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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________
Form 10-Q
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| ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the quarterly period ended March 31, 2013 |
| | Or |
| □ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(Commission File Number) 001-32410
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CELANESE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
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| Delaware | 98-0420726 |
| (State or Other Jurisdiction of | (I.R.S. Employer |
| Incorporation or Organization) | Identification No.) |
| | |
| 222 W. Las Colinas Blvd., Suite 900N | 75039-5421 |
| Irving, TX | (Zip Code) |
| (Address of Principal Executive Offices) | |
(972) 443-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No □
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No □
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☑
Accelerated filer □
Non-accelerated filer □ (Do not check if a smaller reporting company)
Smaller reporting company □
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes □ No ☑
The number of outstanding shares of the registrant's Series A common stock, $0.0001 par value, as of April 15, 2013 was 159,651,273 .
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CELANESE CORPORATION AND SUBSIDIARIES
Form 10-Q
For the Quarterly Period Ended March 31, 2013
TABLE OF CONTENTS
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| | | Page |
| | | |
| | PART I - FINANCIAL INFORMATION | |
| Item 1. | Financial Statements | 3 |
| | a) Unaudited Interim Consolidated Statements of Operations for the three and nine months ended September 30, 2012 and 2011 | 3 |months ended March 31, 2013 and 2012 | 3 |
| | | |
| | b) Unaudited Interim Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2012 and 2011 | 4 |months ended March 31, 2013 and 2012 | 4 |
| | | |
| | c) Unaudited Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012 | 5 |
| | d) Unaudited Interim Consolidated Statement of Equity for the three months ended March 31, 2013 | 6 |
| | | |
| | e) Unaudited Interim Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011 | 7 |three months ended March 31, 2013 and 2012 | 7 |
| | f) Notes to the Unaudited Interim Consolidated Financial Statements | 8 |
| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 41 |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 57 |
| Item 4. | Controls and Procedures | 57 |
| | | |
| | PART II - OTHER INFORMATION | |
| Item 1. | Legal Proceedings | 58 |
| Item 1A. | Risk Factors | 58 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 58 |
| Item 3. | Defaults Upon Senior Securities | 58 |
| Item 4. | Mine Safety Disclosures | 58 |
| Item 5. | Other Information | 58 |
| Item 6. | Exhibits | 59 |
| Signatures | 60 |
2
Item 1. Financial Statements
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
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| | | | | | |
| | Three Months Ended || Nine Months Ended |
| | September 30, || September 30, |
| | 2012 || 2011 | | 2012 | | 2011 |
| | March 31, |
| | 2013 | | 2012 |
| | | | As Adjusted (Note 1) |
| | (In $ millions, except share |
| | and per share data) |
| Net sales | 1,609 | | | 1,807 | | | 4,917 | | | 5,149 | |
| Net sales | 1,605 | | | 1,633 | |
| | | | | | |
| Cost of sales | (1,285 | ) | | (1,406 | ) | | (3,992 | ) | | (3,987 | ) |
| Cost of sales | (1,272 | ) | | (1,359 | ) |
| Gross profit | 324 | | | 401 | | | 925 | | | 1,162 | |
| Gross profit | 333 | | | 274 | |
| | | | | | || | | | | |
| Selling, general and administrative expenses | (121 | ) | | (140 | ) | | (379 | ) | | (408 | ) |(106 | ) | | (126 | ) |
| Amortization of intangible assets | (12 | ) | | (17 | ) | | (38 | ) | | (50 | ) |(11 | ) | | (13 | ) |
| Research and development expenses | (24 | ) | | (24 | ) | | (76 | ) | | (72 | ) |(26 | ) | | (25 | ) |
| Other (charges) gains, net | 2 | | | (24 | ) | | (1 | ) | | (39 | ) |
| Other (charges) gains, net | (4 | ) | | - | |
| | | | | | |
| Foreign exchange gain (loss), net | (1 | ) | | 1 | |
| | | | | | |
| Gain (loss) on disposition of businesses and assets, net | (1 | ) | | (1 | ) || (2 | ) | | (1 | ) |- | |
| | | | | | |
| Operating profit (loss) | 163 | | | 196 | | | 425 | | | 593 | |
| Operating profit (loss) | 184 | | | 111 | |
| | | | | | | | | | | | |
| Equity in net earnings (loss) of affiliates | 54 | | | 51 | |
| | | | | | |
| Interest expense | (44 | ) | | (54 | ) | | (134 | ) | | (166 | ) |
| Interest expense | (43 | ) | | (45 | ) |
| Refinancing expense | - | | | - | || - | | | (3 | ) |
| | | | | | |
| Interest income | - | | | 1 | | | 1 | | | 2 | |
| | | | | | |
| Dividend income - cost investments | 24 | | | - | |
| | | | | | || | | | | |
| Other income (expense), net | 3 | | | - | | | 4 | | | 9 | |
| Other income (expense), net | (1 | ) | | 2 | |
| | | | | | | | | | | ||
| Earnings (loss) from continuing operations before tax | 173 | | | 201 | | | 544 | | | 661 | |218 | | | 120 | |
| | | | | | |
| Income tax (provision) benefit | (54 | ) | | (34 | ) | | (32 | ) | | (151 | ) |(77 | ) | | 73 | |
| | | | | | |
| Earnings (loss) from continuing operations | 119 | | | 167 | | | 512 | | | 510 | |141 | | | 193 | |
| | | | | | |
| Earnings (loss) from operation of discontinued operations | 2 | | | - | |
| | | | | | | | | | | ||
| Gain (loss) on disposition of discontinued operations | - | | | - | || - | | | - | |
| | | | | | |
| Income tax (provision) benefit from discontinued operations | 1 | | | - | | | 1 | | | (1 | ) |
| - | || | |
| | | | | | |
| Earnings (loss) from discontinued operations | 1 | | | - | |
| | | | | | |
| Net earnings (loss) | 117 | | | 167 | | | 510 | | | 512 | |
| Net earnings (loss) | 142 | | | 193 | |
| | | | | | |
| Net (earnings) loss attributable to noncontrolling interests | - | | | - | |
| | | | | | |
| Net earnings (loss) attributable to Celanese Corporation | 117 | | | 167 | | | 510 | | | 512 | |
| | | | | | | | | | | | |
| Cumulative preferred stock dividends | - | | | - | | | - | | | - | |
| | | | | | | | | | | | |
| Net earnings (loss) available to common stockholders | 117 | | | 167 | | | 510 | | | 512 | |
142 | | | 193 | |
| | | | | | |
| Amounts attributable to Celanese Corporation | | | | | |
| | | | | | |
| Earnings (loss) from continuing operations | 119 | | | 167 | | | 512 | | | 510 | |141 | | | 193 | |
| | | | | | |
| Earnings (loss) from discontinued operations | 1 | | | - | |
| | | | | | | || | | | |
| Net earnings (loss) | 117 | | | 167 | | | 510 | | | 512 | |
| Net earnings (loss) | 142 | | | 193 | |
| | | | | | || | | | | |
| Earnings (loss) per common share - basic | | | | | |
| | | | | | |
| Continuing operations | 0.75 | | | 1.07 | | | 3.24 | | | 3.27 | |
| Continuing operations | 0.88 | | | 1.23 | |
| | | | | | |
| Discontinued operations | (0.01 | ) | | - | | | (0.01 | ) | | 0.01 | |
| Discontinued operations | 0.01 | | | - | |
| | | | | | || | | | | |
| Net earnings (loss) - basic | 0.74 | | | 1.07 | | | 3.23 | | | 3.28 | |
| Net earnings (loss) - basic | 0.89 | | | 1.23 | |
| | | | | | |
| Earnings (loss) per common share - diluted | | | | | |
| | | | | | |
| Continuing operations | 0.74 | | | 1.05 | | | 3.21 | | | 3.21 | |
| Continuing operations | 0.88 | | | 1.21 | |
| | | | | | |
| Discontinued operations | (0.01 | ) | | - | || (0.01 | ) | | 0.01 | |
| Discontinued operations | 0.01 | | | - | |
| | | | | | |
| Net earnings (loss) - diluted | 0.73 | | | 1.05 | | | 3.20 | | | 3.22 | |0.89 | | | 1.21 | |
| | | | | | | | | | | | |
| Weighted average shares - basic | 159,123,808 | | | 156,194,459 | | | 157,936,063 | | | 156,147,982 | |159,682,386 | | | 156,576,896 | |
| | | | | | |
| Weighted average shares - diluted | 160,094,904 | | | 159,018,839 | | | 159,644,166 | | | 158,965,811 | |160,201,636 | | | 159,115,232 | |
| | | | | | |
See the accompanying notes to the unaudited interim consolidated financial statements.
3
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
| |
| | | | | | |
| | Three Months Ended || Nine Months Ended |
| | September 30, || September 30, |
| | 2012 || 2011 | | 2012 | | 2011 |
| | March 31, |
| | 2013 | | 2012 |
| | | | As Adjusted (Note 1) |
| | (In $ millions) |
| Net earnings (loss) | 117 | | | 167 | | | 510 | | | 512 | |
| Net earnings (loss) | 142 | | | 193 | |
| | | | | | |
| Other comprehensive income (loss), net of tax | | | | | | | | | | | |
| | | | | | || | | | | |
| Unrealized gain (loss) on marketable securities | - | | | - | || - | | | - | |
| | | | | | |
| Foreign currency translation | (31 | ) | | 26 | |
| | | | | | |
| Unrealized Gain (loss) on interest rate swaps | 1 | | | 1 | |
| | | | | | |
| Pension and postretirement benefits | - | | | (4 | ) |
| | | | | | | || | | | |
| Total other comprehensive income (loss), net of tax | (30 | ) | | 23 | |
| | | | | | || | | | | |
| Total comprehensive income (loss), net of tax | 153 | | | 107 | | | 538 | | | 556 | |112 | | | 216 | |
| | | | | | | | | | | | |
| Comprehensive (income) loss attributable to noncontrolling interests | - | | | - | || - | | | - | |
| | | | | | || | | | | |
| Comprehensive income (loss) attributable to Celanese Corporation | 153 | | | 107 | | | 538 | | | 556 | |112 | | | 216 | |
| | | | | | | | | | | | |
See the accompanying notes to the unaudited interim consolidated financial statements.
4
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
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| | | | | | |
| | As of | | As of |
| | March 31, | | December 31, |
| | 2012 || 2011 |
| | 2013 | | 2012 |
| | | | As Adjusted (Note 1) |
| | (In $ millions, except share data) |
| ASSETS | | | |
| Current Assets | | | | | |
| | | | | | |
| Cash and cash equivalents | 978 | | | 959 | |
| | | | | | |
| Trade receivables - third party and affiliates (net of allowance for doubtful accounts - 2013: $10; 2012: $9) | 916 | | | 827 | | 2012: $9; 2011: $9) | 932 | | | 871 | |
| | | | | | |
| Non-trade receivables, net | 197 | | | 209 | |
| | | | | | |
| Inventories | 758 | | | 711 | |
| | | | | | |
| Deferred income taxes | 50 | | | 49 | |
| | | | | | |
| Marketable securities, at fair value | 49 | | | 53 | |
| | | | | | |
| Other assets | 38 | | | 31 | |
| | | | | | |
| Total current assets | 2,986 | | | 2,839 | |
| | | | | | |
| Investments in affiliates | 796 | | | 800 | |
| | | | | | |
| Property, plant and equipment (net of accumulated depreciation - 2013: $1,536; 2012: $1,506) | 3,286 | | | 3,350 | | 2012: $1,454; 2011: $1,316) | 3,295 | | | 3,269 | |
| | | | | | |
| Deferred income taxes | 603 | | | 606 | |
| | | | | | |
| Other assets | 480 | | | 463 | |
| | | | | | |
| Goodwill | 762 | | | 777 | |
| | | | | | |
| Intangible assets, net | 155 | | | 165 | |
| | | | | | |
| Total assets | 9,068 | | | 9,000 | |
| | | | | | |
| LIABILITIES AND EQUITY | | | |
| Current Liabilities | | | | | |
| | | | | | |
| Short-term borrowings and current installments of long-term debt - third party and affiliates | 112 | | | 168 | |
| | | | | | |
| Trade payables - third party and affiliates | 659 | | | 649 | |
| | | | | | |
| Other liabilities | 459 | | | 475 | |
| | | | | | |
| Deferred income taxes | 25 | | | 25 | |
| | | | | | |
| Income taxes payable | 96 | | | 38 | |
| | | | | | |
| Total current liabilities | 1,351 | | | 1,355 | |
| | | | | | |
| Long-term debt | 2,839 | | | 2,873 | |
| Long-term debt | 2,959 | | | 2,930 | |
| | | | | | |
| Deferred income taxes | 44 | | | 50 | |
| | | | | | |
| Uncertain tax positions | 180 | | | 181 | |
| | | | | | |
| Benefit obligations | 1,354 | | | 1,492 | |
| Benefit obligations | 1,576 | | | 1,602 | |
| | | | | | |
| Other liabilities | 1,142 | | | 1,153 | |
| Other liabilities | 1,123 | | | 1,152 | |
| | | | | | |
| Commitments and Contingencies | | | | | |
| | | | | | |
| Stockholders' Equity | | | | | |
| | | | | | |
| Preferred stock, $0.01 par value, 100,000,000 shares authorized (2013 and 2012: 0 issued and outstanding) | - | | | - | |
| | | | | | |
| Series A common stock, $0.0001 par value, 400,000,000 shares authorized (2012: 183,002,903 issued and 159,228,221 outstanding; 2011: 179,385,105 issued and 156,463,811 outstanding) | - | | | - | |(2013: 183,666,930 issued and 159,680,094 outstanding; 2012: 183,629,237 issued and 159,642,401 outstanding) | - | | | - | |
| | | | | | |
| Series B common stock, $0.0001 par value, 100,000,000 shares authorized (2013 and 2012: 0 issued and outstanding) | - | | | - | |
| | | | | | |
| Treasury stock, at cost (2012: 23,774,682 shares; 2011: 22,921,294 shares) | (897 | ) | | (860 | ) |
| Treasury stock, at cost (2013: 23,986,836 shares; 2012: 23,986,836 shares) | (905 | ) | | (905 | ) |
| Additional paid-in capital | 736 | | | 731 | |
| | | | | | |
| Retained earnings | 2,903 | | | 2,424 | |
| Retained earnings | 2,123 | | | 1,993 | |
| | | | | | |
| Accumulated other comprehensive income (loss), net | (119 | ) | | (89 | ) |
| Total Celanese Corporation stockholders' equity | 1,835 | | | 1,730 | |
| | | | | | |
| Noncontrolling interests | - | | | - | |
| | | | | | |
| Total equity | 1,835 | | | 1,730 | |
| | | | | | |
| Total liabilities and equity | 9,068 | | | 9,000 | |
| | | | | | |
See the accompanying notes to the unaudited interim consolidated financial statements.
5
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENT OF EQUITY
| |
| | | | | | |
| | Three Months Ended |
| | March 31, 2013 |
| | Shares | | Amount |
| | | | As Adjusted (Note 1) |
| | (In $ millions, except share data) |
| Series A Common Stock | | | | | |
| | | | | | |
| Balance as of the beginning of the period | 159,642,401 | | | - | |
| | | | | | |
| Stock option exercises | 36,900 | | | - | |
| | | | | | |
| Purchases of treasury stock | - | | | - | |
| | | | | | |
| Stock awards | 793 | | | - | |
| | | | | | |
| Balance as of the end of the period | 159,680,094 | | | - | |
| | | | | | |
| Treasury Stock | | | | | |
| | | | | | |
| Balance as of the beginning of the period | 23,986,836 | | | (905 | ) |
| | | | | | |
| Purchases of treasury stock, including related fees | - | | | - | |
| | | | | | |
| Balance as of the end of the period | 23,986,836 | | | (905 | ) |
| | | | | | |
| Additional Paid-In Capital | | | | | |
| | | | | | |
| Balance as of the beginning of the period | | | | 731 | |
| | | | | | |
| Stock-based compensation, net of tax | | | | 4 | |
| | | | | | |
| Stock option exercises, net of tax | | | | 1 | |
| | | | | | |
| Balance as of the end of the period | | | | 736 | |
| | | | | | |
| Retained Earnings | | | | | |
| | | | | | |
| Balance as of the beginning of the period | | | | 1,993 | |
| | | | | | |
| Net earnings (loss) attributable to Celanese Corporation | | | | 142 | |
| | | | | | |
| Series A common stock dividends | | | | (12 | ) |
| | | | | | |
| Balance as of the end of the period | | | | 2,123 | |
| | | | | | |
| Accumulated Other Comprehensive Income (Loss), Net | | | | | |
| | | | | | |
| Balance as of the beginning of the period | | | | (89 | ) |
| | | | | | |
| Other comprehensive income (loss), net of tax | | | | (30 | ) |
| | | | | | |
| Balance as of the end of the period | | | | (119 | ) |
| | | | | | |
| Total Celanese Corporation stockholders' equity | | | | 1,835 | |
| | | | | | |
| Noncontrolling Interests | | | | | |
| | | | | | |
| Balance as of the beginning of the period | | | | - | |
| | | | | | |
| Net earnings (loss) attributable to noncontrolling interests | | | | - | |
| | | | | | |
| Balance as of the end of the period | | | | - | |
| | | | | | |
| Total equity | | | | 1,835 | |
| | | | | | |
See the accompanying notes to the unaudited interim consolidated financial statements.
6
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
| | | | | | |
| | Three Months Ended |
| | March 31, |
| | 2012 || 2011 |
| | 2013 | | 2012 |
| | | | As Adjusted (Note 1) |
| | (In $ millions) |
| Operating Activities | | | | | |
| | | | | | |
| Net earnings (loss) | 142 | | | 193 | |
| | | | | | |
| Adjustments to reconcile net earnings (loss) to net cash provided by operating activities | | | | | |
| | | | | | |
| Other charges (gains), net of amounts used | (4 | ) | | (4 | ) |
| Depreciation, amortization and accretion | 80 | | | 77 | |
| | | | | | |
| Pension and postretirement benefit expense | (5 | ) | | 3 | |
| | | | | | |
| Pension and postretirement contributions | (19 | ) | | (66 | ) |
| Deferred income taxes, net | (8 | ) | | (91 | ) |
| (Gain) loss on disposition of businesses and assets, net | 1 | | | - | |
| | | | | | |
| Refinancing expense | - | | | - | |
| | | | | | |
| Other, net | 2 | | | 72 | |
| | | | | | |
| Operating cash provided by (used in) discontinued operations | 1 | | | - | |
| | | | | | |
| Changes in operating assets and liabilities | | | | | |
| | | | | | |
| Trade receivables - third party and affiliates, net | (100 | ) | | (47 | ) |
| Inventories | 1 | | | (167 | ) |
| Inventories | (55 | ) | | (32 | ) |
| Other assets | (7 | ) | | 19 | |
| | | | | | |
| Trade payables - third party and affiliates | 36 | | | 123 | |
| | | | | | |
| Other liabilities | (75 | ) | | (42 | ) |
| Other liabilities | 83 | | | (32 | ) |
| | | | | | |
| Net cash provided by (used in) operating activities | 147 | | | 215 | |
| | | | | | |
| Investing Activities | | | | | |
| | | | | | |
| Capital expenditures on property, plant and equipment | (74 | ) | | (106 | ) |
| Acquisitions, net of cash acquired | - | | | (23 | ) |
| Proceeds from sale of businesses and assets, net | 1| | | | | 6 | |
| | | | | | |
| Deferred Proceeds from Kelsterbach plant relocation Proceeds from sale of businesses and assets, net | - | | | - | |
| | | | | | |
| Capital expenditures related to Kelsterbach plant relocation | (3 | ) | | (21 | ) |
| Other, net | (10 | ) | | (5 | ) |
| Net cash provided by (used in) investing activities | (87 | ) | | (155 | ) |
| Financing Activities | | | | | |
| | | | | | |
| Short-term borrowings (repayments), net | (19 | ) | | 10 | |
| | | | | | |
| Proceeds from short-term debt | 24 | | | 24 | |
| | | | | | |
| Repayments of long-term debt | (32 | ) | | (562 | ) |
| Repayments of short-term debt | (24 | ) | | (24 | ) |
| Proceeds from long-term debt | 50 | | | - | |
| | | | | | |
| Purchases of treasury stock, including related fees | (37 | ) | | (28 | ) |
| Repayments of long-term debt | (55 | ) | | (8 | ) |
| stock, option exercises | 58 | | | 19 | |
| Purchases of treasury stock, including related fees | - | | | (20 | ) |
| | | | | | |
| Series A common Stock dividends | (31 | ) | | (25 | ) |
| Stock option exercises | 1 | | | 7 | |
| | | | | - | |
| Series A common stock dividends | (12 | ) | | (10 | ) |
| Other, net | - | | | - | |
| | | | | | |
| Net cash provided by (used in) financing activities | (35 | ) | | (21 | ) |
| Exchange rate effects on cash and cash equivalents | (6 | ) | | 6 | |
| | | | | | |
| Net increase (decrease) in cash and cash equivalents | 19 | | | 45 | |
| | | | | | |
| Cash and cash equivalents as of beginning of period | 959 | | | 682 | |
| | | | | | |
| Cash and cash equivalents as of end of period | 978 | | | 727 | |
| | | | | | |
See the accompanying notes to the unaudited interim consolidated financial statements.
7
CELANESE CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. Description of the Company and Basis of Presentation
Description of the Company
Celanese Corporation and its subsidiaries (collectively, the "Company") is a global technology and specialty materials company. The Company's business involves processing chemical raw materials, such as methanol, carbon monoxide and ethylene, and natural products, including wood pulp, into value-added chemicals, thermoplastic polymers and other chemical-based products.
Definitions
In this Quarterly Report, the term "Celanese" refers to Celanese Corporation, a Delaware corporation, and not its subsidiaries. The term "Celanese US" refers to the Company's subsidiary, Celanese US Holdings LLC, a Delaware limited liability company, and not its subsidiaries.
Basis of Presentation
The unaudited interim consolidated financial statements for the three and nine months ended September 30, 2012 and 2011 months ended March 31, 2013 and 2012 contained in this Quarterly Report on Form 10-Q ("Quarterly Report") were prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP") for all periods presented. The unaudited interim consolidated financial statements and other financial information included in this Quarterly Report, unless otherwise specified, have been presented to separately show the effects of discontinued operations.
In the opinion of management, the accompanying unaudited consolidated balance sheets and related unaudited interim consolidated statements of operations, comprehensive income (loss), cash flows and equity include all adjustments, consisting only of normal recurring items necessary for their fair presentation in conformity with US GAAP. Certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted in accordance with rules and regulations of the Securities and Exchange Commission ("SEC"). These unaudited interim consolidated financial statements should be read in conjunction with the Company's consolidated financial statements as of and for the year ended December 31, 2012 , filed on February 8, 2013 with the SEC as part of the Company's Annual Report on Form 10-K.
Operating results for the three and nine months ended September 30, 2012 Operating results for the three months ended March 31, 2013 are not necessarily indicative of the results to be expected for the entire year.
In the ordinary course of business, the Company enters into contracts and agreements relative to a number of topics, including acquisitions, dispositions, joint ventures, supply agreements, product sales and other arrangements. The Company endeavors to describe those contracts or agreements that are material to its business, results of operations or financial position. The Company may also describe some arrangements that are not material but in which the Company believes investors may have an interest or which may have been included in a Form 8-K filing. Investors should not assume the Company has described all contracts and agreements relative to the Company's business in this Quarterly Report.
For those consolidated subsidiaries in which the Company's ownership is less than 100% , the outside stockholders' interests are shown as noncontrolling interests.
The Company has reclassified certain prior period amounts to conform to the current period's presentation.
Estimates and Assumptions
The preparation of unaudited interim consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the unaudited interim consolidated financial statements and the reported amounts of revenues, expenses and allocated charges during the reporting period. Significant estimates pertain to impairments of goodwill, intangible assets and other long-lived assets, purchase price allocations, restructuring costs and other (charges) gains, net, income taxes, pension and other postretirement benefits, asset retirement obligations, environmental liabilities and loss contingencies, among others. Actual results could differ from those estimates.
8
Change in accounting policy regarding pension and other postretirement benefits
Effective January 1, 2013, the Company elected to change its accounting policy for recognizing actuarial gains and losses and changes in the fair value of plan assets for its defined benefit pension plans and other postretirement benefit plans. Previously, the Company recognized the actuarial gains and losses as a component of Accumulated other comprehensive income (loss), net within the consolidated balance sheets on an annual basis and amortized the gains and losses into operating results over the average remaining service period to retirement date for active plan participants or, for retired participants, the average remaining life expectancy. For defined benefit pension plans, the unrecognized gains and losses were amortized when the net gains and losses exceeded 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 occurred when the net gains and losses exceeded 10% of the accumulated postretirement benefit obligation at the beginning of the year.
Previously, differences between the actual rate of return on plan assets and the long-term expected rate of return on plan assets were not generally recognized in net periodic benefit cost in the year that the difference occurred. These differences were deferred and amortized into net periodic benefit cost over the average remaining future service period of employees. The asset gains and losses subject to amortization and the long-term expected return on plan assets were previously calculated using a five-year smoothing of asset gains and losses referred to as the market-related value to stabilize variability in the plan asset values.
The Company now applies the long-term expected rate of return to the fair value of plan assets and immediately recognizes the change in fair value of plan assets and net actuarial gains and losses annually in the fourth quarter of each fiscal year and whenever a plan is required to be remeasured. Events requiring a plan remeasurement will be recognized in the quarter in which such remeasurement event occurs. The remaining components of the Company's net periodic benefit cost are recorded on a quarterly basis. While the Company's historical policy of recognizing the change in fair value of plan assets and net actuarial gains and losses is considered acceptable under US GAAP, the Company believes the new policy is preferable as it eliminates the delay in recognizing gains and losses within operating results. This change improves transparency within the Company's operating results by immediately recognizing the effects of economic and interest rate trends on plan investments and assumptions in the year these gains and losses are actually incurred. The policy changes have no impact on future pension and postretirement benefit plan funding or pension and postretirement benefits paid to participants. Financial information for all periods presented has been retrospectively adjusted.
In connection with the changes in accounting policy for pension and other postretirement benefits and in an attempt to properly match the actual operational expenses each business segment is incurring, the Company changed its allocation of net periodic benefit cost. Previously, the Company allocated all components of net periodic benefit cost to each business segment on a ratable basis. The Company now allocates only the service cost and amortization of prior service cost components of its pension and postretirement plans to its business segments. All other components of net periodic benefit cost are recorded to Other Activities. The components of net periodic benefit cost that are no longer allocated to each business segment include interest cost, expected return on assets and net actuarial gains and losses as these components are considered financing activities managed at the corporate level. The Company believes the revised expense allocation more appropriately matches the cost incurred for active employees to the respective business segment. Business segment information for prior periods has been retrospectively adjusted ( Note 18 ).
9
The retrospective effect of the change in accounting policy for pension and other postretirement benefits to the consolidated statement of operations is as follows:
| |
| | | | | | | | | |
| | Three Months Ended March 31, 2012 |
| | As Previously | | Effect of | | As Adjusted |
| | Reported | | Change | | |
| | (In $ millions, except per share data) |
| Cost of sales | (1,363 | ) | | 4 | | | (1,359 | ) |
| | | | | | | | | |
| Gross profit | 270 | | | 4 | | | 274 | |
| | | | | | | | | |
| Selling, general and administrative expenses | (134 | ) | | 8 | | | (126 | ) |
| | | | | | | | | |
| Research and development expenses | (26 | ) | | 1 | | | (25 | ) |
| | | | | | | | | |
| Operating profit (loss) | 98 | | | 13 | | | 111 | |
| | | | | | | | | |
| Earnings (loss) from continuing operations before tax | 107 | | | 13 | | | 120 | |
| | | | | | | | | |
| Income tax (provision) benefit | 76 | | | (3 | ) | | 73 | |
| | | | | | | | | |
| Earnings (loss) from continuing operations | 183 | | | 10 | | | 193 | |
| | | | | | | | | |
| Net earnings (loss) | 183 | | | 10 | | | 193 | |
| | | | | | | | | |
| Net earnings (loss) attributable to Celanese Corporation | 183 | | | 10 | | | 193 | |
| | | | | | | | | |
| Earnings (loss) per common share - basic | | | | | |
| Continuing operations | 1.17 | | | 0.06 | | | 1.23 | |
| | | | | | | | | |
| Discontinued operations | - | | | - | | | - | |
| | | | | | | | | |
| Net earnings (loss) - basic | 1.17 | | | 0.06 | | | 1.23 | |
| | | | | | | | | |
| Earnings (loss) per common share - diluted | | | | | |
| Continuing operations | 1.15 | | | 0.06 | | | 1.21 | |
| | | | | | | | | |
| Discontinued operations | - | | | - | | | - | |
| | | | | | | | | |
| Net earnings (loss) - diluted | 1.15 | | | 0.06 | | | 1.21 | |
| | | | | | | | | |
The retrospective effect of the change in accounting policy for pension and other postretirement benefits to the consolidated statement of comprehensive income (loss) is as follows:
| |
| | | | | | | | | |
| | Three Months Ended March 31, 2012 |
| | As Previously | | Effect of | | As Adjusted |
| | Reported | | Change | | |
| | (In $ millions) |
| Net earnings (loss) | 183 | | | 10 | | | 193 | |
| | | | | | | | | |
| Pension and postretirement benefits | 6 | | | (10 | ) | | (4 | ) |
| | | | | | | | | |
| Total other comprehensive income (loss), net of tax | 33 | | | (10 | ) | | 23 | |
| | | | | | | | | |
| Total comprehensive income (loss), net of tax | 216 | | | - | | | 216 | |
| | | | | | | | | |
| Comprehensive (income) loss attributable to Celanese Corporation | 216 | | | - | | | 216 | |
| | | | | | | | | |
The retrospective effect of the change in accounting policy for pension and other postretirement benefits to the consolidated balance sheet is as follows:
| |
| | | | | | | | | |
| | As of December 31, 2012 |
| | As Previously | | Effect of | | As Adjusted |
| | Reported | | Change | | |
| | (In $ millions) |
| Retained earnings | 2,986 | | | (993 | ) | | 1,993 | |
| | | | | | | | | |
| Accumulated other comprehensive income (loss), net | (1,082 | ) | | 993 | | | (89 | ) |
| | | | | | | | | |
The cumulative effect of the change in accounting policy for pension and other postretirement benefits on Retained earnings as of December 31, 2011 was a decrease of $760 million , with an equivalent increase to Accumulated other comprehensive income.
10
The retrospective effect of the change in accounting policy for pension and other postretirement benefits to the consolidated statement of cash flows is as follows:
| |
| | | | | | | | | |
| | Three Months Ended March 31, 2012 |
| | As Previously | | Effect of | | As Adjusted |
| | Reported | | Change | | |
| | (In $ millions) |
| Net earnings (loss) | 183 | | | 10 | | | 193 | |
| | | | | | | | | |
| Pension and postretirement benefit expense | - | | | 3 | | | 3 | |
| | | | | | | | | |
| Pension and postretirement contributions | - | | | (66 | ) | | (66 | ) |
| | | | | | | | | |
| Deferred income taxes, net | (94 | ) | | 3 | | | (91 | ) |
| | | | | | | | | |
| Other liabilities | (82 | ) | | 50 | | | (32 | ) |
| | | | | | | | | |
The retrospective effect of the change in accounting policy for pension and other postretirement benefits to the business segment financial information ( Note 18 ) is as follows:
| |
| | | | | | | | | |
| | Three Months Ended March 31, 2012 |
| | As Previously | | Effect of | | As Adjusted |
| | Reported | | Change | | |
| | (In $ millions) |
| Operating Profit (Loss) | | | | | |
| Advanced Engineered Materials | 21 | | | 3 | | | 24 | |
| | | | | | | | | |
| Consumer Specialties | 39 | | | 1 | | | 40 | |
| | | | | | | | | |
| Industrial Specialties | 19 | | | 1 | | | 20 | |
| | | | | | | | | |
| Acetyl Intermediates | 60 | | | 2 | | | 62 | |
| | | | | | | | | |
| Other Activities | (41 | ) | | 6 | | | (35 | ) |
| | | | | | | | | |
| Total | 98 | | | 13 | | | 111 | |
| | | | | | | | | |
2. Recent Accounting Pronouncements
In March 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment 2013-05, Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity , an amendment to FASB Accounting Standards Codification ("ASC") Topic 350, Intangibles - Goodwill and Other ("FASB ASC Topic 350"). The update provides an entity with the option first to assess qualitative factors in determining whether it is more likely than not that the indefinite-lived intangible asset is impaired. after assessing The qualitative factors, if an entity determines that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. If an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test. The ASU is effective for the Company for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption was permitted. The Company did not early adopt the provisions of this ASU. however, The Company does not expect the impact of adopting this ASU to be material to the Company's financial position, results of operations or cash flows.830, Foreign Currency Matters ("FASB ASC Topic 830"). The update clarifies that complete or substantially complete liquidation of a foreign entity is required to release the cumulative translation adjustment ("CTA") for transactions occurring within a foreign entity. However, transactions impacting investments in a foreign entity may result in a full or partial release of CTA even though complete or substantially complete liquidation of the foreign entity has not occurred. Furthermore, for transactions involving step acquisitions, the CTA associated with the previous equity-method investment will be fully released when control is obtained and consolidation occurs. This ASU is effective for fiscal years beginning after December 15, 2013. The Company will apply the guidance prospectively to derecognition events occurring after the effective date.
In February 2013, the FASB issued ASU 2013-04, Obligations Resulting From Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date , an amendment to FASB ASC Topic 405, Liabilities ("FASB ASC Topic 405"). The update requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed as of the reporting date as the sum of the obligation the entity agreed to pay among its co-obligors and any additional amount the entity expects to pay on behalf of its co-obligors. This ASU is effective for annual and interim periods beginning after December 15, 2013 and is required to be applied retrospectively to all prior periods presented for those obligations that existed upon adoption of the ASU. The Company is still assessing the potential impact of adopting this guidance.
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3. Acquisitions, Dispositions, Ventures and Plant Closures
Acquisitions
In January 3, 2012, the Company completed the acquisition of certain assets from Ashland Inc., including two product lines, Vinac ® and Flexbond ® , to support the strategic growth of the Company's Emulsions business ( Note 6 ). In February 2011, the Company acquired a business primarily consisting of emulsions process technology from Crown Paints Limited. Both of The acquired operations are included in the Industrial Specialties segment. Pro forma financial information since the respective acquisition dates has not been provided as the acquisitions acquisition date has not been provided as the acquisition did not have a material impact on the Company's financial information.
The Company allocated the purchase price of the acquisitions 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 Level 3 measurements under FASB ASC Topic 820, Fair Value Measurement ("FASB ASC Topic 820"). The relief from royalty method estimates the Company's theoretical royalty savings from ownership of the intangible asset. Key assumptions used in this model include discount rates, royalty rates, growth rates, sales projections and terminal value rates, all of which require significant management judgment and, therefore, are susceptible to change. 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.
Plant Closures
• Spondon, Derby, United Kingdom
In August 2010, the Company announced it would consolidate its global acetate manufacturing capabilities by closing its acetate flake and tow manufacturing operations in Spondon, Derby, United Kingdom. The Company expects to serve its acetate customers under this proposal by optimizing its global production network, which includes facilities in Lanaken, Belgium; Narrows, Virginia; and Ocotlan, Mexico, as well as the Company's acetate affiliate facilities in China. The Company expects the closure of the acetate flake and tow manufacturing operations in Spondon, Derby, United Kingdom to occur during the three months ending December 31, 2012. The Spondon, Derby, United Kingdom operations are included in the Consumer Specialties segment.
