to the average of the high
and low price of the Company’s Series A common stock
on the grant date. The options issued have a term ranging from
seven to ten years and vest on a graded basis over four years.
The estimated value of the Company’s stock-based awards
less expected forfeitures is recognized over the awards’
respective vesting period on a straight-line basis.
Generally, vested stock options are exercised through a
broker-assisted cashless exercise program. A broker-assisted
cashless exercise is the simultaneous exercise of a stock option
by an employee and a sale of the shares through a broker.
Authorized shares of the Company’s Series A common
stock are used to settle stock options.
In October 2010, the Company granted awards of stock options to
certain executive officers of the Company that require a holding
period of one year subsequent to exercising a stock option award
for net profit shares (as defined below) acquired upon exercise.
Net profit shares means the aggregate number of Shares
determined by the Company’s human resources department
representing the total number of shares remaining after taking
into account the following costs related to exercise:
(i) the aggregate option price with respect to the
exercise; (ii) the amount of all applicable taxes with
respect to the exercise, assuming the participant’s maximum
applicable federal, state and local tax rates (and applicable
employment taxes); and (iii) any transaction costs.
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Table of Contents
The fair value of each option granted is estimated on the grant
date using the Black-Scholes option pricing method. The weighted
average assumptions used in the model are outlined in the
following table:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Risk-free interest rate
|
1.27 | % | 1.90 | % | 3.30 | % | ||||||
|
Estimated life in years
|
5.72 | 5.20 | 7.70 | |||||||||
|
Dividend yield
|
0.59 | % | 0.96 | % | 0.38 | % | ||||||
|
Volatility
|
51.75 | % | 54.30 | % | 31.40 | % | ||||||
The computation of the expected volatility assumption used in
the Black-Scholes calculations for new grants is based on the
Company’s historical volatilities. When establishing the
expected life assumptions, the Company reviews annual historical
employee exercise behavior of option grants with similar vesting
periods.
The summary of changes in stock options outstanding is as
follows:
|
Weighted-
|
||||||||||||||||
|
Average
|
||||||||||||||||
|
Weighted-
|
Remaining
|
Aggregate
|
||||||||||||||
|
Number of
|
Average
|
Contractual
|
Intrinsic
|
|||||||||||||
| Options | Exercise Price | Term | Value | |||||||||||||
| (In millions) | (In $) | (In years) | (In $ millions) | |||||||||||||
|
As of December 31, 2009
|
6.0 | 19.01 | ||||||||||||||
|
Granted
|
0.2 | 32.40 | ||||||||||||||
|
Exercised
|
(0.8 | ) | 17.32 | |||||||||||||
|
Forfeited
|
(0.1 | ) | 39.42 | |||||||||||||
|
As of December 31, 2010
|
5.3 | 19.27 | 4.2 | 115 | ||||||||||||
|
Options exercisable at end of year
|
4.7 | 18.14 | 4.0 | 108 | ||||||||||||
The weighted-average grant-date fair values of stock options
granted is as follows:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Total
|
$ | 14.76 | $ | 7.46 | $ | 16.78 | ||||||
The total intrinsic value of options exercised and cash received
from stock option exercises is as follows:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In $ millions) | ||||||||||||
|
Intrinsic value
|
13 | 9 | 27 | |||||||||
|
Cash received
|
14 | 14 | 18 | |||||||||
As of December 31, 2010, the Company had approximately
$5 million of total unrecognized compensation expense
related to stock options, excluding actual forfeitures, which is
expected to be recognized over the weighted-average period of
2.4 years.
During 2009, the Company extended the contractual life of
4 million fully vested share options held by
6 employees. As a result of that modification, the Company
recognized additional compensation expense of $1 million
for the year ended December 31, 2009.
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Restricted
Stock Units
The Company’s RSUs are net settled by withholding shares of
the Company’s Series A common stock to cover minimum
statutory income taxes and remitting the remaining shares of the
Company’s Series A common stock to an individual
brokerage account. Authorized shares of the Company’s
Series A common stock are used to settle RSUs.
Performance-based RSUs.
The Company grants
performance-based RSUs to the Company’s executive officers
and certain employees once per year. The Company may also grant
performance-based RSUs to certain new employees or to employees
who assume positions of increasing responsibility at the time
those events occur. The number of performance-based RSUs that
ultimately vest is dependent on one or both of the following
according to the terms of the specific award agreement: The
achievement of a) internal profitability targets
(performance condition) and b) market performance targets
measured by the comparison of the Company’s stock
performance versus a defined peer group (market condition).
The performance-based RSUs generally cliff-vest during the
Company’s quarter-end September 30 black-out period three
years from the date of grant. The ultimate number of shares of
the Company’s Series A common stock issued will range
from zero to stretch, with stretch defined individually under
each award, net of shares used to cover personal income taxes
withheld. The market condition is factored into the estimated
fair value per unit and compensation expense for each award will
be based on the probability of achieving internal profitability
targets, as applicable, and recognized on a straight-line basis
over the term of the respective grant, less estimated
forfeitures. For performance-based RSUs granted without a
performance condition, compensation expense is based on the fair
value per unit recognized on a straight-line basis over the term
of the grant, less estimated forfeitures. Upon the termination
of participant’s employment by the Company without cause
prior to the vesting date, the participant is eligible for a
prorated number of performance-based RSUs based on a formula as
outlined in each agreement.
A summary of changes in performance-based RSUs outstanding is as
follows:
|
Weighted
|
||||||||
|
Number of
|
Average
|
|||||||
| Units | Fair Value | |||||||
| (In thousands) | (In $) | |||||||
|
Nonvested at December 31, 2009
|
1,415 | 25.24 | ||||||
|
Granted
|
350 | 41.34 | ||||||
|
Vested
|
(179 | ) (1) | 23.63 | |||||
|
Cancelled
|
(69 | ) | 23.63 | |||||
|
Forfeited
|
(72 | ) | 29.64 | |||||
|
Nonvested at December 31, 2010
|
1,445 | 29.19 | ||||||
| (1) | Shares vested on December 31, 2010; however, the shares were not released until January 2011. |
The fair value of shares vested for performance-based RSUs is as
follows:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In $ millions) | ||||||||||||
|
Total
|
8 | 2 | 3 | |||||||||
Fair value for the Company’s performance-based RSUs was
estimated at the grant date using a Monte Carlo simulation
approach less the present value of the expected dividends not
received during the performance period. Monte Carlo simulation
was utilized to randomly generate future stock returns for the
Company and each company in the defined peer group for each
grant based on company-specific dividend yields, volatilities
and stock return correlations. These returns were used to
calculate future performance-based RSU vesting percentages and
the
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simulated values of the vested performance-based RSUs were then
discounted to present value using a risk-free rate, yielding the
expected value of these performance-based RSUs.
The range of assumptions used in the Monte Carlo simulation
approach is outlined in the following table:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Risk-free interest rate
|
0.79% | 1.11% | 1.05% | |||||||||
|
Dividend yield
|
0.00 - 4.18% | 0.00 - 4.64% | 0.00 - 12.71% | |||||||||
|
Volatility
|
25 - 70% | 25 - 75% | 20 - 70% | |||||||||
Time-based RSUs.
The Company grants non-employee
Directors time-based RSUs annually that generally vest one year
after grant. The fair value of the time-based RSUs is equal to
the closing price of the Company’s Series A common
stock on the grant date less the present value of the expected
dividends not received during the vesting period.
The Company also grants time-based RSUs to the Company’s
executives and certain employees that vest ratably over time
intervals ranging from three to four years. The fair value of
the time-based RSUs is equal to the average of the high and low
price of the Company’s Series A common stock on the
grant date less the present value of the expected dividends not
received during the vesting period. Upon the termination of
participant’s employment by the Company without cause prior
to the vesting date, the participant is eligible for a prorated
number of time-based RSUs based on a formula as outlined in each
agreement.
A summary of changes in time-based RSUs outstanding is as
follows:
| Employee Time-based RSUs | Director Time-Based RSUs | |||||||||||||||
|
Weighted
|
Weighted
|
|||||||||||||||
|
Number of
|
Average
|
Number of
|
Average
|
|||||||||||||
| Units | Fair Value | Units | Fair Value | |||||||||||||
| (In thousands) | (In $) | (In thousands) | (In $) | |||||||||||||
|
Nonvested at December 31, 2009
|
502 | 25.57 | 41 | 16.58 | ||||||||||||
|
Granted
|
322 | 30.12 | 21 | 33.13 | ||||||||||||
|
Vested
|
(165 | ) | 27.62 | (41 | ) | 16.58 | ||||||||||
|
Forfeited
|
(52 | ) | 25.10 | - | - | |||||||||||
|
Nonvested at December 31, 2010
|
607 | 26.41 | 21 | 33.13 | ||||||||||||
As of December 31, 2010, there was approximately
$40 million of unrecognized compensation cost related to
RSUs, excluding actual forfeitures, which is expected to be
recognized over a weighted-average period of 2.2 years.
The fair value of shares vested for time-based RSUs is as
follows:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In $ millions) | ||||||||||||
|
Total
|
6 | 2 | 1 | |||||||||
In October and December 2010, the Company granted time-based
RSUs and performance-based RSUs, respectively, to executive
officers and certain employees of the Company. The grant
requires a holding period of seven years from the grant date of
the awards for 0 % to 45 % of the shares vested,
depending on salary level, as specified in each individual
agreement. The Company’s Chief Executive Officer
(“CEO”) has a requirement to hold 75 % of the
shares vested for seven years from the grant date. The fair
value of the RSUs with holding periods were discounted an
additional 30 % due to the lack of transferability of these
RSUs during the holding period. The discount was determined
using the weighted-average results as calculated under the
Chaffe and Finnerty models.
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Table of Contents
Performance
Units
In December 2008, the Company granted 200,000 performance units
to be settled in cash to the Company’s CEO. The terms of
the performance units are substantially similar to the
performance-based RSUs granted in December 2008 and include a
performance condition and a market condition. The value of the
performance units is equivalent to the value of one share of the
Company’s Series A common stock and any amounts that
may vest under the performance unit award agreement are to be
settled in cash rather than shares of the Company’s
Series A common stock. The compensation committee of the
Board of Directors may elect to convert all or any portion of
the performance units award to an award of an equivalent value
of performance-based RSUs. The performance units vest on
October 14, 2011.
| 20. | Leases |
Total rent expense charged to operations under all operating
leases is as follows:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In $ millions) | ||||||||||||
|
Total
|
160 | 148 | 141 | |||||||||
Future minimum lease payments under non-cancelable rental and
lease agreements which have initial or remaining terms in excess
of one year as of December 31, 2010 are as follows:
| Capital | Operating | |||||||
| (In $ millions) | ||||||||
|
2011
|
43 | 62 | ||||||
|
2012
|
42 | 48 | ||||||
|
2013
|
39 | 44 | ||||||
|
2014
|
39 | 38 | ||||||
|
2015
|
34 | 45 | ||||||
|
Later years
|
285 | 99 | ||||||
|
Sublease income
|
- | (25 | ) | |||||
|
Minimum lease commitments
|
482 | 311 | ||||||
|
Less amounts representing interest
|
237 | |||||||
|
Present value of net minimum lease obligations
|
245 | |||||||
The Company expects that, in the normal course of business,
leases that expire will be renewed or replaced by other leases.
| 21. | Derivative Financial Instruments |
Interest
Rate Risk Management
To reduce the interest rate risk inherent in the Company’s
variable rate debt, the Company utilizes interest rate swap
agreements to convert a portion of the variable rate debt to a
fixed rate obligation. These interest rate swap agreements are
designated as cash flow hedges. If an interest rate swap
agreement is terminated prior to its maturity, the amount
previously recorded to Accumulated other comprehensive income
(loss), net is recognized into earnings over the period that the
hedged transaction impacts earnings. If the hedging relationship
is discontinued because it is probable that the forecasted
transaction will not occur according to the original strategy,
any related amounts previously recorded to Accumulated other
comprehensive income (loss), net are recognized into earnings
immediately.
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In March 2007, in anticipation of the April 2007 debt
refinancing, the Company entered into various US dollar and Euro
interest rate swap agreements, which became effective on
April 2, 2007, with notional amounts of $1.6 billion
and €150 million, respectively. The notional amount of
the $1.6 billion US dollar interest rate swaps decreased by
$400 million effective January 2, 2008 and decreased
by another $200 million effective January 2, 2009. To
offset the declines, the Company entered into US dollar interest
rate swaps with a combined notional amount of $400 million
which became effective on January 2, 2008 and an additional
US dollar interest rate swap with a notional amount of
$200 million which became effective April 2, 2009. The
notional amount of the interest rate swaps decreased by
$100 million effective January 4, 2010. No new swaps
were entered into to offset the declines.
In August 2010, the Company executed a forward-starting interest
rate swap with a notional amount of $1.1 billion. As a
result of the swap, the Company has fixed the LIBOR portion of
$1.1 billion of the Company’s floating rate debt at
1.7125 % effective January 2, 2012 through
January 2, 2014.
US-dollar interest rate swap derivative arrangements are as
follows:
| As of December 31, 2010 | ||||||||||
| Notional Value | Effective Date | Expiration Date | Fixed Rate (1) | |||||||
| (In $ millions) | ||||||||||
| 100 | April 2, 2007 | January 2, 2011 | 4.92% | |||||||
| 800 | April 2, 2007 | January 2, 2012 | 4.92% | |||||||
| 400 | January 2, 2008 | January 2, 2012 | 4.33% | |||||||
| 200 | April 2, 2009 | January 2, 2012 | 1.92% | |||||||
| 1,100 | January 2, 2012 | January 2, 2014 | 1.71% | |||||||
| 2,600 | ||||||||||
| (1) | Fixes the LIBOR portion of the Company’s US-dollar denominated variable rate borrowings (Note 13). |
| As of December 31, 2009 | ||||||||||
| Notional Value | Effective Date | Expiration Date | Fixed Rate (1) | |||||||
| (In $ millions) | ||||||||||
| 100 | April 2, 2007 | January 4, 2010 | 4.92% | |||||||
| 100 | April 2, 2007 | January 2, 2011 | 4.92% | |||||||
| 800 | April 2, 2007 | January 2, 2012 | 4.92% | |||||||
| 400 | January 2, 2008 | January 2, 2012 | 4.33% | |||||||
| 200 | April 2, 2009 | January 2, 2012 | 1.92% | |||||||
| 1,600 | ||||||||||
| (1) | Fixes the LIBOR portion of the Company’s US-dollar denominated variable rate borrowings (Note 13). |
Euro interest rate swap derivative arrangements are as follows:
| As of December 31, 2010 and December 31, 2009 | ||||||||||
| Notional Value | Effective Date | Expiration Date | Fixed Rate (1) | |||||||
| (In € millions) | ||||||||||
| 150 | April 2, 2007 | April 2, 2011 | 4.04% | |||||||
| (1) | Fixes the EURIBOR portion of the Company’s Euro denominated variable rate borrowings (Note 13). |
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Interest rate swap activity recorded in the consolidated
financial statements is as follows:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In $ millions) | ||||||||||||
|
Hedging activities
|
||||||||||||
|
Interest expense
|
(68 | ) | (63 | ) | (18 | ) | ||||||
|
Ineffective portion
|
||||||||||||
|
Other income (expense), net
|
- | - | 1 | |||||||||
|
Unrealized gain (loss)
|
||||||||||||
|
Other comprehensive income (loss), net of tax
|
17 | 15 | (79 | ) | ||||||||
Foreign
Exchange Risk Management
Certain subsidiaries have assets and liabilities denominated in
currencies other than their respective functional currencies,
which creates foreign exchange risk. The Company enters into
foreign currency forwards and swaps to minimize its exposure to
foreign currency fluctuations. Through these instruments, the
Company mitigates its foreign currency exposure on transactions
with third party entities as well as intercompany transactions.
