0000950136-05-002027 S-4 21 20050413 Celanese CORP 0001306830 2810 980420726 DE 1231 S-4 33 333-124049-01 05748791 1601 W. LBJ FREEWAY DALLAS TX 75234 972-443-4000 1601 W. LBJ FREEWAY DALLAS TX 75234 Blackstone Crystal Holdings Capital Partners (Cayman) IV Ltd. 20041022 Crystal US Sub 3 CORP 0001323479 000000000 DE 1231 S-4 33 333-124049-02 05748792 1601 WEST LBJ FREEWAY DALLAS TX 75234 972-443-4000 1601 WEST LBJ FREEWAY DALLAS TX 75234 Crystal US Holdings 3 L.L.C. 0001323478 000000000 DE 1231 S-4 33 333-124049 05748793 1601 WEST LBJ FREEWAY DALLAS TX 75234 972-443-4000 1601 WEST LBJ FREEWAY DALLAS TX 75234 S-4 1 file001.htm FORM S-4 As filed with the Securities and Exchange Commission on April 13, 2005 Registration No. 333- [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] CRYSTAL US HOLDINGS 3 L.L.C. CRYSTAL US SUB 3 CORP. CELANESE CORPORATION (Exact name of registrant issuer as [[Image Removed]] (Exact name of registrant issuer as [[Image Removed]] (Exact name of registrant parent guarantor as specified in its charter) specified in its charter) specified in its charter) [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Delaware [[Image Removed]] Delaware [[Image Removed]] Delaware (State or other jurisdiction of Incorporation) (State or other jurisdiction of Incorporation) (State or other jurisdiction of Incorporation) 2673 2673 2673 (Primary Standard Industrial [[Image Removed]] (Primary Standard Industrial [[Image Removed]] (Primary Standard Industrial Classification Code Number) Classification Code Number) Classification Code Number) 20-1628460 [[Image Removed]] 20-1628482 [[Image Removed]] 98-0420726 (I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.) [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] 1601 West LBJ Freeway Dallas, TX 75234-6034 (972) 443-4000 (Address, including zip code, and telephone number, including area code, of registrants' principal executive offices) Secretary 550 U.S. Highway 202/206 Bedminster, NJ 07921-1590 (908) 901-4500 (Name, address, including zip code, and telephone number, including area code, of agent for service) With copies to: Edward P. Tolley III, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017-3954 (212) 455-2000 [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Approximate date of commencement of proposed exchange offer: as soon as practicable after this registration statement is declared effective. If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, please check the following box. [[Image Removed: [ ]]] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [[Image Removed: [ ]]] If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [[Image Removed: [ ]]] [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] CALCULATION OF REGISTRATION FEE [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Proposed Maximum Proposed Maximum Title of Each Class of [[Image Removed]] Amount to [[Image Removed]] Offering Price [[Image Removed]] Aggregate Offering [[Image Removed]] Amount of Securities to be Registered be Registered(1) per Note Price(2) Registration Fee 10% Series A Senior Discount Notes due 2014(3) [[Image Removed]] $ 105,950,000 [[Image Removed]] 100 % [[Image Removed]] $ 105,950,000 [[Image Removed]] $ 12,470.32 1012;% Series B Senior Discount Notes due 2014(3) [[Image Removed]] $ 448,500,000 [[Image Removed]] 100 % [[Image Removed]] $ 448,500,000 [[Image Removed]] $ 52,788.45 Guarantees of 10% Series A Senior Discount Notes Due 2014 [[Image Removed]] N/A (4) [[Image Removed]] (4 ) [[Image Removed]] (4 ) [[Image Removed]] (4 ) Guarantees of 1012;% Series B Senior Discount Notes Due 2014 [[Image Removed]] N/A (4) [[Image Removed]] (4 ) [[Image Removed]] (4 ) [[Image Removed]] (4 ) Total [[Image Removed]] $ 554,450,000 [[Image Removed]] [[Image Removed]] $ 554,450,000 [[Image Removed]] $ 65,258.77 [[Image Removed]] [[Image Removed]] [[Image Removed]] (1) Based on principal amount at maturity. [[Image Removed]] [[Image Removed]] (2) Estimated solely for the purpose of calculating the registration fee under Rule 457(f) of the Securities Act of 1933, as amended (the "Securities Act"). [[Image Removed]] [[Image Removed]] (3) Co-issued by Crystal US Holdings 3 L.L.C. and Crystal US Sub 3 Corp. [[Image Removed]] [[Image Removed]] (4) Pursuant to Rule 457(a) of the Securities Act, no separate filing fee is required for the guarantees. The registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the commission, acting pursuant to said Section 8(a), may determine. [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] -------------------------------------------------------------------------------- The information in this prospectus is not complete and may be changed. The Issuer may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED APRIL 13, 2005 PRELIMINARY PROSPECTUS [[Image Removed]] Crystal US Holdings 3 L.L.C. Crystal US Sub 3 Corp. OFFER TO EXCHANGE 10% Series A Senior Discount Notes due 2014, which have been registered under the Securities Act of 1933, for any and all of their outstanding 10% Series A Senior Discount Notes due 2014. 1012;% Series B Senior Discount Notes due 2014, which have been registered under the Securities Act of 1933, for any and all of their outstanding 1012;% Senior Discount Notes due 2014. Celanese Corporation, which we also refer to as the Parent Guarantor, the Issuer's direct parent, will guarantee the exchange notes on a senior, unsecured basis. [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Crystal US Holdings 3 L.L.C. and Crystal US Sub 3 Corp., which we refer to, collectively, as the Issuer, are conducting the exchange offer in order to provide you with an opportunity to exchange your unregistered notes for freely tradeable notes that have been registered under the Securities Act. The guarantee by the Parent Guarantor is being provided for the purpose of allowing the Issuer to satisfy its reporting obligations under the indenture governing the notes by furnishing financial information relating to the Parent Guarantor instead of the Issuer. However, the guarantee by the Parent Guarantor may be released at any time after the offering at the option of the Issuer and the Parent Guarantor. The Exchange Offer [[Image Removed]] [[Image Removed]] The Issuer will exchange all outstanding notes that are validly tendered and not validly withdrawn for an equal principal amount of exchange notes that are freely tradable. [[Image Removed]] [[Image Removed]] You may withdraw tenders of outstanding notes at any time prior to the expiration date of the exchange offer. [[Image Removed]] [[Image Removed]] The exchange offer will commence on , 2005 and will expire on , 2005, unless extended. [[Image Removed]] [[Image Removed]] The exchanges of outstanding notes for exchange notes in the exchange offer will not be a taxable event for U.S. federal income tax purposes. [[Image Removed]] [[Image Removed]] The terms of the exchange notes to be issued in the exchange offer are substantially identical to the outstanding notes, except that the exchange notes will be freely tradeable. All untendered outstanding notes will continue to be subject to the restrictions on transfer set forth in the outstanding notes and in the indenture. In general, the outstanding notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. Other than in connection with the exchange offer, the Issuer does not currently anticipate that the Issuer will register the outstanding notes under the Securities Act. [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] See "Risk Factors" beginning on page 19 for a discussion of certain risks that you should consider before participating in the exchange offer. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the exchange notes to be distributed in the exchange offer or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense. The date of this prospectus is , 2005. -------------------------------------------------------------------------------- TABLE OF CONTENTS [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Page Basis of Presentation [[Image Removed]] ii Market and Industry Data and Forecasts [[Image Removed]] iv Prospectus Summary [[Image Removed]] 1 Risk Factors [[Image Removed]] 19 Special Note Regarding Forward- [[Image Removed]] Looking Statements 39 The Transactions [[Image Removed]] 41 The Recent Restructuring [[Image Removed]] 47 The Recent Financings [[Image Removed]] 51 Use of Proceeds [[Image Removed]] 52 Capitalization [[Image Removed]] 53 Unaudited Pro Forma Financial Information [[Image Removed]] 54 Selected Historical Financial Data [[Image Removed]] 64 Management's Discussion and Analysis of Financial [[Image Removed]] Condition and Results of Operations 67 Industry Overview [[Image Removed]] 121 Business [[Image Removed]] 126 Management [[Image Removed]] 158 Principal Stockholders and Beneficial Owners [[Image Removed]] 168 Certain Relationships and Related [[Image Removed]] Party Transactions 170 Description of Other Indebtedness [[Image Removed]] 174 The Exchange Offer [[Image Removed]] 179 Description of the Notes [[Image Removed]] 189 Material U.S. Federal Income Tax Consequences of the Exchange [[Image Removed]] Offer 241 Benefit Plan Considerations [[Image Removed]] 242 Plan of Distribution [[Image Removed]] 244 Legal Matters [[Image Removed]] 244 Experts [[Image Removed]] 245 Where You Can Find Additional Information [[Image Removed]] 245 Index to Consolidated Financial Statements [[Image Removed]] F-1 [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] You should rely only on the information contained in this prospectus. None of the Issuer nor its subsidiaries has authorized anyone to provide you with information different from that contained in this prospectus. The prospectus may be used only for the purposes for which it has been published and no person has been authorized to give any information not contained in this prospectus. If you receive any other information, you should not rely on it. The Issuer is not making an offer of these securities in any state where the offer is not permitted. [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Until the date that is 90 days from the date of this prospectus, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters with respect to their unsold allotments or subscriptions. i -------------------------------------------------------------------------------- BASIS OF PRESENTATION In this prospectus, the term "the Issuer" refers, collectively, to Crystal US Holdings 3 L.L.C. and Crystal US Sub 3 Corp., and not to their respective subsidiaries. The term "BCP Crystal" refers to BCP Crystal US Holdings Corp., a Delaware corporation, and, prior to the Recent Restructuring, to BCP Caylux Holdings Luxembourg S.C.A., a Luxembourg partnership limited by shares (socit en commandite par actions), and not their respective subsidiaries. The term "Celanese Holdings" refers to Celanese Holdings LLC, a Delaware limited liability company, and, prior to the Recent Restructuring, to BCP Crystal Holdings Ltd. 2, an exempted company organized under the laws of the Cayman Islands, and not their respective subsidiaries. The terms "Parent Guarantor" and "Celanese Corporation" refer to our parent, Celanese Corporation, a Delaware corporation, and not its subsidiaries. The terms "Consolidated Parent Guarantor," "Celanese," "Company," "we," "our" and "us" refer to the Parent Guarantor and its subsidiaries (including the Issuer) on a consolidated basis. 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 (Kommanditgesellschaft, KG), and not its subsidiaries, except where otherwise indicated. The term "Original Stockholders" 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. Unless we specifically state otherwise, references to "pro forma" give effect, in the manner described under "Unaudited Pro Forma Financial Information" and the notes thereto, to the contribution to the Issuer of a portion of the proceeds from the offering by Celanese Corporation of its Series A common stock and convertible perpetual preferred stock (the "preferred stock"), the entering into of the amended and restated senior credit facilities, which occurred in January 2005 (except for the $242 million delayed draw portion of the approximately $442 million acquisition facility under the amended and restated senior credit facilities (the "Acquisition Facility") that we drew at closing to fund our acquisition of Vinamul Polymers), and the use of proceeds therefrom (collectively, the "Recent Financings"). See "Prospectus SummaryRecent DevelopmentsAcetex Acquisition" for a description of the Acetex Acquisition. Pursuant to a voluntary tender offer commenced in February 2004, the Purchaser, an indirect wholly-owned subsidiary of the Issuer and the Parent Guarantor, in April 2004 acquired approximately 84% of the ordinary shares of Celanese AG (the "CAG Shares") outstanding. All references in this prospectus to the outstanding ordinary shares of CAG (as defined below) exclude treasury shares. As of December 31, 2004, the Issuer's indirect ownership of approximately 84% of the outstanding CAG Shares would equate to approximately 77% of the issued CAG Shares (including treasury shares). Pursuant to a mandatory offer commenced in September 2004 and continuing as of the date of this prospectus, the Purchaser acquired additional CAG Shares. As a result of these acquisitions, partially offset by the issuance of additional CAG Shares as a result of the exercise of options issued under the CAG stock option plan, as of the date of this prospectus, we own approximately 85% of the outstanding CAG Shares. The Issuer and the Parent Guarantor are recently formed companies which do not have any independent external operations other than through the indirect ownership of CAG and Celanese Americas Corporation ("CAC"), their consolidated subsidiaries, non-consolidated subsidiaries, ventures and other investments. For accounting purposes, the Parent Guarantor and its consolidated subsidiaries are referred to as the "Successor." See Note 4 to the Consolidated Financial Statements (as defined below) for additional information on the basis of presentation and accounting policies of the Successor. CAG is incorporated as a stock corporation (Aktiengesellschaft, AG) organized under the laws of the Federal Republic of Germany. As used in this prospectus, the term "CAG" refers to CAG and CAC, their consolidated subsidiaries, their non-consolidated subsidiaries, joint ventures and other investments, except that with respect to shareholder and similar matters where the context indicates, "CAG" refers to Celanese AG. For accounting purposes, "Predecessor" refers to CAG and its subsidiaries. The consolidated financial statements of the Successor for the nine months ended December 31, 2004, and the consolidated financial statements of the Predecessor for the three months ended ii -------------------------------------------------------------------------------- March 31, 2004 and for each of the years ended December 31, 2003 and 2002 included in this prospectus (collectively, the "Consolidated Financial Statements") were prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") for all periods presented. The Consolidated Financial Statements reflect, for the periods indicated, the financial condition, results of operations and cash flows of the businesses transferred to CAG from Hoechst Aktiengesellschaft, also referred to as "Hoechst" in this prospectus, in a demerger that became effective on October 22, 1999, adjusted for acquisitions and divestitures. The Consolidated Financial Statements and other financial information included in this prospectus, unless otherwise specified, have been presented to separately show the effects of discontinued operations. CAG is a foreign private issuer and previously filed its consolidated financial statements as of December 31, 2003 on Form 20-F. CAG changed its fiscal year to end on September 30 and also filed its consolidated financial statements as of September 30, 2004 and for the nine months then ended in its 2004 Annual Report on Form 20-F. In accordance with German law, the reporting currency of the CAG consolidated financial statements is the euro. As a result of the Purchaser's acquisition of voting control of CAG, the financial statements of CAG contained in this prospectus are reported in U.S. dollars to be consistent with our reporting requirements. For CAG's reporting requirements, the euro continues to be the reporting currency. In the preparation of other information included in this prospectus, euro amounts have been translated into U.S. dollars at the applicable historical rate in effect on the date of the relevant event/period. For purposes of pro forma and prospective information, euro amounts have been translated into U.S. dollars using the rate in effect on December 31, 2004. Our inclusion of this information is not meant to suggest that the euro amounts actually represent such dollar amounts or that such amounts could have been converted into U.S. dollars at any particular rate, if at all. iii -------------------------------------------------------------------------------- MARKET AND INDUSTRY DATA AND FORECASTS This prospectus includes industry data and forecasts that the Issuer has prepared based, in part, upon industry data and forecasts obtained from industry publications and surveys and internal company surveys. Third-party industry publications and surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable. In this prospectus, the terms "SRI Handbook," "CMAI Methanol Analysis," "Nexant Chem Study 2003," "Nexant Chem Study 2002" and "Tecnon Orbichem Survey" refer to the SRI International Chemical Economics Handbook, CMAI 2002-2003 World Methanol Analysis, Nexant Chem Systems September 2003 PERP Acetic Acid Study, Nexant Chem Systems February 2002 Vinyl Acetate Study and Tecnon Orbichem Acetic Acid and Vinyl Acetate World Survey September 2003 report, respectively. The statements regarding Celanese's market position in this prospectus are based on information derived from the SRI Handbook, CMAI Methanol Analysis, Tecnon Orbichem Survey, Nexant Chem Study 2002 and Nexant Chem Study 2003. [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] AO PlusTM, BuyTiconaDirectTM, CelActiv, Celanex, Celcon, Celstran, Celvolit, Compel, GUR, Hoecat, Hostaform, Impet, Impet-HI, Mowilith, Nutrinova DHA, Riteflex, Sunett, Topas, Vandar, VAntageTM, Vectra, Vectran, Vinamul, Elite, Duroset and certain other products and services named in this prospectus are registered trademarks and service marks of CAG. Fortron is a registered trademark of Fortron Industries, a joint venture of Celanese. iv -------------------------------------------------------------------------------- PROSPECTUS SUMMARY This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to exchange your notes. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, which are included elsewhere in this prospectus. See "Market and Industry Data and Forecasts" on page iv for the sources of our leadership statements below. CELANESE CORPORATION We are an integrated global producer of value-added industrial chemicals and have #1 or #2 market positions worldwide in products comprising the majority of our sales. We are also the world's largest producer of acetyl products, including acetic acid, vinyl acetate monomer (VAM) and polyacetal products (POM) and a leading global producer of high-performance engineered polymers used in consumer and industrial products and designed to meet highly technical customer requirements. Our operations are located in North America, Europe and Asia. We believe we are one of the lowest-cost producers of key building block chemicals in the acetyls chain, such as acetic acid and VAM, due to our economies of scale, operating efficiencies and proprietary production technologies. We have a large and diverse global customer base consisting principally of major companies in a broad array of industries. For the three months ended March 31, 2004, approximately 46% of our net sales by the Predecessor was to customers located in North America, approximately 42% to customers in Europe and approximately 12% to customers in Asia, Australia and the rest of the world. For the nine months ended December 31, 2004, approximately 47% of our net sales by the Successor was to customers located in North America, approximately 40% to customers in Europe and approximately 13% to customers in Asia, Australia and the rest of the world. Segment Overview We operate through four business segments: Chemical Products, Technical Polymers Ticona, Acetate Products and Performance Products. The table below illustrates each segment's net sales to external customers for the three months ended March 31, 2004, by the Predecessor and for the nine months ended December 31, 2004, by the Successor, as well as each segment's major products and end use markets. [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Technical [[Image Removed]] [[Image Removed]] Chemical Products Polymers Ticona Acetate Products(2) Performance Products 2004 Net Sales(1) [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Predecessor (three $789 million $227 million $172 million $44 million months ended [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] March 31, 2004) Successor (nine $2,491 million $636 million $523 million $131 million months ended [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] December 31, 2004) Major Products Acetic acid Polyacetal products (POM) Acetate tow Sunett sweetener Vinyl acetate monomer UHMW-PE (GUR) Acetate filament Sorbates (VAM) Liquid crystal polymers Polyvinyl alcohol (PVOH) (Vectra) [[Image Removed]] Emulsions [[Image Removed]] Polyphenylene sulfide [[Image Removed]] [[Image Removed]] Acetic anhydride (Fortron) Acetate esters Carboxylic acids Methanol Major End-Use Paints Fuel system Filter products Beverages Markets Coatings components Textiles Confections [[Image Removed]] Adhesives [[Image Removed]] Conveyor belts [[Image Removed]] [[Image Removed]] Baked goods Lubricants Electronics Dairy products Detergents Seat belt mechanisms [[Image Removed]] 1 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] (1) Net sales of $1,243 million for the Predecessor for the three months ended March 31, 2004 and $3,826 million for the Successor for the nine months ended December 31, 2004, also include $11 million and $45 million in net sales from Other Activities, respectively, primarily attributable to our captive insurance companies. 2004 net sales of Chemical Products excludes inter-segment sales of $29 million with respect to the Predecessor for the three months ended March 31, 2004 and $82 million with respect to the Successor for the nine months ended December 31, 2004. [[Image Removed]] [[Image Removed]] (2) In October 2004, we announced our plans to discontinue filament production by mid-2005 and to consolidate our flake and tow production at three sites, instead of the current five. Chemical Products Our Chemical Products segment produces and supplies acetyl products, including acetic acid, acetate esters, vinyl acetate monomer, polyvinyl alcohol, and emulsions. We are a leading global producer of acetic acid, the world's largest producer of vinyl acetate monomer and the largest North American producer of methanol, the major raw material used for the production of acetic acid. We are also the largest polyvinyl alcohol producer in North America. Technical Polymers Ticona Our Technical Polymers Ticona segment develops, produces and supplies a broad portfolio of high performance technical polymers for use in automotive and electronics products and in other consumer and industrial applications, often replacing metal or glass. Together with our 45%-owned joint venture Polyplastics Co. Ltd ("Polyplastics"), our 50%-owned joint venture Korea Engineering Plastics Company Ltd., and Fortron Industries, our 50%-owned joint venture with Kureha Chemicals Industry of Japan, we are a leading participant in the global technical polymers business. Acetate Products Our Acetate Products segment primarily produces and supplies acetate tow, which is used in the production of filter products and acetate filament, which is used in the apparel and home furnishing industries. We are one of the world's leading producers of acetate tow and acetate filament, including production by our ventures in China. In October 2004, we announced plans to consolidate our acetate flake and tow manufacturing by early-2007 and to exit the acetate filament business by mid-2005. This restructuring is being implemented to increase efficiency, reduce over-capacities in certain manufacturing areas and to focus on products and markets that provide long-term value. Performance Products The Performance Products segment operates under the trade name of Nutrinova and produces and sells a high intensity sweetener and food protection ingredients, such as sorbates, for the food, beverage and pharmaceuticals industries. Competitive Strengths We have benefited from a number of competitive strengths, including the following: [[Image Removed]] [[Image Removed]] Leading Market Positions. We have #1 or #2 market positions globally in products that make up a majority of our sales according to SRI Handbook and Tecnon Orbichem Survey. 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. [[Image Removed]] [[Image Removed]] Proprietary Production Technology and Operating Expertise. Our production of acetyl products employs industry leading proprietary and licensed technologies, including our proprietary AO Plus acid-optimization technology for the production of acetic acid and VAntage vinyl acetate monomer technology. [[Image Removed]] [[Image Removed]] Low Cost Producer. Our competitive cost structures are based on economies of scale, vertical integration, technical know-how and the use of advanced technologies. 2 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] Global Reach. We operate 29 production facilities (excluding our ventures) throughout the world, with major operations in North America, Europe and Asia. Ventures owned by us and our partners operate ten 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 and growing presence in Asia (particularly in China) where ventures owned by us and our partners operate three additional facilities. [[Image Removed]] [[Image Removed]] International 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. [[Image Removed]] [[Image Removed]] Diversified Products and End-Use Markets. We offer our customers a broad range of products in a wide variety of end-use markets. This product diversity and exposure help us reduce the potential impact of volatility in any individual market segment. Business Strategies We are focused on increasing operating cash flows, profitability, return on investment and shareholder value, which we believe can be achieved through the following business strategies: [[Image Removed]] [[Image Removed]] Maintain Cost Advantage and Productivity Leadership. We continually seek to reduce our production and raw material costs. Our advanced process control projects (APC) generate savings in energy and raw materials while increasing yields in production units. We intend to continue using best practices to reduce costs and increase equipment reliability in maintenance and project engineering. [[Image Removed]] [[Image Removed]] Focused Business Investment. We intend to continue investing strategically in growth areas, including new production capacity, to extend our global market leadership position. We expect to continue to benefit from our investments and capacity expansion that enable us to meet increases in global demand. [[Image Removed]] [[Image Removed]] Maximize Cash Flow and Reduce Debt. Despite a difficult operating environment over the past several years, we have generated a significant amount of operating cash flow. Between January 1, 2002 and March 31, 2004, the Predecessor generated over $650 million of net cash provided by operating activities. Between April 1, 2004 and December 31, 2004, the Successor consumed over $60 million of net cash used in operating activities. The cash flow used by operations was affected by the one-time payment of a $95 million obligation to a third party, $59 million associated with the exercising of stock appreciation rights, pension contributions totaling $409 million and higher interest expense due to increased debt levels. We expect improvement in our operating cash flow through increased productivity in our operations, increased cash dividends from our ventures, reduced pension contributions and pursuing additional cost reduction efforts. We believe in a focused capital expenditure plan that is dedicated to attractive investment projects. We intend to use our free cash flow to reduce indebtedness and selectively expand our businesses. The operating cash flow used by the Predecessor for the three months ended March 31, 2004 was $107 million. As of December 31, 2004, we had total debt of $3,387 million and cash and cash equivalents of $838 million. See "Capitalization" for additional information. [[Image Removed]] [[Image Removed]] Deliver Value-Added Solutions. We continually develop new products and industry leading production technologies that solve our customers' problems. We believe that our customers value our expertise, and we will continue to work with them to enhance the quality of their products. [[Image Removed]] [[Image Removed]] Enhance Value of Portfolio. We will continue to further optimize our business portfolio through divestitures, acquisitions and strategic investments that enable us to focus on businesses 3 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] in which we can achieve market, cost and technology leadership over the long term. In addition, we intend to continue to expand our product mix into higher value-added products. THE TRANSACTIONS As used in this prospectus, the term "Transactions" means, collectively, the Tender Offer, the Original Financing, and the Refinancing described under "The Transactions" elsewhere in this prospectus. Pursuant to the Tender Offer, in April 2004 the Purchaser, an indirect wholly owned subsidiary of the Issuer, acquired, at a price of 32.50 per share, a total of 41,588,227 CAG Shares, representing approximately 84% of the CAG Shares outstanding as of December 31, 2004. Pursuant to a mandatory offer commenced in September 2004 and continuing as of the date of this prospectus, the Purchaser acquired additional CAG Shares. As a result of these acquisitions, partially offset by the issuance of additional shares of CAG as a result of the exercise of options issued under the CAG stock option plan, as of the date of this prospectus, we own approximately 85% of the outstanding CAG Shares. The Purchaser may from time to time purchase or be required to purchase any or all of the outstanding CAG Shares not owned by it in market transactions or otherwise. Examples of instances in which the Purchaser may be required to purchase additional CAG Shares include the ongoing mandatory offer relating to the domination and profit and loss transfer agreement entered into by the Purchaser and CAG, or additional mandatory offers required by actions that the Purchaser or its affiliates may take in the future, such as a possible delisting of the CAG Shares from the Frankfurt Stock Exchange, a possible squeeze-out of the minority shareholders of CAG or a possible conversion of CAG into a different legal form. The Purchaser's decision to pursue subsequent voluntary purchases will depend on, among other factors, the then-prevailing market prices and any negotiated terms with minority shareholders. See "The TransactionsPost-Tender Offer Events." RECENT RESTRUCTURING We recently completed an internal restructuring of certain of our operations. See "The Recent Restructuring." RECENT DEVELOPMENTS Celanese Corporation IPO. Celanese Corporation, the Parent Guarantor of the notes, recently completed its initial public offering of its Series A common stock and a concurrent offering of preferred stock. A portion of the net proceeds from such offerings was contributed to us in order to redeem some of the notes. In addition, we have amended and restated our senior credit facilities and have borrowed additional amounts thereunder. See "Partial Redemption of the Notes" and "The Recent Financings." Special Dividends. In March 2005, Celanese Corporation issued a stock dividend of 7.5 million shares of its Series A common stock to the holders of its Series B common stock. In addition, on April 7, 2005, Celanese Corporation used a portion of the proceeds of the Recent Financings to pay a special cash dividend to holders of its Series B common stock of $804 million, which was declared on March 8, 2005. See Note 3 to the Consolidated Financial Statements. See "The Recent Financings," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Principal Stockholders and Beneficial Owners." Acetate Restructuring. In October 2004, we announced plans to implement a strategic restructuring of our acetate business to increase the efficiency, reduce overcapacity in certain areas and to focus on products and markets that provide long-term value. As part of this restructuring, we plan to discontinue acetate filament production by mid-2005 and to consolidate our acetate flake and tow operations at three locations, instead of five. The restructuring resulted in $50 million of asset impairment charges recorded as a special charge and $12 million in charges to depreciation for related asset retirement obligations for the nine months ended December 31, 2004. 4 -------------------------------------------------------------------------------- Acetex Acquisition. On October 27, 2004 we agreed to acquire Acetex Corporation ("Acetex"), a Canadian corporation, for approximately $261 million and the assumption by us of debt owed by Acetex, valued at approximately $231 million. On January 12, 2005, the Acetex shareholders approved the transaction. Acetex has two primary businesses: the Acetyls Business and the Specialty Polymers and Films Business. The Acetyls business produces acetic acid, polyvinyl alcohol and vinyl acetate monomer. The Specialty Polymers and Films Business produces specialty polymers (used in the manufacture of a variety of plastics products, including packaging and laminating products, auto parts, adhesives and medical products) as well as products for the agricultural, horticultural and construction industries. Acetex will be operated as part of our chemicals business. Closing of the acquisition is conditioned upon regulatory approvals and other customary conditions. We expect to finance this acquisition through borrowings under the amended and restated senior credit facilities. Vinamul Polymers Acquisition. On November 23, 2004, we agreed to acquire Vinamul Polymers, the North American and European emulsion polymer business of National Starch and Chemical Company, for $208 million. National Starch and Chemical Company is a subsidiary of Imperial Chemical Industries PLC. The Vinamul Polymers product line includes vinyl acetate-ethylene copolymers, vinyl acetate homopolymers and copolymers, and acrylic and vinyl acrylic emulsions. Vinamul Polymers operates manufacturing facilities in the United States, Canada, the United Kingdom and The Netherlands. As part of the agreement, National Starch and Chemical Company will continue to supply Vinamul Polymers with starch, dextrin and other specialty ingredients following the acquisition. We will supply the Vinamul Polymers business with vinyl acetate monomer and polyvinyl alcohols. The acquisition was completed in February 2005 and was financed through $200 million of borrowings under the Acquisition Facilities. Proposed Dispositions. In December 2004, we approved a plan to dispose of the Cyclo-olefin Copolymer ("COC") business included within the Technical Polymers Ticona segment and our interest in Pemeas GmbH, the fuel cell venture included in Other Activities. This decision resulted in $32 million of asset impairment charges recorded as a special charge related to the COC business. The revenues and the operating (loss) for COC were $8 million and $(59) million for the nine months ended December 31, 2004, $1 million and $(9) million for the three months ended March 31, 2004 and $7 million and $(35) for the year ended December 31, 2003, respectively. The revenues for the fuel cell business were not material for any period presented. Operating (losses) for the fuel cell business was $(8) million for the nine months ended December 31, 2004, $(2) million for the three months ended March 31, 2004 and $(12) million for the year ended December 31, 2003. As of December 31, 2004, the estimated total assets and total liabilities of COC, including intercompany payables, were approximately $42 million and $74 million, respectively, and the estimated total assets and total liabilities of Pemeas GmbH were $24 million and $3 million, respectively. Stock Incentive Plan, Deferred Compensation Plan and Bonuses. In December 2004, Celanese Corporation adopted a stock incentive plan and a deferred compensation plan to assist us in recruiting, retaining and motivating key employees, directors and consultants. Celanese Corporation has paid bonuses of $2 million, in the aggregate, to certain members of management. In addition, three of our named executive officers will be eligible to receive retention bonuses totaling approximately $13 million in the aggregate, fifty percent of which has been paid. Under the Stock Incentive Plan, Celanese Corporation has granted options with the exercise price equal to the initial public offering price of its Series A common stock. In addition, it has sold 1,613,317 shares of its Series A common stock at $7.20 per share under its Stock Incentive Plan to certain of our executive officers, employees and directors. In connection with such issuance, we recorded a compensation expense equal to the difference between the issue price and the initial public offering price times the number of shares issued below the initial public offering price, in the aggregate amount of approximately $14 million. The aggregate maximum amount payable under the deferred compensation plan is $192 million. The initial component of the deferred compensation plan totaling an aggregate of approximately 5 -------------------------------------------------------------------------------- $27 million vested in the fourth quarter of 2004 and was paid in the first quarter of 2005. We recorded a charge in the fourth quarter of 2004 for the first $27 million of the deferred compensation plan. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Future Charges and Cash Receipts and Payments" and "ManagementStock Incentive Plan," "Deferred Compensation Plan" and "Bonus". Internal Controls. We are evaluating our internal controls over financial reporting in order to allow management to report on, and our independent auditors to attest to, our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002 and rules and regulations of the SEC thereunder. If we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, it may have a significant and adverse effect on our business and reputation. In addition to, and separate from, our evaluation of internal controls under Section 404, in 2004 we identified and remediated two significant deficiencies in our internal controls. In 2005, during the course of the audit of our financial statements as of and for the nine months ended December 31, 2004, our independent auditors identified two material weaknesses in our internal controls relating to the period covered by such financial statements. The identification of any significant deficiencies or material weaknesses in the future could affect our ability to ensure timely and reliable financial reports. If we discover other deficiencies or weaknesses and are unable to remediate such deficiencies or weaknesses in internal controls in a timely manner, our ability to record, process, summarize and report financial information within the time periods specified in the rules and forms of the SEC will be adversely affected. See "Risk FactorsRisks Related to the Acquisition of CelaneseOur internal controls over financial reporting may not be effective and our independent auditors may not be able to certify as to their effectiveness, which could have a significant and adverse effect on our business and reputation" and "We have in the past identified significant deficiencies and material weaknesses in our internal controls, and the identification of any significant deficiencies or material weaknesses in the future could affect our ability to ensure timely and reliable financial reports." Partial Redemption of the Notes. In February 2005, the Issuer redeemed approximately 35% of the aggregate principal amount of the notes with a portion of the net proceeds from the offering by Celanese Corporation of its Series A common stock and preferred stock that was contributed to the Issuer for such purpose. [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Our principal executive offices are located at 1601 West LBJ Freeway, Dallas, TX 75234-6034 and our main telephone number is +1-972-443-4000. 6 -------------------------------------------------------------------------------- THE EXCHANGE OFFER In this prospectus, the term "outstanding notes" refers to the 10% Series A senior discount notes due 2014 and 1012;% Series B senior discount notes due 2014; the term "exchange notes" refers to the 10% Series A senior discount notes due 2014 and the 1012;% Series B senior discount notes due 2014, each as registered under the Securities Act of 1933, as amended (the "Securities Act"); the term "notes" refers to both the outstanding notes and exchange notes. On September 24, 2004, the Issuer issued an aggregate of $163,000,000 principal amount at maturity of 10% Series A senior discount notes due 2014 and $690,000,000 principal amount at maturity of 1012;% Series B senior discount notes due 2014 in a private offering. In February 2005, the Issuer redeemed approximately 35% of the aggregate principal amount at maturity of the notes with a portion of the net proceeds from the offering by Celanese Corporation of its Series A common stock and preferred stock that was contributed to the Issuer for such purpose. [[Image Removed]] [[Image Removed]] [[Image Removed]] General In connection with the private offering, the Issuer entered into registration rights agreement with the initial purchasers in which the Issuer agreed, among other things, to deliver this prospectus to you and to complete the exchange offer within 270 [[Image Removed]] days after the date of first issuance of the outstanding notes. You are entitled to exchange in the exchange offer your outstanding notes for exchange notes which are identical in all material respects to the outstanding notes except: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] the exchange notes have been [[Image Removed]] registered under the Securities Act; [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] the exchange notes are not entitled to any registration [[Image Removed]] rights which are applicable to the outstanding notes under the registration rights agreement; and [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] the liquidated damages provisions of the [[Image Removed]] registration rights agreement are not applicable to the exchange notes. [[Image Removed]] [[Image Removed]] [[Image Removed]] The Exchange Offer [[Image Removed]] The Issuer is offering to exchange: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] $105,950,000 principal amount at maturity of its 10% Series A Senior Discount Notes due 2014, which have been [[Image Removed]] registered under the Securities Act, for any and all of its outstanding 10% Series A Senior Discount Notes due 2014; and [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] $448,500,000 principal amount at maturity of its 1012;% Senior Discount Notes due 2014, which have been [[Image Removed]] registered under the Securities Act, for any and all of its outstanding 1012;% Senior Discount Notes due 2014. [[Image Removed]] [[Image Removed]] [[Image Removed]] You may only exchange outstanding notes in a principal [[Image Removed]] amount of $5,000 or in integral multiples of $1,000 in excess thereof. [[Image Removed]] [[Image Removed]] [[Image Removed]] Resale Based on an interpretation by the staff of the Securities and Exchange [[Image Removed]] Commission (the "SEC") set forth in no-action letters issued to third parties, the Issuer believes 7 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] [[Image Removed]] that the exchange notes issued pursuant to the exchange offer in exchange for outstanding notes may be offered for resale, resold and otherwise transferred by you (unless you [[Image Removed]] are our "affiliate" within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] you are acquiring the [[Image Removed]] exchange notes in the ordinary course of your business; and [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] you have not engaged in, do not intend to engage in, and have no arrangement or [[Image Removed]] understanding with any person to participate in, a distribution of the exchange notes. [[Image Removed]] [[Image Removed]] [[Image Removed]] If you are a broker-dealer and receive exchange notes for your own account in exchange for outstanding notes that you acquired as a result of market-making [[Image Removed]] activities or other trading activities, you must acknowledge that you will deliver this prospectus in connection with any resale of the exchange notes. See "Plan of Distribution." [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Any holder of outstanding notes who: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] is our affiliate; [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] does not acquire exchange [[Image Removed]] notes in the ordinary course of its business; or [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] tenders its outstanding notes in the exchange offer with the intention to participate, [[Image Removed]] or for the purpose of participating, in a distribution of exchange notes [[Image Removed]] [[Image Removed]] [[Image Removed]] cannot rely on the position of the staff of the SEC enunciated in Morgan Stanley & Co. Incorporated (available June 5, 1991) and Exxon Capital Holdings Corporation (available May 13, 1988), as interpreted in the SEC's letter to Shearman & [[Image Removed]] Sterling (available July 2, 1993), or similar no-action letters and, in the absence of an exemption therefrom, must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the exchange notes. [[Image Removed]] [[Image Removed]] [[Image Removed]] Expiration Date The exchange offer will commence on , 2005 and will expire on , [[Image Removed]] 2005, unless extended by us. The Issuer does not currently intend to extend the expiration date. [[Image Removed]] [[Image Removed]] [[Image Removed]] Withdrawal You may withdraw the tender of your outstanding notes at any time prior to the expiration of the exchange offer. The Issuer will return to you any of your [[Image Removed]] outstanding notes that are not accepted for any reason for exchange, without expense to you, promptly after the expiration or termination of the exchange offer. 8 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] [[Image Removed]] Conditions to the The exchange Exchange Offer offer is subject to customary conditions, which [[Image Removed]] the Issuer may waive. See "The Exchange OfferConditions to the Exchange Offer." [[Image Removed]] [[Image Removed]] [[Image Removed]] Procedures for If you wish to Tendering participate in Outstanding Notes the exchange offer, you must complete, sign and date the applicable accompanying letter of transmittal, or a facsimile of such letter of transmittal, according to the instructions contained in this prospectus and the letter of [[Image Removed]] transmittal. You must then mail or otherwise deliver the applicable letter of transmittal, or a facsimile of such letter of transmittal, together with the outstanding notes and any other required documents, to the exchange agent at the address set forth on the cover page of the letter of transmittal. [[Image Removed]] [[Image Removed]] [[Image Removed]] If you hold outstanding notes through The Depository Trust Company ("DTC") and wish to participate in the exchange offer, you must comply with the Automated Tender Offer Program [[Image Removed]] procedures of DTC, by which you will agree to be bound by the letter of transmittal. By signing, or agreeing to be bound by, the letter of transmittal, you will represent to us that, among other things: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] you are not our "affiliate" within the meaning of Rule 405 under the Securities Act or, if you are our affiliate, [[Image Removed]] that you will comply with any applicable registration and prospectus delivery requirements of the Securities Act; [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] you do not have an arrangement or understanding [[Image Removed]] with any person or entity to participate in the distribution of the exchange notes; [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] you are acquiring the [[Image Removed]] exchange notes in the ordinary course of your business; and [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] if you are a broker-dealer that will receive exchange notes for your own account in exchange for outstanding notes that were acquired as a [[Image Removed]] result of market-making activities, that you will deliver a prospectus, as required by law, in connection with any resale of such exchange notes. [[Image Removed]] [[Image Removed]] [[Image Removed]] Special If you are a Procedures for beneficial owner Beneficial of outstanding Owners notes that are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, and you wish to tender those outstanding notes in the exchange [[Image Removed]] offer, you should contact the registered holder promptly and instruct the registered holder to tender those outstanding notes on your behalf. If you wish to tender on your own behalf, you must, prior to completing and executing the applicable 9 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] [[Image Removed]] letter of transmittal and delivering your outstanding notes, either make appropriate arrangements to register ownership of the outstanding notes in your name or obtain a properly [[Image Removed]] completed bond power from the registered holder. The transfer of registered ownership may take considerable time and may not be able to be completed prior to the expiration date. [[Image Removed]] [[Image Removed]] [[Image Removed]] Guaranteed If you wish to Delivery tender your Procedures outstanding notes and your outstanding notes are not immediately available or you cannot deliver your outstanding notes, the applicable letter of transmittal or any other required documents, or you cannot comply with the applicable [[Image Removed]] procedures under DTC's Automated Tender Offer Program, for transfer of book-entry interests, prior to the expiration date, you must tender your outstanding notes according to the guaranteed delivery procedures set forth in this prospectus under "The Exchange OfferGuaranteed Delivery Procedures." [[Image Removed]] [[Image Removed]] [[Image Removed]] Effect on Holders As a result of of Outstanding the making of, Notes and upon acceptance for exchange of all validly tendered outstanding notes pursuant to the terms of the exchange offer, the Issuer will have fulfilled a covenant under the registration rights agreement. Accordingly, there will be no increase in the interest rate on the outstanding notes under the circumstances described in the registration rights agreement. If you do not tender your outstanding notes in the exchange offer, you will continue to be [[Image Removed]] entitled to all the rights and limitations applicable to the outstanding notes as set forth in the indenture, except the Issuer will not have any further obligation to you to provide for the exchange and registration of the outstanding notes under the registration rights agreement. To the extent that outstanding notes are tendered and accepted in the exchange offer, the trading market for remaining outstanding notes that are not so tendered and exchanged could be adversely affected. [[Image Removed]] [[Image Removed]] [[Image Removed]] Consequences of All untendered Failure to outstanding notes Exchange will continue to be subject to the restrictions on transfer set forth in the outstanding notes and in the indenture. In general, the outstanding notes may not be offered or sold unless registered under the Securities Act, except pursuant [[Image Removed]] to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. Other than in connection with the exchange offer, the Issuer and the Parent Guarantor do not currently anticipate that they will register the outstanding notes under the Securities Act. [[Image Removed]] [[Image Removed]] [[Image Removed]] Material U.S. The exchange of Federal Income Tax outstanding notes Consequences in the exchange [[Image Removed]] offer will not be a taxable event for United States federal 10 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] [[Image Removed]] income tax purposes. See "Material U.S. [[Image Removed]] Federal Income Tax Consequences of the Exchange Offer." [[Image Removed]] [[Image Removed]] [[Image Removed]] Use of Proceeds The Issuer will not receive any cash proceeds [[Image Removed]] from the issuance of exchange notes in the exchange offer. See "Use of Proceeds." [[Image Removed]] [[Image Removed]] [[Image Removed]] Exchange Agent The Bank of New York is the exchange agent for the exchange offer. The addresses and telephone numbers [[Image Removed]] of the exchange agent are set forth in the section captioned "The Exchange OfferExchange Agent" of this prospectus. 11 -------------------------------------------------------------------------------- EXCHANGE NOTES The summary below describes the principal terms of the exchange notes and is not intended to be complete. Some of the terms and conditions described below are subject to important limitations and exceptions. You should carefully read the "Description of the Notes" section of this prospectus for a more detailed description of the exchange notes. [[Image Removed]] [[Image Removed]] [[Image Removed]] Issuer The collective reference to Crystal US Holdings 3 L.L.C., a limited liability company organized under [[Image Removed]] the laws of the State of Delaware and Crystal US Sub 3 Corp., a corporation organized under the laws of the State of Delaware. [[Image Removed]] [[Image Removed]] [[Image Removed]] Notes Offered $105,950,000 aggregate principal amount at maturity of 10% Series A Senior Discount Notes due 2014 [[Image Removed]] and $448,500,000 aggregate principal amount at maturity of the Issuer's 1012;% Senior Discount Notes Due 2014. [[Image Removed]] [[Image Removed]] [[Image Removed]] Maturity Date [[Image Removed]] October 1, 2014 [[Image Removed]] [[Image Removed]] [[Image Removed]] Interest Payment Dates Prior to October 1, 2009, interest will accrue on the exchange notes in the form of an increase in the applicable accreted value of such notes. Thereafter, cash interest on the exchange notes will accrue commencing on October 1, 2009 and be payable semiannually in arrears on April 1 and October 1 of each year, commencing on April 1, 2010, at a rate of 10% per annum on the Series A exchange notes and 1012;% per annum on the Series B exchange notes. The Series A exchange notes will have an initial accreted value of approximately $655.35 per $1,000 principal amount at maturity of the Series A notes [[Image Removed]] and the Series B notes will have an initial accreted value of approximately $642.00 per $1,000 principal amount at maturity of the Series B notes, based on an assumed June 1, 2005 expiration date of the exchange offer. The accreted value of each Series A exchange note and each Series B exchange note will increase from the date of issuance until October 1, 2009 at a rate of 10% per annum for each Series A exchange note and 1012;% per annum for each Series B exchange note, reflecting the accrual of non-cash interest, such that the accreted value will equal the principal amount at maturity on October 1, 2009. [[Image Removed]] [[Image Removed]] [[Image Removed]] Parent Guarantee Celanese Corporation (the "Parent Guarantor"), the Issuer's direct parent, will guarantee the exchange notes on a senior, unsecured basis. The guarantee by the Parent Guarantor is being provided for the purpose of allowing the Issuer to satisfy its reporting [[Image Removed]] obligations under the indenture governing the notes by furnishing financial information relating to the Parent Guarantor instead of the Issuer. Moreover, the guarantee by the Parent Guarantor may be released at any time after the offering at the option of the Issuer and the Parent Guarantor. 12 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] [[Image Removed]] Ranking The exchange notes will be the [[Image Removed]] Issuer's senior unsecured obligations and will: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] rank equally in right of [[Image Removed]] payment to all of the Issuer's future senior indebtedness; [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] rank senior in right of payment to all of the [[Image Removed]] Issuer's future senior subordinated indebtedness and subordinated indebtedness; and [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] be effectively subordinated in right of payment to the Issuer's future secured indebtedness to the extent of the value of the assets [[Image Removed]] securing such indebtedness, and structurally subordinated to all indebtedness and other obligations, including trade payables, of the Issuer's existing and future subsidiaries. [[Image Removed]] [[Image Removed]] [[Image Removed]] Similarly, the Parent Guarantee will be senior [[Image Removed]] unsecured obligations of the Parent Guarantor and will: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] rank equally in right of [[Image Removed]] payment to all of the Parent Guarantor's future senior indebtedness; [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] rank senior in right of payment to all of the Parent [[Image Removed]] Guarantor's future senior subordinated indebtedness and subordinated indebtedness; and [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] be effectively subordinated in right of payment to the Parent Guarantor's future secured indebtedness to the extent of the value of the assets securing such [[Image Removed]] indebtedness, and structurally subordinated to all indebtedness and other obligations, including trade payables, of the Parent Guarantor's existing and future subsidiaries. [[Image Removed]] [[Image Removed]] [[Image Removed]] As of December 31, 2004, on a pro forma basis, after giving effect to the Recent Financings (excluding $242 million of our Acquisition Facility), the Consolidated Parent Guarantor would have had $3.7 billion of consolidated indebtedness (including $211 million of future accretion on the notes), $554 million of which would have been indebtedness of the Issuer [[Image Removed]] consisting solely of the notes, and $3.1 billion of which would have been indebtedness of the Issuer's subsidiaries and therefore structurally senior to the exchange notes. On the same basis, $1.8 billion of indebtedness of the Issuer's subsidiaries would have been secured. See "Summary Historical and Pro Forma Financial Data" and "Capitalization." [[Image Removed]] [[Image Removed]] [[Image Removed]] Optional Redemption The Issuer may redeem some or all of the exchange notes at any time prior to October 1, 2009, at a price equal to 100% of the [[Image Removed]] principal amount of the exchange notes plus a "make-whole" premium as set forth under "Description of the NotesOptional Redemption." 13 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] [[Image Removed]] Additionally, the Issuer may redeem the exchange notes, in whole or in part, at any time on and [[Image Removed]] after October 1, 2009 at the redemption prices set forth under "Description of the NotesOptional Redemption." [[Image Removed]] [[Image Removed]] [[Image Removed]] The Issuer may redeem all, but not less than all, of the exchange Series B notes prior to October 1, 2007 from the proceeds of certain equity [[Image Removed]] offerings at 110.500% of the accreted value of the exchange Series B notes, plus accrued and unpaid interest, if any, to the date of redemption. [[Image Removed]] [[Image Removed]] [[Image Removed]] In February 2005, the Issuer redeemed approximately 35% of the aggregate principal amount of the notes with a portion of the net proceeds from the offering by [[Image Removed]] Celanese Corporation of its Series A common stock and preferred stock that was contributed to the Issuer for such purpose. See "Description of the NotesOptional Redemption." [[Image Removed]] [[Image Removed]] [[Image Removed]] Change of Control Upon the Offer occurrence of a change of control, you will have the right, as a holder of the exchange notes, to require the Issuer to repurchase some or all of your exchange notes at 101% of their principal amount, plus accrued and [[Image Removed]] unpaid interest, if any, to the repurchase date. The Issuer may not have sufficient funds to repurchase the exchange notes upon a change of control. See "Description of the NotesRepurchase at the Option of HoldersChange of Control." [[Image Removed]] [[Image Removed]] [[Image Removed]] Certain Covenants The indenture governing the exchange notes will contain covenants [[Image Removed]] limiting, among other things, the Issuer's ability and the ability of its restricted subsidiaries to: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] incur additional indebtedness or issue preferred stock; [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] pay dividends on or make other distributions or [[Image Removed]] repurchase our capital stock or make other restricted payments; [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] make investments; [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] enter into certain transactions with affiliates; [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] limit dividends or other payments by its restricted [[Image Removed]] subsidiaries to the Issuer or other restricted subsidiaries; [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] create liens on pari passu or [[Image Removed]] subordinated indebtedness without securing the exchange notes; [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] designate the Issuer's [[Image Removed]] subsidiaries as unrestricted subsidiaries; and [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] sell certain assets or merge with or into other companies [[Image Removed]] or otherwise dispose of all or substantially all of their assets. 14 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] [[Image Removed]] These covenants are subject to important exceptions and [[Image Removed]] qualifications. See "Description of the NotesCertain Covenants." [[Image Removed]] [[Image Removed]] [[Image Removed]] No Public Market The exchange notes will be freely transferable but will be new securities for which there will not initially be a market. Accordingly, there is no assurance that a market for the exchange notes will develop or as to the liquidity of any market. The initial purchasers in the private offerings [[Image Removed]] of the outstanding notes have advised the Issuer that they currently intend to make a market in the exchange notes. The initial purchasers are not obligated, however, to make a market in the exchange notes, and any such market-making may be discontinued by the initial purchasers in their discretion at any time without notice. PARTIAL REDEMPTION OF THE NOTES In February 2005, the Issuer redeemed approximately 35% of the aggregate principal amount of the notes with a portion of the net proceeds from the offering by Celanese Corporation of its Series A common stock and preferred stock that was contributed to the Issuer for such purpose. RISK FACTORS Investing in the notes involves substantial risk. You should carefully consider all the information in this prospectus prior to exchanging your outstanding notes. In particular, you should consider carefully the factors set forth under the heading "Risk Factors" below. 15 -------------------------------------------------------------------------------- SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA The balance sheet data shown below for December 31, 2003 and 2004, and the statements of operations and cash flow data for 2002, 2003 and 2004, all of which are set forth below, are derived from the audited Consolidated Financial Statements included elsewhere in this prospectus and should be read in conjunction with those financial statements and the notes thereto. The balance sheet data for 2002 is derived from CAG's audited financial statements which are not included in this prospectus. The balance sheet data for March 31, 2004 is unaudited. The following summary unaudited pro forma financial data have been prepared to give pro forma effect to the Transactions, the Recent Restructuring and the Recent Financings, as if they had occurred on January 1, 2004, in the case of our unaudited pro forma statements of operations data, and on December 31, 2004, in the case of our unaudited pro forma balance sheet data. The pro forma financial data are for informational purposes only and should not be considered indicative of actual results that would have been achieved had the Transactions, the Recent Restructuring, and the Recent Financings actually been consummated on the dates indicated and do not purport to indicate balance sheet data or results of operations as of any future date or for any future period. You should read the following data in conjunction with "The Transactions," "The Recent Restructuring," "The Recent Financings," "Unaudited Pro Forma Financial Information," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements included elsewhere in this prospectus. As of December 31, 2004, the Purchaser, an indirect wholly owned subsidiary of the Issuer, owned approximately 84% of the CAG Shares then outstanding. The Issuer and the Parent Guarantor are recently-formed companies which, apart from the financing of the Transactions, do not have any independent external operations other than through the indirect ownership of CAG and CAC, their consolidated subsidiaries, their non-consolidated subsidiaries, ventures and other investments.. Accordingly, financial and other information of CAG is presented in this prospectus. This prospectus presents the financial information relating to CAG and its subsidiaries under the caption "Predecessor" and the information relating to us under the caption "Successor." See "The Transactions." 16 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Predecessor [[Image Removed]] Successor [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Pro Forma(1) Three Months Nine Months Year [[Image Removed]] [[Image Removed]] Ended [[Image Removed]] Ended [[Image Removed]] Ended Year Ended December 31, March 31, December 31, December 31, [[Image Removed]] 2002 [[Image Removed]] 2003 [[Image Removed]] 2004 2004 2004 [[Image Removed]] (in millions, except shares and per share data) [[Image Removed]] (unaudited) Statement of Operations Data: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Net sales [[Image Removed]] $ 3,836 [[Image Removed]] $ 4,603 [[Image Removed]] $ 1,243 [[Image Removed]] $ 3,826 [[Image Removed]] $ 5,069 Cost of sales [[Image Removed]] (3,171 ) [[Image Removed]] (3,883 ) [[Image Removed]] (1,002 ) [[Image Removed]] (3,092 ) [[Image Removed]] (4,001 ) Selling, general and administrative expenses [[Image Removed]] (446 ) [[Image Removed]] (510 ) [[Image Removed]] (137 ) [[Image Removed]] (498 ) [[Image Removed]] (635 ) Research and development expenses [[Image Removed]] (65 ) [[Image Removed]] (89 ) [[Image Removed]] (23 ) [[Image Removed]] (67 ) [[Image Removed]] (89 ) Special charges(2): [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Insurance recoveries associated with plumbing cases [[Image Removed]] [[Image Removed]] 107 [[Image Removed]] [[Image Removed]] 1 [[Image Removed]] 1 Sorbates antitrust matters [[Image Removed]] [[Image Removed]] (95 ) [[Image Removed]] [[Image Removed]] [[Image Removed]] Restructuring, impairment and other special charges, [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] net 5 (17 ) (28 ) (92 ) (99 ) Foreign exchange gain (loss) [[Image Removed]] 3 [[Image Removed]] (4 ) [[Image Removed]] [[Image Removed]] (3 ) [[Image Removed]] (3 ) Gain (loss) on disposition of assets [[Image Removed]] 11 [[Image Removed]] 6 [[Image Removed]] (1 ) [[Image Removed]] 3 [[Image Removed]] 2 Operating profit (loss) [[Image Removed]] 173 [[Image Removed]] 118 [[Image Removed]] 52 [[Image Removed]] 78 [[Image Removed]] 245 Equity in net earnings of affiliates [[Image Removed]] 21 [[Image Removed]] 35 [[Image Removed]] 12 [[Image Removed]] 36 [[Image Removed]] 48 Interest expense [[Image Removed]] (55 ) [[Image Removed]] (49 ) [[Image Removed]] (6 ) [[Image Removed]] (300 ) [[Image Removed]] (250 ) Interest and other income (expense), net(3) [[Image Removed]] 41 [[Image Removed]] 92 [[Image Removed]] 14 [[Image Removed]] 12 [[Image Removed]] 26 Income tax benefit (provision) [[Image Removed]] (57 ) [[Image Removed]] (53 ) [[Image Removed]] (17 ) [[Image Removed]] (70 ) [[Image Removed]] (109 ) Minority interests [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] (8 ) [[Image Removed]] (23 ) Earnings (loss) from continuing operations [[Image Removed]] 123 [[Image Removed]] 143 [[Image Removed]] 55 [[Image Removed]] (252 ) [[Image Removed]] $ (63 ) Earnings (loss) from discontinued operations, net of [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] income tax 27 6 23 (1 ) Cumulative effect of changes in accounting [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] principles, net of income tax 18 (1 ) Net earnings (loss) [[Image Removed]] $ 168 [[Image Removed]] $ 148 [[Image Removed]] $ 78 [[Image Removed]] $ (253 ) [[Image Removed]] [[Image Removed]] 17 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Predecessor [[Image Removed]] Successor [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Pro Forma(1) Three Months Nine Months Year [[Image Removed]] [[Image Removed]] Ended [[Image Removed]] Ended [[Image Removed]] Ended Year Ended December 31, March 31, December 31, December 31, [[Image Removed]] 2002 [[Image Removed]] 2003 [[Image Removed]] 2004 2004 2004 [[Image Removed]] (in millions, except shares and per share data) [[Image Removed]] (unaudited) Other Financial Data: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Ratio of earnings to fixed charges (unaudited)(4) [[Image Removed]] 3.6x [[Image Removed]] 3.3x [[Image Removed]] 5.8x [[Image Removed]] [[Image Removed]] Statement of Cash Flows Data: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Net cash provided by (used in) continuing operations: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Operating activities [[Image Removed]] $ 363 [[Image Removed]] $ 401 [[Image Removed]] $ (107 ) [[Image Removed]] $ (63 ) [[Image Removed]] [[Image Removed]] Investing activities [[Image Removed]] (139 ) [[Image Removed]] (275 ) [[Image Removed]] 96 [[Image Removed]] (1,810 ) [[Image Removed]] Financing activities [[Image Removed]] (150 ) [[Image Removed]] (108 ) [[Image Removed]] (43 ) [[Image Removed]] 2,686 [[Image Removed]] [[Image Removed]] Balance Sheet Data (March 31, 2004 unaudited): [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Trade working capital(5) [[Image Removed]] $ 599 [[Image Removed]] $ 641 [[Image Removed]] $ 715 [[Image Removed]] $ 762 [[Image Removed]] $ 762 Total assets [[Image Removed]] 6,417 [[Image Removed]] 6,814 [[Image Removed]] 6,613 [[Image Removed]] 7,410 [[Image Removed]] 7,283 Total debt [[Image Removed]] 644 [[Image Removed]] 637 [[Image Removed]] 587 [[Image Removed]] 3,387 [[Image Removed]] 3,262 Shareholders' equity (deficit) [[Image Removed]] 2,096 [[Image Removed]] 2,582 [[Image Removed]] 2,622 [[Image Removed]] (112 ) [[Image Removed]] (60 ) [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] (1) We owned approximately 84% of the CAG Shares outstanding as of December 31, 2004 and the pro forma information presented above assumes that we do not acquire any additional CAG Shares. Assuming the Purchaser were to pay the fair cash compensation offer price required by the domination and profit and loss transfer agreement (the "Domination Agreement") of 41.92, plus interest, per share for all remaining CAG Shares, earnings from continuing operations would be higher by the amount of minority interest expense. [[Image Removed]] [[Image Removed]] (2) Special charges include impairment charges, provisions for restructuring, which include costs associated with employee termination benefits and plant and office closures, certain insurance recoveries and other expenses and income incurred outside the normal course of ongoing operations. See note 21 to the Consolidated Financial Statements. [[Image Removed]] [[Image Removed]] (3) Interest and other income (expense), net, includes interest income, dividends from cost basis investments and other non-operating income (expense). [[Image Removed]] [[Image Removed]] (4) For purposes of calculating the unaudited ratio of earnings to fixed charges, earnings represent earnings (loss) from continuing operations before income taxes and minority interests, less income from equity method investments and capitalized interest, plus income distributions from equity method investments, amortization of capitalized interest and fixed charges. Fixed charges include interest expense (including amortization of debt issuance costs), capitalized interest, and the portion of operating rental expense which management believes is representative of the interest component of rent expense. Earnings were insufficient to cover fixed charges by $182 million for the nine months ended December 31, 2004. The pro forma ratios of earnings to fixed charges have been computed based on the historical ratios adjusted for the pro forma change in interest expense and the pro forma preferred dividends on the preferred stock. Pro forma earnings were insufficient to cover pro forma fixed charges by $49 million for the year ended December 31, 2004. [[Image Removed]] [[Image Removed]] (5) 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. For the calculation of trade working capital, see note (5) to "Selected Historical Financial Data." 18 -------------------------------------------------------------------------------- RISK FACTORS An investment in our notes involves risks. You should carefully consider the risks described below, together with the other information in this prospectus, before deciding to tender your outstanding notes in the exchange offer. Risks Related to the Exchange Offer You will continue to be subject to transfer restrictions on your notes and you may experience increasing volatility due to a reduction in liquidity of your outstanding notes if you do not exchange your outstanding notes. If you do not exchange your outstanding notes for exchange notes in the exchange offer, you will continue to be subject to restrictions on transfer of your outstanding notes as set forth in the offering memoranda distributed in connection with the private offerings of the outstanding notes. In general, the outstanding notes may not be offered or sold unless they are registered or exempt from registration under the Securities Act and applicable state securities laws. Except as required by the registration rights agreement, the Issuer does not intend to register resales of the outstanding notes under the Securities Act. You should refer to "SummaryThe Exchange Offer" and "The Exchange Offer" for information about how to tender your outstanding notes. The tender of outstanding notes under the exchange offer will reduce the outstanding amount of each series of the outstanding notes, which may depress, and increase the volatility of, the market prices of the outstanding notes due to a reduction in liquidity. Risks Related to the Acquisition of CAG If the Domination Agreement ceases to be operative, the Issuer's managerial control over CAG is limited. As of the date of this prospectus, we own 100% of the outstanding shares of CAC and approximately 85% of the outstanding shares of CAG. Our access to cash flows of, and our control of, CAG is subject to the continuing effectiveness of the Domination Agreement. See "The TransactionsPost-Tender Offer EventsDomination and Profit and Loss Transfer Agreement." The Domination Agreement is subject to legal challenges instituted by dissenting shareholders. Minority shareholders have filed nine actions against CAG in the Frankfurt District Court (Landgericht), seeking, among other things, to set aside the shareholder resolutions passed at the extraordinary general meeting held on July 30 and 31, 2004 based, among other things, on the alleged violation of procedural requirements and information rights of the shareholders, to declare the Domination Agreement and the change in the fiscal year void and to prohibit CAG from performing its obligations under the Domination Agreement. Pursuant to German law, the time period for the filing of such challenges has expired. Further, several additional minority shareholders have joined the proceedings via third party intervention in support of the plaintiffs. The Purchaser has joined the proceedings via third party intervention in support of CAG. In addition, a German court could revoke the registration of the Domination Agreement in the commercial register. On August 2, 2004, two minority shareholders instituted public register proceedings with the Knigstein Local Court (Amtsgericht) and the Frankfurt District Court, both with a view to have the registration of the Domination Agreement in the Commercial Register deleted (Amtslschungsverfahren). See "BusinessLegal Proceedings." If the Domination Agreement ceases to be operative, the Purchaser's ability, and thus our ability to control the board of management decisions of CAG, will be significantly limited by German law. As a result, we may not be able to ensure that our strategy for the operation of our business can be fully implemented. In addition, our access to the operating cash flow of CAG in order to fund payment requirements on our indebtedness will be limited. 