• Pardies, France
In July 2009, the Company completed the consultation process with the workers council on its "Project of Closure" and social plan related to the Company's Pardies, France facility pursuant to which the Company ceased all manufacturing operations and associated activities in December 2009. The Pardies, France operations are included in the Acetyl Intermediates segment.
9
4. Marketable Securities, at Fair Value
The Company's captive insurance companies and nonqualified trusts hold available-for-sale securities for capitalization and funding requirements, respectively.
The amortized cost, gross unrealized gain, gross unrealized loss and fair values for available-for-sale securities by major security type are as follows:
| |
| | | | | | |
| | As of | | As of |
| | March 31, | | December 31, |
| | 2013 | | 2012 |
| | (In $ millions) |
| Mutual Funds | | | |
| Amortized cost | 49 | | | 53 | |
| | | | | | |
| Gross unrealized gain | - | | | - | |
| | | | | | |
| Gross unrealized loss | - | | | - | |
| | | | | | |
| Fair value | 49 | | | 53 | |
| | | | | | |
See Note 16, Fair Value Measurements , for additional information regarding the fair value of the Company's marketable securities.
5. Inventories
| |
| | | | | | |
| | As of | | As of |
| | March 31, | | December 31, |
| | 2013 | | 2012 |
| | (In $ millions) |
| Finished goods | 560 | | | 514 | |
| | | | | | |
| Work-in-process | 52 | | | 42 | |
| | | | | | |
| Raw materials and supplies | 146 | | | 155 | |
| | | | | | |
| Total | 758 | | | 711 | |
| | | | | | |
12
6. Goodwill and Intangible Assets, Net
Goodwill
| |
| | | | | | | | | | | | | | | |
| | Advanced | | Consumer | | Industrial | | Acetyl | | Total |
| | Engineered | | Specialties | | Specialties | | Intermediates | | |
| | Materials | | | | | | | | |
| | (In $ millions) |
| As of December 31, 2012 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Goodwill | 297 | | | 249 | | | 42 | | | 189 | | | 777 | |
| | | | | | | | | | | | | | | |
| Accumulated impairment losses | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | |
| Net book value | 294 | | | 246 | | | 35 | | | 185 | | | 760 | |
| Net book value | 297 | | | 249 | | | 42 | | | 189 | | | 777 | |
| | | | | | | | | | | | | | | |
| Acquisitions ( Note 3 ) | - | | | - | | | 7 | | | - | | | 7 | |
| | | | | | | | | | | | | | | |
| Exchange rate changes | - | | | 1 | | | - | | | - | | | 1 | |
| Exchange rate changes | (4 | ) | | (4 | ) | | (1 | ) | | (6 | ) | | (15 | ) |
| | | | | | | | | | | | | | | |
| As of March 31, 2013 | | | | | | | | | |
| Goodwill | 293 | | | 245 | | | 41 | | | 183 | | | 762 | |
| | | | | | | | | | | | | | | |
| Accumulated impairment losses | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | |
| Net book value | 293 | | | 245 | | | 41 | | | 183 | | | 762 | |
| | | | | | | | | | | | | | | |
The Company assesses the recoverability of the carrying value of its reporting unit goodwill annually during the third quarter of its 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. In connection with the Company's annual goodwill impairment test, the Company did not record an impairment loss to goodwill during the nine months ended September 30, 2012.
10
Intangible Assets, Net
Finite-lived intangibles are as follows:
| |
| | | | | | | | | | | | | | | | |
| | Licenses | | Customer- | | Developed | | Covenants | | Total | |
| | | | Related | | Technology | | Not to | | | |
| | | | Intangible | | | | Compete | | | |
| | | | Assets | | | | and Other | | | |
| | (In $ millions) | |
| Gross Asset Value | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| As of December 31, 2012 | 32 | | | 525 | | | 30 | | | 32 | | | 619 | | |
| | | | | | | | | | | | | | | | |
| Acquisitions ( Note 3 ) | - | | | - | | | - | | | 4 | | | 4 | | (1) |
| | | | | | | | | | | | | | | | |
| Exchange rate changes | - | | | (11 | ) | | - | | | - | | | (11 | ) | |
| | | | | | | | | | | | | | | | |
| As of March 31, 2013 | 32 | | | 514 | | | 30 | | | 36 | | | 612 | | |
| | | | | | | | | | | | | | | | |
| Accumulated Amortization | | | | | | | | | | |
| As of December 31, 2011 | (13 | ) | | (433 | ) | | (14 | ) | | (18 | ) | | (478 | ) | |
| As of December 31, 2012 | (16 | ) | | (480 | ) | | (17 | ) | | (23 | ) | | (536 | ) | |
| Amortization | (1 | ) | | (9 | ) | | (1 | ) | | - | | | (11 | ) | |
| | | | | | | | | | | | | | | | |
| Exchange rate changes | - | | | 10 | | | - | | | - | | | 10 | | |
| | | | | | | | | | | | | | | | |
| As of September 30, 2012 | (15 | ) | | (463 | ) | | (16 | ) | | (22 | ) | | (516 | ) | |
| As of March 31, 2013 | (17 | ) | | (479 | ) | | (18 | ) | | (23 | ) | | (537 | ) | |
| Net book value | 15 | | | 35 | | | 12 | | | 13 | | | 75 | | |
| | | | | | | | | | | | | | | | |
______________________________
| | |
| (1) | Weighted average amortization period of intangible assets acquired was 6 years. |is 20 years. |
Indefinite-lived intangibles are as follows:
| |
| | | |
| | Trademarks |
| | and Trade Names |
| | (In $ millions) |
| As of December 31, 2012 | 82 | |
| | | |
| Acquisitions | - | |
| | | |
| Exchange rate changes | (2 | ) |
| | | |
| As of March 31, 2013 | 80 | |
| | | |
The Company's trademarks and trade names have an indefinite life. Accordingly, no amortization expense is recorded on these intangible assets. For the nine months ended September 30, 2012 For the three months ended March 31, 2013 , the Company did not renew or extend any intangible assets.
13
Estimated amortization expense for the succeeding five fiscal years is as follows:
| |
| | | |
| | (In $ millions) |
| 2013 | 32 | |
| | | |
| 2014 | 21 | |
| | | |
| 2015 | 10 | |
| | | |
| 2016 | 7 | |
| | | |
| 2017 | 6 | |
| | | |
The Company assesses the recoverability of the carrying value of its indefinite-lived intangible assets annually during the third quarter of its fiscal year using June 30 balances or whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. In connection with the Company's annual indefinite-lived intangible assets impairment test, the Company did not record an impairment loss to indefinite-lived intangible assets during the nine months ended September 30, 2012.
| 2018 | 3 | |
| | | |
7. Current Other Liabilities
| |
| | | | | | |
| | As of | | As of |
| | March 31, | | December 31, |
| | 2013 | | 2012 |
| | (In $ millions) |
| Salaries and benefits | 74 | | | 74 | |
| | | | | | |
| Environmental ( Note 11 ) | 21 | | | 21 | |
| | | | | | |
| Restructuring ( Note 13 ) | 25 | | | 30 | |
| | | | | | |
| Insurance | 14 | | | 15 | |
| | | | | | |
| Asset retirement obligations | 31 | | | 38 | |
| | | | | | |
| Derivatives ( Note 15 ) | 18 | | | 23 | |
| | | | | | |
| Current portion of benefit obligations | 47 | | | 47 | |
| | | | | | |
| Interest | 37 | | | 23 | |
| | | | | | |
| Sales and use tax/foreign withholding tax payable | 18 | | | 17 | |
| | | | | | |
| Uncertain tax positions | 60 | | | 65 | |
| | | | | | |
| Customer rebates | 38 | | | 44 | |
| | | | | | |
| Other | 76 | | | 78 | |
| | | | | | |
| Total | 459 | | | 475 | |
| | | | | | |
8. Noncurrent Other Liabilities
| |
| | | | | | |
| | As of | | As of |
| | March 31, | | December 31, |
| | 2013 | | 2012 |
| | (In $ millions) |
| Environmental ( Note 11 ) | 73 | | | 78 | |
| | | | | | |
| Insurance | 61 | | | 58 | |
| | | | | | |
| Deferred revenue | 34 | | | 36 | |
| | | | | | |
| Deferred proceeds (1) | 882 | | | 909 | |
| | | | | | |
| Asset retirement obligations | 25 | | | 26 | |
| | | | | | |
| Derivatives ( Note 15 ) | 4 | | | 8 | |
| | | | | | |
| Income taxes payable | 3 | | | 2 | |
| | | | | | |
| Other | 41 | | | 35 | |
| | | | | | |
| Total | 1,123 | | | 1,152 | |
| | | | | | |
______________________________
| | |
| (1) | Primarily relates to proceeds received from the Frankfurt, Germany Airport as part of a settlement for the Company to cease operations and sell its Kelsterbach, Germany manufacturing site, included in the Advanced Engineered Materials segment ( Note 20 ). Such proceeds will be deferred until title transfers to the Frankfurt, Germany Airport. |
14
9. Debt
| |
| | | | | | |
| | As of | | As of |
| | March 31, | | December 31, |
| | 2013 | | 2012 |
| | (In $ millions) |
| Short-Term Borrowings and Current Installments of Long-term Debt - Third Party and Affiliates | | | |
| Current installments of long-term debt | 23 | | | 60 | |
| | | | | | |
| Short-term borrowings, including amounts due to affiliates | 89 | | | 108 | |
| | | | | | |
| Total | 112 | | | 168 | |
| | | | | | |
The Company's weighted average interest rate on short-term borrowings, including amounts due to affiliates, was 4.4% as of September 30, 2012 compared to 4.3% 4.6% as of March 31, 2013 compared to 4.0% as of December 31, 2012 .
12
| |
| | | | | | |
| | As of | | As of |
| | March 31, | | December 31, |
| | 2013 | | 2012 |
| | (In $ millions) |
| Long-Term Debt | | | |
| Senior credit facilities - Term C loan due 2016 | 967 | | | 977 | |
| | | | | | |
| Senior unsecured notes due 2018, interest rate of 6.625% | 600 | | | 600 | |
| | | | | | |
| Senior unsecured notes due 2021, interest rate of 5.875% | 400 | | | 400 | |
| | | | | | |
| Senior unsecured notes due 2022, interest rate of 4.625% | 500 | | | 500 | |
| | | | | | |
| Credit-linked revolving facility due 2014, interest rate of 1.7% | 100 | | | 50 | |
| | | | | | |
| Pollution control and industrial revenue bonds, interest rates ranging from 5.7% to 6.7%, due at various dates through 2030 | 169 | | | 182 | |
| | | | | | |
| Obligations under capital leases due at various dates through 2054 | 246 | | | 244 | |
| | | | | | |
| Other bank obligations interest rates ranging from 6.2% to 6.3%, due at various dates through 2017 | 87 | Other bank obligations | - | | | 37 | |
| | | | | | |
| Subtotal | 2,982 | | | 2,990 | |
| | | | | | |
| Current installments of long-term debt | (23 | ) | | (60 | ) |
| Total | 2,959 | | | 2,930 | |
| | | | | | |
Senior Notes
In September 2010, Celanese US completed the private placement of $600 In November 2012, Celanese US completed an offering of $ 500 million in aggregate principal amount of 4.625% senior unsecured notes due 2018 (the "6.625% Notes under an indenture, dated September 24, 2010 (the "Indenture") 2022 (the " 4.625% Notes") in a public offering registered under the Securities Act of 1933, as amended (the "Securities Act"). The 4.625% Notes are guaranteed on a senior unsecured basis by Celanese and each of the domestic subsidiaries of Celanese US that guarantee its obligations under its senior secured credit facilities (the "Subsidiary Guarantors").
The 4.625% Notes were issued under an indenture, dated May 6, 2011, as amended by a second supplemental indenture, dated November 13, 2012 (the "Second Supplemental Indenture") among Celanese US, Celanese, the Subsidiary Guarantors and Wells Fargo Bank, National Association, as trustee. In April 2011, Celanese US registered the 6.625% Notes under the Securities Act of 1933, as amended (the "Securities Act"). Celanese US pays interest on the 6.625% Notes on April 15 and October Celanese US will pay interest on the 4.625% Notes on March 15 and September 15 of each year which commenced on April 15, 2011. The 6.625% Notes are redeemable, in whole or in part, at any time on or after October 15, 2014 at the redemption prices specified in the Indenture. Prior to October 15, 2014, March 15, 2013. Prior to November 15, 2022, Celanese US may redeem some or all of the 4.625% Notes at a redemption price of 100% of the principal amount, plus a "make-whole" premium as specified in the Second Supplemental Indenture, plus accrued and unpaid interest, if any, to the redemption date. plus a "make-whole" premium as specified in The Indenture. The 6.625% The 4.625% Notes are senior unsecured obligations of Celanese US and rank equally in right of payment with all other unsubordinated indebtedness of Celanese US.The 6.625% Notes are guaranteed on a senior unsecured basis by Celanese and each of the domestic subsidiaries of Celanese US that guarantee its obligations under its senior secured credit facilities (the "Subsidiary Guarantors").
The Indenture contains covenants, including, but not limited to, restrictions on the Company's ability to incur indebtedness; grant liens on assets; merge, consolidate, or sell assets; pay dividends or make other restricted payments; engage in transactions with affiliates; or engage in other businesses.
In May 2011, Celanese US completed an offering of $400 million in aggregate principal amount of 5.875% senior unsecured notes due 2021 (the " 5.875% Notes") in a public offering registered under the Securities Act. The 5.875% Notes are guaranteed on a senior unsecured basis by Celanese and the Subsidiary Guarantors.
15
The 5.875% Notes were issued under an indenture and a first supplemental indenture, each dated May 6, 2011 (the "First Supplemental Indenture") among Celanese US, Celanese, the Subsidiary Guarantors and Wells Fargo Bank, National Association, as trustee. Celanese US pays interest on the 5.875% Notes on June 15 and December 15 of each year which commenced on December 15, 2011. Prior to June 15, 2021, Celanese US may redeem some or all of the 5.875% Notes at a redemption price of 100% of the principal amount, plus a "make-whole" premium as specified in the First Supplemental Indenture, plus accrued and unpaid interest, if any, to the redemption date. The 5.875% Notes are senior unsecured obligations of Celanese US and rank equally in right of payment with all other unsubordinated indebtedness of Celanese US.
In September 2010, Celanese US completed the private placement of $600 million in aggregate principal amount of 6.625% senior unsecured notes due 2018 (the "6.625% Notes" and, together with the 4.625% Notes and the 5.875% Notes, collectively the "Senior Notes") under an indenture dated September 24, 2010 (the "Indenture") among Celanese US, Celanese, the Subsidiary Guarantors and Wells Fargo Bank, National Association, as trustee. In April 2011, Celanese US registered the 6.625% Notes under the Securities Act. Celanese US pays interest on the 6.625% Notes on April 15 and October 15 of each year which commenced on April 15, 2011. The 6.625% Notes are redeemable, in whole or in part, at any time on or after October 15, 2014 at the redemption prices specified in the Indenture. Prior to October 15, 2014, Celanese US may redeem some or all of the 6.625% Notes at a redemption price of 100% of the principal amount, plus a "make-whole" premium as specified in the Indenture, plus accrued and unpaid interest, if any, to the redemption date. The 6.625% Notes are senior unsecured obligations of Celanese US and rank equally in right of payment with all other unsubordinated indebtedness of Celanese US. The 6.625% Notes are guaranteed on a senior unsecured basis by Celanese and the Subsidiary Guarantors.
The Indenture and the First and Second Supplemental Indentures contain covenants, including, but not limited to, restrictions on the Company's ability to incur indebtedness; grant liens on assets; merge, consolidate, or sell assets; pay dividends or make other restricted payments; engage in transactions with affiliates; or engage in other businesses.
Senior Credit Facilities
In September 2010, Celanese US, Celanese, and certain of the domestic subsidiaries of Celanese US entered into an amendment agreement (the "Amendment Agreement") with the lenders under Celanese US's existing senior secured credit facilities in order to amend and restate the corresponding Credit Agreement, dated as of April 2, 2007 (as previously amended,
13
the "Existing Credit Agreement", and as amended and restated by the amendment agreement, the "Amended Credit Agreement"). The Amended Credit Agreement consists of the Term C loan facility due 2016 , the Term B loan facility due 2014 , a $600 million revolving credit facility terminating in 2015 and a $228 million credit-linked revolving facility terminating in 2014 .
In May 2011, Celanese US through its subsidiaries, prepaid its outstanding Term B loan facility under the Amended Credit Agreement set to mature in 2014 with an aggregate principal amount of $516 million using proceeds from the 5.875% Notes and cash on hand.
In November 2012, Celanese US prepaid $ 400 million of its outstanding Term C loan facility under the Amended Credit Agreement set to mature in 2016 using proceeds from the 4.625% Notes.
The margin for borrowings under the revolving credit facility is currently 2.5% above LIBOR or EURIBOR, as applicable, subject to increase or reduction in certain circumstances based on changes in the Company's corporate credit ratings. Borrowings under the credit-linked revolving facility and the Term C loan facility bear interest at a variable interest rate based on LIBOR (for US dollars) or EURIBOR (for Euros), plus a margin which varies based on the Company's net leverage ratio.
The estimated net leverage ratio and margin are as follows:
| |
| | | | | | |
| | As of March 31, 2013 |
| | Estimated Total Net | | Estimated |
| | Leverage Ratio | | Margin |
| Credit-linked revolving facility | 1.56 | | | 1.50 | % |
| | | | | | |
| Term C | 1.56 | | | 2.75 | % |
| | | | | | |
16
The margin on each facility may increase or decrease 0.25% based on the following:
| |
| | | | | | | |
| Credit-Linked Revolving Facility | | Term C Loan Facility |
| Total Net Leverage Ratio | | Margin over LIBOR | | Total Net Leverage Ratio | | Margin over LIBOR |
| | | or EURIBOR | | | | or EURIBOR |
| < = 2.25 | | 1.50% | | < = 1.75 | | 2.75% |
| > 2.25 | | 1.75% | | > 1.75 and < = 2.25 | | 3.00% |
| | | | | > 2.25 | | 3.25% |
Term loan borrowings under the Amended Credit Agreement are subject to amortization at 1% of the initial principal amount per annum, payable quarterly. In addition, the Company pays quarterly commitment fees on the unused portions of the revolving credit facility and credit-linked revolving facility of 0.25% and 1.50% per annum, respectively.
The Amended Credit Agreement is guaranteed by Celanese and certain domestic subsidiaries of Celanese US and is secured by a lien on substantially all assets of Celanese US and such guarantors, subject to certain agreed exceptions (including for certain real property and certain shares of foreign subsidiaries), pursuant to the Guarantee and Collateral Agreement, dated as of April 2, 2007.
As a condition to borrowing funds or requesting letters of credit be issued under the revolving facility, the Company's first lien senior secured leverage ratio (as calculated as of the last day of the most recent fiscal quarter for which financial statements have been delivered under the revolving facility) cannot exceed the threshold as specified below. Further, the Company's first lien senior secured leverage ratio must be maintained at or below that threshold while any amounts are outstanding under the revolving credit facility.
The Company's first lien senior secured leverage ratios and the borrowing capacity under the revolving credit facility are as follows:
| |
| | | | | | | | | | |
| | As of March 31, 2013 |
| | First Lien Senior Secured Leverage Ratio | | |
| | | | | | Estimate, if Fully | | Borrowing |
| | Maximum | | Estimate | | Drawn | | Capacity |
| | | | | | Fully Drawn | | Capacity |
| | Maximum | | Estimate | | |
| | | | | | | | (In $ millions) |
| Revolving credit facility | 3.90 | | 0.91 | | | 1.41 | | 600 | |
| | | | | | | | | |
|
The balances available for borrowing are as follows:
| |
| | | |
| | As of |
| | March 31, |
| | 2013 |
| | (In $ millions) |
| Revolving Credit Facility | | |
| | | |
| Borrowings outstanding | - | |
| | | |
| Letters of credit issued | - | |
| | | |
| Available for borrowing | 600 | |
| | | |
| Credit-Linked Revolving Facility | |
| Borrowings outstanding | 100 | |
| | | |
| Letters of credit issued | 78 | |
| | | |
| Available for borrowing | 50 | |
| | | |
The Amended Credit Agreement contains covenants including, but not limited to, restrictions on the Company's ability to incur indebtedness; grant liens on assets; merge, consolidate, or sell assets; pay dividends or make other restricted payments; make investments; prepay or modify certain indebtedness; engage in transactions with affiliates; enter into sale-leaseback transactions or hedge transactions; or engage in other businesses.
The Amended Credit Agreement also maintains a number of events of default, including a failure to make any payment of principal or interest when due, a cross default to other debt of Celanese, Celanese US, or their subsidiaries, including the Senior Notes, in an aggregate amount equal to more than $40 million and the occurrence of a change of control. Failure to comply with these covenants, or the occurrence of any other
17
event of default, could result in acceleration of the borrowings and other financial obligations under the Amended Credit Agreement.
The Company is in compliance with all of the covenants related to its debt agreements as of March 31, 2013 .
In anticipation of a possible change in pension accounting policy, in January 2013, the Company entered into a non-material amendment to the Amended Credit Agreement with the effect that certain computations for covenant compliance purposes will be evaluated as if the change in pension accounting policy had not occurred. The amendment also modified the Amended Credit Agreement in other, non-material respects.
10. Benefit Obligations
As discussed in Note 1, effective January 1, 2013 the Company elected to change its policy for recognizing actuarial gains and losses and changes in the fair value of plan assets for its defined benefit pension plans and other postretirement benefit plans. This accounting change has been applied retrospectively to all periods presented.
The components of net periodic benefit costs are as follows:
| |
| | | | | | | | | | | | |
| | Pension Benefits | | Postretirement | | Pension Benefits | | Postretirement Benefits |
| | | | Benefits || | | |
| | Three Months Ended September 30, || Nine Months Ended September 30, |
| | 2012 | | 2011 | | 2012 || 2011 | | 2012 | | 2011 | | 2012 | | 2011 |
| | Three Months Ended March 31, |
| | 2013 | | 2012 | | 2013 | | 2012 |
| | | | As Adjusted (Note 1) | | | | As Adjusted (Note 1) |
| | (In $ millions) || (In $ millions) |
| Service cost | 9 | | | 7 | | | - | | | - | | | 21 | | | 21 | | | 1 | | | - | |
| | | | | | | | | | | | |
| Interest cost | 39 | | | 43 | | | 2 | | | 3 | || 127 | | | 136 | | | 9 | | | 9 | |
| | | | | | | | | | | | | | | | || | | | | | | |
| | | | | | | | | | | | |
| Expected return on plan assets | (51 | ) | | (50 | ) | | - | | | - | | | (154 | ) | | (151 | ) | | - | | | - | |(56 | ) | | (51 | ) | | - | | | - | |
| | | | | | | | | | | | | | | || | | | | | | | |
| | | | | | | | | | | | |
| Recognized actuarial (gain) loss | 14 | | | 7 | | | - | | | (1 | ) | | 43 | | | 22 | | | (1 | ) | | (2 | ) | - | | | - | | | - | | | - | |
| | | | | | | | | | | | |
| Amortization of prior service cost (credit) | - | | | 1 | | | - | | | - | || 1 | | | 1 | | | - | | | - | |
| | | | | | | | | | | | | | | | | || | | | | | |
| | | | | | | | | | | | |
| Curtailment (gain) loss | - | | | - | | | - | | | - | | | - | | | (1 | ) | | - | | | - | |
| | | | | | | | | | | | || | | | | | | | | | | |
| Total | 12 | | | 10 | | | 3 | | | 2 | | | 38 | | | 28 | | | 9 | | | 8 | |
| Total | (8 | ) | | - | | | 3 | | | 3 | |
| | | | | | | | | | | | | | | | | | || | | | | |
| | | | | | | | | | | | |
Commitments to fund benefit obligations during 2013 are as follows:
| |
| | | | | | ||
| | As of | | Expected for 2013 |
| | March 31, | | |
| | September 30, 2012 | | Expected for 2012 | |
| | 2013 | | |
| | (In $ millions) | |
| Cash contributions to defined benefit pension plans | 9 | | | 30 | |
| | | | | | ||
| Benefit payments to nonqualified pension plans | 6 | | | 22 | |
| | | | | | ||
| Benefit payments to other postretirement benefit plans | 4 | | | 24 | |
| | | | | | ||
______________________________
| | |
| (1) | Includes $15 million of discretionary contributions as of September 30, 2012 and $15 million of expected discretionary contributions. |
15
The Company's estimates of its US defined benefit pension plan contributions reflect the provisions of the Pension Protection Act of 2006.
The Company participates in a multiemployer defined benefit plan in Germany covering certain employees. The Company's contributions to the multiemployer defined benefit plan are based on specified percentages of employee contributions and totaled $2 million for the three months ended March 31, 2013 .
11. Environmental
General
The Company is 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. 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.
18
The components of environmental remediation reserves are as follows:
| |
| | | | | | |
| | As of | | As of |
| | March 31, | | December 31, |
| | 2013 | | 2012 |
| | (In $ millions) |
| Demerger obligations ( Note 17 ) | 28 | | | 31 | |
| | | | | | |
| Divestiture obligations ( Note 17 ) | 21 | | | 21 | |
| | | | | | |
| Active sites | 26 | | | 28 | |
| | | | | | |
| US Superfund sites | 15 | | | 15 | |
| | | | | | |
| Other environmental remediation reserves | 4 | | | 4 | |
| | | | | | |
| Total | 94 | | | 99 | |
| | | | | | |
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 (as defined below). In addition, as part of the demerger agreement between the Company and Hoechst AG ("Hoechst"), a specified portion of the responsibility for environmental liabilities from a number of Hoechst divestitures was transferred to the Company ( Note 17 ). The Company provides for such obligations when the event of loss is probable and reasonably estimable. The Company believes that environmental remediation costs will not have a material adverse effect on the financial position of the Company, but may have a material adverse effect on the results of operations or cash flows in any given period.
US Superfund Sites
In the US, the Company may be subject to substantial claims brought by US federal or state regulatory agencies or private individuals pursuant to statutory authority or common law. In particular, the Company has a potential liability under the US Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, and related state laws (collectively referred to as "Superfund") for investigation and cleanup costs at certain sites. At most of these sites, numerous companies, including the Company, or one of its predecessor companies, have been notified that the 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 some of these proceedings is uncertain. Consequently, the Company cannot accurately determine its ultimate liability for investigation or cleanup costs at these sites.
As events progress at each site for which it has been named a PRP, the Company accrues, as appropriate, a liability for site cleanup. Such liabilities include all costs that are probable and can be reasonably estimated. In establishing these liabilities, the Company considers its shipment of waste to a site, its percentage of total waste shipped to the site, the types of wastes involved, the conclusions of any studies, the magnitude of any remedial actions that may be necessary and the number and viability of other PRPs. Often the Company joins with other PRPs to sign joint defense agreements that settle, among PRPs, each party's percentage allocation of costs at the site. Although the ultimate liability may differ from the estimate, the Company routinely reviews the liabilities and revises the estimate, as appropriate, based on the most current information available.
16
One such site is the Lower Passaic River Study Area. The Company and 70 other companies are parties to a May 2007 Administrative Order on Consent with the US Environmental Protection Agency ("EPA") to perform a Remedial Investigation/Feasibility Study ("RI/FS") of the contaminants in the lower 17-mile stretch known as the Lower Passaic River Study Area. The RI/FS is ongoing and may take several more years to complete. The Company is among a group of settling parties to a June 2012 Administrative Order on Consent with the EPA to perform a removal action on a small section of the river. The Company has also been named as a third-party defendant along with more than 200 other entities in an action initially brought by the New Jersey Department of Environmental Protection ("NJDEP") in the Supreme Court of New Jersey against Occidental Chemical Corporation and several other companies. This suit by the NJDEP seeks recovery of past and future clean-up costs, as well as unspecified economic damages, punitive damages, penalties and a variety of other forms of relief arising from alleged discharges into the Lower Passaic River.
In 2007, the EPA issued a draft study that evaluated alternatives for early remedial action of a portion of the Passaic River at an estimated cost of $900 million to $2.3 billion . Several parties commented on the draft study, and to date, the EPA has not taken further action. the EPA has announced its intention to issue a proposed plan in 2013. Although the Company's assessment that the contamination allegedly released by the Company is likely an insignificant aspect of the final remedy, which would consequently limit the ultimate contribution from the Company. because the RI/FS is still ongoing, and the EPA has not finalized
19
its study or the scope of requested cleanup and the Company's assessment that the contamination allegedly released by the Company is likely an insignificant aspect of the final remedy, the Company cannot reliably estimate its portion of the final remedial costs for this matter at this time. However, the Company currently believes that its portion of the costs would be less than approximately 1% to 2% . The Company is vigorously defending these and all related matters.
Environmental Proceedings
On January 7, 2013, following self-disclosures by the Company, the Company's Meredosia, Illinois site received a Notice of Violation/Finding of Violation from the US Environmental Protection Agency Region 5 ("EPA") alleging Clean Air Act violations. The Company is working with the EPA and with the state agency to reach a resolution of this matter. Based on currently available information and the Company's past experience, we do not believe that resolution of this matter will have a significant impact on the Company, even though the Company cannot conclude that a penalty will be less than $100,000 . The Meredosia, Illinois site is included in the Industrial Specialties segment.
12. Stockholders' Equity
Common Stock
The Company's Board of Directors follows a policy of declaring, subject to legally available funds, a quarterly cash dividend on each share of the Company's Series A Common Stock, par value $0.0001 per share ("Common Stock") unless the Company's Board of Directors, in its sole discretion, determines otherwise. The amount available to pay cash dividends is restricted by the Company's Amended Credit Agreement and the Senior Notes.
On April 23, 2012 , the Company announced that its Board of Directors approved a 25% increase in the Company's quarterly Common Stock cash dividend. The Board of Directors increased the quarterly dividend rate from $0.06 to $0.075 per share of Common Stock on a quarterly basis and $0.24 to $0.30 per share of Common Stock on an annual basis beginning in August 2012 .
Treasury Stock
The Company's Board of Directors authorized the repurchase of Common Stock as follows:
| |
| | | |
| | Authorized Amount |
| | (In $ millions) |
| February 2008 | 400 | |
| | | |
| October 2008 | 100 | |
| | | |
| April 2011 | 129 | |
| | | |
| October 2012 | 264 | |
| | | |
| As of March 31, 2013 | 893 | || As of September 30, 2012 | 629 | |
| | | |
The authorization gives management discretion in determining the timing and conditions under which shares may be repurchased. The repurchase program does not have an expiration date.
The share repurchase activity pursuant to this authorization is as follows:
| |
| | | | | | | | | | | | | |
| | Three Months Ended March 31, | | Total From | |
| | | | February 2008 Through | |
| | September 30, | |
| |2012 | | 2011 | | September 30, 2012 |
| | | | March 31, 2013 | |
| | 2013 | | 2012 | | |
| Shares repurchased | 853,388 | | | 591,356 | | | 12,936,196 | |
| Shares repurchased | - | | | 444,901 | | | 13,142,527 | | (1) |
| | | | | | | | | | |
| Average purchase price per share | $ | 43.19 | | | $ | 47.37 | | | $ | 38.12 | |- | | | $ | 46.34 | | | $ | 38.14 | | |
| | | | | | | | | | | | | |
| Amount spent on repurchased shares (in millions) | $ | - | | | $ | 20 | | | $ | 501 | | |
| | | | | | | | | | | | | |
______________________________
| | |
| (1) | Excludes 5,823 shares withheld from employee to cover statutory minimum withholding requirements for personal income taxes related to the vesting of restricted stock. Restricted stock is considered outstanding at the time of issuance and therefore, the shares withheld are treated as treasury shares. |
The purchase of treasury stock reduces the number of shares outstanding and the repurchased shares may be used by the Company for compensation programs utilizing the Company's stock and other corporate purposes. The Company accounts for treasury stock using the cost method and includes treasury stock as a component of stockholders' equity.
20
Other Comprehensive Income (Loss), Net
| |
| | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2013 | | 2012 |
| | Gross | | Income | | Net | | Gross | | | Income | | Net |
| | Amount | | Tax | | Amount | | Amount | | | Tax | | Amount |
| | | | (Provision) | | | | | | | (Provision) | | |
| | | | Benefit | | | | | | | Benefit | | |
| | | | | | | | As Adjusted (Note 1) |
| | (In $ millions) |
| Unrealized gain (loss) on marketable securities | - | | | - | | | - | | | - | | | | - | | | - | |
| | | | | | | | | | | | | | | | | | | |
| Foreign currency translation | 28 | | | - | | | 28 | | | (69 | ) | | - | | | (69 | ) |(31 | ) | | - | | | (31 | ) | | 26 | | | | - | | | 26 | |
| | | | | | | | | | | | | | | | | | | |
| Unrealized Gain (loss) on interest rate swaps | 2 | | | (1 | ) | | 1 | | | 2 | | | | (1 | ) | | 1 | |
| | | | | | | | | | | | | | | | | | | |
| Pension and postretirement benefits | - | | | (5 | ) | | 10 | | | 6 | | | (2 | ) | | 4 | |
- | | | - | | | (1 | ) | (1) | | (3 | ) | | (4 | ) |
| Total | 41 | | | (5 | ) | | 36 | | | (56 | ) | | (4 | ) | | (60 | ) |
| | | | | | | | | | | | | | | | | | |
| |
| | | | | | | | | | | | | | | | | | |
| Total | (29 | ) | | (1 | ) | | (30
| | Nine Months Ended September 30, |
| | 2012 | | 2011 |
| | Gross | | Income | | Net | | Gross | | Income | | Net |
| | Amount | | Tax | | Amount | | Amount | | Tax | | Amount |
| | | | (Provision) | | | | | | (Provision) | | |
| | | | Benefit | | | | | | Benefit | | |
| | (In $ millions) |
| Unrealized gain (loss) on marketable securities | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Foreign currency translation | 4 | | | - | | | 4 | | | 18 | | | - | | | 18 | |
| | | | | | | | | | | | | | | | | | |
| Unrealized gain (loss) on interest rate swaps | (1 | ) | | - | | | (1 | ) | | 27 | | | | (4 | ) | | 23 | |
| | | | | | | | | | | | | | | | | | |
| Pension and postretirement benefits | 41 | | | (16 | ) | | 25 | | | 19 | | | (7 | ) | | 12 | |
| | | |
______________________________
| Total | 44 | | | (16 | ) | | 28 | | | 59 | | | (15 | ) | | 44 | |
| (1) | Amount includes amortization of actuarial losses of $2 million related to the Company's equity method investments' pension plans. |
Adjustments to Accumulated other comprehensive income (loss) are as follows:
| |
| | | | | | | | | | | | | | | || |
| | | | Unrealized | | Foreign | | Gain (Loss) | | Pension and | | Accumulated |
| | Gain (Loss) on | | Currency | | on Interest | | Postretire- | | Other |
| | Marketable | | Translation | | Rate Swaps | | ment | | Comprehensive |
| | Securities | | | | Rate Swaps | | Benefits | | Income |
| | | | | | | | | | (Loss), Net |
| | (In $ millions) |
| As of December 31, 2012 - As Adjusted (Note 1) | (1 | ) | | (23 | ) | | (50 | ) | | (15 | ) | | (89 | ) |
| Current period change | - | | | 4 | | | (1 | ) | | 41 | | | 44 | |
| Other comprehensive income before reclassifications | - | | | (31 | ) | | - | | | - | | | (31 | ) |
| | | | | | | | | | | | | | | |
| Amounts reclassified from accumulated other comprehensive income | - | | | - | | | 2 | | (1) | - | | (2) | 2 | |
| | | | | | | | | | | | | | | |
| As of September 30, 2012 | (1 | ) | | (24 | ) | | (58 | ) | | (739 | ) | | (822 | ) |
| Income tax (provision) benefit | - | | | - | | | (1 | ) | | - | | | (1 | ) |
13. Other (Charges) Gains, Net
| |
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| As of March 31, 2013 | (1 | ) | | (54 | ) | | (49 | ) | | (15 | ) | | (119 | ) |
| | 2012 | | 2011 | | 2012 | | 2011 |
| | (In $ millions) |
| Employee termination benefits | (1 | ) | | (5 | ) | | (2 | ) | | (18 | ) |
| Kelsterbach plant relocation ( Note 20 ) | (3 | ) || (14 | ) || (5 | ) || (43 | ) |
______________________________
| | |
| (1) | This accumulated other comprehensive income component is related to interest rate swaps and is included in interest expense ( Note 15 ). |
| | |
| Plumbing actions ( Note 17 ) | 4 | || 2 || (2) | This accumulated other comprehensive income component is the amortization of prior service cost included in net periodic benefit cost ( Note 10 ). |
13. Other (Charges) Gains, Net
| |
| | 4 | | | 6 | |
| | | | || | || | | | |
| | Three Months Ended |
| | March 31, |
| | 2013 | | 2012 |
| Commercial disputes | 2 || | (7 | ) | | 2 | | | 15 | |
| | (In $ millions) |
| Employee termination benefits | (2 | ) | | - | |
| | | | | | | | | | | ||
| Other | - | | | - | | | - | || 1 | |
| Kelsterbach plant relocation ( Note 20 ) | (2 | ) | | - | |
| | | | | | | | | | | ||
| Total | 2 | | | (24 | ) | | (1 | ) | |(39 | ) |
| Total | (4 | ) | | - | |
| | | | | | |
2012
No significant Other (charges) gains, net were incurred During the nine months ended September 30, 2012 .