The foreign currency forwards and swaps are not designated as
hedges under FASB ASC Topic 815. Gains and losses on foreign
currency forwards and swaps entered into to offset foreign
exchange impacts on intercompany balances are classified as
Other income (expense), net, in the consolidated statements of
operations. Gains and losses on foreign currency forwards and
swaps entered into to offset foreign exchange impacts on all
other assets and liabilities are classified as Foreign exchange
gain (loss), net, in the consolidated statements of operations.
The following table indicates the total US dollar equivalents of
net foreign exchange exposure related to (short) long foreign
exchange forward contracts outstanding by currency. All of the
contracts included in the table below will have approximately
offsetting effects from actual underlying payables, receivables,
intercompany loans or other assets or liabilities subject to
foreign exchange remeasurement.
| 2011 Maturity | ||||
| (In $ millions) | ||||
|
Currency
|
||||
|
Euro
|
(217 | ) | ||
|
British pound sterling
|
(43 | ) | ||
|
Chinese renminbi
|
(265 | ) | ||
|
Mexican peso
|
22 | |||
|
Singapore dollar
|
26 | |||
|
Canadian dollar
|
35 | |||
|
Japanese yen
|
1 | |||
|
Brazilian real
|
(12 | ) | ||
|
Swedish krona
|
14 | |||
|
Other
|
6 | |||
|
Total
|
(433 | ) | ||
To protect the foreign currency exposure of a net investment in
a foreign operation, the Company entered into cross currency
swaps with certain financial institutions in 2004. The cross
currency swaps and the Euro-denominated portion of the senior
term loan were designated as a hedge of a net investment of a
foreign operation. The Company dedesignated the net investment
hedge due to the debt refinancing in April 2007 and redesignated
the cross currency swaps and new senior Euro term loan in July
2007.
Under the terms of the cross currency swap arrangements, the
Company paid approximately €13 million in interest and
received approximately $16 million in interest on June 15
and December 15 of each year. Upon maturity of the
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cross currency swap agreements in June 2008, the Company owed
€276 million ($426 million) and was owed
$333 million. In settlement of the obligation, the Company
paid $93 million (net of interest of $3 million) in
June 2008.
During the year ended December 31, 2008, the Company
dedesignated €385 million of the €400
Euro-denominated portion of the term loan, previously designated
as a hedge of a net investment of a foreign operation. The
remaining €15 million Euro-denominated portion of the
term loan was dedesignated as a hedge of a net investment of a
foreign operation in June 2009. Prior to the dedesignations, the
Company had been using external derivative contracts to offset
foreign currency exposures on certain intercompany loans. As a
result of the dedesignations, the foreign currency exposure
created by the Euro-denominated term loan is expected to offset
the foreign currency exposure on certain intercompany loans,
decreasing the need for external derivative contracts and
reducing the Company’s exposure to external counterparties.
The notional values of the foreign currency forwards and swaps
are as follows:
| As of December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In $ millions) | ||||||||
|
Total
|
751 | 1,463 | ||||||
The effective portion of the gain (loss) on the derivative
(cross currency swaps) is recorded in the consolidated financial
statements as follows:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In $ millions) | ||||||||||||
|
Accumulated other comprehensive income (loss), net
|
- | - | (19 | ) | ||||||||
The gain (loss) related to items excluded from the assessment of
hedge effectiveness of the cross currency swaps are recorded in
the consolidated statements of operations as follows:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In $ millions) | ||||||||||||
|
Other income (expense), net
|
- | - | 1 | |||||||||
Commodity
Risk Management
The Company has exposure to the prices of commodities in its
procurement of certain raw materials. The Company manages its
exposure to commodity risk primarily through the use of
long-term supply agreements, multi-year purchasing and sales
agreements and forward purchase contracts. The Company regularly
assesses its practice of using forward purchase contracts and
other raw material hedging instruments in accordance with
changes in market conditions. Forward purchases and swap
contracts for raw materials are principally settled through
physical delivery of the commodity. For qualifying contracts,
the Company has elected to apply the normal purchases and normal
sales exception of FASB ASC Topic 815 based on the probability
at the inception and throughout the term of the contract that
the Company would not settle net and the transaction would
result in the physical delivery of the commodity. As such,
realized gains and losses on these contracts are included in the
cost of the commodity upon the settlement of the contract.
In addition, the Company occasionally enters into financial
derivatives to hedge a component of a raw material or energy
source. Typically, these types of transactions do not qualify
for hedge accounting. These instruments are marked to market at
each reporting period and gains (losses) are included in Cost of
sales in the consolidated statements of operations. The Company
recognized no gain or loss from these types of contracts during
the years
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ended December 31, 2010, 2009 and 2008. As of
December 31, 2010, the Company did not have any open
financial derivative contracts for commodities.
Information regarding changes in the fair value of derivative
arrangements is as follows:
| Year Ended December 31, 2010 | Year Ended December 31, 2009 | |||||||||||||||
|
Gain (Loss)
|
Gain (Loss)
|
|||||||||||||||
|
Recognized
|
Recognized
|
|||||||||||||||
|
in Other
|
Gain (Loss)
|
in Other
|
Gain (Loss)
|
|||||||||||||
|
Comprehensive
|
Recognized
|
Comprehensive
|
Recognized
|
|||||||||||||
| Income | in Income | Income | in Income | |||||||||||||
| (In $ millions) | (In $ millions) | |||||||||||||||
|
Derivatives designated as cash flow
|
||||||||||||||||
|
hedging instruments
|
||||||||||||||||
|
Interest rate swaps
|
(31 | ) (1) | (68 | ) (2) | (40 | ) (3) | (63 | ) (2) | ||||||||
|
Derivatives not designated as hedging
|
||||||||||||||||
|
instruments
|
||||||||||||||||
|
Foreign currency forwards and swaps
|
- | 33 | - | (20 | ) | |||||||||||
|
Total
|
(31 | ) | (35 | ) | (40 | ) | (83 | ) | ||||||||
| (1) | Amount excludes $5 million of losses associated with the Company’s equity method investments’ derivative activity and $15 million of tax expense. | |
| (2) | Amount represents reclassification from Accumulated other comprehensive income (loss), net and is classified as Interest expense in the consolidated statement of operations. | |
| (3) | Amount excludes $8 million of tax expense. |
See Note 22, Fair Value Measurements, for additional
information regarding the fair value of the Company’s
derivative arrangements.
| 22. | Fair Value Measurements |
As discussed in Note 2, the Company adopted certain
provisions of FASB ASC Topic 820 on January 1, 2008 and
2009. FASB ASC Topic 820 establishes a three-tiered fair value
hierarchy that prioritizes inputs to valuation techniques used
in fair value calculations. The three levels of inputs are
defined as follows:
Level 1 — unadjusted quoted prices for identical
assets or liabilities in active markets accessible by the Company
Level 2 — inputs that are observable in the
marketplace other than those inputs classified as Level 1
Level 3 — inputs that are unobservable in the
marketplace and significant to the valuation
FASB ASC Topic 820 requires the Company to maximize the use of
observable inputs and minimize the use of unobservable inputs.
If a financial instrument uses inputs that fall in different
levels of the hierarchy, the instrument will be categorized
based upon the lowest level of input that is significant to the
fair value calculation.
The Company’s financial assets and liabilities are measured
at fair value on a recurring basis and include marketable
securities and derivative financial instruments. Marketable
securities include US government and corporate bonds and equity
securities. Derivative financial instruments include interest
rate swaps and foreign currency forwards and swaps.
Marketable Securities.
Where possible, the Company
utilizes quoted prices in active markets to measure debt and
equity securities; such items are classified as Level 1 in
the hierarchy and include equity securities and US government
bonds. When quoted market prices for identical assets are
unavailable, varying valuation techniques are
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Table of Contents
used. Common inputs in valuing these assets include, among
others, benchmark yields and issuer spreads. Such assets are
classified as Level 2 in the hierarchy and typically
include corporate bonds and other US government securities.
Derivative Financial Instruments.
Derivative
financial instruments are valued in the market using discounted
cash flow techniques. These techniques incorporate Level 1
and Level 2 inputs such as interest rates and foreign
currency exchange rates. These market inputs are utilized in the
discounted cash flow calculation considering the
instrument’s term, notional amount, discount rate and
credit risk. Significant inputs to the derivative valuation for
interest rate swaps and foreign currency forwards and swaps are
observable in the active markets and are classified as
Level 2 in the hierarchy.
Mutual Funds.
Valued at the net asset value per
share or unit multiplied by the number of shares or units held
as of the measurement date.
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Assets and liabilities measured at fair value on a recurring
basis are as follows:
| Fair Value Measurement Using | ||||||||||||
|
Quoted Prices
|
Significant
|
|||||||||||
|
in Active
|
Other
|
|||||||||||
|
Markets for
|
Observable
|
|||||||||||
|
Identical Assets
|
Inputs
|
|||||||||||
| (Level 1) | (Level 2) | Total | ||||||||||
| (In $ millions) | ||||||||||||
|
Marketable securities, at fair value
|
||||||||||||
|
US corporate debt securities
|
- | 1 | 1 | |||||||||
|
Mutual funds
|
77 | - | 77 | |||||||||
|
Derivatives not designated as hedging instruments
|
||||||||||||
|
Foreign currency forwards and swaps
|
- | 3 | 3 | (1) | ||||||||
|
Total assets as of December 31, 2010
|
77 | 4 | 81 | |||||||||
|
Derivatives designated as cash flow hedging
|
||||||||||||
|
instruments
|
||||||||||||
|
Interest rate swaps
|
- | (59 | ) | (59 | ) (2) | |||||||
|
Interest rate swaps
|
- | (14 | ) | (14 | ) (3) | |||||||
|
Derivatives not designated as hedging instruments
|
||||||||||||
|
Foreign currency forwards and swaps
|
- | (10 | ) | (10 | ) (2) | |||||||
|
Total liabilities as of December 31, 2010
|
- | (83 | ) | (83 | ) | |||||||
|
Marketable securities, at fair value
|
||||||||||||
|
US government debt securities
|
- | 28 | 28 | |||||||||
|
US corporate debt securities
|
- | 1 | 1 | |||||||||
|
Total debt securities
|
- | 29 | 29 | |||||||||
|
Equity securities
|
52 | - | 52 | |||||||||
|
Mutual funds
|
2 | - | 2 | |||||||||
|
Derivatives not designated as hedging instruments
|
||||||||||||
|
Foreign currency forwards and swaps
|
- | 12 | 12 | (1) | ||||||||
|
Total assets as of December 31, 2009
|
54 | 41 | 95 | |||||||||
|
Derivatives designated as cash flow hedging
|
||||||||||||
|
instruments
|
||||||||||||
|
Interest rate swaps
|
- | (68 | ) | (68 | ) (2) | |||||||
|
Interest rate swaps
|
- | (44 | ) | (44 | ) (3) | |||||||
|
Derivatives not designated as hedging instruments
|
||||||||||||
|
Foreign currency forwards and swaps
|
- | (7 | ) | (7 | ) (2) | |||||||
|
Total liabilities as of December 31, 2009
|
- | (119 | ) | (119 | ) | |||||||
| (1) | Included in current Other assets in the consolidated balance sheets. | |
| (2) | Included in current Other liabilities in the consolidated balance sheets. | |
| (3) | Included in noncurrent Other liabilities in the consolidated balance sheets. |
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Carrying values and estimated fair values of financial
instruments that are not carried at fair value in the
Company’s consolidated balance sheets are as follows:
| As of December 31, | ||||||||||||||||
| 2010 | 2009 | |||||||||||||||
|
Carrying
|
Fair
|
Carrying
|
Fair
|
|||||||||||||
| Amount | Value | Amount | Value | |||||||||||||
| (In $ millions) | ||||||||||||||||
|
Cost investments
|
139 | - | 129 | (1) | - | |||||||||||
|
Insurance contracts in nonqualified pension trusts
|
70 | 70 | 66 | 66 | ||||||||||||
|
Long-term debt, including current installments of long-term
|
||||||||||||||||
|
debt
|
3,064 | 3,087 | 3,361 | 3,246 | ||||||||||||
| (1) | As Adjusted (Note 4 and Note 8) |
In general, the cost investments included in the table above are
not publicly traded and their fair values are not readily
determinable; however, the Company believes the carrying values
approximate or are less than the fair values.
As of December 31, 2010 and 2009, the fair values of cash
and cash equivalents, receivables, trade payables, short-term
debt 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.
Additionally, certain noncurrent receivables, principally
insurance recoverables, are carried at net realizable value.
The fair value of long-term debt is based on valuations from
third-party banks and market quotations.
| 23. | Commitments and Contingencies |
The Company is involved in legal and regulatory proceedings,
lawsuits and claims incidental to the normal conduct of
business, relating to such matters as product liability,
contract, antitrust, intellectual property, workers’
compensation, chemical exposure, prior acquisitions and
divestitures, past waste disposal practices and release of
chemicals into the environment. While it is impossible at this
time to determine with certainty the ultimate outcome of these
proceedings, lawsuits and claims, the Company is actively
defending those matters where the Company is named as a
defendant. Additionally, the Company believes, based on the
advice of legal counsel, that adequate reserves have been made
and that the ultimate outcomes of all such litigation and claims
will not have a material adverse effect on the financial
position of the Company; however, the ultimate outcome of any
given matter may have a material adverse impact on the results
of operations or cash flows of the Company in any given
reporting period.
Plumbing
Actions
CNA Holdings LLC (“CNA Holdings”), a US subsidiary of
the Company, which included the US business now conducted by the
Ticona business that is included in the Advanced Engineered
Materials segment, along with Shell Oil Company
(“Shell”), E.I. DuPont de Nemours and Company
(“DuPont”) and others, has been a defendant in a
series of lawsuits, including a number of class actions,
alleging that plastics manufactured by these companies that were
utilized in the production of plumbing systems for residential
property were defective or caused such plumbing systems to fail.