19 -------------------------------------------------------------------------------- If the Domination Agreement ceases to be operative, certain actions taken under the Domination Agreement might have to be reversed. If legal challenges of the Domination Agreement by dissenting shareholders of CAG are successful, some or all actions taken under the Domination Agreement, including the Recent Restructuring, may be required to be reversed and the Purchaser may be required to compensate CAG for damages caused by such actions. Any such event could have a material adverse effect on our ability to make payments on our indebtedness. Minority shareholders may interfere with CAG's future actions, which may prevent us from causing CAG to take actions which may have beneficial effects for the holders of the notes. The Purchaser currently owns approximately 85% of the CAG Shares. Shareholders unrelated to us hold the remainder of the outstanding CAG Shares. German law provides certain rights to minority shareholders, which could have the effect of delaying, or interfering with, corporate actions (including those requiring shareholder approval), such as the potential application for revocation of admission of the CAG Shares to the Frankfurt Stock Exchange, the squeeze-out and the potential conversion of CAG from its current legal form of a stock corporation into a limited partnership (Kommanditgesellschaft, KG) or a limited liability company (Gesellschaft mit beschrnkter Haftung, GmbH) in accordance with the provisions of the German Transformation Act (Umwandlungsgesetz, UmwG). Minority shareholders may be able to delay or prevent the implementation of CAG's corporate actions irrespective of the size of their shareholding. Any challenge by minority shareholders to the validity of a corporate action may be subject to judicial resolution that may substantially delay or hinder the implementation of such action. Such delays of, or interferences with, corporate actions as well as related litigation may limit our access to CAG's cash flows and make it difficult or impossible for us to take or implement corporate actions which may be desirable in view of our operating or financial requirements, including actions which may have beneficial effects for the holders of the notes. CAG's board of management may refuse to comply with instructions given by the Purchaser pursuant to the Domination Agreement, which may prevent us from causing CAG to take actions which may have beneficial effects for the holders of the notes. Under the Domination Agreement, the Purchaser is entitled to give instructions directly to the board of management of CAG, including, but not limited to, instructions that are disadvantageous to CAG, as long as such disadvantageous instructions benefit the Purchaser or the companies affiliated with either the Purchaser or CAG. CAG's board of management is required to comply with any such instruction, unless, at the time when such instruction is given, (i) it is, in the opinion of the board of management of CAG, obviously not in the interests of the Purchaser or the companies affiliated with either the Purchaser or CAG, (ii) in the event of a disadvantageous instruction, the negative consequences to CAG are disproportionate to the benefits to the Purchaser or the companies affiliated with either the Purchaser or CAG, (iii) compliance with the instruction would violate legal or statutory restrictions, (iv) compliance with the instruction would endanger the existence of CAG or (v) it is doubtful whether the Purchaser will be able to fully compensate CAG, as required by the Domination Agreement, for its annual loss (Jahresfehlbetrag) incurred during the fiscal year in which such instruction is given. The board of management of CAG remains ultimately responsible for making the executive decisions for CAG and the Purchaser, despite the Domination Agreement, is not entitled to act on behalf of, and has no power to legally bind, CAG. The CAG board of management may delay the implementation of, or refuse to implement, any of the Purchaser's instructions despite its general obligation to follow such instructions (with the exceptions mentioned above). Such delays of, or interferences with, compliance with the Purchaser's instructions by the board of management of CAG may make it difficult or impossible for the Purchaser to implement corporate actions which may be desirable in view of our operating or financial requirements, including actions which may have beneficial effects for the holders of the notes. 20 -------------------------------------------------------------------------------- The Purchaser will be required to ensure that CAG pays a guaranteed fixed annual payment to the minority shareholders of CAG, which may reduce the funds the Purchaser can otherwise make available to us. As long as the Purchaser does not own 100% of the outstanding CAG Shares, the Domination Agreement requires, among other things, the Purchaser to ensure that CAG makes a gross guaranteed fixed annual payment (Ausgleich) to minority shareholders of 3.27 per CAG share less certain corporate taxes in lieu of any future dividend. Taking into account the circumstances and the tax rates at the time of the entering into of the Domination Agreement, the net guaranteed fixed annual payment is 2.89 per share for a full fiscal year. As of December 31, 2004, there were approximately 8 million CAG Shares held by minority shareholders. The net guaranteed fixed annual payment may, depending on applicable corporate tax rates, in the future be higher, lower or the same as 2.89. The amount of this guaranteed fixed annual payment was calculated in accordance with applicable German law. The amount of the payment is currently under review in special award proceedings (Spruchverfahren). See "BusinessLegal Proceedings." Such guaranteed fixed annual payments will be required regardless of whether the actual distributable profits per share of CAG are higher, equal to, or lower than the amount of the guaranteed fixed annual payment per share. The guaranteed fixed annual payment will be payable for so long as there are minority shareholders of CAG and the Domination Agreement remains in place. No dividends for the period after effectiveness of the Domination Agreement, other than the guaranteed fixed annual payment effectively paid by the Purchaser, are expected to be paid by CAG. These requirements may reduce the funds the Purchaser can make available to the Parent Guarantor and the Issuer and their subsidiaries and, accordingly, diminish our ability to fulfill our obligations under the notes. See "The TransactionsPost-Tender Offer EventsDomination and Profit and Loss Transfer Agreement." The amounts of the fair cash compensation and of the guaranteed fixed annual payment offered under the Domination Agreement may be increased, which may further reduce the funds the Purchaser can otherwise make available to us. As of the date of this prospectus, several minority shareholders of CAG have initiated special award proceedings (Spruchverfahren) seeking the court's review of the amounts of the fair cash compensation (Abfindung) and of the guaranteed fixed annual payment (Ausgleich) offered under the Domination Agreement. As a result of these proceedings, the amounts of the fair cash compensation (Abfindung) and of the guaranteed fixed annual payment (Ausgleich) could be increased by the court, and the Purchaser would be required to make such payments within two months after the publication of the court's ruling. Any such increase may be substantial. All minority shareholders including those who have already received the fair cash compensation would be entitled to claim the respective higher amounts. This may reduce the funds the Purchaser can make available to the Parent Guarantor and the Issuer and their subsidiaries and, accordingly, diminish our ability to make payments on our indebtedness, including the notes. See "BusinessLegal Proceedings." The Purchaser may be required to compensate CAG for annual losses, which may reduce the funds the Purchaser can otherwise make available to the Parent Guarantor and the Issuer. 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 (Gewinnrcklagen) 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 was 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 21 -------------------------------------------------------------------------------- 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 "The TransactionsPost-Tender Offer EventsDomination and Profit and Loss Transfer Agreement." Two of our subsidiaries have agreed to guarantee the Purchaser's obligation under the Domination Agreement, which may diminish our ability to make payments on our indebtedness. Our subsidiaries, BCP Caylux Holdings Luxembourg S.C.A. and BCP Crystal, have each agreed to provide the Purchaser with financing to strengthen the Purchaser's 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 obligations to make a guaranteed fixed annual payment to the outstanding minority shareholders, to offer to acquire all outstanding CAG Shares from the minority shareholders in return for payment of fair cash consideration and to compensate CAG for any annual loss incurred by CAG during the term of the Domination Agreement. If BCP Caylux Holdings Luxembourg S.C.A. and/or BCP Crystal are obligated to make payments under such guarantees or other security to the Purchaser and/or the minority shareholders, we may not have sufficient funds for payments on our indebtedness, including the notes, when due. Even if the minority shareholders' challenges to the Domination Agreement are unsuccessful and the Domination Agreement continues to be operative, we may not be able to receive distributions from CAG sufficient to pay our obligations. Even if the minority shareholders' challenges to the Domination Agreement are unsuccessful and the Domination Agreement continues to be operative, we are limited in the amount of distributions we may receive in any year from CAG. Under German law, the amount of distributions to the Purchaser will be determined based on the amount of unappropriated earnings generated during the term of the Domination Agreement as shown in the unconsolidated annual financial statements of CAG, prepared in accordance with German accounting principles and as adopted and approved by resolutions of the CAG board of management and supervisory board, which financial statements may be different from Celanese's consolidated financial statements under U.S. GAAP. Our share of these earnings, if any, may not be in amounts and at times sufficient to allow us to pay our indebtedness, including the notes, as it becomes due. We must rely on payments from our subsidiaries to fund payments on our indebtedness, including the notes and the guarantee. Such funds may not be available in certain circumstances. The Issuer and the Parent Guarantor are holding companies and all of their operations are conducted through their subsidiaries. Therefore, they depend on the cash flow of their subsidiaries, including CAG, to meet their obligations, including obligations of approximately $3.7 billion (including $211 million of future accretion on the notes) of their indebtedness (after giving effect to the Recent Financings and excluding $242 million to be drawn down from our amended and restated credit facilities to fund the Acetex acquisition), including obligations under the notes and the guarantee. If the Domination Agreement ceases to be operative, the Issuer and the Parent Guarantor may be unable to meet their obligations under the notes and the guarantee. Although the Domination Agreement became operative on October 1, 2004, it is subject to legal challenges instituted by dissenting shareholders. In August 2004, minority shareholders filed nine actions against CAG in the Frankfurt District Court (Landgericht) seeking, among other things, to set aside the shareholder resolutions passed at the extraordinary general meeting held on July 30 and 31, 2004 based, among other things, on the alleged violation of procedural requirements and information rights of the shareholders, to declare the Domination Agreement and the change in the fiscal year void and to prohibit CAG from performing its obligations under the Domination Agreement. Pursuant to German law, the time period for the filing of such challenges has expired. Further, several additional minority shareholders have joined the proceedings via third party intervention in support of the plaintiffs. The Purchaser has joined the proceedings via third party intervention to support CAG. In addition, a German court could revoke the registration of the Domination Agreement in the commercial register. On August 2, 2004, two minority shareholders instituted public register proceedings with the Knigstein Local Court (Amtsgericht) and the Frankfurt District Court, both with a view to have the 22 -------------------------------------------------------------------------------- registration of the Domination Agreement in the Commercial Register deleted (Amtslschungsverfahren). See "BusinessLegal Proceedings." The ability of our subsidiaries to make distributions to us by way of dividends, interest, return on investments, or other payments (including loans) or distributions is subject to various restrictions, including restrictions imposed by the amended and restated senior credit facilities and indentures governing their indebtedness, and the terms of future debt may also limit or prohibit such payments. In addition, the ability of the subsidiaries to make such payments may be limited by relevant provisions of German and other applicable laws. Our internal controls over financial reporting may not be effective and our independent auditors may not be able to certify as to their effectiveness, which could have a significant and adverse effect on our business and reputation. We are evaluating our internal controls over financial reporting in order to allow management to report on, and our independent auditors to attest to, our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002 and rules and regulations of the SEC thereunder, which we refer to as Section 404. We are currently performing the system and process evaluation and testing required (and any necessary remediation) in an effort to comply with management certification and auditor attestation requirements of Section 404. The management certification and auditor attestation requirements of Section 404 will initially apply to Celanese Corporation as of December 31, 2006 and CAG as of September 30, 2006. In the course of our ongoing Section 404 evaluation, we have identified areas of internal controls that may need improvement, and plan to design enhanced processes and controls to address these and any other issues that might be identified through this review. Currently, none of the identified areas that need improvement have been categorized as significant deficiencies or material weaknesses, individually or in the aggregate. However, as we are still in the evaluation process, we may identify conditions that may result in significant deficiencies or material weaknesses in the future. In 2004, certain members of our accounting staff identified two significant deficiencies and our auditors identified two material weaknesses, in addition to, and separate from, our Section 404 evaluation process. Those deficiencies are discussed in detail in the immediately subsequent risk factor. We cannot be certain as to the timing of completion of our evaluation, testing and any remediation actions or the impact of the same on our operations. If we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, our independent auditors may not be able to certify as to the effectiveness of our internal control over financial reporting and we may be subject to sanctions or investigation by regulatory authorities, such as the SEC. As a result, there could be a negative reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. In addition, we may be required to incur costs in improving our internal control system and the hiring of additional personnel. Any such action could negatively affect our results. We expect to incur expenses of an aggregate of approximately $9 million to $14 million in 2005 in connection with our compliance with Section 404. We have in the past identified significant deficiencies and material weaknesses in our internal controls, and the identification of any significant deficiencies or material weaknesses in the future could affect our ability to ensure timely and reliable financial reports. In addition to, and separate from, our evaluation of internal controls under Section 404 of the Sarbanes-Oxley Act of 2002 and any areas requiring improvement that we identify as part of that process, we previously identified two significant deficiencies and two material weaknesses in our internal controls. The Public Company Accounting Oversight Board ("PCAOB") defines a significant deficiency as a control deficiency, or a combination of control deficiencies, that adversely affects the company's ability to initiate, authorize, record, process, or report external financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the company's annual or interim financial statements that is more than inconsequential will not be prevented or detected. The PCAOB defines a material weakness as a 23 -------------------------------------------------------------------------------- single deficiency, or a combination of deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. In 2004, we identified two significant deficiencies in internal controls in the computation of certain accounting adjustments. These deficiencies were discovered in addition to, and separate from, the evaluation process we are conducting in connection with Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, which is further described below. The first deficiency was identified during the quarter ended June 30, 2004 by members of our corporate financial reporting group and related to the qualifications and ability of certain accounting managers to initially calculate the change from the LIFO (last-in, first-out) method of accounting for inventories to FIFO (first-in, first-out) and the resulting failure of such employees to correctly make such calculations. The second was identified during the quarter ended June 30, 2004 by one of our financial accounting managers and related to an omitted employee benefit accrual due to the failure to provide the applicable employment contracts to the actuary prior to the cut-off date for the December 31, 2003 pension valuation. Corrective actions taken by us included an internal audit review, the development of enhanced guidelines, the termination and reassignment of responsible persons and an elevation of the issues to the Supervisory Board of Celanese AG. The significant deficiencies noted were corrected in the quarter ended September 30, 2004 and thus did not exist as of December 31, 2004. On March 30, 2005, we received a letter from KPMG, our independent auditors, identifying two material weaknesses. These material weaknesses were determined in the course of the audit of our financial statements as of and for the nine months ended December 31, 2004. The first material weakness related to several deficiencies in the assessment of effectiveness and documentation of derivative financial instruments. The required adjustments were made in the proper accounting period, and we do not believe they had any material impact on previously reported financial information. The second material weakness was for the same period and related to conditions preventing our ability to adequately research, document, review and draw conclusions on accounting and reporting matters, which resulted in adjustments that had to be recorded to prevent our financial statements from being materially misleading. The conditions largely related to significant increases in the frequency of, and the limited amount of time and technical accounting resources available to address, complex accounting matters and transactions and as a result of the consummation of simultaneous debt and equity offerings during the year-end closing process. In response to the letter from KPMG, we are increasing the resources within our finance organization to include experts in the accounting for derivative financial instruments and in financial reporting, including tax accounting issues. We are also taking steps to ensure that adequate time is made available for company personnel to adequately research, document, review and conclude on accounting and reporting matters. These initiatives have materially affected or are reasonably likely to affect materially our internal controls over financial reporting. We are in the process of implementing changes to strengthen our internal controls. In addition, while we have taken actions to address these deficiencies and weaknesses, additional measures may be necessary and these measures along with other measures we expect to take to improve our internal controls may not be sufficient to address the issues identified by us or ensure that our internal controls are effective. If we are unable to correct deficiencies or weaknesses in internal controls in a timely manner, our ability to record, process, summarize and report financial information within the time periods specified in the rules and forms of the SEC will be adversely affected. This failure could materially and adversely impact our business, our financial condition and the market value of our securities. Risks Related to the Exchange Notes Our high 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. We are highly leveraged. After giving effect to the Transactions, the Recent Restructuring and the Recent Financings, our total indebtedness totals approximately $3.7 billion (excluding $242 million of 24 -------------------------------------------------------------------------------- our Acquisition Facility and including $211 million of future accretion on the notes). See "Capitalization" for additional information. Our substantial debt could have important consequences for you, including: [[Image Removed]] [[Image Removed]] making it more difficult for us to make payments on our debt; [[Image Removed]] [[Image Removed]] increasing vulnerability to general economic and industry conditions; [[Image Removed]] [[Image Removed]] 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 CAG's cash flow to fund operations, capital expenditures and future business opportunities; [[Image Removed]] [[Image Removed]] exposing us to the risk of increased interest rates as certain of our borrowings, including the borrowings under the amended and restated senior credit facilities, are at variable rates of interest; [[Image Removed]] [[Image Removed]] 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 [[Image Removed]] [[Image Removed]] limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who have less debt. Despite our current high leverage, we and our subsidiaries may be able to incur substantially more debt. This could further exacerbate the risks of our high leverage. 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. The revolving credit facilities provide commitments of up to $2.8 billion. As of March 31, 2005, there were no outstanding borrowings under the revolving credit facilities and $614 million was available for borrowings (taking into account letters of credit issued under the revolving credit facilities). We also expect to incur an additional $242 million of indebtedness under our amended and restated senior credit facilities to finance the pending acquisition of Acetex. See "Prospectus SummaryRecent Developments." All of those borrowings and revolver borrowings would be senior and secured, and as a result, would be both structurally and effectively senior to the exchange notes and the guarantee of the exchange notes by the Parent Guarantor. If the Issuer incurs any additional indebtedness that ranks equally with the exchange notes, the holders of that debt will be entitled to share with the holders of the exchange notes in any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding-up of the Issuer before any such distribution is made on the exchange notes. This may have the effect of reducing the amount of proceeds paid to you. If new debt is added to our current debt levels, the related risks that we now face could intensify. 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. After giving effect to the Recent Financings, our indebtedness totals approximately $3.7 billion (excluding $242 million of our Acquisition Facility expected to be drawn to fund the Acetex acquisition and including $211 million of future accretion on the notes). Debt service requirements, excluding the $242 million portion of our Acquisition Facility expected to be drawn to fund the Acetex acquisition, consist of principal repayments aggregating $285 million in the next five years and $3,386 million thereafter (including $211 million of accreted value on the notes) and average annual cash interest payments of approximately $197 million in each of the next five years. See "Management's Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesLiquidityContractual 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 25 -------------------------------------------------------------------------------- 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, including the exchange notes. 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 (including the CAG Shares), seek additional capital or restructure or refinance our indebtedness, including the exchange notes. 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 amended and restated senior credit facilities and the indentures governing our indebtedness restrict 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 amended and restated senior credit facilities and the indentures governing the exchange notes and our other indebtedness contain various covenants that limit our ability to engage in specified types of transactions. These covenants limit the ability of the Issuer and certain of its subsidiaries to, among other things, incur additional indebtedness or issue preferred stock, pay dividends on or make other distributions on or repurchase their capital stock or make other restricted payments, make investments, and sell certain assets. In addition, the amended and restated senior credit facilities contain covenants that require Celanese Holdings to maintain specified financial ratios and satisfy other financial condition tests. Celanese Holdings' ability to meet those financial ratios and tests can be affected by events beyond its control, and it may not be able to meet those tests at all. A breach of any of these covenants could result in a default under the amended and restated senior credit facilities. Upon the occurrence of an event of default under the amended and restated senior credit facilities, the lenders could elect to declare all amounts outstanding under the amended and restated senior credit facilities to be immediately due and payable and terminate all commitments to extend further credit. If Celanese Holdings were unable to repay those amounts, the lenders under the amended and restated senior credit facilities could proceed against the collateral granted to them to secure that indebtedness. The Issuer's subsidiaries have pledged a significant portion of their assets as collateral under the amended and restated senior credit facilities. If the lenders under the amended and restated senior credit facilities accelerate the repayment of borrowings, the Issuer and its subsidiaries may not have sufficient assets to repay the amended and restated senior credit facilities as well as their other indebtedness, including the exchange notes. If the Issuer's subsidiaries default on their obligations to pay their indebtedness, the Issuer may not be able to make payments on the exchange notes. Any default under the agreements governing indebtedness of the Issuer's subsidiaries, including a default under the amended and restated senior credit facilities that is not waived by the required lenders, and the remedies sought by the holders of such indebtedness could cause the Issuer to be unable to pay principal, premium, if any, and interest on the exchange notes and substantially decrease the market value of the exchange notes. If the Issuer's subsidiaries are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on their indebtedness, or if they otherwise fail to comply with the various covenants, including financial and operating covenants, in the instruments governing their indebtedness (including covenants in the amended and restated senior credit facilities and the indenture), they could be in default under the terms of the agreements governing such indebtedness, including the amended and restated senior credit facilities and the indenture for the senior subordinated notes. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, the lenders under the amended and restated senior credit facilities could elect to terminate 26 -------------------------------------------------------------------------------- their commitments thereunder, cease making further loans and institute foreclosure proceedings against the assets of the Issuer's subsidiaries, and such subsidiaries could be forced into bankruptcy or liquidation. If operating performance of the Issuer's subsidiaries declines, they may in the future need to obtain waivers from the required lenders under the amended and restated senior credit facilities to avoid being in default. If the Issuer's subsidiaries breach their covenants under the amended and restated senior credit facilities and seek a waiver, such subsidiaries may not be able to obtain a waiver from the required lenders. If this occurs, such subsidiaries would be in default under the amended and restated senior credit facilities, the lenders could exercise their rights as described above, and such subsidiaries could be forced into bankruptcy or liquidation. In addition, all obligations under the amended and restated senior credit facilities, and the guarantees of those obligations, are secured by substantially all of the assets of each of the Issuer's U.S. subsidiaries, subject to certain exceptions. If the lenders under the amended and restated senior credit facilities were to proceed against such collateral, the Issuer may not have sufficient assets to repay its indebtedness, including the exchange notes. The Issuer and the Parent Guarantor are the sole obligors of the exchange notes and the subsidiaries of the Issuer and subsidiaries of the Parent Guarantor will not guarantee the Issuer's obligations under the exchange notes; the exchange notes are structurally subordinated to the debt and liabilities of the Issuer's subsidiaries and are effectively subordinated to the secured debt of the Issuer's subsidiaries. The Issuer and the Parent Guarantor have no operations on their own and derive all of their revenues and cash flow from their subsidiaries. The Issuer's subsidiaries are separate and distinct legal entities and will have no obligation, contingent or otherwise, to pay amounts due under the exchange notes or to make any funds available to pay those amounts, whether by dividend, distribution, loan or other payments. The exchange notes will be structurally subordinated to all debt and liabilities of the Issuer's subsidiaries. In the event of a bankruptcy, liquidation or reorganization or similar proceeding relating to the Issuer's subsidiaries, you will participate with all other holders of the Issuer's indebtedness in the assets remaining after the Issuer's subsidiaries have paid all of their debt and liabilities. In any of these cases, the Issuer and its subsidiaries may not have sufficient funds to pay all of its creditors, and you may receive less, ratably, than the holders of the Issuer's subsidiaries' debt and other liabilities. The Issuer's subsidiaries are be permitted to incur additional debt and liabilities in the future under the terms of the indenture. In addition, holders of secured debt of the Issuer's subsidiaries will have claims that are prior to your claims as holders of the exchange notes to the extent of the value of the assets securing that other debt. Notably, the amended and restated senior credit facilities are secured by intercompany notes to certain of the Issuer's subsidiaries, which are in turn secured by liens on certain of the assets of the Issuer's subsidiaries. As of December 31, 2004, on a pro forma basis after giving effect to the Recent Financings, the Issuer would have had secured debt of approximately $1.8 billion of term loan borrowings under the amended and restated senior credit facilities. The Issuer also has $828 million of revolving credit facilities, all of which would be secured if borrowed. The exchange notes will be effectively subordinated to all such secured debt to the extent of the value of its collateral. In the event of a bankruptcy, liquidation or reorganization or similar proceeding relating to the Issuer or its subsidiaries, holders of secured debt will have a prior claim to the assets that constitute their collateral. In any of these cases, the Issuer or its subsidiaries may not have sufficient funds to pay all of its creditors, and you may receive less, ratably, than the holders of the secured debt. The Issuer and its subsidiaries will be permitted to incur additional secured indebtedness in the future, consistent with the terms of the indenture governing the exchange notes. The parent guarantee may be released at any time, in which case the Parent Guarantor will no longer have any obligations with respect to the notes. The guarantee by the Parent Guarantor is being provided for the purpose of allowing the Issuer to satisfy its reporting obligations under the indenture governing the exchange notes by furnishing 27 -------------------------------------------------------------------------------- financial information relating to the Parent Guarantor instead of the Issuer. Moreover, the guarantee by the Parent Guarantor may be released at any time at the option of the Issuer and the Parent Guarantor. The Issuer may not be able to repurchase the exchange notes upon a change of control, and certain corporate events may not trigger a change of control event in which case the Issuer will not be required to repurchase your exchange notes. Upon the occurrence of specific kinds of change of control events, including the sale, lease or transfer of "all or substantially all" of the assets of the Issuer and its subsidiaries taken as a whole, the Issuer will be required to offer to repurchase all outstanding exchange notes at 101% of their principal amount. The source of funds for any such purchase of the exchange notes will be the Issuer's available cash or cash generated from operations of the subsidiaries of the Issuer or other sources, including borrowings, sales of assets or sales of equity. The Issuer may not have sufficient funds to repurchase the exchange notes upon a change of control. The Issuer's failure to repurchase the exchange notes upon a change of control would cause a default under the indenture. As mentioned above, under the indenture governing the notes, the sale, lease or transfer of "all or substantially all" the assets of the Issuer and its subsidiaries taken as a whole constitutes a change of control that will require the Issuer to offer to repurchase the exchange notes. Although there is a limited body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a holder of the notes to determine whether a change of control has occurred or to require the Issuer to repurchase the notes as a result of sale, lease, transfer, convergence or other disposition of less than all of the assets of the Issuer and its subsidiaries taken a whole to another person or group may be uncertain. See "Description of the NotesRepurchase at the Option of HoldersChange of Control." In addition, important corporate events, such as leveraged recapitalizations that would increase the level of the Issuer's indebtedness, would not constitute a "Change of Control" under the indenture. Therefore, if an event occurs that does not constitute a "Change of Control," the Issuer will not be required to make an offer to repurchase the exchange notes and you may be required to continue to hold your exchange notes despite the event. Your ability to transfer the exchange notes may be limited by the absence of an active trading market, and any active trading market may not develop for the exchange notes. The exchange notes are a new issue of securities for which there is no established public market. The Issuer does not intend to have the notes listed on a national securities exchange. The initial purchasers have advised the Issuer that they intend to make a market in the exchange notes, as permitted by applicable laws and regulations; however, the initial purchasers are not obligated to make a market in the exchange notes, and they may discontinue their market-making activities at any time without notice. Therefore, an active market for the exchange notes may not develop or, if developed, may not continue. Historically, the market for non-investment grade debt has been subject to disruptions that have caused substantial volatility in the prices of securities similar to the exchange notes. The market, if any, for the exchange notes may not be free from similar disruptions and any such disruptions may depress the prices at which you may sell your exchange notes. In addition, subsequent to their initial issuance, the exchange notes may trade at a discount from their initial offering price, depending upon prevailing interest rates, the market for similar notes, the Issuer's performance and other factors. Federal and state fraudulent transfer laws may permit a court to void the exchange guarantees by subsidiary guarantors and, if that occurs, you may not receive any payments by the subsidiary guarantors. Under federal bankruptcy law and comparable provisions of state fraudulent transfer laws, the guarantees that subsidiary guarantors may issue in the future could be voided, or claims in respect of the relevant guarantee could be subordinated to all other debt of such guarantor if, among other things, at the time that the relevant guarantor issued its guarantee such guarantor, as applicable: [[Image Removed]] [[Image Removed]] received less than reasonably equivalent value or fair consideration for issuing such guarantee and, at the time such guarantor issued its guarantee: 28 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] was insolvent or rendered insolvent by reason of issuing such guarantee and the application of the proceeds of the notes or such guarantee; [[Image Removed]] [[Image Removed]] was engaged or about to engage in a business or a transaction for which such guarantor's remaining assets available to carry on its business constituted unreasonably small capital; [[Image Removed]] [[Image Removed]] intended to incur, or believed that it would incur, debts beyond such guarantor's ability to pay its debts as they mature; or [[Image Removed]] [[Image Removed]] was a defendant in an action for money damages, or had a judgment for money damages docketed against it if, in either case, after final judgment, the judgment is unsatisfied. In addition, any payment by any guarantor pursuant to its guarantee could be voided and required to be returned to such guarantor or to a fund for the benefit of the creditors of such guarantor, or such guarantee could be subordinated to other debt of the Issuer or the applicable guarantor. The measures of insolvency for the purposes of fraudulent transfer laws vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. In a proceeding in the U.S., however, a person generally would be considered insolvent if, at the time it incurred the debt: [[Image Removed]] [[Image Removed]] the sum of its debts, including contingent liabilities, was greater than the fair saleable value of its assets; [[Image Removed]] [[Image Removed]] the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or [[Image Removed]] [[Image Removed]] it could not pay its debts as they become due. The Issuer cannot be sure as to what standard a court would apply in making these determinations. Regardless of the standard that the court uses, the Issuer cannot be sure that the issuance by any guarantor of its guarantee would not be voided or that the subsidiary guarantees would not be subordinated to the relevant obligor's other debt. If the subsidiary guarantee of any subsidiary guarantor were voided, the exchange notes would be effectively subordinated to the indebtedness of that subsidiary guarantor. You should not expect Crystal US Sub 3 Corp. to participate in making payments on the exchange notes. Crystal US Sub 3 Corp. is a wholly-owned subsidiary of Crystal US Holdings 3 L.L.C. that was incorporated to accommodate the issuance of the notes by Crystal US Holdings 3 L.L.C. Crystal US Sub 3 Corp. will not have any operations or assets of any kind and will not have any revenue other than as may be incidental to its activities as a co-issuer of the notes. You should not expect Crystal US Sub 3 Corp. to participate in servicing any of the obligations on the exchange notes. Risks Related to Our Business We are an international company 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 located in North America, Europe and Asia, including facilities in Germany, China, Japan, Korea and Saudi Arabia operated through ventures. 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 29 -------------------------------------------------------------------------------- losses in the supply or delivery of raw materials and products as well as increased 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 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 the exchange notes. Cyclicality in the industrial chemicals industry has in the past and may in the future result in reduced operating margins or in operating losses. Consumption of the basic chemicals that we manufacture, in particular those in acetyl products, such as methanol, formaldehyde, acetic acid and vinyl acetate monomer, has increased significantly over the past 30 years. Despite this growth in consumption, producers have experienced alternating periods of inadequate capacity and excess capacity for these products. Periods of inadequate capacity, including some due to raw material shortages, have usually resulted in increased selling prices and operating margins. This has often been followed by periods of capacity additions, which have resulted in declining capacity utilization rates, selling prices and operating margins. We expect that these cyclical trends in selling prices and operating margins relating to capacity shortfalls and additions will likely persist in the future, principally due to the continuing combined impact of five factors: [[Image Removed]] [[Image Removed]] Significant capacity additions, whether through plant expansion or construction, can take two to three years to come on stream and are therefore necessarily based upon estimates of future demand. [[Image Removed]] [[Image Removed]] When demand is rising, competition to build new capacity may be heightened because new capacity tends to be more profitable, with a lower marginal cost of production. This tends to amplify upswings in capacity. [[Image Removed]] [[Image Removed]] When demand is falling, the high fixed cost structure of the capital-intensive chemicals industry leads producers to compete aggressively on price in order to maximize capacity utilization. [[Image Removed]] [[Image Removed]] As competition in these products is focused on price, being a low-cost producer is critical to profitability. This favors the construction of larger plants, which maximize economies of scale, but which also lead to major increases in capacity that can outstrip current growth in demand. [[Image Removed]] [[Image Removed]] Cyclical trends in general business and economic activity produce swings in demand for chemicals. We believe that the basic chemicals industry, particularly in the commodity chemicals manufactured by our Chemical Products segment, is currently characterized by overcapacity, and that there may be further capacity additions in the next few years. The length and depth of product and industry business cycles of our markets, particularly in the automotive, electrical, construction and textile industries, may result in reduced 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. We are subject to risks associated with the increased volatility in raw materials prices and the availability of key raw materials. We purchase significant amounts of natural gas, ethylene, butane, and propylene from third parties for use in our production of basic chemicals in the Chemical Products segment, principally methanol, formaldehyde, acetic acid, vinyl acetate monomer, as well as oxo products. We use a portion 30 -------------------------------------------------------------------------------- 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 Acetate Products segment. We purchase significant amounts of natural gas, electricity, coal and fuel oil to supply the energy required in our production processes. Prices of natural gas, oil and other hydrocarbons have increased dramatically in 2004. To the extent this trend continues and we are unable to pass through these price increases to our customers, our operating profit and results of operations may be less favorable than expected. 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: [[Image Removed]] [[Image Removed]] Shortages of raw materials due to increasing demand, e.g., from growing uses or new uses; [[Image Removed]] [[Image Removed]] Capacity constraints, e.g., due to construction delays, strike action or involuntary shutdowns; [[Image Removed]] [[Image Removed]] The general level of business and economic activity; and [[Image Removed]] [[Image Removed]] The direct or indirect effect of governmental regulation. We strive to improve profit margins of many of our products through price increases when warranted and accepted by the market; however, our operating margins may decrease if we cannot pass on increased raw material prices to customers. Even in periods during which raw material prices decline, we may suffer decreasing operating profit margins if raw material price reductions occur at a slower rate than decreases in the selling prices of our products. A substantial portion of our products and raw materials are commodities whose prices fluctuate as market supply/demand fundamentals change. 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. Our policy, for the majority of our natural gas and butane requirements, allows entering into supply agreements and forward purchase or cash-settled swap contracts. As of December 31, 2004, there were no derivative contracts outstanding. In 2003, there were forward contracts covering approximately 35% of our Chemical Products segment North American requirements. We regularly assess our practice of purchasing a portion of our commodity requirements forward, and the utilization of a variety of other raw material hedging instruments, in addition to forward purchase contracts, in accordance with changes in market conditions. We capped our exposure on approximately 20% of our U.S. natural gas requirements during the months of August and September of 2004. The fixed price natural gas forward contracts and any premium associated with the purchase of a price cap are principally settled through actual delivery of the physical commodity. The maturities of the cash-settled swap or cap contracts correlate to the actual purchases of the commodity and have the effect of securing or limiting predetermined prices for the underlying commodity. Although these contracts were structured to limit exposure to increases in commodity prices, certain swaps may also limit the potential benefit we might have otherwise received from decreases in commodity prices. These cash-settled swap or cap contracts were accounted for as cash flow hedges. We have a policy of maintaining, when available, multiple sources of supply for raw materials. However, some of our individual plants may have single sources of supply for some of their raw materials, such as carbon monoxide and acetaldehyde. We may not be able to obtain sufficient raw materials due to unforeseen developments that would cause an interruption in supply. Even if we have multiple sources of supply for a raw material, these sources may not make up for the loss of a major supplier. Nor can there 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 or a major supplier. 31 -------------------------------------------------------------------------------- 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 Performance Products and Technical Polymers Ticona 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 will 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. Frankfurt airport expansion could require us to reduce production capacity of, limit expansion potential of, or incur relocation costs for our Kelsterbach plant which would lead to significant additional costs. The Frankfurt airport's expansion plans include the construction of an additional runway. One of the three sites under consideration, the northwest option, would be located in close proximity to our Kelsterbach production plant. The construction of this particular runway could have a negative effect on the plant's current production capacity and future development. While the government of the state of Hesse and the owner of the Frankfurt airport promote the expansion of the northwest option, it is uncertain whether this option is in accordance with applicable laws. Although the government of the state of Hesse expects the plan approval for the airport expansion in 2007 and the start of operations in 2009-2010, neither the final outcome of this matter nor its timing can be predicted at this time. 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 concerning, 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. Our accruals for environmental remediation obligations, $143 million as of December 31, 2004, may be insufficient if the assumptions underlying those accruals prove incorrect or if we are held responsible for currently undiscovered contamination. See "Management's Discussion and Analysis of Financial Condition and Results of OperationsCritical Accounting Policies and EstimatesEnvironmental Liabilities," notes 19 and 27 to the Consolidated Financial Statements. Our operations are subject to extensive international, national, state, local, and other supranational laws and regulations that govern environmental and health and safety matters. 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 could result in significant capital expenditures as well as other costs and liabilities and our business and operating results may be less favorable than expected. Due to new air regulations in the United States, management expects that there will be a temporary increase in compliance costs that will total approximately $30 million to $45 million through 2007. For example, the Miscellaneous Organic National Emissions Standards for Hazardous Air Pollutants (NESHAP) regulations, and various approaches to regulating boilers and incinerators, including the NESHAPs for Industrial/ Commercial/Institutional Boilers and Process Heaters, will impose additional requirements on our operations. Although some of these rules have been finalized, a significant portion of the NESHAPs for Industrial/Commercial/Institutional Boilers and Process Heaters regulation that provides for a low 32 -------------------------------------------------------------------------------- risk alternative method of compliance for hydrogen chloride emissions has been challenged in federal court. We cannot predict the outcome of this challenge, which could, if successful, increase our costs by, according to our estimates, approximately $50 million above the $30 million to $45 million noted above through 2007 to comply with this regulation. As another example, recent European Union regulations require a trading system for carbon dioxide emissions to have been in place by January 1, 2005. Accordingly, an emission trading system came into effect at the start of 2005. This regulation will affect our power plants at the Kelsterbach and Oberhausen sites, as well as power plants operated by other InfraServ entities on sites at which we operate. We and the InfraServ entities may be required to develop additional cost-effective methods to reduce carbon dioxide emissions further, which could result in increased capital expenditures. 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. Some of the chemicals initially being evaluated include vinyl acetate monomer or VAM, which we produce. These risk assessments entail a multi-stage process to determine to what extent the European Commission should classify the chemical as a carcinogen and, if so, whether this classification and related labeling requirements should apply only to finished products that contain specified threshold concentrations of a particular chemical. In the case of VAM, we currently do not expect a final ruling until mid-2005. We and other VAM producers are participating in this process with detailed scientific analyses supporting the industry's position that VAM is not a probable human carcinogen and that labeling of final products should not be required. If labeling is required, then it should depend on relatively high parts per million of residual VAM in these end products. We cannot predict the outcome or effect of any final ruling. Several recent studies have investigated possible links between formaldehyde exposure and various end points including leukemia. The International Agency for Research on Cancer or IARC recently 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 IARC's 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 IARC's reclassification. Other recent initiatives will potentially require toxicological testing and risk assessments of a wide variety of chemicals, including chemicals used or produced by us. These initiatives include the Voluntary Children's Chemical Evaluation Program and High Production Volume Chemical Initiative in the United States, as well as various European Commission programs, such as the new European Environment and Health Strategy, commonly known as SCALE, as well as the Proposal for the Registration, Evaluation, Authorization and Restriction of Chemicals or REACH. REACH, which the European Commission proposed in October 2003, will establish a system to register and evaluate chemicals manufactured in, or imported to, the European Union. Depending on the final ruling, additional testing, documentation and risk assessments will occur for the chemical industry. This will affect European producers of chemicals as well as all chemical companies worldwide that export to member states of the European Union. The final ruling has not yet been decided. 33 -------------------------------------------------------------------------------- The above-mentioned assessments in the United States and Europe may result in heightened concerns about the chemicals involved and in 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. 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 wastes. These hazards include, among other things: [[Image Removed]] [[Image Removed]] pipeline and storage tank leaks and ruptures; [[Image Removed]] [[Image Removed]] explosions and fires; and [[Image Removed]] [[Image Removed]] 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. We maintain property, business interruption and casualty insurance which we believe is in accordance with customary industry practices, but we cannot predict whether this insurance will be adequate to fully cover all potential hazards incidental to our business. We have established two captive insurance subsidiaries (Captives) that provide a portion of the total insurance coverage to us for certain of our lower tier property and casualty risks. They additionally provide coverage to third parties for their higher tier risk programs. If there were concurrent claims made on all policies issued by the Captives, sufficient capital may not be available for them to satisfy all claims against all such policies. As of December 31, 2004, the net retained concurrent aggregate risk of all policies written by the Captives, after reinsuring higher tier risks with third party insurance companies, net of established reserves, amounted to approximately $498 million. Our significant non-U.S. operations expose us to global exchange rate fluctuations that could 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 and interest rates. 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 affect: [[Image Removed]] [[Image Removed]] The relative prices at which we and our competitors sell products in the same market; and [[Image Removed]] [[Image Removed]] The cost of items required in our operations. We use financial instruments to hedge our exposure to foreign currency fluctuations. The net notional amounts under such foreign currency contracts outstanding at December 31, 2004 were $288 million. The hedging activity of foreign currency denominated intercompany net receivables resulted in a cash inflow of approximately $24 million and less than $1 million for the nine months ended December 31, 2004 and the three months ended March 31, 2004, respectively. These positive effects may not be indicative of future effects. A substantial portion of our net sales is denominated in currencies other than the U.S. dollar. In our consolidated financial statements, we translate our local currency financial results into U.S. 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 U.S. dollar, at a constant level of business, our reported international sales, earnings, assets and liabilities will be reduced because the local currency 34 -------------------------------------------------------------------------------- will translate into fewer U.S. dollars. We estimate that the translation effects of changes in the value of other currencies against the U.S. dollar increased net sales by approximately 3% for the nine months ended December 31, 2004, 6% for the three months ended March 31, 2004, 7% for the year ended December 31, 2003 and 2% for the year ended 2002. We estimate that the translation effects of changes in the value of other currencies against the U.S. dollar increased total assets by approximately 3% for the nine months ended December 31, 2004, decreased total assets by approximately 1% for the three months ended March 31, 2004 and increased total assets by approximately 5% in 2003. In addition to currency translation risks, we incur a currency transaction risk whenever one of our operating subsidiaries enters into either a purchase or a sales transaction using a currency different from the operating subsidiary's functional currency. Given the volatility of exchange rates, we may not be able to manage our currency transaction and/or translation risks effectively, or 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 U.S. dollars, a weakening of the U.S. dollar could make it more difficult for us to repay our indebtedness. 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. 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. Similarly, changes in the expected return on plan assets can result in significant changes in the net periodic pension cost of the following fiscal years. As of December 31, 2004, our underfunded position related to our defined benefit pension plans was $636 million. During the nine months ended December 31, 2004, we contributed approximately $434 million to the plans. During the three months ended March 31, 2004, we contributed approximately $39 million to the plans. We have preliminarily recorded a significant amount of goodwill and other identifiable intangible assets, and we may never realize the full value of our intangible assets. In connection with the Transactions, we have recorded a significant amount of goodwill and other identifiable intangible assets. Goodwill and other net identifiable intangible assets were approximately $1,147 million as of December 31, 2004, or 15% of our total assets based on preliminary purchase accounting. Goodwill and net identifiable intangible assets are recorded at fair value on the date of acquisition and, in accordance with Financial Accounting Standards Board Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets, will be reviewed at least annually for impairment. Impairment may result from, among other things, deterioration in our performance, adverse market conditions, adverse changes in applicable laws or regulations, including changes that restrict the activities of or affect the products and services sold by our business, and a variety of other factors. The amount of any quantified impairment must be expensed immediately as a charge to results of operations. Depending on future circumstances, it is possible that we may never realize the full value of our intangible assets. Any future determination of impairment of a significant portion of goodwill or other identifiable intangible assets would have an adverse effect on our financial condition and results of operations. CAG may be required to make payments to Hoechst. Under its 1999 demerger agreement with Hoechst, CAG agreed to indemnify Hoechst for environmental liabilities that Hoechst may incur with respect to CAG's German production sites, which were transferred from Hoechst to CAG in connection with the demerger. CAG also has an 35 -------------------------------------------------------------------------------- obligation to indemnify Hoechst against liabilities for environmental damages or contamination arising under certain divestiture agreements entered into by Hoechst prior to the demerger. As the indemnification obligations depend on the occurrence of unpredictable future events, the costs associated with them are not yet determinable and may materially affect operating results. CAG's obligation to indemnify Hoechst against liabilities for environmental contamination in connection with the divestiture agreements is subject to the following thresholds (translated into U.S. dollars using the December 31, 2004 exchange rate): [[Image Removed]] [[Image Removed]] CAG will indemnify Hoechst for the total amount of these liabilities up to 250 million (approximately $340 million); [[Image Removed]] [[Image Removed]] Hoechst will bear the full amount of those liabilities between 250 million (approximately $340 million) and 750 million (approximately $1,020 million); and [[Image Removed]] [[Image Removed]] CAG will indemnify Hoechst for one third of those liabilities for amounts exceeding 750 million (approximately $1,020 million). CAG has made payments through December 31, 2004 of $38 million for environmental contamination liabilities in connection with the divestiture agreements, and may be required to make additional payments in the future. As of December 31, 2004, we have reserves of approximately $46 million for this contingency, and may be required to record additional reserves in the future. Also, CAG has undertaken in the demerger agreement to indemnify Hoechst to the extent that Hoechst is required to discharge liabilities, including tax liabilities, in relation to assets included in the demerger, where such liabilities have not been demerged due to transfer or other restrictions. CAG did not make any payments to Hoechst in 2004 and did not make any payments in either 2003 or 2002 in connection with this indemnity. Under the demerger agreement, CAG will also be responsible, directly or indirectly, for all of Hoechst's obligations to past employees of businesses that were demerged to CAG. Under the demerger agreement, Hoechst agreed to indemnify CAG from liabilities (other than liabilities for environmental contamination) stemming from the agreements governing the divestiture of Hoechst's polyester businesses, which were demerged to CAG, insofar as such liabilities relate to the European part of that business. Hoechst has also agreed to bear 80 percent of the financial obligations arising in connection with the government investigation and litigation associated with the sorbates industry for price fixing described in "BusinessLegal ProceedingsSorbates Antitrust Actions" and note 27 to the Consolidated Financial Statements, and CAG has agreed to bear the remaining 20 percent. 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, primarily borrowings under the amended and restated senior credit facilities, are at variable rates of interest and expose us to interest rate risk. If interest rates increase, which we expect to occur, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income and cash available for servicing our indebtedness would decrease. As of December 31, 2004, we had approximately $1.1 billion of variable rate debt. A 1% increase in interest rates would increase annual interest expense by approximately $11 million. We may enter into interest rate swap agreements to reduce the exposure of interest rate risk inherent in our debt portfolio. We have, in the past, used swaps for hedging purposes only. The equity holders' interests may conflict with yours as a creditor and the equity holders may take actions that involve risks to you as a holder of the notes. The interests of the equity holders may not in all cases be aligned with your interests as a holder of the exchange notes. In addition, the equity holders may have an interest in pursuing acquisitions, divestitures and other transactions that in their judgment could enhance their equity investment, even though such transactions might invoke risks to you as a holder of the exchange notes. For example, our equity holders could cause us to make acquisitions that increase our indebtedness that is secured 36 -------------------------------------------------------------------------------- or senior to the notes or sell revenue-generating assets, impairing our ability to make payments on the notes. Additionally, The Blackstone Group (our "Sponsor") is in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us. Our Sponsor may also pursue acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us. So long as our Sponsor continues to own a significant amount of our equity, even if such amount is less than 50%, it will continue to be able to significantly influence or effectively control our decisions. Under the amended and restated shareholders' agreement between Celanese Corporation and the Original Stockholders which are affiliates of the Sponsor, such Original Stockholders will be entitled to designate all nominees for election to the board of directors for so long as they hold at least 25% of the total voting power of Celanese Series A common stock. See "Certain Relationships and Related Party TransactionsNew ArrangementsShareholders' Agreement." Thereafter, although our Sponsor will not have an explicit contractual right to do so, it may still nominate directors of Celanese Corporation in its capacity as a stockholder. The second amended and restated certificate of incorporation of Celanese Corporation, renounces any interest or expectancy that we have in, or right to be offered an opportunity to participate in, specified business opportunities. The second amended and restated certificate of incorporation further provides that none of the Original Stockholders (including the Sponsor) or their affiliates or any director who is not employed by Celanese (including any non-employee director who serves as one of our officers in both his director and officer capacities) or his or her affiliates has any duty to refrain from (i) engaging in a corporate opportunity in the same or similar lines of business in which we or our affiliates now engage or propose to engage or (ii) otherwise competing with us. In addition, in the event that any of the Original Stockholders (including the Sponsor) or any non-employee director acquires knowledge of a potential transaction or other business opportunity which may be a corporate opportunity for itself or himself or its or his affiliates and for Celanese Corporation or its affiliates, such Original Stockholder or non-employee director has no duty to communicate or offer such transaction or business opportunity to Celanese Corporation or us and may take any such opportunity for themselves or offer it to another person or entity. The Parent Guarantor is a "controlled company" within the meaning of The New York Stock Exchange rules and, as a result, is exempt from certain corporate governance requirements. Our Sponsor controls a majority of the voting power of the Parent Guarantor's outstanding common stock. As a result, the Parent Guarantor is a "controlled company" within the meaning of the New York Stock Exchange corporate governance standards. Under the New York Stock Exchange rules, a company of which more than 50% of the voting power is held by another company is a "controlled company" and need not comply with certain requirements, including (1) the requirement that a majority of the board of directors consist of independent directors, (2) the requirement that the nominating committee be composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities, (3) the requirement that the compensation committee be composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities and (4) the requirement for an annual performance evaluation of the nominating/corporate governance and compensation committees. The Parent Guarantor intends to utilize these exemptions. As a result, the Parent Guarantor will not have a majority of independent directors nor will its nominating and compensation committees consist entirely of independent directors. Our future success will depend in part on our ability to protect our intellectual property rights, and our inability to enforce these rights could reduce our ability to maintain our market position and our 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 its 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 37 -------------------------------------------------------------------------------- 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. Our continued growth strategy may bring us to regions of the world where intellectual property protection may be limited and difficult to enforce. As patents expire, the products and processes described and claimed in those patents become generally available for use by the public. Our European and U.S. patents for making Sunett, an important product in our Performance Products segment, expired at the end of the first quarter of 2005, which will reduce our ability to realize revenues from making Sunett due to increased competition and potential limitations and will result in our results of operations and cash flows relating to the product being less favorable than today. 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. If we are not successful in protecting our trademark rights, our revenues, results of operations and cash flows may be adversely affected. 38 -------------------------------------------------------------------------------- SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus contains 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. These statements include, but are not limited to, statements about our strategies, plans, objectives, expectations, intentions, expenditures, and assumptions and other statements contained in this prospectus that are not historical facts. 