During the three months ended March 31, 2013
18
2011
As a result of the Company's Pardies, France Project of Closure and the planned closure of the Company's Spondon, Derby, United Kingdom facility ( Note 3 ), the Company recorded $4 million and $ 3 million , respectively, of employee termination benefits during the nine months ended September 30, 2011 . Additionally, the Company recorded $2 million of employee termination benefits during the nine months ended September 30, 2011 related to the relocation of the Company's polyacetal ("POM") operations located in Kelsterbach, Germany ( Note 20 ).related to a business optimization project which is included in the Industrial Specialties and Acetyl Intermediates segments.
During the nine months ended September 30, 2011 , the Company received consideration of $17 million in connection with the settlement of a claim against a bankrupt supplier ( Note 17 ). In addition, the Company also recovered an additional $4 million from the settlement of an unrelated commercial dispute. These commercial dispute resolutions are included in the Acetyl Intermediates segment.
21
The changes in the restructuring reserves by business segment are as follows:
| |
| | | | | | | | | | | | | | | | | | |
| | Advanced | | Consumer | | Industrial | | Acetyl | | Other | | Total |
| | Engineered | | Specialties | | Specialties | | Intermediates | | | | |
| | Materials | | | | | | | | | | |
| | (In $ millions) |
| Employee Termination Benefits | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| As of December 31, 2012 | 6 | | | 13 | | | - | | | 3 | | | 7 | | | 29 | |
| | | | | | | | | | | | | | | | | | |
| Additions | - | | | - | | | 1 | | | 1 | | | - | | | 2 | |
| | | | | | | | | | | | | | | | | | |
| Cash payments | (1 | ) | | (3 | ) | | - | | | - | | | (2 | ) | | (6 | ) |
| | | | | | | | | | | | | | | | | | |
| Other changes | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Exchange rate changes | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| As of March 31, 2013 | 5 | | | 10 | | | 1 | | | 4 | | | 5 | | | 25 | |
| | | | | | | | | | | | | | | | | | |
| Plant/Office Closures | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| As of December 31, 2012 | - | | | - | | | - | | | 1 | | | - | | | 1 | |
| | | | | | | | | | | | | | | | | | |
| Additions | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Cash payments | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Other changes | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Exchange rate changes | - | | | - | | | - | | | (1 | ) | | - | | | (1 | ) |
| | | | | | | | | | | | | | | | | | |
| As of March 31, 2013 | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Total | 5 | | | 10 | | | 1 | | | 4 | | | 5 | | | 25 | |
| | | | | | | | | | | | | | | | | | |
14. Income Taxes
| |
| | | | | | |
| | Three Months Ended || Nine Months Ended |
| | September 30, || September 30, |
| | 2012 || 2011 | | 2012 | | 2011 |
| | March 31, |
| | 2013 | | 2012 |
| | | | As Adjusted (Note 1) |
| Effective income tax rate | 31 | % | | 17 | % | | 6 | % | | 23 | % |
| Effective income tax rate | 35 | % | | (61 | )% |
The effective income tax rate for the three months ended March 31, 2012 would have been 19% excluding the recognition of foreign tax credit carryforwards, partially offset by the reassessment of certain permanently reinvested foreign earnings. As compared to the three months ended March 31, 2012 , absent the effect of these events, the increase in the effective income tax rate for the three months ended March 31, 2013 was primarily due to losses in jurisdictions without income tax benefit, increased earnings in high income tax jurisdictions and reassessment of the recoverability of deferred tax assets in certain jurisdictions.
for the three months ended September 30, 2012 , the higher effective tax rate is primarily due to changes in uncertain tax positions and increases in losses in jurisdictions not providing tax benefits. the lower effective rate for the nine months ended September 30, 2012 is primarily due to foreign tax credit carryforwards partially offset by deferred tax charges related to changes in assessment regarding permanent reinvestment of certain foreign earnings.
During the three months ended March 31, 2012, the Company determined that it was beneficial to amend amended certain prior year income tax returns to recognize the benefit of available foreign tax credit carryforwards. As a result, the Company recognized a tax benefit of $142 million . The available foreign tax credits are subject to a ten year carryforward period and expire beginning 2014 through 2021 . The Company expects to fully utilize the credits within the prescribed carryforward period.
In February 15, 2012, the Company amended its existing joint venture and other related agreements with its venture partner in Polyplastics Company, Ltd ("Polyplastics"). The amended agreements ("Agreements"), among other items, modified certain dividend rights, resulting in a cash dividend payment to the Company of $72 million during the three months ended March 31, 2012. In addition, as a result of the Agreements, Polyplastics is required to pay certain annual dividends to the venture partners.
19
Consequently, Polyplastics' undistributed earnings will no longer be invested indefinitely. Accordingly, the Company recognized a deferred tax liability of $38 million that was recorded to Income tax provision (benefit) in the unaudited interim consolidated statement of operations during the three months ended March 31, 2012, related to the taxable outside basis difference of its investment in Polyplastics.
On January 2, 2013, the US enacted the American Taxpayer Relief Act of 2012 (the "2012 Tax Relief Act"). The 2012 Tax Relief Act extends many expired corporate income tax provisions through 2013, including the research and development credit, the look-through treatment of payments between related controlled foreign corporations, the active financing exception and
22
bonus depreciation, including retroactive application to January 1, 2012. These provisions did not have a significant impact on the Company.
Liabilities for uncertain tax positions and related interest and penalties are recorded in Uncertain tax positions and current Other liabilities in the unaudited consolidated balance sheets. For the three months ended March 31, 2013 , the Company's uncertain tax positions increased $4 million due to interest and changes in uncertain tax positions in certain jurisdictions, and decreased $6 million due to exchange rate changes.
The Company's US tax returns for the years 2009 through 2011 are currently under audit by the US Internal Revenue Service and certain of the Company's subsidiaries are under audit in jurisdictions outside of the US. In addition, certain statutes of limitations are scheduled to expire in the near future. It is reasonably possible that a further change in the unrecognized tax benefits may occur within the next twelve months related to the settlement of one or more of these audits or the lapse of applicable statutes of limitations. Such amounts have been reflected in the current portion of uncertain tax positions ( Note 7 ).
15. Derivative Financial Instruments
Interest Rate Risk Management
To reduce the interest rate risk inherent in the Company's variable rate debt, the Company utilizes interest rate swap agreements to convert a portion of its variable rate borrowings into a fixed rate obligation. These interest rate swap agreements are designated as cash flow hedges and fix the LIBOR portion of the Company's US-dollar denominated variable rate borrowings ( Note 9 ). 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.
US-dollar interest rate swap derivative arrangements are as follows:
| |
| | | | | | | | | |
| As of March 31, 2013 |
| Notional Value | | Effective Date | | Expiration Date | | Fixed Rate (1) |
| (In $ millions) | | | | | | |
| 1,100 | | | January 2, 2012 | | January 2, 2014 | | 1.71 | % |
| | | | | | | | | |
| 500 | | | January 2, 2014 | | January 2, 2016 | | 1.02 | % |
| | | | | | | | | |
______________________________
| | |
| (1) | Fixes the LIBOR portion of the Company's US-dollar denominated variable rate borrowings ( Note 9 ). |
| |
| | | | | | | | | |
| As of December 31, 2012 |
| Notional Value | | Effective Date | | Expiration Date | | Fixed Rate (1) |
| (In $ millions) | | | | | | |
| 800 | | | April 2, 2007 | | January 2, 2012 | | 4.92 | % |
| 1,100 | | | January 2, 2012 | | January 2, 2014 | | 1.71 | % |
| | | | | | | | | |
| 400 | | | January 2, 2008 | | January 2, 2012 | | 4.33 | % |
| | | | | | | | | |
| 200 | | | April 2, 2009 | | January 2, 2012 | | 1.92 | % |
| | | | | | | | | |
| 500 | | | January 2, 2014 | | January 2, 2016 | | 1.02 | % |
| | | | | | | | | |
______________________________
| | |
| (1) | Fixes the LIBOR portion of the Company's US-dollar denominated variable rate borrowings ( Note 9 ). |
Foreign Exchange Risk Management
Certain subsidiaries have assets and liabilities denominated in currencies other than their respective functional currencies, which creates foreign exchange risk. The Company also enters into foreign currency forwards and swaps to minimize its exposure to foreign currency fluctuations. Through these instruments, the Company mitigates its foreign currency exposure on transactions with third party entities as well as intercompany transactions. The foreign currency forwards and swaps are not designated as hedges under FASB ASC Topic 815, Derivatives and Hedging ("FASB ASC Topic 815"). Gains and losses on foreign currency forwards and swaps entered into to offset foreign exchange impacts on intercompany balances are classified as Other income (expense), net, in the unaudited interim consolidated statements of operations. Gains and losses on foreign currency forwards and swaps entered into to offset foreign exchange impacts on all other assets and liabilities are classified as Foreign exchange gain (loss), net, in the unaudited interim consolidated statements of operations.
23
Gross notional values of the foreign currency forwards and swaps are as follows:
| |
| | | | | | |
| | As of | | As of |
| | March 31, | | December 31, |
| | 2013 | | 2012 |
| | (In $ millions) |
| Total | 802 | | | 902 | |
| | | | | | |
Commodity Risk Management
The Company has exposure to the prices of commodities in its procurement of certain raw materials. The Company manages its exposure to commodity risk primarily through the use of long-term supply agreements, multi-year purchasing and sales agreements and forward purchase contracts. The Company regularly assesses its practice of using forward purchase contracts and other raw material hedging instruments in accordance with changes in economic conditions. Forward purchases and swap contracts for raw materials are principally settled through physical delivery of the commodity. For qualifying contracts, the Company has elected to apply the normal purchases and normal sales exception of FASB ASC Topic 815 based on the probability at the inception and throughout the term of the contract that the Company would not settle net and the transaction would result in the physical delivery of the commodity. As such, realized gains and losses on these contracts are included in the cost of the commodity upon the settlement of the contract.
In addition, the Company occasionally enters into financial derivatives to hedge a component of a raw material or energy source. Typically, these types of transactions do not qualify for hedge accounting. These instruments are marked to market at each reporting period and gains (losses) are included in Cost of sales in the unaudited interim consolidated statements of operations. The Company recognized no gain or loss from these types of contracts During nine months ended September 30, 2012 and 2011 . As of September 30, During the three months ended March 31, 2013 and 2012 , the Company did not have any open financial derivative contracts for commodities.
Information regarding changes in the fair value of the Company's derivative arrangements is as follows:
| |
| | | | | | | | | | | | | |
| | Three Months Ended | | Three Months Ended | |
| | September 30, 2012 | | September 30, 2011 | |
| | March 31, 2013 | | March 31, 2012 | |
| | Gain (Loss) | | Gain (Loss) | | Gain (Loss) | | Gain (Loss) | |
| | Recognized in | | Recognized in | | Recognized in | | Recognized in | |
| | Other | | Earnings (Loss) | | Other | | Earnings (Loss) | |
| | Comprehensive | | | | Comprehensive | | | |
| | Income (Loss) | | | | Income (Loss) | | | |
| | (In $ millions) |
| Derivatives Designated as Cash Flow Hedges | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Interest rate swaps | (6 | ) | | (4 | ) | (1 | (9 | ) | (2) |(15 | ) | (1) || Interest rate swaps | - | | (1) | (4 | ) | (2) | (1 | ) | (3) | (3 | ) | (2) |
| | | | | | | | | | | | | |
| Derivatives Not Designated as Hedges | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Interest rate swaps | - | | | 2 | | (4) | - | | | - | | (4) |
| | | | | | | | | | | | | |
| Foreign currency forwards and swaps | - | | | 3 | | (5) | - | | | (4 | ) | (5) |
| | | | | | | | | | | | | |
| Total | (6 | ) | | (17 | ) | | (9 | ) | | 3 | | |
| Total | - | | | 1 | | | (1 | ) | | (7 | ) | |
| | | | | | | | | | | | | |
______________________________
| | |
| (1) | Amount excludes $1 million of tax expense recognized in Other comprehensive income (loss). |
| | |
| (2) | Amount represents reclassification from Accumulated other comprehensive income (loss), net and is included in Interest expense in the unaudited interim consolidated statements of operations. |
| | |
| (3) | Amount excludes $2 million of gains associated with the Company's equity method investments' derivative activity and $2 $1 million of tax expense recognized in Other comprehensive income (loss). |
| | |
| (4) | Included in Interest expense in the unaudited interim consolidated statements of operations. |
| | |
| (5) | Included in Foreign exchange gain (loss), net for operating activity or Other income (expense), net for non-operating activity in the unaudited interim consolidated statements of operations. |
See Note 16, Fair Value Measurements , for additional information regarding the fair value of the Company's derivative arrangements.
Certain of the Company's foreign currency forwards and swaps and interest rate swap arrangements permit the Company to net settle all contracts with the counterparty through a single payment in an agreed upon currency in the event of default or early
24
termination of the contract, similar to a master netting arrangement. The Company's interest rate swap agreements are subject to cross collateralization under the Guarantee and Collateral Agreement entered into in conjunction with the Term loan borrowings ( Note 9 ).
| || | | | | | || | | | |
| |
| | | | | | |
| | As of | | As of |
| | Nine Months Ended | | Nine Months Ended | |
| | March 31, | | December 31, |
| | September 30, 2012 | | September 30, 2011 | |
| | 2013 | | 2012 |
| | Gain (Loss) | | Gain (Loss) || Gain (Loss) | | Gain (Loss) | |
| | (In $ millions) |
| Derivative Assets | | | |
| | recognized in | | Recognized in | | Recognized in | | Recognized in | |
| Gross amount recognized | 5 | | | 2 | |
| | Other | | Earnings (Loss) | | Other | | Earnings (Loss) | |
| | | | | | |
| | Comprehensive | | | | Comprehensive | | | |
| Gross amount offset in the consolidated balance sheets | - | | | - | |
| | Income (Loss) | | | | Income (Loss) | | ||
| | | | | | |
| Net amount presented in the consolidated balance sheets | 5
| Derivatives Designated as Cash Flow Hedges | | | | | | | | | | | 2 | |
| | | | | | || || | | | | | |
| Gross amount not offset in the consolidated balance sheets | 1 | | | 2 | |
| Interest rate swaps | (12 | ) | | (11 | ) | (1) | (26 | ) | (2) | (45 | ) | (1) |
| | | | | | |
| Net amount | 4 | | | - | |
| | | | | | |
| || | | | | | || | | | |
| |
| | | | | | |
| | As of | | As of |
| Interest rate swaps | - | | |- | | (3) | - | || (2 | ) | (3) |
| | March 31, | | December 31, |
| | 2013 | | 2012 |
| | (In $ millions) |
| | | | || | | || Derivative Liabilities | | | |
| Gross amount recognized | 23 | | | 32 | |
| | | | | - | |(4) | - | | | 2 | | (4) |
| Gross amount offset in the consolidated balance sheets | 1 | | | 1 | |
| | | | | | || || | | | | | |
| Net amount presented in the consolidated balance sheets | 22 | | | 31 | |
| Total | (12 | ) | | (11 | ) || (26 | ) | | (45 | ) | |
| | | | | | |
| Gross amount not offset in the consolidated balance sheets | 1 | | | 2 | |
______________________________
| | |
| (1) | Amount represents reclassification from Accumulated other comprehensive income (loss), net and is included in Interest expense in the unaudited interim consolidated statements of operations. |
| | |
| (2) | amount excludes $1 million of gains associated with the Company's equity method investments' derivative activity and $8 million of tax expense recognized in Other comprehensive income (loss). |
| | |
| (3) |Included in Interest expense in the unaudited interim consolidated statements of operations. |
| | |
| (4) | Included in Foreign exchange gain (loss), net for operating activity or Other income (expense), net for non-operating activity in the unaudited interim consolidated statements of operations. |
| Net amount | 21 | | | 29 | |
| | | | | | |
See Note 16, Fair Value Measurements , for additional information regarding the fair value of the Company's derivative arrangements.
16. Fair Value Measurements
The Company follows the provisions of FASB ASC Topic 820 for financial assets and liabilities. FASB ASC Topic 820 establishes a three-tiered fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument will be categorized based upon the lowest level of input that is significant to the fair value calculation. Valuations for fund investments such as common/collective trusts and registered investment companies, which do not have readily determinable fair values, are typically estimated using a net asset value provided by a third party as a practical expedient.
The three levels of inputs 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
The Company's financial assets and liabilities are measured at fair value on a recurring basis and include securities available for sale and derivative financial instruments. Securities available for sale include mutual funds. 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. 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 and recently reported trades. Such assets are classified as Level 2 in the hierarchy and typically include corporate bonds. Mutual funds are valued at the net asset value per share or unit multiplied by the number of shares or units held as of the measurement date.
25
Derivatives. Derivative financial instruments are valued in the market using discounted cash flow techniques. These techniques incorporate Level 1 and Level 2 inputs such as interest rates and foreign currency exchange rates. These market inputs are utilized in the discounted cash flow calculation considering the instrument's term, notional amount, discount rate and credit risk. Significant inputs to the derivative valuation for interest rate swaps and foreign currency forwards and swaps are observable in the active markets and are classified as Level 2 in the hierarchy.
22
Assets and liabilities measured at fair value on a recurring basis are as follows:
| |
| | | | | | | | | | | |
| | | | Fair Value Measurement Using |
| | Balance Sheet Classification | | Quoted Prices in Active Markets for | | Significant Other | | Total |
| | | | Identical Assets | | Observable Inputs | | |
| | | | (Level 1) | | (Level 2) | | |
| | | | (In $ millions) |
| Mutual funds | Marketable securities, at fair value | | 49 | | | - | | | 49 | |
| | | | | | | | | | | |
| Derivatives Not Designated as Hedges | | | | | | | |
| Foreign currency forwards and swaps | Current Other assets | | - | | | 5 | | | 5 | |
| | | | | | | | | | | |
| Total assets as of September 30, 2012 | | 56 | Total assets as of March 31, 2013 | | 49 | | | 5 | | | 54 | |
| | | | | | | | | | |
| Derivatives Designated as Cash Flow Hedges | | | | | | | | | | |
| | | | | | | | | | | |
| Interest rate swaps | Current Other liabilities | | - | | | (10 | ) | | (10 | ) |
| | | | | | | | | | | |
| Interest rate swaps | Noncurrent Other liabilities | | - | | | (4 | ) | | (4 | ) |
| | | | | | | | | | | |
| Derivatives Not Designated as Hedges | | | | | | | |
| Interest rate swaps | Current Other liabilities | | - | | | (5 | ) | | (5 | ) |
| | | | | | | | | | | |
| Foreign currency forwards and swaps | Current Other liabilities | | - | | | (3 | ) | | (3 | ) |
| | | | | | | | | | | |
| Total liabilities as of March 31, 2013 | | - | | | (22 | ) | | (22 | ) |
| | | | | | | | | | |
| | | | | | | | |
| Mutual funds | Marketable securities, at fair value | | 53 | | | - | | | 53 | |
| | | | | | | | | | | |
| Derivatives Not Designated as Hedges | | | | | | | | | | |
| | | | | | | | | | | |
| Foreign currency forwards and swaps | Current Other assets | | - | | | 2 | | | 2 | |
| | | | | | | | | | | |
| Total assets as of December 31, 2012 | | 53 | | | 2 | | | 55 | |
| | | | | | | | | | |
| Derivatives Designated as Cash Flow Hedges | | | | | | | | | | |
| | | | | | | | | | | |
| Interest rate swaps | Current Other liabilities | | - | | | (10 | ) | | (10 | ) |
| | | | | | | | | | | |
| Interest rate swaps | Noncurrent Other liabilities | | - | | | (7 | ) | | (7 | ) |
| | | | | | | | | | | |
| Derivatives Not Designated as Hedges | | | | | | | |
| Interest rate swaps | Current Other liabilities | | - | | | (5 | ) | | (5 | ) |
| | | | | | | | | | | |
| Interest rate swaps | Noncurrent Other liabilities | | - | | | (1 | ) | | (1 | ) |
| | | | | | | | | | | |
| Foreign currency forwards and swaps | Current Other liabilities | | - | | | (8 | ) | | (8 | ) |
| | | | | | | | | | | |
| Total liabilities as of December 31, 2012 | | - | | | (31 | ) | | (31 | ) |
| | | | | | | | | | |
26
Carrying values and fair values of financial instruments that are not carried at fair value are as follows:
| |
| | | | | | | | | | | | |
| | | | Fair Value Measurement Using |
| | Carrying Amount | | Significant Other | | Unobservable Inputs | | Total |
| | | | Observable Inputs | | (Level 3) | | |
| | | | (Level 2) | | | | |
| | | | (In $ millions) |
| As of September 30, 2012 | | | | | | | |
| As of March 31, 2013 | | | | | | | |
| Cost investments | 155 | | | - | | | - | | | - | |
| | | | | | | | | | | | |
| Insurance contracts in nonqualified trusts | 65 | | | 65 | | | - | | | 65 | |
| | | | | | | | | | | | |
| Long-term debt, including current installments of long-term debt | 2,881 | | | 2,749 | | | 237 | | | 2,986 | |2,982 | | | 2,850 | | | 245 | | | 3,095 | |
| | | | | | | | | | | | |
| As of December 31, 2012 | | | | | | | |
| Cost investments | 156 | | | - | | | - | | | - | |
| | | | | | | | | | | | |
| Insurance contracts in nonqualified trusts | 66 | | | 66 | | | - | | | 66 | |
| | | | | | | | | | | | |
| Long-term debt, including current installments of long-term debt | 2,911 | | | 2,719 | | | 248 | | | 2,967 | |2,990 | | | 2,886 | | | 244 | | | 3,130 | |
| | | | | | | | | | | | |
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. Insurance contracts in nonqualified trusts consist of long-term fixed income securities, which are valued using independent vendor pricing models with observable inputs in the active market and therefore represent a Level 2 measurement. The fair value of long-term debt is based on valuations from third-party banks and market quotations and is classified as Level 2 in the hierarchy. The fair value of obligations under capital leases is based on lease payments and discount rates, which are not observable in the market and therefore represents a Level 3 measurement.
As of March 31, 2013 and December 31, 2012 , the fair values of cash and cash equivalents, receivables, trade payables, short-term borrowings and the current installments of long-term debt approximate carrying values due to the short-term nature of these instruments. These items have been excluded from the table with the exception of the current installments of long-term debt.Additionally, certain noncurrent receivables, principally insurance recoverables, are carried at net realizable value.
17. Commitments and Contingencies
The Company is involved in legal and regulatory proceedings, lawsuits, claims and investigations incidental to the normal conduct of business, relating to such matters as product liability, land disputes, commercial contracts, employment, antitrust, intellectual property, workers' compensation, chemical exposure, asbestos exposure, prior acquisitions and divestitures, past waste disposal practices and release of chemicals into the environment. The Company is actively defending those matters where the Company is named as a defendant. Due to the inherent subjectivity of assessments and unpredictability of outcomes of legal proceedings, the Company's litigation accruals and estimates of possible loss or range of possible loss ("Possible Loss") may not represent the ultimate loss to the Company from legal proceedings. For reasonably possible loss contingencies that may be material and when determinable, the Company estimates its Possible Loss, considering that the Company could incur no loss in certain matters. Thus, the Company's exposure and ultimate losses may be higher or lower, and possibly materially so, than the Company's litigation accruals and estimates of Possible Loss. For some matters, the Company is unable, at this time, to estimate its Possible Loss that is reasonably possible of occurring. Generally, the less progress that has been made in the proceedings or the broader the range of potential results, the more difficult for the Company to estimate the Possible Loss that it is reasonably possible the Company could incur. The Company may disclose certain information related to a plaintiff's claim against the Company alleged in the plaintiff's pleadings or otherwise publicly available. While information of this type may provide insight into the potential magnitude of a matter, it does not necessarily represent the Company's estimate of reasonably possible or probable loss. Some of the Company's exposure in legal matters may be offset by applicable insurance coverage. The Company does not consider the possible availability of insurance coverage in determining the amounts of any accruals or any estimates of Possible Loss.
Plumbing Actions
CNA Holdings LLC ("CNA Holdings"), a US subsidiary of the Company, which included the US business now 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 plastic
27
resins manufactured by these companies that were utilized by others in the production of plumbing systems for residential
24
property were defective for this use and/or contributed to the failure of such plumbing. Based on, among other things, the findings of outside experts and the successful use of the Company's acetal copolymer in similar applications, CNA Holdings does not believe the Company's acetal copolymer was defective for this use or contributed to the failure of the plumbing. In addition, in many cases CNA Holdings' potential future exposure may be limited by, among other things, statutes of limitations and repose.
In November 1995, CNA Holdings, DuPont and Shell entered into national class action settlements in the Cox, et al. v. Hoechst Celanese Corporation, et al., No. 94-0047 (Chancery Ct., Obion County, Tennessee) matter. The time to file claims against the class has expired and the entity established by the court to administer the claims was dissolved in September 2010. In addition between 1995 and 2001, CNA Holdings was named as a defendant in various putative class actions. The majority of these actions have now been dismissed. As a result the Company recorded $59 million in reserve reductions and recoveries from associated insurance indemnifications during 2010. The reserve was further reduced by $4 million during the year ended December 31, 2011 following The dismissal of the remaining US case (St. Croix, Ltd., et al. v. Shell Oil Company d/b/a Shell Chemical Company, Case No. XC-97-CR-467, Virgin Islands Superior Court) which was appealed during the three months ended September 30, 2011. was appealed in 2011. Oral argument for the appeal took place on December 13, 2012 and a decision on the appeal is expected in 2013.
As of March 31, 2013 , the class actions in Canada are subject to a pending class settlement that would result in a dismissal of those cases. The Company does not believe the Possible Loss associated with the remaining matters is material. Accordingly, the Company has determined to reduce the reserves based on the expiration of the time to file and the resolution of certain claims under the Canada class and no significant active claims outside of Canada. the Company recorded recoveries and During the three months ended March 31, 2013 , the Company did not record any recoveries or reductions in legal reserves related to plumbing actions to Other (charges) gains, net ( Note 13 ) in the unaudited interim consolidated statements of operations.as follows:
| |
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| | 2012 | | 2011 | | 2012 | | 2011 |
| | (In $ millions) |
| Recoveries | - | | | - | | | - | | | 2 | |
| | | | | | | | | | | | |
| Legal reserve reductions | 4 | | | 2 | | | 4 | | | 4 | |
| | | | | | | | | | | | |
| Total | 4 | | | 2 | | | 4 | | | 6 | |
| | | | | | | | | | | | |
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 multiple individual participants) filed in September 2006 by US purchasers of polyester staple fibers manufactured and sold by HCC. The actions alleged that the defendants participated in a conspiracy to fix prices, rig bids and allocate customers of polyester staple sold in the US. These actions were consolidated in a proceeding by a Multi-District Litigation Panel in the US 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 with prejudice against all Celanese Entities in consideration of a payment by the Company. This proceeding related to sales by the polyester staple fibers business which Hoechst sold to KoSa B.V., f/k/a Arteva B.V., a subsidiary of Koch Industries, Inc. ("KoSa") in 1998. In November 2003, KoSa sought recovery from the Company (Koch Industries, Inc. et al. v. Hoechst Aktiengesellschaft et al., No. 03-cv-8679 Southern District NY) alleging a variety of claims, including indemnification and breach of representations, arising out of the 1998 sale. During the fourth quarter of 2010, the parties settled the case pursuant to a confidential agreement and the case was dismissed with prejudice.
Prior to December 31, 2008, the Company had entered into tolling arrangements with four other alleged US purchasers of polyester staple fibers manufactured and sold by the Celanese Entities. These purchasers were not included in the settlement and one such company filed suit against the Company in December 2008 ( Milliken & Company v. CNA Holdings, Inc., Celanese Americas Corporation and Hoechst AG (No. 8-SV-00578 W.D.N.C.)). On September 15, 2011, the case was dismissed with prejudice based on a stipulation and proposed order of voluntary dismissal.
Commercial Actions
In April 2007, Southern Chemical Corporation ("Southern") filed a petition in the 190th Judicial District Court of Harris County, Texas styled Southern Chemical Corporation v. Celanese Ltd . (Cause No. 2007-25490), seeking declaratory judgment relating to the terms of a multi-year methanol supply contract. The trial court granted the Company's motion for summary
One of the alleged US purchasers made a demand to Celanese in February 2013 but has not filed a formal claim. The Company is evaluating its options, but does not believe a Possible Loss for this matter would be material.
25
judgment in March 2008 dismissing Southern's claims. In September 2009, the intermediate Texas appellate court reversed the trial court decision and remanded the case to the trial court. The Texas Supreme Court subsequently declined both parties' requests that it hear the case. On August 15, 2010, Southern filed a second amended petition adding a claim. for breach of contract and seeking equitable damages in an unspecified amount from The Company Southern amended its complaint again in June, August and November 2011 and May 2012, adding new claims for fraud and tortious interference with a third-party contract. More specifically, Southern claimed the Company "materially misrepresented its intended use of the methanol to be supplied by Southern" and "violated the material.terms of the contract and failed to correct these breaches after Southern provided notice." These alleged breaches include "selling, transferring, swapping or tolling methanol to or with entities other than the Company and to entities or operations outside the U.S. or Mexico." In the May 2012 complaint, Southern sought compensatory damages of $1.3 billion , as well as pre- and post-judgment interest, attorneys' fees and punitive damages equaling two times its actual damages. Southern also sought rescission or termination of the contract. Trial commenced on July 16, 2012, and on August 10, 2012, the jury returned a verdict of no liability and no damages with respect to all of Southern's claims against the Company. The trial court adopted the jury's verdict and entered final judgment on October 10, 2012. Southern may file a motion for new trial and/or seek appeal.
Commercial Actions
In June 2012, Linde Gas Singapore Pte. Ltd. ("Linde Gas"), a raw materials supplier based in Singapore, initiated arbitration proceedings in New York against the Company's subsidiary, Celanese Singapore Pte. Ltd. ("Singapore Ltd."), alleging that Singapore Ltd. had breached a certain requirements contract for carbon monoxide by temporarily idling Singapore Ltd.'s acetic acid facility in Jurong Island, Singapore. The Company filed its answer on August 8, 2012. Linde is seeking damages in the amount of $38 million for the period ended December 31, 2012, in addition to other unspecified damages. The Company believes that Linde Gas' claims lack merit and that the Company has complied with the contract terms and is vigorously defending the matter. Based on the Company's evaluation of currently available information, the Company cannot estimate the Possible Loss if any, for this matter as discovery has not yet commenced and Linde Gas' arbitration demand does not specify an amount of damages it is seeking.does not believe the Possible Loss is material. The arbitral panel has bifurcated the case into a liability and damages phase and set hearing dates for all liability issues in June 2013 and for all damages issues, if necessary, in December 2013.
28
Award Proceedings in Relation to Domination Agreement and Squeeze-Out
The Company's subsidiary, BCP Holdings GmbH ("BCP Holdings"), a German limited liability company, is a defendant in two special award proceedings initiated by minority stockholders of Celanese GmbH seeking the court's review of the amounts (i) of the fair cash compensation and of the guaranteed dividend offered in the purchaser offer under the 2004 Domination Agreement (the "Domination Agreement") and (ii) the fair cash compensation paid for the 2006 squeeze-out ("Squeeze-Out") of all remaining stockholders of Celanese GmbH.
Pursuant to a settlement agreement between BCP Holdings and certain former Celanese GmbH stockholders, if the court sets a higher value for the fair cash compensation or the guaranteed payment under the Domination Agreement or the Squeeze-Out compensation, former Celanese GmbH stockholders who ceased to be stockholders of Celanese GmbH due to the Squeeze-Out will be entitled to claim for their shares the higher of the compensation amounts determined by the court in these different proceedings related to the Domination Agreement and the Squeeze-Out. If the fair cash compensation determined by the court is higher than the Squeeze-Out compensation of €66.99 , then 1,069,465 shares will be entitled to an adjustment. If the court determines the value of the fair cash compensation under the Domination Agreement to be lower than the original Squeeze-Out compensation, but determines a higher value for the Squeeze-Out compensation, 924,078 shares would be entitled to an adjustment. Payments already received by these stockholders as compensation for their shares will be offset so that persons who ceased to be stockholders 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.
In September 2011, an expert appointed by the court hearing the Domination Agreement stockholders' claims to assist it in determining the value of Celanese GmbH In September 2011, the share valuation expert appointed by the court rendered an opinion. The expert opined that the fair cash compensation for these stockholders ( 145,387 shares) should be increased from €41.92 to €51.86 . This non-binding opinion recommends a total increase in share value of €2 million for those claims under the Domination Agreement. The opinion has no effect on the Squeeze-Out proceeding because the share price recommended is lower than the price those stockholders already received in the Squeeze-Out. However, the opinion also advocates that the guaranteed dividend should be increased from €2.89 to €3.79 , aggregating an increase in total guaranteed dividends of €1 million to the Squeeze-Out claimants. The Company evaluated the non-binding opinion of the expert and submitted a written response and plaintiffs submitted written responses arguing for alternative valuations during the three months ended December 31, 2011. The court then asked the expert to update his opinion No hearing date has been set.On March 27, 2013, the expert issued his supplementary opinion affirming his previous calculations. The Company anticipates the court setting a hearing date to take place in the second half of 2013. No hearing date has been set. Separately, no expert has yet been appointed in the Squeeze-Out proceedings.
