FORM 10-K
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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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, 2007
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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001-32410
(Commission File Number)
CELANESE CORPORATION
(Exact Name of Registrant as
Specified in its Charter)
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Delaware
(State or Other Jurisdiction
of
Incorporation or Organization)
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98-0420726
(I.R.S. Employer
Identification No.)
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1601 West LBJ Freeway, Dallas, TX
(Address of Principal
Executive Offices)
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75234-6034
(Zip
Code)
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(972) 443-4000
(Registrants 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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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
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New York Stock Exchange
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4.25% Convertible Perpetual Preferred Stock, par value
$0.01 per share (liquidation preference $25.00
per share)
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New York Stock Exchange
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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 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 Registrants 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, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act.
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Large Accelerated
Filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12-b2
of the
Act). Yes o No þ
The aggregate market value of the registrants common stock
held by non-affiliates as of June 30, 2007 (the last
business day of the registrants most recently completed
second fiscal quarter) was $5,872,607,340.
The number of outstanding shares of the registrants
Series A Common Stock, $0.0001 par value, as of
February 20, 2008 was 152,334,614.
DOCUMENTS
INCORPORATED BY REFERENCE
Certain portions of registrants Definitive Proxy Statement
for 2008 are incorporated by reference into Part III.
CELANESE
CORPORATION
Form 10-K
For the Fiscal Year Ended December 31, 2007
TABLE OF CONTENTS
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Page
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Special Note Regarding Forward-Looking Statements
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3
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PART I
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Item 1.
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Business
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3
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Item 1A.
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Risk Factors
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18
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Item 1B.
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Unresolved Staff Comments
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26
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Item 2.
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Properties
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27
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Item 3.
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Legal Proceedings
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29
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Item 4.
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Submission of Matters to a Vote of Security Holders
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29
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PART II
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Item 5.
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Market for the Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities
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30
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Item 6.
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Selected Financial Data
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33
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Item 7.
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Managements Discussion and Analysis of Financial Condition
and Results of Operations
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35
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Item 7A.
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Quantitative and Qualitative Disclosures about Market Risk
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65
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Item 8.
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Financial Statements and Supplementary Data
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66
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Item 9.
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Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
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68
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Item 9A.
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Controls and Procedures
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68
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Item 9B.
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Other Information
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70
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PART III
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Item 10.
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Directors and Executive Officers of the Registrant
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70
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Item 11.
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Executive Compensation
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70
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
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70
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Item 13.
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Certain Relationships and Related Transactions
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70
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Item 14
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Principal Accounting Fees and Services
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70
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PART IV
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Item 15.
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Exhibits and Financial Statement Schedules
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70
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Signatures
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72
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2
Special
Note Regarding Forward-Looking Statements
Certain statements in this Annual Report are forward-looking in
nature as defined in the Private Securities Litigation Reform
Act of 1995. These statements, and other written and oral
forward-looking statements made by the Company from time to
time, may relate to, among other things, 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, 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. These plans and expectations
are based upon certain underlying assumptions, and are in turn
based upon internal estimates and analyses of current market
conditions and trends, management plans and strategies, economic
conditions, and other factors. Actual results could differ
materially from expectations expressed in the forward-looking
statements if one or more of the underlying assumptions and
expectations proves to be inaccurate or is unrealized. Certain
important factors that could cause actual results to differ
materially from those in the forward-looking statements are
included with such forward-looking statements and in
Managements Discussion and Analysis of Financial
Condition and Results of Operations Forward-Looking
Statements May Prove Inaccurate.
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 the
Company, we, our and
us refer to Celanese and its subsidiaries on a
consolidated basis. The term Celanese US refers to
our subsidiary, Celanese US Holdings LLC, a Delaware limited
liability company, formerly known as BCP Crystal US Holdings
Corp., a Delaware corporation, and not its subsidiaries. The
term Purchaser refers to our subsidiary, Celanese
Europe Holding GmbH & Co. KG, formerly known as BCP
Crystal Acquisition GmbH & Co. KG, a German limited
partnership, and not its subsidiaries, except where otherwise
indicated. The term Original Shareholders refers,
collectively, to Blackstone Capital Partners (Cayman) Ltd. 1,
Blackstone Capital Partners (Cayman) Ltd. 2, Blackstone Capital
Partners (Cayman) Ltd. 3 and BA Capital Investors Sidecar Fund,
L.P. The term Advisor refers to Blackstone
Management Partners, an affiliate of The Blackstone Group. The
term CAG refers to Celanese GmbH, formerly known as
Celanese AG, its consolidated subsidiaries, its non-consolidated
subsidiaries, ventures and other investments. With respect to
shareholder and similar matters where the context indicates,
CAG only refers to Celanese GmbH.
Overview
Celanese Corporation was formed in 2004 when the Original
Shareholders purchased 84% of the ordinary shares of Celanese
GmbH, formerly known as Celanese AG, a diversified German
chemical company. Celanese 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
2005-2007,
Celanese Corporation purchased the remaining 16% interest in
Celanese GmbH. As of December 31, 2007, the Original
Shareholders have no remaining ownership interest in Celanese
GmbH or our Company. For further information, see Notes 2
and 18 to the consolidated financial statements.
We are a leading global integrated producer of chemicals and
advanced materials. We are one of the worlds 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 end-use applications. As an industry
leader, we hold geographically balanced global positions and
participate in diversified end-use markets. Our operations are
primarily located in North America, Europe and Asia. 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.
Our large and diverse global customer base primarily consists of
major companies in a broad array of industries. For the year
ended December 31, 2007, approximately 29% of our net sales
were to customers located in North America, 43% to customers in
Europe and Africa and 28% to customers in Asia and the rest of
the world.
3
Market
Industry
This document includes industry data and forecasts that we have
prepared based, in part, upon industry data and forecasts
obtained from industry publications and surveys and 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 Celaneses market position in this
document are based on information derived from the 2006
Stanford Research Institute International Chemical Economics
Handbook, CMAI 2004 World Methanol Analysis, Tecnon
Orbichem Acetic Acid and Vinyl Acetate World Survey third
quarter 2007 report and from Kline and Co.
Segment
Overview
During 2007, we revised our reportable segments to reflect a
change in how the Company is managed. This change was made to
drive strategic growth and to group businesses with similar
dynamics and growth opportunities. We also changed our internal
transfer pricing methodology to generally reflect market-based
pricing which we believe will make our results more comparable
to our peer companies. The revised segments are Advanced
Engineered Materials, Consumer Specialties, Industrial
Specialties, Acetyl Intermediates and Other Activities. We have
restated our reportable segments for all prior periods presented
to conform to the 2007 presentation. For further details on our
business segments, see Note 26 to the consolidated
financial statements. The table below illustrates each
segments net sales to external customers for the year
ended December 31, 2007, as well as each segments
major products and end-use markets.
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Advanced
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Engineered Materials
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Consumer Specialties
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Industrial Specialties
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Acetyl Intermediates
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2007 Net
Sales(1)
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$1,030 million
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$1,111 million
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$1,346 million
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$2,955 million
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Key Products
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Polyacetal products (POM)
Ultra-high molecular weight polyethylene
(GUR)
Liquid crystal polymers (Vectra)
Polyphenylene sulfide (PPS) (Fortron)
Polybutylene terephthalate (PBT)
Polyester engineering resins
Long fiber reinforced thermoplastics
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Acetate tow
Sunett®
sweetener
Sorbates
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Polyvinyl alcohol (PVOH)
Emulsions
Low-density polyethylene resins
Ethylene vinyl acetate (EVA) resins and
compounds
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Acetic acid
Vinyl acetate
monomer (VAM)
Acetic anhydride
Acetate esters
Carboxylic acids
Amines
Polyvinyl acetate
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Major End-Use Markets
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Fuel system components
Conveyor belts Battery separators Electronics Seat belt mechanisms
Other automotive Appliances and electronics
Filtrations Coatings Medical Telecommunications
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Filter products
Beverages
Confections
Baked goods
Pharmaceuticals
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Paints
Coatings
Adhesives
Building products
Glass fibers
Textiles
Paper
Flexible packaging
Lamination products
Medical tubing
Automotive parts
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Paints
Coatings
Adhesives
Lubricants
Detergents
Pharmaceuticals
Films
Textiles
Inks
Plasticizers
Esters
Solvents
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Consolidated net sales of $6,444 million for the year ended
December 31, 2007 also includes $2 million in net
sales from Other Activities, which is attributable to our
captive insurance companies. Acetyl Intermediates net
sales exclude inter-segment sales of $660 million for the
year ended December 31, 2007. |
4
Advanced
Engineered Materials
Our Advanced Engineered Materials segment develops, produces and
supplies a broad portfolio of high performance technical
polymers for application in automotive and electronics products
and in other consumer and industrial applications. Together with
our strategic affiliates, we are a leading participant in the
global technical polymers business. The primary products of
Advanced Engineered Materials are POM and GUR. POM is used in a
broad range of products including automotive components,
electronics and appliances. GUR is used in battery separators,
conveyor belts, filtration equipment, coatings and medical
devices.
Consumer
Specialties
Our Consumer Specialties segment consists of our Acetate
Products and Nutrinova businesses. Our Acetate Products business
primarily produces and supplies acetate tow and acetate flake,
which is used in the production of filter products. The
successful completion of the acquisition of Acetate Products
Limited, a subsidiary of Corsadi B.V., on January 31, 2007,
further increases our global position and enhances our ability
to serve our customers. Our 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
Our Industrial Specialties segment includes the Emulsions, PVOH
and AT Plastics businesses. Our Emulsions business is a global
leader which produces a broad product portfolio, specializing in
vinyl acetate/ethylene emulsions, and is a recognized leader in
environmentally-friendly low-volatile organic compounds
technology. Also a global leader, our PVOH business produces and
sells a broad portfolio of performance chemicals engineered to
meet specific customer requirements. Our emulsions and PVOH
products are used in a wide array of applications including
paints and coatings, adhesives, building and construction, glass
fiber, textiles and paper. AT Plastics offers a complete line of
low-density polyethylene and specialty, ethylene vinyl acetate
resins and compounds. Our products are used in many applications
including flexible packaging, lamination products, hot melt
adhesive, medical tubing and automotive parts.
Acetyl
Intermediates
Our Acetyl Intermediates segment produces and supplies acetyl
products, including acetic acid, VAM, acetic anhydride and
acetate esters. Acetic acid is a key intermediate chemical used
in the production of VAM, purified terephthalic acid and acetic
anhydride. VAM is a key intermediate chemical used in emulsions,
polyvinyl alcohol, and other acetyl derivatives. These products
are generally used as starting materials for colorants, paints,
adhesives, coatings, medicines and more. Other chemicals
produced in this segment are organic solvents and intermediates
for pharmaceutical, agricultural and chemical products.
Competitive
Strengths
We benefit from a number of competitive strengths, including the
following:
Leading
Market Positions
We believe that we are a leading global integrated producer of
acetyls, cellulose acetate and vinyl emulsion products. Advanced
Engineered Materials and our ventures, Polyplastics Co. Ltd.
(Polyplastics) and Korea Engineering Plastics Co.,
Ltd. (KEPCO), are leading producers and suppliers of
engineered polymers in North America, Europe and the
Asia/Pacific region. Our leadership positions are based on our
large share of global production capacity, operating
efficiencies, proprietary technology and competitive cost
structures in our major products.
Proprietary
Production Technology and Operating Expertise
Our production of acetyl products employs industry-leading
proprietary and licensed technologies, including our proprietary
AOPlus technology for the production of acetic acid and VAntage
and VAntage Plus vinyl acetate
5
monomer technology. AOPlus enables plant capacity to be
increased with minimal investment, while VAntage and VAntage
Plus 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 operate thirty-six production facilities throughout the
world. The ventures in which we participate operate nine
additional facilities. Our infrastructure of manufacturing
plants, terminals 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
markets, 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 defined a strategy to continue this growth. For more
information regarding our financial information with respect to
our geographic areas, see Note 26 to the consolidated
financial statements.
Strategic
Investments
Our strategic investments, including our ventures, have enabled
us to gain access, minimize costs and accelerate growth in new
markets, while also generating significant cash flow and
earnings. Our equity investments and cost investments represent
an important component of our growth strategy. See Note 9
to the consolidated financial statements and
Investments commencing on page 14 of
Item 1 for additional information on our equity and cost
investments.
Diversified
Products and End-Use Markets
We offer our customers a broad range of products in a wide
variety of end-use markets. For example, we participate in
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. This product and market diversity reduces
the potential impact of volatility in any individual market
segment.
Business
Strategies
Our strategic foundation is based on the following four pillars
which are focused on increasing operating cash flows, improving
profitability, delivering high return on investments and
creating shareholder value:
Focus
We participate in businesses where we have a sustainable
competitive advantage. We continue to optimize our business
portfolio in order to achieve market, cost and technology
leadership while expanding our product mix into higher
value-added products.
Investment
We leverage and build on advantaged positions that optimize our
portfolio. In order to increase our competitive advantage, we
have invested in our core group of businesses through
acquisitions in our Acetyls, Emulsions and Acetate businesses;
growth in Asia bolstered by our new integrated chemical complex
in Nanjing, China; and new applications of our advanced
engineered polymers products.
Growth
We aggressively align with our customers and their markets to
capture growth. We are quickly expanding in Asia, the
fastest-growing region in the world, in order to meet increasing
demand for our products. As part of our
6
growth strategy, we also continue to develop new products and
industry-leading production technologies that deliver
value-added solutions for our customers.
Redeployment
We divest non-core assets and revitalize underperforming
businesses. We have divested or exited businesses where we no
longer have a competitive advantage. We also continue to make
key strategic decisions to revitalize businesses that have
significant potential for improved performance and enhanced
efficiency.
Underlying all of these strategies is a culture of execution and
productivity. We continually seek ways to reduce costs, increase
productivity and improve process technology. Our commitment to
operational excellence is an integral part of our strategy to
maintain our cost advantage and productivity leadership.
Business
Segments
Advanced
Engineered Materials
The Advanced Engineered Materials segment develops, produces and
supplies a broad portfolio of high-performance technical
polymers. See Item 1. Business Segment Overview
for discussion of key products and major end-use markets.
Advanced Engineered Materials technical polymers have
chemical and physical properties enabling them, among other
things, to withstand extreme temperatures, resist chemical
reactions with solvents and withstand fracturing or stretching.
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. Demand for
high-performance polymers is expected to grow approximately 5%
to 6% per year.
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 markets and applications for its product lines,
often developing custom formulations to satisfy the technical
and processing requirements of a customers 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 high operating temperatures
present in direct-injection diesel engines or meet the
requirements of the new generation of bio fuels.
Advanced Engineered Materials customer base consists
primarily of a large number of plastic molders and component
suppliers, which are often the primary suppliers to original
equipment manufacturers (OEM). Advanced Engineered
Materials works with these molders and component suppliers as
well as directly with the OEMs to develop and improve
specialized applications and systems.
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 product lines are not
susceptible to cyclical swings in pricing.
Business
Lines
POM is sold under the trademark Hostaform in all regions but
North America, where it is sold under the trademark Celcon.
Polyplastics and KEPCO are leading suppliers of POM and other
engineering resins in the Asia/Pacific region. POM is used for
mechanical parts, including door locks and seat belt mechanisms,
in automotive applications and in electrical, consumer and
medical applications such as drug delivery systems and gears for
large appliances.
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.
7
GUR is an engineered material used in heavy-duty automotive and
industrial applications such as car battery separator panels and
industrial conveyor belts, as well as in specialty medical and
consumer applications, such as sports equipment and prostheses.
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.
Celstran and Compel are long fiber reinforced thermoplastics,
which impart extra strength and stiffness, making them more
suitable for larger parts than conventional thermoplastics.
Polyesters such as Celanex PBT, Vandar, a series of
PBT-polyester blends and Riteflex, a thermoplastic polyester
elastomer, are used in a wide variety of automotive, electrical
and consumer applications, including ignition system parts,
radiator grilles, electrical switches, appliance and sensor
housings, LEDs and technical fibers. Raw materials for
polyesters vary. Base monomers, such as dimethyl terephthalate
and PTA, are widely available with pricing dependent on broader
polyester fiber and packaging resins market conditions. Smaller
volume specialty co-monomers for these products are typically
supplied by a few companies.
Liquid crystal polymers (LCP), such as Vectra, are
used in electrical and electronics applications and for
precision parts with thin walls and complex shapes or on
high-heat cookware application.
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, and often replaces metal in these
demanding applications. Other possible application fields
include non-woven filtration devices such as coal fired power
plants. Fortron is manufactured by Fortron Industries LLC,
Advanced Engineered Materials
50-50
venture with Kureha Corporation of Japan.
Facilities
Advanced Engineered Materials has polymerization, compounding
and research and technology centers in Germany, Brazil and the
United States. On November 29, 2006, Advanced Engineered
Materials reached a settlement with the Frankfurt, Germany,
Airport (Fraport) to relocate its Kelsterbach,
Germany, business, resolving several years of legal disputes
related to the planned Frankfurt airport expansion. The final
settlement agreement was signed on June 12, 2007. As a
result of the settlement, Advanced Engineered Materials will
transition its operations from Kelsterbach to the Hoechst
Industrial Park in the Rhine Main area by 2011. See Note 29
to the consolidated financial statements for further information.
Markets
The following table illustrates the destination of the net sales
of the Advanced Engineered Materials segment by geographic
region for the years ended December 31, 2007, 2006 and 2005.
Net Sales
to External Customers by Destination Advanced
Engineered Materials
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Year Ended
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December 31,
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December 31,
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December 31,
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2007
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2006
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2005
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% of
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% of
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% of
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$
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Segment
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$
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Segment
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$
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Segment
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(In millions, except percentages)
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North America
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388
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38
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%
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311
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34
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%
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339
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38
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%
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Europe/Africa
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517
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50
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%
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500
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|
|
|
55
|
%
|
|
|
465
|
|
|
|
53
|
%
|
Asia/Australia
|
|
|
88
|
|
|
|
8
|
%
|
|
|
55
|
|
|
|
6
|
%
|
|
|
44
|
|
|
|
5
|
%
|
Rest of World
|
|
|
37
|
|
|
|
4
|
%
|
|
|
49
|
|
|
|
5
|
%
|
|
|
39
|
|
|
|
4
|
%
|
Advanced Engineered Materials sales in the Asian market
are made mainly through its ventures, Polyplastics, KEPCO and
Fortron Industries, which are accounted for under the equity
method and therefore not included in Advanced Engineered
Materials consolidated net sales. If Advanced Engineered
Materials portion of the sales made by these ventures were
included in the chart above, the percentage of sales sold in
Asia/Australia would be substantially higher. A number of
Advanced Engineered Materials POM customers, particularly
in the appliance,
8
electrical components and certain sections of the
electronics/telecommunications fields, have moved tooling and
molding operations to Asia, particularly southern China. To meet
the expected increased demand in this region, Polyplastics,
Mitsubishi Gas Chemical Company Inc. and KEPCO agreed to form a
venture which operates a world-scale 60,000 metric ton POM
facility in Nantong, China.
Advanced Engineered Materials principal customers are
consumer product manufacturers and suppliers to the automotive
industries. 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 product
lines, contracts with customers typically have a term of one to
two years. A significant swing in the economic conditions of the
end markets of Advanced Engineered Materials principal
customers could significantly affect the demand for Advanced
Engineered Materials products.
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. Smaller 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 and acetate flake,
which is used in the production of filter products. Our
Nutrinova business produces and sells
Sunett®,
a high intensity sweetener, and food protection ingredients,
such as sorbates, for the food, beverage and pharmaceuticals
industries. See Item 1. Business Segment
Overview for discussion of key products and major end-use
markets.
Business
Lines
Acetate tow is used primarily in cigarette filters. We produce
acetate flake by processing wood pulp with acetic anhydride. We
purchase wood pulp that is made from reforested trees from major
suppliers and produce acetic anhydride internally. The acetate
flake is then further processed into acetate fiber in the form
of a tow band. According to the 2006 Stanford Research Institute
International Chemical Economics Handbook, we are the
worlds leading producer of acetate tow, including
production of our ventures in Asia.
Sales of acetate tow products amounted to approximately 11%, 9%
and 11% of our consolidated net sales for the years ended
December 31, 2007, 2006 and 2005, 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 a Chinese state-owned tobacco
entity. Flake expansion in China was completed in 2007. In
addition, approximately 9% of our 2007 acetate tow sales were
sold directly to China, the largest single market for acetate
tow in the world. Tow expansions at each of the ventures were
completed in 2005.
Nutrinovas food ingredients business consists of the
production and sale of high intensity sweeteners and food
protection ingredients, such as sorbic acid and sorbates
worldwide. Nutrinovas 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.
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®
pricing for targeted applications reflects the value added by
Nutrinova, through technical services and consistent product
quality. Nutrinovas strategy is to be the most reliable
and highest quality producer of this product, to develop new
product applications and expand into new markets. Nutrinova
maintains a strict patent enforcement strategy, which has
resulted in favorable outcomes in a number of patent
infringement matters in Europe and the United States.
9
Facilities
Acetate Products has production sites in the United States,
Mexico, the United Kingdom and Belgium, and participates in
three manufacturing ventures in China. We shut down our Edmonton
flake facility during the second quarter of 2007.
In January 2007, we acquired Acetate Products Limited, a
manufacturer of cellulose acetate flake, tow and film, located
in the United Kingdom. See Note 5 to the consolidated
financial statements for further information.
Nutrinova has production facilities in Germany, as well as sales
and distribution facilities in all major world markets.
Markets
The following table illustrates the destination of the net sales
of the Consumer Specialties segment by geographic region for the
years ended December 31, 2007, 2006 and 2005.
Net Sales
to External Customers by Destination Consumer
Specialties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
$
|
|
|
Segment
|
|
|
$
|
|
|
Segment
|
|
|
$
|
|
|
Segment
|
|
|
|
(In millions, except percentages)
|
|
|
North America
|
|
|
195
|
|
|
|
18
|
%
|
|
|
198
|
|
|
|
23
|
%
|
|
|
184
|
|
|
|
22
|
%
|
Europe/Africa
|
|
|
426
|
|
|
|
38
|
%
|
|
|
248
|
|
|
|
28
|
%
|
|
|
283
|
|
|
|
34
|
%
|
Asia/Australia
|
|
|
435
|
|
|
|
39
|
%
|
|
|
393
|
|
|
|
45
|
%
|
|
|
343
|
|
|
|
41
|
%
|
Rest of World
|
|
|
55
|
|
|
|
5
|
%
|
|
|
37
|
|
|
|
4
|
%
|
|
|
29
|
|
|
|
3
|
%
|
Sales in the acetate tow industry were 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 directly markets
Sunett®
primarily 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 Nutrinovas
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 includes the Emulsions, PVOH
and AT Plastics businesses. Our Emulsions business is a global
leader which produces a broad product portfolio, specializing in
vinyl acetate/ethylene emulsions and is the recognized leader in
environmentally-friendly low-volatile organic compounds
technology for paint in Europe. Also a global leader, our PVOH
business produces and sells a broad portfolio of performance
PVOH chemicals engineered to meet specific customer
requirements. AT Plastics offers a complete line of low-density
polyethylene and specialty, ethylene vinyl acetate copolymers.
See Item 1. Business Segment Overview for
discussion of key products and major end-use markets.
10
Business
Lines
The products in our Emulsions business include conventional
vinyl and acrylate based emulsions and high-pressure vinyl
acetate ethylene emulsions. Emulsions are made from VAM,
acrylate esters and styrene. Celanese Emulsions is the leading
producer of polyvinyl acetate and vinyl acetate ethylene
emulsions in Europe. They are a key component of water-based
surface coatings, adhesives, non-woven textiles, glass fiber and
other applications.
Sales from the Emulsions business amounted to approximately 14%
of our consolidated net sales for each of the years ended
December 31, 2007, 2006 and 2005, respectively.
PVOH is used in adhesives, building products, paper coatings,
films and textiles. The primary raw material to produce PVOH is
VAM, while acetic acid is produced as a by-product. Products are
sold on a global basis and prices vary depending on industry
segment and end-use application. According to industry sources
on PVOH, we are the largest North American producer of PVOH and
the third largest producer in the world.
AT Plastics produces EVA copolymers that are used in the
manufacture of hot melt adhesives, automotive carpeting,
lamination film products, flexible packaging films, medical
tubing and photovoltaic cells. EVA copolymers are produced in
high-pressure reactors from ethylene and VAM.
Facilities
Emulsions has production sites in the United States, Canada,
China, Spain, Sweden, Slovenia, the United Kingdom, the
Netherlands and Germany.
PVOH has production sites in the United States and Spain along
with sales and distribution facilities in Europe, Asia and Latin
America. We shutdown our Roussillon, France facility during the
fourth quarter of 2007.
AT Plastics has a production facility in Edmonton, Alberta
Canada.
Markets
The following table illustrates the destination of the net sales
of the Industrial Specialties segment by geographic region for
years ended December 31, 2007, 2006 and 2005.
Net Sales
to External Customers by Destination Industrial
Specialties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
$
|
|
|
Segment
|
|
|
$
|
|
|
|
|
|
Segment
|
|
|
$-
|
|
|
Segment
|
|
|
|
(In millions, except percentages)
|
|
|
North America
|
|
|
583
|
|
|
|
43
|
%
|
|
|
605
|
|
|
|
|
|
|
|
47
|
%
|
|
|
446
|
|
|
|
42
|
%
|
Europe/Africa
|
|
|
674
|
|
|
|
50
|
%
|
|
|
600
|
|
|
|
|
|
|
|
47
|
%
|
|
|
559
|
|
|
|
53
|
%
|
Asia/Australia
|
|
|
68
|
|
|
|
5
|
%
|
|
|
58
|
|
|
|
|
|
|
|
5
|
%
|
|
|
42
|
|
|
|
4
|
%
|
Rest of World
|
|
|
21
|
|
|
|
2
|
%
|
|
|
18
|
|
|
|
|
|
|
|
1
|
%
|
|
|
14
|
|
|
|
1
|
%
|
Emulsions are sold to a diverse group of regional and
multinational customers. Customers for emulsions are
manufacturers of water-based paints and coatings, adhesives,
paper, building and construction products, glass fiber and
non-woven textiles.
PVOH is sold to a diverse group of regional and multinational
customers mainly under multi-year contracts. The customers of
the PVOH business line are primarily engaged in the production
of adhesives, paper, films, building products and textiles.
AT Plastics sells to a diverse group of regional and
multinational customers. Customers for AT Plastics are primarily
engaged in the manufacture of adhesives, automotive components,
packaging materials, print media and solar energy products.
11
Competition
Principal competitors in the Emulsions business include Air
Products, The Dow Chemical Company (Dow),
Rohm & Haas Company, BASF, Dairen, Wacker and several
smaller regional manufacturers.
Principal competitors in the PVOH business include Kuraray Co.,
Ltd., DuPont, Chang Chun Petrochemical Co., Ltd., The Nippon
Synthetic Chemical Industry Co., Ltd. and several Chinese
manufacturers.
Principal competitors for the AT Plastics EVA copolymers
business include DuPont, ExxonMobil Chemical, Arkema and other
Asian manufacturers.
Acetyl
Intermediates
Our Acetyl Intermediates segment produces and supplies acetyl
products, including acetic acid, VAM, acetic anhydride and
acetate esters. Other chemicals produced in this segment are
organic solvents and intermediates for pharmaceutical,
agricultural and chemical products. See Item 1.
Business Segment Overview for discussion of key
products and major end-use markets.
Business
Lines
Acetyls. The acetyls business line produces:
|
|
|
|
|
Acetic acid, used to manufacture VAM, other acetyl derivatives
and various other end uses, including purified terephthalic acid
(PTA). We manufacture acetic acid for our own use,
as well as for sale to third parties, including other
participants in the acetyl derivatives business;
|
|
|
|
VAM, used in a variety of adhesives, paints, films, coatings and
textiles. We manufacture VAM for our own use, as well as for
sale to third parties;
|
|
|
|
Acetic anhydride, a raw material used in the production of
cellulose acetate, detergents and pharmaceuticals. We
manufacture acetic anhydride for our own use, as well as for
sale to third parties; and
|
|
|
|
Acetaldehyde, a major feedstock for the production of polyols.
Acetaldehyde is also used in other organic compounds such as
pyridines, which are used in agricultural products.
|
Acetic acid and VAM, our basic products, are directly impacted
by the global supply/demand balance for each of the products and
can be described as cyclical in nature. The principal raw
materials in these products are natural gas and ethylene, which
we purchase from numerous sources; carbon monoxide, which we
purchase under long-term contracts; methanol, which we purchase
under long-term and short-term contracts; and butane, which we
purchase from one supplier and can also obtain from other
sources. All these raw materials, except carbon monoxide, are
commodities available from a wide variety of sources.
Our production of acetyl products employs leading proprietary
and licensed technologies, including our proprietary AOPlus
technology for the production of acetic acid and VAntage and
VAntage Plus vinyl acetate monomer technology.
Solvents and Derivatives. The solvents and
derivatives business line produces 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;
|
|
|
|
Butyl acetate, an acetate ester that is a solvent used in inks,
pharmaceuticals and perfume;
|
|
|
|
Methyl ethyl ketone, a solvent used in the production of
printing inks and magnetic tapes;
|
12
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;
|
|
|
|
Amines such as methyl amines, monisopropynol amines and butyl
amines are used in agrochemicals, herbicides and the treatment
of rubber and water; and
|
|
|
|
Special solvents, such as crotonaldehyde, which are used by the
Nutrinova business line for the production of sorbates, as well
as raw materials for the fragrance and food ingredients industry.
|
Solvents and derivatives are commodity products characterized by
cyclicality in pricing. The principal raw materials used in the
solvents and derivatives business line are acetic acid, various
alcohols, methanol, propylene, ethylene, and ammonia. We
manufacture many of these raw materials for our own use as well
as for sales to third parties, including our competitors in the
solvents and derivatives business. We purchase propylene and
ethylene from a variety of sources. We manufacture acetaldehyde
in Europe for our own use, as well as for sale to third parties.
Sales from the acetyls products line amounted to approximately
34%, 33% and 32% of our consolidated net sales for the years
ended December 31, 2007, 2006 and 2005, respectively. Sales
from the solvents and derivatives products line amounted to
approximately 12%, 13% and 14% of our consolidated net sales for
the years ended December 31, 2007, 2006 and 2005,
respectively.
Facilities
Acetyl Intermediates has production sites in the United States,
China, Mexico, Singapore, Spain, Sweden, Slovenia, the United
Kingdom, the Netherlands, France and Germany. We also
participate in a venture in Saudi Arabia that produces methanol
and methyl tertiary-butyl ether (MTBE). Over the
last few years, we have continued to shift our production
capacity to lower cost production facilities while expanding in
growth markets, such as China.
Markets
The following table illustrates net sales by destination of the
Acetyl Intermediates segment by geographic region for the years
ended December 31, 2007, 2006 and 2005.
Net Sales
to External Customers by Destination Acetyl
Intermediates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
$
|
|
|
Segment
|
|
|
$
|
|
|
Segment
|
|
|
$
|
|
|
Segment
|
|
|
|
(In millions, except percentages)
|
|
|
North America
|
|
|
685
|
|
|
|
23
|
%
|
|
|
685
|
|
|
|
26
|
%
|
|
|
771
|
|
|
|
31
|
%
|
Europe/Africa
|
|
|
1,183
|
|
|
|
40
|
%
|
|
|
1,076
|
|
|
|
40
|
%
|
|
|
811
|
|
|
|
33
|
%
|
Asia/Australia
|
|
|
946
|
|
|
|
32
|
%
|
|
|
789
|
|
|
|
29
|
%
|
|
|
722
|
|
|
|
30
|
%
|
Rest of World
|
|
|
141
|
|
|
|
5
|
%
|
|
|
134
|
|
|
|
5
|
%
|
|
|
147
|
|
|
|
6
|
%
|
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
13
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 and amines are sold
globally to a wide variety of customers, primarily in the
coatings and resins and the specialty products industries. These
products serve global markets in the synthetic lubricant,
agrochemical, rubber processing and other specialty chemical
areas.
Competition
Our principal competitors in the Acetyl Intermediates segment
include Air Products and Chemicals, Inc., Atofina S.A., BASF,
Borden Chemical, Inc., British Petroleum PLC, Chang Chun
Petrochemical Co., Ltd., Daicel, Dow, Eastman, DuPont, Lyondell
Bassel Industries, Nippon Gohsei, Perstorp Inc.,
Rohm & Haas Company, 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 or expense
associated with our financing activities, and the 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 issue insurance policies
and coordinate claims-handling services with third-party service
providers. They 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.
Investments
We have a significant portfolio of strategic investments,
including a number of ventures, in Asia, North America and
Europe. In aggregate, these strategic investments enjoy
significant sales, earnings and cash flow. We have entered into
these strategic investments in order to gain access to local
markets, minimize costs and accelerate growth in areas we
believe have significant future business potential. See
Note 9 to the consolidated financial statements for
additional information.
The table below represents our significant ventures as of
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Location
|
|
Ownership
|
|
|
Segment
|
|
Partner(s)
|
|
Year Entered
|
|
|
Equity Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KEPCO
|
|
South Korea
|
|
|
50%
|
|
|
Advanced Engineered
Materials
|
|
Mitsubishi Gas Chemical
Company, Inc.
|
|
|
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 Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
National Methanol Co.
|
|
Saudi Arabia
|
|
|
25%
|
|
|
Acetyl Intermediates
|
|
Saudi Basic Industries Corporation (SABIC)/
CTE Petrochemicals
|
|
|
1981
|
|
Kunming Cellulose Fibers Co. Ltd.
|
|
China
|
|
|
30%
|
|
|
Consumer Specialties
|
|
China National
Tobacco Corp.
|
|
|
1993
|
|
Nantong Cellulose Fibers Co. Ltd.
|
|
China
|
|
|
31%
|
|
|
Consumer Specialties
|
|
China National
Tobacco Corp.
|
|
|
1986
|
|
Zhuhai Cellulose Fibers Co. Ltd.
|
|
China
|
|
|
30%
|
|
|
Consumer Specialties
|
|
China National
Tobacco Corp.
|
|
|
1993
|
|
14
Major
Equity Investments
Korea Engineering Plastics Co. Ltd. Founded in
1987, KEPCO is the leading producer of polyacetal in South
Korea. Mitsubishi owns the remaining 50% of KEPCO. KEPCO
operates a 55,000-ton annual capacity POM plant in Ulsan, South
Korea and participates with Polyplastics and Mitsubishi Gas
Chemical Company Inc. in a world-scale 60,000 metric ton 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. We believe
Polyplastics is the largest producer and marketer of POM in the
Asia-Pacific region.
Fortron Industries LLC. Fortron Industries LLC
is a leading global producer of PPS. Production facilities are
located in Wilmington, North Carolina. We believe Fortron has
the leading technology in linear polymer applications.
Major
Cost Investments
National Methanol Co. (Ibn Sina). With
production facilities in Saudi Arabia, National Methanol Co.
represents approximately 2% of the worlds methanol
production capacity and is the worlds eighth largest
producer of MTBE. Methanol and MTBE are key global commodity
chemical products. We indirectly own a 25% interest in National
Methanol Co., with the remainder held by SABIC (50%) and Texas
Eastern Arabian Corporation Ltd. (25%). SABIC has responsibility
for all product marketing.
China Acetate Products Ventures. We hold
approximately 30% ownership interests (50% board representation)
in three separate Acetate Products production entities in China:
the Nantong, Kunming and Zhuhai Cellulose Fiber Companies. In
each instance, Chinese state-owned entities control the
remainder. The ventures fund investments using operating cash
flows.
These cost investments in which we own greater than a 20%
ownership interest are accounted for under the cost method of
accounting because we cannot exercise significant influence, are
not involved in the day-to-day operations and are unable to
obtain timely financial information prepared in accordance with
US generally accepted accounting principles (US
GAAP) from these entities.
Other
Equity Investments
InfraServs. We hold ownership interests in
several InfraServ groups located in Germany. InfraServs own and
develop industrial parks and provide
on-site
general and administrative support to tenants.
Other
Investments
In March 2007, we entered into a strategic partnership with
Accsys Technologies PLC (Accsys), and its
subsidiary, Titan Wood, to become the exclusive supplier of
acetyl products to Titan Woods technology licensees for
use in wood acetylation. In connection with this partnership, in
May 2007, we acquired 8,115,883 shares of Accsys
common stock representing approximately 5.45% of the total
voting shares of Accsys for 22 million
($30 million). The investment is treated as an
available-for-sale security and is included as a component of
current Other assets on our consolidated balance sheet. On
November 20, 2007, we, along with Accsys, announced that we
agreed to amend our business arrangements so that each company
will have a nonexclusive at-will trading and supply
relationship to give both companies greater flexibility. As part
of this amendment, we have the ability to sell our common stock
ownership in Accsys through an orderly placement of our Accsys
shares. As of December 31, 2007, we sold
1,238,016 shares of Accsys common stock for
approximately 4 million ($6 million), which
resulted in a gain of approximately $1 million. In January
2008, we sold an additional 1,375,573 shares of
Accsys common stock for approximately 3 million
($5 million).
Raw
Materials and Energy
We purchase a variety of raw materials 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
15
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 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 market supply/demand
fundamentals change. Our production facilities rely largely on
coal, fuel oil, natural gas and electricity for energy. Most of
the raw materials for our European operations are centrally
purchased by our subsidiary, which also buys raw materials on
behalf of third parties. We manage our exposure through the use
of derivative instruments and forward purchase contracts for
commodity price hedging, entering into long-term supply
agreements and multi-year purchasing and sales agreements. As of
December 31, 2007, we did not have any open commodity
financial derivative contracts. See Notes 3 and 23 to the
consolidated financial statements for additional information.
We also currently purchase and lease supplies of various
precious metals, such as rhodium, used as catalysts for the
manufacture of chemical products. With growing demand for these
precious metals, most notably in the automotive industry, the
cost to purchase or lease these precious metals has increased,
caused by a shortage in supply. For precious metals, the leases
are distributed between a minimum of three lessors per product
and are divided into several contracts. Although we seek to
offset increases in raw material prices with corresponding
increases in the prices of our products, we may not be able to
do so, and there may be periods when such product price
increases lag behind raw material cost increases.
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 amount spent during
each of the last three fiscal years on research and development
activities to be adequate to drive our growth programs.
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. Our
policy is to seek the widest possible protection for significant
product and process developments in our major markets. Patents
may cover products, processes, intermediate products and product
uses. 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 patents have
expired. We protect our trademarks vigorously against
infringement and also seek to register design protection where
appropriate.
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, controls over the disclosure and safekeeping of
confidential information, as well as employee awareness
training. Moreover, we monitor our competitors and vigorously
challenge patent and trademark infringement. For example, Acetyl
Intermediates maintains a strict patent enforcement strategy,
which has resulted in favorable outcomes in a number of patent
infringement matters in Europe, Asia and the United States. We
are currently pursuing a number of matters relating to the
infringement of our acetic acid patents. Some of our earlier
acetic acid patents expired in 2007; other patent applications
covering acetic acid are presently pending.
Neither our business as a whole nor any particular segment is
materially dependent upon any one particular patent, trademark,
copyright or trade secret.
16
Trademarks
AOPlustm,
BuyTiconaDirecttm,
Celanex®,
Celcon®,
Celstran®,
Celvol®,
Celvolit®,
Compel®,
Erkol®,
GUR®,
Hostaform®,
Impet®,
Impet-HI®,
Mowilith®,
Nutrinova®,
Riteflex®,
Sunett®,
Vandar®,
VAntagetm,
Vectra®,
Vectran®,
Vinamul®,
Elite®,
Duroset®
and certain other products and services named in this document
are registered trademarks and service marks of the Company.
Acetex®
is a registered trademark of Acetex Corporation, a subsidiary of
the Company.
Fortron®
is a registered trademark of Fortron Industries LLC, a venture
of Celanese. Vectran is a registered trademark of Kuraray Co.,
Ltd.
Environmental
and Other Regulation
Matters pertaining to the environment are discussed in
Item 1A. Risk Factors, Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations, and Notes 17 and 24 to the consolidated
financial statements.
Employees
As of December 31, 2007, we had approximately
8,400 employees worldwide from continuing operations,
compared to 8,900 as of December 31, 2006. This represents
a decrease of approximately 6%. The decrease primarily relates
to acquisitions and divestitures during 2007. See Note 5 to
the consolidated financial statements for additional
information. The following table sets forth the approximate
number of employees on a continuing basis as of
December 31, 2007, 2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employees as of December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
North America
|
|
|
4,350
|
|
|
|
4,700
|
|
|
|
4,900
|
|
thereof USA
|
|
|
3,200
|
|
|
|
3,300
|
|
|
|
3,500
|
|
thereof Canada
|
|
|
250
|
|
|
|
500
|
|
|
|
600
|
|
thereof Mexico
|
|
|
900
|
|
|
|
900
|
|
|
|
800
|
|
Europe
|
|
|
3,500
|
|
|
|
3,900
|
|
|
|
4,100
|
|
thereof Germany
|
|
|
1,700
|
|
|
|
2,600
|
|
|
|
2,800
|
|
Asia
|
|
|
500
|
|
|
|
250
|
|
|
|
200
|
|
Rest of World
|
|
|
50
|
|
|
|
50
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Employees
|
|
|
8,400
|
|
|
|
8,900
|
|
|
|
9,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Many of our employees are unionized, particularly in Germany,
Canada, Mexico, Brazil, Belgium and France. However, in the
United States, 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 typically 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.
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.
17
Available
Information Securities and Exchange Commission
(SEC) Filings and Corporate
Governance Materials
We make available free of charge, through our Internet website
(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 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
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 in the global market 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 Germany, China, Japan, South Korea and Saudi Arabia.
Our principal customers are similarly global in scope, and the
prices of our most significant products are typically world
market prices. Consequently, our business and financial results
are affected, directly and indirectly, by world economic,
political and regulatory conditions.
Conditions such as the uncertainties associated with war,
terrorist activities, epidemics, pandemics 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. 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 or European Union 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.
In particular, we have invested significant resources in China
and other Asian countries. We anticipate that this region will
experience significant growth in the coming years; however, if
this regions growth is slower than we anticipate, we may
fail to realize the anticipated benefits associated with our
investment there and our financial results may be adversely
impacted.
The
industries of many of our customers, particularly the
automotive, electrical, construction and textile industries are
cyclical in nature and sensitive to changes in economic
conditions. A downturn in one or more of these industries may
result in a reduction in our operating margins or in operating
losses.
Some of the markets in which our 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. These markets are highly competitive, to a large
extent driven by end-use markets, and may experience
overcapacity, all of which may affect demand for and pricing of
our products.
18
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,
butane, methanol and propylene from third parties for use in our
production of basic chemicals in the Acetyl Intermediates
segment, principally formaldehyde, acetic acid and VAM. We use a
portion of our output of these chemicals, in turn, as inputs in
the production of further products in all our segments. We also
purchase significant amounts of cellulose or 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.
For example, the unplanned shutdown of our Clear Lake, Texas
facility together with other tight supply conditions caused a
shortage of acetic acid and increased the price for such product
during 2007. In addition, prices of natural gas and oil
increased dramatically in 2007 and 2006 for reasons outside of
our control.
We own or lease supplies of various precious metals, such as
rhodium, used as catalysts for the production of these
chemicals. With growing demand for these precious metals, most
notably in the automotive industry, the cost to purchase or
lease these precious metals has increased, caused by a shortage
in supply.
We are exposed to any volatility in the prices of our raw
materials and energy. Although we have agreements providing for
the supply of natural gas, ethylene, propylene, wood pulp,
electricity, coal and fuel oil, the contractual prices for these
raw materials and energy vary with market conditions and may be
highly volatile. Factors which 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, strike
action 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.
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, especially in our Consumer Specialties
and Advanced Engineered Materials segments, 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. Likewise, we have
undertaken and are continuing to undertake initiatives in all
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.
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 include obligations 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 CAG and Hoechst, also referred to as
the demerger agreement, for environmental matters arising out of
certain divestitures that took place prior to the demerger. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Critical
Accounting Policies and Estimates Environmental
Liabilities and Notes 17 and 24 to the consolidated
financial statements.
19
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
the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (CERCLA) and the Resource
Conservation and Recovery Act of 1976 (RCRA). We
incur substantial capital and other costs to comply with these
requirements. If we violate them, 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,
use, reuse or disposal of substances or pollutants to more
rigorous scrutiny than at present. Consequently, compliance with
these laws and regulations could result in significant capital
expenditures as well as other costs and liabilities, which could
cause our business and operating results to be less favorable
than expected.
We are also involved in several claims, lawsuits and
administrative proceedings relating to environmental matters. An
adverse outcome in any of them may negatively affect our
earnings and cash flows in a particular reporting period.