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. Many factors could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. These factors include, among other things: [[Image Removed]] [[Image Removed]] changes in general economic, business, political and regulatory conditions in the countries or regions in which we operate; [[Image Removed]] [[Image Removed]] the length and depth of product and industry business cycles particularly in the automotive, electrical, electronics and construction industries; [[Image Removed]] [[Image Removed]] 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, including changes in production quotas in OPEC countries and the deregulation of the natural gas transmission industry in Europe; [[Image Removed]] [[Image Removed]] the ability to pass increases in raw material prices on to customers or otherwise improve margins through price increases; [[Image Removed]] [[Image Removed]] the ability to maintain plant utilization rates and to implement planned capacity additions and expansions; [[Image Removed]] [[Image Removed]] the ability to reduce production costs and improve productivity by implementing technological improvements to existing plants; [[Image Removed]] [[Image Removed]] the existence of temporary industry surplus production capacity resulting from the integration and start-up of new world-scale plants; [[Image Removed]] [[Image Removed]] increased price competition and the introduction of competing products by other companies; [[Image Removed]] [[Image Removed]] the ability to develop, introduce and market innovative products, product grades and applications, particularly in the Technical Polymers Ticona and Performance Products segments of our business; [[Image Removed]] [[Image Removed]] changes in the degree of patent and other legal protection afforded to our products; [[Image Removed]] [[Image Removed]] compliance costs and potential disruption or interruption of production due to accidents or other unforeseen events or delays in construction of facilities; [[Image Removed]] [[Image Removed]] potential liability for remedial actions under existing or future environmental regulations; [[Image Removed]] [[Image Removed]] 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; [[Image Removed]] [[Image Removed]] changes in currency exchange rates and interest rates; [[Image Removed]] [[Image Removed]] changes in the composition or restructuring of us or our subsidiaries and the successful completion of acquisitions, divestitures and venture activities; [[Image Removed]] [[Image Removed]] pending or future challenges to the Domination Agreement and continuing access to the cash flows of CAG; and 39 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] various other factors, both referenced and not referenced in this prospectus. 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 prospectus 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. 40 -------------------------------------------------------------------------------- THE TRANSACTIONS As used in this prospectus, the term "Transactions" means, collectively, the Tender Offer, the Original Financing and the Refinancing described below. Our current ownership structure is summarized under "The Recent Restructuring." The Tender Offer and the Original Financing Pursuant to the Tender Offer, in April 2004 the Purchaser, an indirect wholly owned subsidiary of the Issuer, acquired, at a price of 32.50 per share, a total of 41,588,227 CAG Shares, representing approximately 84% of the CAG Shares outstanding on that date. In addition, as a part of the Tender Offer, the Purchaser agreed to refinance certain existing debt of CAG, pre-fund certain pension obligations of CAG, pre-fund certain contingencies and certain obligations linked to the value of the CAG Shares, such as the payment of fair cash compensation under the Domination Agreement for the remaining CAG Shares, and payment obligations related to outstanding stock appreciation rights, stock options and interest payments, provide additional funds for working capital and other general corporate purposes, and pay related fees and expenses. The sources and uses of funds used in connection with the Tender Offer and the Original Financing are set forth in the table below. [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Sources (in millions) Revolving Credit Facilities(1) [[Image Removed]] $ Term Loan Facility [[Image Removed]] 608 Senior Subordinated Bridge Loan Facilities(2) [[Image Removed]] 1,565 Mandatorily Redeemable Preferred Shares(3) [[Image Removed]] 200 Cash Equity Investments(4) [[Image Removed]] 650 Total Sources [[Image Removed]] $ 3,023 [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Uses (in millions) Aggregate Tender Offer Price(5) [[Image Removed]] $ 1,624 Pension Contribution(6) [[Image Removed]] 463 Refinancing of Existing Debt(7) [[Image Removed]] 175 Available Cash(8) [[Image Removed]] 555 Estimated Fees and Expenses [[Image Removed]] 206 Total Uses [[Image Removed]] $ 3,023 [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] (1) The revolving credit facilities provided for borrowings of up to $608 million. No amounts thereunder were borrowed in connection with the Tender Offer and the Original Financing. [[Image Removed]] [[Image Removed]] (2) Represents $814 million of the Senior Subordinated Bridge B and $751 million of the Senior Subordinated Bridge C Loan variable rate borrowings (which includes the U.S. dollar equivalent of a 450 million tranche). The senior subordinated bridge loan facilities were originally due in 2014, subject to certain conditions. [[Image Removed]] [[Image Removed]] (3) Represents $200 million of the Parent Guarantor's mandatorily redeemable preferred shares which were subsequently redeemed on July 1, 2004. See "The Refinancing." [[Image Removed]] [[Image Removed]] (4) Consisted of cash equity contributions of $650 million from the Original Stockholders. [[Image Removed]] [[Image Removed]] (5) Represents the U.S. dollar equivalent of the total amount of consideration at 32.50 per ordinary share for approximately 84% of the then-outstanding CAG Shares. [[Image Removed]] [[Image Removed]] (6) Represents the amount to pre-fund certain of Celanese's pension obligations. [[Image Removed]] [[Image Removed]] (7) Represents the amount of variable rate loans of Celanese repaid subsequent to the Tender Offer. [[Image Removed]] [[Image Removed]] (8) Represents cash available to purchase remaining outstanding CAG Shares, to pay certain contingencies and obligations of CAG linked to the value of the CAG Shares, to repay additional existing indebtedness, to pay interest on the senior subordinated notes and to make loans to Celanese and its subsidiaries for working capital and general corporate purposes. 41 -------------------------------------------------------------------------------- The Refinancing Our subsidiary, BCP Caylux Holdings Luxembourg S.C.A. ("BCP Caylux") used the proceeds from its offerings of $1,225 million and 200 million principal amount of the senior subordinated notes in June and July 2004, together with available cash and borrowings under a $350 million senior secured floating rate term loan to repay its two senior subordinated bridge loan facilities, plus accrued interest, to redeem the mandatorily redeemable preferred shares of Celanese Corporation via a loan to our shareholder and to pay related fees and expenses. See "Description of Other Indebtedness" for a description of the senior subordinated notes. [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Sources (in millions) Senior Subordinated Notes(1) [[Image Removed]] $ 1,475 Floating Rate Term Loan [[Image Removed]] 350 Available Cash [[Image Removed]] 47 Total Sources [[Image Removed]] $ 1,872 [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Uses (in millions) Refinancing of Senior Subordinated [[Image Removed]] Bridge Loan Facilities(2) $ 1,594 Redemption of Mandatorily Redeemable Preferred shares [[Image Removed]] 227 Estimated Fees and Expenses [[Image Removed]] 51 Total Uses [[Image Removed]] $ 1,872 [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] (1) Includes the U.S. dollar equivalent of the euro notes. [[Image Removed]] [[Image Removed]] (2) Represents $814 million of the Senior Subordinated Bridge B and $751 million of Senior Subordinated Bridge C Loan variable rate borrowings, plus accrued interest on the senior subordinated bridge loan facilities. Senior Discount Notes Offering In September 2004, the Issuer issued $853 million aggregate principal amount at maturity of their Senior Discount Notes due 2014. The Issuer used the net proceeds of $500 million from the offering to make a return of capital distribution to the Parent Guarantor, which in turn made a distribution to the Original Stockholders, and to pay fees and expenses. Until October 1, 2009, interest on the notes will accrue in the form of an increase in the accreted value of the notes. Post-Tender Offer Events After the completion of the Tender Offer and the Original Financing, we or our affiliates entered into or intend to pursue some or all of the following: Delisting. The CAG Shares were delisted from the New York Stock Exchange (the "NYSE") on June 2, 2004. CAG may also apply to revoke the admission of the CAG Shares to the Frankfurt Stock Exchange, which would require, among other things, a resolution at the shareholders' meeting of CAG with the majority of the votes cast in favor of such resolution. If the CAG Shares were to be delisted from both the NYSE and from the Frankfurt Stock Exchange, the Purchaser or CAG would have to offer the then outstanding minority shareholders of CAG fair cash compensation in exchange for their CAG Shares determined as described below. Domination and Profit and Loss Transfer Agreement. On June 22, 2004, the Purchaser entered into a domination and profit and loss transfer agreement (Beherrschungs- und Gewinnabfhrungsvertrag) with CAG (the "Domination Agreement"), pursuant to which CAG agreed to submit itself to the direction of, and to transfer its entire profits to, the Purchaser and the Purchaser agreed to compensate CAG for any annual losses (Jahresfehlbetrag) incurred during the term of the Domination Agreement. The Domination Agreement and a related change to CAG's fiscal year were submitted to a shareholder vote and approved at an extraordinary general meeting held on July 30-31, 2004. The Domination Agreement was registered in the commercial register on August 2, 2004 and became operative on October 1, 2004. The Domination Agreement is subject to legal challenges instituted by dissenting shareholders. Minority shareholders have filed nine actions against CAG in the Frankfurt District Court (Landgericht), seeking, among other things, to set aside the shareholder resolutions passed at the extraordinary general meeting held on July 30 and 31, 2004 based, among other things, on the alleged violation of procedural requirements and information rights 42 -------------------------------------------------------------------------------- of the shareholders, to declare the Domination Agreement and the change in the fiscal year void and to prohibit CAG from performing its obligations under the Domination Agreement. In addition, a German court could revoke the registration of the Domination Agreement in the commercial register. On August 2, 2004, two minority shareholders instituted public register proceedings with the Knigstein Local Court (Amtsgericht) and the Frankfurt District Court, both with a view to have the registration of the Domination Agreement in the Commercial Register deleted (Amtslschungsverfahren). See "BusinessLegal Proceedings." Pursuant to the Domination Agreement, the entire annual statutory profits of CAG, if any, less any loss carried forward from the previous fiscal year, less any amount to be allocated to the statutory capital reserve (gesetzliche Rcklage) and less any amount to be allocated to other profit reserves (andere Gewinnrcklagen) upon approval by the Purchaser, will be transferred to the Purchaser. If, however, during any fiscal year during the operative term of the Domination Agreement, CAG incurs an annual loss (Jahresfehlbetrag), the Purchaser would have to pay to CAG an amount equal to such loss to the extent that the respective annual loss is not fully compensated for by dissolving other profit reserves (andere Gewinnrcklagen) accrued at CAG since the date on which the Domination Agreement became operative (Verlustausgleichspflicht). Such payment obligation would accrue at the end of any fiscal year of CAG in which an annual loss was incurred and such accrual would be independent from the adoption of the financial statements. In the event that profits of CAG (including distributable profit reserves accrued and carried forward during the term of the Domination Agreement) or valuable counterclaims by the Purchaser against CAG, which can be off-set against loss compensation claims by CAG, are not sufficient to cover such annual loss, the Purchaser will be required to compensate CAG for any such shortfall by making a cash payment equal to the amount of such shortfall. In such event, the Purchaser may not have sufficient funds to distribute to us for payment of our obligations 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. BCP Caylux Holdings Luxembourg S.C.A. and BCP Crystal have each agreed to provide the Purchaser with financing to further strengthen the Purchaser's ability to be in a position at all times to fulfill all of its obligations when they become due 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 obligations to pay a guaranteed fixed annual payment to the outstanding minority shareholders of CAG, to offer to acquire all outstanding CAG Shares from the minority shareholders in return for payment of fair cash consideration and to compensate CAG for any annual loss incurred by CAG during the term of the Domination Agreement. If BCP Caylux Holdings Luxembourg S.C.A. and/or BCP Crystal are obligated to make payments under such guarantees or other security to the Purchaser and/or the minority shareholders, we may not have sufficient funds to make payments on our debt or to make funds available to the Issuer. As a consequence of entering into the Domination Agreement, 305(1) of the German Stock Corporation Act (Aktiengesetz) requires that, upon the Domination Agreement becoming operative, the Purchaser must at the request of each remaining minority shareholder of CAG, acquire such shareholders' registered ordinary shares of CAG in exchange for payment of "fair cash compensation" (angemessene Barabfindung). As required under 305(3) sentence 3 of the German Stock Corporation Act, the Purchaser will pay to all minority shareholders who tender into such offer and whose shares are paid for after the day following the date the Domination Agreement becomes operative, interest on the offer price from such day until the day preceding the date of settlement at a rate of 2% per annum plus the base rate (as defined in 247 of the German Civil Code (BGB)) per annum prevailing from time to time, as reduced by any guaranteed dividend payments. The mandatory offer required pursuant to 305(1) of the German Stock Corporation Act is not a voluntary public takeover offer or any other offer under the German Securities Acquisition and Takeover Act (Wertpapiererwerbs- und bernahmegesetz) or a takeover or tender offer under any other applicable German law. However, it may be considered a tender offer under applicable laws of the United States of America. Therefore, in order to comply with applicable U.S. securities laws, the Purchaser commenced an offer on September 2, 2004, which is continuing as of the date of this prospectus. The 43 -------------------------------------------------------------------------------- terms of this offer are set forth in the offer document, dated September 2, 2004, which was filed with the SEC under cover of Schedule TO on the same day. As of December 31, 2004, pursuant to this offer the Purchaser had acquired over 615,000 CAG Shares. On December 31, 2004, the closing price of the CAG Shares on the Frankfurt Stock Exchange was 45.20. At the fair cash compensation offer price of 41.92 per share required by the Domination Agreement for all CAG Shares outstanding as of December 31, 2004 not already owned by the Purchaser, the total amount of funds necessary to purchase such remaining outstanding CAG Shares would be 334 million, plus accrued interest from October 2, 2004. The Purchaser expects to use a significant portion of its available cash to pay for any of the remaining outstanding CAG Shares that it may acquire. In addition, if CAG delists the CAG Shares from the Frankfurt Stock Exchange, the Purchaser effects a squeeze-out or CAG is converted into a limited partnership or a limited liability company, as described below, the Purchaser and/or CAG must in each case make another offer to the then remaining minority shareholders of CAG of fair cash compensation in exchange for their CAG Shares or, in the case of a conversion, in exchange for their equity interest in the entity that results from the conversion. The 41.92 per share fair cash compensation, plus interest, required to be offered to minority shareholders in connection with the Domination Agreement is greater than the Tender Offer price. The amount of fair cash compensation is currently under review in special award proceedings (Spruchverfahren), as described in "BusinessLegal ProceedingsShareholder Litigation." As a result of the award proceedings, the amount of the fair cash consideration and the guaranteed fixed 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 higher amounts. The amount of fair cash compensation per share to be offered upon the occurrence of any other such event may be equal to, higher or lower than, the Tender Offer price or the fair cash compensation of 41.92, plus interest, offered pursuant to the Domination Agreement. Any minority shareholder who elects not to sell its shares to the Purchaser will be entitled to remain a shareholder of CAG and to receive a gross guaranteed fixed annual payment on its shares (Ausgleich) of 3.27 per CAG Share less certain corporate taxes in lieu of any future dividend. Taking into account the circumstances and the tax rates at the time of entering into the Domination Agreement, the net guaranteed fixed annual payment is 2.89 per share for a full fiscal year. The net guaranteed fixed annual payment may, depending on applicable corporate tax rates, in the future be higher, lower or the same as 2.89 in lieu of any future dividends determined as described below under "Determination of the Amount to be Paid to the Minority Shareholders." As described in "Risk Factors," due to legal challenges, there is no assurance that the Domination Agreement will remain operative in its current form. If the Domination Agreement ceases to be operative, the Purchaser cannot directly give instructions to the CAG board of management. However, irrespective of whether a domination agreement is in place between the Purchaser and CAG, under German law CAG is effectively controlled by the Purchaser because of the Purchaser's approximate 85% ownership of the CAG Shares. The Purchaser has the ability, through a variety of means, to utilize its controlling rights to, among other things, (1) ultimately cause a domination agreement to become operative; (2) use its ability, through its approximate 85% voting power at any shareholders' meetings of CAG, to elect the shareholder representatives on the supervisory board and to thereby effectively control the appointment and removal of the members of the CAG board of management; and (3) effect all decisions that a majority shareholder is permitted to make under German law. The controlling rights of the Purchaser constitute a controlling financial interest for accounting purposes and result in the Purchaser being required to consolidate CAG as of the date of acquisition. Change in Fiscal Year. At the extraordinary general meeting on July 30 and 31, 2004, CAG shareholders also approved a change of CAG's fiscal year and a corresponding change of CAG's statutes in order to take advantage of the consolidated tax filing status. Therefore, from September 30, 2004 onwards, CAG's fiscal year will begin on October 1 and end on September 30 of the following year. A short fiscal year ran from January 1, 2004 to September 30, 2004. The Issuer's fiscal year runs from January 1 to December 31. 44 -------------------------------------------------------------------------------- Subsequent Purchases of CAG Shares. The Purchaser may from time to time purchase or be required to purchase any or all of the outstanding CAG Shares not owned by it in market transactions or otherwise. Examples of instances in which the Purchaser may be required to purchase additional CAG Shares include the ongoing mandatory offer relating to the domination and profit and loss transfer agreement entered into by the Purchaser and CAG, or additional mandatory offers required by actions that the Purchaser or its affiliates may take in the future, such as a possible delisting of the CAG Shares from the Frankfurt Stock Exchange, a possible squeeze-out of the minority shareholders of CAG or a possible conversion of CAG into a different legal form. The Purchaser's decision to pursue subsequent voluntary purchases will depend on, among other factors, the then-prevailing market prices and any negotiated terms with minority shareholders. If the Purchaser purchases CAG Shares in an individually negotiated purchase not over the stock exchange, and before the first anniversary of the publication of the final results of the Tender Offer for consideration higher than the Tender Offer price, it will be required to make additional compensating payments to sellers of CAG Shares in the Tender Offer. Squeeze-out and Conversion. If the Purchaser acquires CAG Shares representing 95% or more of the registered ordinary share capital (excluding treasury shares) of CAG, the Purchaser intends to require, as permitted under German law, the transfer to the Purchaser of the CAG Shares owned by the then-outstanding minority shareholders of CAG in exchange for fair cash compensation (the "Squeeze-out"), determined as described below under "Determination of the Amount to be Paid to the Minority Shareholders." As an alternative to the Squeeze-out, the Purchaser might also consider converting CAG from its current legal form of a stock corporation (Aktiengesellschaft, AG) into either a limited partnership (Kommanditgesellschaft, KG) or a limited liability company (Gesellschaft mit beschrnkter Haftung, GmbH) in accordance with the provisions of the German Transformation Act (Umwandlungsgesetz, UmwG). Such conversion would be subject to approval by the affirmative vote of at least 75% of the share capital of CAG. The conversion would allow the Purchaser to take advantage of a more efficient governance structure as legal requirements applicable to GmbHs and KGs are in many respects less onerous than those applicable to AGs. As a result of such conversion, the CAG Shares will be automatically delisted from the Frankfurt Stock Exchange. However, if the Purchaser completely delists the CAG Shares from the Frankfurt Stock Exchange, effects a squeeze-out or converts CAG into a limited partnership or a limited liability company, the Purchaser and/or CAG must in each case offer the then remaining minority shareholders of CAG fair cash compensation, as described below, in exchange for their CAG Shares or, in the case of a conversion, in exchange for their equity interest in the entity that results from the conversion. The amount of the fair cash compensation per share may be equal to, higher or lower than the Tender Offer price or the fair cash compensation offered pursuant to the Domination Agreement. Determination of the Amount to be Paid to the Minority Shareholders. The amount to be paid to the minority shareholders as fair cash compensation in exchange for their CAG Shares in connection with the Domination Agreement becoming operative, the delisting from the Frankfurt Stock Exchange, or a squeeze-out or, in the case of a conversion, in exchange for their equity interest in the entity resulting from such conversion, has been (in the case of the amount payable in connection with the Domination Agreement) or will be (in each other case) determined on the basis of the fair value of the enterprise of CAG, determined by CAG and /or the Purchaser in accordance with applicable German legal requirements, as of the date of the applicable resolution of CAG's shareholders' meeting, and, except in the case of a delisting from the Frankfurt Stock Exchange, examined by one or more duly qualified auditors chosen and appointed by the court. The amount of the guaranteed fixed annual payment in connection with the Domination Agreement becoming effective to minority shareholders who elect not to sell their CAG Shares to the Purchaser but to remain a shareholder of CAG was determined by the Purchaser and CAG in accordance with applicable German law, on the basis of the hypothetical projected earnings of CAG assuming a full distribution of profits. The gross guaranteed fixed annual payment of 3.27 per share may be equal to, higher or lower than the actual otherwise distributable profits per share of CAG. The 41.92 per share fair cash compensation, plus interest, offered to minority shareholders in connection with the Domination Agreement is greater than the Tender Offer price. The amount of cash compensation per share to be offered to minority 45 -------------------------------------------------------------------------------- shareholders in connection with any delisting from the Frankfurt Stock Exchange, Squeeze-out or conversion, as applicable, may be equal to, higher or lower than, the Tender Offer price or the fair cash compensation of 41.92, plus interest, offered pursuant to the Domination Agreement. Furthermore, each of the guaranteed fixed annual payment and the fair cash compensation is subject to review by the court in award proceedings (Spruchverfahren) which have been instituted by several dissenting shareholders. If as a result of such award proceedings, the court increases the amount of the guaranteed fixed annual payment and/or the fair cash consideration, or if such increase is agreed between the parties in a court settlement, payments already made to minority shareholders pursuant to the offer required by the Domination Agreement would have to be increased accordingly with retroactive effect. These award proceedings were dismissed in 2005; however, the dismissal is still subject to appeal. Dividend. At the annual shareholders' meeting on June 15, 2004, CAG shareholders approved payment of a dividend on the CAG Shares for the fiscal year ended December 31, 2003 of 0.12 per share. The Purchaser expects that no dividend on the CAG Shares for the fiscal year ended September 30, 2004 will be paid to CAG's shareholders. As part of the preparation of the financial statements for the fiscal year ended September 30, 2004, CAG conducted a valuation of its assets, which resulted in a further non-cash impairment charge to the value of CAC as of September 30, 2004. The size of this charge will prevent CAG from declaring a dividend to its shareholders for the short fiscal year 2004. Any minority shareholder of CAG who elects not to sell its shares to the Purchaser in connection with the offer to the minority shareholders will be entitled to remain a shareholder of CAG and to receive the guaranteed fixed annual payment on its shares, in lieu of any future dividends. The amount of the guaranteed fixed annual payment to be paid to any minority shareholder who elects to retain its CAG Shares was based on an analysis of the fair enterprise value of CAG as of the date of the relevant shareholders' meeting assuming a full distribution of profits. The gross guaranteed fixed annual payment is 3.27 per CAG Share less certain corporate taxes. See "Domination and Profit and Loss Transfer Agreement." Any delisting from the Frankfurt Stock Exchange, squeeze-out or conversion would require approval by the shareholders of CAG. While it is to be expected that in each case, the Purchaser will have the requisite majority in such meeting to assure approval of such measures, minority shareholders, irrespective of the size of their shareholding, may, within one month from the date of any such shareholder resolution, file an action with the court to have such resolution set aside. While such action would only be successful if the resolution was passed in violation of applicable laws and cannot be based on the unfairness of the amount to be paid to the minority shareholders, a shareholder action may substantially delay the implementation of the challenged shareholder resolution pending final resolution of the action. If such action proved to be successful, the action could prevent the implementation of a delisting, Squeeze-out or conversion. Accordingly, there can be no assurance that any of the steps described above can be implemented timely or at all. The SponsorThe Blackstone Group Certain affiliates of The Blackstone Group ("Blackstone" or the "Sponsor") beneficially own approximately 62.4% of the Parent Guarantor's outstanding common stock. Blackstone is a leading investment and advisory firm founded in 1985, with offices in New York, London, Boston and Atlanta. Blackstone manages one of the largest institutional private equity funds ever raised, a $6.5 billion fund raised in 2002. Since it began private equity investing in 1987, Blackstone has raised more than $14 billion in five funds and has invested in more than 87 companies. In addition to private equity investments, Blackstone's core businesses include real estate investments, corporate debt investments, asset management, corporate advisory services, and restructuring and reorganization advisory services. 46 -------------------------------------------------------------------------------- THE RECENT RESTRUCTURING In OctoberNovember 2004, we completed an internal restructuring pursuant to which the Purchaser effected, by giving a corresponding instruction under the Domination Agreement, the transfer of all of the shares of CAC from Celanese Holding GmbH, a wholly owned subsidiary of CAG, to BCP Caylux Holdings Luxembourg S.C.A. which resulted in BCP Caylux owning 100% of the equity of CAC and, indirectly, all of its assets, including subsidiary stock. Following the transfer of CAC to BCP Caylux, (1) BCP Crystal Holdings Ltd. 2 contributed substantially all of its assets and liabilities (including all outstanding capital stock of BCP Caylux) to BCP Crystal, in exchange for all of the outstanding capital stock of BCP Crystal; (2) BCP Crystal assumed substantially all obligations of BCP Caylux, including all rights and obligations of BCP Caylux under the amended and restated senior credit facilities, the floating rate term loan and the senior subordinated notes; (3) BCP Caylux transferred certain assets, including its equity ownership interest in CAC, to BCP Crystal; (4) BCP Crystal Holdings Ltd. 2 was reorganized as a Delaware limited liability company and changed its name to Celanese Holdings LLC; and (5) Blackstone Crystal Holdings Capital Partners (Cayman) IV Ltd. was reorganized as a Delaware corporation and changed its name to Celanese Corporation. BCP Crystal, at its discretion, may subsequently cause the liquidation of BCP Caylux. As a result of these transactions, BCP Crystal holds 100% of CAC's equity and, indirectly, all equity owned by CAC in its subsidiaries. In addition, BCP Crystal holds, indirectly, all of the CAG Shares held by the Purchaser. From and after the completion of the Recent Restructuring, BCP Crystal's senior subordinated notes are guaranteed on an unsecured, senior subordinated basis by all of BCP Crystal's domestic, wholly owned subsidiaries that guarantee BCP Crystal's obligations under the amended and restated senior credit facilities. Corporate Structure The charts below summarize our ownership structure immediately before completion of the Recent Restructuring and our current ownership structure. 47 -------------------------------------------------------------------------------- Pre-Restructuring Structure [[Image Removed]] Footnotes on page 50 48 -------------------------------------------------------------------------------- Current Structure [[Image Removed]] [[Image Removed]] [[Image Removed]] Footnotes on following page 49 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] (1) In September 2004, Crystal US Holdings 3 L.L.C. ("Crystal LLC") and Crystal US Sub 3 Corp., a subsidiary of Crystal LLC, issued and sold $853 million aggregate principal amount at maturity of their Senior Discount Notes due 2014. Until October 1, 2009, interest on the notes will accrue in the form of an increase in the accreted value of such notes. Crystal LLC used approximately $207 million of the net proceeds from the initial public offering of Series A common stock and the offering of preferrred stock of Celanese Corporation to redeem approximately 35% of the outstanding principal amount at maturity, including a $19 million premium, of the senior discount notes. [[Image Removed]] [[Image Removed]] (2) The Issuer and the Parent Guarantor are sole obligors of the exchange notes. The subsidiaries of the Issuer will not guarantee the Issuer's obligations under the exchange notes. [[Image Removed]] [[Image Removed]] (3) The amended and restated senior credit facilities provide financing of up to approximately $2.8 billion, consisting of (1) an approximately $1.7 billion term loan facility with a maturity in 2011 (including $200 million borrowed under the Acquisition Facility in January 2004); (2) a $242 million delayed-draw term loan facility with a maturity in 2011; (3) an approximately $228 million credit-linked revolving facility under the Acquisition facility with a maturity in 2009; and (4) a $600 million revolving credit facility with a maturity in 2009. CAG may borrow under both revolving credit facilities. At BCP Crystal's option, either BCP Crystal or the Purchaser may be the borrower under the delayed-draw term loan facility. See "Description of Other IndebtednessAmended and Restated Senior Credit Facilities." [[Image Removed]] [[Image Removed]] (4) In June and July 2004, BCP Crystal issued and sold $1,225 million aggregate principal amount of its 9 5/8% U.S. Dollar-denominated Senior Subordinated Notes due 2014 and 200 million principal amount of its 10 3/8% Euro-denominated Senior Subordinated Notes due 2014. BCP Crystal used approximately $572 million of the net proceeds, including a $51 million premium, from the offering of Series A common stock and the offering of preferred stock of Celanese Corporation that was contributed to BCP Crystal to redeem approximately 35% of the outstanding principal amount of its senior subordinated notes. The senior subordinated notes are guaranteed on a senior subordinated basis by all of the BCP Crystal's domestic, wholly owned subsidiaries that guarantee the BCP Crystal's obligations under the amended and restated senior credit facilities. See "Description of Other IndebtednessSenior Subordinated Notes Due 2004." 50 -------------------------------------------------------------------------------- THE RECENT FINANCINGS In connection with Celanese Corporation's recently completed initial public offering, it contributed $779 million of the net proceeds to the Issuer, which used approximately $207 million of such net proceeds to redeem approximately 35% of the aggregate principal amount at maturity of the notes. The Issuer contributed the remaining proceeds to Celanese Holdings, which in turn contributed it to BCP Crystal. BCP Crystal used such proceeds to redeem approximately 35% of the outstanding principal amount of the senior subordinated notes. BCP Crystal used a portion of the borrowings of approximately $1,135 million under its amended and restated senior credit facilities to repay the amounts outstanding under its floating rate term loan and to pay a $576 million dividend to Celanese Holdings, which in turn distributed this amount to Crystal LLC. Crystal LLC distributed this amount up to the Parent Guarantor, which used it, together with the remaining net proceeds from the offering of its Series A common stock and its preferred stock, to pay a dividend of $804 million to the holders of its Series B common stock in April 2005. Our acquisition of Vinamul was primarily financed by $200 million of the borrowings under the amended and restated senior credit facilities. The loans under our prior senior credit facilities remained outstanding under the amended and restated senior credit facilities. The expected sources and uses of funds used by the Parent Guarantor in connection with the Recent Financings are set forth in the table below. [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Sources (in millions) Initial Public Offering of Series A Common Stock [[Image Removed]] $ 800 Sale of Preferred Stock [[Image Removed]] 240 Amended and Restated Senior Credit Facilities(1) [[Image Removed]] 1,135 [[Image Removed]] Total Sources [[Image Removed]] $ 2,175 [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Uses (in millions) Partial Redemption of Senior Discount Notes(2) [[Image Removed]] $ 207 Partial Redemption of Senior Subordinated Notes(3) [[Image Removed]] 572 Repayment of Floating Rate Term Loan [[Image Removed]] 353 Dividend to Holders of Series B Common Stock [[Image Removed]] 804 Estimated Fees and Expenses(4) [[Image Removed]] 39 Acquisition of Vinamul [[Image Removed]] 200 Total Uses [[Image Removed]] $ 2,175 [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] (1) Includes a 150 million euro tranche (translated at an exchange rate of $1.2944 to 1.00) and a $741 million dollar tranche. Sources shown exclude the $242 million delayed draw Acquisition facility which is expected to be used to fund the Acetex acquisition. See "Description of IndebtednessAmended and Restated Senior Credit Facilities." [[Image Removed]] [[Image Removed]] (2) Represents redemption in February 2005 of approximately $37 million of Series A senior discount notes and approximately $151 million of Series B senior discount notes and $19 million of premium. [[Image Removed]] [[Image Removed]] (3) Represents redemption in February 2005 of $521 million of senior subordinated notes (including $429 million of dollar notes and 70 million of euro notes which is the equivalent of approximately $92 million translated at an exchange rate of $1.3241 to 1.00) and $51 million of premium. [[Image Removed]] [[Image Removed]] (4) Represents estimated bank fees and other fees and expenses. The excess of actual amounts over the estimates may be significant and will be funded with available cash. 51 -------------------------------------------------------------------------------- USE OF PROCEEDS The Issuer will not receive any cash proceeds from the issuance of the exchange notes pursuant to the exchange offer. In consideration for issuing the exchange notes as contemplated in this prospectus, the Issuer will receive in exchange a like principal amount of outstanding notes, the terms of which are identical in all materials respects to the exchange notes. The outstanding notes surrendered in exchange for the exchange notes will be retired and canceled and cannot be reissued. Accordingly, issuance of the exchange notes will not result in any change in the Issuer's capitalization. The Issuer used the proceeds from the offering of the notes, to make a return of capital distribution to the Parent Guarantor, which in turn made a distribution to the Original Stockholders and to pay related fees and expenses. See "The Transactions," "The Recent Financings" and "Description of Other Indebtedness." 52 -------------------------------------------------------------------------------- CAPITALIZATION The following table sets forth our capitalization as of December 31, 2004 (1) on an actual basis, (2) on an as adjusted basis to reflect the Transactions and the Recent Restructuring, (3) on a further adjusted basis to reflect the Recent Financings and (4) on a further adjusted basis to reflect the $200 million of borrowings under our Acquisition Facility that we drew at closing to pre-fund our proposed acquisition of Vinamul Polymers. You should read the information in this table in conjunction with our financial statements and the notes to those statements appearing elsewhere in this prospectus and "Selected Historical Financial Data," "Unaudited Pro Forma Financial Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] As of December 31, 2004 As Adjusted for the As Further Adjusted As Further Adjusted [[Image Removed]] [[Image Removed]] Transactions and Recent [[Image Removed]] for the Recent [[Image Removed]] for the Actual Restructuring Financing Acquisition Facility [[Image Removed]] (in millions except share data) Cash and cash equivalents(1) [[Image Removed]] $ 838 [[Image Removed]] $ 784 [[Image Removed]] $ 736 [[Image Removed]] $ 936 Total debt: [[Image Removed]] [[Image Removed]] [[Image Removed]] Amended and restated senior credit facilities(2): [[Image Removed]] [[Image Removed]] [[Image Removed]] Revolving credit facilities [[Image Removed]] $ [[Image Removed]] $ [[Image Removed]] $ [[Image Removed]] $ Term loan facility [[Image Removed]] 624 [[Image Removed]] 624 [[Image Removed]] 1,559 [[Image Removed]] 1,559 Acquisition facility [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] 200 Floating rate term loan [[Image Removed]] 350 [[Image Removed]] 350 [[Image Removed]] [[Image Removed]] Senior subordinated notes(3) [[Image Removed]] 1,503 [[Image Removed]] 1,503 [[Image Removed]] 977 [[Image Removed]] 977 Senior discount notes [[Image Removed]] 527 [[Image Removed]] 527 [[Image Removed]] 343 [[Image Removed]] 343 Assumed debt [[Image Removed]] 383 [[Image Removed]] 383 [[Image Removed]] 383 [[Image Removed]] 383 Total debt [[Image Removed]] 3,387 [[Image Removed]] 3,387 [[Image Removed]] 3,262 [[Image Removed]] 3,462 Minority interest(4) [[Image Removed]] 518 [[Image Removed]] 518 [[Image Removed]] 518 [[Image Removed]] 518 Shareholders' equity: [[Image Removed]] [[Image Removed]] [[Image Removed]] Additional paid-in capital [[Image Removed]] 158 [[Image Removed]] 158 [[Image Removed]] 347 [[Image Removed]] 347 Accumulated deficit [[Image Removed]] (253 ) [[Image Removed]] (253 ) [[Image Removed]] (390 ) [[Image Removed]] (390 ) Accumulated other comprehensive income (loss) [[Image Removed]] (17 ) [[Image Removed]] (17 ) [[Image Removed]] (17 ) [[Image Removed]] (17 ) Total shareholders' equity (deficit) [[Image Removed]] (112 ) [[Image Removed]] (112 ) [[Image Removed]] (60 ) [[Image Removed]] (60 ) Total capitalization [[Image Removed]] $ 3,793 [[Image Removed]] $ 3,793 [[Image Removed]] $ 3,720 [[Image Removed]] $ 3,920 [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] (1) Represents cash available to purchase remaining outstanding CAG Shares, including any options on CAG Shares that are exercised, to repay additional existing indebtedness, to pay interest on the notes and to make loans to its subsidiaries for working capital and general corporate purposes. In connection with the consummation of the Celanese Corporation initial public offering, we received $12 million from the sale of shares to management and we paid (1) a $10 million monitoring fee for 2005, (2) an initial deferred compensation payment of $27 million, and (3) $8 million of retention and other executive bonuses. These amounts are not reflected as adjustments to cash and cash equivalents. See "Certain Relationships and Related Party TransactionsNew ArrangementsTransaction and Monitoring Fee Agreement/Sponsor Services Agreement" and "ManagementStock Incentive Plan", "Deferred Compensation Plan" and "Bonus". [[Image Removed]] [[Image Removed]] (2) The revolving credit facilities under the amended and restated senior credit facilities provide for borrowings of up to $828 million. As of March 31, 2005, no amounts have been borrowed and $614 million was available for borrowings under the revolving credit facilities (taking into account letters of credit issued under the revolving credit facilities). On an as further adjusted basis for the Acquisition Facility, the amended and restated senior credit facilities includes $200 million of borrowings under the $442 million Acquisition Facility that we drew at closing to fund our acquisition of Vinamul Polymers. [[Image Removed]] [[Image Removed]] (3) Includes the U.S. dollar equivalent of the euro-denominated notes and, on an actual and as adjusted basis, $6 million premium on the $225 million aggregate principal amount of the notes issued July 1, 2004, and on a further adjusted basis, $4 million premium on the remaining notes after the use of proceeds from the Celanese Corporation's initial public offering as $2 million of the premium will be written-off on a further adjusted basis. [[Image Removed]] [[Image Removed]] (4) As of December 31, 2004, we owned approximately 84% of the CAG Shares then outstanding. While we intend to acquire the remaining outstanding shares, there is no assurance that we will be able to do so. If we acquire more shares, our consolidated balance sheet will reflect lower cash and minority interests and our statements of operations will reflect lower minority interest expense for the percentage of the CAG Shares that we acquire. For purposes of this pro forma financial information, we have assumed that we do not acquire any of the remaining outstanding CAG shares beyond the approximately 84% of the outstanding CAG Shares that we already own. See "Unaudited Pro Forma Financial Information." 53 -------------------------------------------------------------------------------- UNAUDITED PRO FORMA FINANCIAL INFORMATION The following unaudited pro forma financial information is based on the audited consolidated financial statements of Celanese Corporation which appear elsewhere in this prospectus as adjusted to illustrate the estimated pro forma effects of the Transactions and the Recent Restructuring (including the preliminary application of purchase accounting) and the Recent Financings. We are a recently-formed company which does not have, apart from financing the Transactions and the Recent Financings, any independent external operations other than through the indirect ownership of CAG and CAC, their consolidated subsidiaries, their non-consolidated subsidiaries, ventures and other investments. As of December 31, 2004, we indirectly owned approximately 84% of the CAG Shares then outstanding. While we intend to acquire the remaining outstanding shares, there is no assurance that we will be able to do so. If we do acquire more shares, our balance sheet will reflect lower cash and minority interests and our statements of operations will reflect lower minority interest expense for the percentage of CAG Shares that we acquire. For purposes of this unaudited pro forma financial information, we have assumed that we acquire only approximately 84% of the CAG Shares outstanding as of December 31, 2004. See note (g) to the pro forma balance sheet. The unaudited pro forma financial information should be read in conjunction with the Consolidated Financial Statements and other financial information appearing elsewhere in this prospectus, including "Basis of Presentation," "The Transactions," "The Recent Restructuring," "The Recent Financings" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The unaudited pro forma balance sheet gives effect to the Transactions, Recent Restructuring and the Recent Financings as if they had occurred on December 31, 2004. The unaudited pro forma statements of operations data give effect to the Transactions, the Recent Restructuring and the Recent Financings, as if they had occurred on January 1, 2004. The unaudited pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable. The unaudited pro forma financial information does not reflect any adjustments for the (1) Acetate Restructuring, (2) the pending acquisition of Acetex and the acquisition of Vinamul Polymers and related financings (3) the potential future dispositions of COC and our interest in Pemeas GmbH or (4) the stock incentive plan, deferred compensation plan and bonuses, each as described under "SummaryRecent Developments" above, except that the supplemental pro forma balance sheet reflects $200 million of borrowings under our Acquisition Facility that was recently drawn to pre-fund our acquisition of Vinamul Polymers. The unaudited pro forma statements of operations data do not reflect certain one-time charges that we recorded or will record following the closing of the Transactions and the Recent Financings. These one-time charges include (1) an approximately $53 million non-cash charge for the manufacturing profit added to inventory under purchase accounting, (2) the $71 million of one-time costs related to the replacement of a portion of the Original Financing which was charged to expense in the nine months ended December 31, 2004, (3) $18 million write-off of deferred financing fees and $21 million of prepayment premium associated with the July 2004 redemption of our mandatorily redeemable preferred stock described in "The Transactions" section above. (4) $28 million write-off of deferred financing fees, net of $2 million of premium, and $74 million of prepayment premium associated with the redemption of a portion of our senior subordinated notes and senior discount notes and repayment of our existing floating rate term loan with a portion of the proceeds of the Recent Financings and (5) $35 million one-time charge related to the termination of the monitoring services by the Advisor. The unaudited pro forma financial information is for informational purposes only and is not intended to represent or be indicative of the consolidated results of operations or financial position that we would have reported had the Transactions been completed as of the dates presented, and should not be taken as representative of our future consolidated results of operations or financial position. 54 -------------------------------------------------------------------------------- UNAUDITED PRO FORMA BALANCE SHEET AS OF DECEMBER 31, 2004 [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Transactions [[Image Removed]] [[Image Removed]] and Recent [[Image Removed]] Recent [[Image Removed]] [[Image Removed]] Restructuring Financings Supplemental Historical Adjustments Adjustments Pro Forma(g) Pro Forma(d) [[Image Removed]] (In millions) Assets [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Cash and cash equivalents [[Image Removed]] $ 838 [[Image Removed]] $ (54 )(a) [[Image Removed]] $ (48) (b) [[Image Removed]] $ 736 [[Image Removed]] $ 936 Trade receivables, netthird party and affiliates [[Image Removed]] 866 [[Image Removed]] [[Image Removed]] [[Image Removed]] 866 [[Image Removed]] 866 Other receivables [[Image Removed]] 670 [[Image Removed]] [[Image Removed]] [[Image Removed]] 670 [[Image Removed]] 670 Inventories [[Image Removed]] 618 [[Image Removed]] [[Image Removed]] [[Image Removed]] 618 [[Image Removed]] 618 Deferred income taxes [[Image Removed]] 71 [[Image Removed]] [[Image Removed]] [[Image Removed]] 71 [[Image Removed]] 71 Other assets [[Image Removed]] 86 [[Image Removed]] [[Image Removed]] [[Image Removed]] 86 [[Image Removed]] 86 Assets of discontinued operations [[Image Removed]] 2 [[Image Removed]] [[Image Removed]] [[Image Removed]] 2 [[Image Removed]] 2 Total current assets [[Image Removed]] 3,151 [[Image Removed]] (54 ) [[Image Removed]] (48 ) [[Image Removed]] 3,049 [[Image Removed]] 3,249 Investments [[Image Removed]] 600 [[Image Removed]] [[Image Removed]] [[Image Removed]] 600 [[Image Removed]] 600 Property, plant and equipment, net [[Image Removed]] 1,702 [[Image Removed]] [[Image Removed]] [[Image Removed]] 1,702 [[Image Removed]] 1,702 Deferred income taxes [[Image Removed]] 54 [[Image Removed]] [[Image Removed]] [[Image Removed]] 54 [[Image Removed]] 54 Other assets [[Image Removed]] 756 [[Image Removed]] [[Image Removed]] (25 ) (c) [[Image Removed]] 731 [[Image Removed]] 731 Intangible assets, net [[Image Removed]] 1,147 [[Image Removed]] [[Image Removed]] [[Image Removed]] 1,147 [[Image Removed]] 1,147 Total assets [[Image Removed]] $ 7,410 [[Image Removed]] $ (54 ) [[Image Removed]] $ (73 ) [[Image Removed]] $ 7,283 [[Image Removed]] $ 7,483 Liabilities and Shareholders' Equity (Deficit) [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Short-term borrowings and current installments of [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] long-term debtthird party and affiliates $ 144 $ $ 10 (d) $ 154 $ 156 Trade payablesthird party and affiliates [[Image Removed]] 722 [[Image Removed]] [[Image Removed]] [[Image Removed]] 722 [[Image Removed]] 722 Other current liabilities [[Image Removed]] 888 [[Image Removed]] [[Image Removed]] [[Image Removed]] 888 [[Image Removed]] 888 Deferred income taxes [[Image Removed]] 20 [[Image Removed]] [[Image Removed]] [[Image Removed]] 20 [[Image Removed]] 20 Income taxes payable [[Image Removed]] 214 [[Image Removed]] [[Image Removed]] [[Image Removed]] 214 [[Image Removed]] 214 Liabilities of discontinued operations [[Image Removed]] 7 [[Image Removed]] [[Image Removed]] [[Image Removed]] 7 [[Image Removed]] 7 Total current liabilities [[Image Removed]] 1,995 [[Image Removed]] [[Image Removed]] 10 [[Image Removed]] 2,005 [[Image Removed]] 2,007 Long-term debt [[Image Removed]] 1,213 [[Image Removed]] [[Image Removed]] 575 (d) [[Image Removed]] 1,788 [[Image Removed]] 1,986 Senior subordinated notes [[Image Removed]] 1,503 [[Image Removed]] [[Image Removed]] (526 ) (e) [[Image Removed]] 977 [[Image Removed]] 977 Senior discount notes [[Image Removed]] 527 [[Image Removed]] [[Image Removed]] (184 ) (e) [[Image Removed]] 343 [[Image Removed]] 343 Deferred income taxes [[Image Removed]] 256 [[Image Removed]] [[Image Removed]] [[Image Removed]] 256 [[Image Removed]] 256 Benefit obligations [[Image Removed]] 1,000 [[Image Removed]] (54 )(a) [[Image Removed]] [[Image Removed]] 946 [[Image Removed]] 946 Other liabilities [[Image Removed]] 510 [[Image Removed]] [[Image Removed]] [[Image Removed]] 510 [[Image Removed]] 510 Total liabilities [[Image Removed]] 7,004 [[Image Removed]] (54 ) [[Image Removed]] (125 ) [[Image Removed]] 6,825 [[Image Removed]] 7,025 Minority interests [[Image Removed]] 518 [[Image Removed]] [[Image Removed]] [[Image Removed]] 518 [[Image Removed]] 518 Commitment and contingencies(h) [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Total shareholders' equity (deficit) [[Image Removed]] (112 ) [[Image Removed]] [[Image Removed]] 52 (f) [[Image Removed]] (60 ) [[Image Removed]] (60 ) Total liabilities and shareholders' equity (deficit) [[Image Removed]] $ 7,410 [[Image Removed]] $ (54 ) [[Image Removed]] $ (73 ) [[Image Removed]] $ 7,283 [[Image Removed]] $ 7,483 [[Image Removed]] See accompanying notes to unaudited pro forma balance sheet. 55 -------------------------------------------------------------------------------- NOTES TO UNAUDITED PRO FORMA BALANCE SHEET Transactions and Recent Restructuring Adjustments [[Image Removed]] [[Image Removed]] (a) Adjustments to cash consist of the following [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] (in millions) Additional pension contribution(1) [[Image Removed]] (54 ) [[Image Removed]] $ (54 ) [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] (1) As of December 31, 2004, Celanese had contributed $409 million and held an additional $54 million in cash for future contributions to a trust out of the total $463 million expected to be contributed to Celanese pension plans in connection with the acquisition of the CAG Shares. Recent Financings Adjustments [[Image Removed]] [[Image Removed]] (b) In connection with the initial public offering of Series A common stock of Celanese Corporation, Blackstone Management Partners IV L.L.C. (the "Advisor"), an affiliate of the Sponsor terminated the monitoring services provided to us by the Advisor under the Transaction and Monitoring Fee Agreement/Sponsor Services Agreement. We paid a termination fee of $35 million, which funded through available cash. See "Certain Relationships and Related Party TransactionsNew ArrangementsTransaction and Monitoring Fee Agreement/Sponsor Services Agreement." The unaudited pro forma balance sheet reflects a $35 million reduction of cash. In addition, in January 2005, an annual $10 million monitoring fee was paid to the Advisor. The pro forma financial information does not reflect this payment as upon termination of the agreement this prepaid asset will be written off as a one-time charge to the income statement. Also includes $13 million reduction in cash to pay fees and expenses associated with the Recent Financings. [[Image Removed]] [[Image Removed]] (c) Reflects the write-off of $30 million of deferred financing costs associated with the debt repaid net of the capitalization of $5 million of deferred financing costs associated with our amended and restated senior credit facilities. [[Image Removed]] [[Image Removed]] (d) Reflects the borrowings of an incremental $935 million under our amended and restated senior credit facilities and the repayment of $350 million of our floating rate term loan. The supplemental pro forma balance sheet includes $200 million of incremental borrowings under our $442 million Acquisition Facility that was drawn at closing of the Recent Financings to fund our acquisition of Vinamul Polymers. [[Image Removed]] [[Image Removed]] (e) Reflects the redemption of a portion of our senior subordinated notes and senior discount notes and the $2 million write-off of premium. [[Image Removed]] [[Image Removed]] (f) Reflects the changes to shareholders' equity from the proceeds from the Recent Financings and the dividend to the holders of our Series B common stock as follows: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] (in millions) Gross proceeds from the offering of Series A common stock [[Image Removed]] $ 800 Gross proceeds from the offering of new preferred stock(1) [[Image Removed]] 240 Estimated fees and expenses of the offering [[Image Removed]] (47 ) Dividend to the holders of our Series B common stock [[Image Removed]] (804 ) Retained earnings (deficit)(2) [[Image Removed]] (137 ) [[Image Removed]] $ 52 [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] (1) Reflects the gross proceeds of $240 million from the offering of our preferred stock. The preferred stock will be convertible into common shares at any time. See "Description of Convertible Perpetual Preferred Stock." 56 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] (2) Includes $74 million of premium on the redemption of a portion of the senior discount notes and the senior subordinated notes and the retirement of our floating rate term loan. In addition, we will write off $30 million of deferred financing fees and $2 million of premium associated with the refinancings. Also includes a $35 million charge to terminate the monitoring services under the agreement. [[Image Removed]] [[Image Removed]] (g) The pro forma balance sheet data assumes that we acquired only approximately 84% of the CAG Shares outstanding as of December 31, 2004. The following supplemental pro forma balance sheet data provides information assuming that we acquire 100% of the CAG Shares. As of December 31, 2004, we indirectly owned approximately 84% of the CAG Shares outstanding on that date. In connection with the Domination Agreement, we have offered to acquire the remaining approximately 16% or approximately 8.0 million outstanding CAG Shares (which does not include outstanding Celanese AG employee stock options) at 41.92 per share, for aggregate consideration of $455 million plus interest. If we acquire these shares, cash and minority interest will decrease and the assets acquired and liabilities assumed will be adjusted to full fair value, as follows: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] (in millions) Cash paid to acquire minority shares [[Image Removed]] $ (455 ) Purchase price under current book value of net assets [[Image Removed]] (25 ) Reduction of minority interests [[Image Removed]] 480 [[Image Removed]] $ [[Image Removed]] [[Image Removed]] [[Image Removed]] (h) See note 27 to the Consolidated Financial Statements for a description of commitments and contingencies. 57 -------------------------------------------------------------------------------- UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA FOR THE YEAR ENDED DECEMBER 31, 2004 [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Successor [[Image Removed]] [[Image Removed]] Predecessor [[Image Removed]] Nine Months Transactions Three Months Ended [[Image Removed]] and Recent [[Image Removed]] Recent [[Image Removed]] [[Image Removed]] Ended March 31, [[Image Removed]] December 31, Restructuring Financings 2004 2004 Adjustments Adjustments Pro Forma [[Image Removed]] (in millions) Statement of Operations Data: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Net sales [[Image Removed]] $ 1,243 [[Image Removed]] $ 3,826 [[Image Removed]] $ [[Image Removed]] $ [[Image Removed]] $ 5,069 Cost of sales [[Image Removed]] (1,002 ) [[Image Removed]] (3,092 ) [[Image Removed]] 93 (a) [[Image Removed]] [[Image Removed]] (4,001 ) Selling, general and administrative expenses [[Image Removed]] (137 ) [[Image Removed]] (498 ) [[Image Removed]] (10 ) (a) [[Image Removed]] 10 (e) [[Image Removed]] (635 ) Research and development expenses [[Image Removed]] (23 ) [[Image Removed]] (67 ) [[Image Removed]] 1 (a) [[Image Removed]] [[Image Removed]] (89 ) Special charges: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Insurance recoveries associated with plumbing cases [[Image Removed]] [[Image Removed]] 1 [[Image Removed]] [[Image Removed]] [[Image Removed]] 1 Other special charges, net [[Image Removed]] (28 ) [[Image Removed]] (92 ) [[Image Removed]] 21 (a) [[Image Removed]] [[Image Removed]] (99 ) Foreign exchange gain (loss) [[Image Removed]] [[Image Removed]] (3 ) [[Image Removed]] [[Image Removed]] [[Image Removed]] (3 ) Gain (loss) on disposition of assets [[Image Removed]] (1 ) [[Image Removed]] 3 [[Image Removed]] [[Image Removed]] [[Image Removed]] 2 Operating profit [[Image Removed]] 52 [[Image Removed]] 78 [[Image Removed]] 105 [[Image Removed]] 10 [[Image Removed]] 245 Equity in net earnings of affiliates [[Image Removed]] 12 [[Image Removed]] 36 [[Image Removed]] [[Image Removed]] [[Image Removed]] 48 Interest expense [[Image Removed]] (6 ) [[Image Removed]] (300 ) [[Image Removed]] 22 (b) [[Image Removed]] 34 (f) [[Image Removed]] (250 ) Interest and other income, net [[Image Removed]] 14 [[Image Removed]] 12 [[Image Removed]] [[Image Removed]] [[Image Removed]] 26 Earnings (loss) from continuing operations before tax [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] and minority interests 72 (174 ) 127 44 69 Income tax (provision) benefit [[Image Removed]] (17 ) [[Image Removed]] (70 ) [[Image Removed]] (22 ) (c) [[Image Removed]] (g) [[Image Removed]] (109 ) Minority interests [[Image Removed]] [[Image Removed]] (8 ) [[Image Removed]] (15 ) (d) [[Image Removed]] [[Image Removed]] (23 ) Earnings (loss) from continuing operations before nonrecurring charges directly attributable to the [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] transactions(h) $ 55 $ (252 ) $ 90 $ 44 $ (63 ) [[Image Removed]] See accompanying notes to unaudited pro forma statement of operations data. 58 -------------------------------------------------------------------------------- NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA [[Image Removed]] [[Image Removed]] (a) Reflects the adjustments to operating expenses as follows: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Year Ended December 31, 2004 [[Image Removed]] (in millions) Purchase accounting for pensions / OPEB(1) [[Image Removed]] $ 10 Impact of additional pension contribution(2) [[Image Removed]] 30 Manufacturing profit included in cost of sales(3) [[Image Removed]] 53 Depreciation and amortization(4) [[Image Removed]] Investment banking fees(5) [[Image Removed]] 18 Stock option expense(6) [[Image Removed]] 1 Acquisition reserves(7) [[Image Removed]] 3 Advisor monitoring fee(8) [[Image Removed]] (10 ) Total [[Image Removed]] $ 105 [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] (1) Reflects the estimated decrease to pension and OPEB expense resulting from the application of purchase accounting based primarily on actuarial valuations as of April 1, 2004. [[Image Removed]] [[Image Removed]] (2) Reflects the estimated decrease to pension expense resulting from pre-funding $463 million of pension contributions in connection with the Transactions using an assumed average long-term rate of return on plan assets of 7.93%. [[Image Removed]] [[Image Removed]] (3) Reflects the elimination of the incremental cost of sales recorded in the nine months ended December 31, 2004 arising from the estimate of manufacturing profit added to inventory under purchase accounting. [[Image Removed]] [[Image Removed]] (4) Reflects the net impact of the estimated $22 million decrease to depreciation ($20 million recorded in cost of sales and $2 million recorded in selling, general, and administrative expenses) and the $22 million increase to amortization of intangible assets, recorded in selling, general and administrative expenses. [[Image Removed]] [[Image Removed]] (5) Reflects the elimination of investment banking fees incurred by CAG that were directly related to the Tender Offer. [[Image Removed]] [[Image Removed]] (6) Reflects the adjustment required to account for outstanding stock options in accordance with APB 25 in conformity with the Issuer's accounting policies. CAG historically accounted for its stock options under FAS 123. [[Image Removed]] [[Image Removed]] (7) Reflects the adjustment of acquisition reserves related to CAC from approximately 84% to 100% of fair value as a result of the Recent Restructuring that occurred in October-November, 2004. [[Image Removed]] [[Image Removed]] (8) Reflects the $10 million per annum fee to be paid to Blackstone Management Partners IV L.L.C., an affiliate of the Sponsor. See "Certain Relationships and Related Party Transactions." 59 -------------------------------------------------------------------------------- These adjustments are allocated as follows: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Year Ended [[Image Removed]] December 31, 2004 [[Image Removed]] (in millions) Cost of sales [[Image Removed]] $ 93 Selling, general and administrative expenses [[Image Removed]] (10 ) Research and development expenses [[Image Removed]] 1 Other special charges, net [[Image Removed]] 21 [[Image Removed]] $ 105 [[Image Removed]] [[Image Removed]] [[Image Removed]] (b) Represents pro forma interest expense resulting from our and our subsidiaries' existing capital structure using an assumed LIBOR rate of 1.59% as follows: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Year Ended [[Image Removed]] December 31, 2004 [[Image Removed]] (in millions) Revolving credit facilities(1) [[Image Removed]] $ Term loan(2) [[Image Removed]] 26 Floating rate term loan(3) [[Image Removed]] 18 Senior subordinated notesdollar tranche(4) [[Image Removed]] 118 Senior subordinated noteseuro tranche(5) [[Image Removed]] 28 Assumed debt(6) [[Image Removed]] 18 Commitment and facility fees(7) [[Image Removed]] 9 Total cash interest expense [[Image Removed]] 217 Senior discount notes(8) [[Image Removed]] 55 Amortization of capitalized debt issuance costs(9) [[Image Removed]] 13 Amortization of premium on notes(10) [[Image Removed]] (1 ) Total pro forma interest expense [[Image Removed]] 284 Less historical interest expense [[Image Removed]] (306 ) Net adjustment to interest expense [[Image Removed]] $ (22 ) [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] (1) Reflects pro forma interest expense on the existing revolving credit facilities at an assumed interest rate of LIBOR plus 2.50%. The revolving credit facilities have been undrawn since closing. [[Image Removed]] [[Image Removed]] (2) Reflects pro forma interest expense on the term loan at an assumed interest rate of LIBOR plus 2.50%. [[Image Removed]] [[Image Removed]] (3) Reflects pro forma interest expense on the floating rate term loan at an assumed interest rate of LIBOR plus 3.50%. [[Image Removed]] [[Image Removed]] (4) Reflects pro forma interest expense on the dollar notes at a fixed interest rate of 9.625%. [[Image Removed]] [[Image Removed]] (5) Reflects pro forma interest expense on the euro notes at a fixed interest rate of 10.375%. [[Image Removed]] [[Image Removed]] (6) Reflects historical cash interest expense on $383 million of assumed debt and other obligations of Celanese that is not required to be refinanced as a result of the acquisition and related financing. Celanese may elect to refinance additional assumed debt. [[Image Removed]] [[Image Removed]] (7) Reflects commitment fees of 0.75% on an assumed $380 million undrawn balance under the revolving credit facility and facility fees of 2.50% on an assumed $228 million undrawn balance under the credit linked revolving credit facility. [[Image Removed]] [[Image Removed]] (8) Reflects pro forma non-cash interest expense on the senior discount notes at a weighted average fixed interest rate of 10.4%. Interest on the notes accrues semi-annually. 60 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] (9) Reflects non-cash amortization of capitalized debt issuance costs. These costs are amortized over the term of the related facility (five years for the revolving credit facilities, seven years for the term loan, seven and one half years for the floating rate term loan and ten years for the senior subordinated notes and senior discount notes). [[Image Removed]] [[Image Removed]] (10) Reflects non-cash amortization of the $6 million premium that was received in excess of the aggregate principal amount of the $225 million notes issued on July 1, 2004. [[Image Removed]] [[Image Removed]] Interest Rate Sensitivity A 1/8% change in interest rates would have the following effect on pro forma interest expense: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Year Ended [[Image Removed]] December 31, 2004 [[Image Removed]] (in millions) Term loan [[Image Removed]] $ 0.8 Floating rate term loan [[Image Removed]] 0.4 Total [[Image Removed]] $ 1.2 [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] (c) Reflects the tax effect of the pro forma adjustments calculated at a 40% statutory rate on non-U.S. items. The U.S. portion of the pro forma adjustments (including interest expense) does not reflect any tax effects as a result of a 100% valuation allowance on the net U.S. deferred tax assets. See note 22 to the Consolidated Financial Statements. [[Image Removed]] [[Image Removed]] (d) Reflects minority interest in the earnings of CAG assuming we do not acquire more than the approximately 84% of the CAG Shares outstanding as of December 31, 2004 that we already own. If we do acquire more shares, minority interest expense will be lower for the percentage of CAG Shares that we acquire. See note (g) to the pro forma balance sheet. Recent Financings Adjustments [[Image Removed]] [[Image Removed]] (e) Reflects the impact of the termination of monitoring services (see note (b) to the Unaudited Pro forma Balance Sheet). [[Image Removed]] [[Image Removed]] (f) Reflects the reduction in interest expense as a result of the repayment of our floating rate term loan and the redemption of a portion of the senior subordinated notes and senior discount notes with the proceeds of the Recent Financings using an assumed LIBOR rate of 2.50% as follows: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Year Ended [[Image Removed]] December 31, 2004 [[Image Removed]] (in millions) Revolving credit facilities(1) [[Image Removed]] $ Term loan(2) [[Image Removed]] 79 Senior subordinated notesdollar tranche(3) [[Image Removed]] 77 Senior subordinated noteseuro tranche(4) [[Image Removed]] 18 Assumed debt(5) [[Image Removed]] 18 Commitment and facility fees(6) [[Image Removed]] 14 Total cash interest expense [[Image Removed]] 206 Senior discount notes(7) [[Image Removed]] 35 Amortization of capitalized debt issuance costs(8) [[Image Removed]] 9 Amortization of premium on notes(9) [[Image Removed]] Total pro forma interest expense [[Image Removed]] 250 Less pro forma interest expense for the Transactions (note (b)) [[Image Removed]] (284 ) Net adjustment to interest expense [[Image Removed]] $ (34 ) [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] (1) Reflects pro forma interest expense on our revolving credit facilities at an assumed interest rate of LIBOR plus 2.50%. We do not plan to draw on the revolving credit facilities. 61 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] (2) Reflects pro forma interest expense on the term loan at an assumed interest rate of LIBOR plus 2.50%. [[Image Removed]] [[Image Removed]] (3) Reflects pro forma interest expense on the remaining dollar notes after the Recent Financings at a fixed interest rate of 9.625%. [[Image Removed]] [[Image Removed]] (4) Reflects pro forma interest expense on the remaining euro notes after the Recent Financings at a fixed interest rate of 10.375%. [[Image Removed]] [[Image Removed]] (5) Reflects historical cash interest expense on $383 million of assumed debt and other obligations of Celanese that is not required to be refinanced as a result of the acquisition and related financings. Celanese may elect to refinance additional assumed debt. [[Image Removed]] [[Image Removed]] (6) Reflects commitment fees of 0.75% on an assumed $600 million undrawn balance under the revolving credit facility and the assumed $442 million Acquisition Facility (includes delayed draw portion of $242 million) and facility fees of 2.50% on an assumed $228 million undrawn balance under the credit-linked revolving credit facility. [[Image Removed]] [[Image Removed]] (7) Reflects pro forma non-cash interest expense on the remaining senior discount notes after the use of proceeds from the offering, at a fixed rate of 10.4%. Interest on the notes accrues semi-annually. [[Image Removed]] [[Image Removed]] (8) Reflects non-cash amortization of capitalized debt issuance costs. These costs are amortized over the term of the related facility (five years for the revolving credit facilities, seven years for the term loan and ten years for the senior subordinated notes and senior discount notes). [[Image Removed]] [[Image Removed]] (9) Reflects non-cash amortization of the remaining $4 million premium after the use of proceeds from the offering by Celanese Corporation of its Series A common stock, that was received in excess of the aggregate principal amount of the $225 million notes issued on July 1, 2004. [[Image Removed]] [[Image Removed]] Interest Rate Sensitivity A 1/8% change in interest rates would have the following effect on pro forma interest expense: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Year Ended [[Image Removed]] December 31, 2004 [[Image Removed]] (in millions) Term Loan [[Image Removed]] $ 1.9 [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] (g) Reflects the tax effect of the pro forma adjustments calculated at a 40% statutory rate on non-U.S. items. The U.S. portion of the pro forma adjustments (including interest expense) does not reflect any tax effects as a result of a 100% valuation allowance on the net U.S. deferred tax assets. See note 22 to the Consolidated Financial Statements. [[Image Removed]] [[Image Removed]] (h) The pro forma statement of operations data does not reflect (1) a $53 million ($31 million after tax) one-time non-cash charge to cost of sales that was incurred as the inventory (to which capitalized manufacturing profit was added under purchase accounting) was sold after closing of the Transactions and the Recent Restructuring, (2) the $71 million accelerated write-off of the deferred financing costs associated with the senior subordinated bridge loan facilities repaid with the proceeds from the senior subordinated notes, (3) $18 million write-off of deferred financing fees and $21 million of prepayment premium associated with the July 2004 redemption of our mandatorily redeemable preferred stock described in "The Transactions" section above. (4) $74 million of redemption premium, and $28 million accelerated write-off of deferred financing fees, net of $2 million of premium, associated with the senior subordinated notes and senior discount notes redeemed with the proceeds of Celanese Corporation's offering of its Series A common stock, the repayment of our floating rate term loan, and (5) a $35 million one-time charge to terminate the monitoring services of the Advisor. 