Independent
Auditors Report
The Board of Directors and Shareholders
Celanese Corporation:
We have audited the accompanying consolidated balance sheets of
Celanese Corporation and subsidiaries (the Company)
as of December 31, 2009 and 2008, and the related
consolidated statements of operations, shareholders equity
and comprehensive income (loss), and cash flows for each of the
years in the three-year period ended December 31, 2009.
These consolidated financial statements are the responsibility
of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards as established by the Auditing Standards
Board (United States) and in accordance with the auditing
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. Our
audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys
internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Celanese Corporation and subsidiaries as of
December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2009, in conformity
with U.S. generally accepted accounting principles.
As discussed in Note 15 to the consolidated financial
statements, the Company adopted Financial Accounting Standards
Board (FASB) Staff Position No. 132(R)-1,
Employers Disclosures about Postretirement Benefit Plan
Assets
(included in FASB Accounting Standards Codification
(ASC) Subtopic
715-20,
Defined Benefit Plans
), during the year ended
December 31, 2009.
As discussed in Note 23 to the consolidated financial
statements, the Company adopted FASB Statement of Financial
Accounting Standards No. 157,
Fair Value Measurements
(included in FASB ASC Subtopic
820-10,
Fair Value Measurements and Disclosures
), during the year
ended December 31, 2008.
As discussed in Note 19 to the consolidated financial
statements, the Company adopted FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(included in
FASB ASC Subtopic
740-10,
Income Taxes
), during the year ended December 31,
2007.
/s/
KPMG LLP
Dallas, Texas
February 12, 2010, except as to Note 31
which is as of September 15, 2010
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
As Adjusted (Note 31)
|
|
|
|
(In $ millions, except for share and per share data)
|
|
|
Net sales
|
|
|
5,082
|
|
|
|
|
6,823
|
|
|
|
|
6,444
|
|
|
Cost of sales
|
|
|
(4,079
|
)
|
|
|
|
(5,567
|
)
|
|
|
|
(4,999
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,003
|
|
|
|
|
1,256
|
|
|
|
|
1,445
|
|
|
Selling, general and administrative expenses
|
|
|
(469
|
)
|
|
|
|
(540
|
)
|
|
|
|
(516
|
)
|
|
Amortization of intangible assets (primarily customer
relationships)
|
|
|
(77
|
)
|
|
|
|
(76
|
)
|
|
|
|
(72
|
)
|
|
Research and development expenses
|
|
|
(75
|
)
|
|
|
|
(80
|
)
|
|
|
|
(73
|
)
|
|
Other (charges) gains, net
|
|
|
(136
|
)
|
|
|
|
(108
|
)
|
|
|
|
(58
|
)
|
|
Foreign exchange gain (loss), net
|
|
|
2
|
|
|
|
|
(4
|
)
|
|
|
|
2
|
|
|
Gain (loss) on disposition of businesses and assets, net
|
|
|
42
|
|
|
|
|
(8
|
)
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
290
|
|
|
|
|
440
|
|
|
|
|
748
|
|
|
Equity in net earnings (loss) of affiliates
|
|
|
99
|
|
|
|
|
172
|
|
|
|
|
150
|
|
|
Interest expense
|
|
|
(207
|
)
|
|
|
|
(261
|
)
|
|
|
|
(262
|
)
|
|
Refinancing expense
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
(256
|
)
|
|
Interest income
|
|
|
8
|
|
|
|
|
31
|
|
|
|
|
44
|
|
|
Dividend income cost investments
|
|
|
57
|
|
|
|
|
48
|
|
|
|
|
38
|
|
|
Other income (expense), net
|
|
|
4
|
|
|
|
|
3
|
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before tax
|
|
|
251
|
|
|
|
|
433
|
|
|
|
|
437
|
|
|
Income tax (provision) benefit
|
|
|
243
|
|
|
|
|
(63
|
)
|
|
|
|
(110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
|
494
|
|
|
|
|
370
|
|
|
|
|
327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from operation of discontinued operations
|
|
|
6
|
|
|
|
|
(120
|
)
|
|
|
|
40
|
|
|
Gain (loss) on disposal of discontinued operations
|
|
|
-
|
|
|
|
|
6
|
|
|
|
|
52
|
|
|
Income tax (provision) benefit from discontinued operations
|
|
|
(2
|
)
|
|
|
|
24
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from discontinued operations
|
|
|
4
|
|
|
|
|
(90
|
)
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
|
498
|
|
|
|
|
280
|
|
|
|
|
417
|
|
|
Net (earnings) loss attributable to noncontrolling interests
|
|
|
-
|
|
|
|
|
1
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Celanese Corporation
|
|
|
498
|
|
|
|
|
281
|
|
|
|
|
416
|
|
|
Cumulative preferred stock dividends
|
|
|
(10
|
)
|
|
|
|
(10
|
)
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) available to common shareholders
|
|
|
488
|
|
|
|
|
271
|
|
|
|
|
406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to Celanese Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
|
494
|
|
|
|
|
371
|
|
|
|
|
326
|
|
|
Earnings (loss) from discontinued operations
|
|
|
4
|
|
|
|
|
(90
|
)
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
|
498
|
|
|
|
|
281
|
|
|
|
|
416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
3.37
|
|
|
|
|
2.44
|
|
|
|
|
2.05
|
|
|
Discontinued operations
|
|
|
0.03
|
|
|
|
|
(0.61
|
)
|
|
|
|
0.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) basic
|
|
|
3.40
|
|
|
|
|
1.83
|
|
|
|
|
2.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
3.14
|
|
|
|
|
2.27
|
|
|
|
|
1.90
|
|
|
Discontinued operations
|
|
|
0.03
|
|
|
|
|
(0.55
|
)
|
|
|
|
0.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) diluted
|
|
|
3.17
|
|
|
|
|
1.72
|
|
|
|
|
2.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic
|
|
|
143,688,749
|
|
|
|
|
148,350,273
|
|
|
|
|
154,475,020
|
|
|
Weighted average shares diluted
|
|
|
157,115,521
|
|
|
|
|
163,471,873
|
|
|
|
|
171,227,997
|
|
|
See the accompanying notes to the consolidated financial
statements.
2
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
As Adjusted (Note 31)
|
|
|
|
(In $ millions, except
|
|
|
|
share amounts)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
1,254
|
|
|
|
|
676
|
|
|
Trade receivables third party and affiliates (net of
allowance for doubtful accounts 2009: $18; 2008: $25)
|
|
|
721
|
|
|
|
|
631
|
|
|
Non-trade receivables (net of allowance for doubtful
accounts 2009: $0; 2008: $1)
|
|
|
262
|
|
|
|
|
281
|
|
|
Inventories
|
|
|
522
|
|
|
|
|
577
|
|
|
Deferred income taxes
|
|
|
42
|
|
|
|
|
24
|
|
|
Marketable securities, at fair value
|
|
|
3
|
|
|
|
|
6
|
|
|
Assets held for sale
|
|
|
2
|
|
|
|
|
2
|
|
|
Other assets
|
|
|
50
|
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,856
|
|
|
|
|
2,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in affiliates
|
|
|
792
|
|
|
|
|
781
|
|
|
Property, plant and equipment (net of accumulated
depreciation 2009: $1,130; 2008: $1,051)
|
|
|
2,797
|
|
|
|
|
2,470
|
|
|
Deferred income taxes
|
|
|
484
|
|
|
|
|
27
|
|
|
Marketable securities, at fair value
|
|
|
80
|
|
|
|
|
94
|
|
|
Other assets
|
|
|
311
|
|
|
|
|
357
|
|
|
Goodwill
|
|
|
798
|
|
|
|
|
779
|
|
|
Intangible assets, net
|
|
|
294
|
|
|
|
|
364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
8,412
|
|
|
|
|
7,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings and current installments of long-term
debt third party and affiliates
|
|
|
242
|
|
|
|
|
233
|
|
|
Trade payables third party and affiliates
|
|
|
649
|
|
|
|
|
523
|
|
|
Other liabilities
|
|
|
611
|
|
|
|
|
574
|
|
|
Deferred income taxes
|
|
|
33
|
|
|
|
|
15
|
|
|
Income taxes payable
|
|
|
72
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,607
|
|
|
|
|
1,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
3,259
|
|
|
|
|
3,300
|
|
|
Deferred income taxes
|
|
|
137
|
|
|
|
|
122
|
|
|
Uncertain tax positions
|
|
|
229
|
|
|
|
|
218
|
|
|
Benefit obligations
|
|
|
1,288
|
|
|
|
|
1,167
|
|
|
Other liabilities
|
|
|
1,306
|
|
|
|
|
806
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 100,000,000 shares
authorized (2009 and 2008: 9,600,000 shares issued and
outstanding)
|
|
|
-
|
|
|
|
|
-
|
|
|
Series A common stock, $0.0001 par value,
400,000,000 shares authorized (2009:
164,995,755 shares issued and 144,394,069 outstanding;
2008: 164,107,394 shares issued and 143,505,708 outstanding)
|
|
|
-
|
|
|
|
|
-
|
|
|
Series B common stock, $0.0001 par value,
100,000,000 shares authorized (2009 and 2008: 0 shares
issued and outstanding)
|
|
|
-
|
|
|
|
|
-
|
|
|
Treasury stock, at cost (2009 and 2008:
20,601,686 shares)
|
|
|
(781
|
)
|
|
|
|
(781
|
)
|
|
Additional paid-in capital
|
|
|
522
|
|
|
|
|
495
|
|
|
Retained earnings
|
|
|
1,505
|
|
|
|
|
1,040
|
|
|
Accumulated other comprehensive income (loss), net
|
|
|
(660
|
)
|
|
|
|
(580
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Celanese Corporation shareholders equity
|
|
|
586
|
|
|
|
|
174
|
|
|
Noncontrolling interests
|
|
|
-
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
586
|
|
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
|
8,412
|
|
|
|
|
7,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the consolidated financial
statements.
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Shares
|
|
|
|
|
|
Shares
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Outstanding
|
|
|
Amount
|
|
|
|
As Adjusted (Note 31)
|
|
|
|
(In $ millions, except share data)
|
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of the beginning of the period
|
|
|
9,600,000
|
|
|
|
-
|
|
|
|
9,600,000
|
|
|
|
-
|
|
|
|
9,600,000
|
|
|
|
-
|
|
Issuance of preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of the end of the period
|
|
|
9,600,000
|
|
|
|
-
|
|
|
|
9,600,000
|
|
|
|
-
|
|
|
|
9,600,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of the beginning of the period
|
|
|
143,505,708
|
|
|
|
-
|
|
|
|
152,102,801
|
|
|
|
-
|
|
|
|
158,668,666
|
|
|
|
-
|
|
Issuance of Series A common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,400
|
|
|
|
-
|
|
Stock option exercises
|
|
|
806,580
|
|
|
|
-
|
|
|
|
1,056,368
|
|
|
|
-
|
|
|
|
4,265,221
|
|
|
|
-
|
|
Purchases of treasury stock
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,763,200
|
)
|
|
|
-
|
|
|
|
(10,838,486
|
)
|
|
|
-
|
|
Stock awards
|
|
|
81,781
|
|
|
|
-
|
|
|
|
109,739
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of the end of the period
|
|
|
144,394,069
|
|
|
|
-
|
|
|
|
143,505,708
|
|
|
|
-
|
|
|
|
152,102,801
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of the beginning of the period
|
|
|
20,601,686
|
|
|
|
(781
|
)
|
|
|
10,838,486
|
|
|
|
(403
|
)
|
|
|
-
|
|
|
|
-
|
|
Purchases of treasury stock, including related fees
|
|
|
-
|
|
|
|
-
|
|
|
|
9,763,200
|
|
|
|
(378
|
)
|
|
|
10,838,486
|
|
|
|
(403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of the end of the period
|
|
|
20,601,686
|
|
|
|
(781
|
)
|
|
|
20,601,686
|
|
|
|
(781
|
)
|
|
|
10,838,486
|
|
|
|
(403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of the beginning of the period
|
|
|
|
|
|
|
495
|
|
|
|
|
|
|
|
469
|
|
|
|
|
|
|
|
362
|
|
Indemnification of demerger liability
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
4
|
|
Stock-based compensation, net of tax
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
15
|
|
Stock option exercises, net of tax
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of the end of the period
|
|
|
|
|
|
|
522
|
|
|
|
|
|
|
|
495
|
|
|
|
|
|
|
|
469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of the beginning of the period
|
|
|
|
|
|
|
1,040
|
|
|
|
|
|
|
|
793
|
|
|
|
|
|
|
|
398
|
|
Net earnings (loss) attributable to Celanese Corporation
|
|
|
|
|
|
|
498
|
|
|
|
|
|
|
|
281
|
|
|
|
|
|
|
|
416
|
|
Series A common stock dividends
|
|
|
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
(25
|
)
|
Preferred stock dividends
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
(10
|
)
|
Adoption of ASC
740
(1)
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of the end of the period
|
|
|
|
|
|
|
1,505
|
|
|
|
|
|
|
|
1,040
|
|
|
|
|
|
|
|
793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of the beginning of the period
|
|
|
|
|
|
|
(580
|
)
|
|
|
|
|
|
|
196
|
|
|
|
|
|
|
|
30
|
|
Unrealized gain (loss) on securities
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
17
|
|
Foreign currency translation
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
(130
|
)
|
|
|
|
|
|
|
70
|
|
Unrealized gain (loss) on interest rate swaps
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
(79
|
)
|
|
|
|
|
|
|
(41
|
)
|
Pension and postretirement benefits
|
|
|
|
|
|
|
(97
|
)
|
|
|
|
|
|
|
(544
|
)
|
|
|
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of the end of the period
|
|
|
|
|
|
|
(660
|
)
|
|
|
|
|
|
|
(580
|
)
|
|
|
|
|
|
|
196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Celanese Corporation shareholders equity
|
|
|
|
|
|
|
586
|
|
|
|
|
|
|
|
174
|
|
|
|
|
|
|
|
1,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of the beginning of the period
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
74
|
|
Purchase of remaining noncontrolling interests
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
(70
|
)
|
Divestiture of noncontrolling interests
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
-
|
|
Net earnings (loss) attributable to noncontrolling interests
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of the end of the period
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
|
|
|
|
586
|
|
|
|
|
|
|
|
176
|
|
|
|
|
|
|
|
1,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Adoption of ASC 740,
Income Taxes
related to uncertain
tax positions (Note 19).
|
4
CELANESE
CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY AND COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Shares
|
|
|
|
|
|
Shares
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Outstanding
|
|
|
Amount
|
|
|
|
As Adjusted (Note 31)
|
|
|
|
(In $ millions, except share data)
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
|
|
|
|
|
498
|
|
|
|
|
|
|
|
280
|
|
|
|
|
|
|
|
417
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on securities
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
17
|
|
Foreign currency translation
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
(130
|
)
|
|
|
|
|
|
|
70
|
|
Unrealized gain (loss) on interest rate swaps
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
(79
|
)
|
|
|
|
|
|
|
(41
|
)
|
Pension and postretirement benefits
|
|
|
|
|
|
|
(97
|
)
|
|
|
|
|
|
|
(544
|
)
|
|
|
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss), net of tax
|
|
|
|
|
|
|
418
|
|
|
|
|
|
|
|
(496
|
)
|
|
|
|
|
|
|
583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (income) loss attributable to noncontrolling
interests
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to Celanese Corporation
|
|
|
|
|
|
|
418
|
|
|
|
|
|
|
|
(495
|
)
|
|
|
|
|
|
|
582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the consolidated financial
statements.
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
As Adjusted (Note 31)
|
|
|
|
(In $ millions)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
|
498
|
|
|
|
280
|
|
|
|
417
|
|
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other charges (gains), net of amounts used
|
|
|
73
|
|
|
|
111
|
|
|
|
30
|
|
Depreciation, amortization and accretion
|
|
|
319
|
|
|
|
360
|
|
|
|
311
|
|
Deferred income taxes, net
|
|
|
(402
|
)
|
|
|
(69
|
)
|
|
|
23
|
|
(Gain) loss on disposition of businesses and assets, net
|
|
|
(40
|
)
|
|
|
1
|
|
|
|
(74
|
)
|
Refinancing expense
|
|
|
-
|
|
|
|
-
|
|
|
|
256
|
|
Other, net
|
|
|
12
|
|
|
|
37
|
|
|
|
8
|
|
Operating cash provided by (used in) discontinued operations
|
|
|
(2
|
)
|
|
|
3
|
|
|
|
(84
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables third party and affiliates, net
|
|
|
(79
|
)
|
|
|
339
|
|
|
|
(69
|
)
|
Inventories
|
|
|
30
|
|
|
|
21
|
|
|
|
(27
|
)
|
Other assets
|
|
|
9
|
|
|
|
53
|
|
|
|
66
|
|
Trade payables third party and affiliates
|
|
|
104
|
|
|
|
(265
|
)
|
|
|
(11
|
)
|
Other liabilities
|
|
|
74
|
|
|
|
(285
|
)
|
|
|
(280
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
596
|
|
|
|
586
|
|
|
|
566
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures on property, plant and equipment
|
|
|
(176
|
)
|
|
|
(274
|
)
|
|
|
(288
|
)
|
Acquisitions, net of cash acquired
|
|
|
( 9
|
)
|
|
|
-
|
|
|
|
(269
|
)
|
Proceeds from sale of businesses and assets, net
|
|
|
171
|
|
|
|
9
|
|
|
|
715
|
|
Deferred proceeds on Ticona Kelsterbach plant relocation
|
|
|
412
|
|
|
|
311
|
|
|
|
-
|
|
Capital expenditures related to Ticona Kelsterbach plant
relocation
|
|
|
(351
|
)
|
|
|
(185
|
)
|
|
|
(21
|
)
|
Proceeds from sale of marketable securities
|
|
|
15
|
|
|
|
202
|
|
|
|
69
|
|
Purchases of marketable securities
|
|
|
-
|
|
|
|
(91
|
)
|
|
|
(59
|
)
|
Changes in restricted cash
|
|
|
-
|
|
|
|
-
|
|
|
|
46
|
|
Settlement of cross currency swap agreements
|
|
|
-
|
|
|
|
(93
|
)
|
|
|
-
|
|
Other, net
|
|
|
(31
|
)
|
|
|
(80
|
)
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
31
|
|
|
|
(201
|
)
|
|
|
143
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings (repayments), net
|
|
|
(9
|
)
|
|
|
(64
|
)
|
|
|
30
|
|
Proceeds from long-term debt
|
|
|
-
|
|
|
|
13
|
|
|
|
2,904
|
|
Repayments of long-term debt
|
|
|
(80
|
)
|
|
|
(47
|
)
|
|
|
(3,053
|
)
|
Refinancing costs
|
|
|
(3
|
)
|
|
|
-
|
|
|
|
(240
|
)
|
Purchases of treasury stock, including related fees
|
|
|
-
|
|
|
|
(378
|
)
|
|
|
(403
|
)
|
Stock option exercises
|
|
|
14
|
|
|
|
18
|
|
|
|
69
|
|
Series A common stock dividends
|
|
|
(23
|
)
|
|
|
(24
|
)
|
|
|
(25
|
)
|
Preferred stock dividends
|
|
|
(10
|
)
|
|
|
(10
|
)
|
|
|
(10
|
)
|
Other, net
|
|
|
(1
|
)
|
|
|
(7
|
)
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(112
|
)
|
|
|
(499
|
)
|
|
|
(714
|
)
|
Exchange rate effects on cash and cash equivalents
|
|
|
63
|
|
|
|
(35
|
)
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
578
|
|
|
|
(149
|
)
|
|
|
34
|
|
Cash and cash equivalents at beginning of period
|
|
|
676
|
|
|
|
825
|
|
|
|
791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
|
1,254
|
|
|
|
676
|
|
|
|
825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the consolidated financial
statements.
6
CELANESE
CORPORATION AND SUBSIDIARIES
|
|
1.
|
Description
of the Company and Basis of Presentation
|
Celanese Corporation and its subsidiaries (collectively the
Company) is a leading global integrated chemical and
advanced materials company. The Companys business involves
processing chemical raw materials, such as methanol, carbon
monoxide and ethylene, and natural products, including wood
pulp, into value-added chemicals, thermoplastic polymers and
other chemical-based products.
Definitions
The term Celanese refers to Celanese Corporation, a
Delaware corporation, and not its subsidiaries. The term
Celanese US refers to the Companys subsidiary,
Celanese US Holdings LLC, a Delaware limited liability company,
formerly known as BCP Crystal US Holdings Corp., a Delaware
corporation, and not its subsidiaries. The term
Purchaser refers to the Companys subsidiary,
BCP Holdings GmbH (successor by merger to Celanese Europe
Holding GmbH & Co. KG), and not its subsidiaries,
except where otherwise indicated. The term Original
Shareholders refers, collectively, to Blackstone Capital
Partners (Cayman) Ltd. 1, Blackstone Capital Partners (Cayman)
Ltd. 2, Blackstone Capital Partners (Cayman) Ltd. 3 and BA
Capital Investors Sidecar Fund, L.P. The term
Advisor refers to Blackstone Management Partners, an
affiliate of The Blackstone Group.
Basis
of Presentation
The consolidated financial statements contained herein were
prepared in accordance with accounting principles generally
accepted in the United States of America (US GAAP)
for all periods presented. The consolidated financial statements
and other financial information included herein, unless
otherwise specified, have been presented to separately show the
effects of discontinued operations.
In the ordinary course of the business, the Company enters into
contracts and agreements relative to a number of topics,
including acquisitions, dispositions, joint ventures, supply
agreements, product sales and other arrangements. The Company
endeavors to describe those contracts or agreements that are
material to its business, results of operations or financial
position. The Company may also describe some arrangements that
are not material but which the Company believes investors may
have an interest in or which may have been subject to a
Form 8-K
filing. Investors should not assume the Company has described
all contracts and agreements relative to the Companys
business in these financial statements.
|
|
2.
|
Summary
of Accounting Policies
|
Consolidation principles
The consolidated financial statements have been prepared in
accordance with US GAAP for all periods presented and include
the accounts of the Company and its majority owned subsidiaries
over which the Company exercises control. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Estimates and assumptions
The preparation of consolidated financial statements in
conformity with US GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the
reported amounts of revenues, expenses and allocated charges
during the reporting period. Significant estimates pertain to
impairments of goodwill, intangible assets and other long-lived
assets, purchase price
7
allocations, restructuring costs and other (charges) gains, net,
income taxes, pension and other postretirement benefits, asset
retirement obligations, environmental liabilities and loss
contingencies, among others. Actual results could differ from
those estimates.
Cash and cash equivalents
All highly liquid investments with original maturities of three
months or less are considered cash equivalents.
Inventories
Inventories, including stores and supplies, are stated at the
lower of cost or market. Cost for inventories is determined
using the
first-in,
first-out (FIFO) method. Cost includes raw
materials, direct labor and manufacturing overhead. Cost for
stores and supplies is primarily determined by the average cost
method.
Investments in marketable securities
The Company classifies its investments in debt and equity
securities as
available-for-sale
and reports those investments at their fair market values in the
consolidated balance sheets as Marketable Securities, at fair
value. Unrealized gains or losses, net of the related tax effect
on
available-for-sale
securities, are excluded from earnings and are reported as a
component of Accumulated other comprehensive income (loss), net
until realized. The cost of securities sold is determined by
using the specific identification method.
A decline in the market value of any
available-for-sale
security below cost that is deemed to be
other-than-temporary
results in a reduction in the carrying amount to fair value. The
impairment is charged to earnings and a new cost basis for the
security is established. To determine whether impairment is
other-than-temporary,
the Company considers whether it has the ability and intent to
hold the investment until a market price recovery and evidence
indicating the cost of the investment is recoverable outweighs
evidence to the contrary. Evidence considered in this assessment
includes the reasons for the impairment, the severity and
duration of the impairment, changes in value subsequent to year
end and forecasted performance of the investee.
Investments in affiliates
Financial Accounting Standards Board (FASB)
Accounting Standards Codification (FASB ASC) Topic
323,
Investments Equity Method and Joint
Ventures
, stipulates that the equity method should be used
to account for investments whereby an investor has the
ability to exercise significant influence over operating and
financial policies of an investee, but does not exercise
control. FASB ASC Topic 323 generally considers an investor to
have the ability to exercise significant influence when it owns
20% or more of the voting stock of an investee. FASB ASC Topic
323 lists circumstances under which, despite 20% ownership, an
investor may not be able to exercise significant influence.
Certain investments where the Company owns greater than a 20%
ownership and cannot exercise significant influence or control
are accounted for under the cost method (Note 8).
The Company assesses the recoverability of the carrying value of
its investments whenever events or changes in circumstances
indicate a loss in value that is other than a temporary decline.
A loss in value of an equity-method or cost-method investment
which is other than a temporary decline will be recognized as
the difference between the carrying amount of the investment and
its fair value.
The Companys estimates of fair value are determined based
on a discounted cash flow model. The Company periodically
engages third-party valuation consultants to assist with this
process.
8
Property, plant and equipment, net
Land is recorded at historical cost. Buildings, machinery and
equipment, including capitalized interest, and property under
capital lease agreements, are recorded at cost less accumulated
depreciation. The Company records depreciation and amortization
in its consolidated statements of operations as either Cost of
sales or Selling, general and administrative expenses consistent
with the utilization of the underlying assets. Depreciation is
calculated on a straight-line basis over the following estimated
useful lives of depreciable assets:
|
|
|
Land Improvements
|
|
20 years
|
Buildings and improvements
|
|
30 years
|
Machinery and Equipment
|
|
20 years
|
Leasehold improvements are amortized over ten years or the
remaining life of the respective lease, whichever is shorter.
Accelerated depreciation is recorded when the estimated useful
life is shortened. Ordinary repair and maintenance costs,
including costs for planned maintenance turnarounds, that do not
extend the useful life of the asset are charged to earnings as
incurred. Fully depreciated assets are retained in property and
depreciation accounts until sold or otherwise disposed. In the
case of disposals, assets and related depreciation are removed
from the accounts, and the net amounts, less proceeds from
disposal, are included in earnings.
The Company also leases property, plant and equipment under
operating and capital leases. Rent expense for operating leases,
which may have escalating rentals or rent holidays over the term
of the lease, is recorded on a straight-line basis over the
lease term. Amortization of capital lease assets is included as
a component of depreciation expense.
Assets acquired in business combinations are recorded at their
fair values and depreciated over the assets remaining
useful lives or the Companys policy lives, whichever is
shorter.
The Company assesses the recoverability of the carrying amount
of its property, plant and equipment whenever events or changes
in circumstances indicate that the carrying amount of an asset
or asset group may not be recoverable. An impairment loss would
be assessed when estimated undiscounted future cash flows from
the operation and disposition of the asset group are less than
the carrying amount of the asset group. Asset groups have
identifiable cash flows and are largely independent of other
asset groups. Measurement of an impairment loss is based on the
excess of the carrying amount of the asset group over its fair
value. Fair value is measured using discounted cash flows or
independent appraisals, as appropriate. Impairment losses are
recorded in depreciation expense or Other (charges) gains, net
depending on the facts and circumstances.
Goodwill and other intangible assets
Trademarks and trade names, customer-related intangible assets
and other intangibles with finite lives are amortized on a
straight-line basis over their estimated useful lives. The
excess of the purchase price over fair value of net identifiable
assets and liabilities of an acquired business
(goodwill) and other indefinite-lived intangible
assets are not amortized, but rather tested for impairment, at
least annually. The Company tests for goodwill and
indefinite-lived intangible asset impairment during the third
quarter of its fiscal year using June 30 balances.
The Company assesses the recoverability of the carrying value of
goodwill at least annually or whenever events or changes in
circumstances indicate that the carrying amount of the goodwill
of a reporting unit may not be fully recoverable. Recoverability
is measured at the reporting unit level based on the provisions
of FASB ASC Topic 350,
Intangibles Goodwill and
Other
. The Companys estimates of fair value are
determined based on a discounted cash flow model. The Company
periodically engages third-party
9
valuation consultants to assist with this process. Impairment
losses are recorded in other operating expense or Other
(charges) gains, net depending on the facts and circumstances.
The Company assesses recoverability of other indefinite-lived
intangible assets at least annually or whenever events or
changes in circumstances indicate that the carrying amount of
the indefinite-lived intangible asset may not be fully
recoverable. Recoverability is measured by a comparison of the
carrying value of the indefinite-lived intangible asset over its
fair value. Any excess of the carrying value of the
indefinite-lived intangible asset over its fair value is
recognized as an impairment loss. The Companys estimates
of fair value are determined based on a discounted cash flow
model. The Company periodically engages third-party valuation
consultants to assist with this process. Impairment losses are
recorded in other operating expense or Other (charges) gains,
net depending on the facts and circumstances.
The Company assesses the recoverability of finite-lived
intangible assets in the same manner as for property, plant and
equipment as described above. Impairment losses are recorded in
amortization expense or Other (charges) gains, net depending on
the facts and circumstances.
Financial instruments
On January 1, 2008, the Company adopted the provisions of
FASB ASC Topic 820,
Fair Value Measurements and Disclosures
(FASB ASC Topic 820) for financial assets and
liabilities. On January 1, 2009, the Company applied the
provisions of FASB ASC Topic 820 for non-recurring fair value
measurements of non-financial assets and liabilities, such as
goodwill, indefinite-lived intangible assets, property, plant
and equipment and asset retirement obligations. The adoptions of
FASB ASC Topic 820 did not have a material impact on the
Companys financial position, results of operations or cash
flows. FASB ASC Topic 820 defines fair value, and increases
disclosures surrounding fair value calculations.
The Company manages its exposures to currency exchange rates,
interest rates and commodity prices through a risk management
program that includes the use of derivative financial
instruments (Note 22). The Company does not use derivative
financial instruments for speculative trading purposes. The fair
value of all derivative instruments is recorded as assets or
liabilities at the balance sheet date. Changes in the fair value
of these instruments are reported in income or Accumulated other
comprehensive income (loss), net, depending on the use of the
derivative and whether it qualifies for hedge accounting
treatment under the provisions of FASB ASC Topic 815,
Derivatives and Hedging
(FASB ASC Topic 815).
Gains and losses on derivative instruments qualifying as cash
flow hedges are recorded in Accumulated other comprehensive
income (loss), net, to the extent the hedges are effective,
until the underlying transactions are recognized in income. To
the extent effective, gains and losses on derivative and
non-derivative instruments used as hedges of the Companys
net investment in foreign operations are recorded in Accumulated
other comprehensive income (loss), net as part of the foreign
currency translation adjustment. The ineffective portions of
cash flow hedges and hedges of net investment in foreign
operations, if any, are recognized in income immediately.
Derivative instruments not designated as hedges are marked to
market at the end of each accounting period with the change in
fair value recorded in income.
Concentrations of credit risk
The Company is exposed to credit risk in the event of nonpayment
by customers and counterparties. The creditworthiness of
customers and counterparties is subject to continuing review,
including the use of master netting agreements, where the
Company deems appropriate. The Company minimizes concentrations
of credit risk through its global orientation in diverse
businesses with a large number of diverse customers and
suppliers. In addition, credit risks arising from derivative
instruments is not significant because the counterparties to
these contracts are primarily major international financial
institutions and, to a lesser extent, major chemical companies.
Where appropriate, the Company has diversified its selection of
counterparties. Generally, collateral is not required from
customers and counterparties and allowances are provided for
specific risks inherent in receivables.
10
Deferred financing costs
The Company capitalizes direct costs incurred to obtain debt
financings and amortizes these costs using a method that
approximates the effective interest rate method over the terms
of the related debt. Upon the extinguishment of the related
debt, any unamortized capitalized debt financing costs are
immediately expensed.
Environmental liabilities
The Company manufactures and sells a diverse line of chemical
products throughout the world. Accordingly, the Companys
operations are subject to various hazards incidental to the
production of industrial chemicals including the use, handling,
processing, storage and transportation of hazardous materials.
The Company recognizes losses and accrues liabilities relating
to environmental matters if available information indicates that
it is probable that a liability has been incurred and the amount
of loss can be reasonably estimated. Depending on the nature of
the site, the Company accrues through fifteen years, unless the
Company has government orders or other agreements that extend
beyond fifteen years. If the event of loss is neither probable
nor reasonably estimable, but is reasonably possible, the
Company provides appropriate disclosure in the notes to the
consolidated financial statements if the contingency is
considered material. The Company estimates environmental
liabilities on a
case-by-case
basis using the most current status of available facts, existing
technology, presently enacted laws and regulations and prior
experience in remediation of contaminated sites. Recoveries of
environmental costs from other parties are recorded as assets
when their receipt is deemed probable.
An environmental reserve related to cleanup of a contaminated
site might include, for example, a provision for one or more of
the following types of costs: site investigation and testing
costs, cleanup costs, costs related to soil and water
contamination resulting from tank ruptures and post-remediation
monitoring costs. These reserves do not take into account any
claims or recoveries from insurance. There are no pending
insurance claims for any environmental liability that are
expected to be material. The measurement of environmental
liabilities is based on the Companys periodic estimate of
what it will cost to perform each of the elements of the
remediation effort. The Company utilizes third parties to assist
in the management and development of cost estimates for its
sites. Changes to environmental regulations or other factors
affecting environmental liabilities are reflected in the
consolidated financial statements in the period in which they
occur (Note 16).
Legal fees
The Company accrues for legal fees related to loss contingency
matters when the costs associated with defending these matters
can be reasonably estimated and are probable of occurring. All
other legal fees are expensed as incurred.
Revenue recognition
The Company recognizes revenue when title and risk of loss have
been transferred to the customer, generally at the time of
shipment of products, and provided that four basic criteria are
met: (1) persuasive evidence of an arrangement exists;
(2) delivery has occurred or services have been rendered;
(3) the fee is fixed or determinable; and
(4) collectibility is reasonably assured. Should changes in
conditions cause the Company to determine revenue recognition
criteria are not met for certain transactions, revenue
recognition would be delayed until such time that the
transactions become realizable and fully earned. Payments
received in advance of meeting the above revenue recognition
criteria are recorded as deferred revenue.
Research and development
The costs of research and development are charged as an expense
in the period in which they are incurred.
11
Insurance loss reserves
The Company has two wholly owned insurance companies (the
Captives) that are used as a form of self insurance
for property, liability and workers compensation risks. One of
the Captives also insures certain third-party risks. The
liabilities recorded by the Captives relate to the estimated
risk of loss which is based on management estimates and
actuarial valuations, and unearned premiums, which represent the
portion of the third-party premiums written applicable to the
unexpired terms of the policies in-force. Liabilities are
recognized for known claims when sufficient information has been
developed to indicate involvement of a specific policy and the
Company can reasonably estimate its liability. In addition,
liabilities have been established to cover additional exposure
on both known and unasserted claims. Estimates of the
liabilities are reviewed and updated regularly. It is possible
that actual results could differ significantly from the recorded
liabilities. Premiums written are recognized as revenue based on
the terms of the policies. Capitalization of the Captives is
determined by regulatory guidelines.
Reinsurance receivables
The Captives enter into reinsurance arrangements to reduce their
risk of loss. The reinsurance arrangements do not relieve the
Captives from their obligations to policyholders. Failure of the
reinsurers to honor their obligations could result in losses to
the Captives. The Captives evaluate the financial condition of
their reinsurers and monitor concentrations of credit risk to
minimize their exposure to significant losses from reinsurer
insolvencies and to establish allowances for amounts deemed
non-collectible.
Income taxes
The provision for income taxes has been determined using the
asset and liability approach of accounting for income taxes.
Under this approach, deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes and net operating loss and
tax credit carry forwards. The amount of deferred taxes on these
temporary differences is determined using the tax rates that are
expected to apply to the period when the asset is realized or
the liability is settled, as applicable, based on tax rates and
laws in the respective tax jurisdiction enacted as of the
balance sheet date.
The Company reviews its deferred tax assets for recoverability
and establishes a valuation allowance based on historical
taxable income, projected future taxable income, applicable tax
strategies, and the expected timing of the reversals of existing
temporary differences. A valuation allowance is provided when it
is more likely than not that some portion or all of the deferred
tax assets will not be realized.
The Company considers many factors when evaluating and
estimating its tax positions and tax benefits, which may require
periodic adjustments and which may not accurately anticipate
actual outcomes. Tax positions are recognized only when it is
more likely than not (likelihood of greater than 50%), based on
technical merits, that the positions will be sustained upon
examination. Tax positions that meet the more-likely-than-not
threshold are measured using a probability weighted approach as
the largest amount of tax benefit that is greater than 50%
likely of being realized upon settlement. Whether the
more-likely-than-not recognition threshold is met for a tax
position is a matter of judgment based on the individual facts
and circumstances of that position evaluated in light of all
available evidence.
12
Noncontrolling interests
Noncontrolling interests in the equity and results of operations
of the entities consolidated by the Company are shown as a
separate line item in the consolidated financial statements. The
entities included in the consolidated financial statements that
have noncontrolling interests are as follows:
|
|
|
|
|
|
|
|
|
|
|
Ownership Percentage
|
|
|
as of December 31,
|
|
|
2009
|
|
2008
|
|
Celanese Polisinteza d.o.o.
|
|
|
76
|
%
|
|
|
76
|
%
|
Synthesegasanlage Ruhr GmbH
|
|
|
50
|
%
|
|
|
50
|
%
|
In December 2009, the Company paid a liquidating dividend
related to its ownership in Synthesegasanlage Ruhr GmbH in the
amount of 1 million. The Company is currently
liquidating its ownership in Synthesegasanlage Ruhr GmbH.
Accounting for purchasing agent agreements
A subsidiary of the Company acts as a purchasing agent on behalf
of the Company, as well as third parties. The entity arranges
sale and purchase agreements for raw materials on a commission
basis. Accordingly, the commissions earned on these third-party
sales are classified as a reduction to Selling, general and
administrative expenses.
Functional and reporting currencies
For the Companys international operations where the
functional currency is other than the US dollar, assets and
liabilities are translated using period-end exchange rates,
while the statement of operations amounts are translated using
the average exchange rates for the respective period.
Differences arising from the translation of assets and
liabilities in comparison with the translation of the previous
periods or from initial recognition during the period are
included as a separate component of Accumulated other
comprehensive income (loss), net.
Reclassifications
The Company has reclassified certain prior period amounts to
conform to the current year presentation.
|
|
3.
|
Recent
Accounting Pronouncements
|
In February 2010, the FASB issued FASB Accounting Standards
Update
2010-09,
Subsequent Events: Amendments to Certain Recognition and
Disclosure Requirements
(ASU
2010-09),
which amends FASB ASC Topic 855,
Subsequent Events
. The
update provides that US Securities and Exchange Commission
(SEC) filers, as defined in ASU
2010-09,
are
no longer required to disclose the date through which subsequent
events have been evaluated in originally issued and revised
financial statements. The update also requires SEC filers to
continue to evaluate subsequent events through the date the
financial statements are issued rather than the date the
financial statements are available to be issued. The Company
adopted ASU
2010-09
upon
issuance. This update had no impact on the Companys
financial position, results of operations or cash flows.
In January 2010, the FASB issued FASB Accounting Standards
Update
2010-06,
Fair Value Measurements and Disclosures: Improving
Disclosures about Fair Value Measurements
(ASU
2010-06),
which amends FASB ASC Topic
820-10,
Fair Value Measurements and Disclosures
. The update
provides additional disclosures for transfers in and out of
Levels 1 and 2 and for activity in Level 3 and
clarifies certain
13
other existing disclosure requirements. The Company adopted ASU
2010-06
beginning January 15, 2010. This update had no impact on
the Companys financial position, results of operations or
cash flows.
In January 2010, the FASB issued FASB Accounting Standards
Update
2010-02,
Accounting and Reporting for Decreases in Ownership of a
Subsidiary A Scope Clarification
(ASU
2010-02),
which amends FASB ASC Topic
820-10
(FASB ASC Topic
820-10).
The update addresses implementation issues related to changes in
ownership provisions in the FASB ASC
820-10.
The
Company adopted ASU
2010-02
on
December 31, 2009. This update had no impact on the
Companys financial position, results of operations or cash
flows.
In August 2009, the FASB issued FASB Accounting Standards Update
2009-05,
Fair Value Measurements and Disclosures
(ASU
2009-05),
which amends FASB ASC Topic
820-10
(FASB ASC Topic
820-10).
The update provides clarification on the techniques for
measurement of fair value required of a reporting entity when a
quoted price in an active market for an identical liability is
not available. The Company adopted ASU
2009-05
beginning September 30, 2009. This update had no impact on
the Companys financial position, results of operations or
cash flows.
In June 2009, the FASB issued Statement of Financial Accounting
Standards (SFAS) 168,
The FASB Accounting
Standards
Codification
tm
and the Hierarchy of Generally Accepted Accounting
Principles a replacement of FAS 162
(SFAS 168), which created FASB ASC Topic
105-10
(FASB ASC Topic
105-10).
FASB ASC Topic
105-10
identifies the sources of accounting principles and the
framework for selecting principles used in the preparation of
financial statements of nongovernmental entities that are
presented in conformity with US GAAP (the GAAP hierarchy). The
Company adopted FASB ASC Topic
105-10
beginning September 30, 2009. This standard had no impact
on the Companys financial position, results of operations
or cash flows.
In May 2009, the FASB issued SFAS 165,
Subsequent Events
(SFAS 165), codified in FASB ASC Topic
855-10,
which establishes accounting and disclosure standards for events
that occur after the balance sheet date but before financial
statements are issued or are available to be issued. It defines
financial statements as available to be issued, requiring the
disclosure of the date through which an entity has evaluated
subsequent events and the basis for that date, whether it be the
date the financial statements were issued or the date they were
available to be issued. The Company adopted SFAS 165 upon
issuance. This standard had no impact on the Companys
financial position, results of operations or cash flows.
In April 2009, the FASB issued FASB Staff Position
(FSP)
SFAS 115-2
and
SFAS 124-2,
Recognition and Presentation of
Other-Than-Temporary
Impairments
(FSP
SFAS 115-2
and
SFAS 124-2),
which is codified in FASB ASC Topic
320-10.
FSP
SFAS 115-2
and
SFAS 124-2
provides guidance to determine whether the holder of an
investment in a debt security for which changes in fair value
are not regularly recognized in earnings should recognize a loss
in earnings when the investment is impaired. This FSP also
improves the presentation and disclosure of
other-than-temporary
impairments on debt and equity securities in the consolidated
financial statements. The Company adopted FSP
SFAS 115-2
and
SFAS 124-2
beginning April 1, 2009. This FSP had no material impact on
the Companys financial position, results of operations or
cash flows.
In April 2009, the FASB issued FSP
SFAS 107-1
and Accounting Principles Board (APB) Opinion APB
28-1,
Interim Disclosures about Fair Value of Financial Instruments
(FSP
SFAS 107-1
and APB
28-1).
FSP SFAS 107-1
and APB
28-1,
which
is codified in FASB ASC Topic
825-10-50,
require disclosures about fair value of financial instruments
for interim reporting periods of publicly traded companies as
well as in annual financial statements. The Company adopted FSP
SFAS 107-1
and APB
28-1
beginning April 1, 2009. This FSP had no impact on the
Companys financial position, results of operations or cash
flows.
In April 2009, the FASB issued FSP
SFAS 157-4,
Determining Fair Value When the Volume and Level of Activity
for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are
14
Not Orderly
(FSP
SFAS 157-4).
FSP
SFAS 157-4,
which is codified in FASB ASC Topics
820-10-35-51
and
820-10-50-2,
provides additional guidance for estimating fair value and
emphasizes that even if there has been a significant decrease in
the volume and level of activity for the asset or liability and
regardless of the valuation technique(s) used, the objective of
a fair value measurement remains the same. The Company adopted
FSP
SFAS 157-4
beginning April 1, 2009. This FSP had no material impact on
the Companys financial position, results of operations or
cash flows.
In April 2009, the FASB issued FSP SFAS 141(R)-1,
Accounting for Assets Acquired and Liabilities Assumed in a
Business Combination That Arise from Contingencies
(FSP SFAS 141(R)-1). FSP
SFAS 141(R)-1, which is codified in FASB ASC Topic 805,
Business Combinations
, addresses application issues
related to the measurement, accounting and disclosure of assets
and liabilities arising from contingencies in a business
combination. The Company adopted FSP SFAS 141(R)-1 upon
issuance. This FSP had no impact on the Companys financial
position, results of operations or cash flows.
In December 2008, the FASB issued FSP SFAS 132(R)-1,
Employers Disclosures about Postretirement Benefit Plan
Assets
(FSP SFAS 132(R)-1), which is
codified in FASB ASC Topic
715-20-50.
FSP SFAS 132(R)-1 requires enhanced disclosures about the
plan assets of a Companys defined benefit pension and
other postretirement plans intended to provide financial
statement users with a greater understanding of: 1) how
investment allocation decisions are made; 2) the major
categories of plan assets; 3) the inputs and valuation
techniques used to measure the fair value of plan assets;
4) the effect of fair value measurements using significant
unobservable inputs on changes in plan assets for the period;
and 5) significant concentrations of risk within plan
assets. The Company adopted FSP SFAS 132(R)-1 on
January 1, 2009. This FSP had no impact on the
Companys financial position, results of operations or cash
flows.
|
|
4.
|
Acquisitions,
Ventures, Divestitures, Asset Sales and Plant Closures
|
Acquisitions
In December 2009, the Company acquired the business and assets
of FACT GmbH (Future Advanced Composites Technology)
(FACT), a German company, for a purchase price of
5 million ($7 million). FACT is in the business
of developing, producing and marketing long fiber reinforced
thermoplastics. As part of the acquisition, the Company has
entered into a ten year lease agreement with the seller for the
property and buildings on which the FACT business is located
with the option to purchase the property at various times
throughout the lease. The acquired business is included in the
Advanced Engineered Materials segment.
In January 2007, the Company acquired the cellulose acetate
flake, tow and film business of Acetate Products Limited
(APL), a subsidiary of Corsadi B.V. The purchase
price for the transaction was approximately
£57 million ($112 million), in addition to direct
acquisition costs of approximately £4 million
($7 million). As contemplated prior to the closing of the
acquisition, the Company closed the acquired tow production
plant at Little Heath, United Kingdom in September 2007. In
accordance with the Companys sponsor services agreement
dated January 26, 2005, as amended, the Company paid the
Advisor $1 million in connection with the acquisition. The
acquired business is included in the Companys Consumer
Specialties segment.
Ventures
In March 2007, the Company entered into a strategic partnership
with Accsys Technologies PLC (Accsys), and its
subsidiary, Titan Wood, to become the exclusive supplier of
acetyl products to Titan Woods technology licensees for
use in wood acetylation. In connection with this partnership, in
May 2007, the Company acquired 8,115,883 shares of
Accsys common stock representing approximately 5.45% of
the total voting shares of Accsys for 22 million
($30 million). The investment was treated as an
available-for-sale
security and was included in Marketable securities, at fair
value, on the Companys consolidated balance sheets. On
November 20, 2007, the Company and Accsys announced that
they agreed to amend their business
15
arrangements so that each company would have a nonexclusive
at-will trading and supply relationship to give both
companies greater flexibility. As part of this amendment, the
Company subsequently sold all of its shares of Accsys stock for
approximately 20 million ($30 million), which
resulted in a cumulative loss of $3 million.
Divestitures
In July 2009, the Company completed the sale of its polyvinyl
alcohol (PVOH) business to Sekisui Chemical Co.,
Ltd. (Sekisui) for a net cash purchase price of
$168 million, resulting in a gain on disposition of
$34 million. The net cash purchase price excludes the
accounts receivable and payable retained by the Company. The
transaction includes long-term supply agreements between Sekisui
and the Company and therefore, does not qualify for treatment as
a discontinued operation. The PVOH business is included in the
Industrial Specialties segment.
In July 2008, the Company sold its 55.46% interest in Derivados
Macroquimicos S.A. de C.V. (DEMACSA) for proceeds of
$3 million. DEMACSA produces cellulose ethers at an
industrial complex in Zacapu, Michoacan, Mexico and is included
in the Companys Acetyl Intermediates segment. In June
2008, the Company recorded a long-lived asset impairment loss of
$1 million to Cost of sales in the consolidated statements
of operations. As a result, the proceeds from the sale
approximated the carrying value of DEMACSA on the date of the
sale. The Company concluded the sale of DEMACSA is not a
discontinued operation due to certain forms of continuing
involvement between the Company and DEMACSA subsequent to the
sale.
In August 2007, the Company sold its Films business of EVA
Performance Polymers (f/k/a AT Plastics), located in Edmonton
and Westlock, Alberta, Canada, to British Polythene Industries
PLC (BPI) for $12 million. The Films business
manufactures products for the agricultural, horticultural and
construction industries. The Company recorded a loss on the sale
of $7 million during the year ended December 31, 2007.
The Company maintained ownership of the Polymers business of the
business formerly known as AT Plastics, which concentrates on
the development and supply of specialty resins and compounds.
EVA Performance Polymers is included in the Companys
Industrial Specialties segment. The Company concluded that the
sale of the Films business is not a discontinued operation due
to the level of continuing cash flows between the Films business
and EVA Performance Polymers Polymers business subsequent
to the sale.
In connection with the Companys strategy to optimize its
portfolio and divest non-core operations, the Company announced
in December 2006 its agreement to sell its Acetyl Intermediates
segments oxo products and derivatives businesses,
including European Oxo GmbH (EOXO), a 50/50 venture
between Celanese GmbH and Degussa AG (Degussa), to
Advent International, for a purchase price of
480 million ($636 million) subject to final
agreement adjustments and the successful exercise of the
Companys option to purchase Degussas 50% interest in
EOXO. On February 23, 2007, the option was exercised and
the Company acquired Degussas interest in the venture for
a purchase price of 30 million ($39 million), in
addition to 22 million ($29 million) paid to
extinguish EOXOs debt upon closing of the transaction. The
Company completed the sale of its oxo products and derivatives
businesses, including the acquired 50% interest in EOXO, on
February 28, 2007. The sale included the oxo and
derivatives businesses at the Oberhausen, Germany, and Bay City,
Texas facilities as well as portions of its Bishop, Texas
facility. Also included were EOXOs facilities within the
Oberhausen and Marl, Germany plants. The former oxo products and
derivatives businesses acquired by Advent International was
renamed Oxea. Taking into account agreed deductions by the buyer
for pension and other employee benefits and various costs for
separation activities, the Company received proceeds of
approximately 443 million ($585 million) at
closing. The transaction resulted in the recognition of a
$47 million pre-tax gain, recorded to Gain (loss) on
disposal of discontinued operations, which includes certain
working capital and other adjustments, in 2007. Due to certain
lease-back arrangements between the Company and the buyer and
related environmental obligations of the Company, approximately
$51 million of the transaction proceeds attributable to the
fair value of the underlying land at Bay City ($1 million)
and Oberhausen (36 million) is included in deferred
proceeds in noncurrent Other liabilities, and
16
divested land with a book value of $14 million
(10 million at Oberhausen and $1 million at Bay
City) remains in Property, plant and equipment, net in the
Companys consolidated balance sheets.
Subsequent to closing, the Company and Oxea have certain site
service and product supply arrangements. The site services
include, but are not limited to, administrative, utilities,
health and safety, waste water treatment and maintenance
activities for terms which range up to fifteen years. Product
supply agreements contain initial terms of up to fifteen years.
