UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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|
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þ
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|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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|
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For the quarterly period ended September 30, 2006
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or
|
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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001-32410
(Commission File Number)
CELANESE CORPORATION
(Exact Name of Registrant as
Specified in its Charter)
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|
|
Delaware
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98-0420726
|
(State or Other Jurisdiction
of
Incorporation or Organization)
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|
(I.R.S. Employer
Identification No.)
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|
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|
1601 West LBJ Freeway,
Dallas, TX
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75234-6034
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(Address of Principal Executive
Offices)
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(Zip
Code)
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(972) 443-4000
(Registrants 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
þ
No
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act.
Large Accelerated
Filer
o
Accelerated
Filer
o
Non-accelerated filer
þ
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange Act).
Yes
o
No
þ
The number of outstanding shares of the registrants
Series A common stock, $0.0001 par value, as of
October 21, 2006 was 158,628,846.
CELANESE
CORPORATION
Form 10-Q
For the Quarterly Period Ended September 30, 2006
TABLE OF CONTENTS
1
CELANESE
CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
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|
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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September 30,
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September 30,
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2006
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2005
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2006
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2005
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(In $ millions, except for share and per share data)
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Net sales
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|
1,685
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|
1,526
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|
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|
5,000
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4,493
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|
Cost of sales
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(1,318
|
)
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(1,240
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)
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|
(3,916
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)
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(3,491
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)
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Gross profit
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367
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286
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1,084
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1,002
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Selling, general and
administrative expenses
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(147
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)
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(144
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)
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(452
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)
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(438
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)
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Research and development expenses
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(16
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)
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(22
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)
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(52
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)
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(68
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)
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Other (charges) gains, net:
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|
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|
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|
|
|
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Insurance recoveries associated
with plumbing cases
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|
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3
|
|
|
|
4
|
|
Restructuring, impairment and
other (charges) gains, net
|
|
|
|
|
|
|
(24
|
)
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|
|
(15
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)
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|
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(93
|
)
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Foreign exchange loss, net
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|
(2
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)
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|
(2
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)
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|
(3
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)
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Gain (loss) on disposition of
assets, net
|
|
|
(2
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)
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|
1
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|
(3
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)
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|
(1
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)
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|
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|
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|
|
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Operating profit
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|
200
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|
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|
95
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|
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|
562
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|
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|
406
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Equity in net earnings of
affiliates
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20
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|
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|
21
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59
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|
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|
48
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Interest expense
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|
(74
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)
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|
(72
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)
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|
|
(218
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)
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(316
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)
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Interest income
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9
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|
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|
7
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26
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31
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Other income, net
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26
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|
|
26
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|
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|
61
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|
47
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Earnings from continuing
operations before tax and minority interests
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|
181