62 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] The pro forma statement of operations data also does not reflect any adjustments for the recently announced restructuring of our acetate filament business, the pending acquisition of Acetex or the acquisition of Vinamul Polymers or the possible future disposition of the COC and Pemeas GmbH (our fuel cell joint venture). The revenues and the operating loss for COC were $9 million and $(68) million for the year ended December 31, 2004. The revenues for the fuel cell business were not material for any period presented. The operating loss for our fuel cell business for the year ended December 31, 2004 was approximately $(10) million. As of December 31, 2004, the estimated total assets and total liabilities of COC, including intercompany payables, were approximately $42 million and $74 million, respectively, and the estimated total assets and total liabilities of Pemeas GmbH were $24 million and $3 million, respectively. See "Prospectus SummaryRecent Developments." 63 -------------------------------------------------------------------------------- SELECTED HISTORICAL FINANCIAL DATA The balance sheet data shown below for December 31, 2003 and 2004, and the statements of operations and cash flow data for 2002, 2003 and 2004, all of which are set forth below, are derived from the Consolidated Financial Statements included elsewhere in this prospectus and should be read in conjunction with those financial statements and the notes thereto. The balance sheet data for 2002 is derived from the Predecessor's audited financial statements which are not included in this prospectus. The statement of operations data for 2000 and the balance sheet data for 2000, 2001 and March 31, 2004, all of which are set forth below, are unaudited. This prospectus presents the financial information relating to CAG and its subsidiaries under the caption "Predecessor" and the information relating to the Consolidated Parent Guarantor under the caption "Successor." As of the date of this prospectus, the Purchaser, an indirect wholly owned subsidiary of the Issuer, owns approximately 85% of the outstanding CAG Shares. The Issuer is a recently formed company which, apart from the financing of the Transactions, does not have any independent external operations other than through the indirect ownership of CAG and CAC, their consolidated subsidiaries, their non-consolidated subsidiaries, ventures and other investments. Accordingly, financial and other information of CAG is presented in this prospectus for periods through March 31, 2004 and our financial and other information is presented as of and for the nine months ended December 31, 2004. 64 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Predecessor [[Image Removed]] Successor [[Image Removed]] [[Image Removed]] Three Months Nine Months Year Ended December 31, Ended [[Image Removed]] Ended [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] March 31, December 31, 2000 2001 2002 2003 2004 2004 [[Image Removed]] (unaudited) [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] (in millions, except for share and per share data) Statement of Operations Data: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Net sales [[Image Removed]] $ 4,120 [[Image Removed]] $ 3,970 [[Image Removed]] $ 3,836 [[Image Removed]] $ 4,603 [[Image Removed]] $ 1,243 [[Image Removed]] $ 3,826 Cost of sales [[Image Removed]] (3,403 ) [[Image Removed]] (3,409 ) [[Image Removed]] (3,171 ) [[Image Removed]] (3,883 ) [[Image Removed]] (1,002 ) [[Image Removed]] (3,092 ) Selling, general and administrative expenses [[Image Removed]] (497 ) [[Image Removed]] (489 ) [[Image Removed]] (446 ) [[Image Removed]] (510 ) [[Image Removed]] (137 ) [[Image Removed]] (498 ) Research and development expenses [[Image Removed]] (75 ) [[Image Removed]] (74 ) [[Image Removed]] (65 ) [[Image Removed]] (89 ) [[Image Removed]] (23 ) [[Image Removed]] (67 ) Special charges(1): [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Insurance recoveries associated with plumbing cases [[Image Removed]] 18 [[Image Removed]] 28 [[Image Removed]] [[Image Removed]] 107 [[Image Removed]] [[Image Removed]] 1 Sorbates antitrust matters [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] (95 ) [[Image Removed]] [[Image Removed]] Restructuring, impairment and other special charges, [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] net (36 ) (444 ) 5 (17 ) (28 ) (92 ) Foreign exchange gain (loss) [[Image Removed]] 5 [[Image Removed]] 1 [[Image Removed]] 3 [[Image Removed]] (4 ) [[Image Removed]] [[Image Removed]] (3 ) Gain (loss) on disposition of assets [[Image Removed]] 1 [[Image Removed]] [[Image Removed]] 11 [[Image Removed]] 6 [[Image Removed]] (1 ) [[Image Removed]] 3 Operating profit (loss) [[Image Removed]] 133 [[Image Removed]] (417 ) [[Image Removed]] 173 [[Image Removed]] 118 [[Image Removed]] 52 [[Image Removed]] 78 Equity in net earnings of affiliates [[Image Removed]] 18 [[Image Removed]] 12 [[Image Removed]] 21 [[Image Removed]] 35 [[Image Removed]] 12 [[Image Removed]] 36 Interest expense [[Image Removed]] (68 ) [[Image Removed]] (72 ) [[Image Removed]] (55 ) [[Image Removed]] (49 ) [[Image Removed]] (6 ) [[Image Removed]] (300 ) Interest and other income (expense), net(2) [[Image Removed]] 101 [[Image Removed]] 53 [[Image Removed]] 41 [[Image Removed]] 92 [[Image Removed]] 14 [[Image Removed]] 12 Income tax benefit (provision) [[Image Removed]] (99 ) [[Image Removed]] 111 [[Image Removed]] (57 ) [[Image Removed]] (53 ) [[Image Removed]] (17 ) [[Image Removed]] (70 ) Minority interests [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] (8 ) Earnings (loss) from continuing operations [[Image Removed]] 85 [[Image Removed]] (313 ) [[Image Removed]] 123 [[Image Removed]] 143 [[Image Removed]] 55 [[Image Removed]] (252 ) Earnings (loss) from discontinued operations [[Image Removed]] 1 [[Image Removed]] (52 ) [[Image Removed]] 27 [[Image Removed]] 6 [[Image Removed]] 23 [[Image Removed]] (1 ) Cumulative effect of changes in accounting [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] principles, net of income tax 18 (1 ) Net earnings (loss) [[Image Removed]] $ 86 [[Image Removed]] $ (365 ) [[Image Removed]] $ 168 [[Image Removed]] $ 148 [[Image Removed]] $ 78 [[Image Removed]] $ (253 ) [[Image Removed]] 65 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Predecessor [[Image Removed]] Successor [[Image Removed]] [[Image Removed]] Three Months Nine Months Year Ended December 31, Ended [[Image Removed]] Ended [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] March 31, December 31, 2000 2001 2002 2003 2004 2004 [[Image Removed]] (unaudited) [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] (in millions, except for share and per share data) Other Financial Data: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Ratio of earnings to fixed charges (unaudited)(3) [[Image Removed]] 2.8x [[Image Removed]] [[Image Removed]] 3.6x [[Image Removed]] 3.3x [[Image Removed]] 5.8x [[Image Removed]] Depreciation and amortization [[Image Removed]] 308 [[Image Removed]] 326 [[Image Removed]] 247 [[Image Removed]] 294 [[Image Removed]] 72 [[Image Removed]] 184 Capital expenditures [[Image Removed]] 185 [[Image Removed]] 191 [[Image Removed]] 203 [[Image Removed]] 211 [[Image Removed]] 44 [[Image Removed]] 166 Dividends paid per share(4) [[Image Removed]] $ 0.10 [[Image Removed]] $ 0.35 [[Image Removed]] [[Image Removed]] $ 0.48 [[Image Removed]] [[Image Removed]] Statement of Cash Flows Data: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Net cash provided by (used in) continuing operations: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Operating activities [[Image Removed]] N/A [[Image Removed]] $ 462 [[Image Removed]] $ 363 [[Image Removed]] $ 401 [[Image Removed]] $ (107 ) [[Image Removed]] $ (63 ) Investing activities [[Image Removed]] N/A [[Image Removed]] (105 ) [[Image Removed]] (139 ) [[Image Removed]] (275 ) [[Image Removed]] 96 [[Image Removed]] (1,810 ) Financing activities [[Image Removed]] N/A [[Image Removed]] (337 ) [[Image Removed]] (150 ) [[Image Removed]] (108 ) [[Image Removed]] (43 ) [[Image Removed]] 2,686 Balance Sheet Data (at the end of period) (2000, 2001 [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] and March 31, 2004 unaudited): Trade working capital(5) [[Image Removed]] $ N/A [[Image Removed]] $ 499 [[Image Removed]] $ 599 [[Image Removed]] $ 641 [[Image Removed]] $ 715 [[Image Removed]] $ 762 Total assets [[Image Removed]] 7,138 [[Image Removed]] 6,232 [[Image Removed]] 6,417 [[Image Removed]] 6,814 [[Image Removed]] 6,613 [[Image Removed]] 7,410 Total debt [[Image Removed]] 1,084 [[Image Removed]] 775 [[Image Removed]] 644 [[Image Removed]] 637 [[Image Removed]] 587 [[Image Removed]] 3,387 Shareholders' equity (deficit) [[Image Removed]] 2,671 [[Image Removed]] 1,954 [[Image Removed]] 2,096 [[Image Removed]] 2,582 [[Image Removed]] 2,622 [[Image Removed]] (112 ) [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] (1) Special charges include impairment charges, provisions for restructuring, which include costs associated with employee termination benefits and plant and office closures certain insurance recoveries, and other expenses and income incurred outside the normal course of ongoing operations. See note 21 to the Consolidated Financial Statements. [[Image Removed]] [[Image Removed]] (2) Interest and other income, net, includes interest income, dividends from cost basis investments and other non-operating income (expense). [[Image Removed]] [[Image Removed]] (3) For purposes of calculating the unaudited ratio of earnings to fixed charges, earnings represent earnings (loss) from continuing operations before income taxes and minority interest, less income from equity method investments and capitalized interest, plus income distributions from equity methods investments, amortization of capitalized interest and fixed charges. Fixed charges include interest expense (including amortization of debt issuance costs), capitalized interest, and the portion of operating rental expense which management believes is representative of the interest component of rent expense. Earnings were insufficient to cover fixed charges by $408 million for the year ended December 31, 2001 and $182 million for the nine months ended December 31, 2004. [[Image Removed]] [[Image Removed]] (4) 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. [[Image Removed]] [[Image Removed]] (5) 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 (unaudited): [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Predecessor [[Image Removed]] Successor [[Image Removed]] December 31, [[Image Removed]] March 31, [[Image Removed]] December 31, [[Image Removed]] 2001 [[Image Removed]] 2002 [[Image Removed]] 2003 [[Image Removed]] 2004 2004 [[Image Removed]] (in millions) [[Image Removed]] Trade receivables, net [[Image Removed]] $ 536 [[Image Removed]] $ 666 [[Image Removed]] $ 722 [[Image Removed]] $ 798 [[Image Removed]] $ 866 Inventories [[Image Removed]] 483 [[Image Removed]] 505 [[Image Removed]] 509 [[Image Removed]] 516 [[Image Removed]] 618 Trade payables [[Image Removed]] (520 ) [[Image Removed]] (572 ) [[Image Removed]] (590 ) [[Image Removed]] (599 ) [[Image Removed]] (722 ) [[Image Removed]] $ 499 [[Image Removed]] $ 599 [[Image Removed]] $ 641 [[Image Removed]] $ 715 [[Image Removed]] $ 762 [[Image Removed]] 66 -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of financial condition and results of operations covers periods prior and subsequent to the Transactions. Accordingly, unless otherwise noted, the discussion and analysis of historical periods do not reflect the significant impact that the Transactions have had and will have on the Parent Guarantor, including increased leverage and liquidity requirements as well as purchase accounting adjustments. In addition, the statements in the discussion and analysis regarding industry outlook, expectations regarding the performance of Celanese's business and the other non-historical statements in the discussion and analysis are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in "Risk Factors." Actual results may differ materially from those contained in or implied by any forward-looking statements. You should read the following discussion together with the sections entitled "Risk Factors," "Unaudited Pro Forma Financial Information," "Selected Historical Financial Data" and the Consolidated Financial Statements and the notes thereto which were prepared in accordance with U.S. GAAP. The results for the nine months ended December 31, 2003 and the three months ended March 31, 2003 have not been audited; together with the results of the nine months ended December 31, 2004 and the three months ended March 31, 2004, these interim results should not be taken as an indication of the results of operations to be reported for any subsequent period or for the full fiscal year. Reconciliation of Non-U.S. GAAP Measures: Management compensates for the limitations of using non-U.S. GAAP financial measures by using them to supplement U.S. GAAP results to provide a more complete understanding of the factors and trends affecting the business other than U.S. GAAP results alone. In this regard, we disclose net debt and trade working capital, which are non-U.S. GAAP financial measures. Net debt is defined as total debt less cash and cash equivalents, and 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. Management uses net debt to evaluate the capital structure and trade working capital to evaluate the investment in receivables and inventory, net of payables. Net debt and trade working capital are not a substitute for any U.S. GAAP financial measure. In addition, calculations of net debt and trade working capital contained in this report may not be consistent with that of other companies. The most directly comparable financial measures presented in accordance with U.S. GAAP in our financial statements for net debt and trade working capital are total debt and the working capital components of trade working capital identified above, respectively. For a reconciliation of net debt and total debt, see "Financial Highlights" below. For a reconciliation of trade working capital to the working capital components, see "Selected Historical Financial Data." Basis of Presentation Impact of the Transactions On April 6, 2004, pursuant to the Tender Offer, the Purchaser, an indirect wholly owned subsidiary of the Parent Guarantor, acquired approximately 84% of the CAG Shares then outstanding. The ordinary shares were acquired at a price of 32.50 per share or an aggregate purchase price of $1,693 million, including direct acquisition costs of approximately $69 million. During the nine months ended December 31, 2004, the Purchaser acquired additional CAG Shares for a purchase price of $33 million. As the additional shares acquired primarily represented exercised employee stock options, the Purchaser's ownership percentage remained at approximately 84% as of December 31, 2004. As part of the Tender Offer, the Purchaser agreed to refinance certain existing debt of CAG, pre-fund pension obligations of CAG, pre-fund certain contingencies and certain obligations linked to the value of the CAG Shares, such as the payment of fair cash compensation under the Domination Agreement for the remaining outstanding shares of CAG and payment obligations related to outstanding stock appreciation rights, stock options and interest payments, provide additional funds for working capital and other general corporate purposes, and pay related fees and expenses. 67 -------------------------------------------------------------------------------- The funds used in connection with the Transactions were provided by equity investments of $641 million from the Original Stockholders; term loans of approximately $608 million; senior subordinated bridge loan facilities of $1,565 million as well as the issuance of $200 million of aggregate liquidation preference of mandatorily redeemable preferred stock. The senior subordinated bridge loan facilities have since been refinanced by the senior subordinated notes and the floating rate term loan. As a result of the financing, our interest expense currently is, and will continue to be, substantially higher than it was prior to the Transactions. We accounted for the acquisition of CAG using the purchase method of accounting and, accordingly, this resulted in a new basis of accounting. The purchase price was allocated based on the fair value of the underlying assets acquired and liabilities assumed. The assets acquired and liabilities assumed are reflected at fair value for the approximately 84% portion acquired and at CAG historical basis for the remaining approximate 16%. The excess of the total purchase price over the fair value of the net assets acquired at closing was allocated to goodwill, and this indefinite lived asset is subject to annual impairment review. Goodwill in the transaction totaled $747 million. In connection with the acquisition of CAG, at the acquisition date, we began formulating a plan to exit or restructure certain activities. We have not completed this analysis, but have recorded initial liabilities of $60 million, primarily for employee severance and related costs in connection with a preliminary plan as well as approving the continuation of all existing Predecessor restructuring and exit plans. As we finalize our plans to exit or restructure activities, we may record additional liabilities for, among other things, severance and severance related costs, which may also increase the goodwill recorded. See Note 2 in the Consolidated Financial Statements. Successor SuccessorRepresents the Parent Guarantor's audited consolidated financial position as of December 31, 2004 and its audited consolidated results of operations and cash flows for the nine months ended December 31, 2004. These consolidated financial statements reflect the application of purchase accounting, described above, relating to the Transactions. Predecessor PredecessorRepresents CAG's audited consolidated financial position as of December 31, 2003 and its audited consolidated results of operations and cash flows for each of the years in the two-year period ended December 31, 2003, its audited interim consolidated results of its operations and cash flows for the three months ended March 31, 2004 and its unaudited interim consolidated results of operations and cash flows for the three months ended March 31, 2003 and the nine months ended December 31, 2003. These consolidated financial statements relate to periods prior to the Transactions and present CAG's historical basis of accounting without the application of purchase accounting. 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. Initial Public Offering and Concurrent Financings In January 2005, the Parent Guarantor completed an initial public offering of 50,000,000 shares of Series A common stock and received net proceeds of approximately $760 million after deducting underwriters' discounts and estimated offering expenses. Concurrently, the Parent Guarantor received net proceeds of $233 million from the offering of its convertible perpetual preferred stock. A portion of the proceeds of the share offerings were used to redeem $188 million of senior discount notes and $521 million of senior subordinated notes, and pay the related premiums of $19 million and $51 million, respectively. Subsequent to the closing of the initial public offering, in February 2005, the Company borrowed an additional $1,135 million under the amended and restated senior credit facilities; a portion of which was used to repay $350 million of floating rate term loan and $200 million was primarily used to finance the February 2005 acquisition of the Vinamul emulsions business. Additionally, the amended 68 -------------------------------------------------------------------------------- and restated senior credit facilities includes a $242 million delayed draw term loan which is expected to be used to finance the Acetex acquisition. In March 2005, Celanese Corporation issued a stock dividend of 7.5 million shares of its Series A common stock to the holders of its Series B common stock. In addition, on April 7, 2005, Celanese Corporation used a portion of the proceeds of the Recent Financings to pay a special cash dividend to holders of its Series B common stock of $804 million, which was declared on March 8, 2005. See Note 3 to the Consolidated Financial Statements. Major Events in 2004 In response to greater demand for Ticona's technical polymers, two projects were announced to expand manufacturing capacity. Ticona announced plans to increase production of polyacetal in North America by about 20%, raising total capacity to 102,000 tons per year at the Bishop, Texas facility. This project was completed in October 2004. Fortron Industries, a venture of Ticona and Kureha Chemicals Industries, plans to increase the capacity of its Fortron polyphenylene sulfide plant in Wilmington, North Carolina, by 25%, by the end of 2005. In October-November 2004, we completed an organizational restructuring. See "The Recent Restructuring." In October 2004, we announced plans to implement a strategic restructuring of our 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, we plan to discontinue acetate filament production by mid-2005 and to consolidate our acetate flake and tow operations at three locations, instead of five. The restructuring resulted in $50 million of asset impairment charges recorded as a special charge and $12 million in charges to depreciation for related asset retirement obligations for the nine months ended December 31, 2004. In October 2004, we agreed to acquire Acetex Corporation ("Acetex"), a Canadian corporation, for approximately $261 million and the assumption by us of debt owed by Acetex, valued at approximately $231 million. Acetex has two primary businesses: the Acetyls Business and the Specialty Polymers and Films Business. The Acetyls business produces acetic acid, polyvinyl alcohol and vinyl acetate monomer. The Specialty Polymers and Films Business produces specialty polymers (used in the manufacture of a variety of plastics products, including packaging and laminating products, auto parts, adhesives and medical products) as well as products for the agricultural, horticultural and construction industries. Closing of the acquisition is conditioned upon regulatory approvals and other customary conditions. We expect to finance this acquisition through borrowings under the $242 million delayed draw term loan, which is part of the amended and restated senior credit facilities. In November 2004, we announced our plans to purchase Vinamul Polymers, the North American and European emulsion polymer business of National Starch and Chemical Company ("NSC"), for $208 million. NSC is a subsidiary of Imperial Chemical Industries PLC ("ICI"). Emulsion polymers enhance the performance of adhesives, paints and coatings, textiles, paper, building products and other goods. The acquisition was completed in February 2005 and was financed through the amended and restated senior credit facilities. In November 2004, Blackstone Crystal Holdings Capital Partners (Cayman) IV Ltd., reorganized as a Delaware company and changed its name to Celanese Corporation. In December 2004, we approved a plan to dispose of the Cyclo-olefin Copolymer ("COC") business included within the Technical Polymers Ticona segment and our interest in Pemeas GmbH, the fuel cell venture included in Other Activities. This decision resulted in $32 million of asset impairment charges recorded as a special charge related to the COC business. The revenues and the operating (loss) for COC were $8 million and $(59) million for the nine months ended December 31, 2004, $1 million and $(9) million for the three months ended March 31, 2004 and $7 million and $(35) million for the year ended December 31, 2003, respectively. The revenues for the fuel cell business were not material for any period presented. Operating (losses) for the fuel cell business was 69 -------------------------------------------------------------------------------- $(8) million for the nine months ended December 31, 2004, $(2) million for the three months ended March 31, 2004 and $(12) million for the year ended December 31, 2003. As of December 31, 2004, the estimated total assets and total liabilities of COC, including intercompany payables, were approximately $42 million and $74 million, respectively, and the estimated total assets and total liabilities of Pemeas GmbH were $24 million and $3 million, respectively. In December 2004, we 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. We recorded expense of $50 million related to these new compensation plans during the nine months ended December 31, 2004. Major Events in 2003 In 2003, CAG took major steps to enhance the value of its businesses, by investing in new production capacity in growth areas, reducing costs and increasing productivity. Optimizing the Portfolio [[Image Removed]] [[Image Removed]] Agreed to sell its acrylates business to The Dow Chemical Company ("Dow") as part of its strategy to focus on core businesses; transaction completed in February 2004 [[Image Removed]] [[Image Removed]] Completed the venture of its European oxo businesses with Degussa AG ("Degussa") [[Image Removed]] [[Image Removed]] Sold its nylon business to BASF AG ("BASF"). Investing in Growth Areas [[Image Removed]] [[Image Removed]] Received governmental approval and began preparations to build a world-scale acetic acid plant in China, the world's fastest growing market for acetic acid and its derivatives [[Image Removed]] [[Image Removed]] Announced agreement with China National Tobacco Corporation to double capacities of three acetate tow plants in China, in which Celanese owns a 30% share [[Image Removed]] [[Image Removed]] Brought on stream the Estech GmbH venture plant to produce neopolyol esters at Oberhausen, Germany, to supply the growing specialty lubricants markets in Europe, Africa and the Middle East [[Image Removed]] [[Image Removed]] Announced plans to expand its GUR ultra high molecular weight polyethylene plant in Oberhausen, Germany, by 10,000 tons, increasing our total worldwide capacity by 17% in the second half of 2004 [[Image Removed]] [[Image Removed]] Broke ground with Asian partners for a new investment in a polyacetal plant in China, the world's highest growth market for engineering plastics. Reducing Costs and Increasing Productivity [[Image Removed]] [[Image Removed]] Agreed to source methanol from Southern Chemical Corporation in mid-2005 under a multi-year contract expected to reduce significantly overall exposure to U.S. Gulf Coast natural gas volatility [[Image Removed]] [[Image Removed]] Initiated measures to redesign Ticona's organization, reduce costs and increase productivity [[Image Removed]] [[Image Removed]] Achieved significant cost savings from completion of Focus and Forward restructuring programs [[Image Removed]] [[Image Removed]] Intensified use of Six Sigma and other productivity tools throughout the organization to reduce costs and generate additional revenue [[Image Removed]] [[Image Removed]] Began implementation of a company-wide SAP platform to reduce administrative costs by eliminating complexity in information systems and to provide for ongoing improvement in business processes and service 70 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] Completed a new, more efficient plant for synthesis gas, a primary raw material used at the Oberhausen, Germany site. Major Events in 2002 Enhancing the Value of CAG's Portfolio [[Image Removed]] [[Image Removed]] Acquisition of the European emulsions and global emulsion powders businesses from Clariant AG, Switzerland [[Image Removed]] [[Image Removed]] Divestiture of Trespaphan, the oriented polypropylene ("OPP") film business [[Image Removed]] [[Image Removed]] Formation of a 50/50 European venture with Hatco Corporation, U.S. for production and marketing of neopolyol esters, a basic raw material for synthetic lubricants. Continuing Internal Growth Activities [[Image Removed]] [[Image Removed]] Start-up of a new 30,000 ton per year GUR ultra-high molecular weight polyethylene plant in Bishop, Texas [[Image Removed]] [[Image Removed]] Completion of capacity expansion for Vectra liquid crystal polymers in Shelby, North Carolina [[Image Removed]] [[Image Removed]] Opening of the world's first pilot plant for high temperature membrane electrode assemblies for fuel cells in Frankfurt, Germany [[Image Removed]] [[Image Removed]] Announcement to construct with Asian partners a world-scale 60,000 ton per annum polyacetal plant in China. Additional Highlights: [[Image Removed]] [[Image Removed]] Cost savings of an estimated $95 million achieved in 2002 associated with the Focus and Forward restructuring programs, initiated in 2001 [[Image Removed]] [[Image Removed]] Agreement with BOC p.l.c., United Kingdom to supply carbon monoxide that feeds the acetic acid production facility at the Clear Lake, Texas site in a move to decrease costs and improve efficiency [[Image Removed]] [[Image Removed]] Divestiture of global allylamines and U.S. alkylamines business with production sites in Portsmouth, Virginia and Bucks, Alabama [[Image Removed]] [[Image Removed]] Initiation in December 2002 of a buy back of up to 1,031,941 shares [[Image Removed]] [[Image Removed]] Expensing of stock options commenced in July 2002 at a total estimated cost of 10 million ($10 million), of which approximately $3 million was recognized in 2002. 71 -------------------------------------------------------------------------------- Financial Highlights [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Successor [[Image Removed]] Predecessor Nine Months Nine Months Three Months Three Months [[Image Removed]] Ended [[Image Removed]] Ended [[Image Removed]] Ended [[Image Removed]] Ended [[Image Removed]] Year Ended [[Image Removed]] Year Ended December 31, December 31, March 31, March 31, December 31, December 31, 2004 2003 2004 2003 2003 2002 [[Image Removed]] [[Image Removed]] (unaudited) [[Image Removed]] [[Image Removed]] (unaudited) [[Image Removed]] [[Image Removed]] (in $ millions) Statement of Operations Data: [[Image Removed]] [[Image Removed]] Net sales [[Image Removed]] 3,826 [[Image Removed]] 3,466 [[Image Removed]] 1,243 [[Image Removed]] 1,137 [[Image Removed]] 4,603 [[Image Removed]] 3,836 Special charges [[Image Removed]] [[Image Removed]] Insurance recoveries associated with plumbing cases [[Image Removed]] 1 [[Image Removed]] 107 [[Image Removed]] [[Image Removed]] [[Image Removed]] 107 [[Image Removed]] Sorbates antitrust matters [[Image Removed]] [[Image Removed]] (95 ) [[Image Removed]] [[Image Removed]] [[Image Removed]] (95 ) [[Image Removed]] Restructuring, impairment and other special charges, net [[Image Removed]] (92 ) [[Image Removed]] (16 ) [[Image Removed]] (28 ) [[Image Removed]] (1 ) [[Image Removed]] (17 ) [[Image Removed]] 5 Operating profit [[Image Removed]] 78 [[Image Removed]] 46 [[Image Removed]] 52 [[Image Removed]] 72 [[Image Removed]] 118 [[Image Removed]] 173 Earnings (loss) from continuing operations before tax [[Image Removed]] [[Image Removed]] and minority interests [[Image Removed]] (174 ) [[Image Removed]] 108 [[Image Removed]] 72 [[Image Removed]] 88 [[Image Removed]] 196 [[Image Removed]] 180 Earnings (loss) from continuing operations [[Image Removed]] (252 ) [[Image Removed]] 79 [[Image Removed]] 55 [[Image Removed]] 64 [[Image Removed]] 143 [[Image Removed]] 123 Earnings (loss) from discontinued operations [[Image Removed]] (1 ) [[Image Removed]] 13 [[Image Removed]] 23 [[Image Removed]] (7 ) [[Image Removed]] 6 [[Image Removed]] 27 Net earnings (loss) [[Image Removed]] (253 ) [[Image Removed]] 92 [[Image Removed]] 78 [[Image Removed]] 56 [[Image Removed]] 148 [[Image Removed]] 168 [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Successor [[Image Removed]] Predecessor As of As of [[Image Removed]] December 31, [[Image Removed]] December 31, 2004 2003 [[Image Removed]] (in $ millions) Balance Sheet Data: [[Image Removed]] Short-term borrowings and current installments of [[Image Removed]] [[Image Removed]] long-term debt - third party and affiliates 144 148 Plus: Long-term debt [[Image Removed]] 3,243 [[Image Removed]] 489 Total debt [[Image Removed]] 3,387 [[Image Removed]] 637 Less: Cash and cash equivalents [[Image Removed]] 838 [[Image Removed]] 148 Net debt [[Image Removed]] 2,549 [[Image Removed]] 489 [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Successor [[Image Removed]] Predecessor Nine Months Nine Months Three Months Three Months [[Image Removed]] Ended [[Image Removed]] Ended [[Image Removed]] Ended [[Image Removed]] Ended [[Image Removed]] Year Ended [[Image Removed]] Year Ended December 31, December 31, March 31, March 31, December 31, December 31, 2004 2003 2004 2003 2003 2002 [[Image Removed]] [[Image Removed]] (unaudited) [[Image Removed]] [[Image Removed]] (unaudited) [[Image Removed]] [[Image Removed]] (in $ millions) Other Data: [[Image Removed]] Depreciation and amortization [[Image Removed]] 184 [[Image Removed]] 224 [[Image Removed]] 72 [[Image Removed]] 70 [[Image Removed]] 294 [[Image Removed]] 247 Operating margin(1) [[Image Removed]] 2.0 % [[Image Removed]] 1.3 % [[Image Removed]] 4.2 % [[Image Removed]] 6.3 % [[Image Removed]] 2.6 % [[Image Removed]] 4.5 % Earnings (loss) from continuing operations before tax [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] and minority interests as a percentage of net sales (4.5 )% 3.1 % 5.8 % 7.7 % 4.3 % 4.7 % [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] (1) Defined as operating profit divided by net sales. 72 -------------------------------------------------------------------------------- CELANESE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Successor [[Image Removed]] Predecessor Nine Months Nine Months Three Months Three Months [[Image Removed]] Ended [[Image Removed]] Ended [[Image Removed]] Ended [[Image Removed]] Ended [[Image Removed]] Year Ended [[Image Removed]] Year Ended December 31, December 31, March 31, March 31, December 31, December 31, 2004 2003 2004 2003 2003 2002 [[Image Removed]] [[Image Removed]] (unaudited) [[Image Removed]] [[Image Removed]] (unaudited) [[Image Removed]] [[Image Removed]] (in $ millions) Net sales [[Image Removed]] 3,826 [[Image Removed]] 3,466 [[Image Removed]] 1,243 [[Image Removed]] 1,137 [[Image Removed]] 4,603 [[Image Removed]] 3,836 Cost of sales [[Image Removed]] (3,092 ) [[Image Removed]] (2,948 ) [[Image Removed]] (1,002 ) [[Image Removed]] (935 ) [[Image Removed]] (3,883 ) [[Image Removed]] (3,171 ) Selling, general and administrative expenses [[Image Removed]] (498 ) [[Image Removed]] (402 ) [[Image Removed]] (137 ) [[Image Removed]] (108 ) [[Image Removed]] (510 ) [[Image Removed]] (446 ) Research and development expenses [[Image Removed]] (67 ) [[Image Removed]] (69 ) [[Image Removed]] (23 ) [[Image Removed]] (20 ) [[Image Removed]] (89 ) [[Image Removed]] (65 ) Special charges: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Insurance recoveries associated with plumbing cases [[Image Removed]] 1 [[Image Removed]] 107 [[Image Removed]] [[Image Removed]] [[Image Removed]] 107 [[Image Removed]] Sorbates antitrust matters [[Image Removed]] [[Image Removed]] (95 ) [[Image Removed]] [[Image Removed]] [[Image Removed]] (95 ) [[Image Removed]] Restructuring, impairment and other special charges, [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] net (92 ) (16 ) (28 ) (1 ) (17 ) 5 Foreign exchange gain (loss) [[Image Removed]] (3 ) [[Image Removed]] (3 ) [[Image Removed]] [[Image Removed]] (1 ) [[Image Removed]] (4 ) [[Image Removed]] 3 Gain (loss) on disposition of assets [[Image Removed]] 3 [[Image Removed]] 6 [[Image Removed]] (1 ) [[Image Removed]] [[Image Removed]] 6 [[Image Removed]] 11 Operating profit [[Image Removed]] 78 [[Image Removed]] 46 [[Image Removed]] 52 [[Image Removed]] 72 [[Image Removed]] 118 [[Image Removed]] 173 Equity in net earnings of affiliates [[Image Removed]] 36 [[Image Removed]] 25 [[Image Removed]] 12 [[Image Removed]] 10 [[Image Removed]] 35 [[Image Removed]] 21 Interest expense [[Image Removed]] (300 ) [[Image Removed]] (37 ) [[Image Removed]] (6 ) [[Image Removed]] (12 ) [[Image Removed]] (49 ) [[Image Removed]] (55 ) Interest income [[Image Removed]] 24 [[Image Removed]] 38 [[Image Removed]] 5 [[Image Removed]] 6 [[Image Removed]] 44 [[Image Removed]] 18 Other income (expense), net [[Image Removed]] (12 ) [[Image Removed]] 36 [[Image Removed]] 9 [[Image Removed]] 12 [[Image Removed]] 48 [[Image Removed]] 23 Earnings (loss) from continuing operations before tax [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] and minority interests (174 ) 108 72 88 196 180 Income tax provision [[Image Removed]] (70 ) [[Image Removed]] (29 ) [[Image Removed]] (17 ) [[Image Removed]] (24 ) [[Image Removed]] (53 ) [[Image Removed]] (57 ) Earnings (loss) from continuing operations before [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] minority interests (244 ) 79 55 64 143 123 Minority interests [[Image Removed]] (8 ) [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Earnings (loss) from continuing operations [[Image Removed]] (252 ) [[Image Removed]] 79 [[Image Removed]] 55 [[Image Removed]] 64 [[Image Removed]] 143 [[Image Removed]] 123 Earnings (loss) from discontinued operations: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Earnings (loss) from operation of discontinued [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] operations 7 (5 ) (8 ) (1 ) (43 ) Gain (loss) on disposal of discontinued operations [[Image Removed]] (2 ) [[Image Removed]] 9 [[Image Removed]] 14 [[Image Removed]] (2 ) [[Image Removed]] 7 [[Image Removed]] 14 Income tax benefit [[Image Removed]] 1 [[Image Removed]] (3 ) [[Image Removed]] 14 [[Image Removed]] 3 [[Image Removed]] [[Image Removed]] 56 Earnings (loss) from discontinued operations [[Image Removed]] (1 ) [[Image Removed]] 13 [[Image Removed]] 23 [[Image Removed]] (7 ) [[Image Removed]] 6 [[Image Removed]] 27 Cumulative effect of changes in accounting [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] principles, net of income tax (1 ) (1 ) 18 Net earnings (loss) [[Image Removed]] (253 ) [[Image Removed]] 92 [[Image Removed]] 78 [[Image Removed]] 56 [[Image Removed]] 148 [[Image Removed]] 168 [[Image Removed]] 73 -------------------------------------------------------------------------------- OverviewNine Months Ended December 31, 2004 Compared with Nine Months Ended December 31, 2003 All business segments experienced volume growth in the nine months ended December 31, 2004 compared to the same period last year. The Chemical Products segment benefited from stronger overall demand, while the Ticona segment grew on new commercial applications and stronger demand from the automotive, electrical/electronics, household goods, and medical markets. The performance of Ticona's affiliates also reflected improved business conditions. The overall economic environment, however, remained challenging due to higher raw material and energy costs, as well as weaker pricing for some products in the Ticona and Performance Products segments compared to the same period last year. Net sales in the nine months ended December 31, 2004 rose 10% to $3,826 million compared to net sales for the same period in 2003 mainly on higher volumes in all business segments, stronger pricing in Chemical Products and favorable currency effects, which were partially offset by lower pricing in the remaining segments and changes in the composition of the Chemical Products segment. Operating profit increased by 70% to $78 million compared to the same period last year. Operating profit benefited from increased net sales, lower stock appreciation rights expense of $76 million as well as cost savings. These factors were partially offset by increased raw material and energy costs, higher special charges of $87 million, expenses associated with a new management compensation plan of $50 million, and higher professional and consulting fees. For the nine months ended December 31, 2004, operating profit included lower depreciation and amortization of $40 million resulting primarily from purchase accounting adjustments and a non-cash charge of $53 million in inventory-related purchase accounting adjustments. Earnings from continuing operations before tax and minority interests decreased to a loss of $174 million from earnings of $108 million in the same period last year mainly due to an increase in interest expense of $263 million, resulting from the higher debt levels and the expensing of deferred financing costs of $89 million, and the absence of $18 million in income from the demutualization of an insurance provider, which was partially offset by higher operating profit of $32 million. Net earnings (loss) decreased to a loss of $253 million compared to earnings of $92 million for the same period a year earlier. Net debt (total debt less cash and cash equivalents) rose to $2,549 million from $489 million as of December 31, 2003, primarily to finance the acquisition of CAG and to prefund benefit obligations. OverviewThree Months Ended March 31, 2004 Compared with Three Months Ended March 31, 2003 In the three months ended March 31, 2004, all of CAG's businesses experienced strong volume growth compared to the same period the previous year. CAG benefited from increased activity in some of its markets, such as electrical/electronics, new applications for technical polymers and food ingredients, and tight supply conditions in the acetyl products markets. Operating profit declined, however, due to higher raw material and energy costs, special charges and the absence of income from stock appreciation rights, which were partially offset by favorable currency effects. Net sales increased 9% to $1,243 million due to volume increases and favorable currency effects, resulting mainly from the stronger euro versus the U.S. dollar. Volume increases were particularly strong in the Acetate Products and Ticona segments. These factors were partially offset by the effects of transfer of the European oxo business to a venture in the fourth quarter of 2003. Earnings from continuing operations were $55 million compared to $64 million in the comparable period in 2003. Net earnings (loss) increased to $78 million from $56 million due to an increase in earnings of $30 million from discontinued operations resulting mainly from the sale of the acrylates business. Overview2003 Compared with 2002 In a global business environment characterized by higher raw material and energy costs and modest growth, CAG achieved full year 2003 net earnings of $148 million compared to net earnings of 74 -------------------------------------------------------------------------------- $168 million for 2002. Earnings from continuing operations increased to $143 million in 2003 compared to $123 million in 2002. Earnings from continuing operations excludes the results of the nylon and the majority of the acrylates businesses, which were divested on December 31, 2003 and February 1, 2004, respectively, and are included in earnings (loss) from discontinued operations. Net sales increased to $4,603 million in 2003 from $3,836 million in 2002 due to price and volume increases and favorable currency movements. Earnings from continuing operations before tax and minority interests increased to $196 million in 2003 compared to $180 million in 2002. This increase was primarily due to higher pricing, particularly in the Chemical Products segment, increased volumes in all segments, cost reductions, productivity improvements and favorable currency movements. Additional favorable adjustments included greater earnings from affiliates, mainly in Asia, increased interest and income from plumbing insurance recoveries and the demutualization of an insurance provider, as well as the addition of the emulsions business acquired at the end of 2002. Also affecting earnings from continuing operations before tax and minority interests was income of $107 million from insurance recoveries and $95 million of expense associated with antitrust matters in the Sorbates industry as discussed below. These increases were mainly offset by higher costs for raw materials and energy and increased expense for stock appreciation rights. Significant items affecting earnings from continuing operations before tax and minority interests from 2003 to 2002 were approximately: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] (in $ millions) [[Image Removed]] Pricing and volume improvements [[Image Removed]] 240 Higher costs for raw materials and energy, net of [[Image Removed]] cost reductions and productivity improvements (180 ) Interest and other income from plumbing insurance [[Image Removed]] recoveries 127 Earnings from affiliates [[Image Removed]] 14 Sorbates antitrust matters [[Image Removed]] (95 ) Stock appreciation rights expense [[Image Removed]] (56 ) [[Image Removed]] Although CAG recorded special charges of only $5 million, special charges significantly affected the operating results of the Ticona and Performance Products segments in 2003. Ticona's operating profit benefited from income of $107 million from insurance recoveries related to the plumbing cases. The insurance recoveries more than offset special charges related to Ticona's organizational redesign efforts and the closing of a manufacturing facility in the United Kingdom. The operating profit of the Performance Products' segment was burdened by $95 million in special charges relating to a European Commission decision to fine Hoechst 99 million ($115 million) for antitrust matters in the sorbates industry that occurred prior to the demerger. Segment net sales in 2003 increased 21% compared to 2002 due to the inclusion of the emulsions business acquired at year-end 2002 (+8%), favorable currency effects (+5%) and higher pricing (+5%) and volumes (+4%). These increases were partly offset by the transfer of the European oxo business to a venture in the fourth quarter 2003 (-1%). Operating profit declined by 32% to $118 million in 2003 compared to $173 million in 2002. This decline reflected increased raw material and energy costs, as well as higher expense for stock appreciation rights and special charges discussed below. These factors outweighed increased pricing in the Chemical Products and Acetate Products segments, higher volumes in all segments, particularly in Ticona and Performance Products, cost reductions, productivity improvements, increased income from the captive insurance companies and the addition of the emulsions business. In the Chemical Products segment, the contribution from the emulsions business, favorable currency movements and cost reductions were outweighed by higher energy costs and an increase in stock appreciation rights expense. Overall in 2003, increased selling prices offset higher raw material costs, although pricing outpaced raw material costs in the first half of the year and lagged in the second half. In the Acetate Products segment, increased pricing and volumes as well as productivity gains only partially offset higher raw material and energy prices. Increased demand led to volume 75 -------------------------------------------------------------------------------- improvements in the Ticona segment on the development of new applications and entry into new markets, partially offset by organizational redesign costs. Volume increases for the Performance Products' Sunett sweetener were offset by lower pricing for Sunett and sorbates. CAG reduced its net debt by 6% to $489 million as of December 31, 2003 compared to $520 million as of December 31, 2002. This decrease primarily represents the net repayment of $68 million of debt offset by the addition of $38 million of debt related to the consolidation of a variable interest entity under Financial Accounting Standard Board Interpretation No. 46, Consolidation of Variable Interest Entities. Trade working capital increased to $641 million at December 31, 2003 from $599 million at December 31, 2002. This increase is primarily related to favorable foreign currency effects as lower payables more than offset the reduction in inventory resulting from the high levels at the end of 2002, resulting from advance purchases of wood pulp, a key raw material, in the Acetate Products segment caused by the shutdown of a major supplier. Operating cash flow benefited by $180 million relating to the effects of hedging of currency exposure on intercompany funding of operations in U.S. dollars, compared to approximately $95 million in 2002. Benefit obligations decreased by $106 million to $1,165 million in 2003 from $1,271 million primarily due to an increase in the fair value of plan assets, contributions, payments and a plan amendment related to the U.S. postretirement medical plan. These factors were partially offset by the effects of a decrease in the discount rate. In 2003, CAG took major steps to concentrate on its core businesses. In September, CAG reached an agreement to sell its acrylates business to Dow. The transaction was completed on February 1, 2004. On October 1, European Oxo GmbH, Celanese's oxo chemicals venture with Degussa, began operations. CAG streamlined its manufacturing operations and administrative functions, mainly in the Chemical Products and Ticona segments, and, as a result, recorded termination benefit expenses of $26 million in cost of sales, primarily in the fourth quarter of 2003. 76 -------------------------------------------------------------------------------- Selected Data by Business SegmentNine Months Ended December 31, 2004 Compared with Nine Months Ended December 31, 2003 and Three Months Ended March 31, 2004 Compared with Three Months Ended March 31, 2003 [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Successor [[Image Removed]] Predecessor Nine Months Nine Months Three Months Three Months [[Image Removed]] Ended [[Image Removed]] Ended [[Image Removed]] Ended [[Image Removed]] Ended December 31, December 31, March 31, March 31, 2004 2003 2004 2003 [[Image Removed]] [[Image Removed]] (unaudited) [[Image Removed]] [[Image Removed]] (unaudited) [[Image Removed]] (in $ millions) Net Sales [[Image Removed]] [[Image Removed]] Chemical Products [[Image Removed]] 2,573 [[Image Removed]] 2,298 [[Image Removed]] 818 [[Image Removed]] 767 Technical Polymers Ticona [[Image Removed]] 636 [[Image Removed]] 566 [[Image Removed]] 227 [[Image Removed]] 196 Acetate Products [[Image Removed]] 523 [[Image Removed]] 513 [[Image Removed]] 172 [[Image Removed]] 142 Performance Products [[Image Removed]] 131 [[Image Removed]] 128 [[Image Removed]] 44 [[Image Removed]] 41 Segment Total [[Image Removed]] 3,863 [[Image Removed]] 3,505 [[Image Removed]] 1,261 [[Image Removed]] 1,146 Other Activities [[Image Removed]] 45 [[Image Removed]] 38 [[Image Removed]] 11 [[Image Removed]] 11 Intersegment Eliminations [[Image Removed]] (82 ) [[Image Removed]] (77 ) [[Image Removed]] (29 ) [[Image Removed]] (20 ) Total Net Sales [[Image Removed]] 3,826 [[Image Removed]] 3,466 [[Image Removed]] 1,243 [[Image Removed]] 1,137 Special Charges [[Image Removed]] [[Image Removed]] Chemical Products [[Image Removed]] (3 ) [[Image Removed]] 2 [[Image Removed]] (1 ) [[Image Removed]] (1 ) Technical Polymers Ticona: [[Image Removed]] [[Image Removed]] Insurance recoveries associated with plumbing cases [[Image Removed]] 1 [[Image Removed]] 107 [[Image Removed]] [[Image Removed]] Restructuring, impairment and other special charges, [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] net (38 ) (20 ) (1 ) Acetate Products [[Image Removed]] (50 ) [[Image Removed]] [[Image Removed]] [[Image Removed]] Performance Products: [[Image Removed]] [[Image Removed]] Sorbates antitrust matters [[Image Removed]] [[Image Removed]] (95 ) [[Image Removed]] [[Image Removed]] Segment Total [[Image Removed]] (90 ) [[Image Removed]] (6 ) [[Image Removed]] (2 ) [[Image Removed]] (1 ) Other Activities [[Image Removed]] (1 ) [[Image Removed]] 2 [[Image Removed]] (26 ) [[Image Removed]] Total Special Charges [[Image Removed]] (91 ) [[Image Removed]] (4 ) [[Image Removed]] (28 ) [[Image Removed]] (1 ) Operating Profit (Loss) [[Image Removed]] [[Image Removed]] Chemical Products [[Image Removed]] 248 [[Image Removed]] 86 [[Image Removed]] 65 [[Image Removed]] 52 Technical Polymers Ticona [[Image Removed]] (12 ) [[Image Removed]] 103 [[Image Removed]] 31 [[Image Removed]] 19 Acetate Products [[Image Removed]] (11 ) [[Image Removed]] 11 [[Image Removed]] 9 [[Image Removed]] 2 Performance Products [[Image Removed]] 18 [[Image Removed]] (56 ) [[Image Removed]] 11 [[Image Removed]] 12 Segment Total [[Image Removed]] 243 [[Image Removed]] 144 [[Image Removed]] 116 [[Image Removed]] 85 Other Activities [[Image Removed]] (165 ) [[Image Removed]] (98 ) [[Image Removed]] (64 ) [[Image Removed]] (13 ) Total Operating Profit [[Image Removed]] 78 [[Image Removed]] 46 [[Image Removed]] 52 [[Image Removed]] 72 Earnings (Loss) from Continuing Operations Before Tax and [[Image Removed]] [[Image Removed]] Minority Interests Chemical Products [[Image Removed]] 265 [[Image Removed]] 115 [[Image Removed]] 64 [[Image Removed]] 60 Technical Polymers Ticona [[Image Removed]] 26 [[Image Removed]] 140 [[Image Removed]] 45 [[Image Removed]] 27 Acetate Products [[Image Removed]] (7 ) [[Image Removed]] 15 [[Image Removed]] 9 [[Image Removed]] 2 Performance Products [[Image Removed]] 15 [[Image Removed]] (56 ) [[Image Removed]] 11 [[Image Removed]] 12 Segment Total [[Image Removed]] 299 [[Image Removed]] 214 [[Image Removed]] 129 [[Image Removed]] 101 Other Activities [[Image Removed]] (473 ) [[Image Removed]] (106 ) [[Image Removed]] (57 ) [[Image Removed]] (13 ) Total Earnings (Loss) from Continuing Operations [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Before Tax and Minority Interests (174 ) 108 72 88 [[Image Removed]] 77 -------------------------------------------------------------------------------- Selected Data by Business SegmentNine Months Ended December 31, 2004 Compared with Nine Months Ended December 31, 2003 and Three Months Ended March 31, 2004 Compared with Three Months Ended March 31, 2003 (Continued) [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Successor [[Image Removed]] Predecessor Nine Months Nine Months Three Months Three Months [[Image Removed]] Ended [[Image Removed]] Ended [[Image Removed]] Ended [[Image Removed]] Ended December 31, December 31, March 31, March 31, 2004 2003 2004 2003 [[Image Removed]] [[Image Removed]] (unaudited) [[Image Removed]] [[Image Removed]] (unaudited) [[Image Removed]] (in $ millions) Stock Appreciation Rights [[Image Removed]] [[Image Removed]] Chemical Products [[Image Removed]] [[Image Removed]] (18 ) [[Image Removed]] [[Image Removed]] 4 Technical Polymers Ticona [[Image Removed]] (1 ) [[Image Removed]] (18 ) [[Image Removed]] [[Image Removed]] 5 Acetate Products [[Image Removed]] [[Image Removed]] (6 ) [[Image Removed]] [[Image Removed]] 2 Performance Products [[Image Removed]] [[Image Removed]] (1 ) [[Image Removed]] [[Image Removed]] Segment Total [[Image Removed]] (1 ) [[Image Removed]] (43 ) [[Image Removed]] [[Image Removed]] 11 Other Activities [[Image Removed]] [[Image Removed]] (34 ) [[Image Removed]] [[Image Removed]] 7 Total Stock Appreciation Rights [[Image Removed]] (1 ) [[Image Removed]] (77 ) [[Image Removed]] [[Image Removed]] 18 Depreciation & Amortization [[Image Removed]] [[Image Removed]] Chemical Products [[Image Removed]] 89 [[Image Removed]] 119 [[Image Removed]] 39 [[Image Removed]] 38 Technical Polymers Ticona [[Image Removed]] 48 [[Image Removed]] 42 [[Image Removed]] 16 [[Image Removed]] 15 Acetate Products [[Image Removed]] 33 [[Image Removed]] 53 [[Image Removed]] 13 [[Image Removed]] 13 Performance Products [[Image Removed]] 10 [[Image Removed]] 5 [[Image Removed]] 2 [[Image Removed]] 2 Segment Total [[Image Removed]] 180 [[Image Removed]] 219 [[Image Removed]] 70 [[Image Removed]] 68 Other Activities [[Image Removed]] 4 [[Image Removed]] 5 [[Image Removed]] 2 [[Image Removed]] 2 Total Depreciation & Amortization [[Image Removed]] 184 [[Image Removed]] 224 [[Image Removed]] 72 [[Image Removed]] 70 [[Image Removed]] Factors Affecting Nine Months Ended December 31, 2004 Segment Sales Compared to Nine Months Ended December 31, 2003 [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] in percentages [[Image Removed]] Volume [[Image Removed]] Price [[Image Removed]] Currency [[Image Removed]] Other [[Image Removed]] Total Chemical Products [[Image Removed]] 4 [[Image Removed]] 10 [[Image Removed]] 4 [[Image Removed]] (6 ) [[Image Removed]] 12 Technical Polymers Ticona [[Image Removed]] 11 [[Image Removed]] (4 ) [[Image Removed]] 5 [[Image Removed]] [[Image Removed]] 12 Acetate Products [[Image Removed]] 1 [[Image Removed]] 1 [[Image Removed]] [[Image Removed]] [[Image Removed]] 2 Performance Products [[Image Removed]] 14 [[Image Removed]] (16 ) [[Image Removed]] 4 [[Image Removed]] [[Image Removed]] 2 Segment total [[Image Removed]] 6 [[Image Removed]] 5 [[Image Removed]] 3 [[Image Removed]] (4 ) [[Image Removed]] 10 [[Image Removed]] Factors Affecting Three Months Ended March 31, 2004 Segment Sales Compared to Three Months Ended March 31, 2003 [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] in percentages [[Image Removed]] Volume [[Image Removed]] Price [[Image Removed]] Currency [[Image Removed]] Other [[Image Removed]] Total Chemical Products [[Image Removed]] 5 [[Image Removed]] 2 [[Image Removed]] 5 [[Image Removed]] (5 ) [[Image Removed]] 7 Technical Polymers Ticona [[Image Removed]] 13 [[Image Removed]] (5 ) [[Image Removed]] 8 [[Image Removed]] [[Image Removed]] 16 Acetate Products [[Image Removed]] 21 [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] 21 Performance Products [[Image Removed]] 7 [[Image Removed]] (15 ) [[Image Removed]] 15 [[Image Removed]] [[Image Removed]] 7 Segment total [[Image Removed]] 8 [[Image Removed]] (1 ) [[Image Removed]] 6 [[Image Removed]] (3 ) [[Image Removed]] 10 [[Image Removed]] 78 -------------------------------------------------------------------------------- Summary by Business SegmentNine Months Ended December 31, 2004 Compared with Nine Months Ended December 31, 2003 and Three Months Ended March 31, 2004 Compared with Three Months Ended March 31, 2003 Chemical Products [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Successor [[Image Removed]] Predecessor Nine Months Nine Months Three Months Three Months [[Image Removed]] Ended [[Image Removed]] Ended [[Image Removed]] [[Image Removed]] Ended [[Image Removed]] Ended December 31, December 31, Nine Months March 31, March 31, in $ millions (except for percentages) 2004 2003 Change in $ 2004 2003 [[Image Removed]] [[Image Removed]] (unaudited) [[Image Removed]] [[Image Removed]] [[Image Removed]] (unaudited) Net sales [[Image Removed]] 2,573 [[Image Removed]] 2,298 [[Image Removed]] 275 [[Image Removed]] 818 [[Image Removed]] 767 Net sales variance: [[Image Removed]] [[Image Removed]] Volume [[Image Removed]] 4 % [[Image Removed]] [[Image Removed]] [[Image Removed]] 5 % [[Image Removed]] Price [[Image Removed]] 10 % [[Image Removed]] [[Image Removed]] [[Image Removed]] 2 % [[Image Removed]] Currency [[Image Removed]] 4 % [[Image Removed]] [[Image Removed]] [[Image Removed]] 5 % [[Image Removed]] Other [[Image Removed]] (6 )% [[Image Removed]] [[Image Removed]] [[Image Removed]] (5 )% [[Image Removed]] Operating profit [[Image Removed]] 248 [[Image Removed]] 86 [[Image Removed]] 162 [[Image Removed]] 65 [[Image Removed]] 52 Operating margin [[Image Removed]] 9.6 % [[Image Removed]] 3.7 % [[Image Removed]] [[Image Removed]] 7.9 % [[Image Removed]] 6.8 % Special charges [[Image Removed]] (3 ) [[Image Removed]] 2 [[Image Removed]] (5 ) [[Image Removed]] (1 ) [[Image Removed]] (1 ) Earnings from continuing operations before tax and [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] minority interests 265 115 150 64 60 Depreciation and amortization [[Image Removed]] 89 [[Image Removed]] 119 [[Image Removed]] (30 ) [[Image Removed]] 39 [[Image Removed]] 38 [[Image Removed]] Nine Months Ended December 31, 2004 Compared with Nine Months Ended December 31, 2003 Chemical Products' net sales increased by 12% to $2,573 million for the nine months ended December 31, 2004 from the comparable period last year as higher selling prices (+10%), increased volumes (+4%) and favorable currency movements (+4%) were partially offset by changes in the composition of the segment (-6%). Pricing increased for most products, particularly vinyl acetate monomer, acetate acid, and acetyl derivative products, driven by high industry utilization and higher costs for raw materials. Volumes also increased, particularly for vinyl acetate monomer, polyvinyl alcohol and emulsions due to strong overall demand. The changes in the composition of the segment result from the transfer of the European oxo business into a venture in the fourth quarter of 2003 (-2%) and a change in the structure of the business under which certain acrylates products, which were formerly sold into the merchant market, are now being sold under a contract manufacturing agreement (-4%). Only the margin realized under such contract manufacturing arrangement is now reported in net sales. Operating profit increased to $248 million for the nine months ended December 31, 2004 from $86 million in the same period last year. Higher pricing, higher volumes, as well as favorable currency effects, were partially offset by increased raw material costs and energy. Operating profit was also favorably impacted by lower stock appreciation rights expense of $18 million and the absence of a loss from the European oxo business, as well as decrease in depreciation and amortization expense of $30 million, largely as a result of purchase accounting adjustments. Operating profit in the nine months ended December 31, 2004 included a $17 million non-cash charge for the manufacturing profit added to inventory under purchase accounting which was charged to cost of sales as the inventory was sold. Earnings from continuing operations before tax and minority interests increased to $265 million compared to $115 million for the nine months ended December 31, 2003 as a result of higher operating profit which was partially offset by lower dividend income from cost investments and lower equity in net earnings of affiliates due to restructuring charges in the European oxo venture. 79 -------------------------------------------------------------------------------- Three Months Ended March 31, 2004 Compared with Three Months Ended March 31, 2003 Chemical Products' net sales increased by 7% to $818 million in the three months ended March 31, 2004 from the comparable period last year as increased volumes (+5%), favorable currency movements (+5%) and higher selling prices (+2%) were partially offset by the effects of the transfer of the European oxo business into a venture (-4%) as well as a change in the structure of the business under which certain acrylates products, which were formerly sold into the merchant market, are now being sold under a contract manufacturing agreement (-1%). Only the margin realized under such contract manufacturing arrangement is now reported in net sales. Volumes and pricing for most acetyl products, particularly vinyl acetate monomer, increased in most regions, due to a temporary competitor outage and stronger overall demand. Operating profit increased to $65 million in the three months ended March 31, 2004 from $52 million in the same period last year. Higher volumes and selling prices, as well as favorable currency effects, were partially offset by increased raw material costs and spending associated with productivity initiatives, increased energy costs, the transfer of the European oxo business, and the absence of income from stock appreciation rights of $4 million. Earnings from continuing operations before tax and minority interests increased to $64 million compared to $60 million in the three months ended March 31, 2003 primarily due to a higher operating profit partially offset by lower dividend income from cost investments and our share of the loss generated from the European oxo venture. Technical Polymers Ticona [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Successor [[Image Removed]] Predecessor Nine Months Nine Months Three Months Three Months [[Image Removed]] Ended [[Image Removed]] Ended [[Image Removed]] [[Image Removed]] Ended [[Image Removed]] Ended December 31, December 31, Nine Months March 31, March 31, in $ millions (except for percentages) 2004 2003 Change in $ 2004 2003 [[Image Removed]] [[Image Removed]] (unaudited) [[Image Removed]] [[Image Removed]] [[Image Removed]] (unaudited) Net sales [[Image Removed]] 636 [[Image Removed]] 566 [[Image Removed]] 70 [[Image Removed]] 227 [[Image Removed]] 196 Net sales variance: [[Image Removed]] [[Image Removed]] Volume [[Image Removed]] 11 % [[Image Removed]] [[Image Removed]] [[Image Removed]] 13 % [[Image Removed]] Price [[Image Removed]] (4 )% [[Image Removed]] [[Image Removed]] [[Image Removed]] (5 )% [[Image Removed]] Currency [[Image Removed]] 5 % [[Image Removed]] [[Image Removed]] [[Image Removed]] 8 % [[Image Removed]] Operating profit (loss) [[Image Removed]] (12 ) [[Image Removed]] 103 [[Image Removed]] (115 ) [[Image Removed]] 31 [[Image Removed]] 19 Operating margin [[Image Removed]] (1.9 )% [[Image Removed]] 18.2 % [[Image Removed]] [[Image Removed]] 13.7 % [[Image Removed]] 9.7 % Special charges: [[Image Removed]] [[Image Removed]] Insurance recoveries associated with plumbing cases [[Image Removed]] 1 [[Image Removed]] 107 [[Image Removed]] (106 ) [[Image Removed]] [[Image Removed]] Restructuring, impairment and other special charges, [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] net (38 ) (20 ) (18 ) (1 ) Earnings from continuing operations before tax and [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] minority interests 26 140 (114 ) 45 27 Depreciation and amortization [[Image Removed]] 48 [[Image Removed]] 42 [[Image Removed]] 6 [[Image Removed]] 16 [[Image Removed]] 15 [[Image Removed]] Nine Months Ended December 31, 2004 Compared with Nine Months Ended December 31, 2003 Net sales for Ticona increased by 12% to $636 million for the nine months ended December 31, 2004 compared to the same period last year. Strong volume increases (+11%) and favorable currency effects (+5%) were partly offset by a decline in pricing (-4%). Volumes grew in all product lines, particularly core products. Polyacetal volumes grew on stronger sales in the automotive and medical industries in North America while European sales benefited from greater demand for uses in consumer products and the commercialization of new applications. Volumes for Vectra liquid crystal polymers rose in North America and Europe due to new commercial applications, such as in household goods, and stronger sales to the 80 -------------------------------------------------------------------------------- electrical/electronics industry. GUR ultra high molecular weight polyethylene grew as a result of increased sales for new specialty applications and stronger sales to Asia. Overall pricing declined due to changes in product mix and ongoing competitive pressure from Asian exports of polyacetal into North America and Europe. Ticona recorded special charges of $37 million for the nine months ended December 31, 2004 compared to income from special charges of $87 million for the same period last year. The special charges in 2004 are mainly related to a $32 million non-cash impairment charge associated with a plan to dispose of the cyclo-olefin copolymer business. Income from special charges in 2003 consisted of insurance recoveries related to the plumbing cases of $107 million, which were partially offset by $20 million in organizational redesign costs. Operating profit decreased to a loss of $12 million for the nine months ended December 31, 2004 from an operating profit of $103 million for the same period last year due to the impact of changes in special charges mentioned above. Results for the nine months ended December 31, 2004 benefited from higher volumes, lower stock appreciation rights expense of $17 million and productivity improvements. These factors were partly offset by higher raw material and energy costs. Operating profit in the nine months ended December 31, 2004 included a $20 million non-cash charge for the manufacturing profit added to inventory under purchase accounting, which was charged to cost of sales as the inventory was sold. Earnings from continuing operations before tax and minority interests decreased to $26 million for the nine months ended December 31, 2004 from $140 million for the same period in 2003. This decrease resulted primarily from the changes in operating profit and lower interest income related to insurance recoveries, which was partly offset by improved equity earnings from Asian and U.S. affiliates due to increased sales volumes. Three Months Ended March 31, 2004 Compared with Three Months Ended March 31, 2003 Net sales for Ticona increased by 16% to $227 million for the three months ended March 31, 2004 compared to the same period last year as higher volumes (+13%) and favorable currency movements (+8%) was partially offset by lower selling prices (-5%). Volumes increased in most business lines, particularly in polyacetal and Vectra liquid crystal polymers. Polyacetal volumes grew in North America and Europe on sales to new end uses and higher sales to the North American automotive market. Volumes for Vectra rose due to new commercial applications in North America and Europe and stronger sales to the electrical/electronics industry. Pricing declined as lower priced products constituted a higher percentage of sales and competitive pressure continued from Asian imports of polyacetal into North America. Operating profit increased to $31 million versus $19 million in the same period last year due to higher volumes, lower average production costs for Vectra, reduced spending partly resulting from the closure of the Telford, UK production facility in 2003 and favorable currency movements. These increases were partially offset by lower pricing as well as the absence of $5 million of income from stock appreciation rights. Earnings from continuing operations before tax and minority interests increased to $45 million compared to $27 million in the same period in 2003. This increase resulted from the higher operating profit and improved equity earnings from our Polyplastics and Fortron Industries affiliates due to increased sales volumes. 81 -------------------------------------------------------------------------------- Acetate Products [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Successor [[Image Removed]] Predecessor Nine Months Nine Months Three Months Three Months [[Image Removed]] Ended [[Image Removed]] Ended [[Image Removed]] [[Image Removed]] Ended [[Image Removed]] Ended December 31, December 31, Nine Months March 31, March 31, in $ millions (except for percentages) 2004 2003 Change in $ 2004 2003 [[Image Removed]] [[Image Removed]] (unaudited) [[Image Removed]] [[Image Removed]] [[Image Removed]] (unaudited) Net sales [[Image Removed]] 523 [[Image Removed]] 513 [[Image Removed]] 10 [[Image Removed]] 172 [[Image Removed]] 142 Net sales variance: [[Image Removed]] [[Image Removed]] Volume [[Image Removed]] 1 % [[Image Removed]] [[Image Removed]] [[Image Removed]] 21 % [[Image Removed]] Price [[Image Removed]] 1 % [[Image Removed]] [[Image Removed]] [[Image Removed]] 0 % [[Image Removed]] Operating profit (loss) [[Image Removed]] (11 ) [[Image Removed]] 11 [[Image Removed]] (22 ) [[Image Removed]] 9 [[Image Removed]] 2 Operating margin [[Image Removed]] (2.1 )% [[Image Removed]] 2.1 % [[Image Removed]] [[Image Removed]] 5.2 % [[Image Removed]] 1.4 % Special charges [[Image Removed]] (50 ) [[Image Removed]] [[Image Removed]] (50 ) [[Image Removed]] [[Image Removed]] Earnings (loss) from continuing operations before tax [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] and minority interests (7 ) 15 (22 ) 9 2 Depreciation and amortization [[Image Removed]] 33 [[Image Removed]] 53 [[Image Removed]] (20 ) [[Image Removed]] 13 [[Image Removed]] 13 [[Image Removed]] Nine Months Ended December 31, 2004 Compared with Nine Months Ended December 31, 2003 Acetate Products' net sales for the nine months ended December 31, 2004 increased by 2% to $523 million compared to the same period last year due to slightly higher volumes (+1%) and prices (+1%). Volumes grew on higher tow demand in Asia, which was partially offset by lower filament sales, primarily in Mexico. Additionally, pricing increased for both tow and filament. Operating profit declined to a loss of $11 million in the nine months ended December 31, 2004 from an operating profit of $11 million in the same period last year reflecting special charges of $50 million, for non-cash asset impairments associated with the planned consolidation of tow production and our planned exit from the filament business, as well as higher raw material costs. These decreases were partly offset by lower depreciation and amortization expense of $20 million, largely as a result of purchase accounting adjustments, and a lower depreciable asset base, as well as from productivity gains. Operating loss in the nine months ended December 31, 2004 included a $4 million non-cash charge for the manufacturing profit added to inventory under purchase accounting, which was charged to cost of sales as the inventory was sold. Three Months Ended March 31, 2004 Compared with Three Months Ended March 31, 2003 Acetate Products' net sales in the first three months ended March 31, 2004 increased by 21% to $172 million compared to the same period in 2003 primarily due to higher volumes (+21%). Average pricing remained unchanged. Volumes grew on higher sales of tow, particularly to China. This increase more than offset slightly lower filament volumes, primarily in Mexico. Operating profit and earnings from continuing operations before tax and minority interests rose to $9 million compared to $2 million in the same period last year on higher volumes of tow as well as productivity gains. These increases more than offset higher raw material costs. 