For those claims brought under the Domination Agreement, based on the Company's evaluation of currently available information, including the non-binding expert opinion, the fact that the court has asked the expert to update his opinion, and the fact that the court may adopt this new opinion or apply its own (there are legal questions about the applicable valuation
opinions, and the fact that the court has not yet determined the applicable valuation
26
method, which could increase or decrease the Company's potential exposure, the Company does not believe that the Possible Loss is material.
For those remaining claims brought by the Squeeze-Out claimants, based on the Company's evaluation of currently available information, including that damages sought are unspecified, unsupported or uncertain, the matter presents meaningful legal uncertainties (including novel issues of law and the applicable valuation method), there are significant facts in dispute and the court has not yet appointed an expert, the Company cannot estimate the Possible Loss, if any, at this time.
Guarantees
The Company has agreed to guarantee or indemnify third parties for environmental and other liabilities pursuant to a variety of agreements, including asset and business divestiture agreements, leases, settlement agreements and various agreements with affiliated companies. Although many of these obligations contain monetary and/or time limitations, others do not provide such limitations.
As indemnification obligations often depend on the occurrence of unpredictable future events, the future costs associated with them cannot be determined at this time.
The Company has accrued for all probable and reasonably estimable losses associated with all known matters or claims that have been brought to its attention. These known obligations include the following:
| | |
| • | Demerger Obligations |
In connection with the Hoechst demerger, the Company agreed to indemnify Hoechst, and its legal successors, for various liabilities under the demerger agreement, including for environmental liabilities associated with contamination arising either from environmental damage in general ("Category A") or under 19 divestiture agreements entered into by Hoechst prior to the demerger ("Category B") ( Note 11 ).
29
The Company's obligation to indemnify Hoechst, and its legal successors, is capped under Category B at €250 million . If and to the extent the environmental damage should exceed €750 million in aggregate, the Company's obligation to indemnify Hoechst and its legal successors applies, but is then limited to 33.33% of the remediation cost without further limitations. Cumulative payments under the divestiture agreements as of March 31, 2013 are $62 million . Most of the divestiture agreements have become time barred and/or any notified environmental damage claims have been partially settled.
The Company has also undertaken in the demerger agreement to indemnify Hoechst and its legal successors for (i) 33.33% of any and all Category A liabilities that result from Hoechst being held as the responsible party pursuant to public law or current or future environmental law or by third parties pursuant to private or public law related to contamination and (ii) liabilities that Hoechst is required to discharge, including tax liabilities, which are associated with businesses that were included in the demerger but were not demerged due to legal restrictions on the transfers of such items. These indemnities do not provide for any monetary or time limitations. The Company has not been requested by Hoechst to make any payments in connection with this indemnification. Accordingly, the Company has not made any payments to Hoechst and its legal successors.
Based on the Company's evaluation of currently available information, including the lack of requests for indemnification, the Company cannot estimate the Possible Loss for the remaining demerger obligations, if any, in excess of amounts accrued.
| | |
| • | Divestiture Obligations |
The Company and its predecessor companies agreed to indemnify third-party purchasers of former businesses and assets for various pre-closing conditions, as well as for breaches of representations, warranties and covenants. Such liabilities also include environmental liability, product liability, antitrust and other liabilities. These indemnifications and guarantees represent standard contractual terms associated with typical divestiture agreements and, other than environmental liabilities, the Company does not believe that they expose the Company to any significant risk ( Note 11 ).
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 outstanding indemnifications and guarantees provided for under these agreements is $132 million as of March 31, 2013 . Other agreements do not provide for any monetary or time limitations.
27
Based on the Company's evaluation of currently available information, including the number of requests for indemnification or other payment received by the Company, the Company cannot estimate the Possible Loss for the remaining divestiture obligations, if any, in excess of amounts accrued.
Purchase Obligations
In the normal course of business, the Company enters into various purchase commitments for goods and services. which extend through 2034. The Company maintains a number of "take-or-pay" contracts for purchases of raw materials, utilities and other services. Certain of the contracts contain a contract termination buy-out provision that allows for the Company to exit the contracts for amounts less than the remaining take-or-pay obligations. The Company does not expect to incur any material costs under take-or-pay contracts as a result of not fulfilling its contractual obligations. losses under take-or-pay contractual arrangements. Additionally, the Company has other outstanding commitments representing maintenance and service agreements, energy and utility agreements, consulting contracts and software agreements. As of March 31, 2013 , the Company had unconditional purchase obligations of $3.3 billion which extend through 2034 .
The Company holds variable interests in entities that supply certain raw materials and services to the Company. The variable interests primarily relate to cost-plus contractual arrangements with the suppliers and recovery of capital expenditures for certain plant assets plus a rate of return on such assets. The Company recorded obligations under capital leases for recovery of the capital expendituresLiabilities for such supplier recoveries of capital expenditures have been recorded as capital lease obligations. The entities are not consolidated because the Company is not the primary beneficiary of the entities as it does not have the power to direct the activities of the entities that most significantly impact the entities' economic performance. The Company's maximum exposure to loss as a result of its involvement with these variable interest entities ("VIEs") as of March 31, 2013 relates primarily to early contract termination fees.
30
The Company's carrying value of assets and liabilities associated with its obligations to VIEs, as well as the maximum exposure to loss relating to these VIEs are as follows:
| |
| | | | |
| | As of | | As of |
| | March 31, | | December 31, |
| | 2013 | | 2012 |
| | (In $ millions) |
| Property, plant and equipment, net | 116 | | 118 |
| | | | |
| Trade payables | 43 | | 41 |
| Current installments of long-term debt | 7 | | 7 |
| Long-term debt | 139 | | 140 |
| Total | 189 | | 188 |
| | | | |
| Maximum exposure to loss | 273 | | 273 |
The difference between the total obligations to VIEs and the maximum exposure to loss, primarily represents take-or-pay obligations for services included within the unconditional obligations discussed above.
During March 2010, the Company successfully completed an amended raw material purchase agreement with a supplier who had filed for bankruptcy. During nine months ended September 30, 2011 , the Company received consideration of $17 million in connection with the settlement of a claim against this bankrupt supplier. The consideration was recorded to Other charges (gains), net ( Note 13 ) in the unaudited interim consolidated statements of operations.
28
18. Segment Information
| |
| | | | | | | | | | | | | | | | | | | | | | |
| | Advanced | | Consumer | | Industrial | | Acetyl | | Other | | Eliminations | | Consolidated | |
| | Engineered | | Specialties | | Specialties | | Intermediates | | Activities | | | | | |
| | Materials | | | | | | | | | | | | | |
| | (In $ millions) |
| | Three Months Ended September 30, 2012 |
| Net sales | 322 | | | 314 | | (1) | 297 | | | 785 | | (1) | - | | | (109 | ) | | 1,609 | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Other (charges) gains, net | 1 | | | (1 | ) | | - | | | 1 | | | 1 | | | - | | | 2 | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Operating profit (loss) | 43 | | | 70 | | | 23 | | | 62 | | | (35 | ) | | - | | | 163 | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Equity in net earnings (loss) of affiliates | 45 | | | - | | | - | | | - | | | 5 | | | - | | | 50 March 31, 2013 | ||
| | | | | | | | | | | | | | | | | | | | | | |
| Depreciation and amortization | 29 | | | 13 | | | 13 | | | 20 | | | 3 | | | - | | | 78 | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Capital expenditures | 11 | | | 14 | | | 9 | | | 47 | | | 2 | | | - | | | 83 | | (2) |
| | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2011 |
| Net sales | 329 | | | 295 | | (1) | 288 | | | 808 | | (1) | - | | | (115 | ) | | 1,605 | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Other (charges) gains, net | (13 | ) | | 2 | | | - | | | (5 | ) | | (8 | ) | | - | | | (24 | ) | |
| | | | | | | | | | | | | | | | | | | | | | |
| Operating profit (loss) | 14 | | | 66 | | | 30 | | | 128 | | | (42 | ) | | - | | | 196 | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Equity in net earnings (loss) of affiliates | 52 | | | 1 | | | - | | | 1 | | | 3 | | | - | | | 57 | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Depreciation and amortization | 27 | | | 9 | | | 12 | | | 25 | | | 4 | | | - | | | 77 | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Capital expenditures | 13 | | | 24 | | | 20 | | | 39 | | | 3 | | | - | | | 99 | | (2 |
| | | | | | | | | | | | | | | | | | | | | | |
______________________________
| | |
| (1) | Net sales for Acetyl Intermediates and Consumer Specialties include inter-segment sales of $109 million and $0 million , respectively, for the three months ended September 30, 2012 and $129 million and $1 million , respectively, for the three months ended September 30, 2011 . |
| | |
| (2) | Excludes expenditures related to the relocation of the Company's POM operations in Germany ( Note 20 ) and includes a decrease in accrued capital expenditures of $4 million and an increase of $9 million for the three months ended September 30, 2012 and 2011 , respectively. |
) | | - | | | (1 | ) | | (1 | ) | |
29
| |
| | | | | | | | | | | | | | | | | | | | | | |
| | Advanced | | Consumer | | Industrial | | Acetyl | | Other | | Eliminations | | Consolidated | |
| | Engineered | | Specialties | | Specialties | | Intermediates | | Activities | | | | | |
| | Materials | | | | | | | | | | | | | |
| | (In $ millions) |
| | Nine Months Ended September 30, 2012 |
| Net sales | 962 | | | 905 | | (1 | 933 | | | 2,458 | | (1) | - | | | (341 | ) | | 4,917 | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Other (charges) gains, net | (1 | ) | | 2 | | | - | | | - | | | (4 | ) | |- | | | (1 | ) | |
| | | | | | | | | | | | | | | | | | | | | | |
| Operating profit (loss) | 36 | | | 78 | | | 15 | | | 75 | | | (20 | ) | | - | | | 184 | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Equity in net earnings (loss) of affiliates | 40 | | | 2 | | | - | | | 3 | | | 9 | | | - | | | 54 | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Depreciation and amortization | 29 | | | 10 | | | 12 | | | 21 | | | 4 | | | - | | | 76 | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Capital expenditures | 8 | | | 14 | | | 5 | | | 29 | | | 1 | | | - | | | 57 | | (2) |
| | | | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2013 | |
| Goodwill and intangibles, net | 361 | | | 271 | | | 62 | | | 223 | | | - | | | - | | | 917 | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Total assets | 2,728 | | | 1,302 | | | 994 | | | 2,171 | | | 1,770 | Total assets | 2,670 | | | 1,338 | | | 998 | | | 2,265 | | | 1,797 | | | - | | | 9,068 | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2011 |
| | Three Months Ended March 31, 2012 - As Adjusted (Note 1) |
| Net sales | 1,006 | | | 855 | | (1) | 951 | | | 2,702 | Net sales | 317 | | | 264 | | (1) | 309 | | | 852 | | (1) | - | | | (109 | ) | | 1,633 | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Other (charges) gains, net | - | | | (1 | ) | | - | | | - | | | 1 | | | - | | | - | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Operating profit (loss) | 24 | | | 40 | | | 20 | | | 62 | | | (35 | ) | | - | | | 111 | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Equity in net earnings (loss) of affiliates | 43 | | | 1 | | | - | | | 1 | | | 6 | | | - | | | 51 | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Depreciation and amortization | 27 | | | 9 | | | 15 | | | 20 | | | 3 | | | - | | | 74 | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Capital expenditures | 7 | | | 16 | | | 8 | | | 31 | | | 8 | | | - | | | 70 | | (2) |
| | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2012 |
| Goodwill and intangibles, net | 372 | | | 276 | | | 65 | | | 229 | | | - | | | - | | | 942 | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Total assets | 2,787 | | | 1,154 | | | 901 | | | 2,035 | | | 1,641 | Total assets | 2,703 | | | 1,296 | | | 963 | | | 2,238 | | | 1,800 | | | - | | | 9,000 | | |
| | | | | | | | | | | | | | | | | | | | | | |
______________________________
| | |
| (1) | Net sales for Acetyl Intermediates and Consumer Specialties include inter-segment sales of $112 million and $3 million , respectively, for the nine months ended September 30, 2012 and $363 three months ended March 31, 2013 and $108 million and $1 million , respectively, for the three months ended March 31, 2012 . |
| | |
| (2) | Excludes expenditures related to the relocation of the Company's POM operations in Germany ( Note 20 ) and includes a decrease in accrued capital expenditures of $17 million and $36 million for the nine months ended September 30, 2012 and 2011 , respectively. |three months ended March 31, 2013 and 2012 , respectively. |
31
19. Earnings (Loss) Per Share
| |
| | | | | | |
| | Three Months Ended September 30, || Nine Months Ended September 30, |
| | 2012 || 2011 | | 2012 | | 2011 |
| | Three Months Ended March 31, |
| | 2013 | | 2012 |
| | | | As Adjusted (Note 1) |
| | (In $ millions, except share and per share data) |
| Amounts Attributable to Celanese Corporation | | | |
| Earnings (loss) from continuing operations | 119 | | | 167 | | | 512 | | | 510 | |141 | | | 193 | |
| | | | | | |
| Earnings (loss) from discontinued operations | 1 | | | - | |
| | | | | | | | | | | | |
| Net earnings (loss) available to common stockholders | 117 | | | 167 | | | 510 | | | 512 | |142 | | | 193 | |
| | | | | | |
| | | | |
| Weighted-average shares - basic | 159,123,808 | | | 156,194,459 | | | 157,936,063 | | | 156,147,982 | |
| Weighted average shares - basic | 159,682,386 | | | 156,576,896 | |
| | | | | | |
| Dilutive stock options | 292,661 | | | 1,898,195 | | | 1,054,012 | | | 1,975,911 | |
| Dilutive stock options | 240,507 | | | 1,855,015 | |
| | | | | | |
| Dilutive restricted stock units | 678,435 | | | 926,185 | | | 654,091 | | | 841,918 | |278,743 | | | 683,321 | |
| | | | | | |
| Weighted-average shares - diluted | 160,094,904 | | | 159,018,839 | | | 159,644,166 | | | 158,965,811 | |
| Weighted average shares - diluted | 160,201,636 | | | 159,115,232 | |
| | | | | | |
30
Securities not included in the computation of diluted net earnings per share as their effect would have been antidilutive are as follows:
| |
| | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | Three Months Ended March 31, |
| | 2013 | | 2012 |
| | 2012 || 2011 | | 2012 | | 2011 |
| Stock options | 30,032 | | | - | || 15,016 | | | 60,208 | |
| Stock options | 93,423 | | | - | |
| | | | | | |
| Restricted stock units | 92 | | | 1,008 | | | 5,328 | | | 336 | |
| Restricted stock units | - | | | - | |
| | | | | | |
| Total | 30,124 | | | 1,008 | | | 20,344 | | | 60,544 | |
| Total | 93,423 | | | - | |
| | | | | | | | | | | | |
20. Plant Relocation
In November 2006, the Company finalized a settlement agreement with the Frankfurt, Germany Airport ("Fraport") that required the Company to cease operations at its Kelsterbach, Germany POM site and sell the site, including land and buildings, to Fraport, resolving several years of legal disputes related to the planned Fraport expansion. Under the original agreement, Fraport agreed to pay the Company a total of €670 million . The agreement requires the Company to complete certain activities no later than December 31, 2013 at which time title to the land and buildings will transfer to Fraport. The agreement did not require the proceeds from the settlement be used to build or relocate the existing POM operations; however, based on a number of factors, the Company built a new expanded production facility in the Frankfurt Hoechst Industrial Park in the Rhine Main area in Germany.
The Company received its final payment from Fraport of €110 million during the three months ended June 30, 2011 and ceased POM operations at the Kelsterbach, Germany site prior to July 31, 2011. In September 2011 , the Company announced the opening of its new POM production facility in Frankfurt Hoechst Industrial Park, Germany.
32
A summary of the financial statement impact associated with the Kelsterbach plant relocation is as follows:
| |
| | | | | | | | | |
| | Three Months Ended March 31, | | Total from |
| | | | inception |
| | | | through |
| | | | March 31, 2013 |
| | |
| | 2013 | | 2012 | |
| | (In $ millions) |
| Deferred proceeds (1) | - | | | - | | | 907 | |
| | | | | | | | | |
| Costs expensed | 2 | | | - | | | 115 | |
| | | | | | | | | |
| Costs capitalized (2) | 2 | | | 13 | | | 1,129 | |
| | | | | | | | | |
| Lease buyout | - | | | - | | | 22 | |
| | | | | | | | | |
| Employee termination benefits | - | | | - | | | 8 | |
| | | | | | | | | |
_____________________________
| | |
| (1) | Included in noncurrent Other liabilities in the consolidated balance sheets. Amounts reflect the US dollar equivalent at the time of receipt. Upon transfer of title to Fraport, the deferred proceeds will be recognized in the consolidated statements of operations. Such proceeds will be reduced by assets of €7 million included in Property, plant and equipment, net and €102 million included in noncurrent Other assets in the consolidated balance sheets, to be transferred to Fraport or otherwise disposed. |
| | |
| (2) | Includes a decrease in accrued capital expenditures of $1 million and $8 million for the nine months ended September 30, 2012 and 2011 , respectively. |three months ended March 31, 2013 and 2012 , respectively. |
21. Consolidating Guarantor Financial Information
The 6.625% Notes and the 5.875% Notes (collectively, the "Notes")The Senior Notes were issued by Celanese US (the "Issuer") and are guaranteed by Celanese Corporation (the "Parent Guarantor") and the Subsidiary Guarantors ( Note 9 ). The Issuer and Subsidiary Guarantors are 100% owned subsidiaries of the Parent Guarantor. The Parent Guarantor and Subsidiary Guarantors have guaranteed the Notes fully and unconditionally and jointly and severally.
For cash management purposes, the Company transfers cash between Parent Guarantor, Issuer, Subsidiary Guarantors and non-guarantors through intercompany financing arrangements, contributions or declaration of dividends between the respective parent and its subsidiaries. The transfer of cash under these activities facilitates the ability of the recipient to make specified third-party payments for principal and interest on the Company's outstanding debt, Common Stock dividends and Common Stock repurchases. The consolidating statements of cash flow for the three months ended March 31, 2013 and 2012 present such intercompany financing activities, contributions and dividends consistent with how such activity would be presented in a stand-alone statement of cash flows. Previously, the Company presented such activity within the category where the ultimate use of cash to third parties was presented in the accompanying unaudited interim
31
consolidated statements of cash flows.
consolidated statements of cash flow. Prior amounts have been revised to conform to the current presentation.
The Company has not presented separate financial information and other disclosures for each of its Subsidiary Guarantors because it believes such financial information and other disclosures would not provide investors with any additional information that would be material in evaluating the sufficiency of the guarantees.
33
The unaudited interim consolidating financial statements for the Parent Guarantor, the Issuer, the Subsidiary Guarantors and the non-guarantors are as follows:
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATING STATEMENT OF OPERATIONS
| |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2013 |
| | Parent | | Issuer | | Subsidiary | | Non- | | Eliminations | | Consolidated |
| | Guarantor | | | | Guarantors | | Guarantors | | | | |
| | (In $ millions) |
| Net sales | - | | | - | | | 670 | | | 1,196 | | | (257 | ) | | 1,609 | |680 | | | 1,207 | | | (282 | ) | | 1,605 | |
| | | | | | | | | | | | | | | | | | |
| Cost of sales | - | | | - | | | (471 | ) | | (1,079 | ) | | 265 | | | (1,285 | ) |(475 | ) | | (1,094 | ) | | 297 | | | (1,272 | ) |
| | | | | | | | | | | | | | | | | | |
| Gross profit | - | | | - | | | 205 | | | 113 | | | 15 | | | 333 | |
| | | | | | | | | | | | | | | | | | |
| Selling, general and administrative expenses | - | | | - | | | (21 | ) | | (85 | ) | | - | | | (106 | ) |
| | | | | | | | | | | | | | | | | | |
| Amortization of intangible assets | - | | | - | | | (4 | ) | | (7 | ) | | - | | | (11 | ) |
| | | | | | | | | | | | | | | | | | |
| Research and development expenses | - | | | - | | | (16 | ) | | (10 | ) | | - | | | (26 | ) |
| | | | | | | | | | | | | | | | | | |
| Other (charges) gains, net | - | | | - | | | 4 | | | (4 | ) | | (4 | ) | | (4 | ) |
| | | | | | | | | | | | | | | | | | |
| Foreign exchange gain (loss), net | - | | | - | | | - | | | (1 | ) | | - | | | (1 | ) |
| | | | | | | | | | | | | | | | | | |
| Gain (loss) on disposition of businesses and assets, net | - | | | - | | | (1 | ) | | - | | | - | | | (1 | ) |
| | | | | | | | | | | | | | | | | | |
| Operating profit (loss) | - | | | - | | | 167 | | | 6 | | | 11 | | | 184 | |
| | | | | | | | | | | | | | | | | | |
| Equity in net earnings (loss) of affiliates | 141 | | | 167 | | | 37 | | | 49 | | | (340 | ) | | 54 | |
| | | | | | | | | | | | | | | | | | |
| Interest expense | - | | | (47 | ) | | (10 | ) | | (16 | ) | | 30 | | | (43 | ) |
| | | | | | | | | | | | | | | | | | |
| Refinancing expense | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Interest income | - | | | 14 | | | 15 | | | 1 | | | (30 | ) | | - | |
| | | | | | | | | | | | | | | | | | |
| Dividend income - cost investments | - | | | - | | | - | | | 24 | | | - | | | 24 | |
| | | | | | | | | | | | | | | | | | |
| Other income (expense), net | - | | | - | | | - | | | (1 | ) | | - | | | (1 | ) |
| | | | | | | | | | | | | | | | | | |
| Earnings (loss) from continuing operations before tax | 141 | | | 134 | | | 209 | | | 63 | | | (329 | ) | | 218 | |
| | | | | | | | | | | | | | | | | | |
| Income tax (provision) benefit | 1 | | | 7 | | | (44 | ) | | (37 | ) | | (4 | ) | | (77 | ) |
| | | | | | | | | | | | | | | | | | |
| Earnings (loss) from continuing operations | 142 | | | 141 | | | 165 | | | 26 | | | (333 | ) | | 141 | |
| | | | | | | | | | | | | | | | | | |
| Earnings (loss) from operation of discontinued operations | - | | | - | | | (2 | ) | | (1 | ) | | - | | | (3 | ) |2 | | | - | | | - | | | 2 | |
| | | | | | | | | | | | | | | | | | |
| Gain (loss) on disposition of discontinued operations | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Income tax (provision) benefit from discontinued operations | - | | | - | | | (1 | ) | | - | | | - | | | (1 | ) |
| | | | | | | | | | | | | | | | | | |
| Earnings (loss) from discontinued operations | - | | | - | | | (1 | ) | | (1 | ) | | - | | | (2 | ) |1 | | | - | | | - | | | 1 | |
| | | | | | | | | | | | | | | | | | |
| Net earnings (loss) | 142 | | | 141 | | | 166 | | | 26 | | | (333 | ) | | 142 | |
| | | | | | | | | | | | | | | | | | |
| Net (earnings) loss attributable to noncontrolling interests | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Net earnings (loss) attributable to Celanese Corporation | 142 | | | 141 | | | 166 | | | 26 | | | (333 | ) | | 142 | |
| | | | | | | | | | | | | | | | | | |
34
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATING STATEMENT OF OPERATIONS
| |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2012 |
| | Parent | | Issuer | | Subsidiary | | Non- | | Eliminations | | Consolidated |
| | Guarantor | | | | Guarantors | | Guarantors | | | | |
| | As Adjusted (Note 1) |
| | (In $ millions) |
| Net sales | - | | | - | | | 662 | | | 1,401 | | | (256 | ) | | 1,807 | |640 | | | 1,249 | | | (256 | ) | | 1,633 | |
| | | | | | | | | | | | | | | | | | |
| Cost of sales | - | | | - | | | (491 | ) | | (1,184 | ) | | 269 | | | (1,406 | ) |(478 | ) | | (1,148 | ) | | 267 | | | (1,359 | ) |
| | | | | | | | | | | | | | | | | | |
| Gross profit | - | | | - | | | 162 | | | 101 | | | 11 | | | 274 | |
| | | | | | | | | | | | | | | | | | |
| Selling, general and administrative expenses | - | | | - | | | (39 | ) | | (87 | ) | | - | | | (126 | ) |
| | | | | | | | | | | | | | | | | | |
| Amortization of intangible assets | - | | | - | | | (5 | ) | | (8 | ) | | - | | | (13 | ) |
| | | | | | | | | | | | | | | | | | |
| Research and development expenses | - | | | - | | | (15 | ) | | (10 | ) | | - | | | (25 | ) |
| | | | | | | | | | | | | | | | | | |
| Other (charges) gains, net | - | | | - | | | (5 | ) | | (19 | ) | | - | | | (24 | ) |1 | | | (1 | ) | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Foreign exchange gain (loss), net | - | | | - | | | - | | | 1 | | | - | | | 1 | |
| | | | | | | | | | | | | | | | | | |
| Gain (loss) on disposition of businesses and assets, net | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Operating profit (loss) | - | | | - | | | 104 | | | (4 | ) | | 11 | | | 111 | |
| | | | | | | | | | | | | | | | | | |
| Equity in net earnings (loss) of affiliates | 193 | | | 207 | | | 40 | | | 42 | | | (431 | ) | | 51 | |
| | | | | | | | | | | | | | | | | | |
| Interest expense | - | | | (48 | ) | | (11 | ) | | (18 | ) | | 32 | | | (45 | ) |
| | | | | | | | | | | | | | | | | | |
| Refinancing expense | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Interest income | - | | | 15 | | | 16 | | | 2 | | | (32 | ) | | 1 | |
| | | | | | | | | | | | | | | | | | |
| Dividend income - cost investments | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Other income (expense), net | - | | | 1 | | | - | | | 1 | | | - | | | 2 | |
| | | | | | | | | | | | | | | | | | |
| Earnings (loss) from continuing operations before tax | 193 | | | 175 | | | 149 | | | 23 | | | (420 | ) | | 120 | |
| | | | | | | | | | | | | | | | | | |
| Income tax (provision) benefit | - | | | 18 | | | 59 | | | (1 | ) | | (3 | ) | | 73 | |
| | | | | | | | | | | | | | | | | | |
| Earnings (loss) from continuing operations | 193 | | | 193 | | | 208 | | | 22 | | | (423 | ) | | 193 | |
| | | | | | | | | | | | | | | | | | |
| Earnings (loss) from operation of discontinued operations | - | | | - | | | 1 | | | (1 | ) | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Gain (loss) on disposition of discontinued operations | - | | | - | | | - | | | - | | | - | || - | |
| | | | | | | | | | | | | | | | | | |
| Income tax (provision) benefit from discontinued operations | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Earnings (loss) from discontinued operations | - | | | - | | | 1 | | | (1 | ) | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Net earnings (loss) | 167 | | | 167 | | | 157 | | | 95 | | | (419 | ) | | 167 | |
| | | | | | | | | | | | | | | | | | |
| Net (earnings) loss attributable to noncontrolling interests | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Net earnings (loss) attributable to Celanese Corporation | 167 | | | 167 | | | 157 | | | 95 | | | (419 | ) | | 167 | |
| | | | | | | | | | | | | | | | | | |
33
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATING STATEMENTS OF OPERATIONS
| |
| | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2012 |
| | Parent | | Issuer | | Subsidiary | | Non- | | Eliminations | | Consolidated |
| | Guarantor | | | | Guarantors | | Guarantors | | | | |
| | (In $ millions) |
| Net sales | - | | | - | | | 2,044 | | | 3,684 | | | (811 | ) | | 4,917 | |
| | | | | | | | | | | | | | | | | | |
| Cost of sales | - | | | - | | | (1,473 | ) | | (3,340 | ) | | 821 | | | (3,992 | ) |
| | | | | | | | | | | | | | | | | | |
| Gross profit | - | | | - | | | 571 | | | 344 | | | 10 | | | 925 | |
| | | | | | | | | | | | | | | | | | |
| Selling, general and administrative expenses | - | | | - | | | (135 | ) | | (244 | ) | | - | | | (379 | ) |
| | | | | | | | | | | | | | | | | | |
| Amortization of intangible assets | - | | | - | | | (13 | ) | | (25 | ) | | - | | | (38 | ) |
| | | | | | | | | | | | | | | | | | |
| Research and development expenses | - | | | - | | | (51 | ) | | (25 | ) | | - | | | (76 | ) |
| | | | | | | | | | | | | | | | | | |
| Other (charges) gains, net | - | | | - | | | 13 | | | (8 | ) | | (6 | ) | | (1 | ) |
| | | | | | | | | | | | | | | | | | |
| Foreign exchange gain (loss), net | - | | | - | | | - | | | (4 | ) | | - | | | (4 | ) |
| | | | | | | | | | | | | | | | | | |
| Gain (loss) on disposition of businesses and assets, net | - | | | - | | | (1 | ) | | (1 | ) | | - | | | (2 | ) |
| | | | | | | | | | | | | | | | | | |
| Operating profit (loss) | - | | | - | | | 384 | | | 37 | | | 4 | | | 425 | |
| | | | | | | | | | | | | | | | | | |
| Equity in net earnings (loss) of affiliates | 508 | | | 577 | | | 134 | | | 128 | | | (1,184 | ) | | 163 | |
| | | | | | | | | | | | | | | | | | |
| Interest expense | - | | | (144 | ) | | (31 | ) | | (55 | ) | | 96 | | | (134 | ) |
| | | | | | | | | | | | | | | | | | |
| Refinancing expense | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Interest income | - | | | 44 | | | 48 | | | 5 | | | (96 | ) | | 1 | |
| | | | | | | | | | | | | | | | | | |
| Dividend income - cost investments | - | | | - | | | - | | | 85 | | | - | | | 85 | |
| | | | | | | | | | | | | | | | | | |
| Other income (expense), net | - | | | - | | | - | | | 4 | | | - | | | 4 | |
| | | | | | | | | | | | | | | | | | |
| Earnings (loss) from continuing operations before tax | 508 | | | 477 | | | 535 | | | 204 | | | (1,180 | ) | | 544 | |
| | | | | | | | | | | | | | | | | | |
| Income tax (provision) benefit | 2 | | | 31 | | | (33 | ) | | (31 | ) | | (1 | ) | | (32 | ) |
| | | | | | | | | | | | | | | | | | |
| Earnings (loss) from continuing operations | 510 | | | 508 | | | 502 | | | 173 | | | (1,181 | ) | | 512 | |
| | | | | | | | | | | | | | | | | | |
| Earnings (loss) from operation of discontinued operations | - | | | - | | | (2 | ) | | (1 | ) | | - | | | (3 | ) |
| | | | | | | | | | | | | | | | | | |
| Gain (loss) on disposition of discontinued operations | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Income tax (provision) benefit from discontinued operations | - | | | - | | | 1 | | | - | | | - | | | 1 | |
| | | | | | | | | | | | | | | | | | |
| Earnings (loss) from discontinued operations | - | | | - | || (1 | ) | | (1 | ) | | - | | | (2 | ) |
- | | | - | |
| | | | | | | | | | | | | | | | | | |
| Net earnings (loss) | 510 | | | 508 | | | 501 | | | 172 | | | (1,181 | ) | | 510 | |
| | | | | | | | | | | | | | | | | | |
| Net (earnings) loss attributable to noncontrolling interests | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Net earnings (loss) attributable to Celanese Corporation | 510 | | | 508 | | | 501 | | | 172 | | | (1,181 | ) | | 510 | |
| | | | | | | | | | | | | | | | | | |
34
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATING STATEMENTS OF OPERATIONS
| |
| | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2011 |
| | Parent | | Issuer | | Subsidiary | | Non- | | Eliminations | | Consolidated |
| | Guarantor | | | | Guarantors | | Guarantors | | | | |
| | (In $ millions) |
| Net sales | - | | | - | | | 1,937 | | | 4,012 | | | (800 | ) | | 5,149 | |
| | | | | | | | | | | | | | | | | | |
| Cost of sales | - | | | - | | | (1,399 | ) | | (3,389 | ) | | 801 | | | (3,987 | ) |
| | | | | | | | | | | | | | | | | | |
| Gross profit | - | | | - | | | 538 | | | 623 | | | 1 | | | 1,162 | |
| | | | | | | | | | | | | | | | | | |
| Selling, general and administrative expenses | - | | | - | | | (111 | ) | | (297 | ) | | - | | | (408 | ) |
| | | | | | | | | | | | | | | | | | |
| Amortization of intangible assets | - | | | - | | | (14 | ) | | (36 | ) | | - | | | (50 | ) |
| | | | | | | | | | | | | | | | | | |
| Research and development expenses | - | | | - | | | (46 | ) | | (26 | ) | | - | | | (72 | ) |
| | | | | | | | | | | | | | | | | | |
| Other (charges) gains, net | - | | | - | | | 20 | | | (59 | ) | | - | | | (39 | ) |
| | | | | | | | | | | | | | | | | | |
| Foreign exchange gain (loss), net | - | | | - | | | - | | | 1 | | | - | | | 1 | |
| | | | | | | | | | | | | | | | | | |
| Gain (loss) on disposition of businesses and assets, net | - | | | - | | | - | | | (1 | ) | | - | | | (1 | ) |
| | | | | | | | | | | | | | | | | | |
| Operating profit (loss) | - | | | - | | | 387 | | | 205 | | | 1 | | | 593 | |
| | | | | | | | | | | | | | | | | | |
| Equity in net earnings (loss) of affiliates | 511 | | | 629 | | | 125 | | | 116 | | | (1,235 | ) | | 146 | |
| | | | | | | | | | | | | | | | | | |
| Interest expense | - | | | (160 | ) | | (30 | ) | | (29 | ) | | 53 | | | (166 | ) |
| | | | | | | | | | | | | | | | | | |
| Refinancing expense | - | | | (3 | ) | | - | | | - | | | - | | | (3 | ) |
| | | | | | | | | | | | | | | | | | |
| Interest income | - | | | 16 | | | 31 | | | 8 | | | (53 | ) | | 2 | |
| | | | | | | | | | | | | | | | | | |
| Dividend income - cost investments | - | | | - | | | - | | | 80 | | | - | | | 80 | |
| | | | | | | | | | | | | | | | | | |