Changes
in environmental, health and safety regulatory requirements
could lead to a decrease in demand for our
products.
New or revised governmental regulations relating to health,
safety and the environment may also affect demand for our
products.
Pursuant to the European Union regulation on Risk Assessment of
Existing Chemicals, the European Chemicals Bureau of the
European Commission has been conducting risk assessments on
approximately 140 major chemicals. The chemicals being evaluated
include VAM, which we produce. These risk assessments entail a
multi-stage process to determine the risk posed by manufacturing
and handling the product. In the case of VAM, we expect the
finalized evaluation by mid 2008. We and other VAM producers are
participating in this evaluation process with detailed
scientific analyses. We cannot predict the outcome or effect of
any final ruling.
In a separate process, in September 2007 the EU-Working group on
classification and labelling of dangerous substances under
Directive 67/548/EEC agreed that VAM should be classified in the
EU as showing limited evidence of a carcinogenic effect
(category 3 carcinogen). This classification and related
labelling requirement should apply only to finished products
that contain more than 10.000 parts per million of free monomer.
Several studies have investigated possible links between
formaldehyde exposure and various end points including leukemia.
The International Agency for Research on Cancer or IARC
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. IARC also concluded that there is insufficient
evidence for a causal association between leukemia and
occupational exposure to formaldehyde, although it also
characterized evidence for such an association as strong. The
results of IARCs review will be examined by government
agencies with responsibility for setting worker and
environmental exposure standards and labeling requirements. We
are a producer of formaldehyde and plastics derived from
formaldehyde. We are participating together with other producers
and users in the evaluations of these findings. We cannot
predict the final effect of IARCs reclassification.
The Registration, Evaluation, Authorization and Restriction of
Chemicals (REACH), a chemicals policy, became
effective in the European Union on June 1, 2007. REACH
established a system to register and evaluate chemicals
manufactured in, or imported to, the European Union. Additional
testing, documentation and risk assessments of various chemicals
will occur across the chemical industry. Some chemical products
may have to be taken off the market. As a result of REACH, we
are likely to incur additional costs to test, document and
register products used
and/or
manufactured by us. In addition, potential litigation arising
from REACH may adversely affect our operations and financial
results by imposing other additional costs on us
and/or
restricting our ability to import or export certain chemical
products.
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 Childrens
20
Chemical Evaluation Program and High Production Volume Chemical
Initiative in the United States, as well as various European
Commission programs, such as the European Environment and Health
Strategy (SCALE).
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 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
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, 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 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. For example, during 2007, production was disrupted
for an extended period of time at our Clear Lake, Texas facility
that produces primarily acetic acid and VAM. The disruption was
caused by an unplanned outage of our acetic acid unit. Because
of this disruption, the volumes of our Acetyl Intermediates
segment were lower than we had expected for 2007 as we were
unable to fully offset the lost production. Similar outages
could occur in the future from unexpected disruptions at any of
our other manufacturing facilities of key products. Such outages
could have an adverse effect on our results of operations in
future reporting periods.
We may
experience unexpected difficulties in the relocation of our
Ticona operations 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 Fraport to relocate our Kelsterbach, Germany
business, resolving several years of legal disputes related to
the planned Frankfurt airport expansion. As a result of the
settlement, we will transition Ticonas operations from
Kelsterbach to another location in Germany by mid-2011. In July
2007, we announced that we would relocate the Kelsterbach,
Germany business to the Hoechst Industrial Park in the Rhine
Main area. Over a five-year period, Fraport will pay Ticona a
total of 670 million to offset the costs associated
with the transition of the business from its current location
and the closure of the Kelsterbach plant. While the settlement
and related payment amount are meant to be cost-neutral and
represent the actual amount we will require to select a site,
build new production facilities, demolish old production
facilities and transition business activities according to
schedule and without any disruptions to customer supply, we may
encounter unexpected costs or other difficulties during the
relocation process that bring the total costs of the relocation
to an amount greater than the compensation provided
21
by Fraport. The relocation of these facilities represents a
major logistical undertaking, and we may have underestimated the
amount that will be required to carry out every aspect of the
relocation. We may lose the services of valuable experienced
employees during the transition if they decide not to work at
the new location. The construction of the new facilities may not
be complete on time or may face cost overruns. If our costs
relating to the relocation exceed the amount of payments from
Fraport or if the relocation causes other unexpected
difficulties, our expenses may increase or supplies to our
customers may be disrupted.
If supply to our customers is disrupted for an extended period,
this could negatively impact the reputation of this business and
result in the loss of customers. Such effects could have an
adverse impact on our results of operations in future periods.
Recent
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 have recently been issued by the 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
prevention 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, however, DHS has not
yet completed its risk assessment for our sites and until that
is done we cannot state with certainty the costs associated with
any security plans that DHS may require. These regulations may
be revised further, and additional legislation may be proposed
in the future on this topic. It is possible that such future
legislation could contain terms that are more restrictive than
what has recently been passed and which would be more costly to
us. We cannot predict the final form of currently pending
legislation, or other related legislation that may be passed and
can provide no assurance that such legislation will not have an
adverse effect on our results of operations in a future
reporting period.
Our
significant non-US operations expose us to global exchange rate
fluctuations that could adversely impact our
profitability.
We are exposed to market risk through commercial and financial
operations. Our market risk consists principally of exposure to
fluctuations in currency exchange rates, interest rates and
commodity prices. As 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,
at a constant level of business, 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 subsidiarys
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.
22
We use financial instruments to hedge our 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.
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 involve 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 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 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 funds portfolio
declines or does not perform as expected or if our experience
with the fund leads us to change our assumptions regarding the
fund, we may be required to contribute additional capital to the
fund.
Our
future success will depend in part on our ability to protect our
intellectual property rights. Our inability to enforce these
rights could reduce our ability to maintain our market position
and our profit margins.
We attach great importance to patents, trademarks, copyrights
and product designs in order to protect our investment in
research and development, manufacturing and marketing. Our
policy is to seek the widest possible protection for significant
product and process developments in our major markets. Patents
may cover products, processes, intermediate products and product
uses. Protection for individual products extends for varying
periods in accordance with the date of patent application filing
and the legal life of patents in the various countries. The
protection afforded, which may also vary from country to
country, depends upon the type of patent and its scope of
coverage. As patents expire, the products and processes
described and claimed in those patents become generally
available for use by the public. 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 patents have expired. Our continued growth
strategy may bring us to regions of the world where intellectual
property protection may be limited and difficult to enforce. If
we are not successful in protecting our trademark or patent
rights, our revenues, results of operations and cash flows may
be adversely affected.
Provisions
in our second amended and restated certificate of incorporation
and second amended and restated bylaws, as well as any
shareholders rights plan, may discourage a takeover
attempt.
Provisions contained in our second amended and restated
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
second amended and restated 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 second amended and restated
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
23
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.
Risks
Related to the Acquisition of CAG
The
amounts of the fair cash compensation and of the guaranteed
annual payment offered under the domination and profit and loss
transfer agreement (Domination Agreement) may be
increased, which may further reduce the funds the Purchaser can
otherwise make available to us.
Several minority shareholders of CAG have initiated special
award proceedings seeking the courts review of the amounts
of the fair cash compensation and of the guaranteed annual
payment offered under the Domination Agreement. On
March 14, 2005, the Frankfurt District Court dismissed on
grounds of inadmissibility the motions of all minority
shareholders regarding the initiation of these special award
proceedings. In January 2006, the Frankfurt Higher District
Court ruled that the appeals were admissible, and the
proceedings will therefore continue. On December 12, 2006,
the Frankfurt District Court appointed an expert to help
determine the value of CAG. 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 the
Purchaser would be required to make such payments within two
months after the publication of the courts ruling. Any
such increase may be substantial. All minority shareholders
would be entitled to claim the respective higher amounts. This
may reduce the funds the Purchaser can make available to us and,
accordingly, diminish our ability to make payments on our
indebtedness. See Notes 2 and 24 to the consolidated
financial statements for further information.
The
Purchaser may be required to compensate CAG for annual losses,
which may reduce the funds the Purchaser can otherwise make
available to us.
Under the Domination Agreement, the Purchaser is required, among
other things, to compensate CAG for any annual loss incurred,
determined in accordance with German accounting requirements, by
CAG at the end of the fiscal year in which the loss was
incurred. This obligation to compensate CAG for annual losses
will apply during the entire term of the Domination Agreement.
If CAG incurs losses during any period of the operative term of
the Domination Agreement and if such losses lead to an annual
loss of CAG at the end of any given fiscal year during the term
of the Domination Agreement, the Purchaser will be obligated to
make a corresponding cash payment to CAG to the extent that the
respective annual loss is not fully compensated for by the
dissolution of profit reserves accrued at the level of CAG
during the term of the Domination Agreement. The Purchaser may
be able to reduce or avoid cash payments to CAG by off-setting
against such loss compensation claims by CAG any valuable
counterclaims against CAG that the Purchaser may have. If the
Purchaser is obligated to make cash payments to CAG to cover an
annual loss, we may not have sufficient funds to make payments
on our indebtedness when due and, unless the Purchaser is able
to obtain funds from a source other than annual profits of CAG,
the Purchaser may not be able to satisfy its obligation to fund
such shortfall. See Note 2 to the consolidated financial
statements.
We and
two of our subsidiaries have taken on certain obligations with
respect to the Purchasers obligation under the
Domination Agreement and intercompany indebtedness to CAG, which
may diminish our ability to make payments on our
indebtedness.
Our subsidiaries, Celanese International Holdings Luxembourg
S.à r.l. (CIH), formerly Celanese Caylux
Holdings Luxembourg S.C.A., and Celanese US, have each agreed to
provide the Purchaser with financing so that the Purchaser is at
all times in a position to completely meet its obligations
under, or in connection with, the Domination Agreement. In
addition, Celanese has guaranteed (i) that the Purchaser
will meet its obligation under the Domination Agreement to
compensate CAG for any annual loss incurred by CAG during the
term of the Domination Agreement; and (ii) the repayment of
all existing intercompany indebtedness of Celaneses
subsidiaries to CAG. Further, under the terms of Celaneses
guarantee, in certain limited circumstances CAG may be entitled
to require the immediate repayment of some or all of the
intercompany indebtedness owed by Celaneses subsidiaries
to CAG. If CIH
and/or
Celanese US are obligated to make payments under their
obligations to the Purchaser or CAG, as the case may be, or if
the intercompany indebtedness owed to CAG is accelerated, we may
not have sufficient funds for payments on our indebtedness when
due.
24
Risks
Related to Our Indebtedness
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 $3.6 billion as of
December 31, 2007.
Our debt could have important consequences, including:
|
|
|
|
|
increasing vulnerability to general economic and industry
conditions;
|
|
|
|
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;
|
|
|
|
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.
|
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 even though the amount borrowed
remained the same. On April 2, 2007, we, through certain of
our subsidiaries, entered into a new senior credit agreement.
The new senior credit agreement consists of $2,280 million
of US dollar denominated and 400 million of Euro
denominated term loans due 2014, a $650 million revolving
credit facility terminating in 2013 and a $228 million
credit-linked revolving facility terminating in 2014. Borrowings
under the new senior credit agreement 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 loans and any loans under the credit-linked revolving
facility is 1.75%, subject to potential reductions as defined in
the new senior credit agreement. The term loans under the new
senior credit agreement are subject to amortization at 1% of the
initial principal amount per annum, payable quarterly,
commencing in July 2007. The remaining principal amount of the
term loans will be due on April 2, 2014.
If interest rates were to increase, our debt service obligations
on our variable rate indebtedness would increase even though the
amount borrowed remains the same. As of December 31, 2007,
we had approximately $2.3 billion, 525 million
and CNY1.2 billion of variable rate debt, of which
$1.6 billion and 150 million is hedged with
interest rate swaps, which leaves us approximately
$692 million, 375 million and
CNY1.2 billion of variable rate debt subject to interest
rate exposure. Accordingly, a 1% increase in interest rates
would increase annual interest expense by approximately
$14 million. There can be no assurance that interest rates
will not rise significantly in the future. Such an increase
could have an adverse impact on our future results of operations
and cash flows.
Despite
our current debt levels, we and our subsidiaries may be able to
incur substantially more debt.
We may be able to incur substantial additional indebtedness in
the future. The terms of our existing debt do not fully prohibit
us from doing so. If new debt, including amounts available under
our senior credit agreement, is added to our current debt
levels, the related risks that we now face could intensify. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources Liquidity Contractual
Obligations.
25
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 satisfy our cash needs depends on cash on hand,
receipt of additional capital, including possible additional
borrowings, and receipt of cash from our subsidiaries by way of
distributions, advances or cash payments. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources Liquidity Contractual
Obligations.
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 governing our
indebtedness 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 instruments may limit our ability to
engage in certain transactions and may diminish our ability to
make payments on our indebtedness.
The senior credit agreement governing our indebtedness contains
various covenants that limit our ability to engage in specified
types of transactions. The covenants contained in the senior
credit agreement limit our ability to, among other things, incur
additional indebtedness, pay dividends on or make other
distributions on or repurchase capital stock or make other
restricted payments, make investments and sell certain assets.
In addition, the senior credit agreement contains covenants that
require us to maintain a specified financial ratio if there is
outstanding credit exposure under the revolving credit facility.
Our ability to meet those financial ratios and tests can be
affected by events beyond our control, and we may not be able to
meet those tests at all. A breach of any of these covenants
could result in a default under the senior credit agreement.
Upon the occurrence of an event of default under the senior
credit agreement, the lenders could elect to declare all amounts
outstanding under the senior credit agreement to be immediately
due and payable and terminate all commitments to extend further
credit. If we were unable to repay those amounts, 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 under the senior credit agreement. If the lenders
under the senior credit agreement accelerate the repayment of
borrowings, we may not have sufficient assets to repay amounts
borrowed under the senior credit agreement as well as their
other indebtedness, which could have a material adverse effect
on the value of our stock.
The
terms of our senior credit agreement limit the ability of BCP
Crystal and its subsidiaries to pay dividends or otherwise
transfer their assets to us.
Our operations are conducted through our subsidiaries and our
ability to pay dividends is dependent on the earnings and the
distribution of funds from our subsidiaries. However, the terms
of our senior credit agreement limit the ability of BCP Crystal
and its subsidiaries to pay dividends or otherwise transfer
their assets to us. Accordingly, our ability to pay dividends on
our stock is similarly limited.
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|
Item 1B.
|
Unresolved
Staff Comments
|
None.
26
Description
of Property
As of December 31, 2007, we had 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, 2007.
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Site
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Leased/Owned
|
|
Products/Functions
|
|
Corporate Offices
|
|
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|
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Budapest, Hungary
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Leased
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Administrative offices
|
Dallas, Texas, USA
|
|
Leased
|
|
Corporate headquarters
|
Kronberg/Taunus, Germany
|
|
Leased
|
|
Administrative offices
|
Mexico City, Mexico
|
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Owned
|
|
Administrative offices
|
Advanced Engineered Materials
|
|
|
|
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Auburn Hills, Michigan, USA
|
|
Leased
|
|
Automotive Development Center
|
Bishop, Texas, USA
|
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Owned
|
|
POM (Celcon), GUR, Compounding
|
Florence, Kentucky, USA
|
|
Owned
|
|
Compounding
|
Kelsterbach, Germany
|
|
Venture owned by InfraServ GmbH & Co. Kelsterbach KG, in
which CAG holds a 100.0% limited partnership interest
|
|
LFT (Celstran), POM (Hostaform), Compounding
|
Oberhausen, Germany
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|
Leased
|
|
PE-UHMW (GUR)
|
Shelby, North Carolina, USA
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Owned
|
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LCP, PBT and PET (Celanex), Compounding
|
Suzano, Brazil
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Owned
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Compounding
|
Wilmington, North Carolina, USA
|
|
Venture owned by Fortron Industries LLC, a non-consolidated
venture, in which we have a 50% interest, except for adjacent
administrative office space which is leased by the venture
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PPS (Fortron)
|
Winona, Minnesota, USA
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Owned
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LFT (Celstran)
|
Consumer Specialties
|
|
|
|
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Lanaken, Belgium
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Owned
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Tow
|
Narrows, Virginia, USA
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Owned
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Tow, Flake
|
Ocotlán, Jalisco, Mexico
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Owned
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Tow, Flake
|
Spondon, Derby,
UK(1)
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Owned
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Tow, Flake and Films
|
Frankfurt am Main, Germany
|
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Venture owned by InfraServ GmbH & Co. Hoechst KG, in which
CAG holds a 31.2% limited partnership interest
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|
Sorbates,
Sunett®
|
Industrial Specialties
|
|
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Boucherville, Quebec, Canada
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Owned
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|
Conventional emulsions
|
Calvert City, Kentucky, USA
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Leased
|
|
PVOH
|
Enoree, South Carolina, USA
|
|
Owned
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Conventional emulsions, Vinyl acetate ethylene emulsions
|
27
|
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|
Site
|
|
Leased/Owned
|
|
Products/Functions
|
|
Frankfurt am Main, Germany
|
|
Venture owned by InfraServ GmbH & Co. Hoechst KG, in which
CAG holds a 31.2% limited partnership interest
|
|
Conventional emulsions, Vinyl acetate ethylene emulsions
|
Geleen, Netherlands
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|
Owned
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|
Vinyl acetate ethylene emulsions
|
Guardo, Spain
|
|
Owned
|
|
PVOH, Polyvinyl acetate
|
Meredosia, Illinois, USA
|
|
Owned
|
|
Vinyl acetate ethylene emulsions, Conventional emulsions
|
Nanjing, China
|
|
Leased
|
|
Vinyl acetate ethylene emulsions, Conventional emulsions
|
Pasadena, Texas, USA
|
|
Leased
|
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PVOH
|
Koper, Slovenia
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Owned
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|
Conventional emulsions
|
Tarragona, Spain
|
|
Venture owned by Complejo Industrial Taqsa AIE, in which CAG
holds a 15.0% share
|
|
Vinyl acetate ethylene emulsions, Conventional emulsions, PVOH
|
Perstorp, Sweden
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|
Owned
|
|
Conventional emulsions, Vinyl acetate ethylene emulsions
|
Warrington, UK
|
|
Owned
|
|
Conventional emulsions, Vinyl acetate ethylene emulsions
|
Acetyl Intermediates
|
|
|
|
|
Bay City, Texas, USA
|
|
Leased
|
|
Butyl acetate, Iso-butylacetate, Propylacetate, VAM, Carboxylic
acids, n/i- Butyraldehyde, Butyl alcohols, Propionaldehyde,
Propyl alcohol
|
Bishop, Texas, USA
|
|
Owned
|
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Formaldehyde, Polyols
|
Cangrejera, Veracruz, Mexico
|
|
Owned
|
|
Acetic anhydride, Acetone derivatives, Ethyl acetate, VAM,
Methyl amines
|
Clear Lake, Texas, USA
|
|
Owned
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Acetic acid, VAM
|
Frankfurt am Main, Germany
|
|
Venture owned by InfraServ GmbH & Co. Hoechst KG, in which
CAG holds a 31.2% Limited partnership interest
|
|
Acetaldehyde, VAM, Butyl acetate
|
Nanjing, China
|
|
Leased
|
|
Acetic acid, Acetic anhydride
|
Pampa, Texas, USA
|
|
Owned
|
|
Acetic acid, Acetic anhydride, Ethyl acetate
|
Pardies, France
|
|
Owned
|
|
Acetic acid, VAM
|
Roussillon, France
|
|
Leased
|
|
Acetic anhydride
|
Jurong Island, Singapore
|
|
Leased
|
|
Acetic acid, Butyl acetate, Ethyl acetate, VAM
|
Shanghai, China
|
|
Leased
|
|
Acetic acid
|
Tarragona, Spain
|
|
Venture owned by Complejo Industrial Taqsa AIE, in which CAG
holds a 15.0% share
|
|
VAM
|
|
|
|
(1) |
|
Acquired in the January 2007 Acetate Products Limited
acquisition. |
Polyplastics has its principal production facilities in Japan,
Taiwan and Malaysia. KEPCO has its principal production
facilities in South Korea. Our Acetyl Intermediates segment has
ventures with manufacturing facilities in Saudi Arabia and
Germany and our Consumer Specialties segment has three ventures
with production facilities in China.
28
We believe that our current facilities and those of our
consolidated subsidiaries are adequate to meet the requirements
of our present and foreseeable future operations. We continue to
review our capacity requirements as part of our strategy to
maximize our global manufacturing efficiency.
For information on environmental issues associated with our
properties, see Business Environmental and
Other Regulation and Managements Discussion
and Analysis of Financial Condition and Results of
Operations Liquidity and Capital
Resources Environmental Matters. Additional
information with respect to our property, plant and equipment,
and leases is contained in Notes 10 and 22 to the
consolidated financial statements.
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Item 3.
|
Legal
Proceedings
|
We are involved in a number of legal proceedings, lawsuits and
claims incidental to the normal conduct of our business,
relating to such matters as product liability, antitrust, 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 believe, based on the advice of legal
counsel, that adequate provisions have been made and that the
ultimate outcomes will not have a material adverse effect on our
financial position, but may have a material adverse effect on
the results of operations or cash flows in any given accounting
period. See Note 24 to the consolidated financial
statements for a discussion of legal proceedings.
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Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
No matters were submitted to a vote of security holders during
the fourth quarter of 2007.
29
PART II
|
|
Item 5.
|
Market
for the Registrants 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 20,
2008 was $40.78. The following table sets forth the high and low
intraday sales prices per share of our common stock, as reported
by the New York Stock Exchange, for the periods indicated.
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Price Range
|
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|
High
|
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|
Low
|
|
|
2007
|
|
|
|
|
|
|
|
|
Quarter ended March 31, 2007
|
|
$
|
32.00
|
|
|
$
|
24.50
|
|
Quarter ended June 30, 2007
|
|
$
|
39.43
|
|
|
$
|
30.59
|
|
Quarter ended September 30, 2007
|
|
$
|
42.49
|
|
|
$
|
30.70
|
|
Quarter ended December 31, 2007
|
|
$
|
44.77
|
|
|
$
|
35.16
|
|
2006
|
|
|
|
|
|
|
|
|
Quarter ended March 31, 2006
|
|
$
|
22.00
|
|
|
$
|
18.82
|
|
Quarter ended June 30, 2006
|
|
$
|
22.75
|
|
|
$
|
18.50
|
|
Quarter ended September 30, 2006
|
|
$
|
20.70
|
|
|
$
|
16.80
|
|
Quarter ended December 31, 2006
|
|
$
|
26.33
|
|
|
$
|
17.45
|
|
Holders
No shares of Celaneses Series B common stock are
issued and outstanding. As of February 20, 2008, there were
76 holders of record of our Series A common stock, and one
holder of record of our perpetual preferred stock. By including
persons holding shares in broker accounts under street names,
however, we estimate our shareholder base to be approximately
46,500 as of February 20, 2008.
Dividend
Policy
In July 2005, our Board of Directors adopted a policy of
declaring, subject to legally available funds, a quarterly cash
dividend on each share of our Series A common stock at an
annual rate of $0.16 per share unless our Board of Directors, in
its sole discretion, determines otherwise. Pursuant to this
policy, we paid quarterly dividends of $0.04 per share on
February 1, 2007, May 1, 2007, August 1, 2007,
November 1, 2007 and February 1, 2008 and similar
quarterly dividends during each quarter of 2006. The annual cash
dividend declared and paid during the years ended
December 31, 2007 and 2006 were approximately
$25 million and $26 million, respectively. Based on
the number of outstanding shares of our Series A common
stock, the anticipated annual cash dividend in 2008 is
approximately $24 million. However, there is no assurance
that sufficient cash will be available in the future to pay such
dividend. Further, such dividends payable to holders of our
Series A common stock cannot be declared or paid nor can
any funds be set aside for the payment thereof, unless we have
paid or set aside funds for the payment of all accumulated and
unpaid dividends with respect to the shares of our preferred
stock, as described below. Our Board of Directors may, at any
time, modify or revoke our dividend policy on our Series A
common stock.
We are required under the terms of the preferred stock to pay
scheduled quarterly dividends, subject to legally available
funds. For so long as the preferred stock remains outstanding,
(1) we will not declare, pay or set apart funds for the
payment of any dividend or other distribution with respect to
any junior stock or parity stock and (2) neither we, nor
any of our subsidiaries, will, subject to certain exceptions,
redeem, purchase or otherwise acquire for consideration junior
stock or parity stock through a sinking fund or otherwise, in
each case unless we have paid or set apart funds for the payment
of all accumulated and unpaid dividends with respect to the
shares of preferred stock and any parity stock for all preceding
dividend periods. Pursuant to this policy, we paid quarterly
dividends of
30
$0.265625 on our 4.25% convertible perpetual preferred stock on
February 1, 2007, May 1, 2007, August 1, 2007,
November 1, 2007 and February 1, 2008 and similar
quarterly dividends during each quarter of 2006. The anticipated
annual cash dividend is approximately $10 million.
The amount available to us to pay cash dividends is restricted
by our senior credit agreement. 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.
Under Delaware law, our Board of Directors may declare dividends
only to the extent of our surplus (which is defined
as total assets at fair market value minus total liabilities,
minus statutory capital), or if there is no surplus, out of our
net profits for the then current
and/or
immediately preceding fiscal years. The value of a
corporations assets can be measured in a number of ways
and may not necessarily equal their book value. The value of our
capital may be adjusted from time to time by our Board of
Directors but in no event will be less than the aggregate par
value of our issued stock. Our Board of Directors may base this
determination on our financial statements, a fair valuation of
our assets or another reasonable method. Our Board of Directors
will seek to assure itself that the statutory requirements will
be met before actually declaring dividends. In future periods,
our Board of Directors may seek opinions from outside valuation
firms to the effect that our solvency or assets are sufficient
to allow payment of dividends, and such opinions may not be
forthcoming. If we sought and were not able to obtain such an
opinion, we likely would not be able to pay dividends. In
addition, pursuant to the terms of our preferred stock, we are
prohibited from paying a dividend on our Series A common
stock unless all payments due and payable under the preferred
stock have been made.
Celanese
Purchases of its Equity Securities
None.
31
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
This comparison is based on a return assuming $100 invested
January 21, 2005 in Celanese Corporation Common Stock and
the S&P 500 Composite Index, the S&P 500 Chemicals
Index and the S&P Specialty Chemicals Index, assuming the
reinvestment of all dividends. January 21, 2005 is the date
our Common Stock commenced trading on the New York Stock
Exchange.
Equity
Compensation Plans
Securities
Authorized for Issuance Under Equity Compensation
Plans
The following information is provided as of December 31,
2007 with respect to equity compensation plans:
|
|
|
|
|
|
|
|
|
|
|
Number of Securities to be
|
|
|
Weighted Average
|
|
|
|
Issued upon Exercise of
|
|
|
Exercise Price of
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Equity compensation plans approved by security holders:
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
8,125,127
|
|
|
$
|
18.72
|
|
Restricted stock units
|
|
|
1,141,938
|
|
|
|
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9,267,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007, we have 950,557 shares of
Series A common stock available for future issuance in
connection with the 2004 Stock Incentive Plan approved by
security holders.
32
Recent
Sales of Unregistered Securities
In December 2007, we adopted a deferred compensation plan
whereby we offered 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 in December 2007, and such
deferrals will be withheld from their compensation during the
year ending December 31, 2008. This plan became effective
on January 1, 2008. 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 Commission.
|
|
Item 6.
|
Selected
Financial Data
|
The balance sheet data shown below as of December 31, 2007
and 2006, and the statements of operations and cash flow data
for the years ended December 31, 2007, 2006 and 2005, all
of which are set forth below, are derived from the consolidated
financial statements included elsewhere in this document and
should be read in conjunction with those financial statements
and the notes thereto. The balance sheet data as of
December 31, 2005 and the statements of operations and cash
flow data for the nine months ended December 31, 2004 and
the three months ended March 31, 2004 shown below was
derived from our 2006 Annual Report on
Form 10-K
filed with the SEC on February 21, 2007, adjusted for
applicable discontinued operations. The statement of operations
and cash flow data for the year ended December 31, 2003 and
the balance sheet data as of December 31, 2003 set forth
below, have been derived from, and translated into US dollars
based on, CAGs historical Euro audited financial
statements and the underlying accounting records, adjusted for
applicable discontinued operations.
The balance sheet, statement of operations and cash flow data
for periods prior to April 1, 2004 in the tables below
represent the results of the Predecessor, which refers to CAG
and its consolidated subsidiaries. The balance sheet, statement
of operations and cash flow data for periods subsequent to
April 1, 2004 in the tables below represent the results of
the Successor, which refers to Celanese Corporation and its
consolidated subsidiaries. The results of the Successor are not
comparable to the results of the Predecessor due to the
difference in the basis of presentation of purchase accounting
as compared to historical cost. Furthermore, the Successor and
the Predecessor have different accounting policies with respect
to certain matters.
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
Year Ended December 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2004
|
|
|
2003
|
|
|
|
(In $ millions, except per share and per share data)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
6,444
|
|
|
|
5,778
|
|
|
|
5,270
|
|
|
|
3,206
|
|
|
|
1,058
|
|
|
|
3,891
|
|
Other (charges) gains, net
|
|
|
(58
|
)
|
|
|
(10
|
)
|
|
|
(61
|
)
|
|
|
(78
|
)
|
|
|
(28
|
)
|
|
|
(3
|
)
|
Operating profit
|
|
|
748
|
|
|
|
620
|
|
|
|
486
|
|
|
|
17
|
|
|
|
39
|
|
|
|
58
|
|
Earnings (loss) from continuing operations before tax and
minority interests
|
|
|
447
|
|
|
|
526
|
|
|
|
276
|
|
|
|
(230
|
)
|
|
|
62
|
|
|
|
137
|
|
Earnings (loss) from continuing operations
|
|
|
336
|
|
|
|
319
|
|
|
|
214
|
|
|
|
(292
|
)
|
|
|
48
|
|
|
|
105
|
|
Earnings from discontinued operations
|
|
|
90
|
|
|
|
87
|
|
|
|
63
|
|
|
|
39
|
|
|
|
30
|
|
|
|
44
|
|
Cumulative effect of change in accounting principle, net of
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Net earnings (loss)
|
|
|
426
|
|
|
|
406
|
|
|
|
277
|
|
|
|
(253
|
)
|
|
|
78
|
|
|
|
148
|
|
Earnings (loss) per share from continuing operations
basic
|
|
|
2.11
|
|
|
|
1.95
|
|
|
|
1.32
|
|
|
|
(2.94
|
)
|
|
|
0.97
|
|
|
|
2.12
|
|
Earnings (loss) per share from continuing operations
diluted
|
|
|
1.96
|
|
|
|
1.86
|
|
|
|
1.29
|
|
|
|
(2.94
|
)
|
|
|
0.97
|
|
|
|
2.12
|
|
Statement of Cash Flows Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
566
|
|
|
|
751
|
|
|
|
701
|
|
|
|
(62
|
)
|
|
|
(102
|
)
|
|
|
401
|
|
Investing activities
|
|
|
143
|
|
|
|
(268
|
)
|
|
|
(907
|
)
|
|
|
(1,811
|
)
|
|
|
91
|
|
|
|
(275
|
)
|
Financing activities
|
|
|
(714
|
)
|
|
|
(108
|
)
|
|
|
(144
|
)
|
|
|
2,686
|
|
|
|
(43
|
)
|
|
|
(108
|
)
|
Balance Sheet Data (at the end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade working
capital(1)
|
|
|
827
|
|
|
|
824
|
|
|
|
758
|
|
|
|
743
|
|
|
|
689
|
|
|
|
659
|
|
Total assets
|
|
|
8,058
|
|
|
|
7,895
|
|
|
|
7,445
|
|
|
|
7,410
|
|
|
|
6,613
|
|
|
|
6,814
|
|
Total debt
|
|
|
3,556
|
|
|
|
3,498
|
|
|
|
3,437
|
|
|
|
3,387
|
|
|
|
587
|
|
|
|
637
|
|
Shareholders equity (deficit)
|
|
|
1,062
|
|
|
|
787
|
|
|
|
235
|
|
|
|
(112
|
)
|
|
|
2,622
|
|
|
|
2,582
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
291
|
|
|
|
269
|
|
|
|
267
|
|
|
|
165
|
|
|
|
64
|
|
|
|
272
|
|
Capital
expenditures(3)
|
|
|
306
|
|
|
|
244
|
|
|
|
203
|
|
|
|
134
|
|
|
|
29
|
|
|
|
177
|
|
Cash basis dividends paid per common
share(2)
|
|
|
0.16
|
|
|
|
0.16
|
|
|
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
0.48
|
|
|
|
|
(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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
March 31,
|
|
December 31,
|
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2004
|
|
2003
|
|
|
(In $ millions)
|
|
Trade receivables, net
|
|
|
1,009
|
|
|
|
1,001
|
|
|
|
919
|
|
|
|
866
|
|
|
|
810
|
|
|
|
768
|
|
Inventories
|
|
|
636
|
|
|
|
653
|
|
|
|
650
|
|
|
|
603
|
|
|
|
491
|
|
|
|
514
|
|
Trade payables
|
|
|
(818
|
)
|
|
|
(830
|
)
|
|
|
(811
|
)
|
|
|
(726
|
)
|
|
|
(612
|
)
|
|
|
(623
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade working capital
|
|
|
827
|
|
|
|
824
|
|
|
|
758
|
|
|
|
743
|
|
|
|
689
|
|
|
|
659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) |
|
In the nine months ended December 31, 2004, CAG declared
and paid a dividend of 0.12 ($0.14) per share for the year
ended December 31, 2003. Dividends paid to Celanese and its
consolidated subsidiaries eliminate in consolidation. |
|
(3) |
|
Amounts include accrued capital expenditures (see Note 25).
Amounts do not include capital expenditures related to capital
lease obligations. |
34
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
In this Annual Report on
Form 10-K,
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
our subsidiary Celanese US Holdings LLC, a Delaware limited
liability company, formally known as BCP Crystal US Holdings
Corp., a Delaware corporation, and not its subsidiaries. The
term Purchaser refers to our subsidiary, Celanese
Europe Holding GmbH & Co. KG, formerly known as BCP
Crystal Acquisition GmbH & Co. KG, a German limited
partnership, and not its subsidiaries, except where otherwise
indicated. The term Original Shareholders refers,
collectively, to Blackstone Capital Partners (Cayman) Ltd. 1,
Blackstone Capital Partners (Cayman) Ltd. 2, Blackstone Capital
Partners (Cayman) Ltd. 3 and BA Capital Investors Sidecar Fund,
L.P. The term Advisor refers to Blackstone
Management Partners, an affiliate of The Blackstone Group.
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.
Reconciliation of Non-US GAAP Measures: We
believe that using non-US GAAP financial measures to supplement
US GAAP results is useful to investors because such use provides
a more complete understanding of the factors and trends
affecting the business other than disclosing US GAAP results
alone. In this regard, we disclose net debt, which is a non-US
GAAP financial measure. Net debt is defined as total debt less
cash and cash equivalents. We use net debt to evaluate the
capital structure. Net debt is not a substitute for any US GAAP
financial measure. In addition, calculations of net debt
contained in this report may not be consistent with that of
other companies. The most directly comparable financial measure
presented in accordance with US GAAP in our financial statements
for net debt is total debt. For a reconciliation of net debt to
total debt, see Financial Highlights below. For a
reconciliation of trade working capital to working capital
components, see Item 6. Selected Financial Data.
Forward-Looking
Statements May Prove Inaccurate
Managements 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. We assume no
obligation to revise or update any forward-looking statements
for any reason, except as required by law.
See the Risk Factors section under Part 1, Item 1A for
a description of 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, electronics and
construction industries;
|
35
|
|
|
|
|
changes in the price and availability of raw materials,
particularly changes in the demand for, supply of, and market
prices of fuel oil, natural gas, coal, electricity and
petrochemicals such as ethylene, propylene and butane;
|
|
|
|
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 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;
|
|
|
|
compliance 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 under existing or
future environmental regulations;
|
|
|
|
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
|
|
|
|
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
We are a leading global integrated producer of chemicals and
advanced materials. We are one of the worlds 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 end-use applications. As an industry
leader, we hold geographically balanced global positions and
participate in diversified end-use markets. Our operations are
primarily located in North America, Europe and Asia. 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.
Sale
of Oxo Products and Derivatives Businesses
In connection with our strategy to optimize our portfolio and
divest non-core operations, we announced on December 13,
2006 our agreement to sell our Acetyl Intermediates
segments oxo products and derivatives businesses,
including European Oxo GmbH (EOXO), a 50/50 venture
between Celanese GmbH (formerly known as Celanese AG) and
Degussa AG (Degussa), to Advent International, for a
purchase price of 480 million ($636 million)
subject to final agreement adjustments and the successful
exercise of our option to purchase Degussas 50% interest
in EOXO. On February 23, 2007, the option was exercised and
we acquired Degussas interest in the venture for a
purchase price of 30 million ($39 million), in
addition to 22 million ($29 million) paid to
extinguish EOXOs debt upon closing of the transaction. We
completed the sale of our oxo products and derivatives
businesses, including the acquired 50% interest in EOXO, on
February 28, 2007. The transaction resulted in the
recognition of a $47 million pre-tax gain, which includes
certain working capital and other adjustments, in 2007. The
divestiture of the oxo products and derivatives businesses has
been accounted for as a discontinued operation. See Note 5
to the consolidated financial statements for additional
information.
36
Sale
of AT Plastics Films Business
On August 20, 2007, we sold our Films business of AT
Plastics, located in Edmonton and Westlock, Alberta, Canada, to
British Polythene Industries PLC (BPI) for
$12 million. The Films business manufactures products for
the agricultural, horticultural and construction industries. We
recorded a loss on the sale of $7 million during the year
ended December 31, 2007. We maintained ownership of the
Polymers business of AT Plastics, which concentrates on the
development and supply of specialty resins and compounds. AT
Plastics is included in our Industrial Specialties segment. We
concluded that the sale of our Films business of AT Plastics is
not a discontinued operation due to the level of continuing cash
flows between the Films business and our AT Plastics
Polymers business subsequent to the sale. Under the terms of the
purchase agreement, we entered into a two year sales agreement
to continue selling product to BPI through August 2009.
Acquisition
of Acetate Products Limited
On January 31, 2007, we completed the acquisition of the
cellulose acetate flake, tow and film business of Acetate
Products Limited (APL), a subsidiary of Corsadi B.V.
The purchase price for the transaction was approximately
£57 million ($112 million), in addition to direct
acquisition costs of approximately £4 million
($7 million). As contemplated prior to the closing of the
acquisition, we closed our tow production plant at Little Heath,
United Kingdom during 2007.
Relocation
of Ticona Plant in Kelsterbach
On November 29, 2006, we reached a settlement with the
Frankfurt, Germany, Airport (Fraport) to relocate
our Kelsterbach, Germany, business, resolving several years of
legal disputes related to the planned Frankfurt airport
expansion. The final settlement agreement was approved by the
Fraport supervisory board on May 8, 2007 at an
extraordinary board meeting. The final settlement agreement was
signed on June 12, 2007. As a result of the settlement, we
will transition Ticonas operations from Kelsterbach to
another location in Germany by mid-2011. In July 2007, we
announced that we would relocate the Kelsterbach, Germany,
business to the Hoechst Industrial Park in the Rhine Main area.
Over a five-year period, Fraport will pay Ticona a total of
670 million to offset the costs associated with the
transition of the business from its current location and the
closure of the Kelsterbach plant. The payment amount was
increased by 20 million to 670 million in
consideration of our agreement to waive certain obligations of
Fraport set forth in the settlement agreement. These obligations
related to the hiring of Ticona employees in the event the
Ticona Plant relocated out of the Rhine Main area.
Below is a summary of the cash flow activity and financial
statement impact associated with the Ticona plant relocation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total From
|
|
|
|
Year Ended December 31,
|
|
|
Inception through
|
|
|
|
2007
|
|
|
2006
|
|
|
December 31, 2007
|
|
|
|
(In $ millions)
|
|
|
Proceeds received from Fraport
|
|
|
|
|
|
|
26
|
|
|
|
26
|
|
Costs expensed
|
|
|
5
|
|
|
|
|
(1)
|
|
|
5
|
|
Costs capitalized
|
|
|
40
|
|
|
|
|
(1)
|
|
|
40
|
|
|
|
|
(1) |
|
Amounts expensed and capitalized during the year ended
December 31, 2006 were approximately $0.2 million and
$0.3 million, respectively. |
Expansion
in China
The acetic acid facility located in our Nanjing, China complex
has been running at full production rates since June 2007 and we
commenced production of vinyl acetate emulsions at the complex
during the fourth quarter of 2007. Operations for five other
plants at the complex are expected to begin by 2009.
The complex brings world-class scale to one site for the
production of acetic acid, vinyl acetate monomer
(VAM), acetic anhydride, emulsions,
Celstran®
long fiber-reinforced thermoplastic and UHMW-PE
(GUR), an
37
ultra-high molecular weight polyethylene. We believe the Nanjing
complex will further enhance our capabilities to better meet the
growing needs of our customers in a number of industries across
Asia.
Clear
Lake, Texas Outage
In May 2007, we announced that we had an unplanned outage at our
Clear Lake, Texas acetic acid facility. At that time, we
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, we 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 fourth quarter of 2007,
we recorded approximately $40 million of insurance
recoveries from our reinsurers in partial satisfaction of claims
that we made based on losses resulting from the outage.
Asset
Sales
On July 31, 2007, we reached an agreement with
Babcock & Brown, a worldwide investment firm, which
specializes in real estate and utilities development, to sell
our Pampa, Texas, facility. We will maintain our chemical
operations at the site until at least 2009. Proceeds received
upon certain milestone events are treated as deferred proceeds
and included in long-term Other liabilities until the
transaction is complete, as defined in the sales agreement.
In December 2007, we sold the assets at our Edmonton, Alberta,
Canada facility to a real estate developer for approximately
$35 million. As part of the agreement, we will retain
certain environmental liabilities associated with the site. We
derecognized approximately $16 million of asset retirement
obligations which were transferred to the buyer. As a result of
the sale, we recorded a gain of approximately $37 million
for the year ended December 31, 2007.
Realignment
of Business Segments
During 2007, we revised our reportable segments to reflect a
change in how the Company is managed. This change was made to
drive strategic growth and to group businesses with similar
dynamics and growth opportunities. We also changed our internal
transfer pricing methodology to generally reflect market-based
pricing which we believe will make our results more comparable
to our peer companies. The revised segments are Advanced
Engineered Materials, Consumer Specialties, Industrial
Specialties, Acetyl Intermediates and Other Activities. We have
restated our reportable segments for all prior periods presented
to conform to the year ended December 31, 2007
presentation. For further detail on the business segments, see
the Summary by Business Segment section below.
Financial
Reporting Changes
See Note 4 to the consolidated financial statements for
information regarding financial reporting changes and recent
accounting pronouncements.