82 -------------------------------------------------------------------------------- Performance Products [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Successor [[Image Removed]] Predecessor Nine Months Nine Months Three Months Three Months [[Image Removed]] Ended [[Image Removed]] Ended [[Image Removed]] [[Image Removed]] Ended [[Image Removed]] Ended December 31, December 31, Nine Months March 31, March 31, in $ millions (except for percentages) 2004 2003 Change in $ 2004 2003 [[Image Removed]] [[Image Removed]] (unaudited) [[Image Removed]] [[Image Removed]] [[Image Removed]] (unaudited) Net sales [[Image Removed]] 131 [[Image Removed]] 128 [[Image Removed]] 3 [[Image Removed]] 44 [[Image Removed]] 41 Net sales variance: [[Image Removed]] [[Image Removed]] Volume [[Image Removed]] 14 % [[Image Removed]] [[Image Removed]] [[Image Removed]] 7 % [[Image Removed]] Price [[Image Removed]] (16 )% [[Image Removed]] [[Image Removed]] [[Image Removed]] (15 )% [[Image Removed]] Currency [[Image Removed]] 4 % [[Image Removed]] [[Image Removed]] [[Image Removed]] 15 % [[Image Removed]] Operating profit (loss) [[Image Removed]] 18 [[Image Removed]] (56 ) [[Image Removed]] 74 [[Image Removed]] 11 [[Image Removed]] 12 Operating margin [[Image Removed]] 13.7 % [[Image Removed]] (43.8 )% [[Image Removed]] [[Image Removed]] 25.0 % [[Image Removed]] 29.3 % Special charges: [[Image Removed]] [[Image Removed]] Sorbates antitrust matters [[Image Removed]] [[Image Removed]] (95 ) [[Image Removed]] 95 [[Image Removed]] [[Image Removed]] Earnings (loss) from continuing operations before tax [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] and minority interests 15 (56 ) 71 11 12 Depreciation and amortization [[Image Removed]] 10 [[Image Removed]] 5 [[Image Removed]] 5 [[Image Removed]] 2 [[Image Removed]] 2 [[Image Removed]] Nine Months Ended December 31, 2004 Compared with Nine Months Ended December 31, 2003 Net sales for the Performance Products segment, which consists primarily of the Nutrinova food ingredients business, increased by 2% to $131 million compared to the same period last year as increased volumes (+14%) and favorable currency effects (+4%) more than offset price decreases (-16%). Increased volumes for Sunett sweetener reflected strong growth from new and existing applications in the U.S. and European beverage and confectionary markets. Consistent with our strategy, pricing for Sunett declined on lower unit selling prices associated with higher volumes to major customers and the anticipated expiration of the primary European and U.S. production patents at the end of March 2005. Pricing for sorbates, which had been under pressure from Asian producers, began to stabilize, although worldwide overcapacity still prevailed in the industry. Operating profit increased to $18 million compared to loss of $56 million in the same period last year, which included special charges of $95 million related to antitrust matters in the sorbates industry. Operating profit in the nine months ended December 31, 2004 included a $12 million non-cash charge for the manufacturing profit added to inventory under purchase accounting, which was charged to cost of sales as the inventory was sold, and higher depreciation and amortization expense of $5 million largely as a result of purchase accounting adjustments. Three Months Ended March 31, 2004 Compared with Three Months Ended March 31, 2003 Net sales for the Performance Products segment increased by 7% to $44 million primarily due to favorable currency effects (+15%) and increased volumes (+7%). These positive factors were largely offset by price decreases (-15%). Pricing for Sunett sweetener declined on lower unit selling prices associated with higher volumes to major customers, an overall price decline in the high intensity sweetener market, and the anticipated expiration of the European and U.S. production patents at the end of March 2005. Increased Sunett volumes reflected strong growth from new and existing applications in the U.S. and European beverage and confectionary markets. In sorbates, pricing and volume pressure from Asian producers continued due to worldwide overcapacity. Operating profit and earnings from continuing operations before tax and minority interests declined to $11 million compared to $12 million in the same period last year, primarily due to lower pricing. Higher Sunett volumes and currency movements partly offset this decline. 83 -------------------------------------------------------------------------------- Other Activities Other Activities primarily consists of corporate center costs, including financing and certain administrative activities, and certain other operating entities, including the captive insurance companies. Nine Months Ended December 31, 2004 Compared with Nine Months Ended December 31, 2003 Net sales for Other Activities increased by 18% to $45 million for the nine months ended December 31, 2004 compared to the same period last year. This increase primarily reflects higher third party revenues by the captive insurance companies. The operating loss of Other Activities increased to $165 million for the nine months ended December 31, 2004 compared to $98 million for the same period last year. This increase was primarily due to $38 million in new management incentive compensation expenses, which includes charges related to a new a deferred compensation plan, a new stock incentive plan and other executive bonuses, as well as higher consulting and professional fees, which includes the advisor monitoring fees of $10 million. The operating loss for the nine months ended December 31, 2003 included income resulting from the reversal of environmental reserves of $12 million, which was offset by expense associated with stock appreciation rights of $34 million. Loss from continuing operations before tax and minority interests increased to $473 million from a loss of $106 million for the same period last year. This was largely due to $259 million of higher interest expense from significantly higher costs of $89 million from the refinancing of debt and increased debt levels, a higher operating loss and the absence of income from the demutualization of an insurance provider of $18 million. Three Months Ended March 31, 2004 Compared with Three Months Ended March 31, 2003 Net sales for Other Activities remained flat at $11 million for the three months ended March 31, 2004 compared to the same period last year. The operating loss of Other Activities increased to $64 million for the three months ended March 31, 2004 compared to $13 million for the same period last year. This increase was primarily due to special charges of $26 million mainly related to advisory services associated with the acquisition of CAG. Also contributing to this decline was the absence of income from stock appreciation rights of $7 million. 84 -------------------------------------------------------------------------------- Selected Data by Business SegmentAnnual Results [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Predecessor [[Image Removed]] Year Ended December 31, [[Image Removed]] 2003 [[Image Removed]] 2002 [[Image Removed]] [[Image Removed]] % of [[Image Removed]] [[Image Removed]] % of $ Segments $ Segments [[Image Removed]] (in $ millions, except for percentages) Net Sales [[Image Removed]] Chemical Products [[Image Removed]] 3,065 [[Image Removed]] 66 % [[Image Removed]] 2,419 [[Image Removed]] 63 % Technical Polymers Ticona [[Image Removed]] 762 [[Image Removed]] 16 [[Image Removed]] 656 [[Image Removed]] 17 Acetate Products [[Image Removed]] 655 [[Image Removed]] 14 [[Image Removed]] 632 [[Image Removed]] 16 Performance Products [[Image Removed]] 169 [[Image Removed]] 4 [[Image Removed]] 151 [[Image Removed]] 4 Segment Total [[Image Removed]] 4,651 [[Image Removed]] 100 % [[Image Removed]] 3,858 [[Image Removed]] 100 % Other Activities [[Image Removed]] 49 [[Image Removed]] [[Image Removed]] 52 [[Image Removed]] Intersegment Eliminations [[Image Removed]] (97 ) [[Image Removed]] [[Image Removed]] (74 ) [[Image Removed]] Total Net Sales [[Image Removed]] 4,603 [[Image Removed]] [[Image Removed]] 3,836 [[Image Removed]] Special Charges [[Image Removed]] Chemical Products [[Image Removed]] 1 [[Image Removed]] (14 )% [[Image Removed]] 2 [[Image Removed]] (50 )% Technical Polymers Ticona: [[Image Removed]] Plumbing actions [[Image Removed]] 107 [[Image Removed]] n.m. [[Image Removed]] [[Image Removed]] Other activities [[Image Removed]] (20 ) [[Image Removed]] n.m. [[Image Removed]] (6 ) [[Image Removed]] n.m. Acetate Products [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Performance Products: [[Image Removed]] Sorbates antitrust matters [[Image Removed]] (95 ) [[Image Removed]] n.m. [[Image Removed]] [[Image Removed]] Segment Total [[Image Removed]] (7 ) [[Image Removed]] 100 % [[Image Removed]] (4 ) [[Image Removed]] 100 % Other Activities [[Image Removed]] 2 [[Image Removed]] [[Image Removed]] 9 [[Image Removed]] Total Special Charges [[Image Removed]] (5 ) [[Image Removed]] [[Image Removed]] 5 [[Image Removed]] Operating Profit (Loss) [[Image Removed]] Chemical Products [[Image Removed]] 138 [[Image Removed]] 60 % [[Image Removed]] 152 [[Image Removed]] 61 % Technical Polymers Ticona [[Image Removed]] 122 [[Image Removed]] 53 [[Image Removed]] 23 [[Image Removed]] 9 Acetate Products [[Image Removed]] 13 [[Image Removed]] 6 [[Image Removed]] 31 [[Image Removed]] 12 Performance Products [[Image Removed]] (44 ) [[Image Removed]] (19 ) [[Image Removed]] 45 [[Image Removed]] 18 Segment Total [[Image Removed]] 229 [[Image Removed]] 100 % [[Image Removed]] 251 [[Image Removed]] 100 % Other Activities [[Image Removed]] (111 ) [[Image Removed]] [[Image Removed]] (78 ) [[Image Removed]] Total Operating Profit [[Image Removed]] 118 [[Image Removed]] [[Image Removed]] 173 [[Image Removed]] Earnings (Loss) from Continuing Operations Before Tax and [[Image Removed]] Minority Interests Chemical Products [[Image Removed]] 175 [[Image Removed]] 56 % [[Image Removed]] 161 [[Image Removed]] 57 % Technical Polymers Ticona [[Image Removed]] 167 [[Image Removed]] 53 [[Image Removed]] 35 [[Image Removed]] 12 Acetate Products [[Image Removed]] 17 [[Image Removed]] 5 [[Image Removed]] 43 [[Image Removed]] 15 Performance Products [[Image Removed]] (44 ) [[Image Removed]] (14 ) [[Image Removed]] 45 [[Image Removed]] 16 Segment Total [[Image Removed]] 315 [[Image Removed]] 100 % [[Image Removed]] 284 [[Image Removed]] 100 % Other Activities [[Image Removed]] (119 ) [[Image Removed]] [[Image Removed]] (104 ) [[Image Removed]] Total Earnings from Continuing [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Operations Before Tax and Minority Interests 196 180 Depreciation and Amortization [[Image Removed]] Chemical Products [[Image Removed]] 157 [[Image Removed]] 55 % [[Image Removed]] 130 [[Image Removed]] 54 % Technical Polymers Ticona [[Image Removed]] 57 [[Image Removed]] 20 [[Image Removed]] 52 [[Image Removed]] 21 Acetate Products [[Image Removed]] 66 [[Image Removed]] 23 [[Image Removed]] 53 [[Image Removed]] 22 Performance Products [[Image Removed]] 7 [[Image Removed]] 2 [[Image Removed]] 7 [[Image Removed]] 3 Segment Total [[Image Removed]] 287 [[Image Removed]] 100 % [[Image Removed]] 242 [[Image Removed]] 100 % Other Activities [[Image Removed]] 7 [[Image Removed]] [[Image Removed]] 5 [[Image Removed]] Total Depreciation and Amortization [[Image Removed]] 294 [[Image Removed]] [[Image Removed]] 247 [[Image Removed]] [[Image Removed]] 85 -------------------------------------------------------------------------------- Summary by Business Segment2003 Compared with 2002 Chemical Products [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Year Ended December 31, [[Image Removed]] [[Image Removed]] 2003 [[Image Removed]] 2002 [[Image Removed]] Change in $ [[Image Removed]] Change in % [[Image Removed]] (in millions, except percentages) Net sales [[Image Removed]] $ 3,065 [[Image Removed]] $ 2,419 [[Image Removed]] $ 646 [[Image Removed]] 27 % Net sales variance: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Volume [[Image Removed]] 2 % [[Image Removed]] [[Image Removed]] [[Image Removed]] Price [[Image Removed]] 9 % [[Image Removed]] [[Image Removed]] [[Image Removed]] Currency [[Image Removed]] 5 % [[Image Removed]] [[Image Removed]] [[Image Removed]] Other [[Image Removed]] 11 % [[Image Removed]] [[Image Removed]] [[Image Removed]] Operating profit [[Image Removed]] 138 [[Image Removed]] 152 [[Image Removed]] (14 ) [[Image Removed]] (9 )% Operating margin [[Image Removed]] 4.5 % [[Image Removed]] 6.3 % [[Image Removed]] [[Image Removed]] Special charges [[Image Removed]] 1 [[Image Removed]] 2 [[Image Removed]] (1 ) [[Image Removed]] (50 )% Earnings from continuing operations before tax and [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] minority interests 175 161 14 9 % Depreciation and amortization [[Image Removed]] 157 [[Image Removed]] 130 [[Image Removed]] 27 [[Image Removed]] 21 % [[Image Removed]] Net sales of Chemical Products rose 27% to $3,065 million in 2003 as compared to 2002, due to the full year effect of the emulsions business acquired at year-end 2002 (+12%), higher selling prices (+9%), favorable currency effects (+5%) as well as increased volumes (+2%). These increases were partly offset by the transfer of the European oxo business to a venture in the fourth quarter of 2003 (-1%). Compared to 2002, selling prices in 2003 increased for major products, including acetic acid and vinyl acetate monomer, following the substantial rise in raw material costs, particularly natural gas, ethylene, and propylene. Volumes rose for acetic acid, particularly in Asia, as volumes were comparably higher due, in part, to an interruption in production in 2002. Vinyl acetate monomer volumes were higher in most regions, partly due to competitor outages, while volumes declined for polyvinyl alcohol in Asia and specialties mainly in Europe due to competitive pricing. Chemical Products had income from special charges of $1 million in 2003 and $2 million in 2002. The income recorded in 2003 and 2002 relate to favorable adjustments to previously recorded restructuring reserves that more than offset employee severance costs related to production facility closures. Operating profit decreased to $138 million in 2003 from $152 million in 2002. The contribution from the emulsions business, favorable currency movements and cost reductions were outweighed by higher energy costs and an increase in stock appreciation rights expense of $13 million. Termination benefit expenses of $14 million were recorded in cost of sales, primarily in the fourth quarter of 2003, related to the streamlining of manufacturing operations and administrative functions. Overall in 2003, increased selling prices offset higher raw material costs, although pricing outpaced raw material costs in the first half of the year and lagged in the second half. Earnings from continuing operations before tax and minority interests increased to $175 million in 2003 compared to $161 million in 2002. This increase resulted from higher dividend income from the Saudi Arabian cost investment, primarily due to higher methanol pricing partially offset by lower operating profit. 86 -------------------------------------------------------------------------------- Technical Polymers Ticona [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Year Ended December 31, [[Image Removed]] [[Image Removed]] 2003 [[Image Removed]] 2002 [[Image Removed]] Change in $ [[Image Removed]] Change in % [[Image Removed]] (in millions, except percentages) Net sales [[Image Removed]] $ 762 [[Image Removed]] $ 656 [[Image Removed]] $ 106 [[Image Removed]] 16 % Net sales variance: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Volume [[Image Removed]] 11 % [[Image Removed]] [[Image Removed]] [[Image Removed]] Price [[Image Removed]] (3 )% [[Image Removed]] [[Image Removed]] [[Image Removed]] Currency [[Image Removed]] 8 % [[Image Removed]] [[Image Removed]] [[Image Removed]] Operating profit [[Image Removed]] 122 [[Image Removed]] 23 [[Image Removed]] 99 [[Image Removed]] >100 % Operating margin [[Image Removed]] 16.0 % [[Image Removed]] 3.5 % [[Image Removed]] [[Image Removed]] Special charges [[Image Removed]] 87 [[Image Removed]] (6 ) [[Image Removed]] 93 [[Image Removed]] >100 % Earnings from continuing operations before tax and [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] minority interests 167 35 132 >100 % Depreciation and amortization [[Image Removed]] 57 [[Image Removed]] 52 [[Image Removed]] 5 [[Image Removed]] 10 % [[Image Removed]] Net sales for Ticona increased by 16% to $762 million in 2003 as compared to 2002 as higher volumes (+11%) and favorable currency movements (+8%) were partly offset by lower selling prices (-3%). Volumes increased in most business lines, particularly in polyacetal and GUR ultra high molecular weight polyethylene. The global volume growth in polyacetals resulted from sales to new customers and end-uses. Volumes for GUR increased as the result of the commercialization of new applications in North America and Europe, as well as the exit of a major competitor in North America. Pricing declined on a higher percentage of sales from lower priced products and increased competitive pressure from Asian imports of polyacetal into North America. Ticona recorded income from special charges of $87 million in 2003 compared to expense of $6 million in 2002. The income in 2003 primarily resulted from insurance recoveries of $107 million associated with the plumbing cases, which was partially offset by restructuring charges for organizational redesign costs of $12 million and the closure of the Telford, UK, compounding facility of $8 million. The 2002 expense resulted from restructuring costs associated with the consolidation of manufacturing operations in Europe and the United States. Operating profit increased to $122 million in 2003 versus $23 million in 2002. Income from insurance recoveries, higher volumes, and reduced spending more than offset higher raw material and energy costs, lower pricing, and higher expense associated with stock appreciation rights of $13 million. Ticona continued to incur significant market development costs for cyclo-olefin copolymers in 2003. Termination benefit expenses of $9 million were recorded in cost of sales, primarily in the fourth quarter 2003, related to the streamlining of manufacturing operations and administrative functions. Earnings from continuing operations before tax and minority interests increased to $167 million in 2003 compared to $35 million in 2002. This increase resulted from higher operating profit and higher equity earnings from Polyplastics venture, due to growth in the Chinese and Taiwanese economies in 2003, as well as interest income from insurance recoveries. 87 -------------------------------------------------------------------------------- Acetate Products [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Year Ended December 31, [[Image Removed]] [[Image Removed]] 2003 [[Image Removed]] 2002 [[Image Removed]] Change in $ [[Image Removed]] Change in % [[Image Removed]] (in millions, except percentages) Net sales [[Image Removed]] $ 655 [[Image Removed]] $ 632 [[Image Removed]] $ 23 [[Image Removed]] 4 % Net sales variance: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Volume [[Image Removed]] 2 % [[Image Removed]] [[Image Removed]] [[Image Removed]] Price [[Image Removed]] 2 % [[Image Removed]] [[Image Removed]] [[Image Removed]] Operating profit [[Image Removed]] 13 [[Image Removed]] 31 [[Image Removed]] (18 ) [[Image Removed]] (58 )% Operating margin [[Image Removed]] 2.0 % [[Image Removed]] 4.9 % [[Image Removed]] [[Image Removed]] Special charges [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Earnings (loss) from continuing operations before tax [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] and minority interests 17 43 (26 ) (60 )% Depreciation and amortization [[Image Removed]] 66 [[Image Removed]] 53 [[Image Removed]] 13 [[Image Removed]] 25 % [[Image Removed]] Net sales for the Acetate Products segment increased by 4% to $655 million in 2003 as compared to 2002 largely due to higher pricing (+2%) and higher volumes (+2%). Average pricing rose in 2003 as higher tow prices offset slightly lower filament prices. Volumes grew as higher demand for filament and flake more than offset slightly lower tow volumes, primarily in Europe and Africa. Despite a long-term trend of declining global demand for filament, volumes improved mainly due to higher demand from the U.S. fashion industry. Volumes of acetate flake, a primary raw material in acetate filament and tow production, also increased due to higher opportunistic sales in the merchant market. Acetate Products recorded an operating profit of $13 million in 2003, compared to $31 million in 2002 as higher pricing and volumes, as well as productivity gains, only partially offset higher raw material and energy prices. The segment also incurred costs for transitioning to new wood pulp suppliers as a primary supplier closed its U.S. facility in 2003. In accordance with Statement of Financial Accounting Standard ("SFAS") No. 143, Accounting for Asset Retirement Obligations, the Acetate Products segment recorded a charge of $8 million, included within depreciation expense, as the result of a worldwide assessment of our acetate production capacity. That assessment concluded that it was probable that certain facilities would be closed in the latter half of the decade. Earnings from continuing operations before tax and minority interests declined to $17 million in 2003 compared to $43 million in 2002. This decline resulted from lower operating profit and lower dividend income from cost investments in China, where earnings are being reinvested for capacity expansions. Performance Products [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Year Ended December 31, [[Image Removed]] [[Image Removed]] 2003 [[Image Removed]] 2002 [[Image Removed]] Change in $ [[Image Removed]] Change in % [[Image Removed]] (in millions, except percentages) Net sales [[Image Removed]] $ 169 [[Image Removed]] $ 151 [[Image Removed]] $ 18 [[Image Removed]] 12 % Net sales variance: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Volume [[Image Removed]] 6 % [[Image Removed]] [[Image Removed]] [[Image Removed]] Price [[Image Removed]] (11 )% [[Image Removed]] [[Image Removed]] [[Image Removed]] Currency [[Image Removed]] 17 % [[Image Removed]] [[Image Removed]] [[Image Removed]] Operating profit (loss) [[Image Removed]] (44 ) [[Image Removed]] 45 [[Image Removed]] (89 ) [[Image Removed]] >100 % Operating margin [[Image Removed]] (26.0 )% [[Image Removed]] 29.8 % [[Image Removed]] [[Image Removed]] Special charges [[Image Removed]] (95 ) [[Image Removed]] [[Image Removed]] (95 ) [[Image Removed]] n.m. Earnings (loss) from continuing operations before tax [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] and minority interests (44 ) 45 (89 ) >100 % Depreciation and amortization [[Image Removed]] 7 [[Image Removed]] 7 [[Image Removed]] [[Image Removed]] 0 % [[Image Removed]] Net sales for the Performance Products segment increased by 12% to $169 million in 2003 as compared to 2002 due to favorable currency movements (+17%) and increased volumes (+6%), partially offset by price decreases (-11%). 88 -------------------------------------------------------------------------------- Pricing for Sunett sweetener declined primarily as a result of lower unit selling prices associated with higher volumes to major customers and the anticipated expiration of the European and U.S. production patents in 2005. Increased Sunett volumes reflected strong growth from new applications in the U.S. and European beverage and confectionary markets. In sorbates, pricing and volume pressure from Asian producers intensified during 2003 due to worldwide overcapacity. Performance Products recorded special charges of $95 million in 2003, related to a decision by the European Commission on antitrust matters in the sorbates industry. Operating profit and earnings (loss) from continuing operations before tax and minority interests declined from $45 million in 2002 to a loss of $44 million in 2003, due to special charges and lower pricing. This decline was slightly offset by favorable currency movements, higher Sunett volumes, cost reductions and increased productivity. Other Activities Net sales for Other Activities decreased by 6% to $49 million in 2003 from $52 million in 2002, primarily reflecting slightly lower third party sales by the captive insurance companies. Other Activities recorded $2 million of income in special charges in 2003 compared to $9 million of income in 2002. The $2 million represented higher than expected collections of a note receivable. The $9 million of income in 2002 related to a reduction in environmental reserves due to a settlement of obligations associated with former Hoechst entities. The operating loss of Other Activities increased to $111 million in 2003 compared to $78 million in 2002. This increase was primarily the result of higher expense for stock appreciation rights of $27 million and lower income from special charges, offset by $17 million of increased income from the captive insurance companies mainly due to a reduction in loss reserves resulting from expired policies and actuarial revaluations. Earnings (loss) from continuing operations before tax and minority interests increased to a loss of $119 million in 2003 compared to a loss of $104 million in 2002. This decline resulted from higher operating losses partially offset by lower interest expense and higher interest and other income, net. Lower interest expense is primarily due to lower interest rates and currency translation effects as well as lower average debt levels. Higher interest and other income, net resulted primarily from income of $18 million from the demutualization of an insurance provider and the gain on sale of investments of $4 million, partially offset by expense of $14 million related to the unfavorable currency effects on the unhedged position of intercompany net receivables denominated in U.S. dollars. Summary of Consolidated ResultsNine Months Ended December 31, 2004 Compared with Nine Months Ended December 31, 2003 Net Sales For the nine months ended December 31, 2004, net sales increased by 10% to $3,826 million compared to the same period in 2003. Volume increases in all segments, higher pricing in the Chemical Products segment, and favorable currency effects resulting mainly from the stronger euro versus the U.S. dollar were partially offset by lower pricing in the remaining segments and the effects of reductions due to changes in the composition of the Chemical Products. Cost of Sales Cost of sales increased by $144 million to $3,092 million for the nine months ended December 31, 2004 versus the comparable period last year. Higher raw material costs and unfavorable currency effects were partially offset by decreases due to changes in the composition of our Chemical Products segment and cost savings. Cost of sales for the nine months ended December 31, 2004 also included a $53 million non-cash charge for the manufacturing profit added to inventory under purchase accounting which was charged to cost of sales as the inventory was sold offset by lower depreciation expense, largely as a result of purchase accounting adjustments. 89 -------------------------------------------------------------------------------- Selling, General and Administrative Expenses Selling, general and administrative expense increased by $96 million to $498 million for nine months ended December 31, 2004 compared to the same period last year. This increase was primarily due to new management compensation expense of $50 million, higher consulting and professional fees, which includes advisor monitoring fees of $10 million, increased amortization expense of identifiable intangible assets acquired, as unfavorable currency movements as well as the absence of a favorable adjustment to our estimate of certain environmental reserves during the nine months ended December 31, 2003 of $12 million, which were partially offset by $69 million of lower stock appreciation rights expense. In January 2005, the Company paid $10 million to affiliates of the Blackstone Group related to an advisor monitoring agreement. This agreement was terminated concurrent with the initial public offering and resulted in an additional $35 million payment. As such, the Company recorded expense of $45 million in the first quarter of 2005. Special Charges Special charges 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 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. We reassess 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. [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Successor [[Image Removed]] Predecessor [[Image Removed]] Nine Months Ended [[Image Removed]] Nine Months Ended December 31, 2004 December 31, 2003 [[Image Removed]] [[Image Removed]] (unaudited) [[Image Removed]] (in $ millions) Employee termination benefits [[Image Removed]] (8 ) [[Image Removed]] (17 ) Plant/office closures [[Image Removed]] (52 ) [[Image Removed]] (7 ) Restructuring adjustments [[Image Removed]] 3 [[Image Removed]] 6 Total restructuring [[Image Removed]] (57 ) [[Image Removed]] (18 ) Sorbates antitrust matters [[Image Removed]] [[Image Removed]] (95 ) Plumbing actions [[Image Removed]] 1 [[Image Removed]] 107 Asset impairments [[Image Removed]] (34 ) [[Image Removed]] Other [[Image Removed]] (1 ) [[Image Removed]] 2 Total special charges [[Image Removed]] (91 ) [[Image Removed]] (4 ) [[Image Removed]] Special charges for the nine months ended December 31, 2004 of $91 million were largely related to non-cash impairment charges of $50 million and $32 million resulting from plans by the Acetate Products segment to consolidate tow production at fewer sites and to discontinue production of acetate filament and a decision to dispose of the Ticona COC business, respectively. Special charges for the nine months ended December 31, 2003 of $4 million resulted mainly from expenses of $95 million associated with antitrust matters in the sorbates industry and employee termination benefits of $17 million, which were largely offset by income of $107 million from insurance recoveries. Operating Profit Operating profit for the nine months ended December 31, 2004 increased to $78 million from $46 million in the same period last year. Operating profit benefited from increased net sales and $76 90 -------------------------------------------------------------------------------- million of lower expense for stock appreciation rights and lower depreciation and amortization expense of $40 million, which were partially offset mainly by increased raw material and energy costs, higher special charges, new management compensation expense of $50 million and inventory purchase accounting adjustments of $53 million and higher professional and consulting fees. Equity in Net Earnings of Affiliates Equity in net earnings of affiliates rose by $11 million to $36 million in the nine months ended December 31, 2004 compared to the same period last year. This increase primarily represents improved equity earnings from Asian and U.S. affiliates due to increased sales volumes, partially offset by lower earnings due to restructuring charges in the European oxo venture. Cash distributions received from equity affiliates were $22 million in the nine months ended December 31, 2004 compared to $8 million in the same period of 2003. Interest Expense Interest expense increased to $300 million for the nine months ended December 31, 2004 from $37 million in the same period last year. The higher interest expense resulted from increased debt levels of $3,387 million as of December 31, 2004 versus $637 million as of December 31, 2003, resulting from the acquisition of CAG as well as the expensing of deferred financing costs of $89 million from the refinancing of the senior subordinated bridge loan facilities and mandatorily redeemable preferred stock. The Company expects to incur expenses of approximately $105 million associated with the refinancing that occurred during the first quarter of 2005, which represents early repayment premiums and expensing of deferred finance costs. Interest Income For the nine months ended December 31, 2004, interest income decreased by $14 million to $24 million compared to the same period in the prior year, primarily due to significantly lower interest income associated with insurance recoveries. Other Income (Expense), Net Other income (expense), net decreased by $48 million to an expense of $12 million compared to the same period last year. This decrease is primarily due to unfavorable foreign currency exchange effects on cash and cash equivalents and the absence of $18 million in income from the demutualization of an insurance provider, as well as unfavorable changes in swap valuations. Dividend income from investments in the nine months ended December 31, 2004 accounted for under the cost method decreased to $33 million compared to $46 million in the same period in the prior year due to the timing of receipt of dividends. Income Taxes Income tax expense increased by $41 million to $70 million for the nine months ended December 31, 2004 and the effective tax rate for this period was negative 40 percent. The effective tax rate was unfavorably affected primarily by the application of full valuation allowances against post-acquisition net U.S. deferred tax assets, Canadian deferred tax assets due to post-acquisition restructurings, certain German deferred tax assets and the non-recognition of tax benefits associated with acquisition related expenses. These unfavorable effects were partially offset by unrepatriated low taxed earnings primarily in Singapore. For the same period in 2003, income tax expense of $29 million was recorded based on a annual effective tax rate of 27%. Minority Interests For the nine months ended December 31, 2004, minority interests increased to $8 million from $0 million in the same period in the prior year. This increase primarily relates to the minority interests in the earnings of CAG. 91 -------------------------------------------------------------------------------- Earnings (Loss) from Discontinued Operations In September 2003, CAG and Dow reached an agreement for Dow to purchase the acrylates business of CAG. This transaction was completed in February 2004 and the sales price was $149 million, resulting in a gain of approximately $14 million. Dow acquired CAG's acrylates business line, including inventory, intellectual property and technology for crude acrylic acid, glacial acrylic acid, ethyl acrylate, butyl acrylate, methyl acrylate and 2-ethylhexyl acrylate, as well as acrylates production assets at the Clear Lake, Texas facility. In related agreements, the Company will provide certain contract manufacturing services to Dow, and Dow will supply acrylates to the Company for use in its emulsions production. The acrylates business was part of the chemical business. As a result of this transaction, the assets, liabilities, revenues and expenses related to the acrylates product lines at the Clear Lake, Texas facility are reflected as a component of discontinued operations in the Consolidated Financial Statements in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. In December 2003, the Ticona segment completed the sale of its nylon business line to BASF. Ticona received cash proceeds of $10 million and recorded a gain of $3 million. [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Net Sales [[Image Removed]] Operating Profit [[Image Removed]] Successor [[Image Removed]] Predecessor [[Image Removed]] Successor [[Image Removed]] Predecessor [[Image Removed]] Nine Months Ended [[Image Removed]] Nine Months Ended [[Image Removed]] Nine Months Ended [[Image Removed]] Nine Months Ended December 31, 2004 December 31, 2003 December 31, 2004 December 31, 2003 [[Image Removed]] [[Image Removed]] (unaudited) [[Image Removed]] [[Image Removed]] (unaudited) [[Image Removed]] (in $ millions) Discontinued operations of Chemical Products [[Image Removed]] 1 [[Image Removed]] 186 [[Image Removed]] [[Image Removed]] 7 Discontinued operations of Ticona [[Image Removed]] 1 [[Image Removed]] 33 [[Image Removed]] [[Image Removed]] Total discontinued operations [[Image Removed]] 2 [[Image Removed]] 219 [[Image Removed]] [[Image Removed]] 7 [[Image Removed]] Net Earnings As a result of the factors mentioned above, net earnings decreased to a loss of $253 million in the nine months ended December 31, 2004 from earnings of $92 million in the same period last year. Summary of Consolidated ResultsThree Months Ended March 31, 2004 Compared with Three Months Ended March 31, 2003 Net Sales For the three months ended March 31, 2004, net sales increased by 9% to $1,243 million compared to the same period in 2003. This increase is primarily due to favorable currency effects relating mainly to the stronger euro versus the U.S. dollar as well as volume increases in all the segments. These factors were partially offset by the transfer of the European oxo business to a venture in the fourth quarter of 2003. Cost of Sales Cost of sales increased to $1,002 million in the three months ended March 31, 2004 from $935 million in the comparable period last year, primarily reflecting higher raw materials costs, increased volumes and the effects of currency movements. The absence of the European oxo business partly offset these factors. Selling, General and Administrative Expenses Selling, general and administrative expense increased to $137 million compared to $108 million for the same period last year. Unlike the three months ended March 31, 2003, the comparable period in 2004 did not benefit from $16 million of income from stock appreciation rights. Unfavorable currency movements also contributed to this increase. 92 -------------------------------------------------------------------------------- Special Charges The components of special charges for the three months ended March 31, 2004 and 2003 were as follows: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Predecessor [[Image Removed]] Three Months Ended [[Image Removed]] Three Months Ended March 31, 2004 March 31, 2003 [[Image Removed]] [[Image Removed]] (unaudited) [[Image Removed]] (in $ millions) Employee termination benefits [[Image Removed]] (2 ) [[Image Removed]] (1 ) Total restructuring [[Image Removed]] (2 ) [[Image Removed]] (1 ) Other [[Image Removed]] (26 ) [[Image Removed]] Total special charges [[Image Removed]] (28 ) [[Image Removed]] (1 ) [[Image Removed]] The $27 million increase in special charges for the three months ended March 31, 2004 compared to the same period last year is primarily due to expenses for advisory services related to the acquisition of CAG. Operating Profit Operating profit declined in the three months ended March 31, 2004 to $52 million compared to $72 million in the same period last year. The favorable effects of higher volumes and favorable currency movements were offset by higher raw material costs, special charges and the absence of income from stock appreciation rights. Operating profit declined also due to $10 million of spending associated with productivity initiatives, primarily in the Chemical Products segment. Stock appreciation rights had no effect on operating profit for the three months ended March 31, 2004, as the share price remained relatively flat whereas in the three months ended March 31, 2003, operating profit included $18 million of income as a result of a decline in the share price. Equity in Net Earnings of Affiliates Equity in net earnings of affiliates rose by $2 million to $12 million for the three months ended March 31, 2004 compared to the same period last year. Cash distributions received from equity affiliates increased to $16 million for the three months ended March 31, 2004 compared to $15 million the same period of 2003. Interest Expense Interest expense decreased to $6 million for the three months ended March 31, 2004 from $12 million in the same period last year primarily due to lower average debt levels. Other Income (Expense), Net Other income (expense), net decreased by $3 million to $9 million for the three months ended March 31, 2004 compared to $12 million for the comparable period last year. Dividend income accounted for under the cost method decreased by $1 million to $6 million for the three months ended March 31, 2004 compared to the same period in 2003. Income Taxes CAG recognized income tax expense of $17 million based on an annual effective tax rate of 24% in the three months ended March 31, 2004 compared to $24 million based on an annual effective tax rate of 27% for the same period in 2003. The decrease in the annual effective tax rate is the result of higher earnings in lower taxed jurisdictions. Earnings (Loss) from Discontinued Operations Earnings (loss) from discontinued operations increased by $30 million to earnings of $23 million for the three months ended March 31, 2004 compared to a loss of $7 million for the comparable 93 -------------------------------------------------------------------------------- period last year, reflecting primarily an $14 million gain and a $14 million tax benefit associated with the sale of the acrylates business in 2004. The tax benefit is mainly attributable to the utilization of a capital loss carryover benefit that had been previously subject to a valuation allowance. The following table summarizes the results of the discontinued operations for the three months ended March 31, 2004 and 2003. [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Net Sales [[Image Removed]] Operating Loss [[Image Removed]] Successor [[Image Removed]] Predecessor [[Image Removed]] Successor [[Image Removed]] Predecessor [[Image Removed]] Three Months Ended [[Image Removed]] Three Months Ended [[Image Removed]] Three Months Ended [[Image Removed]] Three Months Ended March 31, 2004 March 31, 2003 March 31, 2004 March 31, 2003 [[Image Removed]] [[Image Removed]] (unaudited) [[Image Removed]] [[Image Removed]] (unaudited) [[Image Removed]] (in $ millions) Discontinued operations of Chemical Products [[Image Removed]] 21 [[Image Removed]] 50 [[Image Removed]] (5 ) [[Image Removed]] (8 ) Discontinued operations of Ticona [[Image Removed]] [[Image Removed]] 12 [[Image Removed]] [[Image Removed]] Total discontinued operations [[Image Removed]] 21 [[Image Removed]] 62 [[Image Removed]] (5 ) [[Image Removed]] (8 ) [[Image Removed]] Net Earnings As a result of the factors mentioned above, net earnings increased by $22 million to net earnings of $78 million in the three months ended March 31, 2004 compared to the same period last year. Summary of Consolidated Results2003 Compared with 2002 Net Sales Net sales increased by $767 million to $4,603 million in 2003 as compared to $3,836 million in 2002 due primarily to the full year effect of the emulsions business acquired at year-end 2002, favorable currency movements resulting from the strengthening of the euro versus the U.S. dollar as well as higher selling prices and volumes. Overall, all segments had an increase in net sales. Cost of Sales Cost of sales increased by 22% to $3,883 million in 2003 compared with $3,171 million in 2002. Cost of sales as a percentage of net sales also increased to 84% in 2003 from 83% in 2002, reflecting significantly higher raw material and energy costs, partly offset by increased selling prices primarily in the Chemical Products segment. Selling, General and Administrative Expenses Selling, general and administrative expenses increased by 14% to $510 million in 2003 from $446 million in 2002 primarily due to a $51 million increase in expenses for stock appreciation rights, unfavorable currency effects as well as the inclusion of the emulsions business. This increase was partially offset by cost reduction efforts. Research and Development Expenses Research and development expenses increased by 37% to $89 million in 2003 from $65 million in 2002. This increase resulted primarily from currency movements, the inclusion of the emulsions business and expiration of cost sharing arrangements at Celanese Ventures during 2002. Research and development expenses as a percentage of sales increased to 1.9% for 2003 from 1.7% in 2002. 94 -------------------------------------------------------------------------------- Special Charges The components of special charges for the years ended December 31, 2003 and 2002 were as follows: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Predecessor [[Image Removed]] Year Ended [[Image Removed]] Year Ended December 31, 2003 December 31, 2002 [[Image Removed]] (in $ millions) Employee termination benefits [[Image Removed]] (18 ) [[Image Removed]] (8 ) Plant/office closures [[Image Removed]] (7 ) [[Image Removed]] (6 ) Restructuring adjustments [[Image Removed]] 6 [[Image Removed]] 10 Total restructuring [[Image Removed]] (19 ) [[Image Removed]] (4 ) Sorbates antitrust matters [[Image Removed]] (95 ) [[Image Removed]] Plumbing actions [[Image Removed]] 107 [[Image Removed]] Other [[Image Removed]] 2 [[Image Removed]] 9 Total special charges [[Image Removed]] (5 ) [[Image Removed]] 5 [[Image Removed]] In 2003, the Predecessor recorded expense of $5 million in special charges, which consisted of $25 million of restructuring charges, $6 million of income from favorable adjustments to restructuring reserves that were recorded previously, and $14 million of income from other special charges. The $25 million of additions to the restructuring reserve included employee severance costs of $18 million and plant and office closure costs of $7 million. Within other special charges there was income of $107 million related to insurance recoveries associated with the plumbing cases, partially offset by $95 million of expenses for antitrust matters in the sorbates industry, primarily related to a decision by the European Commission. In 2003, the Chemical Products segment recorded employee severance charges of $4 million, which primarily related to the shutdown of an obsolete synthesis gas unit in Germany. In 2003, Ticona commenced the redesign of its operations. These plans included a decision to sell the Summit, New Jersey site and to relocate administrative and research and development activities to the existing Ticona site in Florence, Kentucky in 2004. As a result of this decision, the Predecessor recorded termination benefit expense of $5 million in 2003. In addition to the relocation in the United States, Ticona has streamlined its operations in Germany, primarily through offering employees early retirement benefits under an existing employee benefit arrangement. As a result of this arrangement, Ticona recorded a charge of $7 million in 2003. Also in 2003, based on a 2002 restructuring initiative to concentrate its European manufacturing operations in Germany. Ticona ceased its manufacturing operations in Telford, United Kingdom. This resulted in contract termination costs and asset impairments totaling $7 million and employee severance costs of $1 million in 2003. Through December 31, 2003, the total cost of the Telford shutdown through 2003 was $12 million. The $6 million of income from favorable adjustments of previously recorded restructuring reserves consisted of a $1 million adjustment to the 2002 reserves, a $4 million adjustment to the 2001 reserves and a $1 million adjustment to the 1999 reserves. The adjustment to the 2002 reserve related to lower than expected costs related to the demolition of the GUR Bayport facility. The adjustment to the 2001 reserve was primarily due to the lower than expected decommissioning costs of the Mexican production facility. The adjustment to the 1999 reserve was due to lower than expected payments related to the closure of a former administrative facility in the United States. In 2002, the Predecessor recorded income from special charges of $5 million, which consisted of $14 million of restructuring charges, $10 million of income from favorable adjustments to previously recorded restructuring reserves, $1 million of income from reimbursements from third party site partners related to prior year initiatives, and $8 million of income from other special charges. The $14 million of restructuring charges included employee severance costs of $8 million and plant and office closure costs of $6 million. 95 -------------------------------------------------------------------------------- Project Focus, initiated in early 2001, set goals to reduce trade working capital, limit capital expenditures and improve earnings before interest, taxes, depreciation and amortization from programs to increase efficiency. Project Forward was announced in August 2001 and initiated additional restructuring and other measures to reduce costs and increase profitability. During 2002, the Predecessor recorded employee severance charges of $8 million, of which $3 million related to adjustments to the 2001 forward initiatives and $4 million for streamlining efforts of production facilities in Germany and the United States, and $1 million for employee severance costs in the polyvinyl alcohol business. Ticona recorded asset impairments of $4 million in 2002 related to a decision in 2002 to shutdown operations in Telford, United Kingdom in 2003. In addition, with the construction of a new and expanded GUR plant in Bishop, Texas, the GUR operations in Bayport, Texas, were transferred to a new facility. Decommissioning and demolition costs associated with the Bayport closure were $2 million. The $10 million of favorable adjustments of previously recorded restructuring reserves consisted of an $8 million adjustment to the 2001 reserves and a $2 million adjustment to the 2000 reserves. The 2001 adjustment was primarily due to lower than expected personnel and closure costs associated with the streamlining of chemical facilities in the United States, Canada, and Germany. The 2000 adjustment was due to lower than expected demolition costs for the Chemical Products production facility in Knapsack, Germany. The other special charges income of $8 million related to a reduction in reserves associated with settlements of environmental indemnification obligations associated with former Hoechst entities. Foreign Exchange Gain (Loss) Foreign exchange gain (loss) decreased to a loss of $4 million in 2003 from a gain of $3 million in 2002. This change is primarily attributable to the strengthening of the Mexican peso and Canadian dollar against the U.S. dollar. Operating Profit Operating profit declined to $118 million in 2003 compared to $173 million in 2002. The favorable effects of higher selling prices primarily in the Chemical Products segment, favorable currency movements, cost reductions, and income from insurance recoveries of $107 million in the Ticona segment, were offset by expenses of $95 million in the Performance Products segment related to antitrust matters, $12 million of organizational redesign costs at Ticona, increased stock appreciation rights expense as well as higher raw material and energy costs in most segments. Stock appreciation rights expense for 2003 was $59 million compared to $3 million in 2002. Celanese streamlined its manufacturing operations, mainly in the Chemical Products and Ticona segments and, as a result, recorded termination benefit expenses, in cost of sales, of $26 million, primarily in the fourth quarter of 2003. Equity in Net Earnings of Affiliates Equity in net earnings of affiliates increased to $35 million in 2003 from $21 million in 2002. This increase was mainly attributable to an increase in the earnings from the Polyplastics venture, an investment held by the Ticona segment, partly due to growth in the Chinese and Taiwanese economies in 2003. Cash distributions from equity affiliates were $23 million in 2003 compared to $100 million in 2002. Interest Expense Interest expense decreased by 11% to $49 million in 2003 from $55 million in 2002. This decrease is primarily related to currency translation effects and lower interest rates as well as lower average debt levels. Interest Income Interest income increased by $26 million to $44 million in 2003 compared to 2002, primarily due to interest income associated with insurance recoveries of $20 million in the Ticona segment. 96 -------------------------------------------------------------------------------- Other Income (Expense), Net Other income (expense), net increased to $48 million in 2003 from $23 million in 2002, mainly due to income of $18 million resulting from the demutualization of an insurance provider and an increase in dividend income. These increases were partially offset by expense of $14 million related to the unfavorable currency effects on the unhedged position of intercompany net receivables denominated in U.S. dollars. Investments accounted for under the cost method contributed dividend income of $53 million and $35 million in 2003 and 2002, respectively. The increase in 2003 primarily resulted from higher dividends from the Saudi Arabian cost investment on higher methanol pricing, which were slightly offset by lower dividend income from the Acetate Products cost investments in China, where earnings are being reinvested for capacity expansions. Income Taxes CAG recognized income tax expense of $53 million in 2003 compared to $57 million in 2002. The effective tax rate for CAG in 2003 was 27 percent compared to 32 percent in 2002. In comparison to the German statutory rate, the 2003 effective tax rate was favorably affected by unrepatriated low-taxed earnings, favorable settlement of prior year (1996) taxes in the U.S., equity earnings from Polyplastics, which are excluded from U.S. taxable income and utilization of a U.S. capital loss carryforward that had been subject to a valuation allowance. The effective tax rate was unfavorably affected in 2003 by dividend distributions from subsidiaries and writedowns of certain German corporate and trade tax benefits related to prior years. In comparison to the German statutory rate, the effective tax rate in 2002 was favorably affected by the utilization of certain net operating loss carryforwards in Germany, the release of certain valuation allowances on prior years' deferred tax assets, unrepatriated low-taxed earnings and a lower effective minimum tax burden in Mexico. The effective tax rate was unfavorably affected in 2002 by distributions of taxable dividends from certain equity investments and the reversal of a tax-deductible writedown in 2000 of a German investment. Earnings (Loss) from Discontinued Operations In September 2003, CAG and Dow reached an agreement for Dow to purchase the acrylates business of Celanese. This transaction was completed in February 2004 and the sales price was $149 million, resulting in a gain of approximately $14 million. Dow acquired Celanese's acrylates business line, including inventory, intellectual property and technology for crude acrylic acid, glacial acrylic acid, ethyl acrylate, butyl acrylate, methyl acrylate and 2-ethylhexyl acrylate, as well as acrylates production assets at the Clear Lake, Texas facility. In related agreements, CAG will provide certain contract manufacturing services to Dow, and Dow will supply acrylates to CAG for use in its emulsions production. Simultaneously with the sale, CAG repaid an unrelated obligation of $95 million to Dow. The acrylates business was part of the chemical business. As a result of this transaction, the assets, liabilities, revenues and expenses related to the acrylates product lines at the Clear Lake, Texas facility are reflected as a component of discontinued operations in the Consolidated Financial Statements in accordance with SFAS No. 144. In December 2003, the Ticona segment completed the sale of its nylon business line to BASF. Ticona received cash proceeds of $10 million and recorded a gain of $3 million. In 2003, CAG recorded a $1 million loss from operations of discontinued operations related to the acrylates and nylon business divestitures. In 2003, Celanese also recorded adjustments related to prior year discontinued operations representing a gain of $4 million. In December 2002, CAG completed the sale of Trespaphan, its global oriented polypropylene ("OPP") film business, to a consortium consisting of Dor-Moplefan Group and Bain Capital, Inc. for a value of $214 million. Net of the purchase price adjustments of $19 million and the repayment of $80 million in intercompany debt that Trespaphan owed CAG, CAG received net proceeds of $115 million. Trespaphan was formerly part of Celanese's Performance Products segment. 97 -------------------------------------------------------------------------------- During 2002, CAG sold its global allylamines and U.S. alkylamines businesses to U.S. Amines Ltd. These businesses were part of the chemicals business. In 2002, CAG received net proceeds of $106 million and recorded a pre-tax gain of $14 million on the disposal of discontinued operations relating to these divestitures. Pre-tax earnings from operations of discontinued operations in 2002 were $1 million. CAG recognized a tax benefit of $40 million for discontinued operations, which includes a tax benefit associated with a tax deductible writedown of the tax basis for Trespaphan's subsidiary in Germany relating to tax years ended December 31, 2001 and 2000. Since this tax benefit related to an entity solely engaged in a business designated as discontinued operations, this tax benefit has been correspondingly included in earnings (loss) from discontinued operations. The following table summarizes the results of the discontinued operations for the years ended December 31, 2003 and 2002. [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Predecessor [[Image Removed]] [[Image Removed]] Operating Net Sales Profit (Loss) Year Ended Year Ended Year Ended Year Ended [[Image Removed]] December 31, [[Image Removed]] December 31, [[Image Removed]] December 31, [[Image Removed]] December 31, 2003 2002 2003 2002 [[Image Removed]] (in millions) Discontinued operations of Chemical Products [[Image Removed]] $ 236 [[Image Removed]] $ 246 [[Image Removed]] $ (1 ) [[Image Removed]] $ (52 ) Discontinued operations of Performance Products [[Image Removed]] [[Image Removed]] 257 [[Image Removed]] [[Image Removed]] 10 Discontinued operations of Ticona [[Image Removed]] 45 [[Image Removed]] 57 [[Image Removed]] [[Image Removed]] (1 ) Total discontinued operations [[Image Removed]] $ 281 [[Image Removed]] $ 560 [[Image Removed]] $ (1 ) [[Image Removed]] $ (43 ) [[Image Removed]] Cumulative Effect of Changes in Accounting Principles CAG recorded $1 million loss in a cumulative effect of changes in accounting principles, net of tax, on January 1, 2003, related to the adoption of SFAS No. 143. CAG recognized transition amounts for existing asset retirement obligation liabilities, associated capitalized costs and accumulated depreciation. The ongoing amortization expense on an annual basis resulting from the initial adoption of SFAS No. 143 is not material. In 2002, CAG recorded income of $18 million for the cumulative effect of two changes in accounting principles, net of tax of $5 million. The adoption of SFAS No. 142, Goodwill and Other Intangible Assets, in 2002 resulted in income of $9 million, as it required unamortized negative goodwill (excess of fair value over cost) on the balance sheet to be written off immediately and classified as a cumulative effect of change in accounting principle in the consolidated statement of operations. Additionally, in 2002 CAG changed the actuarial measurement date for its U.S. pension and other postretirement benefit plans from September 30 to December 31. As this change was accounted for as a change in accounting principle, a cumulative effect adjustment of income of $9, net of taxes of $5 million, was recorded in 2002. Net Earnings As a result of the factors mentioned above, the net earnings of CAG decreased by $20 million to net earnings of $148 million in 2003 compared to $168 million in 2002. 98 -------------------------------------------------------------------------------- Liquidity and Capital Resources Cash Flows Net Cash Provided By/Used in Operating Activities Cash flow from operating activities decreased to a cash outflow of $170 million for 2004 compared to a cash inflow of $401 million for 2003. This decrease primarily resulted from $473 million of pension contributions, which are $343 million more than 2003. Additionally, lower income from insurance recoveries, the payment of a $95 million obligation to a third party, as well as payments of $59 million associated with the exercising of stock appreciation rights in 2004 also contributed to this decrease. These outflows were partially offset by a decline in payments associated with bonuses and income taxes as well as lower cash consumed through changes in trade receivables and trade payables. The hedging of foreign currency net receivables, primarily intercompany, resulted in a $17 million cash inflow in 2004 compared to a $180 million inflow in 2003. Unfavorable foreign currency effects on the euro versus the U.S. dollar on cash and cash equivalents increased to $24 million in 2004. Net cash provided by operating activities increased by $38 million to $401 million in 2003 as compared to 2002 primarily due to insurance recoveries of $120 million, plus interest, offset by higher net taxes paid of $143 million and lower dividends from equity investments of $41 million. In addition, higher contributions were made to the U.S. qualified defined benefit pension plan of $130 million in 2003 compared to $100 million in 2002. The hedging activity of foreign currency denominated intercompany net receivables served to partially offset favorable currency effects on net earnings of $155 million and resulted in a $180 million cash inflow in 2003 compared to $95 million in 2002 due to the timing of settlements of these contracts. Net Cash Used in Investing Activities Net cash from investing activities decreased to a cash outflow of $1,714 million in 2004 compared to a cash outflow of $275 million in 2003. The increased cash outflow primarily resulted from the acquisition of CAG. This increase was partially offset by higher net proceeds received from disposals of discontinued operations of $129 million and lower cash outflows related to higher net purchases of marketable securities of $22 million. Capital expenditures decreased by $1 million to $210 million in 2004. Spending in 2004 primarily related to a new Ticona research and administrative facility in Florence, Kentucky, the expansion of production facilities for polyacetal in Bishop, Texas and GUR in Oberhausen, Germany, major replacements of equipment, capacity expansions, major investments to reduce future operating costs, environmental, health and safety initiatives and the integration of a company-wide SAP platform. Spending in 2003 primarily related to the completion of a production facility for synthesis gas, a primary raw material at the Oberhausen site in Germany, major replacements of equipment, capacity expansions, major investments to reduce future operating costs, environmental, health and safety initiatives and the integration of a company-wide SAP platform. The increase in cash outflows of $136 million in 2003 compared to 2002 is mainly due to lower proceeds from disposal of discontinued operations of $196 million and the receipt of $39 million in returns of capital from investments in non-consolidated InfraServ companies in 2002. This increase in cash outflow for 2003 was partially offset by a $131 million cash outflow for the 2002 purchase of the net assets of the emulsions businesses. Additionally, net cash outflows increased by $41 million related to higher net purchases of marketable securities. Capital expenditures increased by $8 million to $211 million in 2003, primarily due to foreign currency effects. Spending in 2003 primarily related to the completion of a production facility for synthesis gas, a primary raw material at the Oberhausen site in Germany, major replacements of equipment, capacity expansions, major investments to reduce future operating costs, environmental, health and safety initiatives and the integration of a company-wide SAP platform. The spending in 2002 included the start of construction of the synthesis gas production facility at the Oberhausen site. In addition, major projects included the completion of a new GUR plant at the Bishop, Texas, facility 99 -------------------------------------------------------------------------------- and the capacity expansion for Vectra at Shelby, North Carolina. The Vectra expansion was built to supply the projected long-term demand of the telecommunications industry and to develop and grow emerging markets. Net Cash Provided by/Used in Financing Activities Net cash from financing activities increased to a cash inflow of $2,643 million in 2004 compared to a cash outflow of $108 million in 2003. The increased cash inflow primarily reflects higher net proceeds from borrowings in connection with the acquisition of CAG and borrowings to prefund benefit obligations. These increased cash inflows were partially offset by a $500 million return of capital to the Original Shareholders. Refer to the Liquidity section below for additional information. Net cash used in financing activities declined by $42 million to an outflow of $108 million in 2003 compared to 2002. This decrease is primarily related to lower net payments of short-term borrowings of $121 million, offset by net payments of long-term debt in 2003 of $48 million. In addition, in 2003, CAG paid a cash dividend of $25 million and repurchased 749,848 of its shares, to be held in treasury, for approximately $15 million. Net cash used in financing activities in 2002 was primarily due to net debt repayments aggregating $144 million. In addition, CAG repurchased 284,798 of its shares, to be held in treasury, for approximately $6 million. Liquidity The primary source of liquidity has been cash generated from operations, which included cash inflows from currency hedging activities. Historically, the primary liquidity requirements were for capital expenditures, working capital, pension contributions and investments. Our contractual obligations, commitments and debt service requirements over the next several years are significant and are substantially higher than historical amounts. Our primary source of liquidity will continue to be cash generated from operations as well as existing cash on hand. We have availability under our amended and restated credit facilities to assist, if required, in meeting our working capital needs and other contractual obligations. We believe we will have available resources to meet both our short-term and long-term liquidity requirements, including debt service. If our cash flow from operations is insufficient to fund our debt service and other obligations, we may be forced to use other means available to us such as to increase our borrowings under our lines of credit, reduce or delay capital expenditures, seek additional capital or seek to restructure or refinance our indebtedness. In January 2005, Celanese Corporation completed an initial public offerings of Series A common stock and received net proceeds of approximately $760 million. Concurrently, Celanese Corporation received net proceeds of $233 million from the offering of its convertible preferred stock. A portion of the proceeds of the share offerings were used to redeem $188 million of senior discount notes and $521 million of senior subordinated notes, which excludes premiums of $19 million and $51 million, respectively. Subsequent to the closing of the initial public offering, in February 2005 we borrowed an additional $1,135 million under the amended and restated senior credit facilities; a portion of which was used to repay a $350 million floating rate term loan and the related premium of $3 million. In addition, $200 million was primarily used to finance the acquisition of the Vinamul emulsion business. Additionally, the amended and restated senior credit facilities include a $242 million delayed draw term loan which is expected to be used to finance the Acetex acquisition. On April 7, 2005, Celanese Corporation used a portion of the proceeds of the Recent Financings to pay a special cash dividend to holders of its Series B common stock of $804 million. Upon payment of the $804 million dividend, the shares of Celanese Corporation's Series B common stock converted automatically to shares of Celanese Corporation's Series A common stock. In addition, we may use the available sources of liquidity to purchase the remaining outstanding shares of CAG. As a result of the offerings in January 2005, Celanese Corporation now has $240 million aggregate liquidation preference of outstanding preferred stock. Holders of the preferred stock are 100 -------------------------------------------------------------------------------- entitled to receive, when, as and if, declared by our board of directors, out of funds legally available therefor, 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. This dividend is expected to result in an annual dividend 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 shares of Celanese Corporation's Series A common stock at a conversion rate of 1.25 shares of Celanese Corporation's Series A common stock for each share of the preferred stock, subject to adjustments. Celanese Corporation's board of directors currently intends to adopt a policy of declaring, subject to legally available funds, a quarterly cash dividend on each share of its Series A common stock at an annual rate initially equal to approximately 0.75% of the $16.00 initial public offering price per share of its Series A common stock (or $0.12 per share) unless the board of directors in its sole discretion determines otherwise, commencing the second quarter of 2005. Based upon the number of outstanding shares after the initial public offering, the common stock dividend declared on March 8, 2005 and the conversion as mentioned above, the anticipated annual cash dividend payment is approximately $19 million. However, there is no assurance that sufficient cash or surplus will be available to pay such dividend. As of December 31, 2004, we had total debt of $3,387 million and cash and cash equivalents of $838 million. In connection with the acquisition of CAG, we incurred a substantial amount of debt. We entered into senior subordinated bridge loans and issued $200 million of mandatorily redeemable preferred shares, both of which were subsequently refinanced by the senior subordinated notes and the floating rate term loan. Additionally, we issued senior discount notes and senior subordinated notes as well as entered into amended and restated senior credit facilities. In connection with the acquisition of CAG, we cancelled its committed commercial paper backup facilities and revolving credit facilities. Additionally, we agreed to pre-fund $463 million of certain pension obligations, which is expected to eliminate the need for future funding for seven to ten years. As of December 31, 2004, $409 million was pre-funded, and in February 2005 we contributed an additional $42 million to the non-qualified pension plan's rabbi trusts. We terminated our $120 million trade receivable securitization program in February 2005, which was unavailable since the CAG acquisition and had no outstanding sales of receivables as of December 31, 2004. During the nine months ended December 31, 2004, we repaid approximately $235 million of CAG's variable rate debt that was originally scheduled to mature in 2005, 2008 and 2009. We were initially capitalized by equity contributions totaling $641 million from the Original Shareholders. On a stand alone basis, Celanese Corporation and the Issuer have no material assets other than the stock of their subsidiaries that they own, and no independent external operations of their own other than through the indirect ownership of CAG and CAC, their consolidated subsidiaries, their non-consolidated subsidiaries, ventures and other investments. As such, Celanese Corporation and the Issuer generally will depend on the cash flow of their subsidiaries to meet their obligations, including their obligations under the preferred stock, the senior discount notes, senior subordinated notes, term loans and any revolving credit borrowings and guarantees. In March 2005, we received $75 million for an early contractual settlement of receivables related to the 2000 sale of our 50% interest in the Vinnolit Kunstoff GmbH venture. We have receivables related to this settlement as of December 31, 2004, which was recorded in the allocation of the purchase price of CAG. Domination Agreement. At the CAG annual shareholders' meeting on June 15, 2004, CAG shareholders approved payment of a dividend on the CAG Shares for the fiscal year ended December 31, 2003 of 0.12 per share. For the nine month fiscal year ended on September 30, 2004, Celanese will not be able to pay a dividend to the CAG shareholders due to losses incurred in the CAG statutory accounts. Accordingly, in the near term, Celanese Corporation, the Issuer and BCP Crystal, will use existing cash and borrowings from their subsidiaries, subject to various restrictions, including restrictions imposed by the amended and restated senior credit facilities and indentures and 101 -------------------------------------------------------------------------------- by relevant provisions of German and other applicable laws, to make interest payments. If the Domination Agreement ceases to be operative, the ability of Celanese Corporation and BCP Crystal to meet their obligations will be materially and adversely affected. The Domination Agreement was approved at the CAG's extraordinary shareholders' meeting on July 31, 2004. The Domination Agreement between CAG and the Purchaser became effective on October 1, 2004. When the Domination Agreement became effective, the Purchaser was obligated to offer to acquire all outstanding CAG Shares from the minority shareholders of CAG in return for payment of fair cash compensation. This offer will continue until two months following the date on which the decision on the last motion in award proceedings (Spruchverfahren), as described in "BusinessLegal ProceedingsShareholder Litigation", has been disposed of and has been published. These award proceedings were dismissed in 2005; however, the dismissal is still subject to appeal. The amount of this fair cash compensation has been determined to be 41.92 per share, plus interest, in accordance with applicable German law. As a result of the award proceedings, the amount of the fair cash consideration and the guaranteed fixed 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 higher amounts. Any minority shareholder who elects not to sell their shares to the Purchaser will be entitled to remain a shareholder of CAG and to receive from the Purchaser a gross guaranteed fixed annual payment on their shares of 3.27 per CAG Share less certain corporate taxes in lieu of any future dividend. Taking into account the circumstances and the tax rates at the time of entering into the Domination Agreement, the net guaranteed fixed annual payment is 2.89 per share for a full fiscal year. Based upon the number of CAG Shares held by the minority shareholders as of December 31, 2004, a net guaranteed fixed annual payment of 23 million is expected. The net guaranteed fixed annual payment may, depending on applicable corporate tax rates, in the future be higher, lower, or the same as 2.89. If the Purchaser acquires all CAG Shares outstanding as of December 31, 2004, the total amount of funds necessary to purchase such remaining outstanding shares would be at least 334 million plus accrued interest from October 2, 2004. While the Domination Agreement is operative, the Purchaser is required to compensate CAG for any statutory annual loss incurred by CAG, the dominated entity, at the end of its fiscal year when the loss was incurred. If the Purchaser were obligated to make cash payments to CAG to cover an annual loss, the Purchaser may not have sufficient funds to pay interest 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. The Domination Agreement cannot be terminated by the Purchaser in the ordinary course until September 30, 2009. Our subsidiaries, BCP Caylux Holdings Luxembourg S.C.A. and BCP Crystal, have each agreed to provide the Purchaser with financing to strengthen the Purchaser's 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 obligations to make a guaranteed fixed annual payment to the outstanding minority shareholders, to offer to acquire all outstanding CAG Shares from the minority shareholders in return for payment of fair cash consideration and to compensate CAG for any statutory annual loss incurred by CAG during the term of the Domination Agreement. If BCP Caylux and/or BCP Crystal are obligated to make payments under such guarantees or other security to the Purchaser and/or the minority shareholders, we may not have sufficient funds for payments on our indebtedness when due. In the first quarter of 2005, we paid $10 million to affiliates of the Blackstone Group related to an advisor monitoring agreement. This agreement was terminated concurrent with the initial public offering and resulted in an additional $35 million payment. Contractual Obligations. The following table sets forth our fixed contractual debt obligations as of December 31, 2004, on a pro forma basis, after giving effect to additional borrowings under the term loan facility of $1,135 million and repayments of $521 million of the senior subordinated notes, $188 million of the senior discount notes and the $350 million floating rate term loan which excludes premiums of $51 million, $19 million and $3 million, respectively. 