The Company has no contractual ability through these agreements
or any other arrangements to significantly influence the
operating or financial policies of Oxea. The Company concluded,
based on the nature and limited projected magnitude of the
continuing business relationship between the Company and Oxea,
the divestiture of the oxo products and derivatives businesses
should be accounted for as a discontinued operation.
Third-party net sales include $5 million to the divested
oxo products and derivative businesses for the year ended
December 31, 2007 that were eliminated upon consolidation.
In accordance with the Companys sponsor services agreement
dated January 26, 2005, as amended, the Company paid the
Advisor $6 million in connection with the sale of the oxo
products and derivatives businesses.
During the second quarter of 2007, the Company discontinued its
Edmonton, Alberta, Canada methanol operations, which were
included in the Acetyl Intermediates segment. As a result, the
earnings (loss) from operations related to Edmonton methanol are
accounted for as discontinued operations.
Asset
Sales
In May 2008, shareholders of the Companys Koper, Slovenia
legal entity voted to approve the April 2008 decision by the
Company to permanently shut down this emulsions production site.
The decision to shut down the site resulted in employee
severance of less than $1 million, which is included in
Other (charges) gains, net, in the consolidated statements of
operations during the year ended December 31, 2008.
Currently, the facility is idle and the existing fixed assets,
including machinery and equipment, buildings and land are being
marketed for sale. The Koper, Slovenia legal entity is included
in the Companys Industrial Specialties segment.
In December 2007, the Company sold the assets at its Edmonton,
Alberta, Canada facility to a real estate developer for
approximately $35 million. As part of the agreement, the
Company will retain certain environmental liabilities associated
with the site. The Company derecognized $16 million of
asset retirement obligations which were transferred to the
buyer. As a result of the sale, the Company recorded a gain of
$37 million for the year ended December 31, 2007, of
which a gain of $34 million was recorded to Gain (loss) on
disposition of businesses and assets, net in the consolidated
statements of operations.
In July 2007, the Company reached an agreement with
Babcock & Brown, a worldwide investment firm which
specializes in real estate and utilities development, to sell
the Companys Pampa, Texas facility. The Company ceased
operations at the site in December 2008. Proceeds received upon
certain milestone events are treated as deferred proceeds and
included in noncurrent Other liabilities in the Companys
consolidated balance sheets until the transaction is complete
(expected to be in 2010), as defined in the sales agreement.
These operations are included in the Companys Acetyl
Intermediates segment. During the second half of 2008, the
Company determined that two of the milestone events, which are
outside of the Companys control, were unlikely to be
achieved. The Company performed a discounted cash flow analysis
which resulted in a $23 million long-lived asset impairment
loss recorded to Other (charges) gains, net, in the consolidated
statements of operations during the year ended December 31,
2008 (Note 18).
17
Plant
Closures
In July 2009, the Companys wholly-owned French subsidiary,
Acetex Chimie, completed the consultation procedure with the
workers council on its Project of Closure and social
plan related to the Companys Pardies, France facility
pursuant to which the Company announced its formal plan to cease
all manufacturing operations and associated activities by
December 2009. The Company agreed with the workers council on a
set of measures of assistance aimed at minimizing the effects of
the plants closing on the Pardies workforce, including
training, outplacement and severance.
As a result of the Project of Closure, the Company recorded exit
costs of $89 million during the year ended
December 31, 2009, which included $60 million in
employee termination benefits, $17 million of contract
termination costs and $12 million of long-lived asset
impairment losses (see Note 18) to Other charges
(gains), net, in the consolidated statements of operations. The
fair value of the related held and used long-lived assets is
$4 million as of December 31, 2009. In addition, the
Company recorded $9 million of accelerated depreciation
expense for the year ended December 31, 2009 and
$8 million of environmental remediation reserves for the
year ended December 31, 2009 related to the shutdown of the
Companys Pardies, France facility. The Pardies, France
facility is included in the Acetyl Intermediates segment.
|
|
5.
|
Marketable
Securities, at Fair Value
|
The Companys captive insurance companies and
pension-related trusts hold
available-for-sale
securities for capitalization and funding requirements,
respectively. The Company recorded realized gains (losses) to
Other income (expense), net in the consolidated statements of
operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In $ millions)
|
|
|
Realized gain on sale of securities
|
|
|
5
|
|
|
|
10
|
|
|
|
1
|
|
Realized loss on sale of securities
|
|
|
-
|
|
|
|
(10
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain (loss) on sale of securities
|
|
|
5
|
|
|
|
-
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost, gross unrealized gain, gross unrealized loss
and fair values for
available-for-sale
securities by major security type were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Value
|
|
|
|
|
|
|
(In $ millions)
|
|
|
|
|
|
US government debt securities
|
|
|
26
|
|
|
|
2
|
|
|
|
-
|
|
|
|
28
|
|
US corporate debt securities
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
27
|
|
|
|
2
|
|
|
|
-
|
|
|
|
29
|
|
Equity securities
|
|
|
55
|
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
52
|
|
Money market deposits and other securities
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
84
|
|
|
|
2
|
|
|
|
(3
|
)
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US government debt securities
|
|
|
35
|
|
|
|
17
|
|
|
|
-
|
|
|
|
52
|
|
US corporate debt securities
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
38
|
|
|
|
17
|
|
|
|
-
|
|
|
|
55
|
|
Equity securities
|
|
|
55
|
|
|
|
-
|
|
|
|
(13
|
)
|
|
|
42
|
|
Money market deposits and other securities
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008
|
|
|
96
|
|
|
|
17
|
|
|
|
(13
|
)
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
Fixed maturities as of December 31, 2009 by contractual
maturity are shown below. Actual maturities could differ from
contractual maturities because borrowers may have the right to
call or prepay obligations, with or without call or prepayment
penalties.
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
|
(In $ millions)
|
|
|
Within one year
|
|
|
3
|
|
|
|
3
|
|
From one to five years
|
|
|
-
|
|
|
|
-
|
|
From six to ten years
|
|
|
-
|
|
|
|
-
|
|
Greater than ten years
|
|
|
26
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
29
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
Proceeds received from fixed maturities that mature within one
year are expected to be reinvested into additional securities
upon such maturity.
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In $ millions)
|
|
|
Trade receivables third party and affiliates
|
|
|
739
|
|
|
|
656
|
|
Allowance for doubtful accounts third party and
affiliates
|
|
|
(18
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
Trade receivables third party and affiliates, net
|
|
|
721
|
|
|
|
631
|
|
|
|
|
|
|
|
|
|
|
Non-trade receivables
|
|
|
|
|
|
|
|
|
Reinsurance receivables
|
|
|
49
|
|
|
|
40
|
|
Income taxes receivable
|
|
|
64
|
|
|
|
88
|
|
Other
|
|
|
149
|
|
|
|
154
|
|
Allowance for doubtful accounts other
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
262
|
|
|
|
281
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 and 2008, the Company had no
significant concentrations of credit risk since the
Companys customer base is dispersed across many different
industries and geographies.
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In $ millions)
|
|
|
Finished goods
|
|
|
367
|
|
|
|
434
|
|
Work-in-process
|
|
|
28
|
|
|
|
24
|
|
Raw materials and supplies
|
|
|
127
|
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
522
|
|
|
|
577
|
|
|
|
|
|
|
|
|
|
|
The Company recorded charges of $0 million and
$14 million to reduce its inventories to the
lower-of-cost
or market for the years ended December 31, 2009 and 2008,
respectively.
19
|
|
8.
|
Investments
in Affiliates
|
Equity
Method
The Companys equity investments and ownership interests
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership
|
|
|
|
|
|
Share of Earnings (Loss)
|
|
|
|
|
|
Percentage
|
|
|
Carrying Value
|
|
|
Year Ended
|
|
|
|
|
|
as of December 31,
|
|
|
as of December 31,
|
|
|
December 31,
|
|
|
|
Segment
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
(In percentages)
|
|
|
(In $ millions)
|
|
|
European Oxo
GmbH
(1)
|
|
Acetyl Intermediates
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
Erfei,
A.I.E.
(3)
|
|
Acetyl Intermediates
|
|
|
-
|
|
|
|
45
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
National Methanol Company (Ibn Sina)
|
|
Advanced Engineered
Materials
|
|
|
25
|
|
|
|
25
|
|
|
|
56
|
|
|
|
46
|
|
|
|
51
|
|
|
|
118
|
|
|
|
68
|
|
Fortron Industries LLC
|
|
Advanced Engineered
Materials
|
|
|
50
|
|
|
|
50
|
|
|
|
74
|
|
|
|
77
|
|
|
|
(3
|
)
|
|
|
4
|
|
|
|
16
|
|
Korea Engineering Plastics Co., Ltd.
|
|
Advanced Engineered
Materials
|
|
|
50
|
|
|
|
50
|
|
|
|
159
|
|
|
|
145
|
|
|
|
14
|
|
|
|
12
|
|
|
|
14
|
|
Polyplastics Co., Ltd.
|
|
Advanced Engineered
Materials
|
|
|
45
|
|
|
|
45
|
|
|
|
175
|
|
|
|
189
|
|
|
|
15
|
|
|
|
19
|
|
|
|
25
|
|
Una SA
|
|
Advanced Engineered
Materials
|
|
|
50
|
|
|
|
50
|
|
|
|
2
|
|
|
|
2
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
InfraServ GmbH & Co. Gendorf KG
|
|
Other Activities
|
|
|
39
|
|
|
|
39
|
|
|
|
27
|
|
|
|
28
|
|
|
|
3
|
|
|
|
4
|
|
|
|
5
|
|
InfraServ GmbH & Co. Hoechst KG
|
|
Other Activities
|
|
|
32
|
|
|
|
31
|
|
|
|
142
|
|
|
|
137
|
|
|
|
15
|
|
|
|
10
|
|
|
|
18
|
|
InfraServ GmbH & Co. Knapsack KG
|
|
Other Activities
|
|
|
27
|
|
|
|
27
|
|
|
|
24
|
|
|
|
22
|
|
|
|
5
|
|
|
|
4
|
|
|
|
4
|
|
Sherbrooke Capital Health and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wellness,
L.P.
(2)
|
|
Consumer Specialties
|
|
|
10
|
|
|
|
10
|
|
|
|
4
|
|
|
|
4
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (As Adjusted, Note 31)
|
|
|
|
|
|
|
|
|
|
|
|
|
663
|
|
|
|
651
|
|
|
|
99
|
|
|
|
172
|
|
|
|
151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The Company divested this investment in February 2007
(Note 4). The share of earnings (loss) for this investment
is included in Earnings (loss) from operation of discontinued
operations in the consolidated statements of operations.
|
|
(2)
|
|
The Company accounts for its 10% ownership interest in
Sherbrooke Capital Health and Wellness, L.P. under the equity
method of accounting because the Company is able to exercise
significant influence.
|
|
(3)
|
|
The Company divested this investment in July 2009 as part of the
sale of PVOH (Note 4).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
As Adjusted (Note 32)
|
|
|
|
(In $ millions)
|
|
|
Affiliate net earnings
|
|
|
335
|
|
|
|
633
|
|
|
|
503
|
|
Companys share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
99
|
|
|
|
172
|
|
|
|
150
|
(1)
|
Dividends and other distributions
|
|
|
78
|
|
|
|
183
|
|
|
|
135
|
|
20
|
|
|
(1)
|
|
Amount does not include a $1 million liquidating dividend
from Clear Lake Methanol Partners for the year ended
December 31, 2007.
|
Cost
Method
The Companys investments accounted for under the cost
method of accounting are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership
|
|
|
|
|
|
|
|
|
|
|
|
Percentage as of
|
|
|
Carrying Value as of
|
|
|
Dividend Income for the years
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
ended December 31,
|
|
|
|
Segment
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
(In percentages)
|
|
|
(In $ millions)
|
|
|
Kunming Cellulose Fibers Co. Ltd.
|
|
Consumer Specialties
|
|
|
30
|
|
|
|
30
|
|
|
|
14
|
|
|
|
14
|
|
|
|
10
|
|
|
|
8
|
|
|
|
7
|
|
Nantong Cellulose Fibers Co. Ltd.
|
|
Consumer Specialties
|
|
|
31
|
|
|
|
31
|
|
|
|
77
|
|
|
|
77
|
|
|
|
38
|
|
|
|
32
|
|
|
|
24
|
|
Zhuhai Cellulose Fibers Co. Ltd.
|
|
Consumer Specialties
|
|
|
30
|
|
|
|
30
|
|
|
|
14
|
|
|
|
14
|
|
|
|
8
|
|
|
|
6
|
|
|
|
6
|
|
InfraServ GmbH & Co. Wiesbaden KG
|
|
Other Activities
|
|
|
8
|
|
|
|
8
|
|
|
|
6
|
|
|
|
6
|
|
|
|
1
|
|
|
|
2
|
|
|
|
1
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
19
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total As Adjusted (Note 31)
|
|
|
|
|
|
|
|
|
|
|
|
|
129
|
|
|
|
130
|
|
|
|
57
|
|
|
|
48
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain investments where the Company owns greater than a 20%
ownership interest are accounted for under the cost method of
accounting because the Company cannot exercise significant
influence over these entities. The Company determined that it
cannot exercise significant influence over these entities due to
local government investment in and influence over these
entities, limitations on the Companys involvement in the
day-to-day
operations and the present inability of the entities to provide
timely financial information prepared in accordance with US GAAP.
During 2007, the Company wrote-off its remaining
1 million ($1 million) cost investment in
European Pipeline Development Company B.V. (EPDC)
and expensed 7 million ($9 million), included in
Other income (expense), net, associated with contingent
liabilities that became payable due to the Companys
decision to exit the pipeline development project. In June 2008,
the outstanding contingent liabilities were resolved and the
Company recognized a gain of 2 million
($2 million), included in Other income (expense), net, in
the consolidated statements of operations to remove the
remaining accrual.
During 2007, the Company fully impaired its $5 million cost
investment in Elemica Corporation (Elemica). Elemica
is a network for the global chemical industry developed by 22 of
the leading chemical companies in the world for the benefit of
the entire industry. The impairment was included in Other income
(expense), net in the consolidated statements of operations.
|
|
9.
|
Property,
Plant and Equipment, Net
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In $ millions)
|
|
|
Land
|
|
|
62
|
|
|
|
61
|
|
Land improvements
|
|
|
44
|
|
|
|
44
|
|
Buildings and building improvements
|
|
|
360
|
|
|
|
358
|
|
Machinery and equipment
|
|
|
2,669
|
|
|
|
2,615
|
|
Construction in progress
|
|
|
792
|
|
|
|
443
|
|
|
|
|
|
|
|
|
|
|
Gross asset value
|
|
|
3,927
|
|
|
|
3,521
|
|
Less: accumulated depreciation
|
|
|
(1,130
|
)
|
|
|
(1,051
|
)
|
|
|
|
|
|
|
|
|
|
Net book value
|
|
|
2,797
|
|
|
|
2,470
|
|
|
|
|
|
|
|
|
|
|
21
Assets under capital leases amounted to $272 million and
$233 million, less accumulated amortization of
$55 million and $38 million, as of December 31,
2009 and 2008, respectively. Interest costs capitalized were
$2 million, $6 million and $9 million during the
years ended December 31, 2009, 2008 and 2007, respectively.
Depreciation expense was $213 million, $255 million
and $209 million during the years ended December 31,
2009, 2008 and 2007, respectively.
During 2008 and 2009, certain long-lived assets were impaired
(Note 18).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineered
|
|
|
Consumer
|
|
|
Industrial
|
|
|
Acetyl
|
|
|
|
|
|
|
Materials
|
|
|
Specialties
|
|
|
Specialties
|
|
|
Intermediates
|
|
|
Total
|
|
|
|
(In $ millions)
|
|
|
As of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
277
|
|
|
|
264
|
|
|
|
53
|
|
|
|
278
|
|
|
|
872
|
|
Accumulated impairment losses
|
|
|
-
|
|
|
|
-
|
|
|
|
(6)
|
|
|
|
-
|
|
|
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
277
|
|
|
|
264
|
|
|
|
47
|
|
|
|
278
|
|
|
|
866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to preacquisition tax uncertainties
|
|
|
(9)
|
|
|
|
2
|
|
|
|
(12)
|
|
|
|
(30)
|
|
|
|
(49)
|
|
Exchange rate changes
|
|
|
(10)
|
|
|
|
(14)
|
|
|
|
(1)
|
|
|
|
(13)
|
|
|
|
(38)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
258
|
|
|
|
252
|
|
|
|
40
|
|
|
|
235
|
|
|
|
785
|
|
Accumulated impairment losses
|
|
|
-
|
|
|
|
-
|
|
|
|
(6)
|
|
|
|
-
|
|
|
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
258
|
|
|
|
252
|
|
|
|
34
|
|
|
|
235
|
|
|
|
779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of
PVOH
(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exchange rate changes
|
|
|
5
|
|
|
|
5
|
|
|
|
1
|
|
|
|
8
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
263
|
|
|
|
257
|
|
|
|
35
|
|
|
|
243
|
|
|
|
798
|
|
Accumulated impairment losses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
263
|
|
|
|
257
|
|
|
|
35
|
|
|
|
243
|
|
|
|
798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Fully impaired goodwill of $6 million was written off
related to the sale of PVOH.
|
Recoverability of goodwill is measured using a discounted cash
flow model incorporating discount rates commensurate with the
risks involved for each reporting unit which is classified as a
Level 3 measurement under FASB ASC Topic 820. The key
assumptions used in the discounted cash flow valuation model
include discount rates, growth rates, cash flow projections and
terminal value rates. Discount rates, growth rates and cash flow
projections are the most sensitive and susceptible to change as
they require significant management judgment. If the calculated
fair value is less than the current carrying value, impairment
of the reporting unit may exist. When the recoverability test
indicates potential impairment, the Company, or in certain
circumstances, a third-party valuation consultant, will
calculate an implied fair value of goodwill for the reporting
unit. The implied fair value of goodwill is determined in a
manner similar to how goodwill is calculated in a business
combination. If the implied fair value of goodwill exceeds the
carrying value of goodwill assigned to the reporting unit, there
is no impairment. If the carrying value of goodwill assigned to
a reporting unit exceeds the implied fair value of the goodwill,
an impairment charge is recorded to write down the carrying
value. An impairment loss cannot exceed the carrying value of
goodwill assigned to a reporting unit but may indicate certain
long-lived and amortizable intangible assets associated with the
reporting unit may require additional impairment testing.
22
In connection with the Companys annual goodwill impairment
test performed during the three months ended September 30,
2009 using June 30 balances, the Company did not record an
impairment loss related to goodwill as the estimated fair value
for each of the Companys reporting units exceeded the
carrying value of the underlying assets by a substantial margin.
No events or changes in circumstances occurred during the three
months ended December 31, 2009 that would indicate that the
carrying amount of the assets may not be fully recoverable, as
such, no additional impairment analysis was performed during
that period.
|
|
11.
|
Intangible
Assets, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer-
|
|
|
|
|
|
Covenants
|
|
|
|
|
|
|
Trademarks
|
|
|
|
|
|
Related
|
|
|
|
|
|
not to
|
|
|
|
|
|
|
and
|
|
|
|
|
|
Intangible
|
|
|
Developed
|
|
|
Compete
|
|
|
|
|
|
|
Trade names
|
|
|
Licenses
|
|
|
Assets
|
|
|
Technology
|
|
|
and Other
|
|
|
Total
|
|
|
|
(In $ millions)
|
|
|
Gross Asset Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007
|
|
|
85
|
|
|
|
|
-
|
|
|
|
|
562
|
|
|
|
|
12
|
|
|
|
|
12
|
|
|
|
|
671
|
|
|
Acquisitions
|
|
|
-
|
|
|
|
|
28
(1
|
)
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
28
|
|
|
Exchange rate changes
|
|
|
(3
|
)
|
|
|
|
1
|
|
|
|
|
(25
|
)
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008
|
|
|
82
|
|
|
|
|
29
|
|
|
|
|
537
|
|
|
|
|
12
|
|
|
|
|
12
|
|
|
|
|
672
|
|
|
Acquisitions
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
1
|
|
|
|
|
-
|
|
|
|
|
1
|
|
|
Exchange rate changes
|
|
|
1
|
|
|
|
|
-
|
|
|
|
|
15
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
83
|
|
|
|
|
29
|
|
|
|
|
552
|
|
|
|
|
13
|
|
|
|
|
12
|
|
|
|
|
689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
(228
|
)
|
|
|
|
(9
|
)
|
|
|
|
(9
|
)
|
|
|
|
(246
|
)
|
|
Amortization
|
|
|
-
|
|
|
|
|
(3
|
)
|
|
|
|
(71
|
)
|
|
|
|
(1
|
)
|
|
|
|
(1
|
)
|
|
|
|
(76
|
)
|
|
Exchange rate changes
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
14
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008
|
|
|
-
|
|
|
|
|
(3
|
)
|
|
|
|
(285
|
)
|
|
|
|
(10
|
)
|
|
|
|
(10
|
)
|
|
|
|
(308
|
)
|
|
Amortization
|
|
|
(5
|
)
|
|
|
|
(3
|
)
|
|
|
|
(67
|
)
|
|
|
|
(1
|
)
|
|
|
|
(1
|
)
|
|
|
|
(77
|
)
|
|
Exchange rate changes
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
(10
|
)
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
(5
|
)
|
|
|
|
(6
|
)
|
|
|
|
(362
|
)
|
|
|
|
(11
|
)
|
|
|
|
(11
|
)
|
|
|
|
(395
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value
|
|
|
78
|
|
|
|
|
23
|
|
|
|
|
190
|
|
|
|
|
2
|
|
|
|
|
1
|
|
|
|
|
294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Acquisition of a sole and exclusive license to patents and
patent applications related to acetic acid. The license is being
amortized over 10 years.
|
Aggregate amortization expense for intangible assets with finite
lives during the years ended December 31, 2009, 2008 and
2007 was $72 million, $76 million, and
$72 million, respectively. In addition, during the year
ended December 31, 2009 the Company recorded accelerated
amortization expense of $5 million related to the AT
Plastics trade name which was discontinued August 1, 2009.
The trade name is now fully amortized.
Estimated amortization expense for the succeeding five fiscal
years is approximately $62 million in 2010,
$57 million in 2011, $43 million in 2012,
$26 million in 2013, and $15 million in 2014. The
Companys trademarks and trade names have an indefinite
life. Accordingly, no amortization is recorded on these
intangible assets.
Management tests indefinite-lived intangible assets utilizing
the relief from royalty method to determine the estimated fair
value for each indefinite-lived intangible asset which is
classified as a Level 3 measurement under FASB ASC Topic
820. The relief from royalty method estimates the Companys
theoretical royalty savings from ownership of the intangible
asset. Key assumptions used in this model include discount
rates, royalty rates, growth rates, sales projections and
terminal value rates. Discount rates, royalty rates,
23
growth rates and sales projections are the assumptions most
sensitive and susceptible to change as they require significant
management judgment. Discount rates used are similar to the
rates estimated by the weighted-average cost of capital
(WACC) considering any differences in
Company-specific risk factors. Royalty rates are established by
management and are periodically substantiated by third-party
valuation consultants. Operational management, considering
industry and Company-specific historical and projected data,
develops growth rates and sales projections associated with each
indefinite-lived intangible asset. Terminal value rate
determination follows common methodology of capturing the
present value of perpetual sales estimates beyond the last
projected period assuming a constant WACC and low long-term
growth rates.
In connection with the Companys annual indefinite-lived
intangible assets impairment test performed during the three
months ended September 30, 2009 using June 30 balances, the
Company recorded an impairment loss of less than $1 million
to certain indefinite-lived intangible assets. The fair value of
such indefinite-lived intangible assets is $2 million as of
December 31, 2009. No events or changes in circumstances
occurred during the three months ended December 31, 2009
that would indicate that the carrying amount of the assets may
not be fully recoverable, as such, no additional impairment
analysis was performed during that period.
For the year ended December 31, 2009, the Company did not
renew or extend any intangible assets.
|
|
12.
|
Current
Other Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In $ millions)
|
|
|
Salaries and benefits
|
|
|
100
|
|
|
|
107
|
|
Environmental (Note 16)
|
|
|
13
|
|
|
|
19
|
|
Restructuring (Note 18)
|
|
|
99
|
|
|
|
32
|
|
Insurance
|
|
|
37
|
|
|
|
34
|
|
Asset retirement obligations
|
|
|
22
|
|
|
|
9
|
|
Derivatives
|
|
|
75
|
|
|
|
67
|
|
Current portion of benefit obligations (Note 15)
|
|
|
49
|
|
|
|
57
|
|
Sales and use tax/foreign withholding tax payable
|
|
|
15
|
|
|
|
16
|
|
Interest
|
|
|
20
|
|
|
|
54
|
|
Uncertain tax positions (Note 19)
|
|
|
5
|
|
|
|
-
|
|
Other
|
|
|
176
|
|
|
|
179
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
611
|
|
|
|
574
|
|
|
|
|
|
|
|
|
|
|
|
|
13.
|
Noncurrent
Other Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In $ millions)
|
|
|
Environmental (Note 16)
|
|
|
93
|
|
|
|
79
|
|
Insurance
|
|
|
85
|
|
|
|
85
|
|
Deferred revenue
|
|
|
49
|
|
|
|
55
|
|
Deferred proceeds (Note 4, Note 29)
|
|
|
846
|
|
|
|
371
|
|
Asset retirement obligations
|
|
|
45
|
|
|
|
40
|
|
Derivatives
|
|
|
44
|
|
|
|
76
|
|
Income taxes payable
|
|
|
61
|
|
|
|
-
|
|
Other
|
|
|
83
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,306
|
|
|
|
806
|
|
|
|
|
|
|
|
|
|
|
24
Changes in asset retirement obligations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In $ millions)
|
|
|
Balance at beginning of year
|
|
|
49
|
|
|
|
47
|
|
|
|
59
|
|
Additions
|
|
|
14
|
(1)
|
|
|
6
|
(2)
|
|
|
-
|
|
Accretion
|
|
|
2
|
|
|
|
3
|
|
|
|
5
|
|
Payments
|
|
|
(14
|
)
|
|
|
(6
|
)
|
|
|
(6
|
)
|
Divestitures
|
|
|
-
|
|
|
|
-
|
|
|
|
(16
|
)
(3)
|
Purchase accounting adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
Revisions to cash flow estimates
|
|
|
15
|
(4)
|
|
|
1
|
|
|
|
(2
|
)
|
Exchange rate changes
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
67
|
|
|
|
49
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Relates to a site for which management no longer considers to
have an indeterminate life.
|
|
(2)
|
|
Relates to long-lived assets impaired (Note 18) for
which management no longer considers to have an indeterminate
life.
|
|
(3)
|
|
Relates to the sale of the Edmonton, Alberta, Canada plant
(Note 4).
|
|
(4)
|
|
Primarily relates to long-lived assets impaired
(Note 18) based on triggering events assessed by the
Company in 2008 and decisions made by the Company in 2009.
|
Included in the asset retirement obligations for each of the
years ended December 31, 2009 and 2008 is $10 million
related to a business acquired in 2005. The Company has a
corresponding receivable of $3 million and $7 million
included in current Other assets and noncurrent Other assets in
the consolidated balance sheets, respectively, as of
December 31, 2009.
Based on long-lived asset impairment triggering events assessed
by the Company in December 2008 and decisions made by the
Company in 2009, the Company concluded several sites no longer
have an indeterminate life. Accordingly, the Company recorded
asset retirement obligations associated with these sites. The
Company uses the expected present value technique to measure the
fair value of the asset retirement obligations which is
classified as a Level 3 measurement under FASB ASC Topic
820. The expected present value technique uses a set of cash
flows that represent the probability-weighted average of all
possible cash flows based on the Companys judgment. The
Company uses the following inputs to determine the fair value of
the asset retirement obligations based on the Companys
experience with fulfilling obligations of this type and the
Companys knowledge of market conditions: a) labor
costs; b) allocation of overhead costs; c) profit on
labor and overhead costs; d) effect of inflation on
estimated costs and profits; e) risk premium for bearing
the uncertainty inherent in cash flows, other than inflation;
f) time value of money represented by the risk-free
interest rate commensurate with the timing of the associated
cash flows; and g) nonperformance risk relating to the
liability which includes the Companys own credit risk.
The Company has identified but not recognized asset retirement
obligations related to certain of its existing operating
facilities. Examples of these types of obligations include
demolition, decommissioning, disposal and restoration
activities. Legal obligations exist in connection with the
retirement of these assets upon closure of the facilities or
abandonment of the existing operations. However, the Company
currently plans on continuing operations at these facilities
indefinitely and therefore a reasonable estimate of fair value
cannot be determined at this time. In the event the Company
considers plans to abandon or cease operations at these sites,
an asset retirement obligation will be reassessed at that time.
If certain operating facilities were to close, the related asset
retirement obligations could significantly affect the
Companys results of operations and cash flows.
25
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In $ millions)
|
|
|
Short-term borrowings and current installments of long-term
debt third party and affiliates
|
|
|
|
|
|
|
|
|
Current installments of long-term debt
|
|
|
102
|
|
|
|
81
|
|
Short-term borrowings, principally comprised of amounts due to
affiliates
|
|
|
140
|
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
242
|
|
|
|
233
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
Senior credit facilities: Term loan facility due 2014
|
|
|
2,785
|
|
|
|
2,794
|
|
Term notes 7.125%, due 2009
|
|
|
-
|
|
|
|
14
|
|
Pollution control and industrial revenue bonds, interest rates
ranging from 5.7% to 6.7%, due at various dates through 2030
|
|
|
181
|
|
|
|
181
|
|
Obligations under capital leases and other secured borrowings
due at various dates through 2054
|
|
|
242
|
|
|
|
211
|
|
Other bank obligations, interest rates ranging from 2.3% to
5.3%, due at various dates through 2014
|
|
|
153
|
|
|
|
181
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
3,361
|
|
|
|
3,381
|
|
Less: Current installments of long-term debt
|
|
|
102
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,259
|
|
|
|
3,300
|
|
|
|
|
|
|
|
|
|
|
Senior
Credit Facilities
The Companys senior credit agreement consists of
$2,280 million of US dollar-denominated and
400 million of Euro-denominated term loans due 2014,
a $600 million revolving credit facility terminating in
2013 and a $228 million credit-linked revolving facility
terminating in 2014. Borrowings under the senior credit
agreement bear interest at a variable interest rate based on
LIBOR (for US dollars) or EURIBOR (for Euros), as applicable,
or, for US dollar-denominated loans under certain circumstances,
a base rate, in each case plus an applicable margin. The
applicable margin for the term loans and any loans under the
credit-linked revolving facility is 1.75%, subject to potential
reductions as defined in the senior credit agreement. As of
December 31, 2009, the applicable margin was 1.75%. The
term loans under the senior credit agreement are subject to
amortization at 1% of the initial principal amount per annum,
payable quarterly. The remaining principal amount of the term
loans is due on April 2, 2014.
As of December 31, 2009, there were no outstanding
borrowings or letters of credit issued under the revolving
credit facility. As of December 31, 2009, there were
$88 million of letters of credit issued under the
credit-linked revolving facility and $140 million remained
available for borrowing.
On June 30, 2009, the Company entered into an amendment to
the senior credit agreement. The amendment reduced the amount
available under the revolving credit facility from
$650 million to $600 million and increased the first
lien senior secured leverage ratio covenant that is applicable
when any amount is outstanding under the revolving credit
portion of the senior credit agreement at set forth below. Prior
to giving
26
effect to the amendment, the maximum first lien senior secured
leverage ratio was 3.90 to 1.00. As amended, the maximum senior
secured leverage ratio for the following trailing four-quarter
periods is as follows:
|
|
|
|
|
|
|
First Lien Senior
|
|
|
Secured Leverage Ratio
|
|
December 31, 2009
|
|
|
5.25 to 1.00
|
|
March 31, 2010
|
|
|
4.75 to 1.00
|
|
June 30, 2010
|
|
|
4.25 to 1.00
|
|
September 30, 2010
|
|
|
4.25 to 1.00
|
|
December 31, 2010 and thereafter
|
|
|
3.90 to 1.00
|
|
As a condition to borrowing funds or requesting that letters of
credit be issued under that facility, the Companys first
lien senior secured leverage ratio (as calculated as of the last
day of the most recent fiscal quarter for which financial
statements have been delivered under the revolving facility)
cannot exceed a certain threshold as specified above. Further,
the Companys first lien senior secured leverage ratio must
be maintained at or below that threshold while any amounts are
outstanding under the revolving credit facility. The first lien
senior secured leverage ratio is calculated as the ratio of
consolidated first lien senior secured debt to earnings before
interest, taxes, depreciation and amortization, subject to
adjustment identified in the credit agreement.
Based on the estimated first lien senior secured leverage ratio
for the trailing four quarters at December 31, 2009, the
Companys borrowing capacity under the revolving credit
facility is currently $600 million. As of December 31,
2009, the Company estimates its first lien senior secured
leverage ratio to be 3.39 to 1.00 (which would be 4.11 to 1.00
were the revolving credit facility fully drawn). The maximum
first lien senior secured leverage ratio under the revolving
credit facility for such period is 5.25 to 1.00.
The Companys senior credit agreement also contains a
number of restrictions on certain of its subsidiaries,
including, but not limited to, restrictions on their ability to
incur indebtedness; grant liens on assets; merge, consolidate,
or sell assets; pay dividends or make other restricted payments;
make investments; prepay or modify certain indebtedness; engage
in transactions with affiliates; enter into sale-leaseback
transactions or certain hedge transactions; or engage in other
businesses. The senior credit agreement also contains a number
of affirmative covenants and events of default, including a
cross default to other debt of certain of the Companys
subsidiaries in an aggregate amount equal to more than
$40 million and the occurrence of a change of control.
Failure to comply with these covenants, or the occurrence of any
other event of default, could result in acceleration of the
loans and other financial obligations under the Companys
senior credit agreement.
The senior credit agreement is guaranteed by Celanese Holdings
LLC, a subsidiary of Celanese Corporation, and certain domestic
subsidiaries of the Companys subsidiary, Celanese US
Holdings LLC (Celanese US), a Delaware limited
liability company, and is secured by a lien on substantially all
assets of Celanese US and such guarantors, subject to certain
agreed exceptions, pursuant to the Guarantee and Collateral
Agreement, dated as of April 2, 2007, by and among Celanese
Holdings LLC, Celanese US, certain subsidiaries of Celanese US
and Deutsche Bank AG, New York Branch, as Administrative Agent
and as Collateral Agent.
The Company is in compliance with all of the covenants related
to its debt agreements as of December 31, 2009.
Debt
Refinancing
In April 2007, the Company, through certain of its subsidiaries,
entered into a new senior credit agreement. Proceeds from the
new senior credit agreement, together with available cash, were
used to retire the Companys $2,454 million amended
and restated (January 2005) senior credit facilities, which
consisted of
27
$1,626 million in term loans due 2011, a $600 million
revolving credit facility terminating in 2009 and a
$228 million credit-linked revolving facility terminating
in 2009, and to retire all of the Companys
9.625% senior subordinated notes due 2014 and
10.375% senior subordinated notes due 2014 (the
Senior Subordinated Notes) and 10% senior
discount notes due 2014 and 10.5% senior discount notes due
2014 (the Senior Discount Notes) as discussed below.
Substantially all of the Senior Discount Notes and Senior
Subordinated Notes were tendered in the first quarter of 2007.
The remaining outstanding Senior Discount Notes and Senior
Subordinated Notes not tendered in conjunction with the Tender
Offers were redeemed by the Company in May 2007 through optional
redemption allowed in the indentures.
As a result of the refinancing, the Company incurred premiums
paid on early redemption of debt of $207 million,
accelerated amortization of premiums and deferred financing
costs of $33 million and other refinancing expenses of
$16 million.
In connection with the refinancing, the Company recorded
deferred financing costs of $39 million related to the
senior credit agreement, which are included in noncurrent Other
assets on the consolidated balance sheets and are being
amortized over the term of the new senior credit agreement. The
deferred financing costs consist of $23 million of costs
incurred to acquire the new senior credit agreement and
$16 million of debt issue costs existing prior to the
refinancing.
For the years ended December 31, 2009, 2008 and 2007, the
Company recorded amortization of deferred financing costs, which
is classified in Interest expense, in the consolidated
statements of operations of $7 million, $7 million,
and $8 million, respectively. As of December 31, 2009
and 2008, respectively, the Company had $27 million and
$32 million of net deferred financing costs.
Principal payments scheduled to be made on the Companys
debt, including short-term borrowings, are as follows:
|
|
|
|
|
|
|
(In $ millions)
|
|
|
2010
|
|
|
242
|
|
2011
|
|
|
89
|
|
2012
|
|
|
65
|
|
2013
|
|
|
73
|
|
2014
|
|
|
2,699
|
|
Thereafter
|
|
|
333
|
|
|
|
|
|
|
Total
|
|
|
3,501
|
|
|
|
|
|
|
Pension obligations.
Pension obligations are
established for benefits payable in the form of retirement,
disability and surviving dependent pensions. The commitments
result from participation in defined contribution and defined
benefit plans, primarily in the US. Benefits are dependent on
years of service and the employees compensation.
Supplemental retirement benefits provided to certain employees
are nonqualified for US tax purposes. Separate trusts have been
established for some nonqualified plans. Pension costs under the
Companys retirement plans are actuarially determined.
The Company sponsors defined benefit pension plans in North
America, Europe and Asia. Independent trusts or insurance
companies administer the majority of these plans.
The Company sponsors various defined contribution plans in North
America, Europe and Asia covering certain employees. Employees
may contribute to these plans and the Company will match these
contributions in varying amounts. The Companys matching
contribution to the defined contribution plans are
28
based on specified percentages of employee contributions and
aggregated $11 million, $13 million and
$12 million for the years ended December 31, 2009,
2008 and 2007, respectively.
The Company participates in multiemployer defined benefit
pension plans in Europe covering certain employees. The
Companys contributions to the multiemployer defined
benefit pension plans are based on specified percentages of
employee contributions and aggregated $6 million,
$7 million and $7 million, for the years ended
December 31, 2009, 2008 and 2007, respectively.
Other postretirement obligations.
Certain retired
employees receive postretirement healthcare and life insurance
benefits under plans sponsored by the Company, which has the
right to modify or terminate these plans at any time. The cost
for coverage is shared between the Company and the retiree. The
cost of providing retiree health care and life insurance
benefits is actuarially determined and accrued over the service
period of the active employee group. The Companys policy
is to fund benefits as claims and premiums are paid. The US plan
was closed to new participants effective January 1, 2006.
29
The following tables set forth the benefit obligations, the fair
value of the plan assets and the funded status of the
Companys pension and postretirement benefit plans; and the
amounts recognized in the Companys consolidated financial
statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Postretirement Benefits
|
|
|
|
as of December 31,
|
|
|
as of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(In $ millions)
|
|
|
|
|
|
Change in projected benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of period
|
|
|
3,073
|
|
|
|
|
3,264
|
|
|
|
|
275
|
|
|
|
|
306
|
|
|
Service cost
|
|
|
29
|
|
|
|
|
31
|
|
|
|
|
1
|
|
|
|
|
2
|
|
|
Interest cost
|
|
|
193
|
|
|
|
|
195
|
|
|
|
|
17
|
|
|
|
|
17
|
|
|
Participant contributions
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
25
|
|
|
|
|
22
|
|
|
Plan amendments
|
|
|
5
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
2
|
|
|
Actuarial (gain)
loss
(1)
|
|
|
230
|
|
|
|
|
(107
|
)
|
|
|
|
12
|
|
|
|
|
(14
|
)
|
|
Special termination benefits
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
Divestitures
|
|
|
(3
|
)
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
Settlements
|
|
|
(1
|
)
|
|
|
|
(19
|
)
|
|
|
|
-
|
|
|
|
|
-
|
|
|
Benefits paid
|
|
|
(222
|
)
|
|
|
|
(222
|
)
|
|
|
|
(59
|
)
|
|
|
|
(58
|
)
|
|
Federal subsidy on Medicare Part D
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
6
|
|
|
|
|
6
|
|
|
Curtailments
|
|
|
(2
|
)
|
|
|
|
(1
|
)
|
|
|
|
-
|
|
|
|
|
(2
|
)
|
|
Foreign currency exchange rate changes
|
|
|
40
|
|
|
|
|
(68
|
)
|
|
|
|
4
|
|
|
|
|
(6
|
)
|
|
Other
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at end of period
|
|
|
3,342
|
|
|
|
|
3,073
|
|
|
|
|
281
|
|
|
|
|
275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of period
|
|
|
2,170
|
|
|
|
|
2,875
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
Actual return on plan assets
|
|
|
306
|
|
|
|
|
(448
|
)
|
|
|
|
-
|
|
|
|
|
-
|
|
|
Employer contributions
|
|
|
44
|
|
|
|
|
48
|
|
|
|
|
34
|
|
|
|
|
35
|
|
|
Participant contributions
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
25
|
|
|
|
|
23
|
|
|
Divestitures
|
|
|
(2
|
)
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
Settlements
|
|
|
(3
|
)
|
|
|
|
(22
|
)
|
|
|
|
-
|
|
|
|
|
-
|
|
|
Benefits paid
|
|
|
(222
|
)
|
|
|
|
(222
|
)
|
|
|
|
(59
|
)
|
|
|
|
(58
|
)
|
|
Foreign currency exchange rate changes
|
|
|
36
|
|
|
|
|
(61
|
)
|
|
|
|
-
|
|
|
|
|
-
|
|
|
Other
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of period
|
|
|
2,329
|
|
|
|
|
2,170
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status and net amounts recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets less than benefit obligation
|
|
|
(1,013
|
)
|
|
|
|
(903
|
)
|
|
|
|
(281
|
)
|
|
|
|
(275
|
)
|
|
Unrecognized prior service cost
|
|
|
6
|
|
|
|
|
1
|
|
|
|
|
1
|
|
|
|
|
1
|
|
|
Unrecognized actuarial (gain) loss
|
|
|
630
|
|
|
|
|
502
|
|
|
|
|
(63
|
)
|
|
|
|
(80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized in the consolidated balance sheets
|
|
|
(377
|
)
|
|
|
|
(400
|
)
|
|
|
|
(343
|
)
|
|
|
|
(354
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheets consist of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent Other assets
|
|
|
5
|
|
|
|
|
8
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
Current Other liabilities
|
|
|
(22
|
)
|
|
|
|
(22
|
)
|
|
|
|
(27
|
)
|
|
|
|
(35
|
)
|
|
Pension obligations
|
|
|
(996
|
)
|
|
|
|
(889
|
)
|
|
|
|
(254
|
)
|
|
|
|
(240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued benefit liability
|
|
|
(1,013
|
)
|
|
|
|
(903
|
)
|
|
|
|
(281
|
)
|
|
|
|
(275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial (gain) loss
|
|
|
630
|
|
|
|
|
502
|
|
|
|
|
(63
|
)
|
|
|
|
(80
|
)
|
|
Prior service (benefit) cost
|
|
|
6
|
|
|
|
|
1
|
|
|
|
|
1
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (income)
loss
(2)
|
|
|
636
|
|
|
|
|
503
|
|
|
|
|
(62
|
)
|
|
|
|
(79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized in the consolidated balance sheets
|
|
|
(377
|
)
|
|
|
|
(400
|
)
|
|
|
|
(343
|
)
|
|
|
|
(354
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
(1)
|
|
Primarily relates to change in discount rates.
|
|
(2)
|
|
Amount shown net of tax of $54 million and $1 million
as of December 31, 2009 and 2008, respectively, in the
consolidated statements of shareholders equity and
comprehensive income (loss). See Note 17 for the related
tax associated with the pension and postretirement benefit
obligations.
|
The percentage of US and international projected benefit
obligation at the end of the period is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Benefits
|
|
|
as of December 31,
|
|
as of December 31,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
(In percentages)
|
|
|
|
US plans
|
|
|
85
|
%
|
|
|
86
|
%
|
|
|
90
|
%
|
|
|
91
|
%
|
International plans
|
|
|
15
|
%
|
|
|
14
|
%
|
|
|
10
|
%
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The percentage of US and international fair value of plan assets
at the end of the period is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
as of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In percentages)
|
|
|
US plans
|
|
|
83
|
%
|
|
|
|
84
|
%
|
|
International plans
|
|
|
17
|
%
|
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of pension plans with projected benefit obligations in
excess of plan assets is shown below:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2009
|
|
2008
|
|
|
(In $ millions)
|
|
Projected benefit obligation
|
|
|
3,280
|
|
|
|
2,924
|
|
Fair value of plan assets
|
|
|
2,262
|
|
|
|
2,014
|
|
Included in the above table are pension plans with accumulated
benefit obligations in excess of plan assets as detailed below:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2009
|
|
2008
|
|
|
(In $ millions)
|
|
Accumulated benefit obligation
|
|
|
3,169
|
|
|
|
2,797
|
|
Fair value of plan assets
|
|
|
2,249
|
|
|
|
1,985
|
|
The accumulated benefit obligation for all defined benefit
pension plans was $3,218 million and $2,967 million as
of December 31, 2009 and 2008, respectively.
31
The following table sets forth the Companys net periodic
pension cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Postretirement Benefits
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
(In $ millions)
|
|
|
|
|
|
|
|
|
Service cost
|
|
|
29
|
|
|
|
|
31
|
|
|
|
|
38
|
|
|
|
|
1
|
|
|
|
|
1
|
|
|
|
|
2
|
|
|
Interest cost
|
|
|
193
|
|
|
|
|
195
|
|
|
|
|
187
|
|
|
|
|
17
|
|
|
|
|
17
|
|
|
|
|
19
|
|
|
Expected return on plan assets
|
|
|
(207
|
)
|
|
|
|
(218
|
)
|
|
|
|
(216
|
)
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
Amortization of prior service cost
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
Recognized actuarial (gain) loss
|
|
|
1
|
|
|
|
|
1
|
|
|
|
|
1
|
|
|
|
|
(5
|
)
|
|
|
|
(4
|
)
|
|
|
|
(2
|
)
|
|
Curtailment (gain) loss
|
|
|
(1
|
)
|
|
|
|
(2
|
)
|
|
|
|
(1
|
)
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
(1
|
)
|
|
Settlement (gain) loss
|
|
|
-
|
|
|
|
|
3
|
|
|
|
|
(12
|
)
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
Special termination benefits
|
|
|
2
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
|
17
|
|
|
|
|
10
|
|
|
|
|
(3
|
)
|
|
|
|
13
|
|
|
|
|
14
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of the actuarial (gain) loss into net periodic cost
in 2010 is expected to be $8 million and $(4) million
for pension benefits and postretirement benefits, respectively.
Included in the pension obligations above are accrued
liabilities relating to supplemental retirement plans for
certain US employees amounting to $235 million and
$224 million as of December 31, 2009 and 2008,
respectively. Pension expense relating to these plans included
in net periodic benefit cost totaled $15 million,
$15 million and $14 million for the years ended
December 31, 2009, 2008 and 2007, respectively. To fund
these obligations, nonqualified trusts were established which
hold marketable securities valued at $82 million and
$97 million as of December 31, 2009 and 2008,
respectively. In addition to holding marketable securities, the
nonqualified trusts hold investments in insurance contracts of
$66 million and $67 million as of December 31,
2009 and 2008, respectively, which are included in noncurrent
Other assets in the consolidated balance sheets.
Valuation
The Company uses the corridor approach in the valuation of its
defined benefit plans and other postretirement benefits. The
corridor approach defers all actuarial gains and losses
resulting from variances between actual results and economic
estimates or actuarial assumptions. For defined benefit pension
plans, these unrecognized gains and losses are amortized when
the net gains and losses exceed 10% of the greater of the
market-related value of plan assets or the projected benefit
obligation at the beginning of the year. For other
postretirement benefits, amortization occurs when the net gains
and losses exceed 10% of the accumulated postretirement benefit
obligation at the beginning of the year. The amount in excess of
the corridor is amortized over the average remaining service
period to retirement date for active plan participants or, for
retired participants, the average remaining life expectancy.
32
The following table set forth the principal weighted-average
assumptions used to determine benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Benefits
|
|
|
as of December 31,
|
|
as of December 31,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
(In percentages)
|
|
|
|
Discount rate obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US plans
|
|
|
5.90
|
|
|
|
6.50
|
|
|
|
5.50
|
|
|
|
6.40
|
|
International plans
|
|
|
5.41
|
|
|
|
5.84
|
|
|
|
5.49
|
|
|
|
6.11
|
|
Combined
|
|
|
5.83
|
|
|
|
6.41
|
|
|
|
5.50
|
|
|
|
6.37
|
|
Rate of compensation increase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US plans
|
|
|
4.00
|
|
|
|
4.00
|
|
|
|
N/A
|
|
|
|
N/A
|
|
International plans
|
|
|
2.94
|
|
|
|
3.24
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Combined
|
|
|
3.84
|
|
|
|
3.90
|
|
|
|
N/A
|
|
|
|
N/A
|
|
The following table set forth the principal weighted-average
assumptions used to determine benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Benefits
|
|
|
Year Ended December 31,
|
|
Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
2009
|
|
2008
|
|
2007
|
|
|
(In percentages)
|
|
Discount rate obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US plans
|
|
|
6.50
|
|
|
|
6.30
|
|
|
|
5.88
|
|
|
|
6.40
|
|
|
|
6.00
|
|
|
|
5.88
|
|
International plans
|
|
|
5.84
|
|
|
|
5.42
|
|
|
|
4.70
|
|
|
|
6.11
|
|
|
|
5.31
|
|
|
|
4.80
|
|
Combined
|
|
|
6.41
|
|
|
|
6.16
|
|
|
|
5.86
|
|
|
|
6.37
|
|
|
|
5.93
|
|
|
|
5.79
|
|
Expected return on plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US plans
|
|
|
8.50
|
|
|
|
8.50
|
|
|
|
8.50
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
International plans
|
|
|
5.29
|
|
|
|
5.68
|
|
|
|
6.59
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Combined
|
|
|
7.94
|
|
|
|
8.05
|
|
|
|
8.20
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Rate of compensation increase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US plans
|
|
|
4.00
|
|
|
|
4.00
|
|
|
|
4.00
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
International plans
|
|
|
3.24
|
|
|
|
3.15
|
|
|
|
3.18
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Combined
|
|
|
3.90
|
|
|
|
3.66
|
|
|
|
3.73
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
The expected rate of return is assessed annually and is based on
long-term relationships among major asset classes and the level
of incremental returns that can be earned by the successful
implementation of different active investment management
strategies. Equity returns are based on estimates of long-term
inflation rate, real rate of return,
10-year
Treasury bond premium over cash and equity risk premium. Fixed
income returns are based on maturity, long-term inflation, real
rate of return and credit spreads. The US qualified defined
benefit plans actual return on assets for the year ended
December 31, 2009 was 18% versus an expected long-term rate
of asset return assumption of 8.5%.
In the US, the rate used to discount pension and other
postretirement benefit plan liabilities was based on a yield
curve developed from market data of over 300 Aa-grade
non-callable bonds at December 31, 2009. This yield curve
has discount rates that vary based on the duration of the
obligations. The estimated future cash flows for the pension and
other benefit obligations were matched to the corresponding
rates on the yield curve to derive a weighted average discount
rate.