Based on, among other things, the findings of outside experts
and the successful use of Ticona’s acetal copolymer in
similar applications, CNA Holdings does not believe
Ticona’s acetal copolymer was defective or caused the
plumbing systems to fail. In addition, in many cases CNA
Holdings’ potential future exposure may be limited by
invocation of the statute of limitations.
In November 1995, CNA Holdings, DuPont and Shell entered into
national class action settlements that called for the
replacement of plumbing systems of claimants who have had
qualifying leaks, as well as reimbursements for
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Table of Contents
certain leak damage. In connection with such settlements, the
three companies had agreed to fund these replacements and
reimbursements up to an aggregate amount of $950 million.
As of December 31, 2010, the aggregate funding is
$1,111 million due to additional contributions and funding
commitments made primarily by other parties. The time to file
claims for the class in
Cox, et al. v. Hoechst Celanese
Corporation, et al.
,
No. 94-0047
(Chancery Ct., Obion County, Tennessee) has now expired.
Accordingly, the court ruled the terms of the Cox settlement
have been fully performed. The entity previously established to
administer all Cox related claims was dissolved on
September 24, 2010.
During the period between 1995 and 2001, CNA Holdings was also
named as a defendant in the following putative class actions:
| • | Couture, et al. v. Shell Oil Company, et al., No. 200-06-000001-985 (Quebec Superior Court, Canada). |
| • | Dilday, et al. v. Hoechst Celanese Corporation, et al., No. 15187 (Chancery Ct., Weakley County, Tennessee). |
| • | Furlan v. Shell Oil Company, et al., No. C967239 (British Columbia Supreme Court, Vancouver Registry, Canada). |
| • | Gariepy, et al. v. Shell Oil Company, et al., No. 30781/99 (Ontario Court General Division, Canada) (pending final approval of nationwide Canadian class settlement). |
| • | Shelter General Insurance Co., et al. v. Shell Oil Company, et al., No. 16809 (Chancery Ct., Weakley County, Tennessee). |
| • | St. Croix Ltd., et al. v. Shell Oil Company, et al., No. 1997/467 (Territorial Ct., St. Croix Division, the US Virgin Islands). |
| • | Tranter v. Shell Oil Company, et al., No. 46565/97 (Ontario Court General Division, Canada). |
On January 24, 2011 and February 7, 2011, the Chancery
Court for Weakley County, Tennessee entered judgments in the
Shelter General Insurance Co., et al., v. Shell Oil Company, et
al., No. 16809 and the Dilday, et al. v. Hoechst Celanese
Corporation, et al. No. 15187, respectively, dismissing
with prejudice all claims against the Company.
The class actions in Canada are subject to a pending settlement
that would result in the dismissal of those actions. In
addition, between 1994 and 2008 CNA Holdings was named as a
defendant in numerous actions of which three are actively
pending. In all of these actions, the plaintiffs have sought
recovery for alleged damages caused by leaking polybutylene
plumbing. Damage amounts have generally not been specified but
these actions generally do not involve (either individually or
in the aggregate) a large number of homes.
The Company’s remaining plumbing action reserves recorded
in the consolidated balance sheets as of December 31, 2010
and 2009 are $9 million and $55 million, respectively.
The Company recorded recoveries and reductions in legal reserves
related to plumbing actions (Note 17) to Other
(charges) gains, net in the consolidated statements of
operations as follows:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In $ millions) | ||||||||||||
|
Recoveries
|
14 | 1 | - | |||||||||
|
Legal reserve reductions
|
45 | 9 | - | |||||||||
|
Total (Note 17)
|
59 | 10 | - | |||||||||
Plumbing
Insurance Indemnifications
Celanese GmbH entered into agreements with insurance companies
related to product liability settlements associated with
plumbing action claims. These agreements, except those with
insolvent insurance companies,
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Table of Contents
require the Company to indemnify
and/or
defend these insurance companies in the event that third parties
seek additional monies for matters released in these agreements.
The indemnifications in these agreements do not provide for time
limitations.
In certain of the agreements, Celanese GmbH received a fixed
settlement amount. The indemnities under these agreements
generally are limited to, but in some cases are greater than,
the amount received in settlement from the insurance company.
The maximum exposure under some of these indemnifications is
$95 million, while other settlement agreements with fixed
settlement amounts have no stated indemnification limits.
There are other agreements whereby the settling insurer agreed
to pay a fixed percentage of claims that relate to that
insurer’s policies. The Company has provided
indemnification to the insurers for amounts paid in excess of
the settlement percentage. These indemnifications do not provide
for monetary or time limitations.
Polyester
Staple Antitrust Litigation
CNA Holdings, the successor in interest to Hoechst Celanese
Corporation (“HCC”), Celanese Americas Corporation and
Celanese GmbH (collectively, the “Celanese Entities”)
and Hoechst, the former parent of HCC, were named as defendants
in two actions (involving 25 individual participants) filed in
September 2006 by US purchasers of polyester staple fibers
manufactured and sold by HCC. The actions allege that the
defendants participated in a conspiracy to fix prices, rig bids
and allocate customers of polyester staple sold in the United
States. These actions were consolidated in a proceeding by a
Multi-District Litigation Panel in the United States District
Court for the Western District of North Carolina styled
In re
Polyester Staple Antitrust Litigation
, MDL 1516. On
June 12, 2008 the court dismissed these actions against all
Celanese Entities in consideration of a payment by the Company
of $107 million. This proceeding related to sales by the
polyester staple fibers business which Hoechst sold to KoSa,
Inc. in 1998. Accordingly, the impact of this settlement was
reflected within discontinued operations in the consolidated
statements of operations for the year ended December 31,
2008. Prior to December 31, 2008, the Company had entered
into tolling arrangements with four other alleged US purchasers
of polyester staple fibers manufactured and sold by the Celanese
Entities. These purchasers were not included in the settlement
and one such company filed suit against the Company in December
2008 in the Western District of North Carolina entitled
Milliken & Company v. CNA Holdings, Inc.,
Celanese Americas Corporation and Hoechst AG
(No. 8-SV-00578).
The Company is actively defending this matter and has filed a
motion to dismiss, which is pending with the court.
In December 1998, HCC sold its polyester staple business (the
“1998 Sale”) to KoSa B.V., f/k/a Arteva B.V., a
subsidiary of Koch Industries, Inc. (“KoSa”), under an
asset purchase agreement (“APA”). In August of 2002,
Arteva Specialties, S.a.r.l., a subsidiary of KoSa (“Arteva
Specialties”), pled guilty to a criminal violation of the
Sherman Act relating to anti-competitive conduct following the
1998 Sale. Shortly thereafter, various polyester staple
customers filed approximately 50 civil anti-trust lawsuits
against KoSa and Arteva Specialties, some of which alleged
anti-competitive conduct prior to the 1998 Sale. In a complaint
filed on November 3, 2003 in the United States District
Court for the Southern District of New York,
Koch Industries,
Inc. et al. v. Hoechst Aktiengellschaft et al.
,
No. 03-cv-8679,
Koch Industries, Inc., KoSa, Arteva Specialties and Arteva
Services S.a.r.l. sought recovery from Hoechst and the Celanese
Entities exceeding $371 million. In the complaint, the
plaintiffs alleged claims of fraud, unjust enrichment and
indemnification for retained liabilities and for breach of
contractual representations and warranties under the APA. Both
parties filed motions for summary judgment in 2009. On
July 19, 2010, the court granted in part and denied in part
the pending motions. The court dismissed the plaintiffs’
claims for fraud and unjust enrichment, which also eliminated
plaintiffs’ claims for punitive damages. The court also
held that the plaintiffs cannot recover damages for liabilities
arising out of the operation of the polyester staple business
incurred after the 1998 Sale but the plaintiffs can recover
damages for the costs of defending and settling civil antitrust
actions brought against them to the extent such damages arose
out of the operation of the polyester staple business prior to
the 1998 Sale (i.e., “Retained Liabilities” as defined
in the APA). The plaintiffs alleged that they had paid
approximately $135 million for the costs of settling and
defending both pre- and post-1998 Sale civil antitrust actions.
The court reserved for trial the calculation and allocation of
any damages to which the plaintiffs would be entitled under the
relevant sections of the APA. The court also preserved for trial
the plaintiffs’ claim for breach of contractual
representations and warranties under the APA. On
November 3, 2010, the Company participated in a
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mediation of this matter. Following mediation and during the
quarter ended December 31, 2010, the parties settled the
case pursuant to a confidential agreement. The settlement is a
substantial portion of the amount recognized as Earnings (loss)
from operations of discontinued operations in the consolidated
statements of operations. On December 21, 2010, the case
was dismissed with prejudice.
Other
Commercial Actions
In April 2007, Southern Chemical Corporation
(“Southern”) filed a petition in the 190th Judicial
District Court of Harris County, Texas styled
Southern
Chemical Corporation v. Celanese Ltd
. (Cause
No. 2007-25490),
seeking declaratory judgment relating to the terms of a
multi-year supply contract. The trial court granted the
Company’s motion for summary judgment in March 2008
dismissing Southern’s claims. In September 2009, the
intermediate Texas appellate court reversed the trial court
decision and remanded the case to the trial court. The Texas
Supreme Court subsequently declined both parties’ requests
that it hear the case. On August 15, 2010, Southern filed a
second amended petition adding a claim for breach of contract
and seeking equitable damages in an unspecified amount from the
Company. Southern amended its complaint again in November 2010.
Trial has been set for August 2011. The Company believes that
the contractual interpretations set forth by Southern lack merit
and is actively defending the matter.
Acetic
Acid Patent Infringement Matters
On May 9, 1999, Celanese International Corporation filed a
private criminal action styled
Celanese International
Corporation v. China Petrochemical Development Corporation
against China Petrochemical Development Corporation
(“CPDC”) in the Taiwan Kaoshiung District Court
alleging that CPDC infringed Celanese International
Corporation’s patent covering the manufacture of acetic
acid. Celanese International Corporation also filed a
supplementary civil brief that, in view of changes in Taiwanese
patent laws, was subsequently converted to a civil action
alleging damages against CPDC based on a period of infringement
of ten years,
1991-2000,
and based on CPDC’s own data that was reported to the
Taiwanese securities and exchange commission. Celanese
International Corporation’s patent was held valid by the
Taiwanese patent office. On August 31, 2005, the District
Court held that CPDC infringed Celanese International
Corporation’s acetic acid patent and awarded Celanese
International Corporation approximately $28 million (plus
interest) for the period of 1995 through 1999. In October 2008,
the High Court, on appeal, reversed the District Court’s
$28 million award to the Company. The Company appealed to
the Superior Court in November 2008, and the court remanded the
case to the Intellectual Property Court in June 2009. On
January 16, 2006, the District Court awarded Celanese
International Corporation $800,000 (plus interest) for the year
1990. In January 2009, the High Court, on appeal, affirmed the
District Court’s award and CPDC appealed on
February 5, 2009 to the Supreme Court. During the quarter
ended March 31, 2010, this case was remanded to the
Intellectual Property Court. In August 2010, the Intellectual
Property Court ruled in CPDC’s favor and Celanese filed an
appeal to the Supreme Court. On June 29, 2007, the District
Court awarded Celanese International Corporation
$60 million (plus interest) for the period of 2000 through
2005. CPDC appealed this ruling and in July 2009, the High Court
ruled in CPDC’s favor. The Company appealed to the Supreme
Court and in December 2009, the case was remanded to the
Intellectual Property Court.
Workers
Compensation Claims
The Company has been provided with notices of claims filed with
the South Carolina Workers’ Compensation Commission and the
North Carolina Industrial Commission. The notices of claims
identify various alleged injuries to current and former
employees arising from alleged exposure to undefined chemicals
at current and former plant sites in South Carolina and North
Carolina. As of December 31, 2010, there were 1,350 claims
pending. The Company has reserves for defense costs related to
these matters.
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Asbestos
Claims
The Company and several of its US subsidiaries are defendants in
asbestos cases. During the year ended December 31, 2010,
asbestos case activity is as follows:
| Asbestos Cases | ||||
|
As of December 31, 2009
|
526 | |||
|
Case adjustments
|
2 | |||
|
New cases filed
|
41 | |||
|
Resolved cases
|
(70) | |||
|
As of December 31, 2010
|
499 | |||
Because many of these cases involve numerous plaintiffs, the
Company is subject to claims significantly in excess of the
number of actual cases. The Company has reserves for defense
costs related to claims arising from these matters.
Award
Proceedings in relation to Domination Agreement and
Squeeze-Out
On October 1, 2004, Celanese GmbH and the Company’s
subsidiary, BCP Holdings GmbH (“BCP Holdings”), a
German limited liability company, entered into a Domination
Agreement pursuant to which the BCP Holdings became obligated to
offer to acquire all outstanding Celanese GmbH shares from the
minority shareholders of Celanese GmbH in return for payment of
fair cash compensation (the “Purchaser Offer”). The
amount of this fair cash compensation was determined to be
€41.92 per share in accordance with applicable German law.
All minority shareholders who elected not to sell their shares
to the BCP Holdings under the Purchaser Offer were entitled to
remain shareholders of Celanese GmbH and to receive from the BCP
Holdings a gross guaranteed annual payment of €3.27 per
Celanese GmbH share less certain corporate taxes in lieu of any
dividend.
As of March 30, 2005, several minority shareholders of
Celanese GmbH had initiated special award proceedings seeking
the court’s review of the amounts of the fair cash
compensation and of the guaranteed annual payment offered in the
Purchaser Offer under the Domination Agreement. In the Purchaser
Offer, 145,387 shares were tendered at the fair cash
compensation of €41.92, and 924,078 shares initially
remained outstanding and were entitled to the guaranteed annual
payment under the Domination Agreement. As a result of these
proceedings, the amount of the fair cash consideration and the
guaranteed annual payment paid under the Domination Agreement
could be increased by the court so that all minority
shareholders, including those who have already tendered their
shares in the Purchaser Offer for the fair cash compensation,
could claim the respective higher amounts. On December 12,
2006, the court of first instance appointed an expert to assist
the court in determining the value of Celanese GmbH.
On May 30, 2006 the majority shareholder of Celanese GmbH
adopted a squeeze-out resolution under which all outstanding
shares held by minority shareholders should be transferred to
BCP Holdings for a fair cash compensation of €66.99 per
share (the “Squeeze-Out”). This shareholder resolution
was challenged by shareholders but the Squeeze-Out became
effective after the disputes were settled on December 22,
2006. Award proceedings were subsequently filed by
79 shareholders against BCP Holdings with the Frankfurt
District Court requesting the court to set a higher amount for
the Squeeze-Out compensation.