|
|
|
|
77
|
|
|
|
490
|
|
|
|
216
|
|
Income tax provision
|
|
|
(72
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)
|
|
|
(27
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)
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|
|
(159
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)
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|
|
(79
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)
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|
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Earnings from continuing
operations before minority interests
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|
109
|
|
|
|
50
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|
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|
331
|
|
|
|
137
|
|
Minority interests
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|
|
(2
|
)
|
|
|
(3
|
)
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|
|
(3
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)
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|
(41
|
)
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|
|
|
|
|
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|
|
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|
|
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Earnings from continuing operations
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|
107
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|
|
|
47
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|
|
|
328
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|
|
|
96
|
|
Earnings (loss) from operation of
discontinued operations
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|
2
|
|
|
|
(2
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)
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|
1
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|
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|
6
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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Net earnings
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|
|
109
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|
|
|
45
|
|
|
|
329
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|
|
|
102
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|
Cumulative declared preferred
stock dividend
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|
|
(3
|
)
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|
|
(3
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)
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|
|
(8
|
)
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|
|
(7
|
)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net earnings available to common
shareholders
|
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|
106
|
|
|
|
42
|
|
|
|
321
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|
|
|
95
|
|
|
|
|
|
|
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Earnings (loss) per common
share basic:
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|
|
|
|
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|
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Continuing operations
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|
0.66
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|
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|
0.27
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|
|
|
2.01
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|
|
0.58
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|
Discontinued operations
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|
0.01
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|
|
|
(0.01
|
)
|
|
|
0.01
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|
|
|
0.04
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|
|
|
|
|
|
|
|
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Net earnings available to common
shareholders
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|
0.67
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|
0.26
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2.02
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0.62
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Earnings (loss) per common
share diluted:
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|
|
|
|
|
|
|
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|
|
|
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Continuing operations
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|
0.63
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|
|
|
0.27
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|
|
|
1.91
|
|
|
|
0.58
|
|
Discontinued operations
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|
0.01
|
|
|
|
(0.01
|
)
|
|
|
0.01
|
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net earnings available to common
shareholders
|
|
|
0.64
|
|
|
|
0.26
|
|
|
|
1.92
|
|
|
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Weighted average
shares basic
|
|
|
158,609,246
|
|
|
|
158,546,594
|
|
|
|
158,578,083
|
|
|
|
153,001,360
|
|
Weighted average
shares diluted
|
|
|
171,176,126
|
|
|
|
171,930,270
|
|
|
|
171,577,553
|
|
|
|
153,536,802
|
|
See the accompanying notes to the unaudited interim consolidated
financial statements
2
CELANESE
CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
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As of
|
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In $ millions)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
513
|
|
|
|
390
|
|
Restricted cash
|
|
|
44
|
|
|
|
|
|
Receivables:
|
|
|
|
|
|
|
|
|
Trade receivables, net
|
|
|
987
|
|
|
|
919
|
|
Other receivables
|
|
|
552
|
|
|
|
481
|
|
Inventories
|
|
|
639
|
|
|
|
650
|
|
Deferred income taxes
|
|
|
37
|
|
|
|
37
|
|
Other assets
|
|
|
68
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,840
|
|
|
|
2,568
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
787
|
|
|
|
775
|
|
Property, plant and equipment, net
of accumulated depreciation of $582 million and
$444 million as of September 30, 2006 and
December 31, 2005, respectively
|
|
|
2,085
|
|
|
|
2,036
|
|
Deferred income taxes
|
|
|
85
|
|
|
|
139
|
|
Other assets
|
|
|
484
|
|
|
|
497
|
|
Goodwill
|
|
|
876
|
|
|
|
949
|
|
Intangible assets, net
|
|
|
469
|
|
|
|
481
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
7,626
|
|
|
|
7,445
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term borrowings and current
installments of long-term debt third party and
affiliates
|
|
|
205
|
|
|
|
155
|
|
Trade payables third
party and affiliates
|
|
|
741
|
|
|
|
811
|
|
Other current liabilities
|
|
|
726
|
|
|
|
787
|
|
Deferred income taxes
|
|
|
27
|
|
|
|
36
|
|
Income taxes payable
|
|
|
248
|
|
|
|
224
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,947
|
|
|
|
2,013
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
3,244
|
|
|
|
3,282
|
|
Deferred income taxes
|
|
|
300
|
|
|
|
285
|
|
Benefit obligations
|
|
|
1,070
|
|
|
|
1,126
|
|
Other liabilities
|
|
|
449
|
|
|
|
440
|
|
Minority interests
|
|
|
70
|
|
|
|
64
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par
value, 100,000,000 shares authorized and 9,600,000 issued
and outstanding as of September 30, 2006 and
December 31, 2005, respectively
|
|
|
|
|
|
|
|
|
Series A common stock,
$0.0001 par value, 400,000,000 shares authorized and
158,628,846 issued and outstanding as of September 30, 2006
and 158,562,161 issued and outstanding as of December 31,
2005
|
|
|
|
|
|
|
|
|
Series B common stock,
$0.0001 par value, 100,000,000 shares authorized and
0 shares issued and outstanding as of September 30,
2006 and December 31, 2005, respectively
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
356
|
|
|
|
337
|
|
Retained earnings
|
|
|
326
|
|
|
|
24
|
|
Accumulated other comprehensive
income (loss), net
|
|
|
(136
|
)
|
|
|
(126
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
546
|
|
|
|
235
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity
|
|
|
7,626
|
|
|
|
7,445
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the unaudited interim consolidated
financial statements.
3
CELANESE
CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Series A Common Stock
|
|
|
Additional
|
|
|
|
|
|
Comprehensive
|
|
|
Total
|
|
|
|
Number of
|
|
|
Par
|
|
|
Number of
|
|
|
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Income (Loss),
|
|
|
Shareholders
|
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Par Value
|
|
|
Capital
|
|
|
Earnings
|
|
|
Net
|
|
|
Equity
|
|
|
|
(In $ millions, except share amounts)
|
|
|
Balance at December 31, 2005
|
|
|
9,600,000
|
|
|
|
|
|
|
|
158,562,161
|
|
|
|
|
|
|
|
337
|
|
|
|
24
|
|
|
|
(126
|
)
|
|
|
235
|
|
Issuance of shares related to
stock option exercises
|
|
|
|
|
|
|
|
|
|
|
66,685
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Comprehensive income (loss), net