Other
Events In 2007
|
|
|
|
|
The Squeeze-Out (as defined in Note 2 to the consolidated
financial statements) was approved by the affirmative vote of
the majority of the votes cast at CAGs annual general
meeting in May 2006. As a result of the effective registration
of the Squeeze-Out in the commercial register in Germany in
December 2006, we acquired the remaining 2% of CAG in January
2007.
|
|
|
|
We relocated the strategic management of the Acetyl
Intermediates segment to Shanghai, China.
|
|
|
|
On April 2, 2007, we, through certain of our subsidiaries,
entered into a new senior credit agreement. The new senior
credit agreement consists of $2,280 million of US dollar
denominated and 400 million of Euro denominated term
loans due 2014, a $650 million revolving credit facility
terminating in 2013 and a $228 million credit-linked
revolving facility terminating in 2014. See additional
information, including the
|
38
repayment of certain debt outstanding prior to April 2,
2007, in Note 15 to the consolidated financial statements.
|
|
|
|
|
On May 14, 2007, the Original Shareholders sold their
remaining 22,106,597 shares of Series A common stock
in a registered public secondary offering pursuant to the
universal shelf registration statement on
Form S-3
filed with the Securities and Exchange Commission
(SEC) on May 9, 2006. As of December 31,
2007, the Original Shareholders have no remaining ownership
interest in our Company.
|
|
|
|
During 2007, we repurchased 10,838,486 shares
(approximately $403 million) of our Series A common
stock through various programs. We completed purchasing shares
under these programs during July 2007. See additional
information in Note 18 to the consolidated financial
statements.
|
|
|
|
In December 2007, we received a one time payment in resolution
of commercial disputes with a vendor. This payment is included
as a component of Other (charges) gains, net for the year ended
December 31, 2007.
|
Financial
Highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In $ millions, except percentages)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
6,444
|
|
|
|
5,778
|
|
|
|
5,270
|
|
Gross profit
|
|
|
1,445
|
|
|
|
1,309
|
|
|
|
1,206
|
|
Selling, general and administrative expenses
|
|
|
(516
|
)
|
|
|
(536
|
)
|
|
|
(512
|
)
|
Other (charges) gains, net
|
|
|
(58
|
)
|
|
|
(10
|
)
|
|
|
(61
|
)
|
Operating profit
|
|
|
748
|
|
|
|
620
|
|
|
|
486
|
|
Equity in net earnings of affiliates
|
|
|
82
|
|
|
|
76
|
|
|
|
51
|
|
Interest expense
|
|
|
(262
|
)
|
|
|
(293
|
)
|
|
|
(285
|
)
|
Refinancing expenses
|
|
|
(256
|
)
|
|
|
(1
|
)
|
|
|
(102
|
)
|
Dividend income cost investments
|
|
|
116
|
|
|
|
79
|
|
|
|
90
|
|
Earnings from continuing operations before tax and minority
interests
|
|
|
447
|
|
|
|
526
|
|
|
|
276
|
|
Earnings from continuing operations
|
|
|
336
|
|
|
|
319
|
|
|
|
214
|
|
Earnings from discontinued operations
|
|
|
90
|
|
|
|
87
|
|
|
|
63
|
|
Net earnings
|
|
|
426
|
|
|
|
406
|
|
|
|
277
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
291
|
|
|
|
269
|
|
|
|
267
|
|
Operating
margin(1)
|
|
|
11.6
|
%
|
|
|
10.7
|
%
|
|
|
9.2
|
%
|
Earnings from continuing operations before tax and minority
interests as a percentage of net sales
|
|
|
6.9
|
%
|
|
|
9.1
|
%
|
|
|
5.2
|
%
|
|
|
|
(1) |
|
Defined as operating profit divided by net sales. |
39
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2007
|
|
2006
|
|
|
(In $ millions)
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
Short-term borrowings and current installments of long-term
debt third party and affiliates
|
|
|
272
|
|
|
|
309
|
|
Plus: Long-term debt
|
|
|
3,284
|
|
|
|
3,189
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
3,556
|
|
|
|
3,498
|
|
Less: Cash and cash equivalents
|
|
|
825
|
|
|
|
791
|
|
|
|
|
|
|
|
|
|
|
Net debt
|
|
|
2,731
|
|
|
|
2,707
|
|
|
|
|
|
|
|
|
|
|
Summary
of Consolidated Results for the Year Ended December 31,
2007 compared with Year Ended December 31, 2006
Net
Sales
For the year ended December 31, 2007, net sales increased
by 12% to $6,444 million compared to the same period in
2006 as increases in pricing and favorable currency impacts more
than offset lower overall volumes. Overall pricing increased 6%
for the year ended December 31, 2007 primarily driven by a
tight global supply of acetyl, PVOH and emulsion products, and
higher acetate tow and flake prices. Overall volumes decreased
2% for the year ended December 31, 2007 compared to the
same period in 2006. Strong volume increases due to increased
market penetration from several of Advanced Engineered
Materials key products and the successful startup of our
acetic acid unit in Nanjing, China helped to partially offset
the decreases in volumes in our Acetyl Intermediates and
Industrial Specialties segments resulting from the temporary
unplanned outage of the acetic acid unit at our Clear Lake,
Texas facility. Favorable currency impacts of 4% (particularly
related to the Euro) for the year ended December 31, 2007
also contributed to the increases in net sales. In addition, the
acquisition of APL in 2007 increased net sales by
$227 million.
Gross
Profit
Gross profit as a percentage of net sales remained relatively
flat for the year ended December 31, 2007 (22.4%) compared
to the same period in 2006 (22.7%). The slight decrease was
primarily due to lower overall volumes and higher energy and raw
material costs more than offsetting the higher overall prices
and favorable currency impacts (particularly related to the
Euro).
Selling,
General and Administrative Expenses
Selling, general and administrative expenses decreased by
$20 million to $516 million for the year ended
December 31, 2007 compared to the same period in 2006. The
decrease was primarily due to the absence of executive severance
and legal costs associated with the Squeeze-Out of
$23 million and long-term incentive plan expenses of
$20 million, both recorded in 2006. Selling, general and
administrative expenses also decreased $5 million due to
lower stock -based compensation expenses during the year ended
December 31, 2007 compared to the same period in 2006. The
decreases were partially offset by $15 million of
additional expenses related to finance improvement initiatives
and $6 million related to the revised deferred compensation
plan expenses.
40
Other
(Charges) Gains, Net
The components of Other (charges) gains, net for the years ended
December 31, 2007 and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In $ millions)
|
|
|
Employee termination benefits
|
|
|
(32
|
)
|
|
|
(12
|
)
|
Plant/office closures
|
|
|
(11
|
)
|
|
|
1
|
|
Deferred compensation triggered by Exit Event
|
|
|
(74
|
)
|
|
|
|
|
Insurance recoveries associated with plumbing cases
|
|
|
4
|
|
|
|
5
|
|
Insurance recoveries associated with Clear Lake, Texas
|
|
|
40
|
|
|
|
|
|
Resolution of commercial disputes with a vendor
|
|
|
31
|
|
|
|
|
|
Asset
impairments(1)
|
|
|
(9
|
)
|
|
|
|
|
Ticona Kelsterbach plant relocation
|
|
|
(5
|
)
|
|
|
|
|
Other
|
|
|
(2
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
Total Other (charges) gains, net
|
|
|
(58
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included in this amount is $6 million of goodwill
impairment (see Note 11 to the consolidated financial
statements). |
Other (charges) gains, net for employee termination benefits and
plant/office closures include charges related to our plan to
simplify and optimize our Emulsions and PVOH businesses to
become a leader in technology and innovation and grow in both
new and existing markets. Other (charges) gains, net for
employee termination benefits and plant/office closures as also
includes charges related to the sale of our Pampa, Texas,
facility. In addition, we recorded an impairment of long-lived
assets of approximately $3 million during the year ended
December 31, 2007.
In May 2007, as a result of the triggering of an Exit Event, as
defined in Note 21 to the consolidated financial
statements, we expensed approximately $74 million
representing deferred compensation plan payments for the
respective participants 2005 and 2006 contingent benefits.
Operating
Profit
Operating profit for the year ended December 31, 2007
increased 21% to $748 million compared to $620 million
for the same period in 2006 as higher raw material costs and an
increase in Other (charges) gains, net were more than offset by
increases in net sales and proceeds received from an insurance
recovery and a one time payment received. During the fourth
quarter of 2007, we recorded insurance recoveries of
approximately $40 million from a group of reinsurers in
partial satisfaction of claims that we made based on losses
resulting from the temporary unplanned outage of the acetic acid
unit at our Clear Lake, Texas facility. In addition, during the
fourth quarter of 2007, we received $31 million as a one
time payment in resolution of commercial disputes with a vendor.
Also included in operating profit for the year ended
December 31, 2007 is a $34 million gain related to the
sale of the our Edmonton, Alberta, Canada facility.
Equity
in Net Earnings of Affiliates
Equity in net earnings of affiliates increased 8% in the year
ended December 31, 2007 compared to the same period last
year due primarily to improved performance from our Infraserv
affiliates.
Interest
Expense and Refinancing Expenses
Interest expense decreased $31 million for the year ended
December 31, 2007 compared to the same period in 2006. The
decrease was primarily related to lower interest rates on the
new senior credit agreement compared to the interest rates on
the senior discount notes and senior subordinated notes, which
were repaid in April 2007 in
41
conjunction with the debt refinancing (see Note 15 to the
consolidated financial statements for more information). These
decreases were partially offset by an increase in interest
expense due to additional China financing activities in 2007.
In April 2007, we refinanced our outstanding debt by entering
into a new senior credit agreement. As a result of the
refinancing, we expensed $207 million of premiums paid on
early redemption of debt. In addition, we expensed
$33 million of unamortized deferred financing costs and
premiums related to the former $2,454 million senior credit
facility, senior discount notes and senior subordinated notes
and $16 million of debt issuance and other refinancing
expenses. These amounts were recorded as a component of
Refinancing expenses in the consolidated statement of operations
for the year ended December 31, 2007.
Income
Taxes
Income tax expense decreased by $93 million to
$110 million for the year ended December 31, 2007. The
effective tax rate for continuing operations for the year ended
December 31, 2007 was 25%, which is less than the combined
US federal and state statutory rate of 39%. The effective
tax rate for 2007 was favorably impacted by (1) an increase
in unrepatriated low-taxed earnings including tax holidays and
(2) the tax benefit related to German Tax Reform of
$39 million recorded during the year ended
December 31, 2007. These benefits are partially offset by
the accounting treatment of recent tax law changes in Mexico.
See Note 20 to the consolidated financial statements for
additional information.
Earnings
(Loss) from Discontinued Operations
Earnings from discontinued operations primarily relate to Acetyl
Intermediates sale of its oxo products and derivatives
businesses in February 2007, its shut down of its Edmonton,
Canada methanol operations during the second quarter of 2007 and
its Pentaerythritol (PE) operations, which were
discontinued during the third quarter of 2006. As a result,
revenues and expenses related to these businesses and operations
are reflected as a component of discontinued operations. See
Note 5 to the consolidated financial statements for the
summary table of the results of operations for the discontinued
operations.
Summary
of Consolidated Results for the Year Ended December 31,
2006 compared with Year Ended December 31, 2005
Net
Sales
For the year ended December 31, 2006, net sales increased
by 10% to $5,778 million compared to the same period in
2005. An increase in pricing of 4% for the year ended
December 31, 2006 driven by continued strong demand for the
majority of our products and higher raw material and energy
costs contributed to the improvement in net sales. Also, an
increase in overall volumes of 3% for the year ended
December 31, 2006, driven by our Advanced Engineered
Materials and Consumer Specialties business segments,
contributed to the increase in net sales. The volume increases
are the results of increased market penetration from several of
Advanced Engineered Materials key products, an improved
business environment in Europe, continued growth in Asia and
continued growth in new and existing applications from our
Sunett®
sweetener. Additionally, net sales from Acetex of
$542 million contributed to the increase in net sales for
the year ended December 31, 2006 as compared to
$247 million of net sales from Acetex for the same period
in 2005. The Acetex business was acquired in July 2005.
Gross
Profit
Gross profit as a percentage of net sales remained relatively
flat for the year ended December 31, 2006 (22.7%) compared
to the same period in 2005 (22.9%). Overall higher raw material
and energy costs were mostly offset by higher volumes and
pricing. Volumes increased for such products as acetyls, acetyl
derivative products, polyacetal products (POM),
Vectra and GUR while overall pricing increased, driven by
increases in acetyls and acetyl derivative products.
42
Selling,
General and Administrative Expenses
Selling, general and administrative expenses increased by
$24 million to $536 million for the year ended
December 31, 2006 compared to the same period in 2005. The
increase consists of stock-based compensation expense of
$20 million resulting from our adoption of Statement of
Financial Accounting Standards (SFAS)
No. 123(R), Share-Based Payment (SFAS No
123(R)), and $14 million related to our long-term
incentive plan. Additionally, the year ended December 31,
2006 included additional selling, general and administrative
expenses from the Acetex business, which was acquired in July
2005, as well as costs related to executive severance and legal
costs associated with the Squeeze-Out of CAG shareholders of
$23 million. These expenses were mostly offset by ongoing
cost savings initiatives from the Advanced Engineered Materials
and Consumer Specialties segments and lower costs in 2006
resulting from the divestiture of the Cyclo-olefine Copolymer
business (COC) business, which occurred in 2005.
Other
(Charges) Gains, Net
The components of Other (charges) gains, net for the years ended
December 31, 2006 and 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In $ millions)
|
|
|
Employee termination benefits
|
|
|
(12
|
)
|
|
|
(18
|
)
|
Plant/office closures
|
|
|
1
|
|
|
|
(4
|
)
|
Environmental related plant closures
|
|
|
|
|
|
|
(12
|
)
|
Insurance recoveries associated with plumbing cases
|
|
|
5
|
|
|
|
34
|
|
Asset impairments
|
|
|
|
|
|
|
(25
|
)
|
Other
|
|
|
(4
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
Total Other (charges) gains, net
|
|
|
(10
|
)
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
Other (charges) gains, net for the year ended December 31,
2006 decreased $51 million compared to the same period in
2005. The decrease was due to the absence of environmental
related plant closures of $12 million, the absence of asset
impairment charges of $25 million related to the
divestiture of our COC business and the absence of
$35 million related to the termination of advisor
monitoring services, all of which were recorded in 2005. The
decrease was partially offset by a reduction in insurance
recoveries associated with plumbing cases of $29 million.
Operating
Profit
Operating profit for the year ended December 31, 2006
increased 28% compared to the same period in 2005. This was
principally driven by higher overall volumes and pricing, lower
Other (charges) gains, net and productivity improvements. Also,
the year ended December 31, 2006 included operating profit
from Acetex of $5 million, an increase of $8 million
compared to the same period in 2005.
Equity
in Net Earnings of Affiliates
Equity in net earnings of affiliates increased 49% in the year
ended December 31, 2006 compared to the same period in
2005. The increase was primarily due to additional income of
$8 million from the Infraserv affiliates, $4 million
from our Advanced Engineered Materials affiliates as well as the
absence of a $10 million loss from Estech GmbH, recorded in
2005.
Interest
Expense and Refinancing Expenses
Interest expense remained relatively flat for the year ended
December 31, 2006 compared to the same period in 2005.
43
Refinancing expenses decreased to $1 million for the year
ended December 31, 2006 from $102 million in the same
period in 2005. The decrease was due to the absence of
$28 million related to accelerated amortization of deferred
financing costs and $74 million related to early redemption
premiums associated with the partial redemption of the senior
subordinated notes, senior discount notes and floating rate term
loan, both recorded in 2005.
Income
Taxes
Income tax expense increased by $179 million to
$203 million for the year ended December 31, 2006. The
effective tax rate for 2006 was 39%, slightly higher than the
combined US federal and state statutory rate of 37%. The
effective tax rate was favorably impacted by unrepatriated
low-taxed earnings, primarily in Singapore. The effective tax
rate was unfavorably affected by (1) dividends and other
passive income inclusions from foreign subsidiaries and equity
investments, and (2) higher tax rates in certain foreign
jurisdictions, primarily Germany. The effective rate reflects a
partial benefit for the reversal of valuation allowance on
earnings in the US of $5 million. Reversals of valuation
allowance established at the original acquisition of CAG shares
(see Note 2 to the consolidated financial statements for
additional information) resulting from positive earnings or a
change in judgment regarding the realizability of the net
deferred tax asset are primarily reflected as a reduction of
Goodwill, which amounted to $84 million in 2006.
Earnings
(Loss) from Discontinued Operations
Earnings from discontinued operations primarily relate to Acetyl
Intermediates sale of its oxo products and derivatives
businesses in February 2007, its shut down of its Edmonton,
Canada methanol operations during the second quarter of 2007 and
its PE operations, which were discontinued during the third
quarter of 2006. As a result, revenues and expenses related to
these businesses and operations are reflected as a component of
discontinued operations.
44
Selected
Data by Business Segment Year Ended
December 31, 2007 Compared with Year Ended
December 31, 2006 and Year Ended December 31, 2006
Compared with Year Ended December 31, 2005
During the year ended December 31, 2007, we revised our
reportable segments to reflect a change in how the Company is
managed. The revised segments are Advanced Engineered Materials,
Consumer Specialties, Industrial Specialties, Acetyl
Intermediates and Other Activities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2007
|
|
|
2006
|
|
|
in $
|
|
|
2006
|
|
|
2005
|
|
|
in $
|
|
|
|
(In $ millions)
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered Materials
|
|
|
1,030
|
|
|
|
915
|
|
|
|
115
|
|
|
|
915
|
|
|
|
887
|
|
|
|
28
|
|
Consumer Specialties
|
|
|
1,111
|
|
|
|
876
|
|
|
|
235
|
|
|
|
876
|
|
|
|
839
|
|
|
|
37
|
|
Industrial Specialties
|
|
|
1,346
|
|
|
|
1,281
|
|
|
|
65
|
|
|
|
1,281
|
|
|
|
1,061
|
|
|
|
220
|
|
Acetyl Intermediates
|
|
|
3,615
|
|
|
|
3,351
|
|
|
|
264
|
|
|
|
3,351
|
|
|
|
2,911
|
|
|
|
440
|
|
Other Activities
|
|
|
2
|
|
|
|
22
|
|
|
|
(20
|
)
|
|
|
22
|
|
|
|
32
|
|
|
|
(10
|
)
|
Inter-segment Eliminations
|
|
|
(660
|
)
|
|
|
(667
|
)
|
|
|
7
|
|
|
|
(667
|
)
|
|
|
(460
|
)
|
|
|
(207
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Sales
|
|
|
6,444
|
|
|
|
5,778
|
|
|
|
666
|
|
|
|
5,778
|
|
|
|
5,270
|
|
|
|
508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (Charges) Gains, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered Materials
|
|
|
(4
|
)
|
|
|
6
|
|
|
|
(10
|
)
|
|
|
6
|
|
|
|
8
|
|
|
|
(2
|
)
|
Consumer Specialties
|
|
|
(4
|
)
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
(9
|
)
|
|
|
9
|
|
Industrial Specialties
|
|
|
(23
|
)
|
|
|
(11
|
)
|
|
|
(12
|
)
|
|
|
(11
|
)
|
|
|
(7
|
)
|
|
|
(4
|
)
|
Acetyl Intermediates
|
|
|
72
|
|
|
|
|
|
|
|
72
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
9
|
|
Other Activities
|
|
|
(64
|
)
|
|
|
(5
|
)
|
|
|
(59
|
)
|
|
|
(5
|
)
|
|
|
(44
|
)
|
|
|
39
|
|
Inter-segment Eliminations
|
|
|
(35
|
)
|
|
|
|
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other (Charges) Gains, Net
|
|
|
(58
|
)
|
|
|
(10
|
)
|
|
|
(48
|
)
|
|
|
(10
|
)
|
|
|
(61
|
)
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered Materials
|
|
|
133
|
|
|
|
145
|
|
|
|
(12
|
)
|
|
|
145
|
|
|
|
60
|
|
|
|
85
|
|
Consumer Specialties
|
|
|
199
|
|
|
|
165
|
|
|
|
34
|
|
|
|
165
|
|
|
|
128
|
|
|
|
37
|
|
Industrial Specialties
|
|
|
28
|
|
|
|
44
|
|
|
|
(16
|
)
|
|
|
44
|
|
|
|
(4
|
)
|
|
|
48
|
|
Acetyl Intermediates
|
|
|
616
|
|
|
|
456
|
|
|
|
160
|
|
|
|
456
|
|
|
|
486
|
|
|
|
(30
|
)
|
Other Activities
|
|
|
(228
|
)
|
|
|
(190
|
)
|
|
|
(38
|
)
|
|
|
(190
|
)
|
|
|
(184
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Profit
|
|
|
748
|
|
|
|
620
|
|
|
|
128
|
|
|
|
620
|
|
|
|
486
|
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) from
Continuing Operations
Before Tax and Minority
Interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered Materials
|
|
|
189
|
|
|
|
201
|
|
|
|
(12
|
)
|
|
|
201
|
|
|
|
116
|
|
|
|
85
|
|
Consumer Specialties
|
|
|
235
|
|
|
|
185
|
|
|
|
50
|
|
|
|
185
|
|
|
|
127
|
|
|
|
58
|
|
Industrial Specialties
|
|
|
28
|
|
|
|
43
|
|
|
|
(15
|
)
|
|
|
43
|
|
|
|
(4
|
)
|
|
|
47
|
|
Acetyl Intermediates
|
|
|
694
|
|
|
|
519
|
|
|
|
175
|
|
|
|
519
|
|
|
|
555
|
|
|
|
(36
|
)
|
Other Activities
|
|
|
(699
|
)
|
|
|
(422
|
)
|
|
|
(277
|
)
|
|
|
(422
|
)
|
|
|
(518
|
)
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Earnings from Continuing Operations Before Tax and
Minority Interests
|
|
|
447
|
|
|
|
526
|
|
|
|
(79
|
)
|
|
|
526
|
|
|
|
276
|
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2007
|
|
|
2006
|
|
|
in $
|
|
|
2006
|
|
|
2005
|
|
|
in $
|
|
|
|
(In $ millions)
|
|
|
Depreciation & Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered Materials
|
|
|
69
|
|
|
|
65
|
|
|
|
4
|
|
|
|
65
|
|
|
|
60
|
|
|
|
5
|
|
Consumer Specialties
|
|
|
51
|
|
|
|
39
|
|
|
|
12
|
|
|
|
39
|
|
|
|
41
|
|
|
|
(2
|
)
|
Industrial Specialties
|
|
|
59
|
|
|
|
59
|
|
|
|
|
|
|
|
59
|
|
|
|
47
|
|
|
|
12
|
|
Acetyl Intermediates
|
|
|
106
|
|
|
|
101
|
|
|
|
5
|
|
|
|
101
|
|
|
|
110
|
|
|
|
(9
|
)
|
Other Activities
|
|
|
6
|
|
|
|
5
|
|
|
|
1
|
|
|
|
5
|
|
|
|
9
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Depreciation & Amortization
|
|
|
291
|
|
|
|
269
|
|
|
|
22
|
|
|
|
269
|
|
|
|
267
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Factors
Affecting Year Ended December 31, 2007 Segment Net Sales
Compared to Year Ended December 31, 2006
The charts below set forth the percentage increase (decrease) in
net sales attributable to each of the factors indicated in each
of our business segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
Price
|
|
|
Currency
|
|
|
Other
|
|
|
Total
|
|
|
|
In percentages
|
|
|
Advanced Engineered Materials
|
|
|
9
|
|
|
|
(1
|
)
|
|
|
5
|
|
|
|
|
|
|
|
13
|
|
Consumer Specialties
|
|
|
(4
|
)
|
|
|
4
|
|
|
|
1
|
|
|
|
26
|
(b)
|
|
|
27
|
|
Industrial Specialties
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
5
|
|
|
|
(1
|
)(c)
|
|
|
5
|
|
Acetyl Intermediates
|
|
|
(5
|
)
|
|
|
9
|
|
|
|
4
|
|
|
|
|
|
|
|
8
|
|
Total
Company(a)
|
|
|
(2
|
)
|
|
|
6
|
|
|
|
4
|
|
|
|
4
|
|
|
|
12
|
|
Factors
Affecting Year Ended December 31, 2006 Segment Net Sales
Compared to Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
Price
|
|
|
Currency
|
|
|
Other
|
|
|
Total
|
|
|
|
In percentages
|
|
|
Advanced Engineered Materials
|
|
|
6
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(2
|
)(d)
|
|
|
3
|
|
Consumer Specialties
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Industrial Specialties
|
|
|
1
|
|
|
|
3
|
|
|
|
1
|
|
|
|
16
|
(e)
|
|
|
21
|
|
Acetyl Intermediates
|
|
|
3
|
|
|
|
5
|
|
|
|
1
|
|
|
|
6
|
(f)
|
|
|
15
|
|
Total
Company(a)
|
|
|
3
|
|
|
|
4
|
|
|
|
1
|
|
|
|
2
|
|
|
|
10
|
|
|
|
|
(a) |
|
Includes the effects of the captive insurance companies. |
|
(b) |
|
Includes net sales from the APL acquisition. |
|
(c) |
|
Includes loss of sales related to the AT Plastics Films
business. |
|
(d) |
|
Includes loss of sales related to COC divestiture. |
|
(e) |
|
Includes net sales from AT Plastic business. |
|
(f) |
|
Includes net sales from the Acetex business. |
46
Summary
by Business Segment Year Ended December 31,
2007 Compared with Year Ended December 31, 2006
Advanced
Engineered Materials
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
|
2007
|
|
|
2006
|
|
|
in $
|
|
|
|
In $ millions (except for percentages)
|
|
|
Net sales
|
|
|
1,030
|
|
|
|
915
|
|
|
|
115
|
|
Net sales variance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
Price
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
Currency
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
Other
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
133
|
|
|
|
145
|
|
|
|
(12
|
)
|
Operating margin
|
|
|
12.9
|
%
|
|
|
15.8
|
%
|
|
|
|
|
Other (charges) gains, net
|
|
|
(4
|
)
|
|
|
6
|
|
|
|
(10
|
)
|
Earnings from continuing operations before tax and minority
interests
|
|
|
189
|
|
|
|
201
|
|
|
|
(12
|
)
|
Depreciation and amortization
|
|
|
69
|
|
|
|
65
|
|
|
|
4
|
|
Our Advanced Engineered Materials segment develops, produces and
supplies a broad portfolio of high performance technical
polymers for application in automotive and electronics products
and in other consumer and industrial applications, often
replacing metal or glass. The primary products of Advanced
Engineered Materials are POM and GUR. POM is used in a broad
range of products including automotive components, electronics
and appliances. GUR is used in battery separators, conveyor
belts, filtration equipment, coatings and medical devices.
Advanced Engineered Materials net sales increased 13% to
$1,030 million for the year ended December 31, 2007
compared to the same period in 2006 primarily due to volume
growth in all major business lines and favorable currency
impacts of 5% (primarily related to the Euro) partially offset
by a slight decline in pricing. Overall volume for the year
increased 9% principally driven by increased market penetration,
successful implementation of new projects and a continued strong
business environment, particularly in Europe. Advanced
Engineered Materials experienced a slight decline in average
pricing primarily driven by a larger mix of sales from lower
priced products.
Operating profit decreased to $133 million for the year
ended December 31, 2007 compared to $145 million for
the same period in 2006 as higher volumes and favorable currency
impacts (particularly related to the Euro) were more than offset
by higher energy costs, increased Other (charges) gains, net and
slightly lower average pricing. Other (charges) gains, net
increased primarily due to $2 million of deferred
compensation plan expenses and $5 million of Kelsterbach
plant relocation costs, both incurred in 2007.
Earnings from continuing operations before tax and minority
interests decreased 6% to $189 million for the year ended
December 31, 2007 compared to the same period in 2006
primarily due to lower operating profits in 2007 driven by
increased Other (charges) gains, net as discussed above.
47
Consumer
Specialties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
|
2007
|
|
|
2006
|
|
|
in $
|
|
|
|
In $ millions (except for percentages)
|
|
|
Net sales
|
|
|
1,111
|
|
|
|
876
|
|
|
|
235
|
|
Net sales variance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
Price
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
Currency
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
Other
|
|
|
26
|
%
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
199
|
|
|
|
165
|
|
|
|
34
|
|
Operating margin
|
|
|
17.9
|
%
|
|
|
18.8
|
%
|
|
|
|
|
Other (charges) gains, net
|
|
|
(4
|
)
|
|
|
|
|
|
|
(4
|
)
|
Earnings from continuing operations before tax and minority
interests
|
|
|
235
|
|
|
|
185
|
|
|
|
50
|
|
Depreciation and amortization
|
|
|
51
|
|
|
|
39
|
|
|
|
12
|
|
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 fiber in the form of a tow band.
The successful completion of the acquisition of APL on
January 31, 2007 further increases our global position and
enhances our ability to serve our customers. Our Nutrinova
business produces and sells
Sunett®,
a high intensity sweetener, and food protection ingredients,
such as sorbates, for the food, beverage and pharmaceuticals
industries.
Consumer Specialties net sales increased 27% to
$1,111 million for the year ended December 31, 2007
compared to the same period in 2006 primarily driven by
additional net sales from the APL acquisition completed on
January 31, 2007. Net sales for APL were $227 million
during the year ended December 31, 2007. Higher pricing for
acetate tow and flake products, higher
Sunett®
sweetener volumes and favorable currency impacts (particularly
related to the Euro) for the Nutrinova business also contributed
to the overall increase in net sales. Higher
Sunett®
sweetener volumes reflected the continued growth in the global
beverage and confectionary markets. These increases were
partially offset by lower acetate flake volumes and
Nutrinovas exit of non-core lower margin trade business
during the fourth quarter of 2006. The decrease in acetate flake
volumes was due primarily to the shift in production of acetate
flake to our China ventures.
Operating profit increased $34 million for the year ended
December 31, 2007 compared to the same period in 2006.
Higher overall pricing more than offset increases in raw
material costs. Higher overall costs were primarily due to price
increases in wood pulp, acetyls (used as raw materials in
acetate flake production) and acetate flake as well as expenses
associated with the continued integration of APL. Other
(charges) gains, net during the year ended December 31,
2007 includes $3 million of deferred compensation plan
expenses, $5 million of other restructuring charges and
insurance recoveries from a group of reinsurers of approximately
$5 million for partial satisfaction of the losses resulting
from the temporary unplanned outage of the acetic acid unit at
our Clear Lake, Texas facility. Also included in operating
profit for the year ended December 31, 2007 is a
$22 million gain related to the sale of the our Edmonton,
Alberta, Canada facility.
Earnings from continuing operations before tax and minority
interests increased $50 million to $235 million for
the year ended December 31, 2007 compared to the same
period in 2006. The increase was driven principally by the
changes in operating profit discussed above and an increase of
$16 million in dividends received from our China ventures
during the year ended December 31, 2007 compared to the
same period in 2006.
Depreciation and amortization increased $12 million to
$51 million for the year ended December 31, 2007
compared to the same period in 2006 primarily driven by the
acquisition of APL in 2007.
48
Industrial
Specialties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
|
2007
|
|
|
2006
|
|
|
in $
|
|
|
|
In $ millions (except for percentages)
|
|
|
Net sales
|
|
|
1,346
|
|
|
|
1,281
|
|
|
|
65
|
|
Net sales variance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
Price
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
Currency
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
Other
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
28
|
|
|
|
44
|
|
|
|
(16
|
)
|
Operating margin
|
|
|
2.1
|
%
|
|
|
3.4
|
%
|
|
|
|
|
Other (charges) gains, net
|
|
|
(23
|
)
|
|
|
(11
|
)
|
|
|
(12
|
)
|
Earnings from continuing operations before tax and minority
interests
|
|
|
28
|
|
|
|
43
|
|
|
|
(15
|
)
|
Depreciation and amortization
|
|
|
59
|
|
|
|
59
|
|
|
|
|
|
Our Industrial Specialties segment includes our Emulsions, PVOH
and AT Plastics businesses. Our Emulsions business is a global
leader which produces a broad product portfolio, specializing in
vinyl acetate/ethylene emulsions and is the recognized authority
on low VOC (volatile organic compounds), an
environmentally-friendly technology. Also a global leader, our
PVOH business produces and sells a broad portfolio of
performance PVOH chemicals engineered to meet specific customer
requirements. Our emulsions and PVOH products are used in a wide
array of applications including paints and coatings, adhesives,
building and construction, glass fiber, textiles and paper. AT
Plastics offers a complete line of low-density polyethylene and
specialty, ethylene vinyl acetate copolymers. AT Plastics
products are used in many applications including flexible
packaging films, lamination film products, hot melt adhesives,
medical tubing and automotive carpeting.
Industrial Specialties net sales for the year ended
December 31, 2007 increased 5% to $1,346 million
compared to the same period in 2006 primarily driven by pricing
increases and favorable currency impacts (particularly related
to the Euro) of 5% partially offset by a slight decrease in
volumes. Higher overall pricing, particularly in our emulsions
and PVOH products, was primarily due to market tightness and
increasing raw materials costs which allowed for upward movement
in pricing across all regions. Lower volumes were primarily
driven by the tight supply of VAM, a major raw material used in
the production of emulsions products. This was a result of the
temporary unplanned outage of the acetic acid unit at our Clear
Lake, Texas facility and other global planned and unplanned
production outages in the chemical industry during the year
ended December 31, 2007. The increase in net sales was
partially offset by the absence of net sales from the AT
Plastics Films business, which was divested during the
third quarter of 2007.
Operating profit decreased $16 million to $28 million
for the year ended December 31, 2007 compared to the same
period in 2006. Higher prices and favorable currency impacts
(particularly related to the Euro) were more than offset by the
increase in Other (charges) gains, net. Other (charges) gains,
net for the year ended December 31, 2007 included
$14 million of employee termination benefits,
$3 million for an impairment of long-lived assets and
$5 million of accelerated depreciation expense for our
Warrington plant. These increases were a result of our plan to
simplify and optimize our Emulsions and PVOH businesses to
become a leader in technology and innovation and grow in both
new and existing markets. Other (charges) gains, net for the
year ended December 31, 2007 also included approximately
$6 million of goodwill impairment. The increase in Other
(charges) gains, net was partially offset by insurance
recoveries from a group of reinsurers of approximately
$7 million for partial satisfaction of the losses resulting
from the temporary unplanned outage of the acetic acid unit at
our Clear Lake, Texas facility. Additionally, operating profit
decreased by approximately $7 million during the year ended
December 31, 2007 as a result of the loss on the
divestiture of our AT Plastics Films business.
49
Earnings from continuing operations before tax and minority
interests decreased $15 million to $28 million for the
year ended December 31, 2007 compared to the same period in
2006 principally driven by lower operating profits.
Acetyl
Intermediates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
|
2007
|
|
|
2006
|
|
|
in $
|
|
|
|
In $ millions (except for percentages)
|
|
|
Net sales
|
|
|
3,615
|
|
|
|
3,351
|
|
|
|
264
|
|
Net sales variance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
(5
|
)%
|
|
|
|
|
|
|
|
|
Price
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
Currency
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
Other
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
616
|
|
|
|
456
|
|
|
|
160
|
|
Operating margin
|
|
|
17
|
%
|
|
|
13.6
|
%
|
|
|
|
|
Other (charges) gains, net
|
|
|
72
|
|
|
|
|
|
|
|
72
|
|
Earnings from continuing operations before tax and minority
interests
|
|
|
694
|
|
|
|
519
|
|
|
|
175
|
|
Depreciation and amortization
|
|
|
106
|
|
|
|
101
|
|
|
|
5
|
|
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, medicines
and more. Other chemicals produced in this segment are organic
solvents and intermediates for pharmaceutical, agricultural and
chemical products.
Acetyl Intermediates net sales for the year ended
December 31, 2007 increased 8% to $3,615 million
compared to the same period in 2006 driven by pricing increases
and favorable currency impacts (particularly related to the
Euro) of 4% partially offset by lower volumes. Tight supply of
acetyl products caused by global planned and unplanned
production outages in the industry and higher methanol and
ethylene prices were the drivers of the price increases. Lower
volumes in 2007 were the result of lower product availability
due to the temporary unplanned outage of the acetic acid unit at
our Clear Lake, Texas facility. However, the decrease in volumes
from the Clear Lake, Texas facility was partially offset by the
successful startup of our acetic acid plant in Nanjing, China
and externally procured product.
Operating profit increased to $616 million for the year
ended December 31, 2007 compared to $456 million in
the same period in 2006. Higher pricing, favorable currency
impacts (particularly related to Euro) and an improvement in
Other (charges) gains, net were partially offset by higher raw
material costs. Other (charges) gains, net for the year ended
December 31, 2007 included $4 million of employee
termination benefits and $5 million of expenses related to
accelerated depreciation expense, both associated with the
pending sale of our Pampa, Texas plant, and $10 million for
deferred compensation plan expenses. These charges were more
than offset by $31 million related to a one time payment
received in resolution of commercial disputes with a vendor and
insurance recoveries from a group of reinsurers of approximately
$28 million for partial satisfaction of the losses
resulting from the temporary unplanned outage of the acetic acid
unit at our Clear Lake, Texas facility. Acetyl Intermediates
also received $35 million of insurance recoveries from our
captive insurance companies relating to the unplanned outage of
the acetic acid unit at our Clear Lake, Texas facility. This
amount is included in Acetyl Intermediates Other (charges)
gains, net but is properly eliminated in our consolidated
statement of operations. Operating profit also includes a gain
on the sale of our Edmonton facility of $12 million.
Earnings from continuing operations before tax and minority
interests increased $175 million to $694 million for
the year ended December 31, 2007 compared to the same
period in 2006 primarily driven by higher operating profit and
an increase in dividend income from our cost investments.
Dividend income from our National Methanol
50
Company cost investment increased $24 million due to
increased earnings for the year ended December 31, 2007
compared to the same period in 2006.
Other
Activities
Other Activities primarily consists of corporate center costs,
including financing and administrative activities, and the
captive insurance companies.
Net sales for Other Activities decreased to $2 million from
$22 million for the year ended December 31, 2007
compared to the same period in 2006. This decrease was
principally driven by the decrease in third-party revenues from
our captive insurance companies.
Operating loss increased to $228 million for the year ended
December 31, 2007 compared to $190 million in the same
period in 2006. This increase was principally driven by an
increase in Other (charges) gains, net more than offsetting a
decrease in Selling, general and administrative expenses. Other
(charges) gains, net increased primarily due to $59 million
of deferred compensation plan costs expensed in 2007. Selling,
general and administrative expenses decreased for the year ended
December 31, 2007 primarily due to the absence of executive
severance and legal costs associated with the Squeeze-Out of
$23 million and long-term incentive plan expenses of
$20 million recorded in 2006.
Loss from continuing operations before tax and minority
interests increased $277 million to $699 million for
the year ended December 31, 2007 compared to the same
period in 2006. The increase was primarily driven by the
increase in operating loss discussed above and higher
refinancing expenses incurred in 2007, partially offset by lower
interest expense. During the year ended December 31, 2007,
we incurred $256 million of refinancing expenses associated
with the April 2, 2007 debt refinancing. Interest expense
decreased $31 million during the year ended
December 31, 2007 compared to the same period in 2006
primarily related to lower interest rates on the new senior
credit agreement compared to the interest rates on the senior
discount notes and senior subordinated notes, which were repaid
in April 2007 in conjunction with the debt refinancing. In
addition, during the year ended December 31, 2007, we
incurred approximately $26 million of mark-to-market loss
on the cross currency swap and the Euro denominated term loan
that had been used as a hedge of our net investment in our
European subsidiaries.
Summary
by Business Segment Year Ended December 31,
2006 Compared with Year Ended December 31, 2005
Advanced
Engineered Materials
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
|
2006
|
|
|
2005
|
|
|
in $
|
|
|
|
In $ millions (except for percentages)
|
|
|
Net sales
|
|
|
915
|
|
|
|
887
|
|
|
|
28
|
|
Net sales variance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
Price
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
Currency
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
Other
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
145
|
|
|
|
60
|
|
|
|
85
|
|
Operating margin
|
|
|
15.8
|
%
|
|
|
6.8
|
%
|
|
|
|
|
Other (charges) gains, net
|
|
|
6
|
|
|
|
8
|
|
|
|
(2
|
)
|
Earnings from continuing operations before tax and minority
interests
|
|
|
201
|
|
|
|
116
|
|
|
|
85
|
|
Depreciation and amortization
|
|
|
65
|
|
|
|
60
|
|
|
|
5
|
|
Advanced Engineered Materials net sales increased 3% to
$915 million for the year ended December 31, 2006
compared to the same period in 2005. The increase for the year
was primarily driven by 6% higher volumes. Volumes increased in
all product lines due to increased market penetration and a
stronger business environment in
51
Europe. Improved volumes during 2006 were partially offset by
the absence of net sales from the COC business, which was
divested in December 2005. During the year ended
December 31, 2005, COC recorded approximately
$19 million in net sales.
Operating profit increased to $145 million for the year
ended December 31, 2006 compared to $60 million for
the same period in 2005 as improved net sales more than offset
higher raw material and energy costs. Also contributing to the
increases are positive effects from the exit of the COC business
(including a reduction in Other (charges) gains, net due to the
2005 asset impairment charge of $25 million), productivity
improvements and lower spending due to an organizational
redesign. During the year ended December 31, 2005, COC
recorded an operating loss of $69 million, including asset
impairments mentioned above.
Earnings from continuing operations before tax and minority
interests increased 73% to $201 million for the year ended
December 31, 2006 compared to the same period in 2005. This
increase is primarily due to the increases in operating profit.
Equity in net earnings of affiliates increased $4 million
for the year ended December 31, 2006 compared to the same
period in 2005.
Consumer
Specialties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
|
2006
|
|
|
2005
|
|
|
in $
|
|
|
|
In $ millions (except for percentages)
|
|
|
Net sales
|
|
|
876
|
|
|
|
839
|
|
|
|
37
|
|
Net sales variance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
Price
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
Currency
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
Other
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
165
|
|
|
|
128
|
|
|
|
37
|
|
Operating margin
|
|
|
18.8
|
%
|
|
|
15.3
|
%
|
|
|
|
|
Other (charges) gains, net
|
|
|
|
|
|
|
(9
|
)
|
|
|
9
|
|
Earnings from continuing operations before tax and minority
interests
|
|
|
185
|
|
|
|
127
|
|
|
|
58
|
|
Depreciation and amortization
|
|
|
39
|
|
|
|
41
|
|
|
|
(2
|
)
|
Consumer Specialties net sales for the year ended
December 31, 2006 increased 4% to $876 million
compared to the same period in 2005 primarily driven by a 3%
increase in pricing as higher overall pricing in the Acetate
Products business more than offset the lower pricing for
Sunett®
sweetener products.
Sunett®
sweetener pricing declined on lower unit selling prices
associated with higher volumes to Nutrinovas major
customers. Overall volumes for Consumer Specialties increased
slightly driven by higher
Sunett®
volumes due to strong demand from Nutrinovas customers
associated with new product launches as well as the impact from
the warmer than normal temperatures in Europe and North America
in 2006. The increase in volumes was partially offset by lower
acetate tow volumes in the Acetate Products business, which were
a result of shutting down our Canadian tow plant, and lower
sales to China, which was due to the expansion of our China tow
ventures.
Operating profit increased to $165 million for the year
ended December 31, 2006 compared to $128 million in
the same period in 2005. Higher overall pricing in the Acetate
Products business, volume growth for
Sunett®
sweetener products and lower Other (charges) gains, net more
than offset higher raw material costs, lower acetate tow volumes
and lower
Sunett®
pricing. The lower Other (charges) gains, net was due primarily
to the absence of $7 million of environmental related plant
closure costs recorded in 2005.
Earnings from continuing operations before tax and minority
interests increased 46% to $185 million for the year ended
December 31, 2006 compared to the same period in 2005. The
increase is primarily due to higher operating profits as well as
an increase of $19 million in dividends from our China
ventures received in 2006.
52
Industrial
Specialties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
|
2006
|
|
|
2005
|
|
|
in $
|
|
|
|
In $ millions (except for percentages)
|
|
|
Net sales
|
|
|
1,281
|
|
|
|
1,061
|
|
|
|
220
|
|
Net sales variance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
Price
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
Currency
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
Other
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
44
|
|
|
|
(4
|
)
|
|
|
48
|
|
Operating margin
|
|
|
3.4
|
%
|
|
|
(0.4
|
)%
|
|
|
|
|
Other (charges) gains, net
|
|
|
(11
|
)
|
|
|
(7
|
)
|
|
|
(4
|
)
|
Earnings (loss) from continuing operations before tax and
minority interests
|
|
|
43
|
|
|
|
(4
|
)
|
|
|
47
|
|
Depreciation and amortization
|
|
|
59
|
|
|
|
47
|
|
|
|
12
|
|
Industrial Specialties net sales for the year ended
December 31, 2006 increased 21% to $1,281 million
compared to the same period in 2005 primarily driven by higher
pricing and inclusion of sales from the AT Plastics business.
Net sales for AT Plastics increased to $235 million for the
year ended December 31, 2006 compared to $112 million
for the same period in 2005. The increase in AT Plastics net
sales is primarily due to a full year of sales activity in 2006
compared to five months of activity in 2005 as AT Plastics was
acquired in July 2005. Overall pricing increased 3% driven by
continued strong demands for the majority of our products and
increasing raw material costs. Higher volumes and favorable
currency impacts (particularly related to the Euro) also
contributed to the overall increase in net sales.
Operating profit increased to $44 million for the year
ended December 31, 2006 compared to an operating loss of
$4 million in the same period in 2005 as pricing increases
and an increase in operating profit from the AT Plastics
business more than offset raw material price increases.
Operating profit from the AT Plastics business increased
$17 million in 2006 compared to the same period in 2005
primarily due to a full year of sales activity in 2006 compared
to five months of activity in 2005.
Earnings from continuing operations before tax and minority
interests increased $47 million for the year ended
December 31, 2006 compared to the same period in 2005
primarily due to the increase in operating profit discussed
above.