Pursuant to a settlement agreement between BCP Holdings and
certain former Celanese GmbH shareholders, if the court sets a
higher value for the fair cash compensation or the guaranteed
payment under the Purchaser Offer or the Squeeze-Out
compensation, former Celanese GmbH shareholders who ceased to be
shareholders of Celanese GmbH due to the Squeeze-Out will be
entitled to claim for their shares the higher of the
compensation amounts determined by the court in these different
proceedings related to the Purchaser Offer and the Squeeze-Out.
If the fair cash compensation determined by the court is higher
than the Squeeze-Out compensation of € 66.99, then
1,069,465 shares will be entitled to an adjustment. If the
court confirms the value of the fair cash compensation under the
Domination Agreement but determines a higher value for the
Squeeze-Out compensation, 924,078 shares
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Table of Contents
would be entitled to an adjustment. Payments already received by
these shareholders as compensation for their shares will be
offset so that persons who ceased to be shareholders of Celanese
GmbH due to the Squeeze-Out are not entitled to more than the
higher of the amount set in the two court proceedings.
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.
As indemnification obligations often depend on the occurrence of
unpredictable future events, the future costs associated with
them cannot be determined at this time.
The Company has accrued for all probable and reasonably
estimable losses associated with all known matters or claims
that have been brought to its attention. 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
under 19 divestiture agreements entered into by Hoechst prior to
the demerger.
The Company’s obligation to indemnify Hoechst, and its
legal successors, for environmental liabilities associated with
contamination arising under these 19 divestiture agreements is
subject to the following thresholds:
| • | The Company will indemnify Hoechst, and its legal successors, against those liabilities up to €250 million; |
| • | Hoechst, and its legal successors, will bear those liabilities exceeding €250 million; provided, however, that the Company will reimburse Hoechst, and its legal successors, for one-third of liabilities exceeding €750 million in the aggregate. |
The aggregate maximum amount of environmental indemnifications
under the remaining divestiture agreements that provide for
monetary limits is approximately €750 million. Three
of the divestiture agreements do not provide for monetary
limits. Cumulative payments under the divestiture agreements are
as follows:
| As of December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In $ millions) | ||||||||
|
Total
|
54 | 51 | ||||||
Based on the estimate of the probability of loss under this
indemnification, the Company had reserves of $36 million as
of December 31, 2010 and 2009 for this contingency. Where
the Company is unable to reasonably determine the probability of
loss or estimate such loss under an indemnification, the Company
has not recognized any related liabilities.
The Company has also undertaken in the Demerger Agreement to
indemnify Hoechst and its legal successors for
(i) one-third of any and all 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 relates 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 provided for any significant reserves
associated with this indemnification as it is not probable or
estimable. The Company has made payments to Hoechst and its
legal successors of less than $1 million and
$0 million during the years ended December 31, 2010
and 2009, respectively, in connection with this indemnification.
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Table of Contents
| • | 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 any significant risk. As of December 31, 2010
and 2009, the Company had reserves in the aggregate of
$26 million and $28 million, respectively, for these
matters.
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, ranging from one year to thirty years. The
aggregate amount of guarantees provided for under these
agreements is approximately $205 million as of
December 31, 2010. Other agreements do not provide for any
monetary or time limitations.
| • | Purchase Obligations |
In the normal course of business, the Company enters into
commitments to purchase goods and services over a fixed period
of time. The Company maintains a number of
“take-or-pay”
contracts for purchases of raw materials, utilities and other
services. As of December 31, 2010, there were outstanding
future commitments of $1.6 billion under
take-or-pay
contracts. The Company recognized $3 million of losses
related to
take-or-pay
contract termination costs for the year ended December 31,
2010 related to the Company’s Pardies, France “Project
of Closure” (Note 4 and Note 17). The Company
does not expect to incur any material losses under
take-or-pay
contractual arrangements. Additionally, as of December 31,
2010, there were other outstanding commitments of
$308 million representing maintenance and service
agreements, energy and utility agreements, consulting contracts
and software agreements.
During March 2010, the Company successfully completed an amended
raw material purchase agreement with a supplier who had filed
for bankruptcy. Under the original contract, the Company made
advance payments in exchange for preferential pricing on certain
volumes of material purchases over the life of the contract. The
cancellation of the original contract and the terms of the
subsequent amendment resulted in the Company accelerating
amortization on the unamortized prepayment balance of
$22 million during the year ended December 31, 2010.
The accelerated amortization was recorded to Cost of sales in
the consolidated statements of operations as follows:
$20 million was recorded in the Acetyl Intermediates
segment and $2 million was recorded in the Advanced
Engineered Materials segment.
| 24. | Supplemental Cash Flow Information |
Supplemental cash flow information for cash and non-cash
activities is as follows:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In $ millions) | ||||||||||||
|
Taxes, net of refunds
|
135 | 17 | 98 | |||||||||
|
Interest, net of amounts capitalized
|
186 | 208 | 259 | |||||||||
|
Noncash investing and financing activities
|
||||||||||||
|
Fair value adjustment to securities available for sale, net of
tax
|
(2 | ) | (3 | ) | (25 | ) | ||||||
|
Capital lease obligations
|
33 | 38 | 103 | |||||||||
|
Accrued capital expenditures
|
21 | (9 | ) | (7 | ) | |||||||
|
Asset retirement obligations
|
25 | 30 | 8 | |||||||||
|
Accrued Ticona Kelsterbach plant relocation costs
|
(7 | ) | 22 | 17 | ||||||||
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Table of Contents
25.
Segment Information
Business
Segments
The Company operates through the following business segments:
| • | Advanced Engineered Materials |
The Company’s Advanced Engineered Materials segment
develops, produces and supplies a broad portfolio of high
performance specialty polymers for application in automotive,
medical and electronics products, as well as other consumer and
industrial applications. The Company and its strategic
affiliates are a leading participant in the global specialty
polymers industry. The primary products of Advanced Engineered
Materials are used in a broad range of products including
automotive components, medical devices, electronics, appliances,
industrial applications, battery separators, conveyor belts,
filtration equipment, coatings, electrical and electronics.
Effective April 1, 2010, the Company moved its investment
in its Ibn Sina affiliate from its Acetyl Intermediates segment
to its Advanced Engineered Materials segment to reflect a change
in the affiliate’s business dynamics and growth
opportunities as a result of the future construction of the POM
facility (Note 4). The Company has retrospectively adjusted
its reportable segments for prior periods to conform to the
current year presentation.
| • | Consumer Specialties |
The Company’s Consumer Specialties segment consists of the
Acetate Products and Nutrinova businesses. The Acetate Products
business primarily produces and supplies acetate tow, which is
used in the production of filter products. The Company also
produces acetate flake which is processed into acetate fiber in
the form of a tow band. The Company’s Nutrinova business
produces and sells
Sunett
®
,
a high intensity sweetener, and food protection ingredients,
such as sorbates, for the food, beverage and pharmaceuticals
industries.
| • | Industrial Specialties |
The Company’s Industrial Specialties segment includes the
Emulsions and EVA Performance Polymers businesses. The
Company’s Emulsions business is a global leader which
produces a broad product portfolio, specializing in vinyl
acetate ethylene emulsions, and is a recognized authority on low
VOC (volatile organic compounds), an environmentally-friendly
technology. The Company’s emulsions products are used in a
wide array of applications including paints and coatings,
adhesives, building and construction, glass fiber, textiles and
paper. EVA Performance Polymers business offers a complete line
of low-density polyethylene and specialty ethylene vinyl acetate
resins and compounds. EVA Performance Polymers’ products
are used in many applications including flexible packaging
films, lamination film products, hot melt adhesives, medical
tubing and devices, automotive carpet and solar cell
encapsulation films.
In July 2009, the Company completed the sale of its PVOH
business to Sekisui (Note 4).
| • | Acetyl Intermediates |
The Company’s Acetyl Intermediates segment produces and
supplies acetyl products, including acetic acid, VAM, acetic
anhydride and acetate esters. These products are generally used
as starting materials for colorants, paints, adhesives,
coatings, medicines and more. Other chemicals produced in this
business segment are organic solvents and intermediates for
pharmaceutical, agricultural and chemical products.
In November 2010, the Company announced its newly developed
advanced technology to produce ethanol. This innovative, new
process combines our proprietary and leading acetyl platform
with highly advanced manufacturing technology to produce ethanol
from hydrocarbon-sourced feedstocks.
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Table of Contents
| • | Other Activities |
Other Activities primarily consists of corporate center costs,
including financing and administrative activities such as legal,
accounting and treasury functions and interest income or expense
associated with financing activities of the Company and the
Captives.
The business segment management reporting and controlling
systems are based on the same accounting policies as those
described in the summary of significant accounting policies in
Note 2. The Company evaluates performance based on
operating profit, net earnings (loss), cash flows and other
measures of financial performance reported in accordance with US
GAAP.
Sales and revenues related to transactions between business
segments are generally recorded at values that approximate
third-party selling prices.
|
Advanced
|
||||||||||||||||||||||||||||
|
Engineered
|
Consumer
|
Industrial
|
Acetyl
|
Other
|
||||||||||||||||||||||||
| Materials | Specialties | Specialties | Intermediates | Activities | Eliminations | Consolidated | ||||||||||||||||||||||
| (In $ millions) | ||||||||||||||||||||||||||||
| Year ended December 31, 2010 | ||||||||||||||||||||||||||||
|
Net sales
|
1,109 | 1,098 | (1) | 1,036 | 3,082 | (1) | 2 | (409 | ) | 5,918 | ||||||||||||||||||
|
Other (charges) gains, net
|
31 | (76 | ) | 25 | (3) | (12 | ) | (14 | ) (3) | - | (46 | ) | ||||||||||||||||
|
Equity in net earnings (loss) of affiliates
|
144 | 2 | - | 5 | 17 | - | 168 | |||||||||||||||||||||
|
Earnings (loss) from continuing operations before tax
|
329 | 237 | 89 | 252 | (369 | ) | - | 538 | ||||||||||||||||||||
|
Depreciation and amortization
|
76 | (4) | 42 | 41 | 117 | (4) | 11 | - | 287 | |||||||||||||||||||
|
Capital expenditures
|
52 | 50 | 55 | 49 | 16 | - | 222 | (2) | ||||||||||||||||||||
|
Goodwill and intangible assets, net
|
423 | 284 | 55 | 264 | - | - | 1,026 | |||||||||||||||||||||
|
Total assets
|
2,765 | 998 | 841 | 1,909 | 1,768 | - | 8,281 | |||||||||||||||||||||
| Year ended December 31, 2009 - As Adjusted (Note 4) | ||||||||||||||||||||||||||||
|
Net sales
|
808 | 1,084 | (1) | 974 | 2,603 | (1) | 2 | (389 | ) | 5,082 | ||||||||||||||||||
|
Other (charges) gains, net
|
(18 | ) | (9 | ) | 4 | (3) | (91 | ) | (22 | ) (3) | - | (136 | ) | |||||||||||||||
|
Equity in net earnings (loss) of affiliates
|
78 | 1 | - | 5 | 15 | - | 99 | |||||||||||||||||||||
|
Earnings (loss) from continuing operations before tax
|
114 | 288 | 89 | 102 | (342 | ) | - | 251 | ||||||||||||||||||||
|
Depreciation and amortization
|
73 | 50 | 51 | 123 | 11 | - | 308 | |||||||||||||||||||||
|
Capital expenditures
|
27 | 50 | 45 | 36 | 9 | - | 167 | (2) | ||||||||||||||||||||
|
Goodwill and intangible assets, net
|
385 | 299 | 62 | 346 | - | - | 1,092 | |||||||||||||||||||||
|
Total assets
|
2,268 | 1,083 | 740 | 1,985 | 2,336 | - | 8,412 | |||||||||||||||||||||
| Year ended December 31, 2008 - As Adjusted (Note 4) | ||||||||||||||||||||||||||||
|
Net sales
|
1,061 | 1,155 | (1) | 1,406 | 3,875 | (1) | 2 | (676 | ) | 6,823 | ||||||||||||||||||
|
Other (charges) gains, net
|
(29 | ) | (2 | ) | (3 | ) | (78 | ) | 4 | - | (108 | ) | ||||||||||||||||
|
Equity in net earnings (loss) of affiliates
|
155 | - | - | 3 | 14 | - | 172 | |||||||||||||||||||||
|
Earnings (loss) from continuing operations before tax
|
190 | 237 | 47 | 312 | (353 | ) | - | 433 | ||||||||||||||||||||
|
Depreciation and amortization
|
76 | 53 | 62 | 150 | 9 | - | 350 | |||||||||||||||||||||
|
Capital expenditures
|
55 | 49 | 67 | 86 | 10 | - | 267 | (2) | ||||||||||||||||||||
| (1) | Net sales for Acetyl Intermediates and Consumer Specialties include inter-segment sales of $400 million and $9 million, respectively, for the year ended December 31, 2010; $383 million and $6 million, respectively, for the year ended December 31, 2009; and $676 million and $0 million, respectively, for the year ended December 31, 2008. |
| (2) | Excludes expenditures related to the relocation of the Company’s Ticona plant in Kelsterbach (Note 28) and includes an increase in accrued capital expenditures of $21 million for the year ended December 31, 2010, and a decrease in accrued capital expenditures of $9 million and $7 million for the years ended December 31, 2009 and 2008, respectively (Note 24). |
| (3) | Includes $7 million and $10 million for the years ended December 31, 2010 and 2009, respectively, of insurance recoveries received from the Company’s captive insurance companies related to the Edmonton, Alberta, Canada facility that eliminates in consolidation. |
| (4) | Includes $2 million for Advanced Engineered Materials and $20 million for Acetyl Intermediates for the accelerated amortization of the unamortized prepayment related to a raw material purchase agreement (Note 23). |
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Table of Contents
Geographical
Segments
Revenues and noncurrent assets are presented based on the
location of the business. The net sales based on the geographic
location of the Company’s facilities are as follows:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In $ millions) | ||||||||||||
|
Net sales
|
||||||||||||
|
US
|
1,555 | 1,262 | 1,719 | |||||||||
|
International
|
4,363 | 3,820 | 5,104 | |||||||||
|
Total
|
5,918 | 5,082 | 6,823 | |||||||||
|
International countries with significant net sales
|
||||||||||||
|
Germany
|
1,950 | 1,733 | 2,469 | |||||||||
|
China
|
596 | 460 | 393 | |||||||||
|
Singapore
|
612 | 513 | 783 | |||||||||
|
Belgium
|
451 | 459 | 478 | |||||||||
|
Canada
|
277 | 173 | 276 | |||||||||
|
Mexico
|
267 | 277 | 391 | |||||||||
Property, plant and equipment, net based on the geographic
location of the Company’s facilities is as follows:
| As of December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In $ millions) | ||||||||
|
Property, plant and equipment, net
|
||||||||
|
US
|
650 | 634 | ||||||
|
International
|
2,367 | 2,163 | ||||||
|
Total
|
3,017 | 2,797 | ||||||
|
International countries with significant property, plant and
equipment, net
|
||||||||
|
Germany
|
1,321 | 1,075 | ||||||
|
China
|
557 | 516 | ||||||
|
Singapore
|
90 | 98 | ||||||
|
Belgium
|
30 | 27 | ||||||
|
Canada
|
131 | 131 | ||||||
|
Mexico
|
109 | 103 | ||||||
26.