| Other income (expense), net | - | | | 2 | | | (1 | ) | | 8 | | | - | | | 9 | |
| | | | | | | | | | | | | | | | | | |
| Earnings (loss) from continuing operations before tax | 511 | | | 484 | | | 512 | | | 388 | | | (1,234 | ) | | 661 | |
| | | | | | | | | | | | | | | | | | |
| Income tax (provision) benefit | 1 | | | 27 | | | (123 | ) | | (56 | ) | | - | | | (151 | ) |
| | | | | | | | | | | | | | | | | | |
| Earnings (loss) from continuing operations | 512 | | | 511 | | | 389 | | | 332 | | | (1,234 | ) | | 510 | |
| | | | | | | | | | | | | | | | | | |
| Earnings (loss) from operation of discontinued operations | - | | | - | | | 4 | | | (1 | ) | | - | | | 3 | |
| | | | | | | | | | | | | | | | | | |
| Gain (loss) on disposition of discontinued operations | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Income tax (provision) benefit from discontinued operations | - | | | - | | | (1 | ) | | - | | | - | | | (1 | ) |
| | | | | | | | | | | | | | | | | | |
| Earnings (loss) from discontinued operations | - | | | - | | | 3 | | | (1 | ) | | - | | | 2 | |
| | | | | | | | | | | | | | | | | | |
| Net earnings (loss) | 512 | | | 511 | | | 392 | | | 331 | | | (1,234 | ) | | 512 | || Net earnings (loss) | 193 | | | 193 | | | 208 | | | 22 | | | (423 | ) | | 193 | |
| | | | | | | | | | | | | | | | | | |
| Net (earnings) loss attributable to noncontrolling interests | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Net earnings (loss) attributable to Celanese Corporation | 512 | | | 511 | | | 392 | | | 331 | | | (1,234 | ) | | 512 | |193 | | | 193 | | | 208 | | | 22 | | | (423 | ) | | 193 | |
| | | | | | | | | | | | | | | | | | |
35
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2013 |
| | Parent | | Issuer | | Subsidiary | | Non- | | Eliminations | | Consolidated |
| | Guarantor | | | | Guarantors | | Guarantors | | | | |
| | (In $ millions) |
| Net earnings (loss) | 142 | | | 141 | | | 166 | | | 26 | | | (333 | ) | | 142 | |
| | | | | | | | | | | | | | | | | | |
| Other comprehensive income (loss), net of tax | | | | | | | | | | | |
| Unrealized gain (loss) on marketable securities | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Foreign currency translation | 28 | | | 28 | | | (5 | ) | | (1 | ) | | (22 | ) | | 28 | |(31 | ) | | (31 | ) | | 5 | | | 5 | | | 21 | | | (31 | ) |
| | | | | | | | | | | | | | | | | | |
| Unrealized Gain (loss) on interest rate swaps | (2 | ) | | (2 | ) | | - | | | - | | | 2 | | | (2 | ) |1 | | | 1 | | | - | | | - | | | (1 | ) | | 1 | |
| | | | | | | | | | | | | | | | | | |
| Pension and postretirement benefits | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Total other comprehensive income (loss), net of tax | (30 | ) | | (30 | ) | | 5 | | | 5 | | | 20 | | | (30 | ) |
| | | | | | | | | | | | | | | | | | |
| Total comprehensive income (loss), net of tax | 112 | | | 111 | | | 171 | | | 31 | | | (313 | ) | | 112 | |
| | | | | | | | | | | | | | | | | | |
| Comprehensive (income) loss attributable to noncontrolling interests | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Comprehensive income (loss) attributable to Celanese Corporation | 112 | | | 111 | | | 171 | | | 31 | | | (313 | ) | | 112 | |
| | | | | | | | | | | | | | | | | | |
| |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2012 |
| | Parent | | Issuer | | Subsidiary | | Non- | | Eliminations | | Consolidated |
| | Guarantor | | | | Guarantors | | Guarantors | | | | |
| | As Adjusted (Note 1) |
| | (In $ millions) |
| Net earnings (loss) | 193 | | | 193 | | | 208 | | | 22 | | | (423 | ) | | 193 | |
| | | | | | | | | | | | | | | | | | |
| Other comprehensive income (loss), net of tax | | | | | | | | | | | |
| Unrealized gain (loss) on marketable securities | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Foreign currency translation | (69 | ) | | (69 | ) | | 13 | | | (84 | ) | | 140 | | | (69 | ) |26 | | | 26 | | | (11 | ) | | (6 | ) | | (9 | ) | | 26 | |
| | | | | | | | | | | | | | | | | | |
| Unrealized Gain (loss) on interest rate swaps | 1 | | | 1 | | | - | | | - | | | (1 | ) | | 1 | |
| | | | | | | | | | | | | | | | | | |
| Pension and postretirement benefits | 4 | | | 4 | | | 4 | | | - | | | (8 | ) | | 4 | |(4 | ) | | (4 | ) | | (3 | ) | | (3 | ) | | 10 | | | (4 | ) |
| | | | | | | | | | | | | | | | | | |
| Total other comprehensive income (loss), net of tax | (60 | ) | | (60 | ) | | 17 | | | (82 | ) | | 125 | | | (60 | ) |23 | | | 23 | | | (14 | ) | | (9 | ) | | - | | | 23 | |
| | | | | | | | | | | | | | | | | | |
| Total comprehensive income (loss), net of tax | 216 | | | 216 | | | 194 | | | 13 | | | (423 | ) | | 216 | |
| | | | | | | | | | | | | | | | | | |
| Comprehensive (income) loss attributable to noncontrolling interests | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Comprehensive income (loss) attributable to Celanese Corporation | 216 | | | 216 | | | 194 | | | 13 | | | (423 | ) | | 216 | |
| | | | | | | | | | | | | | | | | | |
36
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
UNAUDITED CONSOLIDATING BALANCE SHEET
| |
| | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2012 |
| | Parent | | Issuer | | Subsidiary | | Non- | | Eliminations | | Consolidated |
| | Guarantor | | | | Guarantors | | Guarantors | | | | |
| | (In $ millions) |
| Net earnings (loss) | 510 | | | 508 | | | 501 | | | 172 | | | (1,181 | ) | | 510 | |
| | | | | | | | | | | | | | | | | | |
| Other comprehensive income (loss), net of tax | | | | | | | | | | | |
| Unrealized gain (loss) on marketable securities | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Foreign currency translation | 4 | | | 4 | | | 1 | | | 4 | | | (9 | ) | | 4 | |
| | | | | | | | | | | | | | | | | | |
| Unrealized gain (loss) on interest rate swaps | (1 | ) | | (1 | ) | | - | | | - | | | 1 | | | (1 | ) |
| | | | | | | | | | | | | | | | | | |
| Pension and postretirement benefits | 25 | | | 25 | | | 22 | | | - | | | (47 | ) | | 25 | |
| | | | | | | | | | | | | | | | | | |
| Total other comprehensive income (loss), net of tax | 28 | | | 28 | | | 23 | | | 4 | | | (55 | ) | | 28 | |
| | | | | | | | | | | | | | | | | | |
| Total comprehensive income (loss), net of tax | 538 | | | 536 | | | 524 | | | 176 | | | (1,236 | ) | | 538 | |
| | | | | | | | | | | | | | | | | | |
| Comprehensive (income) loss attributable to noncontrolling interests | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Comprehensive income (loss) attributable to Celanese Corporation | 538 | | | 536 | | | 524 | | | 176 | | | (1,236 | ) | | 538 | |
| | | | | | | | | | | | | | | | | | |
| |
| | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2011 |
| | Parent | | Issuer | | Subsidiary | | Non- | | Eliminations | | Consolidated |
| | Guarantor | | | | Guarantors | | Guarantors | | | | |
| | (In $ millions) |
| Net earnings (loss) | 512 | | | 511 | | | 392 | | | 331 | | | (1,234 | ) | | 512 | |
| | | | | | | | | | | | | | | | | | |
| Other comprehensive income (loss), net of tax | | | | | | | | | | | |
| Unrealized gain (loss) on marketable securities | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Foreign currency translation | 18 | | | 18 | | | 3 | | | 14 | | | (35 | ) | | 18 | |
| | | | | | | | | | | | | | | | | | |
| Unrealized gain (loss) on interest rate swaps | 14 | | | 14 | | | - | | | 1 | | | (15 | ) | | 14 | |
| | | | | | | | | | | | | | | | | | |
| Pension and postretirement benefits | 12 | | | 12 | | | 12 | | | - | | | (24 | ) | | 12 | |
| | | | | | | | | | | | | | | | | | |
| Total other comprehensive income (loss), net of tax | 44 | | | 44 | | | 15 | | | 15 | | | (74 | ) | | 44 | |
| | | | | | | | | | | | | | | | | | |
| Total comprehensive income (loss), net of tax | 556 | | | 555 | | | 407 | | | 346 | | | (1,308 | ) | | 556 | |
| | | | | | | | | | | | | | | | | | |
| Comprehensive (income) loss attributable to noncontrolling interests | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Comprehensive income (loss) attributable to Celanese Corporation | 556 | | | 555 | | | 407 | | | 346 | | | (1,308 | ) | | 556 | |
| | | | | | | | | | | | | | | | | | |
37
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATING BALANCE SHEETS
| |
| | | | | | | | | | | | | | | | | | |
| | As of March 31, 2013 |
| | Parent | | Issuer | | Subsidiary | | Non- | | Eliminations | | Consolidated |
| | Guarantor | | | | Guarantors | | Guarantors | | | | |
| | (In $ millions) |
| ASSETS | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Current Assets | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | - | | | - | | | 325 | | | 653 | | | - | | | 978 | |
| | | | | | | | | | | | | | | | | | |
| Trade receivables - third party and affiliates | - | | | - | | | 352 | | | 720 | | | (156 | ) | | 916 | |
| | | | | | | | | | | | | | | | | | |
| Non-trade receivables, net | 31 | | | 33 | | | 1,777 | | | 489 | | | (2,111 | ) | | 188 | |425 | | | 1,745 | | | 388 | | | (2,392 | ) | | 197 | |
| | | | | | | | | | | | | | | | | | |
| Inventories, net | - | | | - | | | 208 | | | 609 | | | (59 | ) | | 758 | |
| | | | | | | | | | | | | | | | | | |
| Deferred income taxes | - | | | - | | | 64 | | | 7 | | | (21 | ) | | 50 | |
| | | | | | | | | | | | | | | | | | |
| Marketable securities, at fair value | - | | | - | | | 49 | | | - | | | - | | | 49 | |
| | | | | | | | | | | | | | | | | | |
| Other assets | - | | | 5 | | | 13 | | | 36 | | | (16 | ) | | 38 | |
| | | | | | | | | | | | | | | | | | |
| Total current assets | 31 | | | 38 | | | 2,677 | | | 2,536 | | | (2,309 | ) | | 2,968 | |430 | | | 2,756 | | | 2,413 | | | (2,644 | ) | | 2,986 | |
| | | | | | | | | | | | | | | | | | |
| Investments in affiliates | 1,862 | | | 3,594 | | | 1,583 | | | 534 | | | (6,798 | ) | | 775 | |
| Investments in affiliates | 1,806 | | | 3,618 | | | 1,616 | | | 560 | | | (6,804 | ) | | 796 | |
| | | | | | | | | | | | | | | | | | |
| Property, plant and equipment, net | - | | | - | | | 782 | | | 2,513 | | | - | | | 3,295 | |824 | | | 2,462 | | | - | | | 3,286 | |
| | | | | | | | | | | | | | | | | | |
| Deferred income taxes | - | | | 4 | | | 515 | | | 90 | | | (6 | ) | | 603 | |
| | | | | | | | | | | | | | | | | | |
| Other assets | - | | | 1,895 | | | 134 | | | 399 | | | (1,982 | ) | | 446 | |
| Other assets | - | | | 1,870 | | | 131 | | | 429 | | | (1,950 | ) | | 480 | |
| | | | | | | | | | | | | | | | | | |
| Goodwill | - | | | - | | | 305 | | | 457 | | | - | | | 762 | |
| | | | | | | | | | | | | | | | | | |
| Intangible assets, net | - | | | - | | | 68 | | | 87 | | | - | | | 155 | |
| | | | | | | | | | | | | | | | | | |
| Total assets | 1,888 | | | 5,545 | | | 6,046 | | | 6,575 | | | (11,089 | ) | | 8,965 | |
| Total assets | 1,837 | | | 5,922 | | | 6,215 | | | 6,498 | | | (11,404 | ) | | 9,068 | |
| | | | | | | | | | | | | | | | | | |
| LIABILITIES AND EQUITY |
| Current Liabilities | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Short-term borrowings and current installments of long-term debt - third party and affiliates | - | | | 1,625 | | | 177 | | | 121 | | | (1,782 | ) | | 141 | |1,570 | | | 122 | | | 112 | | | (1,692 | ) | | 112 | |
| | | | | | | | | | | | | | | | | | |
| Trade payables - third party and affiliates | - | | | - | | | 231 | | | 584 | | | (156 | ) | | 659 | |
| | | | | | | | | | | | | | | | | | |
| Other liabilities | - | | | 58 | | | 268 | | | 408 | | | (275 | ) | | 459 | |
| | | | | | | | | | | | | | | | | | |
| Deferred income taxes | - | | | 21 | | | - | | | 25 | | | (21 | ) | | 25 | |
| | | | | | | | | | | | | | | | | | |
| Income taxes payable | (30 | ) | | (390 | ) | | 447 | Income taxes payable | - | | | - | | | 471 | | | 82 | | | (457 | ) | | 96 | |
| | | | | | | | | | | | | | | | | | |
| Total current liabilities | (30 | ) | | 1,308 | | | 1,188 | | | 1,196 | | | (2,267 | ) | | 1,395 | |
| Total current liabilities | - | | | 1,649 | | | 1,092 | | | 1,211 | | | (2,601 | ) | | 1,351 | |
| | | | | | | | | | | | | | | | | | |
| Noncurrent Liabilities | | | | | | | | | | | |
| Long-term debt | - | | | 2,361 | | | 820 | | | 1,636 | | | (1,978 | ) | | 2,839 | |
| Long-term debt | - | | | 2,457 | | | 904 | | | 1,545 | | | (1,947 | ) | | 2,959 | |
| | | | | | | | | | | | | | | | | | |
| Deferred income taxes | - | | | - | | | - | | | 50 | | | (6 | ) | | 44 | |
| | | | | | | | | | | | | | | | | | |
| Uncertain tax positions | 2 | | | 6 | | | 21 | | | 151 | | | - | | | 180 | |
| | | | | | | | | | | | | | | | | | |
| Benefit obligations | - | | | - | | | 1,215 | | | 139 | | | - | | | 1,354 | |1,345 | | | 231 | | | - | | | 1,576 | |
| | | | | | | | | | | | | | | | | | |
| Other liabilities | - | | | 4 | | | 103 | | | 1,039 | | | (12 | ) | | 1,142 | |99 | | | 1,031 | | | (11 | ) | | 1,123 | |
| | | | | | | | | | | | | | | | | | |
| Total noncurrent liabilities | 2 | | | 2,375 | | | 2,202 | | | 3,065 | | | (1,990 | ) | | 5,655 | |2,467 | | | 2,369 | | | 3,008 | | | (1,964 | ) | | 5,882 | |
| | | | | | | | | | | | | | | | | | |
| Total Celanese Corporation stockholders' equity | 1,915 | | | 1,862 | | | 2,656 | | | 2,314 | | | (6,832 | ) | | 1,915 | |1,835 | | | 1,806 | | | 2,754 | | | 2,279 | | | (6,839 | ) | | 1,835 | |
| | | | | | | | | | | | | | | | | | |
| Noncontrolling interests | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Total equity | 1,915 | | | 1,862 | | | 2,656 | | | 2,314 | | | (6,832 | ) | | 1,915 | |
| Total equity | 1,835 | | | 1,806 | | | 2,754 | | | 2,279 | | | (6,839 | ) | | 1,835 | |
| | | | | | | | | | | | | | | | | | |
| Total liabilities and equity | 1,888 | | | 5,545 | | | 6,046 | | | 6,575 | | | (11,089 | ) | | 8,965 | |1,837 | | | 5,922 | | | 6,215 | | | 6,498 | | | (11,404 | ) | | 9,068 | |
| | | | | | | | | | | | | | | | | | |
37
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATING BALANCE SHEET
| |
| | | | | | | | | | | | | | | | | | |
| | As of December 31, 2012 |
| | Parent | | Issuer | | Subsidiary | | Non- | | Eliminations | | Consolidated |
| | Guarantor | | | | Guarantors | | Guarantors | | | | |
| | (In $ millions) |
| ASSETS | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Current Assets | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | 10 | | | - | | | 275 | | | 674 | | | - | | | 959 | |
| | | | | | | | | | | | | | | | | | |
| Trade receivables - third party and affiliates | - | | | - | | | 340 | | | 653 | | | (166 | ) | | 827 | |
| | | | | | | | | | | | | | | | | | |
| Non-trade receivables, net | 31 | | | 10 | | | 1,651 | | | 562 | | | (1,988 | ) | | 235 | |444 | | | 1,754 | | | 484 | | | (2,504 | ) | | 209 | |
| | | | | | | | | | | | | | | | | | |
| Inventories, net | - | | | - | | | 196 | | | 589 | | | (74 | ) | | 711 | |
| | | | | | | | | | | | | | | | | | |
| Deferred income taxes | - | | | - | | | 62 | | | 8 | | | (21 | ) | | 49 | |
| | | | | | | | | | | | | | | | | | |
| Marketable securities, at fair value | - | | | - | | | 52 | | | 1 | | | - | | | 53 | |
| | | | | | | | | | | | | | | | | | |
| Other assets | - | | | 5 | | | 15 | | | 27 | | | (16 | ) | | 31 | |
| | | | | | | | | | | | | | | | | | |
| Total current assets | 41 | | | 16 | | | 2,437 | | | 2,457 | | | (2,207 | ) | | 2,703 | |449 | | | 2,694 | | | 2,436 | | | (2,781 | ) | | 2,839 | |
| | | | | | | | | | | | | | | | | | |
| Investments in affiliates | 1,315 | | | 2,978 | | | 1,530 | | | 535 | | | (5,534 | ) | | 824 | |
| Investments in affiliates | 1,692 | | | 3,437 | | | 1,579 | | | 570 | | | (6,478 | ) | | 800 | |
| | | | | | | | | | | | | | | | | | |
| Property, plant and equipment, net | - | | | - | | | 735 | | | 2,534 | | | - | | | 3,269 | |813 | | | 2,537 | | | - | | | 3,350 | |
| | | | | | | | | | | | | | | | | | |
| Deferred income taxes | - | | | 5 | | | 509 | | | 92 | | | - | | | 606 | |
| | | | | | | | | | | | | | | | | | |
| Other assets | - | | | 1,927 | | | 132 | | | 414 | | | (2,010 | ) | | 463 | |
| | | | | | | | | | | | | | | | | | |
| Goodwill | - | | | - | | | 305 | | | 472 | | | - | | | 777 | |
| | | | | | | | | | | | | | | | | | |
| Intangible assets, net | - | | | - | | | 69 | | | 96 | | | - | | | 165 | |
| | | | | | | | | | | | | | | | | | |
| Total assets | 1,315 | | | 4,914 | | | 5,583 | | | 6,434 | | | (9,728 | ) | | 8,518 | |
| Total assets | 1,733 | | | 5,818 | | | 6,101 | | | 6,617 | | | (11,269 | ) | | 9,000 | |
| | | | | | | | | | | | | | | | | | |
| LIABILITIES AND EQUITY |
| Current Liabilities | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Short-term borrowings and current installments of long-term debt - third party and affiliates | - | | | 1,492 | | | 176 | | | 131 | | | (1,655 | ) | | 144 | |1,584 | | | 208 | | | 159 | | | (1,783 | ) | | 168 | |
| | | | | | | | | | | | | | | | | | |
| Trade payables - third party and affiliates | - | | | - | | | 269 | | | 546 | | | (166 | ) | | 649 | |
| | | | | | | | | | | | | | | | | | |
| Other liabilities | - | | | 40 | | | 267 | | | 475 | | | (307 | ) | | 475 | |
| | | | | | | | | | | | | | | | | | |
| Deferred income taxes | - | | | 21 | | | - | | | 25 | | | (21 | ) | | 25 | |
| | | | | | | | | | | | | | | | | | |
| Income taxes payable | (29 | ) | | (373 | ) | | 384 | Income taxes payable | - | | | - | | | 419 | | | 73 | | | (454 | ) | | 38 | |
| | | | | | | | | | | | | | | | | | |
| Total current liabilities | (29 | ) | | 1,198 | | | 1,155 | | | 1,224 | | | (2,163 | ) | | 1,385 | |
| Total current liabilities | - | | | 1,645 | | | 1,163 | | | 1,278 | | | (2,731 | ) | | 1,355 | |
| | | | | | | | | | | | | | | | | | |
| Noncurrent Liabilities | | | | | | | | | | | |
| Long-term debt | - | | | 2,372 | | | 834 | | | 1,650 | | | (1,983 | ) | | 2,873 | |
| Long-term debt | - | | | 2,467 | | | 872 | | | 1,597 | | | (2,006 | ) | | 2,930 | |
| | | | | | | | | | | | | | | | | | |
| Deferred income taxes | - | | | - | | | - | | | 50 | | | - | | | 50 | |
| | | | | | | | | | | | | | | | | | |
| Uncertain tax positions | 3 | | | 6 | | | 23 | | | 149 | | | - | | | 181 | |
| | | | | | | | | | | | | | | | | | |
| Benefit obligations | - | | | - | | | 1,346 | | | 146 | | | - | | | 1,492 | |1,362 | | | 240 | | | - | | | 1,602 | |
| | | | | | | | | | | | | | | | | | |
| Other liabilities | - | | | 8 | | | 101 | | | 1,055 | | | (12 | ) | | 1,152 | |
| | | | | | | | | | | | | | | | | | |
| Total noncurrent liabilities | 3 | | | 2,401 | | | 2,306 | | | 3,079 | | | (1,997 | ) | | 5,792 | |2,481 | | | 2,358 | | | 3,091 | | | (2,018 | ) | | 5,915 | |
| | | | | | | | | | | | | | | | | | |
| Total Celanese Corporation stockholders' equity | 1,341 | | | 1,315 | | | 2,122 | | | 2,131 | | | (5,568 | ) | | 1,341 | |1,730 | | | 1,692 | | | 2,580 | | | 2,248 | | | (6,520 | ) | | 1,730 | |
| | | | | | | | | | | | | | | | | | |
| Noncontrolling interests | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Total equity | 1,341 | | | 1,315 | | | 2,122 | | | 2,131 | | | (5,568 | ) | | 1,341 | |
| Total equity | 1,730 | | | 1,692 | | | 2,580 | | | 2,248 | | | (6,520 | ) | | 1,730 | |
| | | | | | | | | | | | | | | | | | |
| Total liabilities and equity | 1,315 | | | 4,914 | | | 5,583 | | | 6,434 | | | (9,728 | ) | | 8,518 | |1,733 | | | 5,818 | | | 6,101 | | | 6,617 | | | (11,269 | ) | | 9,000 | |
| | | | | | | | | | | | | | | | | | |
38
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATING STATEMENT OF CASH FLOWS
| |
| | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2012 |
| | Three Months Ended March 31, 2013 |
| | Parent | | Issuer | | Subsidiary | | Non- | | Eliminations | | Consolidated |
| | Guarantor | | | | Guarantors | | Guarantors | | | | |
| | (In $ millions) |
| Net cash provided by (used in) operating activities | (28 | ) | | - | | | 307 | | | 382 | | | - | | | 661 | |1 | | | (18 | ) | | 90 | | | 76 | | | (2 | ) | | 147 | |
| | | | | | | | | | | | | | | | | | |
| Investing Activities | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Capital expenditures on property, plant and equipment | - | | | - | | | (41 | ) | | (33 | ) | | - | | | (74 | ) |
| | | | | | | | | | | | | | | | | | |
| Acquisitions, net of cash acquired | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Proceeds from sale of businesses and assets, net | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Deferred proceeds from Kelsterbach plant relocation | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Capital expenditures related to Kelsterbach plant relocation | - | | | - | | | - | | | (3 | ) | | - | | | (3 | ) |
| | | | | | | | | | | | | | | | | | |
| Return of capital from subsidiary | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Contributions to subsidiary | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Intercompany loan receipts (disbursements) | - | | | 1 | | | (20 | ) | | - | | | 19 | | | - | |
| | | | | | | | | | | | | | | | | | |
| Other, net | - | | | - | | | (4 | ) | | (6 | ) | | - | | | (10 | ) |
| | | | | | | | | | | | | | | | | | |
| Net cash provided by (used in) investing activities | - | | | 1 | | | (65 | ) | | (42 | ) | | 19 | | | (87 | ) |
| | | | | | | | | | | | | | | | | | |
| Financing Activities | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Short-term borrowings (repayments), net | - | | | 20 | | | (9 | ) | | (10 | ) | | (20 | ) | | (19 | ) |
| | | | | | | | | | | | | | | | | | |
| Proceeds from short-term borrowings | - | | | - | | | - | | | 24 | | | - | | | 24 | |
| | | | | | | | | | | | | | | | | | |
| Repayments of long-term debt | - | | | (11 | ) | | (5 | ) | | (16 | Repayments of short-term borrowings | - | | | - | | | - | | | (24 | ) | | - | | | (24 | ) |
| | | | | | | | | | | | | | | | | | |
| Proceeds from long-term debt | - | | | - | | | 50 | | | - | | | - | | | 50 | |
| | | | | | | | | | | | | | | | | | |
| Proceeds and Repayments from intercompany financing activities | - | | | 11 | | | (11 | ) | | - || Repayments of long-term debt | - | | | (2 | ) | | (15 | ) | | (39 | ) | | 1 | | | (55 | ) |
| | | | | | | | | | | | | | | | | | |
| Purchases of treasury stock, including related fees | (37 | )| Refinancing costs | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Purchases of treasury stock, including related fees | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Dividends to parent | - | | | (1 | ) | | (1 | ) | | - | | | 2 | | | - | |
| | | | | | | | | | | | | | | | | | |
| Contributions from parent to subsidiary | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Stock option exercises | 1 | | | - | | | - | | | - | | | - | | | 1 | |
| | | | | | | | | | | | | | | | | | |
| Series A common stock dividends | (12 | ) | | - | | | - | | | - | | | - | | | (12 | ) |
| | | | | | | | | | | | | | | | | | |
| Return of capital to parent | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Other, net | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Net cash provided by (used in) financing activities | 54 | | | - | | | (52 | ) | | (23 | ) | | - | | | (21 | ) |(11 | ) | | 17 | | | 25 | | | (49 | ) | | (17 | ) | | (35 | ) |
| | | | | | | | | | | | | | | | | | |
| Exchange rate effects on cash and cash equivalents | - | | | - | | | - | | | (6 | ) | | - | | | (6 | ) |
| | | | | | | | | | | | | | | | | | |
| Net increase (decrease) in cash and cash equivalents | (10 | ) | | - | | | 50 | | | (21 | ) | | - | | | 19 | |
| | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents as of beginning of period | 10 | | | - | | | 275 | | | 674 | | | - | | | 959 | |
| | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents as of end of period | - | | | - | | | 325 | | | 653 | | | - | | | 978 | |
| | | | | | | | | | | | | | | | | | |
39
CELANESE CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATING STATEMENT OF CASH FLOWS
| |
| | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2011 |
| | Three Months Ended March 31, 2012 |
| | Parent | | Issuer | | Subsidiary | | Non- | | Eliminations | | Consolidated |
| | Guarantor | | | | Guarantors | | Guarantors | | | | |
| | (In $ millions) |
| Net cash provided by (used in) operating activities | (1 | ) | | - | | | 224 | | | 258 | | | - | | | 481 | |23 | | | (3 | ) | | 135 | | | 106 | | | (46 | ) | | 215 | |
| | | | | | | | | | | | | | | | | | |
| Investing Activities | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Capital expenditures on property, plant and equipment | - | | | - | | | (54 | ) | | (52 | ) | | - | | | (106 | ) |
| | | | | | | | | | | | | | | | | | |
| Acquisitions, net of cash acquired | - | | | - | | | (23 | ) | | - | | | - | | | (23 | ) |
| | | | | | | | | | | | | | | | | | |
| Proceeds from sale of businesses and assets, net | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Deferred proceeds from Kelsterbach plant relocation | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Capital expenditures related to Kelsterbach plant relocation | - | | | - | | | - | | | (21 | ) | | - | | | (21 | ) |
| | | | | | | | | | | | | | | | | | |
| Return of capital from subsidiary | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Contributions to subsidiary | - | | | - | | | (3 | ) | | - | | | 3 | | | - | |
| | | | | | | | | | | | | | | | | | |
| Intercompany loan receipts (disbursements) | - | | | 1 | | | (28 | ) | | - | | | 27 | | | - | |
| | | | | | | | | | | | | | | | | | |
| Other, net | - | | | - | | | (3 | ) | | (2 | ) | | - | | | (5 | ) |
| | | | | | | | | | | | | | | | | | |
| Net cash provided by (used in) investing activities | - | | | 1 | | | (111 | ) | | (75 | ) | | 30 | | | (155 | ) |
| | | | | | | | | | | | | | | | | | |
| Financing Activities | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Short-term borrowings (repayments), net | - | | | 28 | | | (9 | ) | | (11 | ) | | - | | | (20 | ) |2 | | | 7 | | | (27 | ) | | 10 | |
| | | | | | | | | | | | | | | | | | |
| Proceeds from short-term borrowings | - | | | - | | | - | | | 24 | | | - | | | 24 | |
| | | | | | | | | | | | | | | | | | |
| Repayments of long-term debt | - | | | (529 | ) | | (2 | ) | | (31 | Repayments of short-term borrowings | - | | | - | | | - | | | (24 | ) | | - | | | (24 | ) |
| | | | | | | | | | | | | | | | | | |
| Proceeds from long-term debt | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Proceeds and Repayments from intercompany financing activities | - | | | 137 | | | (137 | ) | | - | | | - | | | - | |
| Repayments of long-term debt | - | | | (3 | ) | | (1 | ) | | (4 | ) | | - | | | (8 | ) |
| | | | | | | | | | | | | | | | | | |
| Purchases of treasury stock, including related fees | (28 | )| Refinancing costs | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Dividends from subsidiary | 43 | | | 143 | | | - | | | - | | | (186 | ) | | - | |
| Purchases of treasury stock, including related fees | (20 | ) | | - | | | - | | | - | | | - | | | (20 | ) |
| | | | | | | | | | | | | | | | | | |
| Dividends to parent | - | | | (43 | ) | | (43 | ) | | (100 | ) | | 186 | | | - | |(23 | ) | | (23 | ) | | - | | | 46 | | | - | |
| | | | | | | | | | | | | | | | | | |
| Contributions from parent to subsidiary | - | | | (100 | ) | | 100 | Contributions from parent | - | | | - | | | - | | | 3 | | | (3 | ) | | - | |
| | | | | | | | | | | | | | | | | | |
| Stock option exercises | 7 | | | - | | | - | | | - | | | - | | | 7 | |
| | | | | | | | | | | | | | | | | | |
| Series A common stock dividends | (10 | ) | | - | | | - | | | - | | | - | | | (10 | ) |
| | | | | | | | | | | | | | | | | | |
| Return of capital to parent | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Other, net | - | | | - | | | - | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | | |
| Net cash provided by (used in) financing activities | (23 | ) | | 2 | | | (94 | ) | | (131 | ) | | - | | | (224 | ) |(22 | ) | | 6 | | | 16 | | | (21 | ) |
| | | | | | | | | | | | | | | | | | |
| Exchange rate effects on cash and cash equivalents | - | | | - | | | - | | | 6 | | | - | | | 6 | |
| | | | | | | | | | | | | | | | | | |
| Net increase (decrease) in cash and cash equivalents | - | | | - | | | 2 | | | 43 | | | - | | | 45 | |
| | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents as of beginning of period | - | | | - | | | 133 | | | 549 | | | - | | | 682 | |
| | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents as of end of period | - | | | - | | | 135 | | | 592 | | | - | | | 727 | |
| | | | | | | | | | | | | | | | | | |
41
22. Subsequent Events
On October 17, 2012 , the Company's Board of Directors declared a quarterly cash dividend of $0.075 per share on its Common Stock estimated to be $12 million . The cash dividends are for the period from August 1, 2012 to October 31, 2012 and will be paid on November 8, 2012 to holders of record as of October 29, 2012 .
On October 18, 2012 , the Company's Board of Directors approved an increase in its share repurchase authorization of the Common Stock to $400 million . As of September 30, 2012 the Company had $136 million remaining under the previous authorization.
40
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
In this Quarterly Report on Form 10-Q ("Quarterly Report"), the term "Celanese" refers to Celanese Corporation, a Delaware corporation, and not its subsidiaries. The terms the "Company," "we," "our" and "us," refer to Celanese and its subsidiaries on a consolidated basis. The term "Celanese US" refers to the Company's subsidiary, Celanese US Holdings LLC, a Delaware limited liability company, and not its subsidiaries.
The following discussion should be read in conjunction with the Celanese Corporation and Subsidiaries consolidated financial statements as of and for the year ended December 31, 2012 , filed on February 8, 2013 with the Securities and Exchange Commission ("SEC") as part of the Company's Annual Report on Form 10-K (the " 2012 Form 10-K") and the unaudited interim consolidated financial statements and notes thereto included elsewhere in this Quarterly Report.
Investors are cautioned that the forward-looking statements contained within this Quarterly Report involve both risk and uncertainty. Several important factors could cause actual results to differ materially from those anticipated by these statements. Many of these statements are macroeconomic in nature and are, therefore, beyond the control of management. See "Special Note Regarding Forward-Looking Statements" below and at the beginning of our 2012 Form 10-K.
Special Note Regarding Forward-Looking Statements
Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") and other parts of this Quarterly Report contain certain forward-looking statements and information relating to us that are based on the beliefs of our management as well as assumptions made by, and information currently available to, us. You can identify these statements by the fact that they do not relate to matters of a strictly factual or historical nature and generally discuss or relate to forecasts, estimates or other expectations regarding future events. Generally, words such as "anticipate," "believe," "estimate," "expect," "intend," "plan," "project," "may," "can," "could," "might," "will" and similar expressions, as they relate to us, are intended to identify forward-looking statements. These statements reflect our current views and beliefs with respect to future events at the time that the statements are made, are not historical facts or guarantees of future performance and are subject to significant risks, uncertainties and other factors that are difficult to predict and many of which are outside of our control. Further, certain forward-looking statements are based upon assumptions as to future events that may not prove to be accurate and, accordingly, should not have undue reliance placed upon them. All forward-looking statements made in this Quarterly Report are made as of the date hereof, and the risk that actual results will differ materially from expectations expressed in this Quarterly Report will increase with the passage of time. We undertake no obligation, and disclaim any duty, to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changes in our expectations or otherwise.
See Part I - Item 1A. Risk Factors of our 2012 Form 10-K and subsequent periodic filings we make with the SEC for a description of risk factors that could significantly affect our financial results. In addition, the following factors could cause our actual results to differ materially from those results, performance or achievements that may be expressed or implied by such forward-looking statements. These factors include, among other things:
| | |
| • | changes in general economic, business, political and regulatory conditions in the countries or regions in which we operate; |
| | |
| • | the length and depth of product and industry business cycles particularly in the automotive, electrical, textiles, electronics and construction industries; |
| | |
| • | changes in the price and availability of raw materials, particularly changes in the demand for, supply of, and market prices of ethylene, methanol, natural gas, wood pulp and fuel oil and the prices for electricity and other energy sources; |
| | |
| • | the ability to pass increases in raw material prices on to customers or otherwise improve margins through price increases; |
| | |
| • | the ability to maintain plant utilization rates and to implement planned capacity additions and expansions; |
| | |
| • | the ability to reduce or maintain at their current levels production costs and improve productivity by implementing technological improvements to existing plants; |
| | |
| • | increased price competition and the introduction of competing products by other companies; |
| | |
| • | changes in the degree of intellectual property and other legal protection afforded to our products or technologies, or the theft of such intellectual property; |
41
| | |
| • | costs and potential disruption or interruption of production or operations due to accidents, cyber security incidents, terrorism or political unrest, or other unforeseen events or delays in construction of facilities; |
| | |
| • | potential liability for remedial actions and increased costs under existing or future environmental regulations, including those relating to climate change; |
| | |
| • | potential liability resulting from pending or future litigation, or from changes in the laws, regulations or policies of governments or other governmental activities in the countries in which we operate; |
| | |
| • | changes in currency exchange rates and interest rates; |
| | |
| • | our level of indebtedness, which could diminish our ability to raise additional capital to fund operations or limit our ability to react to changes in the economy or the chemicals industry; and |
| | |
| • | various other factors, both referenced and not referenced in this Quarterly Report. |
Many of these factors are macroeconomic in nature and are, therefore, beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from those described in this Quarterly Report as anticipated, believed, estimated, expected, intended, planned or projected.