of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
329
|
|
|
|
|
|
|
|
329
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
6
|
|
Unrealized gain on derivative
contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
Additional minimum pension
liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
15
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
319
|
|
Indemnification of demerger
liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Common stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
(19
|
)
|
Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
(8
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2006
|
|
|
9,600,000
|
|
|
|
|
|
|
|
158,628,846
|
|
|
|
|
|
|
|
356
|
|
|
|
326
|
|
|
|
(136
|
)
|
|
|
546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the unaudited interim consolidated
financial statements.
4
CELANESE
CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30, 2006
|
|
|
September 30, 2005
|
|
|
|
(In $ millions)
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
329
|
|
|
|
102
|
|
Adjustments to reconcile net
earnings to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Other (charges) gains, net of
amounts used
|
|
|
(34
|
)
|
|
|
10
|
|
Stock-based compensation
|
|
|
15
|
|
|
|
|
|
Depreciation
|
|
|
153
|
|
|
|
153
|
|
Amortization of intangibles and
other assets
|
|
|
60
|
|
|
|
47
|
|
Amortization of deferred financing
fees
|
|
|
8
|
|
|
|
38
|
|
Accretion of senior discount notes
|
|
|
30
|
|
|
|
30
|
|
Premium paid on early redemption of
debt
|
|
|
|
|
|
|
74
|
|
Guaranteed annual payment
|
|
|
(4
|
)
|
|
|
|
|
Change in equity of affiliates
|
|
|
(7
|
)
|
|
|
12
|
|
Deferred income taxes
|
|
|
91
|
|
|
|
(15
|
)
|
Loss on disposition of assets, net
|
|
|
1
|
|
|
|
1
|
|
Minority interests
|
|
|
3
|
|
|
|
41
|
|
Operating cash provided by
discontinued operations
|
|
|
5
|
|
|
|
32
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
Trade receivables, net
|
|
|
(37
|
)
|
|
|
(34
|
)
|
Other receivables
|
|
|
(44
|
)
|
|
|
48
|
|
Prepaid expenses
|
|
|
13
|
|
|
|
(15
|
)
|
Inventories
|
|
|
18
|
|
|
|
40
|
|
Trade payables third
party and affiliates
|
|
|
(88
|
)
|
|
|
(63
|
)
|
Benefit obligations
|
|
|
(51
|
)
|
|
|
(16
|
)
|
Other liabilities
|
|
|
(63
|
)
|
|
|
(1
|
)
|
Income taxes payable
|
|
|
17
|
|
|
|
25
|
|
Other, net
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
415
|
|
|
|
513
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures on property,
plant and equipment
|
|
|
(176
|
)
|
|
|
(132
|
)
|
Acquisition of CAG, net of cash
acquired
|
|
|
|
|
|
|
(397
|
)
|
Fees associated with acquisitions
|
|
|
|
|
|
|
(27
|
)
|
Acquisition of Vinamul, net of cash
reimbursed
|
|
|
|
|
|
|
(208
|
)
|
Acquisition of Acetex, net of cash
acquired
|
|
|
|
|
|
|
(216
|
)
|
Proceeds from sale of assets
|
|
|
11
|
|
|
|
40
|
|
Advances to (from) affiliates, net
|
|
|
(6
|
)
|
|
|
8
|
|
Net proceeds from disposal of
discontinued operations
|
|
|
|
|
|
|
75
|
|
Proceeds from sale of marketable
securities
|
|
|
78
|
|
|
|
179
|
|
Purchases of marketable securities
|
|
|
(56
|
)
|
|
|
(105
|
)
|
Increase in restricted cash
|
|
|
(42
|
)
|
|
|
|
|
Other, net
|
|
|
(2
|
)
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(193
|
)
|
|
|
(778
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
Redemption of senior subordinated
notes, including related premium
|
|
|
|
|
|
|
(572
|
)
|
Repayment of floating rate term
loan, including related premium
|
|
|
|
|
|
|
(354
|
)
|
Borrowings under term loan facility
|
|
|
|
|
|
|
1,135
|
|
Proceeds from issuance of
Series A common stock, net
|
|
|
|
|
|
|
752
|
|
Proceeds from issuance of preferred
stock, net
|
|
|
|
|
|
|
233
|
|
Proceeds from issuance of
discounted common stock
|
|
|
|
|
|
|
12
|
|
Redemption of senior discount
notes, including related premium
|
|
|
|
|
|
|
(207
|
)
|
Redemption of Acetex bonds
|
|
|
|
|
|
|
(280
|
)
|
Distribution to Series B
shareholders
|
|
|
|
|
|
|
(804
|
)
|
Short-term borrowings (repayments),
net
|
|
|
12
|
|
|
|
18
|
|
Proceeds from long-term debt
|
|
|
25
|
|
|
|
22
|
|
Payments of long-term debt
|
|
|
(120
|
)
|
|
|
(14
|
)
|
Fees associated with financings
|
|
|
|
|
|
|
(8
|
)
|
Stock option exercises
|
|
|
1
|
|
|
|
|
|
Dividend payments on preferred stock
|
|
|
(8
|
)
|
|
|
(5
|
)
|
Dividend payments on common stock
|
|
|
(19
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in financing
activities
|
|
|
(109
|
)
|
|
|
(78
|
)
|
Exchange rate effects on cash and
cash equivalents
|
|
|
10
|
|
|
|
(94
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and
cash equivalents
|
|
|
123
|
|
|
|
(437
|
)
|
Cash and cash equivalents at
beginning of period
|
|
|
390
|
|
|
|
838
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
period
|
|
|
513
|
|
|
|
401
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the unaudited interim consolidated
financial statements.
5
CELANESE
CORPORATION AND SUBSIDIARIES
|
|
1.
|
Description
of the Company and Basis of Presentation
|
Description
of the Company
Celanese Corporation and its subsidiaries (collectively the
Company) is a global hybrid chemical company. The
Companys business involves processing chemical raw
materials, such as ethylene and propylene, and natural products,
including natural gas and wood pulp, into value-added chemicals
and chemical-based products.
Basis
of Presentation
In this Quarterly Report on
Form 10-Q,
the term Celanese refers to Celanese Corporation, a
Delaware corporation, and not its subsidiaries. The term
BCP Crystal refers to the Companys subsidiary
BCP Crystal US Holdings Corp., a Delaware corporation, and not
its subsidiaries. The term Purchaser refers to the
Companys subsidiary, Celanese Europe Holding
GmbH & Co. KG, formerly known as BCP Crystal
Acquisition GmbH & Co. KG, a German limited
partnership, and not its subsidiaries, except where otherwise
indicated. The term Original Shareholders refers,
collectively, to Blackstone Capital Partners (Cayman)
Ltd. 1, Blackstone Capital Partners (Cayman) Ltd. 2,
Blackstone Capital Partners (Cayman) Ltd. 3 and BA Capital
Investors Sidecar Fund, L.P. The terms Sponsor and
Advisor refer to certain affiliates of The
Blackstone Group.
As used in this document, the term CAG refers to
(i) prior to the Organizational Restructuring (as defined
in Note 3 below), Celanese AG and Celanese Americas
Corporation (CAC), their consolidated subsidiaries,
their non-consolidated subsidiaries, ventures and other
investments, and (ii) following the Organizational
Restructuring, Celanese AG, its consolidated subsidiaries, its
non-consolidated subsidiaries, ventures and other investments,
except that with respect to shareholder and similar matters
where the context indicates, CAG refers to Celanese
AG.
The unaudited interim consolidated financial statements as of
and for the three and nine months ended September 30, 2006
and the unaudited interim consolidated financial statements for
the three and nine months ended September 30, 2005
contained in this Quarterly Report (collectively, the
Unaudited Interim Consolidated Financial Statements)
were prepared in accordance with accounting principles generally
accepted in the United States (U.S. 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 interim consolidated
statements of operations, cash flows, and shareholders
equity include all adjustments, consisting only of normal
recurring items, necessary for their fair presentation in
conformity with U.S. GAAP. Certain information and footnote
disclosures normally included in financial statements prepared
in accordance with U.S. 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 Celanese Corporation and Subsidiaries consolidated
financial statements as of and for the year ended
December 31, 2005, as filed with the SEC on
Form 10-K.
Operating results for the three and nine months ended
September 30, 2006 and 2005 are not necessarily indicative
of the results to be expected for the entire year.
Estimates
and Assumptions
The preparation of consolidated financial statements in
conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and
liabilities at the date of the consolidated financial statements
and the reported amounts of revenues, expenses and allocated
charges during the reporting period. The more significant
estimates pertain to purchase price allocations, impairments of
intangible assets and other long-lived assets, restructuring
costs and other (charges)
6
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
Restricted
Cash
At September 30, 2006, the Company has $44 million of
restricted cash. The restricted cash is not available for use by
the Company in its operations but rather serves to provide
security that the Company will fulfill certain of its
obligations. The cash is held in custody by a bank and is
restricted as to withdrawal or use but will be released to the
Company upon the completion of certain future events.