Transactions and Relationships with Affiliates and Related
Parties
The Company is a party to various transactions with affiliated
companies. Entities in which the Company has an investment
accounted for under the cost or equity method of accounting are
considered affiliates; any transactions or balances with such
companies are considered affiliate transactions. Transactions
with affiliates are as follows:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In $ millions) | ||||||||||||
|
Purchases from affiliates
|
169 | 143 | 143 | |||||||||
|
Sales to affiliates
|
8 | 6 | 36 | |||||||||
|
Interest income from affiliates
|
1 | 1 | 2 | |||||||||
|
Interest expense to affiliates
|
- | 1 | 9 | |||||||||
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Table of Contents
Refer to Note 8 for additional information related to
dividends received from affiliates.
Balances with affiliates recorded in the consolidated balance
sheets are as follows:
| As of December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In $ millions) | ||||||||
|
Trade and other receivables from affiliates
|
1 | - | ||||||
|
Current notes receivable (including interest) from affiliates
|
20 | 12 | ||||||
|
Noncurrent notes receivable (including interest) from affiliates
|
- | 7 | ||||||
|
Total receivables from affiliates
|
21 | 19 | ||||||
|
Accounts payable and other liabilities due affiliates
|
24 | 15 | ||||||
|
Short-term borrowings from affiliates
|
48 | 85 | ||||||
|
Total due to affiliates
|
72 | 100 | ||||||
The Company has agreements with certain affiliates, primarily
InfraServ entities, whereby excess affiliate cash is lent to and
managed by the Company, at variable interest rates governed by
those agreements.
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Table of Contents
| 27. | Earnings (Loss) Per Share |
| Year Ended December 31, | ||||||||||||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||||||||||||
| Basic | Diluted | Basic | Diluted | Basic | Diluted | |||||||||||||||||||
| As adjusted (Note 4) | ||||||||||||||||||||||||
| (In $ millions, except for share and per share data) | ||||||||||||||||||||||||
|
Amounts attributable to Celanese Corporation
|
||||||||||||||||||||||||
|
Earnings (loss) from continuing operations
|
426 | 426 | 494 | 494 | 371 | 371 | ||||||||||||||||||
|
Earnings (loss) from discontinued operations
|
(49 | ) | (49 | ) | 4 | 4 | (90 | ) | (90 | ) | ||||||||||||||
|
Net earnings (loss)
|
377 | 377 | 498 | 498 | 281 | 281 | ||||||||||||||||||
|
Less: Cumulative preferred stock dividend
|
(3 | ) | - | (10 | ) | - | (10 | ) | - | |||||||||||||||
|
Net earnings (loss) available to common shareholders
|
374 | 377 | 488 | 498 | 271 | 281 | ||||||||||||||||||
|
Weighted average shares — basic
|
154,564,136 | 154,564,136 | 143,688,749 | 143,688,749 | 148,350,273 | 148,350,273 | ||||||||||||||||||
|
Dilutive stock options
|
1,828,746 | 1,167,922 | 2,559,268 | |||||||||||||||||||||
|
Dilutive restricted stock units
|
425,385 | 172,246 | 504,439 | |||||||||||||||||||||
|
Assumed conversion of preferred stock
|
1,553,925 | 12,086,604 | 12,057,893 | |||||||||||||||||||||
|
Weighted average shares — diluted
|
154,564,136 | 158,372,192 | 143,688,749 | 157,115,521 | 148,350,273 | 163,471,873 | ||||||||||||||||||
|
Per share
|
||||||||||||||||||||||||
|
Earnings (loss) from continuing operations
|
2.73 | 2.69 | 3.37 | 3.14 | 2.44 | 2.27 | ||||||||||||||||||
|
Earnings (loss) from discontinued operations
|
(0.31 | ) | (0.31 | ) | 0.03 | 0.03 | (0.61 | ) | (0.55 | ) | ||||||||||||||
|
Net earnings (loss)
|
2.42 | 2.38 | 3.40 | 3.17 | 1.83 | 1.72 | ||||||||||||||||||
Securities that were not included in the computation of diluted
net earnings per share as their effect would have been
antidilutive are as follows:
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Stock options
|
575,266 | 2,433,515 | 2,298,159 | |||||||||
|
Restricted stock units
|
74,166 | 302,635 | 90,625 | |||||||||
|
Total
|
649,432 | 2,736,150 | 2,388,784 | |||||||||
| 28. | Ticona Kelsterbach Plant Relocation |
In November 2006, the Company finalized a settlement agreement
with the Frankfurt, Germany Airport (“Fraport”) to
relocate the Kelsterbach, Germany Ticona operations, included in
the Advanced Engineered Materials segment, resolving several
years of legal disputes related to the planned Fraport
expansion. As a result of the settlement, the Company will
transition Ticona’s operations from Kelsterbach to the
Hoechst Industrial Park in the Rhine Main area in Germany. Under
the original agreement, Fraport agreed to pay the Company a
total of €670 million over a five-year period to
offset costs associated with the transition of the operations
from its current location and the closure of the Kelsterbach
plant. The Company subsequently decided to expand the scope of
the new production facilities.
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Table of Contents
In February 2009, the Company announced the Fraport supervisory
board approved the acceleration of the 2009 and 2010 payments of
€200 million and €140 million, respectively,
required by the settlement agreement signed in June 2007. In
February 2009, the Company received a discounted amount of
€322 million ($412 million) under this agreement.
In addition, the Company received €59 million
($75 million) in value-added tax from Fraport which was
remitted to the tax authorities in April 2009. Amounts received
from Fraport are accounted for as deferred proceeds and are
included in noncurrent Other liabilities in the consolidated
balance sheets. The Kelsterbach, Germany Ticona operations are
included in the Advanced Engineered Materials segment.
A summary of the financial statement impact associated with the
Ticona Kelsterbach plant relocation is as follows:
|
Total From
|
||||||||||||
|
Inception
|
||||||||||||
|
Through
|
||||||||||||
| Year Ended December 31, |
December 31,
|
|||||||||||
| 2010 | 2009 | 2010 | ||||||||||
| (In $ millions) | ||||||||||||
|
Proceeds received from Fraport
|
- | 412 | 749 | |||||||||
|
Costs expensed
|
26 | 16 | 59 | |||||||||
|
Costs capitalized
|
305 | (1) | 373 | (1) | 921 | |||||||
|
Lease buyout
|
22 | (2) | - | 22 | ||||||||
| (1) | Includes decrease in accrued capital expenditures of $7 million for the year ended December 31, 2010, and an increase of $22 million for the year ended December 31, 2009. | |
| (2) | Buyout of building capital lease in anticipation of Kelsterbach relocation. |
29.
Insurance Recoveries
Due to certain events in October 2008 and subsequent periodic
cessations of production of the Company’s specialty
polymers products produced at its EVA Performance Polymers
facility in Edmonton, Alberta, Canada, the Company declared two
events of force majeure. During 2009, the Company replaced
long-lived assets damaged in October 2008. As a result of these
events and subsequent periodic cessation of production, the
Company recorded $25 million and $10 million of
insurance recoveries during the year ended December 31,
2010 and 2009, respectively, in the Company’s Industrial
Specialties segment. These amounts were partially offset by
$7 million and $10 million, respectively, recorded as
a charge by the Company’s Captives included in the Other
Activities segment. The net insurance recoveries of
$18 million recorded during the year ended
December 31, 2010 consisted of $8 million related to
property damage and $10 million related to business
interruption. The net insurance recoveries are included in Other
(charges) gains, net in the consolidated statements of
operations (Note 17).
In May 2007, the Company announced that it had an unplanned
outage at its Clear Lake, Texas acetic acid facility. At that
time, the Company originally expected the outage to last until
the end of May. Upon restart of the facility, additional
operating issues were identified which necessitated an extension
of the outage for further, more extensive repairs. In July 2007,
the Company announced that the further repairs were unsuccessful
on restart of the unit. All repairs were completed in early
August 2007 and normal production capacity resumed. During the
years ended December 31, 2010, 2009 and 2008, the Company
recorded $0 million, $6 million and $38 million,
respectively, of insurance recoveries from its reinsurers in
partial satisfaction of claims that the Company made based on
losses resulting from the outage. These insurance recoveries are
included in Other (charges) gains, net in the consolidated
statements of operations (Note 17).
30.
Consolidating Guarantor Financial Information
In September 2010, the Company completed the issuance of the
Notes (Note 13) by Celanese US (the
“Issuer”). The Notes are guaranteed by Celanese
Corporation (the “Parent Guarantor”) and substantially
all of its US subsidiaries (the “Subsidiary
Guarantors”). For cash management purposes, the Company
transfers cash between Parent Guarantor, Issuer, Subsidiary
Guarantors and non-guarantors through intercompany financing
arrangements or
156
Table of Contents
declaration of dividends between the respective parent and its
subsidiaries. The transfer of cash under these activities
facilitates the ability of the recipient to make specified
third-party payments. As a result, the Company presents such
intercompany financing activities and dividends within the
category where the ultimate use of cash to third parties is
presented in the accompanying consolidated statements of cash
flows. The consolidating financial statements for the Parent
Guarantor, the Issuer, the Subsidiary Guarantors and the
non-guarantors are as follows:
CELANESE
CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF OPERATIONS
| Year Ended December 31, 2010 | ||||||||||||||||||||||||||||||
|
Parent
|
Subsidiary
|
Non-
|
||||||||||||||||||||||||||||
| Guarantor | Issuer | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||||||||
| (In $ millions) | ||||||||||||||||||||||||||||||
|
Net sales
|
- | - | 2,277 | 4,570 | (929 | ) | 5,918 | |||||||||||||||||||||||
|
Cost of sales
|
- | - | (1,704 | ) | (3,976 | ) | 942 | (4,738 | ) | |||||||||||||||||||||
|
Gross profit
|
- | - | 573 | 594 | 13 | 1,180 | ||||||||||||||||||||||||
|
Selling, general and administrative expenses
|
- | - | (183 | ) | (322 | ) | - | (505 | ) | |||||||||||||||||||||
|
Amortization of intangible assets
|
- | - | (14 | ) | (47 | ) | - | (61 | ) | |||||||||||||||||||||
|
Research and development expenses
|
- | - | (42 | ) | (28 | ) | - | (70 | ) | |||||||||||||||||||||
|
Other (charges) gains, net
|
- | - | 68 | (114 | ) | - | (46 | ) | ||||||||||||||||||||||
|
Foreign exchange gain (loss), net
|
- | - | - | (3 | ) | - | (3 | ) | ||||||||||||||||||||||
|
Gain (loss) on disposition of businesses and assets, net
|
- | - | 3 | 5 | - | 8 | ||||||||||||||||||||||||
|
Operating profit
|
- | - | 405 | 85 | 13 | 503 | ||||||||||||||||||||||||
|
Equity in net earnings (loss) of affiliates
|
407 | 551 | 153 | 126 | (1,069 | ) | 168 | |||||||||||||||||||||||
|
Interest expense
|
- | (173 | ) | (38 | ) | (46 | ) | 53 | (204 | ) | ||||||||||||||||||||
|
Refinancing expense
|
- | (16 | ) | - | - | - | (16 | ) | ||||||||||||||||||||||
|
Interest income
|
- | 21 | 30 | 9 | (53 | ) | 7 | |||||||||||||||||||||||
|
Dividend income — cost investments
|
- | - | - | 73 | - | 73 | ||||||||||||||||||||||||
|
Other income (expense), net
|
(27 | ) | 2 | (52 | ) | 84 | - | 7 | ||||||||||||||||||||||
|
Earnings (loss) from continuing operations before tax
|
380 | 385 | 498 | 331 | (1,056 | ) | 538 | |||||||||||||||||||||||
|
Income tax (provision) benefit
|
(3 | ) | 22 | (91 | ) | (38 | ) | (2 | ) | (112 | ) | |||||||||||||||||||
|
Earnings (loss) from continuing operations
|
377 | 407 | 407 | 293 | (1,058 | ) | 426 | |||||||||||||||||||||||
|
Earnings (loss) from operation of discontinued operations
|
- | - | (78 | ) | (2 | ) | - | (80 | ) | |||||||||||||||||||||
|
Gain (loss) on disposal of discontinued operations
|
- | - | 2 | - | - | 2 | ||||||||||||||||||||||||
|
Income tax (provision) benefit from discontinued operations