53
Acetyl
Intermediates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Change
|
|
|
|
2006
|
|
|
2005
|
|
|
in $
|
|
|
|
In $ millions (except for percentages)
|
|
|
Net sales
|
|
|
3,351
|
|
|
|
2,911
|
|
|
|
440
|
|
Net sales variance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
Price
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
Currency
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
Other
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
456
|
|
|
|
486
|
|
|
|
(30
|
)
|
Operating margin
|
|
|
13.6
|
%
|
|
|
16.7
|
%
|
|
|
|
|
Other (charges) gains, net
|
|
|
|
|
|
|
(9
|
)
|
|
|
9
|
|
Earnings from continuing operations before tax and minority
interests
|
|
|
519
|
|
|
|
555
|
|
|
|
(36
|
)
|
Depreciation and amortization
|
|
|
101
|
|
|
|
110
|
|
|
|
(9
|
)
|
Acetyl Intermediates net sales increased 15% to
$3,351 million for the year ended December 31, 2006
compared to the same period in 2005. Pricing increased for most
products driven primarily by the acetyl business lines. Higher
pricing was a result of continued strong demand for the majority
of our products and higher raw material costs. Overall volumes
increased 3% for the year ended December 31, 2006 compared
to the same period in 2005 primarily due to increased demand in
Asia. Net sales also increased due to $307 million of net
sales from Acetex (excluding AT Plastics), which was acquired in
July 2005, an increase of $172 million compared to the same
period in 2005.
Operating profit decreased 6% to $456 million for the year
ended December 31, 2006 compared to the same period in 2005
as higher raw material costs and natural gas prices more than
offset strong demands for our acetyl products and lower Other
(charges) gains, net. The lower Other (charges) gains, net was
due to the absence of $6 million of severance costs
associated with the closure of the Edmonton Methanol plant and
$5 million of environmental related plant closure costs,
both recorded in 2005.
Earnings from continuing operations before tax and minority
interests decreased 6% to $519 million for the year ended
December 31, 2006 compared to the same period in 2005
primarily due to lower operating profits and lower dividend
income from our cost investments.
Other
Activities
Net sales for Other Activities decreased to $22 million
from $32 million for the year ended December 31, 2006
compared to the same period in 2005 primarily due to the absence
of $8 million of net sales resulting from the sale of PBI
and Vectran product lines during the second quarter of 2005.
Operating loss increased to $190 million for the year ended
December 31, 2006 compared to a loss of $184 million
in the same period in 2005. The operating loss increased during
the year due to executive severance and legal costs of
$23 million associated with the Squeeze-Out of CAG
shareholders, stock-based compensation expense of
$20 million resulting from our adoption of
SFAS No. 123(R) and $14 million related to our
long-term incentive plan. The increase was partially offset by
the absence of $45 million of Other (charges) gains, net
related to the 2005 advisor monitoring fee and the termination
of advisor monitoring services agreement during the first
quarter of 2005.
Loss from continuing operations before tax and minority
interests improved to a loss of $422 million from a loss of
$518 million for the year ended December 31, 2006
compared to the same period in 2005 primarily due to a decrease
in refinancing expenses of $101 million. Lower refinancing
expenses are due to the absence of $28 million related to
accelerated amortization of deferred financing costs and
$74 million related to early redemption
54
premiums associated with the partial redemption of the senior
subordinated notes, senior discount notes and floating rate term
loan, both recorded in 2005.
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, we
have availability under our senior credit agreement to assist,
if required, in meeting our working capital needs and other
contractual obligations. We believe we will have available
resources to meet our liquidity requirements, including debt
service, for the remainder of 2008. 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 or that we will be able to maintain
our ability to borrow under our revolving credit facilities.
Cash
Flows
Cash and cash equivalents as of December 31, 2007 were
$825 million, which was an increase of $34 million
from December 31, 2006. Cash and cash equivalents as of
December 31, 2006 were $791 million, which was an
increase of $401 million from December 31, 2005. See
below for details on the change in cash and cash equivalents
from December 31, 2006 to December 31, 2007 and the
change in cash and cash equivalents from December 31, 2005
to December 31, 2006.
Net
Cash Provided by Operating Activities
Cash flow provided by operating activities decreased to a cash
inflow of $566 million in 2007 compared to a cash inflow of
$751 million for the same period in 2006. The decrease in
operating cash flows was primarily due to adjustments to cash
for discontinued operations and an increase in working capital,
partially offset by an increase in earnings from continuing
operations. Adjustments to cash for discontinued operations of
$84 million relates primarily to working capital changes of
the oxo products and derivatives businesses and the shut down of
our Edmonton, Canada methanol facility during 2007. Earnings
from continuing operations increased to $336 million during
the year ended December 31, 2007 compared with
$319 million for the same period in 2006.
Cash provided by operating activities was $751 million for
the year ended December 31, 2006 compared with
$701 million for the same period in 2005. The increase in
operating cash flows was due primarily to an increase in
earnings from continuing operations partially offset by an
increase in cash used from changes in operating assets and
liabilities. Earnings from continuing operations increased to
$319 million for the year ended December 31, 2006
compared with $214 million for the same period in 2005. The
changes in operating assets and liabilities were driven
primarily by higher trade and other receivables offset by higher
trade payables. The increase in receivables is due to higher net
sales. The increase in trade payables is due to the timing of
payments.
Net
Cash Provided by/Used in Investing Activities
Net cash from investing activities improved to a cash inflow of
$143 million in 2007 compared to a cash outflow of
$268 million in 2006. The increase in cash inflow was
primarily due to the proceeds from the sale of our oxo products
and derivatives businesses partially offset by the cash outflow
for the APL acquisition. Additionally, our cash outflow for
capital expenditures during the year ended December 31,
2007 was $44 million higher compared to the same period in
2006. During the year ended December 31, 2006, we increased
restricted cash by $42 million related to the anticipated
payment to minority shareholders for their remaining CAG shares.
During the year ended December 31, 2007, as a result of the
completion of the Squeeze-Out (see Note 2 to the
consolidated financial statements) and the payment to minority
shareholders for their remaining CAG shares, restricted cash
decreased $46 million.
Net cash from investing activities improved to a cash outflow of
$268 million in 2006 compared to a cash outflow of
$907 million in 2005. The decrease in cash outflow is
primarily due to cash paid of $473 million for the purchase
of additional CAG shares in 2005, $216 million for the
purchase of Acetex in July 2005 and $198 million
55
for the purchase of Vinamul in February 2005. These decreases
were offset by the net effect of an increase in cash paid for
capital expenditures of $41 million, an increase in
restricted cash of $42 million, a decrease in net proceeds
from the sale and purchase of marketable securities of
$42 million, proceeds received for the Kelsterbach plant
relocation of $26 million in 2006, the net effect of a
decrease in investing cash used in discontinued operations of
$105 million, a decrease in fees associated with the 2005
acquisitions of $29 million and a decrease in the proceeds
received from the sales of assets of $25 million.
Our cash outflow for capital expenditures were
$288 million, $244 million and $203 million for
the years ended December 31, 2007, 2006 and 2005,
respectively. Capital expenditures were primarily related to
major replacements of equipment, capacity expansions, major
investments to reduce future operating costs and environmental,
health and safety initiatives. Capital expenditures in 2007,
2006 and 2005 included costs for the expansion of our Nanjing,
China site into an integrated chemical complex. Cash outflows
for capital expenditures are expected to be approximately
$300 million in 2008.
Net
Cash Used in Financing Activities
Net cash from financing activities increased to a cash outflow
of $714 million in 2007 compared to a cash outflow of
$108 million in the same period in 2006. The decrease
primarily relates to the repurchase of shares of our
Series A common stock and the debt refinancing as discussed
in Notes 18 and 15 to the consolidated financial
statements, respectively. This decrease was partially offset by
$69 million of proceeds received from the exercise of stock
options. Primarily as a result of the debt refinancing, we
incurred a net cash outflow of $119 million related to
repayments of our debt and approximately $240 million for
various refinancing expenses during the year ended
December 31, 2007. Furthermore, we paid a total of
$403 million to repurchase shares of our Series A
common stock during the year ended December 31, 2007.
Net cash from financing activities decreased to a cash outflow
of $108 million in 2006 compared to a cash outflow of
$144 million in 2005. The cash outflow in 2006 primarily
relates to the $100 million equivalent voluntary prepayment
of our senior term loan facility on July 14, 2006 as well
as increased dividends paid on our Series A common stock
and our preferred stock of $15 million in 2006. We
commenced making common and preferred cash dividends during the
third quarter of 2005.
In addition, exchange rate effects on cash and cash equivalents
increased to a favorable currency effect of $39 million in
2007 from a favorable currency effect of $26 million in
2006. Exchange rate effects on cash and cash equivalents
increased to a favorable currency effect of $26 million in
2006 from an unfavorable currency effect of $98 million in
2005.
Liquidity
Our contractual obligations, commitments and debt service
requirements over the next several years are significant. As
stated above, 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, we have availability under our senior credit agreement
to assist, if required, in meeting our working capital needs and
other contractual obligations.
On a stand alone basis, we have no material assets other than
the stock of our subsidiaries and no independent external
operations of our own. As such, we generally will depend on the
cash flow of our subsidiaries to meet our obligations under our
preferred stock, our Series A common stock and our senior
credit agreement.
Debt
Refinancing
In March 2007, we announced a comprehensive recapitalization
plan to refinance our debt and repurchase outstanding shares of
our Series A common stock. On April 2, 2007, we,
through certain of our subsidiaries, entered into a new senior
credit agreement. The new senior credit agreement consists of
$2,280 million of US dollar denominated and
400 million of Euro denominated term loans due 2014,
a $650 million revolving credit facility terminating in
2013 and a $228 million credit-linked revolving facility
terminating in 2014. Borrowings under the new senior credit
agreement bear interest at a variable interest rate based on
LIBOR (for US dollars) or EURIBOR
56
(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 loans and
any loans under the credit-linked revolving facility is 1.75%,
subject to potential reductions as defined in the new senior
credit agreement. The term loans under the new senior credit
agreement are subject to amortization at 1% of the initial
principal amount per annum, payable quarterly commencing in July
2007. The remaining principal amount of the term loans will be
due on April 2, 2014.
Proceeds from the new senior credit agreement, together with
available cash, were used to retire our $2,454 million
amended and restated (January 2005) senior credit
facilities, which consisted of $1,626 million in term loans
due 2011, a $600 million revolving credit facility
terminating in 2009 and an approximate $228 million
credit-linked revolving facility terminating in 2009, and to
retire all of our Senior Subordinated Notes and Senior Discount
Notes as discussed below.
On March 6, 2007, we commenced cash tender offers (the
Tender Offers) with respect to any and all of the
outstanding 10% senior discount notes due 2014 and
10.5% senior discount notes due 2014 (the Senior
Discount Notes), and any and all of the outstanding
9.625% senior subordinated notes due 2014 and
10.375% senior subordinated notes due 2014 (the
Senior Subordinated Notes). The Tender Offers
expired on April 2, 2007. Substantially all of the Senior
Discount Notes and Senior Subordinated Notes were tendered in
conjunction with the Tender Offers. The remaining outstanding
Senior Discount Notes and Senior Subordinated Notes not tendered
in conjunction with the Tender Offers were redeemed in May 2007
through optional redemption allowed in the indentures.
As a result of the refinancing, we incurred $207 million of
premiums paid on early redemption of debt which is included in
Refinancing expenses on the accompanying consolidated statements
of operations for the year ended December 31, 2007. In
addition, we expensed $33 million of unamortized deferred
financing costs and premiums related to the former
$2,454 million senior credit facility, Senior Discount
Notes and Senior Subordinated Notes and $16 million of debt
issuance and other refinancing expenses.
In connection with the refinancing, we recorded deferred
financing costs of $39 million related to the new senior
credit agreement, which are included in long-term Other assets
on the accompanying consolidated balance sheet as of
December 31, 2007 and are being amortized over the term of
the new senior credit agreement. The deferred financing costs
consist of $23 million of costs incurred to acquire the new
senior credit agreement and $16 million of debt issue costs
existing prior to the refinancing which were retained and are
being amortized over the term of the new senior credit
agreement. As a result of the refinancing, we incurred, for the
period April 2007 to July 2007, approximately $26 million
of mark-to-market loss on the cross currency swap and the Euro
denominated term loan that had been used as a hedge of our net
investment in our European subsidiaries. The loss is included in
Other income (expense), net in the consolidated financial
statements. We designated the net investment hedge as such
during July 2007.
As of December 31, 2007, there were $129 million of
letters of credit issued under the credit-linked revolving
facility and $99 million remained available for borrowing.
As of December 31, 2007, there were no outstanding
borrowings or letters of credit issued under the revolving
credit facility; accordingly, $650 million remained
available for borrowing.
As of December 31, 2007, we had total debt of
$3,556 million and cash and cash equivalents of
$825 million. As of December 31, 2007, net debt (total
debt less cash and cash equivalents) increased to
$2,731 million from $2,707 million as of
December 31, 2006. Increases to net debt during the year
ended December 31, 2007 included capital expenditures of
$288 million, foreign currency impacts of $91 million,
additional capital lease obligations of $76 million,
purchases of treasury stock of $403 million, cash outflows
of $240 million related to refinancing fees paid on the
April 2, 2007 debt refinancing and cash outflows of
$269 million for acquisitions and related fees completed in
2007. These increases in net debt were partially offset by cash
flows from operations of $566 million, proceeds received
from the sale of businesses and assets of $715 million and
proceeds received from stock option exercises of
$69 million.
57
Commitments
Relating to Share Capital
Holders of our preferred stock are entitled to receive, when, as
and if declared by our Board of Directors, out of funds legally
available, cash dividends at the rate of 4.25% per annum (or
$1.06 per share) of liquidation preference, payable quarterly in
arrears commencing on May 1, 2005. Dividends on the
preferred stock are cumulative from the date of initial
issuance. As of December 31, 2007, the dividend is expected
to result in an annual payment of approximately
$10 million. Accumulated but unpaid dividends accumulate at
an annual rate of 4.25%. The preferred stock is convertible, at
the option of the holder, at any time into approximately
1.25 shares of our Series A common stock, subject to
adjustments, per $25.00 liquidation preference of the preferred
stock. For the years ended December 31, 2007, 2006 and
2005, we paid $10 million, $10 million and
$8 million, respectively, of cash dividends on our
preferred stock. On January 4, 2008, we declared a
$3 million cash dividend on our convertible perpetual
preferred stock, which was paid on February 1, 2008.
In July 2005, our Board of Directors adopted a policy of
declaring, subject to legally available funds, a quarterly cash
dividend on each share of our Series A common stock at an
annual rate initially equal to approximately 1% of the $16.00
initial public offering price per share of our Series A
common stock (or $0.16 per share) unless our Board of Directors
in its sole discretion determines otherwise. For the years ended
December 31, 2007, 2006 and 2005, we paid $25 million,
$26 million and $13 million, respectively, in cash
dividends on our Series A common stock. On January 4,
2008, we declared a $6 million cash dividend which was paid
on February 1, 2008. Based upon the number of outstanding
shares as of December 31, 2007, the dividend is expected to
result in an annual payment of approximately $24 million in
2008. However, there is no assurance that sufficient cash or
surplus will be available to pay the remainder of the
anticipated 2008 cash dividend.
Other
Obligations
Contractual Debt and Cash Obligations. The
following table sets forth our fixed contractual debt and cash
obligations as of December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration per Period
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
After 5
|
|
Fixed Contractual Debt and Cash Obligations
|
|
Total
|
|
|
1 Year
|
|
|
Years 2 & 3
|
|
|
Years 4 & 5
|
|
|
Years
|
|
|
|
(In $ millions)
|
|
|
Term Loans Facility
|
|
|
2,855
|
|
|
|
29
|
|
|
|
57
|
|
|
|
57
|
|
|
|
2,712
|
|
Interest Payments on
Debt(1)
|
|
|
1,662
|
|
|
|
242
|
|
|
|
456
|
|
|
|
438
|
|
|
|
526
|
|
Capital Lease Obligations
|
|
|
110
|
|
|
|
4
|
|
|
|
8
|
|
|
|
10
|
|
|
|
88
|
|
Other
Debt(2)
|
|
|
593
|
|
|
|
239
|
|
|
|
77
|
|
|
|
60
|
|
|
|
217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed Contractual Debt Obligations
|
|
|
5,220
|
|
|
|
514
|
|
|
|
598
|
|
|
|
565
|
|
|
|
3,543
|
|
Operating Leases
|
|
|
303
|
|
|
|
64
|
|
|
|
85
|
|
|
|
62
|
|
|
|
92
|
|
Unconditional Purchase Obligations
|
|
|
3,156
|
|
|
|
748
|
|
|
|
1,031
|
|
|
|
636
|
|
|
|
741
|
|
FIN 48 Obligations, Including Interest and
Penalties(3)
|
|
|
236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
236
|
|
Other Contractual Obligations
|
|
|
448
|
|
|
|
260
|
|
|
|
81
|
|
|
|
49
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed Contractual Debt and Cash Obligations
|
|
|
9,363
|
|
|
|
1,586
|
|
|
|
1,795
|
|
|
|
1,312
|
|
|
|
4,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For future interest expense, we assumed no change in variable
rates. See Note 15 to the consolidated financial statements
for the applicable interest rates. |
|
(2) |
|
Does not include a $2 million reduction due to purchase
accounting. |
|
(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
Financial Accounting Standards Board (FASB)
Interpretation No. 48, Accounting for Uncertainty
in Income Taxes, an interpretation of FASB Statement
No. 109 (FIN 48) obligations,
including interest and penalties. These amounts are therefore
reflected in After 5 Years. |
58
Other Debt. Other debt of $593 million is
primarily made up of fixed rate pollution control and industrial
revenue bonds, short-term borrowings from affiliated companies
and other bank obligations.
Unconditional Purchase
Obligations. Unconditional Purchase Obligations
primarily include take or pay contracts. We do not expect to
incur any material losses under these contractual arrangements.
In addition, these contracts may include variable price
components.
Other Contractual Obligations. Other
Contractual Obligations primarily includes committed capital
spending and fines associated with the US antitrust settlement
described in Note 24 to the consolidated financial
statements. Also included in Other Contractual Obligations is a
99 million fine from the European Commission related
to antitrust matters in the sorbates industry, which is pending
an appeal. We are indemnified by a third party for 80% of the
expenses relating to these matters, which is not reflected in
the amount above.
As of December 31, 2007, we have contractual guarantees and
commitments as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration per Period
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
After 5
|
|
Contractual Guarantees and Commitments
|
|
Total
|
|
|
1 Year
|
|
|
Years 2 & 3
|
|
|
Years 4 & 5
|
|
|
Years
|
|
|
|
(In $ millions)
|
|
|
Financial Guarantees
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34
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16
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11
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Standby Letters of Credit
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129
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129
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Contractual Guarantees and Commitments
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163
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136
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16
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11
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We are secondarily liable under a lease agreement which we
assigned to a third party. The lease expires on April 30,
2012. The lease liability for the period from January 1,
2008 to April 30, 2012 is estimated to be approximately
$34 million.
Standby letters of credit of $129 million outstanding as of
December 31, 2007 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. The
stand-by letters of credit include approximately
$33 million related to obligations associated with the
sorbates antitrust matters as described in the Other
Contractual Obligations above.
Deferred Compensation. In May 2007, the
Original Shareholders sold their remaining equity interest in
our Company (see Note 18 to the consolidated financial
statements for additional information) triggering an Exit Event,
as defined in Note 21 to the consolidated financial
statements. Cash compensation of approximately $74 million,
representing the participants 2005 and 2006 contingent
benefits, was paid to the participants during the year ended
December 31, 2007. See Note 21 to the consolidated
financial statements for additional information.
On April 2, 2007, certain participants in our deferred
compensation plan elected to participate in a revised program,
which includes both cash awards and restricted stock units.
Under the revised program, participants relinquished their cash
awards of up to $30 million that would have contingently
accrued from
2007-2009
under the original plan. See additional discussion of the
revised program in Note 21 to the consolidated financial
statements. Based on current participation in the revised
program, the awards, which will be expensed between
April 2, 2007 and December 31, 2010, aggregate to
approximately $27 million plus notional earnings. We
expensed approximately $6 million during the year ended
December 31, 2007 related to the revised program.
In December 2007, we adopted a deferred compensation plan
whereby we offered 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.
Participants were required to make deferral elections under the
plan in December 2007, and such deferrals will be withheld from
their compensation during the year ending December 31,
2008. This plan became effective January 1, 2008.
Long-Term Incentive Plan. On February 16,
2007, approximately $26 million was paid to the long-term
incentive plan (LTIP) plan participants. There are
no additional amounts due under the LTIP plan. See Note 21
to the consolidated financial statements for additional
information.
59
Purchases of Treasury Stock. In conjunction
with the debt refinancing discussed above, we, through our
wholly-owned subsidiary Celanese International Holdings
Luxembourg S.à r.l. (CIH), repurchased
2,021,775 shares of our outstanding Series A common
stock in a modified Dutch Auction tender offer from
public shareholders, which expired on April 3, 2007, at a
purchase price of $30.50 per share. The total price paid for
these shares was approximately $62 million. The number of
shares purchased in the tender offer represented approximately
1.3% of our outstanding Series A common stock at that time.
We also separately purchased, through our wholly-owned
subsidiary CIH, 329,011 shares of our Series A common
stock at $30.50 per share from the investment funds associated
with The Blackstone Group L.P. The total price paid for these
shares was approximately $10 million. The number of shares
purchased from Blackstone represented approximately 0.2% of our
outstanding Series A common stock at that time.
Additionally, on June 4, 2007, our Board of Directors
authorized the repurchase of up to $330 million of our
Series A common stock. During the year ended
December 31, 2007, we repurchased 8,487,700 shares of
our Series A common stock at an average purchase price of
$38.88 per share for a total of approximately $330 million
pursuant to this authorization. We completed repurchasing shares
under this authorization during July 2007.
These purchases reduced 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.
On February 8, 2008, our Board of Directors authorized the
repurchase of up to $400 million of our Series A common
stock. The authorization gives management discretion in
determining the conditions under which shares may be
repurchased. As of February 29, 2008, we have repurchased
64,400 shares of our Series A common stock at an average
purchase price of $39.86 per share for a total of approximately
$3 million in connection with this authorization.
Domination Agreement. The domination and
profit and loss transfer agreement (the Domination
Agreement) was approved at the CAG extraordinary
shareholders meeting on July 31, 2004. The Domination
Agreement between CAG and the Purchaser became effective on
October 1, 2004 and cannot be terminated by the Purchaser
in the ordinary course of business until September 30,
2009. Our subsidiaries, CIH, formerly Celanese Caylux Holdings
Luxembourg S.C.A., and Celanese US, have each agreed to provide
the Purchaser with financing to strengthen the Purchasers
ability to fulfill its obligations under, or in connection with,
the Domination Agreement and to ensure that the Purchaser will
perform all of its obligations under, or in connection with, the
Domination Agreement when such obligations become due,
including, without limitation, the obligation to compensate CAG
for any statutory annual loss incurred by CAG during the term of
the Domination Agreement. If CIH
and/or
Celanese US are obligated to make payments under such guarantees
or other security to the Purchaser, we may not have sufficient
funds for payments on our indebtedness when due. We have not had
to compensate CAG for an annual loss for any period during which
the Domination Agreement has been in effect.
Squeeze-Out Payment. The Squeeze-Out was
registered in the commercial register in Germany on
December 22, 2006, after several lawsuits by minority
shareholders challenging the shareholders resolution
approving the Squeeze-Out were withdrawn pursuant to a
settlement agreement entered into between plaintiff
shareholders, the Purchaser and CAG on the same day. An
aggregate purchase price of approximately 62 million
was paid to minority shareholders in January 2007 as fair cash
compensation for the acquisition of their shares in CAG,
excluding direct acquisition costs of approximately
2 million. See Note 5 to the consolidated
financial statements for additional information.
Pension and Other Postretirement
Obligations. Our contributions for pension and
postretirement benefits are expected to be $40 million and
$34 million, respectively, in 2008.
Other
Matters
Plumbing
Actions and Sorbates Litigation
We are involved in a number of legal proceedings and claims
incidental to the normal conduct of our business. For the year
ended December 31, 2007, there were $23 million of
cash inflows in connection with the plumbing actions and
sorbates litigation. For the year ended December 31, 2006,
there were $14 million of cash inflows in
60
connection with the plumbing actions and sorbates litigation. In
February 2005, we settled with an insurance carrier and received
cash proceeds of $44 million in March 2005 and in December
2005, we received $30 million in additional settlements. As
of December 31, 2007 and 2006, there were reserves of
$235 million and $214 million, respectively, for these
matters. In addition, we have receivables from insurance
companies and Hoechst, or its legal successors, in connection
with the plumbing and sorbates matters of $137 million and
$141 million as of December 31, 2007 and 2006,
respectively.
Although it is impossible at this time to determine with
certainty the ultimate outcome of these matters, we believe,
based on the advice of legal counsel, that adequate provisions
have been made and that the ultimate outcome will not have a
material adverse effect on our financial position, but could
have a material adverse effect on our results of operations or
cash flows in any given accounting period. See Note 24 to
the consolidated financial statements for additional information.
Off-Balance
Sheet Arrangements
We have not entered into any material off-balance sheet
arrangements.
Market
Risks
Please see Quantitative and Qualitative Disclosure about
Market Risk under Item 7A 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 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 polices 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 3 to the consolidated financial statements for a more
comprehensive discussion of our significant accounting policies.
Recoverability
of Long-Lived Assets
Our business is capital intensive and has required, and will
continue to require, significant investments in property, plant
and equipment. As of December 31, 2007 and 2006, the
carrying amount of property, plant and equipment was
$2,362 million and $2,155 million, respectively.
Whenever events or circumstances change, we assess the
recoverability of property, plant and equipment to be held and
used by a comparison of the carrying amount of an asset or group
of assets to the future net undiscounted cash flows expected to
be generated by the asset or group of assets. If such assets are
considered impaired, the impairment recognized is measured as
the amount by which the carrying amount of the assets exceeds
the fair value of the assets.
We assess the recoverability of the carrying value of our
goodwill and other indefinite-lived intangible assets at least
annually or whenever events or changes in circumstances indicate
that the carrying amount of goodwill or the indefinite-lived
intangible asset may not be fully recoverable. As of
December 31, 2007 and 2006, we had $1,291 million and
$1,338 million, respectively, of goodwill and other
intangible assets, net.
As of December 31, 2007, there were no other significant
changes in the underlying business assumptions or circumstances
that led us to believe goodwill might have been impaired. We
will continue to evaluate the need for impairment if changes in
circumstances or available information indicate that impairment
may have occurred. We perform the required impairment test at
least annually during the third quarter of our fiscal year using
June 30 balances unless circumstances dictate more frequent
testing.
61
A prolonged general economic downturn and, specifically, a
continued downturn in the chemical industry as well as other
market factors could intensify competitive pricing pressure,
create an imbalance of industry supply and demand, or otherwise
diminish volumes or profits. Such events, combined with changes
in interest rates, could adversely affect our estimates of
future net cash flows to be generated by our long-lived assets.
Consequently, it is possible that our future operating results
could be materially and adversely affected by additional
impairment charges related to the recoverability of our
long-lived assets.
Other
(Charges) Gains, Net
Other (charges) gains, net include provisions for restructuring
and other expenses and income incurred outside the normal
ongoing course of operations. Restructuring provisions represent
costs related to severance and other benefit programs related to
major activities undertaken to fundamentally redesign our
operations as well as costs incurred in connection with a
decision to exit non-strategic businesses. These measures are
based on formal management decisions, establishment of
agreements with the employees representatives or
individual agreements with the affected employees as well as the
public announcement of the restructuring plan. The related
reserves reflect certain estimates, including those pertaining
to separation costs, settlements of contractual obligations and
other closure costs. We reassess the reserve requirements to
complete each individual plan under our restructuring program at
the end of each reporting period. Actual experience has been and
may continue to be different from these estimates. See
Note 19 to the consolidated financial statements for
additional information.
Environmental
Liabilities
We recognize losses and accrue liabilities relating to
environmental matters if available information indicates that it
is probable that a liability has been incurred and the amount of
loss is reasonably estimated. Depending on the nature of the
site, we accrue through fifteen years, unless we have 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, we provide appropriate disclosure in
the notes to the consolidated financial statements if the
contingency is considered material. We estimate 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. See also Note 17 to
the consolidated financial statements for additional information.
Asset
Retirement Obligations
SFAS No. 143, Accounting for Asset Retirement
Obligations requires that the fair value of a liability for
an asset retirement obligation be recognized in the period in
which it is incurred and FASB Interpretation No. 47,
Accounting for Conditional Asset Retirement
Obligations an interpretation of FASB Statement
No. 143 provides guidelines as to when a company is
required to record a conditional asset retirement obligation.
The liability is measured at the discounted fair value and is
adjusted to its present value in subsequent periods as accretion
expense is recorded. The corresponding asset retirement costs
are capitalized as part of the carrying amount of the related
long-lived asset and depreciated over the assets remaining
useful life. We have identified but not recognized asset
retirement obligations related to certain of our 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, operations at
these facilities are expected to continue indefinitely and
therefore a reasonable estimate of fair value cannot be
determined at this time. We will continue to assess strategies
that may differ from past business decisions regarding the
continuing operation of existing facilities. Asset retirement
obligations will be recorded if these strategies are changed and
probabilities of closure are assigned to existing facilities. If
certain operating facilities were to close, the related asset
retirement obligations could significantly affect our results of
operations and cash flows.
Realization
of Deferred Tax Assets
We regularly review our deferred tax assets for recoverability
and establish a valuation allowance based on historical taxable
income, projected future taxable income, applicable tax
strategies, and the expected timing of the
62
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.
Such evaluations require significant management judgments.
Valuation allowances have been established primarily on net
operating loss carryforwards and other deferred tax assets in
the US and Canada. See Note 20 to the consolidated
financial statements for additional information.
Tax
Contingencies
We record accruals for taxes and associated interest that may
become payable in future years as a result of audits by tax
authorities. Prior to 2007, we accrued for tax contingencies
when it is probable that a liability to a taxing authority had
been incurred and the amount of the contingency could be
reasonably estimated.
On January 1, 2007, we adopted the provisions of
FIN 48. FIN 48 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. FIN 48 also provides guidance on
derecognition, measurement, classification, interest and
penalties, accounting in interim periods, disclosure and
transition.
Under FIN 48, tax benefits are recognized only 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. See Note 20 to the consolidated
financial statements for additional information.
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 Employee
Retirement Income Security Act. Contributions to the various
pension and other postretirement benefit plans are further
discussed in Note 16 to the consolidated financials
statements. Benefits are generally 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, rates of
increase in compensation levels, expected long-term rates of
return on plan assets and increases or trends in health care
costs. In addition to the above mentioned assumptions, actuarial
consultants use subjective 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, 2007 and
2006, we assumed an expected long-term rate of return on plan
assets of 8.5% for the US qualified defined benefit pension
plan, which represents greater than 83% and 75% of pension plan
assets and liabilities, respectively. On average, the actual
return on plan assets over the long-term (15 to 20 years)
has exceeded 9.0%. For the year ended December 31, 2007,
the US qualified defined benefit pension plan assets actual
return was 100 basis points more than the expected
long-term rate of return of plan assets. For the year ended
December 31, 2006, the actual return was 630 basis
points more than the expected long-term rate of return of plan
assets. Based on our investment strategy, we believe that 8.5%
is a reasonable long-term rate of return.
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
$6 million in 2007. 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
63
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, 2007,
we increased the discount rate to 6.30% from 5.88% as of
December 31, 2006 for the US plans. We estimate that a
50 basis point decline in our discount rate will decrease
our annual pension expenses by an estimated $1 million, and
increase our benefit obligations by approximately
$150 million for our US pension plan. 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 an estimated
$1 million and less than $1 million, respectively, and
will increase our benefit obligations by approximately
$36 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 postretirement benefit cost for the years
ended December 31, 2007, 2006 and 2005 includes
$18 million, $21 million and $25 million,
respectively. The accrued post-retirement liability was
$306 million and $343 million as of December 31,
2007 and 2006, respectively, and is included in long-term Other
liabilities. 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, 2007, and the 2007 postretirement benefit cost
to change by approximately $4 million and $1 million,
respectively. See Note 16 to the consolidated financial
statements for additional information.
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. A determination of the amount of loss contingency
required, if any, is assessed in accordance with
SFAS No. 5, Contingencies and Commitments, 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. See Note 24 to the
consolidated financial statements for further discussion of the
outstanding commitments and contingencies and the related impact
on our financial position and results of operations.
Business
Combinations
Upon closing an acquisition, we estimate the fair values of
assets and liabilities acquired as soon as practicable. Given
the time it takes to obtain pertinent information to finalize
the acquired companys balance sheet (frequently with
implications for the purchase price of the acquisition), then to
adjust the acquired companys accounting policies,
procedures, books and records to our standards, it is often
several quarters before we are able to finalize those initial
fair value estimates. Accordingly, it is not uncommon for the
initial estimates to be subsequently revised within twelve
months of an acquisition. The judgments made in determining the
estimated fair value assigned to each class of assets acquired
and liabilities assumed, as well as asset lives, can materially
impact our results of operations. See Note 5 to the
consolidated financial statements for additional information.
Captive
Insurance Companies
We have 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 our estimates and actuarial
64
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 we 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.
The Captives enter into reinsurance arrangements to reduce their
risk of loss. The reinsurance arrangements do not relieve the
Captives from its obligation to policyholders. Failure of the
reinsurers to honor their obligations could result in losses to
the Captives. The Captives evaluate the financial condition of
its 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.
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Item 7A.
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Quantitative
and Qualitative Disclosures about Market Risk
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Market
Risks
We are exposed to market risk through commercial and financial
operations. 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 SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities
(SFAS No. 133) amended by
SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities and
SFAS No. 148, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities.
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.
As of December 31, 2006, we had an interest rate swap
agreement in place with a notional value of $300 million.
On March 29, 2007, in connection with the April 2,
2007 debt refinancing, we terminated this interest rate swap
agreement and recognized a gain of $2 million related to
amounts previously recorded in Accumulated other comprehensive
income (loss), net.
In March 2007, in anticipation of the April 2, 2007 debt
refinancing, we 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. These swaps remained
outstanding as of December 31, 2007. Effective
January 2, 2008, the notional amount of the
$1.6 billion US dollar swap will decrease by
$400 million. On November 16, 2007, we entered into an
additional US dollar interest rate swap with a notional amount
of $400 million, which became effective on January 2,
2008.
As of December 31, 2007, we had approximately
$2.3 billion, 525 million and
CNY1.2 billion of variable rate debt, of which
$1.6 billion and 150 million is hedged with
interest rate swaps, which leaves us approximately
$692 million, 375 million and
CNY1.2 billion of variable rate debt subject to interest
rate exposure. Accordingly, a 1% increase in interest rates
would increase annual interest expense by approximately
$14 million.
See Note 23 to the consolidated financial statements for
further discussion of our interest rate risk management and the
related impact on our financial position and results of
operations.
65
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
earnings. Forward contracts that are hedging receivables and
payables booked in a currency other than the functional currency
of an entity are not designated as hedges under
SFAS No. 133.
Additionally, a portion of our assets, liabilities, revenues and
expenses are denominated in currencies other than the US dollar,
principally the Euro. Fluctuations in the value of these
currencies against the US dollar, particularly the value of the
Euro, 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.
To protect the foreign currency exposure of a net investment in
a foreign operation, we entered into cross currency swaps with
certain financial institutions in 2004. Under the terms of the
cross currency swap arrangements, we pay approximately
13 million in interest and receive approximately
$16 million in interest on June 15 and December 15 of each
year. Upon maturity of the cross currency swap agreement in June
2008, we will pay approximately 276 million and
receive approximately $333 million. These cross currency
swaps and our senior Euro term loan are designated as a hedge of
a net investment in a foreign operation. We 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. As a result, we recorded approximately
$26 million of mark-to-market losses related to the cross
currency swaps and the new senior Euro term loan during this
period.
See Note 23 to the consolidated financial statements for
further discussion of our foreign exchange risk management and
the related impact on our financial position and results of
operations.
Commodity
Risk Management
Inherent in our business is exposure to price changes for
several commodities. We manage our exposure primarily through
the use of long-term supply agreements and multi-year purchasing
and sales agreements. In addition, our policy allows us to enter
into forward, swap
and/or
option contracts to mitigate short-term fluctuations in market
prices for certain raw materials and energy, principally natural
gas. These contracts are typically settled through actual
delivery of the physical commodity.
See Note 23 to the consolidated financial statements for
further discussion of our commodity risk management and the
related impact on our financial position and results of
operations.
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Item 8.
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Financial
Statements and Supplementary Data
|
Our consolidated financial statements and supplementary data are
included in pages F-2 through F-70 of this Annual Report on
Form 10-K.
See accompanying Item 15. Exhibits and Financial Statement
Schedules and Index to the consolidated financial statements on
page F-1.
66
Quarterly
Financial Information
CELANESE
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
(In $ millions, except for share and per share data)
|
|
|
Net sales
|
|
|
1,555
|
|
|
|
1,556
|
|
|
|
1,573
|
|
|
|
1,760
|
|
Other (charges) gains, net
|
|
|
(1
|
)
|
|
|
(105
|
)
|
|
|
(12
|
)
|
|
|
60
|
|
Operating profit
|
|
|
206
|
|
|
|
71
|
|
|
|
147
|
|
|
|
324
|
|
Earnings (loss) from continuing operations before tax and
minority interests
|
|
|
171
|
|
|
|
(168
|
)
|
|
|
131
|
|
|
|
313
|
|
Earnings (loss) from continuing operations
|
|
|
122
|
|
|
|
(124
|
)
|
|
|
130
|
|
|
|
208
|
|
Earnings (loss) from discontinued operations
|
|
|
79
|
|
|
|
7
|
|
|
|
(2
|
)
|
|
|
6
|
|
Net earnings (loss)
|
|
|
201
|
|
|
|
(117
|
)
|
|
|
128
|
|
|
|
214
|
|
Earnings (loss) per share basic
|
|
|
1.25
|
|
|
|
(0.76
|
)
|
|
|
0.84
|
|
|
|
1.39
|
|
Earnings (loss) per share diluted
|
|
|
1.15
|
|
|
|
(0.76
|
)
|
|
|
0.76
|
|
|
|
1.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
(In $ millions, except for share and per share data)
|
|
|
Net sales
|
|
|
1,420
|
|
|
|
1,457
|
|
|
|
1,471
|
|
|
|
1,430
|
|
Other (charges) gains, net
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
2
|
|
Operating profit
|
|
|
156
|
|
|
|
152
|
|
|
|
172
|
|
|
|
140
|
|
Earnings from continuing operations before tax and minority
interests
|
|
|
117
|
|
|
|
134
|
|
|
|
150
|
|
|
|
125
|
|
Earnings from continuing operations
|
|
|
87
|
|
|
|
95
|
|
|
|
88
|
|
|
|
49
|
|
Earnings from discontinued operations
|
|
|
30
|
|
|
|
8
|
|
|
|
21
|
|
|
|
28
|
|
Net earnings
|
|
|
117
|
|
|
|
103
|
|
|
|
109
|
|
|
|
77
|
|
Earnings per share basic
|
|
|
0.72
|
|
|
|
0.64
|
|
|
|
0.67
|
|
|
|
0.47
|
|
Earnings per share diluted
|
|
|
0.67
|
|
|
|
0.60
|
|
|
|
0.64
|
|
|
|
0.45
|
|
For a discussion of material events affecting performance in
each quarter, See Item 7. Managements 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.
67
|
|
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 report. Based on
that evaluation, the Chief Executive Officer and Chief Financial
Officer have concluded that these disclosure controls and
procedures are effective.
Changes
in Internal Control Over Financial Reporting
During the second half of 2007, we continued to refine our new
SAP consolidation system for our financial reporting, which was
implemented during the second quarter of 2007. This
implementation has involved various changes to internal
processes and control procedures over financial reporting;
however, the basic internal controls over financial reporting
have not materially changed. At the time of the filing of our
Annual Report on
Form 10-K
for the year ended December 31, 2007, 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.
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 Companys internal control over financial reporting was
effective as of December 31, 2007. KPMG LLP has audited
this assessment of our internal control over financial
reporting; their report is included below.
68
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, 2007, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Companys 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 Companys 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 companys 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 companys
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
companys 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 maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2007, 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, 2007 and 2006, 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, 2007, and our report dated February 29,
2008 expressed an unqualified opinion on those consolidated
financial statements.
/s/ KPMG LLP
Dallas, Texas
February 29, 2008
69
|
|
Item 9B.
|
Other
Information
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required by this Item 10 is incorporated
herein by reference from the section captioned Corporate
Governance, Our Management Team, and
Section 16(a) Beneficial Ownership Reporting
Compliance of the Companys definitive proxy
statement for the 2008 annual meeting of stockholders to be
filed not later than April 14, 2008 with the Securities and
Exchange Commission pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the 2008
Proxy Statement).
|
|
Item 11.
|
Executive
Compensation
|
The information required by this Item 11 is incorporated by
reference from the section captioned Executive
Compensation of the 2008 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 2008 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 Registrants
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 Party Transactions of the 2008 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 Auditors Audit and Related Fees of
the 2008 Proxy Statement.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedule
|
1. Financial Statements. The reports of our
independent registered public accounting firm and our
consolidated financial statements are listed below and begin on
page F-1
of this Annual Report on
Form 10-K.
|
|
|
|
|
|
|
Page Number
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-2
|
|
Consolidated Statements of Operations
|
|
|
F-3
|
|
Consolidated Balance Sheets
|
|
|
F-4
|
|
Consolidated Statements of Shareholders Equity and
Comprehensive Income (Loss)
|
|
|
F-5
|
|
Consolidated Statements of Cash Flows
|
|
|
F-6
|
|
Notes to Consolidated Financial Statements
|
|
|
F-7
|
|
2. Financial Statement Schedule.
The financial statement schedule required by this item are
included as an Exhibit to this Annual Report on
Form 10-K.
70
3. Exhibit List.
See Index to Exhibits following our consolidated financial
statements contained in this Annual Report on
Form 10-K.
PLEASE NOTE: It is inappropriate for readers
to assume the accuracy of, or rely upon any covenants,
representations or warranties that may be contained in
agreements or other documents filed as Exhibits to, or
incorporated by reference in, this Annual Report. Any such
covenants, representations or warranties may have been qualified
or superseded by disclosures contained in separate schedules or
exhibits not filed with or incorporated by reference in this
Annual Report, may reflect the parties negotiated risk
allocation in the particular transaction, may be qualified by
materiality standards that differ from those applicable for
securities law purposes, and may not be true as of the date of
this Annual Report or any other date and may be subject to
waivers by any or all of the parties. Where exhibits and
schedules to agreements filed or incorporated by reference as
Exhibits hereto are not included in these exhibits, such
exhibits and schedules to agreements are not included or
incorporated by reference herein.
71
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
Name: David N. Weidman
|
|
|
|
Title:
|
Chairman of the Board of
|
Directors and Chief Executive
Officer
Date: February 29, 2008
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
David
N. Weidman
|
|
Chairman of the Board of Directors, Chief Executive Officer
(Principal Executive Officer)
|
|
February 29, 2008
|
|
|
|
|
|
/s/ Steven
M. Sterin
Steven
M. Sterin
|
|
Senior Vice President, Chief Financial Officer (Principal
Financial Officer)
|
|
February 29, 2008
|
|
|
|
|
|
/s/ Miguel
A. Desdin
Miguel
A. Desdin
|
|
Vice President, Controller
(Principal Accounting Officer)
|
|
February 29, 2008
|
|
|
|
|
|
/s/ James
E. Barlett
James
E. Barlett
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
/s/ Chinh
E. Chu
Chinh
E. Chu
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
/s/ David
F. Hoffmeister
David
F. Hoffmeister
|
|
Director
|
|
February 29, 2008
|
72
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Martin
G. McGuinn
Martin
G. McGuinn
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
/s/ Paul
H. ONeill
Paul
H. ONeill
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
/s/ Mark
C. Rohr
Mark
C. Rohr
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
/s/ Daniel
S. Sanders
Daniel
S. Sanders
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
/s/ Farah
M. Walters
Farah
M. Walters
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
/s/ John
K. Wulff
John
K. Wulff
|
|
Director
|
|
February 29, 2008
|
73
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
ANNUAL CELANESE CORPORATION CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-2
|
|
Consolidated Statements of Operations for the years ended
December 31, 2007, 2006 and 2005
|
|
|
F-3
|
|
Consolidated Balance Sheets as of December 31, 2007 and 2006
|
|
|
F-4
|
|
Consolidated Statements of Shareholders Equity and
Comprehensive Income (Loss) for the years ended
December 31, 2007, 2006 and 2005
|
|
|
F-5
|
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2007, 2006 and 2005
|
|
|
F-6
|
|
Notes to Consolidated Financial Statements
|
|
|
F-7
|
|
F-1
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, 2007 and 2006, 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, 2007.
These consolidated financial statements are the responsibility
of the Companys 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, 2007 and 2006, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2007, in conformity
with US generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2007, 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 29, 2008
expressed an unqualified opinion on the effectiveness of the
Companys internal control over financial reporting.