Reclassifications
The Company has reclassified certain prior period amounts to
conform to the current periods presentation. The
reclassifications had no material effect on the unaudited
consolidated statements of operations, statements of cash flows
or shareholders equity as previously reported.
|
|
2.
|
Acquisition
of Celanese AG
|
On April 6, 2004, the Purchaser, an indirect wholly owned
subsidiary of the Company, acquired approximately 84% of the
ordinary shares of Celanese AG, excluding treasury shares
(CAG Shares), pursuant to a voluntary tender offer
commenced in February 2004. The CAG Shares were acquired at a
price of 32.50 per share or an aggregate purchase
price of $1,693 million, including direct acquisition costs
of $69 million (the Acquisition). In August
2005, the Company acquired additional CAG shares pursuant to
either i) the mandatory offer (See
Note 3) commenced in September 2004 that will remain
open until two months following the final resolution of the
minority shareholder award proceedings pending in German courts
or ii) the purchase of CAG shares as described below. On
November 3, 2005, the Companys Board of Directors
approved commencement of the process for effecting a Squeeze-Out
(as defined below) of the remaining shareholders. As of
September 30, 2006 and December 31, 2005, the
Purchasers ownership percentage was approximately 98%.
Acquisition
of Additional CAG Shares
On August 24, 2005, the Purchaser acquired
5.9 million, or approximately 12%, of the outstanding CAG
shares from two shareholders for 302 million
($369 million). The Company also paid to such shareholders
12 million ($15 million) in consideration for
the settlement of certain claims and for such shareholders
agreeing to, among other things, (1) accept the
shareholders resolutions passed at the extraordinary
general meeting of CAG held on July 30 and 31, 2004
and the annual general meeting of CAG held on May 19
and 20, 2005, (2) acknowledge the legal effectiveness
of the Domination Agreement (as defined in Note 3),
(3) irrevocably withdraw and abandon all actions,
applications and appeals each brought or joined in legal
proceedings related to, among other things, challenging the
effectiveness of the Domination Agreement and amount of fair
cash compensation offered by the Purchaser in the mandatory
offer required by Section 305(1) of the German Stock
Corporation Act, (4) refrain from acquiring any CAG shares
or any other investment in CAG, and (5) refrain from taking
any future legal action with respect to shareholder resolutions
or corporate actions of CAG. The Purchaser paid aggregate
consideration of 314 million ($384 million) for
the additional CAG shares using available cash.
The Purchaser also made a limited offer to purchase from all
other shareholders any remaining outstanding CAG shares for
51 per share (plus interest on 41.92 per
share) against waiver of the shareholders rights to
participate in an increase of the offer consideration as a
result of the pending award proceedings. In addition, all
shareholders who tendered their shares pursuant to the September
2004 mandatory offer of 41.92 per share, were
entitled to claim the difference between the increased offer and
the mandatory offer. The limited offer period ran from
August 30, 2005 through September 29, 2005, inclusive.
For shareholders who did not accept the limited offer on or
prior to the September 29, 2005 expiration date, the terms
of the original mandatory offer continue to apply.
7
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The mandatory offer will remain open for two months following
final resolution of the award proceedings pending in German
courts.
Pro
Forma Information
The following pro forma information for the three and nine
months ended September 30, 2005 was prepared as if the
subsequent acquisition of additional CAG shares during 2005 had
occurred as of the beginning of such period:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2005
|
|
|
2005
|
|
|
|
(In $ millions)
|
|
|
Net sales
|
|
|
1,526
|
|
|
|
4,493
|
|
Operating profit
|
|
|
100
|
|
|
|
407
|
|
Net earnings
|
|
|
54
|
|
|
|
143
|
|
Pro forma adjustments include adjustments for (1) purchase
accounting, including (i) the application of purchase
accounting to pension and other postretirement obligations
(ii) the application of purchase accounting to property,
plant and equipment and identifiable intangible assets,
(2) adjustments for items directly related to the
transaction, including (i) the impact of the additional
pension contribution, (ii) fees incurred by the Company
related to the acquisition, and (iii) adjustments to
interest expense to reflect the Companys new capital
structure and (3) corresponding adjustments to income tax
expense.
The pro forma information is not necessarily indicative of the
results that would have occurred had the acquisition occurred as
of the beginning of the period presented, nor is it necessarily
indicative of future results.
Squeeze-Out
Because the Company owns shares representing more than 95% of
the registered ordinary share capital (excluding treasury
shares) of CAG, the Company exercised its right, as permitted
under German law, to the transfer of the shares owned by the
outstanding minority shareholders of CAG in exchange for fair
cash compensation (the Squeeze-Out). The Squeeze-Out
was approved by the affirmative vote of the majority of the
votes cast at CAGs annual general meeting in May 2006 and
will become effective upon its registration in the commercial
register. If the Company is successful in effecting the
Squeeze-Out, the Company must pay the then remaining minority
shareholders of CAG fair cash compensation, in exchange for
their shares. The amount of the fair cash compensation under the
Squeeze-Out has been set at 66.99 per share. This
price could increase if the amount of fair cash compensation is
successfully challenged in court. Based on an amount of
66.99 per share, the total amount of funds to be paid
as fair cash compensation once the Squeeze-Out becomes effective
is approximately 62 million.
At the beginning of August 2006, CAG was served seventeen
actions filed by minority shareholders with the Frankfurt
District Court to set aside the resolution passed by the
shareholders of CAG in approval of the Squeeze-Out. Several
minority shareholders joined these proceedings via a third party
intervention in support of the plaintiffs. As long as these
lawsuits are pending, the Squeeze-Out cannot be entered into the
commercial register unless the court, in a separate release
proceeding to be initiated by the Company, holds that the
lawsuits should not prevent registration of the Squeeze-Out
because (i) they are inadmissible, (ii) they are
obviously without merit or (iii) in the courts
discretion and taking into account the violations alleged by
plaintiffs, the Companys and shareholders interest
in an early effectiveness of the Squeeze-Out outweighs the
plaintiffs interest. At the end of August 2006, CAG filed
a motion to initiate a release proceeding. In October 2006, the
court granted the petition. This decision is subject to appeal.