The Company determines its discount rates in the Euro zone using
the iBoxx Euro Corporate AA Bond indices with appropriate
adjustments for the duration of the plan obligations. In other
international
33
locations, the Company determines its discount rates based on
the yields of high quality government bonds with a duration
appropriate to the duration of the plan obligations.
On January 1, 2009, the Companys health care cost
trend assumption for US postretirement medical plans net
periodic benefit cost was 9% for the first year declining 0.5%
per year to an ultimate rate of 5%. On January 1, 2008, the
Companys health care cost trend assumption for US
postretirement medical plans net periodic benefit cost was
9% for the first two years declining 0.5% per year to an
ultimate rate of 5%. On January 1, 2007, the health care
cost trend rate was 8.5% per year declining 1% per year to an
ultimate rate of 5%.
Assumed health care cost trend rates have a significant effect
on the amounts reported for the health care plans. A
one-percentage-point increase or decrease in the assumed health
care cost trend rate would impact postretirement obligations by
$4 million and $(3) million, respectively. The effect
of a one percent increase or decrease in the assumed health care
cost trend rate would have a less than $1 million impact on
service and interest cost.
Plan
Assets
The investment objective for the plans are to earn, over moving
twenty-year periods, the long-term expected rate of return, net
of investment fees and transaction costs, to satisfy the benefit
obligations of the plan, while at the same time maintaining
sufficient liquidity to pay benefit obligations and proper
expenses, and meet any other cash needs, in the short- to
medium-term.
The following tables set forth the weighted average target asset
allocations for the Companys pension plans:
|
|
|
|
|
|
Asset Category US
|
|
2010
|
|
|
US equity securities
|
|
|
26
|
%
|
|
Global equity
|
|
|
20
|
%
|
|
High yield fixed income/other
|
|
|
4
|
%
|
|
Liability hedging bonds
|
|
|
50
|
%
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Category International
|
|
2010
|
|
|
Equity securities
|
|
|
21
|
%
|
|
Debt securities
|
|
|
73
|
%
|
|
Real estate and other
|
|
|
6
|
%
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
|
|
|
|
|
The equity and debt securities objectives are to provide
diversified exposure across the US and Global equity markets and
to manage the plans risks and returns through the use of
multiple managers and strategies. The fixed income portfolio
objectives are to hedge a portion of the interest rate risks
associated with the plans funding target liabilities. The
goal of the liability hedging bond is to reduce surplus
volatility and provide a liquidity reserve for paying off
benefits. The strategy is designed to reduce liability-related
interest rate risk by investing in bonds that match the duration
and credit quality of the projected plan liabilities.
Derivatives based strategies may be used to improve the
effectiveness of the hedges. Other types of investments include
investments in real estate and insurance contracts that follow
several different strategies.
As discussed in Note 3, the Company adopted certain
provisions of FASB ASC Topic
715-20-50
on
January 1, 2009. FASB ASC Topic
715-20-50
requires enhanced disclosures about the plan assets of a
companys defined benefit pension and other postretirement
plans intended to provide financial statement
34
users with a greater understanding of the inputs and valuation
techniques used to measure the fair value of plan assets and the
effect of fair value measurements using significant unobservable
inputs on changes in plan assets for the period using the
framework established under FASB ASC Topic 820,
Fair Value
Measurements and Disclosures
. FASB ASC Topic 820 establishes
a fair value hierarchy that prioritizes the inputs used to
measure fair value. The hierarchy gives the highest priority to
unadjusted quoted prices in active markets for identical assets
or liabilities (Level 1 measurement) and the lowest
priority to unobservable inputs (Level 3 measurement). This
hierarchy requires entities to maximize the use of observable
inputs and minimize the use of unobservable inputs. If a
financial instrument uses inputs that fall in different levels
of the hierarchy, the instrument will be categorized based upon
the lowest level of input that is significant to the fair value
calculation. The three levels of inputs used to measure fair
value are as follows:
Level 1 unadjusted quoted prices for identical
assets or liabilities in active markets accessible by the Company
Level 2 inputs that are observable in the
marketplace other than those inputs classified as Level 1
Level 3 inputs that are unobservable in the
marketplace and significant to the valuation
The Companys defined benefit plan assets are measured at
fair value on a recurring basis and include the following items:
Cash and Cash Equivalents:
Foreign and
domestic currencies as well as short term securities are valued
at cost plus accrued interest, which approximates fair value.
Common/Collective Trusts:
Composed of various
funds whose diversified portfolio is comprised of foreign and
domestic equities, fixed income securities, and short term
investments. Investments are valued at the net asset value of
units held by the plan at year-end.
Corporate stock and government and corporate
debt:
Valued at the closing price reported on the
active market in which the individual securities are traded.
Automated quotes are provided by multiple pricing services and
validated by the plan custodian. These securities are traded on
exchanges as well as in the over the counter market.
Registered Investment Companies:
Composed of
various mutual funds and other investment companies whose
diversified portfolio is comprised of foreign and domestic
equities, fixed income securities, and short term investments.
Investments are valued at the net asset value of units held by
the plan at year-end.
Mortgage Backed Securities:
Fair value is
estimated based on valuations obtained from third-party pricing
services for identical or comparable assets. Mortgage Backed
Securities are traded in the over the counter broker/dealer
market.
Derivatives:
Derivative financial instruments
are valued in the market using discounted cash flow techniques.
These techniques incorporate Level 1 and Level 2
inputs such as interest rates and foreign currency exchange
rates. These market inputs are utilized in the discounted cash
flow calculation considering the instruments term,
notional amount, discount rate and credit risk. Significant
inputs to the derivative valuation for interest rate swaps,
foreign currency forwards and swaps, and options are observable
in the active markets and are classified as Level 2 in the
hierarchy.
Insurance contracts:
Valued at contributions
made, plus earnings, less participant withdrawals and
administrative expenses, which approximates fair value.
35
The following table sets forth the fair values of the
Companys pension plans assets as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
|
|
|
|
(In $ millions)
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash & cash equivalents
|
|
|
2
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
2
|
|
|
Collateralized mortgage obligations
|
|
|
-
|
|
|
|
|
16
|
|
|
|
|
-
|
|
|
|
|
16
|
|
|
Common/collective trusts
|
|
|
-
|
|
|
|
|
210
|
|
|
|
|
19
|
|
|
|
|
229
|
|
|
Corporate debt
|
|
|
-
|
|
|
|
|
831
|
|
|
|
|
-
|
|
|
|
|
831
|
|
|
Corporate stock-common & preferred
|
|
|
522
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
522
|
|
|
Derivatives
|
|
|
14
|
|
|
|
|
244
|
|
|
|
|
-
|
|
|
|
|
258
|
|
|
Government debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasuries, other debt
|
|
|
88
|
|
|
|
|
212
|
|
|
|
|
-
|
|
|
|
|
300
|
|
|
Mortgage backed securities
|
|
|
-
|
|
|
|
|
53
|
|
|
|
|
-
|
|
|
|
|
53
|
|
|
Real estate
|
|
|
-
|
|
|
|
|
7
|
|
|
|
|
-
|
|
|
|
|
7
|
|
|
Registered investment companies
|
|
|
-
|
|
|
|
|
298
|
|
|
|
|
-
|
|
|
|
|
298
|
|
|
Short-term investments
|
|
|
-
|
|
|
|
|
65
|
|
|
|
|
-
|
|
|
|
|
65
|
|
|
Other
|
|
|
3
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
3
|
|
|
Insurance contracts
|
|
|
-
|
|
|
|
|
28
|
|
|
|
|
-
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
629
|
|
|
|
|
1,964
|
|
|
|
|
19
|
|
|
|
|
2,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
(15
|
)
|
|
|
|
(268
|
)
|
|
|
|
-
|
|
|
|
|
(283
|
)
|
|
Total liabilities
|
|
|
(15
|
)
|
|
|
|
(268
|
)
|
|
|
|
-
|
|
|
|
|
(283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net assets
|
|
|
614
|
|
|
|
|
1,696
|
|
|
|
|
19
|
|
|
|
|
2,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys Level 3 investment in common/collective
trusts was valued using significant unobservable inputs. Inputs
to this valuation include characteristics and quantitative data
relating to the asset, investment cost, position size,
liquidity, current financial condition of the company and other
relevant market data. The following table sets forth fair value
measurements using significant unobservable inputs:
|
|
|
|
|
|
|
Common/Collective Trust
|
|
|
|
(In $ millions)
|
|
|
Balance, beginning of period
|
|
|
7
|
|
Unrealized gains (losses)
|
|
|
10
|
|
Purchases, sales, issuances and settlements, net
|
|
|
2
|
|
|
|
|
|
|
Balance, end of period
|
|
|
19
|
|
|
|
|
|
|
The financial objectives of the qualified pension plans are
established in conjunction with a comprehensive review of each
plans liability structure. The Companys asset
allocation policy is based on detailed asset/liability analyses.
In developing investment policy and financial goals,
consideration is given to each plans demographics, the
returns and risks associated with alternative investment
strategies and the current and projected cash, expense and
funding ratios of each plan. Investment policies must also
comply with local statutory requirements as determined by each
country. A formal asset/liability study of each plan is
undertaken every 3 to 5 years or whenever there has been a
material change in plan demographics, benefit structure or
funding status and investment market. The Company has adopted a
long-term investment horizon such that the risk and duration of
investment losses are weighed against the long-term potential
for
36
appreciation of assets. Although there cannot be complete
assurance that these objectives will be realized, it is believed
that the likelihood for their realization is reasonably high,
based upon the asset allocation chosen and the historical and
expected performance of the asset classes utilized by the plans.
The intent is for investments to be broadly diversified across
asset classes, investment styles, market sectors, investment
managers, developed and emerging markets and securities in order
to moderate portfolio volatility and risk. Investments may be in
separate accounts, commingled trusts, mutual funds and other
pooled asset portfolios provided they all conform to fiduciary
standards.
External investment managers are hired to manage pension assets.
Investment consultants assist with the screening process for
each new manager hired. Over the long-term, the investment
portfolio is expected to earn returns that exceed a composite of
market indices that are weighted to match each plans
target asset allocation. The portfolio return should also (over
the long-term) meet or exceed the return used for actuarial
calculations in order to meet the future needs of each plan.
Employer contributions for pension benefits and postretirement
benefits are preliminarily estimated to be $46 million and
$27 million, respectively, in 2010. The table below
reflects pension benefits expected to be paid from the plan or
from the Companys assets. The postretirement benefits
represent the Companys share of the benefit cost.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
|
|
|
Benefit
|
|
|
|
Pension
|
|
|
|
|
|
Expected
|
|
|
|
Benefit
|
|
|
|
|
|
Federal
|
|
|
|
Payments
(1)
|
|
|
Payments
|
|
|
Subsidy
|
|
|
|
|
|
|
(In $ millions)
|
|
|
|
|
|
2010
|
|
|
224
|
|
|
|
61
|
|
|
|
7
|
|
2011
|
|
|
222
|
|
|
|
63
|
|
|
|
7
|
|
2012
|
|
|
221
|
|
|
|
64
|
|
|
|
7
|
|
2013
|
|
|
223
|
|
|
|
65
|
|
|
|
8
|
|
2014
|
|
|
224
|
|
|
|
66
|
|
|
|
3
|
|
2015-2019
|
|
|
1,187
|
|
|
|
332
|
|
|
|
13
|
|
|
|
|
(1)
|
|
Payments are expected to be made primarily from plan assets.
|
Other
Obligations
The following table represents additional benefit liabilities
and other similar obligations:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In $ millions)
|
|
|
Long-term disability
|
|
|
30
|
|
|
|
33
|
|
Other
|
|
|
8
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
38
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
37
General
The Company is subject to environmental laws and regulations
worldwide which impose limitations on the discharge of
pollutants into the air and water and establish standards for
the treatment, storage and disposal of solid and hazardous
wastes. The Company believes that it is in substantial
compliance with all applicable environmental laws and
regulations. The Company is also subject to retained
environmental obligations specified in various contractual
agreements arising from the divestiture of certain businesses by
the Company or one of its predecessor companies.
For the years ended December 31, 2009, 2008 and 2007, the
Companys expenditures, including expenditures for legal
compliance, internal environmental initiatives and remediation
of active, orphan, divested and US Superfund sites (as defined
below) were $78 million, $78 million, and
$83 million, respectively. The Companys capital
project-related environmental expenditures for the years ended
December 31, 2009, 2008 and 2007 were $22 million,
$13 million, and $14 million, respectively.
Environmental reserves for remediation matters were
$106 million and $98 million as of December 31,
2009 and 2008, respectively, which represents the Companys
best estimate of its liability.
Remediation
Due to its industrial history and through retained contractual
and legal obligations, the Company has the obligation to
remediate specific areas on its own sites as well as on
divested, orphan or US Superfund sites. In addition, as part of
the demerger agreement between the Company and Hoechst, a
specified portion of the responsibility for environmental
liabilities from a number of Hoechst divestitures was
transferred to the Company. The Company provides for such
obligations when the event of loss is probable and reasonably
estimable.
For the years ended December 31, 2009, 2008 and 2007, the
total remediation efforts charged to Cost of sales in the
consolidated statements of operations were $9 million,
$3 million and $4 million, respectively. The Company
believes that environmental remediation costs will not have a
material adverse effect on the financial position of the
Company, but may have a material adverse effect on the results
of operations or cash flows in any given accounting period.
The Company did not record any insurance recoveries related to
these matters for the reported periods and there are no
receivables for insurance recoveries as of December 31,
2009. As of December 31, 2009 and 2008, there were
receivables of $9 million and $9 million,
respectively, from the former owner APL, which was acquired in
2007 (see Note 4).
German
InfraServs
On January 1, 1997, coinciding with a reorganization of the
Hoechst businesses in Germany, real estate service companies
(InfraServs) were created to own directly the land
and property and to provide various technical and administrative
services at each of the manufacturing locations. The Company has
manufacturing operations at the InfraServ location in Frankfurt
am Main-Hoechst, Germany and holds interests in the companies
which own and operate the former Hoechst sites in Gendorf,
Knapsack and Wiesbaden.
InfraServs are liable for any residual contamination and other
pollution because they own the real estate on which the
individual facilities operate. In addition, Hoechst, and its
legal successors, as the responsible party under German public
law, is liable to third parties for all environmental damage
that
38
occurred while it was still the owner of the plants and real
estate. The contribution agreements entered into in 1997 between
Hoechst and the respective operating companies, as part of the
divestiture of these companies, provide that the operating
companies will indemnify Hoechst, and its legal successors,
against environmental liabilities resulting from the transferred
businesses. Additionally, the InfraServs have agreed to
indemnify Hoechst, and its legal successors, against any
environmental liability arising out of or in connection with
environmental pollution of any site. Likewise, in certain
circumstances the Company could be responsible for the
elimination of residual contamination on a few sites that were
not transferred to InfraServ companies, in which case Hoechst,
and its legal successors, must reimburse the Company for
two-thirds of any costs so incurred.
The InfraServ partnership agreements provide that, as between
the partners, each partner is responsible for any contamination
caused predominantly by such partner. Any liability, which
cannot be attributed to an InfraServ partner and for which no
third party is responsible, is required to be borne by the
InfraServ partnership. In view of this potential obligation to
eliminate residual contamination, the InfraServs, primarily
relating to equity and cost affiliates which are not
consolidated by the Company, have reserves of $94 million
and $84 million as of December 31, 2009 and 2008,
respectively.
If an InfraServ partner defaults on its respective
indemnification obligations to eliminate residual contamination,
the owners of the remaining participation in the InfraServ
companies have agreed to fund such liabilities, subject to a
number of limitations. To the extent that any liabilities are
not satisfied by either the InfraServs or their owners, these
liabilities are to be borne by the Company in accordance with
the demerger agreement. However, Hoechst, and its legal
successors, will reimburse the Company for two-thirds of any
such costs. Likewise, in certain circumstances the Company could
be responsible for the elimination of residual contamination on
several sites that were not transferred to InfraServ companies,
in which case Hoechst, and its legal successors, must also
reimburse the Company for two-thirds of any costs so incurred.
The German InfraServs are owned partially by the Company, as
noted below, and the remaining ownership is held by various
other companies. The Companys ownership interest and
environmental liability participation percentages for such
liabilities which cannot be attributed to an InfraServ partner
were as follows as of December 31, 2009:
|
|
|
|
|
|
|
|
|
Company
|
|
Ownership %
|
|
Liability %
|
|
InfraServ GmbH & Co. Gendorf KG
|
|
|
39
|
%
|
|
|
10
|
%
|
InfraServ GmbH & Co. Knapsack KG
|
|
|
27
|
%
|
|
|
22
|
%
|
InfraServ GmbH & Co. Hoechst KG
|
|
|
32
|
%
|
|
|
40
|
%
|
InfraServ GmbH & Co. Wiesbaden KG
|
|
|
8
|
%
|
|
|
0
|
%
|
InfraServ Verwaltungs GmbH
|
|
|
100
|
%
|
|
|
0
|
%
|
US
Superfund Sites
In the US, the Company may be subject to substantial claims
brought by US federal or state regulatory agencies or private
individuals pursuant to statutory authority or common law. In
particular, the Company has a potential liability under the US
Federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, and related state laws
(collectively referred to as Superfund) for
investigation and cleanup costs at approximately 50 sites. At
most of these sites, numerous companies, including certain
companies comprising the Company, or one of its predecessor
companies, have been notified that the Environmental Protection
Agency, state governing bodies or private individuals consider
such companies to be potentially responsible parties
(PRP) under Superfund or related laws. The
proceedings relating to these sites are in various stages. The
cleanup process has not been completed at most sites and the
status of the insurance coverage for most of these proceedings
is uncertain. Consequently, the Company cannot accurately
determine its ultimate liability for investigation or cleanup
costs at these sites.
39
As events progress at each site for which it has been named a
PRP, the Company accrues, as appropriate, a liability for site
cleanup. Such liabilities include all costs that are probable
and can be reasonably estimated. In establishing these
liabilities, the Company considers its shipment of waste to a
site, its percentage of total waste shipped to the site, the
types of wastes involved, the conclusions of any studies, the
magnitude of any remedial actions that may be necessary and the
number and viability of other PRPs. Often the Company will join
with other PRPs to sign joint defense agreements that will
settle, among PRPs, each partys percentage allocation of
costs at the site. Although the ultimate liability may differ
from the estimate, the Company routinely reviews the liabilities
and revises the estimate, as appropriate, based on the most
current information available. As of December 31, 2009 and
2008, the Company had provisions totaling $10 million and
$11 million, respectively, for US Superfund sites and
utilized $1 million, $2 million and $1 million of
these reserves during the years ended December 31, 2009,
2008 and 2007, respectively. Additional provisions and
adjustments recorded during the years ended December 31,
2009, 2008 and 2007 approximately offset these expenditures.
Hoechst
Liabilities
In connection with the Hoechst demerger, the Company agreed to
indemnify Hoechst, and its legal successors, for the first
250 million of future remediation liabilities for
environmental damages arising from 19 specified divested Hoechst
entities. As of December 31, 2009 and 2008, reserves of
$32 million and $27 million, respectively, for these
matters are included as a component of the total environmental
reserves. As of December 31, 2009 and 2008, the Company,
has made total cumulative payments of $51 million and
$48 million, respectively. If such future liabilities
exceed 250 million, Hoechst, and its legal
successors, will bear such excess up to an additional
500 million. Thereafter, the Company will bear
one-third and Hoechst, and its legal successors, will bear
two-thirds of any further environmental remediation liabilities.
Where the Company is unable to reasonably determine the
probability of loss or estimate such loss under this
indemnification, the Company has not recognized any liabilities
relative to this indemnification.
Preferred
Stock
The Company has $240 million aggregate liquidation
preference of outstanding 4.25% convertible perpetual preferred
stock (Preferred Stock). Holders of the Preferred
Stock are entitled to receive, when, as and if, declared by the
Companys Board of Directors, out of funds legally
available, cash dividends at the rate of 4.25% per annum of
liquidation preference, payable quarterly in arrears, commencing
on May 1, 2005. Dividends on the Preferred Stock are
cumulative from the date of initial issuance. Accumulated but
unpaid dividends accumulate at an annual rate of 4.25%. The
Preferred Stock is convertible, at the option of the holder, at
any time into approximately 1.26 shares of Series A
common stock, subject to adjustments, per $25.00 liquidation
preference of Preferred Stock and upon conversion will be
recorded in the consolidated statements of shareholders
equity and comprehensive income (loss). On February 1,
2010, the Company announced its intention to redeem its
Preferred Stock (Note 31).
During 2009, 2008 and 2007, the Company declared and paid
$10 million of cash dividends in each period on its
Preferred Stock.
Dividends
The Companys Board of Directors follows a policy of
declaring, subject to legally available funds, a quarterly cash
dividend on each share of the Companys Series A
common stock at an annual rate of $0.16 per share unless the
Companys Board of Directors, in its sole discretion,
determines otherwise. Further, such
40
dividends payable to holders of the Companys Series A
common stock cannot be declared or paid nor can any funds be set
aside for the payment thereof, unless the Company has paid or
set aside funds for the payment of all accumulated and unpaid
dividends with respect to the shares of the Companys
Preferred Stock, as described above. Additionally, the amount
available to pay cash dividends is restricted by the
Companys senior credit agreement.
During 2009, 2008 and 2007, the Company declared and paid cash
dividends of $23 million, $24 million and
$25 million, respectively, to holders of its Series A
common stock.
Treasury
Stock
In conjunction with the April 2007 debt refinancing
(Note 14), the Company, through its wholly-owned subsidiary
Celanese International Holdings Luxembourg S.à.r.l.
(CIH), formerly Celanese Caylux Holdings Luxembourg
S.C.A., repurchased 2,021,775 shares of its outstanding
Series A common stock in a modified Dutch
Auction tender offer from public shareholders, which
expired on April 3, 2007, at a purchase price of $30.50 per
share. The total price paid for these shares was
$62 million. The Company also separately purchased, through
its wholly-owned subsidiary CIH, 329,011 shares of the
Companys Series A common stock at $30.50 per share
from the investment funds associated with The Blackstone Group
L.P. The total price paid for these shares was $10 million.
In June 2007, the Companys Board of Directors authorized
the repurchase of up to $330 million of its Series A
common stock. During 2007, the Company repurchased
8,487,700 shares of its Series A common stock at an
average purchase price of $38.88 per share for a total of
$330 million pursuant to this authorization. The Company
completed repurchasing shares related to this authorization
during July 2007.
In February 2008, the Companys Board of Directors
authorized the repurchase of up to $400 million of the
Companys Series A common stock. This authorization
was increased to $500 million in October 2008. The
authorization gives management discretion in determining the
conditions under which shares may be repurchased.
During the year ended December 31, 2008, the Company
repurchased 9,763,200 shares of its Series A common
stock at an average purchase price of $38.68 per share for a
total of $378 million pursuant to this authorization.
These purchases reduced the number of shares outstanding and the
repurchased shares may be used by the Company for compensation
programs utilizing the Companys stock and other corporate
purposes. The Company accounts for treasury stock using the cost
method.
Accumulated
Other Comprehensive Income (Loss), Net
Accumulated other comprehensive income (loss), net, which is
displayed in the consolidated statements of shareholders
equity, represents net earnings (loss) plus the results of
certain shareholders equity changes not reflected in the
consolidated statements of operations. Such items include
unrealized gain (loss) on marketable securities, foreign
currency translation, certain pension and postretirement benefit
obligations and unrealized gain (loss) on interest rate swaps.
41
The components of Accumulated other comprehensive income (loss),
net are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Other
|
|
|
|
Gain (Loss) on
|
|
|
Foreign
|
|
|
Gain (Loss)
|
|
|
Pension and
|
|
|
Comprehensive
|
|
|
|
Marketable
|
|
|
Currency
|
|
|
on Interest
|
|
|
Postretirement
|
|
|
Income
|
|
|
|
Securities
|
|
|
Translation
|
|
|
Rate Swaps
|
|
|
Benefits
|
|
|
(Loss), Net
|
|
|
|
As Adjusted (Note 31)
|
|
|
|
(In $ millions)
|
|
|
Balance as of December 31, 2006
|
|
|
9
|
|
|
|
|
17
|
|
|
|
|
4
|
|
|
|
|
-
|
|
|
|
|
30
|
|
|
Current-period change
|
|
|
17
|
|
|
|
|
70
|
|
|
|
|
(41
|
)
|
|
|
|
124
|
|
|
|
|
170
|
|
|
Tax benefit (expense)
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
(4
|
)
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
|
26
|
|
|
|
|
87
|
|
|
|
|
(37
|
)
|
|
|
|
120
|
|
|
|
|
196
|
|
|
Current-period change
|
|
|
(23
|
)
|
(1)
|
|
|
(130
|
)
|
|
|
|
(79
|
)
|
|
|
|
(549
|
)
|
|
|
|
(781
|
)
|
|
Tax benefit (expense)
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
5
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
3
|
|
|
|
|
(43
|
)
|
|
|
|
(116
|
)
|
|
|
|
(424
|
)
|
|
|
|
(580
|
)
|
|
Current-period change
|
|
|
(5
|
)
|
|
|
|
10
|
|
|
|
|
23
|
|
|
|
|
(150
|
)
|
|
|
|
(122
|
)
|
|
Tax benefit (expense)
|
|
|
2
|
|
|
|
|
(5
|
)
|
|
|
|
(8
|
)
|
|
|
|
53
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
|
-
|
|
|
|
|
(38
|
)
|
|
|
|
(101
|
)
|
|
|
|
(521
|
)
|
|
|
|
(660
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes a net reclassification adjustment of
($2) million to the consolidated statements of operations.
|
|
|
18.
|
Other
(Charges) Gains, Net
|
The components of Other (charges) gains, net are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In $ millions)
|
|
|
Employee termination benefits
|
|
|
(105
|
)
|
|
|
(21
|
)
|
|
|
(32
|
)
|
Plant/office closures
|
|
|
(17
|
)
|
|
|
(7
|
)
|
|
|
(11
|
)
|
Deferred compensation triggered by Exit Event (Note 20)
|
|
|
-
|
|
|
|
-
|
|
|
|
(74
|
)
|
Plumbing actions
|
|
|
10
|
|
|
|
-
|
|
|
|
4
|
|
Insurance recoveries associated with Clear Lake, Texas
(Note 30)
|
|
|
6
|
|
|
|
38
|
|
|
|
40
|
|
Resolution of commercial disputes with a vendor
|
|
|
-
|
|
|
|
-
|
|
|
|
31
|
|
Asset impairments
|
|
|
(14
|
)
|
|
|
(115
|
)
|
|
|
(9
|
)
|
Ticona Kelsterbach plant relocation (Note 29)
|
|
|
(16
|
)
|
|
|
(12
|
)
|
|
|
(5
|
)
|
Sorbates antitrust actions (Note 24)
|
|
|
-
|
|
|
|
8
|
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(136
|
)
|
|
|
(108
|
)
|
|
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
During the first quarter of 2009, the Company began efforts to
align production capacity and staffing levels with the
Companys view of an economic environment of prolonged
lower demand. For the year ended December 31, 2009, Other
charges included employee termination benefits of
$40 million related to this endeavor. As a result of the
shutdown of the vinyl acetate monomer (VAM)
production unit in Cangrejera, Mexico, the Company recognized
employee termination benefits of $1 million and long-lived
asset impairment
42
losses of $1 million during the year ended
December 31, 2009. The VAM production unit in Cangrejera,
Mexico is included in the Companys Acetyl Intermediates
segment.
As a result of the Project of Closure (Note 4), Other
charges for the Company included exit costs of $89 million
during the year ended December 31, 2009, which consisted of
$60 million in employee termination benefits,
$17 million of contract termination costs and
$12 million of long-lived asset impairment losses related
to capitalized costs associated with asset retirement
obligations (Note 13). The Pardies, France facility is
included in the Acetyl Intermediates segment.
Due to continued declines in demand in automotive and electronic
sectors, the Company announced plans to reduce capacity by
ceasing polyester polymer production at its Ticona manufacturing
plant in Shelby, North Carolina. Other charges for the year
ended December 31, 2009 included employee termination
benefits of $2 million and long-lived asset impairment
losses of $1 million related to this event. The Shelby,
North Carolina facility is included in the Advanced Engineered
Materials segment.
Other charges for the year ended December 31, 2009 was
partially offset by $6 million of insurance recoveries in
satisfaction of claims the Company made related to the unplanned
outage of the Companys Clear Lake, Texas acetic acid
facility during 2007, a $9 million decrease in legal
reserves for plumbing claims due to the Companys ongoing
assessment of the likely outcome of the plumbing actions and the
expiration of the statute of limitation.
2008
Other (charges) gains, net for asset impairments includes
long-lived asset impairment losses of $92 million related
to the potential closure of the Companys acetic acid and
VAM production facility in Pardies, France, the VAM production
unit in Cangrejera, Mexico (which the Company subsequently
decided to shut down effective at the end of February
2009) and certain other facilities. Of the $92 million
recorded in December 2008, $76 million relates to the
Acetyl Intermediates segment and $16 million relates to the
Advanced Engineered Materials segment. Consideration of this
potential capacity reduction was necessitated by the significant
change in the global economic environment and anticipated lower
customer demand.
Additionally, the Company recognized $23 million of
long-lived asset impairment losses related to the shutdown of
the Companys Pampa, Texas facility (Acetyl Intermediates
segment).
Other (charges) gains, net for employee termination benefits
includes severance and retention charges of $13 million
related to the sale of the Companys Pampa, Texas facility
and $8 million of severance and retention charges related
to other business optimization plans undertaken by the Company.
2007
Other (charges) gains, net for employee termination benefits and
plant/office closures include charges related to the
Companys plan to simplify and optimize its Emulsions and
PVOH businesses (Industrial Specialties segment) to become a
leader in technology and innovation and grow in both new and
existing markets. Other (charges) gains, net for employee
termination benefits and plant/office closures also includes
charges related to the sale of the Companys Pampa, Texas
facility. In addition, the Company recorded an impairment of
long-lived assets of $3 million during the year ended
December 31, 2007.
In December 2007, the Company received a one-time payment in
resolution of commercial disputes with a vendor.
43
For the year ended December 31, 2007, asset impairments
included $6 million of goodwill impairment related to the
PVOH business.
The changes in the restructuring reserves by business segment
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineered
|
|
|
Consumer
|
|
|
Industrial
|
|
|
Acetyl
|
|
|
|
|
|
|
|
|
|
Materials
|
|
|
Specialties
|
|
|
Specialties
|
|
|
Intermediates
|
|
|
Other
|
|
|
Total
|
|
|
|
(In $ millions)
|
|
|
Employee Termination Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve as of December 31, 2007
|
|
|
2
|
|
|
|
5
|
|
|
|
12
|
|
|
|
16
|
|
|
|
2
|
|
|
|
37
|
|
Additions
|
|
|
1
|
|
|
|
2
|
|
|
|
1
|
|
|
|
13
|
|
|
|
4
|
|
|
|
21
|
|
Cash payments
|
|
|
(1
|
)
|
|
|
(5
|
)
|
|
|
(6
|
)
|
|
|
(12
|
)
|
|
|
(3
|
)
|
|
|
(27
|
)
|
Currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve as of December 31, 2008
|
|
|
2
|
|
|
|
2
|
|
|
|
6
|
|
|
|
17
|
|
|
|
2
|
|
|
|
29
|
|
Additions
|
|
|
12
|
|
|
|
9
|
|
|
|
6
|
|
|
|
66
|
|
|
|
12
|
|
|
|
105
|
|
Cash payments
|
|
|
(8
|
)
|
|
|
(7
|
)
|
|
|
(9
|
)
|
|
|
(23
|
)
|
|
|
(7
|
)
|
|
|
(54
|
)
|
Currency translation adjustment
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve as of December 31, 2009
|
|
|
7
|
|
|
|
4
|
|
|
|
3
|
|
|
|
60
|
|
|
|
7
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant/Office Closures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve as of December 31, 2007
|
|
|
1
|
|
|
|
3
|
|
|
|
1
|
|
|
|
2
|
|
|
|
1
|
|
|
|
8
|
|
Additions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cash payments
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
-
|
|
|
|
(4
|
)
|
Currency translation adjustment
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve as of December 31, 2008
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
3
|
|
Additions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17
|
|
|
|
-
|
|
|
|
17
|
|
Transfers
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2
|
)
|
Cash payments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve as of December 31, 2009
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17
|
|
|
|
1
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7
|
|
|
|
4
|
|
|
|
3
|
|
|
|
77
|
|
|
|
8
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before tax by
jurisdiction are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
As Adjusted (Note 31)
|
|
|
|
(In $ millions)
|
|
|
US
|
|
|
294
|
|
|
|
135
|
|
|
|
(111
|
)
|
International
|
|
|
(43
|
)
|
|
|
298
|
|
|
|
548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
251
|
|
|
|
433
|
|
|
|
437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
The income tax provision (benefit) consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In $ millions)
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
US
|
|
|
11
|
|
|
|
62
|
|
|
|
(9
|
)
|
International
|
|
|
148
|
|
|
|
92
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
159
|
|
|
|
154
|
|
|
|
154
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
US
|
|
|
(404
|
)
|
|
|
(37
|
)
|
|
|
17
|
|
International
|
|
|
2
|
|
|
|
(54
|
)
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(402
|
)
|
|
|
(91
|
)
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit)
|
|
|
(243
|
)
|
|
|
63
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
consolidated deferred tax assets and liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In $ millions)
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Pension and postretirement obligations
|
|
|
361
|
|
|
|
304
|
|
Accrued expenses
|
|
|
195
|
|
|
|
195
|
|
Inventory
|
|
|
10
|
|
|
|
8
|
|
Net operating loss and tax credit carryforwards
|
|
|
375
|
|
|
|
279
|
|
Other
|
|
|
220
|
|
|
|
192
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
1,161
|
|
|
|
978
|
|
Valuation allowance
|
|
|
(334
|
)
|
|
|
(652
|
)
(1)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
827
|
|
|
|
326
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
336
|
|
|
|
322
|
|
Investments
|
|
|
45
|
|
|
|
41
|
|
Other
|
|
|
90
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
471
|
|
|
|
412
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets (liabilities)
|
|
|
356
|
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes deferred tax asset valuation allowances primarily
for the Companys deferred tax assets in the US,
Luxembourg, France and Germany, as well as other foreign
jurisdictions. These valuation allowances relate primarily to
net operating loss carryforward benefits and other net deferred
tax assets, all of which may not be realizable.
|
Since 2004, the Company has maintained a valuation allowance
against its US net deferred tax assets. FASB ASC Topic 740,
Income Taxes
, requires the Company to continually assess
all available positive and negative evidence to determine
whether it is more likely than not that the net deferred tax
assets will be realized. During 2009, the Company concluded that
due to cumulative profitability, it is more likely than not that
it will realize its net US deferred tax assets with the
exception of certain state net operating loss
45
carryforwards. Accordingly, during the year ended
December 31, 2009, the Company recorded a deferred tax
benefit of $492 million for the release of the
beginning-of-the-year
US valuation allowance associated with those US net deferred tax
assets expected to be realized in 2009 and subsequent years.
For the year ended December 31, 2009, the valuation
allowance decreased by $318 million consisting of:
(1) income tax benefits, net, of $314 million,
(2) an increase of $1 million allocated to Accumulated
other comprehensive income, (3) an increase of
$11 million related to foreign currency translation
adjustments and (4) $16 million of other decreases
related to unrecognized tax benefits and other adjustments to
deferred taxes. The charge to Accumulated other comprehensive
income relates to deferred tax assets associated with the
Companys pension and postretirement obligations. The
change in valuation allowance associated with foreign currency
translation adjustments is related to changes in deferred tax
assets for unrealized foreign exchange gains and losses on
effective hedges and on foreign income previously taxed but not
yet received in the US. The charge also relates to foreign
currency translation adjustments for deferred tax assets
recorded in various foreign jurisdictions. The decrease related
to unrecognized tax benefits and other adjustments to deferred
taxes includes adjustments to temporary differences and net
operating loss carryforwards due to changes in uncertain tax
positions.
A reconciliation of the significant differences between the US
federal statutory tax rate of 35% and the effective income tax
rate on income from continuing operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
As Adjusted (Note 31)
|
|
|
|
(In $ millions)
|
|
|
Income tax provision computed at US federal statutory tax rate
|
|
|
88
|
|
|
|
152
|
|
|
|
153
|
|
Increase (decrease) in taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
(314
|
)
|
|
|
(5
|
)
|
|
|
9
|
|
Equity income and dividends
|
|
|
(20
|
)
|
|
|
(17
|
)
|
|
|
8
|
|
Expenses not resulting in tax benefits
|
|
|
4
|
|
|
|
18
|
|
|
|
38
|
|
US tax effect of foreign earnings and dividends
|
|
|
10
|
|
|
|
(5
|
)
|
|
|
27
|
|
Other foreign tax rate differentials
(1)
|
|
|
(15
|
)
|
|
|
(84
|
)
|
|
|
(95
|
)
|
Legislative changes
|
|
|
71
|
|
|
|
3
|
|
|
|
(21
|
)
|
Tax-deductible interest on foreign equity instruments &
other related items
|
|
|
(76
|
)
|
|
|
-
|
|
|
|
(19
|
)
|
State income taxes and other
|
|
|
9
|
|
|
|
1
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit)
|
|
|
(243
|
)
|
|
|
63
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes impact of earnings from China and Singapore
subject to tax holidays which expire between 2008 and 2013 and
favorable tax rates in other jurisdictions.
|
Federal and state income taxes have not been provided on
accumulated but undistributed earnings of $2.8 billion as
of December 31, 2009 as such earnings have been permanently
reinvested in the business. The determination of the amount of
the unrecognized deferred tax liability related to the
undistributed earnings is not practicable.
The effective tax rate for continuing operations for the year
ended December 31, 2009 was (97)% compared to 15% for the
year ended December 31, 2008. The effective tax rate for
2009 was favorably impacted by the release of US valuation
allowance, partially offset by lower earnings in jurisdictions
participating in tax holidays, increases in valuation allowances
on certain foreign net deferred tax assets and the effect of new
tax legislation in Mexico.
46
The Company operates under tax holidays in various countries
which are effective through December 2013. In China, one of the
Companys entities has a tax holiday that provided for a
zero percent tax rate in 2007 and 2008. For 2009 through 2011,
the Companys tax rate is 50% of the statutory rate, or
12.5% based on the 2009 statutory rate of 25%. In Singapore, one
of the Companys entities has a tax holiday that provides
for a zero percent tax rate through 2010. For 2011 through 2013,
the Companys tax rate will be 10% based on the current
statutory rate of 17%. The impact of these tax holidays
decreased foreign taxes $2 million for the year ended
December 31, 2009.
The Corporate Tax Reform Act of 2008 was signed by the German
Federal President in August 2007. The Act reduced the
Companys combined corporate statutory tax rate from 40% to
30% while imposing limitations on the deductibility of certain
expenses, including interest expense. The Company recognized a
tax benefit of $39 million in 2007 related to the statutory
rate reduction on its German net deferred tax liabilities.
Mexico enacted the 2008 Fiscal Reform Bill on October 1,
2007. Effective January 1, 2008, the bill repealed the
existing asset-based tax and established a dual income tax
system consisting of a new minimum flat tax (the
IETU) and the existing regular income tax system.
The IETU system taxes companies on cash basis net income,
consisting only of certain specified items of revenue and
expense, at a rate of 16.5%, 17% and 17.5% for 2008, 2009 and
2010 forward, respectively. In general, companies must pay the
higher of the income tax or the IETU, although unlike the
previous asset tax, the IETU is not creditable against future
income tax liabilities. The Company has determined that it will
primarily be subject to the IETU in future periods, and as such
it has recorded tax expense (benefit) of $(5) million,
$7 million and $20 million in 2009, 2008 and 2007,
respectively, for the tax effects of the IETU system.
On December 7, 2009, Mexico enacted the 2010 Mexican Tax
Reform Bill (Tax Reform Bill) to be effective
January 1, 2010. Under this new legislation, the corporate
income tax rate will be temporarily increased from 28% to 30%
for 2010 through 2012, then reduced to 29% in 2013, and finally
reduced back to 28% in 2014 and future years. These rate changes
would impact the Company in the event that it reverts to paying
taxes on a regular income tax basis versus an IETU basis.
Further, under current law, income tax loss carryforwards
reported in the tax consolidation that were not utilized on an
individual company basis within 10 years were subject to
recapture. The Tax Reform Bill as enacted accelerates this
recapture period from 10 years to 5 years and
effectively requires payment of taxes even if no benefit was
obtained through the tax consolidation regime. Finally,
significant modifications were also made to the rules for income
taxes previously deferred on intercompany dividends, as well as
to income taxes related to differences between consolidated and
individual Mexican tax earnings and profits. The estimated
income tax impact to the Company of this new legislation at
December 31, 2009 is $73 million, payable
$12 million in 2010, $14 million in 2012,
$12 million in 2013 and $35 million in 2014 and
thereafter.
As of December 31, 2009, the Company had US federal net
operating loss carryforwards of $41 million that are
subject to limitation. These net operating loss carryforwards
begin to expire in 2021.
The Company also had foreign net operating loss carryforwards as
of December 31, 2009 of $1 billion for Luxembourg,
Canada, China, Germany, Mexico and other foreign jurisdictions
with various expiration dates. Net operating losses in China
have various carryforward periods and begin expiring in 2011.
Net operating losses in Luxembourg, Canada and Germany have no
expiration date. Net operating losses in Mexico have a ten year
carryforward period and began to expire in 2009. However, these
losses are not available for use under the new IETU tax
regulations in Mexico. As the IETU is the primary system upon
which the Company will be subject to tax in future periods, no
deferred tax asset has been reflected in the consolidated
balance sheets as of December 31, 2009 for these income tax
loss carryforwards.
The Company adopted the provisions of FASB ASC Topic
740-10
effective January 1, 2007. FASB ASC Topic
740-10
clarifies the accounting for income taxes by prescribing a
minimum recognition threshold a tax benefit is required to meet
before being recognized in the financial statements. FASB ASC
Topic
740-10
also provides guidance on derecognition, measurement,
classification, interest and penalties, accounting in
47
interim periods, disclosure and transition. As a result of the
implementation of FASB ASC Topic
740-10,
the
Company increased Retained earnings by $14 million and
decreased Goodwill by $2 million as included in the
consolidated balance sheets. In addition, certain tax
liabilities for unrecognized tax benefits, as well as related
potential penalties and interest, were reclassified from current
liabilities to noncurrent liabilities. Liabilities for
unrecognized tax benefits as of December 31, 2009 relate to
various US and foreign jurisdictions.
A reconciliation of the amount of unrecognized tax benefits is
as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In $ millions)
|
|
|
As of the beginning of the year
|
|
|
195
|
|
|
|
200
|
|
Increases in tax positions for the current year
|
|
|
19
|
|
|
|
-
|
|
Increases in tax positions for prior years
|
|
|
39
|
|
|
|
7
|
|
Decreases in tax positions of prior years
|
|
|
(38
|
)
|
|
|
(10
|
)
|
Settlements
|
|
|
(7
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
As of the end of the year
|
|
|
208
|
|
|
|
195
|
|
|
|
|
|
|
|
|
|
|
Included in the unrecognized tax benefits as of
December 31, 2009 are $208 million of tax benefits
that, if recognized, would reduce the Companys effective
tax rate.
The Company recognizes interest and penalties related to
unrecognized tax benefits in the provision for income taxes. As
of December 31, 2009 and 2008, the Company has recorded a
liability of $45 million and $38 million,
respectively, for interest and penalties. This amount includes
an increase of $7 million and $2 million for the years
ended December 31, 2009 and 2008, respectively. As of
December 31, 2009, $5 million of unrecognized tax
benefits are included in current Other liabilities
(Note 12).
The Company operates in the US (including multiple state
jurisdictions), Germany and approximately 40 other foreign
jurisdictions including Canada, China, France, Mexico and
Singapore. Examinations are ongoing in a number of those
jurisdictions including, most significantly, in Germany for the
years 2001 to 2004 and 2005 to 2007. The Companys US
federal income tax returns for 2003 and beyond are open for
examination under statute. The US tax years 2006 to 2008 were
selected for audit in 2010. Currently, unrecognized tax benefits
are not expected to change significantly over the next
12 months.
|
|
20.
|
Stock-Based
and Other Management Compensation Plans
|
In December 2004, the Company approved a stock incentive plan
for executive officers, key employees and directors, a deferred
compensation plan for executive officers and key employees as
well as other management incentive programs.
The stock incentive plan allows for the issuance or delivery of
up to 16,250,000 shares of the Companys Series A
common stock through the award of stock options, restricted
stock units (RSUs) and other stock-based awards as
may be approved by the Companys Compensation Committee of
the Board of Directors. At the Companys discretion under
the 2004 incentive plan, the Company has the right to award
dividend equivalents on RSU grants which are earned in
accordance with the Companys common stock dividend policy
and are reinvested in additional RSUs. Dividend equivalents on
these RSUs are forfeited if vesting conditions are not met.
In April 2009, the Company approved a global incentive plan
which replaces the Companys 2004 stock incentive plan. The
2009 global incentive plan enables the Compensation Committee of
the Board of
48
Directors to award incentive and nonqualified stock options,
stock appreciation rights, shares of common stock, restricted
stock, restricted stock units and incentive bonuses (which may
be paid in cash or stock or a combination thereof), any of which
may be performance-based, with vesting and other award
provisions that provide effective incentive to Company employees
(including officers), non-management directors and other service
providers. Under the 2009 global incentive plan, the company no
longer has the option to grant RSUs with the right to
participate in dividends or dividend equivalents.
The maximum number of shares that may be issued under the 2009
global incentive plan is equal to 5,350,000 shares plus
(a) any shares of Common Stock that remain available for
issuance under the 2004 stock incentive plan (not including any
shares of Common Stock that are subject to outstanding awards
under the 2004 stock incentive plan or any shares of Common
Stock that were issued pursuant to awards under the 2004 stock
incentive plan) and (b) any awards under the 2004 stock
incentive plan that remain outstanding that cease for any reason
to be subject to such awards (other than by reason of exercise
or settlement of the award to the extent that such award is
exercised for or settled in vested and non-forfeitable shares).
As of December 31, 2009, a total of 3,812,359 shares
remained available for awards under the 2009 stock incentive
plan. A total of 7,185,959 and 1,481,886 shares were subject to
outstanding awards under the 2004 stock incentive plan and 2009
global incentive plan, respectively.
Deferred
Compensation
The 2004 deferred compensation plan provides an aggregate
maximum amount payable of $196 million. The initial
component of the deferred compensation plan vested in 2004 and
was paid in the first quarter of 2005. In May 2007, the Original
Shareholders sold their remaining equity interest in the Company
triggering an Exit Event, as defined by the plan. Cash
compensation of $74 million, representing the
participants 2005 and 2006 contingent benefits, was paid
to the participants during the year ended December 31,
2007. Participants continuing in the 2004 deferred compensation
plan (see below for discussion regarding certain
participants decision to participate in a revised program)
continue to vest in their 2008 and 2009 time-based and
performance-based entitlements as defined in the deferred
compensation plan. During the years ended December 31,
2009, 2008 and 2007, the Company recorded compensation expense
of $1 million, $3 million and $84 million,
respectively, associated with this plan. As of December 31,
2009, there was no deferred compensation payable remaining
associated with this plan.
On April 2, 2007, certain participants in the
Companys deferred compensation plan elected to participate
in a revised program, which includes both cash awards and
restricted stock units (see Restricted Stock Units below). Under
the revised program, participants relinquished their cash awards
of up to $30 million that would have contingently accrued
from
2007-2009
under the original plan. In lieu of these awards, the revised
deferred compensation program provides for a future cash award
in an amount equal to 90% of the maximum potential payout under
the original plan, plus growth pursuant to one of three
participant-selected notional investment vehicles, as defined in
the associated agreements. Participants must remain employed
through 2010 to vest in the new award. The Company will
recognize expense through December 31, 2010 and make award
payments under the revised program in the first quarter of 2011,
unless participants elect to further defer the payment of their
individual awards. Based on participation in the revised
program, the Company expensed $10 million, $8 million
and $6 million during the years ended December 31,
2009, 2008 and 2007, respectively, related to the revised
program.
In December 2007, the Company adopted a deferred compensation
plan whereby certain of the Companys senior employees and
directors were offered the opportunity to defer a portion of
their compensation in exchange for a future payment amount equal
to their deferments plus or minus certain amounts based upon the
market performance of specified measurement funds selected by
the participant. Participants are required to make deferral
elections under the plan prior to January 1 of the year such
deferrals will be withheld from their compensation. The Company
expensed less than $1 million and $1 million during
the years ended December 31, 2009 and 2008, respectively,
related to this plan.
49
Long-Term
Incentive Plan
Effective January 1, 2004, the Company adopted a long-term
incentive plan (the LTIP Plan) which covers certain
members of management and other key employees of the Company.
The LTIP Plan is a three-year cash based plan in which awards
are based on annual and three-year cumulative targets (as
defined in the LTIP Plan). In February 2007, $26 million
was paid to the LTIP plan participants. There are no additional
amounts due under the LTIP Plan.
In December 2008, the Company granted time-vesting cash awards
of $22 million to the Companys executive officers and
certain other key employees. Each award of cash vests 30% on
October 14, 2009, 30% on October 14, 2010 and 40% on
October 14, 2011. In its sole discretion, the compensation
committee of the Board of Directors may at any time convert all
or a portion of the cash award to an award of time-vesting
restricted stock units. The liability cash awards are being
accrued and expensed over the term of the agreements outlined
above. During the year ended December 31, 2009, less than
$1 million was paid to participants who left the Company.
In October 2009, the Company paid cash awards totaling
$6 million to active employees, representing 30% of the
remaining outstanding cash awards. During the years ended
December 31, 2009 and 2008, the Company expensed
$7 million and less than $1 million, respectively,
related to the cash awards.
Stock
Options
The Company has a stock-based compensation plan that makes
awards of stock options to the Companys executives and
certain employees. It is the Companys policy to grant
options with an exercise price equal to the average of the high
and low price of the Companys Series A common stock
on the grant date. The options issued have a ten-year term and
vest on a graded basis over periods ranging from one to five
years. The estimated value of the Companys stock-based
awards less expected forfeitures is recognized over the
awards respective vesting period on a straight-line basis.
The fair value of each option granted is estimated on the grant
date using the Black-Scholes option pricing method. The weighted
average assumptions used in the model are outlined in the
following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Risk-free interest rate
|
|
|
1
|
.90
|
%
|
|
|
3
|
.30
|
%
|
|
|
4
|
.60
|
%
|
Estimated life in years
|
|
|
5
|
.20
|
|
|
|
7
|
.70
|
|
|
|
6
|
.80
|
|
Dividend yield
|
|
|
0
|
.96
|
%
|
|
|
0
|
.38
|
%
|
|
|
0
|
.42
|
%
|
Volatility
|
|
|
54
|
.30
|
%
|
|
|
31
|
.40
|
%
|
|
|
27
|
.50
|
%
|
The computation of the expected volatility assumption used in
the Black-Scholes calculations for new grants is based on the
Companys historical volatilities. When establishing the
expected life assumptions, the Company reviews annual historical
employee exercise behavior of option grants with similar vesting
periods.