102 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Less than 1 [[Image Removed]] 1-3 [[Image Removed]] 4-5 [[Image Removed]] After 5 Fixed Contractual Debt Obligations (1) Total Year Years Years Years [[Image Removed]] (in $ millions) Amended and Restated Senior Credit Facilities: [[Image Removed]] Term Loans Facility [[Image Removed]] 1,759 [[Image Removed]] 17 [[Image Removed]] 34 [[Image Removed]] 34 [[Image Removed]] 1,674 Senior Subordinated Notes (2) [[Image Removed]] 973 [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] 973 Senior Discount Notes (3) [[Image Removed]] 554 [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] 554 Assumed Debt (4) [[Image Removed]] 385 [[Image Removed]] 139 [[Image Removed]] 45 [[Image Removed]] 16 [[Image Removed]] 185 Total Fixed Contractual Debt Obligations [[Image Removed]] 3,671 [[Image Removed]] 156 [[Image Removed]] 79 [[Image Removed]] 50 [[Image Removed]] 3,386 [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] (1) Excludes the following: $242 million of delayed draw term loans which will be used to finance the Acetex acquisition and cash interest obligations on debt, excluding the senior discount notes and any commitment and facility fees, of approximately $208 million in the next year, $390 million in years two to three, $385 million in years four to five and $1,031 million after five years. Interest payments on the term loan facility, which has a variable interest rate, were calculated using an assumed rate of 5.00% for all periods. No cash interest is payable on the senior discount notes in years one to five and $288 million cash interest is payable after five years. [[Image Removed]] [[Image Removed]] (2) Does not include $4 million of premium on the $225 million of the senior subordinated notes issued July 1, 2004. [[Image Removed]] [[Image Removed]] (3) Reflects the accreted value of the notes at maturity. [[Image Removed]] [[Image Removed]] (4) Does not include $2 million purchase accounting adjustment to assumed debt. Amended and Restated Senior Credit Facilities. As of December 31, 2004, the amended and restated senior credit facilities of $1,232 million consist of a term loan facility, a revolving credit facility, and a credit-linked revolving facility. The term loan facility consists of commitments of $454 million and 125 million, both maturing in 2011. As of December 31, 2004, we borrowed $624 million (including 125 million) under the term loan facility. The revolving credit facility, through a syndication of banks, provides for borrowings of up to $380 million, including the availability of letters of credit in U.S. dollars and euros and for borrowings on same-day notice. As of December 31, 2004, there were no amounts outstanding under the revolving credit facility, which matures in 2009. Subsequent to the consummation of the initial public offering in January 2005, we entered into amended and restated senior credit facilities. The terms of the amended and restated senior credit facilities are substantially similar to the terms of our existing senior credit facilities. Under the amended and restated facilities the term loan facility increased to $1,759 million (including 275 million). In addition, there is a new $242 million delayed draw facility which when drawn will be added to the existing term loan facility. We expect to use this delayed draw facility to finance the acquisition of Acetex. Also in January 2005, the revolving credit facility was increased from $380 million to $600 million under the amended and restated senior credit facilities. The $228 million credit-linked revolving facility, which matures in 2009, includes borrowing capacity available for letters of credit. As of December 31, 2004, there were $207 million of letters of credit issued under the credit-linked revolving facility. As of December 31, 2004, $401 million remained available for borrowing under the revolving credit facilities (taking into account letters of credit issued under the revolving credit facilities). Substantially all of the assets of Celanese Holdings, the direct parent of BCP Crystal, and, subject to certain exceptions, substantially all of its existing and future U.S. subsidiaries, referred to as U.S. Guarantors, secure these facilities. The borrowings under the amended and restated senior credit facilities bear interest at a rate equal to an applicable margin plus, at the borrower's option, either a base rate or a LIBOR rate. The applicable margin for borrowing under the base rate option is 1.50% and for the LIBOR option, 2.50% (in each case, subject to a step-down based on a performance test). The amended and restated senior credit facilities are subject to prepayment requirements and contain covenants, defaults and other provisions. The amended and restated senior credit facilities require BCP Crystal to prepay outstanding term loans, subject to certain exceptions, with: 103 -------------------------------------------------------------------------------- 75% (such percentage will be reduced to 50% if BCP Crystal's leverage ratio is less than 3.00 to 1.00 for any fiscal year ending on or after December 31, 2005) of BCP Crystal's excess cash flow; 100% of the net cash proceeds of all non-ordinary course asset sales and casualty and condemnation events, unless BCP Crystal reinvests or contracts to reinvest those proceeds in assets to be used in BCP Crystal's business or to make certain other permitted investments within 12 months, subject to certain limitations; 100% of the net cash proceeds of any incurrence of debt other than debt permitted under the amended and restated senior credit facilities, subject to certain exceptions; and 50% of the net cash proceeds of issuances of equity of Celanese Holdings, subject to certain exceptions. BCP Crystal may voluntarily repay outstanding loans under the amended and restated senior credit facility at any time without premium or penalty, other than customary "breakage" costs with respect to LIBOR loans. In connection with the borrowing by BCP Crystal under the term loan portion of the amended and restated senior credit facilities, BCP Crystal and CAC have entered into an intercompany loan agreement whereby BCP Crystal has agreed to lend the proceeds from any borrowings under its term loan facility to CAC. The intercompany loan agreement contains the same amortization provisions as the amended and restated senior credit facilities. The interest rate with respect to the loans made under the intercompany loan agreement is the same as the interest rate with respect to the loans under BCP Crystal's term loan facility plus three basis points. BCP Crystal intends to service the indebtedness under its term loan facility with the proceeds of payments made to it by CAC under the intercompany loan agreement. Floating Rate Term Loan. The $350 million floating rate term loan matures in 2011. The borrowings under the floating rate term loan bear interest at a rate equal to an applicable margin plus, at BCP Crystal's option, either a base rate or a LIBOR rate. Prior to the completion of the Restructuring, the applicable margin for borrowings under the base rate option was 3.25% and for the LIBOR option, 4.25%. Subsequent to the completion of the Restructuring, the applicable margin for borrowings under the base rate option is 2.50% and for the LIBOR option, 3.50%. The floating rate term loan accrues interest. We used a portion of new borrowings under the amended and restated senior credit facilities to repay the floating rate term loan and $3 million of associated premium in January 2005. Senior Subordinated Notes. The senior subordinated notes originally consisted of $1,225 million of 9 5/8% Senior Subordinated Notes due 2014 and 200 million of 10 3/8% Senior Subordinated Notes due 2014. From the completion of the Restructuring, all of BCP Crystal's U.S. domestic, wholly owned subsidiaries that guarantee BCP Crystal's obligations under the amended and restated senior credit facilities guarantee the senior subordinated notes on an unsecured senior subordinated basis. In February 2005, we used approximately $521 million of the net proceeds of the offering of our Series A common stock to redeem a portion of the senior subordinated notes and $51 million to pay the premium associated with the redemption. Senior Discount Notes. In September 2004, the Issuer issued $853 million aggregate principal amount at maturity of their senior discount notes due 2014 consisting of $163 million principal amount at maturity of their 10% Series A senior discount notes due 2014 and $690 million principal amount at maturity of their 1012;% Series B Senior Discount Notes due 2014. The gross proceeds of the offering were $513 million. Approximately $500 million of the proceeds were distributed to the Parent Guarantor, which in turn made the return of capital distribution to the Original Shareholders, with the remaining proceeds used to pay fees associated with the refinancing. Until October 1, 2009, interest on the senior discount notes will accrue in the form of an increase in the accreted value of such notes. Cash interest on the senior discount notes will accrue commencing on October 1, 2009 and be payable semiannually in arrears on April 1 and October 1. In February 2005, the Issuer used approximately $37 million of the net proceeds of the offering of our Series A common stock to redeem a portion of the Series A senior discount notes and $151 million to redeem a portion of the Series B senior discount notes and $19 million to pay the premium associated with such redemption. 104 -------------------------------------------------------------------------------- Assumed Debt. As a result of the acquisition of CAG, we prepaid, in April 2004, $175 million of debt scheduled to mature in 2005 and 2008 and, in September 2004, prepaid approximately $60 million of additional debt previously scheduled to mature in 2009. The outstanding assumed debt of $383 million, which includes a $2 million reduction under purchase accounting, is primarily made up of fixed rate pollution control and industrial revenue bonds, short-term borrowings from affiliated companies and capital lease obligations. Covenants. The indentures governing the senior subordinated notes and the senior discount notes limit the ability of the issuers of such notes and the ability of their restricted subsidiaries to: [[Image Removed]] [[Image Removed]] incur additional indebtedness or issue preferred stock; [[Image Removed]] [[Image Removed]] pay dividends on or make other distributions or repurchase the respective issuer's capital stock; [[Image Removed]] [[Image Removed]] make certain investments; [[Image Removed]] [[Image Removed]] enter into certain transactions with affiliates; [[Image Removed]] [[Image Removed]] limit dividends or other payments by BCP Crystal's restricted subsidiaries to it; [[Image Removed]] [[Image Removed]] create liens or other pari passuor subordinated indebtedness without securing the respective notes; [[Image Removed]] [[Image Removed]] designate subsidiaries as unrestricted subsidiaries; and [[Image Removed]] [[Image Removed]] sell certain assets or merge with or into other companies. Subject to certain exceptions, the indentures governing the senior subordinated notes and the senior discount notes permit the issuers of the notes and their restricted subsidiaries to incur additional indebtedness, including secured indebtedness. The amended and restated senior credit facilities contain a number of covenants that, among other things, restrict, subject to certain exceptions, the ability of Celanese Holdings and its subsidiaries' ability, to: [[Image Removed]] [[Image Removed]] sell assets, [[Image Removed]] [[Image Removed]] incur additional indebtedness or issue preferred stock; [[Image Removed]] [[Image Removed]] repay other indebtedness (including the notes); [[Image Removed]] [[Image Removed]] pay dividends and distributions or repurchase their capital stock; [[Image Removed]] [[Image Removed]] create liens on assets; [[Image Removed]] [[Image Removed]] make investments, loans guarantees or advances; [[Image Removed]] [[Image Removed]] make certain acquisitions; [[Image Removed]] [[Image Removed]] engage in mergers or consolidations; [[Image Removed]] [[Image Removed]] enter into sale and leaseback transactions; [[Image Removed]] [[Image Removed]] engage in certain transactions with affiliates; [[Image Removed]] [[Image Removed]] amend certain material agreements governing BCP Crystal's indebtedness; [[Image Removed]] [[Image Removed]] change the business conducted by Celanese Holdings and its subsidiaries; and [[Image Removed]] [[Image Removed]] enter into hedging agreements that restrict dividends from subsidiaries. In addition, the amended and restated senior credit facilities require BCP Crystal to maintain the following financial covenants: a maximum total leverage ratio, a maximum bank debt leverage ratio, a minimum interest coverage ratio and maximum capital expenditures limitation. A breach of covenants of the amended and restated senior credit facilities as of December 31, 2004 that are tied to ratios based on Adjusted EBITDA, as defined in our credit agreements, could result in a default under the amended and restated senior credit facilities and the lenders could elect 105 -------------------------------------------------------------------------------- to declare all amounts borrowed due and payable. Any such acceleration would also result in a default under the indentures governing the senior subordinated notes and the senior discount notes. Additionally, under the amended and restated senior credit facilities, the floating rate term loan and the indentures governing the senior subordinated notes and the senior discount notes, our ability to engage in activities such as incurring additional indebtedness, making investments and paying dividends is also tied to ratios based on Adjusted EBITDA. As of December 31, 2004, we were in compliance with these covenants. The maximum consolidated net bank debt to Adjusted EBITDA ratio, previously required under the senior credit facilities, was eliminated when we amended and restated the facilities in January 2005. Covenant levels and ratios for the four quarters ended December 31, 2004 are as follows: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Covenant [[Image Removed]] December 31, 2004 Level Ratios Amended and Restated Senior credit facilities(1) [[Image Removed]] [[Image Removed]] Minimum Adjusted EBITDA to cash interest ratio [[Image Removed]] 1.7x [[Image Removed]] 4.2x Maximum consolidated net debt to Adjusted EBITDA [[Image Removed]] [[Image Removed]] ratio 5.5x 2.5x Senior subordinated notes indenture(2) [[Image Removed]] [[Image Removed]] Minimum Adjusted EBITDA to fixed charge ratio required to incur additional debt pursuant to ratio [[Image Removed]] [[Image Removed]] provisions 2.0x 3.4x Discount notes indenture(3) [[Image Removed]] [[Image Removed]] Minimum Adjusted EBITDA to fixed charge ratio required to incur additional debt pursuant to ratio [[Image Removed]] [[Image Removed]] provisions 2.0x 2.8x [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] (1) The amended and restated senior credit facilities require BCP Crystal to maintain an Adjusted EBITDA to cash interest ratio starting at a minimum of 1.7x for the period April 1, 2004 to December 31, 2005, 1.8x for the period January 1, 2006 to December 31, 2006, 1.85x for the period January 1, 2007 to December 31, 2007 and 2.0x thereafter. Failure to satisfy these ratio requirements would constitute a default under the amended and restated senior credit facilities. If lenders under the amended and restated senior credit facilities failed to waive any such default, repayment obligations under the amended and restated senior credit facilities could be accelerated, which would also constitute a default under the indenture. [[Image Removed]] [[Image Removed]] (2) BCP Crystal's ability to incur additional debt and make certain restricted payments under the senior subordinated note indenture, subject to specified exceptions, is tied to an Adjusted EBITDA to fixed charge ratio of at least 2.0 to 1. [[Image Removed]] [[Image Removed]] (3) The Issuer's ability to incur additional debt and make certain restricted payments under the senior discount notes indenture, subject to specified exceptions, is tied to an Adjusted EBITDA to fixed charge ratio of at least 2.0 to 1. Adjusted EBITDA is used to determine compliance with many of the covenants contained in the indentures governing our outstanding notes and in the amended and restated senior credit facilities. Adjusted EBITDA and all of its component elements are defined in our debt agreements and include non-U.S. GAAP measures and terms that are the same as U.S. GAAP measures which are not determined on the same basis as U.S. GAAP. Adjusted EBITDA is defined as EBITDA further adjusted to exclude unusual items, non-cash items and other adjustments permitted in calculating covenant compliance under our indentures and amended and restated senior credit facilities, as shown in the table below. We believe that the disclosure of the calculation of Adjusted EBITDA provides information that is useful to an investor's understanding of our liquidity and financial flexibility. 106 -------------------------------------------------------------------------------- Adjusted EBITDA as calculated under our amended and restated senior credit facilities and the indentures for the senior subordinated notes and the senior discount notes for the four quarters ended December 31, 2004 is as follows: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Amended and Restated [[Image Removed]] Senior Credit Facilities [[Image Removed]] Senior Senior Subordinated Notes Discount Notes [[Image Removed]] (unaudited)(inmillions) Net loss of Celanese Corporation [[Image Removed]] (175 ) [[Image Removed]] (175 ) Net loss of entities not included in covenant [[Image Removed]] [[Image Removed]] calculation(1) 66 51 Net loss for covenant purposes [[Image Removed]] (109 ) [[Image Removed]] (124 ) Earnings from discontinued operations [[Image Removed]] (22 ) [[Image Removed]] (22 ) Cumulative effect of changes in accounting principles [[Image Removed]] [[Image Removed]] Interest expense net: [[Image Removed]] [[Image Removed]] Interest expense [[Image Removed]] 245 [[Image Removed]] 260 Interest income [[Image Removed]] (31 ) [[Image Removed]] (31 ) Cash interest income used by captive insurance [[Image Removed]] [[Image Removed]] subsidiaries to fund operations 10 10 Taxes: [[Image Removed]] [[Image Removed]] Income tax provision (benefit) [[Image Removed]] 87 [[Image Removed]] 87 Franchise taxes [[Image Removed]] 2 [[Image Removed]] 2 Depreciation and amortization [[Image Removed]] 256 [[Image Removed]] 256 Unusual items: [[Image Removed]] [[Image Removed]] Special charges(2) [[Image Removed]] [[Image Removed]] Insurance recoveries associated with plumbing cases [[Image Removed]] (1 ) [[Image Removed]] (1 ) Restructuring, impairment and other special charges, [[Image Removed]] [[Image Removed]] net 120 120 Severance and other restructuring charges not [[Image Removed]] [[Image Removed]] included in special charges 31 31 Unusual and non-recurring items(3) [[Image Removed]] 103 [[Image Removed]] 103 Other non-cash charges (income): [[Image Removed]] [[Image Removed]] Non-cash charges(4) [[Image Removed]] 74 [[Image Removed]] 74 Equity in net earnings of affiliates in excess of [[Image Removed]] [[Image Removed]] cash dividends received (10 ) (10 ) Excess of cash dividends paid to minority shareholders in subsidiaries over the minority [[Image Removed]] [[Image Removed]] interest income of these subsidiaries 7 7 Other adjustments(5) [[Image Removed]] [[Image Removed]] Advisor monitoring fee [[Image Removed]] 10 [[Image Removed]] 10 Net gain on sale of assets [[Image Removed]] (2 ) [[Image Removed]] (2 ) Pro forma cost savings(6) [[Image Removed]] 32 [[Image Removed]] 32 Adjusted EBITDA [[Image Removed]] $ 802 [[Image Removed]] 802 [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] (1) Includes $55 million (plus an additional $15 million for the amended and restated senior credit facilities and the senior subordinated notes) of interest expense, $3 million of foreign currency expense recorded in other income (expense), net and $7 million elimination of intercompany interest income. [[Image Removed]] [[Image Removed]] (2) Special charges 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 the business 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 107 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] contractual obligations and other closure costs. We reassess 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. (See Note 21 to the Consolidated Financial Statements.) [[Image Removed]] [[Image Removed]] (3) Consists of the following: $50 million management compensation program, $26 million of foreign currency expense on intercompany loans and swaps; $21 million of transaction costs; $7 million of employee contract termination expense; $1 million of stock appreciation rights expense; and $2 million of income, net for other miscellaneous non-recurring items. [[Image Removed]] [[Image Removed]] (4) Included in the amount above is $53 million of expense relating to our inventory step-up under purchase accounting; $9 million of amortization expense included in net periodic pension and OPEB cost; and $1 million of expense associated with CAG's stock option plan; and a change in swap valuation of $11 million. Items that were zero for the applicable period but are required to be included per our financing agreements, are any reimbursed expenses and any non-cash portion of rent expenses. [[Image Removed]] [[Image Removed]] (5) Our financing agreements require us to make other adjustments to net earnings (loss) for net gain on disposition of assets and advisor fees paid to affiliates of the Blackstone Group. Gain (loss) on extinguishment of debt was zero for the applicable period but are required to be included per our financing agreements. [[Image Removed]] [[Image Removed]] (6) Our financing agreements also permit adjustments to net earnings (loss) on a pro forma basis for certain cost savings that we expect to achieve. We expect annual cost savings of approximately $37 million from pension pre-funding (of which $7 million is reflected in the Successor's actual results) and approximately $2 million from lower costs associated with publicly listed equity in Germany. Consolidated net debt, a required measure for covenant compliance purposes and its components are defined in our credit agreements as total indebtedness, consisting of borrowed money and the deferred purchase price of property or services plus net cash for receivables financing less unrestricted cash and cash equivalents of our subsidiary Celanese Holdings LLC and its subsidiaries on a consolidated basis. Consolidated net debt is calculated as follows as of December 31, 2004: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] ($ millions) Short-term borrowings and current installments of [[Image Removed]] long-term debtthird party and affiliates 144 Long-term debt [[Image Removed]] 3,243 Total consolidated debt of Celanese Corporation [[Image Removed]] 3,387 Debt of entities not included in covenant [[Image Removed]] calculation-senior discount notes (527 ) Less: cash and cash equivalents [[Image Removed]] (838 ) Consolidated net debt [[Image Removed]] 2,022 [[Image Removed]] Contractual Obligations. The following table sets forth our fixed contractual cash obligation as of December 31, 2004. [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Less than [[Image Removed]] 1-3 [[Image Removed]] 4-5 [[Image Removed]] After Fixed Contractual Cash Obligations Total 1 Year Years Years 5 Years [[Image Removed]] (in $ millions) Total Debt (1) [[Image Removed]] 3,389 [[Image Removed]] 144 [[Image Removed]] 57 [[Image Removed]] 28 [[Image Removed]] 3,160 of which Capital Lease Obligations and Other Secured Borrowings [[Image Removed]] 49 [[Image Removed]] 9 [[Image Removed]] 35 [[Image Removed]] 3 [[Image Removed]] 2 Operating Leases [[Image Removed]] 238 [[Image Removed]] 57 [[Image Removed]] 82 [[Image Removed]] 41 [[Image Removed]] 58 Unconditional Purchase Obligations [[Image Removed]] 967 [[Image Removed]] 155 [[Image Removed]] 177 [[Image Removed]] 139 [[Image Removed]] 496 Other Contractual Obligations [[Image Removed]] 185 [[Image Removed]] 183 [[Image Removed]] 2 [[Image Removed]] [[Image Removed]] Fixed Contractual Cash Obligations [[Image Removed]] 4,779 [[Image Removed]] 539 [[Image Removed]] 318 [[Image Removed]] 208 [[Image Removed]] 3,714 [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] (1) Does not include $2 million purchase accounting adjustment to assumed debt. 108 -------------------------------------------------------------------------------- In the first quarter of 2005, the Company paid $10 million to affiliates of the Blackstone Group related to an advisor monitoring agreement. This agreement was terminated concurrent with the initial public offering and resulted in an additional $35 million termination payment. Based upon the number of CAG Shares held by the minority shareholders as of December 31, 2004, a net guaranteed fixed annual payment of 23 million is expected. These amounts are excluded from the above table. Unconditional Purchase Obligations include take or pay contracts and fixed price forward contracts. The Company does not expect to incur any material losses under these contractual arrangements. In addition, these contracts may include variable price components. Other Contractual Obligations primarily includes committed capital spending and fines associated with the U.S. antitrust settlement described in Note 27 to the Consolidated Financial Statements. Included in Other Contractual Obligations is a 99 million ($135 million) fine from the European Commission related to antitrust matters in the sorbates industry, which is pending an appeal. The Company is indemnified by a third party for 80% of the expenses relating to these matters, which is not reflected in the amount above. At December 31, 2004, the Company has contractual guarantees and commitments as follows: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Expiration per Period [[Image Removed]] [[Image Removed]] Less than [[Image Removed]] 1-3 [[Image Removed]] 4-5 [[Image Removed]] After Contractual Guarantees and Commitments Total 1 Year Years Years 5 Years [[Image Removed]] (in $ millions) Financial Guarantees [[Image Removed]] 55 [[Image Removed]] 7 [[Image Removed]] 14 [[Image Removed]] 15 [[Image Removed]] 19 Standby Letters of Credit [[Image Removed]] 212 [[Image Removed]] 212 [[Image Removed]] [[Image Removed]] [[Image Removed]] Contractual Guarantees and Commitments [[Image Removed]] 267 [[Image Removed]] 219 [[Image Removed]] 14 [[Image Removed]] 15 [[Image Removed]] 19 [[Image Removed]] The Company is secondarily liable under a lease agreement pursuant to which the Company has assigned a direct obligation to a third party. The lease assumed by the third party expires on April 30, 2012. The lease liability for the period from January 1, 2005 to April 30, 2012 is estimated to be approximately $55 million. Standby letters of credit of $212 million at December 31, 2004 are irrevocable obligations of an issuing bank that ensure payment to third parties in the event that certain Successor 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 $207 million issued under the credit-linked revolving facility of which approximately $28 million relates to obligations associated with the sorbates antitrust matters as described in "Other Contractual Olbligations" above. For additional commitments and contingences see Note 27 to the Consolidated Financial Statements. The Company expects to continue to incur costs for the following significant obligations. Although, the Company cannot predict with certainty the annual spending for these matters, such matters will affect future cash flows of the Company. [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Successor [[Image Removed]] Predecessor [[Image Removed]] Successor Spending for [[Image Removed]] Spending for [[Image Removed]] Three months [[Image Removed]] Nine months ended ended 2005 Other Obligations December 31, 2004 March 31, 2004 Projected Spending [[Image Removed]] (in $ millions) Environmental Matters [[Image Removed]] 66 [[Image Removed]] 22 [[Image Removed]] 92 Pension and Other Benefits [[Image Removed]] 487 [[Image Removed]] 48 [[Image Removed]] 77 Other Obligations [[Image Removed]] 553 [[Image Removed]] 70 [[Image Removed]] 169 [[Image Removed]] 109 -------------------------------------------------------------------------------- Environmental Matters For the nine months ended December 31, 2004, the Sucessor's worldwide expenditures, including expenditures for legal compliance, internal environmental initiatives and remediation of active, orphan, divested and U.S. Superfund sites were $66 million. The Predecessor's worldwide expenditures for the three months ended March 31, 2004 and the years ended December 31, 2003 and 2002 were $22 million, $80 million and $83 million, respectively. The Successor's capital project related environmental expenditures for the nine months ended December 31, 2004, and the Predecessor's for the three months ended March 31, 2004 and the years ended December 31, 2003 and 2002, included in worldwide expenditures, were $6 million, $2 million, $10 million and $4 million, respectively. Environmental reserves for remediation matters were $143 million and $159 million as of December 31, 2004 and December 31, 2003, respectively. See Notes 19 and 27 to the Consolidated Financial Statements. As of December 31, 2004, the estimated range for remediation costs is between $100 million and $143 million, with the best estimate of $143 million. It is anticipated that stringent environmental regulations will continue to be imposed on the chemical industry in general. Management cannot predict with certainty future environmental expenditures, especially expenditures beyond 2005. Due to new air regulations in the U.S., management expects that there will be a temporary increase in compliance costs that will total approximately $30 million to $45 million through 2007. An additional $50 million may be needed depending upon the outcome of a challenge in U.S. federal court related to key portions of the regulation. In addition, a recent European Union directive requires a trading system for carbon dioxide emissions to be in place by January 1, 2005. Accordingly, Emission Trading Systems will directly affect the power plants at the Kelsterbach and Oberhausen sites in Germany and the Lanaken site in Belgium, as well as power plants operated by InfraServ entities on sites at which we operate. The Company and the InfraServ entities may be required to purchase carbon dioxide credits, which could result in increased operating costs, or may be required to develop additional cost-effective methods to reduce carbon dioxide emissions further, which could result in increased capital expenditures. Additionally, the new regulation indirectly affects our other operations in the European Union, which may experience higher energy costs from third party providers. We have not yet determined the impact of this legislation on our operating costs. Due to its industrial history, the Company has the obligation to remediate specific areas on its active sites as well as on divested, orphan or U.S. Superfund sites. In addition, as part of the demerger agreement with Hoechst, a specified proportion of the responsibility for environmental liabilities from a number of pre-demerger divestitures was transferred to the Company. The Company has provided for such obligations when the event of loss is probable and reasonably estimable. Management believes that the environmental costs will not have a material adverse effect on the financial position of the Company, but they may have a material adverse effect on the results of operations or cash flows in any given accounting period. See Notes 19 and 27 to the Consolidated Financial Statements. Pension and Other Benefits The funding policy for pension plans is to accumulate plan assets that, over the long run, will approximate the present value of projected benefit obligations. For the nine months ended December 31, 2004, three months ended March 31, 2004 and for the year ended December 31, 2003, pension contributions to the U.S. qualified defined benefit pension plan amounted to $300 million, $33 million and $130 million, respectively. Contributions to the German pension plans for the nine months ended December 31, 2004 were $105 million. Also for the nine months ended December 31, 2004, three months ended March 31, 2004 and for the year ended December 31, 2003, payments to other non-qualified plans totaled $29 million, $6 million and $24 million, respectively. Spending by the Company associated with other benefit plans, primarily retiree medical, defined contribution and long-term disability, amounted to $53 million, $9 million and $65 million for the nine months ended December 31, 2004, three months ended March 31, 2004 and for the year ended December 31, 2003, respectively. See Note 17 to the Consolidated Financial Statements. 110 -------------------------------------------------------------------------------- Plumbing Actions and Sorbates Litigation The Company is involved in a number of legal proceedings and claims incidental to the normal conduct of its business. In the nine months ended December 31, 2004 there were cash inflows of zero in connection with the plumbing actions and sorbates litigation. For the three months ended March 31, 2004, and for the year ended December 31, 2003, there were net cash inflows of approximately zero and $110 million in connection with the plumbing actions and sorbates litigation. As of December 31, 2004, there were reserves of $218 million for these matters. In addition, the Company had receivables from insurance companies and Hoechst in connection with the plumbing and sorbates matters of $191 million as of December 31, 2004. Although it is impossible at this time to determine with certainty the ultimate outcome of these matters, management believes that adequate provisions have been made and that the ultimate outcome will not have a material adverse effect on the financial position of the Company, but could have a material adverse effect on the results of operations or cash flows in any given accounting period. (See Note 27 to the Consolidated Financial Statements.) Capital Expenditures The Company's capital expenditures were $210 million for the calendar year 2004. Capital expenditures primarily related to a new Ticona research and administrative facility in Florence, Kentucky, the expansion of production facilities for polyacetyl in Bishop, Texas and GUR in Oberhausen, Germany, major replacements of equipment, capacity expansions, major investments to reduce future operating costs, environmental, health and safety initiatives and the integration of a company-wide SAP platform. Capital expenditures remained below depreciation levels as management continued to make selective capital investments to enhance the market positions of its products. Capital expenditures were financed principally with cash from operations. Spending for 2005 is expected to be between $210 million to $230 million. At December 31, 2004, there were approximately $40 million of outstanding commitments related to capital projects, which are included within the fixed contractual cash obligations table above. Off-Balance Sheet Arrangements We have not entered into any material off-balance arrangements. Recent Accounting Pronouncements In November 2004, the FASB issued SFAS No. 151, Inventory Costs, amendment to ARB No. 43 Chapter 4, which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). SFAS No. 151 is effective for fiscal years beginning after June 15, 2005. The Company is in the process of assessing the impact of SFAS No. 151 on its future results of operations and financial position. In December 2004, the FASB revised SFAS No. 123, Accounting for Stock Based Compensation, which requires that the cost from all share-based payment transactions be recognized in the financial statements. SFAS No. 123 (revised) is effective for the first interim or annual period beginning after June 15, 2005. The Company is currently evaluating the potential impact of SFAS No. 123 (revised), although it is anticipated that the adoption will have a negative impact on results of operations. In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions. The amendments made by SFAS No. 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance. The statement is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges occurring in fiscal periods beginning after the date of issuance. The provisions of this statement shall be applied prospectively. The Company is currently evaluating the potential impact of this statement. 111 -------------------------------------------------------------------------------- In October 2004, the American Jobs Creation Act of 2004 (the "Act") was signed into law. Three of the more significant provisions of the Act relate to a one-time opportunity to repatriate foreign earnings at a reduced rate, manufacturing benefits for qualified production activity income and new requirements with respect to deferred compensation plans. The Company has not yet determined the impact, if any, of this Act on its future results of operations or cash flows. Additionally, under new Section 409A of the Internal Revenue Code, created in connection with the Act, the U.S. Treasury Department is directed to issue regulations providing guidance and provide a limited period during which deferred compensation plans may be amended to comply with the requirements of Section 409A. When the regulations are issued, the Company may be required to make modifications to certain compensation plans to comply with Section 409A. Quantitative and Qualitative Disclosure about Market Risk We are exposed to market risk through commercial and financial operations. Our market risk consists principally of exposure to currency exchange rates, interest rates and commodity prices. The Predecessor had in place policies of hedging against changes in currency exchange rates, interest rates and commodity prices as described below. Contracts to hedge exposures are accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities 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. See note 26 to the Consolidated Financial Statements. Foreign Exchange Risk Management We and the Predecessor have receivables and payables denominated in currencies other than the functional currencies of the various subsidiaries, which create foreign exchange risk. For the purposes of this prospectus, the Predecessor's reporting currency is the U.S. dollar, and the functional reporting currency of CAG continues to be the euro. The U.S. dollar, the euro, Mexican peso, Japanese yen, British pound sterling, and Canadian dollar are the most significant sources of currency risk. Accordingly, we enter into foreign currency forwards and swaps to minimize our exposure to foreign currency fluctuations. The foreign currency contracts are designated for recognized assets and liabilities and forecasted transactions. The terms of these contracts are generally under one year. Our centralized hedging strategy states that foreign currency denominated receivables or liabilities recorded by the operating entities will be internally hedged, only the remaining net foreign exchange position will then be hedged externally with banks. As a result, foreign currency forward contracts relating to this centralized strategy did not meet the criteria of SFAS No. 133 to qualify for hedge accounting. Net foreign currency transaction gains or losses are recognized on the underlying transactions, which are offset by losses and gains related to foreign currency forward contracts. On June 16, 2004, as part of our currency risk management, we entered into a currency swap with certain financial institutions. Under the terms of the swap arrangement, we will pay approximately 13 million in interest and receive approximately $16 million in interest on each June 15 and December 15 (with interest for the first period prorated). Upon maturity of the swap agreement on June 16, 2008, we will pay approximately 276 million and receive approximately $333 million. We designated the swap, the euro term loan and a euro note as a net investment hedge (for accounting purposes) in the fourth quarter of 2004. The loss related to the swap was $21 million for the nine months ended December 31, 2004, of which $14 million is related to the ineffectiveness of the net investment hedge. During the nine months ended December 31, 2004, the effects of the swap resulted in an increase in total liabilities and a decrease in shareholder's equity of $57 million and $36 million, respectively. Contracts with notional amounts totaling approximately $288 million and $765 million at December 31, 2004 and 2003, respectively, are predominantly in U.S. dollars, British pound sterling, Japanese yen, and Canadian dollars. Most of the our foreign currency forward contracts did not meet the criteria of SFAS No. 133 to qualify for hedge accounting. We recognize net foreign currency transaction gains or losses on the underlying transactions, which are offset by losses and gains related to foreign currency forward contracts. For the year ended December 31, 2004, our foreign currency forward contracts resulted in a decrease in total assets and an increase in total liabilities of $42 million 112 -------------------------------------------------------------------------------- and $2 million, respectively. As of December 31, 2004, these contracts, in addition to natural hedges, hedged approximately 100% of our net receivables held in currencies other than the entities' functional currency for our European operations. Related to the unhedged portion during the year, a net gain (loss) of approximately ($2) million and $4 million from foreign exchange gains or losses was recorded to other income (expense), net for the nine months ended December 31, 2004 and the three months ended March 31, 2004. During 2003, the Predecessor's foreign currency forward contracts resulted in a decrease in total assets and of $8 million and an increase in total liabilities of $1 million. As of December 31, 2003, these contracts hedged a portion (approximately 85%) of the Predecessor's U.S. dollar denominated intercompany net receivables held by euro denominated entities. Related to the unhedged portion, a net loss of approximately $14 million from foreign exchange gains or losses was recorded to other income (expense), net in 2003. During the year ended December 31, 2002, the Predecessor hedged all of its U.S. dollar denominated intercompany net receivables held by euro denominated entities. Therefore, there was no material net effect from foreign exchange gains or losses. Hedging activities primarily related to intercompany net receivables yielded cash flows from operating activities of approximately $17 million, $180 million and $95 million for the nine months ended December 31, 2004, year ended December 31, 2003 and 2002, respectively. A substantial portion of our assets, liabilities, revenues and expenses is denominated in currencies other than U.S. dollar, principally the euro. Fluctuations in the value of these currencies against the U.S. dollar, particularly the value of the euro, can have, and in the past have had, a direct and material impact on the business and financial results. For example, a decline in the value of the euro versus the U.S. dollar, results in a decline in the U.S. dollar value of our sales denominated in euros and earnings due to translation effects. Likewise, an increase in the value of the euro versus the U.S. dollar would result in an opposite effect. We estimate that the translation effects of changes in the value of other currencies against the U.S. dollar increased net sales by approximately 3% and increased total assets by approximately 3% for the nine months ended December 31, 2004, 7% for the year ended December 31, 2003 and increased net sales by approximately 2% in 2002. The Predecessor estimated that the translation effects of changes in the value of other currencies against the U.S. dollar increased net sales by approximately 6% for the three months ended March 31, 2004 and by approximately 7% for the year ended December 31, 2003 and by approximately 2% in 2002. The Predecessor also estimated that the translation effects of changes in the value of other currencies against the U.S. dollar decreased total assets by approximately 1% for the three months ended March 31, 2004 and increased total assets by approximately 5% in 2003. Exposure to transactional effects is further reduced by a high degree of overlap between the currencies in which sales are denominated and the currencies in which the raw material and other costs of goods sold are denominated. As of December 31, 2004, we had total debt of $3,387 million, of which approximately $610 million (447 million) is euro denominated debt. A 1% increase in foreign exchange rates would increase the euro denominated debt by $6 million. Interest Rate Risk Management We may enter into interest rate swap agreements to reduce the exposure of interest rate risk inherent in our outstanding debt by locking in borrowing rates to achieve a desired level of fixed/floating rate debt depending on market conditions. At December 31, 2004, the Successor had no interest rate swap agreements in place. The Predecessor had open interest rate swaps with a notional amount of $200 million at December 31, 2003. In the second quarter of 2004, the Successor recorded a loss of less than $1 million in other income (expense), net, associated with the early termination of its $200 million interest rate swap. During 2003, the Predecessor recorded a loss of $7 million in other income (expense), net, associated with the early termination of one of its interest rate swaps. The Successor recognized net interest expense from hedging activities relating to interest rate swaps of $1 million for the nine months ended December 31, 2004. The Predecessor recognized net interest expense from hedging activities relating to interest rate swaps of $2 million, $11 million and $12 million for the three months ended March 31, 2004 and the years ended December 31, 2003 and 2002. During 2003, the Predecessor's interest rate swaps, designated as cash flow hedges, resulted in a decrease in total assets and total liabilities and an increase in shareholders' equity of $4 million, 113 -------------------------------------------------------------------------------- $14 million and $7 million, net of related income tax of $4 million, respectively. The Predecessor recorded a net gain (loss) of less than ($1) million, $2 million and ($3) million in other income (expense), net of the ineffective portion of the interest rate swaps, during the three months ended March 31, 2004 and the years ended December 31, 2003 and December 31, 2002, respectively. On a pro forma basis as of December 31, 2004, we had approximately $1.9 billion of variable rate debt. A 1% increase in interest rates would increase annual interest expense by approximately $19 million. At the end of March 2005, we entered into an interest rate swap with a notional amount of $300 million, to lock in the borrowing rate for a portion of our term loans. Commodity Risk Management Our and the Predecessor's policy for the majority of our natural gas and butane requirements allows entering into supply agreements and forward purchase or cash-settled swap contracts. Fixed price natural gas forward contracts are principally settled through actual delivery of the physical commodity. The maturities of the cash-settled swap contracts correlate to the actual purchases of the commodity and have the effect of securing predetermined prices for the underlying commodity. Although these contracts are structured to limit our exposure to increases in commodity prices, they can also limit the potential benefit we might have otherwise received from decreases in commodity prices. These cash-settled swap contracts are accounted for as cash flow hedges. Realized gains and losses on these contracts are included in the cost of the commodity upon settlement of the contract. The Successor recognized losses of less than $1 million from natural gas swaps and butane contracts for the nine months ended December 31, 2004. The Predecessor recognized losses of $1 million, $3 million and less than $1 million from natural gas swaps and butane contracts for the three months ended March 31, 2004 and the years ended December 31, 2003 and 2002, respectively. There was no material impact on the balance sheet at December 31, 2004 and December 31, 2003. There were no unrealized gains and losses associated with the cash-settled swap contracts as of December 31, 2004 and December 31, 2003. We did not have any open commodity swaps as of December 31, 2004. We had open swaps with a notional amount of $5 million as of December 31, 2003. Critical Accounting Policies and Estimates Our Consolidated Financial Statements are based on the selection and application of significant accounting policies. The preparation of these financial statements and application of these policies requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses 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 4 to the Consolidated Financial Statements for a more comprehensive discussion of the 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. At December 31, 2004 and 2003, the carrying amount of property, plant and equipment was $1,702 million and $1,710 million, respectively. As discussed in note 4 to the Consolidated Financial Statements, we and the Predecessor 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. 114 -------------------------------------------------------------------------------- In December 2004, we approved a plan to dispose of the COC business included within the Ticona segment. This decision resulted in $32 million of asset impairment changes recorded as a special charge related to the COC business. As a result of the planned consolidation of tow production and the termination of filament production, the Acetate Products segment recorded impairment charges of $50 million associated with plant and equipment in the nine months ended December 31, 2004. We assess the recoverability of the carrying value of our goodwill and other intangible assets with indefinite useful lives at least annually or whenever events or changes in circumstances indicate that the carrying amount of the asset may not be fully recoverable. Recoverability of goodwill is measured at the reporting unit level based on a two-step approach. First, the carrying amount of the reporting unit is compared to the fair value as estimated by the future net discounted cash flows expected to be generated by the reporting unit. To the extent that the carrying value of the reporting unit exceeds the fair value of the reporting unit, a second step is performed, wherein the reporting unit's assets and liabilities are fair valued. The implied fair value of goodwill is calculated as the fair value of the reporting unit in excess of the fair value of all non-goodwill assets and liabilities allocated to the reporting unit. To the extent that the reporting unit's carrying value of goodwill exceeds its implied fair value, impairment exists and must be recognized. As of December 31, 2004, the Company had $1,147 million of goodwill and other intangible assets, net. During 2003, the Predecessor performed the annual impairment test of goodwill and determined that there was no impairment. As a result of the tender offer price of 32.50 per share announced on December 16, 2003, which would place an implicit value on CAG at an amount below book value of the net assets, the Predecessor initiated an impairment analysis in accordance with SFAS No. 142. The impairment analysis was prepared on a reporting unit level and utilized the most recent cash flow, discount rate and growth rate assumptions. Based on the resulting analysis, the Predecessor's management concluded that goodwill was not impaired as of December 31, 2003. As of December 31, 2004, no significant changes in the underlying business assumptions or circumstances that drive the impairment analysis led management or 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. In the future, we expect to perform the required impairment tests at least annually on each June 30, unless circumstances dictate more frequent testing. 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. Restructuring and Special Charges Special charges 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 21 to the Consolidated Financial Statements. 115 -------------------------------------------------------------------------------- Environmental Liabilities We manufacture and sell a diverse line of chemical products throughout the world. Accordingly, the businesses' operations are subject to various hazards incidental to the production of industrial chemicals including the use, handling, processing, storage and transportation of hazardous materials. 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. If the event of loss is neither probable nor reasonably estimable, but is reasonably possible, the Company provides appropriate disclosure in the notes to its Consolidated Financial Statements if the contingency is material. Total reserves for environmental liabilities were $143 million and $159 million at December 31, 2004 and December 31, 2003, respectively. Measurement of environmental reserves is based on the evaluation of currently available information with respect to each individual site and considers factors such as existing technology, presently enacted laws and regulations and prior experience in remediation of contaminated sites. An environmental reserve related to cleanup of a contaminated site might include, for example, 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 a range of management's periodic estimate of what it will cost to perform each of the elements of the remediation effort. We use our best estimate within the range to establish our environmental reserves. We utilize third parties to assist in the management and the development of our cost estimates for our 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. We accrue for legal fees related to litigation matters when the costs associated with defense can be reasonably estimated and are probable to occur. All other fees are expensed as incurred. See Note 19 to the Consolidated Financial Statements. Asset Retirement Obligations Total reserves for asset retirement obligations were $52 million and $47 million at December 31, 2004 and 2003, respectively. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred. 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 asset's useful life. Management has identified but not recognized asset retirement obligations related to substantially all 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, operations at these facilities are expected to continue indefinitely and therefore a reasonable estimate of fair value cannot be determined at this time. In the future, we will assess strategies of the businesses acquired and may support decisions that differ from past decisions of management regarding the continuing operations 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. In accordance with SFAS No. 143, the Acetate Products segment recorded a charge of $8 million, included within 2003 depreciation expense, related to potential asset retirement obligations, as a result of a worldwide assessment of our acetate production capacity. The assessment concluded that there was a probability that certain facilities would be closed in the latter half of the decade. In October 2004 we announced plans to consolidate flake and tow production by early 2007 and to discontinue production of filament by mid-2005. The restructuring will result in the discontinuance of acetate production at two sites. As such, we recorded a charge of $12 million included within depreciation expense, of which $8 million was recorded by the Acetate Products segment and $4 million by the Chemical Products segment, for the nine months ended December 31, 2004. 116 -------------------------------------------------------------------------------- Realization of Deferred Tax Assets Total net deferred tax assets (liabilities) were ($151) million and $555 million at December 31, 2004 and 2003, respectively. Management regularly 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. Such evaluations require significant management judgments. Valuation allowances have been established primarily for U.S. federal and state net operating losses carryforwards, certain German income tax loss carryforwards, Mexican net operating loss carryforwards and Canadian deferred tax assets. See Note 22 to the Consolidated Financial Statements. On April 6, 2004, the closing date of the acquisition of CAG, the Predecessor had approximately $576 million in net deferred tax assets, of which $531 million were in the U.S., including $172 million arising from U.S. net operating loss (NOL) carryforwards. Under U.S. tax law, the utilization of deferred tax assets related to NOL carryforwards is subject to an annual limitation if there is a more than 50 percentage point change in shareholder ownership. The acquisition of CAG triggered this limitation. As a result of this limitation and the Restructuring, $153 million of the $172 million NOL was written off and a valuation allowance was established against the remaining $19 million. In addition, as a result of the Recent Restructuring, including the transfer of CAC to BCP Crystal, we determined that it was no longer more likely than not that we would realize our other net U.S. deferred tax assets. Accordingly, we recorded a full valuation allowance on our $351 million of other net pre-acquisition U.S. deferred tax assets (reduced by deferred tax liabilities) with a corresponding increase in goodwill. In addition, the valuation allowance on U.S. deferred assets was increased by $33 million through a charge to tax expense during the nine months ended December 31, 2004 related to activity subsequent to the closing date of the acquisition of CAG. As a result of the conclusion of an income tax examination for the tax audit period ending December 31, 2000 and the receipt of the final tax and interest assessment, management reversed accrued income tax reserves attributable to that period. This resulted in a decrease in income taxes payable and a decrease in goodwill of $113 million as it was a purchase accounting adjustment. Benefit Obligations Pension and other postretirement benefit plans covering substantially all employees who meet eligibility requirements are sponsored by CAC. With respect to its U.S. qualified defined benefit pension plan, minimum funding requirements are determined by the Employee Retirement Income Security Act. For the periods presented, the Predecessor or the Company had not been required to contribute under these minimum funding requirements. However, the Predecessor chose to contribute to the U.S. defined benefit pension plan $33 million, $130 million and $100 million, for the three months ended March 31, 2004 and for the years ended December 31, 2003 and 2002, respectively. The Successor chose to contribute to the U.S. defined benefit pension plan $300 million for the nine months ended December 31, 2004. Contributions to the German pension plans for the nine months ended December 31, 2004 were $105 million. 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. At 117 -------------------------------------------------------------------------------- December 31, 2004 we assumed an expected long-term rate of return on plan assets of 8.5% for the U.S. qualified defined benefit pension plan, which represents greater than 85 percent and 80 percent of the 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%. However, for the nine months ended December 31, 2004, the U.S. qualified defined benefit pension plan assets actual return was less than the expected long-term rate of return of plan assets. The Company had lowered the expected long-term rate of return on U.S. qualified defined benefit pension plan assets from 9.0% to 8.5% as it expects lower future returns considering the lower inflationary environment. For the nine months ended December 31, 2004, our expected long-term rate of return assumption for our U.S. plans was 8.5%, reflecting the generally expected moderation of long-term rates in the financial markets. We estimate a 25 basis point decline in the expected long-term rate of return for the U.S. qualified defined benefit pension plan to increase pension expense by an estimated $5 million in 2004. 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, which represents the interest rate that should be used to determine the present value of future cash flows currently expected to be required to settle the pension and other postretirement benefit obligations. The discount rate is generally based on the yield on high-quality corporate fixed-income securities. At December 31, 2004, we lowered the discount rate to 5.88% from 6.25% at December 31, 2003 for the U.S. plans. We estimate that a 50 basis point decline in the discount rate for the U.S. pension and postretirement medical plans will increase pension and other postretirement benefit annual expenses by an estimated $5 million and less than $1 million, respectively, and our benefit obligations by approximately $130 million and approximately $13 million, respectively. Over the past several years, CAG had experienced significant increases (in excess of $400 million) in unrecognized net actuarial pension losses. The losses were mainly due to asset losses resulting from asset returns that were less than the assumed rate of return and increases in the projected benefit obligation. 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 nine months ended December 31, 2004, three months ended March 31, 2004 and the year ended December 31, 2003, includes $21 million, $8 million, and $35 million, respectively, and the accrued post-retirement liability was $406 million and $320 million as of December 31, 2004 and 2003, respectively, in other noncurrent 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 the healthcare cost trend rate by one percentage point in each year would increase the APBO at December 31, 2004, and the 2004 postretirement benefit cost by approximately $2 million and less than $1 million, and decreasing the healthcare cost trend rate by one percentage point in each year would decrease the APBO at December 31, 2004 and the 2004 postretirement benefit cost by approximately $2 million and less than $1 million, respectively. See Note 17 to the Consolidated Financial Statements. Accounting for Commitments and Contingencies The Company is subject to a number of lawsuits, claims, and investigations, incidental to the normal conduct of its business, relating to and including product liability, patent and intellectual property, commercial, contract, antitrust, and employment matters, which are handled and defended in the ordinary course of business. See Note 27 to the Consolidated Financial Statements. Management routinely assesses 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 management 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 118 -------------------------------------------------------------------------------- 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 27 to the Consolidated Financial Statements. CNA Holdings, Inc. ("CNA Holdings"), a U.S. subsidiary of ours and the Predecessor, which includes the U.S. business now conducted by Ticona, along with Shell Chemical Company ("Shell") and E. I. du Pont de Nemours ("DuPont"), among others, have been the defendants in a series of lawsuits, 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. CNA Holdings has accrued its best estimate of its share of the plumbing actions. At December 31, 2004 and 2003, accruals were $73 million and $76 million, respectively, for this matter, of which $11 million and $14 million, respectively, are included in current liabilities. Management believes that the plumbing actions are adequately provided for in the consolidated financial statements. However, if we were to incur an additional charge for this matter, such a charge would not be expected to have a material adverse effect on the financial position, but may have a material adverse effect on our results of operations or cash flows in any given accounting period. The Predecessor's receivables relating to the anticipated recoveries from third party insurance carriers for this product liability matter are based on the probability of collection on the settlement agreements reached with a majority of the insurance carriers whose coverage level exceeds the receivables and based on the status of current discussions with other insurance carriers. As of December 31, 2004 and 2003, insurance claims receivables were $75 million and $63 million, respectively. Collectibility could vary depending on the financial status of the insurance carriers. Nutrinova Inc., a U.S. subsidiary of Nutrinova Nutrition Specialties & Food Ingredients GmbH, a wholly-owned subsidiary of ours and the Predecessor, is party to various legal proceedings in the United States, Canada and Europe alleging Nutrinova Inc. engaged in unlawful, anticompetitive behavior which affected the sorbates markets while it was a wholly-owned subsidiary of Hoechst. In accordance with the demerger agreement between Hoechst and CAG, which became effective October 1999, CAG, the successor to Hoechst's sorbates business, was assigned the obligation related to these matters. However, Hoechst agreed to indemnify CAG for 80 percent of payments for such obligations. Expenses related to this matter are recorded gross of any such recoveries from Hoechst while the recoveries from Hoechst, which represents 80 percent of such expenses, are recorded directly to shareholders' equity, net of tax, as a contribution of capital. Based on a review of the existing facts and circumstances relating to the sorbates matter, including the status of governmental investigations, as well as civil claims filed and settled, we and the Predecessor had remaining accruals of $145 million and $137 million at December 31, 2004 and 2003, respectively, for the estimated loss relative to this matter. Although the outcome of this matter cannot be predicted with certainty, management's best estimate of the range of possible additional future losses and fines, including any that may result from governmental proceedings, as of December 31, 2004 is between $0 and $9 million. The estimated range of such possible future losses is management's best estimate taking into consideration potential fines and claims, both civil and criminal, that may be imposed or made in other jurisdictions. At December 31, 2004 and 2003, we and the Predecessor had receivables, recorded within current assets, relating to the sorbates indemnification from Hoechst of $116 million and $110 million, respectively. Business combinations Upon closing an acquisition, the Company estimates the fair values of assets and liabilities acquired and consolidates the acquisition as soon as practicable. Given the time it takes to obtain pertinent information to finalize the acquired company's balance sheet (frequently with implications for the purchase price of the acquisition), then to adjust the acquired company's accounting policies, procedures, books and records to our standards, it is often several quarters before the Company is able to finalize those initial fair value estimates. Accordingly, it is not uncommon for the initial 119 -------------------------------------------------------------------------------- estimates to be subsequently revised. 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 net earnings (loss). In valuing the acquisition of CAG, the Company utilized various valuation methods with the assistance from valuation specialists. The significant assets and liabilities valued include property, plant and equipment, intangible assets and cost and equity method investments. In connection with the acquisition of CAG, at the acquisition date, the Company began formulating a plan to exit or restructure certain activities. The Company has not completed this analysis, but has recorded initial liabilities of $60 million, primarily for employee severance and related costs in connection with the preliminary plan, as well as approving the continuation of all existing Predecessor restructuring and exit plans. As the Company finalizes its plans to exit or restructure activities, it may record additional liabilities for, among other things, severance and severance related costs, which would also increase the goodwill recorded. Captive Insurance Companies The Company consolidates two wholly owned insurance companies (the "Captives"). The Captives are a key component of the Company's global risk management program as well as a form of self-insurance for property, liability and workers' compensation risks. The Captives issue insurance policies to the Company's 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 Captives 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 Captives also insures certain third party risks. The assets of the Captives consist primarily of marketable securities and reinsurance receivables. Marketable securities values are based on quoted market prices or dealer quotes. The carrying value of the amounts recoverable under the reinsurance agreements approximate fair value due to the short-term nature of these items. The liabilities recorded by the Captives relate to the estimated risk of loss recorded by the Captives, which is based on management estimates and actuarial valuations, and unearned premiums, which represent the portion of the premiums written applicable to the terms of the policies in force. The establishment of the provision for outstanding losses is based upon known facts and interpretation of circumstances influenced by a variety of factors. In establishing a provision, management considers facts currently known and the current state of laws and litigation where applicable. Liabilities are recognized for known claims when sufficient information has been developed to indicate involvement of a specific policy and management can reasonably estimate their 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. The Captives use reinsurance arrangements to reduce their risk of loss. Reinsurance arrangements however 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 establish allowances for amounts deemed non-collectable. Premiums written are recognized based on the terms of the policies. Capitalization of the Captives is determined by regulatory guidelines. As of December 31, 2004 and 2003, the net retained concurrent aggregate risk of all policies written by the Captives, after reinsuring higher tier risks with third party insurance companies, net of established reserves, amounted to approximately $498 million and $484 million, respectively. 