As discussed in Note 20 to the consolidated financial
statements, the Company adopted Financial Accounting Standards
Board Interpretation No. 48, Accounting for Uncertainty
in Income Taxes, during the year ended December 31,
2007.
As discussed in Note 21 to the consolidated financial
statements, the Company adopted Statement of Financial
Accounting Standards No. 123 (revised 2004), Share-Based
Payment, during the year ended December 31, 2006.
As discussed in Note 16 to the consolidated financial
statements, the Company adopted Statement of Financial
Accounting Standards No. 158, Employers Accounting
for Defined Benefit Pension and Other Postretirement Plans,
during the year ended December 31, 2006.
/s/ KPMG LLP
Dallas, Texas
February 29, 2008
F-2
CELANESE
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In $ millions, except for share and per share data)
|
|
|
Net sales
|
|
|
6,444
|
|
|
|
5,778
|
|
|
|
5,270
|
|
Cost of sales
|
|
|
(4,999
|
)
|
|
|
(4,469
|
)
|
|
|
(4,064
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,445
|
|
|
|
1,309
|
|
|
|
1,206
|
|
Selling, general and administrative expenses
|
|
|
(516
|
)
|
|
|
(536
|
)
|
|
|
(512
|
)
|
Amortization of intangible assets (primarily customer related)
|
|
|
(72
|
)
|
|
|
(66
|
)
|
|
|
(51
|
)
|
Research and development expenses
|
|
|
(73
|
)
|
|
|
(65
|
)
|
|
|
(86
|
)
|
Other (charges) gains, net
|
|
|
(58
|
)
|
|
|
(10
|
)
|
|
|
(61
|
)
|
Foreign exchange gain (loss), net
|
|
|
2
|
|
|
|
(3
|
)
|
|
|
|
|
Gain (loss) on disposition of businesses and assets, net
|
|
|
20
|
|
|
|
(9
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
748
|
|
|
|
620
|
|
|
|
486
|
|
Equity in net earnings of affiliates
|
|
|
82
|
|
|
|
76
|
|
|
|
51
|
|
Interest expense
|
|
|
(262
|
)
|
|
|
(293
|
)
|
|
|
(285
|
)
|
Refinancing expenses
|
|
|
(256
|
)
|
|
|
(1
|
)
|
|
|
(102
|
)
|
Interest income
|
|
|
44
|
|
|
|
37
|
|
|
|
37
|
|
Dividend income cost investments
|
|
|
116
|
|
|
|
79
|
|
|
|
90
|
|
Other income (expense), net
|
|
|
(25
|
)
|
|
|
8
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations before tax and minority
interests
|
|
|
447
|
|
|
|
526
|
|
|
|
276
|
|
Income tax provision
|
|
|
(110
|
)
|
|
|
(203
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations before minority interests
|
|
|
337
|
|
|
|
323
|
|
|
|
252
|
|
Minority interests
|
|
|
(1
|
)
|
|
|
(4
|
)
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations
|
|
|
336
|
|
|
|
319
|
|
|
|
214
|
|
Earnings from discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from operation of discontinued operations
|
|
|
40
|
|
|
|
130
|
|
|
|
96
|
|
Gain on disposal of discontinued operations
|
|
|
52
|
|
|
|
5
|
|
|
|
|
|
Income tax provision
|
|
|
(2
|
)
|
|
|
(48
|
)
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from discontinued operations
|
|
|
90
|
|
|
|
87
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
426
|
|
|
|
406
|
|
|
|
277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative preferred stock dividend
|
|
|
(10
|
)
|
|
|
(10
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings available to common shareholders
|
|
|
416
|
|
|
|
396
|
|
|
|
267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
2.11
|
|
|
|
1.95
|
|
|
|
1.32
|
|
Discontinued operations
|
|
|
0.58
|
|
|
|
0.55
|
|
|
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings available to common shareholders
|
|
|
2.69
|
|
|
|
2.50
|
|
|
|
1.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
1.96
|
|
|
|
1.86
|
|
|
|
1.29
|
|
Discontinued operations
|
|
|
0.53
|
|
|
|
0.50
|
|
|
|
0.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings available to common shareholders
|
|
|
2.49
|
|
|
|
2.36
|
|
|
|
1.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic:
|
|
|
154,475,020
|
|
|
|
158,597,424
|
|
|
|
154,402,575
|
|
Weighted average shares diluted:
|
|
|
171,227,997
|
|
|
|
171,807,599
|
|
|
|
166,200,048
|
|
See the accompanying notes to the consolidated financial
statements.
F-3
CELANESE
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In $ millions, except
|
|
|
|
share amounts)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
825
|
|
|
|
791
|
|
Restricted cash
|
|
|
|
|
|
|
46
|
|
Receivables:
|
|
|
|
|
|
|
|
|
Trade receivables third party and affiliates, net
|
|
|
1,009
|
|
|
|
1,001
|
|
Other receivables
|
|
|
437
|
|
|
|
475
|
|
Inventories
|
|
|
636
|
|
|
|
653
|
|
Deferred income taxes
|
|
|
70
|
|
|
|
76
|
|
Other assets
|
|
|
86
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,063
|
|
|
|
3,111
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
814
|
|
|
|
763
|
|
Property, plant and equipment, net
|
|
|
2,362
|
|
|
|
2,155
|
|
Deferred income taxes
|
|
|
10
|
|
|
|
22
|
|
Other assets
|
|
|
518
|
|
|
|
506
|
|
Goodwill
|
|
|
866
|
|
|
|
875
|
|
Intangible assets, net
|
|
|
425
|
|
|
|
463
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
8,058
|
|
|
|
7,895
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term borrowings and current installments of long-term
debt third party and affiliates
|
|
|
272
|
|
|
|
309
|
|
Trade payables third party and affiliates
|
|
|
818
|
|
|
|
830
|
|
Other current liabilities
|
|
|
888
|
|
|
|
780
|
|
Deferred income taxes
|
|
|
30
|
|
|
|
18
|
|
Income taxes payable
|
|
|
23
|
|
|
|
279
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,031
|
|
|
|
2,216
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
3,284
|
|
|
|
3,189
|
|
Deferred income taxes
|
|
|
265
|
|
|
|
297
|
|
Income taxes payable
|
|
|
220
|
|
|
|
|
|
Benefit obligations
|
|
|
696
|
|
|
|
889
|
|
Other liabilities
|
|
|
495
|
|
|
|
443
|
|
Minority interests
|
|
|
5
|
|
|
|
74
|
|
Commitments and contingencies Shareholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 100,000,000 shares
authorized and 9,600,000 issued and outstanding as of
December 31, 2007 and 2006
|
|
|
|
|
|
|
|
|
Series A common stock, $0.0001 par value,
400,000,000 shares authorized, 162,941,287 issued and
152,102,801 outstanding as of December 31, 2007 and
158,668,666 issued and outstanding as of December 31, 2006
|
|
|
|
|
|
|
|
|
Series B common stock, $0.0001 par value,
100,000,000 shares authorized and 0 shares issued and
outstanding as of December 31, 2007 and 2006
|
|
|
|
|
|
|
|
|
Treasury stock, at cost: 10,838,486 shares as of
December 31, 2007 and 0 shares as of December 31,
2006
|
|
|
(403
|
)
|
|
|
|
|
Additional paid-in capital
|
|
|
469
|
|
|
|
362
|
|
Retained earnings
|
|
|
799
|
|
|
|
394
|
|
Accumulated other comprehensive income (loss), net
|
|
|
197
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
1,062
|
|
|
|
787
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
|
8,058
|
|
|
|
7,895
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the consolidated financial
statements.
F-4
CELANESE
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME
(LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Shares
|
|
|
|
|
|
Shares
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Outstanding
|
|
|
Amount
|
|
|
|
(In $ millions, except share data)
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of the beginning of the year
|
|
|
158,668,666
|
|
|
|
|
|
|
|
158,562,161
|
|
|
|
|
|
|
|
99,377,884
|
|
|
|
|
|
Conversion of Series B common stock to Series A common
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(99,377,884
|
)
|
|
|
|
|
Issuance of Series A common stock
|
|
|
7,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151,062,161
|
|
|
|
|
|
Issuance of Series A common stock related to stock option
exercises, including related tax benefits
|
|
|
4,265,221
|
|
|
|
|
|
|
|
106,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of treasury stock, including related fees
|
|
|
(10,838,486
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of the end of the year
|
|
|
152,102,801
|
|
|
|
|
|
|
|
158,668,666
|
|
|
|
|
|
|
|
158,562,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of the beginning of the year
|
|
|
9,600,000
|
|
|
|
|
|
|
|
9,600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of the end of the year
|
|
|
9,600,000
|
|
|
|
|
|
|
|
9,600,000
|
|
|
|
|
|
|
|
9,600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of the beginning of the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of treasury stock, including related fees
|
|
|
10,838,486
|
|
|
|
(403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of the end of the year
|
|
|
10,838,486
|
|
|
|
(403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Paid-in Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of the beginning of the year
|
|
|
|
|
|
|
362
|
|
|
|
|
|
|
|
337
|
|
|
|
|
|
|
|
158
|
|
Indemnification of demerger liability
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
5
|
|
Series A common stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
Net proceeds from issuance of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
752
|
|
Net proceeds from issuance of preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
233
|
|
Net proceeds from issuance of discounted common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
Stock-based compensation
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
2
|
|
Special cash dividend to Original Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(804
|
)
|
Issuance of Series A common stock related to stock option
exercises, including related tax benefits
|
|
|
|
|
|
|
88
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of the end of the year
|
|
|
|
|
|
|
469
|
|
|
|
|
|
|
|
362
|
|
|
|
|
|
|
|
337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of the beginning of the year
|
|
|
|
|
|
|
394
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
(253
|
)
|
Net earnings
|
|
|
|
|
|
|
426
|
|
|
|
|
|
|
|
406
|
|
|
|
|
|
|
|
277
|
|
Series A common stock dividends
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
Adoption of FIN 48 (see Note 20)
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of the end of the year
|
|
|
|
|
|
|
799
|
|
|
|
|
|
|
|
394
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of the beginning of the year
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
(126
|
)
|
|
|
|
|
|
|
(17
|
)
|
Unrealized gain on securities
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
3
|
|
Additional minimum pension liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(117
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
Unrealized gain (loss) on derivative contracts
|
|
|
|
|
|
|
(41
|
)
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Pension and postretirement benefits (revised)
|
|
|
|
|
|
|
120
|
|
|
|
|
|
|
|
269
|
|
|
|
|
|
|
|
|
|
Adjustment to initially apply FASB Statement No. 158, net
of tax (revised)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(132
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of the end of the year
|
|
|
|
|
|
|
197
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
(126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity
|
|
|
|
|
|
|
1,062
|
|
|
|
|
|
|
|
787
|
|
|
|
|
|
|
|
235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
426
|
|
|
|
|
|
|
|
406
|
|
|
|
|
|
|
|
277
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on securities
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
3
|
|
Additional minimum pension liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(117
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
Unrealized gain (loss) on derivative contracts
|
|
|
|
|
|
|
(41
|
)
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Pension and postretirement benefits (revised)
|
|
|
|
|
|
|
120
|
|
|
|
|
|
|
|
269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
592
|
|
|
|
|
|
|
|
695
|
|
|
|
|
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the consolidated financial
statements.
F-5
CELANESE
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In $ millions)
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
426
|
|
|
|
406
|
|
|
|
277
|
|
Adjustments to reconcile net earnings to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (charges) gains, net of amounts used
|
|
|
30
|
|
|
|
(34
|
)
|
|
|
30
|
|
Depreciation, amortization and accretion
|
|
|
311
|
|
|
|
323
|
|
|
|
325
|
|
Deferred income taxes
|
|
|
23
|
|
|
|
125
|
|
|
|
(85
|
)
|
(Gain) loss on disposition of businesses and assets, net
|
|
|
(68
|
)
|
|
|
(8
|
)
|
|
|
7
|
|
Loss on extinguishment of debt
|
|
|
256
|
|
|
|
|
|
|
|
102
|
|
Other, net
|
|
|
(7
|
)
|
|
|
61
|
|
|
|
53
|
|
Discontinued operations
|
|
|
(84
|
)
|
|
|
10
|
|
|
|
5
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables third party and affiliates, net
|
|
|
(69
|
)
|
|
|
(9
|
)
|
|
|
35
|
|
Inventories
|
|
|
(27
|
)
|
|
|
19
|
|
|
|
25
|
|
Other assets
|
|
|
66
|
|
|
|
(5
|
)
|
|
|
(21
|
)
|
Trade payables third party and affiliates
|
|
|
(11
|
)
|
|
|
(22
|
)
|
|
|
9
|
|
Other liabilities
|
|
|
(280
|
)
|
|
|
(115
|
)
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
566
|
|
|
|
751
|
|
|
|
701
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures on property, plant and equipment
|
|
|
(288
|
)
|
|
|
(244
|
)
|
|
|
(203
|
)
|
Acquisitions and related fees, net of cash acquired
|
|
|
(269
|
)
|
|
|
|
|
|
|
(918
|
)
|
Net proceeds from sale of businesses and assets
|
|
|
715
|
|
|
|
23
|
|
|
|
48
|
|
Proceeds received for Ticona Kelsterbach plant relocation
|
|
|
|
|
|
|
26
|
|
|
|
|
|
Costs incurred on Ticona Kelsterbach plant relocation
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
Proceeds from sale of marketable securities
|
|
|
69
|
|
|
|
95
|
|
|
|
221
|
|
Purchases of marketable securities
|
|
|
(59
|
)
|
|
|
(65
|
)
|
|
|
(149
|
)
|
Changes in restricted cash
|
|
|
46
|
|
|
|
(42
|
)
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|
|
(18
|
)
|
|
|
87
|
|
Other, net
|
|
|
(50
|
)
|
|
|
(43
|
)
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
143
|
|
|
|
(268
|
)
|
|
|
(907
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend to Original Shareholders
|
|
|
|
|
|
|
|
|
|
|
(804
|
)
|
Proceeds from issuance of Series A common stock, net
|
|
|
|
|
|
|
|
|
|
|
764
|
|
Proceeds from issuance of preferred stock, net
|
|
|
|
|
|
|
|
|
|
|
233
|
|
Short-term borrowings (repayments), net
|
|
|
30
|
|
|
|
13
|
|
|
|
22
|
|
Proceeds from long-term debt
|
|
|
2,904
|
|
|
|
38
|
|
|
|
1,151
|
|
Repayments of long-term debt
|
|
|
(3,053
|
)
|
|
|
(125
|
)
|
|
|
(1,375
|
)
|
Refinancing costs
|
|
|
(240
|
)
|
|
|
|
|
|
|
(83
|
)
|
Purchases of treasury stock, including related fees
|
|
|
(403
|
)
|
|
|
|
|
|
|
|
|
Settlement of lease obligations
|
|
|
|
|
|
|
|
|
|
|
(31
|
)
|
Stock option exercises
|
|
|
69
|
|
|
|
2
|
|
|
|
|
|
Dividend payments on Series A common stock and preferred
stock
|
|
|
(35
|
)
|
|
|
(36
|
)
|
|
|
(21
|
)
|
Other, net
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(714
|
)
|
|
|
(108
|
)
|
|
|
(144
|
)
|
Exchange rate effects on cash and cash equivalents
|
|
|
39
|
|
|
|
26
|
|
|
|
(98
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
34
|
|
|
|
401
|
|
|
|
(448
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
791
|
|
|
|
390
|
|
|
|
838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
|
825
|
|
|
|
791
|
|
|
|
390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the consolidated financial
statements.
F-6
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
1.
|
Description
of the Company
|
Celanese Corporation and its subsidiaries (collectively the
Company) is a leading global integrated chemical and
advanced materials company. The Companys 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.
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 term
Celanese US refers to the Companys subsidiary,
Celanese US Holdings LLC, a Delaware limited liability company,
formerly known as BCP Crystal US Holdings Corp., a Delaware
corporation, and not its subsidiaries. The term
Purchaser refers to the Companys subsidiary,
Celanese Europe Holding GmbH & Co. KG, formerly known
as BCP Crystal Acquisition GmbH & Co. KG, a German
limited partnership, and not its subsidiaries, except where
otherwise indicated. The term Original Shareholders
refers, collectively, to Blackstone Capital Partners (Cayman)
Ltd. 1, Blackstone Capital Partners (Cayman) Ltd. 2, Blackstone
Capital Partners (Cayman) Ltd. 3 and BA Capital Investors
Sidecar Fund, L.P. The term Advisor refers to
Blackstone Management Partners, an affiliate of The Blackstone
Group. The term CAG refers to Celanese GmbH,
formerly known as Celanese AG, its consolidated subsidiaries,
its non-consolidated subsidiaries, ventures and other
investments. With respect to CAG shareholder and similar matters
where the context indicates, CAG only refers to
Celanese GmbH.
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.
Pursuant to a voluntary tender offer commenced in February 2004,
the Purchaser, an indirect wholly owned subsidiary of Celanese
Corporation, on April 6, 2004, acquired approximately 84%
of the ordinary shares of CAG, excluding treasury shares, for a
purchase price of $1,693 million, including direct
acquisition costs of $69 million (the
Acquisition).
On August 24, 2005, the Company acquired 5.9 million,
or approximately 12%, of the outstanding CAG shares from two
shareholders for 302 million ($369 million). The
Company also paid such shareholders 12 million
($15 million) in consideration for the settlement of
certain claims and for such shareholders agreeing to, among
other things, (1) accept the shareholders resolutions
passed at the extraordinary general meeting of CAG held on July
30 and 31, 2004 and the annual general meeting of CAG held on
May 19 and 20, 2005, (2) acknowledge the legal
effectiveness of the domination and profit and loss transfer
agreement (the Domination Agreement),
(3) irrevocably withdraw and abandon all actions,
applications and appeals each brought or joined in legal
proceedings related to, among other things, challenging the
effectiveness of the Domination Agreement and amount of fair
cash compensation offered by the Purchaser in the mandatory
offer required by Section 305(1) of the German Stock
Corporation Act, (4) refrain from acquiring any CAG shares
or any other investment in CAG, and (5) refrain from taking
any future legal action with respect to shareholder resolutions
or corporate actions of CAG. Upon the acquisition of the
additional CAG shares during the second half of 2005, the assets
and liabilities of CAG were adjusted in the consolidated
financial statements to fair value for the additional percentage
acquired.
On May 30, 2006, CAGs shareholders approved a
transfer to the Purchaser of all shares owned by minority
shareholders against payment of cash compensation in the amount
of 66.99 per share (the Squeeze-Out). The
Squeeze-Out was registered in the commercial register in Germany
on December 22, 2006, after several lawsuits by minority
shareholders challenging the shareholders resolution
approving the Squeeze-Out were withdrawn
F-7
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
pursuant to a settlement agreement entered into between
plaintiff shareholders, the Purchaser and CAG on the same day.
An aggregate purchase price of approximately
62 million was paid to minority shareholders in
January 2007 as fair cash compensation for the acquisition of
their shares in CAG, excluding direct acquisition costs of
approximately 2 million. As a result of this
acquisition, the Company recorded an increase to Goodwill of
approximately $5 million during the year ended
December 31, 2007. The amount of the fair cash compensation
of 66.99 per share could increase based on the outcome of
award proceedings pending in German courts. As of
December 31, 2007, the Companys ownership percentage
in CAG was 100%.
Domination
Agreement
On October 1, 2004, a Domination Agreement between CAG and
the Purchaser became operative. When the Domination Agreement
became operative, the Purchaser became obligated to offer to
acquire all outstanding CAG shares from the minority
shareholders of CAG in return for payment of fair cash
compensation. The amount of this fair cash compensation was
determined to be 41.92 per share, plus interest, in
accordance with applicable German law. Until the Squeeze-Out was
registered in the commercial register in Germany on
December 22, 2006, any minority shareholder who elected not
to sell its shares to the Purchaser was entitled to remain a
shareholder of CAG and to receive from the Purchaser a gross
guaranteed annual payment on its shares of 3.27 per CAG
share less certain corporate taxes in lieu of any dividend. For
the years ended December 31, 2007, 2006 and 2005, a charge
of 0 million ($0 million), 3 million
($4 million) and 19 million ($22 million),
respectively, was recorded in Other income (expense), net for
the anticipated guaranteed annual payment.
On June 1, 2006, the guaranteed annual payment for the
fiscal year ended September 30, 2005, which amounted to
3 million, was paid. In addition, pursuant to a
settlement agreement entered into with plaintiff shareholders in
March 2006, the Purchaser paid 1 million on
June 30, 2006, the guaranteed annual payment for the fiscal
year ended September 30, 2006, to those shareholders who
signed a letter waiving any further rights with respect to such
guaranteed annual payment that ordinarily would become due and
payable after the 2007 annual general meeting. Between
June 30, 2006, and January 17, 2007, the Purchaser
paid a total amount of less than 1 million to
minority shareholders who required early payment of the
guaranteed annual payment for the fiscal year ended
September 30, 2006, by submitting such waiver letter after
June 30, 2006.
On January 17, 2007, the Purchaser made, pursuant to a
settlement agreement entered into with plaintiff shareholders in
December 2006, the following guaranteed annual payments:
(i) a total amount of 1 million was paid to all
minority shareholders who had not yet requested early payment of
the guaranteed annual payment for the fiscal year ended on
September 30, 2006, and (ii) a total amount of
1 million representing the pro rata share of the
guaranteed annual payment for the first five months of the
fiscal year ending September 30, 2007 was paid to all
minority shareholders.
The Domination Agreement cannot be terminated by the Purchaser
in the ordinary course of business until September 30,
2009. The Companys subsidiaries, Celanese International
Holdings Luxembourg S.à r.l. (CIH), formerly
Celanese Caylux Holdings Luxembourg S.C.A., and Celanese US,
have each agreed to provide the Purchaser with financing to
strengthen the Purchasers ability to fulfill its
obligations under, or in connection with, the Domination
Agreement and to ensure that the Purchaser will perform all of
its obligations under, or in connection with, the Domination
Agreement when such obligations become due, including, without
limitation, the obligation to compensate CAG for any statutory
annual loss incurred by CAG during the term of the Domination
Agreement. If CIH
and/or
Celanese US are obligated to make payments under such guarantees
or other security to the Purchaser, the Company may not have
sufficient funds for payments on its indebtedness when due. The
Company has not had to compensate CAG for an annual loss for any
period during which the Domination Agreement has been in effect.
The Domination Agreement was challenged in eight Null and Void
actions in the Frankfurt District Court. These actions were
seeking to have the shareholders resolution approving the
Domination Agreement declared null
F-8
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and void based on an alleged violation of formal requirements
relating to the invitation for the May 2005 CAG
shareholders meeting. In May 2007, the Frankfurt District
Court dismissed all Null and Void actions.
The amounts of the fair cash compensation and of the guaranteed
annual payment offered under the Domination Agreement are under
court review in special award proceedings (see Note 24). As
a result of these proceedings, either amount could be increased
by the court so that all former CAG shareholders, including
those who have already tendered their shares into the mandatory
offer and have received the fair cash compensation could claim
the respective higher amounts. Certain former CAG shareholders
may initiate such proceedings also with respect to the
Squeeze-Out compensation. In this case, former CAG shareholders
who ceased to be shareholders of CAG due to the Squeeze-Out are
entitled, pursuant to a settlement agreement between the
Purchaser and certain former CAG shareholders, to claim for
their shares the higher of the compensation amounts determined
by the court in these different proceedings. Payments these
shareholders already received as compensation for their shares
will be offset so that those shareholders who ceased to be
shareholders of CAG due to the Squeeze-Out are not entitled to
more than the higher of the amount set in the two court
proceedings.
|
|
3.
|
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 as well as variable
interest entities where the Company is deemed the primary
beneficiary, when applicable. 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.
Restricted cash
As of December 31, 2006, the Company had $46 million
of restricted cash. The cash was paid in January 2007 to certain
CAG shareholders pursuant to the terms of the Squeeze-Out as
discussed in Note 2.
Inventories
Inventories 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. Stores and
supplies are valued at cost or market, whichever is lower. 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 balance sheet as
Other assets. 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
F-9
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 an 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
Accounting Principles Board (APB) Opinion
No. 18, The Equity Method of Accounting for Investments
in Common Stock, 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. APB Opinion No. 18 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. Financial Accounting Standards Board
(FASB) Interpretation No. 35, Criteria for
Applying the Equity Method of Accounting for Investments in
Common Stock, which was issued to clarify the criteria for
applying the equity method of accounting to 50% or less owned
companies, 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 (see
Note 9).
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 Companys 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. Depreciation is calculated on a straight-line
basis over the following estimated useful lives of depreciable
assets:
|
|
|
|
|
Land Improvements
|
|
|
20 years
|
|
Buildings and Building Improvements
|
|
|
30 years
|
|
Machinery and Equipment
|
|
|
20 years
|
|
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.
Assets acquired in business combinations are recorded at their
fair values and depreciated over the assets remaining
useful lives or the Companys policy lives, whichever is
shorter.
F-10
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 would be 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 in depreciation expense or Other (charges) gains, net
depending on the facts and circumstances.
Goodwill and other intangible assets
Patents, customer related intangible assets and other
intangibles with finite lives are amortized on a straight-line
basis over their estimated useful lives. The weighted average
amortization period is 8 years. 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 Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other
Intangible Assets. The Companys 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. Impairment losses are recorded in
other operating expense or Other (charges) gains, net depending
on the facts and circumstances.
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 Companys 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. Impairment losses are
recorded in other operating expense or Other (charges) gains,
net depending on the facts and circumstances.
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 in
amortization expense or Other (charges) gains, net depending on
the facts and circumstances.
Financial instruments
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 (see Note 23). The Company does not use
derivative financial instruments for speculative trading
purposes. The fair value of all derivative instruments are
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
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, as amended
(SFAS No. 133).
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 income. To
the extent effective, gains and losses on derivative and
non-derivative instruments used as
F-11
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
hedges of the Companys net investment in foreign
operations are recorded in Accumulated other comprehensive
income (loss), net as part of the cumulative translation
adjustment. The ineffective portions of cash flow hedges and
hedges of net investment in foreign operations, if any, are
recognized in income 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
income.
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
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 risks 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. Generally, collateral
is not required from customers and counterparties and allowances
are provided for specific risks inherent in receivables.
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 Companys
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 is 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 Companys 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 (see Note 17).
F-12
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
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: (1) persuasive evidence of an arrangement exists;
(2) delivery has occurred or services have been rendered;
(3) the fee is fixed or determinable; and
(4) 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.
Stock-based compensation
Effective January 1, 2006, the Company adopted the fair
value recognition provisions of SFAS No. 123(R),
Share-Based Payment
(SFAS No. 123(R)). The Company elected
the modified prospective transition method as permitted by
SFAS No. 123(R) and, accordingly, the year ended
December 31, 2005 has not been restated to reflect the
impact of SFAS No. 123(R). Under this transition
method, compensation cost recognized includes:
(i) compensation cost for all stock-based payments granted
prior to, but not yet vested as of, January 1, 2006 (based
on the grant-date fair value estimated in accordance with the
original provisions of SFAS No. 123 and previously
presented in the pro forma footnote disclosures), and
(ii) compensation cost for all stock-based payments granted
subsequent to January 1, 2006 (based on the grant-date fair
value estimated in accordance with the new provisions of
SFAS No. 123(R)).
As permitted by SFAS No. 123, Accounting for
Stock-Based Compensation
(SFAS No. 123), the Company accounted for
employee stock-based compensation for the year ended
December 31, 2005 in accordance with APB Opinion
No. 25, Accounting for Stock Issued to Employees
(APB No. 25), using an intrinsic value
approach to measure compensation expense, if any.
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. Total assets and
liabilities for the Captives after elimination of all
intercompany activity was $300 million and
$223 million, respectively, as of December 31, 2007
and $339 million and $171 million, respectively, as of
December 31, 2006. Included in total liabilities are
third-party reserves of $23 million and $24 million as
of December 31, 2007 and 2006, respectively. Third-party
premiums were $2 million, $22 million and
$23 million for the years ended December 31, 2007,
2006 and 2005, respectively.
F-13
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 carry forwards. 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 that some portion or all of the deferred
tax assets will not be realized.
The Company adopted the provisions of FASB Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement
No. 109 (FIN 48) on January 1,
2007. 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, (likelihood of greater than 50%), 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 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.
F-14
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Minority interests
Minority 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. The entities
included in the consolidated financial statements that have
minority interests are as follows:
|
|
|
|
|
|
|
|
|
|
|
Ownership Percentage
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Celanese
GmbH(1)
|
|
|
100
|
%
|
|
|
98
|
%
|
InfraServ GmbH & Co. Oberhausen
KG(2)
|
|
|
0
|
%
|
|
|
98
|
%
|
Celanese Polisinteza d.o.o
|
|
|
76
|
%
|
|
|
76
|
%
|
Synthesegasanlage Ruhr
GmbH(3)
|
|
|
50
|
%
|
|
|
50
|
%
|
|
|
|
(1) |
|
The Company acquired the remaining shares of Celanese GmbH in
conjunction with the Squeeze-Out, as discussed in Note 2. |
|
(2) |
|
This entity was sold as part of the Companys sale of its
oxo products and derivatives businesses, as discussed in
Note 5. |
|
(3) |
|
The Company has a 60% voting interest and the right to appoint a
majority of the board of management of Synthesegasanlage Ruhr
GmbH, which results in the Company controlling this entity and,
accordingly, the Company is consolidating this entity in its
consolidated financial statements. |
Accounting for sorbates matters
On October 22, 1999, CAG was demerged from Hoechst AG
(Hoechst). In accordance with the demerger agreement
between Hoechst and CAG, CAG was assigned the obligation related
to the sorbates matters (see Note 24). However, Hoechst
agreed to indemnify CAG for 80% of payments for such
obligations. Expenses related to this matter are recorded gross
of any such recoveries from Hoechst, and its legal successors,
in the consolidated statement of operations. Recoveries from
Hoechst, and its legal successors, which represent 80% of such
expenses, are recorded directly to Shareholders equity,
net of tax, as a contribution of capital in the consolidated
balance sheet.
Accounting for purchasing agent agreements
CPO Celanese Aktiengesell Schaft &
Co. Procurement Olefin KG, Frankfurt Am Main
(CPO), a subsidiary of the Company, acts as a
purchasing agent on behalf of the Company, as well as third
parties. CPO 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. Commissions
amounted to $4 million, $5 million and $9 million
for the years ended December 31, 2007, 2006 and 2005,
respectively. The raw material sales volume commissioned by CPO
for third parties amounted to $574 million,
$937 million and $880 million for the years ended
December 31, 2007, 2006 and 2005, respectively.
Functional and reporting currencies
For the Companys 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 current years presentation.
F-15
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
4.
|
Recent
accounting pronouncements
|
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS No. 157), which defines fair value,
establishes guidelines for measuring fair value and expands
disclosures regarding fair value measurements.
SFAS No. 157 establishes a fair value hierarchy that
prioritizes inputs to valuation techniques used for financial
and non-financial assets and liabilities. SFAS No. 157
does not require any new fair value measurements but rather
eliminates inconsistencies in guidance found in various prior
accounting pronouncements. In February 2008, the FASB issued
FASB Staff Position No.
157-2,
Partial Deferral of the Effective Date of Statement
157 (FSP
No. 157-2),
which defers the effective date of SFAS No. 157 for certain
non-financial assets and liabilities. SFAS No. 157
became effective for the Company on January 1, 2008 for
financial assets and liabilities. The impact of adoption on
financial assets and liabilities other than pension assets did
not have a material impact on the Companys financial
position, results of operations or cash flows. SFAS No. 157
becomes effective for the Company on January 1, 2009 for
non-financial assets and liabilities. The impact of adoption of
SFAS No. 157 on non-financial assets and liabilities and
pension assets is not expected to have a significant impact on
the Companys financial position, results of operations and
cash flows. However, the Company will continue to evaluate its
fair value measurements for non-financial assets and liabilities
and pension assets.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities Including an Amendment of FASB Statement
No. 115 (SFAS No. 159). This
standard permits companies to choose to measure many financial
assets and liabilities and certain other items at fair value. A
company will report unrealized gains and losses on items for
which the fair value option has been elected in earnings at each
subsequent reporting date. The fair value option may be applied
on an
instrument-by-instrument
basis, with several exceptions, such as those investments
accounted for by the equity method, and once elected, the option
is irrevocable unless a new election date occurs. The fair value
option can be applied only to entire instruments and not to
portions thereof. SFAS No. 159 is effective for fiscal
years beginning after November 15, 2007. The Company does
not expect the impact of adopting SFAS No. 159 to be
material to the Companys financial position, results of
operations and cash flows.
In May 2007, the FASB issued FASB Staff Position
(FSP)
No. FIN 48-1,
Definition of Settlement in FIN 48. This FSP
clarifies FIN 48 to provide guidance that a company may
recognize a previously unrecognized tax benefit if the tax
position is effectively (as opposed to ultimately)
settled through examination, negotiation or litigation. The
Company incorporated the guidance in this FSP during 2007. See
Note 20 for additional information regarding the impact of
adopting FIN 48.
In June 2007, the FASB Emerging Issues Task Force
(EITF) reached a conclusion on EITF Issue
No. 06-11,
Accounting for Income Tax Benefits of Dividends on
Share-Based Payment Awards (EITF
No. 06-11).
The scope of EITF
No. 06-11
consists of the application to share-based payment arrangements
with dividend protection features that entitle employees to
receive (a) dividends on equity-classified non-vested
shares, (b) dividend equivalents on equity-classified
non-vested share units or (c) payments equal to the
dividends paid on the underlying shares while an
equity-classified share option is outstanding, when those
dividends or dividend equivalents are charged to retained
earnings under SFAS No. 123(R) and result in an income
tax deduction for the employer. EITF
No. 06-11
should be applied prospectively to the income tax benefits of
dividends on equity-classified employee share-based payment
awards that are declared in fiscal years beginning after
September 15, 2007. The Company does not expect the impact
of adopting EITF
No. 06-11
to be material to the Companys financial position, results
of operations and cash flows.
In December 2007, the FASB issued SFAS No. 160,
Non-controlling Interests in Consolidated Financial
Statements (SFAS No. 160).
SFAS No. 160 amends Accounting Research
Bulletin 51 to establish accounting and reporting standards
for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a
non-controlling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as
equity in the consolidated financial statements and establishes
a single method of accounting for changes in a parents
ownership interest in a subsidiary that does not result in
deconsolidation. SFAS No. 160 is
F-16
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
effective for fiscal years beginning on or after
December 15, 2008. The Company is currently evaluating the
impact of adopting SFAS No. 160 on the Companys
financial position, results of operations and cash flows.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
(SFAS No. 141(R)).
SFAS No. 141(R) establishes principles and
requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the
liabilities assumed, the goodwill acquired and any
non-controlling interest in the acquiree. This statement also
establishes disclosure requirements to enable the evaluation of
the nature of the financial effect of the business combination.
SFAS No. 141(R) is effective for all business
combinations for which the acquisition date is on or after the
beginning of the first fiscal year after December 15, 2008,
with the exception of the accounting for valuation allowances on
deferred taxes and acquired tax contingencies.
SFAS No. 141(R) amends SFAS No. 109,
Accounting for Income Taxes, such that adjustments made
to valuation allowances on deferred taxes and acquired tax
contingencies associated with acquisitions that closed prior to
the effective date of SFAS No. 141(R) would also apply
the provisions of SFAS No. 141(R). The Company is
currently evaluating the impact of adopting
SFAS No. 141(R) on the Companys financial
position, results of operations and cash flows.
|
|
5.
|
Acquisitions,
ventures and divestitures
|
Acquisitions:
On January 31, 2007, the Company completed the acquisition
of the cellulose acetate flake, tow and film business of Acetate
Products Limited (APL), a subsidiary of Corsadi B.V.
The purchase price for the transaction was approximately
£57 million ($112 million), in addition to direct
acquisition costs of approximately £4 million
($7 million). Pro forma financial information has not been
provided as the acquisition did not have a material impact on
the Companys results of operations. As contemplated prior
to the closing of the acquisition, in September 2007, the
Company closed the acquired tow production plant at Little
Heath, United Kingdom. In accordance with the Companys
sponsor services agreement dated January 26, 2005, as
amended, the Company paid the Advisor $1 million in
connection with the acquisition. The acquired business is
included in the Companys Consumer Specialties segment (see
Note 26 for additional information on the Companys
reportable segments).
The following table presents the allocation of the acquisition
costs to the assets acquired and liabilities assumed, based on
their fair values:
|
|
|
|
|
|
|
(In $ millions)
|
|
|
Accounts receivable
|
|
|
34
|
|
Inventories
|
|
|
28
|
|
Property, plant, and equipment
|
|
|
97
|
|
Goodwill
|
|
|
18
|
|
Intangible assets
|
|
|
1
|
|
Other current assets/liabilities, net
|
|
|
(46
|
)
|
Non-current liabilities
|
|
|
(13
|
)
|
|
|
|
|
|
Net assets acquired
|
|
|
119
|
|
|
|
|
|
|
On April 6, 2004, the Company acquired 84% of
CAG. During 2005, the Company acquired an additional 14% of
CAG. As a result of the effective registration of the
Squeeze-Out in the commercial register in Germany in December
2006, the Company acquired the remaining 2% of CAG in January
2007 (see Note 2 for additional information on the
acquisition of CAG).
In February 2005, the Company acquired Vinamul, the North
American and European emulsion polymer business of Imperial
Chemical Industries PLC (ICI) for $208 million,
in addition to direct acquisition costs of $9 million.
Vinamul operates manufacturing facilities in the United States,
Canada, the United Kingdom and the
F-17
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Netherlands. As part of the agreement, ICI will continue to
supply Vinamul with starch, dextrin and other specialty
ingredients following the acquisition. The Company will supply
ICI with vinyl acetate monomer and polyvinyl alcohols. The
supply agreements are for fifteen years and the pricing is based
on market and other negotiated terms. The fair value of the
supply contract was approximately $11 million and was
recorded as deferred revenue to be amortized over the fifteen
year life of the agreement.
In July 2005, the Company acquired Acetex Corporation
(Acetex) for $270 million, in addition to
direct acquisition costs of $16 million and assumed
Acetexs $247 million of debt, which is net of cash
acquired of $54 million. Acetex has two primary
businesses its Acetyls business and its Specialty
Polymers and Films businesses (see divestitures below for
discussion of the sale of the Films business). The Acetyls
business is operated in Europe and the Polymers and Film
businesses are operated in North America.
Ventures:
In March 2007, the Company entered into a strategic partnership
with Accsys Technologies PLC (Accsys), and its
subsidiary, Titan Wood, to become the exclusive supplier of
acetyl products to Titan Woods technology licensees for
use in wood acetylation. In connection with this partnership, in
May 2007, the Company acquired 8,115,883 shares of
Accsys common stock representing approximately 5.45% of
the total voting shares of Accsys for 22 million
($30 million). The investment is treated as an
available-for-sale security (see Note 6) and is
included as a component of current Other assets on the
Companys consolidated balance sheet. On November 20,
2007, the Company and Accsys announced that they agreed to amend
their business arrangements so that each company will have a
nonexclusive at-will trading and supply relationship
to give both companies greater flexibility. As part of this
amendment, the Company has the ability to sell its common stock
ownership in Accsys through an orderly placement of the
Companys Accsys shares. As of December 31, 2007, the
Company sold 1,238,016 shares of Accsys common stock
for approximately 4 million ($6 million), which
resulted in a gain of approximately $1 million.
In August 2005, the Company and Hatco Corporation agreed to wind
up Estech GmbH, its venture for neopropyl esters. The Company
recorded an impairment charge of $10 million, included in
Equity in net earnings of affiliates, related to this matter
during the year ended December 31, 2005.
In April 2004, the Company and a group of investors led by
Conduit Ventures Ltd. entered into a venture, which was named
Pemeas GmbH. This venture was formed in order to advance the
commercialization of the Companys fuel cell technology.
Pemeas GmbH was considered a variable interest entity as defined
under FIN No. 46(R), Consolidation of Variable
Interest Entities (FIN No. 46(R)). The
Company was deemed the primary beneficiary of this variable
interest entity and, accordingly, consolidated this entity in
its consolidated financial statements. In the period the Company
adopted FIN No. 46(R), the consolidation of this
entity did not have a material impact on the Companys
financial position or results of operations and cash flows. In
December 2005, the Company sold its common stock interest in
Pemeas GmbH, which resulted in the Company no longer being the
primary beneficiary. The Company recognized a gain of less than
$1 million related to this sale. In December 2006, the
Company sold its preferred interest in Pemeas GmbH to BASF AG,
received net proceeds from the sale of 9 million and
recognized a gain of 8 million ($11 million).
This amount is included in Other income (expense), net in the
consolidated statement of operations.
Divestitures:
On August 20, 2007, the Company sold its Films business of
AT Plastics, located in Edmonton and Westlock, Alberta, Canada,
to British Polythene Industries PLC (BPI) for
$12 million. The Films business manufactures products for
the agricultural, horticultural and construction industries. The
Company recorded a loss on the sale of approximately
$7 million during the year ended December 31, 2007.
The Company maintained ownership of the Polymers business of AT
Plastics, which concentrates on the development and supply of
specialty resins and compounds. AT Plastics is included in the
Companys Industrial Specialties segment. The Company
concluded that
F-18
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the sale of the Films business of AT Plastics is not a
discontinued operation due to the level of continuing cash flows
between the Films business and AT Plastics Polymers
business subsequent to the sale. Under the terms of the purchase
agreement, the Company entered into a two year sales agreement
to continue selling product to BPI through August 2009.
In connection with the Companys strategy to optimize its
portfolio and divest non-core operations, the Company announced
on December 13, 2006 its agreement to sell its Acetyl
Intermediates segments oxo products and derivatives
businesses, including European Oxo GmbH (EOXO), a
50/50
venture between CAG and Degussa AG (Degussa), to
Advent International, for a purchase price of
480 million ($636 million) subject to final
agreement adjustments and the successful exercise of the
Companys option to purchase Degussas 50% interest in
EOXO. On February 23, 2007, the option was exercised and
the Company acquired Degussas interest in the venture for
a purchase price of 30 million ($39 million), in
addition to 22 million ($29 million) paid to
extinguish EOXOs debt upon closing of the transaction. The
Company completed the sale of its oxo products and derivatives
businesses, including the acquired 50% interest in EOXO, on
February 28, 2007. The sale included the oxo and
derivatives businesses at the Oberhausen, Germany, and Bay City,
Texas facilities as well as portions of its Bishop, Texas
facility. Also included were EOXOs facilities within the
Oberhausen and Marl, Germany plants. The former oxo products and
derivatives businesses acquired by Advent International was
renamed Oxea. Taking into account agreed deductions by the buyer
for pension and other employee benefits and various costs for
separation activities, the Company received proceeds of
approximately 443 million ($585 million) at
closing. The transaction resulted in the recognition of a
$47 million pre-tax gain, which includes certain working
capital and other adjustments, in 2007. Due to certain
lease-back arrangements between the Company and the buyer and
related environmental obligations of the Company, approximately
$51 million of the transaction proceeds attributable to the
fair value of the underlying land at Bay City ($1 million)
and Oberhausen (36 million) is included in deferred
proceeds in long-term Other liabilities, and divested land with
a book value of $14 million (10 million at
Oberhausen and $1 million at Bay City) remains on the
Companys consolidated balance sheet.
Subsequent to closing, the Company and Oxea have certain site
service and product supply arrangements. The site services
include, but are not limited to, administrative, utilities,
health and safety, waste water treatment and maintenance
activities for terms which range from one to fifteen years.
Product supply agreements contain initial terms of up to fifteen
years. The Company has no contractual ability through these
agreements or any other arrangements to significantly influence
the operating or financial policies of Oxea. The Company
concluded, based on the nature and limited projected magnitude
of the continuing business relationship between the Company and
Oxea, that the divestiture of the oxo products and derivatives
businesses should be accounted for as a discontinued operation.
Third-party sales include $5 million, $35 million and
$33 million for the years ended December 31, 2007,
2006 and 2005, respectively, that would have been eliminated
upon consolidation were the divestiture not accounted for as a
discontinued operation. These amounts relate to sales from the
continuing operations of the Company to the divested businesses.
F-19
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents the major classes of assets and
liabilities of the oxo products and derivatives businesses
divested:
|
|
|
|
|
|
|
(In $ millions)
|
|
|
Trade receivables third party and affiliates, net
|
|
|
145
|
|
Inventories
|
|
|
75
|
|
Other assets current
|
|
|
8
|
|
Investments(1)
|
|
|
125
|
|
Property, plant and equipment
|
|
|
139
|
|
Other assets
|
|
|
21
|
|
Goodwill
|
|
|
42
|
|
Intangible assets, net
|
|
|
10
|
|
|
|
|
|
|
Total assets
|
|
|
565
|
|
|
|
|
|
|
Current liabilities
|
|
|
4
|
|
Other liabilities
|
|
|
19
|
|
|
|
|
|
|
Total liabilities
|
|
|
23
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes the Companys 50% investment in EOXO and the 50%
interest in EOXO purchased from Degussa in February 2007. |
In accordance with the Companys sponsor services agreement
dated January 26, 2005, as amended, the Company paid the
Advisor $6 million in connection with the sale of the oxo
products and derivatives businesses.