50
A summary of changes in stock options outstanding is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Term
|
|
|
Value
|
|
|
|
(In millions)
|
|
|
(In $)
|
|
|
(In years)
|
|
|
(In $ millions)
|
|
|
As of December 31, 2008
|
|
|
7.0
|
|
|
|
19.35
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
0.1
|
|
|
|
17.17
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(0.8
|
)
|
|
|
17.79
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(0.3
|
)
|
|
|
34.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
6.0
|
|
|
|
19.01
|
|
|
|
5.6
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of year
|
|
|
5.0
|
|
|
|
17.09
|
|
|
|
5.3
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant-date fair value of stock options
granted during the years ended December 31, 2009, 2008, and
2007 was $7.46, $16.78, and $14.42, respectively, per option.
The total intrinsic value of options exercised during the years
ended December 31, 2009, 2008, and 2007 was
$9 million, $27 million, and $84 million,
respectively. As of December 31, 2009, the Company had
approximately $7 million of total unrecognized compensation
expense related to stock options, excluding estimated
forfeitures, expected to be recognized over a weighted-average
period of 1.3 years. Cash received from stock option
exercises was $14 million, $18 million, and
$69 million during the years ended December 31, 2009,
2008, and 2007, respectively. There was no tax benefit realized
from stock option exercises during the year ended
December 31, 2009. During the year ended December 31,
2008 the Company reversed $8 million of the
$19 million tax benefit that was realized during the year
ended December 31, 2007.
During 2009, the Company extended the contractual life of
4 million fully vested share options held by
6 employees. As a result of that modification, the Company
recognized additional compensation expense of $1 million
for the year ended December 31, 2009.
Restricted
Stock Units (RSUs)
Performance-based RSUs.
The Company grants
performance-based RSUs to the Companys executive officers
and certain employees once per year. The Company may also grant
performance-based RSUs to certain new employees or to employees
who assume positions of increasing responsibility at the time
those events occur. The number of performance-based RSUs that
ultimately vest is dependent on one or both of the following as
per the terms of the specific award agreement: The achievement
of 1) internal profitability targets (performance
condition) and 2) market performance targets measured by
the comparison of the Companys stock performance versus a
defined peer group (market condition).
The performance-based RSUs generally cliff-vest during the
Companys quarter-end September 30 black-out period three
years from the date of grant. The ultimate number of shares of
the Companys Series A common stock issued will range
from zero to stretch, with stretch defined individually under
each award, net of personal income taxes withheld. The market
condition is factored into the estimated fair value per unit and
compensation expense for each award will be based on the
probability of achieving internal profitability targets, as
applicable, and recognized on a straight-line basis over the
term of the respective grant, less estimated forfeitures. For
performance-based RSUs granted without a performance condition,
compensation expense is based on the fair value per unit
recognized on a straight-line basis over the term of the grant,
less estimated forfeitures.
51
In April 2007, the Company granted performance-based RSUs to
certain employees that vest annually in equal tranches beginning
October 1, 2008 through October 1, 2011 and include a
market condition. The performance-based RSUs awarded include a
catch-up
provision that provides for an additional year of vesting of
previously unvested amounts, subject to certain maximums.
Compensation expense is based on the fair value per unit
recognized on a straight-line basis over the term of the grant,
less estimated forfeitures.
A summary of changes in performance-based RSUs outstanding is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
|
Units
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
(In $)
|
|
|
Nonvested at December 31, 2008
|
|
|
1,188
|
|
|
|
19.65
|
|
Granted
|
|
|
420
|
|
|
|
38.16
|
|
Vested
|
|
|
(79
|
)
|
|
|
21.30
|
|
Forfeited
|
|
|
(114
|
)
|
|
|
17.28
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2009
|
|
|
1,415
|
|
|
|
25.24
|
|
|
|
|
|
|
|
|
|
|
The fair value of shares vested for performance-based RSUs
during the years ended December 31, 2009 and 2008 was
$2 million and $3 million, respectively. There were no
vestings that occurred during the year ended December 31,
2007.
Fair value for the Companys performance-based RSUs was
estimated at the grant date using a Monte Carlo simulation
approach. Monte Carlo simulation was utilized to randomly
generate future stock returns for the Company and each company
in the defined peer group for each grant based on
company-specific dividend yields, volatilities and stock return
correlations. These returns were used to calculate future
performance-based RSU vesting percentages and the simulated
values of the vested performance-based RSUs were then discounted
to present value using a risk-free rate, yielding the expected
value of these performance-based RSUs.
The range of assumptions used in the Monte Carlo simulation
approach is outlined in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Risk-free interest rate
|
|
|
1.11%
|
|
|
|
1.05%
|
|
|
|
4.53 - 4.55%
|
|
Dividend yield
|
|
|
0.00 - 4.64%
|
|
|
|
0.00 - 12.71%
|
|
|
|
0.00 - 2.76%
|
|
Volatility
|
|
|
25 - 75%
|
|
|
|
20 - 70%
|
|
|
|
20 - 45%
|
|
In December 2008, the Company granted 200,000 performance units
to be settled in cash to the Companys Chief Executive
Officer. The terms of the performance units are substantially
similar to the performance-based RSUs granted in December 2008
and include a performance condition and a market condition. The
value of the performance units is equivalent to the value of one
share of the Companys Series A common stock and any
amounts that may vest under the performance unit award agreement
are to be settled in cash rather than shares of the
Companys Series A common stock. The compensation
committee of the Board of Directors may elect to convert all or
any portion of the performance units award to an award of an
equivalent value of performance-based RSUs.
Time-based RSUs.
The Company grants non-employee
Directors time-based RSUs annually that generally vest one year
after grant. The fair value of the time-based RSUs is equal to
the closing price of the Companys Series A common
stock on the grant date.
52
The Company also grants time-based RSUs to the Companys
executives and certain employees that vest ratably over time
intervals ranging from two to four years. The fair value of the
time-based RSUs is equal to the average of the high and low
price of the Companys Series A common stock on the
grant date.
A summary of changes in time-based RSUs outstanding is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Time-based RSUs
|
|
|
Director Time-Based RSUs
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
Number of
|
|
|
Average
|
|
|
|
Units
|
|
|
Fair Value
|
|
|
Units
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
(In $)
|
|
|
(In thousands)
|
|
|
(In $)
|
|
|
Nonvested at December 31, 2008
|
|
|
105
|
|
|
|
39.34
|
|
|
|
15
|
|
|
|
44.02
|
|
Granted
|
|
|
421
|
|
|
|
23.13
|
|
|
|
41
|
|
|
|
16.58
|
|
Vested
|
|
|
(23
|
)
|
|
|
37.60
|
|
|
|
(15
|
)
|
|
|
44.02
|
|
Forfeited
|
|
|
(1
|
)
|
|
|
39.53
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2009
|
|
|
502
|
|
|
|
25.57
|
|
|
|
41
|
|
|
|
16.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, there was approximately
$35 million of unrecognized compensation cost related to
RSUs, excluding estimated forfeitures, expected to be recognized
over a weighted-average period of 2.3 years. The fair value
of shares vested for time-based RSUs during the years ended
December 31, 2009 and 2008 was $2 million and
$1 million, respectively. No RSUs vested during the year
ended December 31, 2007.
Total rent expense charged to operations under all operating
leases was $148 million, $141 million and
$122 million for the years ended December 31, 2009,
2008 and 2007, respectively. Future minimum lease payments under
non-cancelable rental and lease agreements which have initial or
remaining terms in excess of one year as of December 31,
2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Operating
|
|
|
|
(In $ millions)
|
|
|
2010
|
|
|
63
|
|
|
|
50
|
|
2011
|
|
|
39
|
|
|
|
36
|
|
2012
|
|
|
38
|
|
|
|
31
|
|
2013
|
|
|
35
|
|
|
|
24
|
|
2014
|
|
|
35
|
|
|
|
16
|
|
Later years
|
|
|
276
|
|
|
|
46
|
|
Sublease income
|
|
|
-
|
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
Minimum lease commitments
|
|
|
486
|
|
|
|
174
|
|
|
|
|
|
|
|
|
|
|
Less amounts representing interest
|
|
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum lease obligations
|
|
|
242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company expects that, in the normal course of business,
leases that expire will be renewed or replaced by other leases.
53
|
|
22.
|
Derivative
Financial Instruments
|
Interest
Rate Risk Management
To reduce the interest rate risk inherent in the Companys
variable rate debt, the Company utilizes interest rate swap
agreements to convert a portion of the variable rate debt to a
fixed rate obligation. These interest rate swap agreements are
designated as cash flow hedges. If an interest rate swap
agreement is terminated prior to its maturity, the amount
previously recorded in Accumulated other comprehensive income
(loss), net is recognized into earnings over the period that the
hedged transaction impacts earnings. If the hedging relationship
is discontinued because it is probable that the forecasted
transaction will not occur according to the original strategy,
any related amounts previously recorded in Accumulated other
comprehensive income (loss), net are recognized into earnings
immediately.
As of December 31, 2006, the Company had an interest rate
swap agreement in place with a notional value of
$300 million. On March 29, 2007, in connection with
the April 2007 debt refinancing, the Company terminated this
interest rate swap agreement and recognized a gain of
$2 million related to amounts previously recorded in
Accumulated other comprehensive income (loss), net.
In March 2007, in anticipation of the April 2007 debt
refinancing, the Company entered into various US dollar and Euro
interest rate swap agreements, which became effective on
April 2, 2007, with notional amounts of $1.6 billion
and 150 million, respectively. The notional amount of
the $1.6 billion US dollar interest rate swaps decreased by
$400 million effective January 2, 2008 and decreased
by another $200 million effective January 2, 2009. To
offset the declines, the Company entered into US dollar interest
rate swaps with a combined notional amount of $400 million
which became effective on January 2, 2008 and an additional
US dollar interest rate swap with a notional amount of
$200 million which became effective April 2, 2009. The
notional amount of the interest rate swaps decreased by
$100 million effective January 4, 2010. No new swaps
were entered into to offset the declines.
The Company recognized interest (expense) income from hedging
activities relating to interest rate swaps of
($63) million, ($18) million and $6 million for
the years ended December 31, 2009, 2008 and 2007,
respectively. The Company recorded a net loss of $0 million
for the year ended December 31, 2009 and less than
$1 million for each of the years ended December 31,
2008 and 2007, to Other income (expense), net in the
consolidated statements of operations for the ineffective
portion of the interest rate swap agreements. The Company
recorded an unrealized gain (loss) on interest rate swaps of
$15 million and ($79) million during the years ended
December 31, 2009 and 2008, respectively.
Foreign
Exchange Risk Management
Certain entities have receivables and payables denominated in
currencies other than their respective functional currencies,
which creates foreign exchange risk. The Company enters into
foreign currency forwards and swaps to minimize its exposure to
foreign currency fluctuations. Through these instruments, the
Company mitigates its foreign currency exposure on transactions
with third party entities as well as intercompany transactions.
The currently outstanding foreign currency contracts are hedging
booked exposure, however the Company may from time to time hedge
its currency exposure related to forecasted transactions.
Forward contracts are not designated as hedges under FASB ASC
Topic 815.
54
The following table indicates the total US dollar equivalents of
net foreign exchange exposure related to (short) long foreign
exchange forward contracts outstanding by currency. All of the
contracts included in the table below will have approximately
offsetting effects from actual underlying payables, receivables,
intercompany loans or other assets or liabilities subject to
foreign exchange remeasurement.
|
|
|
|
|
|
|
2010 Maturity
|
|
|
|
(In $ millions)
|
|
|
Currency
|
|
|
|
|
Euro
|
|
|
(372
|
)
|
British pound sterling
|
|
|
(90
|
)
|
Chinese renminbi
|
|
|
(200
|
)
|
Mexican peso
|
|
|
(5
|
)
|
Singapore dollar
|
|
|
27
|
|
Canadian dollar
|
|
|
(48
|
)
|
Japanese yen
|
|
|
8
|
|
Brazilian real
|
|
|
(11
|
)
|
Swedish krona
|
|
|
15
|
|
Other
|
|
|
(1
|
)
|
|
|
|
|
|
Total
|
|
|
(677
|
)
|
|
|
|
|
|
To protect the foreign currency exposure of a net investment in
a foreign operation, the Company entered into cross currency
swaps with certain financial institutions in 2004. The cross
currency swaps and the Euro-denominated portion of the senior
term loan were designated as a hedge of a net investment of a
foreign operation. The Company dedesignated the net investment
hedge due to the debt refinancing in April 2007 and redesignated
the cross currency swaps and new senior Euro term loan in July
2007. As a result, the Company recorded $26 million of
mark-to-market
losses related to the cross currency swaps and the new senior
Euro term loan during this period.
Under the terms of the cross currency swap arrangements, the
Company paid approximately 13 million in interest and
received approximately $16 million in interest on June 15
and December 15 of each year. The fair value of the net
obligation under the cross currency swaps was included in
current Other liabilities in the consolidated balance sheets as
of December 31, 2007. Upon maturity of the cross currency
swap agreements in June 2008, the Company owed
276 million ($426 million) and was owed
$333 million. In settlement of the obligation, the Company
paid $93 million (net of interest of $3 million) in
June 2008.
During the year ended December 31, 2008, the Company
dedesignated 385 million of the 400
Euro-denominated portion of the term loan, previously designated
as a hedge of a net investment of a foreign operation. The
remaining 15 million Euro-denominated portion of the
term loan was dedesignated as a hedge of a net investment of a
foreign operation in June 2009. Prior to the dedesignations, the
Company had been using external derivative contracts to offset
foreign currency exposures on certain intercompany loans. As a
result of the dedesignations, the foreign currency exposure
created by the Euro-denominated term loan is expected to offset
the foreign currency exposure on certain intercompany loans,
decreasing the need for external derivative contracts and
reducing the Companys exposure to external counterparties.
The effective portion of the gain (loss) on the derivative
(cross currency swaps) is recorded in Accumulated other
comprehensive income (loss), net. For the years ended
December 31, 2009, 2008 and 2007, the amount charged to
Accumulated other comprehensive income (loss), net was
$0 million, $(19) million and $(19) million,
respectively. The gain (loss) related to items excluded from the
assessment of hedge effectiveness of the cross currency swaps
are recorded to Other income (expense), net in the consolidated
statements of operations. For the years ended December 31,
2009, 2008 and 2007, the amount charged to
55
Other income (expense), net in the consolidated statements of
operations was $0 million, $1 million and
$(6) million, respectively.
Commodity
Risk Management
The Company has exposure to the prices of commodities in its
procurement of certain raw materials. The Company manages its
exposure primarily through the use of long-term supply
agreements and derivative instruments. The Company regularly
assesses its practice of purchasing a portion of its commodity
requirements forward and utilization of other raw material
hedging instruments, in addition to forward purchase contracts,
in accordance with changes in market conditions. Forward
purchases and swap contracts for raw materials are principally
settled through actual delivery of the physical commodity. For
qualifying contracts, the Company has elected to apply the
normal purchases and normal sales exception of FASB ASC Topic
815, as it was probable at the inception and throughout the term
of the contract that they would not settle net and would result
in physical delivery. As such, realized gains and losses on
these contracts are included in the cost of the commodity upon
the settlement of the contract.
In addition, the Company occasionally enters into financial
derivatives to hedge a component of a raw material or energy
source. Typically, these types of transactions do not qualify
for hedge accounting. These instruments are marked to market at
each reporting period and gains (losses) are included in Cost of
sales in the consolidated statements of operations. The Company
recognized no gain or loss from these types of contracts during
the years ended December 31, 2009 and 2008 and less than
$1 million during the year ended December 31, 2007. As
of December 31, 2009, the Company did not have any open
financial derivative contracts for commodities.
The following table presents information regarding changes in
the fair value of the Companys derivative arrangements:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2009
|
|
|
|
Gain (Loss)
|
|
|
|
|
|
|
Recognized
|
|
|
|
|
|
|
in Other
|
|
|
Gain (Loss)
|
|
|
|
Comprehensive
|
|
|
Recognized
|
|
|
|
Income
|
|
|
in Income
|
|
|
|
(In $ millions)
|
|
|
Derivatives designated as cash flow hedging instruments
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
(40
|
)
|
|
|
(63
|
)
(1)
|
Derivatives designated as net investment hedging instruments
|
|
|
|
|
|
|
|
|
Euro-denominated term loan
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
Foreign currency forwards and swaps
|
|
|
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(40
|
)
|
|
|
(83
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Amount represents reclassification from Accumulated other
comprehensive income and is classified as interest expense in
the consolidated statement of operations.
|
See Note 23, Fair Value Measurements, for additional
information regarding the fair value of the Companys
derivative arrangements.
56
|
|
23.
|
Fair
Value Measurements
|
As discussed in Note 2, the Company adopted certain
provisions of FASB ASC Topic 820 on January 1, 2008 and
2009. FASB ASC Topic 820 establishes a three-tiered fair value
hierarchy that prioritizes inputs to valuation techniques used
in fair value calculations. The three levels of inputs are
defined as follows:
Level 1 unadjusted quoted prices for identical
assets or liabilities in active markets accessible by the Company
Level 2 inputs that are observable in the
marketplace other than those inputs classified as Level 1
Level 3 inputs that are unobservable in the
marketplace and significant to the valuation
FASB ASC Topic 820 requires the Company to maximize the use of
observable inputs and minimize the use of unobservable inputs.
If a financial instrument uses inputs that fall in different
levels of the hierarchy, the instrument will be categorized
based upon the lowest level of input that is significant to the
fair value calculation.
The Companys financial assets and liabilities are measured
at fair value on a recurring basis and include marketable
securities and derivative financial instruments. Marketable
securities include US government and corporate bonds,
mortgage-backed securities and equity securities. Derivative
financial instruments include interest rate swaps and foreign
currency forwards and swaps.
Marketable Securities.
Where possible, the Company
utilizes quoted prices in active markets to measure debt and
equity securities; such items are classified as Level 1 in
the hierarchy and include equity securities and US government
bonds. When quoted market prices for identical assets are
unavailable, varying valuation techniques are used. Common
inputs in valuing these assets include, among others, benchmark
yields, issuer spreads, forward mortgage-backed securities trade
prices and recently reported trades. Such assets are classified
as Level 2 in the hierarchy and typically include
mortgage-backed securities, corporate bonds and other US
government securities.
Derivative Financial Instruments.
Derivative
financial instruments are valued in the market using discounted
cash flow techniques. These techniques incorporate Level 1
and Level 2 inputs such as interest rates and foreign
currency exchange rates. These market inputs are utilized in the
discounted cash flow calculation considering the
instruments term, notional amount, discount rate and
credit risk. Significant inputs to the derivative valuation for
interest rate swaps and foreign currency forwards and swaps are
observable in the active markets and are classified as
Level 2 in the hierarchy.
57
The following fair value hierarchy table presents information
about the Companys assets and liabilities measured at fair
value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Using
|
|
|
|
|
|
|
Quoted Prices
|
|
|
Significant
|
|
|
|
|
|
|
in Active
|
|
|
Other
|
|
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
Total
|
|
|
|
(In $ millions)
|
|
|
Marketable securities, at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
US government debt securities
|
|
|
|
|
|
|
28
|
|
|
|
28
|
|
US corporate debt securities
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
Equity securities
|
|
|
52
|
|
|
|
|
|
|
|
52
|
|
Money market deposits and other securities
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forwards and swaps
|
|
|
|
|
|
|
12
|
|
|
|
12
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets as of December 31, 2009
|
|
|
52
|
|
|
|
43
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as cash flow hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
|
|
|
|
(68
|
)
|
|
|
(68
|
)
(2)
|
Interest rate swaps
|
|
|
|
|
|
|
(44
|
)
|
|
|
(44
|
)
(3)
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forwards and swaps
|
|
|
|
|
|
|
(7
|
)
|
|
|
(7
|
)
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities as of December 31, 2009
|
|
|
|
|
|
|
(119
|
)
|
|
|
(119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
US government debt securities
|
|
|
|
|
|
|
52
|
|
|
|
52
|
|
US corporate debt securities
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
Equity securities
|
|
|
42
|
|
|
|
|
|
|
|
42
|
|
Money market deposits and other securities
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forwards and swaps
|
|
|
|
|
|
|
54
|
|
|
|
54
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets as of December 31, 2008
|
|
|
42
|
|
|
|
112
|
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as cash flow hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
|
|
|
|
(42
|
)
|
|
|
(42
|
)
(2)
|
Interest rate swaps
|
|
|
|
|
|
|
(76
|
)
|
|
|
(76
|
)
(3)
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forwards and swaps
|
|
|
|
|
|
|
(25
|
)
|
|
|
(25
|
)
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities as of December 31, 2008
|
|
|
|
|
|
|
(143
|
)
|
|
|
(143
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Included in current Other assets in the consolidated balance
sheets.
|
|
(2)
|
|
Included in current Other liabilities in the consolidated
balance sheets.
|
|
(3)
|
|
Included in noncurrent Other liabilities in the consolidated
balance sheets.
|
58
Summarized below are the carrying values and estimated fair
values of financial instruments that are not carried at fair
value on the Companys consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
(In $ millions)
|
|
|
Cost investments (As Adjusted, Note 8 and Note 31)
|
|
|
129
|
|
|
|
|
|
|
|
130
|
|
|
|
|
|
Insurance contracts in nonqualified pension trusts
|
|
|
66
|
|
|
|
66
|
|
|
|
67
|
|
|
|
67
|
|
Long-term debt, including current installments of long-term debt
|
|
|
3,361
|
|
|
|
3,246
|
|
|
|
3,381
|
|
|
|
2,404
|
|
In general, the cost investments included in the table above are
not publicly traded and their fair values are not readily
determinable; however, the Company believes the carrying values
approximate or are less than the fair values.
As of December 31, 2009 and 2008, the fair values of cash
and cash equivalents, receivables, trade payables, short-term
debt and the current installments of long-term debt approximate
carrying values due to the short-term nature of these
instruments. These items have been excluded from the table with
the exception of the current installments of long-term debt.
Additionally, certain noncurrent receivables, principally
insurance recoverables, are carried at net realizable value.
The fair value of long-term debt is based on valuations from
third-party banks and market quotations.
|
|
24.
|
Commitments
and Contingencies
|
The Company is involved in a number of legal and regulatory
proceedings, lawsuits and claims incidental to the normal
conduct of business, relating to such matters as product
liability, antitrust, intellectual property, workers
compensation, prior acquisitions and divestitures, past waste
disposal practices and release of chemicals into the
environment. While it is impossible at this time to determine
with certainty the ultimate outcome of these proceedings,
lawsuits and claims, the Company is actively defending those
matters where the Company is named as a defendant. Additionally,
the Company believes, based on the advice of legal counsel, that
adequate reserves have been made and that the ultimate outcomes
of all such litigation and claims will not have a material
adverse effect on the financial position of the Company;
however, the ultimate outcome of any given matter may have a
material impact on the results of operations or cash flows of
the Company in any given reporting period.
Plumbing
Actions
CNA Holdings LLC. (CNA Holdings), a US subsidiary of
the Company, which included the US business now conducted by the
Ticona business which is included in the Advanced Engineered
Materials segment, along with Shell Oil Company
(Shell), E.I. DuPont de Nemours and Company
(DuPont) and others, has been a defendant in a
series of lawsuits, including a number of class actions,
alleging that plastics manufactured by these companies that were
utilized in the production of plumbing systems for residential
property were defective or caused such plumbing systems to fail.
Based on, among other things, the findings of outside experts
and the successful use of Ticonas acetal copolymer in
similar applications, CNA Holdings does not believe
Ticonas acetal copolymer was defective or caused the
plumbing systems to fail. In many cases CNA Holdings
potential future 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.
59
In November 1995, CNA Holdings, DuPont and Shell entered into
national class action settlements that called for the
replacement of plumbing systems of claimants who have had
qualifying leaks, as well as reimbursements for certain leak
damage. In connection with such settlement, the three companies
had agreed to fund these replacements and reimbursements up to
an aggregate amount of $950 million. As of
December 31, 2009, the aggregate funding is
$1,109 million, due to additional contributions and funding
commitments made primarily by other parties.
During the period between 1995 and 2001, CNA Holdings was also
named as a defendant in the following putative class actions:
Cox, et al. v. Hoechst Celanese
Corporation, et al.
,
No. 94-0047
(Chancery Ct., Obion County, Tennessee) (class was certified).
Couture, et al. v. Shell Oil
Company, et al.
,
No. 200-06-000001-985
(Quebec Superior Court, Canada).
Dilday, et al. v. Hoechst
Celanese Corporation, et al.
, No. 15187 (Chancery Ct.,
Weakley County, Tennessee).
Furlan v. Shell Oil
Company, et al.
, No. C967239 (British Columbia Supreme
Court, Vancouver Registry, Canada).
Gariepy, et al. v. Shell Oil
Company, et al.
, No. 30781/99 (Ontario Court General
Division, Canada).
Shelter General Insurance Co.,
et al. v. Shell Oil Company, et al.
, No. 16809
(Chancery Ct., Weakley County, Tennessee).
St. Croix Ltd., et al. v.
Shell Oil Company, et al.
, No. 1997/467 (Territorial
Ct., St. Croix Division, the US Virgin Islands).
Tranter v. Shell Oil
Company, et al.
, No. 46565/97 (Ontario Court General
Division, Canada).
In addition, between 1994 and 2008 CNA Holdings was named as a
defendant in numerous
non-class
actions filed in Arizona, Florida, Georgia, Louisiana,
Mississippi, New Jersey, Tennessee and Texas, the US Virgin
Islands and Canada of which ten are currently pending. In all of
these actions, the plaintiffs have sought recovery for alleged
damages caused by leaking polybutylene plumbing. Damage amounts
have generally not been specified but these cases generally do
not involve (either individually or in the aggregate) a large
number of homes.
As of December 31, 2009, the Company had remaining accruals
of $55 million, of which $1 million is included in
current Other liabilities in the consolidated balance sheets. As
of December 31, 2008, the Company had remaining accruals of
$64 million, of which $2 million was included in
current Other liabilities in the consolidated balance sheets.
The Company reached settlements with CNA Holdings insurers
specifying their responsibility for these claims. During the
year ended December 31, 2007, the Company received
$23 million of insurance proceeds from various CNA
Holdings insurers as full satisfaction for their
responsibility for these claims. During the year ended
December 31, 2008, the Company received less than
$1 million from insurers. During the year ended
December 31, 2009, the Company recognized a $9 million
decrease in legal reserves for plumbing claims due to the
Companys ongoing assessment of the likely outcome of the
plumbing actions and the expiration of the statute of limitation.
60
Plumbing
Insurance Indemnifications
Celanese GmbH entered into agreements with insurance companies
related to product liability settlements associated with
Celcon
®
plumbing claims. These agreements, except those with insolvent
insurance companies, require the Company to indemnify
and/or
defend these insurance companies in the event that third parties
seek additional monies for matters released in these agreements.
The indemnifications in these agreements do not provide for time
limitations.
In certain of the agreements, Celanese GmbH received a fixed
settlement amount. The indemnities under these agreements
generally are limited to, but in some cases are greater than,
the amount received in settlement from the insurance company.
The maximum exposure under these indemnifications is
$95 million. Other settlement agreements have no stated
limits.
There are other agreements whereby the settling insurer agreed
to pay a fixed percentage of claims that relate to that
insurers policies. The Company has provided
indemnifications to the insurers for amounts paid in excess of
the settlement percentage. These indemnifications do not provide
for monetary or time limitations.
Sorbates
Antitrust Actions
In May 2002, the European Commission informed Hoechst AG
(Hoechst) of its intent to officially investigate
the sorbates industry. In early January 2003, the European
Commission served Hoechst, Nutrinova, Inc., a US subsidiary of
Nutrinova Nutrition Specialties & Food Ingredients
GmbH and previously a wholly owned subsidiary of Hoechst
(Nutrinova), and a number of competitors of
Nutrinova 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.
(Daicel), The Nippon Synthetic Chemical Industry Co.
Ltd. and Ueno Fine Chemicals Industry Ltd. operated a cartel in
the European sorbates market between 1979 and 1996. The European
Commission imposed a total fine of 138 million on
such companies, of which 99 million was assessed
against Hoechst and its legal successors. The case against
Nutrinova was closed. Pursuant to the Demerger Agreement with
Hoechst, Celanese GmbH was assigned the obligation related to
the sorbates antitrust matter; however, Hoechst, and its legal
successors, agreed to indemnify Celanese GmbH for 80% of any
costs Celanese GmbH incurred relative to this matter.
Accordingly, Celanese GmbH recognized a receivable from Hoechst
from this indemnification. In June 2008, the Court of First
Instance of the European Communities (Fifth Chamber) reduced the
fine against Hoechst to 74.25 million and in July
2008, Hoechst paid the 74.25 million fine. In August
2008, the Company paid Hoechst 17 million, including
interest of 2 million, in satisfaction of its 20%
obligation with respect to the fine.
Based on the advice of external counsel and a review of the
existing facts and circumstances relating to the sorbates
antitrust matters, including the settlement of the European
Unions investigation, as well as civil claims filed and
settled, the Company released its accruals related to the
settled sorbates antitrust matters and the indemnification
receivables resulting in a gain of $8 million, net,
included in Other (charges) gains, net, in the consolidated
statements of operations for the year ended December 31,
2008.
In addition, in 2004 a civil antitrust action styled
Freeman
Industries LLC v. Eastman Chemical Co., et. al.
was
filed against Hoechst and Nutrinova, Inc. in the Law Court for
Sullivan County in Kingsport, Tennessee. The plaintiff sought
monetary damages and other relief for alleged conduct involving
the sorbates industry. The trial court dismissed the
plaintiffs claims and upon appeal the Supreme Court of
Tennessee affirmed the dismissal of the plaintiffs claims.
In December 2005, the plaintiff lost an attempt to amend its
complaint and the entire action was dismissed with prejudice.
Plaintiffs counsel subsequently filed a new complaint with
new class representatives in the District Court of the District
of Tennessee. The Companys
61
motion to strike the class allegations was granted in April 2008
and the plaintiffs request to appeal the ruling remains
pending.
Polyester
Staple Antitrust Litigation
CNA Holdings, the successor in interest to Hoechst Celanese
Corporation (HCC), Celanese Americas Corporation and
Celanese GmbH (collectively, the Celanese Entities)
and Hoechst, the former parent of HCC, were named as defendants
in two actions (involving 25 individual participants) filed in
September 2006 by US purchasers of polyester staple fibers
manufactured and sold by HCC. The actions allege that the
defendants participated in a conspiracy to fix prices, rig bids
and allocate customers of polyester staple sold in the United
States. These actions were consolidated in a proceeding by a
Multi-District Litigation Panel in the United States District
Court for the Western District of North Carolina styled
In re
Polyester Staple Antitrust Litigation
, MDL 1516. On
June 12, 2008 the court dismissed these actions against all
Celanese Entities in consideration of a payment by the Company
of $107 million. This proceeding related to sales by the
polyester staple fibers business which Hoechst sold to KoSa,
Inc. in 1998. Accordingly, the impact of this settlement is
reflected within discontinued operations in the consolidated
statements of operations for the year ended December 31, 2008.
The Company also previously entered into tolling arrangements
with four other alleged US purchasers of polyester staple fibers
manufactured and sold by the Celanese Entities. These purchasers
were not included in the settlement and one such company filed
suit against the Company in December 2008 in the Western
District of North Carolina entitled
Milliken &
Company v. CNA Holdings, Inc., Celanese Americas
Corporation and Hoechst AG
(No. 8-CV-00578).
The Company is actively defending this matter and has filed a
motion to dismiss, which is pending with the court.
In December 1998, HCC sold its polyester staple business (the
1998 Sale) to KoSa B.V., f/k/a Arteva B.V., a
subsidiary of Koch Industries, Inc. (KoSa), under an
asset purchase agreement (APA). In August of 2002,
Arteva Specialties, S.a.r.l., a subsidiary of KoSa (Arteva
Specialties), pled guilty to a criminal violation of the
Sherman Act relating to anti-competitive conduct following the
1998 Sale. Shortly thereafter, various polyester staple
customers filed approximately 50 civil anti-trust lawsuits
against KoSa and Arteva Specialties, some of which alleged
anti-competitive conduct prior to the 1998 Sale. In a complaint
filed on November 3, 2003 in the United States District
Court for the Southern District of New York,
Koch Industries,
Inc. et al. v. Hoechst Aktiengellschaft et al.
,
No. 03-cv-8679,
Koch Industries, Inc., KoSa, Arteva Specialties and Arteva
Services S.a.r.l. sought recovery from Hoechst and the Celanese
Entities exceeding $371 million. In the complaint, the
plaintiffs alleged claims of fraud, unjust enrichment and
indemnification for retained liabilities and for breach of
contractual representations and warranties under the APA. Both
parties filed motions for summary judgment in 2009. On
July 19, 2010, the court granted in part and denied in part
the pending motions. The court dismissed the plaintiffs
claims for fraud and unjust enrichment, which also eliminated
plaintiffs claims for punitive damages. The court also
held that the plaintiffs cannot recover damages for liabilities
arising out of the operation of the polyester staple business
incurred after the 1998 Sale. The plaintiffs can recover damages
for the costs of defending and settling civil antitrust actions
brought against them to the extent such damages arose out of the
operation of the polyester staple business prior to the 1998
Sale (i.e., Retained Liabilities as defined in the
APA). The plaintiffs have alleged that they paid approximately
$135 million for the costs of settling and defending both
pre- and post-1998 Sale civil antitrust actions. The court
reserved for trial the calculation and allocation of any damages
to which the plaintiffs would be entitled under the relevant
sections of the APA. Because of insufficient information,
including that contained in the record, we are unable to
estimate the amount of the Companys loss for this matter.
The court also preserved for trial the plaintiffs claim
for breach of contractual representations and warranties under
the APA. No date has been set for trial. The Company is actively
defending this matter.
62
Acetic
Acid Patent Infringement Matters
On May 9, 1999, Celanese International Corporation filed a
private criminal action styled
Celanese International
Corporation v. China Petrochemical Development Corporation
against China Petrochemical Development Corporation
(CPDC) in the Taiwan Kaoshiung District Court
alleging that CPDC infringed Celanese International
Corporations patent covering the manufacture of acetic
acid. Celanese International Corporation also filed a
supplementary civil brief that, in view of changes in Taiwanese
patent laws, was subsequently converted to a civil action
alleging damages against CPDC based on a period of infringement
of ten years,
1991-2000,
and based on CPDCs own data that was reported to the
Taiwanese securities and exchange commission. Celanese
International Corporations patent was held valid by the
Taiwanese patent office. On August 31, 2005, the District
Court held that CPDC infringed Celanese International
Corporations acetic acid patent and awarded Celanese
International Corporation approximately $28 million (plus
interest) for the period of 1995 through 1999. In October 2008,
the High Court, on appeal, reversed the District Courts
$28 million award to the Company. The Company appealed to
the Superior Court in November 2008, and the court remanded the
case to the Intellectual Property Court on June 4, 2009. On
January 16, 2006, the District Court awarded Celanese
International Corporation $800,000 (plus interest) for the year
1990. In January 2009, the High Court, on appeal, affirmed the
District Courts award and CPDC appealed on
February 5, 2009 to the Supreme Court. On June 29,
2007, the District Court awarded Celanese International
Corporation $60 million (plus interest) for the period of
2000 through 2005. CPDC appealed this ruling and on
July 21, 2009, the High Court ruled in CPDCs favor.
The Company appealed to the Supreme Court and in December 2009,
the case was remanded to the Intellectual Property Court.
Workers
Compensation Claims
The Company has been provided with notices of claims filed with
the South Carolina Workers Compensation Commission and the
North Carolina Industrial Commission. The notices of claims
identify various alleged injuries to current and former
employees arising from alleged exposure to undefined chemicals
at current and former plant sites in South Carolina and North
Carolina. As of December 31, 2009, there were 950 claims
pending. The Company has reserves for defense costs related to
these matters.
Asbestos
Claims
As of December 31, 2009, Celanese Ltd. and/or CNA Holdings,
Inc., both US subsidiaries of the Company, are defendants in
approximately 526 asbestos cases. During the year ended
December 31, 2009, 56 new cases were filed against the
Company, 90 cases were resolved, and 1 case was added after
further analysis by outside counsel. Because many of these cases
involve numerous plaintiffs, the Company is subject to claims
significantly in excess of the number of actual cases. The
Company has reserves for defense costs related to claims arising
from these matters. The Company believes that there is no
material exposure related to these matters.
Award
Proceedings in relation to Domination Agreement and
Squeeze-Out
On October 1, 2004, a Domination Agreement between Celanese
GmbH and the Purchaser became operative, pursuant to which the
Purchaser became obligated to offer to acquire all outstanding
Celanese GmbH shares from the minority shareholders of Celanese
GmbH in return for payment of fair cash compensation
(Squeeze-Out). The amount of this fair cash
compensation was determined to be 41.92 per share, plus
interest, in accordance with applicable German law. Until the
Squeeze-Out was registered in the commercial register in Germany
on December 22, 2006, any minority shareholder who elected
not to sell its shares to the Purchaser was entitled to remain a
shareholder of Celanese GmbH and to receive from the
63
Purchaser a gross guaranteed annual payment on its shares of
3.27 per Celanese GmbH share less certain corporate taxes
in lieu of any dividend.
The amounts of the fair cash compensation and of the guaranteed
annual payment offered under the Domination Agreement as well as
the Squeeze-Out compensation are under court review in two
separate special award proceedings. The amounts of the fair cash
compensation and of the guaranteed annual payment offered under
the Domination Agreement may be increased in special award
proceedings initiated by minority shareholders, which may
further reduce the funds the Purchaser can otherwise make
available to the Company. As of March 30, 2005, several
minority shareholders of Celanese GmbH had initiated special
award proceedings seeking the courts review of the amounts
of the fair cash compensation and of the guaranteed annual
payment offered under the Domination Agreement. As a result of
these proceedings, the amount of the fair cash consideration and
the guaranteed annual payment offered under the Domination
Agreement could be increased by the court so that all minority
shareholders, including those who have already tendered their
shares into the mandatory offer and have received the fair cash
compensation could claim the respective higher amounts. The
court dismissed all of these proceedings in March 2005 on the
grounds of inadmissibility. Thirty-three plaintiffs appealed the
dismissal, and in January 2006, twenty-three of these appeals
were granted by the court. They were remanded back to the court
of first instance, where the valuation will be further reviewed.
On December 12, 2006, the court of first instance appointed
an expert to help determine the value of Celanese GmbH. In the
first quarter of 2007, certain minority shareholders that
received 66.99 per share as fair cash compensation also
filed award proceedings challenging the amount they received as
fair cash compensation. The case remains pending before the
court of the first instance.
The Company received applications for the commencement of award
proceedings filed by 79 shareholders against the Purchaser
with the Frankfurt District Court requesting the court to set a
higher amount for the Squeeze-Out compensation. The motions are
based on various alleged shortcomings and mistakes in the
valuation of Celanese GmbH done for purposes of the Squeeze-Out.
On May 11, 2007, the court of first instance appointed a
common representative for those shareholders that have not filed
an application on their own.
Should the court set a higher value for the Squeeze-Out
compensation, former Celanese GmbH shareholders who ceased to be
shareholders of Celanese GmbH due to the Squeeze-Out are
entitled, pursuant to a settlement agreement between the
Purchaser and certain former Celanese GmbH shareholders, to
claim for their shares the higher of the compensation amounts
determined by the court in these different proceedings. Payments
these shareholders already received as compensation for their
shares will be offset so that those shareholders who ceased to
be shareholders of Celanese GmbH due to the Squeeze-Out are not
entitled to more than the higher of the amount set in the two
court proceedings.
The Purchaser and Celanese GmbH have entered into a new
domination agreement on March 26, 2010 which became
effective on April 9, 2010 (the Domination Agreement
II). Under the Domination Agreement II, the Purchaser is
required, among other things, to compensate Celanese GmbH for
any annual loss incurred, determined in accordance with German
accounting requirements, by Celanese GmbH at the end of the
fiscal year in which the loss was incurred. This obligation to
compensate Celanese GmbH for annual losses will apply during the
entire term of the Domination Agreement II. If Celanese GmbH
incurs losses during any period of the operative term of the
Domination Agreement II and if such losses lead to an
annual loss of Celanese GmbH at the end of any given fiscal year
during the term of the Domination Agreement II, the Purchaser
will be obligated to make a corresponding cash payment to
Celanese GmbH to the extent that the respective annual loss is
not fully compensated for by the dissolution of profit reserves
accrued at the level of Celanese GmbH during the term of the
Domination Agreement II. The Purchaser may be able to reduce or
avoid cash payments to Celanese GmbH by off-setting against such
loss compensation claims by Celanese GmbH any valuable
counterclaims against Celanese GmbH that the Purchaser may have.
If the Purchaser is obligated to make cash payments to Celanese
GmbH to cover an annual loss, we may not have sufficient funds
to make payments on our indebtedness when due and, unless the
Purchaser is able to obtain funds from a
64
source other than annual profits of Celanese GmbH, The Purchaser
may not be able to satisfy its obligation to fund such shortfall.
Guarantees
The Company has agreed to guarantee or indemnify third parties
for environmental and other liabilities pursuant to a variety of
agreements, including asset and business divestiture agreements,
leases, settlement agreements and various agreements with
affiliated companies. Although many of these obligations contain
monetary
and/or
time
limitations, others do not provide such limitations.
As indemnification obligations often depend on the occurrence of
unpredictable future events, the future costs associated with
them cannot be determined at this time.
The Company has accrued for all probable and reasonably
estimable losses associated with all known matters or claims
that have been brought to its attention. These known obligations
include the following:
Demerger Obligations
The Company has obligations to indemnify Hoechst, and its legal
successors, for various liabilities under the Demerger
Agreement, including for environmental liabilities associated
with contamination arising under 19 divestiture agreements
entered into by Hoechst prior to the demerger.
The Companys obligation to indemnify Hoechst, and its
legal successors, is subject to the following thresholds:
The Company will indemnify
Hoechst, and its legal successors, against those liabilities up
to 250 million;
Hoechst, and its legal successors,
will bear those liabilities exceeding 250 million,
however the Company will reimburse Hoechst, and its legal
successors, for one-third of those liabilities for amounts that
exceed 750 million in the aggregate.
The aggregate maximum amount of environmental indemnifications
under the remaining divestiture agreements that provide for
monetary limits is approximately 750 million. Three
of the divestiture agreements do not provide for monetary limits.
Based on the estimate of the probability of loss under this
indemnification, the Company had reserves of $32 million
and $27 million as of December 31, 2009 and 2008,
respectively, for this contingency. Where the Company is unable
to reasonably determine the probability of loss or estimate such
loss under an indemnification, the Company has not recognized
any related liabilities.
The Company has also undertaken in the Demerger Agreement to
indemnify Hoechst and its legal successors for liabilities that
Hoechst is required to discharge, including tax liabilities,
which are associated with businesses that were included in the
demerger but were not demerged due to legal restrictions on the
transfers of such items. These indemnities do not provide for
any monetary or time limitations. The Company has not provided
for any reserves associated with this indemnification as it is
not probable or estimable. The Company has not made any payments
to Hoechst or its legal successors during the years ended
December 31, 2009 and 2008, respectively, in connection
with this indemnification.
65
Divestiture Obligations
The Company and its predecessor companies agreed to indemnify
third-party purchasers of former businesses and assets for
various pre-closing conditions, as well as for breaches of
representations, warranties and covenants. Such liabilities also
include environmental liability, product liability, antitrust
and other liabilities. These indemnifications and guarantees
represent standard contractual terms associated with typical
divestiture agreements and, other than environmental
liabilities, the Company does not believe that they expose the
Company to any significant risk. As of December 31, 2009
and 2008, the Company has reserves in the aggregate of
$32 million and $33 million, respectively, for these
matters.
The Company has divested numerous businesses, investments and
facilities through agreements containing indemnifications or
guarantees to the purchasers. Many of the obligations contain
monetary
and/or
time
limitations, ranging from one year to thirty years. The
aggregate amount of guarantees provided for under these
agreements is approximately $1.9 billion as of
December 31, 2009. Other agreements do not provide for any
monetary or time limitations.
Purchase
Obligations
In the normal course of business, the Company enters into
commitments to purchase goods and services over a fixed period
of time. The Company maintains a number of
take-or-pay
contracts for purchases of raw materials and utilities. As of
December 31, 2009, there were outstanding future
commitments of $1.7 billion under
take-or-pay
contracts. The Company recognized $17 million of losses
related to
take-or-pay
contract termination costs for the year ended December 31,
2009 related to the Companys Pardies, France Project of
Closure (see Note 18). The Company does not expect to incur
any material losses under
take-or-pay
contractual arrangements unrelated to the Pardies, France
Project of Closure. Additionally, as of December 31, 2009,
there were other outstanding commitments of $713 million
representing maintenance and service agreements, energy and
utility agreements, consulting contracts and software agreements.
In April 2007, Southern Chemical Corporation
(Southern) filed a petition in the
190
th
Judicial District Court of Harris County, Texas styled Southern
Chemical Corporation v. Celanese Ltd. (Cause
No. 2007-25490),
seeking declaratory judgment relating to the terms of a
multi-year supply contract. The trial court granted the
Companys motion for summary judgment in March 2008
dismissing Southerns claims. In September 2009, the
intermediate Texas appellate court reversed the trial court
decision and remanded the case to the trial court. The Texas
Supreme Court subsequently declined both parties requests
that it hear the case. On August 15, 2010, Southern filed a
second amended petition adding a claim for breach of contract
and seeking damages in an unspecified amount from the Company.
Trial has been set for August 2011. The Company does not believe
the contractual interpretations set forth by Southern have merit
and is vigorously defending the matter.
66
|
|
25.
|
Supplemental
Cash Flow Information
|
The following table represents supplemental cash flow
information for cash and non-cash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In $ millions)
|
|
|
Taxes, net of refunds
|
|
|
17
|
|
|
|
98
|
|
|
|
181
|
|
Interest, net of amounts capitalized
|
|
|
208
|
|
|
|
259
|
|
|
|
414
|
(1)
|
Noncash investing and financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value adjustment to securities available for sale, net of
tax
|
|
|
(3
|
)
|
|
|
(25
|
)
|
|
|
17
|
|
Capital lease obligations
|
|
|
38
|
|
|
|
103
|
|
|
|
80
|
|
Accrued capital expenditures
|
|
|
(9
|
)
|
|
|
(7
|
)
|
|
|
18
|
|
Asset retirement obligations
|
|
|
30
|
|
|
|
8
|
|
|
|
4
|
|
Accrued Ticona Kelsterbach plant relocation costs
|
|
|
22
|
|
|
|
17
|
|
|
|
19
|
|
|
|
|
(1)
|
|
Amount includes premiums paid on early redemption of debt and
related issuance costs, net of amounts capitalized, of
$217 million for the year ended December 31, 2007.
|
|
|
26.
|
Business
and Geographical Segments
|
Business
Segments
The Company operates through the following business segments:
Advanced
Engineered Materials
The Companys Advanced Engineered Materials segment
develops, produces and supplies a broad portfolio of high
performance technical polymers for application in automotive and
electronics products as well as other consumer and industrial
applications. The Company and its strategic affiliates are a
leading participant in the global technical polymers industry.
The primary products of Advanced Engineered Materials are used
in a broad range of products including automotive components,
electronics, appliances, industrial applications, battery
separators, conveyor belts, filtration equipment, coatings,
medical devices, electrical and electronics.
Consumer
Specialties
The Companys Consumer Specialties segment consists of the
Acetate Products and Nutrinova businesses. The Acetate Products
business primarily produces and supplies acetate tow, which is
used in the production of filter products. The Company also
produces acetate flake which is processed into acetate fiber in
the form of a tow band. The Companys Nutrinova business
produces and sells
Sunett
®
,
a high intensity sweetener, and food protection ingredients,
such as sorbates, for the food, beverage and pharmaceuticals
industries.
Industrial
Specialties
The Companys Industrial Specialties segment includes the
Emulsions, PVOH and EVA Performance Polymers businesses. The
Companys Emulsions business is a global leader which
produces a broad product
67
portfolio, specializing in vinyl acetate ethylene emulsions, and
is a recognized authority on low VOC (volatile organic
compounds), an environmentally-friendly technology. As a global
leader, the Companys PVOH business produced a broad
portfolio of performance PVOH chemicals engineered to meet
specific customer requirements. The Companys emulsions and
PVOH products are used in a wide array of applications including
paints and coatings, adhesives, building and construction, glass
fiber, textiles and paper. EVA Performance Polymers offers a
complete line of low-density polyethylene and specialty ethylene
vinyl acetate resins and compounds. EVA Performance
Polymers products are used in many applications including
flexible packaging films, lamination film products, hot melt
adhesives, medical tubing and devices, automotive carpet and
solar cell encapsulation films.
In July 2009, the Company completed the sale of its PVOH
business to Sekisui (Note 4).
Acetyl
Intermediates
The Companys Acetyl Intermediates segment produces and
supplies acetyl products, including acetic acid, VAM, acetic
anhydride and acetate esters. These products are generally used
as starting materials for colorants, paints, adhesives,
coatings, medicines and more. Other chemicals produced in this
business segment are organic solvents and intermediates for
pharmaceutical, agricultural and chemical products.
Other
Activities
Other Activities primarily consists of corporate center costs,
including financing and administrative activities such as legal,
accounting and treasury functions and interest income or expense
associated with financing activities of the Company, and the
captive insurance companies.
The business segment management reporting and controlling
systems are based on the same accounting policies as those
described in the summary of significant accounting policies in
Note 2. The Company evaluates performance based on
operating profit, net earnings (loss), cash flows and other
measures of financial performance reported in accordance with US
GAAP.
Sales and revenues related to transactions between business
segments are generally recorded at values that approximate
third-party selling prices.