120 -------------------------------------------------------------------------------- INDUSTRY OVERVIEW We are a leading player in the basic chemicals and specialty chemicals markets. We compete in four primary markets: Chemical Products, Acetate Products, Technical Polymers Ticona and Performance Products. Chemical Products We participate in the basic chemicals market through our sales of acetic acid and vinyl acetate monomer, as well as our significant presence in acetyl derivatives. We also produce higher value-added acetyl based products, such as polyvinyl alcohol and emulsions. The Chemical Products segment consists of six business lines: Acetyls, Acetyl Derivatives and Polyols, Polyvinyl Alcohol, Emulsions, Specialties and other chemical activities. Acetyls Acetic acid is a global, mature product that is primarily used for the production of vinyl acetate monomer (VAM) as well as purified terephthalic acid solvent and acetic anhydride. The 2003 global demand was approximately 7.3 million metric tons served by a few, large producers, according to Tecnon and our estimates. Future demand for acetic acid largely depends on manufacturing growth in VAM and purified terephthalic acid, a precursor material for manufacturing polyester, and is expected to grow approximately 3-4% per annum on a global basis. Asia is projected to become an increasingly important player in acetic acid production and currently represents approximately one third of total production capacity. We have begun preparations to build a 600,000 metric ton per year acetic acid plant in Nanjing, China, with production anticipated to begin in late 2006 or early 2007. We are a leading global producer of acetic acid according to the Tecnon Orbichem Survey. Global demand for VAM in 2003 was estimated to be 4.4 million metric tons and is expected to grow 3-4% per annum, according to Tecnon and our estimates. VAM is used in a variety of adhesives, paints, films, coatings and textiles. We are the world's leading producer of VAM according to the Tecnon Orbichem Survey. Acetic acid and vinyl acetate monomer, like other commodity products, are characterized by cyclicality in pricing. The principal raw materials in these products are natural gas and ethylene, which are purchased from numerous sources; carbon monoxide, which we purchase under long-term contracts; methanol, which we both manufacture and purchase under short-term contracts; and butane, which we purchase from several suppliers. All these raw materials, except carbon monoxide, are themselves commodities and are available from a wide variety of sources. We intend to purchase most of our North American methanol requirements from Southern Chemical Corporation beginning in 2005 under a multi-year agreement. We will continue to purchase the majority of our ethylene requirements, primarily for the U.S. and Europe, at producer economics under a multi-year agreement. Our acetic acid and vinyl acetate monomer businesses are global and have several large customers. Generally, we supply these global customers under multi-year contracts. The customers of acetic acid and vinyl acetate monomer produce polymers used in water-based paints, adhesives, paper coatings, film modifiers and textiles. Other products include acetic anhydride, a raw material used in the production of cellulose acetate, detergents and pharmaceuticals 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. 121 -------------------------------------------------------------------------------- Acetyl Derivatives and Polyols The acetyl derivatives and polyols business line produces a variety of solvents, polyols, formaldehyde and other chemicals, which in turn are used in the manufacture of paints, coatings, adhesives, and other products. Many acetyl derivatives products are derived from our production of acetic acid and oxo alcohols. Acetyl derivatives and polyols are commodity products characterized by cyclicality in pricing. The principal raw materials used in the acetyl derivatives business line are acetic acid, various alcohols, methanol, acetaldehyde, propylene, ethylene and synthesis gas. The customers of acetyl derivatives are primarily engaged in the production of paints, coatings and adhesives. The sale of formaldehyde is based on both long and short term agreements. Polyols are sold globally to a wide variety of customers, primarily in the coatings and resins and the specialty products industries. Oxo products are sold into a wide variety of end uses, including plasticizers, acrylates and solvents/ethers. The oxo market is characterized by oversupply and numerous competitors. Polyvinyl Alcohol Polyvinyl alcohol ("PVOH") is a performance chemical engineered to satisfy particular customer requirements. Global demand for polyvinyl alcohol is estimated to be 840,000 metric tons, according to Tecnon and our estimates. According to Stanford Research International's December 2003 report on PVOH, we are the largest North American producer of polyvinyl alcohol and the third largest producer in the world. PVOH is used in adhesives, building products, paper coatings, films and textiles. The primary raw material to produce polyvinyl alcohol is vinyl acetate monomer, and acetic acid is produced as a by-product. Prices vary depending on industry segment and end use application. Products are sold on a global basis, and competition is from all regions of the world. Therefore, regional economies and supply and demand balances affect the level of competition in other regions. Polyvinyl alcohol is sold to a diverse group of regional and multinational customers. The customers of our polyvinyl alcohol business line are primarily engaged in the production of adhesives, paper, films, building products, and textiles. Emulsions Emulsions are a key component of water-based quality surface coatings, adhesives, non-woven textiles and other applications. According to Kline & Co., a chemicals industry consultant, based on sales, we held a number two position in emulsions (excluding styrene butadiene resins) in Europe and a number one position in European VAM-based emulsions in 2001. Emulsions are made from vinyl acetate monomer, acrylate esters and styrene. Emulsions and emulsion powders are sold to a diverse group of regional and multinational customers. Customers for emulsions are manufacturers of water-based quality surface coatings, adhesives, and non-woven textiles. Customers for emulsion powders are primarily manufacturers of building products. Specialties Our specialties business line produces (i) carboxylic acids used in detergents, synthetic lubricants and plasticizers, (ii) amines used in agrochemicals, herbicides, and in the treatment of rubber and water and (iii) oxo derivatives and special solvents which are used as raw materials for the fragrance and food ingredients industry. The prices for these products are generally relatively stable due to long-term contracts with customers in industries that are not generally subject to the cyclical trends of commodity chemicals. The primary raw materials for these products are olefins and ammonia, which are purchased from world market suppliers based on international prices. The specialties business line primarily serves global markets in the synthetic lubricant, agrochemical, rubber processing and other specialty chemical 122 -------------------------------------------------------------------------------- areas. Much of the specialties business line involves "one customer, one product" relationships, where the business develops customized products with the customer, but the specialties business line also sells several chemicals which are priced more like commodity chemicals. Competition Our principal competitors in the Chemical Products segment include Air Products and Chemicals, Inc., Atofina S.A., BASF, Borden Chemical, Inc., BP p.l.c., Chang Chun Petrochemical Co., Ltd., Daicel, Dow, Eastman Chemical Corporation ("Eastman"), E. I. DuPont de Nemours and Company ("DuPont"), Methanex Corporation ("Methanex"), Nippon Goshei, Perstorp Inc., Rohm & Haas Company, Showa Denko K.K., and Kuraray Co. Ltd. Acetate Products Global demand for cellulose acetate fiber was estimated to be approximately 700,000 tons, with approximately 85% comprising cigarette filter tow and the remaining 15% textile filament, according to our 2003 estimates. While filter tow demand is expected to grow 1% per annum, acetate filament is expected to decline by 4 to 6% per annum. According to the 2002 Stanford Research Institute International Chemical Economics Handbook, we are the world's leading producer of acetate fibers, including production through its joint ventures in Asia. In October 2004, we announced our plans to discontinue filament production by mid-2005 and to consolidate our flake and tow production at three sites instead of the current five. 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 produces acetic anhydride internally. The acetate flake is then further processed into acetate fiber in the form of a tow band or filament. The acetate products business line produces acetate tow, which is used primarily in cigarette filters. The acetate tow market continues to be characterized by stability and slow growth. Sales in the acetate filter products industry are principally to the major tobacco companies that account for a majority of worldwide cigarette production. Competition Principal competitors in the Acetate Products segment include Acetate Products Ltd. (Acordis), Daicel, Eastman, Mitsubishi Rayon Company, Limited, Bambergcell and Rhodia S.A. ("Rhodia"). Technical Polymers Ticona Ticona develops, produces and supplies a broad portfolio of high performance technical polymers including polyacetals and ultra-high-molecular-weight polyethylene. Polyacetals are estimated to have a 3-4% annual estimated growth in the U.S. and Western Europe, according to SRI Consulting. Ticona's technical polymers have chemical and physical properties enabling them, among other things, to withstand high temperatures, resist chemical reactions with solvents and resist fracturing or stretching. These products are used in a wide range of performance-demanding applications in the automotive and electronics sectors and in other consumer and industrial goods, often replacing metal or glass. Ticona's customer base consists primarily of a large number of plastic molders and component suppliers, which are often the primary suppliers to original equipment manufacturers, or OEMs. Ticona 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. The specialized product lines are not particularly susceptible to cyclical swings in pricing. Polyacetals pricing, mainly in standard grades, is, however, somewhat more price competitive, with many minimum-service providers competing for volume sales. 123 -------------------------------------------------------------------------------- Polyacetals are used for mechanical parts, including door lock systems, seat belt mechanisms, in automotive applications and in electrical, consumer and medical applications such as drug delivery systems and gears for appliances. The primary raw material for polyacetals is formaldehyde, which is manufactured from methanol. Ticona currently purchases formaldehyde in the United States from our Chemical Products segment and, in Europe, manufactures formaldehyde from purchased methanol. Ultra high molecular weight polyethylene, or PE-UHMW, is a type of high density polyethylene (HDPE) specialty material that is very tough and abrasion and impact resistant. It is therefore used in different end-markets from traditional HDPE. It can be found in sheet form, molded into stock shapes, or spun into high-strength fibers. Its most common end uses are compression-molded sheets, porous parts, ram-extruded sheets, profiles, filters and rods. GUR, a form of PE-UHMW, 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 porous tips for marker pens, sports equipment and prostheses. The basic raw material for PE-UHMW is ethylene. Polyesters are used in a wide variety of automotive, electrical and consumer applications, including ignition system parts, radiator grilles, electrical switches, appliance housings, boat fittings and perfume bottle caps. Raw materials for polyesters vary. Liquid crystal polymers, or LCPs, are used in electrical and electronics applications and for precision parts with thin walls and complex shapes. Fortron, a polyphenylene sulphide, or 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. Celstran and Compel are long fiber reinforced thermoplastics, which impart extra strength and stiffness, making them more suitable for larger parts than conventional thermoplastics. A number of Ticona's polyacetals customers, particularly in the appliance, electrical components, toys 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, Ticona, along with Polyplastics, Mitsubishi Gas Chemical Company Inc., and Korea Engineering Plastics agreed on a venture to construct and operate a world-scale 60,000 metric ton polyacetals products facility in China. Ticona's customer base consists primarily of a large number of plastic molder and component suppliers, which are often the primary suppliers to original equipment manufacturers, or OEMs. Ticona works closely with these molders and component suppliers as well as directly with the OEMs to develop and improve specialized applications and systems. Competition Ticona's principal competitors include BASF, DuPont, General Electric Company and Solvay S.A. Smaller regional competitors include Asahi Kasei Corporation, DSM MV, Mitsubishi Plastics, Inc., Chevron Phillips Chemical Company, L.P., Braskem S.A., Teijin and Toray Industries Inc. Performance Products According to SRI Consulting, sales of high-intensity sweeteners represented approximately 11% of the $9.5 billion food additive businesses in the U.S., Western Europe and Japan in 2003. Nutrinova's food ingredients business consists of the production and sale of high intensity sweeteners and food protection ingredients, such as sorbic acids and sorbates worldwide, as well as the resale of other food ingredients mainly in Japan, Australia, Mexico and the United States. Acesulfame-K, marketed under the trademark Sunett, is used in a variety of beverages, confections and dairy products throughout the world. Nutrinova's food protection ingredients are mainly used in foods, beverages and personal care products. The primary raw materials for these products are ketene and crotonaldehyde. Sorbates pricing is extremely sensitive to demand and industry capacity and is not necessarily dependent on the prices of raw materials. 124 -------------------------------------------------------------------------------- Competition The principal competitors for Nutrinova's Sunett sweetener are Holland Sweetener Company, The Nutrasweet Company, Ajinomoto Co., Inc., Tate & Lyle and several Chinese manufacturers. In sorbates, Nutrinova competes with Nantong AA, Daicel, Yu Yao/Ningbo, Yancheng AmeriPac and other Chinese manufacturers of sorbates. 125 -------------------------------------------------------------------------------- BUSINESS Celanese Corporation We are an integrated global producer of value-added industrial chemicals and have #1 or #2 market positions worldwide in products comprising the majority of our sales. We are also the world's largest producer of acetyl products, including acetic acid, vinyl acetate monomer (VAM) and polyacetal products (POM) and a leading global producer of high-performance engineered polymers used in consumer and industrial products and designed to meet highly technical customer requirements. Our operations are located in North America, Europe and Asia. In addition, we have substantial ventures primarily in Asia. We believe we are one of the lowest-cost producers of key building block chemicals in the acetyls chain, such as acetic acid and VAM, due to our economies of scale, operating efficiencies and proprietary production technologies. We have a large and diverse global customer base consisting principally of major companies in a broad array of industries. For the three months ended March 31, 2004 approximately 46% of our net sales by the Predecessor was to customers located in North America, approximately 42% to customers in Europe and approximately 12% to customers in Asia, Australia and the rest of the world. For the nine months ended December 31, 2004, approximately 47% of our net sales by the Successor was to customers located in North America, approximately 40% to customers in Europe and approximately 13% to customers in Asia, Australia and the rest of the world. Segment Overview We operate through four business segments: Chemical Products, Technical Polymers Ticona, Acetate Products and Performance Products. The table below illustrates each segment's net sales to external customers for the three months ended March 31, 2004, by the Predecessor and for the nine months ended December 31, 2004, by the Successor, as well as each segment's major products and end use markets. [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Technical [[Image Removed]] [[Image Removed]] Chemical Products Polymers Ticona Acetate Products(2) Performance Products 2004 Net Sales(1) [[Image Removed]] Predecessor (three months ended March 31, 2004) [[Image Removed]] $789 million [[Image Removed]] $227 million [[Image Removed]] $172 million [[Image Removed]] $44 million Successor (nine months ended December 31, 2004) [[Image Removed]] $2,491 million [[Image Removed]] $636 million [[Image Removed]] $523 million [[Image Removed]] $131 million Major Products Acetic acid Polyacetal products (POM) Acetate tow Sunett sweetener Vinyl acetate monomer UHMW-PE (GUR) Acetate filament Sorbates (VAM) Liquid crystal polymers Polyvinyl alcohol (PVOH) (Vectra) [[Image Removed]] Emulsions [[Image Removed]] Polyphenylene sulfide [[Image Removed]] [[Image Removed]] Acetic anhydride (Fortron) Acetate esters Carboxylic acids Methanol Major End-Use Markets Paints Fuel system Filter products Beverages Coatings components Textiles Confections [[Image Removed]] Adhesives [[Image Removed]] Conveyor belts [[Image Removed]] [[Image Removed]] Baked goods Lubricants Electronics Dairy products Detergents Seat belt mechanisms [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] (1) Net sales of $1,243 million for the Predecessor for the three months ended March 31, 2004 and $3,826 million for the Successor for the nine months ended December 31, 2004, also include $11 million and $45 million in net sales from Other Activities, respectively, primarily attributable to our captive insurance companies. 2004 net sales of Chemical Products excludes inter-segment sales of $29 million with respect to the Predecessor for the three months ended March 31, 2004 and $82 million with respect to the Successor for the nine months ended December 31, 2004. 126 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] (2) In October 2004, we announced our plans to discontinue filament production by mid-2005 and to consolidate our flake and tow production at three sites, instead of the current five. Chemical Products Our Chemical Products segment produces and supplies acetyl products, including acetic acid, acetate esters, vinyl acetate monomer, polyvinyl alcohol and emulsions. We are a leading global producer of acetic acid, the world's largest producer of vinyl acetate monomer and the largest North American producer of methanol, the major raw material used for the production of acetic acid. We are also the largest polyvinyl alcohol producer in North America. These products are generally used as building blocks for value-added products or in intermediate chemicals used in the paints, coatings, inks, adhesives, films, textiles and building products industries. Other chemicals produced in this segment are organic solvents and intermediates for pharmaceutical, agricultural and chemical products. For the three months ended March 31, 2004, net sales by the Predecessor to external customers of acetyls were $371 million, acetyl derivatives and polyols were $205 million and all other business lines combined totaled $213 million. For the nine months ended December 31, 2004, net sales by the Successor to external customers of acetyls were $1,187 million, acetyl derivatives and polyols were $691 million and all other business lines combined totaled $613 million. Technical Polymers Ticona Our Technical Polymers Ticona 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. Together with our 45%-owned venture Polyplastics, our 50%-owned venture Korea Engineering Plastics Company Ltd., or KEPCO, and Fortron Industries, our 50-50 venture with Kureha Chemicals Industry of Japan, we are a leading participant in the global technical polymers business. The primary products within the Ticona segment are polyacetal products or POM, and 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. For the three months ended March 31, 2004, sales by the Predecessor to external customers in the Technical Polymers Ticona segment totaled $227 million. For the nine months ended December 31, 2004, sales by the Successor to external customers in the Technical Polymers Ticona segment totaled $636 million. Acetate Products Our Acetate Products segment primarily produces and supplies acetate tow, which is used in the production of filter products and acetate filament, which is used in the apparel and home furnishing industries. Our acetate products are sold into a diverse set of end market applications, including filter products, fashion apparel, linings and home furnishings. We are one of the world's leading producers of acetate tow and acetate filament, including production by our ventures in China. In October 2004, we announced plans to consolidate our acetate flake and tow manufacturing by early 2007 and to exit the acetate filament business by mid-2005. This restructuring is being implemented to increase efficiency, reduce over-capacities in certain manufacturing areas and to focus on products and markets that provide long-term value. For the three months ended March 31, 2004, sales by the Predecessor to external customers for the Acetate Products segments were $172 million. For the nine months ended December 31, 2004, sales by the Successor to external customers for the Acetate Products segments were $523 million. Performance Products The Performance Products segment operates under the trade name of Nutrinova and produces and sells Sunett high intensity sweetener and food protection ingredients, such as sorbates, for the food, beverage and pharmaceuticals industries. For the three months ended March 31, 2004, sales by the Predecessor to external customers of Performance Products were $44 million. For the nine months ended December 31, 2004, sales by the Successor to external customers of Performance Products were $131 million. 127 -------------------------------------------------------------------------------- Competitive Strengths We have benefited from a number of competitive strengths, including the following: Leading Market Positions We have #1 or #2 market positions globally in products that make up a majority of our sales, according to the SRI Handbook and the Tecnon Orbichem Survey. We are a leading global producer of acetic acid and the world's largest producer of vinyl acetate monomer. Ticona and our ventures, Polyplastics and KEPCO, are leading suppliers of polyacetal products and other engineering resins 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 AO Plus acid-optimization technology for the production of acetic acid and VAntage vinyl acetate monomer technology. AO Plus enables plant capacity to be increased with minimal investment, while VAntage enables 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 economies of scale, vertical integration, technical know-how and the use of advanced technologies. Global Reach We operate 29 production facilities (excluding our ventures) throughout the world, with major operations in North America, Europe and Asia. Ventures owned by us and our partners operate ten 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 and growing presence in Asia (particularly in China) where ventures owned by us and our partners operate three additional facilities. International 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. During the nine months ended December 31, 2004, we received $55 million in dividends from our strategic investments. During the three months ended March 31, 2004, we received $22 million in dividends and other distributions from our strategic 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, the Technical Polymers Ticona business offers customers a broad range of high-quality engineering plastics to meet the needs of customers in numerous end-use markets, such as automotive, electrical/electronics, appliance and medical. The Chemical Products segment has leading market positions in an integrated chain of basic and performance-based acetyl products, sold into diverse industrial applications. This product diversity and market exposure help us to reduce the potential impact of volatility in any individual market segment. Business Strategies We are focused on increasing operating cash flows, profitability, return on investment and shareholder value, which we believe can be achieved through the following business strategies: 128 -------------------------------------------------------------------------------- Maintain Cost Advantage and Productivity Leadership We continually seek to reduce our production and raw material costs. We announced in July 2003 that we intend to purchase most of our North American internal methanol requirements from Southern Chemical Corporation beginning in July 2005 under a multi-year agreement at a lower cost than our present cost for methanol. Our advanced process control (APC) projects generate savings in energy and raw materials while increasing yields in production units. Most significantly, we intend to intensify the implementation of Six Sigma, which has become a pervasive and important tool in both operations and administration for achieving greater productivity and growth. We are also engaged in several projects and process technology improvements focused on energy reduction. For example, by implementing modifications and improvements in the distillation systems at our Calvert City, Kentucky polyvinyl alcohol plant, we were able to achieve a 17% reduction in steam usage. Using less energy-intense technology to more efficiently reduce acetic acid impurities at our Clear Lake Plant has also enabled reductions in steam and electricity usage. We intend to continue using best practices to reduce costs and increase equipment reliability in maintenance and project engineering. Focused Business Investment We intend to continue investing strategically in growth areas, including new production capacity, to extend our global market leadership position. Historically, our strong market position has enabled us to initiate capacity growth to take advantage of projected demand growth. For example, we are building a 600,000 metric ton per year world-scale acetic acid plant in China, the world's fastest growing market for acetic acid and its derivatives. We also increased the capacity of our GUR ultra-high molecular weight polyethylene plant in Germany by 1/3 to 10,000 tons per year in the third calendar quarter of 2004, and in 2004, we also increased our North American polyacetal capacity at our Bishop facility by 20% to 102,000 tons. We expect to continue to benefit from our investments and capacity expansion that enable us to meet increases in global demand. Maximize Cash Flow and Reduce Debt Despite a difficult operating environment over the past several years, we have generated a significant amount of operating cash flow. Between January 1, 2002 and March 31, 2004, the Predecessor generated over $650 million of net cash provided by operating activities. Between April 1, 2004 and December 31, 2004, the Successor consumed over $63 million of net cash used in operating activities. The cash flow used by operations was affected by the one-time payment of a $95 million obligation to a third party, $59 million associated with the exercising of stock appreciation rights, pension contributions totaling $409 million and higher interest expense due to increased debt levels. We expect improvement in our operating cash flow through increased productivity in our operations, increased cash dividends from our ventures, reduced pension contributions and pursuing additional cost reduction efforts. We believe in a focused capital expenditure plan that is dedicated to attractive investment projects. We intend to use our free cash flow to reduce indebtedness and selectively expand our businesses. The operating cash flow used by the Predecessor for the three months ended March 31, 2004 was $107 million. As of December 31, 2004, we had total debt of $3,387 million and cash and cash equivalents of $838 million. Deliver Value-Added Solutions We continually develop new products and industry leading production technologies that solve our customers' problems. For example, Ticona has worked closely with fuel system suppliers to develop an acetal copolymer with the chemical and impact resistance necessary to withstand exposure to hot diesel fuels. In our emulsions business, we pioneered a technological solution that leads the industry in product offerings for ecologically friendly emulsions for solvent-free interior paints. We believe that our customers value our expertise, and we will continue to work with them to enhance the quality of their products. Enhance Value of Portfolio We will continue to further optimize our business portfolio through divestitures, acquisitions and strategic investments that enable us to focus on businesses in which we can achieve market, cost and 129 -------------------------------------------------------------------------------- technology leadership over the long term. In addition, we intend to continue to expand our product mix into higher value-added products. For example, we have begun construction of a 600,000 metric ton acetic acid plant in China, the world's fastest growing market for acetic acid. The plant is expected to come on stream in late 2006 or early 2007. We also divested non-core businesses, such as acrylates, which we sold to Dow in February 2004. We also acquired Vinamul Polymers, the North American and European emulsions business of Imperial Chemical Industries PLC in February 2005. Business Segments Chemical Products The Chemical Products segment consists of six business lines: Acetyls, Acetyl Derivatives and Polyols, Polyvinyl Alcohol, Emulsions, Specialties, and other chemical activities. All business lines in this segment mainly conduct business using the "Celanese" trade name, except Polyvinyl Alcohol, which uses the trademark Celvol, and Emulsions, which uses the trademarks Mowilith and Celvolit. In February 2005, Celanese acquired the Vinamul Polymers, the North American and European emulsion polymer business of Imperial Chemical Industries PLC, which primarily uses the trademarks Vinamul, Elite and Duroset. The following table lists key products and their major end use markets. [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Key Chemical Products [[Image Removed]] Major End Use Markets Methanol [[Image Removed]] Formaldehyde and Acetic Acid Acetic Acid Vinyl Acetate Monomer, Acetic Anhydride and Purified [[Image Removed]] Terephtalic Acid or PTA, an Intermediate used in the production of Polyester resins, films and fibers Acetic Anhydride [[Image Removed]] Cellulose Acetate and Pharmaceuticals Vinyl Acetate Monomer [[Image Removed]] Paints, Adhesives, Paper Coatings, Films and Textiles Acetate Esters [[Image Removed]] Coatings, Inks Oxo Alcohols [[Image Removed]] Plasticizers, Acrylates, Esters, Solvents and Inks Polyvinyl Alcohol [[Image Removed]] Adhesives, Building Products, Paper Coatings, Films and Textiles Emulsions [[Image Removed]] Water-Based Quality Surface Coatings, Adhesives, Non-Woven Textiles and Glass Fibers Emulsion Powders [[Image Removed]] Building Products Carboxylic Acids [[Image Removed]] Lubricants, Detergents and Specialties Amines [[Image Removed]] Agricultural Products and Water Treatments [[Image Removed]] Business Lines Acetyls. The acetyls business line produces: [[Image Removed]] [[Image Removed]] Acetic acid, used to manufacture vinyl acetate monomer and other acetyl derivatives. We manufacture acetic acid for our own use, as well as for sale to third parties, including producers of purified terephthalic acid, or PTA, and to other participants in the acetyl derivatives business; [[Image Removed]] [[Image Removed]] Vinyl acetate monomer, used in a variety of adhesives, paints, films, coatings and textiles. We manufacture vinyl acetate monomer for our own use, as well as for sale to third parties. 130 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] Methanol, principally used internally in the production of acetic acid and formaldehyde. The balance is sold to the merchant market. [[Image Removed]] [[Image Removed]] Acetic anhydride, a raw material used in the production of cellulose acetate, detergents and pharmaceuticals; and [[Image Removed]] [[Image Removed]] 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. We are a leading global producer of acetic acid and the world's leading producer of vinyl acetate monomer according to the Tecnon Orbichem Survey. According to data from the CMAI Methanol Analysis, we are the largest producer of methanol in North America. Acetic acid, methanol, and vinyl acetate monomer, like other commodity products, are characterized by cyclicality in pricing. 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 both manufacture and purchase under 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 and are available from a wide variety of sources. Our production of acetyl products employs leading proprietary and licensed technologies, including our proprietary AO Plus acid-optimization technology for the production of acetic acid and VAntage vinyl acetate monomer technology. AO Plus enables plant capacity to be increased with minimal investment, while VAntage enables significant increases in production efficiencies, lower operating costs and increases in capacity at 10 to 15 percent of the cost of building a new plant. Acetyl Derivatives and Polyols. The acetyl derivatives and polyols business line produces a variety of solvents, polyols, formaldehyde and other chemicals, which in turn are used in the manufacture of paints, coatings, adhesives, and other products. Many acetyl derivatives products are derived from our production of acetic acid and oxo alcohols. Primary products are: [[Image Removed]] [[Image Removed]] 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; [[Image Removed]] [[Image Removed]] Butyl acetate, an acetate ester that is a solvent used in inks, pharmaceuticals and perfume; [[Image Removed]] [[Image Removed]] Propyl acetate, an acetate ester that is a solvent used in inks, lacquers and plastics; [[Image Removed]] [[Image Removed]] Methyl ethyl ketone, a solvent used in the production of printing inks and magnetic tapes; [[Image Removed]] [[Image Removed]] Butyric acid, an intermediate for the production of esters used in artificial flavors; [[Image Removed]] [[Image Removed]] Propionic acid, an organic acid used to protect and preserve grain; and [[Image Removed]] [[Image Removed]] Formic acid, an organic acid used in textile dyeing and leather tanning. Polyols and formaldehyde products are derivatives of methanol and are made up of the following products: [[Image Removed]] [[Image Removed]] Formaldehyde, primarily used to produce adhesive resins for plywood, particle board, polyacetal products engineering resins and a compound used in making polyurethane; [[Image Removed]] [[Image Removed]] Polyol products such as pentaerythritol, used in coatings and synthetic lubricants; trimethylolpropane, used in synthetic lubricants; neopentyl glycol, used in powder coatings; and 1,3-butylene glycol, used in flavorings and plasticizers. Oxo alcohols and intermediates are produced from propylene and ethylene and include: [[Image Removed]] [[Image Removed]] Butanol, used as a solvent for lacquers, dopes and thinners, and as an intermediate in the manufacture of chemicals, such as butyl acrylate; [[Image Removed]] [[Image Removed]] Propanol, used as an intermediate in the production of amines for agricultural chemicals, and as a solvent for inks, resins, insecticides and waxes; and 131 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] Synthesis gas, used as an intermediate in the production of oxo alcohols and specialties. Acetyl derivatives and polyols are commodity products characterized by cyclicality in pricing. The principal raw materials used in the acetyl derivatives business line are acetic acid, various alcohols, methanol, acetaldehyde, propylene, ethylene and synthesis gas. We manufacture many of these raw materials for our own use as well as for sales to third parties, including our competitors in the acetyl derivatives business. We purchase propylene and ethylene from a variety of sources. We manufacture acetaldehyde for our European production, but we purchase all acetaldehyde requirements for our North American operations from third parties. Acetaldehyde is also available from other sources. Polyvinyl Alcohol. Polyvinyl alcohol, or PVOH, is a performance chemical engineered to satisfy particular customer requirements. It is used in adhesives, building products, paper coatings, films and textiles. The primary raw material to produce polyvinyl alcohol is vinyl acetate monomer, while acetic acid is produced as a by-product. Prices vary depending on industry segment and end use application. Products are sold on a global basis, and competition is from all regions of the world. Therefore, regional economies and supply and demand balances affect the level of competition in other regions. According to Stanford Research International's December 2003 report on PVOH, we are the largest North American producer of polyvinyl alcohol and the third largest producer in the world. Emulsions. We purchased the emulsions business of Clariant AG on December 31, 2002, and the Vinamul emulsions business of ICI in February 2005. The products from the Clariant AG business are sold under the Mowilith and Celvolit brands, and the products from the Vinamul emulsions business are sold under the Vinamul, Elite and Duroset brands. These products include conventional emulsions, high-pressure vinyl acetate ethylene emulsions, and powders. Emulsions are made from vinyl acetate monomer, acrylate esters and styrene. Emulsions are a key component of water-based quality surface coatings, adhesives, non-woven textiles and other applications. Specialties. The specialties business line produces: [[Image Removed]] [[Image Removed]] Carboxylic acids such as pelargonic acid, used in detergents and synthetic lubricants, and heptanoic acid, used in plasticizers and synthetic lubricants; [[Image Removed]] [[Image Removed]] Amines such as methyl amines, used in agrochemicals, monoisopropynol amines, used in herbicides, and butyl amines, used in the treatment of rubber and in water treatment; and [[Image Removed]] [[Image Removed]] Oxo derivatives and special solvents, such as crotonaldehyde, which is used by the Performance Products segment for the production of sorbates, as well as raw materials for the fragrance and food ingredients industry. The prices for these products are relatively stable due to long-term contracts with customers whose industries are not generally subject to the cyclical trends of commodity chemicals. The primary raw materials for these products are olefins and ammonia, which are purchased from world market suppliers based on international prices. In March 2002, we formed Estech, a venture with Hatco Corporation, a leading producer of synthetic lubricants, for the production and marketing of neopolyol esters or NPEs. This venture, in which we hold a 51 percent interest, built and operates a 7,000 metric ton per year NPE plant at our Oberhausen, Germany site. The plant came on stream in the fourth quarter of 2003. Neopolyol esters are used as base stocks for synthetic lubricants in refrigeration, automotive, aviation and industrial applications, as well as in hydraulic fluids. We supply Estech with carboxylic acids and polyols, the main raw materials for producing NPEs. We contributed our commercial, technical and operational oxo business activities in Oberhausen, Germany to European Oxo GmbH, Celanese's European oxo chemicals venture with Degussa AG. The venture began operations in October 2003. Facilities The Chemical Products segment has production sites in the United States, Canada, Mexico, Singapore, Spain, Sweden, Slovenia, the United Kingdom, the Netherlands and Germany. The 132 -------------------------------------------------------------------------------- emulsions business line also has tolling arrangements in the United Kingdom, France and Greece. We also participate in a venture in Saudi Arabia that produces methanol and 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. As a result, we shut down our formaldehyde unit in Edmonton, Alberta, Canada in mid-2004. We have commenced building a 600,000 metric ton acetic acid plant in Nanjing, China, which is expected to come on stream in late 2006 or early 2007. Capital Expenditures The Chemical Products segment's capital expenditures by the Successor for the nine months ended December 31, 2004 were $64 million. The Chemical Products segment's capital expenditures by the Predecessor were $15 million for the three months ended March 31, 2004, and $109 million and $101 million for the years ended 2003 and 2002, respectively. The capital expenditures incurred during the last three years related primarily to efficiency and safety improvement-related items associated with the normal operations of the business, as well as spending for a new plant for synthesis gas, and important raw material for the production of oxo alcohols and specialties, at our Oberhausen site. The new plant, which supplies European Oxo GmbH and CAG, came on stream in the third quarter of 2003 and has improved reliability and reduced production costs. Capital expenditures in 2003 also included the integration of a company-wide SAP system. Markets The following table illustrates net sales by destination of the Chemical Products segment by geographic region of the Successor for the nine months ended December 31, 2004, and of the Predecessor for the three months ended March 31, 2004, and for the years ended December 31, 2003 and 2002. [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Successor [[Image Removed]] Predecessor [[Image Removed]] Nine Months Ended [[Image Removed]] Three Months Ended [[Image Removed]] December 31, 2004 March 31, 2004 Year Ended December 31, [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] 2003 [[Image Removed]] 2002 [[Image Removed]] [[Image Removed]] [[Image Removed]] (in millions) [[Image Removed]] [[Image Removed]] [[Image Removed]] % of [[Image Removed]] [[Image Removed]] % of [[Image Removed]] [[Image Removed]] % of [[Image Removed]] [[Image Removed]] % of $ Segment $ Segment $ Segment $ Segment North America [[Image Removed]] 949 [[Image Removed]] 38 % [[Image Removed]] 306 [[Image Removed]] 39 % [[Image Removed]] 1,181 [[Image Removed]] 39 % [[Image Removed]] 1,039 [[Image Removed]] 44 % Europe/Africa [[Image Removed]] 965 [[Image Removed]] 39 % [[Image Removed]] 314 [[Image Removed]] 40 % [[Image Removed]] 1,183 [[Image Removed]] 40 % [[Image Removed]] 817 [[Image Removed]] 35 % Asia/Australia [[Image Removed]] 484 [[Image Removed]] 19 % [[Image Removed]] 144 [[Image Removed]] 18 % [[Image Removed]] 522 [[Image Removed]] 18 % [[Image Removed]] 418 [[Image Removed]] 18 % Rest of World [[Image Removed]] 93 [[Image Removed]] 4 % [[Image Removed]] 25 [[Image Removed]] 3 % [[Image Removed]] 82 [[Image Removed]] 3 % [[Image Removed]] 71 [[Image Removed]] 3 % [[Image Removed]] The Chemical Products segment markets its products both directly to customers and through distributors. It also utilizes a number of "e-channels", including its website at www.chemvip.com, as well as system to system linking through its industry portal, Elemica. In the acetyls business line, the methanol market is global and highly dependent on the demand for products made from methanol. In addition to our own demands for methanol, our production is sold to a few regional customers who are manufacturers of chemical intermediates and to a lesser extent, by manufacturers in the wood products industry. We typically enter into short-term contracts for the sale of methanol. Acetic acid and vinyl acetate monomer are global businesses which have several large customers. Generally, we supply these global customers under multi-year contracts. The customers of acetic acid and vinyl acetate monomer produce polymers used in water-based paints, adhesives, paper coatings, film modifiers and textiles. We have long-standing relationships with most of these customers. Polyvinyl alcohol is sold to a diverse group of regional and multinational customers mainly under single year contracts. The customers of the polyvinyl alcohol business line are primarily engaged in the production of adhesives, paper, films, building products, and textiles. 133 -------------------------------------------------------------------------------- Emulsions and emulsion powders are sold to a diverse group of regional and multinational customers. Customers for emulsions are manufacturers of water-based quality surface coatings, adhesives, and non-woven textiles. Customers for emulsion powders are primarily manufacturers of building products. Acetyl derivatives and polyols 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 acetyl derivatives are primarily engaged in the production of paints, coatings and adhesives. In addition to our own demand for acetyl derivatives to produce cellulose acetate, we sell acetyl derivatives to other participants in the cellulose acetate industry. 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. Polyols are sold globally to a wide variety of customers, primarily in the coatings and resins and the specialty products industries. Oxo products are sold to a wide variety of customers, primarily in the construction and automotive industries, and are used internally to produce acetyl derivatives. The oxo market is characterized by oversupply and numerous competitors. The specialties business line primarily serves global markets in the synthetic lubricant, agrochemical, rubber processing and other specialty chemical areas. Much of the specialties business line involves "one customer, one product" relationships, where the business develops customized products with the customer, but the specialties business line also sells several chemicals which are priced more like commodity chemicals. Competition Our principal competitors in the Chemical Products segment include Air Products and Chemicals, Inc., Atofina S.A., BASF, Borden Chemical, Inc., BP p.l.c. ("BP"), Chang Chun Petrochemical Co., Ltd., Daicel, Dow, Eastman Chemical Corporation ("Eastman"), E. I. DuPont de Nemours and Company ("DuPont"), Methanex Corporation, Lyondell, Nippon Goshei, Perstorp Inc., Rohm & Haas Company, Showa Denko K.K., and Kuraray Co. Ltd. Technical Polymers Ticona Ticona develops, produces and supplies a broad portfolio of high performance technical polymers. The following table lists key Ticona products, their trademarks, and their major end use markets. [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Key Ticona Products [[Image Removed]] Major End Use Markets Hostaform/Celcon (Polyacetal products) [[Image Removed]] Automotive, Electronics, Consumer Products and Medical GUR (Ultra High Molecular Weight Polyethylene or PE-UHMW) [[Image Removed]] Profiles, Battery Separators, Industrial Specialties, Filtration, Coatings and Medical Celanex/Vandar/Riteflex/Impet (Polyester Engineering Resins) [[Image Removed]] Electrical, Electronics, Automotive and Appliances Vectra (Liquid Crystal Polymers) [[Image Removed]] Electronics, Telecommunications, Consumer and Medical Fortron (Polyphenylene Sulfide or PPS) [[Image Removed]] Electronics, Automotive and Industrial Celstran, Compel (long fiber reinforced thermoplastics) [[Image Removed]] Automotive and Industrial [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] * Fortron is a registered trademark of Fortron Industries. Ticona's technical polymers have chemical and physical properties enabling them, among other things, to withstand high temperatures, resist chemical reactions with solvents and resist fracturing or stretching. These products are used in a wide range of performance-demanding applications in the automotive and electronics sectors and in other consumer and industrial goods, often replacing metal or glass. 134 -------------------------------------------------------------------------------- Ticona is a business oriented to enable innovations for its customers while closely working together with them for a new development. Ticona 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 customer's applications. For example, Ticona has worked closely 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. Ticona's customer base consists primarily of a large number of plastic molders and component suppliers, which are often the primary suppliers to original equipment manufacturers, or OEMs. Ticona 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. The specialized product lines are not particularly susceptible to cyclical swings in pricing. Polyacetal products pricing, mainly in standard grades, is, however, somewhat more price competitive, with many minimum-service providers competing for volume sales. Business Lines Polyacetal products are sold under the trademark Hostaform in all regions but North America, where we sell them under the trademark Celcon. Polyplastics, in which we hold a 45% ownership interest, and Korea Engineering Plastics, in which we hold a 50% ownership interest, are leading suppliers of polyacetal products and other engineering resins in the Asia/Pacific region. Polyacetal products are 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 appliances. The primary raw material for polyacetal products is formaldehyde, which is manufactured from methanol. Ticona currently purchases formaldehyde in the United States from our Chemical Products segment and, in Europe, manufactures formaldehyde from purchased methanol. GUR, an ultra high molecular weight polyethylene or PE-UHMW, 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 porous tips for marker pens, sports equipment and prostheses. GUR Micro powder grades are used for high performance filters, membranes, diagnostic devices, coatings and additives for thermoplastics & elastomers. PE-UHMW fibers are also used in protective ballistic applications. The basic raw material for GUR is ethylene. 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 polybutylene terephthalate, or PBT, and Vandar, a series of PBT-polyester blends, are used in a wide variety of automotive, electrical and consumer applications, including ignition system parts, radiator grilles, electrical switches, appliance housings, boat fittings and perfume bottle caps. Raw materials for polyesters vary. Base monomers, such as dimethyl terephthalate or DMT 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, or LCPs, such as Vectra, are used in electrical and electronics applications and for precision parts with thin walls and complex shapes. Fortron, a polyphenylene sulfide, or 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. Fortron is manufactured by Fortron Industries, Ticona's 50-50 venture with Kureha Chemicals Industry of Japan. 135 -------------------------------------------------------------------------------- In December 2004, we approved a plan to dispose of Ticona's Cyclo-olefin Copolymer ("COC") business. Facilities Ticona has polymerization, compounding and research and technology centers in Germany, Brazil and the United States. Ticona's Kelsterbach, Germany production site is located in close proximity to one of the sites being considered for a new runway under the Frankfurt airport's expansion plans. The construction of this particular runway could have a negative effect on the plant's current production capacity and future development. While the state government of Hesse and the owner of the airport promote the expansion of this option, it is uncertain whether this option is in accordance with applicable laws. Although the government of the state of Hesse expects the plan approval for the airport expansion in 2007 and the start of operations in 2009-2010, neither the final outcome of this matter nor its timing can be predicted at this time. Capital Expenditures Ticona's capital expenditures by the Successor for the nine months ended December 31, 2004 was $64 million. Ticona's capital expenditures by the Predecessor were $20 million for the three months ended March 31, 2004, and $56 million and $61 million for the years 2003 and 2002, respectively. Ticona had expenditures in each of these three years relating primarily to efficiency and safety improvement-related items associated with the normal operations of the business. In 2004, Ticona completed its expansion of its Oberhausen GUR PE-UHMW capacity by 10,000 metric tons per year, and we also increased by 20% to 102,000 tons our North American POM capacity. The capital expenditures for 2003 also include construction of a new administrative building in Florence, Kentucky and the integration of a company-wide SAP system. In addition, Ticona had expenditures in 2002 for significant capacity expansions at its Bishop, Texas and Shelby, North Carolina sites. Ticona doubled its U.S. capacity for GUR PE-UHMW by building a new 30,000 metric tons per year facility in Bishop, Texas, replacing the existing plant in Bayport, Texas. The new plant came on stream in the third quarter of 2002. In the fourth quarter of 2002, Ticona increased capacity by 6,000 metric tons at its polyacetal products facility in Kelsterbach, Germany and commenced a further increase of 17,000 metric tons; however, its completion is dependent upon the action of the Frankfurt Airport expansion described above. Markets The following table illustrates the destination of the net sales of the Technical Polymers Ticona segment by geographic region of the Successor for the nine months ended December 31, 2004, and of the Predecessor for the three months ended March 31, 2004, and for the years ended December 31, 2003, and 2002. Net Sales to External Customers by DestinationTechnical Polymers Ticona [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Successor [[Image Removed]] Predecessor [[Image Removed]] Nine Months Ended [[Image Removed]] Three Months Ended [[Image Removed]] December 31, 2004 March 31, 2004 Year Ended December 31, [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] 2003 [[Image Removed]] 2002 [[Image Removed]] [[Image Removed]] [[Image Removed]] (in millions) [[Image Removed]] [[Image Removed]] [[Image Removed]] % of [[Image Removed]] [[Image Removed]] % of [[Image Removed]] [[Image Removed]] % of [[Image Removed]] [[Image Removed]] % of $ Segment $ Segment $ Segment $ Segment North America [[Image Removed]] 247 [[Image Removed]] 39 % [[Image Removed]] 95 [[Image Removed]] 42 % [[Image Removed]] 350 [[Image Removed]] 45 % [[Image Removed]] 319 [[Image Removed]] 48 % Europe/Africa [[Image Removed]] 331 [[Image Removed]] 52 % [[Image Removed]] 116 [[Image Removed]] 51 % [[Image Removed]] 373 [[Image Removed]] 49 % [[Image Removed]] 300 [[Image Removed]] 46 % Asia/Australia [[Image Removed]] 33 [[Image Removed]] 5 % [[Image Removed]] 9 [[Image Removed]] 4 % [[Image Removed]] 19 [[Image Removed]] 3 % [[Image Removed]] 18 [[Image Removed]] 3 % Rest of World [[Image Removed]] 25 [[Image Removed]] 4 % [[Image Removed]] 7 [[Image Removed]] 3 % [[Image Removed]] 20 [[Image Removed]] 3 % [[Image Removed]] 19 [[Image Removed]] 3 % [[Image Removed]] Ticona's sales in the Asian market are made mainly through its ventures, Polyplastics, Korea Engineering Plastics and Fortron Industries, which are accounted for under the equity method and 136 -------------------------------------------------------------------------------- therefore not included in Ticona's consolidated net sales. If Ticona's 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 Ticona's polyacetal products customers, particularly in the appliance, electrical components, toys 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, we, along with Polyplastics, Mitsubishi Gas Chemical Company Inc., and Korea Engineering Plastics agreed on a venture to construct and operate a world-scale 60,000 metric ton polyacetal products facility in China. When completed, we will indirectly own an approximate 38 percent interest in this venture. Work on the new facility commenced in July 2003, and the new plant is expected to start operations in the second quarter of 2005. Ticona's principal customers are suppliers to the automotive industries as well as industrial suppliers. These customers primarily produce engineered products, and Ticona works closely with its customers to assist them to develop and improve specialized applications and systems. Ticona has long-standing relationships with most of its major customers, but it also uses distributors for most of its major products, as well as a number of electronic channels, such as its BuyTiconaDirect on-line ordering system, and other electronic marketplaces to reach a larger customer base. For most of Ticona's 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 Ticona's principal customers could significantly affect the demand for Ticona's products. Competition Ticona's principal competitors include BASF, DuPont, General Electric Company and Solvay S.A. Smaller regional competitors include Asahi Kasei Corporation, DSM NV, Mitsubishi Plastics, Inc., Chevron Phillips Chemical Company, L.P., Braskem S.A., Teijin and Toray Industries Inc. Acetate Products The Acetate Products segment consists primarily of acetate filter products, which uses the "Celanese" brand to market its products. The segment's acetate filament business line will be discontinued by mid-2005. Business Lines Acetate filter products are found in cigarette filters and acetate filament is found in fashion apparel, linings and home furnishings. According to the 2002 Stanford Research Institute International Chemical Economics Handbook, we are the world's leading producer of acetate fibers, including production of our ventures in Asia. 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 or filament. The acetate filter products business line produces acetate tow, which is used primarily in cigarette filters. The acetate tow market continues to be characterized by stability and slow growth. We have a 30% interest in three manufacturing ventures with Chinese state-owned enterprises that produce cellulose acetate flake and tow in China. Additionally, in 2004, 21% of our sales of acetate tow were sold to Chinese state-owned tobacco enterprises, the largest single market for acetate tow in the world. As demand for acetate tow in China exceeds local supply, we and our Chinese partners have agreed to expand capacity at their three manufacturing ventures. Two of the ventures completed their tow manufacturing expansions in January 2005; the expansion at the third venture is scheduled to be completed by mid-year. Although increases in manufacturing capacity of the ventures will reduce, beginning in 2005, the volume of our future direct sales of acetate tow to China, the dividends paid by the ventures to us are projected to increase once the expansions are complete in 2007. The Acetate Products segment is continuing its cost reduction and operations improvement efforts. These efforts are directed toward reducing costs while achieving higher productivity of 137 -------------------------------------------------------------------------------- employees and equipment. In addition to restructuring activities previously undertaken, we outsourced the operation and maintenance of our utility operations at the Narrows, Virginia and Rock Hill, South Carolina plants in 2003. We also closed our Charlotte, North Carolina administrative and research and development facility and relocated the functions there to the Rock Hill and Narrows locations. The relocation was substantially completed during the third quarter of 2004. In March 2005, we announced the relocation of our Rock Hill administrative functions to our Dallas corporate headquarters. This relocation is expected to be completed in the third quarter of 2005. In October 2004, we announced plans to implement a strategic restructuring of our acetate business to increase efficiency, reduce overcapacity in certain manufacturing areas and focus on products and markets that provide long-term value. As part of this restructuring, we plan to discontinue acetate filament production by mid-2005 and to consolidate our flake and tow operations at three locations instead of the current five. The restructuring resulted in $50 million of asset impairment charges and charges to depreciation related to $12 million in asset retirement obligations, of which $8 million was recorded by the Acetate Products segment and $4 million was recorded by the Chemical Products segment. In addition, Celanese recorded severance liabilities of approximately $40 million in the fourth quarter of 2004, with a corresponding increase in goodwill. Sales of acetate filament by the Predecessor for the three months ended March 31, 2004 were $25 million, and sales of acetate filament by the Successor for the nine months ended December 31, 2004 were $83 million. See Note 21 to the Consolidated Financial Statements. Facilities The Acetate Products segment has production sites in the United States, Canada, Mexico and Belgium, and participates in three manufacturing ventures in China. In October 2004, we announced plans to close the Rock Hill, South Carolina, production site during 2005 and to shutdown production of acetate products at the Edmonton, Alberta, Canada site by 2007. Additionally, filament production at Narrows and Ocotlan is expected to be discontinued by mid-2005 and flake production at Ocotlan is expected to be recommissioned in 2005. Capital Expenditures The Acetate Products segments' capital expenditures by the Successor for the nine months ended December 31, 2004 were $32 million. The Acetate Products segment's capital expenditures by the Predecessor were $8 million for the three months ended March 31, 2004, and $39 million and $30 million for the years 2003 and 2002, respectively. The capital expenditures incurred during these years related primarily to efficiency, environmental and safety improvement-related items associated with the normal operations of the business. Capital expenditures in 2003 also included the integration of a company-wide SAP system. Markets The following table illustrates the destination of the net sales of the Acetate Products segment by geographic region of the Successor for the nine months ended December 31, 2004, and of the Predecessor for the three months ended March 31, 2004, and for the years ended December 31, 2003 and 2002. 138 -------------------------------------------------------------------------------- Net Sales to External Customers by DestinationAcetate Products [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Successor [[Image Removed]] Predecessor [[Image Removed]] Nine Months Ended [[Image Removed]] Three Months Ended [[Image Removed]] December 31, 2004 March 31, 2004 Year Ended December 31, [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] 2003 [[Image Removed]] 2002 [[Image Removed]] [[Image Removed]] [[Image Removed]] (in millions) [[Image Removed]] [[Image Removed]] [[Image Removed]] % of [[Image Removed]] [[Image Removed]] % of [[Image Removed]] [[Image Removed]] % of [[Image Removed]] [[Image Removed]] % of $ Segment $ Segment $ Segment $ Segment North America [[Image Removed]] 145 [[Image Removed]] 28 % [[Image Removed]] 47 [[Image Removed]] 27 % [[Image Removed]] 189 [[Image Removed]] 29 % [[Image Removed]] 188 [[Image Removed]] 30 % Europe/Africa [[Image Removed]] 143 [[Image Removed]] 27 % [[Image Removed]] 45 [[Image Removed]] 26 % [[Image Removed]] 192 [[Image Removed]] 29 % [[Image Removed]] 167 [[Image Removed]] 26 % Asia/Australia [[Image Removed]] 222 [[Image Removed]] 43 % [[Image Removed]] 75 [[Image Removed]] 44 % [[Image Removed]] 258 [[Image Removed]] 40 % [[Image Removed]] 256 [[Image Removed]] 41 % Rest of World [[Image Removed]] 13 [[Image Removed]] 2 % [[Image Removed]] 5 [[Image Removed]] 3 % [[Image Removed]] 16 [[Image Removed]] 2 % [[Image Removed]] 21 [[Image Removed]] 3 % [[Image Removed]] Sales in the acetate filter products industry were principally to the major tobacco companies that account for a majority of worldwide cigarette production. Our contracts with most of our customers, including our largest customer, with whom we have a long-standing relationship, are entered into on an annual basis. In recent years, the cigarette industry has experienced consolidation. We are participating in the expanding Asian filament market through our marketing alliance with Teijin Limited. Teijin agreed to assist us with qualifying our acetate filament with customers beginning in January 2002 and we have successfully transitioned a majority of that business. Teijin discontinued acetate filament production in March 2002. Competition Principal competitors in the Acetate Products segment include Acetate Products Ltd. (Acordis), Daicel, Eastman, Mitsubishi Rayon Company, Limited, Bambergcell and Rhodia S.A. ("Rhodia"). Performance Products The Performance Products segment consists of the food ingredients business conducted by Nutrinova. This business uses its own trade names to conduct business. The following table lists key products of the Performance Products segment and their major end use markets. [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Key Performance Products [[Image Removed]] Major End Use Markets Sunett (Acesulfame-K) [[Image Removed]] Beverages, Confections, Dairy Products and Pharmaceuticals Sorbates [[Image Removed]] Dairy Products, Baked Goods, Beverages, Animal Feeds, Spreads and Delicatessen Products [[Image Removed]] Business Lines Nutrinova's food ingredients business consists of the production and sale of high intensity sweeteners and food protection ingredients, such as sorbic acid and sorbates worldwide, as well as the resale of other food ingredients mainly in Japan, Australia, Mexico and the United States. Acesulfame-K, a high intensity sweetener marketed under the trademark Sunett, is used in a variety of beverages, confections and dairy products throughout the world. The primary raw materials for this product are diketene and sulfur trioxide. Sunett pricing for targeted applications reflects the value added by Nutrinova, such as technical services provided. Nutrinova's strategy is to be the most reliable and highest quality producer of this product, to develop new applications for the product and to 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. Nutrinova's European and U.S. primary production patents for making Sunett expired at the end of the first quarter of 2005. 139 -------------------------------------------------------------------------------- Nutrinova's food protection ingredients are mainly used in foods, beverages and personal care products. The primary raw materials for these products are ketene and crotonaldehyde. Sorbates pricing is extremely sensitive to demand and industry capacity and is not necessarily dependent on the prices of raw materials. Facilities Nutrinova has production facilities in Germany, as well as sales and distribution facilities in all major world markets. Capital Expenditures The Performance Products segment's capital expenditures by the Successor were $3 million for the nine months ended December 31, 2004. The Performance Products segment's capital expenditures by the Predecessor were $0 million for the three months ended March 31, 2004 and $2 million and $4 million for the years 2003 and 2002, respectively. The capital expenditures incurred during these years related to efficiency, debottlenecking, quality and safety improvement items associated with the normal operation of the business. Markets The following table illustrates the destination of the net sales of the Performance Products segment by geographic region of the Successor for the nine months ended December 31, 2004, and of the Predecessor for the three months ended March 31, 2004, and for the years ended December 31, 2003 and 2002. Net Sales to External Customers by DestinationPerformance Products [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Successor [[Image Removed]] Predecessor [[Image Removed]] Nine Months Ended [[Image Removed]] Three Months Ended [[Image Removed]] December 31, 2004 March 31, 2004 Year Ended December 31, [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] 2003 [[Image Removed]] 2002 [[Image Removed]] [[Image Removed]] [[Image Removed]] (in millions) [[Image Removed]] [[Image Removed]] [[Image Removed]] % of [[Image Removed]] [[Image Removed]] % of [[Image Removed]] [[Image Removed]] % of [[Image Removed]] [[Image Removed]] % of $ Segment $ Segment $ Segment $ Segment North America [[Image Removed]] 52 [[Image Removed]] 40 % [[Image Removed]] 19 [[Image Removed]] 43 % [[Image Removed]] 73 [[Image Removed]] 43 % [[Image Removed]] 56 [[Image Removed]] 37 % Europe/Africa [[Image Removed]] 49 [[Image Removed]] 37 % [[Image Removed]] 17 [[Image Removed]] 39 % [[Image Removed]] 59 [[Image Removed]] 35 % [[Image Removed]] 55 [[Image Removed]] 36 % Asia/Australia [[Image Removed]] 21 [[Image Removed]] 16 % [[Image Removed]] 6 [[Image Removed]] 14 % [[Image Removed]] 28 [[Image Removed]] 17 % [[Image Removed]] 25 [[Image Removed]] 17 % Rest of World [[Image Removed]] 9 [[Image Removed]] 7 % [[Image Removed]] 2 [[Image Removed]] 4 % [[Image Removed]] 9 [[Image Removed]] 5 % [[Image Removed]] 15 [[Image Removed]] 10 % [[Image Removed]] 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 The principal competitors for Nutrinova's Sunett sweetener are Holland Sweetener Company, The NutraSweet Company, Ajinomoto Co., Inc. and several Chinese manufacturers. In sorbates, Nutrinova competes with Nantong AA, Daicel, Yu Yao/Ningbo, Yancheng AmeriPac and other Chinese manufacturers of sorbates. Other Activities Other Activities included revenues mainly from the captive insurance companies, Celanese Advanced Materials, Inc., and Pemeas GmbH or Pemeas. Celanese Advanced Materials consists of high performance polymer PBI and the Vectran polymer fiber product lines. Pemeas, a venture with a 140 -------------------------------------------------------------------------------- consortium of investors led by Conduit Ventures, a London based venture capital company, develops high temperature membrane assemblies or MEA's for fuel cells. We contributed our MEA activity to Pemeas in April 2004. In December 2004, we approved a plan to dispose of our interest in Pemeas. Other activities also include corporate activities, several service companies and other ancillary businesses, which do not have significant sales. 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 the Celanese Corporation board of directors 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. The table below sets forth the earnings, cash flow contribution and depreciation and amortization of our strategic investments: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Succesor [[Image Removed]] Predecessor [[Image Removed]] [[Image Removed]] [[Image Removed]] Year Ended December 31, [[Image Removed]] Nine Months Ended [[Image Removed]] Three Months Ended [[Image Removed]] [[Image Removed]] December 31, 2004 March 31, 2004 2003 2002 [[Image Removed]] (in millions) Earnings from equity investments [[Image Removed]] $ 36 [[Image Removed]] $ 12 [[Image Removed]] $ 35 [[Image Removed]] $ 21 Dividends from equity investments [[Image Removed]] 22 [[Image Removed]] 15 [[Image Removed]] 23 [[Image Removed]] 61 Other distributions from equity investments [[Image Removed]] [[Image Removed]] 1 [[Image Removed]] [[Image Removed]] 39 Dividends from cost investments [[Image Removed]] 33 [[Image Removed]] 6 [[Image Removed]] 53 [[Image Removed]] 35 [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Year Ended December 31, [[Image Removed]] 2004 [[Image Removed]] 2003 [[Image Removed]] 2002 [[Image Removed]] (in millions) Depreciation and amortization of equity investees [[Image Removed]] [[Image Removed]] [[Image Removed]] (unaudited) $ 28 $ 27 $ 27 Depreciation and amortization of cost investees [[Image Removed]] [[Image Removed]] [[Image Removed]] (unaudited) 16 17 17 Total depreciation and amortization equity and cost [[Image Removed]] [[Image Removed]] [[Image Removed]] investees (unaudited) 44 44 44 [[Image Removed]] The fiscal year end for all of our ventures is December 31. Depreciation and amortization as presented in the table above represents the amounts recorded by the ventures based on local generally accepted accounting principles, computed in proportion to our ownership percentage. These amounts are not included in the depreciation and amortization reported by the Successor and the Predecessor. 141 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Accounting [[Image Removed]] [[Image Removed]] Name Location Ownership Method Partner(s) Description Chemical Products [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Clear Lake Methanol Partners LP [[Image Removed]] U.S. [[Image Removed]] 50.0 % [[Image Removed]] Equity [[Image Removed]] Valero [[Image Removed]] Methanol production National Methanol Company (lbn Sina) [[Image Removed]] Saudi Arabia [[Image Removed]] 25.0 % [[Image Removed]] Cost [[Image Removed]] SABIC, CTE Petrochemicals [[Image Removed]] Methanol production European Oxo JV [[Image Removed]] Germany [[Image Removed]] 50.0 % [[Image Removed]] Equity [[Image Removed]] Degussa AG [[Image Removed]] European propylene-based oxo chemicals business Estech [[Image Removed]] Germany [[Image Removed]] 51.0 % [[Image Removed]] Equity [[Image Removed]] Hatco Corporation [[Image Removed]] Neopolyol esters (NPEs) Technical Polymers Ticona [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Korea Engineering Plastics Co., Ltd. (KEPCO) [[Image Removed]] Korea [[Image Removed]] 50.0 % [[Image Removed]] Equity [[Image Removed]] Mitsubishi Gas Chemical Company, Inc. [[Image Removed]] POM Polyplastics Co., Ltd. [[Image Removed]] Japan [[Image Removed]] 45.0 % [[Image Removed]] Equity [[Image Removed]] Daicel Chemical Industries Ltd. [[Image Removed]] Polyacetal products Fortron Industries [[Image Removed]] U.S. [[Image Removed]] 50.0 % [[Image Removed]] Equity [[Image Removed]] Kureha Chemical Industries [[Image Removed]] PPS Acetate Products [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Kunming Cellulose Fibers Co. Ltd. [[Image Removed]] China [[Image Removed]] 30.0 % [[Image Removed]] Cost [[Image Removed]] China National Tobacco Corp. [[Image Removed]] Acetate tow production Nantong Cellulose Fibers Co. Ltd. [[Image Removed]] China [[Image Removed]] 31.0 % [[Image Removed]] Cost [[Image Removed]] China National Tobacco Corp. [[Image Removed]] Acetate tow and flake production Zhuhai Cellulose Fibers Co. Ltd. [[Image Removed]] China [[Image Removed]] 30.0 % [[Image Removed]] Cost [[Image Removed]] Tobacco China National Corp. [[Image Removed]] Acetate tow production [[Image Removed]] The following are our principal ventures: Major Equity Investments Polyplastics Co., Ltd. Polyplastics Co., Ltd. ("Polyplastics") is a leading supplier of engineering plastics in the Asia-Pacific region. Established in 1964 and headquartered in Japan, Polyplastics is a 45/55 venture between us and Daicel Chemical Industries Ltd. Polyplastics' principal production facilities are located in Japan, Taiwan, and Malaysia (with an additional venture facility under construction in China). We believe Polyplastics is the largest producer and marketer of POM in the Asia-Pacific region. Korea Engineering Plastics Co. Ltd. Founded in 1987, Korea Engineering Plastics Co., Ltd. ("KEPCO") is the leading producer of POM in South Korea. We acquired our 50% interest in KEPCO in 1999 from the Hyosung Corporation, a Korean conglomerate. Mitsubishi Gas Chemical Company owns the remaining 50% of KEPCO. KEPCO operates a 55,000-ton annual capacity polyacetal products plant in Ulsan, South Korea. Fortron Industries. Fortron Industries is a 50/50 venture between us and Kureha Chemical Industry Co. Ltd. (KCI) of Japan. Production facilities are located in Wilmington, NC. We believe Fortron has the leading technology in linear polymer. European Oxo. In October 2003, we entered into a 50/50 venture for European oxo operations with Degussa AG. Under the terms of this venture, we merged our commercial, technical and operational propylene-based oxo business activities, with those of Degussa AG's Oxeno subsidiary. European Oxo has plants in Oberhausen and Marl, Germany. 