Overview
We are a global technology and specialty materials company. We are one of the world's largest producers of acetyl products, which are intermediate chemicals, for nearly all major industries, as well as a leading global producer of high performance engineered polymers that are used in a variety of high-value applications. As a recognized innovator in the chemicals industry, we engineer and manufacture a wide variety of products essential to everyday living. Our broad product portfolio serves a diverse set of end-use applications including paints and coatings, textiles, automotive applications, consumer and medical applications, performance industrial applications, filter media, paper and packaging, chemical additives, construction, consumer and industrial adhesives, and food and beverage applications. Our products enjoy leading global positions due to our large global production capacity, operating efficiencies, proprietary production technology and competitive cost structures.
Our large and diverse global customer base primarily consists of major companies in a broad array of industries. We hold geographically balanced global positions and participate in diversified end-use applications. We combine a demonstrated track record of execution, strong performance built on shared principles and objectives, and a clear focus on growth and value creation. Known for operational excellence and execution of our business strategies, we deliver value to customers around the globe with best-in-class technologies and solutions.
2013 Highlights:
| | |
| • | We announced our new CelFX TM matrix technology for filter media. CelFX TM provides a flexible additive platform for innovation that allows our customers increased filter design flexibility, improved constituent reduction and supports a broad choice for enhancement additives. |
| • | We signed a Memorandum of Understanding ("MOU") with Pertamina, the state-owned energy company of the Republic of Indonesia, to begin the detailed project planning phase for the development of fuel ethanol projects in Indonesia. The MOU outlines the parties' intentions to establish a joint venture under which we would own a majority share and would license our leading TCX ® technology to the joint venture under a separate technology licensing agreement. Under the detailed project planning phase of the MOU, we and Pertamina will select the first production location, initiate project permitting and negotiate coal supply and other industrial partner agreements. This phase of the MOU is expected to be completed by the end of 2013. |
| | |
| • | we announced plans to construct and operate a methanol production facility at our Clear Lake, Texas acetyl complex which is expected to start up after July 1, 2015. As one of the world's largest producers of acetyl products, this would allow us to utilize our existing infrastructure to capture the opportunities created by abundant and affordable US natural gas supplies. |
| | |
| • | We announced that The Board of Directors increased our share repurchase authorization to $400 million. As of September 30, 2012, we had $136 million remaining under our previous authorization. |
| • | We received the JEC Innovation Award for the first thermoplastic composite tailplane for a helicopter. The new composite tailplane of the Agusta Westland AW 169 helicopter results in 15 percent weight reduction from conventional composites and contributes considerably to fuel savings and lower emissions. |
| | |
| • | We launched the new Sunsation SM platform to help food and beverage manufacturers develop low- and no-calorie products that are better tasting and simplify the formulation process to bring products to market faster. |
| • | We introduced a new generation of Thermx ® PCT grades that deliver outstanding initial reflectance and reflectance stability under heat and light as required in light-emitting diode ("LED") lighting packages found in display backlight and general lighting. |
| | |
| • | We entered into an agreement to advance the development of fuel ethanol projects with Pertamina, the state-owned energy company of Indonesia. In line with our long-term strategy to develop new and renewable energy capabilities, Pertamina will collaborate exclusively with us to jointly develop synthetic fuel ethanol projects in the Republic of Indonesia utilizing our proprietary TCX ® ethanol process technology. |
| • | We elected Edward G. Galante to our board of directors. Mr. Galante is a former senior vice president of Exxon Mobil Corporation. |
42
Results of Operations
| • | we started up our technology development unit for ethanol production at our facility in Clear Lake, Texas. the unit will support our continuing development of TCX ® ethanol process technology for customers in both industrial-grade and fuel ethanol. |
Change in accounting policy regarding pension and other postretirement benefits
Effective January 1, 2013, we elected to change our accounting policy for recognizing actuarial gains and losses and changes in the fair value of plan assets for our defined benefit pension plans and other postretirement benefit plans. We now immediately recognize changes in fair value of plan assets and net actuarial gains and losses annually in the fourth quarter of each fiscal year and whenever a plan is determined to qualify for a remeasurement during a fiscal year. The remaining components of net periodic benefit cost are recorded on a quarterly basis. For further discussion, see Note 1 - Description of the Company and Basis of Presentation in the accompanying unaudited interim consolidated financial statements.
| | |
| • | We completed the acquisition of certain assets from Ashland Inc., including two product lines, Vinac ® and Flexbond ® , which will support the strategic growth of our Emulsions business. |
| | |
| • | We received key government approvals necessary to proceed with previously announced plans to modify and enhance our existing integrated acetyl facility at the Nanjing Chemical Industrial Park in China to produce ethanol for industrial uses. Based upon continued advancements to our TCX ® ethanol process technology, we now expect to have approximately 30 to 40 percent additional ethanol production capacity above The originally announced 200,000 tons with no increase in the capital investment For the modification and enhancement. the unit is expected to startup in mid-2013. |
In connection with the changes in accounting policy for pension and other postretirement benefits and to properly match the actual operational expenses each business segment is incurring, we changed our allocation of net periodic benefit cost. We now allocate only the service cost and amortization of prior service cost components of our pension and postretirement plans to each business segment on a ratable basis. All other components of net periodic benefit cost (interest cost, estimated return on assets and net actuarial gains and losses) are recorded to Other Activities as these components are considered financing activities managed at the corporate level. Financial information for prior periods has been retrospectively adjusted.
| | |
| • | Moody's Investors Service and Standard & Poor's Ratings Services both upgraded its outlook for Celanese to "Positive" from "Stable." In raising our outlook, both agencies cited improved operating performance, debt reduction as well as our operational geographical and product diversity. |
| | |
| • | we announced that our Board of Directors approved a 25% increase in our quarterly Series A Common Stock cash dividend. the Board of Directors increased the quarterly dividend rate from $0.06 to $0.075 per share of Common Stock on a quarterly basis. and $0.24 to $0.30 per share of Common Stock on an annual basis. the new dividend rate became effective in August 2012 . |
45
Results of Operations
Financial Highlights
| |
| | | | | | | | | |
| | Three Months Ended | | || Nine Months Ended | | |
| | September 30, | | || September 30, | | |
| | March 31, | | |
| | 2013 | | 2012 | | Change |
| | | | As Adjusted | | |
| | 2012 | | 2011 || Change | | 2012 | | 2011 | | Change |
| | (unaudited) |
| | (In $ millions) |
| Statement of Operations Data | | | | | | || | | | | | | | |
| | | | | | | |
| Net sales | 1,609 | | | 1,807 | | | (198 | ) | | 4,917 | | | 5,149 | | | (232 | ) |
| Net sales | 1,605 | | | 1,633 | | | (28 | ) |
| | | | | | | | | |
| Gross profit | 324 | | | 401 | | | (77 | ) | | 925 | || 1,162 | | | (237 | ) |
| Gross profit | 333 | | | 274 | | | 59 | |
| | | | | | | | | |
| Selling, general and administrative expenses | (121 | ) | | (140 | ) | | 19 | | | (379 | ) | | (408 | ) | | 29 | |(106 | ) | | (126 | ) | | 20 | |
| | | | | | | | | |
| Other (charges) gains, net | (4 | ) | | - | | | (4 | ) |
| | | | | | | | | | | | | | | | | ||
| Operating profit (loss) | 163 | | | 196 | | | (33 | ) | | 425 | | |593 | | | (168 | ) |
| Operating profit (loss) | 184 | | | 111 | | | 73 | |
| | | | | | | | | |
| Equity in net earnings of affiliates | 50 | | | 57 | | | (7 | ) | | 163 | | | 146 54 | | | 51 | | | 3 | |
| | | | | | | | | || | | | | | | | |
| Interest expense | (44 | ) | | (54 | ) | | 10 | | | (134 | ) | | (166 | Interest expense | (43 | ) | | (45 | ) | | 2 | |
| | | | | | | | | | | | | | | | | | |
| Dividend income - cost investments | 1 | | | 1 | | | - | | | 85 | | | 80 | | | 5 | |24 | | | - | | | 24 | |
| | | | | | | | | | | | | | | | | | |
| Earnings (loss) from continuing operations before tax | 173 | | | 201 | | | (28 | ) | | 544 | | |661 | | | (117 | ) |218 | | | 120 | | | 98 | |
| | | | | | | | | |
| Amounts attributable to Celanese Corporation | | | | | | | | |
| | | | | | | | | | | | | | || | | |
| | | | | | | | | |
| Earnings (loss) from continuing operations | 119 | | | 167 | | | (48 | ) || 512 | | | 510 | | | 2 | |141 | | | 193 | | | (52 | ) |
| | | | | | | | | | | | | | | | | | |
| Earnings (loss) from discontinued operations | (2 | ) | | - | | | (2 | ) | | (2 | ) | | 2 | | |(4 | ) |1 | | | - | | | 1 | |
| | | | | | | | | |
| Net earnings (loss) | 117 | | | 167 | | | (50 | ) | | 510 | | | 512 | | | (2 | ) |
| Net earnings (loss) | 142 | | | 193 | | | (51 | ) |
| | | | | | | | | | | || | | | | | |
| Other Data | | | | | | | |
| | | | | | | | |
| Depreciation and amortization | 78 | | | 77 | | | 1 | | | 227 | | | 221 76 | | | 74 | | | 2 | |
| | | | | | | | | | | | | | | | | | |
| Operating margin (1) | 10.1 | % | | 10.8 | % | | | | | 8.6 | % | | 11.5 | % | | | |
| Operating margin (1) | 11.5 | % | | 6.8 | % | | | |
| | | | | | | | | |
| Other (charges) gains, net | | | | | |
| Employee termination benefits | (2 | ) | | (5 | ) | | 4 | | | (2 | ) || (18 | ) | | 16 | |- | | | (2 | ) |
| | | | | | | | | |
| Kelsterbach plant relocation | (3 | ) | | (14 | ) | | 11 | | | (5 | ) | | (43 | ) | | 38 | |
| | | | | | | | | | | | | | | | | | |
| Plumbing actions | 4 | | | 2 | | | 2 | | | 4 | | | 6 | | | (2 | ) |
| | | | | | | | | | | | | | | | | | |
| - | | | (2 | ) |
| Commercial disputes | 2 | | | (7 | ) | | 9 | | | 2 | | | 15 | | | (13 | ) |
| | | | | | | | | | | | | | | | | | |
| Other | - | | | - | | | - | | | - | | | 1 | | | (1 | ) |
| | | | | | | | | |
| Total other (charges) gains, net | 2 | | | (24 | ) | | 26 | | | (1 | ) | | (39 | ) || 38 | |(4 | ) | | - | | | (4 | ) |
| | | | | | | | | | | | | | | | | | |
______________________________
(1) Defined as operating profit (loss) divided by net sales.
43
| |
| | | | | | |
| | As of | | As of |
| | March 31, | | December 31, |
| | 2013 | | 2012 |
| | (unaudited) |
| | (In $ millions) |
| Balance Sheet Data | | | | | |
| | | | | | |
| Cash and cash equivalents | 978 | | | 959 | |
| | | | | | |
| | | | |
| Short-term borrowings and current installments of long-term debt - third party and affiliates | 112 | | | 168 | |
| | | | | | |
| Long-term debt | 2,839 | | | 2,873 | |
| Long-term debt | 2,959 | | | 2,930 | |
| | | | | | |
| Total debt | 3,071 | | | 3,098 | |
| | | | | | |
44
Selected Data by Business Segment
| |
| | | | | | | | | || | | | | | | | |
| | Three Months Ended | | | | Nine Months Ended | | |
| | September 30, | | || September 30, | | |
| | March 31, | | |
| | 2013 | | 2012 | | Change |
| | | | As Adjusted | | |
| | 2012 | | 2011 || Change | | 2012 | | 2011 | | Change |
| | (unaudited) |
| | (In $ millions, except percentages) |
| Net Sales | | | | | | | | |
| | | | | | | | | | | || | | | |
| Advanced Engineered Materials | 322 | | | 332 | | | (10 | ) | | 962 | | | 1,006 | | | (44 | ) |329 | | | 317 | | | 12 | |
| | | | | | | | | |
| Consumer Specialties | 314 | | | 298 | | | 16 | | | 905 | | | 855 | | | 50 | |
| Consumer Specialties | 295 | | | 264 | | | 31 | |
| | | | | | | | | | | | | | | | | | |
| Industrial Specialties | 297 | | | 332 | | | (35 | ) | | 933 | | | 951 | | | (18 | ) |
| Industrial Specialties | 288 | | | 309 | | | (21 | ) |
| | | | | | | | | |
| Acetyl Intermediates | 785 | | | 975 | | | (190 | ) | | 2,458 | | | 2,702 | | | (244 | ) |
| Acetyl Intermediates | 808 | | | 852 | | | (44 | ) |
| | | | | | | | | |
| Other Activities | - | | | - | | | - | || - | | | 1 | | | (1 | ) |
| | | | | | | | | |
| Inter-segment eliminations | (109 | ) | | (130 | ) | | 21 | | | (341 | ) || (366 | ) | | 25 | |
| Inter-segment eliminations | (115 | ) | | (109 | ) | | (6 | ) |
| | | | | | | | | | | | | | | | | | |
| Total | 1,609 | | | 1,807 | | | (198 | ) | | 4,917 | | | 5,149 | | | (232 | ) |
| Total | 1,605 | | | 1,633 | | | (28 | ) |
| | | | | | | | | |
| Other (Charges) Gains, Net | | | | | | | | |
| | | | | | | | | |
| Advanced Engineered Materials | (2 | ) | | - | | | (2 | ) |
| | | | | | | | | | || | | | | | | |
| Consumer Specialties | (1 | ) | | 2 | | | (3 | ) | | 2 | Consumer Specialties | - | | | (1 | ) | | 1 | |
| | | | | | | | | |
| Industrial Specialties | - | | | - | | | - | | | - | | | - | | | - | |
| Industrial Specialties | (1 | ) | | - | | | (1 | ) |
| | | | | | | | | |
| Acetyl Intermediates | 1 | | | (5 | ) | | 6 | | | 2 | | | 15 | | | (13 | ) |
| Acetyl Intermediates | (1 | ) | | - | | | (1 | ) |
| | | | | | | | | |
| Other Activities | - | | | (8 | ) | | 9 | | | (4 | ) | | (10 | ) || 6 | |1 | | | (1 | ) |
| | | | | | | | | |
| Total | (4 | ) | | - | | | (4 | ) |
| | | | | | | | | |
| Operating Profit (Loss) | | | | | | | | |
| | | | | | | | | |
| Advanced Engineered Materials | 36 | | | 14 | | | 29 | | | 85 | | | 79 | | | 6 | |24 | | | 12 | |
| | | | | | | | | |
| Consumer Specialties | 70 | | | 66 | | | 4 | | | 184 | | | 168 | Consumer Specialties | 78 | | | 40 | | | 38 | |
| | | | | | | | | |
| Industrial Specialties | 15 | | | 20 | | | (5 | ) |
| | | | | | | | | |
| Acetyl Intermediates | 62 | | | 128 | | | (66 | ) | | 199 | | | 392 | | |(193 | ) |
| Acetyl Intermediates | 75 | | | 62 | | | 13 | |
| | | | | | | | | |
| Other Activities | (35 | ) | | (42 | ) | | 7 | | | (119 | ) | | (129 | ) | | 10 | |
| Other Activities | (20 | ) | | (35 | ) | | 15 | |
| | | | | | | | | |
| Total | 163 | | | 196 | | | (33 | ) | | 425 | | | 593 | | | (168 | ) |
| Total | 184 | | | 111 | | | 73 | |
| | | | | | | | | | | || | | | | | |
| Earnings (Loss) From Continuing Operations Before Tax | | | | | | | | |
| | | | | | | | | |
| Advanced Engineered Materials | 76 | | | 67 | | | 9 | |
| | | | | | | | | |
| Consumer Specialties | 70 | | | 66 | | | 4 | | | 269 | | | 248 | Consumer Specialties | 104 | | | 41 | | | 63 | |
| | | | | | | | | |
| Industrial Specialties | 15 | | | 20 | | | (5 | ) |
| | | | | | | | | |
| Acetyl Intermediates | 64 | | | 131 | | | (67 | ) | | 204 | | | 399 | | | (195 | ) |
| Acetyl Intermediates | 78 | | | 63 | | | 15 | |
| | | | | | | | | |
| Other Activities | (72 | ) | | (94 | ) | | 22 | | | (233 | ) | | (276 | ) | | 43 | |
| Other Activities | (55 | ) | | (71 | ) | | 16 | |
| | | | | | | | | |
| Total | 173 | | | 201 | | | (28 | ) | | 544 | | | 661 | | | (117 | ) |
| Total | 218 | | | 120 | | | 98 | |
| | | | | | | | | |
| Depreciation and Amortization | | | | | | | | |
| | | | | | | | | |
| Advanced Engineered Materials | 29 | | | 27 | | | 2 | || 84 | | | 68 | | | 16 | |
| | | | | | | | | |
| Consumer Specialties | 10 | | | 9 | | | 1 | |
| | | | | | | | | |
| Industrial Specialties | 13 | | | 12 | | | 15 | | | (3 | ) |
| | | | | | | | | |
| Acetyl Intermediates | 20 | | | 25 | | | (5 | ) | | 59 | Acetyl Intermediates | 21 | | | 20 | | | 1 | |
| | | | | | | | | | | || | | | | | |
| Other Activities | 3 | | | 4 | | | (1 | ) | | 10 | | | 10 | | | - | |
| Other Activities | 4 | | | 3 | | | 1 | |
| | | | | | | | | |
| Total | 78 | | | 77 | | | 1 | | | 227 | | | 221 | | | 6 | |
| Total | 76 | | | 74 | | | 2 | |
| | | | | | | | | | | || | | | | | |
| Operating Margin | | | | | | | | | | | | | | | | | |
| | | | | | | | | || | | | | | | | |
| Advanced Engineered Materials | 13.4 | % | | 4.2 | % | | || 8.8 | % | | 7.9 | % | | | |10.9 | % | | 7.6 | % | | |
| | | | | | | | |
| Consumer Specialties | 22.3 | % | | 22.1 | % | | | | 20.3 | % | | 19.6 | Consumer Specialties | 26.4 | % | | 15.2 | % | | ||
| | | | | | | | | | | | | | | | | |
| Industrial Specialties | 7.7 | % | | 9.0 | % | | || 8.1 | % | | 8.7 | % | | | |
| Industrial Specialties | 5.2 | % | | 6.5 | % | | |
| | | | | | | | |
| Acetyl Intermediates | 7.9 | % | | 13.1 | % | | | | 8.1 | % | | 14.5 | % | | | |
| Acetyl Intermediates | 9.3 | % | | 7.3 | % | | |
| | | | | | | | |
| Total | 10.1 | % | | 10.8 | % | | | | 8.6 | % | | 11.5 | % | | | |
| Total | 11.5 | % | | 6.8 | % | | |
| | | | | | | | |
45
Factors Affecting Business Segment Net Sales
The percentage increase (decrease) in net sales attributable to each of the factors indicated for each of our business segments is as follows:
Three Months Ended September 30, 2012 Compared to Three Months Ended September 30, 2011
Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012
| |
| | | | | | | | | | | | | | |
| | Volume | | Price | | Currency | | Other | | Total |
| | (unaudited) |
| | (In percentages) |
| Advanced Engineered Materials | - | | | 4 | | | - | | - | | 4 | |
| | | | | | | | | | | | | | |
| Consumer Specialties | - | | | 6 | | | (1 | ) | Consumer Specialties | 5 | | | 7 | | | - | | - | | 12 | |
| | | | | | | | | | | | | ||
| Industrial Specialties | 2 | | | (8 | ) | | (5 | ) | Industrial Specialties | (3 | ) | | (4 | ) | | - | | - | | (7 | ) |
| | | | | | | | | | | | | | |
| Acetyl Intermediates | (4 | ) | | (1 | ) | | - | | - | | (5 | ) |
| Total Company | (2 | ) | | (6 | ) | | (4 | ) | | 1 | | (11 | ) |
Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011
| |
| | | | | | | | | | | | | | |
| | Volume | | Price | | Currency | | Other | | Total |
| | (unaudited) |
| | (In percentages) |
| Advanced Engineered Materials | (3 | ) | | 3 | | | (4 | ) | | - | | (4 | ) |
- | | | - | | - | | (2 | ) |
| | | | | | | | | | | | | | |
| Consumer Specialties | - | | | 7 | | | (1 | ) | | - | | 6 | |
| | | | | | | | | | | | | | |
| Industrial Specialties | 4 | | | (2 | ) | | (4 | ) | | - | | (2 | ) |
| | | | | | | | | | | | | ||
| Acetyl Intermediates | 2 | | | (8 | ) | | (3 | ) | | - | | (9 | ) |
| | | | | | | | | | | | | | |
| Total Company | 1 | | | (3 | ) | | (3 | ) | | - | | (5 | ) |
| | | | | | | | | | | | | | |
48
Consolidated Results - Three and Nine Months Ended September 30, 2012 Compared with Three and Nine Months Ended September 30, 2011
Consolidated Results - Three Months Ended March 31, 2013 Compared with Three Months Ended March 31, 2012
Three Months Ended September 30, 2012Compared with Three Months Ended September 30, 2011
Net sales decreased $28 million during the three months ended March 31, 2013 compared to the same period in 2012 primarily due to lower pricing and volumes in our Acetyl Intermediates segment and unfavorable currency impacts across all our segments, due to the stronger dollar against the Euro and the Renminbi. Acetic acid pricing declined significantly compared to 2011 as a result of temporary planned and unplanned production outages across the industry during the three months ended September 30, 2011 which did not occur in 2012. In 2012 softer global demand for acetyl products and derivatives, due to the unfavorable economic conditions in Europe and Asia, and generally lower raw material prices contributed to the decrease in pricing and lower volumes. volumes and lower pricing in our Acetyl Intermediates and Industrial Specialties segments, partially offset by higher pricing and volumes in our Consumer Specialties segment and higher pricing in our Advanced Engineered Materials segment. Consumer Specialties' net sales increased compared to the prior year period, reflecting higher pricing across all regions for Acetate Products due to continued strong demand for Consumer Specialties value-added applications.and the absence of the temporary production outage that occurred in 2012 at our Narrows, Virginia site that shifted sales later into the year. Our Acetyl Intermediates and Industrial Specialties businesses' volumes decreased as a result of lower global demand and continued weak economic conditions in Europe.
Operating profit decreased $33 million , or 17% , primarily due to lower pricing in our Acetyl Intermediates segment. Lower raw material costs and lower expenses recorded to other (charges) gains, net, in our other segments were not sufficient to offset the decline in operating profit in our Acetyl Intermediates segment. Operating profit increased $73 million , or 66% . Lower raw material costs were a key factor, with ethylene, methanol and carbon monoxide being the key drivers. The increase in operating profit was also a result of lower plant expenses reflecting the cessation of acetate flake and tow production at our Spondon, Derby, United Kingdom facility in November 2012, the absence of the temporary production outage that occurred in 2012 at our Narrows, Virginia site and the benefits of productivity and efficiency initiatives. Selling, general and administrative expenses were also down $20 million primarily due to an $8 million decrease in costs associated with business optimization initiatives and executive compensation and lower pension and other postretirement benefit expenses of $11 million, which are included in Other Activities. As a percentage of net sales, selling, general and administrative expenses decreased from 7.7% to 6.6% for the three months ended March 31, 2013 as compared to the same period in 2012 .
Other (charges) gains, net changed $4 million during the three months ended March 31, 2013 compared to the same period in 2012 primarily due to $2 million in costs associated with the relocation of our polyoxymethylene, also commonly known as polyacetal ("POM"), operations in Germany, which is included in our Advanced Engineered Materials segment, as well as a reduction in commercial dispute costs of $9 million . of the reduction in commercial dispute costs during the three months ended September 30, 2012 , $5 million is attributable to our Acetyl Intermediates segment and $4 million to Other Activities.$2 million of employee termination benefits related to a business optimization project, which is included in our Industrial Specialties and Acetyl Intermediates segments.
Our effective income tax rate for the three months ended September 30, 2012 was 31% compared to 17% for the three months ended September 30, 2011 primarily due to changes in uncertain tax positions and increases in losses in jurisdictions not providing tax benefits
Nine Months Ended September 30, 2012 Compared with Nine Months Ended September 30, 2011
Net sales decreased $232 million during the nine months ended September 30, 2012 compared to the same period in 2011 primarily due to lower pricing in our Acetyl Intermediates segment and unfavorable currency impacts across all our segments. Acetic acid pricing declined significantly during the nine months ended September 30, 2012 compared to the same period in 2011 as a result of temporary planned and unplanned production outages across the industry during the nine months ended September 30, 2011 which did not occur in 2012, as well as unfavorable economic conditions in Europe and Asia. our Advanced Engineered Materials segment was also impacted by lower demand in Europe and Asia, partially offset by higher demand for automotive applications in North America. Volumes were up for our Acetyl Intermediates and Industrial Specialties segments.but were not sufficient to offset lower pricing and unfavorable currency impacts. Consumer Specialties net sales increased $ 50 million during the nine months ended September 30, 2012 compared to the same period in 2011 , reflecting demand for value-added applications.
Dividend income from cost investments increased $24 million over the same period in 2012 due to the timing of the dividend payments from our China Acetate ventures. Historically, our China Acetate ventures paid a lump sum cash dividend during the three months ended June 30 each year, while in 2013 dividends are expected to be paid quarterly.
Operating profit decreased $168 million or 28% during the nine months ended September 30, 2012 compared to the same period in 2011 primarily due to the lower pricing in our Acetyl Intermediates segment and volatility in ethylene prices, impacting raw material costs. As a percentage of net sales, selling, general and administrative expenses decreased from 7.9% to 7.7% for the nine months ended September 30 2012 as compared to the same period in 2011 primarily due to a decrease of $15 million in selling, general and administrative expenses in Other Activities.
Other (charges) gains, net increased $38 million for the nine months ended September 30, 2012 as compared to the same period in 2011 . During the nine months ended September 30, 2012 and 2011, we recorded $5 million and $43 million , respectively, of expenses related to The relocation of our POM operations in Germany. During the nine months ended September 30, 2012 , we recorded no significant employee termination costs as compared to the same period in 2011. See Note 13, Other (Charges) Gains, Net , in the accompanying unaudited interim consolidated financial statements for further information. in 2011 , we received consideration of $17 million in connection with the settlement of a claim against a bankrupt supplier. In addition, we recovered an additional $4 million from the settlement of an unrelated commercial dispute, which were both recorded in our Acetyl Intermediates segment. No such settlements occurred In the nine months ended September 30, 2012 .
Our effective income tax rate for the three months ended March 31, 2013 was 35% compared to (61)% for the three months ended March 31, 2012 . The higher effective tax rate for the three months ended March 31, 2013 is attributable to losses in jurisdictions without tax benefit, increased earnings in high income tax jurisdictions and changes regarding the recoverability of deferred tax assets in certain jurisdictions. In 2012
49
Our effective income tax rate for the nine months ended September 30, 2012 was 6% compared to 23% for the nine months ended September 30, 2011 . the lower effective tax rate is primarily due to foreign tax credit carryforwards of $142 million recognized during the three months ended March 31, 2012, partially offset by $38 million of partially offset by deferred tax charges related to changes in our assessment regarding the permanent reinvestment of certain foreign earnings.from our Polyplastics Co., Ltd affiliate.
46
Business Segments - Three and Nine Months Ended September 30, 2012 Compared with Three and Nine Months Ended September 30, 2011
Business Segments - Three Months Ended March 31, 2013 Compared with Three Months Ended March 31, 2012
Advanced Engineered Materials
| |
| | | | | | | | | |
| | Three Months Ended | | | | Nine Months Ended | | |
| | September 30, | | | | September 30, | | |
| | March 31, | | |
| | 2012 | | 2011 | | Change || 2012 | | 2011 | | Change |
| | 2013 | | 2012 | | Change |
| | | | As Adjusted | | |
| | (unaudited) |
| | (In $ millions, except percentages) |
| Net sales | 322 | | | 332 | | | (10 | ) | | 962 | | | 1,006 | | | (44 | ) |
| Net sales | 329 | | | 317 | | | 12 | |
| | | | | | | | | |
| Net sales variance | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Volume | (1 | )% | | | | | | | | (3 | )% | | | | | | |
| Volume | - | % | | | | | | |
| | | | | | | | | |
| Price | 3 | % | | | | | | | | 3 | % | | | | | | |
| Price | 4 | % | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Currency | (5 | )% | | | | | | | | (4 | )% | | | | | | |
| Currency | - | % | | | | | | |
| | | | | | | | | || | | | | | | | |
| Other | - | % | | | | | | || - | % | | | | | | |
| | | | | | | | | |
| Other (charges) gains, net | (2 | ) | | - | | | (2 | ) |
| | | | | | | | | |
| Operating profit (loss) | 43 | | | 14 | | | 29 | | | 85 | Operating profit (loss) | 36 | | | 24 | | | 12 | |
| | | | | | | | | | | || | | | | | |
| Operating margin | 13.4 | % | | 4.2 | % | | | | | 8.8 | % | | 7.9 | % | | | |
| Operating margin | 10.9 | % | | 7.6 | % | | | |
| | | | | | | | | |
| Equity in net earnings (loss) of affiliates | 40 | | | 43 | | | (3 | ) |
| | | | | | | | | | | || | | | | | |
| Earnings (loss) from continuing operations before tax | 76 | | | 67 | | | 9 | |
| | | | | | | | | || | | | | | | | |
| Depreciation and amortization | 29 | | | 27 | | | 2 | || 84 | | | 68 | | | 16 | |
| | | | | | | | | | | | | | | | | | |
Our Advanced Engineered Materials segment develops, produces and supplies a broad offering of high performance specialty polymers for application in automotive, medical and electronics products, as well as other consumer and industrial applications. Together with our strategic affiliates, our Advanced Engineered Materials segment is a leading participant in the global specialty polymers industry.Advanced Engineered Materials products are used for a broad range of applications including automotive components, medical devices, electrical and electronics, appliances, battery separators, conveyor belts, filtration equipment, coatings and industrial applications.
Three Months Ended September 30, 2012 Compared with Three Months Ended September 30, 2011
Advanced Engineered Materials' net sales increased $12 million for the three months ended September 30, 2012 compared to the same period in 2011 due to lower demand in Europe, partially offset by higher volumes for almost all product lines in North America and Asia The weak Euro resulted in a significant unfavorable currency impact on net sales, partially offset by higher pricing across almost all product lines.March 31, 2013 compared to the same period in 2012 primarily due to higher pricing across all product lines with global product mix, mainly medical applications, being a key factor. Overall volumes remained flat, with volumes increasing slightly in the Americas driven by improvements in the auto industry and in Asia in line with growth in the region, offset by lower volumes in Europe due to the continued weak economic conditions and lower year-over-year automotive builds.
Operating profit increased $12 million for the three months ended September 30, 2012 compared to the same period in 2011 . The change in operating profit was mainly driven by an increase in other (charges) gains, net, as a result of lower costs of $14 million associated with our POM production facility in Frankfurt Hoechst Industrial Park, Germany which began operations during the three months ended September 30, 2011. higher pricing, and lower variable costs, as compared to the same period in 2011 contributed an additional $16 million to the increase in operating profit.March 31, 2013 compared to the same period in 2012 primarily due to higher pricing, lower raw material costs, mainly ethylene, methanol and polypropylene, and other expenses, partially offset by higher energy costs.
Earnings (loss) from continuing operations before tax increased $9 million for the three months ended March 31, 2013 compared to the same period in 2012 , reflecting the increase in operating profit, partially offset by a decrease in equity in net earnings of affiliates of $ 3 million . Net earnings of affiliates decreased primarily due to lower earnings from our Ibn Sina affiliate.driven by lower methyl tertiary-butyl ether ("MTBE") pricing.Polyplastics Company Ltd. strategic affiliate.
Nine Months Ended September 30, 2012 Compared with Nine Months Ended September 30, 2011
Advanced Engineered Materials' net sales decreased $44 million for the nine months ended September 30, 2012 compared to
50
the same period in 2011 primarily due to lower demand for industrial and consumer goods applications, particularly in Europe and Asia, partially offset by higher volumes related to automotive applications in North America and Asia. The weak Euro had a significant unfavorable currency impact on net sales. Higher pricing across almost all product lines partially offset the lower volumes and unfavorable currency impact.
Operating profit increased $6 million for the nine months ended September 30, 2012 compared to the same period in 2011 as lower relocation expenses more than offset higher operating expenses. Higher depreciation of $16 million , primarily associated with the opening of our POM production facility in Frankfurt Hoechst Industrial Park, Germany during the three months ended September 30, 2011 and higher expenses of $17 million, primarily related to plant maintenance, integrating manufacturing operations from recently acquired product lines and investing in our compounding operations in Asia, were more than offset by a decrease in relocation expenses of $38 million associated with our Frankfurt Hoechst Industrial Park POM operations included in other (charges) gains, net during the nine months ended September 30, 2012 as compared to the prior year period.
Earnings (loss) from continuing operations before tax increased $22 million for the nine months ended September 30, 2012 compared to the same period in 2011 due to an $18 million increase in equity in net earnings of affiliates driven by higher pricing of methanol and MTBE in our Ibn Sina affiliate.
47
Consumer Specialties
| |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | || Nine Months Ended | | |
| | September 30, | | || September 30, | | |
| | March 31, | | |
| | 2013 | | 2012 | | Change |
| | | | As Adjusted | | |
| | 2012 | | 2011 || Change | | 2012 | | 2011 | |Change |
| | (unaudited) |
| | (In $ millions, except percentages) |
| Net sales | 314 | | | 298 | | | 16 | | | 905 | | | 855 | | | 50 | |
| Net sales | 295 | | | 264 | | | 31 | |
| | | | | | | | | |
| Net sales variance | | | | | | | | |
| | | | | | | | | |
| Volume | - | % | | | | | | | | - | % | | | | | | |
| Volume | 5 | % | | | | | | |
| | | | | | | | | |
| Price | 6 | % | | | | | | | | 7 | % | | | | | | |
| | | | | | | | | || | | | | | | | |
| Currency | (1 | )% | | | | | | | | (1 | )% | | | | | | |
| Currency | - | % | | | | | | |
| | | | | | | | | |
| Other | - | % | | | | | | || - | % | | | | | | |
| | | | | | | | | |
| Other (charges) gains, net | (1 | ) | | 2 | | | (3 | ) | | 2 | Other (charges) gains, net | - | | | (1 | ) | | 1 | |
| | | | | | | | | |
| Operating profit (loss) | 78 | | | 40 | | | 38 | |
| | | | | | | | | |
| Operating margin | 22.3 | % | | 22.1 | % | | | | | 20.3 | % | | 19.6 | % | | | |
| Operating margin | 26.4 | % | | 15.2 | % | | | |
| | | | | | | | | |
| Equity in net earnings (loss) of affiliates | 2 | | | 1 | | | 1 | |
| | | | | | | | | |
| Dividend income - cost investments | 24 | | | - | | | 24 | |
| | | | | | | | | |
| Earnings (loss) from continuing operations before tax | 70 | | | 66 | | | 4 | | | 269 | | | 248 | | | 21 | |104 | | | 41 | | | 63 | |
| | | | | | | | | |
| Depreciation and amortization | 10 | | | 9 | | | 1 | |
| | | | | | | | | |
Our Consumer Specialties segment consists of our Acetate Products and Nutrinova businesses, which serve consumer-driven applications. Our Acetate Products business is a leading producer and supplier of cellulose acetate flake, film and tow, primarily used in filter products applications. Our Nutrinova business is a leading international supplier of premium quality ingredients for the food, beverage and pharmaceuticals industries.