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineered
|
|
|
Consumer
|
|
|
Industrial
|
|
|
Acetyl
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Materials
|
|
|
Specialties
|
|
|
Specialties
|
|
|
Intermediates
|
|
|
Activities
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In $ millions)
|
|
|
As Adjusted (Note 31)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
808
|
|
|
|
1,084
|
(1)
|
|
|
974
|
|
|
|
2,603
|
(1)
|
|
|
2
|
|
|
|
(389
|
)
|
|
|
5,082
|
|
Other (charges) gains, net
|
|
|
(18
|
)
|
|
|
(9
|
)
|
|
|
4
|
|
|
|
(91
|
)
|
|
|
(22
|
)
(3)
|
|
|
|
|
|
|
(136
|
)
|
Equity in net earnings (loss) of affiliates
|
|
|
78
|
|
|
|
1
|
|
|
|
|
|
|
|
5
|
|
|
|
15
|
|
|
|
|
|
|
|
99
|
|
Earnings (loss) from continuing operations before tax
|
|
|
114
|
|
|
|
288
|
|
|
|
89
|
|
|
|
102
|
|
|
|
(342
|
)
|
|
|
|
|
|
|
251
|
|
Depreciation and amortization
|
|
|
73
|
|
|
|
50
|
|
|
|
51
|
|
|
|
123
|
|
|
|
11
|
|
|
|
|
|
|
|
308
|
|
Capital expenditures
|
|
|
27
|
|
|
|
50
|
|
|
|
45
|
|
|
|
36
|
|
|
|
9
|
|
|
|
|
|
|
|
167
|
(2)
|
Goodwill and intangible assets
|
|
|
385
|
|
|
|
299
|
|
|
|
62
|
|
|
|
346
|
|
|
|
|
|
|
|
|
|
|
|
1,092
|
|
Total assets
|
|
|
2,268
|
|
|
|
1,083
|
|
|
|
740
|
|
|
|
1,985
|
|
|
|
2,336
|
|
|
|
|
|
|
|
8,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Adjusted (Note 31)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
1,061
|
|
|
|
1,155
|
|
|
|
1,406
|
|
|
|
3,875
|
(1)
|
|
|
2
|
|
|
|
(676
|
)
|
|
|
6,823
|
|
Other (charges) gains, net
|
|
|
(29
|
)
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
(78
|
)
|
|
|
4
|
|
|
|
|
|
|
|
(108
|
)
|
Equity in net earnings (loss) of affiliates
|
|
|
155
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
14
|
|
|
|
|
|
|
|
172
|
|
Earnings (loss) from continuing operations before tax
|
|
|
190
|
|
|
|
237
|
|
|
|
47
|
|
|
|
312
|
|
|
|
(353
|
)
|
|
|
|
|
|
|
433
|
|
Depreciation and amortization
|
|
|
76
|
|
|
|
53
|
|
|
|
62
|
|
|
|
150
|
|
|
|
9
|
|
|
|
|
|
|
|
350
|
|
Capital expenditures
|
|
|
55
|
|
|
|
49
|
|
|
|
67
|
|
|
|
86
|
|
|
|
10
|
|
|
|
|
|
|
|
267
|
(2)
|
Goodwill and intangible assets
|
|
|
398
|
|
|
|
309
|
|
|
|
73
|
|
|
|
363
|
|
|
|
|
|
|
|
|
|
|
|
1,143
|
|
Total assets
|
|
|
1,916
|
|
|
|
995
|
|
|
|
903
|
|
|
|
2,194
|
|
|
|
1,150
|
|
|
|
|
|
|
|
7,158
|
|
|
|
|
(1)
|
|
Includes $389 million, $676 million and
$660 million of intersegment sales eliminated in
consolidation for the years ended December 31, 2009, 2008
and 2007, respectively.
|
|
(2)
|
|
Excludes expenditures related to the relocation of the
Companys Ticona plant in Kelsterbach
(Note 29) and includes a decrease in accrued capital
expenditures of $9 million and $7 million for the
years ended December 31, 2009 and 2008, respectively (see
Note 25).
|
|
(3)
|
|
Includes $10 million of insurance recoveries received from
the Companys captive insurance companies related to the
Edmonton, Alberta, Canada facility that eliminates in
consolidation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineered
|
|
|
Consumer
|
|
|
Industrial
|
|
|
Acetyl
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Materials
|
|
|
Specialties
|
|
|
Specialties
|
|
|
Intermediates
|
|
|
Activities
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In $ millions)
|
|
|
As Adjusted (Note 31)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
1,030
|
|
|
|
1,111
|
|
|
|
1,346
|
|
|
|
3,615
|
(1)
|
|
|
2
|
|
|
|
(660
|
)
|
|
|
6,444
|
|
Other (charges) gains, net
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
(23
|
)
|
|
|
72
|
|
|
|
(99
|
)
(3)
|
|
|
|
|
|
|
(58
|
)
|
Equity in net earnings (loss) of affiliates
|
|
|
123
|
|
|
|
3
|
|
|
|
|
|
|
|
6
|
|
|
|
18
|
|
|
|
|
|
|
|
150
|
|
Earnings (loss) from continuing operations before tax
|
|
|
260
|
|
|
|
235
|
|
|
|
28
|
|
|
|
613
|
|
|
|
(699
|
)
|
|
|
|
|
|
|
437
|
|
Depreciation and amortization
|
|
|
69
|
|
|
|
51
|
|
|
|
59
|
|
|
|
106
|
|
|
|
6
|
|
|
|
|
|
|
|
291
|
|
Capital expenditures
|
|
|
59
|
|
|
|
43
|
|
|
|
63
|
|
|
|
130
|
|
|
|
11
|
|
|
|
|
|
|
|
306
|
(2)
|
69
|
|
|
(1)
|
|
Includes $389 million, $676 million and
$660 million of intersegment sales eliminated in
consolidation for the years ended December 31, 2009, 2008
and 2007, respectively.
|
|
(2)
|
|
Excludes expenditures related to the relocation of the
Companys Ticona plant in Kelsterbach
(Note 29) and includes a decrease in accrued capital
expenditures of $9 million and $7 million for the
years ended December 31, 2009 and 2008, respectively (see
Note 25).
|
|
(3)
|
|
Includes $35 million of insurance recoveries received from
the Companys captive insurance companies related to the
Clear Lake, Texas facility (Note 30) that eliminates
in consolidation.
|
Geographical
Segments
Revenues and noncurrent assets are presented based on the
location of the business. The following table presents net sales
based on the geographic location of the Companys
facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
(In $ millions)
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
US
|
|
|
1,262
|
|
|
|
1,719
|
|
|
|
1,754
|
|
International
|
|
|
3,820
|
|
|
|
5,104
|
|
|
|
4,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,082
|
|
|
|
6,823
|
|
|
|
6,444
|
|
Significant international net sales sources include
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany
|
|
|
1,733
|
|
|
|
2,469
|
|
|
|
2,348
|
|
China
|
|
|
460
|
|
|
|
393
|
|
|
|
182
|
|
Singapore
|
|
|
513
|
|
|
|
783
|
|
|
|
762
|
|
Belgium
|
|
|
459
|
|
|
|
478
|
|
|
|
295
|
|
Canada
|
|
|
173
|
|
|
|
276
|
|
|
|
266
|
|
Mexico
|
|
|
277
|
|
|
|
391
|
|
|
|
349
|
|
The following table presents property, plant and equipment, net
based on the geographic location of the Companys
facilities:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2009
|
|
2008
|
|
|
(In $ millions)
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
|
|
US
|
|
|
634
|
|
|
|
733
|
|
International
|
|
|
2,163
|
|
|
|
1,737
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,797
|
|
|
|
2,470
|
|
Significant international property, plant and equipment, net
sources include
|
|
|
|
|
|
|
|
|
Germany
|
|
|
1,075
|
|
|
|
682
|
|
China
|
|
|
516
|
|
|
|
493
|
|
Singapore
|
|
|
98
|
|
|
|
111
|
|
Belgium
|
|
|
27
|
|
|
|
24
|
|
Canada
|
|
|
131
|
|
|
|
117
|
|
Mexico
|
|
|
103
|
|
|
|
105
|
|
70
|
|
27.
|
Transactions
and Relationships with Affiliates and Related Parties
|
The Company is a party to various transactions with affiliated
companies. Entities in which the Company has an investment
accounted for under the cost or equity method of accounting, are
considered affiliates; any transactions or balances with such
companies are considered affiliate transactions. The following
table represents the Companys transactions with affiliates
for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
(In $ millions)
|
|
Purchases from
affiliates
(1)(2)
|
|
|
143
|
|
|
|
143
|
|
|
|
126
|
|
Sales to
affiliates
(1)
|
|
|
6
|
|
|
|
36
|
|
|
|
126
|
|
Interest income from affiliates
|
|
|
1
|
|
|
|
2
|
|
|
|
1
|
|
Interest expense to affiliates
|
|
|
1
|
|
|
|
9
|
|
|
|
7
|
|
|
|
|
(1)
|
|
Purchases and sales from/to affiliates are accounted for at
prices which, in the opinion of the Company, approximate those
charged to third-party customers for similar goods or services.
|
|
(2)
|
|
Primarily includes utilities and services purchased from
InfraServ Hoechst.
|
Refer to Note 8 for additional information related to
dividends received from affiliates.
The following table represents the Companys balances with
affiliates for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2009
|
|
2008
|
|
|
(In $ millions)
|
|
Trade and other receivables from affiliates
|
|
|
|
|
|
|
8
|
|
Current notes receivable (including interest) from affiliates
|
|
|
12
|
|
|
|
9
|
|
Noncurrent notes receivable (including interest) from affiliates
|
|
|
7
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
Total receivables from affiliates
|
|
|
19
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities due affiliates
|
|
|
15
|
|
|
|
18
|
|
Short-term borrowings from affiliates
|
|
|
85
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
Total due affiliates
|
|
|
100
|
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
The Company has agreements with certain affiliates, primarily
InfraServ entities, whereby excess affiliate cash is lent to and
managed by the Company, at variable interest rates governed by
those agreements.
For the year ended 2007, the Company made payments to the
Advisor of $7 million in accordance with the sponsor
services agreement dated January 26, 2005, as amended.
These payments were related to the sale of the oxo products and
derivatives businesses and the acquisition of APL (Note 4).
71
|
|
28.
|
Earnings
(Loss) Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Basic
|
|
|
Diluted
|
|
|
Basic
|
|
|
Diluted
|
|
|
Basic
|
|
|
Diluted
|
|
|
|
As Adjusted (Note 31)
|
|
|
|
(In $ millions, except for share and per share data)
|
|
|
Amounts attributable to Celanese Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
|
494
|
|
|
|
494
|
|
|
|
371
|
|
|
|
371
|
|
|
|
326
|
|
|
|
326
|
|
Earnings (loss) from discontinued operations
|
|
|
4
|
|
|
|
4
|
|
|
|
(90
|
)
|
|
|
(90
|
)
|
|
|
90
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
|
498
|
|
|
|
498
|
|
|
|
281
|
|
|
|
281
|
|
|
|
416
|
|
|
|
416
|
|
Less: cumulative preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
dividend
|
|
|
(10
|
)
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) available to common shareholders
|
|
|
488
|
|
|
|
498
|
|
|
|
271
|
|
|
|
281
|
|
|
|
406
|
|
|
|
416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic
|
|
|
143,688,749
|
|
|
|
143,688,749
|
|
|
|
148,350,273
|
|
|
|
148,350,273
|
|
|
|
154,475,020
|
|
|
|
154,475,020
|
|
Dilutive stock options
|
|
|
|
|
|
|
1,167,922
|
|
|
|
|
|
|
|
2,559,268
|
|
|
|
|
|
|
|
4,344,644
|
|
Dilutive restricted stock units
|
|
|
|
|
|
|
172,246
|
|
|
|
|
|
|
|
504,439
|
|
|
|
|
|
|
|
362,130
|
|
Assumed conversion of preferred stock
|
|
|
|
|
|
|
12,086,604
|
|
|
|
|
|
|
|
12,057,893
|
|
|
|
|
|
|
|
12,046,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares diluted
|
|
|
143,688,749
|
|
|
|
157,115,521
|
|
|
|
148,350,273
|
|
|
|
163,471,873
|
|
|
|
154,475,020
|
|
|
|
171,227,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
|
3.37
|
|
|
|
3.14
|
|
|
|
2.44
|
|
|
|
2.27
|
|
|
|
2.05
|
|
|
|
1.90
|
|
Earnings (loss) from discontinued operations
|
|
|
0.03
|
|
|
|
0.03
|
|
|
|
(0.61
|
)
|
|
|
(0.55
|
)
|
|
|
0.58
|
|
|
|
0.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
|
3.40
|
|
|
|
3.17
|
|
|
|
1.83
|
|
|
|
1.72
|
|
|
|
2.63
|
|
|
|
2.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following securities were not included in the computation of
diluted net earnings per share as their effect would have been
antidilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Stock options
|
|
|
2,433,515
|
|
|
|
2,298,159
|
|
|
|
336,133
|
|
Restricted stock units
|
|
|
302,635
|
|
|
|
90,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,736,150
|
|
|
|
2,388,784
|
|
|
|
336,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29.
|
Ticona
Kelsterbach Plant Relocation
|
In November 2006, the Company finalized a settlement agreement
with the Frankfurt, Germany, Airport (Fraport) to
relocate the Kelsterbach, Germany Ticona business, included in
the Advanced Engineered Materials segment, resolving several
years of legal disputes related to the planned Fraport
expansion. As a result of the settlement, the Company will
transition Ticonas operations from Kelsterbach to the
Hoechst Industrial Park in the Rhine Main area in Germany by
mid-2011. Under the original agreement, Fraport agreed to pay
Ticona a total of 670 million over a five-year period
to offset the costs associated with the transition of the
business from its current location and the closure of the
Kelsterbach plant. In February 2009, the Company announced the
Fraport supervisory board approved the acceleration of the 2009
and 2010 payments of 200 million and
140 million, respectively, required by the settlement
agreement signed in June 2007. In February 2009, the Company
received a discounted amount of 322 million
($412 million) under this
72
agreement. In addition, the Company received
59 million ($75 million) in value-added tax from
Fraport which was remitted to the tax authorities in April 2009.
In June 2008, the Company received 200 million
($311 million) from Fraport under this agreement. Amounts
received from Fraport are accounted for as deferred proceeds and
are included in noncurrent Other liabilities in the consolidated
balance sheets.
Below is a summary of the financial statement impact associated
with the Ticona Kelsterbach plant relocation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total From
|
|
|
|
Year Ended December 31,
|
|
|
Inception Through
|
|
|
|
2009
|
|
|
2008
|
|
|
December 31, 2009
|
|
|
|
(In $ millions)
|
|
|
Proceeds received from Fraport
|
|
|
412
|
|
|
|
311
|
|
|
|
749
|
|
Costs expensed
|
|
|
16
|
|
|
|
12
|
|
|
|
33
|
|
Costs capitalized
|
|
|
373
|
(1)
|
|
|
202
|
(1)
|
|
|
616
|
|
|
|
|
(1)
|
|
Includes increase in accrued capital expenditures of
$22 million and $17 million for the years ended
December 31, 2009 and 2008, respectively.
|
In May 2007, the Company announced that it had an unplanned
outage at its Clear Lake, Texas acetic acid facility. At that
time, the Company originally expected the outage to last until
the end of May. Upon restart of the facility, additional
operating issues were identified which necessitated an extension
of the outage for further, more extensive repairs. In July 2007,
the Company announced that the further repairs were unsuccessful
on restart of the unit. All repairs were completed in early
August 2007 and normal production capacity resumed. During the
years ended December 31, 2009 and 2008, the Company
recorded $6 million and $38 million, respectively, of
insurance recoveries from its reinsurers in partial satisfaction
of claims that the Company made based on losses resulting from
the outage. These insurances recoveries are included in Other
(charges) gains, net in the consolidated statements of
operations (Note 18).
In October 2008, the Company declared force majeure on its
specialty polymers products produced at its EVA Performance
Polymers facility in Edmonton, Alberta, Canada as a result of
certain events and subsequent cessation of production. The
Company replaced damaged long-lived assets during 2009. Any
contingent liabilities associated with the outage may be
mitigated by the Companys insurance policies.
Dividends
On January 5, 2010, the Company declared a cash dividend of
$0.265625 per share on its Preferred Stock amounting to
$3 million and a cash dividend of $0.04 per share on its
Series A common stock amounting to $6 million. Both
cash dividends are for the period from November 2, 2009 to
January 31, 2010 and were paid on February 1, 2010 to
holders of record as of January 15, 2010.
On April 5, 2010, the Company declared a cash dividend of
$0.04 per share on its Common Stock amounting to
$6 million. The cash dividends are for the period from
February 1, 2010 to April 30, 2010 and were paid on
May 1, 2010 to holders of record as of April 15, 2010.
On April 26, 2010, the Company announced that its Board of
Directors approved a 25% increase in the Companys
quarterly Common Stock cash dividend. The Directors increased
the quarterly dividend rate
73
from $0.04 to $0.05 per share of Common Stock on a quarterly
basis and $0.16 to $0.20 per share of Common Stock on an annual
basis. The new dividend rate is applicable to dividends payable
beginning in August 2010.
On July 1, 2010, the Company declared a cash dividend of
$0.05 per share on its Common Stock amounting to
$8 million. The cash dividends are for the period from
May 1, 2010 to July 31, 2010 and were paid on
August 2, 2010 to holders of record as of July 15,
2010.
Preferred
Stock
On February 1, 2010, the Company delivered notice to the
holders of its 4.25% Convertible Perpetual Preferred Stock
(the Preferred Stock) that it was calling for the
redemption of all 9.6 million outstanding shares of
Preferred Stock. Holders of the Preferred Stock were entitled to
convert each share of Preferred Stock into 1.2600 shares of
the Companys Series A Common Stock, par value $0.0001
per share (Common Stock), at any time prior to
5:00 p.m., New York City time, on February 19, 2010.
As of such date, holders of Preferred Stock had elected to
convert 9,591,276 shares of Preferred Stock into an
aggregate of 12,084,942 shares of Common Stock. The
8,724 shares of Preferred Stock that remained outstanding
after such conversions were redeemed by the Company on
February 22, 2010 for 7,437 shares of Common Stock, in
accordance with the terms of the Preferred Stock. In addition to
the shares of Common Stock issued in respect of the shares of
Preferred Stock converted and redeemed, the Company paid cash in
lieu of fractional shares. The Company recorded expense of less
than $1 million in 2010 in Additional paid-in capital
related to the conversion and redemption of the Preferred Stock
Treasury
Stock
During 2010, the Company repurchased a total of
1,473,492 shares of its Series A common stock at an
average purchase price of $27.82 per share for a total of
$41 million. The Company has the ability to repurchase an
additional $81 million of Series A common stock based
on the Board of Directors authorization of
$500 million.
Purchase
Obligations
During the first quarter of 2010, the Company successfully
completed an amended raw material purchase agreement with a
supplier who had filed for bankruptcy. Under the original
contract, the Company made advance payments in exchange for
preferential pricing on certain volumes of material purchases
over the life of the contract. The cancellation of the original
contract and the terms of the subsequent amendment resulted in
the Company accelerating amortization in 2010 on the unamortized
prepayment balance of $22 million. The accelerated
amortization was recorded in 2010 to Cost of sales as follows:
$20 million was recorded in the Acetyl Intermediates
segment and $2 million was recorded in the Advanced
Engineered Materials segment.
Ventures
The Company indirectly owns a 25% interest in its National
Methanol Company (Ibn Sina) affiliate through CTE
Petrochemicals Company (CTE), a joint venture with
Texas Eastern Arabian Corporation Ltd. (which also indirectly
owns 25%). The remaining interest in Ibn Sina is held by Saudi
Basic Industries Corporation (SABIC). SABIC and CTE
entered into the Ibn Sina joint venture agreement in 1981. In
April 2010, the Company announced that Ibn Sina will construct a
50,000 ton polyacetal (POM) production facility in
Saudi Arabia and that the term of the joint venture agreement
was extended until 2032. Upon
74
successful startup of the POM facility, the Companys
indirect economic interest in Ibn Sina will increase from 25% to
32.5%. SABICs economic interest will remain unchanged.
In connection with this transaction, the Company reassessed the
factors surrounding the accounting method for this investment
and changed the accounting from the cost method of accounting
for investments to the equity method of accounting for
investments beginning April 1, 2010. Financial information
relating to this investment for prior periods has been
retrospectively adjusted to apply the equity method of
accounting. Effective April 1, 2010, the Company moved its
investment in the Ibn Sina affiliate from its Acetyl
Intermediates segment to its Advanced Engineered Materials
segment to reflect the change in the affiliates business
dynamics and growth opportunities as a result of the future
construction of the POM facility. Business segment information
for prior periods included in Note 26 has been
retrospectively adjusted to reflect the change.
The retrospective effect of applying the equity method of
accounting to this investment to the consolidated statements of
operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
As
|
|
|
As Adjusted for
|
|
|
Effect
|
|
|
As
|
|
|
As Adjusted for
|
|
|
Effect
|
|
|
As
|
|
|
As Adjusted for
|
|
|
Effect
|
|
|
|
Originally
|
|
|
Retrospective
|
|
|
of
|
|
|
Originally
|
|
|
Retrospective
|
|
|
of
|
|
|
Originally
|
|
|
Retrospective
|
|
|
of
|
|
|
|
Reported
|
|
|
Application
|
|
|
Change
|
|
|
Reported
|
|
|
Application
|
|
|
Change
|
|
|
Reported
|
|
|
Application
|
|
|
Change
|
|
|
|
(In $ millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in net earnings (loss) of affiliates
|
|
|
48
|
|
|
|
99
|
|
|
|
51
|
|
|
|
54
|
|
|
|
172
|
|
|
|
118
|
|
|
|
82
|
|
|
|
150
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend income cost investments
|
|
|
98
|
|
|
|
57
|
|
|
|
(41
|
)
|
|
|
167
|
|
|
|
48
|
|
|
|
(119
|
)
|
|
|
116
|
|
|
|
38
|
|
|
|
(78
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before tax
|
|
|
241
|
|
|
|
251
|
|
|
|
10
|
|
|
|
434
|
|
|
|
433
|
|
|
|
(1
|
)
|
|
|
447
|
|
|
|
437
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
|
484
|
|
|
|
494
|
|
|
|
10
|
|
|
|
371
|
|
|
|
370
|
|
|
|
(1
|
)
|
|
|
337
|
|
|
|
327
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
|
488
|
|
|
|
498
|
|
|
|
10
|
|
|
|
281
|
|
|
|
280
|
|
|
|
(1
|
)
|
|
|
427
|
|
|
|
417
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Celanese Corporation
|
|
|
488
|
|
|
|
498
|
|
|
|
10
|
|
|
|
282
|
|
|
|
281
|
|
|
|
(1
|
)
|
|
|
426
|
|
|
|
416
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) available to common shareholders
|
|
|
478
|
|
|
|
488
|
|
|
|
10
|
|
|
|
272
|
|
|
|
271
|
|
|
|
(1
|
)
|
|
|
416
|
|
|
|
406
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
3.30
|
|
|
|
3.37
|
|
|
|
0.07
|
|
|
|
2.44
|
|
|
|
2.44
|
|
|
|
-
|
|
|
|
2.11
|
|
|
|
2.05
|
|
|
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations
|
|
|
0.03
|
|
|
|
0.03
|
|
|
|
-
|
|
|
|
(0.61
|
)
|
|
|
(0.61
|
)
|
|
|
-
|
|
|
|
0.58
|
|
|
|
0.58
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) basic
|
|
|
3.33
|
|
|
|
3.40
|
|
|
|
0.07
|
|
|
|
1.83
|
|
|
|
1.83
|
|
|
|
-
|
|
|
|
2.69
|
|
|
|
2.63
|
|
|
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
3.08
|
|
|
|
3.14
|
|
|
|
0.06
|
|
|
|
2.28
|
|
|
|
2.27
|
|
|
|
(0.01
|
)
|
|
|
1.96
|
|
|
|
1.90
|
|
|
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations
|
|
|
0.03
|
|
|
|
0.03
|
|
|
|
-
|
|
|
|
(0.55
|
)
|
|
|
(0.55
|
)
|
|
|
-
|
|
|
|
0.53
|
|
|
|
0.53
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) diluted
|
|
|
3.11
|
|
|
|
3.17
|
|
|
|
0.06
|
|
|
|
1.73
|
|
|
|
1.72
|
|
|
|
(0.01
|
)
|
|
|
2.49
|
|
|
|
2.43
|
|
|
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
The retrospective effect of applying the equity method of
accounting to this investment to the consolidated balance sheet
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
As
|
|
|
As Adjusted for
|
|
|
Effect
|
|
|
As
|
|
|
As Adjusted for
|
|
|
Effect
|
|
|
|
Originally
|
|
|
Retrospective
|
|
|
of
|
|
|
Originally
|
|
|
Retrospective
|
|
|
of
|
|
|
|
Reported
|
|
|
Application
|
|
|
Change
|
|
|
Reported
|
|
|
Application
|
|
|
Change
|
|
|
|
(In $ millions)
|
|
|
Investments in affiliates
|
|
|
790
|
|
|
|
792
|
|
|
|
2
|
|
|
|
789
|
|
|
|
781
|
|
|
|
(8
|
)
|
Total assets
|
|
|
8,410
|
|
|
|
8,412
|
|
|
|
2
|
|
|
|
7,166
|
|
|
|
7,158
|
|
|
|
(8
|
)
|
Retained earnings
|
|
|
1,502
|
|
|
|
1,505
|
|
|
|
3
|
|
|
|
1,047
|
|
|
|
1,040
|
|
|
|
(7
|
)
|
Accumulated other comprehensive income (loss), net
|
|
|
(659
|
)
|
|
|
(660
|
)
|
|
|
(1
|
)
|
|
|
(579
|
)
|
|
|
(580
|
)
|
|
|
(1
|
)
|
Total Celanese Corporation shareholders equity
|
|
|
584
|
|
|
|
586
|
|
|
|
2
|
|
|
|
182
|
|
|
|
174
|
|
|
|
(8
|
)
|
Total shareholders equity
|
|
|
584
|
|
|
|
586
|
|
|
|
2
|
|
|
|
184
|
|
|
|
176
|
|
|
|
(8
|
)
|
Total liabilities and shareholders equity
|
|
|
8,410
|
|
|
|
8,412
|
|
|
|
2
|
|
|
|
7,166
|
|
|
|
7,158
|
|
|
|
(8
|
)
|
The retrospective effect of applying the equity method of
accounting to this investment to the consolidated statement of
cash flows is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
As
|
|
|
As Adjusted for
|
|
|
Effect
|
|
|
As
|
|
|
As Adjusted for
|
|
|
Effect
|
|
|
As
|
|
|
As Adjusted for
|
|
|
Effect
|
|
|
|
Originally
|
|
|
Retrospective
|
|
|
of
|
|
|
Originally
|
|
|
Retrospective
|
|
|
of
|
|
|
Originally
|
|
|
Retrospective
|
|
|
of
|
|
|
|
Reported
|
|
|
Application
|
|
|
Change
|
|
|
Reported
|
|
|
Application
|
|
|
Change
|
|
|
Reported
|
|
|
Application
|
|
|
Change
|
|
|
|
(In $ millions)
|
|
|
Net earnings (loss)
|
|
|
488
|
|
|
|
498
|
|
|
|
10
|
|
|
|
281
|
|
|
|
280
|
|
|
|
(1
|
)
|
|
|
427
|
|
|
|
417
|
|
|
|
(10
|
)
|
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
22
|
|
|
|
12
|
|
|
|
(10
|
)
|
|
|
36
|
|
|
|
37
|
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
8
|
|
|
|
10
|
|
76
The retrospective effect of applying the equity method of
accounting to this investment to the business segment financial
information (Note 26) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
As Adjusted
|
|
|
|
|
|
2008
|
|
|
|
|
|
As Adjusted
|
|
|
|
|
|
|
As
|
|
|
for
|
|
|
Effect
|
|
|
As
|
|
|
As Adjusted for
|
|
|
Effect
|
|
|
As
|
|
|
for
|
|
|
Effect
|
|
|
|
Originally
|
|
|
Retrospective
|
|
|
of
|
|
|
Originally
|
|
|
Retrospective
|
|
|
of
|
|
|
Originally
|
|
|
Retrospective
|
|
|
of
|
|
|
|
Reported
|
|
|
Application
|
|
|
Change
|
|
|
Reported
|
|
|
Application
|
|
|
Change
|
|
|
Reported
|
|
|
Application
|
|
|
Change
|
|
|
|
(In $ millions)
|
|
|
Advanced Engineered Materials Earnings (loss) from continuing
operations before tax
|
|
|
62
|
|
|
|
114
|
|
|
|
52
|
|
|
|
69
|
|
|
|
190
|
|
|
|
121
|
|
|
|
189
|
|
|
|
260
|
|
|
|
71
|
|
Acetyl Intermediates Earnings (loss) from continuing operations
before tax
|
|
|
144
|
|
|
|
102
|
|
|
|
(42
|
)
|
|
|
434
|
|
|
|
312
|
|
|
|
(122
|
)
|
|
|
694
|
|
|
|
613
|
|
|
|
(81
|
)
|
Plant
Closures
In April 2010, the Company announced it was considering a plan
to consolidate its global acetate manufacturing capabilities by
proposing the closure of its acetate flake and tow manufacturing
operations in Spondon, Derby, United Kingdom. The consolidation
is designed to strengthen the Companys competitive
position, reduce fixed costs and align future production
capacities with anticipated industry demand trends. The
consolidation is also driven by a global shift in product
consumption. The Company would expect to serve its acetate
customers under this proposal by optimizing its global
production network, which includes facilities in Lanaken,
Belgium; Narrows, Virginia; and Ocotlan, Mexico, as well as the
Companys acetate affiliate facilities in China.
During the first quarter of 2010, the Company concluded that
certain long-lived assets of the Spondon, Derby, United Kingdom
facility were partially impaired. Accordingly, in 2010 the
Company recorded long-lived asset impairment losses of
$72 million to Other (charges) gains, net. The Spondon,
Derby, United Kingdom facility is included in the Consumer
Specialties segment.
On August 24, 2010 the Company announced it had concluded
it will consolidate its global acetate manufacturing
capabilities by closing its acetate flake and tow manufacturing
operations in Spondon, Derby, United Kingdom. The Company has
been consulting with employees and their representatives since
the announced proposed cessation of operations at the Spondon
plant made on April 27, 2010. These consultations did not
result in a demonstrated basis for viable continuing operations
for acetate flake and tow operations at the site and therefore,
the Company intends to cease operations in the latter part of
2011.
Acquisitions
On May 5, 2010, the Company acquired two product lines,
Zenite
®
liquid crystal polymer (LCP) and
Thermx
®
polycyclohexylene-dimethylene terephthalate (PCT),
from DuPont Performance Polymers. The acquisition will continue
to build upon the Companys position as a global supplier
of high performance materials and technology-driven
applications. These two product lines broaden the Companys
Ticona Engineering Polymers offerings within its Advanced
Engineered Materials segment, enabling the Company to respond to
a globalizing customer base, especially in the high growth
electrical and electronics application markets. Pro forma
financial information since the acquisition date has not been
provided as the acquisition
77
did not have a material impact on the Companys financial
information. During 2010, the Company incurred $1 million
in direct transaction costs as a result of this acquisition.
The Company allocated the purchase price of the acquisition to
identifiable intangible assets acquired based on their estimated
fair values. The excess of purchase price over the aggregate
fair values was recorded as goodwill. Intangible assets were
valued using the relief from royalty and discounted cash flow
methodologies which are considered a Level 3 measurement
under FASB ASC Topic 820. The relief from royalty method
estimates the Companys theoretical royalty savings from
ownership of the intangible asset. Key assumptions used in this
model include discount rates, royalty rates, growth rates, sales
projections and terminal value rates. Discount rates, royalty
rates, growth rates and sales projections are the assumptions
most sensitive and susceptible to change as they require
significant management judgment. The key assumptions used in the
discounted cash flow valuation model include discount rates,
growth rates, cash flow projections and terminal value rates.
Discount rates, growth rates and cash flow projections are the
most sensitive and susceptible to change as they require
significant management judgment. The Company, with the
assistance of third-party valuation consultants, calculated the
fair value of the intangible assets acquired to allocate the
purchase price at the respective acquisition date.
The consideration paid for the product lines and the amounts of
the intangible assets acquired recognized at the acquisition
date are as follows:
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average Life
|
|
|
|
|
|
|
(In years)
|
|
|
(In $ millions)
|
|
|
Cash consideration
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
Intangible assets acquired
|
|
|
|
|
|
|
|
|
Trademarks and trade names
|
|
|
indefinite
|
|
|
|
9
|
|
Developed technology
|
|
|
10
|
|
|
|
7
|
|
Covenant not to compete and other
|
|
|
3
|
|
|
|
11
|
|
Customer-related intangible assets
|
|
|
10
|
|
|
|
6
|
|
Goodwill
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
In connection with the acquisition, the Company has committed to
purchase certain inventory at a future date valued at a range
between $12 million and $17 million.
Commitments
and Contingencies
During 2010, the following litigation matters
(Note 24) were updated to reflect new facts: Polyester
Staple Antitrust Litigation; Award Proceedings in relation to
Domination Agreement and Squeeze-Out; and Purchase Obligations.
Interest
Rate Risk Management
On August 27, 2010 the Company executed an interest rate
swap with a notional amount of $1.1 billion. As a result of
the swap, the Company has fixed the LIBOR portion of
$1.1 billion of the Companys floating rate debt at
1.7125% effective January 2, 2012 through January 2,
2014.
78
Debt
Refinancing
On September 7, 2010, the Company announced it is in the
process of issuing $400 million of senior unsecured notes
due in 2018 (the Notes) through its wholly-owned
subsidiary Celanese US. The Notes will be senior unsecured
obligations of Celanese US and the Company. The proceeds from
this offering will be used for general corporate purposes,
including the repayment of existing senior secured credit
facility indebtedness. In connection with this offering, the
Company is seeking to amend its existing senior credit facility,
which consists of $2,280 million of US dollar denominated
and 400 million of Euro-denominated term loans due in
2014, a $600 million revolving credit facility terminating
in 2013 and a $228 million credit-linked revolving facility
terminating in 2014. The proposed amendment would, among other
things, amend certain terms and conditions of the credit
facilities and extend the maturity of portions of the
facilities. The proposed transaction would extend (i) the
maturity of a portion of the existing term loan to October 2016
and (ii) the maturity of a portion of the existing
revolving credit facility to October 2015. The Company also
intends to repay approximately $200 million of its term
loans using cash on hand. The extended facilities will be
subject to modified interest rates.
79
Exhibit 99.2
BUSINESS
Overview
We are a leading global technology and specialty materials
company. We are one of the worlds largest producers of
acetyl products, which are intermediate chemicals, for nearly
all major industries, as well as a leading global producer of
high performance engineered polymers that are used in a variety
of high-value end-use applications. As a recognized innovator in
the chemicals industry, we engineer and manufacture a wide
variety of products essential to everyday living. Our broad
product portfolio serves a diverse set of end-use markets
including paints and coatings, textiles, automotive
applications, consumer and medical applications, performance
industrial applications, filter media, paper and packaging,
chemical additives, construction, consumer and industrial
adhesives, and food and beverage applications. Our products,
enjoy leading global positions due to our large share of global
production capacity, operating efficiencies, proprietary
production technology and competitive cost structures.
Our large and diverse global customer base consists of major
companies in a broad array of industries. We hold geographically
balanced global positions and participate in diversified end-use
applications. We combine a demonstrated track record of
execution, strong performance built on shared principles and
objectives, and a clear focus on growth and value creation.
Known for operational excellence and execution of our business
strategies, we deliver value to customers around the globe with
best-in-class
technologies.
Based in Dallas, Texas, our operations are primarily located in
North America, Europe and Asia and consist of 29 global
production facilities (39, including our affiliates) and, as of
June 30, 2010, employ approximately 7,200 employees
worldwide. For the twelve months ended June 30, 2010, we
generated net sales of $5,597 million and Operating EBITDA
of $1,042 million. The following charts present a
percentage of share breakdown of net sales and Operating EBITDA
by segment and net sales by region, in each case for the twelve
months ended June 30, 2010.
|
|
|
|
|
Net Sales by Business
Segment
(1)(2)
|
|
Operating EBITDA by Business
Segment
(2)
|
|
Net Sales by Region
(1)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Excludes $386 million of intersegment sales eliminated in
consolidation.
|
|
(2)
|
|
Excludes our Other Activities segment.
|
1
Business
Segments
We operate principally through four business segments: Advanced
Engineered Materials, Consumer Specialties, Industrial
Specialties and Acetyl Intermediates. The table below
illustrates each business segments net sales for the
twelve months ended June 30, 2010, as well as each business
segments major products and end-use applications.
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered
|
|
|
|
|
|
|
|
|
Materials
|
|
Consumer Specialties
|
|
Industrial Specialties
|
|
Acetyl Intermediates
|
|
LTM June 30, 2010 Net
Sales
(1)
|
|
$1,023 million
|
|
$1,057 million
|
|
$976 million
|
|
$2,539 million
|
Key Products
|
|
Polyacetal products (POM)
Polyphenylene sulfide
(PPS)
Polybutylene terephthalate
(PBT)
Long-fiber reinforced thermoplastics
(LFT)
Ultra-high molecular weight polyethylene
(GUR
®
)
Liquid crystal polymers (LCP)
|
|
Acetate tow
Acetate flake
Sunett
®
sweetener
Sorbates
|
|
Conventional emulsions
Vinyl acetate ethylene emulsions
(VAE)
Low-density polyethylene resins
(LDPE)
Ethylene vinyl acetate (EVA)
resins and compounds
|
|
Acetic acid
Vinyl acetate
monomer (VAM)
Acetic anhydride
Acetaldehyde
Ethyl acetate
Butyl acetate
Formaldehyde
|
|
|
|
|
|
|
|
|
|
Major End-Use
Applications
|
|
Fuel system
components
|
|
Filter products
|
|
Photovoltaic cell
systems
|
|
Paints
Coatings
|
|
|
Conveyor systems
|
|
Beverages
|
|
Paints
|
|
Adhesives
|
|
|
Battery separators
|
|
Confections
|
|
Coatings
|
|
Lubricants
|
|
|
Electronics
|
|
Baked goods
|
|
Adhesives
|
|
Pharmaceuticals
|
|
|
Automotive safety
systems
|
|
|
|
Textiles
|
|
Films
|
|
|
Appliances
|
|
|
|
Paper finishing
|
|
Textiles
|
|
|
Electronics
|
|
|
|
Flexible packaging
|
|
Inks
|
|
|
Filtrations
|
|
|
|
Lamination products
|
|
Plasticizers
|
|
|
Medical devices
|
|
|
|
Medical tubing
|
|
Esters
|
|
|
Telecommunications
|
|
|
|
Automotive parts
|
|
Solvents
|
|
|
|
(1)
|
|
Consolidated net sales of $5,597 million for the twelve
months ended June 30, 2010 also includes $2 million in
net sales from Other Activities, which is attributable to our
captive insurance companies. Net Sales for Consumer Specialties
and Acetyl Intermediates excludes inter-segment sales of
$386 million for the twelve months ended June 30, 2010.
|
Advanced
Engineered Materials
Our Advanced Engineered Materials segment develops, produces and
supplies a broad portfolio of high performance technical
polymers for application in automotive and electronics products,
as well as other consumer and industrial applications. Together
with our strategic affiliates, we are a leading participant in
the global technical polymers industry. The primary products of
Advanced Engineered Materials are POM, PPS, PBT, LFT,
GUR
®
and LCP. These materials are used in a broad range of products
including automotive components, electronics, appliances and
industrial applications.
GUR
®
is used in battery separators, conveyor
2
belts, filtration equipment, coatings and medical devices.
Primary end uses for LCP are electrical and electronics.
Advanced Engineered Materials technical polymers have
chemical and physical properties enabling them, among other
things, to withstand extreme temperatures, resist chemical
reactions with solvents and withstand fracturing or stretching.
These products are used in a wide range of performance-demanding
applications in the automotive and electronics sectors as well
as in other consumer and industrial goods.
Advanced Engineered Materials works in concert with its
customers to enable innovations and develop new or enhanced
products. Advanced Engineered Materials focuses its efforts on
developing new markets and applications for its product lines,
often developing custom formulations to satisfy the technical
and processing requirements of a customers applications.
For example, Advanced Engineered Materials has collaborated with
fuel system suppliers to develop an acetal copolymer with the
chemical and impact resistance necessary to withstand exposure
to hot diesel fuels in the new generation of common rail diesel
engines. The product can also be used in automotive fuel sender
units where it remains stable at the high operating temperatures
present in direct-injection diesel engines and can meet the
requirements of the new generation of biofuels.
Prices for most of these products, particularly specialized
product grades for targeted applications, generally reflect the
value added in complex polymer chemistry, precision formulation
and compounding, and the extensive application development
services provided. These specialized products are not typically
susceptible to cyclical swings in pricing.
Sales from the Advanced Engineered Materials business
represented 16%, 15% and 16% of our consolidated net sales for
the years ended December 31, 2009, 2008 and 2007,
respectively. Operating EBITDA from the Advanced Engineered
Materials business represented 20%, 23% and 23% of our total
Operating EBITDA (excluding the Other Activities segment) for
the years ended December 31, 2009, 2008, and 2007,
respectively. Sales from the Advanced Engineered Materials
business represented 18% of our consolidated net sales for the
twelve months ended June 30, 2010. Operating EBITDA from
the Advanced Engineering Materials business represented 30% of
our total operating EBITDA (excluding the Other Activities
segment) for the twelve months ended June 30, 2010.
Key
Products
POM.
Also known in the chemical industry as
polyoxymethylene or polyacetal, POM is sold under the trademark
Hostaform
®
in all regions but North America, where it is sold under the
trademark
Celcon
®
.
Polyplastics and KEPCO are leading suppliers of POM and other
engineering resins in the Asia-Pacific region. POM is used for
mechanical parts, including door locks and seat belt mechanisms,
in automotive applications and in electrical, consumer and
medical applications such as drug delivery systems and gears for
large appliances. POM, and other engineering resins, are
manufactured in the Asia-Pacific region by PolyPlastics, our
45%-owned strategic venture and KEPCO, our 50%-owned strategic
venture.
The primary raw material for POM is formaldehyde, which is
manufactured from methanol. Advanced Engineered Materials
currently purchases formaldehyde in the United States from our
Acetyl Intermediates segment and, in Europe, manufactures
formaldehyde from purchased methanol.
Our strategic joint venture in Saudi Arabia, known as National
Methanol Company or Ibn Sina, produces methanol and
methyl tertiary-butyl ether (MTBE). We recently
announced the extension of our Ibn Sina joint venture, including
the construction of a new 50,000 ton POM manufacturing facility
in Saudi Arabia. Engineering and construction on the facility is
expected to begin in 2010.
3
LFT.
Celstran
®
and
Compel
®
are long-fiber reinforced thermoplastics, which impart extra
strength and stiffness, making them more suitable for larger
parts than conventional thermoplastics and both products are
used in automotive, transportation and industrial applications.
GUR
®
.
A
highly engineered material designed for heavy-duty automotive
and industrial applications, GUR is used in items such as car
battery separator panels, industrial conveyor belts and
specialty medical and consumer applications, such as sports
equipment and prostheses.
GUR
®
micro powder grades are used for high-performance filters,
membranes, diagnostic devices, coatings and additives for
thermoplastics and elastomers.
GUR
®
fibers are also used in protective ballistic applications.
Polyesters.
Our products also include certain
polyesters such as
Celanex
®
PBT,
Celanex
®
PET,
Vandar
®
,
a series of PBT-polyester blends and
Riteflex
®
,
a thermoplastic polyester elastomer, used in both a wide variety
of automotive, electrical and consumer applications, including
ignition system parts, radiator grilles, electrical switches,
appliance and sensor housings, LEDs and technical fibers. Raw
materials for polyesters vary. Base monomers, such as dimethyl
terephthalate and PTA, are widely available with pricing
dependent on broader polyester fiber and packaging resins market
conditions. Smaller volume specialty co-monomers for these
products are typically supplied by a limited number of companies.
Liquid crystal polymers, such as
Vectra
®
and
Zenite
®
,
are used in electrical and electronics applications and for
precision parts with thin walls and complex shapes or in high
heat cookware applications.
Fortron
®
,
a PPS product, is used in a wide variety of automotive and other
applications, especially those requiring heat
and/or
chemical resistance, including fuel system parts, radiator pipes
and halogen lamp housings, often replacing metal. Other possible
application fields include non-woven filtration devices such as
coal fired power plants.
Fortron
®
is manufactured by Fortron Industries LLC (Fortron),
Advanced Engineered Materials 50%-owned strategic venture
with Kureha Corporation of Japan.
Facilities
Between Advanced Engineered Materials and its affiliates, we
have polymerization, compounding and research and technology
centers in Germany, Brazil, China, South Korea, Japan, the
United States and Saudi Arabia.
4
Geographic
Regions
The following table illustrates the destination of the net sales
of the Advanced Engineered Materials segment by geographic
region.
Net Sales
to External Customers by DestinationAdvanced Engineered
Materials
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
$
|
|
|
Segment
|
|
|
$
|
|
|
Segment
|
|
|
$
|
|
|
Segment
|
|
|
|
(Dollars in millions)
|
|
|
North America
|
|
$
|
285
|
|
|
|
35
|
%
|
|
$
|
365
|
|
|
|
34
|
%
|
|
$
|
388
|
|
|
|
38
|
%
|
Europe and Africa
|
|
|
403
|
|
|
|
50
|
%
|
|
|
553
|
|
|
|
52
|
%
|
|
|
517
|
|
|
|
50
|
%
|
Asia-Pacific
|
|
|
82
|
|
|
|
10
|
%
|
|
|
106
|
|
|
|
10
|
%
|
|
|
88
|
|
|
|
8
|
%
|
South America
|
|
|
38
|
|
|
|
5
|
%
|
|
|
37
|
|
|
|
4
|
%
|
|
|
37
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
808
|
|
|
|
|
|
|
$
|
1,061
|
|
|
|
|
|
|
$
|
1,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered Materials sales in Asia are made
directly and through distributors including its strategic
affiliates. Polyplastics, KEPCO and Fortron are accounted for
under the equity method and therefore not included in Advanced
Engineered Materials consolidated net sales.
Customers
Advanced Engineered Materials principal customers are
consumer product and medical device manufacturers, as well as
suppliers to the automotive industry. Because of the highly
engineered nature of the end products, Advanced Engineered
Materials collaborates with its customers to assist in
developing and improving specialized applications and systems.
Advanced Engineered Materials has strong and long-standing
relationships with the majority of its customers, and also uses
distributors and electronic marketplaces for its major products,
in order to reach a larger customer base. For most of Advanced
Engineered Materials products, contracts with customers
typically have a term of one to two years.
Competition
Advanced Engineered Materials principal competitors
include BASF AG (BASF), E. I. DuPont de Nemours and
Company (DuPont), DSM N.V., Sabic Innovative
Plastics and Solvay S.A. Other regional competitors include
Asahi Kasei Corporation, Mitsubishi Gas Chemicals, Inc., Chevron
Phillips Chemical Company, L.P., Braskem S.A., Lanxess AG,
Teijin, Sumitomo, Inc. and Toray Industries Inc.
Consumer
Specialties
The Consumer Specialties segment is comprised of our Acetate
Products and Nutrinova businesses. Our Acetate Products business
primarily produces and supplies acetate tow, which is used in
the production of filtration products. We also produce acetate
flake, which is processed into acetate fiber in the form of a
tow band. Our Nutrinova business produces and sells
Sunett
®
,
a high intensity sweetener, and food protection ingredients,
such as sorbates, for the food, beverage and pharmaceutical
industries.
5
Sales from the Consumer Specialties business represented 21%,
17% and 17% of our consolidated net sales for the years ended
December 31, 2009, 2008 and 2007, respectively. Operating
EBITDA from the Consumer Specialties business represented 36%,
24% and 20% of our total Operating EBITDA (excluding the Other
Activities segment) for the years ended December 31, 2009,
2008, and 2007, respectively. Sales from the Consumer
Specialties business represented 19% of our consolidated net
sales for the twelve months ended June 30, 2010. Operating
EBITDA from the Consumer Specialties business represented 30% of
our total Operating EBITDA (excluding the Other Activities
segment) for the twelve months ended June 30, 2010.
Key
Products
Acetate flake and tow.
According to the 2009
Stanford Research Institute International Chemical Economics
Handbook, as of 2008 we were the worlds leading producer
of acetate tow, (inclusive of the production of our China
ventures). Acetate tow is used primarily in cigarette filters.
To produce acetate tow, we first produce acetate flake by
processing wood pulp with acetic acid and acetic anhydride. The
wood pulp comes from reforested trees and is purchased on the
open market, and the acetic acid and acetic anhydride is an
intermediate we produce internally from acetic acid. The acetate
flake is then further processed into acetate fiber in the form
of a tow band.
We have an approximate 30% interest in three manufacturing
ventures in China that produce acetate flake and tow. Our
partner in each of the ventures is the Chinese state-owned
tobacco entity, China National Tobacco Corporation. In addition
to being our production partner, China National Tobacco
accounted for approximately 12% of our 2009 acetate tow sales.
Sunett sweetener.
Acesulfame potassium, a high
intensity sweetener marketed under the trademark
Sunett
®
,
is used in a variety of beverages, confections and dairy
products throughout the world.
Sunett
®
pricing for targeted applications reflects the value added by
Nutrinova, through consistent product quality and reliable
supply. Nutrinovas strategy is to be the most reliable and
highest quality producer of this product, to develop new product
applications and expand into new segments.
Nutrinovas food ingredients business consists of the
production and sale of food protection ingredients, such as
sorbic acid and sorbates, and high intensity sweeteners
worldwide. Nutrinovas food protection ingredients are
mainly used in foods, beverages and personal care products. The
primary raw materials for these products are ketene and
crotonaldehyde. Sorbates pricing is extremely sensitive to
demand and industry capacity and is not necessarily dependent on
the prices of raw materials.
Facilities
Acetate Products has production sites in the United States,
Mexico, the United Kingdom and Belgium, and participates in
three manufacturing ventures in China. We recently announced the
shutdown of our acetate tow and flake manufacturing operations
at our Spondon, United Kingdom site. We will continue to
maintain our Clarifoil manufacturing operations at this site.
Nutrinova has a production facility in Germany, as well as sales
and distribution facilities in all major regions of the world.
6
Geographic
Regions
The following table illustrates the destination of the net sales
of the Consumer Specialties segment by geographic region.
Net Sales
to External Customers by DestinationConsumer
Specialties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
$
|
|
|
Segment
|
|
|
$
|
|
|
Segment
|
|
|
$
|
|
|
Segment
|
|
|
|
(Dollars in millions)
|
|
|
North America
|
|
$
|
176
|
|
|
|
16
|
%
|
|
$
|
194
|
|
|
|
17
|
%
|
|
$
|
201
|
|
|
|
18
|
%
|
Europe and Africa
|
|
|
452
|
|
|
|
42
|
%
|
|
|
497
|
|
|
|
43
|
%
|
|
|
427
|
|
|
|
39
|
%
|
Asia-Pacific
|
|
|
402
|
|
|
|
37
|
%
|
|
|
413
|
|
|
|
36
|
%
|
|
|
437
|
|
|
|
39
|
%
|
South America
|
|
|
48
|
|
|
|
5
|
%
|
|
|
51
|
|
|
|
4
|
%
|
|
|
46
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,078
|
(1)
|
|
|
|
|
|
$
|
1,155
|
|
|
|
|
|
|
$
|
1,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Excludes inter-segment sales of $6 million for the year
ended December 31, 2009.
|
Sales of acetate tow are principally to the major tobacco
companies that account for a majority of worldwide cigarette
production. Our contracts with most of our customers are entered
into on an annual basis.
Nutrinova primarily markets
Sunett
®
to a limited number of large multinational and regional
customers in the beverage and food industry under long-term and
annual contracts. Nutrinova markets food protection ingredients
primarily through regional distributors to small and medium
sized customers and directly through regional sales offices to
large multinational customers in the food industry.
Competition
Acetate Products principal competitors include Daicel
Chemical Industries Ltd. (Daicel), Eastman Chemical
Corporation (Eastman) and Rhodia S.A.