The outcome of the foregoing legal proceedings cannot be
predicted with certainty.
8
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
Domination
Agreement and Organizational Restructuring
|
Domination
Agreement
On October 1, 2004, a domination and profit and loss
transfer agreement (the Domination Agreement)
between CAG and the Purchaser became operative. When the
Domination Agreement became operative, the Purchaser became
obligated to offer to acquire all outstanding CAG shares from
the minority shareholders of CAG in return for payment of fair
cash compensation. The amount of this fair cash compensation had
been determined to be 41.92 per share, plus interest,
in accordance with applicable German law. The Purchaser may
elect, or be required, to pay a purchase price in excess of
41.92 to acquire the remaining outstanding CAG shares. Any
minority shareholder who elects not to sell its shares to the
Purchaser will, until the above Squeeze-Out becomes effective,
be entitled to remain a shareholder of CAG and to receive from
the Purchaser a gross guaranteed annual payment on its shares of
3.27 per CAG share less certain corporate taxes in
lieu of any future dividend. Taking into account the
circumstances and the tax rates at the time of entering into the
Domination Agreement, the net guaranteed annual payment would be
2.89 per share for a full fiscal year. The net
guaranteed annual payment may, depending on applicable corporate
tax rates, in the future be higher, lower or the same as
2.89 per share. For the three and nine months ended
September 30, 2006, a charge of less than
1 million ($1 million) and 2 million
($2 million), respectively, was recorded in Other income
(expense), net for the anticipated guaranteed payment. For the
three and nine months ended September 30, 2005, a charge of
4 million ($5 million) and 16 million
($20 million), respectively, was recorded in Other income
(expense), net for the anticipated guaranteed payment. (See
Note 2).
On June 1, 2006, the guaranteed dividend for the fiscal
year ended on September 30, 2005, which amounted to
3 million ($3 million), was paid. In addition,
pursuant to a settlement agreement entered into with plaintiff
shareholders in March 2006, the Purchaser paid
1 million ($1 million) on June 30, 2006,
the guaranteed dividend for the fiscal year ended on
September 30, 2006, to those shareholders who signed a
letter waiving any further rights with respect to such
guaranteed dividend that ordinarily would become due and payable
after next years annual general meeting. The remaining
liability at September 30, 2006 to be paid in 2007 for
CAGs 2006 fiscal year is 1 million
($2 million).
Beginning October 1, 2004, under the terms of the
Domination Agreement, the Purchaser, as the dominating entity,
among other things, is required to compensate CAG for any
statutory annual loss incurred by CAG, the dominated entity, on
a non-consolidated basis, at the end of the fiscal year when the
loss was incurred. This obligation to compensate CAG for annual
losses will apply during the entire term of the Domination
Agreement. The Purchaser has not had to compensate CAG for an
annual loss for any period during which the Domination Agreement
has been in effect.
There is no assurance that the Domination Agreement will remain
operative in its current form. If the Domination Agreement
ceases to be operative, the Company will not be able to directly
give instructions to the CAG board of management. The Domination
Agreement cannot be terminated by the Purchaser in the ordinary
course of business until September 30, 2009. However,
irrespective of whether a domination agreement is in place
between the Purchaser and CAG, under German law, CAG is
effectively controlled by the Company because of the
Purchasers more than 95% ownership of the outstanding CAG
shares. The Company does have the ability, through a variety of
means, to utilize its controlling rights to, among other things,
(1) cause a domination agreement to become operative;
(2) use its ability, through its more than 95% voting power
at any shareholders meetings of CAG, to elect the
shareholder representatives on the supervisory board and to
thereby effectively control the appointment and removal of the
members of the CAG board of management; and (3) effect all
decisions that a majority shareholder who owns more than 95% is
permitted to make under German law. The controlling rights of
the Company constitute a controlling financial interest for
accounting purposes and result in the Company being required to
consolidate CAG as of the date of acquisition. In addition, as
long as the Domination Agreement remains effective, the
Purchaser is entitled to give instructions directly to the
management board of CAG, including, but not
9
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
limited to, instructions that are disadvantageous to CAG, as
long as such disadvantageous instructions benefit the Purchaser
or the companies affiliated with either the Purchaser or CAG.
The Domination Agreement is subject to legal challenges
instituted by dissenting shareholders. During August 2004,
ten actions were brought by minority shareholders against CAG in
the Frankfurt District Court, all of which were consolidated in
September 2004. Several minority shareholders joined these
proceedings via a third party intervention in support of the
plaintiffs. The Purchaser joined the proceedings via a third
party intervention in support of CAG. Among other things, these
actions request the court to set aside shareholder resolutions
passed at the extraordinary general meeting held on July 30
and 31, 2004 based on allegations that include the alleged
violation of procedural requirements and information rights of
the shareholders. On March 6, 2006, the Purchaser and CAG
signed a settlement agreement settling the ten minority
shareholder actions (See Note 14).
Twenty-seven minority shareholders filed lawsuits in May and
June of 2005 in the Frankfurt District Court contesting the
shareholder resolutions passed at the annual general meeting
held May 19-20, 2005, which confirmed the resolutions passed at
the July 30-31, 2004 extraordinary general meeting
approving the Domination Agreement and a change in CAGs
fiscal year. In conjunction with the Purchasers
acquisition of 5.9 million ordinary shares of CAG from two
shareholders in August 2005, two of those lawsuits were
withdrawn. In February 2006, the Frankfurt District Court ruled
to dismiss all challenges contesting the confirmatory
resolutions and upheld only the challenge regarding the
ratification of the acts of the members of the board of
management and the supervisory board. CAG appealed the decision
with respect to the ratification. Three appeals by plaintiff
shareholders regarding the decision on the confirmatory
resolutions are also pending.
The Domination Agreement is further challenged in four Null and
Void actions pending in the Frankfurt District Court. These
actions are seeking to have the shareholders resolution
approving the Domination Agreement declared null and void based
on an alleged violation of formal requirements relating to the
invitation for the shareholders meeting.