During the third quarter of 2006, the Company discontinued its
Pentaerythritol (PE) operations, which were included
in the Acetyl Intermediates segment. During the second quarter
of 2007, the Company discontinued its Edmonton, Canada methanol
operations, which were included in the Acetyl Intermediates
segment. As a result, the earnings (loss) from operations
related to the Edmonton methanol and PE operations are reflected
as components of discontinued operations in the consolidated
statements of operations.
In December 2005, the Company sold its Cyclo-olefine Copolymer
(COC) business to a venture of Japans Daicel
Chemical Industries Ltd. (Daicel) and Polyplastics
Co. Ltd. (Polyplastics). Daicel holds a majority
stake in the venture with 55% interest and Polyplastics, which
itself is a venture between the Company and Daicel, owns the
remaining 45%. The transaction resulted in a loss of
approximately $35 million.
In October 2004, the Company announced plans to implement a
strategic restructuring of its acetate business to increase
efficiency, reduce overcapacity in certain areas and to focus on
products and markets that provide long-term value. As part of
this restructuring, the Company announced its plans to
discontinue its filament operations, which were included in the
Consumer Specialties segment, prior to December 31, 2005
and to consolidate its acetate flake and tow manufacturing
operations. During the fourth quarter of 2005, the Company
discontinued its filament operations. As a result, the earnings
(loss) from operations related to the filament operations are
reflected as a component of discontinued operations in the
consolidated statements of operations.
In July 2005, in connection with the Vinamul transaction, the
Company agreed to sell its emulsion powders business to ICI for
approximately $25 million. This transaction included a
supply agreement whereby the Company supplies product to ICI for
a period of up to fifteen years. In connection with the sale,
the Company reduced goodwill related to the acquisition of
Vinamul by $6 million. The transaction closed in September
2005.
F-20
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following tables summarize the results of the discontinued
operations for the years ended December 31, 2007, 2006 and
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007(1)
|
|
|
2006
|
|
|
2005
|
|
|
|
(In $ millions)
|
|
|
Net Sales
|
|
|
197
|
|
|
|
891
|
|
|
|
845
|
|
Cost of sales
|
|
|
(152
|
)
|
|
|
(759
|
)
|
|
|
(742
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
45
|
|
|
|
132
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
40
|
|
|
|
130
|
|
|
|
96
|
|
Gain on disposal of discontinued operations
|
|
|
52
|
|
|
|
5
|
|
|
|
|
|
Income tax provision from operation of discontinued operations
|
|
|
(13
|
)
|
|
|
(46
|
)
|
|
|
(33
|
)
|
Income tax benefit (provision) from gain on disposal of
discontinued operations
|
|
|
11
|
(2)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from discontinued operations
|
|
|
90
|
|
|
|
87
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The year ended December 31, 2007 includes only two months
of operations for the oxo products and derivatives businesses as
these businesses were sold on February 28, 2007. |
|
(2) |
|
Income tax benefit on gain from disposal of discontinued
operations of $11 million is comprised of $29 million tax
expense related to the divestiture of facilities in the US,
offset by $40 million tax benefit on the divestiture of
facilities and investments in Germany. |
Asset
Sales:
In December 2007, the Company sold the assets at its Edmonton,
Alberta, Canada facility to a real estate developer for
approximately $35 million. As part of the agreement, the
Company will retain certain environmental liabilities associated
with the site. The Company derecognized approximately
$16 million of asset retirement obligations which were
transferred to the buyer. As a result of the sale, the Company
recorded a gain of approximately $37 million for the year
ended December 31, 2007.
On July 31, 2007, the Company reached an agreement with
Babcock & Brown, a worldwide investment firm, which
specializes in real estate and utilities development, to sell
its Pampa, Texas, facility. The Company will maintain its
chemical operations at the site until at least 2009. Proceeds
received upon certain milestone events are treated as deferred
proceeds and included in long-term Other liabilities until the
transaction is complete, as defined in the sales agreement.
In October 2005, the Company sold its Rock Hill, SC
manufacturing facility for $4 million in cash. As a result
the Company derecognized $12 million of asset retirement
obligations and $7 million of environmental liabilities
which were legally transferred to the buyer, and recorded a gain
of $23 million.
|
|
6.
|
Securities
Available for Sale
|
As of December 31, 2007 and 2006, the Company had
$261 million and $265 million, respectively, of
securities available for sale, which were included as a
component of current and long-term Other assets. The
Companys captive insurance companies and pension related
trusts hold these securities for capitalization and funding
requirements, respectively. The Companys shares of Accsys
are also included as a component of securities available for
sale (see Note 5). The Company recorded a net realized gain
(loss) of less than $1 million, $(1) million and
$(2) million for the years ended December 31, 2007,
2006 and 2005, respectively.
F-21
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The amortized cost, gross unrealized gain, gross unrealized loss
and fair values for available-for-sale securities by major
security type as of December 31, 2007 and 2006, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Value
|
|
|
|
|
|
|
(In $ millions)
|
|
|
|
|
|
As of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US government
|
|
|
67
|
|
|
|
5
|
|
|
|
|
|
|
|
72
|
|
US corporate
|
|
|
33
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
100
|
|
|
|
5
|
|
|
|
(1
|
)
|
|
|
104
|
|
Bank certificates of deposit
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Equity securities
|
|
|
78
|
|
|
|
26
|
|
|
|
|
|
|
|
104
|
|
Mortgage-backed securities
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
231
|
|
|
|
31
|
|
|
|
(1
|
)
|
|
|
261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US government
|
|
|
69
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
69
|
|
US corporate
|
|
|
54
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
123
|
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
122
|
|
Bank certificates of deposit
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
Equity securities
|
|
|
59
|
|
|
|
11
|
|
|
|
|
|
|
|
70
|
|
Mortgage-backed securities
|
|
|
58
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
57
|
|
Money markets deposits and other securities
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
256
|
|
|
|
12
|
|
|
|
(3
|
)
|
|
|
265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities as of December 31, 2007 by contractual
maturity are shown below. 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.
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
|
(In $ millions)
|
|
|
Within one year
|
|
|
18
|
|
|
|
18
|
|
From one to five years
|
|
|
42
|
|
|
|
42
|
|
From six to ten years
|
|
|
26
|
|
|
|
26
|
|
Greater than ten years
|
|
|
67
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153
|
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
Proceeds received from fixed maturities that mature within one
year are expected to be reinvested into additional securities
upon such maturity.
F-22
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In $ millions)
|
|
|
Trade receivables third party and affiliates
|
|
|
1,027
|
|
|
|
1,017
|
|
Allowance for doubtful accounts third party and
affiliates
|
|
|
(18
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
1,009
|
|
|
|
1,001
|
|
Reinsurance receivables
|
|
|
35
|
|
|
|
85
|
|
Other
|
|
|
402
|
|
|
|
390
|
|
|
|
|
|
|
|
|
|
|
Net receivables
|
|
|
1,446
|
|
|
|
1,476
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007 and 2006, the Company had no
significant concentrations of credit risk since the
Companys customer base is dispersed across many different
industries and geographies.
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In $ millions)
|
|
|
Finished goods
|
|
|
500
|
|
|
|
500
|
|
Work-in-process
|
|
|
29
|
|
|
|
33
|
|
Raw materials and supplies
|
|
|
107
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
|
636
|
|
|
|
653
|
|
|
|
|
|
|
|
|
|
|
F-23
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Equity
Method
The Companys equity investments and ownership interests
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership Percentage
|
|
|
Carrying Value
|
|
|
Share of Earnings (Loss)
|
|
|
|
|
|
As of December 31,
|
|
|
As of December 31,
|
|
|
Year Ended December 31,
|
|
|
|
Segment
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
(In percent)
|
|
|
(In $ millions)
|
|
|
Estech GmbH & Co.
KG(1)
|
|
Acetyl Intermediates
|
|
|
51.0
|
|
|
|
51.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
European Oxo
GmbH(2)
|
|
Acetyl Intermediates
|
|
|
|
|
|
|
50.0
|
|
|
|
|
|
|
|
26
|
|
|
|
2
|
|
|
|
10
|
|
|
|
10
|
|
Erfei, A.I.E
|
|
Acetyl Intermediates
|
|
|
45.0
|
|
|
|
45.0
|
|
|
|
1
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fortron Industries
|
|
Materials
|
|
|
50.0
|
|
|
|
50.0
|
|
|
|
73
|
|
|
|
63
|
|
|
|
16
|
|
|
|
14
|
|
|
|
11
|
|
Korea Engineering
|
|
Advanced Engineered
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plastics Co., Ltd.
|
|
Materials
|
|
|
50.0
|
|
|
|
50.0
|
|
|
|
170
|
|
|
|
160
|
|
|
|
14
|
|
|
|
13
|
|
|
|
14
|
|
|
|
Advanced Engineered
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polyplastics Co., Ltd.
|
|
Materials
|
|
|
45.0
|
|
|
|
45.0
|
|
|
|
170
|
|
|
|
136
|
|
|
|
25
|
|
|
|
26
|
|
|
|
24
|
|
InfraServ GmbH & Co. Gendorf KG
|
|
Other Activities
|
|
|
39.0
|
|
|
|
39.0
|
|
|
|
30
|
|
|
|
26
|
|
|
|
5
|
|
|
|
4
|
|
|
|
4
|
|
InfraServ GmbH & Co. Höchst KG
|
|
Other Activities
|
|
|
31.2
|
|
|
|
31.2
|
|
|
|
154
|
|
|
|
136
|
|
|
|
18
|
|
|
|
14
|
|
|
|
7
|
|
InfraServ GmbH & Co. Knapsack KG
|
|
Other Activities
|
|
|
28.2
|
|
|
|
28.2
|
|
|
|
23
|
|
|
|
18
|
|
|
|
4
|
|
|
|
1
|
|
|
|
1
|
|
Sherbrooke Capital Health and Wellness,
L.P.(3)
|
|
Consumer Specialties
|
|
|
10.0
|
|
|
|
10.0
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
625
|
|
|
|
570
|
|
|
|
83
|
|
|
|
83
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In August 2005, the Company and Hatco Corporation agreed to wind
up this investment. |
|
(2) |
|
The Company divested this investment in February 2007 (see
Note 5). The share of earnings (loss) for this investment
is included in Earnings (loss) from discontinued operations on
the consolidated statements of operations. |
|
(3) |
|
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,
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
(In $ millions)
|
|
Affiliates totals:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
204
|
|
|
|
197
|
|
|
|
138
|
|
Companys share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings(1)
|
|
|
83
|
|
|
|
83
|
|
|
|
61
|
|
Dividends and other distributions
|
|
|
57
|
|
|
|
109
|
|
|
|
66
|
|
|
|
|
(1) |
|
Amount does not include a $1 million and a $3 million
liquidating dividend from Clear Lake Methanol Partners for the
years ended December 31, 2007 and 2006, respectively. |
F-24
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The total assets and liabilities associated with the
Companys equity method investments are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2007
|
|
2006
|
|
|
(In $ millions)
|
|
Total assets
|
|
|
2,916
|
|
|
|
2,505
|
|
Total liabilities
|
|
|
1,576
|
|
|
|
1,411
|
|
Cost
Investments
The Companys investments accounted for under the cost
method of accounting as of December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value as of
|
|
|
|
|
|
Ownership Percentage
|
|
|
December 31,
|
|
|
|
Segment
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
(In percent)
|
|
|
(In $ millions)
|
|
|
National Methanol Company (Ibn Sina)
|
|
Acetyl Intermediates
|
|
|
25
|
|
|
|
25
|
|
|
|
54
|
|
|
|
54
|
|
Kunming Cellulose Fibers Co. Ltd.
|
|
Consumer Specialties
|
|
|
30
|
|
|
|
30
|
|
|
|
15
|
|
|
|
15
|
|
Nantong Cellulose Fibers Co. Ltd.
|
|
Consumer Specialties
|
|
|
31
|
|
|
|
31
|
|
|
|
77
|
|
|
|
77
|
|
Zhuhai Cellulose Fibers Co. Ltd.
|
|
Consumer Specialties
|
|
|
30
|
|
|
|
30
|
|
|
|
15
|
|
|
|
15
|
|
InfraServ GmbH & Co. Wiesbaden KG
|
|
Other Activities
|
|
|
8
|
|
|
|
8
|
|
|
|
6
|
|
|
|
6
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
189
|
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain cost 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 Companys 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.
During 2007, the Company wrote-off its remaining
1 million ($1 million) cost investment in
European Pipeline Development Company B.V. (EPDC)
and expensed 7 million ($9 million), included in
Other income (expense), net, associated with contingent
liabilities that became payable due to the Companys
decision to exit the pipeline development project. The
investment in EPDC related to the construction of a pipeline
system, solely dedicated to the transportation of propylene,
which was to connect Rotterdam via Antwerp, Netherlands, with
the Companys Oberhausen and Marl production facilities in
Germany. However, on February 15, 2007, EPDC shareholders
voted to cease the pipeline project as originally envisaged and
go into liquidation. The Company was a 12.5% shareholder of EPDC.
During 2007, the Company fully impaired its $5 million cost
investment in Elemica Corporation (Elemica). Elemica
is a network for the global chemical industry developed by 22 of
the leading chemical companies in the world for the benefit of
the entire industry. The Company is a 1.83% shareholder of
Elemica through its preferred share holdings. As part of
Elemicas planned capital reorganization in 2007, its board
of directors has proposed to convert all outstanding preferred
stock into shares of Elemicas common stock. Based on the
Companys analysis of
F-25
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Elemicas proposed capital reorganization, past earnings
performance and business prospects, the Company concluded that
its cost investment in Elemica was impaired. The impairment was
included in Other income (expense), net.
|
|
10.
|
Property,
Plant and Equipment, Net
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In $ millions)
|
|
|
Land
|
|
|
69
|
|
|
|
64
|
|
Land improvements
|
|
|
45
|
|
|
|
51
|
|
Buildings
|
|
|
353
|
|
|
|
353
|
|
Machinery and equipment
|
|
|
2,404
|
|
|
|
2,089
|
|
Construction in progress
|
|
|
329
|
|
|
|
285
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, gross
|
|
|
3,200
|
|
|
|
2,842
|
|
Less: accumulated depreciation
|
|
|
(838
|
)
|
|
|
(687
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
2,362
|
|
|
|
2,155
|
|
|
|
|
|
|
|
|
|
|
Assets under capital leases, net of accumulated amortization,
amounted to approximately $105 million and $26 million
as of December 31, 2007 and 2006, respectively.
Interest costs capitalized were $9 million, $6 million
and $4 million during the years ended December 31,
2007, 2006 and 2005, respectively.
Depreciation expense was $209 million, $191 million
and $201 million during the years ended December 31,
2007, 2006 and 2005, respectively.
F-26
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineered
|
|
|
Consumer
|
|
|
Industrial
|
|
|
Acetyl
|
|
|
|
|
|
|
Materials
|
|
|
Specialties
|
|
|
Specialties
|
|
|
Intermediates
|
|
|
Total
|
|
|
|
(In $ millions)
|
|
|
Carrying value of goodwill as of December 31,
2005(1)
|
|
|
285
|
|
|
|
267
|
|
|
|
59
|
|
|
|
338
|
|
|
|
949
|
|
Acquisition of Acetex adjustments
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
17
|
|
|
|
11
|
|
Acquisition of
CAG(2)
|
|
|
(26
|
)
|
|
|
(33
|
)
|
|
|
(1
|
)
|
|
|
(26
|
)
|
|
|
(86
|
)
|
Exchange rate changes
|
|
|
(3
|
)
|
|
|
6
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value of goodwill as of December 31,
2006(1)
|
|
|
256
|
|
|
|
240
|
|
|
|
52
|
|
|
|
327
|
|
|
|
875
|
|
Acquisition of
CAG(3)
|
|
|
(11
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
(11
|
)
|
|
|
(36
|
)
|
Acquisition of APL
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
Sale of oxo products and derivatives businesses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42
|
)
|
|
|
(42
|
)
|
Sale of AT Plastics Films business
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
Adoption of
FIN 48(4)
|
|
|
15
|
|
|
|
6
|
|
|
|
(1
|
)
|
|
|
(22
|
)
|
|
|
(2
|
)
|
Goodwill
impairment(5)
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
(6
|
)
|
Exchange rate changes
|
|
|
17
|
|
|
|
14
|
|
|
|
3
|
|
|
|
26
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value of goodwill as of December 31, 2007
|
|
|
277
|
|
|
|
264
|
|
|
|
47
|
|
|
|
278
|
|
|
|
866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts have been reallocated based on the revised segments as
discussed in Note 26. |
|
(2) |
|
The adjustments recorded during the year ended December 31,
2006 consist primarily of reversals of certain pre-acquisition
tax valuation allowances and resolution of uncertainties. |
|
(3) |
|
The adjustments recorded during the year ended December 31,
2007 consist primarily of goodwill recorded related to the
purchase of the remaining outstanding CAG shares during the
Squeeze-Out of $5 million offset by reversals of certain
pre-acquisition tax valuation allowances of $41 million. |
|
(4) |
|
See Note 20 for additional discussion of FIN 48. |
|
(5) |
|
In connection with the Companys annual goodwill impairment
test, the Company recorded an impairment of approximately
$6 million in the polyvinyl alcohol (PVOH)
reporting unit. The PVOH reporting unit is included in the
Industrial Specialties segment. |
F-27
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
|
|
|
|
|
|
Covenants
|
|
|
|
|
|
|
Trademarks
|
|
|
Related
|
|
|
|
|
|
not to
|
|
|
|
|
|
|
and
|
|
|
Intangible
|
|
|
Developed
|
|
|
Compete
|
|
|
|
|
|
|
Tradenames
|
|
|
Assets
|
|
|
Technology
|
|
|
and Other
|
|
|
Total
|
|
|
|
(In $ millions)
|
|
|
Gross Asset Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2005
|
|
|
73
|
|
|
|
474
|
|
|
|
12
|
|
|
|
11
|
|
|
|
570
|
|
Acquisitions
|
|
|
2
|
|
|
|
14
|
|
|
|
|
|
|
|
1
|
|
|
|
17
|
|
Divestitures
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
Impairment
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Exchange rate changes
|
|
|
6
|
|
|
|
43
|
|
|
|
1
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006
|
|
|
79
|
|
|
|
523
|
|
|
|
13
|
|
|
|
12
|
|
|
|
627
|
|
Acquisitions
|
|
|
2
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
Divestitures
|
|
|
(1
|
)
|
|
|
(17
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(19
|
)
|
Exchange rate changes
|
|
|
5
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007
|
|
|
85
|
|
|
|
562
|
|
|
|
12
|
|
|
|
12
|
|
|
|
671
|
|
Accumulated Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2005
|
|
|
(1
|
)
|
|
|
(80
|
)
|
|
|
(5
|
)
|
|
|
(3
|
)
|
|
|
(89
|
)
|
Current period amortization
|
|
|
|
|
|
|
(65
|
)
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
(71
|
)
|
Divestitures
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
Exchange rate changes
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006
|
|
|
(1
|
)
|
|
|
(149
|
)
|
|
|
(8
|
)
|
|
|
(6
|
)
|
|
|
(164
|
)
|
Current period amortization
|
|
|
|
|
|
|
(68
|
)
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
(72
|
)
|
Divestitures
|
|
|
1
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Exchange rate changes
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007
|
|
|
|
|
|
|
(228
|
)
|
|
|
(9
|
)
|
|
|
(9
|
)
|
|
|
(246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Book Value as of December 31, 2007
|
|
|
85
|
|
|
|
334
|
|
|
|
3
|
|
|
|
3
|
|
|
|
425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated amortization expense for the succeeding five fiscal
years is approximately $63 million in 2008,
$61 million in 2009, $52 million in 2010,
$48 million in 2011 and $36 million in 2012. The
Companys trademarks and tradenames have an indefinite
life. Accordingly, no amortization is recorded on these
intangible assets. As a result of the Companys annual
impairment test on indefinite-lived intangible assets, the
Company recorded an impairment loss of $2 million for the
year ended December 31, 2006.
F-28
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
13.
|
Other
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In $ millions)
|
|
|
Salaries and benefits
|
|
|
168
|
|
|
|
198
|
|
Environmental (see Note 17)
|
|
|
19
|
|
|
|
26
|
|
Restructuring (see Note 19)
|
|
|
40
|
|
|
|
34
|
|
Insurance
|
|
|
41
|
|
|
|
68
|
|
Sorbates litigation
|
|
|
170
|
|
|
|
148
|
|
Asset retirement obligations
|
|
|
16
|
|
|
|
12
|
|
Derivatives
|
|
|
129
|
|
|
|
7
|
|
Other
|
|
|
305
|
|
|
|
287
|
|
|
|
|
|
|
|
|
|
|
Total Other current liabilities
|
|
|
888
|
|
|
|
780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In $ millions)
|
|
|
Environmental (see Note 17)
|
|
|
96
|
|
|
|
88
|
|
Insurance
|
|
|
78
|
|
|
|
86
|
|
Deferred revenue
|
|
|
71
|
|
|
|
72
|
|
Deferred proceeds (see Notes 5 and 29)
|
|
|
93
|
|
|
|
26
|
|
Asset retirement obligations
|
|
|
31
|
|
|
|
47
|
|
Derivatives
|
|
|
37
|
|
|
|
34
|
|
Other
|
|
|
89
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
Total long-term Other liabilities
|
|
|
495
|
|
|
|
443
|
|
|
|
|
|
|
|
|
|
|
Changes in asset retirement obligations are reconciled as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In $ millions)
|
|
|
Balance at beginning of year
|
|
|
59
|
|
|
|
54
|
|
|
|
52
|
|
Additions
|
|
|
|
|
|
|
10
|
|
|
|
9
|
|
Accretion
|
|
|
5
|
|
|
|
3
|
|
|
|
4
|
|
Payments
|
|
|
(6
|
)
|
|
|
(2
|
)
|
|
|
(9
|
)
|
Divestitures(1)
|
|
|
(16
|
)
|
|
|
|
|
|
|
(12
|
)
|
Purchase accounting adjustments
|
|
|
3
|
|
|
|
|
|
|
|
9
|
|
Revisions to cash flow estimates
|
|
|
(2
|
)
|
|
|
(7
|
)
|
|
|
|
|
Exchange rate changes
|
|
|
4
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of
year(2)
|
|
|
47
|
|
|
|
59
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amount in 2007 relates to the sale of the Edmonton plant and
the amount in 2005 relates to the sale of the Rock Hill plant
(see Note 5). |
|
(2) |
|
Included in the liability for each of the years ended
December 31, 2007, 2006 and 2005 is approximately
$10 million related to a business acquired in 2005. The
Company has a corresponding receivable for this amount included
in Other receivables for each of these respective years. |
F-29
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
Companys results of operations and cash flows.
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In $ millions)
|
|
|
Short-term borrowings and current installments of long-term
debt third party and affiliates
|
|
|
|
|
|
|
|
|
Current installments of long-term debt
|
|
|
44
|
|
|
|
127
|
|
Short-term borrowings, principally comprised of amounts due to
affiliates
|
|
|
228
|
|
|
|
182
|
|
|
|
|
|
|
|
|
|
|
Total short-term borrowings and current installments of
long-term debt third party and affiliates
|
|
|
272
|
|
|
|
309
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
Senior Credit Facilities: Term Loan facility due
2011(1)
|
|
|
|
|
|
|
1,622
|
|
Senior Credit Facilities: Term Loan facility due 2014
|
|
|
2,855
|
|
|
|
|
|
Senior Subordinated Notes 9.625%, due
2014(1)
|
|
|
|
|
|
|
799
|
|
Senior Subordinated Notes 10.375%, due
2014(1)
|
|
|
|
|
|
|
171
|
|
Senior Discount Notes 10.5%, due
2014(1)
|
|
|
|
|
|
|
339
|
|
Senior Discount Notes 10%, due
2014(1)
|
|
|
|
|
|
|
81
|
|
Term notes 7.125%, due 2009
|
|
|
14
|
|
|
|
14
|
|
Pollution control and industrial revenue bonds, interest rates
ranging from 5.7% to 6.7%, due at various dates through 2030
|
|
|
181
|
|
|
|
191
|
|
Obligations under capital leases and other secured borrowings
due at various dates through 2023
|
|
|
110
|
|
|
|
30
|
|
Other bank obligations, interest rates ranging from 6.55% to
7.05%, due at various dates through 2014
|
|
|
168
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
3,328
|
|
|
|
3,316
|
|
Less: Current installments of long-term debt
|
|
|
44
|
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
3,284
|
|
|
|
3,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These facilities were repaid in full in conjunction with the
debt refinancing discussed below. |
As of December 31, 2006, the amended and restated (January
2005) senior credit facilities consisted of a term loan
facility, a revolving credit facility and a credit-linked
revolving facility. The $600 million revolving credit
facility provided for the availability of letters of credit in
US dollars and Euros and for borrowings on
same-day
notice. As of December 31, 2006, there were no letters of
credit issued or outstanding borrowings under the revolving
credit facility; accordingly, $600 million remained
available for borrowing. The Company had an approximate
$228 million credit-linked revolving facility available for
the issuance of letters of credit. As of
F-30
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2006, there were $218 million of letters
of credit issued under the credit-linked revolving facility and
$10 million remained available for borrowing.
Debt
Refinancing
In March 2007, the Company announced a comprehensive
recapitalization plan to refinance its debt and repurchase
shares. On April 2, 2007, the Company, through certain of
its subsidiaries, entered into a new senior credit agreement.
The new senior credit agreement consists of $2,280 million
of US dollar denominated and 400 million of Euro
denominated term loans due 2014, a $650 million revolving
credit facility terminating in 2013 and a $228 million
credit-linked revolving facility terminating in 2014. Borrowings
under the new senior credit agreement 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 loans and any loans under the credit-linked revolving
facility is 1.75%, subject to potential reductions as defined in
the new senior credit agreement. The term loans under the new
senior credit agreement are subject to amortization at 1% of the
initial principal amount per annum, payable quarterly. The
remaining principal amount of the term loans is due on
April 2, 2014.
As of December 31, 2007, there were $129 million of
letters of credit issued under the credit-linked revolving
facility and $99 million remained available for borrowing.
As of December 31, 2007, there were no outstanding
borrowings or letters of credit issued under the revolving
credit facility; accordingly $650 million remained
available for borrowing.
The new senior credit agreement is guaranteed by Celanese
Holdings LLC 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,
pursuant to the Guarantee and Collateral Agreement, dated as of
April 2, 2007, by and among Celanese Holdings LLC, Celanese
US, certain subsidiaries of Celanese US and Deutsche Bank AG,
New York Branch, as Administrative Agent and as Collateral Agent.
The new senior credit agreement contains a number of covenants
that, subject to certain exceptions, restrict, among other
things, the ability of Celanese Holdings LLC and its
subsidiaries to incur new debt, repurchase shares, make certain
investments, acquire new entities, sell assets and pay dividends
in excess of amounts specified in the agreement. Additionally,
the revolving credit facility requires Celanese Holdings LLC and
its subsidiaries to maintain a maximum First-Lien Senior Secured
Leverage Ratio, as defined in the agreement, when there is
outstanding credit exposure under the revolver. The Company is
in compliance with all of the covenants related to its debt
agreements as of December 31, 2007.
Proceeds from the new senior credit agreement, together with
available cash, were used to retire the Companys
$2,454 million amended and restated (January
2005) senior credit facilities, which consisted of
$1,626 million in term loans due 2011, a $600 million
revolving credit facility terminating in 2009 and an approximate
$228 million credit-linked revolving facility terminating
in 2009, and to retire all of the Companys Senior
Subordinated Notes and Senior Discount Notes as discussed below.
On March 6, 2007, the Company commenced cash tender offers
(the Tender Offers) with respect to any and all of
the outstanding 10% senior discount notes due 2014 and
10.5% senior discount notes due 2014 (the Senior
Discount Notes), and any and all of the outstanding
9.625% senior subordinated notes due 2014 and
10.375% senior subordinated notes due 2014 (the
Senior Subordinated Notes). The Tender Offers
expired on April 2, 2007. Substantially all of the Senior
Discount Notes and Senior Subordinated Notes were tendered in
conjunction with the Tender Offers. The remaining outstanding
Senior Discount Notes and Senior Subordinated Notes not tendered
in conjunction with the Tender Offers were redeemed by the
Company in May 2007 through optional redemption allowed in the
indentures.
F-31
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As a result of the refinancing, the Company incurred premiums
paid on early redemption of debt, accelerated amortization and
other refinancing expenses. The components of refinancing
expenses are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In $ millions)
|
|
|
Premium paid on early redemption of debt
|
|
|
207
|
|
|
|
|
|
|
|
74
|
|
Accelerated amortization of premiums and deferred financing
costs on early redemption and prepayment of debt
|
|
|
33
|
|
|
|
1
|
|
|
|
28
|
|
Debt issuance costs and other
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total refinancing expenses
|
|
|
256
|
|
|
|
1
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the refinancing, the Company recorded
deferred financing costs of $39 million related to the new
senior credit agreement, which are included in long-term Other
assets on the accompanying consolidated balance sheet as of
December 31, 2007 and will be amortized over the term of
the new senior credit agreement. The deferred financing costs
consist of $23 million of costs incurred to acquire the new
senior credit agreement and $16 million of debt issue costs
existing prior to the refinancing which will be retained and
amortized over the term of the new senior credit agreement.
For the years ended December 31, 2007, 2006 and 2005, the
Company recorded amortization of deferred financing costs, which
is classified in Interest expense, of $8 million,
$13 million and $11 million, respectively. As of
December 31, 2007 and 2006, the Company had
$39 million and $58 million of net deferred financing
costs.
Principal payments scheduled to be made on the Companys
debt, including short-term borrowings, are as follows:
|
|
|
|
|
|
|
(In $ millions)
|
|
|
2008
|
|
|
272
|
|
2009
|
|
|
73
|
|
2010
|
|
|
69
|
|
2011
|
|
|
76
|
|
2012
|
|
|
51
|
|
Thereafter
|
|
|
3,015
|
|
|
|
|
|
|
Total
|
|
|
3,556
|
|
|
|
|
|
|
Pension obligations. Pension obligations are
established for benefits payable in the form of retirement,
disability and surviving dependent pensions. The benefits
offered vary according to the legal, fiscal and economic
conditions of each country. 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 employees compensation. Supplemental retirement
benefits provided to certain employees are nonqualified for US
tax purposes. Separate trusts have been established for some
nonqualified plans.
The Company sponsors defined benefit pension plans in North
America, Europe and Asia. As of December 31, 2007, the
Companys US qualified pension plan represented greater
than 83% and 75% of Celaneses pension plan assets and
liabilities, respectively. Independent trusts or insurance
companies administer the majority of these plans. Pension costs
under the Companys retirement plans are actuarially
determined.
F-32
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 Companys matching
contribution to the defined contribution plans are based on
specified percentages of employee contributions and aggregated
$12 million, $11 million and $12 million for the
years ended December 31, 2007, 2006 and 2005, respectively.
The Company participates in multiemployer defined benefit
pension plans in Europe covering certain employees. The
Companys contributions to the multiemployer defined
benefit pension plans are based on specified percentages of
employee contributions and aggregated $7 million,
$7 million and $6 million for the years ended
December 31, 2007, 2006 and 2005, respectively.
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
employee. 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
Companys policy is to fund benefits as claims and premiums
are paid. The US plan was closed to new participants effective
January 1, 2006.
F-33
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following tables set forth the benefit obligations, the fair
value of the plan assets and the funded status of the
Companys pension and postretirement benefit plans; and the
amounts recognized in the Companys consolidated financial
statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Postretirement Benefits
|
|
|
|
As of December 31,
|
|
|
As of December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(In $ millions)
|
|
|
Change in projected benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of period
|
|
|
3,343
|
|
|
|
3,407
|
|
|
|
343
|
|
|
|
377
|
|
Service cost
|
|
|
38
|
|
|
|
40
|
|
|
|
2
|
|
|
|
2
|
|
Interest cost
|
|
|
187
|
|
|
|
183
|
|
|
|
19
|
|
|
|
20
|
|
Participant contributions
|
|
|
1
|
|
|
|
1
|
|
|
|
17
|
|
|
|
18
|
|
Plan amendments
|
|
|
4
|
|
|
|
1
|
|
|
|
|
|
|
|
(1
|
)
|
Actuarial
gains(1)
|
|
|
(123
|
)
|
|
|
(115
|
)
|
|
|
(18
|
)
|
|
|
(14
|
)
|
Special termination benefits
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
Divestitures
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
Settlements
|
|
|
(40
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(215
|
)
|
|
|
(205
|
)
|
|
|
(66
|
)
|
|
|
(59
|
)
|
Federal subsidy on Medicare Part D
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
Curtailments
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Foreign currency exchange rate changes
|
|
|
69
|
|
|
|
32
|
|
|
|
4
|
|
|
|
1
|
|
Other
|
|
|
1
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at end of period
|
|
|
3,264
|
|
|
|
3,343
|
|
|
|
306
|
|
|
|
343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of period
|
|
|
2,802
|
|
|
|
2,603
|
|
|
|
|
|
|
|
|
|
Actual return on plan assets
|
|
|
209
|
|
|
|
332
|
|
|
|
|
|
|
|
|
|
Employer contributions
|
|
|
48
|
|
|
|
53
|
|
|
|
43
|
|
|
|
41
|
|
Participant contributions
|
|
|
1
|
|
|
|
1
|
|
|
|
17
|
|
|
|
18
|
|
Settlements
|
|
|
(28
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(215
|
)
|
|
|
(205
|
)
|
|
|
(66
|
)
|
|
|
(59
|
)
|
Federal subsidy on Medicare Part D
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
Foreign currency exchange rate changes
|
|
|
57
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
1
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of period
|
|
|
2,875
|
|
|
|
2,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status and net amounts recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets less than benefit obligation
|
|
|
(389
|
)
|
|
|
(541
|
)
|
|
|
(306
|
)
|
|
|
(343
|
)
|
Unrecognized prior service cost
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Unrecognized actuarial (gain) loss
|
|
|
(53
|
)
|
|
|
64
|
|
|
|
(71
|
)
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized in the consolidated balance sheets
|
|
|
(439
|
)
|
|
|
(478
|
)
|
|
|
(378
|
)
|
|
|
(388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the accompanying consolidated balance
sheets consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
7
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
(21
|
)
|
|
|
(22
|
)
|
|
|
(34
|
)
|
|
|
(38
|
)
|
Non-current liabilities
|
|
|
(375
|
)
|
|
|
(523
|
)
|
|
|
(272
|
)
|
|
|
(305
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued benefit liability
|
|
|
(389
|
)
|
|
|
(541
|
)
|
|
|
(306
|
)
|
|
|
(343
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss (gain)
|
|
|
(53
|
)
|
|
|
64
|
|
|
|
(71
|
)
|
|
|
(44
|
)
|
Prior service cost (benefit)
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (income)
loss(2)
|
|
|
(50
|
)
|
|
|
63
|
|
|
|
(72
|
)
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized in the consolidated balance sheets
|
|
|
(439
|
)
|
|
|
(478
|
)
|
|
|
(378
|
)
|
|
|
(388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Primarily relates to change in discount rates. |
|
(2) |
|
Amount shown net of tax in the consolidated statements of
shareholders equity. See Note 20 for the related tax
associated with the pension and postretirement benefit
obligations. |
F-34
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The projected benefit obligation, accumulated benefit obligation
and fair value of plan assets for all defined benefit pension
plans with accumulated benefit obligations in excess of plan
assets at the end of 2007 and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In $ millions)
|
|
|
Projected benefit obligation
|
|
|
638
|
|
|
|
3,264
|
|
Accumulated benefit obligation
|
|
|
618
|
|
|
|
3,124
|
|
Fair value of plan assets
|
|
|
308
|
|
|
|
2,723
|
|
The accumulated benefit obligation for all defined benefit
pension plans was $3,147 million and $3,192 million as
of December 31, 2007 and 2006, respectively.
The following table sets forth the Companys net periodic
pension cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Postretirement Benefits
|
|
|
|
Year Ended December 31,
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
(In $ millions)
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
|
38
|
|
|
|
40
|
|
|
|
40
|
|
|
|
2
|
|
|
|
2
|
|
|
|
3
|
|
Interest cost
|
|
|
187
|
|
|
|
183
|
|
|
|
181
|
|
|
|
19
|
|
|
|
20
|
|
|
|
23
|
|
Expected return on plan assets
|
|
|
(216
|
)
|
|
|
(207
|
)
|
|
|
(200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized actuarial (gain) loss
|
|
|
1
|
|
|
|
2
|
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
Curtailment (gain) loss
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Settlement (gain) loss
|
|
|
(12
|
)
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special termination benefits
|
|
|
|
|
|
|
3
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
|
(3
|
)
|
|
|
23
|
|
|
|
26
|
|
|
|
18
|
|
|
|
21
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other changes in plan assets and benefit obligations
recognized in other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss (gain)
|
|
|
(52
|
)
|
|
|
66
|
|
|
|
|
|
|
|
(73
|
)
|
|
|
(44
|
)
|
|
|
|
|
Prior service cost (benefit)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
Amortization of net actuarial loss (gain)
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost (benefit)
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other changes in plan assets and benefit obligations
|
|
|
(8
|
)
|
|
|
(10
|
)
|
|
|
180
|
|
|
|
|
|
|
|
|
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in other comprehensive (income)
loss(1)
|
|
|
(58
|
)
|
|
|
53
|
|
|
|
180
|
|
|
|
(72
|
)
|
|
|
(45
|
)
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic cost and other comprehensive
(income)
loss(1)
|
|
|
(61
|
)
|
|
|
76
|
|
|
|
206
|
|
|
|
(54
|
)
|
|
|
(24
|
)
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts shown net of tax in the consolidated statements of
shareholders equity and comprehensive income (loss). |
Amortization of the actuarial (gains)/loss into net periodic
cost in 2008 is expected to be $1 million and
$(4) million for pension benefits and postretirement
benefits, respectively.
Included in the pension obligations above are accrued
liabilities relating to supplemental retirement plans for
certain employees amounting to $230 million and
$232 million as of December 31, 2007 and 2006,
respectively. Pension expense relating to these plans included
in net periodic benefit cost totaled $14 million,
$15 million and $15 million for the years ended
December 31, 2007, 2006 and 2005, respectively. To fund
these obligations, nonqualified trusts were established,
included within non-current Other assets, which held marketable
securities
F-35
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
valued at $180 million and $183 million as of
December 31, 2007 and 2006, respectively, and recognized
income (loss), excluding appreciation of insurance contracts, of
$5 million, $5 million and $6 million for the
years ended December 31, 2007, 2006 and 2005, respectively.
In addition to holding marketable securities, the nonqualified
trust holds investments in insurance contracts of
$68 million and $66 million as of December 31,
2007 and 2006, respectively.
Valuation
The Company uses the corridor approach in the valuation of the
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, 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 following tables set forth the principal weighted-average
assumptions used:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Postretirement Benefits
|
|
|
|
As of
|
|
|
As of
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Weighted-average assumptions used to determine benefit
obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US plans
|
|
|
6.30
|
%
|
|
|
5.88
|
%
|
|
|
6.00
|
%
|
|
|
5.88
|
%
|
International plans
|
|
|
5.42
|
%
|
|
|
4.70
|
%
|
|
|
5.31
|
%
|
|
|
4.80
|
%
|
Combined
|
|
|
6.16
|
%
|
|
|
5.68
|
%
|
|
|
5.93
|
%
|
|
|
5.79
|
%
|
Rate of compensation increase:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US plans
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
International plans
|
|
|
3.15
|
%
|
|
|
3.18
|
%
|
|
|
3.48
|
%
|
|
|
3.53
|
%
|
Combined
|
|
|
3.66
|
%
|
|
|
3.73
|
%
|
|
|
3.92
|
%
|
|
|
3.92
|
%
|
F-36
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Postretirement Benefits
|
|
|
|
Year Ended December 31,
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Weighted-average assumptions used to determine net cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US plans
|
|
|
5.88
|
%
|
|
|
5.63
|
%
|
|
|
5.88
|
%
|
|
|
5.88
|
%
|
|
|
5.63
|
%
|
|
|
5.88
|
%
|
International plans
|
|
|
4.70
|
%
|
|
|
4.54
|
%
|
|
|
5.50
|
%
|
|
|
4.80
|
%
|
|
|
4.97
|
%
|
|
|
5.68
|
%
|
Combined
|
|
|
5.68
|
%
|
|
|
5.46
|
%
|
|
|
5.85
|
%
|
|
|
5.79
|
%
|
|
|
5.57
|
%
|
|
|
5.86
|
%
|
Expected return on plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US plans
|
|
|
8.50
|
%
|
|
|
8.50
|
%
|
|
|
8.50
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
International plans
|
|
|
6.59
|
%
|
|
|
6.30
|
%
|
|
|
6.25
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Combined
|
|
|
8.20
|
%
|
|
|
8.17
|
%
|
|
|
8.19
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Rate of compensation increase:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US plans
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
International plans
|
|
|
3.18
|
%
|
|
|
3.26
|
%
|
|
|
3.25
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Combined
|
|
|
3.73
|
%
|
|
|
3.81
|
%
|
|
|
3.80
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
The expected rate of return assumptions for plan assets are
based mainly on historical performance achieved over a long
period of time (15 to 20 years) encompassing many business
and economic cycles. Adjustments, upward and downward, may be
made to those historical returns to reflect future capital
market expectations; these expectations are typically derived
from expert advice from the investment community and surveys of
peer company assumptions.
The Company determines its assumption for the discount rates to
be used for the purposes of computing annual service and
interest costs for its US plans based on the yields of high
quality corporate/government bonds with a duration appropriate
to the duration of the plan obligations.
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, 2007, the Companys health care cost
trend assumption for US postretirement medical plans net
periodic benefit cost was 8.5% for the first two years grading
down 1% per year to an ultimate rate of 5%. On January 1,
2006, the health care cost trend rate was 9% per year grading
down 1% 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 $(3) 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.
Impact
of Remeasurement
As a result of the sale of the oxo products and derivatives
businesses in February 2007 (see Note 5), there was a
reduction of approximately 1,076 employees triggering a
settlement and remeasurement of the affected pension plans due
to certain changes in actuarial valuation assumptions. The
settlement and remeasurement resulted in a net increase in the
projected benefit obligation of $44 million with an offset
to Accumulated other comprehensive income (loss), net (net of
tax of $1 million) and a settlement gain of
$11 million (included in Gain on disposal of discontinued
operations) for the pension plan during the year ended
December 31, 2007.
F-37
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During the second quarter of 2007, the Company finalized the
shutdown of its Edmonton, Canada methanol operations. This
resulted in the reduction of approximately 175 employees
triggering a final settlement gain of less than $1 million
during the year ended December 31, 2007. The settlement and
remeasurement resulted in a net decrease in the projected
benefit obligation of approximately $3 million. The final
cash payout due was approximately CDN $30 million
($29 million) and was paid during the third quarter of 2007.
Plan
Assets
The following tables set forth the target asset allocation for
the Companys pension plans and the asset allocation as of
December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
Percentage of
|
|
|
|
Target
|
|
|
Plan Assets as of
|
|
|
|
Allocation
|
|
|
December 31,
|
|
Asset Category US
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Equity securities
|
|
|
69
|
%
|
|
|
68
|
%
|
|
|
69
|
%
|
Debt securities
|
|
|
30
|
%
|
|
|
30
|
%
|
|
|
31
|
%
|
Real estate and other
|
|
|
1
|
%
|
|
|
2
|
%
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
Percentage of
|
|
|
|
Target
|
|
|
Plan Assets as of
|
|
|
|
Allocation
|
|
|
December 31,
|
|
Asset Category International
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Equity securities
|
|
|
23
|
%
|
|
|
39
|
%
|
|
|
50
|
%
|
Debt securities
|
|
|
71
|
%
|
|
|
48
|
%
|
|
|
49
|
%
|
Real estate and other
|
|
|
6
|
%
|
|
|
13
|
%
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The financial objectives of the qualified pension plans are
established in conjunction with a comprehensive review of each
plans liability structure. The Companys asset
allocation policy is based on a detailed asset/liability
analysis. In developing investment policy and financial goals,
consideration is given to the plans demographics, the
returns and risks associated with alternative investment
strategies, and the current and projected cash, expense and
funding ratios of the plan. The investment policy must also
comply with local statutory requirements as determined by each
country. A formal asset/liability mix study of the 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. 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, investment managers, developed
and emerging markets, business sectors 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 the pension
assets. An investment consultant assists 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
plans target asset allocation. Long-term is considered 3
to 5 years; however, incidences of underperformance are
analyzed. The portfolio return
F-38
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
should also (over the long term) meet or exceed the return used
for actuarial calculations in order to minimize future pension
contributions and escalation in pension expense.