The principal competitors for Nutrinovas
Sunett
®
sweetener are Holland Sweetener Company, The NutraSweet Company,
Ajinomoto Co., Inc., Tate & Lyle PLC and several
Chinese manufacturers. In sorbates, Nutrinova competes with
Nantong AA, Daicel, Yu Yao/Ningbo, Yancheng AmeriPac and other
Chinese manufacturers of sorbates.
Industrial
Specialties
Our Industrial Specialties segment is comprised of our Emulsions
and EVA Performance Polymers businesses and is a leading
producer of environmentally sensitive, low VOC emulsion
applications. Our emulsions products are used in a wide array of
applications including paints and coatings, adhesives,
construction, glass fiber, textiles and paper. EVA Performance
Polymers offers a complete line of low-density polyethylene and
specialty EVA resins and compounds used in many applications
including flexible packaging films, lamination film products,
hot melt adhesives, medical devices and tubing, automotive,
carpeting and solar cell encapsulation films. EVA resins and
compounds are produced in high-pressure reactors from ethylene
and VAM.
7
Primary raw materials for our emulsions and EVA products are VAM
and ethylene, which is produced by our Acetyl Intermediates
business, and ethylene, which we purchase externally from a
variety of sources.
Sales from the Industrial Specialties business represented 19%,
21% and 21% of our consolidated net sales for the years ended
December 31, 2009, 2008 and 2007, respectively. Operating
EBITDA from the Industrial Specialties business represented 11%,
9% and 9% of our total Operating EBITDA (excluding the Other
Activities segment) for the years ended December 31, 2009,
2008, and 2007, respectively. Sales from the Industrial
Specialties business represented 18% of our consolidated net
sales for the twelve months ended June 30, 2010. Operating
EBITDA from the Industrial Specialties business represented 8%
of our total Operating EBITDA (excluding the Other Activities
segment) for the twelve months ended June 30, 2010.
Key
Products
The products in our Emulsions business include conventional
vinyl- and acrylate-based emulsions and high-pressure VAE.
Emulsions are made from VAM, acrylate esters and ethylene. Our
Emulsions business is a leading producer of VAE in Europe. These
products are a key component of water-based architectural
coatings, adhesives, non-wovens, textiles, glass fiber and other
applications.
EVA Performance Polymers produces low-density polyethylene and
EVA resins and compounds that are used in the manufacture of hot
melt adhesives, automotive carpet, lamination film products,
flexible packaging films, medical tubing and solar cell
encapsulation films. EVA resins and compounds are produced in
high-pressure reactors from ethylene and VAM.
Facilities
The Emulsions business has production sites in the United
States, Canada, China, Spain, Sweden, the Netherlands and
Germany. EVA Performance Polymers has a production facility in
Edmonton, Alberta, Canada.
Geographic
Regions
The following table illustrates the destination of the net sales
of the Industrial Specialties segment by geographic region.
Net Sales
to External Customers by DestinationIndustrial
Specialties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
$
|
|
|
Segment
|
|
|
$
|
|
|
Segment
|
|
|
$
|
|
|
Segment
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
North America
|
|
$
|
382
|
|
|
|
39
|
%
|
|
$
|
617
|
|
|
|
44
|
%
|
|
$
|
583
|
|
|
|
43
|
%
|
Europe and Africa
|
|
|
504
|
|
|
|
52
|
%
|
|
|
684
|
|
|
|
48
|
%
|
|
|
674
|
|
|
|
50
|
%
|
Asia-Pacific
|
|
|
78
|
|
|
|
8
|
%
|
|
|
81
|
|
|
|
6
|
%
|
|
|
69
|
|
|
|
5
|
%
|
South America
|
|
|
10
|
|
|
|
1
|
%
|
|
|
24
|
|
|
|
2
|
%
|
|
|
20
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
974
|
|
|
|
|
|
|
$
|
1,406
|
|
|
|
|
|
|
$
|
1,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
Customers
Industrial Specialties products are sold to a diverse
group of regional and multinational customers, typically
manufacturers of water-based paints and coatings, adhesives,
paper, building and construction products, glass fiber,
non-wovens and textiles. EVA Performance Polymers
customers are primarily manufacturers of adhesives, automotive
components, packaging materials, print media and solar energy
products.
Competition
Principal competitors in the Emulsions business include The Dow
Chemical Company (Dow), BASF, Dairen, Wacker and
several smaller regional manufacturers. Principal competitors
for the EVA Performance Polymers resins and compounds business
include DuPont, ExxonMobil Chemical, Arkema and several Asian
manufacturers.
Acetyl
Intermediates
Our Acetyl Intermediates segment produces and supplies acetyl
products, including acetic acid, VAM, acetic anhydride and
acetate esters. These products are generally used as starting
materials for colorants, paints, adhesives, coatings, and
medicines. Other chemicals produced in this business segment are
organic solvents and intermediates for pharmaceutical,
agricultural and chemical products.
Sales from the Acetyl Intermediates business represented 44%,
47% and 46% of our consolidated net sales for the years ended
December 31, 2009, 2008 and 2007, respectively. Operating
EBITDA from the Acetyl Intermediates business represented 33%,
44% and 48% of our total Operating EBITDA (excluding the Other
Activities segment) for the years ended December 31, 2009,
2008, and 2007, respectively. Sales from the Acetyl
Intermediates business represented 45% of our consolidated net
sales for the twelve months ended June 30, 2010. Operating
EBITDA from the Acetyl Intermediates business represented 32% of
our total Operating EBITDA (excluding the Other Activities
segment) for the twelve months ended June 30, 2010.
Key
Products
Acetyl Products.
Acetyl products include
acetic acid, VAM, acetic anhydride and acetaldehyde. Acetic acid
is primarily used to manufacture VAM, PTA and other acetyl
derivatives. VAM is used in a variety of adhesives, paints,
films, coatings and textiles. Acetic anhydride is a raw material
used in the production of cellulose acetate, detergents and
pharmaceuticals. Acetaldehyde is a major feedstock for the
production of a variety of derivatives, such as pyridines, which
are used in agricultural products. We manufacture acetic acid,
VAM and acetic anhydride for our own use, as well as for sale to
third parties.
Acetic acid and VAM, our basic acetyl intermediates products,
are impacted by global supply and demand fundamentals and are
cyclical in nature. The principal raw materials in these
products are: ethylene, which we purchase from numerous sources;
carbon monoxide, which we purchase under long-term contracts;
and methanol, which we purchase under long-term and short-term
contracts. With the exception of carbon monoxide, these raw
materials are commodity products available from a wide variety
of sources.
Our production of acetyl products employs leading proprietary
and licensed technologies, including our proprietary
AOPlus
®
2
and
AOPlus
®
technologies for the production of acetic acid and
VAntage
®
and VAntage
Plus
tm
VAM technology. We believe our production technology is one of
the lowest cost in the industry and provides us a sustainable
cost advantage over our competitors.
9
Solvents and Derivatives.
These include a
variety of solvents, formaldehyde and other chemicals, which in
turn are used in the manufacture of paints, coatings, adhesives
and other products.
Many solvents and derivatives products are derived from our
production of acetic acid. Primary products are:
|
|
|
|
|
Ethyl acetate, an acetate ester that is a solvent used in
coatings, inks and adhesives and in the manufacture of
photographic films and coated papers; and
|
|
|
|
Butyl acetate, an acetate ester that is a solvent used in inks,
pharmaceuticals and perfume.
|
Formaldehyde and formaldehyde derivative products are
derivatives of methanol and are made up of the following
products:
|
|
|
|
|
Formaldehyde, paraformaldehyde and formcels are primarily used
to produce adhesive resins for plywood, particle board,
coatings, POM engineering resins and a compound used in making
polyurethane; and
|
|
|
|
Special solvents, such as crotonaldehyde, which are used by the
Nutrinova line for the production of sorbates, as well as raw
materials for the fragrance and food ingredients industry.
|
Solvents and derivatives are commodity products characterized by
cyclicality in pricing. The principal raw materials used in
solvents and derivatives products are acetic acid, various
alcohols, methanol, ethylene and ammonia. We manufacture many of
these raw materials for our own use as well as for sales to
third parties, including our competitors in the solvents and
derivatives business. We purchase ethylene from a variety of
sources. We manufacture acetaldehyde in Europe for our own use,
as well as for sale to third parties.
Facilities
Acetyl Intermediates has production sites in the United States,
China, Mexico, Singapore, Spain, France and Germany. Over the
last few years, we have continued to shift our production
capacity to lower cost production facilities while expanding in
growth areas, such as China.
10
Geographic
Regions
The following table illustrates net sales by destination of the
Acetyl Intermediates segment by geographic region.
Net Sales
to External Customers by DestinationAcetyl
Intermediates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
$
|
|
|
Segment
|
|
|
$
|
|
|
Segment
|
|
|
$
|
|
|
Segment
|
|
|
|
(Dollars in millions)
|
|
|
North America
|
|
$
|
501
|
|
|
|
22
|
%
|
|
$
|
743
|
|
|
|
23
|
%
|
|
$
|
685
|
|
|
|
23
|
%
|
Europe and Africa
|
|
|
771
|
|
|
|
35
|
%
|
|
|
1,198
|
|
|
|
37
|
%
|
|
|
1,183
|
|
|
|
40
|
%
|
Asia-Pacific
|
|
|
884
|
|
|
|
40
|
%
|
|
|
1,142
|
|
|
|
36
|
%
|
|
|
968
|
|
|
|
33
|
%
|
South America
|
|
|
64
|
|
|
|
3
|
%
|
|
|
116
|
|
|
|
4
|
%
|
|
|
119
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,220
|
(1)
|
|
|
|
|
|
$
|
3,199
|
(1)
|
|
|
|
|
|
$
|
2,955
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Excludes inter-segment sales of $383 million,
$676 million and $660 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
|
Customers
Our Acetyl Intermediates business markets its products both
directly to customers and through distributors. Acetic acid, VAM
and acetic anhydride are global businesses which have several
large customers, which we generally supply under multiyear
contracts. The customers of acetic acid, VAM and acetic
anhydride produce polymers used in water-based paints,
adhesives, paper coatings, polyesters, film modifiers,
pharmaceuticals, cellulose acetate and textiles. We have
long-standing relationships with many of these customers.
Solvents and derivatives are sold to a diverse group of regional
and multinational customers both under multiyear contracts and
on the basis of long-standing relationships. The customers of
solvents and derivatives are primarily engaged in the production
of paints, coatings and adhesives. We manufacture formaldehyde
for our own use as well as for sale to a few regional customers
that include manufacturers in the wood products and chemical
derivatives industries. Specialty solvents and amines are sold
globally to a wide variety of customers, primarily in the
coatings and resins and the specialty products industries.
Competition
Our principal competitors in the Acetyl Intermediates segment
include Sipchem, BASF, British Petroleum PLC, Chang Chun
Petrochemical Co., Ltd., Daicel, Dow, Eastman, DuPont,
LyondellBasell Industries, Nippon Gohsei, Perstorp Inc., Jiangsu
Sopo Corporation (Group) Ltd., Showa Denko K.K., and Kuraray Co.
Ltd.
Other
Activities
Other Activities primarily consists of corporate center costs,
including financing and administrative activities such as legal,
accounting and treasury functions, interest income and expense
associated with our
11
financing activities, and our captive insurance companies. Our
two wholly-owned captive insurance companies are a key component
of our global risk management program, as well as a form of
self-insurance for our property, liability and workers
compensation risks. The captive insurance companies issue
insurance policies to our subsidiaries to provide consistent
coverage amid fluctuating costs in the insurance market and to
lower long-term insurance costs by avoiding or reducing
commercial carrier overhead and regulatory fees. The captive
insurance companies retain risk at levels approved by management
and obtain reinsurance coverage from third parties to limit the
net risk retained. One of the captive insurance companies also
insures certain third-party risks.
Joint
Ventures & Affiliates
We have a significant portfolio of strategic relationships and
joint ventures in various regions, including Asia-Pacific, North
America, the Middle East and Europe. Historically, we have
entered into these strategic investments in order to gain access
to local demand, minimize costs and accelerate growth in areas
we believe have significant future business potential. Depending
on the level of investment and other factors, we account for our
joint ventures using either the equity method or cost method of
accounting.
In the aggregate, our strategic investments generate significant
sales, earnings and cash flow. For example, during the twelve
months ended June 30, 2010, our equity affiliates generated
combined sales of $4.5 billion resulting in
$152 million of equity in earnings from affiliates during
the same period.
Additionally, for the twelve months ended June 30, 2010,
our Chinese acetate joint ventures generated cash dividends to
us of $71 million.
12
The table below represents our significant strategic ventures as
of June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Location
|
|
Ownership
|
|
Segment
|
|
Partner (s)
|
|
Entered
|
|
Equity Method Investments
|
|
|
|
|
|
|
|
|
|
|
Korea Engineering Plastics Co. Ltd
|
|
South Korea
|
|
50%
|
|
Advanced Engineered Materials
|
|
Mitsubishi Gas Chemical Company, Inc./Mitsubishi Corporation
|
|
1999
|
Polyplastics Co., Ltd.
|
|
Japan
|
|
45%
|
|
Advanced Engineered Materials
|
|
Daicel Chemical Industries Ltd.
|
|
1964
|
Fortron Industries LLC
|
|
US
|
|
50%
|
|
Advanced Engineered Materials
|
|
Kureha Corporation
|
|
1992
|
National Methanol Company
|
|
Saudi Arabia
|
|
25%
|
|
Advanced Engineered Materials
|
|
SABIC/ Texas Eastern Arabian Corporation Ltd.
|
|
1981
|
Cost Method Investments
|
|
|
|
|
|
|
|
|
|
|
Kunming Cellulose Fibers Co. Ltd.
|
|
China
|
|
30%
|
|
Consumer Specialties
|
|
China National Tobacco Corporation
|
|
1993
|
Nantong Cellulose Fibers Co. Ltd.
|
|
China
|
|
31%
|
|
Consumer Specialties
|
|
China National Tobacco Corporation
|
|
1986
|
Zhuhai Cellulose Fibers Co. Ltd.
|
|
China
|
|
30%
|
|
Consumer Specialties
|
|
China National Tobacco Corporation
|
|
1993
|
Korea Engineering Plastics Co. Ltd.
Founded in
1987, KEPCO is a leading producer of POM in South Korea.
Mitsubishi Gas Chemical Company, Inc. owns 40% and Mitsubishi
Corporation owns 10% of KEPCO. KEPCO operates a POM plant in
Ulsan, South Korea and participates with Polyplastics and
Mitsubishi Gas Chemical Company, Inc. in a POM facility in
Nantong, China.
Polyplastics Co., Ltd.
Polyplastics is a
leading supplier of engineered plastics in the Asia-Pacific
region. Polyplastics principal production facilities are
located in Japan, Taiwan, Malaysia and China. We believe
Polyplastics is a leading producer and marketer of POM in the
Asia-Pacific region.
Fortron Industries LLC.
Fortron is a leading
global producer of PPS. Fortrons facility is located in
Wilmington, North Carolina.
National Methanol Company (Ibn Sina).
With
production facilities in Saudi Arabia, Ibn Sina represents
approximately 2% of the worlds methanol production
capacity and is one of the worlds largest producers of
MTBE, a gasoline additive. We indirectly own a 25% interest in
Ibn Sina through CTE Petrochemicals Company, a joint venture
with Texas Eastern Arabian Corporation Ltd. Texas Eastern
Arabian Corporation Ltd indirectly owns an additional 25%
interest in Ibn Sina, and the remaining 50% interest is held by
SABIC 50%. SABIC is responsible for all product marketing.
In connection with the extension of the joint venture, we
reassessed the factors surrounding the accounting method for
this investment and changed the accounting from the cost method
of accounting for
13
investments to the equity method of accounting for investments
beginning April 1, 2010. Also on April 1, 2010, we
announced that Ibn Sina would begin construction of a 50,000 ton
POM plant in Saudi Arabia. The purpose of the plant is to supply
POM to support Celaneses AEM segment growth as well as our
joint venture partners regional business development.
China acetate joint ventures.
We hold an
approximately 30% ownership interest (50% board representation)
in three separate Acetate Products production entities in China:
the Nantong, Kunming and Zhuhai Cellulose Fiber Companies. In
each instance, the Chinese state-owned tobacco entity, China
National Tobacco Corporation, controls the remainder. With an
estimated 30% share of the worlds cigarette production and
consumption, China is the worlds largest and fastest
growing area for acetate tow products according to the 2009
Stanford Research Institute International Chemical Economics
Handbook. Combined, these ventures are a market leader in
Chinese domestic acetate production and are well positioned in
the Chinese cigarette market.
In December 2009, we announced plans with China National Tobacco
to expand our acetate flake and tow capacity at our Nantong
facility. Our Chinese acetate ventures fund their operations
using operating cash flow.
Our Chinese acetate joint ventures pay a dividend in the second
quarter of each fiscal year, based on the ventures
performance for the preceding year. In 2009, 2008, and 2007, we
received cash dividends of $56 million, $46 million,
and $37 million, respectively. In addition, in 2010, we
received cash dividends of $71 million for 2010.
Despite the fact that our ownership interest exceeds 20% in each
of our China Acetate Products ventures, we account for these
investments using the cost method of accounting because we
cannot exercise significant influence over these entities. We
determined that we cannot exercise significant influence over
these entities due to local government investment in and
influence over these entities, limitations on our involvement in
the
day-to-day
operations and the present inability of the entities to provide
timely financial information prepared in accordance with
accounting principles generally accepted in the United States.
Other
Equity Investments
InfraServs.
We hold ownership interests in
several entities located in Germany that own and develop
industrial parks and provide
on-site
general and administrative support to tenants. The table below
represents our equity investments in InfraServ ventures as of
June 30, 2010:
|
|
|
|
|
Company
|
|
Ownership %
|
|
InfraServ GmbH & Co. Gendorf KG
|
|
|
39
|
%
|
InfraServ GmbH & Co. Knapsack KG
|
|
|
27
|
%
|
InfraServ GmbH & Co. Hoechst KG
|
|
|
32
|
%
|
Raw
Materials and Energy
We purchase a variety of raw materials and energy from sources
in many countries for use in our production processes. We have a
policy of maintaining, when available, multiple sources of
supply for materials. However, some of our individual plants may
have single sources of supply for some of their raw materials,
such as carbon monoxide, steam and acetaldehyde. Although we
have been able to obtain sufficient supplies of raw materials,
there can be no assurance that unforeseen developments will not
affect our raw materials supply. Even if we have multiple
sources of supply for a raw material, there can be no assurance
that these sources can make up for the loss of a major supplier.
There cannot be any guarantee that profitability will not be
affected should we be required to qualify additional sources of
supply to our specifications in the
14
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 and demand
fundamentals change. Our production facilities rely largely on
fuel oil, natural gas and electricity for energy. Most of the
raw materials for our European operations are centrally
purchased by one of our subsidiaries, which also buys raw
materials on behalf of third parties. We manage our exposure
through forward purchase contracts, long-term supply agreements
and multiyear purchasing and sales agreements.
We also currently purchase and lease supplies of various
precious metals, such as rhodium, used as catalysts for the
manufacture of Acetyl Intermediates products. For precious
metals, the leases are distributed between a minimum of three
lessors per product and are divided into several contracts.
Research
and Development
All of our businesses conduct research and development
activities to increase competitiveness. Our businesses are
innovation-oriented and conduct research and development
activities to develop new, and optimize existing, production
technologies, as well as to develop commercially viable new
products and applications. We consider the amounts spent during
each of the last three fiscal years on research and development
activities to be sufficient to drive our current strategic
initiatives.
Intellectual
Property
We attach significant importance to patents, trademarks,
copyrights and product designs in order to protect our
investment in research and development, manufacturing and
marketing. Patents may cover processes, products, intermediate
products and product uses. We also seek to register trademarks
extensively as a means of protecting the brand names of our
products. We protect our intellectual property vigorously
against infringement and also seek to register design protection
where appropriate.
Patents.
In most industrial countries, patent
protection exists for new substances and formulations, as well
as for unique applications and production processes. However, we
do business in regions of the world where intellectual property
protection may be limited and difficult to enforce. We maintain
strict information security policies and procedures wherever we
do business. Such information security policies and procedures
include data encryption, controls over the disclosure and
safekeeping of confidential information, as well as employee
awareness training. Moreover, we monitor competitive
developments and vigorously defend against infringements of our
intellectual property rights.
Trademarks.
AOPlus
®
2,
AOPlus
®
,
VAntage
®
,
VAntage
Plus
tm
,
BuyTiconaDirect
tm
,
Celanex
®
,
Celcon
®
,
Celstran
®
,
Celvolit
®
,
Compel
®
,
Erkol
®
,
GUR
®
,
Hostaform
®
,
Impet
®
,
Mowilith
®
,
Nutrinova
®
,
Riteflex
®
,
Sunett
®
,
Vandar
®
,
Vectra
®
,
Vinamul
®
,
EcoVAE
®
,
Duroset
®
,
Ateva
®
,
Acetex
®
,
and certain other products and services named in this document
are trademarks, service marks or registered trademarks of
Celanese. The foregoing is not intended to be an exhaustive or
comprehensive list of all trademarks, service marks or
registered trademarks owned by Celanese.
Fortron
®
is a registered trademark of Fortron Industries LLC, one of
Celaneses equity investments.
Neither Celanese nor any particular business segment is
materially dependent upon any one patent, trademark, copyright
or trade secret.
15
Environmental
and Other Regulation
We are subject to environmental laws and regulations worldwide
that impose limitations on the discharge of pollutants into the
air and water and establish standards for the treatment, storage
and disposal of solid and hazardous wastes. We believe that we
are in substantial compliance with all applicable environmental
laws and regulations. We are also subject to retained
environmental obligations specified in various contractual
agreements arising from the divestiture of certain businesses by
us or one of our predecessor companies.
Due to our industrial history and through retained contractual
and legal obligations, we have the obligation to remediate
specific areas on our own sites as well as on divested, orphan
or US Superfund sites (as defined below). In addition, as part
of the demerger agreement between us and Hoechst AG
(Hoechst), a specified portion of the responsibility
for environmental liabilities from a number of Hoechst
divestitures was transferred to us. We provide for such
obligations when the event of loss is probable and reasonably
estimable.
In the US, we may be subject to substantial claims brought by US
federal or state regulatory agencies or private individuals
pursuant to statutory authority or common law. In particular, we
have potential liability under the US Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980,
as amended, and related state laws (collectively referred to as
Superfund) for investigation and cleanup costs at
approximately 40 sites. At most of these sites, numerous
companies, including certain of our subsidiaries and predecessor
companies, have been notified that the Environmental Protection
Agency, state governing bodies or private individuals consider
such companies to be potentially responsible parties
(PRP) under Superfund or related laws. The
proceedings relating to these sites are in various stages. The
cleanup process has not been completed at most sites and the
status of the insurance coverage for most of these proceedings
is uncertain. Consequently, we cannot accurately determine our
ultimate liability for investigation or cleanup costs at these
sites.
As events progress at each site for which we have been named a
PRP, we accrue, as appropriate, a liability for site cleanup.
Such liabilities include all costs that are probable and can be
reasonably estimated. In establishing these liabilities, we
consider our shipment of waste to a site, our percentage of
total waste shipped to the site, the types of wastes involved,
the conclusions of any studies, the magnitude of any remedial
actions that may be necessary and the number and viability of
other PRPs. Often we join with other PRPs to sign joint defense
agreements that settle, among PRPs, each partys percentage
allocation of costs at the site. Although the ultimate liability
may differ from the estimate, we routinely review the
liabilities and revise the estimate, as appropriate, based on
the most current information available.
16
Employees
As of June 30, 2010, we had approximately
7,200 employees worldwide. The following table sets forth
the approximate number of employees on a continuing basis.
|
|
|
|
|
|
|
Employees as of
|
|
|
|
June 30, 2010
|
|
|
North America
|
|
|
|
|
US
|
|
|
2,350
|
|
Canada
|
|
|
250
|
|
Mexico
|
|
|
700
|
|
Total
|
|
|
3,300
|
|
Europe
|
|
|
|
|
Germany
|
|
|
1,600
|
|
Other Europe
|
|
|
1,500
|
|
Total
|
|
|
3,100
|
|
Asia
|
|
|
750
|
|
Rest of World
|
|
|
50
|
|
|
|
|
|
|
Total
|
|
|
7,200
|
|
|
|
|
|
|
Many of our employees are unionized, particularly in Germany,
Canada, Mexico, Brazil, Belgium and France. In the United
States, however, less than one quarter of our employees are
unionized. Moreover, in Germany and France, wages and general
working conditions are often the subject of centrally negotiated
collective bargaining agreements. Within the limits established
by these agreements, our various subsidiaries negotiate directly
with the unions and other labor organizations, such as
workers councils, representing the employees. Collective
bargaining agreements between the German chemical employers
associations and unions relating to remuneration generally have
a term of one year, while in the United States a three year term
for collective bargaining agreements is typical. We offer
comprehensive benefit plans for employees and their families and
believe our relations with employees are satisfactory.
Backlog
We do not consider backlog to be a significant indicator of the
level of future sales activity. In general, we do not
manufacture our products against a backlog of orders. Production
and inventory levels are based on the level of incoming orders
as well as projections of future demand. Therefore, we believe
that backlog information is not material to understanding our
overall business and should not be considered a reliable
indicator of our ability to achieve any particular level of
revenue or financial performance.
Properties
Description
of Property
We own or lease numerous production and manufacturing facilities
throughout the world. We also own or lease other properties,
including office buildings, warehouses, pipelines, research and
development facilities and sales offices. We continuously review
and evaluate our facilities as a part of our strategy to
17
optimize our business portfolio. The following table sets forth
a list of our principal production and other facilities
throughout the world as of June 30, 2010.
|
|
|
|
|
Site
|
|
Leased/Owned
|
|
Products/Functions
|
|
Corporate Offices
|
|
|
|
|
Budapest, Hungary
|
|
Leased
|
|
Administrative offices
|
Dallas, Texas, US
|
|
Leased
|
|
Corporate headquarters
|
Mexico City, Mexico
|
|
Leased
|
|
Administrative offices
|
Shanghai, China
|
|
Leased
|
|
Administrative Offices
|
Singapore
|
|
Leased
|
|
Administrative Offices
|
Sulzbach, Germany
|
|
Leased
|
|
Administrative Offices
|
Advanced Engineered Materials
|
|
|
|
|
Auburn Hills, Michigan, US
|
|
Leased
|
|
Automotive Development Center
|
Bishop, Texas, US
|
|
Owned
|
|
POM,
GUR
®
,
Compounding
|
Florence, Kentucky, US
|
|
Owned
|
|
Compounding
|
Fuji City, Japan
|
|
Owned by Polyplastics Co.,
Ltd.
(6)
|
|
POM, PBT, LCP, Compounding
|
Kelsterbach, Germany
|
|
Owned
|
|
LFT, POM, Compounding
|
Kuantan, Malaysia
|
|
Owned by Polyplastics Co.,
Ltd.
(6)
|
|
POM, Compounding
|
Kaiserslautern,
Germany
(1)
|
|
Leased
|
|
LFT
|
Oberhausen,
Germany
(1)
|
|
Leased
|
|
GUR
®
|
Shelby, North Carolina, US
|
|
Owned
|
|
LCP, PBT, PET, Compounding
|
Suzano, Brazil
|
|
Owned
|
|
Compounding
|
Ulsan, South Korea
|
|
Owned by Korea Engineering Plastics Co.,
Ltd.
(6)
|
|
POM
|
Wilmington, North Carolina, US
|
|
Owned by Fortron Industries
LLC
(6)
|
|
PPS
|
Winona, Minnesota, US
|
|
Owned
|
|
LFT
|
Nanjing,
China
(2)
|
|
Leased
|
|
LFT,
GUR
®
|
Consumer Specialties
|
|
|
|
|
Frankfurt am Main,
Germany
(3)
|
|
Owned by InfraServ GmbH & Co. Hoechst
KG
(6)
|
|
Sorbates,
Sunett
®
sweetener
|
Kunming, China
|
|
Owned by Kunming Cellulose Fibers Co.
Ltd.
(5)
|
|
Acetate tow, Acetate flake
|
Lanaken, Belgium
|
|
Owned
|
|
Acetate tow
|
Nantong, China
|
|
Owned by Nantong Cellulose Fibers Co.
Ltd.
(5)
|
|
Acetate tow, Acetate flake
|
Narrows, Virginia, US
|
|
Owned
|
|
Acetate tow, Acetate flake
|
Ocotlán, Jalisco, Mexico
|
|
Owned
|
|
Acetate tow, Acetate flake
|
Spondon, Derby, UK
|
|
Owned
|
|
Acetate tow, Acetate flake
|
Zhuhai, China
|
|
Owned by Zhuhai Cellulose Fibers Co.
Ltd.
(5)
|
|
Acetate tow, Acetate flake
|
Industrial Specialties
|
|
|
|
|
Boucherville, Quebec, Canada
|
|
Owned
|
|
Conventional emulsions
|
Enoree, South Carolina, US
|
|
Owned
|
|
Conventional emulsions, Vinyl acetate ethylene emulsions
|
Edmonton, Alberta, Canada
|
|
Owned
|
|
LDPE, EVA
|
Frankfurt am Main,
Germany
(3)
|
|
Owned by InfraServ GmbH & Co. Hoechst
KG
(6)
|
|
Conventional emulsions, Vinyl acetate ethylene emulsions
|
Geleen, Netherlands
|
|
Owned
|
|
Vinyl acetate ethylene emulsions
|
Meredosia, Illinois, US
|
|
Owned
|
|
Conventional emulsions, Vinyl acetate ethylene emulsions
|
Nanjing,
China
(2)
|
|
Leased
|
|
Conventional emulsions, Vinyl acetate ethylene emulsions
|
Perstorp, Sweden
|
|
Owned
|
|
Conventional emulsions, Vinyl acetate ethylene emulsions
|
Tarragona,
Spain
(4)
|
|
Owned by Complejo Industrial Taqsa
AIE
(5)
|
|
Conventional emulsions, Vinyl acetate ethylene emulsions
|
Warrington, UK
|
|
Owned
|
|
Site is no longer operating as of December 31, 2009.
|
18
|
|
|
|
|
Site
|
|
Leased/Owned
|
|
Products/Functions
|
|
Acetyl Intermediates
|
|
|
|
|
Bay City, Texas,
US
(1)
|
|
Leased
|
|
VAM
|
Bishop, Texas, US
|
|
Owned
|
|
Formaldehyde
|
Cangrejera, Veracruz, Mexico
|
|
Owned
|
|
Acetic anhydride, Ethyl acetate
|
Clear Lake, Texas, US
|
|
Owned
|
|
Acetic acid, VAM
|
Frankfurt am Main,
Germany
(3)
|
|
Owned by InfraServ GmbH & Co. Hoechst
KG
(6)
|
|
Acetaldehyde, VAM, Butyl acetate
|
Jubail, Saudi Arabia
|
|
Owned by Ibn
Sina
(5)
|
|
Methyl tertiary-butyl ether, Methanol
|
Jurong Island,
Singapore
(1)
|
|
Leased
|
|
Acetic acid, Butyl acetate, Ethyl acetate, VAM
|
Nanjing,
China
(2)
|
|
Leased
|
|
Acetic acid, Acetic anhydride, VAM
|
Pampa, Texas, US
|
|
Owned
|
|
Site is no longer operating as of December 31, 2009.
|
Pardies, France
|
|
Owned
|
|
Site is no longer operating as of December 31, 2009.
|
Roussillon,
France
(1)
|
|
Leased
|
|
Acetic anhydride
|
Tarragona,
Spain
(4)
|
|
Owned by Complejo Industrial Taqsa
AIE
(6)
|
|
VAM
|
|
|
|
(1)
|
|
Celanese owns the assets on this site, but utilizes the land
through the terms of a long-term land lease.
|
|
(2)
|
|
Multiple Celanese business segments conduct operations at the
Nanjing facility. Celanese owns the assets on this site, but
utilizes the land through the terms of a long-term land lease.
|
|
(3)
|
|
Multiple Celanese business segments conduct operations at the
Frankfurt facility.
|
|
(4)
|
|
Multiple Celanese business segments conduct operations at the
Tarragona site. Celanese owns its assets at the facility but
shares ownership in the land. Celaneses ownership
percentage in the land is 15%.
|
|
(5)
|
|
A Celanese cost method investment.
|
|
(6)
|
|
A Celanese equity method investment.
|
Legal
Proceedings
We are involved in a number of legal and regulatory proceedings,
lawsuits and claims incidental to the normal conduct of our
business, relating to such matters as product liability,
antitrust, intellectual property, workers compensation,
prior acquisitions, past waste disposal practices and release of
chemicals into the environment. While it is impossible at this
time to determine with certainty the ultimate outcome of these
proceedings, lawsuits and claims, we are actively defending
those matters where the Company is named as a defendant.
Additionally, we believe, based on the advice of legal counsel,
that adequate reserves have been made and that the ultimate
outcomes of all such litigation claims will not have a material
adverse effect on our financial position, but may have a
material adverse effect on our results of operations or cash
flows in any given accounting period. For a discussion of
commitments and contingencies related to legal and regulatory
proceedings, see Note 17 to our unaudited consolidated
financial statements for the six months ended June 30,
2010, which are included in this offering memorandum, and
Note 24 to our audited consolidated financial statements
for the year ended December 31, 2009, which are included in
this offering memorandum.
19
Exhibit 99.3
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
We are a leading, global technology and specialty materials
company. We are one of the worlds largest producers of
acetyl products, which are intermediate chemicals, for nearly
all major industries, as well as a leading global producer of
high-performance engineered polymers that are used in a variety
of high-value end-use applications. As an industry leader, we
hold geographically balanced global positions and participate in
diversified end-use markets. Our operations are primarily
located in North America, Europe and Asia. We combine a
demonstrated track record of execution, strong performance built
on shared principles and objectives, and a clear focus on growth
and value creation.
2010
Significant Events:
|
|
|
|
|
We announced a plan to close our acetate flake and tow
manufacturing operations in Spondon, Derby, United Kingdom in
the latter part of 2011.
|
|
|
|
We acquired two product lines,
Zenite
®
LCP and
Thermx
®
PCT, from DuPont Performance Polymers.
|
|
|
|
We announced five-year Environmental Health and Safety
sustainability goals for occupational safety performance, energy
intensity, greenhouse gases and waste management for the year
2015.
|
|
|
|
We received American Chemistry Councils (ACC)
2010 Responsible Care Initiative of the Year Award. This award
recognizes companies that demonstrate leadership in the areas of
employee health and safety, security or environmental protection
in the chemical industry.
|
|
|
|
We announced the construction of a 50,000 ton POM production
facility by our National Methanol Company affiliate (Ibn
Sina) in Saudi Arabia and extended the term of the joint
venture, which will now run until 2032. Upon successful startup
of the POM facility, our indirect economic interest in Ibn Sina
will increase from 25% to a total of 32.5%.
|
|
|
|
We received formal approval of our previously announced plans to
expand flake and tow capacities, each by 30,000 tons, at our
affiliate facility in Nantong, China, with our affiliate
partner, China National Tobacco Corporation.
|
|
|
|
We announced a 25% increase in our quarterly common stock cash
dividend beginning August 2010. The annual dividend rate will
increase from $0.16 to $0.20 per share of common stock and the
quarterly rate will increase from $0.04 to $0.05 per share of
common stock.
|
|
|
|
We redeemed all of our Convertible Perpetual Preferred Stock for
Series A Common Stock on February 22, 2010.
|
2009
Significant Events:
|
|
|
|
|
We announced the Frankfurt, Germany Airport
(Fraport) supervisory board approved the
acceleration of the 2009 and 2010 payments of
200 million and 140 million, respectively,
|
1
|
|
|
|
|
required by the settlement agreement signed in June 2007. On
February 5, 2009, we received a discounted amount of
approximately 322 million ($412 million),
excluding value-added tax of 59 million
($75 million).
|
|
|
|
|
|
We acquired the business and assets of FACT GmbH (Future
Advanced Composites Technology) (FACT), a German
company that develops, produces and markets LFT, for a purchase
price of 5 million ($7 million).
|
|
|
|
We shut down our VAM production unit in Cangrejera, Mexico, and
ceased VAM production at the site during the first quarter of
2009.
|
|
|
|
Standard and Poors affirmed our ratings and revised our
outlook from positive to stable in February 2009.
|
|
|
|
We received the ACCs Responsible
Care
®
Sustained Excellence Award for mid-size companies. The annual
award, the most prestigious award given under ACCs
Responsible Care
®
initiative, recognizes companies for outstanding leadership
under ACCs Environmental Health and Safety performance
criteria.
|
|
|
|
We completed the sale of our polyvinyl alcohol
(PVOH) business to Sekisui Chemical Co., Ltd. for
the net cash purchase price of $168 million.
|
|
|
|
We agreed to a Project of Closure for our acetic
acid and VAM production operations at our Pardies, France
facility. We ceased the production of acetic acid and VAM at our
facility in Pardies, France on December 1, 2009.
|
|
|
|
We announced that Celanese US had amended its $650 million
revolving credit facility. The amendment lowered the total
revolver commitment to $600 million and increased the first
lien senior secured leverage ratio for a period of six quarters,
beginning June 30, 2009 and ending December 31, 2010.
|
|
|
|
We announced the creation of our new and proprietary
AOPlus
®
2
acetic acid technology, which allows for expansion up to
1.5 million tons per reactor annually.
|
|
|
|
We successfully started up our expansion of our acetic acid unit
in Nanjing, China which doubled the units capacity from
600,000 tons to 1.2 million tons annually.
|
|
|
|
We announced the expansion of our VAE manufacturing facility at
our Nanjing, China integrated chemical complex to support
continued growth plans throughout Asia. The expanded facility
will double our VAE capacity in the region and is expected to be
operational in the first half of 2011.
|
|
|
|
We launched a new, innovative POM technology that is expected to
create significant additional growth opportunities for our
Advanced Engineered Materials segment.
|
|
|
|
We reached a long-term agreement to supply VAM to Jiangxi
Jiangwei High-Tech Stock Co., Ltd (Jiangwei).
Jiangwei will cease production of its calcium carbide-based
alternative for economic and environmental reasons and source
our VAM.
|
2
Results
of Operations
Ibn
Sina
We indirectly own a 25% interest in Ibn Sina through CTE
Petrochemicals Company (CTE), a joint venture with
Texas Eastern Arabian Corporation Ltd. (which also indirectly
owns 25%). The remaining interest in Ibn Sina is held by Saudi
Basic Industries Corporation (SABIC). SABIC and CTE
entered into the Ibn Sina joint venture agreement in 1981. In
April 2010, we announced that Ibn Sina will construct a 50,000
ton POM production facility in Saudi Arabia and that the term of
the joint venture agreement was extended until 2032. Upon
successful startup of the POM facility, our indirect economic
interest in Ibn Sina will increase from 25% to 32.5%.
SABICs economic interest will remain unchanged.
In connection with the transaction, we reassessed the factors
surrounding the accounting method for this investment and
changed the accounting from the cost method of accounting for
investments to the equity method of accounting for investments
beginning April 1, 2010. Financial information relating to
this investment for prior periods has been retrospectively
adjusted to apply the equity method of accounting.
In addition, in connection with the extension of the joint
venture, we moved effective April 1, 2010, our Ibn Sina
affiliate from our Acetyl Intermediates segment to our Advanced
Engineered Materials segment to reflect the change in the
affiliates business dynamics and growth opportunities.
Business segment information for prior periods included below
has been retrospectively adjusted to reflect the change.
3
Financial
Highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Year Ended
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
(As Adjusted)
|
|
|
|
|
|
(As Adjusted)
|
|
|
|
|
|
(As Adjusted)
|
|
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
(audited)
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,517
|
|
|
$
|
1,244
|
|
|
$
|
2,905
|
|
|
$
|
2,390
|
|
|
$
|
5,082
|
|
|
$
|
6,823
|
|
|
$
|
6,444
|
|
Gross profit
|
|
|
303
|
|
|
|
248
|
|
|
|
521
|
|
|
|
448
|
|
|
|
1,003
|
|
|
|
1,256
|
|
|
|
1,445
|
|
Selling, general and administrative expenses
|
|
|
(123
|
)
|
|
|
(114
|
)
|
|
|
(246
|
)
|
|
|
(228
|
)
|
|
|
(469
|
)
|
|
|
(540
|
)
|
|
|
(516
|
)
|
Other (charges) gains, net
|
|
|
(6
|
)
|
|
|
(6
|
)
|
|
|
(83
|
)
|
|
|
(27
|
)
|
|
|
(136
|
)
|
|
|
(108
|
)
|
|
|
(58
|
)
|
Operating profit (loss)
|
|
|
156
|
|
|
|
89
|
|
|
|
142
|
|
|
|
116
|
|
|
|
290
|
|
|
|
440
|
|
|
|
748
|
|
Equity in net earnings (loss) of affiliates
|
|
|
45
|
|
|
|
35
|
|
|
|
94
|
|
|
|
41
|
|
|
|
99
|
|
|
|
172
|
|
|
|
150
|
|
Interest expense
|
|
|
(49
|
)
|
|
|
(54
|
)
|
|
|
(98
|
)
|
|
|
(105
|
)
|
|
|
(207
|
)
|
|
|
(261
|
)
|
|
|
(262
|
)
|
Refinancing expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(256
|
)
|
Dividend incomecost investments
|
|
|
72
|
|
|
|
53
|
|
|
|
72
|
|
|
|
56
|
|
|
|
57
|
|
|
|
48
|
|
|
|
38
|
|
Earnings (loss) from continuing operations before tax
|
|
|
224
|
|
|
|
127
|
|
|
|
217
|
|
|
|
116
|
|
|
|
251
|
|
|
|
433
|
|
|
|
437
|
|
Amounts attributable to Celanese Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
|
163
|
|
|
|
110
|
|
|
|
176
|
|
|
|
94
|
|
|
|
494
|
|
|
|
371
|
|
|
|
326
|
|
Earnings (loss) from discontinued operations
|
|
|
(3
|
)
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
4
|
|
|
|
(90
|
)
|
|
|
90
|
|
Net earnings (loss)
|
|
|
160
|
|
|
|
109
|
|
|
|
174
|
|
|
|
94
|
|
|
|
498
|
|
|
|
281
|
|
|
|
416
|
|
Other Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
64
|
|
|
|
79
|
|
|
|
153
|
|
|
|
150
|
|
|
|
308
|
|
|
|
350
|
|
|
|
291
|
|
Operating margin
(1)
|
|
|
10.3
|
%
|
|
|
7.2
|
%
|
|
|
4.9
|
%
|
|
|
4.9
|
%
|
|
|
5.7
|
%
|
|
|
6.4
|
%
|
|
|
11.6
|
%
|
Earnings from continuing operations before tax as a percentage
of net sales
|
|
|
14.8
|
%
|
|
|
10.2
|
%
|
|
|
7.5
|
%
|
|
|
4.9
|
%
|
|
|
4.9
|
%
|
|
|
6.3
|
%
|
|
|
6.8
|
%
|
|
|
|
(1)
|
|
Defined as operating profit divided by net sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
|
(unaudited)
|
|
|
(audited)
|
|
|
|
(in millions)
|
|
|
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings and current installments of long-term
debtthird party and affiliates
|
|
$
|
265
|
|
|
$
|
224
|
|
|
$
|
242
|
|
|
$
|
233
|
|
Plus: Long-term debt
|
|
|
3,162
|
|
|
|
3,268
|
|
|
|
3,259
|
|
|
|
3,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
3,427
|
|
|
$
|
3,492
|
|
|
$
|
3,501
|
|
|
$
|
3,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
Summary
of Consolidated ResultsThree and Six Months Ended
June 30, 2010 Compared to the Three and Six Months Ended
June 30, 2009
Net sales increased 22% during the three and six months ended
June 30, 2010 compared to the same periods in 2009
primarily due to increased volumes across most business segments
as a result of the gradual recovery of the global economy. Net
sales also increased due to increases in selling prices across
the majority of our business segments. The increase in net sales
resulting from our acquisition of FACT in December 2009 within
our Advanced Engineered Materials segment only slightly offset
the decrease in net sales due to the sale of our polyvinyl
alcohol (PVOH) business in July 2009 within our
Industrial Specialties segment. Unfavorable foreign currency
impacts only slightly offset the increase in net sales.
Gross profit increased during the three and six months ended
June 30, 2010 compared to the same periods in 2009 due to
higher net sales. Gross profit as a percentage of sales was
consistent for three months ended June 30, 2010 as compared
to the three months ended June 30, 2009. Gross profit as a
percentage of sales declined during the six months ended
June 30, 2010 as compared to June 30, 2009 due to
overall increased raw material and energy costs which were only
partially offset by increased prices. The write-off of other
productive assets of $17 million related to our Singapore
and Nanjing, China facilities and increased depreciation and
amortization also contributed to a lower gross profit
percentage. The increase in amortization was a result of
$22 million of accelerated amortization to write-off the
asset associated with a raw material purchase agreement with a
supplier who filed for bankruptcy during 2009. The accelerated
amortization was recorded as $20 million to our Acetyl
Intermediates segment and $2 million to our Advanced
Engineered Materials segment.
Selling, general and administrative expenses increased for the
three and six months ended June 30, 2010 compared to the
same periods in 2009 primarily due to the increase in
operations. As a percentage of sales, selling, general and
administrative expenses declined due to our fixed spending
reduction efforts and restructuring efficiencies.
The components of Other (charges) gains, net are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(unaudited)
|
|
|
|
(in millions)
|
|
|
Employee termination benefits
|
|
$
|
(4
|
)
|
|
$
|
(5
|
)
|
|
$
|
(9
|
)
|
|
$
|
(29
|
)
|
Ticona Kelsterbach plant relocation
|
|
|
(4
|
)
|
|
|
(3
|
)
|
|
|
(10
|
)
|
|
|
(6
|
)
|
Plumbing actions
|
|
|
2
|
|
|
|
2
|
|
|
|
14
|
|
|
|
3
|
|
Insurance recoveries associated with Clear Lake, Texas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Asset impairments
|
|
|
|
|
|
|
|
|
|
|
(72
|
)
|
|
|
(1
|
)
|
Plant/office closures
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(6
|
)
|
|
$
|
(6
|
)
|
|
$
|
(83
|
)
|
|
$
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the first quarter of 2010, we concluded that certain
long-lived assets were partially impaired at our acetate flake
and tow manufacturing operations in Spondon, Derby, United
Kingdom (see Note 3 to our unaudited consolidated financial
statements for the six months ended June 30, 2010, which
are included in this offering memorandum). Accordingly, we wrote
down the related property, plant and equipment to its fair value
of $31 million, resulting in long-lived asset impairment
losses of $72 million for the six months ended
June 30, 2010. The Spondon, Derby, United Kingdom facility
is included in our Consumer Specialties segment.
5
As a result of our Pardies, France Project of Closure (see
Note 3 to our unaudited consolidated financial statements
for the six months ended June 30, 2010, which are included
in this offering memorandum), we recorded $1 million in
employee termination benefits for the three months ended
June 30, 2010. We recorded exit costs of $9 million
during the six months ended June 30, 2010, which consisted
of $2 million in employee termination benefits,
$1 million of long-lived asset impairment losses,
$3 million of contract termination costs and
$3 million of reindustrialization costs. The Pardies,
France facility is included in our Acetyl Intermediates segment.
Other charges for the six months ended June 30, 2010 was
partially offset by $13 million of recoveries and a
$1 million decrease in legal reserves associated with
plumbing cases which is included in our Advanced Engineered
Materials segment.
During the first quarter of 2009, we began efforts to align
production capacity and staffing levels given the potential for
an economic environment of prolonged lower demand. For the six
months ended June 30, 2009, we recorded employee
termination benefits of $28 million related to this
endeavor. As a result of the shutdown of the VAM production unit
in Cangrejera, Mexico, we recognized employee termination
benefits of $1 million and long-lived asset impairment
losses of $1 million during the six months ended
June 30, 2009. The VAM production unit in Cangrejera,
Mexico is included in our Acetyl Intermediates segment.
Other charges for the six months ended June 30, 2009 was
partially offset by $6 million of insurance recoveries in
satisfaction of claims we made related to the unplanned outage
of our Clear Lake, Texas acetic acid facility during 2007, a
$2 million decrease in legal reserves for plumbing claims
for which the statute of limitations has expired and
$1 million of insurance recoveries associated with plumbing
cases.
Operating profit increased for the three and six months ended
June 30, 2010 as compared to the same periods in 2009. The
increase in operating profit is a result of increased gross
profit.
Earnings (loss) from continuing operations before tax increased
during the three and six months ended June 30, 2010
compared to the same periods in 2009 primarily due to increased
equity in net earnings of affiliates and increased dividend
income from cost investments in addition to the increase in
operating profit.
Our effective income tax rate for the three months ended
June 30, 2010 was 27% compared to 13% for the three months
ended June 30, 2009. The increase in our effective rate was
primarily due to foreign losses not resulting in tax benefits in
the current period and increases in reserves for uncertain tax
positions and related interest. Our effective income tax rate
for the six months ended June 30, 2010 was 19% compared to
19% for the six months ended June 30, 2009. Our 2010
effective rate was favorably impacted by the effect of new tax
legislation in Mexico, offset by foreign losses not resulting in
tax benefits in the current period and the effect of healthcare
reform in the US.