|
- | - | 28 | 1 | - | 29 | ||||||||||||||||||||||||
|
Earnings (loss) from discontinued operations
|
- | - | (48 | ) | (1 | ) | - | (49 | ) | |||||||||||||||||||||
|
Net earnings (loss)
|
377 | 407 | 359 | 292 | (1,058 | ) | 377 | |||||||||||||||||||||||
|
Net (earnings) loss attributable to noncontrolling interests
|
- | - | - | - | - | - | ||||||||||||||||||||||||
|
Net earnings (loss) attributable to Celanese Corporation
|
377 | 407 | 359 | 292 | (1,058 | ) | 377 | |||||||||||||||||||||||
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Table of Contents
CELANESE
CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF OPERATIONS
| Year Ended December 31, 2009 | ||||||||||||||||||||||||||||||
|
Parent
|
Subsidiary
|
Non-
|
||||||||||||||||||||||||||||
| Guarantor | Issuer | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||||||||
| (In $ millions) (As Adjusted, Note 4) | ||||||||||||||||||||||||||||||
|
Net sales
|
- | - | 2,046 | 3,986 | (950 | ) | 5,082 | |||||||||||||||||||||||
|
Cost of sales
|
- | - | (1,443 | ) | (3,578 | ) | 942 | (4,079 | ) | |||||||||||||||||||||
|
Gross profit
|
- | - | 603 | 408 | (8 | ) | 1,003 | |||||||||||||||||||||||
|
Selling, general and administrative expenses
|
- | - | (176 | ) | (298 | ) | - | (474 | ) | |||||||||||||||||||||
|
Amortization of intangible assets
|
- | - | (12 | ) | (65 | ) | - | (77 | ) | |||||||||||||||||||||
|
Research and development expenses
|
- | - | (41 | ) | (29 | ) | - | (70 | ) | |||||||||||||||||||||
|
Other (charges) gains, net
|
- | - | (1 | ) | (135 | ) | - | (136 | ) | |||||||||||||||||||||
|
Foreign exchange gain (loss), net
|
- | - | - | 2 | - | 2 | ||||||||||||||||||||||||
|
Gain (loss) on disposition of businesses and assets, net
|
- | - | 6 | 26 | 10 | 42 | ||||||||||||||||||||||||
|
Operating profit
|
- | - | 379 | (91 | ) | 2 | 290 | |||||||||||||||||||||||
|
Equity in net earnings (loss) of affiliates
|
491 | 523 | 72 | 86 | (1,073 | ) | 99 | |||||||||||||||||||||||
|
Interest expense
|
- | (169 | ) | (44 | ) | (47 | ) | 53 | (207 | ) | ||||||||||||||||||||
|
Interest income
|
- | 24 | 27 | 10 | (53 | ) | 8 | |||||||||||||||||||||||
|
Dividend income — cost investments
|
- | - | 38 | 19 | - | 57 | ||||||||||||||||||||||||
|
Other income (expense), net
|
- | 4 | (2 | ) | 2 | - | 4 | |||||||||||||||||||||||
|
Earnings (loss) from continuing operations before tax
|
491 | 382 | 470 | (21 | ) | (1,071 | ) | 251 | ||||||||||||||||||||||
|
Income tax (provision) benefit
|
7 | 109 | 276 | (149 | ) | - | 243 | |||||||||||||||||||||||
|
Earnings (loss) from continuing operations
|
498 | 491 | 746 | (170 | ) | (1,071 | ) | 494 | ||||||||||||||||||||||
|
Earnings (loss) from operation of discontinued operations
|
- | - | - | 6 | - | 6 | ||||||||||||||||||||||||
|
Gain (loss) on disposal of discontinued operations
|
- | - | - | - | - | - | ||||||||||||||||||||||||
|
Income tax (provision) benefit from discontinued operations
|
- | - | - | (2 | ) | - | (2 | ) | ||||||||||||||||||||||
|
Earnings (loss) from discontinued operations
|
- | - | - | 4 | - | 4 | ||||||||||||||||||||||||
|
Net earnings (loss)
|
498 | 491 | 746 | (166 | ) | (1,071 | ) | 498 | ||||||||||||||||||||||
|
Net (earnings) loss attributable to noncontrolling interests
|
- | - | - | - | - | - | ||||||||||||||||||||||||
|
Net earnings (loss) attributable to Celanese Corporation
|
498 | 491 | 746 | (166 | ) | (1,071 | ) | 498 | ||||||||||||||||||||||
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CELANESE
CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF OPERATIONS
| Year Ended December 31, 2008 | ||||||||||||||||||||||||||||||
|
Parent
|
Subsidiary
|
Non-
|
||||||||||||||||||||||||||||
| Guarantor | Issuer | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||||||||
| (In $ millions) (As Adjusted, Note 4) | ||||||||||||||||||||||||||||||
|
Net sales
|
- | - | 2,732 | 5,306 | (1,215 | ) | 6,823 | |||||||||||||||||||||||
|
Cost of sales
|
- | - | (2,141 | ) | (4,621 | ) | 1,195 | (5,567 | ) | |||||||||||||||||||||
|
Gross profit
|
- | - | 591 | 685 | (20 | ) | 1,256 | |||||||||||||||||||||||
|
Selling, general and administrative expenses
|
- | - | (250 | ) | (307 | ) | 12 | (545 | ) | |||||||||||||||||||||
|
Amortization of intangible assets
|
- | - | (12 | ) | (64 | ) | - | (76 | ) | |||||||||||||||||||||
|
Research and development expenses
|
- | - | (46 | ) | (29 | ) | - | (75 | ) | |||||||||||||||||||||
|
Other (charges) gains, net
|
- | - | (32 | ) | (76 | ) | - | (108 | ) | |||||||||||||||||||||
|
Foreign exchange gain (loss), net
|
- | - | - | (4 | ) | - | (4 | ) | ||||||||||||||||||||||
|
Gain (loss) on disposition of businesses and assets, net
|
- | - | (6 | ) | (2 | ) | - | (8 | ) | |||||||||||||||||||||
|
Operating profit
|
- | - | 245 | 203 | (8 | ) | 440 | |||||||||||||||||||||||
|
Equity in net earnings (loss) of affiliates
|
265 | 343 | 217 | 149 | (802 | ) | 172 | |||||||||||||||||||||||
|
Interest expense
|
- | (210 | ) | (88 | ) | (76 | ) | 113 | (261 | ) | ||||||||||||||||||||
|
Interest income
|
- | 57 | 47 | 40 | (113 | ) | 31 | |||||||||||||||||||||||
|
Dividend income — cost investments
|
- | - | 33 | 15 | - | 48 | ||||||||||||||||||||||||
|
Other income (expense), net
|
- | 1 | (9 | ) | 11 | - | 3 | |||||||||||||||||||||||
|
Earnings (loss) from continuing operations before tax
|
265 | 191 | 445 | 342 | (810 | ) | 433 | |||||||||||||||||||||||
|
Income tax (provision) benefit
|
16 | 74 | (94 | ) | (62 | ) | 3 | (63 | ) | |||||||||||||||||||||
|
Earnings (loss) from continuing operations
|
281 | 265 | 351 | 280 | (807 | ) | 370 | |||||||||||||||||||||||
|
Earnings (loss) from operation of discontinued operations
|
- | - | (118 | ) | (2 | ) | - | (120 | ) | |||||||||||||||||||||
|
Gain (loss) on disposal of discontinued operations
|
- | - | - | 6 | - | 6 | ||||||||||||||||||||||||
|
Income tax (provision) benefit from discontinued operations
|
- | - | 26 | (2 | ) | - | 24 | |||||||||||||||||||||||
|
Earnings (loss) from discontinued operations
|
- | - | (92 | ) | 2 | - | (90 | ) | ||||||||||||||||||||||
|
Net earnings (loss)
|
281 | 265 | 259 | 282 | (807 | ) | 280 | |||||||||||||||||||||||
|
Net (earnings) loss attributable to noncontrolling interests
|
- | - | - | 1 | - | 1 | ||||||||||||||||||||||||
|
Net earnings (loss) attributable to Celanese Corporation
|
281 | 265 | 259 | 283 | (807 | ) | 281 | |||||||||||||||||||||||
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CELANESE
CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS
| As of December 31, 2010 | ||||||||||||||||||||||||||||||
|
Parent
|
Subsidiary
|
Non-
|
||||||||||||||||||||||||||||
| Guarantor | Issuer | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||||||||
| (In $ millions) | ||||||||||||||||||||||||||||||
|
ASSETS
|
||||||||||||||||||||||||||||||
|
Current assets
|
||||||||||||||||||||||||||||||
|
Cash and cash equivalents
|
- | - | 128 | 612 | - | 740 | ||||||||||||||||||||||||
|
Trade receivables — third party and affiliates
|
- | - | 246 | 672 | (91 | ) | 827 | |||||||||||||||||||||||
|
Non-trade receivables
|
- | 10 | 1,400 | 515 | (1,672 | ) | 253 | |||||||||||||||||||||||
|
Inventories
|
- | - | 164 | 484 | (38 | ) | 610 | |||||||||||||||||||||||
|
Deferred income taxes
|
- | 25 | 33 | 34 | - | 92 | ||||||||||||||||||||||||
|
Marketable securities, at fair value
|
- | - | 77 | 1 | - | 78 | ||||||||||||||||||||||||
|
Assets held for sale
|
- | - | 9 | - | - | 9 | ||||||||||||||||||||||||
|
Other assets
|
- | 48 | 33 | 43 | (65 | ) | 59 | |||||||||||||||||||||||
|
Total current assets
|
- | 83 | 2,090 | 2,361 | (1,866 | ) | 2,668 | |||||||||||||||||||||||
|
Investments in affiliates
|
903 | 3,721 | 1,413 | 530 | (5,729 | ) | 838 | |||||||||||||||||||||||
|
Property, plant and equipment, net
|
- | - | 650 | 2,367 | - | 3,017 | ||||||||||||||||||||||||
|
Deferred income taxes
|
- | 19 | 404 | 20 | - | 443 | ||||||||||||||||||||||||
|
Marketable securities, at fair value
|
- | - | - | - | - | - | ||||||||||||||||||||||||
|
Other assets
|
- | 614 | 125 | 389 | (839 | ) | 289 | |||||||||||||||||||||||
|
Goodwill
|
- | - | 297 | 477 | - | 774 | ||||||||||||||||||||||||
|
Intangible assets, net
|
- | - | 79 | 173 | - | 252 | ||||||||||||||||||||||||
|
Total assets
|
903 | 4,437 | 5,058 | 6,317 | (8,434 | ) | 8,281 | |||||||||||||||||||||||
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
||||||||||||||||||||||||||||||
|
Current liabilities
|
||||||||||||||||||||||||||||||
|
Short-term borrowings and current installments of long-term
debt — third party and affiliates
|
- | 1,227 | 137 | 190 | (1,326 | ) | 228 | |||||||||||||||||||||||
|
Trade payables — third party and affiliates
|
- | - | 249 | 515 | (91 | ) | 673 | |||||||||||||||||||||||
|
Other liabilities
|
- | 87 | 385 | 544 | (420 | ) | 596 | |||||||||||||||||||||||
|
Deferred income taxes
|
- | - | - | 28 | - | 28 | ||||||||||||||||||||||||
|
Income taxes payable
|
(26 | ) | (309 | ) | 314 | 39 | (1 | ) | 17 | |||||||||||||||||||||
|
Total current liabilities
|
(26 | ) | 1,005 | 1,085 | 1,316 | (1,838 | ) | 1,542 | ||||||||||||||||||||||
|
Long-term debt
|
- | 2,498 | 980 | 346 | (834 | ) | 2,990 | |||||||||||||||||||||||
|
Deferred income taxes
|
- | - | - | 116 | - | 116 | ||||||||||||||||||||||||
|
Uncertain tax positions
|
3 | 17 | 28 | 225 | - | 273 | ||||||||||||||||||||||||
|
Benefit obligations
|
- | - | 1,230 | 129 | - | 1,359 | ||||||||||||||||||||||||
|
Other liabilities
|
- | 14 | 123 | 954 | (16 | ) | 1,075 | |||||||||||||||||||||||
|
Total Celanese Corporation shareholders’ equity
|
926 | 903 | 1,612 | 3,231 | (5,746 | ) | 926 | |||||||||||||||||||||||
|
Noncontrolling interests
|
- | - | - | - | - | - | ||||||||||||||||||||||||
|
Total shareholders’ equity
|
926 | 903 | 1,612 | 3,231 | (5,746 | ) | 926 | |||||||||||||||||||||||
|
Total liabilities and shareholders’ equity
|
903 | 4,437 | 5,058 | 6,317 | (8,434 | ) | 8,281 | |||||||||||||||||||||||
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CELANESE
CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS
| As of December 31, 2009 | ||||||||||||||||||||||||||||||
|
Parent
|
Subsidiary
|
Non-
|
||||||||||||||||||||||||||||
| Guarantor | Issuer | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||||||||
| (In $ millions) (As Adjusted, Note 4) | ||||||||||||||||||||||||||||||
|
ASSETS
|
||||||||||||||||||||||||||||||
|
Current assets
|
||||||||||||||||||||||||||||||
|
Cash and cash equivalents
|
5 | - | 520 | 729 | - | 1,254 | ||||||||||||||||||||||||
|
Trade receivables — third party and affiliates
|
- | - | 274 | 602 | (155 | ) | 721 | |||||||||||||||||||||||
|
Non-trade receivables
|
- | 13 | 913 | 509 | (1,173 | ) | 262 | |||||||||||||||||||||||
|
Inventories
|
- | - | 148 | 415 | (41 | ) | 522 | |||||||||||||||||||||||
|
Deferred income taxes
|
- | - | 32 | 11 | (1 | ) | 42 | |||||||||||||||||||||||
|
Marketable securities, at fair value
|
- | - | 2 | 1 | - | 3 | ||||||||||||||||||||||||
|
Assets held for sale
|
- | - | - | 2 | - | 2 | ||||||||||||||||||||||||
|
Other assets
|
- | 12 | 25 | 59 | (46 | ) | 50 | |||||||||||||||||||||||
|
Total current assets
|
5 | 25 | 1,914 | 2,328 | (1,416 | ) | 2,856 | |||||||||||||||||||||||
|
Investments in affiliates
|
574 | 3,282 | 1,316 | 465 | (4,845 | ) | 792 | |||||||||||||||||||||||
|
Property, plant and equipment, net
|
- | - | 634 | 2,163 | - | 2,797 | ||||||||||||||||||||||||
|
Deferred income taxes
|
12 | 40 | 375 | 57 | - | 484 | ||||||||||||||||||||||||
|
Marketable securities, at fair value
|
- | - | 80 | - | - | 80 | ||||||||||||||||||||||||
|
Other assets
|
- | 614 | 133 | 413 | (849 | ) | 311 | |||||||||||||||||||||||
|
Goodwill
|
- | - | 284 | 514 | - | 798 | ||||||||||||||||||||||||
|
Intangible assets, net
|
- | - | 60 | 234 | - | 294 | ||||||||||||||||||||||||
|
Total assets
|
591 | 3,961 | 4,796 | 6,174 | (7,110 | ) | 8,412 | |||||||||||||||||||||||
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
||||||||||||||||||||||||||||||
|
Current liabilities
|
||||||||||||||||||||||||||||||