Employer contributions for pension benefits and postretirement
benefits are expected to be $40 million and
$34 million, respectively, in 2008. The table below
reflects pension benefits expected to be paid from the plan or
from the Companys assets. The postretirement benefits
represent the Companys share of the benefit cost.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
|
|
|
Benefit
|
|
|
|
Pension
|
|
|
|
|
|
Expected
|
|
|
|
Benefit
|
|
|
|
|
|
Federal
|
|
|
|
Payments(1)
|
|
|
Payments
|
|
|
Subsidy
|
|
|
|
(In $ millions)
|
|
|
2008
|
|
|
214
|
|
|
|
34
|
|
|
|
7
|
|
2009
|
|
|
210
|
|
|
|
31
|
|
|
|
6
|
|
2010
|
|
|
208
|
|
|
|
28
|
|
|
|
7
|
|
2011
|
|
|
212
|
|
|
|
25
|
|
|
|
7
|
|
2012
|
|
|
211
|
|
|
|
23
|
|
|
|
8
|
|
2013-2017
|
|
|
1,112
|
|
|
|
121
|
|
|
|
8
|
|
|
|
|
(1) |
|
Payments are expected to be made primarily from plan assets. |
Other
Obligations
The following table represents additional benefit liabilities
and other similar obligations:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In $ millions)
|
|
|
Long-term disability
|
|
|
36
|
|
|
|
40
|
|
Other
|
|
|
13
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
49
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
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.
For the years ended December 31, 2007, 2006 and 2005, the
Companys expenditures, including expenditures for legal
compliance, internal environmental initiatives and remediation
of active, orphan, divested and US Superfund sites (as defined
below) were $83 million, $71 million and
$84 million, respectively. The Companys capital
project related environmental expenditures for the years ended
December 31, 2007, 2006 and 2005 were $14 million,
$5 million and $8 million, respectively. Environmental
reserves for remediation matters were $115 million and
$114 million as of December 31, 2007 and 2006,
respectively, which represents the Companys best estimate
of its liability.
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, orphan or US
F-39
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Superfund sites. In addition, as part of the demerger agreement
between the Company and Hoechst, a specified portion of the
responsibility for environmental liabilities from a number of
Hoechst divestitures was transferred to the Company. The Company
provides for such obligations when the event of loss is probable
and reasonably estimable.
For the years ended December 31, 2007, 2006 and 2005, the
total remediation efforts charged to cost of sales were
$4 million, $6 million and $4 million,
respectively. 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. There are no receivables
for insurance recoveries as of December 31, 2007 and 2006,
however, as of December 31, 2007, there is a
$13 million receivable from a former owner of an acquired
business.
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 has manufacturing
operations at two InfraServ locations in Germany: Frankfurt am
Main-Hoechst and Kelsterbach, 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 affiliates which are not
consolidated by the Company, have reserves of $88 million
and $78 million as of December 31, 2007 and 2006,
respectively.
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.
F-40
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys 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, 2007:
|
|
|
|
|
|
|
|
|
Company
|
|
Ownership %
|
|
|
Liability %
|
|
|
InfraServ GmbH & Co. Gendorf KG
|
|
|
39.0
|
%
|
|
|
10.0
|
%
|
InfraServ GmbH & Co. Knapsack KG
|
|
|
28.2
|
%
|
|
|
22.0
|
%
|
InfraServ GmbH & Co. Kelsterbach KG
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
InfraServ GmbH & Co. Höchst KG
|
|
|
31.2
|
%
|
|
|
40.0
|
%
|
InfraServ GmbH & Co. Wiesbaden KG
|
|
|
7.9
|
%
|
|
|
0.0
|
%
|
InfraServ Verwaltungs GmbH
|
|
|
100.0
|
%
|
|
|
0.0
|
%
|
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 50 sites. At most of these sites, numerous
companies, including certain companies comprising 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
determine accurately its ultimate liability for investigation or
cleanup costs at these sites. As of December 31, 2007 and
2006, the Company had provisions totaling $13 million and
$15 million, respectively, for US Superfund sites and
utilized $1 million, $1 million and $2 million of
these reserves during the years ended December 31, 2007,
2006 and 2005, respectively. Additional provisions and
adjustments recorded during the years ended December 31,
2007, 2006 and 2005 approximately offset these expenditures.
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 partys 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.
Hoechst Liabilities In connection with the
Hoechst demerger, the Company agreed to indemnify Hoechst, and
its legal successors, for the first 250 million of
future remediation liabilities for environmental damages arising
from 19 specified divested Hoechst entities. As of
December 31, 2007 and 2006, reserves of $27 million
and $33 million, respectively, for these matters are
included as a component of the total environmental reserves. As
of December 31, 2007 and 2006, the Company, has made total
cumulative payments of $46 million and $44 million,
respectively. If such future liabilities exceed
250 million, Hoechst, and its legal successors, will
bear such excess up to an additional 500 million.
Thereafter, the Company will bear one-third and Hoechst, and its
legal successors, will bear two-thirds of any further
environmental remediation liabilities. Where the Company is
unable to reasonably determine the probability of loss or
estimate such loss under this indemnification, the Company has
not recognized any liabilities relative to this indemnification.
F-41
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Preferred
Stock
The Company has $240 million aggregate liquidation
preference of outstanding preferred stock. Holders of the
preferred stock are entitled to receive, when, as and if,
declared by the Companys Board of Directors, out of funds
legally available, cash dividends at the rate of 4.25% per annum
of liquidation preference, payable quarterly in arrears,
commencing on May 1, 2005. Dividends on the preferred stock
are cumulative from the date of initial issuance. Accumulated
but unpaid dividends accumulate at an annual rate of 4.25%. The
preferred stock is convertible, at the option of the holder, at
any time into approximately 1.25 shares of Series A
common stock, subject to adjustments, per $25.00 liquidation
preference of preferred stock and upon conversion will be
recorded in Shareholders equity.
During 2007 and 2006, the Company declared and paid
$10 million of cash dividends in each period on its 4.25%
convertible perpetual preferred stock.
Initial
Public Offering
In January 2005, the Company completed an initial public
offering of 50,000,000 shares of Series A common stock
and received net proceeds of $752 million after deducting
underwriters discounts and offering expenses of
$48 million. Concurrently, the Company received net
proceeds of $233 million from the offering of its
convertible perpetual preferred stock.
On March 9, 2005, the Company issued a 7,500,000
Series A common stock dividend to the Original Shareholders
(see Note 18) of its Series B common stock.
On April 7, 2005, the Company used the remaining proceeds
of the initial public offering and concurrent financings to pay
a special cash dividend declared on March 8, 2005 to
holders of the Companys Series B common stock of
$804 million. Upon payment of the $804 million
dividend, all of the outstanding shares of Series B common
stock converted automatically to shares of Series A common
stock.
Original
Shareholders Sale of Series A Common Stock
On May 9, 2006, the Company registered shares of its
Series A common stock, shares of its preferred stock and
depository shares pursuant to the Companys universal shelf
registration statement on
Form S-3
filed with the Securities and Exchange Commission
(SEC) on May 9, 2006. On May 9, 2006, the
Original Shareholders sold 35,000,000 shares of
Series A common stock through a public secondary offering
and granted to the underwriter an over-allotment option to
purchase up to an additional 5,250,000 shares of the
Companys Series A common stock. The underwriter did
not exercise the over-allotment option. The Company did not
receive any of the proceeds from the offering. The transaction
closed on May 15, 2006. The Company incurred and expensed
approximately $2 million of fees related to this
transaction.
On November 7, 2006, the Original Shareholders sold an
additional 30,000,000 shares of Series A common stock
in a registered public secondary offering pursuant to the
universal shelf registration statement on
Form S-3
filed with the SEC on May 9, 2006. The Company did not
receive any of the proceeds from the offering. The Company
incurred and expensed less than $1 million of fees related
to this transaction.
On May 14, 2007, the Original Shareholders sold their
remaining 22,106,597 shares of Series A common stock
in a registered public secondary offering pursuant to the
universal shelf registration statement on
Form S-3
filed with the SEC on May 9, 2006. The Company did not
receive any of the proceeds from the offering. The Company
incurred and expensed less than $1 million of fees related
to this transaction. As of December 31, 2007, the Original
Shareholders have no remaining ownership interest in the Company.
F-42
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Additional
Paid-in Capital
In connection with the demerger and pursuant to the Demerger
Agreement executed and delivered by the Company and Hoechst, the
Company assumed certain of Hoechsts businesses as well as
certain contractual rights, including indemnifications. For the
years ended December 31, 2007, 2006 and 2005, the Company
recorded $4 million, $3 million and $5 million,
respectively, increases in Additional paid-in capital related to
recoveries due from Hoechst, and its legal successors, for the
antitrust matters in the sorbates industry (see Note 24).
Dividends
During 2005, the Companys Board of Directors adopted a
policy of declaring, subject to legally available funds, a
quarterly cash dividend on each share of the Companys
Series A common stock at an annual rate of $0.16 per share
unless the Companys Board of Directors, in its sole
discretion, determines otherwise. Further, such dividends
payable to holders of the Companys 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 Companys
preferred stock, as described above.
During 2007 and 2006, the Company declared and paid
$25 million and $26 million, respectively, of cash
dividends to holders of its Series A common shares.
On March 8, 2005, the Company declared a special cash
dividend to holders of the Companys Series B common
stock of $804 million, which was paid on April 7,
2005. Upon payment of the $804 million dividend, all of the
outstanding shares of Series B common stock converted
automatically to shares of Series A common stock.
Treasury
Stock
In conjunction with the April 2007 debt refinancing discussed in
Note 15, the Company, through its wholly-owned subsidiary
CIH, repurchased 2,021,775 shares of its outstanding
Series A common stock in a modified Dutch
Auction tender offer from public shareholders, which
expired on April 3, 2007, at a purchase price of $30.50 per
share. The total price paid for these shares was approximately
$62 million. The number of shares purchased in the tender
offer represented approximately 1.3% of the Companys
outstanding Series A common stock at that time. The Company
also separately purchased, through its wholly-owned subsidiary
CIH, 329,011 shares of the Companys Series A
common stock at $30.50 per share from the investment funds
associated with The Blackstone Group L.P. The total price paid
for these shares was approximately $10 million. The number
of shares purchased from Blackstone represented approximately
0.2% of the Companys outstanding Series A common
stock at that time.
Additionally, on June 4, 2007, the Companys Board of
Directors authorized the repurchase of up to $330 million
of its Series A common stock. During 2007, the Company
repurchased 8,487,700 shares of its Series A common
stock at an average purchase price of $38.88 per share for a
total of approximately $330 million pursuant to this
authorization. The Company completed repurchasing shares related
to this authorization during July 2007.
These purchases reduced the number of shares outstanding and the
repurchased shares may be used by the Company for compensation
programs utilizing the Companys 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 statement 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 gains/losses on marketable
F-43
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
securities, foreign currency translation, certain pension and
postretirement benefit obligations and unrealized gains/losses
on derivative contracts.
The after-tax components of Accumulated other comprehensive
income (loss), net are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Other
|
|
|
|
Gain (Loss) on
|
|
|
Foreign
|
|
|
Pension and
|
|
|
Gain/(Loss)
|
|
|
Comprehensive
|
|
|
|
Marketable
|
|
|
Currency
|
|
|
Postretirement
|
|
|
on Derivative
|
|
|
Income
|
|
|
|
Securities
|
|
|
Translation
|
|
|
Benefits
|
|
|
Contracts
|
|
|
(Loss), Net
|
|
|
|
(In $ millions)
|
|
|
Balance as of December 31, 2004
|
|
|
(7
|
)
|
|
|
7
|
|
|
|
(19
|
)
|
|
|
2
|
|
|
|
(17
|
)
|
Current-period change
|
|
|
3
|
|
|
|
5
|
|
|
|
(117
|
)
|
|
|
|
|
|
|
(109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2005
|
|
|
(4
|
)
|
|
|
12
|
|
|
|
(136
|
)
|
|
|
2
|
|
|
|
(126
|
)
|
Current-period change
|
|
|
13
|
|
|
|
5
|
|
|
|
137
|
|
|
|
2
|
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2006
|
|
|
9
|
|
|
|
17
|
|
|
|
1
|
|
|
|
4
|
|
|
|
31
|
|
Current-period change
|
|
|
17
|
|
|
|
70
|
|
|
|
120
|
|
|
|
(41
|
)
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
|
26
|
|
|
|
87
|
|
|
|
121
|
|
|
|
(37
|
)
|
|
|
197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19.
|
Other
(Charges) Gains, Net
|
Other (charges) gains, net includes provisions for restructuring
and other expenses and income incurred outside the normal course
of operations. Restructuring provisions represent costs related
to severance and other benefit programs related to major
activities undertaken to fundamentally redesign the business
operations, as well as costs incurred in connection with
decisions to exit non-strategic businesses. These measures are
based on formal management decisions, establishment of
agreements with employees representatives or individual
agreements with affected employees, as well as the public
announcement of the restructuring plan. The related reserves
reflect certain estimates, including those pertaining to
separation costs, settlements of contractual obligations and
other closure costs. The Company reassesses the reserve
requirements to complete each individual plan under existing
restructuring programs at the end of each reporting period.
Actual experience may be different from these estimates.
The components of Other (charges) gains, net for the years ended
December 31, 2007, 2006 and 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In $ millions)
|
|
|
Employee termination benefits
|
|
|
(32
|
)
|
|
|
(12
|
)
|
|
|
(18
|
)
|
Plant/office closures
|
|
|
(11
|
)
|
|
|
1
|
|
|
|
(4
|
)
|
Environmental related plant closures
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
Deferred compensation triggered by Exit Event (see Note 21)
|
|
|
(74
|
)
|
|
|
|
|
|
|
|
|
Insurance recoveries associated with plumbing cases
|
|
|
4
|
|
|
|
5
|
|
|
|
34
|
|
Insurance recoveries associated with Clear Lake, Texas (see
Note 30)
|
|
|
40
|
|
|
|
|
|
|
|
|
|
Resolution of commercial disputes with a vendor (see
Note 24)
|
|
|
31
|
|
|
|
|
|
|
|
|
|
Asset impairments
|
|
|
(9
|
)(1)
|
|
|
|
|
|
|
(25
|
)
|
Ticona Kelsterbach plant relocation (see Note 29)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
(2
|
)
|
|
|
(4
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other (charges) gains, net
|
|
|
(58
|
)
|
|
|
(10
|
)
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included in this amount is $6 million of goodwill
impairment (see Note 11). |
F-44
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2007
Other (charges) gains, net for employee termination benefits and
plant/office closures include charges related to the
Companys plan to simplify and optimize its Emulsions and
PVOH businesses to become a leader in technology and innovation
and grow in both new and existing markets. Other (charges)
gains, net for employee termination benefits and plant/office
closures as also includes charges related to the sale of the
Companys Pampa, Texas, facility. In addition, the Company
recorded an impairment of long-lived assets of approximately
$3 million during the year ended December 31, 2007.
2006
Other (charges) gains, net includes charges related to severance
associated with the relocation of corporate offices of
$4 million, severance payments in connection with the
lockout settlement at the Meredosia plant of $5 million and
severance and relocation expenses related to restructuring at AT
Plastics of $4 million.
These charges were offset by $5 million of income related
to insurance recoveries associated with plumbing cases.
2005
In connection with the completion of the initial public offering
in January 2005, the parties amended and restated the
transaction and monitoring fee agreement to terminate the
monitoring services and all obligations to pay future monitoring
fees and paid the Advisor $35 million, which is included in
Other (charges) gains, net in the table above. In addition, the
Company also paid $10 million to the Advisor for the 2005
monitoring fee, which is included in Selling, general and
administrative expenses on the consolidated statement of
operations (see Note 27).
Asset impairments in 2005 primarily relate to the Companys
decision to divest its COC business (see Note 5).
Other (charges) gains, net also includes charges related to a
change in environmental remediation strategy related to the
closure of the Edmonton methanol plant, as well as severance
primarily associated with the same closure of $8 million
and severance related to the relocation of corporate offices of
$10 million.
These charges were offset by $34 million of income related
to insurance recoveries associated with plumbing cases.
The changes in the restructuring reserves from December 31,
2005 through December 31, 2007 are as follows:
|
|
|
|
|
|
|
(In $ millions)
|
|
|
Restructuring reserve as of December 31, 2005
|
|
|
65
|
|
Restructuring additions
|
|
|
17
|
|
Cash payments
|
|
|
(43
|
)
|
Currency translation adjustment
|
|
|
2
|
|
Other
|
|
|
(6
|
)
|
|
|
|
|
|
Restructuring reserve as of December 31, 2006
|
|
|
35
|
|
Restructuring
additions(1)
|
|
|
46
|
|
Cash payments
|
|
|
(40
|
)
|
Currency translation adjustment
|
|
|
4
|
|
|
|
|
|
|
Restructuring reserve as of December 31, 2007
|
|
|
45
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included in this amount is $33 million of employee
termination benefits, of which $14 million relates to the
Emulsions and PVOH restructuring discussed above. Also included
in this amount is $13 million of reserves recorded in
conjunction with the closure of the Little Heath, United Kingdom
production plant acquired in the APL acquisition. |
F-45
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Included in the above restructuring reserve of $45 million
and $35 million as of December 31, 2007 and 2006,
respectively, are $5 million and $1 million,
respectively, of reserves included in long-term Other
liabilities.
Income from continuing operations before income taxes and
minority interest by jurisdiction is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In $ millions)
|
|
|
US
|
|
|
(111
|
)
|
|
|
116
|
|
|
|
(99
|
)
|
Foreign
|
|
|
558
|
|
|
|
410
|
|
|
|
375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
447
|
|
|
|
526
|
|
|
|
276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The income tax provision consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In $ millions)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
US
|
|
|
(9
|
)
|
|
|
38
|
|
|
|
(2
|
)
|
Foreign
|
|
|
163
|
|
|
|
29
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
154
|
|
|
|
67
|
|
|
|
63
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
US
|
|
|
17
|
|
|
|
80
|
|
|
|
7
|
|
Foreign
|
|
|
(61
|
)
|
|
|
56
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(44
|
)
|
|
|
136
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
|
110
|
|
|
|
203
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-46
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 were as follows:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In $ millions)
|
|
|
Pension and postretirement obligations
|
|
|
229
|
|
|
|
331
|
|
Accrued expenses
|
|
|
92
|
|
|
|
95
|
|
Inventory
|
|
|
2
|
|
|
|
8
|
|
Net operating loss and tax credit carryforwards
|
|
|
214
|
|
|
|
270
|
|
Other
|
|
|
33
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
570
|
|
|
|
714
|
|
Valuation
allowance(1)
|
|
|
(311
|
)
|
|
|
(460
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
259
|
|
|
|
254
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
384
|
|
|
|
436
|
|
Investments
|
|
|
26
|
|
|
|
26
|
|
Interest
|
|
|
7
|
|
|
|
(34
|
)
|
Other
|
|
|
57
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
474
|
|
|
|
471
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets (liabilities)
|
|
|
(215
|
)
|
|
|
(217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes deferred tax asset valuation allowances primarily for
the Companys deferred tax assets in the US, Germany and
certain Canadian entities, as well as other foreign
jurisdictions. These valuation allowances relate to net
operating loss carryforward benefits and other net deferred tax
assets, all of which may not be realizable. |
For the year ended December 31, 2007, the valuation
allowance had a net decrease of $149 million primarily
related to a decrease of $20 million allocated to
Accumulated other comprehensive income, net; a decrease of
$47 million related to new legislation in Mexico as
discussed below and a decrease of $62 million related to
the US pre-acquisition deferred tax assets and net
operating losses.
F-47
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In $ millions)
|
|
|
Income tax provision computed at US federal statutory tax rate
|
|
|
156
|
|
|
|
184
|
|
|
|
97
|
|
Increase (decrease) in taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
9
|
|
|
|
4
|
|
|
|
(8
|
)
|
Equity income and dividends
|
|
|
8
|
|
|
|
5
|
|
|
|
12
|
|
Expenses not resulting in tax benefits
|
|
|
19
|
|
|
|
15
|
|
|
|
10
|
|
US tax effect of foreign earnings and dividends
|
|
|
27
|
|
|
|
28
|
|
|
|
12
|
|
Other foreign tax rate
differentials(1)
|
|
|
(98
|
)
|
|
|
(59
|
)
|
|
|
(107
|
)
|
Legislative changes
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
State income taxes and other
|
|
|
10
|
|
|
|
26
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
|
110
|
|
|
|
203
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes impact of earnings from China and Singapore subject to
tax holidays which expire between 2008 and 2013. |
Federal and state income taxes have not been provided on
accumulated but undistributed earnings of $2 billion as of
December 31, 2007, 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, 2007 was 25% compared to 39% for the
year ended December 31, 2006. The effective tax rate for
2007 was favorably impacted by (1) an increase in
unrepatriated low-taxed earnings, including tax holidays, and
(2) the tax benefit related to German Tax Reform recorded
during the year ended December 31, 2007. These benefits are
partially offset by the accounting treatment of recent tax law
changes in Mexico.
The Company operates under tax holidays in various countries
which are effective through December 2013. In China, one of the
Companys entities has a tax holiday that provides for a
zero percent tax rate in 2007 and 2008. For 2009 through 2011,
the Companys tax rate will be 50% of the statutory rate,
or 12.5% based on the 2008 statutory rate of 25%. In Singapore,
one of the Companys entities has a tax holiday that
provides for a zero percent tax rate through 2010. For 2011
through 2013, the Companys tax rate will be 50% of the
statutory rate, or 9% based on the current statutory rate of
18%. The impact of these tax holidays decreased foreign taxes
$42 million for the year ended December 31, 2007.
The Corporate Tax Reform Act of 2008 was signed by the German
Federal President in August 2007. The Act reduced the
Companys combined corporate statutory tax rate from 40% to
30% while imposing limitations on the deductibility of certain
expenses, including interest expense. The Company recognized a
tax benefit of approximately $39 million related to the
statutory rate reduction on its German net deferred tax
liabilities.
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 unlike the
previous asset tax, the IETU is not creditable against future
income tax liabilities. The Company has
F-48
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
determined that it will primarily be subject to the IETU in
future periods, and as such it has recorded tax expense of
approximately $20 million in 2007 for the deferred tax
effects of the new IETU system.
As of December 31, 2007, the Company had US federal net
operating loss carryforwards of approximately $206 million
which will begin to expire in 2023. Of this amount,
$47 million relates to the pre-acquisition period and is
subject to limitation. The remaining $159 million is
subject to limitation as a result of the change in stock
ownership in May 2006. This limitation is not expected to have a
material impact on utilization of the net operating loss
carryforwards.
The Company also had foreign net operating loss carryforwards as
of December 31, 2007 of approximately $564 million for
Canada, Germany, Mexico and other foreign jurisdictions with
various expiration dates. Net operating losses in Canada have
various carryforward periods and began expiring in 2007. Net
operating losses in Germany have no expiration date. Net
operating losses in Mexico have a ten year carryforward period
and begin 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 balance sheet as of December 31, 2007 for
these income tax loss carryforwards.
The Company adopted the provisions of FIN 48 effective
January 1, 2007. FIN 48 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. FIN 48 also provides guidance on
derecognition, measurement, classification, interest and
penalties, accounting in interim periods, disclosure and
transition. As a result of the implementation of FIN 48,
the Company increased Retained earnings by $14 million and
decreased Goodwill by $2 million. In addition, certain tax
liabilities for unrecognized tax benefits, as well as related
potential penalties and interest, were reclassified from current
liabilities to long-term liabilities. Liabilities for
unrecognized tax benefits as of December 31, 2007 relate to
various US and foreign jurisdictions.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31, 2007
|
|
|
|
(In $ millions)
|
|
|
Balance as of January 1, 2007
|
|
|
193
|
|
Increases in tax positions for the current year
|
|
|
2
|
|
Increases in tax positions for prior years
|
|
|
28
|
|
Decreases in tax positions of prior years
|
|
|
(21
|
)
|
Settlements
|
|
|
(2
|
)
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
|
200
|
|
|
|
|
|
|
Included in the unrecognized tax benefits of $200 million
as of December 31, 2007 is $56 million of tax benefits
that, if recognized, would reduce the Companys effective
tax rate.
The Company recognizes interest and penalties related to
unrecognized tax benefits in the provision for income taxes. As
of December 31, 2007, the Company has recorded a liability
of approximately $36 million for interest and penalties.
This amount includes an increase of approximately
$13 million for the year ended December 31, 2007.
The Company operates in the United States (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. During the quarter ended March 31,
2007, the Company received final assessments in Germany for the
prior examination period, 1997 to 2000. The effective settlement
of those examinations resulted in a reduction to Goodwill of
approximately $42 million with a net expected cash outlay
of $29 million. The Companys
F-49
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
US federal income tax returns for 2003 and beyond are open tax
years not currently under examination. Unrecognized tax benefits
are not expected to change significantly over the next
12 months.
The tax expense (benefit) amounts allocated to other
comprehensive income (loss), net, was $10 million,
$11 million and $(21) million for the years ended
December 31, 2007, 2006 and 2005 respectively. Of these
amounts, $10 million, $11 million and
$(19) million were attributable to the pension and
postretirement benefits component of other comprehensive income
(loss), net. For the year ended December 31, 2005, the
remaining $(2) million tax benefit was attributable to the
unrealized gain (loss) on derivative contracts component of
other comprehensive income (loss), net. The income tax (benefit)
expense associated with Accumulated other comprehensive income
(loss), net is dependent upon the tax jurisdiction in which the
items arise and accordingly could result in an effective tax
rate that is different from the overall consolidated effective
income tax rate on the consolidated statement of operations.
|
|
21.
|
Stock-Based
and Other Management Compensation Plans
|
In December 2004, the Company approved a stock incentive plan
for executive officers, key employees and directors, a deferred
compensation plan for executive officers and key employees as
well as other management incentive programs.
The stock incentive plan allows for the issuance or delivery of
up to 16,250,000 shares of the Companys Series A
common stock through the award of stock options, restricted
stock units (RSUs) and other
stock-based
awards as may be approved by the Companys Compensation
Committee of the Board of Directors.
Deferred
compensation
The 2004 deferred compensation plan provides an aggregate
maximum amount payable of $196 million. The initial
component of the deferred compensation plan vested in 2004 and
was paid in the first quarter of 2005. The amount payable under
the deferred compensation plan is subject to downward adjustment
if the price of the Companys Series A common stock
falls below the initial public offering price of $16 per share
and vests subject to both (1) continued employment or the
achievement of certain performance criteria and (2) the
disposition by three of the four Original Shareholders of at
least 90% of their equity interest in the Company with at least
a 25% cash internal rate of return on their equity interest (an
Exit Event). In May 2007, the Original Shareholders
sold their remaining equity interest in the Company (see
Note 18) triggering an Exit Event. Cash compensation
of approximately $74 million, representing the
participants 2005 and 2006 contingent benefits, was paid
to the participants during the year ended December 31,
2007. Participants continuing in the 2004 deferred compensation
plan (see below for discussion regarding certain
participants decision to participate in a revised program)
will continue to vest in their 2007, 2008 and 2009 time-based
and performance-based entitlements as defined in the deferred
compensation plan. During the years ended December 31,
2007, 2006 and 2005, the Company recorded compensation expense
of $84 million, $19 million and $1 million,
respectively, associated with this plan. The maximum remaining
amount payable to participants who did not elect to participate
in the revised program as of December 31, 2007 is
$13 million, of which $9 million is accrued as of
December 31, 2007.
On April 2, 2007, certain participants in the
Companys deferred compensation plan elected to participate
in a revised program, which includes both cash awards and
restricted stock units (see Restricted Stock Units below). Under
the revised program, participants relinquished their cash awards
of up to $30 million that would have contingently accrued
from
2007-2009
under the original plan. In lieu of these awards, the revised
deferred compensation program provides for a future cash award
in an amount equal to 90% of the maximum potential payout under
the original plan, plus growth pursuant to one of three
participant-selected notional investment vehicles, as defined in
the associated agreements. Participants must remain employed
through 2010 to vest in the new award. The Company will make
award payments under the revised program in the first quarter of
2011, unless participants elect to further defer the payment of
their individual awards. Based on current participation in the
F-50
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
revised program, the awards, which will be expensed between
April 2, 2007 and December 31, 2010, aggregate to
approximately $27 million plus notional earnings. The
Company expensed approximately $6 million during the year
ended December 31, 2007 related to the revised program.
In December 2007, the Company adopted a deferred compensation
plan whereby certain of the Companys 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 were required to make deferral
elections under the plan in December 2007, and such deferrals
will be withheld from their compensation during the year ending
December 31, 2008. This plan became effective on
January 1, 2008.
Long-term
incentive plan
Effective January 1, 2004, the Company adopted a long-term
incentive plan (the LTIP Plan) which covers certain
members of management and other key employees of the Company.
The LTIP Plan is a three-year cash based plan in which awards
are based on annual and three-year cumulative targets (as
defined in the LTIP Plan). On February 16, 2007,
approximately $26 million was paid to the LTIP plan
participants. During the years ended December 31, 2006 and
2005, the Company recorded expense of $19 million and
$5 million, respectively, related to the LTIP Plan. There
are no additional amounts due under the LTIP Plan.
Stock-based
compensation
The Company has a stock-based compensation plan that makes
awards of stock options to certain employees. Prior to
January 1, 2006, the Company accounted for awards granted
under this plan using the intrinsic value method of expense
recognition, which follows the recognition and measurement
principles of APB No. 25 and related interpretations.
Compensation cost, if any, was recorded based on the excess of
the quoted market price at grant date over the amount an
employee must pay to acquire the stock. Under the provisions of
APB No. 25, there was no compensation expense resulting
from the issuance of the stock options as the exercise price was
equivalent to the fair market value at the date of grant.
Effective January 1, 2006, the Company adopted the fair
value recognition provisions of SFAS No. 123(R). The
Company elected the modified prospective transition method as
permitted by SFAS No. 123(R) and, accordingly, prior
periods have not been restated to reflect the impact of
SFAS No. 123(R). Under this transition method,
compensation cost recognized for the years ended
December 31, 2007 and 2006 includes: (i) compensation
cost for all stock-based payments granted prior to, but not yet
vested as of, January 1, 2006 (based on the grant-date fair
value estimated in accordance with the original provisions of
SFAS No. 123 and previously presented in the pro forma
footnote disclosures), and (ii) compensation cost for all
stock-based payments granted subsequent to January 1, 2006
(based on the grant-date fair value estimated in accordance with
the new provisions of SFAS No. 123(R)).
It is the Companys current policy to grant options with an
exercise price equal to the average of the high and low price of
the Companys Series A common stock on the grant date.
The options issued have a ten-year term with vesting terms
pursuant to a schedule, with all vesting to occur no later than
the eighth anniversary of the date of the grant. Accelerated
vesting for certain awards depends on meeting specified
performance targets. The estimated value of the Companys
stock-based awards less expected forfeitures is amortized over
the awards respective vesting period on the applicable
graded or straight-line basis, subject to acceleration as
discussed above.
F-51
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair value of each option granted is estimated on the date
of grant 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,
|
|
|
|
2007
|
|
|
2006
|
|
|
Risk-free interest rate
|
|
|
4.6
|
%
|
|
|
5.0
|
%
|
Estimated life in years
|
|
|
6.8
|
|
|
|
7.2
|
|
Dividend yield
|
|
|
0.42
|
%
|
|
|
0.81
|
%
|
Volatility
|
|
|
27.5
|
%
|
|
|
31.2
|
%
|
The computation of the expected volatility assumption used in
the Black-Scholes calculations for new grants is based on
historical volatilities and volatilities of peer companies. When
establishing the expected life assumptions, the Company reviews
annual historical employee exercise behavior of option grants
with similar vesting periods and the expected life assumptions
of peer companies. The Company utilized the review of peer
companies based on its own lack of extensive history.
A summary of changes in stock options outstanding during the
year ended December 31, 2007 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
Weighted-
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Grant
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Price in
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
$
|
|
|
Term
|
|
|
Value
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
(In $ millions)
|
|
|
Outstanding at beginning of year
|
|
|
12.5
|
|
|
|
16.81
|
|
|
|
7.0
|
|
|
|
113
|
|
Granted
|
|
|
0.7
|
|
|
|
38.53
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(4.3
|
)
|
|
|
16.11
|
|
|
|
|
|
|
|
84
|
|
Forfeited
|
|
|
(0.8
|
)
|
|
|
19.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
8.1
|
|
|
|
18.72
|
|
|
|
7.5
|
|
|
|
192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of year
|
|
|
4.8
|
|
|
|
16.13
|
|
|
|
6.7
|
|
|
|
126
|
|
The weighted-average grant-date fair value of stock options
granted during the years ended December 31, 2007 and 2006
was $14.42 and $8.19, respectively, per option. As of
December 31, 2007, the Company had approximately
$19 million of total unrecognized compensation expense
related to stock options, excluding estimated forfeitures, to be
recognized over the remaining vesting periods of the options.
Cash received from stock option exercises was approximately
$69 million during the year ended December 31, 2007.
The tax benefit realized from stock option exercises was
$19 million during the year ended December 31, 2007.
Prior
Period Pro Forma Presentations
Under the modified prospective transition method, results for
prior periods have not been restated to reflect the effects of
implementing SFAS No. 123(R). The following pro forma
information, as required by SFAS No. 148,
Accounting for Stock-Based Compensation
Transition and Disclosure, an amendment of FASB Statement
No. 123, is presented for comparative purposes and
illustrates the pro forma effect on Net earnings and Earnings
F-52
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
per common share for each period presented as if the Company had
applied the fair value recognition provisions of
SFAS No. 123 to stock-based employee compensation
prior to January 1, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005
|
|
|
|
|
|
|
Basic
|
|
|
Diluted
|
|
|
|
|
|
|
Earnings
|
|
|
Earnings
|
|
|
|
Net
|
|
|
per Common
|
|
|
per Common
|
|
|
|
Earnings
|
|
|
Share
|
|
|
Share
|
|
|
|
(In $ millions, except per share information)
|
|
|
Net earnings available to common shareholders, as reported
|
|
|
267
|
|
|
|
1.73
|
|
|
|
1.67
|
|
Add: stock-based employee compensation expense included in
reported net earnings, net of the related tax effects
|
|
|
1
|
|
|
|
0.01
|
|
|
|
0.01
|
|
Less: stock-based compensation under SFAS No. 123, net
of the related tax effects
|
|
|
(9
|
)
|
|
|
(0.06
|
)
|
|
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net earnings available to common shareholders
|
|
|
259
|
|
|
|
1.68
|
|
|
|
1.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
Stock Units
Participants in the revised deferred compensation program also
received an award of RSUs. The RSUs, which were granted on
April 2, 2007, generally cliff vest on December 31,
2010 and have a fair value of $23.63 per unit. The number of
RSUs that ultimately vest depends on market performance targets
measured by comparison of the Companys stock performance
versus a defined peer group. The ultimate award will range from
zero to 263,030 RSUs, based on the market performance
measurement at the cliff vesting date. The market performance
feature is factored into the estimated fair value per unit, and
compensation expense for the award is based on the maximum RSUs
of 263,030. Dividends on RSUs are earned in accordance with the
Companys common stock dividend policy (see
Note 18) and are reinvested in additional RSUs.
In addition to the RSUs granted to participants in the revised
deferred compensation program, the Company granted RSUs to
certain employees during 2007 with a weighted average fair value
of $21.30 per unit. The RSUs generally vest annually in equal
tranches beginning September 30, 2008 through
September 30, 2011. The RSUs contain the same market
performance criteria as those described above, with an ultimate
award that will range from zero to 947,361 RSUs. The awards
include a
catch-up
provision that provides for vesting on September 30, 2012
of previously unvested amounts, subject to certain maximums.
The Company also granted 26,070 RSUs to its non-management Board
of Directors with a fair value of $32.61 per unit, which was
equal to the price of the Companys Series A common
stock on the grant date. During the second quarter of 2007, two
directors resigned from the board and forfeited a total of 5,214
RSUs. During the third quarter of 2007, the Company granted
2,126 RSUs with a fair value of $39.99 per unit to a newly
appointed member of the Board of Directors. The Director RSUs
will vest on April 26, 2008.
Fair value for the Companys RSUs (excluding Director RSUs)
was estimated at the grant date using a Monte Carlo Simulation
approach. Monte Carlo Simulation was utilized to randomly
generate future stock returns for the Company and each company
in the peer group based on company-specific dividend yields,
volatilities and stock return correlations. These returns were
used to calculate future RSU vesting percentages and the
simulated values of the vested RSUs were then discounted to
present value using a risk-free rate, yielding the expected
value of these RSUs.
F-53
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The range of assumptions used in the Monte Carlo Simulation
approach are outlined in the following table:
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
Risk-free interest rate
|
|
|
4.53 4.55
|
%
|
Dividend yield
|
|
|
0.00 2.76
|
%
|
Volatility
|
|
|
20.0 45.0
|
%
|
A summary of changes in RSUs (excluding Director RSUs)
outstanding during the year ended December 31, 2007 is
presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
|
Units
|
|
|
Fair Value
|
|
|
Nonvested at beginning of year
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,210,391
|
|
|
|
21.81
|
|
Forfeited
|
|
|
(91,435
|
)
|
|
|
21.34
|
|
|
|
|
|
|
|
|
|
|
Nonvested at end of year
|
|
|
1,118,956
|
|
|
|
21.84
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007, there was approximately
$22 million of unrecognized compensation cost related to
RSUs, excluding estimated forfeitures, which will be amortized
on a straight-line basis over the remaining vesting periods as
discussed above.
Total rent expense charged to operations under all operating
leases was $122 million, $109 million and
$93 million for the years ended December 31, 2007,
2006 and 2005, respectively. 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,
2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Operating
|
|
|
|
(In $ millions)
|
|
|
2008
|
|
|
19
|
|
|
|
64
|
|
2009
|
|
|
19
|
|
|
|
49
|
|
2010
|
|
|
19
|
|
|
|
36
|
|
2011
|
|
|
19
|
|
|
|
36
|
|
2012
|
|
|
18
|
|
|
|
26
|
|
Later years
|
|
|
159
|
|
|
|
92
|
|
Sublease income
|
|
|
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
Minimum lease commitments
|
|
|
253
|
|
|
|
263
|
|
|
|
|
|
|
|
|
|
|
Less amounts representing interest
|
|
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum lease obligations
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company expects that, in the normal course of business,
leases that expire will be renewed or replaced by other leases.
F-54
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
23.
|
Financial
Instruments
|
Interest
Rate Risk Management
To reduce the interest rate risk inherent in the Companys
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 in 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 in Accumulated other
comprehensive income (loss), net are recognized into earnings
immediately.
As of December 31, 2006, the Company had an interest rate
swap agreement in place with a notional value of
$300 million. On March 29, 2007, in connection with
the April 2, 2007 debt refinancing, the Company terminated
this interest rate swap agreement and recognized a gain of
$2 million related to amounts previously recorded in
Accumulated other comprehensive income (loss), net.
In March 2007, in anticipation of the April 2, 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. These swaps remained
outstanding as of December 31, 2007. Effective
January 2, 2008, the notional amount of the
$1.6 billion US dollar swap will decrease by
$400 million. On November 16, 2007, the Company
entered into an additional US dollar interest rate swap with a
notional amount of $400 million, which became effective on
January 2, 2008.
The Company recognized interest (expense) income from hedging
activities relating to interest rate swaps of $6 million,
$1 million and $(3) million for the years ended
December 31, 2007, 2006 and 2005, respectively. The Company
recorded a net loss of less than $1 million in Other income
(expense), net for the ineffective portion of the interest rate
swap agreements for the year ended December 31, 2007. The
Company recorded a net loss of less than $1 million in
Other income (expense), net for the ineffective portion of the
interest rate swap agreements for each of the years ended
December 31, 2006 and 2005. Of the unrealized gains and
losses recorded in Accumulated other comprehensive income
(loss), net, a net gain of less than $1 million is expected
to be reclassified into net income in 2008. However, if the
three month US dollar LIBOR or 3 month EURIBOR declines in
2008, the Company would expect a net loss.
Foreign
Exchange Risk Management
Certain entities have receivables and payables 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. The currently outstanding foreign
currency contracts are hedging booked exposure, however the
Company may from time to time hedge its currency exposure
related to forecasted earnings.
To hedge these exposures arising from foreign currency payables
and receivables, the Company has foreign currency contracts with
notional amounts totaling approximately $1,856 million and
$713 million as of December 31, 2007 and 2006,
respectively, which are predominantly in Euro, US dollars,
British pound sterling, Japanese yen, Chinese Yuan and Canadian
dollars. The Company recognizes net foreign currency transaction
gains or losses on the underlying transactions, which are offset
by losses and gains related to foreign currency forward
contracts.
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. Under the
terms of the cross currency swap arrangements, the Company pays
approximately 13 million in interest and receives
approximately $16 million in
F-55
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
interest on June 15 and December 15 of each year. Upon maturity
of the cross currency swap agreement in June 2008, the Company
will pay approximately 276 million and receive
approximately $333 million. These cross currency swaps and
the Companys senior Euro term loan are designated as a
hedge of a net investment in 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. As a result,
the Company recorded approximately $26 million of
mark-to-market losses related to the cross currency swaps and
the new senior Euro term loan during this period.
The effective portion of the gain (loss) on the derivative
(cross currency swaps) and the foreign currency gain (loss) on
the non-derivative financial instruments is recorded in
Accumulated other comprehensive income (loss), net. For the
years ended December 31, 2007, 2006 and 2005, the amount
charged to Accumulated other comprehensive income (loss), net
was $(19) million, $(23) million and $30 million,
respectively. The gain (loss) related to items excluded from the
assessment of hedge effectiveness of the cross currency swap is
recorded in Other income (expense), net. For the years ended
December 31, 2007, 2006 and 2005, the amount charged to
Other income (expense), net was $(6) million,
$5 million and $3 million, respectively.
Commodity
Risk Management
The Company has exposure to the prices of commodities in its
procurement of certain raw materials. The Company manages its
exposure primarily through the use of long-term supply
agreements and derivative instruments. The Company regularly
assesses its practice of purchasing a portion of its commodity
requirements forward and utilization of other raw material
hedging instruments, in addition to forward purchase contracts,
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, the Company has elected to apply the
normal purchases and normal sales exception of
SFAS No. 133 as it was probable at the inception and
throughout the term of the contract that they would not settle
net and would result in physical delivery. 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. The Company recognized less than $1 million from
these types of contracts during each of the years ended
December 31, 2007, 2006, and 2005. As of December 31,
2007 and 2006, the Company did not have any open commodity
financial derivative contracts.
F-56
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Fair
Value of Financial Instruments
Summarized below are the carrying values and estimated fair
values of financial instruments as of December 31, 2007 and
2006, respectively. For these purposes, the fair value of a
financial instrument is the amount at which the instrument could
be exchanged in a current transaction between willing parties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
|
|
|
(In $ millions)
|
|
|
|
|
|
Cost investments
|
|
|
189
|
|
|
|
189
|
|
|
|
193
|
|
|
|
193
|
|
Marketable securities
|
|
|
261
|
|
|
|
261
|
|
|
|
265
|
|
|
|
265
|
|
Insurance contracts in Rabbi Trusts
|
|
|
74
|
|
|
|
74
|
|
|
|
72
|
|
|
|
72
|
|
Long-term debt
|
|
|
3,284
|
|
|
|
3,167
|
|
|
|
3,189
|
|
|
|
3,359
|
|
Cross currency swap
|
|
|
(75
|
)
|
|
|
(75
|
)
|
|
|
(37
|
)
|
|
|
(37
|
)
|
Interest rate swap
|
|
|
(37
|
)
|
|
|
(37
|
)
|
|
|
3
|
|
|
|
3
|
|
Foreign currency forward contracts,
net(1)
|
|
|
(25
|
)
|
|
|
(25
|
)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
|
(1) |
|
Amount includes a current receivable of $29 million and
$2 million as of December 31, 2007 and 2006,
respectively. |
As of December 31, 2007 and 2006, the fair values of cash
and cash equivalents, receivables, notes payable, 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. Additionally, certain long-term receivables,
principally insurance recoverables, are carried at net
realizable value (see Note 24).
Included in long-term Other assets are marketable securities
classified as available-for-sale. 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 that the carrying value approximates or is less
than the fair value.