6
Financial
Highlights by Business SegmentThree and Six Months Ended
June 30, 2010 Compared to the Three and Six Months Ended
June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
Ended June 30,
|
|
|
|
|
|
Ended June 30,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
|
|
|
(As Adjusted)
|
|
|
|
|
|
|
|
|
(As Adjusted)
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(in millions)
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered Materials
|
|
$
|
282
|
|
|
$
|
184
|
|
|
$
|
98
|
|
|
$
|
564
|
|
|
$
|
349
|
|
|
$
|
215
|
|
Consumer Specialties
|
|
|
291
|
|
|
|
280
|
|
|
|
11
|
|
|
|
529
|
|
|
|
546
|
|
|
|
(17
|
)
|
Industrial Specialties
|
|
|
269
|
|
|
|
267
|
|
|
|
2
|
|
|
|
511
|
|
|
|
509
|
|
|
|
2
|
|
Acetyl Intermediates
|
|
|
782
|
|
|
|
622
|
|
|
|
160
|
|
|
|
1,506
|
|
|
|
1,194
|
|
|
|
312
|
|
Other Activities
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
Inter-segment eliminations
|
|
|
(108
|
)
|
|
|
(110
|
)
|
|
|
2
|
|
|
|
(206
|
)
|
|
|
(209
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,517
|
|
|
$
|
1,244
|
|
|
$
|
273
|
|
|
$
|
2,905
|
|
|
$
|
2,390
|
|
|
$
|
515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (charges) gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered Materials
|
|
$
|
(3
|
)
|
|
$
|
(4
|
)
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
(13
|
)
|
|
$
|
15
|
|
Consumer Specialties
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
2
|
|
|
|
(74
|
)
|
|
|
(3
|
)
|
|
|
(71
|
)
|
Industrial Specialties
|
|
|
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
3
|
|
Acetyl Intermediates
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
(8
|
)
|
|
|
(1
|
)
|
|
|
(7
|
)
|
Other Activities
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
(7
|
)
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(6
|
)
|
|
$
|
(6
|
)
|
|
$
|
|
|
|
$
|
(83
|
)
|
|
$
|
(27
|
)
|
|
$
|
(56
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered Materials
|
|
$
|
40
|
|
|
$
|
1
|
|
|
$
|
39
|
|
|
$
|
88
|
|
|
$
|
(17
|
)
|
|
$
|
105
|
|
Consumer Specialties
|
|
|
64
|
|
|
|
66
|
|
|
|
(2
|
)
|
|
|
34
|
|
|
|
132
|
|
|
|
(98
|
)
|
Industrial Specialties
|
|
|
16
|
|
|
|
19
|
|
|
|
(3
|
)
|
|
|
28
|
|
|
|
29
|
|
|
|
(1
|
)
|
Acetyl Intermediates
|
|
|
68
|
|
|
|
39
|
|
|
|
29
|
|
|
|
68
|
|
|
|
50
|
|
|
|
18
|
|
Other Activities
|
|
|
(32
|
)
|
|
|
(36
|
)
|
|
|
4
|
|
|
|
(76
|
)
|
|
|
(78
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
156
|
|
|
$
|
89
|
|
|
$
|
67
|
|
|
$
|
142
|
|
|
$
|
116
|
|
|
$
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered Materials
|
|
$
|
79
|
|
|
$
|
31
|
|
|
$
|
48
|
|
|
$
|
171
|
|
|
$
|
13
|
|
|
$
|
158
|
|
Consumer Specialties
|
|
|
137
|
|
|
|
119
|
|
|
|
18
|
|
|
|
107
|
|
|
|
188
|
|
|
|
(81
|
)
|
Industrial Specialties
|
|
|
16
|
|
|
|
19
|
|
|
|
(3
|
)
|
|
|
28
|
|
|
|
29
|
|
|
|
(1
|
)
|
Acetyl Intermediates
|
|
|
70
|
|
|
|
41
|
|
|
|
29
|
|
|
|
71
|
|
|
|
53
|
|
|
|
18
|
|
Other Activities
|
|
|
(78
|
)
|
|
|
(83
|
)
|
|
|
5
|
|
|
|
(160
|
)
|
|
|
(167
|
)
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
224
|
|
|
$
|
127
|
|
|
$
|
97
|
|
|
$
|
217
|
|
|
$
|
116
|
|
|
$
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered Materials
|
|
$
|
18
|
|
|
$
|
19
|
|
|
$
|
(1
|
)
|
|
$
|
38
|
|
|
$
|
36
|
|
|
$
|
2
|
|
Consumer Specialties
|
|
|
9
|
|
|
|
12
|
|
|
|
(3
|
)
|
|
|
20
|
|
|
|
24
|
|
|
|
(4
|
)
|
Industrial Specialties
|
|
|
10
|
|
|
|
14
|
|
|
|
(4
|
)
|
|
|
20
|
|
|
|
27
|
|
|
|
(7
|
)
|
Acetyl Intermediates
|
|
|
24
|
|
|
|
32
|
|
|
|
(8
|
)
|
|
|
69
|
|
|
|
59
|
|
|
|
10
|
|
Other Activities
|
|
|
3
|
|
|
|
2
|
|
|
|
1
|
|
|
|
6
|
|
|
|
4
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
64
|
|
|
$
|
79
|
|
|
$
|
(15
|
)
|
|
$
|
153
|
|
|
$
|
150
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
Factors
Affecting Business Segment Net SalesThree and Six Months
Ended June 30, 2010 Compared to the Three and Six Months
Ended June 30, 2009
The charts below set forth the percentage increase (decrease) in
net sales from the period ended June 30, 2009 to the period
ended June 30, 2010 attributable to each of the factors
indicated for the following business segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
Price
|
|
|
Currency
|
|
|
Other
(1)
|
|
|
Total
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
(in percentages)
|
|
|
|
|
|
Three Months Ended June 30, 2010 Compared to Three
Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered Materials
|
|
|
52
|
|
|
|
2
|
|
|
|
(5
|
)
|
|
|
4
|
(2)
|
|
|
53
|
|
Consumer Specialties
|
|
|
6
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
4
|
|
Industrial Specialties
|
|
|
13
|
|
|
|
9
|
|
|
|
(3
|
)
|
|
|
(18
|
)
(3)
|
|
|
1
|
|
Acetyl Intermediates
|
|
|
14
|
|
|
|
15
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
26
|
|
Total Company
|
|
|
19
|
|
|
|
9
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
22
|
|
Six Months Ended June 30, 2010 Compared to Six Months
Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered Materials
|
|
|
61
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
5
|
(2)
|
|
|
62
|
|
Consumer Specialties
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
Industrial Specialties
|
|
|
14
|
|
|
|
3
|
|
|
|
|
|
|
|
(17
|
)
(3)
|
|
|
|
|
Acetyl Intermediates
|
|
|
14
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
Total Company
|
|
|
19
|
|
|
|
6
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
22
|
|
|
|
|
(1)
|
|
Includes the effects of the captive insurance companies and the
impact of fluctuations in intersegment eliminations.
|
|
(2)
|
|
2010 includes the effects of the FACT acquisition.
|
|
(3)
|
|
2010 does not include the effects of the PVOH business, which
was sold on July 1, 2009.
|
8
Summary
by Business SegmentThree and Six Months Ended
June 30, 2010 compared to the Three and Six Months Ended
June 30, 2009
Advanced
Engineered Materials
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
Ended June 30,
|
|
|
|
|
|
Ended June 30,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
|
|
|
(As Adjusted)
|
|
|
|
|
|
|
|
|
(As Adjusted)
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
|
282
|
|
|
|
184
|
|
|
|
98
|
|
|
|
564
|
|
|
|
349
|
|
|
|
215
|
|
Net sales variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
52
|
%
|
|
|
|
|
|
|
|
|
|
|
61
|
%
|
|
|
|
|
|
|
|
|
Price
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
Currency
|
|
|
(5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
Other
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
Other (charges) gains, net
|
|
|
(3
|
)
|
|
|
(4
|
)
|
|
|
1
|
|
|
|
2
|
|
|
|
(13
|
)
|
|
|
15
|
|
Operating profit (loss)
|
|
|
40
|
|
|
|
1
|
|
|
|
39
|
|
|
|
88
|
|
|
|
(17
|
)
|
|
|
105
|
|
Operating margin
|
|
|
14.2
|
%
|
|
|
0.5
|
%
|
|
|
|
|
|
|
15.6
|
%
|
|
|
(4.9
|
)%
|
|
|
|
|
Earnings (loss) from continuing operations before tax
|
|
|
79
|
|
|
|
31
|
|
|
|
48
|
|
|
|
171
|
|
|
|
13
|
|
|
|
158
|
|
Depreciation and amortization
|
|
|
18
|
|
|
|
19
|
|
|
|
(1
|
)
|
|
|
38
|
|
|
|
36
|
|
|
|
2
|
|
Our Advanced Engineered Materials segment develops, produces and
supplies a broad portfolio of high performance technical
polymers for application in automotive and electronics products,
as well as other consumer and industrial applications. Together
with our strategic affiliates, we are a leading participant in
the global technical polymers industry. The primary products of
Advanced Engineered Materials are POM, PPS, LFT, PBT,
polyethylene terephthalate (PET),
GUR
®
and LCP. POM, PPS, LFT, PBT and PET are used in a broad range of
products including automotive components, electronics,
appliances and industrial applications.
GUR
®
is used in battery separators, conveyor belts, filtration
equipment, coatings and medical devices. Primary end markets for
LCP are electrical and electronics.
Advanced Engineered Materials net sales increased
$98 million and $215 million for the three and six
months ended June 30, 2010, respectively, compared to the
same periods in 2009. The increase in net sales is primarily
related to significant increases in volume which is due to the
gradual recovery in the global economy, continued success in the
innovation and commercialization of new products and
applications and the acquisition of FACT in December 2009.
Advanced Engineered Materials reported their lowest net
sales during the three months ended March 31, 2009. Since
then, the business segment has continued to see sequential
volume improvement each quarter. The current quarter increase in
net sales for the three months ended June 30, 2010 as
compared to the same period in 2009 was positively impacted by
increases in average pricing as a result of implemented price
increases and product mix which was partially offset by
unfavorable foreign currency impacts.
Operating profit increased $39 million and
$105 million for the three and six months ended
June 30, 2010, respectively, as compared to the same
periods in 2009. The positive impact from higher sales volumes,
increased pricing for our high performance polymers and
inventory restocking was only partially offset by higher raw
material and energy costs. Other charges positively impacted
operating profit for the six months ended June 30, 2010 by
decreasing from an expense of $13 million for the six
months ended June 30, 2009 to income of $2 million for
the six months ended June 30, 2010. Other charges decreased
primarily as a result of plumbing recoveries and lower employee
severance. Depreciation and amortization includes
$2 million of accelerated amortization for the six months
ended June 30, 2010 to write off the asset associated with
a raw material purchase agreement with a supplier who filed for
bankruptcy during 2009.
9
Our equity affiliates, including Ibn Sina, have experienced
similar volume increases due to increased demand during the
three and six months ended June 30, 2010. As a result, our
proportional share of net earnings of these affiliates increased
$52 million for the six months ended June 30, 2010 compared
to the same period in 2009.
Consumer
Specialties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
Ended June 30,
|
|
|
|
|
|
Ended June 30,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
(unaudited)
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
|
291
|
|
|
|
280
|
|
|
|
11
|
|
|
|
529
|
|
|
|
546
|
|
|
|
(17
|
)
|
Net sales variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
Price
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
Currency
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
Other (charges) gains, net
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
2
|
|
|
|
(74
|
)
|
|
|
(3
|
)
|
|
|
(71
|
)
|
Operating profit (loss)
|
|
|
64
|
|
|
|
66
|
|
|
|
(2
|
)
|
|
|
34
|
|
|
|
132
|
|
|
|
(98
|
)
|
Operating margin
|
|
|
22.0
|
%
|
|
|
23.6
|
%
|
|
|
|
|
|
|
6.4
|
%
|
|
|
24.2
|
%
|
|
|
|
|
Earnings (loss) from continuing operations before tax
|
|
|
137
|
|
|
|
119
|
|
|
|
18
|
|
|
|
107
|
|
|
|
188
|
|
|
|
(81
|
)
|
Depreciation and amortization
|
|
|
9
|
|
|
|
12
|
|
|
|
(3
|
)
|
|
|
20
|
|
|
|
24
|
|
|
|
(4
|
)
|
Our Consumer Specialties segment consists of our Acetate
Products and Nutrinova businesses. Our Acetate Products business
primarily produces and supplies acetate tow, which is used in
the production of filter products. We also produce acetate
flake, which is processed into acetate tow and acetate film. Our
Nutrinova business produces and sells
Sunett
®
,
a high intensity sweetener, and food protection ingredients,
such as sorbates, for the food, beverage and pharmaceuticals
industries.
The decrease in net sales for the six months ended June 30,
2010 as compared to the same period in 2009 is due to decreased
volumes in our Acetate business and in
Sunett
®
which were only partially offset by an increase in demand in
sorbates. Decreased volumes were primarily due to softening in
consumer demand in
Sunett
®
and the timing of sales related to an electrical disruption and
subsequent production outage at our manufacturing facility in
Narrows, Virginia in our Acetate business. The facility resumed
normal operations during the quarter and we expect to recover
the impacted volume throughout the remainder of the year.
Operating profit decreased for the six months ended
June 30, 2010 as compared to the same period in 2009. Our
fixed spending reduction efforts were not able to offset the
lower volumes, higher energy and raw material costs, and
additional expenditures related to the outage at our Narrows,
Virginia facility. An increase in other charges for the six
months ended June 30, 2010 had the most significant impact
on operating profit as it was unfavorably impacted by long-lived
asset impairment losses of $72 million associated with
managements assessment of the potential closure of our
acetate flake and tow production operations in Spondon, Derby,
United Kingdom.
During the six months ended June 30, 2010, earnings from
continuing operations before tax decreased due to lower
operating profit, which was partially offset by higher dividends
from our China ventures of $15 million compared to 2009.
10
Industrial
Specialties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
Ended June 30,
|
|
|
|
|
|
Ended June 30,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
(unaudited)
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
|
269
|
|
|
|
267
|
|
|
|
2
|
|
|
|
511
|
|
|
|
509
|
|
|
|
2
|
|
Net sales variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
Price
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
Currency
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
Other
|
|
|
(18
|
)%
|
|
|
|
|
|
|
|
|
|
|
(17
|
)%
|
|
|
|
|
|
|
|
|
Other (charges) gains, net
|
|
|
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
3
|
|
Operating profit (loss)
|
|
|
16
|
|
|
|
19
|
|
|
|
(3
|
)
|
|
|
28
|
|
|
|
29
|
|
|
|
(1
|
)
|
Operating margin
|
|
|
5.9
|
%
|
|
|
7.1
|
%
|
|
|
|
|
|
|
5.5
|
%
|
|
|
5.7
|
%
|
|
|
|
|
Earnings (loss) from continuing operations before tax
|
|
|
16
|
|
|
|
19
|
|
|
|
(3
|
)
|
|
|
28
|
|
|
|
29
|
|
|
|
(1
|
)
|
Depreciation and amortization
|
|
|
10
|
|
|
|
14
|
|
|
|
(4
|
)
|
|
|
20
|
|
|
|
27
|
|
|
|
(7
|
)
|
Our Industrial Specialties segment includes our Emulsions and
EVA Performance Polymers businesses. Our Emulsions business is a
global leader which produces a broad product portfolio,
specializing in VAE, and is a recognized authority on low
volatile organic compounds, an environmentally-friendly
technology. Our emulsions products are used in a wide array of
applications including paints and coatings, adhesives,
construction, glass fiber, textiles and paper. EVA Performance
Polymers offers a complete line of low-density polyethylene and
specialty EVA resins and compounds. EVA Performance
Polymers products are used in many applications including
flexible packaging films, lamination film products, hot melt
adhesives, medical devices and tubing, automotive, carpeting and
solar cell encapsulation films.
In July 2009, we completed the sale of our PVOH business to
Sekisui Chemical Co., Ltd. (Sekisui) for a net cash
purchase price of $168 million, excluding the value of
accounts receivable and payable retained by Celanese. The
transaction resulted in a gain on disposition of
$34 million and includes long-term supply agreements
between Sekisui and Celanese.
Net sales increased $2 million for the three and six months
ended June 30, 2010 compared to the same periods in 2009.
Lower net sales resulting from the sale of our PVOH business
were more than offset by increased volumes from our EVA
Performance Polymers and Emulsions businesses. EVA Performance
Polymers volumes were lower for the second quarter of 2009
due to technical issues at our Edmonton, Alberta, Canada plant.
Such technical production issues have been resolved and normal
operations resumed prior to the end of the third quarter of
2009. Higher prices in our EVA Performance Polymers business due
to a second quarter price increase and favorable product mix
were partially offset by lower net sales in Emulsions due to an
unfavorable foreign exchange rate. Vinyl acetate/ethylene
emulsions production volumes at our Nanjing, China facility
remained at full utilization on strong demand in the
Asia-Pacific region. As previously announced, we plan to expand
our production capacity in 2011 to support our continued success
in new product development and application innovation.
Operating profit decreased $3 million and $1 million
for the three and six months ended June 30, 2010,
respectively, compared to the same periods in 2009 primarily due
to the divestiture of our PVOH business. Increased sales volumes
and prices were largely offset by higher raw material costs in
both our EVA Performance Polymers and Emulsions businesses and
increased spending and energy costs attributable to the
resumption of normal operations at our EVA Performance Polymers
Edmonton, Alberta, Canada plant.
11
Acetyl
Intermediates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
Ended June 30,
|
|
|
|
|
|
Ended June 30,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
|
|
|
(As Adjusted)
|
|
|
|
|
|
|
|
|
(As Adjusted)
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
|
782
|
|
|
|
622
|
|
|
|
160
|
|
|
|
1,506
|
|
|
|
1,194
|
|
|
|
312
|
|
Net sales variance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
Price
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
Currency
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
Other (charges) gains, net
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
(8
|
)
|
|
|
(1
|
)
|
|
|
(7
|
)
|
Operating profit (loss)
|
|
|
68
|
|
|
|
39
|
|
|
|
29
|
|
|
|
68
|
|
|
|
50
|
|
|
|
18
|
|
Operating margin
|
|
|
8.7
|
%
|
|
|
6.3
|
%
|
|
|
|
|
|
|
4.5
|
%
|
|
|
4.2
|
%
|
|
|
|
|
Earnings (loss) from continuing operations before tax
|
|
|
70
|
|
|
|
41
|
|
|
|
29
|
|
|
|
71
|
|
|
|
53
|
|
|
|
18
|
|
Depreciation and amortization
|
|
|
24
|
|
|
|
32
|
|
|
|
(8
|
)
|
|
|
69
|
|
|
|
59
|
|
|
|
10
|
|
Our Acetyl Intermediates segment produces and supplies acetyl
products, including acetic acid, VAM, acetic anhydride and
acetate esters. These products are generally used as starting
materials for colorants, paints, adhesives, coatings, textiles,
medicines and more. Other chemicals produced in this business
segment are organic solvents and intermediates for
pharmaceutical, agricultural and chemical products. To meet the
growing demand for acetic acid in China and ongoing site
optimization efforts, we successfully expanded our acetic acid
unit in Nanjing, China from 600,000 tons per reactor annually to
1.2 million tons per reactor annually. Using new
AOPlus
®
2
capability, the acetic acid unit could be further expanded to
1.5 million tons per reactor annually with only modest
additional capital.
Acetyl Intermediates net sales increased $160 million
and $312 million during the three and six months ended
June 30, 2010, respectively, compared to the same periods
in 2009 due to improvement in the global economy and increased
overall demand. Current period increases in volume were also a
direct result of our successful acetic acid expansion at our
Nanjing, China plant. We also experienced favorable pricing
which was driven by rising raw material costs and price
increases in acetic acid and VAM across all regions. The
increase in net sales was only slightly offset by unfavorable
foreign currency impacts.
Operating profit increased during the three and six months ended
June 30, 2010 compared to the same periods in 2009. The
increase in operating profit is primarily due to higher volumes
and prices and reduction in plant costs resulting from the
closure of our less advantaged acetic acid and VAM production
operations in Pardies, France. The increase in operating profit
was only slightly offset by higher variable costs and an
increase in other charges. Higher variable costs were a direct
result of price increases, primarily in ethylene. Other charges
consisted primarily of plant closure costs related to our
Pardies, France facility.
Earnings from continuing operations before tax increased during
the three and six months ended June 30, 2010 compared to
the same periods in 2009 due to increased operating profit.
Other
Activities
Other Activities primarily consists of corporate center costs,
including financing and administrative activities, and our
captive insurance companies.
Net sales remained flat for the three and six months ended
June 30, 2010.
12
The operating loss for Other Activities decreased
$4 million and $2 million for the three and six months
ended June 30, 2010, respectively, compared to the same
periods in 2009. The decrease was primarily due to a
$14 million gain on sale of assets, offset by
$14 million higher selling, general and administrative
costs. Higher selling, general and administrative expenses were
primarily due to higher business optimization, finance
improvement initiatives, management compensation and legal costs.
The loss from continuing operations before tax decreased
$5 million and $7 million for the three and six months
ended June 30, 2010, respectively, compared to the same
periods in 2009. The decrease is primarily due to reduced
interest expense resulting from lower interest rates on
borrowings under the Senior Credit Agreement in addition to
higher returns on our equity investments.
Summary
of Consolidated ResultsYear Ended December 31, 2009
compared with Year Ended December 31, 2008
The challenging economic environment in the United States and
Europe during the second half of 2008 continued throughout 2009.
Net sales declined in 2009 from 2008 primarily as a result of
decreased demand due to the significant weakness of the global
economy. In July 2009, we completed the sale of our PVOH
business which also contributed to the declines in our sales
volumes. In the fourth quarter of 2009, we began to see a
gradual recovery in the global economy with increasing demand
within some of our business segments. A decrease in selling
prices was also a significant factor on the decrease in net
sales. Decreases in key raw material and energy costs were the
primary factors in lower selling prices. A slightly unfavorable
foreign currency impact also contributed to the decrease in net
sales.
Gross profit declined due to lower net sales. As a percentage of
sales, gross profit increased as lower raw material and energy
costs more than offset decreases in net sales during the year
ended December 31, 2009. For the remainder of 2010, we
expect raw material and energy costs to increase, which will
partially be offset by increases in selling prices.
The components of Other (charges) gains, net are as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in millions)
|
|
|
Employee termination benefits
|
|
$
|
(105
|
)
|
|
$
|
(21
|
)
|
Plant/office closures
|
|
|
(17
|
)
|
|
|
(7
|
)
|
Plumbing actions
|
|
|
10
|
|
|
|
|
|
Insurance recoveries associated with Clear Lake, Texas
|
|
|
6
|
|
|
|
38
|
|
Asset impairments
|
|
|
(14
|
)
|
|
|
(115
|
)
|
Ticona Kelsterbach plant relocation
|
|
|
(16
|
)
|
|
|
(12
|
)
|
Sorbates antitrust actions
|
|
|
|
|
|
|
8
|
|
Other
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Total Other (charges) gains, net
|
|
$
|
(136
|
)
|
|
$
|
(108
|
)
|
|
|
|
|
|
|
|
|
|
During the first quarter of 2009, we began efforts to align
production capacity and staffing levels with our view of an
economic environment of prolonged lower demand. For the year
ended December 31, 2009, other charges included employee
termination benefits of $40 million related to this
endeavor. As a result of the shutdown of the VAM production unit
in Cangrejera, Mexico, we recognized employee termination
benefits of $1 million and long-lived asset impairment
losses of $1 million during the year ended
December 31, 2009. The VAM production unit in Cangrejera,
Mexico is included in our Acetyl Intermediates segment.
As a result of the Project of Closure at our Pardies, France
facility, other charges included exit costs of $89 million
during the year ended December 31, 2009, which consisted of
$60 million in employee
13
termination benefits, $17 million of contract termination
costs and $12 million of long-lived asset impairment
losses. The Pardies, France facility is included in the Acetyl
Intermediates segment.
Due to continued declines in demand in automotive and electronic
sectors, we announced plans to reduce capacity by ceasing
polyester polymer production at our Ticona manufacturing plant
in Shelby, North Carolina. Other charges for the year ended
December 31, 2009 included employee termination benefits of
$2 million and long-lived asset impairment losses of
$1 million related to this event. The Shelby, North
Carolina facility is included in the Advanced Engineered
Materials segment.
Other charges for the year ended December 31, 2009 was
partially offset by $6 million of insurance recoveries in
satisfaction of claims we made related to the unplanned outage
of our Clear Lake, Texas acetic acid facility during 2007, a
$9 million decrease in legal reserves for plumbing claims
due to the Companys ongoing assessment of the likely
outcome of the plumbing actions and the expiration of the
statute of limitation.
Selling, general and administrative expenses decreased during
2009 primarily due to business optimization and finance
improvement initiatives.
Operating profit decreased due to lower gross profit and higher
other charges partially offset by lower selling, general and
administrative costs.
Equity in net earnings of affiliates decreased during 2009,
primarily due to reduced earnings from our Advanced Engineered
Materials affiliates resulting from decreased demand.
Our effective tax rate for continuing operations for the year
ended December 31, 2009 was (97)% compared to 15% for the
year ended December 31, 2008. Our effective tax rate for
2009 was favorably impacted by the release of the US valuation
allowance, partially offset by lower earnings in jurisdictions
participating in tax holidays, increases in valuation allowances
on certain foreign net deferred tax assets and the effect of new
tax legislation in Mexico.
Financial
Highlights by Business Segment2009 Compared with
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
(As Adjusted)
|
|
|
|
|
|
|
(in millions)
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered Materials
|
|
$
|
808
|
|
|
$
|
1,061
|
|
|
$
|
(253
|
)
|
Consumer Specialties
|
|
|
1,084
|
|
|
|
1,155
|
|
|
|
(71
|
)
|
Industrial Specialties
|
|
|
974
|
|
|
|
1,406
|
|
|
|
(432
|
)
|
Acetyl Intermediates
|
|
|
2,603
|
|
|
|
3,875
|
|
|
|
(1,272
|
)
|
Other Activities
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
Inter-segment Eliminations
|
|
|
(389
|
)
|
|
|
(676
|
)
|
|
|
287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,082
|
|
|
$
|
6,823
|
|
|
$
|
(1,741
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (charges) gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered Materials
|
|
$
|
(18
|
)
|
|
$
|
(29
|
)
|
|
$
|
11
|
|
Consumer Specialties
|
|
|
(9
|
)
|
|
|
(2
|
)
|
|
|
(7
|
)
|
Industrial Specialties
|
|
|
4
|
|
|
|
(3
|
)
|
|
|
7
|
|
Acetyl Intermediates
|
|
|
(91
|
)
|
|
|
(78
|
)
|
|
|
(13
|
)
|
Other Activities
|
|
|
(22
|
)
|
|
|
4
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(136
|
)
|
|
$
|
(108
|
)
|
|
$
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
(As Adjusted)
|
|
|
|
|
|
|
(in millions)
|
|
|
Operating profit (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered Materials
|
|
$
|
38
|
|
|
$
|
37
|
|
|
$
|
1
|
|
Consumer Specialties
|
|
|
231
|
|
|
|
190
|
|
|
|
41
|
|
Industrial Specialties
|
|
|
89
|
|
|
|
47
|
|
|
|
42
|
|
Acetyl Intermediates
|
|
|
92
|
|
|
|
304
|
|
|
|
(212
|
)
|
Other Activities
|
|
|
(160
|
)
|
|
|
(138
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
290
|
|
|
$
|
440
|
|
|
$
|
(150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered Materials
|
|
$
|
114
|
|
|
$
|
190
|
|
|
$
|
(76
|
)
|
Consumer Specialties
|
|
|
288
|
|
|
|
237
|
|
|
|
51
|
|
Industrial Specialties
|
|
|
89
|
|
|
|
47
|
|
|
|
42
|
|
Acetyl Intermediates
|
|
|
102
|
|
|
|
312
|
|
|
|
(210
|
)
|
Other Activities
|
|
|
(342
|
)
|
|
|
(353
|
)
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
251
|
|
|
$
|
433
|
|
|
$
|
(182
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered Materials
|
|
$
|
73
|
|
|
$
|
76
|
|
|
$
|
(3
|
)
|
Consumer Specialties
|
|
|
50
|
|
|
|
53
|
|
|
|
(3
|
)
|
Industrial Specialties
|
|
|
51
|
|
|
|
62
|
|
|
|
(11
|
)
|
Acetyl Intermediates
|
|
|
123
|
|
|
|
150
|
|
|
|
(27
|
)
|
Other Activities
|
|
|
11
|
|
|
|
9
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
308
|
|
|
$
|
350
|
|
|
$
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Factors
Affecting Business Segment Net Sales2009 Compared with
2008
The table below sets forth the percentage increase (decrease) in
net sales for the years ended December 31 attributable to each
of the factors indicated for the following business segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
Price
|
|
|
Currency
|
|
|
Other
|
|
|
Total
|
|
|
|
(in percentages)
|
|
|
2009 Compared to 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered Materials
|
|
|
(21
|
)
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
(24
|
)
|
Consumer Specialties
|
|
|
(12
|
)
|
|
|
7
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(6
|
)
|
Industrial Specialties
|
|
|
(10
|
)
|
|
|
(10
|
)
|
|
|
(2
|
)
|
|
|
(9
|
)
(2)
|
|
|
(31
|
)
|
Acetyl Intermediates
|
|
|
(6
|
)
|
|
|
(26
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(33
|
)
|
Total Company
|
|
|
(10
|
)
|
|
|
(16
|
)
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
(26
|
)
(1)
|
|
|
|
(1)
|
|
Includes the effects of the captive insurance companies.
|
|
(2)
|
|
Includes loss of sales related to the sale of the PVOH business
on July 1, 2009.
|
15
Summary
by Business SegmentYear Ended December 31, 2009
Compared with Year Ended December 31, 2008
Advanced
Engineered Materials
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
(As Adjusted)
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
$
|
808
|
|
|
$
|
1,061
|
|
|
$
|
(253
|
)
|
Net sales variance
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
(21
|
)%
|
|
|
|
|
|
|
|
|
Price
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
Currency
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
%
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
38
|
|
|
|
37
|
|
|
|
1
|
|
Operating margin
|
|
|
4.7
|
%
|
|
|
3.5
|
%
|
|
|
|
|
Other (charges) gains, net
|
|
$
|
(18
|
)
|
|
$
|
(29
|
)
|
|
$
|
11
|
|
Earnings (loss) from continuing operations before tax
|
|
|
114
|
|
|
|
190
|
|
|
|
(76
|
)
|
Depreciation and amortization
|
|
|
73
|
|
|
|
76
|
|
|
|
(3
|
)
|
Net sales decreased during 2009 compared to 2008 primarily as a
result of lower sales volumes. Significant weakness in the
global economy experienced during the first half of the year
resulted in a dramatic decline in demand for automotive,
electrical and electronic products as well as for other
industrial products. As a result, sales volumes dropped
significantly across all product lines. During the second half
of 2009, we experienced a continued increase in demand compared
with the first half of the year as a result of programs like
Cash for Clunkers in the United States during the
third quarter of 2009 and a gradual recovery in the global
economy during the fourth quarter of 2009.
Operating profit increased in 2009 as compared to 2008. Lower
raw material and energy costs and decreased overall spending
more than offset the decline in net sales. Decreased overall
spending was the result of our fixed spending reduction efforts.
Non-capital spending incurred on the relocation of our Ticona
Kelsterbach plant was flat compared to 2008.
Earnings from continuing operations before tax was down due to a
drop in equity in net earnings of affiliates as compared to
2008. Equity in net earnings of affiliates was lower in 2009
primarily due to reduced earnings from our Advanced Engineered
Materials affiliates resulting from decreased demand and a
biennial shutdown at one of our affiliates plants.
16
Consumer
Specialties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
$
|
1,084
|
|
|
$
|
1,155
|
|
|
$
|
(71
|
)
|
Net sales variance
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
(12
|
)%
|
|
|
|
|
|
|
|
|
Price
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
Currency
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
%
|
|
|
|
|
|
|
|
|
Operating profit
|
|
$
|
231
|
|
|
$
|
190
|
|
|
$
|
41
|
|
Operating margin
|
|
|
21.3
|
%
|
|
|
16.5
|
%
|
|
|
|
|
Other (charges) gains, net
|
|
$
|
(9
|
)
|
|
$
|
(2
|
)
|
|
$
|
(7
|
)
|
Earnings (loss) from continuing operations before tax
|
|
|
288
|
|
|
|
237
|
|
|
|
51
|
|
Depreciation and amortization
|
|
|
50
|
|
|
|
53
|
|
|
|
(3
|
)
|
Net sales decreased $71 million during 2009 when compared
with 2008. The decrease in net sales was driven primarily by
decreased volume due to softening demand largely in tow with
less significant decreases experienced in flake. Decreased
volumes were primarily due to weakness in underlying demand
resulting from the global economic downturn. The decrease in
volume was partially offset by an increase in selling prices. A
slightly unfavorable foreign currency impact also contributed to
the decrease in net sales.
Operating profit increased from $190 million in 2008 to
$231 million in 2009. Fixed cost reduction efforts,
improved energy costs and a favorable currency impact on costs
had a significant impact on the increase to operating profit.
Earnings from continuing operations before tax increased from
$237 million in 2008 to $288 million in 2009. The
increase was primarily due to the increase in operating profit
and was also the result of an increase in dividends from our
China ventures of $10 million. Increased dividends are the
result of increased volumes and higher prices, as well as
efficiency improvements.
Industrial
Specialties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
$
|
974
|
|
|
$
|
1,406
|
|
|
$
|
(432
|
)
|
Net sales variance
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
(10
|
)%
|
|
|
|
|
|
|
|
|
Price
|
|
|
(10
|
)%
|
|
|
|
|
|
|
|
|
Currency
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
Other
|
|
|
(9
|
)%
|
|
|
|
|
|
|
|
|
Operating profit
|
|
$
|
89
|
|
|
$
|
47
|
|
|
$
|
42
|
|
Operating margin
|
|
|
9.1
|
%
|
|
|
3.3
|
%
|
|
|
|
|
Other (charges) gains, net
|
|
$
|
4
|
|
|
$
|
(3
|
)
|
|
$
|
7
|
|
Earnings (loss) from continuing operations before tax
|
|
|
89
|
|
|
|
47
|
|
|
|
42
|
|
Depreciation and amortization
|
|
|
51
|
|
|
|
62
|
|
|
|
(11
|
)
|
17
Net sales declined by $432 million during 2009 compared to
2008, primarily due to the sale of our PVOH business and lower
demand due to the economic downturn. The decline in our
emulsions volumes was concentrated in North America and Europe,
offset partially by volume increases in Asia. EVA Performance
Polymers sales volumes declined due to the impact of the
force majeure event at our Edmonton, Alberta, Canada plant,
which is offset in other charges in our Other Activities
segment. Repairs to the plant were completed at the end of the
second quarter 2009 and normal operations have resumed. Both
decreases in key raw material costs resulting in lower selling
prices and unfavorable currency impacts also contributed to the
decrease in net sales for 2009 compared to 2008.
Operating profit increased $42 million in 2009 compared to
2008 as decreases in volume and selling prices were more than
offset by lower raw material and energy costs and reduced
overall spending. Reduced spending is attributable to our fixed
spending reduction efforts, restructuring efficiencies and
favorable foreign currency impacts on costs. The decrease in
energy cost was due to both lower natural gas costs and lower
usage resulting from a decline in volumes. Our EVA Performance
Polymers business contributed to the increase in Other (charges)
gains, net as a result of receiving $10 million in
insurance recoveries in partial satisfaction of the losses
resulting from the force majeure event at our Edmonton, Alberta,
Canada plant. The gain on the sale of our PVOH business of
$34 million had a significant impact to the increase in
operating profit. Deprecation and amortization also had a
favorable impact on operating profit due to the PVOH divestiture
and the shutdown of our Warrington, UK emulsions facility.
Acetyl
Intermediates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
(As Adjusted)
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
$
|
2,603
|
|
|
$
|
3,875
|
|
|
$
|
(1,272
|
)
|
Net sales variance
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
(6
|
)%
|
|
|
|
|
|
|
|
|
Price
|
|
|
(26
|
)%
|
|
|
|
|
|
|
|
|
Currency
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
%
|
|
|
|
|
|
|
|
|
Operating profit
|
|
$
|
92
|
|
|
$
|
304
|
|
|
$
|
(212
|
)
|
Operating margin
|
|
|
3.5
|
%
|
|
|
7.8
|
%
|
|
|
|
|
Other (charges) gains, net
|
|
$
|
(91
|
)
|
|
$
|
(78
|
)
|
|
$
|
(13
|
)
|
Earnings (loss) from continuing operations before tax
|
|
|
102
|
|
|
|
312
|
|
|
|
(210
|
)
|
Depreciation and amortization
|
|
|
123
|
|
|
|
150
|
|
|
|
(27
|
)
|
Net sales decreased 33% during 2009 as compared to 2008
primarily due to lower selling prices across all regions and
major product lines, lower volumes and unfavorable foreign
currency impacts. Lower volumes were driven by a reduction in
underlying demand in Europe and in the Americas, which was only
partially offset by significant increases in demand in Asia.
Lower pricing was driven by lower raw material and energy
prices, which also negatively impacted our formula-based pricing
arrangements for VAM in the US. There were a number of
production issues in Asia among the major acetic acid producers
(other than Celanese), which coupled with planned outages,
caused periodic and short-term market tightness. In 2010, sales
are expected to increase as compared to the corresponding period
in 2009 as the global economy begins to slowly recover.
Operating profit declined $212 million in 2009 compared to
2008, primarily as a result of lower prices across all regions
and major product lines. Significantly lower realized pricing
was partially offset by
18
favorable raw material and energy prices, reduced spending due
to the shutdown of our Pampa, Texas facility and other
reductions in fixed spending. The decline in depreciation and
amortization expense was primarily a result of the long-lived
asset impairment losses recognized in the fourth quarter of 2008
related to our acetic acid and VAM production facility in
Pardies, France, the February 2009 closure of our VAM production
unit in Cangrejera, Mexico, and lower depreciation expense
resulting from the shutdown of our Pampa, Texas facility. Our
operating profit was also negatively impacted by a
$13 million increase in Other charges for 2009 compared to
2008, relating primarily to the planned shutdown of our Pardies,
France facility.
The decrease in earnings from continuing operations before tax
of $210 million is consistent with the decline in operating
profit.
Other
Activities
Net sales remained flat in 2009 as compared to 2008. We do not
expect third-party revenues from our captive insurance companies
to increase significantly in the near future.
The operating loss for Other Activities increased from an
operating loss of $138 million in 2008 to an operating loss
of $160 million in 2009. The increase was primarily related
to higher other charges. The increase in other charges was
related to insurance retention costs as a result of our force
majeure event at our Edmonton, Alberta, Canada plant, partially
offset in our Industrial Specialties segment and severance costs
as a result of business optimization and finance improvement
initiatives. The increase in other charges was partially offset
by lower selling, general and administrative expenses primarily
attributable to our fixed spending reduction efforts and
restructuring efficiencies.
The loss from continuing operations before tax decreased
$11 million in 2009 compared to 2008. This decrease was
primarily due to reduced interest expense resulting from lower
interest rates on borrowings under the Senior Credit Agreement
and favorable currency impact.
Summary
of Consolidated ResultsYear Ended December 31, 2008
compared with Year Ended December 31, 2007
The challenging economic environment in the United States and
Europe during the first half of 2008 resulted in higher raw
material and energy costs which enabled price increase
initiatives across all business segments. During the second half
of 2008, the US credit crisis accelerated the economic slowdown
and its spread to other regions of the world. Despite the halt
in demand, we were able to maintain the majority of our enacted
price increases through the remainder of 2008. As a result,
increased prices improved net sales by 8%. Favorable foreign
currency impacts also had a positive impact on net sales of 3%.
Net sales declined 5% due to decreased volumes. Lower volumes
were primarily a result of decreased demand stemming from the
global economic downturn. As demand declined, particularly
during the fourth quarter of 2008, our customers began
destocking to reduce their inventory levels. In response, we
aggressively managed our global production capacity to align
with the current environment. Decreased volumes in our acetate
flake and tow businesses were not significantly impacted by the
economic downturn. Rather, decreased flake volumes were the
result of our strategic decision to shift our flake production
to our China ventures, which we account for as cost investments.
Gross profit declined as higher raw material, energy and freight
costs more than offset increases in net sales during the year
ended December 31, 2008. The uncertain economic environment
resulted in higher natural gas, ethylene, methanol and other
commodity prices during the first nine months of the year. Our
freight costs also increased, primarily due to increased rates
driven by higher energy prices. Late in 2008, raw material and
energy prices declined.
19
The components of Other (charges) gains, net are as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions)
|
|
|
Employee termination benefits
|
|
$
|
(21
|
)
|
|
$
|
(32
|
)
|
Plant/office closures
|
|
|
(7
|
)
|
|
|
(11
|
)
|
Deferred compensation triggered by Exit Event
|
|
|
|
|
|
|
(74
|
)
|
Plumbing actions
|
|
|
|
|
|
|
4
|
|
Insurance recoveries associated with Clear Lake, Texas
|
|
|
38
|
|
|
|
40
|
|
Resolution of commercial disputes with a vendor
|
|
|
|
|
|
|
31
|
|
Asset impairments
|
|
|
(115
|
)
|
|
|
(9
|
)
|
Ticona Kelsterbach plant relocation
|
|
|
(12
|
)
|
|
|
(5
|
)
|
Sorbates antitrust actions
|
|
|
8
|
|
|
|
|
|
Other
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Total Other (charges) gains, net
|
|
$
|
(108
|
)
|
|
$
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
Other charges increased in 2008 compared to 2007 and includes a
long-lived asset impairment loss of $92 million in
connection with the 2009 closure of our acetic acid and VAM
production facility in Pardies, France, our VAM production unit
in Cangrejera, Mexico and the potential closure of certain other
facilities. This capacity reduction was necessitated by the
significant change in the global economic environment and
anticipated lower customer demand. Following the initial
assessment of this capacity reduction, we shut down the
Cangrejera VAM production unit in February 2009.
In addition, we recognized $23 million of long-lived asset
impairment losses and $13 million of employee termination
benefits in 2008 related to the shutdown of our Pampa, Texas
facility.
During 2007, we fully impaired $6 million of goodwill
related to our PVOH business.
Selling, general and administrative expenses increased
$24 million during 2008 primarily due to business
optimization and finance improvement initiatives.
Operating profit decreased due to lower gross profit and higher
other charges and selling, general and administrative costs. The
absence of a $34 million gain on the sale of our Edmonton,
Alberta, Canada facility during 2007 also contributed to lower
operating profit in 2008 as compared to 2007.
Equity in net earnings of affiliates increased $22 million
during 2008, primarily due to increased earnings from our
Advanced Engineered Materials affiliates. Our effective
income tax rate for 2008 was 15% compared to 25% in 2007. The
effective income tax rate decreased in 2008 due to: 1) a
decrease in the valuation allowance, 2) tax credits
generated on foreign jurisdictions and 3) the US tax impact
of foreign operations.
The loss from discontinued operations of $90 million during
2008 primarily relates to a legal settlement agreement we
entered into during 2008. Under the settlement agreement, we
agreed to pay $107 million to resolve certain legacy items.
Because the legal proceeding related to sales by the polyester
staple fibers business, which Hoechst AG sold to KoSa, Inc. in
1998, the impact of the settlement is reflected within
discontinued operations for the year ended December 31,
2008.
20
Financial
Highlights by Business Segment2008 Compared with
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
(As Adjusted)
|
|
|
|
|
|
|
(in millions)
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered Materials
|
|
$
|
1,061
|
|
|
$
|
1,030
|
|
|
$
|
31
|
|
Consumer Specialties
|
|
|
1,155
|
|
|
|
1,111
|
|
|
|
44
|
|
Industrial Specialties
|
|
|
1,406
|
|
|
|
1,346
|
|
|
|
60
|
|
Acetyl Intermediates
|
|
|
3,875
|
|
|
|
3,615
|
|
|
|
260
|
|
Other Activities
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
Inter-segment Eliminations
|
|
|
(676
|
)
|
|
|
(660
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,823
|
|
|
$
|
6,444
|
|
|
$
|
379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (charges) gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered Materials
|
|
$
|
(29
|
)
|
|
$
|
(4
|
)
|
|
$
|
(25
|
)
|
Consumer Specialties
|
|
|
(2
|
)
|
|
|
(4
|
)
|
|
|
2
|
|
Industrial Specialties
|
|
|
(3
|
)
|
|
|
(23
|
)
|
|
|
20
|
|
Acetyl Intermediates
|
|
|
(78
|
)
|
|
|
72
|
|
|
|
(150
|
)
|
Other Activities
|
|
|
4
|
|
|
|
(99
|
)
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(108
|
)
|
|
$
|
(58
|
)
|
|
$
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered Materials
|
|
$
|
37
|
|
|
$
|
137
|
|
|
$
|
(100
|
)
|
Consumer Specialties
|
|
|
190
|
|
|
|
199
|
|
|
|
(9
|
)
|
Industrial Specialties
|
|
|
47
|
|
|
|
28
|
|
|
|
19
|
|
Acetyl Intermediates
|
|
|
304
|
|
|
|
612
|
|
|
|
(308
|
)
|
Other Activities
|
|
|
(138
|
)
|
|
|
(228
|
)
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
440
|
|
|
$
|
748
|
|
|
$
|
(308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered Materials
|
|
$
|
190
|
|
|
$
|
260
|
|
|
$
|
(70
|
)
|
Consumer Specialties
|
|
|
237
|
|
|
|
235
|
|
|
|
2
|
|
Industrial Specialties
|
|
|
47
|
|
|
|
28
|
|
|
|
19
|
|
Acetyl Intermediates
|
|
|
312
|
|
|
|
613
|
|
|
|
(301
|
)
|
Other Activities
|
|
|
(353
|
)
|
|
|
(699
|
)
|
|
|
346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
433
|
|
|
$
|
437
|
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered Materials
|
|
$
|
76
|
|
|
$
|
69
|
|
|
$
|
7
|
|
Consumer Specialties
|
|
|
53
|
|
|
|
51
|
|
|
|
2
|
|
Industrial Specialties
|
|
|
62
|
|
|
|
59
|
|
|
|
3
|
|
Acetyl Intermediates
|
|
|
150
|
|
|
|
106
|
|
|
|
44
|
|
Other Activities
|
|
|
9
|
|
|
|
6
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
350
|
|
|
$
|
291
|
|
|
$
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
Factors
Affecting Business Segment Net Sales2008 Compared with
2007
The table below sets forth the percentage increase (decrease) in
net sales for the years ended December 31 attributable to each
of the factors indicated for the following business segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
Price
|
|
|
Currency
|
|
|
Other
|
|
|
Total
|
|
|
|
(In percentages)
|
|
|
2008 Compared to 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered Materials
|
|
|
(4
|
)
|
|
|
3
|
|
|
|
4
|
|
|
|
|
|
|
|
3
|
|
Consumer Specialties
|
|
|
(6
|
)
|
|
|
7
|
|
|
|
1
|
|
|
|
2
|
(1)
|
|
|
4
|
|
Industrial Specialties
|
|
|
(10
|
)
|
|
|
11
|
|
|
|
4
|
|
|
|
(1
|
)
(2)
|
|
|
4
|
|
Acetyl Intermediates
|
|
|
(3
|
)
|
|
|
7
|
|
|
|
3
|
|
|
|
|
|
|
|
7
|
|
Total Company
|
|
|
(5
|
)
|
|
|
8
|
|
|
|
3
|
|
|
|
|
|
|
|
6
|
(3)
|
|
|
|
(1)
|
|
Includes net sales from the Acetate Products Limited
(APL) acquisition.
|
|
(2)
|
|
Includes loss of sales related to the sale of the EVA
Performance Polymers (f/k/a AT Plastics) Films business.
|
|
(3)
|
|
Includes the effects of the captive insurance companies.
|
Summary
by Business SegmentYear Ended December 31, 2008
Compared with Year Ended December 31, 2007
Advanced
Engineered Materials
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
(As Adjusted)
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
$
|
1,061
|
|
|
$
|
1,030
|
|
|
$
|
31
|
|
Net sales variance
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
Price
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
Currency
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
%
|
|
|
|
|
|
|
|
|
Operating profit
|
|
$
|
37
|
|
|
$
|
137
|
|
|
$
|
(100
|
)
|
Operating margin
|
|
|
3.5
|
%
|
|
|
13.3
|
%
|
|
|
|
|
Other (charges) gains, net
|
|
$
|
(29
|
)
|
|
$
|
(4
|
)
|
|
$
|
(25
|
)
|
Earnings (loss) from continuing operations before tax
|
|
|
190
|
|
|
|
260
|
|
|
|
(70
|
)
|
Depreciation and amortization
|
|
|
76
|
|
|
|
69
|
|
|
|
7
|
|
Advanced Engineered Materials net sales increased 3%
during 2008 as compared to 2007 primarily as a result of
implemented pricing increases combined with favorable foreign
currency impacts. Increases in net sales were partially offset
by lower volumes due to significant weakness in the US and
European automotive and housing industries. Extended plant
shutdowns enacted by major car manufacturers during the fourth
quarter of 2008 contributed significantly to the volume decline.
Operating profit declined $100 million in 2008 as compared
to 2007 primarily due to higher raw material, freight and energy
costs. Raw material costs increased on higher prices while
freight costs increased as a result of increased freight rates
and larger shipments to Asia. Raw material costs declined late
in 2008,
22
though at year end we held higher-cost inventories while
inventory destocking continued. Higher depreciation and
amortization expense and increased other charges also
contributed to lower operating profit. Depreciation and
amortization expense are higher in 2008 due to the
start-up
of
the
GUR
®
and LFT units in Asia. Other charges consist primarily of a
$16 million long-lived asset impairment loss related to
certain Advanced Engineered Materials facilities and
$12 million related to the relocation of our Ticona plant
in Kelsterbach.
Earnings from continuing operations before tax decreased in 2008
compared to 2007 due to decreased operating profit, which was
only slightly offset by increased equity in net earnings of
affiliates. Equity in net earnings of affiliates increased
$32 million.
Consumer
Specialties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
$
|
1,155
|
|
|
$
|
1,111
|
|
|
$
|
44
|
|
Net sales variance
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
(6
|
)%
|
|
|
|
|
|
|
|
|
Price
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
Currency
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
Other
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
Operating profit
|
|
$
|
190
|
|
|
$
|
199
|
|
|
$
|
(9
|
)
|
Operating margin
|
|
|
16.5
|
%
|
|
|
17.9
|
%
|
|
|
|
|
Other (charges) gains, net
|
|
$
|
(2
|
)
|
|
$
|
(4
|
)
|
|
$
|
2
|
|
Earnings (loss) from continuing operations before tax
|
|
|
237
|
|
|
|
235
|
|
|
|
2
|
|
Depreciation and amortization
|
|
|
53
|
|
|
|
51
|
|
|
|
2
|
|
Consumer Specialties net sales increased 4% to
$1,155 million for 2008 as compared to 2007, driven
primarily by pricing actions in our Acetate Products business
and an additional month of sales from our APL acquisition, which
occurred on January 31, 2007, partially offset by lower
volumes. Lower volumes are a direct result of our strategic
decision to shift acetate flake production to our China
ventures, which are accounted for as cost method investments.
The full impact of this shift has been realized during 2008 and
thus the resulting trend of diminishing volumes is not expected
to continue. Lower flake volumes were partially offset by an
increase in tow volumes as we were able to capture a portion of
the growth in global tow demand.
The increase in net sales for 2008 due to higher sales prices
during the year was offset most significantly by higher energy
costs, and to a lesser extent, higher raw material and freight
costs. Operating profit for 2008 , as compared to 2007, declined
primarily due to the absence of a $22 million gain on the
sale of our Edmonton, Alberta, Canada facility in 2007. Other
(charges) gains during 2007 includes $3 million of deferred
compensation plan expenses and $5 million of other
restructuring charges, partially offset by insurance recoveries
of $5 million in partial satisfaction of the business
interruption losses resulting from the temporary unplanned
outage of the acetic acid unit at our Clear Lake, Texas facility.
Earnings from continuing operations before tax increased from
$235 million in 2007 to $237 million in 2008, as
increased dividends from our China ventures more than offset the
decline in operating profit. Increased dividends are the result
of increased volumes, higher prices, and efficiency improvements.