|
Short-term borrowings and current installments of long-term
debt — third party and affiliates
|
- | 768 | 141 | 230 | (897 | ) | 242 | |||||||||||||||||||||||
|
Trade payables — third party and affiliates
|
- | - | 261 | 543 | (155 | ) | 649 | |||||||||||||||||||||||
|
Other liabilities
|
- | 98 | 343 | 486 | (316 | ) | 611 | |||||||||||||||||||||||
|
Deferred income taxes
|
- | - | (6 | ) | 39 | - | 33 | |||||||||||||||||||||||
|
Income taxes payable
|
3 | (297 | ) | 284 | 86 | (4 | ) | 72 | ||||||||||||||||||||||
|
Total current liabilities
|
3 | 569 | 1,023 | 1,384 | (1,372 | ) | 1,607 | |||||||||||||||||||||||
|
Long-term debt
|
- | 2,756 | 989 | 358 | (844 | ) | 3,259 | |||||||||||||||||||||||
|
Deferred income taxes
|
- | - | - | 137 | - | 137 | ||||||||||||||||||||||||
|
Uncertain tax positions
|
2 | 18 | 19 | 190 | - | 229 | ||||||||||||||||||||||||
|
Benefit obligations
|
- | - | 1,167 | 121 | - | 1,288 | ||||||||||||||||||||||||
|
Other liabilities
|
- | 44 | 176 | 1,105 | (19 | ) | 1,306 | |||||||||||||||||||||||
|
Total Celanese Corporation shareholders’ equity
|
586 | 574 | 1,422 | 2,879 | (4,875 | ) | 586 | |||||||||||||||||||||||
|
Noncontrolling interests
|
- | - | - | - | - | - | ||||||||||||||||||||||||
|
Total shareholders’ equity
|
586 | 574 | 1,422 | 2,879 | (4,875 | ) | 586 | |||||||||||||||||||||||
|
Total liabilities and shareholders’ equity
|
591 | 3,961 | 4,796 | 6,174 | (7,110 | ) | 8,412 | |||||||||||||||||||||||
161
Table of Contents
CELANESE
CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF CASH FLOWS
| As of December 31, 2010 | ||||||||||||||||||||||||||||||
|
Parent
|
Subsidiary
|
Non-
|
||||||||||||||||||||||||||||
| Guarantor | Issuer | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||||||||
| (In $ millions) | ||||||||||||||||||||||||||||||
|
Net cash provided by (used in) operating activities
|
(42 | ) | - | 49 | 445 | - | 452 | |||||||||||||||||||||||
|
Investing activities from continuing operations
|
||||||||||||||||||||||||||||||
|
Capital expenditures on property, plant and equipment
|
- | - | (88 | ) | (113 | ) | - | (201 | ) | |||||||||||||||||||||
|
Acquisitions, net of cash acquired
|
- | - | (46 | ) | - | - | (46 | ) | ||||||||||||||||||||||
|
Proceeds from sale of businesses and assets, net
|
- | - | 4 | 22 | - | 26 | ||||||||||||||||||||||||
|
Capital expenditures related to Ticona Kelsterbach
plant relocation
|
- | - | - | (312 | ) | - | (312 | ) | ||||||||||||||||||||||
|
Other, net
|
- | - | (6 | ) | (21 | ) | - | (27 | ) | |||||||||||||||||||||
|
Net cash provided by (used in) investing activities
|
- | - | (136 | ) | (424 | ) | - | (560 | ) | |||||||||||||||||||||
|
Financing activities from continuing operations
|
||||||||||||||||||||||||||||||
|
Short-term borrowings (repayments), net
|
- | - | 3 | (19 | ) | - | (16 | ) | ||||||||||||||||||||||
|
Proceeds from long-term debt
|
- | 600 | - | - | - | 600 | ||||||||||||||||||||||||
|
Repayments of long-term debt
|
- | (827 | ) | (2 | ) | (68 | ) | - | (897 | ) | ||||||||||||||||||||
|
Refinancing costs
|
- | (24 | ) | - | - | - | (24 | ) | ||||||||||||||||||||||
|
Proceeds (repayments) from intercompany financing activities
|
- | 251 | (218 | ) | (33 | ) | - | - | ||||||||||||||||||||||
|
Purchases of treasury stock, including related fees
|
(48 | ) | - | - | - | - | (48 | ) | ||||||||||||||||||||||
|
Dividends from subsidiary
|
86 | 86 | - | - | (172 | ) | - | |||||||||||||||||||||||
|
Dividends to parent
|
- | (86 | ) | (86 | ) | - | 172 | - | ||||||||||||||||||||||
|
Stock option exercises
|
14 | - | - | - | - | 14 | ||||||||||||||||||||||||
|
Series A common stock dividends
|
(28 | ) | - | - | - | - | (28 | ) | ||||||||||||||||||||||
|
Preferred stock dividends
|
(3 | ) | - | - | - | - | (3 | ) | ||||||||||||||||||||||
|
Other, net
|
16 | - | (2 | ) | - | - | 14 | |||||||||||||||||||||||
|
Net cash provided by (used in) financing activities
|
37 | - | (305 | ) | (120 | ) | - | (388 | ) | |||||||||||||||||||||
|
Exchange rate effects on cash and cash equivalents
|
- | - | - | (18 | ) | - | (18 | ) | ||||||||||||||||||||||
|
Net increase (decrease) in cash and cash equivalents
|
(5 | ) | - | (392 | ) | (117 | ) | - | (514 | ) | ||||||||||||||||||||
|
Cash and cash equivalents at beginning of period
|
5 | - | 520 | 729 | - | 1,254 | ||||||||||||||||||||||||
|
Cash and cash equivalents at end of period
|
- | - | 128 | 612 | - | 740 | ||||||||||||||||||||||||
162
Table of Contents
CELANESE
CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year Ended December 31, 2009 | ||||||||||||||||||||||||||||||
|
Parent
|
Subsidiary
|
Non-
|
||||||||||||||||||||||||||||
| Guarantor | Issuer | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||||||||
| (In $ millions) (As Adjusted, Note 4) | ||||||||||||||||||||||||||||||
|
Net cash provided by (used in) operating activities
|
- | - | 298 | 298 | - | 596 | ||||||||||||||||||||||||
|
Investing activities from continuing operations
|
||||||||||||||||||||||||||||||
|
Capital expenditures on property, plant and equipment
|
- | - | (58 | ) | (118 | ) | - | (176 | ) | |||||||||||||||||||||
|
Acquisitions, net of cash acquired
|
- | - | - | (9 | ) | - | (9 | ) | ||||||||||||||||||||||
|
Proceeds from sale of businesses and assets, net
|
- | - | 132 | 39 | - | 171 | ||||||||||||||||||||||||
|
Deferred proceeds on Ticona Kelsterbach plant relocation
|
- | - | - | 412 | - | 412 | ||||||||||||||||||||||||
|
Capital expenditures related to Ticona Kelsterbach
plant relocation
|
- | - | - | (351 | ) | - | (351 | ) | ||||||||||||||||||||||
|
Proceeds from sale of marketable securities
|
- | - | - | 15 | - | 15 | ||||||||||||||||||||||||
|
Other, net
|
- | - | (4 | ) | (27 | ) | - | (31 | ) | |||||||||||||||||||||
|
Net cash provided by (used in) investing activities
|
- | - | 70 | (39 | ) | - | 31 | |||||||||||||||||||||||
|
Financing activities from continuing operations
|
||||||||||||||||||||||||||||||
|
Short-term borrowings (repayments), net
|
- | - | (4 | ) | (5 | ) | - | (9 | ) | |||||||||||||||||||||
|
Proceeds from long-term debt
|
- | - | - | - | - | - | ||||||||||||||||||||||||
|
Repayments of long-term debt
|
- | (28 | ) | (16 | ) | (36 | ) | - | (80 | ) | ||||||||||||||||||||
|
Refinancing costs
|
- | (3 | ) | - | - | - | (3 | ) | ||||||||||||||||||||||
|
Proceeds (repayments) from intercompany financing activities
|
- | 31 | (31 | ) | - | - | - | |||||||||||||||||||||||
|
Dividends from subsidiary
|
24 | 24 | 4 | - | (52 | ) | - | |||||||||||||||||||||||
|
Dividends to parent
|
- | (24 | ) | (24 | ) | (4 | ) | 52 | - | |||||||||||||||||||||
|
Stock option exercises
|
14 | - | - | - | - | 14 | ||||||||||||||||||||||||
|
Series A common stock dividends
|
(23 | ) | - | - | - | - | (23 | ) | ||||||||||||||||||||||
|
Preferred stock dividends
|
(10 | ) | - | - | - | - | (10 | ) | ||||||||||||||||||||||
|
Other, net
|
- | - | (1 | ) | - | - | (1 | ) | ||||||||||||||||||||||
|
Net cash provided by (used in) financing activities
|
5 | - | (72 | ) | (45 | ) | - | (112 | ) | |||||||||||||||||||||
|
Exchange rate effects on cash and cash equivalents
|
- | - | - | 63 | - | 63 | ||||||||||||||||||||||||
|
Net increase (decrease) in cash and cash equivalents
|
5 | - | 296 | 277 | - | 578 | ||||||||||||||||||||||||
|
Cash and cash equivalents at beginning of period
|
- | - | 224 | 452 | - | 676 | ||||||||||||||||||||||||
|
Cash and cash equivalents at end of period
|
5 | - | 520 | 729 | - | 1,254 | ||||||||||||||||||||||||
163
Table of Contents
CELANESE
CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year Ended December 31, 2008 | ||||||||||||||||||||||||||||||
|
Parent
|
Subsidiary
|
Non-
|
||||||||||||||||||||||||||||
| Guarantor | Issuer | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||||||||
| (In $ millions) (As Adjusted, Note 4) | ||||||||||||||||||||||||||||||
|
Net cash provided by (used in) operating activities
|
7 | - | 229 | 350 | - | 586 | ||||||||||||||||||||||||
|
Investing activities from continuing operations
|
||||||||||||||||||||||||||||||
|
Capital expenditures on property, plant and equipment
|
- | - | (100 | ) | (174 | ) | - | (274 | ) | |||||||||||||||||||||
|
Proceeds from sale of businesses and assets, net
|
- | - | 4 | 5 | - | 9 | ||||||||||||||||||||||||
|
Deferred proceeds on Ticona
|
||||||||||||||||||||||||||||||
|
Kelsterbach plant relocation
|
- | - | - | 311 | - | 311 | ||||||||||||||||||||||||
|
Capital expenditures related to Ticona plant relocation
|
- | - | - | (185 | ) | - | (185 | ) | ||||||||||||||||||||||
|
Proceeds from sale of marketable securities
|
- | - | - | 202 | - | 202 | ||||||||||||||||||||||||
|
Purchases of marketable securities
|
- | - | - | (91 | ) | - | (91 | ) | ||||||||||||||||||||||
|
Distributions from subsidiary
|
- | 93 | - | - | (93 | ) | - | |||||||||||||||||||||||
|
Distributions to parent
|
- | - | (93 | ) | - | 93 | - | |||||||||||||||||||||||
|
Settlement of cross currency swap agreements
|
- | (93 | ) | - | - | - | (93 | ) | ||||||||||||||||||||||
|
Other, net
|
- | - | (33 | ) | (47 | ) | - | (80 | ) | |||||||||||||||||||||
|
Net cash provided by (used in) investing activities
|
- | - | (222 | ) | 21 | - | (201 | ) | ||||||||||||||||||||||
|
Financing activities from continuing operations
|
||||||||||||||||||||||||||||||
|
Short-term borrowings (repayments), net
|
- | - | 5 | (69 | ) | - | (64 | ) | ||||||||||||||||||||||
|
Proceeds from long-term debt
|
- | - | - | 13 | - | 13 | ||||||||||||||||||||||||
|
Repayments of long-term debt
|
- | (29 | ) | (1 | ) | (17 | ) | - | (47 | ) | ||||||||||||||||||||
|
Proceeds (repayments) from intercompany financing activities
|
- | 29 | 282 | (311 | ) | - | - | |||||||||||||||||||||||
|
Purchases of treasury stock, including related fees
|
(378 | ) | - | - | - | - | (378 | ) | ||||||||||||||||||||||
|
Dividends from subsidiary
|
359 | 359 | - | - | (718 | ) | - | |||||||||||||||||||||||
|
Dividends to parent
|
- | (359 | ) | (359 | ) | - | 718 | - | ||||||||||||||||||||||
|
Stock option exercises
|
18 | - | - | - | - | 18 | ||||||||||||||||||||||||
|
Series A common stock dividends
|
(24 | ) | - | - | - | - | (24 | ) | ||||||||||||||||||||||
|
Preferred stock dividends
|
(10 | ) | - | - | - | - | (10 | ) | ||||||||||||||||||||||
|
Other, net
|
(6 | ) | - | (1 | ) | - | - | (7 | ) | |||||||||||||||||||||
|
Net cash provided by (used in) financing activities
|
(41 | ) | - | (74 | ) | (384 | ) | - | (499 | ) | ||||||||||||||||||||
|
Exchange rate effects on cash and cash equivalents
|
- | - | - | (35 | ) | - | (35 | ) | ||||||||||||||||||||||
|
Net increase (decrease) in cash and cash equivalents
|
(34 | ) | - | (67 | ) | (48 | ) | - | (149 | ) | ||||||||||||||||||||
|
Cash and cash equivalents at beginning of period
|
34 | - | 291 | 500 | - | 825 | ||||||||||||||||||||||||
|
Cash and cash equivalents at end of period
|
- | - | 224 | 452 | - | 676 | ||||||||||||||||||||||||
164
Table of Contents
31.
Subsequent Events
On January 6, 2011, the Company declared a cash dividend of
$0.05 per share on its Series A common stock amounting to
$8 million. The cash dividend was for the period from
November 2, 2010 to January 31, 2011 and was paid on
February 1, 2011 to holders of record as of
January 18, 2011.
In January 2011, the Company signed letters of intent for
projects to construct and operate industrial ethanol production
facilities in Nanjing, China, at the Nanjing Chemical Industrial
Park, and in Zhuhai, China, at the Gaolan Port Economic Zone.
The Company also signed a memorandum of understanding with Wison
(China) Holding Co., Ltd., a Chinese synthesis gas supplier, for
production of certain feedstocks used in our advanced ethanol
production process.
On January 24, 2011 and February 7, 2011, the Chancery
Court for Weakley County, Tennessee entered judgments in the
Shelter General Insurance Co., et al. v. Shell Oil Company,
et al., No. 16809 and the Dilday, et al. v.
Hoechst Celanese Corporation, et al. No. 15187,
respectively, dismissing with prejudice all claims against the
Company.