Three Months Ended September 30, 2012 Compared with Three Months Ended September 30, 2011
Net sales for Consumer Specialties increased $31 million for the three months ended March 31, 2013 as compared to the same period in 2012 primarily due to higher pricing and volumes in our Acetate Products business. With continued strong demand, in both the Acetate Products and Nutrinova businesses. pricing increased 8% across all regions for Acetate Products Higher volumes in Acetate Products were offset by lower Nutrinova volumes.while volumes increased 6%, primarily due to the timing of sales in 2013 compared to 2012, with the largest impact in Europe. Acetate Products volumes for the three months ended March 31, 2012 were impacted by a temporary production interruption at our Narrows, Virginia Acetate Products facility, shifting volume to later in the year.
Operating profit increased $4 million for the three months ended September 30, 2012 , primarily due to the increase in pricing partially offset by a $9 million increase in energy costs, plant maintenance and innovation project costs.
Depreciation and amortization increased $4 million during the three months ended September 30, 2012 as compared to the same period in 2011, primarily due to accelerated depreciation related to additional maintenance-related capital expenditures at our Spondon facility, which will close during the three months ending December 31, 2012,
51
Nine Months Ended September 30, 2012 Compared with Nine Months Ended September 30, 2011
Net sales for Consumer Specialties increased $50 million for the nine months ended September 30, 2012 as compared to the same period in 2011 due to higher pricing in both the Acetate Products and Nutrinova businesses. Pricing increased across all regions for the Acetate Products business. Nutrinova pricing increased primarily due to stronger demand in response to unplanned industry capacity constraints in China. Higher volumes in the Acetate Products business were offset by lower Nutrinova volumes.
Operating profit increased $38 million for the nine months ended September 30, 2012 as compared to the same period in 2011 as higher Acetate Products' pricing more than offset higher raw material and energy costs of $11 million, and $11 million, respectively. Plant maintenance costs also increased $22 million as compared to the same period in 2011, including $10 million related to a production outage during the three months ended March 31, 2012.three months ended March 31, 2013 primarily due to the increase in pricing and lower spending on plant costs of $16 million, with the absence of the temporary production outage that occurred in 2012 at our Narrows, Virginia site and the cessation of production of acetate flake and tow at our Spondon, Derby, United Kingdom facility in November 2012.
Earnings (loss) from continuing operations before tax for the nine months ended September 30, 2012 includes an increase of $5 million as compared to the same period in 2011, related to dividends received Dividend income from cost investments increased $24 million over the same period in 2012 due to the timing of the dividend payments from our China Acetate ventures. Dividends from the China Acetate ventures are typically received in the second quarter each year.In the prior year, our China Acetate ventures paid a lump sum $83 million dividend during the three months ended June 30, 2012, while in 2013 dividends are expected to be paid quarterly.
48
Industrial Specialties
| |
| | | | | | | | | |
| | Three Months Ended | | || Nine Months Ended | | |
| | September 30, | | | | September 30, || |
| | 2012 | | 2011 || Change | | 2012 | | 2011 | | Change |
| | March 31, | | |
| | 2013 | | 2012 | | Change |
| | | | As Adjusted | | |
| | (unaudited) |
| | (In $ millions, except percentages) |
| Net sales | 297 | | | 332 | | | (35 | ) | | 933 | | | 951 | | | (18 | ) |
| Net sales | 288 | | | 309 | | | (21 | ) |
| | | | | | | | | |
| Net sales variance | | | | | | | | | | | | | | | | | |
| | | | | | | | | || | | | | | | | |
| Volume | 2 | % | | | | | | | | 4 | % | | | | | | |
| Volume | (3 | )% | | | | | | |
| | | | | | | | | |
| Price | (8 | )% | | | | | | | | (2 | )% | | | | | | |
| Price | (4 | )% | | | | | | |
| | | | | | | | | || | | | | | | | |
| Currency | (5 | )% | | | | | | | | (4 | )% | | | | | | |
| Currency | - | % | | | | | | |
| | | | | | | | | |
| Other | - | % | | | | | | || - | % | | | | | | |
| | | | | | | | | |
| Other (charges) gains, net | - | | | - | | | - | | | - | | | - | | | - | |
| Other (charges) gains, net | (1 | ) | | - | | | (1 | ) |
| | | | | | | | | |
| Operating profit (loss) | 15 | | | 20 | | | (5 | ) |
| | | | | | | | | |
| Operating margin | 7.7 | % | | 9.0 | % | | | | | 8.1 | % | | 8.7 | % | | | |
| Operating margin | 5.2 | % | | 6.5 | % | | | |
| | | | | | | | | |
| Earnings (loss) from continuing operations before tax | 15 | | | 20 | | | (5 | ) |
| | | | | | | | | || | | | | | | | |
| Depreciation and amortization | 13 | | | 12 | | | 15 | | | (3 | ) |
| | | | | | | | | |
Our Industrial Specialties segment includes our Emulsions and EVA Performance Polymers businesses. Our Emulsions business is a leading global producer of vinyl acetate-based emulsions and develops products and application technologies to improve performance, create value and drive innovation in applications such as paints and coatings, adhesives, construction, glass fiber, textiles and paper. EVA Performance Polymers is a leading North American manufacturer of a full range 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 products, automotive, carpeting and photovoltaic cells.
Three Months Ended September 30, 2012 Compared with Three Months Ended September 30, 2011
Net sales decreased $21 million for the three months ended September 30, 2012 compared to the same period in 2011 . volumes were up for both Emulsions and EVA Performance Polymers during the three months ended September 30, 2012 compared to the same period in 2011 but were not sufficient to offset lower pricing. and unfavorable currency impacts due to the stronger dollar against the Euro and Renminbi. Volumes for Emulsions increased 3% overall, primarily due to strong demand in North America and Asia Pacific, including sales of our recently acquired product lines, Vinac ® and Flexbond ® , our recent China Emulsions facility expansion and sales of innovative applications, partially offset by lower demand in the European region due to the weak economy. Emulsions product pricing was down in all regions. Lower pricing for EVA Performance Polymers reflects a decline in end-use demand in the North America and Asia.March 31, 2013 compared to the same period in 2012 reflecting both lower volumes and lower pricing. Volumes were down primarily in our Emulsions business driven by lower demand in North America and Europe, particularly for paper, paint and coating products, as a result of both weak economic conditions and the prolonged winter season in Europe. Pricing declined in our Emulsions business as a result of lower raw material costs, primarily ethylene, while pricing declined in our EVA Performance Polymers business with lower demand being the key driver.
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Operating profit decreased $7 million for the three months ended September 30, 2012 compared to the same period in 2011 . Slightly higher volumes and lower variable costs of $32 million, of which $22 million related to raw materials, primarily ethylene and vinyl acetate monomer ("VAM"), were not sufficient to offset the lower pricing for EVA Performance Polymers applications.
Nine Months Ended September 30, 2012 Compared with Nine Months Ended September 30, 2011
Net sales decreased $18 million for the nine months ended September 30, 2012 compared to the same period in 2011 . Volumes were up for both Emulsions and EVA Performance Polymers during the nine months ended September 30, 2012 compared to the same period in 2011, but were more than offset by lower Pricing and unfavorable currency impacts due to the stronger dollar against the Euro and Renminbi. Volumes increased 4% overall for Emulsions primarily due to strong demand in North America and Asia Pacific, including sales of our recently acquired product lines, Vinac ® and Flexbond ® , our recent China Emulsions facility expansion and sales of innovative applications, partially offset by lower demand in the European region due to a weak economy. Lower pricing for EVA Performance Polymers reflects weaker demand in North America and slower Asia sales.
Operating profit decreased $5 million for the three months ended March 31, 2013 compared to the same period in 2012 primarily due to lower pricing driven by current economic conditions. Although raw material costs decreased compared to the same period in 2011, Lower pricing and higher depreciation and amortization more than offset these savings. Depreciation and amortization increased $7 million due to accelerated depreciation related to efficiency initiatives at our EVA Performance Polymers production facility in Edmonton, Alberta, Canada, as well as increased amortization in Emulsions related to the recent acquisition of finite-lived intangible assets and increased depreciation related to the China capacity expansion.volumes in our Emulsions business. Lower pricing in both our Emulsions products and our EVA Performance Polymers products was partially offset by lower raw materials of $5 million, primarily ethylene.
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Acetyl Intermediates
| |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | || Nine Months Ended | | |
| | September 30, | | || September 30, | | |
| | March 31, | | |
| | 2013 | | 2012 | | Change |
| | | | As Adjusted | | |
| | 2012 | | 2011 || Change | | 2012 | | 2011 | | Change |
| | (unaudited) |
| | (In $ millions, except percentages) |
| Net sales | 785 | | | 975 | | | (190 | ) | | 2,458 | | | 2,702 | | | (244 | ) |
| Net sales | 808 | | | 852 | | | (44 | ) |
| | | | | | | | | |
| Net sales variance | | | | | | | | |
| | | | | | | | | |
| Volume | (4 | )% | | | | | | | | 2 | % | | | | | | |
| | | | | | | | | |
| Price | (11 | )% | | | | | | | | (8 | )% | | | | | | |
| Price | (1 | )% | | | | | | |
| | | | | | | | | |
| Currency | (3 | )% | | | | | | | | (3 | )% | | | | | | |
| Currency | - | % | | | | | | |
| | | | | | | | | |
| Other | - | % | | | | | | | | - | % | | | | | | |
| | | | | | | | | || | | | | | | | |
| Other (charges) gains, net | 1 | | | (5 | ) | | 6 | | | 2 | | | 15 | | | (13 | ) |
| Other (charges) gains, net | (1 | ) | | - | | | (1 | ) |
| | | | | | | | | |
| Operating profit (loss) | 62 | | | 128 | | | (66 | ) | | 199 | | | 392 | | | (193 | ) |
| Operating profit (loss) | 75 | | | 62 | | | 13 | |
| | | | | | | | | |
| Operating margin | 7.9 | % | | 13.1 | % | | | | | 8.1 | % | | 14.5 | % | | | |
| Operating margin | 9.3 | % | | 7.3 | % | | | |
| | | | | | | | | | | | | | | | | | |
| Equity in net earnings (loss) of affiliates | 3 | | | 1 | | | 2 | |
| | | | | | | | | |
| Earnings (loss) from continuing operations before tax | 78 | | | 131 | | | (67 | ) | | 204 | | |399 | | | (195 | ) |63 | | | 15 | |
| | | | | | | | | |
| Depreciation and amortization | 21 | | | 20 | | | 1 | |
| | | | | | | | | | || | | | | | | |
Our Acetyl Intermediates segment produces and supplies acetyl products, including acetic acid, vinyl acetate monomer ("VAM"), acetic anhydride and acetate esters. These products are generally used as starting materials for colorants, paints, adhesives, coatings and medicines. This business segment also produces organic solvents and intermediates for pharmaceutical, agricultural and chemical products.
Three Months Ended September 30, 2012 Compared with Three Months Ended September 30, 2011
Acetyl Intermediates' net sales decreased $44 million during the three months ended September 30, 2012 compared to the same period in 2011 as a result of lower pricing and lower volumes, due to weak demand in Europe and Asia as well as unfavorable currency impacts. During the three months ended September 30, 2011, planned and unplanned production outages across the industry resulted in temporarily higher pricing Similar industry utilization tightness did not occur in the three months ended September 30, 2012.March 31, 2013 compared to the same period in 2012 as continued challenging economic conditions resulted in lower overall volumes, with volumes down in VAM and other downstream derivatives, and slightly lower pricing across all product lines.
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We do not believe current economic conditions are reflective of the value of our acetyl products or those of certain feedstocks. As a result, we took action beginning in the three months ended March 31, 2012 and temporarily idled our 600,000 ton per year Singapore acetic acid plant. Since then, we have periodically resumed operations of this plant and we continue to assess its status based on economic conditions, demand and feedstock costs.
Operating profit increased $13 million during the three months ended September 30, 2012 compared to the same period in 2011 . The decrease March 31, 2013 compared to the same period in 2012 . The increase in operating profit is primarily due to lower pricing, lower volumes and currency impacts. The negative pricing impact was partially offset by lower raw material costs of $53 million, primarily carbon monoxide, methanol, and ethylene, and lower plant maintenance and distribution costs of $13 million.raw material costs of $25 million, mainly carbon monoxide, ethylene and methanol, and lower fixed costs of $6 million, more than offsetting the impact of lower volumes and pricing.
Other (charges) gains, net increased $6 million, for the three months ended September 30, 2012 primarily due to a reduction in commercial dispute costs of $5 million. Depreciation and amortization decreased $5 million due to certain customer-related intangible assets being fully amortized in 2011.
Nine Months Ended September 30, 2012 Compared with Nine Months Ended September 30, 2011
Acetyl Intermediates' net sales decreased $244 million during the nine months ended September 30, 2012 compared to the same period in 2011 is due to lower pricing and unfavorable currency impacts, partially offset by higher downstream product volumes primarily as a result of higher VAM demand. During the nine months ended September 30, 2011 , temporarily elevated industry utilization due to planned and unplanned outages of acetyl producers resulted in higher industry pricing.Acetic acid pricing has declined during the nine months ended September 30, 2012 compared to the same period in 2011 as a result of unfavorable economic conditions in Europe and Asia.
Operating profit decreased $193 million during the nine months ended September 30, 2012 compared to the same period in 2011 primarily due to lower pricing and currency impacts. The decrease in operating profit was somewhat offset by lower raw material costs of $29 million, primarily carbon monoxide and acetone. Energy costs and plant maintenance and distribution costs were also lower by $13 million and $11 million, respectively, during the nine months ended September 30, 2012 compared to the same period in 2011 .
Other (charges) gains, net decreased $13 million for the nine months ended September 30, 2012 compared to the same period in 2011 . During the nine months ended September 30, 2011, we received consideration of $ 17 million in connection with the settlement of a claim against a bankrupt supplier and $ 4 million for the resolution of a commercial dispute, offset by employee termination benefits of $4 million relating to the closure of our Pardies facility. Depreciation and amortization decreased $16 million mainly due to certain customer-related intangibles being fully amortized in 2011.
Other Activities
Other Activities primarily consists of corporate center costs, including financing and administrative activities such as legal, accounting and treasury functions, interest income and expense associated with our financing and our captive insurance companies.
Three Months Ended September 30, 2012 Compared with Three Months Ended September 30, 2011
Operating loss of $35 million for Other Activities decreased $7 million for the three months ended September 30, 2012 compared to the same period in 2011 , primarily due to a decrease in costs associated with business optimization initiatives, executive compensation and other productivity restructuring expenses, with other (charges) gains, net increasing by $9 million, partially offset by unfavorable currency fluctuations. The increase of $9 million in other (charges) gains net during the three months ended September 30, 2012 is due to the absence of $4 million in commercial dispute costs and a decrease in termination benefit costs of $6 million, related to one of our business optimization initiatives.
Other Activities also includes the components of our net periodic benefit cost (interest cost, expected return on assets and net actuarial gains and losses) for our defined benefit pension plans and other post retirement plans not allocated to our business segments. For further discussion see Note 1 - Description of the Company and Basis of Presentation .
Nine Months Ended September 30, 2012 Compared with Nine Months Ended September 30, 2011
Operating loss of $20 million for Other Activities decreased $15 million for the nine months ended September 30, 2012 compared to the same period in 2011 . Selling, general and administrative expenses were lower by $15 million and other (charges) gains, net were higher by $6 million. Selling, general and administrative expenses were lower primarily due to a three months ended March 31, 2013 compared to the same period in 2012 primarily due to an $8 million decrease in costs associated with business optimization initiatives and executive compensation and lower pension and other postretirement benefit expenses of $11 million, reflecting a favorable change in interest cost and expected return on plan assets.other productivity restructuring related expenses Other (charges) gains, net were higher for the nine months ended September 30, 2012 primarily due to the absence of $4 million, in commercial dispute costs as compared to the same period in 2011. Offsetting these lower costs were captive insurance reserve adjustments of $7 million.
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Liquidity and Capital Resources
Our primary source of liquidity is cash generated from operations, available cash and cash equivalents and dividends from our portfolio of strategic investments. In addition, as of March 31, 2013 we have $50 million available for borrowing under our credit-linked revolving facility and $600 million available under our revolving credit facility to assist , if required, in meeting our working capital needs and other contractual obligations.
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 next twelve months. If our cash flow from operations is insufficient to fund our debt service and other obligations, we may be
50
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 National Emission Standard for Hazardous Air Pollutants for Industrial, Commercial, and Institutional Boilers and Process Heaters ("Boiler MACT") regulations discussed in Item 1A. Risk Factors in our 2012 Form 10-K, we will be required to make significant capital expenditures to comply with stricter emissions requirements for industrial boilers and process heaters at our facilities in the next three to four years. In October 2012, we received approval to proceed with replacing the coal-fired boilers at our Narrows, Virginia site with new, natural gas-fired boilers. Our total investment is estimated at over $150 million . We anticipate construction will begin in the first half of 2013 with completion approximately two years later.
in July 2012 we completed construction of a technology development unit for ethanol production at our facility In Clear Lake, Texas. we also completed construction of a new research and development facility at our Clear Lake site to continue the advancement of our acetyl and TCX ® technologies.
In June 2012, we announced our intent to build a new 1.3 million ton per year methanol plant in Clear Lake, Texas. The unit is expected to start up in mid-2015. We are currently evaluating various strategic alternatives that would allow us to share the off-take and minimize our portion of the capital expenditures of this planned facility.
In January 2011, we signed letters of intent to construct and operate one, and possibly two, industrial ethanol production facilities in China. The potential sites were Nanjing, China at the Nanjing Chemical Industrial Park, and Zhuhai, China at the Gaolan Port Economic Zone. We expect to begin industrial ethanol production within 30 months following project approvals with anticipated initial nameplate capacity of 400,000 tons per year per unit and an initial investment of approximately $300 million per unit.
In June 2011, we announced our plans to modify and enhance our existing integrated acetyl facility at the Nanjing Chemical Industrial Park with our TCX ® advanced technology. In March 2012, we received key government approvals necessary to proceed with our plans to modify and enhance our Nanjing facility. The unit is expected to startup in mid-2013 with a capacity of approximately 275,000 tons per year. We also intend to construct one, and possibly two, additional industrial ethanol complexes in China, following necessary approvals, utilizing Celanese TCX ® ethanol process technology to help supply applications for the growing Asia region.
In April 2010, we announced that, through our strategic affiliate Ibn Sina, we will construct a 50,000 ton POM production facility in Saudi Arabia. Our pro rata share of invested capital in the POM expansion is expected to total approximately $165 million over a five year period which began in late 2010.
As a result of the National Emission Standard for Hazardous Air Pollutants for Industrial, Commercial, and Institutional Boilers and Process Heaters ("Boiler MACT") regulations discussed in Item 1A. Risk Factors in our 2011 Form 10-K, we preliminarily estimate our costs in the US to approximate $150 million in total over the next four years, depending on the timing and requirements of the final rule.
In addition to exit-related costs associated with the closure of the Spondon, Derby, United Kingdom acetate flake and tow manufacturing operations, we expect to incur capital expenditures in certain capacity and efficiency improvements, principally at our Lanaken, Belgium facility, to optimize our global production network.
Total cash outflows for capital expenditures, including the specific projects above, are expected to be in the range of $325 million to $350 million in 2012 , excluding approximately €43 million related to the relocation of our POM plant in Kelsterbach and capacity expansion in Europe. Per the terms of our agreement with the Frankfurt, Germany Airport, we ceased POM operations at our Kelsterbach, Germany facility prior to July 31, 2011 and in September 2011 announced the opening of our new POM production facility in Frankfurt Hoechst Industrial Park, Germany.$375 million to $400 million in 2013 .
In December 2009, we announced plans with China National Tobacco Corporation to expand the acetate flake and tow capacity at the venture's Nantong facility and in 2010 we received formal approval to expand flake and tow capacities, each by 30,000 tons. Our Chinese Acetate ventures fund their operations using operating cash flow. During 2011 and 2010, we made contributions related to the capacity expansion in Nantong of $8 million and $12 million, respectively. We contributed an additional $9 million to the Nantong expansion during the nine months ended September 30, 2012 .
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On a stand-alone basis, Celanese and its immediate 100% owned subsidiary, Celanese US Holdings LLC ("Celanese US"), have no material assets other than the stock of their subsidiaries and no independent external operations of their own. Accordingly, they generally depend on the cash flow of their subsidiaries and their ability to pay dividends and make other distributions to Celanese and Celanese US in order to meet their obligations, including their obligations under its senior credit facilities and its senior notes and to pay dividends on Celanese Series A common stock.
Cash Flows
Cash and cash equivalents increased $19 million to $978 million as of September 30, 2012 as compared to December 31, 2011 . As of September 30, 2012 , $677 March 31, 2013 as compared to December 31, 2012 . As of March 31, 2013 , $652 million of the $978 million of cash and cash equivalents was held by our foreign subsidiaries. If these funds are needed for our operations in the US, we may be required to accrue and pay US taxes to repatriate these funds. Our intent is to permanently reinvest these funds outside of the US, with the possible exception of funds that have been previously subject to US federal and state taxation. Our current plans do not demonstrate a need to repatriate cash held by our foreign subsidiaries in a taxable transaction to fund our US operations.
| | |
| • | Net Cash Provided by Operating Activities |
Cash flow provided by operations increased $180 million for the nine months ended September 30, 2012 decreased $68 million for the three months ended March 31, 2013 as compared to the same period in 2011 , with cash inflows increasing from $481 million to $661 2012 , with operating cash inflows decreasing from $215 million to $147 million . Cash flow provided by operations was negatively impacted by the decrease in earnings from continuing operations, but positively impacted by an increase in dividends received from investments in affiliates and the in 2013 decreased primarily as a result of the absence of a one-time cash dividend received from one of our Asian affiliates during the three months ended March 31, 2012 and by a change in trade working capital. The change in trade working capital was primarily impacted by a lower increase in trade receivables a decrease in inventory, partially offset by an increase in Trade payablesgreater increases in trade receivables and inventories than in the prior period. Trade payables also increased during the three months ended March 31, 2013 but not as much as in the same period in 2012. Trade receivables increased primarily due to the timing of payments at September 30, 2012. Inventories decreased primarily due to higher inventory turnover and lower production in Asia compared to the prior year. increases in net sales and timing of collections. Inventories increased primarily due to increases in production and in-transit inventories. Trade payables increased primarily due to increases in raw material purchases, partially offset by the timing of payments. purchases, of raw materials and expenditures on capital projects. The increase in cash provided by operations was also positively impacted by lower benefit plan contributions made during the nine months ended September 30, 2012 as compared to the same period in 2011. Employer pension pension plan and other postretirement benefit plan contributions of $47 million made during the three months ended March 31, 2013 as compared to the same period in the prior year.contributions were $154 million during the nine months ended September 30, 2012 compared to $166 million for the same period in 2011.
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Trade working capital is calculated as follows:
| |
| | | | | | | | | | | | |
| | As of | | As of | | As of | | As of |
| | September 30, | | December 31, | | September 30, | | December 31, |
| | March 31, | | December 31, | | March 31, | | December 31, |
| | 2013 | | 2012 | | 2012 | | 2011 |
| | (unaudited) |
| | (In $ millions) |
| Trade receivables, net | 916 | | | 827 | | | 928 | | | 871 | |
| | | | | | | | | | | | |
| Inventories | 758 | | | 711 | | | 753 | | | 712 | |
| | | | | | | | | | | | |
| Trade payables - third party and affiliates | (659 | ) | | (649 | ) | | (758 | ) | | (673 | ) |
| Trade working capital | 958 | | | 910 | | | 1,042 | | | 764 | |
| Trade working capital | 1,015 | | | 889 | | | 923 | | | 910 | |
| | | | | | | | | | | | |
| | |
| • | Net Cash Used in) Investing Activities |
| • | Net Cash Provided by (Used in) Investing Activities |
Net cash used in investing activities increased $101 million for the nine months ended September 30, 2012 decreased $68 million for the three months ended March 31, 2013 as compared to the same period in 2012 , with cash outflows increasing from $296 million to $397 million . During the nine months ended September 30, 2011, we received $158 million from the Frankfurt, Germany Airport related to the relocation of our Kelsterbach, Germany POM operations. No such proceeds were received in 2012. in addition, capital expenditures during the nine months ended September 30, 2012.related to the relocation and expansion of our Kelsterbach POM operations were $131 decreasing from $155 million to $87 million . During the three months ended March 31, 2013 , capital expenditures relating to the relocation and expansion of our POM production facility in Frankfurt Hoechst Industrial Park, Germany amounted to $3 million , $18 million less than in the same period in 2012.
Cash outflows for capital expenditures, excluding capital expenditures relating to our German POM facility, were $74 million for the three months ended March 31, 2013 , $32 million lower than during the same period in 2011, offset by an increase in Capital expenditures unrelated to the relocation and expansion of our Kelsterbach POM operations of $29 million 2012 . Capital expenditures for the three months ended March 31, 2013 are primarily related to capacity expansions, major investments to reduce future operating costs and environmental and health and safety initiatives. Acquisitions, net of cash acquired, decreased by $23 million with no acquisitions in the three months ended March 31, 2013 . In 2012, we acquired certain assets from Ashland Inc.
| | |
| • | Net Cash Provided by (Used in) Financing Activities |
Net cash used in financing activities decreased $203 million for the nine months ended September 30, 2012 increased $14 million for the three months ended March 31, 2013 . The change in cash used in financing activities is primarily due to $26 million higher net repayments of short-term borrowings and long-term debt, $6 million lower proceeds from stock option exercises, offset by the absence of $20 million in stock repurchase transactions when compared to the same period in 2012 .
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Debt and Other Obligations
| | |
| • | Senior Notes |
In September 2010, Celanese US completed the private placement of 600 In November 2012, Celanese US completed an offering of $500 million in aggregate principal amount of 4.625% senior unsecured notes due 2018 (the "6.625% Notes") under an indenture, dated September 24, 2010 (the "Indenture") 2022 (the " 4.625% Notes") in a public offering registered under the Securities Act of 1933, as amended (the "Securities Act"). The 4.625% Notes are guaranteed on a senior unsecured basis by Celanese and each of the domestic subsidiaries of Celanese US that guarantee its obligations under its senior secured credit facilities (the "Subsidiary Guarantors").
The 4.625% Notes were issued under an indenture, dated May 6, 2011, as amended by a second supplemental indenture, dated November 13, 2012 (the "Second Supplemental Indenture") among Celanese US, Celanese, the Subsidiary Guarantors and Wells Fargo Bank, National Association, as trustee. In April 2011, Celanese US registered the 6.625% Notes under the Securities Act of 1933, as amended (the "Securities Act"). Celanese US pays interest on the 6.625% Notes on April 15 and October 15 of each year which commenced on April 15, 2011. The 6.625% Notes are redeemable, in whole or in part, at any time on or after October 15, 2014 at the redemption prices specified in the Indenture. Prior to October 15, 2014, Celanese US will pay interest on the 4.625% Notes on March 15 and September 15 of each which commenced on March 15, 2013. Prior to November 15, 2022, Celanese US may redeem some or all of the 4.625% Notes at a redemption price of 100% of the principal amount, plus a "make-whole" premium as specified in the Second Supplemental Indenture, plus accrued and unpaid interest, if any, to the redemption date. plus a "make-whole" premium as specified in The Indenture. The 6.625% The 4.625% Notes are senior unsecured obligations of Celanese US and rank equally in right of payment with all other unsubordinated indebtedness of Celanese US.The 6.625% Notes are guaranteed on a senior unsecured basis by Celanese and each of the domestic subsidiaries of Celanese US that guarantee its obligations under its senior secured credit facilities (the "Subsidiary Guarantors").
The Indenture contains covenants, including, but not limited to, restrictions on our ability to incur indebtedness; grant liens on assets; merge, consolidate, or sell assets; pay dividends or make other restricted payments; engage in transactions with affiliates; or engage in other businesses.
Additionally, In May 2011, Celanese US completed an offering of $400 million in aggregate principal amount of 5.875% senior unsecured notes due 2021 (the " 5.875% Notes") in a public offering registered under the Securities Act. The 5.875% Notes are guaranteed on a senior unsecured basis by Celanese and the Subsidiary Guarantors.
The 5.875% Notes were issued under an indenture and a first supplemental indenture, each dated May 6, 2011 (the "First Supplemental Indenture") among Celanese US, Celanese, the Subsidiary Guarantors and Wells Fargo Bank, National Association, as trustee. Celanese US pays interest on the 5.875% Notes on June 15 and December 15 of each year which commenced on December 15, 2011. Prior to June 15, 2021, Celanese US may redeem some or all of the 5.875% Notes at a
52
redemption price of 100% of the principal amount, plus a "make-whole" premium as specified in the First Supplemental Indenture, plus accrued and unpaid interest, if any, to the redemption date. The 5.875% Notes are senior unsecured obligations of Celanese US and rank equally in right of payment with all other unsubordinated indebtedness of Celanese US.
In September 2010, Celanese US completed the private placement of $600 million in aggregate principal amount of 6.625% senior unsecured notes due 2018 (the "6.625% Notes" and, together with the 4.625% Notes and the 5.875% Notes, collectively the "Senior Notes") under an indenture dated September 24, 2010 (the "Indenture") among Celanese US, Celanese, the Subsidiary Guarantors and Wells Fargo Bank, National Association, as trustee. In April 2011, Celanese US registered the 6.625% Notes under the Securities Act. Celanese US pays interest on the 6.625% Notes on April 15 and October 15 of each year which commenced on April 15, 2011. The 6.625% Notes are redeemable, in whole or in part, at any time on or after October 15, 2014 at the redemption prices specified in the Indenture. Prior to October 15, 2014, Celanese US may redeem some or all of the 6.625% Notes at a redemption price of 100% of the principal amount, plus a "make-whole" premium as specified in the Indenture, plus accrued and unpaid interest, if any, to the redemption date. The 6.625% Notes are senior unsecured obligations of Celanese US and rank equally in right of payment with all other unsubordinated indebtedness of Celanese US. The 6.625% Notes are guaranteed on a senior unsecured basis by Celanese and the Subsidiary Guarantors.
The Indenture and the First and Second Supplemental Indentures contain covenants, including, but not limited to, restrictions on the Company's ability to incur indebtedness; grant liens on assets; merge, consolidate, or sell assets; pay dividends or make other restricted payments; engage in transactions with affiliates; or engage in other businesses.
| | |
| • | Senior Credit Facilities |
In September 2010, Celanese US, Celanese, and certain of the domestic subsidiaries of Celanese US entered into an amendment agreement with the lenders under Celanese US's existing senior secured credit facilities in order to amend and restate the corresponding Credit Agreement, dated as of April 2, 2007 (as previously amended, the "Existing Credit Agreement", and as amended and restated by the amendment agreement, the "Amended Credit Agreement"). The Amended Credit Agreement consists of the Term C loan facility due 2016, the Term B loan facility due 2014, a $600 million revolving credit facility terminating in 2015 and a $228 million credit-linked revolving facility terminating in 2014.
In May 2011, Celanese US through its subsidiaries, prepaid the In May 2011, Celanese US prepaid its outstanding Term B loan facility under the Amended Credit Agreement set to mature in 2014 with an aggregate principal amount of $516 million using proceeds from the 5.875% Notes and cash on hand.The prepaid principal amount was comprised of $414 million of US dollar-denominated Term B loan facility and €69 million of Euro-denominated Term B loan facility
In November 2012, Celanese US prepaid $ 400 million of its outstanding Term C loan facility under the Amended Credit Agreement set to mature in 2016 using proceeds from the 4.625% Notes.
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The balances available for borrowing under the revolving credit facility and the credit-linked revolving facility are as follows:
| |
| | | |
| | As of |
| | March 31, |
| | 2013 |
| | (unaudited) |
| | (In $ millions) |
| Revolving Credit Facility | | |
| | | |
| Borrowings outstanding | - | |
| | | |
| Letters of credit issued | - | |
| | | |
| Available for borrowing | 600 | |
| | | |
| Credit-Linked Revolving Facility | | |
| | | |
| Borrowings outstanding | 100 | |
| | | |
| Letters of credit issued | 78 | |
| | | |
| Available for borrowing | 50 | |
| | | |
As a condition to borrowing funds or requesting that letters of credit be issued under the revolving credit facility, our first lien senior secured leverage ratio (as calculated as of the last day of the most recent fiscal quarter for which financial statements have been delivered under the revolving facility) cannot exceed the threshold as specified below. Further, our first lien senior secured leverage ratio must be maintained at or below that threshold while any amounts are outstanding under the revolving credit facility.
53
Our amended first lien senior secured leverage ratios and the borrowing capacity under the revolving credit facility are as follows:
| |
| | | | | | | | | | | | |
| | As of March 31, 2013 |
| | First Lien Senior Secured Leverage Ratio | | |
| | Maximum | | Estimate | | Estimate, If Fully Drawn | | Borrowing Capacity |
| | (unaudited) |
| | | | | | | | (In $ millions) |
| Revolving credit facility | 3.90 | | 1.15 | | 1.63 | | 600 | |
| First Lien Senior Secured Leverage Ratios | 3.90 | | | 0.91 | | | 1.41 | | | 600 | |
| | | | | | | | | | | | |
The Amended Credit Agreement contains covenants including, but not limited to, restrictions on our ability to incur indebtedness; grant liens on assets; merge, consolidate, or sell assets; pay dividends or make other restricted payments; make investments; prepay or modify certain indebtedness; engage in transactions with affiliates; enter into sale-leaseback transactions or hedge transactions; or engage in other businesses.
The Amended Credit Agreement also maintains a number of events of default, including a cross default to other debt of Celanese, Celanese US, or their subsidiaries, including the Senior Notes, in an aggregate amount equal to more than $40 million and the occurrence of a change of control. Failure to comply with these covenants, or the occurrence of any other event of default, could result in acceleration of the borrowings and other financial obligations under the Amended Credit Agreement.
We are in compliance with all of the covenants related to our debt agreements as of March 31, 2013 .
In anticipation of a possible change in pension accounting policy, in January 2013, the Company entered into a non-material amendment to the Amended Credit Agreement with the effect that certain computations for covenant compliance purposes will be evaluated as if the change in pension accounting policy had not occurred. The amendment also modified the Amended Credit Agreement in other, non-material respects.
Share Capital
Our Board of Directors follows a policy of declaring, subject to legally available funds, a quarterly cash dividend on each share of our Series A Common Stock, par value $0.0001 per share ("Common Stock") unless the Board of Directors, in its sole discretion, determines otherwise. The amount available to pay cash dividends is restricted by our Amended Credit Agreement and the Senior Notes.
On April 23, 2012 , we announced that our Board of Directors approved a 25% increase in our quarterly Common Stock cash dividend. The Board of Directors increased the quarterly dividend rate from $0.06 to $0.075 per share of Common Stock on a quarterly basis and $0.24 to $0.30 per share of Common Stock on an annual basis. The new dividend rate became effective in August 2012 .
58
Our Board of Directors authorized the repurchase of our Common Stock as follows:
| |
| | | ||
| | | Authorized Amount |
| | | (unaudited) |
| | | (In $ millions) |
| February 2008 | | 400 | |
| | | | |
| October 2008 | | 100 | |
| | | | |
| April 2011 | | 129 | |
| | | ||
| As of September 30, 2012 | |629 | || October 2012 | 264 | |
| | | |
| As of March 31, 2013 | 893 | |
| | | |
These authorizations give management discretion in determining the timing and conditions under which shares may be repurchased. The repurchase program does not have an expiration date.