23
Industrial
Specialties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
$
|
1,406
|
|
|
$
|
1,346
|
|
|
$
|
60
|
|
Net sales variance
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
(10
|
)%
|
|
|
|
|
|
|
|
|
Price
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
Currency
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
Other
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
Operating profit
|
|
$
|
47
|
|
|
$
|
28
|
|
|
$
|
19
|
|
Operating margin
|
|
|
3.3
|
%
|
|
|
2.1
|
%
|
|
|
|
|
Other (charges) gains, net
|
|
$
|
(3
|
)
|
|
$
|
(23
|
)
|
|
$
|
20
|
|
Earnings (loss) from continuing operations before tax
|
|
|
47
|
|
|
|
28
|
|
|
|
19
|
|
Depreciation and amortization
|
|
|
62
|
|
|
|
59
|
|
|
|
3
|
|
Industrial Specialties net sales increased by 4% during
2008 compared to 2007 as increased prices and favorable foreign
currency impacts more than offset volume reductions. Pricing
actions implemented by all business lines late in 2007 and
during 2008 contributed to the increase in net sales. Volumes
declined primarily on decreased demand across all regions due to
the global economic downturn combined with the temporary
shutdown of our EVA Performance Polymers plant late in 2008. The
overall volume decline was partially offset by increased
emulsions volumes at our Nanjing, China facility, which began
operating late in 2008.
Increased net sales were more than offset by higher raw material
and energy costs during 2008. The $19 million increase in
operating profit was primarily due to reduced other charges and
the absence of the $7 million loss on the divestiture of
our EVA Performance Polymers Films business in 2007.
During 2007, we initiated a plan to simplify and optimize our
Emulsions and PVOH businesses to focus on technology and
innovation. Other charges during 2008 includes a charge of
$3 million for employee termination benefits and
accelerated depreciation related to this plan. Other charges
during 2007 includes a charge of $14 million for employee
termination benefits, $3 million for an impairment of
long-lived assets and $5 million of accelerated
depreciation expense for our shuttered United Kingdom plant
related to this plan. Other charges in 2007 also include
$6 million of goodwill impairment and receipt of
$7 million in insurance recoveries in partial satisfaction
of the business interruption losses resulting from the temporary
unplanned outage of the acetic acid unit at our Clear Lake,
Texas facility.
24
Acetyl
Intermediates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
(As Adjusted)
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
$
|
3,875
|
|
|
$
|
3,615
|
|
|
$
|
260
|
|
Net sales variance
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
Price
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
Currency
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
%
|
|
|
|
|
|
|
|
|
Operating profit
|
|
$
|
304
|
|
|
$
|
612
|
|
|
$
|
(308
|
)
|
Operating margin
|
|
|
7.8
|
%
|
|
|
16.9
|
%
|
|
|
|
|
Other (charges) gains, net
|
|
$
|
(78
|
)
|
|
$
|
72
|
|
|
$
|
(150
|
)
|
Earnings (loss) from continuing operations before tax
|
|
|
312
|
|
|
|
613
|
|
|
|
(301
|
)
|
Depreciation and amortization
|
|
|
150
|
|
|
|
106
|
|
|
|
44
|
|
Acetyl Intermediates net sales increased by 7% during 2008
as compared to 2007, primarily due to increased prices and
favorable foreign currency impacts, partially offset by lower
volumes. Our formula-based pricing arrangements benefited from
higher ethylene and methanol costs during the first nine months
of 2008. Market tightness in the Americas and favorable foreign
currency impacts in Europe also contributed to the increase in
net sales. Reduced volumes offset the increase in net sales as
the slowdown of the global economy caused customers to slow
production and diminish current inventory levels, particularly
in Asia during the fourth quarter. Ethylene and methanol prices
decreased during the fourth quarter of 2008 on slowed global
demand.
Operating profit declined $308 million for 2008 as compared
to 2007, primarily as a result of higher ethylene, methanol and
energy prices, increased other charges, increased depreciation
and amortization and the absence of a $12 million gain on
the sale of our Edmonton, Alberta, Canada facility in 2007.
Other charges increased during 2008 partially due to
$76 million of long-lived asset impairment losses
recognized in 2008 related to the closure of our acetic acid and
VAM production facility in Pardies, France, our VAM production
unit in Cangrejera, Mexico (which we shut down effective
February 2009) and the potential shutdown of certain other
facilities. Other charges in 2008 also includes $23 million
of long-lived asset impairment losses and $13 million of
severance and retention charges related to the shutdown of our
Pampa, Texas facility. Also contributing to the increase was the
absence of a one-time payment of $31 million received in
2007 in resolution of commercial disputes with a vendor and a
$25 million decrease in insurance recoveries received in
partial satisfaction of the losses resulting from the temporary
unplanned outage of the acetic acid unit at our Clear Lake,
Texas facility. Increased depreciation and amortization expense
during 2008 is the result of accelerated depreciation associated
with the shutdown of our Pampa, Texas facility and a full year
of depreciation for our acetic acid plant in Nanjing, China,
which started up in mid-2007.
The decrease in earnings from continuing operations before tax
of $301 million is consistent with the decline in operating
profit.
Other
Activities
Net sales for Other Activities remained flat in 2008 as compared
to 2007. We do not expect third-party revenues from our captive
insurance companies to increase significantly in the near future.
25
The operating loss for Other Activities improved
$90 million during 2008 as compared to 2007 due to lower
other charges, partially offset by higher selling, general and
administrative expenses. Other charges decreased principally due
to the release of reserves related to the $8 million
Sorbates antitrust actions settlement and the absence of
$59 million of deferred compensation plan costs which were
incurred during 2007. Selling, general and administrative
expenses increased due to additional spending on business
optimization and finance improvement initiatives during 2008.
The loss from continuing operations before tax decreased
$346 million during 2008 as compared to 2007. The
significant decrease was primarily due to the absence of
$256 million of refinancing costs incurred in 2007 and the
decrease in the operating loss discussed above.
Liquidity
and Capital Resources
Our primary source of liquidity is cash generated from
operations, available cash and cash equivalents and dividends
from our portfolio of strategic investments. In addition, if the
Senior Credit Agreement Amendment is consummated as expected, we
will have approximately $600 million available under our
revolving credit facility and $137 million of undrawn
commitments under our credit-linked revolving facility to
assist, if required, in meeting our working capital needs and
other contractual obligations.
While our contractual obligations, commitments and debt service
requirements over the next several years are significant, we
continue to believe we will have available resources to meet our
liquidity requirements, including debt service, for the
remainder of 2010. If our cash flow from operations is
insufficient to fund our debt service and other obligations, we
may be required to use other means available to us such as
increasing our borrowings, reducing or delaying capital
expenditures, seeking additional capital or seeking to
restructure or refinance our indebtedness. There can be no
assurance, however, that we will continue to generate cash flows
at or above current levels.
As a result of the Pardies, France Project of Closure, we
recorded exit costs of $18 million during the six months
ended June 30, 2010 in the accompanying unaudited interim
consolidated statements of operations. We may incur up to an
additional $10 million in contingent employee termination
benefits related to the Pardies, France Project of Closure. We
expect that substantially all of the remaining exit costs will
result in future cash expenditures through mid-2011. The
Pardies, France facility is included in our Acetyl Intermediates
segment. For more information on the Pardies, France Project of
Closure, see Notes 3 and Note 13 to our unaudited
consolidated financial statements for the six months ended
June 30, 2010, which are included in this offering
memorandum, and Note 4 to our audited consolidated
financial statements for the year ended December 31, 2009,
which are included in this offering memorandum.
On August 24, 2010, we announced a plan to consolidate our
global acetate manufacturing capabilities by closing our acetate
flake and tow manufacturing operations in Spondon, Derby, United
Kingdom. The closure is intended to strengthen our competitive
position and align future production capacities with anticipated
industry demand trends. As a result of the closure of our
acetate flake and tow manufacturing operations at the Spondon
site, we expect to record future expenses of approximately $35
to $45 million, consisting of approximately
$20 million for personnel-related exit costs and
approximately $20 million of other facility-related
shutdown costs such as contract termination costs and
accelerated depreciation of fixed assets. We expect that
substantially all of the exit costs (except for accelerated
depreciation of fixed assets of approximately $15 million)
will result in future cash expenditures, which we expect to
occur over a
12-18 month
period.
In addition to exit-related costs, through 2011 and 2012 we
anticipate making capital expenditures of approximately
$75 million in certain efficiency improvements, principally
at our Ocotlan, Mexico, and Narrows, Virginia facilities, to
optimize our global production network.
26
On a stand-alone basis, Celanese Corporation has no material
assets other than the stock of its subsidiaries and no
independent external operations of its own. As such, Celanese
Corporation generally will depend on the cash flow of its
subsidiaries to meet its obligations under its Series A
common stock.
Cash
FlowsSix Months Ended June 30, 2010 Compared to the
Six Months Ended June 30, 2009
Cash and cash equivalents as of June 30, 2010 were
$1,081 million, which was a decrease of $173 million
from December 31, 2009.
Net Cash
Provided by (Used in) Operating Activities
Cash flow provided by operating activities decreased
$80 million during the six months ended June 30, 2010
as compared to the same period in 2009. The increase in
operating profit was more than offset by the increase in trade
working capital.
Net Cash
Provided by (Used in) Investing Activities
Net cash provided by investing activities decreased from a cash
inflow of $183 million for the six months ended
June 30, 2009 to a cash outflow of $275 million for
the same period in 2010. The decrease in cash provided by
investment activities is primarily related to receipt of
proceeds of $412 million related to the Ticona Kelsterbach
plant relocation and $15 million from the sale of
marketable securities that were received in 2009. There were no
such proceeds in 2010.
Our cash outflow for capital expenditures was $78 million
and $96 million for the six months ended June 30, 2010
and 2009, respectively. Capital expenditures were primarily
related to major replacements of equipment, capacity expansions,
major investments to reduce future operating costs, and
environmental and health and safety initiatives.
Additionally we had cash outflows for the six months ended
June 30, 2010 of $46 million related to our
acquisition of two product lines,
Zenite
®
LCP and
Thermx
®
PCT, from DuPont Performance Polymers. In connection with the
acquisition, we have committed to purchase certain inventory at
a future date valued at a range between $12 million and
$17 million.
Capital expenditures are expected to be approximately
$243 million for 2010, excluding amounts related to the
relocation of our Ticona plant in Kelsterbach. We anticipate
cash outflows for capital expenditures for our Ticona plant in
Kelsterbach to be 239 million during 2010. In
connection with the construction of the POM facility in Saudi
Arabia, our pro rata share of invested capital is expected to
total approximately $150 million over a three year period
beginning in late 2010.
Net Cash
Provided by (Used in) in Financing Activities
Net cash used in financing activities increased from a cash
outflow of $59 million for the six months ended June, 2009
to a cash outflow of $78 million for the same period in
2010. The $19 million increase in cash outflow primarily
relates to the Companys $20 million repurchase of the
its common stock that occurred during the second quarter of 2010.
27
Cash
Flows2009 Compared with 2008 Compared with
2007
Net Cash
Provided by (Used in)Operating Activities
Cash flow provided by operating activities increased
$10 million to a cash inflow of $596 million in 2009
from a cash inflow of $586 million for 2008. Operating cash
flows were favorably impacted by less cash paid for interest,
taxes, and legal settlements coupled with a favorable change in
trade working capital which helped to offset lower operating
performance.
Cash flow provided by operating activities increased
$20 million to a cash inflow of $586 million in 2008
from a cash inflow of $566 million for 2007. Operating cash
flows were favorably impacted by positive trade working capital
changes ($202 million), lower cash taxes paid
($83 million) and the absence of adjustments to cash for
discontinued operations. Adjustments to cash for discontinued
operations of $84 million during 2007 related primarily to
working capital changes of the oxo products and derivatives
businesses and the shutdown of our Edmonton, Alberta, Canada
methanol facility. Offsetting the increase in cash flows were an
increase in net cash interest paid ($78 million), cash
spent on legal settlements ($134 million) and decreased
operating profit during the period.
Net Cash
Provided by (Used in) Investing Activities
Net cash provided by investing activities increased to a cash
inflow of $31 million in 2009 from a cash outflow of
$201 million in 2008. Net cash from investing activities
increased primarily due to lower capital expenditures on
property, plant and equipment, proceeds received from the sale
of our PVOH business and increased deferred proceeds received on
our Ticona Kelsterbach relocation. These cash inflows were
offset slightly by an increase on our capital expenditures
related to our Ticona Kelsterbach plant relocation.
Net cash provided by investing activities decreased to a cash
outflow of $201 million in 2008 from a cash inflow of
$143 million in 2007. Net cash from investing activities
decreased primarily due to cash spent in settlement of our cross
currency swaps of $93 million (see Note 22 our audited
consolidated financial statements for the year ended
December 31, 2009, which are included in this offering
memorandum) and the absence of proceeds from the sale of our oxo
products and derivatives businesses during 2007. These amounts
were offset by net cash received on the sale of marketable
securities ($111 million) and the excess of cash received
from Fraport over amounts spent in connection with the Ticona
Kelsterbach plant relocation.
Our cash outflows for capital expenditures were
$176 million, $274 million and $288 million for
the years ended December 31, 2009, 2008 and 2007,
respectively, excluding amounts related to the relocation of our
Ticona plant in Kelsterbach. Capital expenditures were primarily
related to major replacements of equipment, capacity expansions,
major investments to reduce future operating costs and
environmental, health and safety initiatives.
As of December 31, 2009, we have received
542 million of cash from Fraport in connection with
the Ticona Kelsterbach plant relocation. Per the terms of the
Fraport agreement, we expect to receive an additional
110 million in 2011 subject to downward adjustments
based on our readiness to close our operations at our
Kelsterbach, Germany facility.
Net Cash
Provided by (Used in) Financing Activities
Net cash used in financing activities decreased from a cash
outflow of $499 million in 2008 to a cash outflow of
$112 million in 2009. The $387 million decrease in
cash outflows from financing activities primarily related to the
repurchase of shares during 2008 of $378 million as
compared to no shares
28
repurchased during 2009. In addition, exchange rate effects on
cash and cash equivalents increased to a favorable currency
effect of $63 million in 2009 compared to an unfavorable
impact of $35 million in 2008.
Net cash used in financing activities decreased to a cash
outflow of $499 million in 2008 compared to a cash outflow
of $714 million during 2007. The $215 million decrease
in cash outflows primarily relates to the decrease in cash
outflows attributable to the debt refinancing for 2008 as
compared to 2007. Also contributing to the decrease, cash spent
to repurchase shares was $25 million less during 2008 than
during 2007. Decreased cash received for stock option exercises
of $51 million for 2008 as compared to 2007, together with
an unfavorable impact from exchange rate effects on cash and
cash equivalents of $35 million in 2008 as compared to a
favorable impact of $39 million in 2007, partially offset
the increase.
Debt and
Capital
As of June 30, 2010, we had total debt of
$3,427 million and cash and cash equivalents of
$1,081 million, resulting in net debt of
$2,346 million, a $99 million increase from
December 31, 2009. Decreased cash of $173 million was
partially offset by net cash paydowns on debt of
$47 million, purchases of treasury stock of
$20 million, acquisitions of $46 million, capital
expenditures (including capital expenditures related to the
Kelsterbach relocation) of $229 million which was partially
offset by an increase in operating performance.
Senior
Credit Agreement
The Senior Credit Agreement currently consists of
$2,280 million of US dollar-denominated and
400 million of Euro-denominated term loans due
April 2, 2014, a $600 million revolving credit
facility terminating on April 2, 2013 and a
$228 million credit-linked revolving facility terminating
on April 2, 2014. The term loans under the Senior Credit
Agreement are subject to amortization at 1% of the initial
principal amount per annum, payable quarterly. The remaining
principal amount of the term loans is due on April 2, 2014.
As of June 30, 2010, there were no outstanding borrowings
or letters of credit issued under the revolving credit facility.
As of June 30, 2010, there were $91 million of letters
of credit issued under the credit-linked revolving facility and
$137 million remained available for borrowing. As of
June 30, 2010, we were in compliance with all of the
covenants related to our debt agreements.
The Senior Credit Agreement requires us to not exceed a maximum
first lien senior secured leverage ratio if there are
outstanding borrowings under the revolving credit facility. The
first lien senior secured leverage ratio is calculated as the
ratio of consolidated first lien senior secured debt to earnings
before interest, taxes, depreciation and amortization, subject
to adjustments identified in the credit agreement.
On June 30, 2009, we entered into an amendment to the
Senior Credit Agreement. The amendment reduced the amount
available under the revolving credit facility from
$650 million to $600 million and increased the first
lien senior secured leverage ratio covenant that is applicable
when any amount is outstanding under the revolving credit
portion of the Senior Credit Agreement. Prior to giving effect
to the amendment, the maximum first lien senior secured leverage
ratio was 3.90 to 1.00. As amended, the maximum senior secured
leverage ratio for the following trailing four-quarter periods
is as follows:
|
|
|
|
|
|
|
First Lien Senior Secured
|
|
|
Leverage Ratio
|
|
June 30, 2010
|
|
|
4.25 to 1.00
|
|
September 30, 2010
|
|
|
4.25 to 1.00
|
|
December 31, 2010 and thereafter
|
|
|
3.90 to 1.00
|
|
29
Based on the estimated first lien senior secured leverage ratio
for the trailing four quarters at June 30, 2010, our
borrowing capacity under the revolving credit facility is
$600 million. As of the quarter ended June 30, 2010,
our first lien senior secured leverage ratio was 2.7 to 1.00
(which would have been 3.3 to 1.00 were the revolving credit
facility fully drawn). The maximum first lien senior secured
leverage ratio under the revolving credit facility for such
quarter is 4.25 to 1.00. Our availability in future periods will
be based on the first lien senior secured leverage ratio
applicable to the future periods.
The Issuers obligations under the Senior Credit Agreement
are guaranteed by Celanese Holdings LLC, a subsidiary of
Celanese, and certain domestic subsidiaries of the Issuer, and
is secured by a lien on substantially all assets of the Issuer
and such guarantors, subject to certain exceptions. The Senior
Credit Agreement contains a number of restrictions on the
Issuer, Celanese Holdings LLC and certain of the Issuers
subsidiaries, including, but not limited to, restrictions on
their ability to incur indebtedness; grant liens on assets;
merge, consolidate, or sell assets; pay dividends or make other
restricted payments; make investments; prepay or modify certain
indebtedness; engage in transactions with affiliates; enter into
sale-leaseback transactions or certain hedge transactions; or
engage in other businesses. The Senior Credit Agreement also
contains a number of affirmative covenants. Events of default
under the Senior Credit Agreement include a cross-default
provision triggered by defaults on certain other debt and the
occurrence of a change of control.
On September 7, 2010, we announced that we are seeking to
enter into the Senior Credit Agreement Amendment to, among other
things, amend certain terms and conditions of the Senior Credit
Agreement and extend (i) the maturity of a portion of the
existing term loans to October 2016 and (ii) the maturity
of a portion of the revolving credit facilities to October 2015.
We currently expect that the Senior Credit Agreement, upon
giving effect to the Senior Credit Agreement Amendment, will
consist of approximately $1,088 million of US dollar and
Euro denominated term loans due April, 2014, approximately
$1,000 million of US dollar and Euro denominated term loans
due October, 2016, an approximately $600 million revolving
credit facility terminating in October, 2015 and an
approximately $228 million credit-linked facility
terminating in April 2014. Any such amendments and amounts are
subject to lender approvals as required under the Senior Credit
Agreement and other customary conditions, and we can give no
assurance that such amendments will become effective as proposed
or at all. This offering is not conditioned on the Senior Credit
Agreement Amendment becoming effective. See Description of
Certain Other Indebtedness.
Share
Capital
We have a policy of declaring, subject to legally available
funds, a quarterly cash dividend on each share of Series A
common stock. In April 2010, we announced that our Board of
Directors approved a 25% increase in the Celanese Common Stock
cash dividend rate from $0.04 to $0.05 per share of Common Stock
on a quarterly basis and $0.16 to $0.20 per share of Common
Stock on an annual basis. The new dividend rate was applicable
to dividends payable beginning in August 2010. For the years
ended December 31, 2009, 2008 and 2007, we paid
$23 million, $24 million and $25 million,
respectively, in cash dividends on our Series A common
stock. On January 5, 2010, we declared a $6 million
cash dividend which was paid on February 1, 2010. On
April 5, 2010, we declared a cash dividend of $0.04 per
share on our Common Stock, amounting to $6 million in the
aggregate that was paid on May 1, 2010. On July 1,
2010, we declared a cash dividend of $0.05 per share on our
Common Stock, amounting to $8 million in the aggregate that
was paid on August 2, 2010.
On February 1, 2010, we delivered notice to the holders of
our 4.25% Convertible Perpetual Preferred Stock (the
Preferred Stock), pursuant to which we called for
the redemption of all 9.6 million outstanding shares of
Preferred Stock. Holders of the Preferred Stock were entitled to
convert each share of Preferred Stock into 1.2600 shares of
the our Series A common stock, par value $0.0001 per share
(Common Stock), at any time prior to 5:00 p.m.,
New York City time, on February 19, 2010. As of such date,
holders of Preferred Stock had elected to convert
9,591,276 shares of Preferred Stock into an aggregate of
12,084,942 shares of Common Stock. The 8,724 shares of
Preferred Stock that remained outstanding after such conversions
were redeemed by us on February 22, 2010 for
7,437 shares of Common Stock, in
30
accordance with the terms of the Preferred Stock. In addition to
the Common Stock issued in respect of the shares of Preferred
Stock converted and redeemed, we paid cash in lieu of fractional
shares. In issuing these shares of Common Stock, we relied on
the exemption from registration provided by Section 3(a)(9)
of the Securities Act of 1933, as amended. We paid cash
dividends on our Preferred Stock of $3 million during the
six months ended June 30, 2010. As a result of the
redemption of our Preferred Stock, no future dividends on
Preferred Stock will be paid.
In February 2008, our Board of Directors authorized the
repurchase of up to $400 million of our Series A
common stock. This authorization was increased to
$500 million in October 2008. The authorization gives
management discretion in determining the conditions under which
shares may be repurchased. This repurchase program does not have
an expiration date. In August 2010, we repurchased approximately
$21 million of our Series A common stock. As of
September 1, 2010, we had the ability to repurchase an
additional $81 million of Series A common stock based
on the Board of Directors authorization of
$500 million.
The number of shares repurchased and the average purchase price
paid per share pursuant to this authorization are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Total from
|
|
|
|
June 30,
|
|
|
Inception through
|
|
|
|
2010
|
|
|
2009
|
|
|
June 30, 2010
|
|
|
Shares repurchased
|
|
|
678,592
|
|
|
|
|
|
|
|
10,441,792
|
|
Average purchase price per share
|
|
$
|
29.47
|
|
|
$
|
|
|
|
$
|
38.09
|
|
Amount spent on repurchased shares (in millions)
|
|
$
|
20
|
|
|
$
|
|
|
|
$
|
398
|
|
These purchases will reduce the number of shares outstanding and
the repurchased shares may be used by us for compensation
programs utilizing our stock and other corporate purposes. We
account for treasury stock using the cost method and include
treasury stock as a component of Shareholders equity.
31
Contractual
Debt and Cash Obligations
The following table sets forth our fixed contractual debt and
cash obligations as of December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by Period
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
After
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years 2 & 3
|
|
|
Years 4 & 5
|
|
|
5 Years
|
|
|
|
(in millions)
|
|
|
Fixed contractual debt obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loans facility
|
|
$
|
2,785
|
|
|
$
|
29
|
|
|
$
|
57
|
|
|
$
|
2,699
|
|
|
$
|
|
|
Interest payments on debt and other obligations
|
|
|
921
|
(1)
|
|
|
193
|
|
|
|
286
|
|
|
|
165
|
|
|
|
277
|
|
Capital lease obligations
|
|
|
242
|
|
|
|
34
|
|
|
|
28
|
|
|
|
28
|
|
|
|
152
|
|
Other debt
|
|
|
474
|
(5)
|
|
|
179
|
|
|
|
69
|
|
|
|
45
|
|
|
|
181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,422
|
|
|
|
435
|
|
|
|
440
|
|
|
|
2,937
|
|
|
|
610
|
|
Operating leases
|
|
|
203
|
|
|
|
50
|
|
|
|
67
|
|
|
|
40
|
|
|
|
46
|
|
Uncertain tax obligations, including interest and penalties
|
|
|
234
|
(2)
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
229
|
|
Unconditional purchase obligations
|
|
|
1,626
|
(3)
|
|
|
228
|
|
|
|
437
|
|
|
|
316
|
|
|
|
645
|
|
Other commitments
|
|
|
713
|
(4)
|
|
|
187
|
|
|
|
274
|
|
|
|
141
|
|
|
|
111
|
|
Environmental and asset retirement obligations
|
|
|
180
|
|
|
|
35
|
|
|
|
68
|
|
|
|
21
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,378
|
|
|
$
|
940
|
|
|
$
|
1,286
|
|
|
$
|
3,455
|
|
|
$
|
1,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Future interest expense is calculated using the rate in effect
on January 2, 2010.
|
|
(2)
|
|
Due to uncertainties in the timing of the effective settlement
of tax positions with the respective taxing authorities, we are
unable to determine the timing of payments related to our
uncertain tax obligations, including interest and penalties.
These amounts are therefore reflected in After
5 Years.
|
|
(3)
|
|
Represent the
take-or-pay
provisions included in certain long-term purchase agreements. We
do not expect to incur material losses under these arrangements.
|
|
(4)
|
|
Includes other purchase obligations such as maintenance and
service agreements, energy and utility agreements, consulting
contracts, software agreements and other miscellaneous
agreements and contracts, obtained via a survey of the Company.
|
|
(5)
|
|
Other debt of $474 million is primarily made up of fixed
rate pollution control and industrial revenue bonds, short-term
borrowings from affiliated companies and other bank obligations.
|
Contractual
Guarantees and Commitments
As of June 30, 2010, we have current standby letters of
credit of $91 million and bank guarantees of
$12 million outstanding which are irrevocable obligations
of an issuing bank that ensure payment to third parties in the
event that certain subsidiaries fail to perform in accordance
with specified contractual obligations. The likelihood is remote
that material payments will be required under these agreements.
Other
Obligations
Deferred Compensation.
In April 2007, certain
participants in our 2004 deferred compensation plan elected to
participate in a revised program, which includes both cash
awards and restricted stock units. Under the revised cash
program, participants relinquished their cash awards of up to
$30 million that would have
32
contingently accrued from
2007-2009
under the original plan. Based on current participation in the
revised cash program, we expensed $10 million during the
year ended December 31, 2009. The revised cash awards vest
December 31, 2010.
In December 2008, we granted time-vesting cash awards of
$22 million to Celaneses executive officers and
certain other key employees. Each award of cash vests 30% on
October 14, 2009, 30% on October 14, 2010 and 40% on
October 14, 2011. In its sole discretion, the compensation
committee of the Board of Directors may at any time convert all
or a portion of the cash award to an award of time-vesting
restricted stock units. The liability cash awards are being
accrued and expensed over the term of the agreements. During the
year ended December 31, 2009, less than $1 million was
paid to participants who left the Company and $6 million
was paid in October 2009 to active employees representing 30% of
the remaining outstanding award.
Pension and Other Postretirement
Obligations.
Our contributions for pension and
postretirement benefits are preliminarily estimated to be
$52 million and $27 million, respectively, in 2010.
Domination Agreement.
The Domination Agreement
was approved at the Celanese GmbH, formerly known as Celanese
AG, extraordinary shareholders meeting on July 31,
2004. The Domination Agreement between Celanese GmbH and our
subsidiary, Celanese Europe Holding, became effective on
October 1, 2004 and was terminated effective
December 31, 2009 by Celanese Europe Holding in the
ordinary course of business. Our subsidiaries, Celanese
International Holdings Luxembourg Sàrl. (CIH),
formerly Celanese Caylux Holdings Luxembourg S.C.A., and
Celanese US have each agreed to provide Celanese Europe Holding
with financing to strengthen Celanese Europe Holdings
ability to fulfill its obligations under, or in connection with,
the Domination Agreement and to ensure that Celanese Europe
Holding will perform all of its obligations under, or in
connection with, the Domination Agreement when such obligations
become due, including, without limitation, the obligation to
compensate Celanese GmbH for any statutory annual loss incurred
by Celanese GmbH during the term of the Domination Agreement. If
CIH
and/or
Celanese US are obligated to make payments under such guarantees
or other security to Celanese Europe Holding, we may not have
sufficient funds for payments on our indebtedness when due. We
have not had to compensate Celanese GmbH for an annual loss for
any period during which the Domination Agreement has been in
effect.
On March 26, 2010, BCP Holdings and Celanese GmbH entered
into the Domination Agreement II, which became effective on
April 9, 2010. Under the Domination Agreement II, BCP
Holdings is required, among other things, to compensate Celanese
GmbH for any annual loss incurred, determined in accordance with
German accounting requirements, by Celanese GmbH at the end of
the fiscal year in which the loss was incurred. This obligation
to compensate Celanese GmbH for annual losses will apply during
the entire term of the Domination Agreement II. If Celanese GmbH
incurs losses during any period of the operative term of the
Domination Agreement II and if such losses lead to an
annual loss of Celanese GmbH at the end of any given fiscal year
during the term of the Domination Agreement II, BCP Holdings
will be obligated to make a corresponding cash payment to
Celanese GmbH to the extent that the respective annual loss is
not fully compensated for by the dissolution of profit reserves
accrued at the level of Celanese GmbH during the term of the
Domination Agreement II. BCP Holdings may be able to reduce or
avoid cash payments to Celanese GmbH by off-setting against such
loss compensation claims by Celanese GmbH any valuable
counterclaims against Celanese GmbH that BCP Holdings may have.
Plumbing
Actions
We are involved in a number of legal proceedings and claims
incidental to the normal conduct of our business. As of
June 30, 2010 there were reserves of $54 million
related to plumbing action litigation. Although it is impossible
at this time to determine with certainty the ultimate outcome of
these matters, we believe, based on the advice of legal counsel,
that adequate provisions have been made and that the ultimate
33
outcome will not have a material adverse effect on our financial
position, but could have a material adverse effect on our
results of operations or cash flows in any given accounting
period.
Off-Balance
Sheet Arrangements
We have not entered into any material off-balance sheet
arrangements.
Critical
Accounting Policies and Estimates
Our consolidated financial statements are based on the selection
and application of significant accounting policies. The
preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United
States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at
the date of the unaudited interim consolidated financial
statements and the reported amounts of revenues, expenses and
allocated charges during the reporting period. Actual results
could differ from those estimates. However, we are not currently
aware of any reasonably likely events or circumstances that
would result in materially different results.
We believe the following accounting polices and estimates are
critical to understanding the financial reporting risks present
in the current economic environment. These matters, and the
judgments and uncertainties affecting them, are also essential
to understanding our reported and future operating results. For
a more comprehensive discussion of our significant accounting
policies, see Note 2 to our audited consolidated financial
statements for the year ended December 31, 2009, which are
included in this offering memorandum.
Recoverability
of Long-Lived Assets
Recoverability of Goodwill and Indefinite-Lived
Assets.
We test for impairment of goodwill at the
reporting unit level. Our reporting units are either our
operating business segments or one level below our operating
business segments where discrete financial information is
available for our reporting units and operating results are
regularly reviewed by business segment management. Our business
units have been designated as our reporting units based on
business segment managements review of and reliance on the
business unit financial information and include Advanced
Engineered Materials, Acetate Products, Nutrinova, Emulsions,
Celanese EVA Performance Polymers (formerly AT Plastics) and
Acetyl Intermediates businesses. We assess the recoverability of
the carrying value of our goodwill and other indefinite-lived
intangible assets annually during the third quarter of our
fiscal year using June 30 balances or whenever events or changes
in circumstances indicate that the carrying amount of the asset
may not be fully recoverable. Recoverability of goodwill and
other indefinite-lived intangible assets is measured using a
discounted cash flow model incorporating discount rates
commensurate with the risks involved for each reporting unit.
Use of a discounted cash flow model is common practice in
impairment testing in the absence of available transactional
market evidence to determine the fair value.
The key assumptions used in the discounted cash flow valuation
model include discount rates, growth rates, cash flow
projections and terminal value rates. Discount rates, growth
rates and cash flow projections are the most sensitive and
susceptible to change as they require significant management
judgment. Discount rates are determined by using a weighted
average cost of capital (WACC). The WACC considers
market and industry data as well as Company-specific risk
factors for each reporting unit in determining the appropriate
discount rate to be used. The discount rate utilized for each
reporting unit is indicative of the return an investor would
expect to receive for investing in such a business. Operational
management, considering industry and Company-specific historical
and projected data, develops growth rates and cash flow
projections for each reporting unit. Terminal value rate
determination follows common methodology of capturing the
34
present value of perpetual cash flow estimates beyond the last
projected period assuming a constant WACC and low long-term
growth rates. If the calculated fair value is less than the
current carrying value, impairment of the reporting unit may
exist. If the recoverability test indicates potential
impairment, we calculate an implied fair value of goodwill for
the reporting unit. The implied fair value of goodwill is
determined in a manner similar to how goodwill is calculated in
a business combination. If the implied fair value of goodwill
exceeds the carrying value of goodwill assigned to the reporting
unit, there is no impairment. If the carrying value of goodwill
assigned to a reporting unit exceeds the implied fair value of
the goodwill, an impairment charge is recorded to write down the
carrying value. An impairment loss cannot exceed the carrying
value of goodwill assigned to a reporting unit but may indicate
certain long-lived and amortizable intangible assets associated
with the reporting unit may require additional impairment
testing.
Management tests indefinite-lived intangible assets utilizing
the relief from royalty method to determine the estimated fair
value for each indefinite-lived intangible asset. The relief
from royalty method estimates the Companys theoretical
royalty savings from ownership of the intangible asset. Key
assumptions used in this model include discount rates, royalty
rates, growth rates, sales projections and terminal value rates.
Discount rates, royalty rates, growth rates and sales
projections are the assumptions most sensitive and susceptible
to change as they require significant management judgment.
Discount rates used are similar to the rates estimated by the
WACC considering any differences in Company-specific risk
factors. Royalty rates are established by management and are
periodically substantiated by third-party valuation consultants.
Operational management, considering industry and
Company-specific historical and projected data, develops growth
rates and sales projections associated with each
indefinite-lived intangible asset. Terminal value rate
determination follows common methodology of capturing the
present value of perpetual sales estimates beyond the last
projected period assuming a constant WACC and low long-term
growth rates.
For all significant goodwill and indefinite-lived intangible
assets, the estimated fair value of the asset exceeded the
carrying value of the asset by a substantial margin at the date
of the most recent impairment test. Our methodology for
determining impairment for both goodwill and indefinite-lived
intangible assets was consistent with that used in the prior
year.
Recoverability of Long-Lived and Amortizable Intangible
Assets.
We assess the recoverability of
long-lived and amortizable intangible assets whenever events or
circumstances indicate that the carrying value of the asset may
not be recoverable. Examples of a change in events or
circumstances include, but are not limited to, a decrease in the
market price of the asset, a history of cash flow losses related
to the use of the asset or a significant adverse change in the
extent or manner in which an asset is being used. To assess the
recoverability of long-lived and amortizable intangible assets
we compare the carrying amount of the asset or group of assets
to the future net undiscounted cash flows expected to be
generated by the asset or asset group. Long-lived and
amortizable intangible assets are tested for recognition and
measurement of an impairment loss at the lowest level for which
identifiable cash flows are largely independent of the cash
flows of other assets and liabilities. If such assets are
considered impaired, the impairment recognized is measured as
the amount by which the carrying amount of the asset exceeds the
fair value of the asset.
The development of future net undiscounted cash flow projections
require management projections related to sales and
profitability trends and the remaining useful life of the asset.
Projections of sales and profitability trends are the
assumptions most sensitive and susceptible to change as they
require significant management judgment. These projections are
consistent with projections we use to manage our operations
internally. When impairment is indicated, a discounted cash flow
valuation model similar to that used to value goodwill at the
reporting unit level, incorporating discount rates commensurate
with risks associated with each asset, is used to determine the
fair value of the asset to measure potential impairment. We
believe the assumptions used are reflective of what a market
participant would have used in calculating fair value.
Valuation methodologies utilized to evaluate goodwill and
indefinite-lived intangible, amortizable intangible and
long-lived assets for impairment were consistent with prior
periods. We periodically engage third-party valuation
consultants to assist us with this process. Specific assumptions
discussed above are
35
updated at the date of each test to consider current industry
and Company-specific risk factors from the perspective of a
market participant. The current business environment is subject
to evolving market conditions and requires significant
management judgment to interpret the potential impact to the
Companys assumptions. To the extent that changes in the
current business environment result in adjusted management
projections, impairment losses may occur in future periods.
Income
Taxes
We regularly review our deferred tax assets for recoverability
and establish a valuation allowance 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. In forming our judgment
regarding the recoverability of deferred tax assets related to
deductible temporary differences and tax attribute
carryforwards, we give weight to positive and negative evidence
based on the extent to which the forms of evidence can be
objectively verified. We attach the most weight to historical
earnings due to its verifiable nature. Weight is attached to tax
planning strategies if the strategies are prudent and feasible
and implementable without significant obstacles. Less weight is
attached to forecasted future earnings due to its subjective
nature, and expected timing of reversal of taxable temporary
differences is given little weight unless the reversal of
taxable and deductible temporary differences coincide. Valuation
allowances have been established primarily on net operating loss
carryforwards and other deferred tax assets in the US,
Luxembourg, France, Spain, China, the United Kingdom and Canada.
We have appropriately reflected increases and decreases in our
valuation allowance based on the overall weight of positive
versus negative evidence on a jurisdiction by jurisdiction
basis. In 2009, based on cumulative profitability, the Company
concluded that the US valuation allowance should be reversed
except for a portion related to certain federal and state net
operating loss carryforwards that are not likely to be realized.
We record accruals for income taxes and associated interest that
may become payable in future years as a result of audits by tax
authorities. We recognize tax benefits when it is more likely
than not (likelihood of greater than 50%), based on technical
merits, that the position will be sustained upon examination.
Tax positions that meet the more-likely-than-not threshold are
measured using a probability weighted approach as the largest
amount of tax benefit that is greater than 50% likely of being
realized upon settlement. Whether the more-likely-than-not
recognition threshold is met for a tax position is a matter of
judgment based on the individual facts and circumstances of that
position evaluated in light of all available evidence.
The recoverability of deferred tax assets and the recognition
and measurement of uncertain tax positions are subject to
various assumptions and management judgment. If actual results
differ from the estimates made by management in establishing or
maintaining valuation allowances against deferred tax assets,
the resulting change in the valuation allowance would generally
impact earnings or Other comprehensive income depending on the
nature of the respective deferred tax asset. Additionally, the
positions taken with regard to tax contingencies may be subject
to audit and review by tax authorities which may result in
future taxes, interest and penalties.
Benefit
Obligations
We have pension and other postretirement benefit plans covering
substantially all employees who meet eligibility requirements.
With respect to its US qualified defined benefit pension plan,
minimum funding requirements are determined by the Pension
Protection Act of 2006 based on years of service
and/or
compensation. Various assumptions are used in the calculation of
the actuarial valuation of the employee benefit plans. These
assumptions include the weighted average discount rate,
compensation levels, expected long-term rates of return on plan
assets and trends in health care costs. In addition to the above
mentioned assumptions, actuarial consultants use factors such as
withdrawal and mortality rates to estimate the projected
36
benefit obligation. The actuarial assumptions used may differ
materially from actual results due to changing market and
economic conditions, higher or lower withdrawal rates or longer
or shorter life spans of participants. These differences may
result in a significant impact to the amount of pension expense
recorded in future periods.
The amounts recognized in the consolidated financial statements
related to pension and other postretirement benefits are
determined on an actuarial basis. A significant assumption used
in determining our pension expense is the expected long-term
rate of return on plan assets. As of December 31, 2009, we
assumed an expected long-term rate of return on plan assets of
8.5% for the US defined benefit pension plans, which represent
approximately 83% and 85% of our pension plan assets and
liabilities, respectively. On average, the actual return on the
US qualified defined pension plans assets over the
long-term (15 to 20 years) has exceeded 8.5%.
We estimate a 25 basis point decline in the expected
long-term rate of return for the US qualified defined benefit
pension plan to increase pension expense by an estimated
$5 million in 2009. Another estimate that affects our
pension and other postretirement benefit expense is the discount
rate used in the annual actuarial valuations of pension and
other postretirement benefit plan obligations. At the end of
each year, we determine the appropriate discount rate, used to
determine the present value of future cash flows currently
expected to be required to settle the pension and other
postretirement benefit obligations. The discount rate is
generally based on the yield on high-quality corporate
fixed-income securities. As of December 31, 2009, we
decreased the discount rate to 5.90% from 6.50% as of
December 31, 2008 for the US plans. We estimate that a
50 basis point decline in our discount rate will increase
our annual pension expenses by an estimated $12 million,
and increase our benefit obligations by approximately
$151 million for our US pension plans. In addition, the
same basis point decline in our discount rate will also increase
our annual expenses and benefit obligations by less than
$1 million and $9 million respectively, for our US
postretirement medical plans. We estimate that a 50 basis
point decline in the discount rate for the non-US pension and
postretirement medical plans will increase pension and other
postretirement benefit annual expenses by approximately
$1 million and less than $1 million, respectively, and
will increase our benefit obligations by approximately
$32 million and $2 million, respectively.
Other postretirement benefit plans provide medical and life
insurance benefits to retirees who meet minimum age and service
requirements. The key determinants of the accumulated
postretirement benefit obligation (APBO) are the
discount rate and the healthcare cost trend rate. The healthcare
cost trend rate has a significant effect on the reported amounts
of APBO and related expense. For example, increasing or
decreasing the healthcare cost trend rate by one percentage
point in each year would result in the APBO as of
December 31, 2009 changing by approximately $4 million
and $(3) million, respectively. Additionally, increasing or
decreasing the healthcare cost trend rate by one percentage
point in each year would result in the 2009 postretirement
benefit cost changing by less than $1 million.
Pension assumptions are reviewed annually on a plan and
country-specific basis by third-party actuaries and senior
management. Such assumptions are adjusted as appropriate to
reflect changes in market rates and outlook. We determine the
long-term expected rate of return on plan assets by considering
the current target asset allocation, as well as the historical
and expected rates of return on various asset categories in
which the plans are invested. A single long-term expected rate
of return on plan assets is then calculated for each plan as the
weighted average of the target asset allocation and the
long-term expected rate of return assumptions for each asset
category within each plan.
Differences between actual rates of return of plan assets and
the long-term expected rate of return on plan assets are
generally not recognized in pension expense in the year that the
difference occurs. These differences are deferred and amortized
into pension expense over the average remaining future service
of employees. We apply the long-term expected rate of return on
plan assets to a market-related value of plan assets to
stabilize variability in the plan asset values.
37
Accounting
for Commitments and Contingencies
We are subject to a number of legal proceedings, lawsuits,
claims, and investigations, incidental to the normal conduct of
our business, relating to and including product liability,
patent and intellectual property, commercial, contract,
antitrust, past waste disposal practices, release of chemicals
into the environment and employment matters, which are handled
and defended in the ordinary course of business. We routinely
assess the likelihood of any adverse judgments or outcomes to
these matters as well as ranges of probable and reasonably
estimable losses. Reasonable estimates involve judgments made by
us after considering a broad range of information including:
notifications, demands, settlements which have been received
from a regulatory authority or private party, estimates
performed by independent consultants and outside counsel,
available facts, identification of other potentially responsible
parties and their ability to contribute, as well as prior
experience. With respect to environmental liabilities, it is our
policy to accrue through fifteen years, unless we have
government orders or other agreements that extend beyond fifteen
years. A determination of the amount of loss contingency
required, if any, is assessed in accordance with FASB Accounting
Standards Codification (FASB ASC) Topic 450,
Contingencies, and recorded if probable and estimable after
careful analysis of each individual matter. The required
reserves may change in the future due to new developments in
each matter and as additional information becomes available.
Recent
Accounting Pronouncements
For a discussion of recent accounting pronouncements, see
Note 2 to our unaudited consolidated financial statements
for the six-month period ended June 30, 2010, which are
included in this offering memorandum, as well as Note 3 to
our audited consolidated financial statements for the year ended
December 31, 2009, which are included in this offering
memorandum.
Quantitative
and Qualitative Disclosures about Market Risk
Market
Risks
Our financial market risk consists principally of exposure to
currency exchange rates, interest rates and commodity prices.
Exchange rate and interest rate risks are managed with a variety
of techniques, including use of derivatives. We have in place
policies of hedging against changes in currency exchange rates,
interest rates and commodity prices as described below.
Contracts to hedge exposures are primarily accounted for under
FASB ASC Topic 815, Derivatives and Hedging (FASB ASC
Topic 815).
Interest
Rate Risk Management
We use interest rate swap agreements to manage the interest rate
risk of our total debt portfolio and related overall cost of
borrowing. To reduce the interest rate risk inherent in our
variable rate debt, we utilize interest rate swap agreements to
convert a portion of our variable rate debt to a fixed rate
obligation. These interest rate swap agreements are designated
as cash flow hedges.
In March 2007, in anticipation of the April 2007 debt
refinancing, we entered into various US dollar and Euro interest
rate swap agreements, which became effective on April 2,
2007, with notional amounts of $1.6 billion and
150 million, respectively. The notional amount of the
$1.6 billion US dollar interest rate swaps decreased by
$400 million effective January 2, 2008 and decreased
by another $200 million effective January 2, 2009. To
offset the declines, we entered into US dollar interest rate
swaps with a combined notional amount of $400 million which
became effective on January 2, 2008 and an additional US
dollar interest rate swap with a notional amount of
$200 million which became effective April 2, 2009. In
August 2010, we
38
entered into a new two-year US dollar denominated
forward-starting interest rate swap with a notional amount of
$1.1 billion for the years 2012 and 2013.
As of June 30, 2010, we had $2,212 million,
409 million and CNY 1.7 billion of variable rate
debt, of which $1.5 billion and 150 million is
hedged with interest rate swaps, which leaves $732 million,
259 million and CNY 1.7 billion of variable rate
debt subject to interest rate exposure. Accordingly, a 1%
increase in interest rates would increase annual interest
expense by approximately $13 million. For further
discussion of our interest rate risk management and the related
impact on our financial position and results of operations, see
Note 15 to our unaudited consolidated financial statements
for the six-month period ended June 30, 2010, which are
included in this offering memorandum, as well as Note 22 to
our audited consolidated financial statements for the year ended
December 31, 2009, which are included in this offering
memorandum.
Foreign
Exchange Risk Management
The primary business objective of this hedging program is to
maintain an approximately balanced position in foreign
currencies so that exchange gains and losses resulting from
exchange rate changes, net of related tax effects, are
minimized. It is our policy to minimize currency exposures and
to conduct operations either within functional currencies or
using the protection of hedge strategies. Accordingly, we enter
into foreign currency forwards and swaps to minimize our
exposure to foreign currency fluctuations. From time to time we
may also hedge our currency exposure related to forecasted
transactions. Forward contracts are not designated as hedges
under FASB ASC Topic 815.
The following table indicates, as of December 31, 2009, the
total US dollar equivalents of net foreign exchange exposure
related to (short) long foreign exchange forward contracts
outstanding by currency. All of the contracts included in the
table below will have approximately offsetting effects from
actual underlying payables, receivables, intercompany loans or
other assets or liabilities subject to foreign exchange
remeasurement.
|
|
|
|
|
Currency
|
|
2010 Maturity
|
|
|
|
(in millions)
|
|
|
Euro
|
|
$
|
(372
|
)
|
British pound sterling
|
|
|
(90
|
)
|
Chinese renminbi
|
|
|
(200
|
)
|
Mexican peso
|
|
|
(5
|
)
|
Singapore dollar
|
|
|
27
|
|
Canadian dollar
|
|
|
(48
|
)
|
Japanese yen
|
|
|
8
|
|
Brazilian real
|
|
|
(11
|
)
|
Swedish krona
|
|
|
15
|
|
Other
|
|
|
(1
|
)
|
|
|
|
|
|
Total
|
|
$
|
(677
|
)
|
|
|
|
|
|
Additionally, a portion of our assets, liabilities, revenues and
expenses are denominated in currencies other than the US dollar,
principally the Euro. Fluctuations in the value of these
currencies against the US dollar, particularly the value of the
Euro, can have a direct and material impact on the business and
financial results. For example, a decline in the value of the
Euro versus the US dollar results in a decline in the US dollar
value of our sales and earnings denominated in Euros due to
translation effects. Likewise, an increase in the value of the
Euro versus the US dollar would result in an opposite effect.
39
To protect the foreign currency exposure of a net investment in
a foreign operation, we entered into cross currency swaps with
certain financial institutions in 2004. The cross currency swaps
and the Euro-denominated portion of the senior term loan were
designated as a hedge of a net investment of a foreign
operation. We de-designated the net investment hedge due to the
debt refinancing in April 2007 and redesignated the cross
currency swaps and new senior Euro term loan in July 2007.
Under the terms of the cross currency swap arrangements, we paid
approximately 13 million in interest and received
approximately $16 million in interest on June 15 and
December 15 of each year. The fair value of the net obligation
under the cross currency swaps was included in current Other
liabilities in the consolidated balance sheets as of
December 31, 2007. Upon maturity of the cross currency swap
arrangements in June 2008, we owed 276 million
($426 million) and were owed $333 million. In
settlement of the obligation, we paid $93 million (net of
interest of $3 million) in June 2008.
During the year ended December 31, 2008, we de-designated
385 million of the 400 million
euro-denominated portion of the term loan, previously designated
as a hedge of a net investment of a foreign operation. The
remaining 15 million Euro-denominated portion of the
term loan was de-designated as a hedge of a net investment of a
foreign operation in June 2009. Prior to these de-designations,
we had been using external derivative contracts to offset
foreign currency exposures on certain intercompany loans. As a
result of the de-designations, the foreign currency exposure
created by the Euro-denominated term loan is expected to offset
the foreign currency exposure on certain intercompany loans,
decreasing the need for external derivative contracts and
reducing our exposure to external counterparties. For further
discussion of our foreign exchange risk management and the
related impact on our financial position and results of
operations, see Note 15 to our unaudited consolidated
financial statements for the six-month period ended
June 30, 2010, which are included in this offering
memorandum, as well as Note 22 to our audited consolidated
financial statements for the year ended December 31, 2009,
which are included in this offering memorandum.
Commodity
Risk Management
We have exposure to the prices of commodities in our procurement
of certain raw materials. We manage our exposure primarily
through the use of long-term supply agreements and derivative
instruments. We regularly assess our practice of purchasing a
portion of our commodity requirements forward and utilization of
other raw material hedging instruments, in addition to forward
purchase contracts, in accordance with changes in market
conditions. Forward purchases and swap contracts for raw
materials are principally settled through actual delivery of the
physical commodity. For qualifying contracts, we have elected to
apply the normal purchases and normal sales exception of FASB
ASC Topic 815, as it was probable at the inception and
throughout the term of the contract that they would not settle
net and would result in physical delivery. As such, realized
gains and losses on these contracts are included in the cost of
the commodity upon the settlement of the contract.
In addition, we occasionally enter into financial derivatives to
hedge a component of a raw material or energy source. Typically,
these types of transactions do not qualify for hedge accounting.
These instruments are marked to market at each reporting period
and gains (losses) are included in Cost of sales in the
consolidated statements of operations. We recognized no gain or
loss from these types of contracts during the years ended
December 31, 2009 and 2008 and less than $1 million
during the year ended December 31, 2007.
40