If legal challenges of the Domination Agreement by dissenting
shareholders of CAG are successful, some or all actions taken
under the Domination Agreement, including the transfer of CAC
(see
Organizational Restructuring
below for discussion
regarding CACs transfer) may be required to be reversed
and the Company may be required to compensate CAG for damages
caused by such actions, which could have a material impact on
the Companys financial position, results of operations and
cash flows.
Holders of CAG shares can still accept the Purchasers
mandatory offer under the Domination Agreement to acquire their
shares at 41.92 per share. Shareholders who elect not
to do so will remain shareholders of CAG until the effectiveness
of the Squeeze-Out with an entitlement under the Domination
Agreement to the above described guaranteed annual payment. Upon
effectiveness of the Squeeze-Out, their shares will be
transferred to the Purchaser against payment of
66.99 per share. Due to shareholder lawsuits against
the shareholders resolution approving the Squeeze-Out,
there can be no assurance as to whether and when the Squeeze-Out
will become effective.
The amounts of the fair cash compensation and of the guaranteed
annual payment offered under the Domination Agreement are under
court review in special award proceedings (See Note 14). As
a result of these proceedings, either amount could be increased
by the court so that all minority shareholders, including those
who have already tendered their shares into the mandatory offer
and have received the fair cash compensation could claim the
respective higher amounts. Minority shareholders may initiate
such proceedings also with respect to the Squeeze-Out
compensation. In this case, shareholders who cease to be
shareholders of CAG due to the Squeeze-Out are entitled,
pursuant to a settlement agreement between the Purchaser and
minority shareholders, to claim for their shares the higher of
the compensation amounts determined by the court in these
different proceedings. Payments they already received as
compensation for their shares will be offset so that the
minority shareholders who cease to be shareholders of CAG due to
the Squeeze-Out are not entitled to more than the higher of the
amount set in the two court proceedings.
10
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Organizational
Restructuring
In October 2004, Celanese and certain of its subsidiaries
completed an organizational restructuring (the
Organizational Restructuring) pursuant to which the
Purchaser effected, by giving a corresponding instruction under
the Domination Agreement, the transfer of all of the shares of
CAC from Celanese Holding GmbH, a wholly owned subsidiary of
CAG, to Celanese Caylux Holdings Luxembourg S.C.A., formerly BCP
Caylux Holdings Luxembourg S.C.A (Celanese Caylux),
which resulted in Celanese Caylux owning 100% of the equity of
CAC and indirectly, all of its assets, including subsidiary
stock. This transfer was affected by CAG selling all outstanding
shares in CAC for a 291 million note. This note
eliminates in consolidation.
Following the transfer of CAC to Celanese Caylux,
(1) Celanese Holdings contributed substantially all of its
assets and liabilities (including all outstanding capital stock
of Celanese Caylux) to BCP Crystal in exchange for all
outstanding capital stock of BCP Crystal and (2) BCP
Crystal assumed certain obligations of Celanese Caylux,
including all rights and obligations of Celanese Caylux under
the senior credit facilities, the floating rate term loan and
the senior subordinated notes. BCP Crystal, at its discretion,
may subsequently cause the liquidation of Celanese Caylux.
As a result of these transactions, BCP Crystal holds 100% of
CACs equity and, indirectly, all equity owned by CAC and
its subsidiaries. In addition, BCP Crystal holds, indirectly,
all of the CAG shares held by the Purchaser and all of the
wholly owned subsidiaries of the Company that guarantee Celanese
Cayluxs obligations under the senior credit facilities to
guarantee the senior subordinated notes issued on June 8,
2004 and July 1, 2004 (See Note 10) on an
unsecured senior subordinated basis.
|
|
4.
|
Initial
Public Offering and Concurrent Financings
|
In January 2005, the Company completed an initial public
offering of 50,000,000 shares of Series A common stock
and received net proceeds of $752 million after deducting
underwriters discounts and offering expenses of
$48 million. Concurrently, the Company received net
proceeds of $233 million from the offering of its
convertible perpetual preferred stock. A portion of the proceeds
of the share offerings were used to redeem $188 million of
senior discount notes and $521 million of senior
subordinated notes, excluding early redemption premiums of
$19 million and $51 million, respectively.
Subsequent to the closing of the initial public offering, the
Company borrowed an additional $1,135 million under the
amended and restated senior credit facilities, a portion of
which was used to repay a $350 million floating rate term
loan, which excludes a $4 million early redemption premium,
and $200 million of which was used as the primary financing
for the February 2005 acquisition of the Vinamul business (See
Note 10). Additionally, the amended and restated senior
credit facilities included a $242 million delayed draw term
loan, which expired unutilized in July 2005.
On March 9, 2005, the Company issued a 7,500,000
Series A common stock dividend to the Original Shareholders
(See Note 13) of its Series B common stock.
On April 7, 2005, the Company used the remaining proceeds
of the initial public offering and concurrent financings to pay
a special cash dividend declared on March 8, 2005 to
holders of the Companys Series B common stock of
$804 million. Upon payment of the $804 million
dividend, all of the outstanding shares of Series B common
stock converted automatically to shares of Series A common
stock.
|
|
5.
|
New
Accounting Pronouncements
|
In November 2004, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards No. 151(SFAS No. 151),
Inventory Costs, an amendment of ARB No. 43,
Chapter 4
, which clarifies the accounting for abnormal
amounts of idle facility expense, freight, handling costs and
wasted material
11
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and requires that such items be recognized as current-period
charges regardless of whether they meet the so
abnormal criterion outlined in ARB No. 43.
SFAS No. 151 also introduces the concept of
normal capacity and requires the allocation of fixed
production overheads to inventory based on the normal capacity
of the production facilities. Unallocated overheads must be
recognized as an expense in the period incurred.
SFAS No. 151 is effective for inventory costs incurred
during fiscal years beginning after June 15, 2005. The
Company adopted SFAS No. 151 effective January 1,
2006. The adoption of SFAS No. 151 did not have a
material impact on the Companys financial position,
results of operations or cash flows.
In December 2004, the FASB revised SFAS No. 123,
Accounting for Stock-Based Compensation
, which requires
that the cost from all share-based payment transactions be
recognized in the financial statements.