165
Table of Contents
INDEX TO
EXHIBITS
Exhibits will be furnished upon request for a nominal fee,
limited to reasonable expenses.
|
Exhibit
|
||||
| Number | Description | |||
| 3 | .1** | Second Amended and Restated Certificate of Incorporation | ||
| 3 | .2 | Third Amended and Restated By-laws, effective as of October 23, 2008 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on October 29, 2008). | ||
| 3 | .3** | Certificate of Designations of 4.25% Convertible Perpetual Preferred Stock. | ||
| 4 | .1 | Form of certificate of Series A Common Stock (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-1 (File No. 333-120187) filed with the SEC on January 13, 2005). | ||
| 4 | .2 | Form of certificate of 4.25% Convertible Perpetual Preferred Stock (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-1 (File No. 333-120187) filed with the SEC on January 13, 2005). | ||
| 4 | .3 | Indenture, dated September 24, 2010, by and among Celanese US Holdings LLC, the guarantors party thereto, and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on September 29, 2010). | ||
| 10 | .1 | Registration Rights Agreement, dated September 24, 2010, among Celanese US Holdings LLC, the guarantors party thereto, and the initial purchasers listed therein (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on September 29, 2010). | ||
| 10 | .2† | Credit Agreement, dated April 2, 2007, among Celanese Holdings LLC, Celanese US Holdings LLC, the subsidiaries of Celanese US Holdings LLC from time to time party thereto as borrowers, the Lenders party thereto, Deutsche Bank AG, New York Branch, as administrative agent and as collateral agent, Merrill Lynch Capital Corporation as syndication agent, ABN AMRO Bank N.V., Bank of America, N.A., Citibank NA, and JP Morgan Chase Bank NA, as co-documentation agents (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on May 28, 2010). | ||
| 10 | .3 | First Amendment to Credit Agreement, dated June 30, 2009, among Celanese US Holdings LLC and the Majority Lenders under the Revolving Facility (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on July 1, 2009). | ||
| 10 | .4 | Amendment Agreement, dated September 29, 2010 among Celanese Corporation, Celanese US Holdings LLC, certain subsidiaries of Celanese US Holdings LLC, the lenders party thereto, Deutsche Bank AG, New York Branch, as administrative agent and as collateral agent, and Deutsche Bank Securities LLC and Banc of Americas Securities LLC as joint lead arrangers and joint book runners (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on September 29, 2010). | ||
| 10 | .5 | Amended and Restated Credit Agreement, dated September 29, 2010 among Celanese Corporation, Celanese US Holdings LLC, the subsidiaries of Celanese US Holdings LLC from time to time party thereto as borrowers and guarantors, Deutsche Bank AG, New York Branch, as administrative agent and collateral agent, Deutsche Bank Securities LLC and Banc of Americas Securities LLC as joint lead arrangers and joint book runners, HSBC Securities (USA) Inc., JPMorgan Chase Bank, N.A., and The Royal Bank of Scotland PLC, as Co-Documentation Agents, the other lenders party thereto, and certain other agents for such lenders (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed with the SEC on September 29, 2010). | ||
| 10 | .6 | Guarantee and Collateral Agreement, dated April 2, 2007, by and among Celanese Holdings LLC, Celanese US Holdings LLC, certain subsidiaries of Celanese US Holdings LLC and Deutsche Bank AG, New York Branch (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on May 28, 2010). | ||
| 10 | .7 | Celanese Corporation 2004 Deferred Compensation Plan (incorporated by reference to Exhibit 10.21 to the Registration Statement on Form S-1 (File No. 333-120187) filed with the SEC on January 3, 2005). | ||
| 10 | .7(a) | Amendment to Celanese Corporation 2004 Deferred Compensation Plan (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on April 3, 2007). | ||
166
Table of Contents
|
Exhibit
|
||||
| Number | Description | |||
| 10 | .7(b) | Form of 2007 Deferral Agreement between Celanese Corporation and award recipient, (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on April 3, 2007). | ||
| 10 | .8** | Celanese Corporation 2004 Stock Incentive Plan. | ||
| 10 | .8(a)** | Form of Nonqualified Stock Option Agreement (for employees) between Celanese Corporation and award recipient. | ||
| 10 | .8(b) | Form of Amendment to Nonqualified Stock Option Agreement (for employees) between Celanese Corporation and award recipient (incorporated by reference to Exhibit 10.5(b) to the Annual Report on Form 10-K filed with the SEC on February 12, 2010). | ||
| 10 | .8(c) | Form of Amendment Two to Nonqualified Stock Option Agreement (for executive officers) between Celanese Corporation and award recipient (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on January 26, 2009). | ||
| 10 | .8(d)** | Form of Nonqualified Stock Option Agreement (for non-employee directors) between Celanese Corporation and award recipient. | ||
| 10 | .8(e) | Form of Performance-Based Restricted Stock Unit Agreement between Celanese Corporation and award recipient (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed with the SEC on May 28, 2010). | ||
| 10 | .8(f) | Form of Restricted Stock Unit Agreement (for non-employee directors) between Celanese Corporation and award recipient (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed on July 27, 2007). | ||
| 10 | .8(g) | Form of Performance-Vesting Restricted Stock Unit Award Agreement between Celanese Corporation and award recipient, together with a schedule identifying substantially identical agreements between Celanese Corporation and each of its executive officers identified thereon (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on January 26, 2009). | ||
| 10 | .8(h) | Performance Unit Award Agreement, dated December 11, 2008, between Celanese Corporation and David N. Weidman (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on January 26, 2009). | ||
| 10 | .8(i) | Form of Time-Vesting Cash Award Agreement (for employees) between Celanese Corporation and award recipient, together with a schedule identifying substantially identical agreements between the Company and each of its executive officers identified thereon (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed with the SEC on January 26, 2009). | ||
| 10 | .9 | Celanese Corporation 2008 Deferred Compensation Plan (incorporated by reference to Exhibit 10.6 to the Annual Report on Form 10-K filed on February 29, 2008). | ||
| 10 | .9(a) | Amendment Number One to Celanese Corporation 2008 Deferred Compensation Plan (incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-8 filed with the SEC on April 23, 2009). | ||
| 10 | .10 | Celanese Corporation 2009 Global Incentive Plan (incorporated by reference to Exhibit 4.4 to the Registration Statement on Form S-8 filed with the SEC on April 23, 2009). | ||
| 10 | .10(a) | Form of Time-Vesting Restricted Stock Unit Award Agreement between Celanese Corporation and award recipient (incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q filed with the SEC on July 29, 2009). | ||
| 10 | .10(b) | Form of Performance-Vesting Restricted Stock Unit Award Agreement between Celanese Corporation and award recipient, together with a schedule identifying substantially identical agreements between Celanese Corporation and each of its executive officers identified thereon (incorporated by reference to Exhibit 10.6 to the Quarterly Report on Form 10-Q filed with the SEC on July 29, 2009). | ||
| 10 | .10(c) | Form of Nonqualified Stock Option Award Agreement between Celanese Corporation and award recipient, together with a schedule identifying substantially identical agreements between Celanese Corporation and each of its executive officers identified thereon (incorporated by reference to Exhibit 10.7 to the Quarterly Report on Form 10-Q filed with the SEC on July 29, 2009). | ||
167
Table of Contents
|
Exhibit
|
||||
| Number | Description | |||
| 10 | .10(d) | Form of Long-Term Incentive Cash Award Agreement, together with a schedule identifying substantially identical agreements between the Company and each of its executive officers identified thereon (incorporated by reference to Exhibit 10.8 to the Quarterly Report on Form 10-Q filed with the SEC on July 29, 2009). | ||
| 10 | .10(e) | Time-Vesting Restricted Stock Unit Agreement, dated April 23, 2009, between Celanese Corporation and Gjon N. Nivica, Jr. (incorporated by reference to Exhibit 10.10 to the Quarterly Report on Form 10-Q filed with the SEC on July 29, 2009). | ||
| 10 | .10(f) | Form of Time-Vesting Restricted Stock Unit Award Agreement (for non-employee directors) between Celanese Corporation and award recipient (incorporated by reference to Exhibit 10.8 to the Quarterly Report on Form 10-Q filed with the SEC on July 29, 2009). | ||
| 10 | .10(g) | Form of Performance-Vesting Restricted Stock Unit Award Agreement ) between Celanese Corporation and award recipient (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on September 13, 2010). | ||
| 10 | .10(h) | Form of Time-Vesting Restricted Stock Unit Award Agreement between Celanese Corporation and award recipient (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on September 13, 2010). | ||
| 10 | .10(i) | Form of Nonqualified Stock Option Award Agreement between Celanese Corporation and award recipient (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed with the SEC on September 13, 2010). | ||
| 10 | .11 | Celanese Corporation 2009 Employee Stock Purchase Program (incorporated by reference to Exhibit 4.5 to the Registration Statement on Form S-8 filed on April 23, 2009). | ||
| 10 | .12 | Executive Severance Benefits Plan, dated July 21, 2010 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on July 27, 2010). | ||
| 10 | .13* | Summary of pension benefits for David N. Weidman (updated to include revisions effective after the summary was first filed as Exhibit 10.34 to the Annual Report on Form 10-K filed with the SEC on March 31, 2005). | ||
| 10 | .14 | Compensation Letter Agreement, dated March 27, 2007 between Celanese Corporation and Jim Alder (incorporated by reference to Exhibit 10.31 to the Annual Report on Form 10-K filed with the SEC on February 29, 2008). | ||
| 10 | .15 | Offer Letter, dated February 25, 2009, between Celanese Corporation and Gjon N. Nivica, Jr. (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q filed with the SEC on April 28, 2009). | ||
| 10 | .16† | Offer Letter, dated November 18, 2009, between Celanese Corporation and Jacquelyn H. Wolf (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed with the SEC on May 28, 2010). | ||
| 10 | .17 | Agreement and General Release, dated March 28, 2008, between Celanese Corporation and William P. Antonace (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q filed with the SEC on October 22, 2008). | ||
| 10 | .18 | Agreement and General Release, dated September 25, 2008, between Celanese Corporation and Curtis S. Shaw (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed with the SEC on October 22, 2008). | ||
| 10 | .19 | Agreement and General Release, dated March 5, 2009, between Celanese Corporation and John J. Gallagher, III (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on March 5, 2009). | ||
| 10 | .20 | Restated Agreement and General Release, dated June 3, 2009, between Celanese Corporation and Miguel A. Desdin (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed with the SEC on May 28, 2010). | ||
| 10 | .21 | Agreement and General Release, dated August 3, 2009, between Celanese Corporation and John A. O’Dwyer (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed with the SEC on October 27, 2009). | ||
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|
Exhibit
|
||||
| Number | Description | |||
| 10 | .22 | Agreement and General Release, dated November 16, 2009, between Celanese Corporation and Michael L. Summers (incorporated by reference to Exhibit 10.19 to the Annual Report on Form 10-K filed with the SEC on February 12, 2010). | ||
| 10 | .23 | Agreement and General Release, dated April 23, 2010, between Celanese Corporation and Sandra Beach Lin (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on April 27, 2010). | ||
| 10 | .24 | Change in Control Agreement, dated April 1, 2008, between Celanese Corporation and David N. Weidman, together with a schedule identifying other substantially identical agreements between Celanese Corporation and each of its name executive officers identified thereon and identifying the material differences between each of those agreements and the filed Changed of Control Agreement (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on April 7, 2008). | ||
| 10 | .25 | Change in Control Agreement, dated April 1, 2008 between Celanese Corporation and Sandra Beach Lin, together with a schedule identifying other substantially identical agreements between Celanese Corporation and each of its executive officers identified thereon and identifying the material differences between each of those agreements and the filed Change of Control Agreement (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed with the SEC on April 23, 2008). | ||
| 10 | .26 | Change in Control Agreement, dated May 1, 2008, between Celanese Corporation and Christopher W. Jensen (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed with the SEC on July 23, 2008). | ||
| 10 | .27 | Form of Change in Control Agreement between Celanese Corporation and participant, together with a schedule of substantially identical agreements between Celanese Corporation and the individuals identified thereon (incorporated by reference to Exhibit 10.7 to the Quarterly Report on Form 10-Q filed with the SEC on July 29, 2010). | ||
| 10 | .28 | Form of Long-Term Incentive Claw-Back Agreement between Celanese Corporation and award recipient (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on January 26, 2009). | ||
| 10 | .29* | Summary of Non-Employee Director Compensation | ||
| 10 | .30** | Share Purchase and Transfer Agreement and Settlement Agreement, dated August 19, 2005 between Celanese Europe Holding GmbH & Co. KG, as purchaser, and Paulson & Co. Inc., and Arnhold and S. Bleichroeder Advisers, LLC, each on behalf of its own and with respect to shares owned by the investment funds and separate accounts managed by it, as the sellers. | ||
| 10 | .31 | Translation of Letter of Intent, dated November 29, 2006, among Celanese AG, Ticona GmbH and Fraport AG (incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K filed November 29, 2006). | ||
| 10 | .32† | Purchase Agreement dated as of December 12, 2006 by and among Celanese Ltd. and certain of its affiliates named therein and Advent Oxo (Cayman) Limited, Oxo Titan US Corporation, Drachenfelssee 520. V V GMBH and Drachenfelssee 521. V V GMBH (incorporated by reference to Exhibit 10.27 to the Annual Report on Form 10-K filed on February 21, 2007). | ||
| 10 | .32(a) | First Amendment to Purchase Agreement dated February 28, 2007, by and among Advent Oxea Cayman Ltd., Oxea Corporation, Drachenfelssee 520. V V GmbH, Drachenfelssee 521. V V GmbH, Celanese Ltd., Ticona Polymers Inc. and Celanese Chemicals Europe GmbH (incorporated by reference to Exhibit 10.6 to the Quarterly Report on Form 10-Q filed on May 9, 2007). | ||
| 10 | .32(b) | Second Amendment to Purchase Agreement effective as of July 1, 2007 by and among Advent Oxea Cayman Ltd., Oxea Corporation, Oxea Holdings GmbH, Oxea Deutschland GmbH, Oxea Bishop, LLC, Oxea Japan KK, Oxea UK Ltd., Celanese Ltd., and Celanese Chemicals Europe GmbH (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed with the SEC on October 24, 2007). | ||
| 21 | .1* | List of subsidiaries of Celanese Corporation | ||
| 23 | .1* | Consent of Independent Registered Public Accounting Firm of Celanese Corporation, KPMG LLP | ||
| 23 | .2* | Consent of Independent Auditors of CTE Petrochemicals Company, Deloitte & Touche LLP | ||
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|
||||
| Number | Description | |||
| 23 | .3* | Consent of Independent Auditors of National Methanol Company, Deloitte & Touche Bakr Abulkhair & Co. | ||
| 31 | .1* | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| 31 | .2* | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| 32 | .1* | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
| 32 | .2* | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
| 99 | .1* | Audited financial statements as of December 31, 2010 and 2009 and for each of the years in the three year period ended December 31, 2010 for CTE Petrochemicals Company | ||
| 99 | .2* | Audited financial statements as of December 31, 2010 and 2009 and for each of the years in the three year period ended December 31, 2010 for National Methanol Company | ||
| 101 | .INS | XBRL Instance Document | ||
| 101 | .SCH | XBRL Taxonomy Extension Schema Document | ||
| 101 | .CAL | XBRL Taxonomy Extension Calculation Linkbase Document | ||
| 101 | .DEF | XBRL Taxonomy Extension Definition Linkbase Document | ||
| 101 | .LAB | XBRL Taxonomy Extension Label Linkbase Document | ||
| 101 | .PRE | XBRL Taxonomy Extension Presentation Linkbase Document | ||
* Filed
herewith
** Refiled
herewith solely for the purpose of complying with
Item 10(d) of
Regulation S-K.
† Portions
of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the SEC under
Rule 24b-2
of the Securities Exchange Act of 19034, as amended. The omitted
portions of this exhibit have been separately filed with the SEC.
Undertaking
Regarding Furnishing Additional Documents
The Company agrees to furnish to the SEC, upon its request, the
instruments not filed herewith with respect to the
Company’s senior unsecured notes due 2018 that were issued
in a private placement conducted pursuant to Rule 144A
under the Securities Act of 1933, as amended, on
September 24, 2010, and which are discussed in Note 13
to the accompanying consolidated financial statements included
in this Annual Report on
Form 10-K.
170
TABLE OF CONTENTS
Item 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. [removed and Reserved]Part IIItem 5. Market For The Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accounting Fees and ServicesPart IVItem 15. Exhibits and Financial Statement Schedules