54
The share repurchase activity pursuant to this authorization is as follows:
| |
| | | | | | | | | | | | | |
| | Three Months Ended March 31, | | Total From | |
| | | | February 2008 Through | |
| | | | March 31, 2013 | |
| | 2012 | | 2011 | | September 30, 2012 |
| | 2013 | | 2012 | | |
| | (unaudited) | |
| Shares repurchased | 853,388 | | | 591,356 | | | 12,936,196 | |
| Shares repurchased | - | | | 444,901 | | | 13,142,527 | | (1) |
| | | | | | | | | | |
| Average purchase price per share | $ | - | | | $ | 46.34 | | | $ | 38.14 | | |
| | | | | | | | | | | | | |
| Amount spent on repurchased shares (in millions) | $ | - | | | $ | 20 | | | $ | 501 | | |
| | | | | | | | | | | | | |
On October 18, 2012 , our Board of Directors approved an increase in our share repurchase authorization of our Common stock. to $400 million . As of September 30, 2012 , we had $136 million remaining under the previous authorization.
______________________________
| | |
| (1) | Excludes 5,823 shares withheld from employee to cover statutory minimum withholding requirements for personal income taxes related to the vesting of restricted stock. Restricted stock is considered outstanding at the time of issuance and therefore, the shares withheld are treated as treasury shares. |
The purchase of treasury stock reduces 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 stockholders' equity.
Contractual Obligations
Except as otherwise described in this report, there have been no material revisions outside the ordinary course of business to our contractual obligations as described in our 2012 Form 10-K.
Off-Balance Sheet Arrangements
We have not entered into any material off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Our unaudited interim consolidated financial statements are based on the selection and application of significant accounting policies. The preparation of unaudited interim consolidated financial statements in conformity with US Generally Accepted Accounting Principles ("US GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the 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 describe our significant accounting policies in Note 2, Summary of Accounting Policies, of the Notes to Consolidated Financial Statements included in our 2012 Form 10-K. We discuss our critical accounting policies and estimates in MD&A in our 2012 Form 10-K.
There have been no material revisions to the critical accounting policies as filed in our 2011 Form 10-K.
Effective January 1, 2013, we elected to change our policy for recognizing actuarial gains and losses and changes in the fair value of plan assets for our defined benefit pension plans and other postretirement benefit plans. We now immediately recognize changes in the fair value of plan assets and net actuarial gains and losses annually in the fourth quarter of each fiscal year and whenever a plan is determined to qualify for a remeasurement during a fiscal year. The remaining components of our net periodic benefit cost are recorded on a quarterly basis. Our critical accounting policy related to pension accounting is revised as follows.
| | |
| • | 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. Various assumptions are used in the calculation of the actuarial valuation of the employee benefit plans. These assumptions include the discount rate, compensation levels, expected long-term rates of return on plan assets and trends in health care costs. In addition to the above mentioned assumptions, actuarial consultants use factors such as withdrawal and mortality rates to estimate the projected benefit obligation. The actuarial assumptions used may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of
55
participants. These differences may result in a significant impact to the amount of net periodic benefit cost 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 net periodic benefit cost is the expected long-term rate of return on plan assets. As of December 31, 2012 , 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 84% of our fair value of pension plan assets and projected benefit obligation, respectively. On average, the actual return on the US qualified defined pension plans' assets over the long-term (20 years) has exceeded 8.5%.
Another estimate that affects our pension and other postretirement net periodic benefit cost 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, 2012 , we decreased the discount rate to 3.8% from 4.6% as of December 31, 2011 for the US plans.
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 health care cost trend rate. The health care cost trend rate has a significant effect on the reported amounts of APBO and related expense.
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. Actuarial gains and losses generated by changes in actuarial assumptions are recognized in net periodic benefit cost annually in the fourth quarter of each fiscal year and whenever a plan is required to be remeasured.
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 recognized in net periodic benefit cost annually in the fourth quarter of each fiscal year and whenever a plan is required to be remeasured.
The estimated change in pension and postretirement net periodic benefit costs that would occur in 2013 from a change in the indicated assumptions are as follows:
| |
| | | | | | |
| | Change in Rate | | Net Periodic Benefit Costs |
| | | | (In $ millions) |
| US Pension Benefits | | | |
| Decrease in the discount rate | 0.50 | % | | (8 | ) |
| Decrease in the long-term expected rate of return on plan assets (1) | 0.50 | % | | 12 | |
| | | | | | |
| US Postretirement Benefits | | | |
| Decrease in the discount rate | 0.50 | % | | (1 | ) |
| Increase in the annual health care cost trend rates | 1.00 | % | | - | |
| | | | | | |
| Non-US Pension Benefits | | | |
| Decrease in the discount rate | 0.50 | % | | (1 | ) |
| Decrease in the long-term expected rate of return on plan assets | 0.50 | % | | 2 | |
| | | | | | |
| Non-US Postretirement Benefits | | | |
| Decrease in the discount rate | 0.50 | % | | - | |
| | | | | | |
| Increase in the annual health care cost trend rates | 1.00 | % | | - | |
| | | | | | |
______________________________
| | |
| (1) | Excludes nonqualified pension plans. |
56
Recent Accounting Pronouncements
See Note 2, Recent Accounting Pronouncements , in the accompanying unaudited interim consolidated financial statements included in this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk for our Company has not changed materially from the foreign exchange, interest rate and commodity risks disclosed in Item 7A. Quantitative and Qualitative Disclosures about Market Risk in our 2012 Form 10-K. See also Note 15, Derivative Financial Instruments , in the accompanying unaudited interim consolidated financial statements for further discussion of our market risk management and the related impact on our financial position and results of operations.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, as of March 31, 2013 , the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective.
Changes in Internal Control Over Financial Reporting
During the period covered by this report, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
57
PART II - OTHER INFORMATION
Item 1. 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, land disputes, contracts, antitrust, intellectual property, workers' compensation, chemical exposure, asbestos exposure, prior acquisitions and divestitures, past waste disposal practices and release of chemicals into the environment. The Company is actively defending those matters where it is named as a defendant. Due to the inherent subjectivity of assessments and unpredictability of outcomes of legal proceedings, the Company's litigation accruals and estimates of possible loss or range of possible loss may not represent the ultimate loss to the Company from legal proceedings. See Note 11, Environmental , and Note 17, Commitments and Contingencies , in the accompanying unaudited interim consolidated financial statements for a discussion of material environmental matters and commitments and contingencies related to legal and regulatory proceedings. There have been no significant developments in the "Legal Proceedings" described in our 2012 Form 10-K other than those disclosed in Note 11, Environmental , and Note 17, Commitments and Contingencies , in the accompanying unaudited interim consolidated financial statements.
Item 1A. Risk Factors
There have been no material changes to the risk factors under Part I, Item 1A of our 2012 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The table below sets forth information regarding repurchases of our Common Stock during the three months ended March 31, 2013 :
| |
| | | | | | | | | | | | | | | |
| Period | | Total Number | | Average | | Total Number of | | Approximate Dollar |
| | | of Shares Purchased | | Price Paid per Share | | Shares Purchased as | | Value of Shares |
| | | | | | | Part of Publicly Announced Program | | Remaining that may be |
| | | | | | | | | Purchased Under the Program (2) |
| (unaudited) |
| July 1-31, 2012 | | 90,873 | | (1) | $ | 34.76 | | | 90,480 | | | $ | 141,000,000 | |
| January 1-31, 2013 | | - | | | $ | - | | | - | | | $ | 392,000,000 | |
| | | | | | | | | | | | | | | |
| August 1-31, 2012 | | 62,742 | | | $ | 39.82 | | | 62,742 | | | $ | 139,000,000 | |
| February 1-28, 2013 | | - | | | $ | - | | | - | | | $ | 392,000,000 | |
| | | | | | | | | | | | | | | |
| September 1-30, 2012 | | 63,456 | | | $ | 39.45 | | | 63,456 | | | $ | 136,000,000 | |
| March 1-31, 2013 | | 371 | | (1) | $ | 47.15 | | | - | | | $ | 392,000,000 | |
| | | | | | | | | | | | | | | |
| Total | | 217,071 | | | | | 216,678 | | | |
| Total | | 371 | | | | | - | | | |
| | | | | | | | | | | |
______________________________
| | |
| (1) | Includes 393 Shares withheld from employees to cover their statutory minimum withholding requirements for personal income taxes related to the vesting of restricted stock units. |
| | |
| (2) | Our Board of Directors authorized the repurchase of our Common Stock as follows: |
| |
| | | |
| | Authorized Amount |
| | (In $ millions) |
| February 2008 | 400 | |
| | | |
| October 2008 | 100 | |
| | | |
| April 2011 | 129 | |
| | | |
| October 2012 | 264 | |
| | | |
| As of March 31, 2013 | 893 | || As of September 30, 2012 | 629 | |
| | | |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
58
Item 6. Exhibits
| |
| | | |
| Exhibit | | |
| Number | | |
| | Description |
| | | |
| 3.1 | | Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K filed with the SEC on February 11, 2011). |
| | | |
| 3.2 | | Third Amended and Restated By-laws, effective as of October 23, 2008 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on October 29, 2008). |
| | | |
| 10.1 | Letter Agreement dated September 8, 2012,
| 10.1 | | Amendment No. 1, dated January 23, 2013 among Celanese Corporation, Celanese US Holdings LLC, Celanese Americas LLC, the lenders party thereto, and Deutsche Bank AG, New York Branch, as administrative agent and as collateral agent (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on April 2, 2013). |
| | | |
| 10.2‡ | | Form of 2013 Performance-Based Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on February 12, 2013). |
| | | |
| | | |
| 10.3‡ | | Executive Severance Benefits Plan, amended effective February 6, 2013 (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on February 12, 2013). |
| | | |
| | | |
| 10.4*‡ | | Agreement and Amendment, dated March 18, 2013, between Celanese Corporation and Douglas M. Madden. |
| | | |
| 12.1* | Statement of Computation of Ratio of Earnings to Fixed Charges. |
| 18.1* | | Preferability Letter of Independent Registered Public Accounting Firm. |
| | | |
| 31.1* | | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | |
| 31.2* | | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | |
| 32.1* | | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | | |
| 32.2* | | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | | |
| 101.INS* | | XBRL Instance Document. |
| | | |
| 101.SCH* | | XBRL Taxonomy Extension Schema Document. |
| | | |
| 101.CAL* | | XBRL Taxonomy Extension Calculation Linkbase Document. |
| | | |
| 101.DEF* | | XBRL Taxonomy Extension Definition Linkbase Document. |
| | | |
| 101.LAB* | | XBRL Taxonomy Extension Label Linkbase Document. |
| | | |
| 101.PRE* | | XBRL Taxonomy Extension Presentation Linkbase Document. |
* Filed herewith
‡ Indicates a management contract or compensatory plan or arrangement
59
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| |
| | | | | |
| | CELANESE CORPORATION |
| |
| | | |
| | | By: | /s/ MARK C. ROHR |
| | | | Mark C. Rohr |
| | | | Chairman of the Board of Directors and |
| | | | Chief Executive Officer |
| | | | | |
| | | | Date: | April 19, 2013 |
| |
| | | | | |
| | | By: | /s/ STEVEN M. STERIN |
| | | | Steven M. Sterin |
| | | | Senior Vice President and |
| | | | Chief Financial Officer |
| | | | | |
| | | | Date: | April 19, 2013 |
60
Exhibit 10.1
10.4
Agreement and Amendment
Congratulations! I am pleased to offer you the position of Senior Vice President, Human Resources of Celanese Corporation, Your position will be based in Dallas, TX and you will be reporting to me. We anticipate your start date will be on or before October 1. 2012. This letter outlines the basic components of your offer.
Celanese Corporation, its Subsidiaries and its Affiliates ("Employer"), and Douglas M. Madden, his/her heirs, executors, administrators, successors, and assigns ("Executive"), agree that:
| | |
| 1. | Last Day of Employment ("Departure Date") . Executive is retiring and the last day of employment with Celanese is: March 31, 2013. |
| | |
Your base salary will be $430,000 per year and will be payable on a bi-weekly basis in accordance with the Company's normal payroll practice. In addition to offering a competitive base salary, we offer bonus and equity opportunities as well as a variety of other programs outlined below.
| 2. | Non-competition/Non-solicitation . Executive acknowledges and recognizes the highly competitive nature of the business of Employer. Without the express written permission of Employer, for a period of two (2 ) years following the Departure Date (the "Restricted Period"), Executive acknowledges and agrees that he/she will not: (i) directly or indirectly solicit sales of like products similar to those produced or sold by Employer; (ii) directly engage or become employed in a function with like responsibilities as at Employer with, or serve on the Board of Directors of, any business that competes with the business of Employer, or has a direct conflict of interest with Employer, including but not limited to: direct sales, marketing, or manufacturing, research and development or product development for a producer of products similar to those produced or licensed by Employer; or (iii) for a period of two (2) years from the Departure Date, directly or indirectly solicit or hire employees of Employer for employment. Provided however, that nothing in this provision shall restrict Executive from owning solely as an investment, publicly traded securities of any company which is engaged in the business of Employer, if Executive (i) is not a controlling person of, or a member of a group which controls; and (ii) does not, directly or indirectly, own 5% or more of any class of securities of any such company. |
Annual Bonus
You will be eligible to participate in the Company's annual bonus plan. Our bonus plan uses both financial and non-financial measures and your personal performance to determine your actual bonus payout each year. For 2013, your annual bonus opportunity at target will be 70% of your eligible wages (the "Target"), with a "Stretch" opportunity of 200% of this amount if Company performance meets superior expectations. A personal performance modifier also currently allows for an additional adjustment of your planned bonus payout to reflect your individual performance relative to your annual objectives.
For 2012, you will be eligible for a full year's bonus, based on Company performance at target and a 100% individual performance modifier. You must be employed by Celanese at the time such bonus payments are made, generally in March of the following year, in order to remain eligible to receive the bonus payout.
Long-Term Incentive Awards
Celanese currently delivers Long-Term Incentive (LTI) compensation to senior executives through annual grants of equity awards. Annual LTI awards are planned to occur in the first quarter of, each calendar year. the aggregate grant date value and mix of awards are based on a combination of salary level, individual contribution and performance, market levels of long-term incentive compensation and other factors. Each year, the Compensation Committee evaluates the level of awards and the mix among various stock-based vehicles. Going forward, you will be eligible for an annual LTI award consistent with your position at the Company which at this time is a target value of $700,000.
In order to align our executives' interests with those of our shareholders, Celanese expects senior leaders to maintain equity ownership in the Company commensurate with their position. You will be subject to stock ownership guidelines applicable to your position as in effect from time to time. the current stock ownership guideline for your position is equal to a value of 3 times your annual base salary.
Employee Benefits
During your employment. you will be entitled to participate in the Company's employee benefit plans as in effect from time to time, on the same basis as those benefits that are generally made available to other employees of the company We offer medical and dental coverage, group life insurance (1 times the annual base pay), a cash balance pension plan, and a 401k plan that matches 100% of the first 5% of the employee's contributions. Additionally, you will be eligible to participate in the Celanese Annual Executive Physical Program including the annual physical with the Baylor Personal Edge program. You will also be eligible to receive the BioPhysical 250 blood screen every 5 years.
| | |
Other benefits that you will be eligible for based on your position with the Company are participation in the Executive Severance Plan and a Change-in-Control Agreement. Finally, Celanese offers a deferred compensation program that you may voluntarily elect to participate in. Additional information, can be provided on these plans, if you wish.
| 3. | Confidentiality . Executive agrees and recognizes that any knowledge or information of any type whatsoever of a confidential nature relating to the business of Employer or any of its subsidiaries, divisions or affiliates, including, without limitation, all types of trade secrets, client lists or information, Executive lists or information, information regarding product development, marketing plans, management organization, operating policies or manuals, performance results, business plans, financial records, or other financial, commercial, business or technical information (collectively, "Confidential Information"), must be protected as confidential, not copied, disclosed or used other than for the benefit of Employer at any time unless and until such knowledge or information is in the public domain through no wrongful act by Executive. Executive further agrees not to divulge to anyone (other than Employer or any persons employed or designated by Employer), publish or make use of any such Confidential Information without the prior written consent of Employer, except by an order of a court having competent jurisdiction or under subpoena from an appropriate government agency. |
Vacation
You will be entitled to four (4) weeks annual vacation in accordance with the Company's vacation policy.
Initial Equity Awards
Celanese believes that an executive's interests should be aligned with shareholder interests, in part through equity ownership in the Company. As a result, you will receive equity awards as part of your initial offer package. Your initial equity awards will consist of the following:
Time-vesting Restricted Stock Units (Time-vesting RSUs): You will receive an award of Time-vesting RSUs having a grant Date fair value equal to $1,850,000 that will vest one-third each year for three years beginning on the grant date.
| | |
| 4. | Future Cooperation after Departure Date . After departure, Executive agrees to make reasonable efforts to assist Employer including but not limited to: assisting with transition duties, assisting with issues that arise after departure of employment and assisting with the defense or prosecution of any lawsuit or claim. This includes but is not limited to responding to telephone calls, providing deposition testimony, attending hearings and testifying on behalf of Employer. Employer will reimburse Executive for reasonable time and expenses in connection with any future cooperation after the Departure Date. Time and expenses can include loss of pay or using vacation time at a future employer. Employer shall reimburse Executive within 30 days of remittance by Executive |
Stock Options: You will receive an award of nonqualified options to purchase shares of Company common stock having a grant date fair value equal to $850,000. The stock options will vest one-third each year for three years beginning on the grant Date. The option exercise price will be the average of the high and low trading prices of Celanese stock on the grant date.
The complete terms of your sign-on award will be delivered to you as an award agreement subject to approval by the Compensation Committee of the Board of Directors at the next meeting following your start date. Your sign-on award will be granted pursuant to the Celanese 2009 Global Incentive Plan and you will be required to sign appropriate award agreements and the Celanese LTI Claw-back agreement in order to receive the award.
1
to Employer of such time and expenses incurred, but in no event later than the end of Executive's tax year following the tax year in which Executive incurs such time and expenses and the amount of expenses eligible for reimbursement hereunder during Executive's tax year will not affect the expenses eligible for reimbursement in any other tax year.
Relocation Benefits
Celanese will provide relocation benefits to the Dallas area under the provisions of our relocation policy for new employees in effect at that time. Generally, this policy provides for the shipment of household goods, home sale and purchase assistance (for homeowners) and a lump-sum payment to assist with various miscellaneous expenses associated with your relocation. The home sale and purchase assistance can be utilized for up to one (1) year after you relocate to the Dallas area. Details of our relocation policy will be provided to you under separate cover.
| | |
| 5. | Consideration . Each separate installment under this Agreement and Amendment (this "Agreement") shall be treated as a separate payment for purposes of determining whether such payment is subject to or exempt from compliance with the requirements of Section 409A of the Internal Revenue Service Code. In consideration for signing this Agreement and compliance with the promises made herein, Employer and Executive agree: |
Should you voluntarily end your employment with Celanese for any reason within two (2) years of your start date, Celanese will seek full repayment of any relocation assistance provided to you.
Terms & Conditions of Employment
this offer letter constitutes the full terms and conditions of your employment with the Company. It supersedes any other oral or written promises that may have been made to you.
| | |
As a. condition of your employment, you will be required to execute a Restrictive Covenant Agreement (the "RCA") with the Company regarding protection and non-disclosure of confidential information and non-competition, non-solicitation and no hire. a copy of this Agreement, will be provided to you under separate cover.
| a. | Long Term Equity Awards . Employer will fulfill its obligations to Executive pursuant to the terms of outstanding equity award agreements held by Executive (the "Equity Agreements"), including Employer's obligations under the Equity Agreements in the event of a change in control. In accordance with the terms of the Equity Agreement, Employer agrees that certain equity awards contained in Executive's Equity Agreements will receive continued vesting as of the Departure Date by reason of Executive's qualifying retirement under the retirement provisions included in such awards; certain other awards will be forfeited as a result of Executive's retirement. In addition, Employer expressly agrees that Executive's December 20, 2011 time-vesting restricted stock unit award is being amended by this Agreement to allow continued vesting on the applicable vesting dates, notwithstanding Executive's retirement, as set forth on Exhibit A . Employer has provided a schedule of Executive's awards and the impact of retirement. |
Background Check & Drug Screen
This offer of employment is contingent upon the satisfactory completion of a background check and pre-employment examination including tests for substance abuse. If not satisfactorily completed, the offer will be rescinded.
Employment Verification
as required by law, we will need to verify and document your identity and eligibility for employment in the United States. You can find a complete list of acceptable documents at http://www.uscis.gov/files/form/
| | |
i-9.pdf . Please bring appropriate documentation on your start date. Do not complete the form in advance; you must complete it on your first day of employment.
| b. | Company Benefit Plans . Healthcare & dental coverage and all other normal company programs (e.g., life insurance, LTD, 401K contributions, etc.) will continue until the last day of the month in which Executive departs, according to their current health & dental plan elections, and thereafter at Executive's expense for the periods, and in accordance with, applicable COBRA provisions. |
Lori, we are most enthusiastic about you joining the team and look forward to discussing the offer at your convenience. If these provisions are agreeable to you, please sign the enclosed copy of this letter and return it to me by fax at 972-443-4880 by September 13, 2012.
Sincerely,
/s/ Mark Rohr
Mark Rohr
Acknowledgment of Offer:
(Please check one)
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| ☑ | I accept the above described offer of employment with Celanese and understand that my employment status will be considered at-will and may be terminated at any time for any reason. Upon acceptance of this offer, I agree to keep the terms and conditions of this agreement confidential. |
| c. | Pension & Retiree Health Care Plan . If Executive is eligible, Employer will fulfill its obligations according to the terms of the respective Plans. |
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| □ | I decline your offer of employment. |
| d. | Voluntary Resignation . Executive agrees to voluntarily resign from Employer effective on the Departure Date. Effective as of the close of business on such Departure Date, Executive will resign from all positions he holds as a corporate officer of Employer and subsidiaries and Affiliates (including without limitation any positions as an officer, executive and/or director), and from all positions held on behalf of Employer (e.g., external board memberships, joint venture boards, internal committee positions). |
Signature: /s/ Lori A. Johnston Date. September 8, 2012
Lori Johnston
Anticipated Start Date, To be determined
#PageNum#
Exhibit 12.1
Celanese Corporation and subsidiaries
Statement of Computation of Ratio of Earnings to Fixed Charges
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| e. | Return of Company Property . Executive will surrender to Employer on the Departure Date, all company materials, including, if applicable, but not limited to his/her company car, laptop computer, phone, credit card, calling cards, etc. Executive will be responsible for resolving any outstanding balances on the company credit card. |
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| 6. | No Consideration Absent Execution of this Agreement . Executive understands and agrees that he/she would not receive the consideration specified in Paragraph "5" above, except for the execution of this Agreement and the fulfillment of the promises contained herein. |
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| 7. | General Release of Claims . Executive knowingly and voluntarily releases and forever discharges, to the full extent permitted by law, Employer of and from any and all claims, known and unknown, |
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asserted and unasserted, Executive has or may have against Employer as of the date of execution of this Agreement, including, but not limited to, any alleged violation of:
| | |
| • | Title VII of the Civil Rights Act of 1964, as amended; |
| | September 30, | | Year Ended December 31, |
| | 2012 || 2011 | |2011 | | 2010 || 2009 | |2008 | | 2007 |
| • | The Civil Rights Act of 1991; |
| | |
| • | Sections 1981 through 1988 of Title 42 of the United States Code, as amended; |
| | |
| • | The Employee Retirement Income Security Act of 1974, as amended; |
| | (In $ millions, except ratios) |
| Earnings: | | | | | | | | | | || | |
| • | The Immigration Reform and Control Act, as amended; |
| | |
| Earnings (loss) from continuing operations before tax | 544 | | | 661 | | | 755 | | | 538 | | | 251 | | | 433 | | | 437 | |
| • | The Americans with Disabilities Act of 1990, as amended; |
| | || | | | | | | | | | | | | | | | | | |
| Subtract | | | | | | | | | | | | | |
| • | The Age Discrimination in Employment Act of 1967, as amended; |
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| • | The Workers Adjustment and Retraining Notification Act, as amended; |
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| • | The Occupational Safety and Health Act, as amended; |
| | |
| Equity in net earnings of affiliates | (163 | ) || (146 | ) | | (192 |) | | (168 | ) || (99 | ) || (172 | ) || (150 | ) |
| Add | || | || | || | || | |
| • | The Wall Street Reform Act of 2010 (Dodd-Frank); |
| | |
| • | The Family Medical Leave Act of 1993; |
| | |
| • | The Sarbanes-Oxley Act of 2002; |
| Income distributions from equity investments | 222 || | 165 | || 205 | || 138 | || 78 | || 183 | || 135 | |
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| • | The Texas Civil Rights Act, as amended; |
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| • | The Texas Minimum Wage Law, as amended; |
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| • | Equal Pay Law for Texas, as amended; |
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| | | || | || | || | || | || | || | |
| • | Any other federal, state or local civil or human rights law, including but not limited to any other local, state or federal law, regulation or ordinance in Texas, or any law, regulation or ordinance of a foreign country, including but not limited to the People's Republic of China, Federal Republic of Germany and the United Kingdom; |
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| • | Any public policy, contract, tort, or common law; or |
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| • | Any claim for costs, fees, or other expenses including attorneys' fees incurred in these matters. |
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| 8. | Affirmations . Executive affirms that he has not filed, caused to be filed, or presently is a party to any claim, complaint, or action against Employer in any forum or form. Provided, however, that the foregoing does not affect any right to file an administrative charge with the Equal Employment Opportunity Commission ("EEOC"), or a charge or complaint under the Wall Street Reform Act of 2010 subject to the restriction, that if any such charge or complaint is filed, Executive agrees not to violate the confidentiality provisions of this Agreement and Executive further agrees and covenants that should he/she or any other person, organization, or other entity file, charge, claim, sue or cause or permit to be filed any charge or claim with the EEOC, the Securities and Exchange Commission ("SEC"), any other governmental body, civil action, suit or legal proceeding against Employer involving any matter occurring at any time in the past, Executive will not seek or accept any personal relief (including, but not limited to, monetary award, recovery, relief or settlement) in such charge, civil action, suit or proceeding. |
| Amortization of capitalized interest | 5 | || 7 | || 4 | | | 2 | | | 2 | | | 2 | | | 1 | |
Executive further affirms that he has reported all hours worked as of the date of this Agreement and has been paid and/or has received all leave (paid or unpaid), compensation, wages, bonuses, commissions, and/or benefits to which he may be entitled and that no other leave (paid or unpaid), compensation, wages, bonuses, commissions and/or benefits are due to him, except as provided in this Agreement. Executive furthermore affirms that he has no known workplace injuries or occupational diseases.
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| 9. | Governing Law and Interpretation . This Agreement shall be governed and conformed in accordance with the laws of the state in which Executive was employed on the Departure Date without regard to its conflict of laws provision. In the event Executive or Employer breaches any provision of this Agreement, Executive and Employer affirm that either may institute an action to specifically enforce any term or terms of this Agreement. Should any provision of this Agreement be declared illegal or unenforceable by any court of competent jurisdiction and cannot be modified |
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to be enforceable, excluding the general release language, such provision shall immediately become null and void, leaving the remainder of this Agreement in full force and effect.
| | || | | | | | | | | | | | | | | | | | |
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| 10. | Nonadmission of Wrongdoing . The parties agree that neither this Agreement nor the furnishing of the consideration for this Release shall be deemed or construed at anytime for any purpose as an admission by Employer of any liability or unlawful conduct of any kind. |
| Total fixed charges | 176 | || 210 | || 280 | || 262 | || 268 | || 324 | || 322 | |
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| 11. | Non - Disparagement . Executive agrees not to disparage, or make disparaging remarks or send any disparaging communications concerning, Employer, its reputation, its business, and/or its directors, officers, managers. Likewise Employer's senior management agrees not to disparage, or make any disparaging remark or send any disparaging communication concerning Executive, his/ her reputation and/or business. |
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| 12. | Injunctive Relief . Executive agrees and acknowledges that Employer will be irreparably harmed by any breach, or threatened breach by him of this Agreement and that monetary damages would be grossly inadequate. Accordingly, he agrees that in the event of a breach, or threatened breach by him of this Agreement, Employer shall be entitled to apply for immediate injunctive or other preliminary or equitable relief, as appropriate, in addition to all other remedies at law or equity. |
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| 13. | Review Period . Executive is hereby advised that he has up to forty-five (45) calendar days to review this Agreement and to consult with an attorney prior to execution of this Agreement. Executive agrees that any modifications, material or otherwise, made to this Agreement do not restart or affect in any manner the original forty-five (45) calendar day consideration period. |
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| | || | || | || | || | | || | || | |
| 14. | Revocation Period . In the event that Executive elects to sign and return to Employer a copy of their Agreement, he/she has a period of seven (7) days (the "Revocation Period") following the date of such return to revoke this Agreement, which revocation must be in writing and delivered to Employer within the Revocation Period. This Agreement will not be effective or enforceable until the expiration of the Revocation Period. |
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| 15. | Amendment . This Agreement may not be modified, altered or changed except upon express written consent of both parties wherein specific reference is made to this Agreement. |
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| 16. | Entire Agreement . This Agreement sets forth the entire agreement between the parties hereto, and fully supersedes any prior obligation of Employer to Executive. Executive acknowledges that he/she has not relied on any representations, promises, or agreements of any kind made to him/her in connection with the decision to accept this Agreement, except for those set forth in this Agreement. Notwithstanding the foregoing, it is expressly understood and agreed that the Equity Agreements and the Long Term Incentive Award Claw Back Agreement executed by Executive shall remain in full force and effect, except as such Equity Agreements are modified and amended by this Agreement. |
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| 17. | HAVING ELECTED TO EXECUTE THIS AGREEMENT, TO FULFILL THE PROMISES AND TO RECEIVE THE SUMS AND BENEFITS IN PARAGRAPH "5" ABOVE, EXECUTIVE FREELY AND KNOWINGLY, AND AFTER DUE CONSIDERATION, ENTERS INTO THIS AGREEMENT INTENDING TO WAIVE, SETTLE AND RELEASE ALL CLAIMS HE/SHE HAS OR MIGHT HAVE AGAINST EMPLOYER. |
| Total earnings as defined before combined fixed charges | 784 | | | 897 | | | 1,052 | | | 772 | | | 500 | | | 770 | | | 745 | |
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IN WITNESS WHEREOF, the parties hereto knowingly and voluntarily executed this Agreement as of the date set forth below:
| || | | | | | | | | | | | | | | | | | | |
| Fixed charges: | | | | | | | | | | | | | |
| Interest expense | 134 | | | 166 || | 221 | | | 204 | | |207 | | | 261 | | | 262 | |
| | | | | Celanese Corporation |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | |
| Capitalized interest | 1 | | | 1 || | 1 || By: | /s/ Douglas M. Madden | | By: | /s/ Joseph J. Fox |
| | | Douglas M. Madden | | 2 | | Name: Joseph Fox |
|2 | | | 6 | | | 9 | |
| | | | | | | | | | | | | || | | | | | | |
| | | | | | | Title: VP HR & Employment Law |
| | | | | | | |
| Estimated interest portion of rent expense | 41 | | | | | 43 | | |58
| | | 53 | | | 49 | || 47 | | | 41 | || |
| Date: | March 18, 2013 | | Date: | March 18, 2013 |
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Exhibit A
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| | | | | |
| Off-cycle Time RSU Awards |
| Vesting Period | Target Award | Forfeited RSUs | Remaining Amount (1) | Timing of Payment |
| Retention Time RSU Awards: |
| || | | | | || || | | | | | | | | || |
| Cumulative preferred stock dividends | - | | | - | || - | | | 3 | | | 10 | | | 10 | | | 10 | |
| 12/20/2011 - 12/20/2013 (2) | 8,509 | 0 | 8,509 | Dec. 2013 |
| 12/20/2011 - 12/20/2014 (2) | 8,511 | 0 | 8,511 | Dec. 2014 |
| | | | | | | | | | | | | | | | | | | | | |
| Guaranteed payment to minority shareholders | - | | | - | | | - || | - | | |- | | |- | | | - ||
| | |
| (1) | Actual number of shares to be delivered will be reduced by number of shares withheld for payment of taxes. |
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| (2) | 2011 Off-cycle award - continued vesting by virtue of amendment under this Agreement. |
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Exhibit 18.1
April 19, 2013
| | | | | | | | | | | | | | | | | | | | | |
The Board of Directors and Stockholders
Celanese Corporation
Irving, Texas
| Total combined fixed charges | 176 | | | 210 | | | 280 | | | 262 | | | 268 | | | 324 | | | 322 | |
Ladies and Gentlemen:
| | | | | | | | | | | | | | | | | | | | | |
We have been furnished with a copy of the quarterly report on Form 10-Q of Celanese Corporation (the Company) for the three months ended March 31, 2013, and have read the Company's statements contained in Note 1 to the consolidated financial statements included therein. As stated in Note 1, the Company changed its accounting policy for recognizing actuarial gains and losses and changes in the fair value of plan assets and for calculating the expected return on plan assets for its defined benefit pension plans and other postretirement benefit plans and states that the newly adopted accounting policy is preferable in the circumstances because it eliminates the delay in recognizing gains and losses within operating results. In accordance with your request, we have reviewed and discussed with Company officials the circumstances and business judgment and planning upon which the decision to make this change in the method of accounting was based.
| Ratio of earnings to combined fixed charges | 4.5x | | 4.3x | | 3.8x | | 2.9x | | 1.9x | | 2.4x | | 2.3x |
We have not audited any financial statements of the Company as of any date or for any period subsequent to December 31, 2012, nor have we audited the information set forth in the aforementioned Note 1 to the consolidated financial statements; accordingly, we do not express an opinion concerning the factual information contained therein.
With regard to the aforementioned accounting change, authoritative criteria have not been established for evaluating the preferability of one acceptable method of accounting over another acceptable method. However, for purposes of the Company's compliance with the requirements of the Securities and Exchange Commission, we are furnishing this letter.
Based on our review and discussion, with reliance on management's business judgment and planning, we concur that the newly adopted method of accounting is preferable in the Company's circumstances.
Very truly yours,
/s/ KPMG LLP
Exhibit 31.1
CERTIFICATION
PURSUANT TO 17 CFR 240.13a-14
PROMULGATED UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mark C. Rohr, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Celanese Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
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| | | |
| | | /s/ MARK C. ROHR |
| | | Mark C. Rohr |
| | | Chairman of the Board of Directors and |
| | | Chief Executive Officer |
| | | Date: April 19, 2013 |
Exhibit 31.2
CERTIFICATION
PURSUANT TO 17 CFR 240.13a-14
PROMULGATED UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Steven M. Sterin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Celanese Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| |
| | | |
| | | /s/ STEVEN M. STERIN |
| | | Steven M. Sterin |
| | | Senior Vice President and |
| | | Chief Financial Officer |
| | | Date: April 19, 2013 |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Celanese Corporation (the "Company") on Form 10-Q for the period ending March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Mark C. Rohr, Chairman of the Board of Directors and Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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| | | |
| | | /s/ MARK C. ROHR |
| | | Mark C. Rohr |
| | | Chairman of the Board of Directors and |
| | | Chief Executive Officer |
| | | Date: April 19, 2013 |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Celanese Corporation (the "Company") on Form 10-Q for the period ending March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Steven M. Sterin, Senior Vice President and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| |
| | | |
| | | /s/ STEVEN M. STERIN |
| | | Steven M. Sterin |
| | | Senior Vice President and |
| | | Chief Financial Officer |
| | | Date: April 19, 2013 |