SFAS No. 123(R),
Share Based Payment
,
(SFAS No. 123(R)) requires companies to
measure all employee stock-based compensation awards using a
fair-value method and record such expense in their consolidated
financial statements. The adoption of SFAS No. 123(R)
requires additional accounting related to the income tax effects
and additional disclosure regarding the cash flow effects
resulting from share-based payment arrangements. Prior to
January 1, 2006, the Company accounted for its stock-based
compensation plans in accordance with Accounting Principles
Board Opinion No. 25,
Accounting for Stock Issued to
Employees
(APB 25) and related
interpretations. Under APB 25, no compensation expense was
recognized for stock option grants if the exercise price of the
Companys stock option grants was at or above the fair
market value of the underlying stock on the date of grant.
Effective January 1, 2006, the Company adopted the fair
value recognition provisions of SFAS No. 123(R) using
the modified-prospective transition method. Under this
transition method, compensation cost recognized in the first and
second quarter of 2006 includes: (a) compensation cost for
all share-based payments granted prior to, but not yet vested as
of January 1, 2006, based on the grant-date fair value used
for pro forma disclosures under the provisions of
SFAS No. 123 and (b) compensation cost for all
share-based payments granted subsequent to January 1, 2006,
based on the grant-date fair value estimated in accordance with
the provisions of SFAS No. 123(R). Results for prior
periods have not been restated. See Note 16 for additional
information related to the impact of the adoption of
SFAS No. 123(R).
In December 2004, the FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets, an amendment of APB Opinion
No. 29, Accounting for Nonmonetary Transactions
(SFAS No. 153). The amendments made by
SFAS No. 153 are based on the principle that exchanges
of nonmonetary assets should be measured based on the fair value
of the assets exchanged. Further, the amendments eliminate the
narrow exception for nonmonetary exchanges of similar productive
assets and replace it with a broader exception for exchanges of
nonmonetary assets that do not have commercial substance. The
statement was effective for nonmonetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005.
The Company adopted SFAS No. 153 effective
January 1, 2006. The adoption of SFAS No. 153 did
not have a material impact on the Companys financial
position, results of operations or cash flows.
In February 2006, the FASB issued SFAS No. 155,
Accounting for Certain Hybrid Financial Instruments
(SFAS No. 155). SFAS No. 155
amends FASB Statement No. 133 and FASB Statement
No. 140, and improves the financial reporting of certain
hybrid financial instruments by requiring more consistent
accounting that eliminates exemptions and provides a means to
simplify the accounting for these instruments. Specifically,
SFAS No. 155 allows financial instruments that have
embedded derivatives to be accounted for as a whole (eliminating
the need to bifurcate the derivative from its host) if the
holder elects to account for the whole instrument on a fair
value basis. SFAS No. 155 is effective for all
financial instruments acquired or issued after the beginning of
an entitys first fiscal year that begins after
September 15, 2006. The Company is required to adopt the
provisions of SFAS No. 155, as applicable, beginning
in fiscal year 2007. Management does not believe the adoption of
SFAS No. 155 will have a material impact on the
Companys financial position, results of operations or cash
flows.
In July 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109
(FIN 48), which clarifies the accounting for
uncertainty in tax
12
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
positions. FIN 48 requires that the Company recognize in
its financial statements, the impact of a tax position, if that
position is more likely than not of being sustained upon
examination, including resolution of any related appeals or
litigation processes, based on the technical merits of the
position. The Company is required to adopt the provisions of
FIN 48, as applicable, beginning in fiscal year 2007, with
the cumulative effect of the change in accounting principle
recorded as an adjustment to opening retained earnings.
Management is currently evaluating the impact of adopting
FIN 48 on the Companys financial position, results of
operations and cash flows.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS No. 157), which defines fair value,
establishes guidelines for measuring fair value and expands
disclosures regarding fair value measurements.
SFAS No. 157 does not require any new fair value
measurements but rather eliminates inconsistencies in guidance
found in various prior accounting pronouncements.
SFAS No. 157 is effective for fiscal years beginning
after November 15, 2007. Earlier adoption is permitted,
provided the Company has not yet issued financial statements,
including interim periods, for that fiscal year. Management is
currently evaluating the impact of adopting
SFAS No. 157 on the Companys financial position,
results of operations and cash flows.
In September 2006, the FASB issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans An Amendment of FASB
Statements No. 87, 88, 106 and 132(R)
(SFAS No. 158), which requires an
employer to recognize the overfunded or underfunded status of a
defined benefit postretirement plan as an asset or liability in
its statement of financial position and to recognize changes in
that funded status in the year in which the changes occur
through comprehensive income. This statement also requires an
employer to measure the funded status of a plan as of the date
of its year-end statement of financial position, with limited
exceptions. The Company will be required to initially recognize
the funded status of a defined benefit postretirement plan and
to provide the required disclosures as of the end of
December 31, 2006. The requirement to measure plan assets
and benefit obligations as of the date of the employers
fiscal year-end statement of financial position is effective for
fiscal years ending after December 15, 2008. Management is
currently evaluating the impact of adopting
SFAS No. 158 on the Companys financial position,
results of operations and cash flows.
In September 2006, the SEC issued Staff Accounting Bulletin
(SAB) Topic 1N,
Financial Statements Considering
the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements
(SAB 108). SAB 108 addresses how the
effects of prior-year uncorrected misstatements should be taken
into consideration when quantifying misstatements in
current-year financial statements. It requires quantification of
misstatements using both the balance sheet and income statement
approaches and evaluation of whether either approach results in
quantifying an error that is material in light of relevant
quantitative and qualitative factors. SAB 108 does not
change the SECs previous guidance on evaluating the
materiality of misstatements. When the effect of initial
adoption is determined to be material, the guidance allows
registrants to record that effect as a cumulative-effect
adjustment to
beginning-of-year
retained earnings. The requirements are effective for annual
financial statements covering the first fiscal year ending after
November 15, 2006. The adoption of SAB 108 is not
expected to impact the Companys previously filed financial
statements.