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. Major Cost Investments China Acetate Products Ventures. We hold approximately 30% ownership interests (50% board representation) in three separate venture acetate products production entities in China: the Nantong, Kunming, and Zhuhai Cellulose Fiber Companies. In each instance, Chinese state-owned entities 142 -------------------------------------------------------------------------------- control the remainder. The terms of these ventures were recently extended through 2020. With an estimated 30% share of the world's cigarette production and consumption, China is the world's largest and fastest growing market for acetate tow products. In combination, these ventures represent the market leader in Chinese domestic acetate production and are well positioned to capture future growth in the Chinese cigarette market. In March 2003, we and our partners decided to expand the manufacturing facilities at all three ventures in China. The tow expansion at two of the ventures was completed in January 2005. The third is scheduled for completion in June 2005. Flake expansion is expected to be completed in 2007. The ventures are funding the investments from operating cash flows. National Methanol Co. (Ibn Sina). With production facilities in Saudi Arabia, National Methanol Co. represents 2% of the world's methanol production capacity and is the world's eighth largest Methanol 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 the Saudi Basic Industries Corporation (SABIC) (50%) and Texas Eastern Arabian Corporation Ltd. (25%). SABIC has responsibility for all product marketing. The investments, where Celanese owns greater than a 20 percent ownership interest, are accounted for under the cost method of accounting because Celanese cannot exercise significant influence. Acquisitions and Divestitures In the last three years, we acquired the following businesses: [[Image Removed]] [[Image Removed]] In February 2005, we acquired the Vinamul emulsions business of ICI. [[Image Removed]] [[Image Removed]] In December 2002, we purchased the European emulsions and global emulsion powders business of Clariant AG. In the last three years, we divested the following businesses: [[Image Removed]] [[Image Removed]] In February 2004, CAG sold its acrylates business to Dow. [[Image Removed]] [[Image Removed]] In December 2003, the Ticona segment completed the sale of its nylon business line to BASF. [[Image Removed]] [[Image Removed]] Effective January 1, 2002, CAG sold its interest in InfraServ GmbH & Co. Deponie Knapsack KG ("Deponie") to Trienekens AG. [[Image Removed]] [[Image Removed]] In December 2002, CAG sold Trespaphan, its global oriented polypropylene film business, to a consortium consisting of the Dor-Moplefan Group and Bain Capital, Inc. [[Image Removed]] [[Image Removed]] During 2002, CAG sold its global allylamines and U.S. alkylamines businesses to U.S. Amines Ltd. For further information on the acquisition and divestitures discussed above, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 7 to the Consolidated Financial Statements. 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 individual plants may have single sources of supply for some of their raw materials, such as carbon monoxide and acetaldehyde. In 2003, a primary U.S. supplier of wood pulp to the Acetate Products segment shut down its pulp facility. This closure resulted in increased operating costs for expenses associated with qualifying wood pulp from alternative suppliers and significant increases in wood pulp inventory levels. We have secured alternative sources of wood pulp supply. 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 143 -------------------------------------------------------------------------------- up for the loss of a major supplier. Nor can there 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. For example, the volatility of prices for natural gas and ethylene (whose cost is in part linked to natural gas prices) has increased in recent years. 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. Management's policy for the majority of its natural gas and butane requirements allows entering into supply agreements and forward purchase or cash-settled swap contracts. As of December 31, 2004, there were no derivative contracts outstanding. In 2003, there were forward contracts covering approximately 35% of the Company's Chemical Products segment North American requirements. Management regularly assesses its practice of purchasing a portion of its commodity requirements forward and the utilization of a variety of other raw material hedging instruments, in addition to forward purchase contracts, in accordance with changes in market conditions. Management capped its exposure on approximately 20% of its U.S. natural gas requirements during the months of August and September of 2004. The fixed price natural gas forward contracts and any premium associated with the purchase of a price cap are principally settled through actual delivery of the physical commodity. The maturities of the cash-settled swap or cap contracts correlate to the actual purchases of the commodity and have the effect or securing or limiting predetermined prices for the underlying commodity. Although these contracts were structured to limit exposure to increases in commodity prices, certain swaps may also limit the potential benefit the Company might have otherwise received from decreases in commodity prices. These cash-settled swap or cap contracts were accounted for as cash flow hedges. Research and Development All of our businesses conduct research and development activities to increase competitiveness. Our Technical Polymers Ticona and Performance Products segments in particular are innovation-oriented businesses that conduct research and development activities to develop new, and optimize existing, production technologies, as well as to develop commercially viable new products and applications. The Chemical Products segment has been focusing on improving core production technologies, such as improving catalyst development, and supporting both debottlenecking and cost reduction efforts. The Acetate Products segment has been concentrating on developing new applications for acetate tow, such as its use in disposable consumer materials. Research in the Technical Polymers Ticona segment is focused on the development of new formulations and applications for its products, improved manufacturing processes and new polymer materials with varying chemical and physical properties in order to meet customer needs and to generate growth. This effort involves the entire value chain from new or improved monomer production, polymerization and compounding, to working closely with end-users to identify new applications that can take advantage of these high performance features. Ticona is continually improving compounding recipes to extend product properties and grades, while offering grade consistency on a global basis. In addition, Ticona is developing new polymerization and manufacturing technology in order to meet economic and ecological goals without sacrificing high quality processing. The research and development activities of the Performance Products segment are conducted at Nutrinova's Frankfurt, Germany location. They are directed towards expanding its existing technologies and developing new applications for existing products in close cooperation with its customers. Research and development costs are included in expenses as incurred. The Successor's development costs for the nine months ended December 31, 2004 were $67 million. The Predecessor's 144 -------------------------------------------------------------------------------- research and development costs for the three months ended March 31, 2004, and for 2003 and 2002 were $23 million, $89 million and $65 million, respectively. For additional information on our research and development expenses, see "Management's Discussion and Analysis of Financial Condition and Results of OperationsSummary of Consolidated Results 2003 Compared with 2002Research and Development Expenses." 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. 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. 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, the Chemical Products segment 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 will expire in 2007; other patents covering acetic acid are presently pending. As patents expire, the products and processes described and claimed in those patents become generally available for use by the public. Our European and U.S. patents for making Sunett, an important product in our Performance Products segment, expire by the end of the first quarter of 2005, which will reduce our ability to realize revenues from making Sunett due to increased competition and potential limitations and will result in our results of operations and cash flows relating to the product being less favorable than today. We believe that the loss of no other single patent which may expire in the next several years will materially adversely affect our business or financial results. 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. Environmental and Other Regulation Obtaining, producing and distributing many of our products involves the use, storage, transportation and disposal of toxic and hazardous materials. We are subject to extensive, evolving and increasingly stringent national and local environmental laws and regulations, which address, among other things, the following: [[Image Removed]] [[Image Removed]] Emissions to the air; [[Image Removed]] [[Image Removed]] Discharges to surface and subsurface waters; [[Image Removed]] [[Image Removed]] Other releases into the environment; [[Image Removed]] [[Image Removed]] Generation, handling, storage, transportation, treatment and disposal of waste materials; [[Image Removed]] [[Image Removed]] Maintenance of safe conditions in the workplace; and 145 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] Production, handling, labeling or use of chemicals used or produced by us. We are subject to environmental laws and regulations that may require us to remove or mitigate the effects of the disposal or release of chemical substances at various sites. Under some of these laws and regulations, a current or previous owner or operator of property may be held liable for the costs of removal or remediation of hazardous substances on, under, or in its property, without regard to whether the owner or operator knew of, or caused the presence of the contaminants, and regardless of whether the practices that resulted in the contamination were legal at the time they occurred. As many of our production sites have an extended history of industrial use, it is impossible to predict precisely what effect these laws and regulations will have on us in the future. Soil and groundwater contamination has occurred at some of our sites, and might occur or be discovered at other sites. The Predecessor's worldwide expenditures for the three months ended March 31, 2004 and the Successor's worldwide expenditures for the nine months ended December 31, 2004, in each case, including those with respect to third party and divested sites, and those for compliance with environmental control regulations and internal company initiatives, totaled $22 million of which $2 million was for capital projects and totaled $66 million of which $6 million was for capital projects, respectively. It is anticipated that stringent environmental regulations will continue to be imposed on us and the industry in general. Although we cannot predict with certainty future expenditures, due to new air regulations in the U.S., management expects that there will be a temporary increase in compliance costs that will total approximately $30 million to $45 million through 2007. According to our estimates, there may be an additional increase of approximately $50 million over the $30 to $45 million during that time depending on the outcome of the pending court challenge to the low risk alternative method of compliance allowed by recent air regulations for Industrial/Commercial/Institutional Boilers and Process Heaters, but thereafter management believes that the current spending trends will continue. It is difficult to estimate the future costs of environmental protection and remediation because of many uncertainties, including uncertainties about the status of laws, regulations, and information related to individual locations and sites. Subject to the foregoing, but taking into consideration our experience to date regarding environmental matters of a similar nature and facts currently known, we believe that capital expenditures and remedial actions to comply with existing laws governing environmental protection will not have a material adverse effect on our business and financial results. Air Issues In December 1997, the Conference of the Parties of the United Nations Framework Convention on Climate Change drafted the Kyoto Protocol, which would establish significant emission reduction targets for six gases considered to have global warming potential (referred to as greenhouse gases) and would drive mandatory reductions in developed nations subject to the Protocol. With Russia's ratification in November 2004, the Protocol has been adopted by enough of the larger, industrialized countries (defined in Annex I to the Protocol) and came into effect in February 2005 in all nations that have ratified it. The European Union or EU, including Germany and other countries where the Company has interests, ratified the Kyoto Protocol in 2002 and is formulating applicable regulations. Recent European Union regulations required all EU member states to have implemented a trading system covering carbon dioxide emissions by January 1, 2005. Accordingly, an emission trading system came into effect at the start of 2005. The new regulation directly affects our power plants at the Kelsterbach and Oberhausen sites in Germany and the Lanaken site in Belgium, as well as the power plants being operated by other InfraServ entities on sites at which we operate. We and the InfraServ entities may be required to purchase carbon dioxide credits, which could result in increased operating costs, or may be required to develop additional cost-effective methods to reduce carbon dioxide emissions further, which could result in increased capital expenditures. We have not yet determined the impact of this legislation on future capital spending. The new regulation indirectly affects our other operations in the EU, which may experience higher energy costs from third party providers. We have not yet determined the impact of this legislation on our operating costs. In 2002, President Bush announced new climate change initiatives for the U.S. Among the policies to be pursued is a voluntary commitment to reduce the "greenhouse gas intensity" of the U.S. 146 -------------------------------------------------------------------------------- economy by 18 percent within the next ten years. The Bush Administration is seeking to partner with various industrial sectors, including the chemical industry, to reach this goal. The American Chemistry Council, of which we are a member, has committed to pursue additional reductions in greenhouse gas intensity toward an overall target of 18 percent by 2012, using 1990 emissions intensity as the baseline. We currently emit carbon dioxide and smaller amounts of methane and experience some losses of polyfluorinated hydrocarbons used as refrigerants. We have invested and continue to invest in improvements to our processes that increase energy efficiency and decrease greenhouse gas intensity. In some cases, compliance with environmental health and safety requirements involves our incurring capital expenditures. Due to new air regulations in the United States, management expects that there will be a temporary increase in compliance costs that will total approximately $30 million to $45 million through 2007. For example, the Miscellaneous Organic National Emissions Standards for Hazardous Air Pollutants regulations, and various approaches to regulating boilers and incinerators, including the National Emission Standards for Hazardous Air Pollutants (NESHAP) for Industrial/Commercial/Institutional Boilers and Process Heaters, will impose additional requirements on our operations. Although some of these rules have been finalized, a significant portion of the NESHAP for Industrial/Commercial/Industrial Boilers and Process Heaters regulation that provides for a low risk alternative method of compliance for hydrogen chloride emissions has been challenged in federal court. We cannot predict the outcome of this challenge, which could, if successful, increase our costs by, according to our estimates, approximately $50 million in addition to the $30 million to $45 million noted above through 2007 to comply with this regulation. Chemical Products Issues Other new or revised regulations may place additional requirements on the production, handling, labeling or use of some chemical products. Pursuant to a 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. Some of the chemicals initially being evaluated include vinyl acetate monomer or VAM, which CAG produces, as well as competitors' products, such as styrene and 1,3-butadiene. These risk assessments entail a multi-stage process to determine whether and to what extent the Commission should classify the chemical as a carcinogen and, if so, whether this classification, and related labeling requirements, should apply only to finished products that contain specified threshold concentrations of a particular chemical. In the case of VAM, we currently do not expect a final ruling until the end of the first half of 2005. We and other VAM producers are participating in this process with detailed scientific analyses supporting the industry's position that VAM is not a probable human carcinogen and that labeling of end products should not be required but that, if it is, should only be at relatively high parts per million of residual VAM levels in the end products. It is not possible for us to predict the outcome or effect of any final ruling. Several recent studies have investigated possible links between formaldehyde exposure and various medical conditions, including leukemia. The International Agency for Research on Cancer or IARC recently 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 IARC's 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, together with other producers and users, are evaluating these findings. We cannot predict the final effect of IARC's reclassification. Other recent initiatives will potentially require toxicological testing and risk assessments of a wide variety of chemicals, including chemicals used or produced by us. These initiatives include the Voluntary Children's Chemical Evaluation Program and High Production Volume Chemical Initiative 147 -------------------------------------------------------------------------------- in the United States, as well as various European Commission programs, such as the new European Environment and Health Strategy, commonly known as SCALE, and the proposal for the Registration, Evaluation and Authorization and Restriction of Chemicals or REACH. REACH, which was proposed by the European Commission in October 2003, will establish a system to register and evaluate chemicals manufactured or imported to the European Union. Depending on the final ruling, additional testing, documentation and risk assessments will occur for the chemical industry. This will affect European producers of chemicals as well as all chemical companies worldwide that export to member states of the European Union. The final ruling has not yet been decided. The above-mentioned assessments in the United States and Europe may result in heightened concerns about the chemicals involved, and in 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 adversely affect the demand for these products. Remediation Issues We are subject to claims brought by United States federal or state regulatory agencies, regulatory agencies in other jurisdictions or private individuals regarding the cleanup of sites that we own or operate, owned or operated, or where waste or other material from its operations was disposed, treated or recycled. In particular, we have a potential liability under the United States Federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, commonly known as Superfund, the United States Resource Conservation and Recovery Act, and related state laws, or regulatory requirements in other jurisdictions, or through obligations retained by contractual agreements for investigation and cleanup costs. At many of these sites, numerous companies, including us, or one of our predecessor companies, have been notified that the Environmental Protection Agency or EPA, state governing body or private individuals consider such companies to be potentially responsible parties 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. We regularly review the liabilities for these sites and accrue our best estimate of our ultimate liability for investigation or cleanup costs, but, due to the many variables involved in such estimation, the ultimate liability may vary from these estimates. Our wholly-owned subsidiary, InfraServ Verwaltungs GmbH, is the general partner of the InfraServ companies that provide on-site general and administrative services at German sites in Frankfurt am Main-Hoechst, Gendorf, Huerth-Knapsack, Wiesbaden, Oberhausen and Kelsterbach. Producers at the sites, including our subsidiaries, are owners of limited partnership interests in the respective InfraServ companies. The InfraServ companies are liable for any residual contamination and other pollution because they own the real estate on which the individual facilities operate. In addition, Hoechst, 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. However, the InfraServ companies have agreed to indemnify Hoechst from any environmental liability arising out of or in connection with environmental pollution of any InfraServ site. The partnership agreements provide that, as between the limited partners, each limited partner is responsible for any contamination caused predominantly by such partner. The limited partners have also undertaken to indemnify Hoechst against such liabilities. Any liability that cannot be attributed to an InfraServ partner and for which no third party is responsible, is required to be borne by the InfraServ company in question. In view of this potential obligation to eliminate residual contamination, the InfraServ companies in which we have an interest, have recorded provisions totaling approximately $81 million as of December 31, 2004. If the InfraServ companies default on their respective indemnification obligations to eliminate residual contamination, the limited partners 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 InfraServ companies or the limited partners, these liabilities are to be borne by us in accordance with the demerger agreement. As between Hoechst and CAG, Hoechst has agreed to indemnify CAG for two-thirds of these demerged residual liabilities. Likewise, in some circumstances CAG could be responsible for the 148 -------------------------------------------------------------------------------- elimination of residual contamination on a few sites that were not transferred to Infraserv companies, in which case Hoechst must reimburse CAG for two-thirds of any costs so incurred. Some of our facilities in Germany are over 100 years old, and there may be significant contamination at these facilities. Provisions are not recorded for potential soil contamination liability at facilities still under operation, as German law does not currently require owners or operators to investigate and remedy soil contamination until the facility is closed and dismantled, unless the authorities otherwise direct. However, soil contamination known to the owner or operator must be remedied if such contamination is likely to have an adverse effect on the public. If we were to terminate operations at one of our facilities or if German law were changed to require such removal or clean up, the cost could be material to us. We cannot accurately determine the ultimate potential liability for investigation and clean up at such sites. We adjust provisions as new remedial commitments are made. See notes 4 and 19 to the Consolidated Financial Statements. In the demerger agreement between Hoechst and CAG, CAG agreed to indemnify Hoechst against environmental liabilities for environmental contamination that could arise under some divestiture agreements regarding chemical businesses, participations or assets located in Germany, the U.S. and other countries that were entered into by Hoechst prior to the demerger. CAG and Hoechst have agreed that CAG will indemnify Hoechst against those liabilities up to an amount of 250 million (approximately $340 million). Hoechst will bear those liabilities exceeding 250 million (approximately $340 million), but CAG will reimburse Hoechst for one-third of those liabilities for amounts that exceed 750 million (approximately $1,022 million). CAG has made payments through December 31, 2004 of $38 million for environmental contamination liabilities in connection with the divestiture agreements. As of December 31, 2004, CAG has reserves of $46 million for this contingency and may be required to record additional reserves in the future. See Notes 19 and 27 to the Consolidated Financial Statements. At December 31, 2004, the estimated range for remediation costs is between $100 million and $143 million, with the best estimate of $143 million. Future findings or changes in estimates could have a material effect on the recorded reserves and Celanese's cash flows. As of December 31, 2004 and December 31, 2003, we had reserves of $143 million and $159 million, respectively, for environmental matters worldwide. We regularly review the liabilities for these sites and have accrued our best estimate of an ultimate liability for investigation or cleanup costs, but, due to many variables involved in such estimation, the ultimate liability may vary from these estimates. Organizational Structure Significant Subsidiaries We operate our global businesses through subsidiaries in Europe, North America and Asia, all of which are owned indirectly through a series of holding companies. Our European and Asian subsidiaries, including Celanese Chemicals Europe GmbH, Ticona GmbH, Nutrinova Nutrition Specialties & Food Ingredients GmbH, and Celanese Singapore Pte., Ltd., are owned indirectly by CAG. In North America, many of the businesses are consolidated under CAC which, through its wholly-owned subsidiary, CNA Holdings, Inc., directly or indirectly owns the North American operating companies. These include Celanese Ltd., Ticona Polymers, Inc., Celanese Acetate LLC, and Grupo Celanese S.A. Employees As of December 31, 2004, we had approximately 9,100 employees worldwide from continuing operations, compared to 9,500 as of December 31, 2003. This represents a decrease of approximately 4 percent. The following table sets forth the approximate number of employees on a continuing basis as of December 31, 2004, 2003, and 2002. 149 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Employees as of December 31, [[Image Removed]] 2004 [[Image Removed]] 2003 [[Image Removed]] 2002 North America [[Image Removed]] 5,500 [[Image Removed]] 5,600 [[Image Removed]] 6,300 thereof USA [[Image Removed]] 4,000 [[Image Removed]] 4,000 [[Image Removed]] 4,600 thereof Canada [[Image Removed]] 400 [[Image Removed]] 400 [[Image Removed]] 500 thereof Mexico [[Image Removed]] 1,100 [[Image Removed]] 1,200 [[Image Removed]] 1,200 Europe [[Image Removed]] 3,300 [[Image Removed]] 3,600 [[Image Removed]] 3,900 thereof Germany [[Image Removed]] 3,000 [[Image Removed]] 3,000 [[Image Removed]] 2,800 Asia [[Image Removed]] 200 [[Image Removed]] 200 [[Image Removed]] 200 Rest of World [[Image Removed]] 100 [[Image Removed]] 100 [[Image Removed]] 100 Total Employees [[Image Removed]] 9,100 [[Image Removed]] 9,500 [[Image Removed]] 10,500 [[Image Removed]] 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 a 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. Description of Property As of December 31, 2004, 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. The following table sets forth a list of our principal production and other facilities throughout the world as of December 31, 2004. 150 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Site [[Image Removed]] Leased/Owned [[Image Removed]] Products/Functions Corporate Offices [[Image Removed]] [[Image Removed]] Dallas, Texas, USA [[Image Removed]] Leased [[Image Removed]] Corporate headquarters Kronberg/Taunus, Germany [[Image Removed]] Leased [[Image Removed]] Administrative offices Bedminster, New Jersey, USA [[Image Removed]] Leased [[Image Removed]] Administrative offices Chemical Products [[Image Removed]] [[Image Removed]] Bay City, Texas, USA Owned Butyl acetate Iso-butylacetate Propylacetate Vinyl acetate monomer [[Image Removed]] [[Image Removed]] Carboxylic acids n/i-Butyraldehyde Butyl alcohols Propionaldehyde, Propyl alcohol Bishop, Texas, USA Owned Formaldehyde [[Image Removed]] [[Image Removed]] Methanol Pentaerythritol Polyols Calvert City, Kentucky, USA [[Image Removed]] Owned [[Image Removed]] Polyvinyl alcohol Cangrejera, Veracruz, Mexico Owned Acetic anhydride Acetone derivatives [[Image Removed]] [[Image Removed]] Ethyl acetate Vinyl acetate monomer Methyl amines Clear Lake, Texas, USA [[Image Removed]] Owned [[Image Removed]] Acetic acid Vinyl acetate monomer Edmonton, Alberta, Canada [[Image Removed]] Owned [[Image Removed]] Methanol Frankfurt am Main, Germany Owned by InfraServ GmbH & Acetaldehyde Co. Hoechst KG, in which Butyl acetate CAG holds a 31.2 percent Conventional emulsions [[Image Removed]] limited partnership interest [[Image Removed]] Emulsion powders Vinyl acetate ethylene emulsions Vinyl acetate monomer Oberhausen, Germany Owned by InfraServ GmbH & Amines [[Image Removed]] Co. Oberhausen KG, in which [[Image Removed]] Carboxylic Acids CAG holds an 84.0 percent Neopentyl Glycols limited partnership interest Pampa, Texas, USA Owned Acetic acid [[Image Removed]] [[Image Removed]] Acetic anhydride Ethyl acetate Pasadena, Texas, USA [[Image Removed]] Owned [[Image Removed]] Polyvinyl alcohol Jurong Island, Singapore Owned Acetic acid [[Image Removed]] [[Image Removed]] Butyl acetate Ethyl acetate Vinyl acetate monomer Koper, Slovenia [[Image Removed]] Owned [[Image Removed]] Conventional emulsions Tarragona, Spain Owned by Complejo Industrial Vinyl acetate monomer [[Image Removed]] Taqsa AIE, in which CAG [[Image Removed]] holds a 15.0 percent share Tarragona, Spain [[Image Removed]] Owned [[Image Removed]] Vinyl acetate ethylene emulsions Tarragona, Spain [[Image Removed]] Leased [[Image Removed]] Conventional emulsions [[Image Removed]] 151 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Site [[Image Removed]] Leased/Owned [[Image Removed]] Products/Functions Perstorp, Sweden [[Image Removed]] Owned [[Image Removed]] Conventional emulsions Vinyl acetate ethylene emulsions Acetate Products [[Image Removed]] [[Image Removed]] Lanaken, Belgium [[Image Removed]] Owned [[Image Removed]] Tow Narrows, Virginia, USA(1) [[Image Removed]] Owned [[Image Removed]] Tow, Filament, Flake Ocotlan, Jalisco, Mexico(1) [[Image Removed]] Owned [[Image Removed]] Tow, Filament Technical Polymers Ticona [[Image Removed]] [[Image Removed]] Auburn Hills, Michigan, USA [[Image Removed]] Leased [[Image Removed]] Automotive Development Center Bishop, Texas, USA Owned PE-UHMW (GUR) [[Image Removed]] [[Image Removed]] Polyacetal products (Celcon) Compounding Florence, Kentucky, USA [[Image Removed]] Owned [[Image Removed]] Compounding Kelsterbach, Germany Owned by InfraServ GmbH & Polyacetal products (Hostaform) [[Image Removed]] Co. Kelsterbach KG, in which [[Image Removed]] Compounding CAG holds a 100.0% limited partnership interest LFT (Celstran) Oberhausen, Germany Owned by InfraServ GmbH & PE-UHMW (GUR) [[Image Removed]] Co. Oberhausen KG, in which [[Image Removed]] CAG holds an 84.0% limited partnership interest Shelby, North Carolina, USA [[Image Removed]] Owned [[Image Removed]] LCP PBT and PET (Celanex) Compounding Wilmington, North Carolina, USA [[Image Removed]] Leased by a non-consolidated [[Image Removed]] PPS (Fortron) venture, in which CAG has a 50% interest Winona, Minnesota, USA [[Image Removed]] Owned [[Image Removed]] LFT (Celstran) Performance Products [[Image Removed]] [[Image Removed]] Frankfurt am Main, Germany Owned by InfraServ GmbH & Sorbates [[Image Removed]] Co. Hoechst KG, in which [[Image Removed]] Sunett CAG holds a 31.2% limited partnership interest [[Image Removed]] [[Image Removed]] [[Image Removed]][[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] (1) Filament production at Narrows and Ocotlan is expected to be discontinued by mid-2005. Flake production at Ocotlan is expected to be recommissioned in 2005. Polyplastics has its principal production facilities in Japan, Taiwan and Malaysia. Korea Engineering Plastics has its principal production facilities in South Korea. Our Chemical Products segment has ventures with manufacturing facilities in Saudi Arabia and Germany and its Acetate Products segment has three ventures with production facilities in China. During the nine months ended December 31, 2004, the Successor and its consolidated subsidiaries, in the aggregate, had capital expenditures for the expansion and modernization of production, manufacturing, research and administrative facilities of $166 million. During the three months ended March 31, 2004, the Predecessor and its consolidated subsidiaries, in the aggregate, had capital expenditures for the expansion and modernization of production, manufacturing, research and administrative facilities of $44 million. In 2003 and 2002, these expenditures amounted to $211 million and $203 million, respectively. 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. 152 -------------------------------------------------------------------------------- For information on environmental issues associated with our properties, see "BusinessEnvironmental and Other Regulation" and "Management's Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesEnvironmental Matters." Additional information with respect to our property, plant and equipment, and leases is contained in Notes 12 and 25 to the Consolidated Financial Statements. 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, anti-trust, 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, management believes 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 also Note 27 to the Consolidated Financial Statements. Plumbing Actions CNA Holdings, Inc. ("CNA Holdings"), a U.S. subsidiary of Celanese Corporation, included the U.S. business now conducted by the Ticona segment, CNA Holdings, along with Shell Oil Company ("Shell"), DuPont and others, have been the defendants in a series of lawsuits, including a number of class actions, alleging that plastics manufactured by these companies that were utilized in the production of plumbing systems for residential property were defective or caused such plumbing systems to fail. Based on, among other things, the findings of outside experts and the successful use of Ticona's acetal copolymer in similar applications, CNA Holdings does not believe Ticona's acetal copolymer was defective or caused the plumbing systems to fail. In 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, further described below, as well as a defendant in other non-class actions filed in ten states, the U.S. 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. Developments under these matters are as follows: [[Image Removed]] [[Image Removed]] Dilday, et al. v. Hoechst Celanese Corporation, et al.Weakley County, Tennessee 27th Judicial Chancery Court. Class certification of recreational vehicle owners was denied in July 2001, and cases are proceeding on an individual basis. [[Image Removed]] [[Image Removed]] Shelter General Insurance Co., et al. v. Shell Oil Company, et al.Weakley County, Tennessee Chancery Court. In April 2000, the U.S. District Court for the District of New Jersey denied class certification for a putative class action (of insurance companies with respect to subrogation claims). The plaintiffs' appeal to the Third Circuit Court of Appeals was denied in July 2000, and the case was subsequently dismissed. In September 2000, a similar putative class action seeking certification of the same class that was denied in the New Jersey matter was filed in Tennessee state court. The Tennessee court denied certification in March 2002, and plaintiffs are attempting an appeal. Cases are continuing on an individual basis. [[Image Removed]] [[Image Removed]] Tom Tranter v. Shell Oil Company, et al.Ontario Court, General Division; Gariepy, et al. v. Shell Oil Company, et al.Ontario Court, General Division. These matters, which the Court consolidated, were denied class certification but are currently on appeal. Dupont and Shell have each settled these matters, as well as the Couture and Furlan matters below. Their settlement agreements have been approved by the Court. We are the only defendant remaining in this lawsuit. 153 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] Richard Couture, et al. v. Shell Oil Company, et al.Superior Court, Providence of Quebec; Furlan v. Shell Oil Company, et al.British Columbia Supreme Court, Vancouver Registry. Dupont and Shell have each settled these matters, as noted above. CNA Holdings is the only defendant remaining in these lawsuits. They are "on hold" pending the outcome of the appeal in the Tranter and Gariepy matters above, as in Canadian practice, Ontario tends to be the "lead jurisdiction" in such cases. [[Image Removed]] [[Image Removed]] Howard, et al. v. Shell Oil Company, et al.9th Judicial Circuit Court of Common Pleas, Charleston County, South Carolina; Viera, et al. v. Hoechst Celanese Corporation, et al.11th Judicial Circuit Court, Dade County, Florida; Fry, et al. v. Hoechst Celanese Chemical Group, Inc., et al.5th Judicial Circuit Court, Marion County, Florida. Certification has been denied in these putative class actions pending in South Carolina and Florida state courts. The Plaintiff's petition to appeal the Howard matter to the United States Supreme Court was denied in late September 2004, and CNA Holdings' motion to dismiss has been granted. Although plaintiffs in Viera and Fry subsequently sought to bring actions individually, they were dismissed, and their appeal was denied. [[Image Removed]] [[Image Removed]] Richard, et al. v. Hoechst Celanese Chemical Group, Inc., et al.U.S. District Court for the Eastern District of Texas, Texarkana Division. The court denied certification of a putative class action in March 2002, and the Fifth Circuit Court has upheld the dismissal. The plaintiff's petition to appeal to the United States Supreme Court was denied in late September 2004. [[Image Removed]] [[Image Removed]] St. Croix Ltd., et al. v. Shell Oil Company, et al.Virgin Islands Territorial Court, St. Croix Division. The court in a putative class action denied certification to a U.S. territories-wide class and dismissed CNA Holdings on jurisdictional grounds. Plaintiffs are seeking reconsideration of those rulings. [[Image Removed]] [[Image Removed]] Vickers, et al. v. Shell Oil Company, et al.U.S. District CourtNorthern District of Indiana. A putative nationwide class action was filed in federal court in December 2002 against, among others, CNA Holdings and Shell. CNA Holding's motion to dismiss this lawsuit was granted in December 2003. The plaintiffs' appeal to the 7th Circuit of Appeals in January 2004 was dismissed. In order to reduce litigation expenses and to provide relief to qualifying homeowners, in November 1995, CNA Holdings, DuPont and Shell Oil Company 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 have agreed to fund these replacements and reimbursements up to $950 million. As of December 31, 2004, the funding is $1,073 million due to additional contributions and funding commitments made primarily by other parties. There are additional pending lawsuits in approximately 5 jurisdictions not covered by this settlement; however, these cases do not involve (either individually or in the aggregate) a large number of homes, and management does not expect the obligations arising from these lawsuits to have a material adverse effect on the Company. In 1995, CNA Holdings and Shell Oil Company settled the claims relating to individuals in Texas owning a total of 110,000 property units, who are represented by a Texas law firm, for an amount that will not exceed $170 million. These claimants are also eligible for a replumb of their homes in accordance with terms similar to those of the national class action settlement. CNA Holdings' and Shell Oil Company's contributions under this settlement were subject to allocation as determined by binding arbitration. 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. As a result, settlements have been reached with a majority of CNA Holdings' insurers specifying their responsibility for these claims. However, in January 2000, CNA Holdings filed a motion in Superior State Court in Wilmington, Delaware to set a trial date with respect to this lawsuit against one insurer, 154 -------------------------------------------------------------------------------- asserting that the settlement is void because the insurer refused to make the required "coverage in place" payments to CNA Holdings. The insurer and CNA Holdings signed a settlement agreement in June 2003. Pursuant to the settlement agreement, the insurer agreed to pay CNA Holdings $105 million in five annual installments in satisfaction of all claims incurred and to be incurred for the product liability expense previously covered by the insurer. In February 2005, CNA Holdings reached a settlement agreement with another insurer, pursuant to which the insurer agreed to pay CNA Holdings $44 million in exchange for the release of certain claims. This amount was recorded as a reduction of goodwill. Management believes that the plumbing actions are adequately provided for in the Consolidated Financial Statements and that they will not have a material adverse effect on our financial position. However, if we were to incur an additional charge for this matter, such a charge would not be expected to have a material adverse effect on our financial position, but may have a material adverse effect on our results of operations or cash flows in any given accounting period. No assurance can be given that our litigation reserves will be adequate or that we will fully recover claims under our insurance policies. Sorbates Antitrust Actions In 1998, Nutrinova, Inc., a U.S. subsidiary of Nutrinova Nutrition Specialties & Food Ingredients GmbH, then a wholly-owned subsidiary of Hoechst, received a grand jury subpoena from the United States District Court for the Northern District of California in connection with a criminal antitrust investigation of the sorbates industry. On May 3, 1999, Hoechst and the U.S. Federal Government entered into an agreement under which Hoechst pled guilty to a one-count indictment charging Hoechst with participating in a conspiracy to fix prices and allocate market shares of sorbates sold in the United States. Hoechst and the U.S. Federal Government agreed to recommend that the U.S. District Court fine Hoechst $36 million, payable over five years, with the last payment of $5 million being paid in June 2004. Hoechst also agreed to cooperate with the U.S. Federal investigation and prosecutions related to the sorbates industry. The U.S. District Court accepted this plea on June 18, 1999 and imposed a penalty as recommended in the plea agreement. Nutrinova and Hoechst have cooperated with the European Commission since 1998 in connection with matters relating to the sorbates industry. In May 2002, the European Commission informed Hoechst of its intent to investigate officially the sorbates industry, and in early January 2003, the European Commission served Hoechst, Nutrinova 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 Chemical Industries Ltd., 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 138.4 million (approximately $189 million), of which 99 million (approximately $135 million) was assessed against Hoechst. The case against Nutrinova was closed. The fine against Hoechst is based on the European Commission's finding that Hoechst does not qualify under the leniency policy, is a repeat violator and, together with Daicel, was a co-conspirator. In Hoechst's favor, the European Commission gave a discount for cooperating in the investigation. Hoechst appealed the European Commission's 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 U.S. state and federal courts naming Hoechst, Nutrinova, and our other subsidiaries, as well as other sorbates manufacturers, as defendants. Many of these actions have been settled and dismissed by the court. One private action, Kerr v. Eastman Chemical Co. et al., is still pending in the Superior Court of New Jersey, Law Division, Gloucester County. The plaintiff alleges violations of the New Jersey Antitrust Act and the New Jersey Consumer Fraud Act and seeks unspecified damages. 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 155 -------------------------------------------------------------------------------- agreement expired in July 2003. Since October 2002, the Attorneys General for New York, Illinois, Ohio, 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 Celanese. A motion for reconsideration is pending in Nevada. An appeal filed in Idaho was dismissed, and that dismissal was upheld by the Idaho Supreme Court. 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. pending in the New York State Supreme Court, New York County, is the only Attorney General action still pending; it too seeks unspecified damages. All antitrust claims in this matter were dismissed by the court in September 2004; however, other state law claims are still pending. Hoechst and Nutrinova have filed an appeal of the court's denial of the motion to dismiss those remaining claims. A settlement agreement with the Attorneys General of Connecticut, Florida, Hawaii, Maryland, South Carolina, Oregon and Washington is currently being negotiated and these Attorneys General have been granted extensions of the tolling agreement. Although the outcome of the foregoing proceedings and claims cannot be predicted with certainty, we believe that any resulting liabilities, net of amounts recoverable from Hoechst, will not, in the aggregate, 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 period. In the demerger agreement, Hoechst agreed to pay 80 percent of liabilities that may arise from the government investigation and the civil antitrust actions related to the sorbates industry. Acetic Acid Patent Infringement Matters Celanese International Corporation v. China Petrochemical Development CorporationTaiwan Kaohsiung District Court. On February 7, 2001, Celanese International Corporation filed a private criminal action for patent infringement against China Petrochemical Development Corporation, or CPDC, alleging that CPDC infringed Celanese International Corporation's patent covering the manufacture of acetic acid. This criminal action was subsequently converted to a civil action alleging damages against CPDC based on a period of infringement of five years, 1996-2000, and based on CPDC's own data and as reported to the Taiwanese securities and exchange commission. Celanese International Corporation's patent was held valid by the Taiwanese patent office. The amount of damages claimed by Celanese International Corporation has been reassessed at $35 million. This action is still pending. Shareholder Litigation CAG is a defendant in the following nine consolidated actions brought by minority shareholders during August 2004 in the Frankfurt District Court (Landgericht): Mayer v. Celanese AG Knoesel v. Celanese AG Allerthal Werke AG and Dipl.-Hdl. Christa Gtz v. Celanese AG Carthago Value Invest AG v. Celanese AG Prof. Dr. Ekkehard Wenger v. Celanese AG Jens-Uwe Penquitt & Claus Deiniger Vermgensverwaltung GbR v. Celanese AG Dr. Leonhard Knoll v. Celanese AG B.E.M. Brseninformations- und Effektenmanagement GmbH v. Celanese AG Protagon Capital GmbH v. Celanese AG Further, several minority shareholders have joined the proceedings via a third party intervention in support of the plaintiffs. The Purchaser has joined the proceedings via a third party intervention in support of CAG. On September 8, 2004, the Frankfurt District Court consolidated the nine actions. Among other things, these actions request the court to set aside shareholder resolutions passed at the extraordinary general meeting held on July 30 and 31, 2004 based on allegations that include the alleged violation of procedural requirements and information rights of the shareholders. Further, on August 2, 2004, two minority shareholders instituted public register proceedings with the Knigstein local court (Amtsgericht) and the Frankfurt district court, both with a view to have the 156 -------------------------------------------------------------------------------- registration of the Domination Agreement in the Commercial Register deleted (Amtslschungsverfahren). These actions are based on an alleged violation of procedural requirements at the extraordinary general meeting, an alleged undercapitalization of the Purchaser and Blackstone and an alleged misuse of discretion by the competent court with respect to the registration of the Domination Agreement in the Commercial Register. Based upon information available as of the date of this prospectus, the outcome of the foregoing proceedings cannot be predicted with certainty. Except for certain challenges on limited grounds, the time period to bring forward challenges (Amtechtungsklagen) has expired. The amounts of the fair cash compensation (Abfindung) and of the guaranteed fixed annual payment (Ausgleich) offered under the Domination Agreement may be increased in special award proceedings (Spruchverfahren) initiated by minority shareholders, which may further reduce the funds the Purchaser can otherwise make available to us. As of the date of this prospectus, several minority shareholders of CAG had initiated special award proceedings seeking court's review of the amounts of the fair cash compensation (Abfindung) and of the guaranteed fixed annual payment (Ausgleich) offered under the Domination Agreement. As a result of these proceedings, the amount of the fair cash consideration and the guaranteed fixed 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. This could reduce the funds the Purchaser can make available to Celanese Corporation and its subsidiaries and, accordingly, diminish our ability to make payments on our indebtedness. However, the court dismissed all of these proceedings in March 2005 on the grounds of inadmissibility. The dismissal is subject to appeal. In February 2005, a minority shareholder also brought a lawsuit against the Purchaser, as well as a former member of CAG's board of management and a former member of CAG's supervisory board, in the Frankfurt District Court. Among other things, this action seeks to unwind the tender of the plaintiff's shares in the Tender Offer and seeks compensation for damages suffered as a consequence of tendering shares in the Tender Offer. Based upon the information as available, the outcome of the foregoing proceedings cannot be predicted with certainty. Other Matters As of April 7, 2005, Celanese Ltd. and/or CNA Holdings, Inc., both our U.S. subsidiaries, are defendants in approximately 850 asbestos cases. Because many of these cases involve numerous plaintiffs, we are subject to claims significantly in excess of the number of actual cases. We have reserves for defense costs related to claims arising from these matters. We believe we do not have any significant exposure in these matters. 157 -------------------------------------------------------------------------------- MANAGEMENT Set forth below are the names, ages and current positions, as of April 7, 2005, of the present executive officers and directors of Celanese Corporation: [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Name [[Image Removed]] Age [[Image Removed]] Position David N. Weidman [[Image Removed]] 49 [[Image Removed]] Chief Executive Officer, President and Director Corliss J. Nelson [[Image Removed]] 60 [[Image Removed]] Executive Vice President and Chief Financial Officer Lyndon B. Cole [[Image Removed]] 51 [[Image Removed]] Executive Vice President and President of Ticona Andreas Pohlmann [[Image Removed]] 47 [[Image Removed]] Executive Vice President, Chief Administrative Officer and Secretary Chinh E. Chu [[Image Removed]] 38 [[Image Removed]] Chairman of the Board of Directors John M. Ballbach [[Image Removed]] 44 [[Image Removed]] Director James Barlett [[Image Removed]] 61 [[Image Removed]] Director Benjamin J. Jenkins [[Image Removed]] 34 [[Image Removed]] Director William H. Joyce [[Image Removed]] 69 [[Image Removed]] Director Anjan Mukherjee [[Image Removed]] 31 [[Image Removed]] Director Paul H. O'Neill [[Image Removed]] 69 [[Image Removed]] Director Hanns Ostmeier [[Image Removed]] 44 [[Image Removed]] Director James A. Quella [[Image Removed]] 54 [[Image Removed]] Director Daniel S. Sanders [[Image Removed]] 65 [[Image Removed]] Director [[Image Removed]] David N. Weidman has been Chief Executive Officer and President of Celanese Corporation and a member of the Board of Directors since December 2004. Until October 31, 2004 Mr. Weidman was a member of the board of management of CAG and served as its Vice Chairman since September 23, 2003 and CAG's chief operating officer since January 1, 2002. He joined CAG as the chief executive officer of Celanese Chemicals on September 1, 2000. Before joining CAG, he was a member of Honeywell/Allied Signal's corporate executive council and the president of its performance polymers business since 1998. Mr. Weidman joined Allied Signal in 1994 as vice president and general manager of performance additives and became president and general manager of fluorine products in 1995. Mr. Weidman began his career in the chemical industry with American Cyanamid in 1980, serving as vice president and general manager of its fibers division from 1990 to 1994, as vice president and general manager of Cyanamid Canada from 1989 to 1990, and as managing director of Cyanamid Nordiska in Stockholm, Sweden from 1987 to 1989. He is also a board member of the American Chemistry Council and the National Advisory Council of the Marriott School of Management, and is the Honorary Treasurer of the Society of Chemical Industry. Corliss J. Nelson has been Chief Financial Officer of Celanese Corporation since December 2004 and its Executive Vice President since November 2004. Mr. Nelson joined our company from JM Family Enterprises, where he had been executive vice president and chief financial officer since 2003. Before that Mr. Nelson was senior executive vice president and chief financial officer of Ryder System and also served on Ryder's board of directors from 1999 to 2003. He joined Koch Industries, Inc. in 1978 and held positions in controlling and treasury and as president of their international group and capital services group. Following graduation from California State Polytechnic University with a degree in finance and accounting, he began his career in a succession of finance positions at Cessna Aircraft Company and Rockwell International. 158 -------------------------------------------------------------------------------- Dr. Lyndon Cole has been Executive Vice President of Celanese Corporation since December 2004. Since April 1, 2003 he has also been Ticona's president. Currently, he is Vice Chairman of CAG's board of management, of which Dr. Cole has been a member since September 23, 2003. He has been the head of the Celanese AG Growth and Excellence Council since April 1, 2003. Dr. Cole joined CAG in March of 2002 as president of Celanese Chemicals. From 1998 to 2001, he had been chief executive officer of United Kingdom based Elementis PLC, a global specialty chemicals company. Prior to joining Elementis, he was general manager Global Structured Products for GE Plastics from 1990 to 1998 and previously held general management and commercial positions with GE Plastics, Dow Chemicals Europe and ICI. Dr. Andreas Pohlmann has been Executive Vice President, Chief Administrative Officer and Secretary of Celanese Corporation since December 2004. Since November 1, 2004, he has been Chairman of CAG's board of management. Before that he had been appointed Chief Administrative Officer and a member of the board of management of CAG since October 22, 2002 and has served as CAG's Vice President and Corporate Secretary since October 1999, and as managing director of Celanese Ventures since February 2002. In his ten years at Hoechst, Dr. Pohlmann, an attorney, held various positions of increasing responsibility in the Corporate Law, Corporate Public and Governmental Affairs, and Corporate Controlling and Development departments, ultimately serving as Hoechst AG's Corporate Secretary from 1996 to 1999. He is also a member of the supervisory board of the Pensionskasse der Mitarbeiter der Hoechst-Gruppe VVaG (German pension fund for employees of the Hoechst Group). Chinh E. Chu has been Chairman of the Board of Directors of Celanese Corporation since December 2004. Mr. Chu has been a member of our Board of Directors since March 2004. He is a Senior Managing Director of The Blackstone Group, which he joined in 1990. Mr. Chu currently serves on the boards of directors of Nalco Holding Company and Nycomed Holdings. Mr. Chu also serves on the supervisory board of CAG. John M. Ballbach has been a member of the Board of Directors of Celanese Corporation since January 5, 2005. Mr. Ballbach has been a private investor since April 2004, and President of Ballbach Consulting LLC since June 2004. Prior to that, he was an officer of The Valspar Corporation, and served as its president and chief operating officer from 2002 until January 2004. From 2000 to 2002, Mr. Ballbach served as the senior vice president of EPS, a color corporation and operation division of The Valspar Corporation. Mr. Ballbach joined The Valspar Corporation in 1990 and was its group vice president, packaging, since 1998. He is a vice chair of the Urban Ventures Leadership Foundation. James Barlett has been a member of the Board of Directors of Celanese Corporation since December 2004. He is vice chairman of TeleTech Holdings, Inc. since October 2001. Mr. Barlett was elected to TeleTech Holdings Inc.'s board of directors in February 2000. He previously served as the chairman, president, and chief executive officer of Galileo International. Prior to joining Galileo, Mr. Barlett served as executive vice president for MasterCard International Corporation and was executive vice president for NBD Bancorp. Mr. Barlett serves as a director of TeleTech Holdings, Inc. and Korn/Ferry International and is also a member of Korn/Ferry International's audit committee. Benjamin J. Jenkins has been a member of the Board of Directors of Celanese Corporation since April 2004. He is a Principal of The Blackstone Group, which he joined in 1999. Prior to that, Mr. Jenkins was an associate at Saunders Karp & Megrue. Mr. Jenkins currently serves on the board of directors of Axtel S.A. de C.V., Vanguard Health Systems and on the supervisory board of CAG. Dr. William H. Joyce has been a member of the Board of Directors of Celanese Corporation since December 2004. He is chairman and chief executive officer of Nalco Holding Company since November 2003. Prior to that, Dr. Joyce was chairman and chief executive officer of Hercules Incorporated between May 2001 and November 2003 and had been chairman, president and chief executive officer of Union Carbide Corporation since 1996 through May 2001. Dr. Joyce has been a director of El Paso Corp. since May 2004 and is also a director of CVS Corporation. He serves as a trustee of the Universities Research Association, Inc. and Co-Chairman of the Government-University-Industry Research Roundtable of the National Academies. 159 -------------------------------------------------------------------------------- Anjan Mukherjee has been a member of the Board of Directors of Celanese Corporation since April 2004. He is a Principal of The Blackstone Group, which he joined in 2001. Prior to that, Mr. Mukherjee was with Thomas H. Lee Company where he was involved with the analysis and execution of private equity investments in a wide range of industries. Before that, Mr. Mukherjee worked in the Mergers & Acquisitions Department at Morgan Stanley. Paul H. O'Neill has been a member of the Board of Directors of Celanese Corporation since December 2004. Mr. O'Neill has been a Special Advisor at The Blackstone Group L.P. since March 2003. Prior to that, he served as U.S. Secretary of the Treasury during 2001 and 2002 and was chief executive officer of Alcoa Inc. from 1987 to 1999 and chairman of the board from 1987 to 2000. He currently also serves on the boards of directors of TRW Automotive Holdings Corp., Nalco Holding Company and Eastman Kodak Company. Dr. Hanns Ostmeier has been a member of the Board of Directors of Celanese Corporation since December 2004. He is a Senior Managing Director of The Blackstone Group. Before joining Blackstone in September 2003, Dr. Ostmeier worked for seven years with the European private equity group, BC Partners GmbH, leaving there in December 2002 as a managing director of their German advisory office in Hamburg. Dr. Ostmeier is a member of the supervisory board of CAG. James A. Quella has been a member of the Board of Directors of Celanese Corporation since December 2004. He is a Senior Managing Director and Senior Operating Partner at The Blackstone Group. Prior to joining Blackstone in 2004, Mr. Quella was a managing director and senior operating partner with DLJ Merchant Banking Partners-CSFB Private Equity. Prior to that, Mr. Quella worked at Mercer Management Consulting and Strategic Planning Associates, its predecessor firm, where he served as a senior consultant to CEOs and senior management teams, and was co-vice chairman with shared responsibility for overall management of the firm. Daniel S. Sanders has been a member of the Board of Directors of Celanese Corporation since December 2004. He was president of ExxonMobil Chemical Company and vice president of ExxonMobil Corporation since December 1999 until his retirement in August 2004. Prior to the merger of the two companies, Mr. Sanders served as president of Exxon Chemical since January 1999 and as its executive vice president since 1998. Mr. Sanders also serves as a director of Arch Chemicals Inc. Mr. Sanders is a member of the Council of Overseers of the Jesse H. Jones Graduate School of Management at Rice University, the Advisory Board of the University of South Carolina and Furman University and the Board of Governors of the Houston Grand Opera. Each officer serves at the discretion of the board of directors and holds office until his or her successor is elected and qualified or until his or her earlier resignation or removal. There are no family relationships among any of the directors or executive officers of Celanese Corporation. Composition of the Board of Directors The board of directors of Celanese Corporation consists of eleven directors, including three independent directors. Celanese Corporation expects to add another independent director within 12 months of the effective date of the registration statement for its initial public offering. The board of directors of Celanese Corporation is divided into three classes. The members of each class serve for a three-year term. Messrs. Ostmeier, Quella, and Sanders serve in the class with a term expiring in 2005, Messrs. Barlett, Ballbach, Mukherjee and O'Neill serve in the class with a term expiring in 2006, and Messrs. Chu, Jenkins, Joyce and Weidman serve in the class with a term expiring in 2007. At each annual meeting of the stockholders, a class of directors will be elected for a three-year term to succeed the directors of the same class whose terms are then expiring. Whenever (1) dividends on any shares of the preferred stock of Celanese Corporation or any other class or series of stock ranking on a parity with the preferred stock with respect to the payment of dividends shall be in arrears for dividend periods, whether or not consecutive, containing in the aggregate a number of days equivalent to six calendar quarters or (2) Celanese Corporation fails to pay the redemption price on the date shares of preferred stock are called for redemption (whether the redemption is pursuant to the optional redemption provisions or the redemption is in connection with 160 -------------------------------------------------------------------------------- a designated event) then, immediately prior to the next annual meeting of shareholders, the total number of directors constituting the entire board will automatically be increased by two and, in each case, the holders of shares of preferred stock (voting separately as a class with all other series of other preferred stock on parity with the preferred stock upon which like voting rights have been conferred and are exercisable) will be entitled to vote for the election of such directors at the next annual meeting of stockholders and each subsequent meeting until the redemption price or all dividends accumulated on the preferred stock have been fully paid or set aside for payment. Directors elected by the holders of the preferred stock shall not be divided into the classes of the board of directors and the term of office of all directors elected by the holders of preferred stock will terminate immediately upon the termination of the right of the holders of preferred stock to vote for directors and upon such termination the total number of directors constituting the entire board will automatically be reduced by two. Celanese Corporation elected to avail itself of the "controlled company" exception under the New York Stock Exchange rules which eliminates the requirements that a company has a majority of independent directors on its board of directors and that its compensation and nominating and corporate governance committees be composed entirely of independent directors. Committees of the Board of Directors The board of directors of Celanese Corporation has an executive committee, audit committee, a compensation committee and a nominating and corporate governance committee. Executive Committee The executive committee of Celanese Corporation consists of Messrs. Chu, Weidman and Jenkins. The executive committee is responsible for exercising all of the powers of the board of directors during intervals between meetings, except for those powers delegated to other committees of the board of directors and powers which may not be delegated to a committee of the board of directors under Delaware law. Audit Committee The audit committee of Celanese Corporation consists of Messrs. Barlett, Jenkins and Ballbach. Mr. Barlett is the audit committee "financial expert" as such term is defined in Item 401(h) of Regulation S-K. The audit committee is responsible for (1) the hiring or termination of independent auditors and approving any non-audit work performed by such auditor, (2) approving the overall scope of the audit, (3) assisting the board of directors in monitoring the integrity of our financial statements, the independent auditors' qualifications and independence, the performance of the independent auditors and our internal audit function and our compliance with legal and regulatory requirements, (4) annually reviewing an independent auditors' report describing the auditing firms' internal quality-control procedures, any material issues raised by the most recent internal quality-control review, or peer review, of the auditing firm, (5) discussing the annual audited financial and quarterly statements with management and the independent auditor, (6) discussing earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies, (7) discussing policies with respect to risk assessment and risk management, (8) meeting separately, periodically, with management, internal auditors and the independent auditor, (9) reviewing with the independent auditor any audit problems or difficulties and managements' response, (10) setting clear hiring policies for employees or former employees of the independent auditors, (11) annually reviewing the adequacy of the audit committee's written charter, (12) handling such other matters that are specifically delegated to the audit committee by the board of directors from time to time, (13) reporting regularly to the full board of directors and (14) evaluating the board of directors' performance. The board of directors adopted the Celanese Global Business Conduct Policy, which applies to all directors, officers and employees, and a Financial Code of Ethics, which sets forth additional ethics requirements for the Chief Executive Officer, Chief Financial Officer and Controller. Both the Global 161 -------------------------------------------------------------------------------- Business Conduct Policy and the Financial Code of Ethics are posted on Celanese Corporation's website. The board of directors adopted the Audit Committee Charter and appointed its members on January 5, 2005. Compensation Committee The compensation committee of Celanese Corporation consists of Messrs. Chu, Jenkins and Mukherjee. The compensation committee will be responsible for (1) reviewing key employee compensation policies, plans and programs, (2) reviewing and approving the compensation of our chief executive officer and other executive officers, (3) developing and recommending to the board of directors compensation for board members, (4) reviewing and approving employment contracts and other similar arrangements between us and our executive officers, (5) reviewing and consulting with the chief executive officer on the selection of officers and evaluation of executive performance and other related matters, (6) administration of stock plans and other incentive compensation plans, (7) overseeing compliance with any applicable compensation reporting requirements of the SEC, (8) approving the appointment and removal of trustees and investment managers for pension fund assets, (9) retaining consultants to advise the committee on executive compensation practices and policies and (10) handling such other matters that are specifically delegated to the compensation committee by the board of directors from time to time. Nominating and Corporate Governance Committee The nominating and corporate governance committee of Celanese Corporation consists of Messrs. Mukherjee, Quella and Weidman. The nominating and corporate governance committee will be responsible for (1) developing and recommending criteria for selecting new directors, (2) screening and recommending to the board of directors individuals qualified to become executive officers, (3) overseeing evaluations of the board of directors, its members and committees of the board of directors and (4) handling such other matters that are specifically delegated to the nominating and corporate governance committee by the board of directors from time to time. Director Compensation Celanese Corporation does not currently pay any compensation to our management directors for serving as a director or as a member or chair of a committee of the board of directors. Celanese Corporation pays its non-management directors an annual cash retainer of $125,000 and a fee of $1,250 for each board meeting and each committee meeting attended and to pay a fee for acting as committee chair. In addition, Celanese Corporation has sold shares of its Series A common stock and granted options to acquire shares of its Series A common stock to its directors under its stock incentive plan described below. Executive Compensation Celanese Corporation continually reviews its executive compensation programs to ensure that they are competitive. Celanese Corporation intends to maintain executive compensation plans that link compensation with the performance of our company. Summary Compensation Table The following table shows all compensation awarded to, earned by, or paid in 2004 to the Chief Executive Officer and four other most highly compensated executive officers of Celanese Corporation based on salary, whom we refer to as the "named executive officers." 162 -------------------------------------------------------------------------------- [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Long-Term Annual Compensation Compensation [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] Other Annual [[Image Removed]] LTIP [[Image Removed]] All Other Name and Principal Position(1) Year Salary Bonus(2) Compensation(3) Payouts(4) Compensation David N. Weidman, Chief Executive Officer and [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] [[Image Removed]] President 2004 $ 853,666 $ 1,152,988 $ 17,500 $ 2,493,295