The fair value of long-term debt and debt-related financial
instruments is based upon the valuations from third-party banks
and market quotations.
|
|
24.
|
Commitments
and Contingencies
|
The Company is involved in a number of legal proceedings,
lawsuits and claims incidental to the normal conduct of
business, relating to such matters as product liability,
antitrust, 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 believes, based on
the advice of legal counsel, that adequate provisions have been
made and that the ultimate outcomes 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.
Plumbing
Actions
CNA Holdings, Inc. (CNA Holdings), a US subsidiary
of the Company, which included the US business now conducted by
the Ticona business and which 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
F-57
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Ticonas acetal copolymer in similar applications, CNA
Holdings does not believe Ticonas acetal copolymer was
defective or caused the plumbing systems to fail. In many cases
CNA Holdings exposure may be limited by invocation of the
statute of limitations since CNA Holdings ceased selling the
resin for use in the plumbing systems in site-built homes during
1986 and in manufactured homes during 1990.
CNA Holdings has been named a defendant in ten putative class
actions, as well as a defendant in other non-class actions filed
in ten states, the US Virgin Islands and Canada. In these
actions, the plaintiffs typically have sought recovery for
alleged property damages and, in some cases, additional damages
under the Texas Deceptive Trade Practices Act or similar type
statutes. Damage amounts have not been specified.
In November 1995, CNA Holdings, DuPont and Shell entered into
national class action settlements, which have been approved by
the courts. The settlements call for the replacement of plumbing
systems of claimants who have had qualifying leaks, as well as
reimbursements for certain leak damage. Furthermore, the three
companies had agreed to fund these replacements and
reimbursements up to $950 million. As of December 31,
2007, the aggregate funding is $1,103 million due to
additional contributions and funding commitments made primarily
by other parties. There are additional pending lawsuits in
approximately ten jurisdictions, not covered by this settlement;
however, these cases do not involve (either individually or in
the aggregate) a large number of homes, and the Company does not
expect the obligations arising from these lawsuits to have a
material adverse effect on its financial position, results of
operations or cash flows.
In addition, a lawsuit filed in November 1989 in Delaware
Chancery Court, between CNA Holdings and various of its
insurance companies relating to all claims incurred and to be
incurred for the product liability exposure led to a partial
declaratory judgment in CNA Holdings favor.
CNA Holdings has accrued its best estimate of its share of the
plumbing actions. As of December 31, 2007 and 2006, the
Company has remaining accruals of $65 million and
$66 million, respectively, of which $3 million and
$4 million, respectively, is included in Other current
liabilities. The Company believes that the plumbing actions are
adequately provided for in the Companys consolidated
financial statements and that the plumbing actions will not have
a material adverse effect on its financial position. However, if
the Company were to incur an additional charge for this matter,
such a charge would not be expected to have a material adverse
effect on its financial position, but may have a material
adverse effect on the Companys results of operations or
cash flows in any given accounting period. The Company
continuously monitors this matter and assesses the adequacy of
this reserve.
The Company reached settlements with CNA Holdings insurers
specifying their responsibility for these claims. During the
year ended December 31, 2007, the Company received
$23 million of insurance proceeds from various CNA
Holdings insurers as full satisfaction for their
responsibility for these claims.
Plumbing
Insurance Indemnifications
CAG entered into agreements with insurance companies related to
product liability settlements associated with
Celcon®
plumbing claims. These agreements, except those with insolvent
insurance companies, 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, CAG 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 these indemnifications is $95 million. Other
settlement agreements have no stated limits.
There are other agreements whereby the settling insurer agreed
to pay a fixed percentage of claims that relate to that
insurers policies. The Company has provided
indemnifications to the insurers for amounts paid in excess of
the settlement percentage. These indemnifications do not provide
for monetary or time limitations.
F-58
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company has reserves associated with these product liability
claims.
Sorbates
Antitrust Actions
In May 2002, the European Commission informed Hoechst of its
intent to investigate officially the sorbates industry. In early
January 2003, the European Commission served Hoechst, Nutrinova,
Inc., a US subsidiary of Nutrinova Nutrition
Specialties & Food Ingredients GmbH, previously a
wholly owned subsidiary of Hoechst, and a number of competitors
with a statement of objections alleging unlawful,
anticompetitive behavior affecting the European sorbates market.
In October 2003, the European Commission ruled that Hoechst,
Chisso Corporation, Daicel, The Nippon Synthetic Chemical
Industry Co. Ltd. and Ueno Fine Chemicals Industry Ltd. operated
a cartel in the European sorbates market between 1979 and 1996.
The European Commission imposed a total fine of
138 million, of which 99 million was
assessed against Hoechst, and its legal successors. The case
against Nutrinova was closed. The fine against Hoechst, and its
legal successors, is based on the European Commissions
finding that Hoechst does not qualify under the leniency policy,
is a repeat violator and, together with Daicel, was a
co-conspirator. In Hoechsts favor, the European Commission
gave a discount for cooperating in the investigation. Hoechst
appealed the European Commissions decision in December
2003, and that appeal is still pending.
In addition, several civil antitrust actions by sorbates
customers, seeking monetary damages and other relief for alleged
conduct involving the sorbates industry, have been filed in US
state and federal courts naming Hoechst, Nutrinova, and the
Companys other subsidiaries, as well as other sorbates
manufacturers, as defendants. These actions have all been either
settled or dismissed. The only other private action previously
pending, Freeman v. Daicel et al., had been
dismissed. The plaintiffs lost their appeal to the Supreme Court
of Tennessee in August 2005 and have since filed a motion for
leave.
In July 2001, Hoechst and Nutrinova entered into an agreement
with the Attorneys General of 33 states, pursuant to which
the statutes of limitations were tolled pending the states
investigations. This agreement expired in July 2003. Since
October 2002, the Attorneys General for New York, Illinois,
Ohio, Nevada, Utah and Idaho filed suit on behalf of indirect
purchasers in their respective states. The Utah, Nevada and
Idaho actions have been dismissed as to Hoechst, Nutrinova and
the Company. A motion for reconsideration is pending in Nevada.
The Ohio and Illinois actions have been settled and the Idaho
action was dismissed in February 2005. The New York action,
New York v. Daicel Chemical Industries Ltd., et al.
which was pending in the New York State Supreme Court, New
York County was dismissed in August 2005. The New York Attorney
General appealed the decision to dismiss the case, which is
currently pending.
Based on the advice of external counsel and a review of the
existing facts and circumstances relating to the sorbates
antitrust matters, including the status of government
investigations, as well as civil claims filed and settled, the
Company has remaining accruals as of December 31, 2007 of
$170 million, included in Other current liabilities. As of
December 31, 2006, the accrual was $148 million. The
change in the accrual amounts is primarily due to fluctuations
in the currency exchange rate between the US dollar and the
Euro. Although the outcome of this matter cannot be predicted
with certainty, the Companys best estimate of the range of
possible additional future losses and fines (in excess of
amounts already accrued), including any that may result from the
above noted governmental proceedings, as of December 31,
2007 is between $0 million and $9 million. The
estimated range of such possible future losses is based on the
advice of external counsel taking into consideration potential
fines and claims, both civil and criminal that may be imposed or
made in other jurisdictions.
Pursuant to the Demerger Agreement with Hoechst, CAG was
assigned the obligation related to the sorbates antitrust
matter. However, Hoechst, and its legal successors, agreed to
indemnify CAG for 80% of any costs CAG may incur relative to
this matter. Accordingly, CAG has recognized a receivable from
Hoechst and a corresponding contribution of capital, net of tax,
from this indemnification. As of December 31, 2007 and
2006, the Company has receivables, recorded within current Other
assets, relating to the sorbates indemnification from Hoechst
totaling $137 million and $118 million, respectively.
The Company believes that any resulting liabilities, net of
amounts recoverable from Hoechst, and its legal successors, will
not, in the aggregate, have a material adverse effect on its
F-59
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
financial position, but may have a material adverse effect on
the results of operations or cash flows in any given period.
Acetic
Acid Patent Infringement Matters
Celanese International Corporation v. China
Petrochemical Development Corporation Taiwan
Kaohsiung District Court. On May 9, 1999,
Celanese International Corporation filed a private criminal
action for patent infringement against China Petrochemical
Development Corporation, or CPDC, alleging that CPDC infringed
Celanese International Corporations patent covering the
manufacture of acetic acid. Celanese International Corporation
also filed a supplementary civil brief which, 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 CPDCs own data and as reported to the
Taiwanese securities and exchange commission. Celanese
International Corporations patent was held valid by the
Taiwanese patent office. On August 31, 2005 a Taiwanese
court held that CPDC infringed Celanese International
Corporations acetic acid patent and awarded Celanese
International Corporation approximately $28 million (plus
interest of $10 million) for the period of 1995 through
1999. The judgment has been appealed. The Company will not
record income associated with this favorable judgment until cash
is received. CPDC has recently filed three patent cancellation
actions seeking decisions to revoke the patents that are at
issue in the litigation. The Company believes that these actions
are without merit and intends to vigorously oppose such actions.
Shareholder
Litigation
The amounts of the fair cash compensation and of the guaranteed
annual payment offered under the Domination Agreement may be
increased in special award proceedings initiated by minority
shareholders, which may further reduce the funds the Purchaser
can otherwise make available to the Company. As of
March 30, 2005, several minority shareholders of CAG had
initiated special award proceedings seeking the courts
review of the amounts of the fair cash compensation and of the
guaranteed annual payment offered under the Domination
Agreement. As a result of these proceedings, the amount of the
fair cash consideration and the guaranteed annual payment
offered under the Domination Agreement could be increased by the
court so that all minority shareholders, including those who
have already tendered their shares into the mandatory offer and
have received the fair cash compensation could claim the
respective higher amounts. The court dismissed all of these
proceedings in March 2005 on the grounds of inadmissibility.
Thirty-three plaintiffs appealed the dismissal, and in January
2006, twenty-three of these appeals were granted by the court.
They were remanded back to the court of first instance, where
the valuation will be further reviewed. On December 12,
2006, the court of first instance appointed an expert to help
determine the value of CAG.
The Company received applications for the commencement of award
proceedings filed by 79 shareholders against the Purchaser
with the Frankfurt District Court requesting the court to set a
higher amount for the Squeeze-Out compensation. The motions are
based on various alleged shortcomings and mistakes in the
valuation of CAG done for purposes of the Squeeze-Out. On
May 11, 2007, the court of first instance appointed a
common representative for those shareholders that have not filed
an application on their own.
The shareholders resolution approving the Squeeze-Out
passed at the shareholders meeting on May 30, 2006
was challenged in June 2006 by seventeen actions to set aside
such resolution. In addition, a null and void action was served
upon CAG in November 2006. The Squeeze-Out, required
registration in the commercial register and such registration
was not possible while the lawsuits were pending. Therefore, CAG
initiated fast track release proceedings asking the court to
find that the lawsuits did not prevent registration of the
Squeeze-Out. The court of first instance granted the motion
regarding the actions to set aside the shareholders
resolution in a ruling dated October 10, 2006 that was
appealed by plaintiff shareholders. In a ruling dated
November 30, 2006, the court of first instance also granted
the motion with respect to the null and void action.
On December 22, 2006, the Purchaser and CAG signed a
settlement agreement with the plaintiff shareholders challenging
the shareholders resolution approving the Squeeze-Out
(Settlement Agreement I). Pursuant to
F-60
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Settlement Agreement I, the plaintiffs agreed to withdraw
their actions and to drop their complaints in exchange for the
Purchaser agreeing to pay the guaranteed annual payment for the
fiscal year ended on September 30, 2006 to those minority
shareholders who had not yet requested early payment of such
dividend and to pay a pro rata share of the guaranteed annual
payment for the first five months of the fiscal year ending on
September 30, 2007 to all minority shareholders. The
Purchaser further agreed to make a donation in the amount of
0.5 million to a charity, to introduce, upon request
by plaintiffs, into the award proceedings regarding the cash
compensation and the guaranteed annual payment under the
Domination Agreement the prospectus governing the
January 20, 2005, listing on the NYSE of the shares of the
Company and to accord the squeezed-out minority shareholders
preferential treatment if, within three years after
effectiveness of the Squeeze-Out, the shares of CAG were to be
listed on a stock exchange again. As a result of the effective
registration of the Squeeze-Out in the commercial register in
Germany in December 2006, the Company acquired the remaining 2%
of CAG in January 2007.
Guarantees
The Company has agreed to guarantee or indemnify third parties
for environmental and other liabilities pursuant to a variety of
agreements, including asset and business divestiture agreements,
leases, settlement agreements, and various agreements with
affiliated companies. Although many of these obligations contain
monetary
and/or time
limitations, others do not provide such limitations.
The Company has accrued for all probable and reasonably
estimable losses associated with all known matters or claims
that have been brought to its attention (see also Note 17).
These known obligations include the following:
Demerger
Obligations
The Company has obligations to indemnify Hoechst, and its legal
successors, for various liabilities under the Demerger Agreement
as follows:
|
|
|
|
|
The Company agreed to indemnify Hoechst, and its legal
successors, for environmental liabilities associated with
contamination arising under 19 divestiture agreements entered
into by Hoechst prior to the demerger.
|
The Companys obligation to indemnify Hoechst, and its
legal successors, 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, however the Company will
reimburse Hoechst, and its legal successors, for one-third of
those liabilities for amounts that exceed 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 divested agreements do not provide for monetary limits.
Based on the estimate of the probability of loss under this
indemnification, the Company had reserves of $27 million
and $33 million as of December 31, 2007 and 2006,
respectively, 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 (see Note 17).
The Company has also undertaken in the Demerger Agreement to
indemnify Hoechst, and its legal successors, to the extent that
Hoechst is required to discharge liabilities, including tax
liabilities, associated with businesses that were included in
the demerger where such liabilities 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 reserves associated with
this indemnification. The Company has not made any payments to
Hoechst, and its
F-61
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
legal successors, during the years ended December 31, 2007,
2006 and 2005, respectively, in connection with this
indemnification.
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.
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 $2.5 billion as of
December 31, 2007. Other agreements do not provide for any
monetary or time limitations.
Based on historical claims experience and its knowledge of the
sites and businesses involved, the Company believes that it is
adequately reserved for these matters. As of December 31,
2007 and 2006, the Company has reserves in the aggregate of
$27 million and $30 million, respectively, for these
matters.
Polyester
Staple Antitrust Litigation
CNA Holdings, the successor in interest to Hoechst Celanese
Corporation (HCC), Celanese Americas Corporation and
CAG (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 have been consolidated for pre-trial
discovery by a Multi-District Litigation Panel in the United
States District Court for the Western District of North Carolina
and are styled In re Polyester Staple Antitrust
Litigation, MDL 1516. Already pending in that consolidated
proceeding are five other actions commenced by five other
alleged US purchasers of polyester staple fibers manufactured
and sold by the Celanese Entities, which also allege
defendants participation in the conspiracy.
In 1998, HCC sold its polyester staple business as part of its
sale of its Film & Fibers Division to KoSa, Inc. In a
complaint now pending against the Celanese Entities and Hoechst
in the United States District Court for the Southern District of
New York, Koch Industries, Inc., KoSa B.V. (KoSa),
Arteva Specialties, S.A.R.L. (Arteva Specialties)
and Arteva Services, S.A.R.L. seek, among other things,
indemnification under the asset purchase agreement pursuant to
which KoSa and Arteva Specialties agreed to purchase
defendants polyester business for all damages related to
the defendants participation in, and failure to disclose,
the alleged conspiracy, or alternatively, rescission of the
agreement.
The Company does not believe that the Celanese Entities engaged
in any conduct that should result in liability in these actions.
However, the outcome of the foregoing actions cannot be
predicted with certainty. The Company believes that any
resulting liabilities from an adverse result will not, in the
aggregate, have a material adverse effect on the Companys
financial position, but may have a material adverse effect on
its results of operations or cash flows in any given period.
Other
Obligations
The Company is secondarily liable under a lease agreement which
the Company assigned to a third party. The lease expires on
April 30, 2012. The lease liability for the period from
January 1, 2008 to April 30, 2012 is estimated to be
approximately $34 million.
F-62
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company has agreed to indemnify various insurance carriers,
for amounts not in excess of the settlements received, from
claims made against these carriers subsequent to the settlement.
The aggregate amount of guarantees under these settlements,
which is unlimited in term, is approximately $10 million.
As indemnification obligations often depend on the occurrence of
unpredictable future events, the future costs associated with
them cannot be determined at this time. However, if the Company
were to incur additional charges for these matters, such charges
may have a material adverse effect on the financial position,
results of operations or cash flows of the Company in any given
accounting period.
Other
Matters
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 the purchase of raw
materials and utilities. As of December 31, 2007, there
were outstanding future commitments of approximately
$3,156 million under take-or-pay contracts. The Company
does not expect to incur any losses under these contractual
arrangements and historically has not incurred any material
losses related to these contracts. Additionally, as of
December 31, 2007, there were outstanding commitments
relating to capital projects of approximately $49 million.
As of December 31, 2007, Celanese Ltd. and/or CNA Holdings,
Inc., both US subsidiaries of the Company, are defendants in
approximately 626 asbestos cases. During the year ended
December 31, 2007, 92 new cases were filed against the
Company, 80 cases were resolved and 33 cases were revised after
further analysis by outside counsel. 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. The Company believes that there is not
significant exposure related to these matters.
In December 2007, the Company received a one time payment in
resolution of commercial disputes with a vendor. See
Note 19 for additional information.
During the year ended December 31, 2005, the Company
recorded a gain of $36 million from the settlement of
transportation-related antitrust matters. This amount was
recorded against Cost of sales.
|
|
25.
|
Supplemental
Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In $ millions)
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes, net of refunds
|
|
|
181
|
|
|
|
101
|
|
|
|
65
|
|
Interest, net of amounts
capitalized(1)
|
|
|
414
|
|
|
|
239
|
|
|
|
309
|
|
Noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value adjustment to securities available-for-sale, net of
tax
|
|
|
17
|
|
|
|
13
|
|
|
|
3
|
|
Capital lease obligations
|
|
|
80
|
|
|
|
5
|
|
|
|
17
|
|
Accrued capital expenditures
|
|
|
18
|
|
|
|
|
|
|
|
|
|
Asset retirement obligations
|
|
|
4
|
|
|
|
10
|
|
|
|
11
|
|
Accrued Ticona Kelsterbach plant relocation costs
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amount includes premiums paid on early redemption of debt and
related issuance costs, net of amounts capitalized, of
$217 million, $0 million and $74 million for the
years ended December 31, 2007, 2006 and 2005, respectively. |
F-63
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
26.
|
Business
and Geographical Segments
|
During 2007, the Company revised its reportable segments to
reflect a change in how the Company is managed. This change was
made to drive strategic growth and to group businesses with
similar dynamics and growth opportunities. The Company also
changed its internal transfer pricing methodology to generally
reflect market-based pricing which the Company believes will
make its results more comparable to its peer companies. The
Company has restated its reportable segments for all prior
periods presented to conform to the 2007 presentation.
The revised segments are as follows:
Advanced
Engineered Materials
This business segment develops, produces and supplies a broad
portfolio of high performance technical polymers for application
in automotive and electronics products and in other consumer and
industrial applications. The primary products of Advanced
Engineered Materials are polyacetal products (POM)
and UHMW-PE (GUR), an ultra-high molecular weight
polyethylene. POM is used in a broad range of products including
automotive components, electronics and appliances. GUR is used
in battery separators, conveyor belts, filtration equipment,
coatings and medical devices.
Consumer
Specialties
This business segment consists of the Companys Acetate
Products and Nutrinova businesses. The Acetate Products business
primarily produces and supplies acetate tow and acetate flake,
which is used in the production of filter products. The
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
This business segment includes the Emulsions, PVOH and AT
Plastics businesses. The Companys emulsions and PVOH
products are used in a wide array of applications including
paints and coatings, adhesives, building and construction, glass
fiber, textiles and paper. AT Plastics offers a complete line of
low-density polyethylene and specialty, ethylene vinyl acetate
resins and compounds. AT Plastics products are used in
many applications including flexible packaging, lamination
products, hot melt adhesive, medical tubing and automotive parts.
Acetyl
Intermediates
This business segment produces and supplies acetyl products,
including acetic acid, vinyl acetate monomer, acetic anhydride
and acetate esters. Acetic acid is a key intermediate chemical
used in the production of vinyl acetate monomer
(VAM), purified terephthalic acid and acetic
anhydride. VAM is a key intermediate chemical used in emulsions,
polyvinyl alcohol, and other acetyl derivatives. These products
are generally used as starting materials for colorants, paints,
adhesives, coatings, medicines and more. Other chemicals
produced in this segment are organic solvents and intermediates
for pharmaceutical, agricultural and chemical products.
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
captive insurance companies.
The 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 3. 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.
F-64
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Sales and revenues related to transactions between segments are
generally recorded at values that approximate third-party
selling prices. Capital expenditures represent the purchase of
property, plant and equipment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineered
|
|
|
Consumer
|
|
|
Industrial
|
|
|
Acetyl
|
|
|
Total
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Materials
|
|
|
Specialties
|
|
|
Specialties
|
|
|
Intermediates
|
|
|
Segments
|
|
|
Activities
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In $ millions)
|
|
|
As of and for the year ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
|
|
1,030
|
|
|
|
1,111
|
|
|
|
1,346
|
|
|
|
2,955
|
|
|
|
6,442
|
|
|
|
2
|
|
|
|
|
|
|
|
6,444
|
|
Inter-segment revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
660
|
|
|
|
660
|
|
|
|
|
|
|
|
(660
|
)
|
|
|
|
|
Earnings (loss) from continuing operations before tax and
minority interests
|
|
|
189
|
|
|
|
235
|
|
|
|
28
|
|
|
|
694
|
|
|
|
1,146
|
|
|
|
(699
|
)
|
|
|
|
|
|
|
447
|
|
Depreciation and Amortization
|
|
|
69
|
|
|
|
51
|
|
|
|
59
|
|
|
|
106
|
|
|
|
285
|
|
|
|
6
|
|
|
|
|
|
|
|
291
|
|
Capital
expenditures(1)
|
|
|
59
|
|
|
|
43
|
|
|
|
63
|
|
|
|
130
|
|
|
|
295
|
|
|
|
11
|
|
|
|
|
|
|
|
306
|
|
Other charges (gains), net
|
|
|
4
|
|
|
|
4
|
|
|
|
23
|
|
|
|
(72
|
)
|
|
|
(41
|
)
|
|
|
64
|
|
|
|
35
|
(2)
|
|
|
58
|
|
Goodwill and intangible assets
|
|
|
445
|
|
|
|
339
|
|
|
|
97
|
|
|
|
410
|
|
|
|
1,291
|
|
|
|
|
|
|
|
|
|
|
|
1,291
|
|
Total assets
|
|
|
1,751
|
|
|
|
1,157
|
|
|
|
995
|
|
|
|
2,530
|
|
|
|
6,433
|
|
|
|
1,625
|
|
|
|
|
|
|
|
8,058
|
|
As of and for the year ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
|
|
915
|
|
|
|
876
|
|
|
|
1,281
|
|
|
|
2,684
|
|
|
|
5,756
|
|
|
|
22
|
|
|
|
|
|
|
|
5,778
|
|
Inter-segment revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
667
|
|
|
|
667
|
|
|
|
|
|
|
|
(667
|
)
|
|
|
|
|
Earnings (loss) from continuing operations before tax and
minority interests
|
|
|
201
|
|
|
|
185
|
|
|
|
43
|
|
|
|
519
|
|
|
|
948
|
|
|
|
(422
|
)
|
|
|
|
|
|
|
526
|
|
Depreciation and Amortization
|
|
|
65
|
|
|
|
39
|
|
|
|
59
|
|
|
|
101
|
|
|
|
264
|
|
|
|
5
|
|
|
|
|
|
|
|
269
|
|
Capital expenditures
|
|
|
27
|
|
|
|
75
|
|
|
|
30
|
|
|
|
105
|
|
|
|
237
|
|
|
|
7
|
|
|
|
|
|
|
|
244
|
|
Other charges (gains), net
|
|
|
(6
|
)
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
10
|
|
Goodwill and intangible assets
|
|
|
430
|
|
|
|
322
|
|
|
|
110
|
|
|
|
476
|
|
|
|
1,338
|
|
|
|
|
|
|
|
|
|
|
|
1,338
|
|
Total assets
|
|
|
1,584
|
|
|
|
1,071
|
|
|
|
903
|
|
|
|
2,768
|
|
|
|
6,326
|
|
|
|
1,569
|
|
|
|
|
|
|
|
7,895
|
|
As of and for the year ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
|
|
887
|
|
|
|
839
|
|
|
|
1,061
|
|
|
|
2,451
|
|
|
|
5,238
|
|
|
|
32
|
|
|
|
|
|
|
|
5,270
|
|
Inter-segment revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
460
|
|
|
|
460
|
|
|
|
|
|
|
|
(460
|
)
|
|
|
|
|
Earnings (loss) from continuing operations before tax and
minority interests
|
|
|
116
|
|
|
|
127
|
|
|
|
(4
|
)
|
|
|
555
|
|
|
|
794
|
|
|
|
(518
|
)
|
|
|
|
|
|
|
276
|
|
Depreciation and Amortization
|
|
|
60
|
|
|
|
41
|
|
|
|
47
|
|
|
|
110
|
|
|
|
258
|
|
|
|
9
|
|
|
|
|
|
|
|
267
|
|
Capital expenditures
|
|
|
54
|
|
|
|
38
|
|
|
|
21
|
|
|
|
83
|
|
|
|
196
|
|
|
|
7
|
|
|
|
|
|
|
|
203
|
|
Other charges (gains), net
|
|
|
(8
|
)
|
|
|
9
|
|
|
|
7
|
|
|
|
9
|
|
|
|
17
|
|
|
|
44
|
|
|
|
|
|
|
|
61
|
|
Goodwill and intangible assets
|
|
|
466
|
|
|
|
358
|
|
|
|
125
|
|
|
|
481
|
|
|
|
1,430
|
|
|
|
|
|
|
|
|
|
|
|
1,430
|
|
Total assets
|
|
|
1,587
|
|
|
|
1,064
|
|
|
|
851
|
|
|
|
2,651
|
|
|
|
6,153
|
|
|
|
1,292
|
|
|
|
|
|
|
|
7,445
|
|
|
|
|
(1) |
|
Includes non-cash accrued capital expenditures of
$18 million (see Note 25). |
|
(2) |
|
Represents insurance recoveries received from the Companys
captive insurance companies related to the Clear Lake, Texas
facility (see Note 30) that eliminates in
consolidation. |
F-65
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Geographical
Segments
Revenues and long-term assets are presented based on the
location of the business. The following table presents financial
information based on the geographic location of the
Companys facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In $ millions)
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
1,754
|
|
|
|
1,803
|
|
|
|
1,768
|
|
Non-United
States
|
|
|
4,690
|
|
|
|
3,975
|
|
|
|
3,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6,444
|
|
|
|
5,778
|
|
|
|
5,270
|
|
Significant
Non-United
States net sales sources include:
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany
|
|
|
2,348
|
|
|
|
1,974
|
|
|
|
1,662
|
|
Singapore
|
|
|
762
|
|
|
|
771
|
|
|
|
696
|
|
Canada
|
|
|
266
|
|
|
|
279
|
|
|
|
187
|
|
Mexico
|
|
|
349
|
|
|
|
303
|
|
|
|
306
|
|
China
|
|
|
182
|
|
|
|
14
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In $ millions)
|
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
|
|
United States
|
|
|
788
|
|
|
|
861
|
|
Non-United
States
|
|
|
1,574
|
|
|
|
1,294
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,362
|
|
|
|
2,155
|
|
Significant
Non-United
States property, plant and equipment, net sources include:
|
|
|
|
|
|
|
|
|
Germany
|
|
|
493
|
|
|
|
530
|
|
Singapore
|
|
|
91
|
|
|
|
98
|
|
Canada
|
|
|
126
|
|
|
|
149
|
|
Mexico
|
|
|
133
|
|
|
|
130
|
|
China
|
|
|
383
|
|
|
|
137
|
|
F-66
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
27.
|
Transactions
and Relationships with Affiliates and Related Parties
|
The Company is a party to various transactions with affiliated
companies. Companies 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. The following
tables represent the Companys transactions with affiliates
for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In $ millions)
|
|
|
|
|
|
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases from
affiliates(1)
|
|
|
126
|
|
|
|
159
|
|
|
|
182
|
|
Sales to
affiliates(1)
|
|
|
126
|
|
|
|
290
|
|
|
|
232
|
|
Interest income from affiliates
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Interest expense to affiliates
|
|
|
7
|
|
|
|
5
|
|
|
|
3
|
|
|
|
|
(1) |
|
Purchases and sales from/to affiliates are accounted for at
prices which, in the opinion of the Company, approximate those
charged to third-party customers for similar goods or services. |
Refer to Note 9 for additional information related to
dividends received from affiliates.
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In $ millions)
|
|
|
Balance Sheets
|
|
|
|
|
|
|
|
|
Trade and other receivables from affiliates
|
|
|
15
|
|
|
|
43
|
|
Current notes receivable (including interest) from affiliates
|
|
|
15
|
|
|
|
41
|
|
Long-term notes receivable (including interest) from affiliates
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total receivables from affiliates
|
|
|
37
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities due affiliates
|
|
|
22
|
|
|
|
24
|
|
Short-term borrowings from affiliates (see Note 15)
|
|
|
228
|
|
|
|
182
|
|
|
|
|
|
|
|
|
|
|
Total due affiliates
|
|
|
250
|
|
|
|
206
|
|
|
|
|
|
|
|
|
|
|
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.
Upon closing of the Acquisition, the Company entered into a
transaction and monitoring fee agreement with the Advisor. Under
the agreement, the Advisor agreed to provide monitoring services
to the Company for a 12 year period. Also, the Advisor was
entitled to receive additional compensation for providing
investment banking or other advisory services provided to the
Company by the Advisor or any of its affiliates, and
reimbursement for certain expenses, in connection with any
acquisition, divestiture, refinancing, recapitalization or
similar transaction. In connection with the completion of the
initial public offering, the parties amended and restated the
transaction and monitoring fee agreement to terminate the
monitoring services and all obligations to pay future monitoring
fees and paid the Advisor $35 million. The Company also
paid $10 million to the Advisor for the 2005 monitoring
fee. In connection with the Original Shareholders sale of
its remaining shares of Series A common stock in May 2007
(see Note 18), the transaction based agreement was
terminated.
F-67
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In connection with the debt refinancing (see Note 15),
certain Blackstone managed funds that market collateralized loan
obligations to institutional investors invested an aggregate of
$50 million in the Companys term loan under the new
senior credit agreement. At the time of the debt refinancing,
Blackstone was considered an affiliate of the Company. As a
result of the Original Shareholders sale of its remaining
shares of Series A common stock in May 2007, Blackstone is
no longer an affiliate of the Company.
In connection with the acquisition of Vinamul, the Company paid
the Advisor a fee of $2 million, which was included in the
computation of the purchase price for the acquisition. In
connection with the acquisition of Acetex, the Company paid the
Advisor an initial fee of $1 million. Additional fees of
$3 million were paid in August 2005 to the Advisor upon the
successful completion of this acquisition. In addition, the
Company has paid the Advisor aggregate fees of approximately
3 million (approximately $4 million) in
connection with the Companys acquisition of
5.9 million additional CAG shares in August 2005 (see
Note 2).
For the years ended December 31, 2007 and 2006, the Company
made payments to the Advisor of $7 million and
$0 million, respectively, in accordance with the sponsor
services agreement dated January 26, 2005, as amended.
These payments were related primarily to the sale of the oxo
products and derivatives businesses and the acquisition of APL
(see Note 5).
Commencing in September 2005, the Company filed a Registration
Statement on
Form S-1
and amendments to that Registration Statement with the SEC on
behalf of the Original Shareholders (the Resale
Offering) pursuant to the terms of the Amended and
Restated Registration Rights Agreement (Registration
Rights Agreement) dated as of January 26, 2005,
between the Company and the Original Shareholders. Pursuant to
the terms of the Registration Rights Agreement, the Company paid
certain fees and expenses incurred in connection with the Resale
Offering, which amounted to approximately $1 million.
F-68
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
28.
|
Earnings
(Loss) Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Basic
|
|
|
Diluted
|
|
|
Basic
|
|
|
Diluted
|
|
|
Basic
|
|
|
Diluted
|
|
|
|
(In $ millions, except for share and per share data)
|
|
|
Income from continuing operations
|
|
|
336
|
|
|
|
336
|
|
|
|
319
|
|
|
|
319
|
|
|
|
214
|
|
|
|
214
|
|
Income from discontinued operations
|
|
|
90
|
|
|
|
90
|
|
|
|
87
|
|
|
|
87
|
|
|
|
63
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
426
|
|
|
|
426
|
|
|
|
406
|
|
|
|
406
|
|
|
|
277
|
|
|
|
277
|
|
Less: cumulative undeclared and declared preferred stock
dividends
|
|
|
(10
|
)
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings available to common shareholders
|
|
|
416
|
|
|
|
426
|
|
|
|
396
|
|
|
|
406
|
|
|
|
267
|
|
|
|
277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares basic
|
|
|
154,475,020
|
|
|
|
154,475,020
|
|
|
|
158,597,424
|
|
|
|
158,597,424
|
|
|
|
154,402,575
|
|
|
|
154,402,575
|
|
Dilutive stock options
|
|
|
|
|
|
|
4,344,644
|
|
|
|
|
|
|
|
1,205,413
|
|
|
|
|
|
|
|
645,655
|
|
Dilutive restricted stock
|
|
|
|
|
|
|
362,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed conversion of preferred stock
|
|
|
|
|
|
|
12,046,203
|
|
|
|
|
|
|
|
12,004,762
|
|
|
|
|
|
|
|
11,151,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares diluted
|
|
|
154,475,020
|
|
|
|
171,227,997
|
|
|
|
158,597,424
|
|
|
|
171,807,599
|
|
|
|
154,402,575
|
|
|
|
166,200,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
2.11
|
|
|
|
1.96
|
|
|
|
1.95
|
|
|
|
1.86
|
|
|
|
1.32
|
|
|
|
1.29
|
|
Income from discontinued operations
|
|
|
0.58
|
|
|
|
0.53
|
|
|
|
0.55
|
|
|
|
0.50
|
|
|
|
0.41
|
|
|
|
0.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
2.69
|
|
|
|
2.49
|
|
|
|
2.50
|
|
|
|
2.36
|
|
|
|
1.73
|
|
|
|
1.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to the completion of the initial public offering of the
Companys Series A common stock in January 2005, the
Company effected a 152.772947 for 1 stock split of outstanding
shares of Series A common stock. Accordingly, basic and
diluted shares for the year ended December 31, 2005 have
been calculated based on the weighted average shares
outstanding, adjusted for the stock split.
|
|
29.
|
Relocation
of Ticona Plant in Kelsterbach
|
On November 29, 2006, the Company reached a settlement with
the Frankfurt, Germany, Airport (Fraport) to
relocate its Kelsterbach, Germany, business, resolving several
years of legal disputes related to the planned Frankfurt airport
expansion. The final settlement agreement was approved by the
Fraport supervisory board on May 8, 2007 at an
extraordinary board meeting. The final settlement agreement was
signed on June 12, 2007. As a result of the settlement, the
Company will transition Ticonas operations from
Kelsterbach to another location in Germany by mid-2011. In July
2007, the Company announced that it would relocate the
Kelsterbach, Germany, business to the Hoechst Industrial Park in
the Rhine Main area. Over a five-year period, Fraport will pay
Ticona a total of 670 million to offset the costs
associated with the transition of the business from its current
location and the closure of the Kelsterbach plant. The payment
amount was increased by 20 million to
670 million in
F-69
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
consideration of the Companys agreement to waive certain
obligations of Fraport set forth in the settlement agreement.
These obligations related to the hiring of Ticona employees in
the event the Ticona Plant relocated out of the Rhine Main area.
From the settlement date through December 31, 2007, Fraport
has paid the Company a total of 20 million
(approximately $26 million) towards the transition and the
Company has incurred approximately 33 million
(approximately $45 million) of costs associated with the
relocation, of which 4 million ($5 million) is
included in 2007 Other (charges) gains, net and
29 million ($40 million) was capitalized. The
amount received from Fraport has been accounted for as deferred
proceeds and is included in long-term Other liabilities in the
consolidated balance sheet as of December 31, 2007.
|
|
30.
|
Clear
Lake, Texas Outage
|
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
fourth quarter of 2007, the Company recorded approximately
$40 million of insurance recoveries from its reinsurers in
partial satisfaction of claims that the Company made based on
losses resulting from the outage. These insurances recoveries
are included in Other (charges) gains, net in the consolidated
income statement.
On January 4, 2008, the Company declared a cash dividend on
its 4.25% convertible perpetual preferred stock amounting to
$3 million and a cash dividend of $0.04 per share on its
Series A common stock amounting to $6 million. Both
cash dividends are for the period November 1, 2007 to
January 31, 2008 and were paid on February 1, 2008 to
holders of record as of January 15, 2008.
In January 2008, the Company sold an additional
1,375,573 shares of Accsys common stock for
approximately 3 million ($5 million) (see
Note 5).
On February 8, 2008, the Companys Board of Directors
authorized the repurchase of up to $400 million of the
Companys Series A common stock. The authorization gives
management discretion in determining the conditions under which
shares may be repurchased. As of February 29, 2008, the
Company has repurchased 64,400 shares of its Series A
common stock at an average purchase price of $39.86 per share
for a total of approximately $3 million in connection with
this authorization.
F-70
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
(Incorporated by reference to Exhibit 3.1 to the Current Report
on Form 8-K filed on January 28, 2005)
|
3.2
|
|
Second Amended and Restated By-laws, effective as of February 8,
2008 (Incorporated by reference to Exhibit 3.2 to the Current
Report on Form 8-K filed on February 14, 2008)
|
3.3
|
|
Certificate of Designations of 4.25% Convertible Perpetual
Preferred Stock (Incorporated by reference to Exhibit 3.2 to the
Current Report on Form 8-K filed on January 28, 2005)
|
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 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
on January 13, 2005)
|
4.3
|
|
Amended and Restated Registration Rights Agreement, dated as of
January 26, 2005, by and among Blackstone Capital Partners
(Cayman) Ltd. 1, Blackstone Capital Partners (Cayman) Ltd. 2,
Blackstone Capital Partners (Cayman) Ltd. 3 and BA Capital
Investors Sidecar Fund, L.P. (Incorporated by reference to
Exhibit 10.2 to the Current Report on Form 8-K filed on January
28, 2005)
|
10.1
|
|
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
April 5, 2007)
|
10.2
|
|
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 April 5,
2007)
|
10.3
|
|
Celanese Corporation 2004 Stock Incentive Plan (Incorporated by
reference to Exhibit 10.7 to the Current Report on Form 8-K
filed on January 28, 2005)
|
10.4
|
|
Celanese Corporation Deferred Compensation Plan (Incorporated by
reference to Exhibit 10.21 to the Registration Statement on Form
S-1 (File No. 333-120187) filed on January 3, 2005)
|
10.5
|
|
Amendment to Celanese Corporation 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)
|
10.6*
|
|
Deferred Compensation
Plan-Master
Plan Document adopted December 7, 2007
|
10.7
|
|
Sponsor Services Agreement, dated as of January 26, 2005, among
Celanese Corporation, Celanese Holdings LLC and Blackstone
Management Partners IV L.L.C. (Incorporated by reference to
Exhibit 10.3 to the Current Report on Form 8-K filed on January
28, 2005)
|
10.8
|
|
Employee Stockholders Agreement, dated as of January 21, 2005,
among Celanese Corporation, Blackstone Capital Partners (Cayman)
Ltd., Blackstone Capital Partners (Cayman) Ltd. 2, Blackstone
Capital Partners (Cayman) Ltd. 3 and employee stockholders
parties thereto from time to time (Incorporated by reference to
Exhibit 10.20 to the Annual Report of Form 10-K filed on March
31, 2005)
|
10.9
|
|
Form of Nonqualified Stock Option Agreement (for employees)
(Incorporated by reference to Exhibit 10.5 to the Current Report
on Form 8-K filed on January 28, 2005)
|
10.10
|
|
Form of Nonqualified Stock Option Agreement (for non-employee
directors) (Incorporated by reference to Exhibit 10.6 to the
Current Report on Form 8-K filed on January 28, 2005)
|
10.11
|
|
Form of Director Performance-Based Restricted Stock Unit
Agreement 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)
|
10.12
|
|
Form of 2007 Deferral Agreement between Celanese Corporation and
award recipient, dated as of April 2, 2007 (incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K
filed with the SEC on April 3, 2007)
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
10.13
|
|
Form of Performance-Based Restricted Stock Unit Agreement
between Celanese Corporation and award recipient, dated as of
April 2, 2007 (incorporated by reference to Exhibit 10.3 to the
Current Report on Form 8-K filed with the SEC on April 3, 2007)
|
10.14
|
|
Bonus Plan for fiscal year ended 2005 for named executive
officers (Incorporated by reference to Exhibit 10.24 to the
Annual Report of Form 10-K filed on March 31, 2005)
|
10.15
|
|
Employment Agreement, dated as of February 23, 2005, between
David N. Weidman and Celanese Corporation (Incorporated by
reference to Exhibit 10.25 to the Annual Report of Form 10-K
filed on March 31, 2005)
|
10.16
|
|
Bonus Award Letter, dated as of February 23, 2005, between David
N. Weidman and Celanese Corporation (Incorporated by reference
to Exhibit 10.29 to the Annual Report of Form 10-K filed on
March 31, 2005)
|
10.17
|
|
Summary of pension benefits for David N. Weidman (Incorporated
by reference to Exhibit 10.34 to the Annual Report of Form 10-K
filed on March 31, 2005)
|
10.18
|
|
Employment Agreement dated as of February 17, 2005 between
Lyndon B. Cole and Celanese Corporation (Incorporated by
reference to Exhibit 10.26 to the Annual Report of Form 10-K
filed on March 31, 2005)
|
10.19
|
|
Separation Agreement, dated as of July 5, 2007, between Celanese
Corporation and Lyndon B. Cole (Incorporated by reference to
Exhibit 10.2 to the Quarterly Report on Form 10-Q filed on July
27, 2007).
|
10.20
|
|
Bonus Award Letter, dated as of February 23, 2005 between Lyndon
B. Cole and Celanese Corporation (Incorporated by reference to
Exhibit 10.31 to the Annual Report of Form 10-K filed on March
31, 2005)
|
10.21
|
|
English Translation of Service Agreement, dated as of November
1, 2004, between Lyndon B. Cole and Celanese AG (Incorporated by
reference to Exhibit 10.32 to the Annual Report of Form 10-K
filed on March 31, 2005)
|
10.22
|
|
Offer letter agreement, effective April 18, 2005 between Curtis
S. Shaw and Celanese Corporation (Incorporated by reference to
Exhibit 10.23 to the Quarterly Report on Form 10-Q filed on May
16, 2005)
|
10.23
|
|
Offer Letter Agreement, dated June 27, 2007, between Celanese
Corporation and Sandra Beach Lin (Incorporated by reference to
Exhibit 10.3 to the Quarterly Report on Form 10-Q filed on July
27, 2007).
|
10.24
|
|
Amended and Restated Employment Agreement, dated as of July 26,
2007 between Celanese Corporation and John J. Gallagher III
(Incorporated by reference to Exhibit 10.1 to the Quarterly
Report on Form 10-Q filed on October 24, 2007).
|
10.25
|
|
Nonqualified Stock Option Agreement, dated as of January 25,
2005, between Celanese Corporation and Blackstone Management
Partners IV L.L.C. (Incorporated by reference from Exhibit
10.23 to the Annual Report on Form 10-K filed on March 31, 2005)
|
10.26
|
|
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 (Incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K
filed on August 19, 2005)
|
10.27
|
|
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)
|
10.28
|
|
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 of
Form 10-K
filed on February 21, 2007)
|
10.29
|
|
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)
|
10.30
|
|
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 on October 24, 2007).
|
10.31*
|
|
Jim
Alder-Compensation
Letter Agreement dated March 27, 2007
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
21.1*
|
|
List of subsidiaries
|
23.1*
|
|
Report on Financial Statement Schedule and Consent of
Independent Registered Public Accounting Firm, KPMG LLP
|
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
|
99.3*
|
|
Financial Statement schedule regarding Valuation and Qualifying
Accounts
|
|
|
|
* |
|
Filed herewith |
|
|
|
Portions of this exhibit have been omitted pursuant to a request
for confidential treatment filed with the Securities and
Exchange Commission under
Rule 24b-2
of the Securities Exchange Act of 1934, as amended. The omitted
portions of this exhibit have been separately filed with the
Securities and Exchange Commission. |