6. Acquisitions,
Ventures and Divestitures
Acquisitions
In August 2006, the Company signed a definitive agreement to
purchase the cellulose acetate flake, tow and film business of
Acetate Products Limited (APL). Under the terms of
the agreement, the Company will not assume any debt obligations.
The agreement is subject to the receipt of certain regulatory
approvals and other customary closing conditions. The
transaction is expected to close during the fourth quarter of
2006. This acquisition is not expected to be material to the
financial position or the results of operations of the Company.
The Company plans to fund the acquisition using available cash
from operations.
13
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In July 2005, the Company acquired Acetex Corporation
(Acetex) for $270 million, plus direct
acquisition costs of $16 million and assumed Acetexs
$247 million of debt, which is net of cash acquired of
$54 million. Acetex has two primary businesses
its Acetyls business and its Specialty Polymers and Films
business. The Acetyls business is operated in Europe and the
Polymers and Film businesses are operated in North America. The
Company acquired Acetex using existing cash. Pro forma financial
information has not been provided as the acquisition did not
have a material impact on the Companys results of
operations. The net sales and operating profit of the Acetex
business included in the Companys results of operations
were $134 million and $2 million, respectively, for
the three months ended September 30, 2006. The net sales
and operating profit of the Acetex business included in the
Companys results of operations were $413 million and
$14 million, respectively, for the nine months ended
September 30, 2006.
The following table presents the allocation of Acetex
acquisition costs, to the assets acquired and liabilities
assumed, based on fair value:
|
|
|
|
|
|
|
Acetex
|
|
|
|
(In $ millions)
|
|
|
Cash
|
|
|
54
|
|
Inventories
|
|
|
80
|
|
Property, plant, and equipment
|
|
|
263
|
|
Goodwill
|
|
|
174
|
|
Intangible assets
|
|
|
76
|
|
Debt
|
|
|
(316
|
)
|
Pensions liabilities
|
|
|
(28
|
)
|
Other current assets/liabilities
|
|
|
(17
|
)
|
|
|
|
|
|
Net assets acquired
|
|
|
286
|
|
|
|
|
|
|
Ventures
On October 1, 2003, CAG and Degussa AG
(Degussa) completed the combination of their
European oxo businesses. The venture, European Oxo GmbH
(EOXO), consists of both companies
propylene-based oxo chemical activities. CAG contributed net
assets with a carrying value of $12 million for a 50%
interest in the venture. CAG retained substantially all the
accounts receivable, accounts payable and accrued liabilities of
its contributed business existing on September 30, 2003. In
addition, CAG and Degussa each have committed to fund the
venture equally. Under a multi-year agreement, Degussa has the
option to sell its interest in EOXO to the Company beginning in
January 2008 for a price based on a formula which considers the
profitability and net debt of the venture and the purchase price
of rhodium.
On August 28, 2006, Celanese Chemicals Europe GmbH
(CCE), a wholly owned subsidiary of CAG, entered
into an agreement with Degussa pursuant to which Degussa granted
CCE an option to purchase Degussas interest in EOXO for a
purchase price not materially different than the formula
described above and the assumption of certain liabilities. The
option is exercisable until June 30, 2007 and is subject to
certain conditions. Degussa has given notice that if CCE does
not exercise its option to purchase by June 30, 2007,
Degussa will exercise its right to sell its interest in EOXO to
the Company beginning in 2008 for a price based on the same
formula described above.
The Companys European oxo business is part of its Chemical
Products segment. The Company reports its investment in EOXO
using the equity method of accounting.
14
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Divestitures
In July 2005, in connection with the Vinamul acquisition in
February 2005, the Company sold its emulsions powders business
to Imperial Chemicals Industries PLC (ICI) for
approximately $25 million. This transaction included a
supply agreement whereby the Company supplies product to ICI for
a period of up to fifteen years. In connection with the sale,
the Company reduced goodwill related to the acquisition of
Vinamul by $6 million. Closing of the transaction occurred
in September 2005.
During the third quarter of 2006, the Company discontinued its
Pentaerythritol (PE) operations, which were included
in the Chemical Products segment. During the fourth quarter of
2005, the Company discontinued its filament operations (see the
Companys 2005 Annual Report on
Form 10-K
for details). As a result of these actions, the earnings (loss)
from operations related to the PE and filament operations are
reflected as a component of discontinued operations in the
unaudited consolidated statements of operations
.
The following table summarizes the results of the discontinued
operations for the periods presented in the unaudited
consolidated statement of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
(In $ millions)
|
|
|
Net sales
|
|
|
|
|
|
|
10
|
|
|
|
12
|
|
|
|
71
|
|
Cost of sales
|
|
|
(2
|
)
|
|
|
(12
|
)
|
|
|
(14
|
)
|
|
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
4
|
|
Gain on disposal of discontinued
operations
|
|
|
3
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
Tax benefit from operation of
discontinued operations
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from discontinued
operations
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
Held for Sale
In September 2006, the Company signed a letter of intent to sell
its land and building in Ontario, Canada for approximately
$2 million. The net book value of the facility is
approximately $2 million and it has been treated as assets
held for sale.
15
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In $ millions)
|
|
|
Trade receivables
|
|
|
1,002
|
|
|
|
935
|
|
Allowance for doubtful accounts
|
|
|
(15
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
987
|
|
|
|
919
|
|
Reinsurance receivables
|
|
|
148
|
|
|
|
117
|
|
Other
|
|
|
404
|
|
|
|
364
|
|
|
|
|
|
|
|
|
|
|
Net receivables
|
|
|
1,539
|
|
|
|
1,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In $ millions)
|
|
|
Finished goods
|
|
|
480
|
|
|
|
504
|
|
Work-in-process
|
|
|
33
|
|
|
|
27
|
|
Raw materials and supplies
|
|
|
126
|
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
|
639
|
|
|
|
650
|
|
|
|
|
|
|
|
|
|
|
|
|
9.
|
Goodwill
and Intangible Assets
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemical
|
|
|
Acetate
|
|
|
|
|
|
Performance
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Products
|
|
|
Ticona
|
|
|
Products
|
|
|
Other
|
|
|
Total
|
|
|
|
(In $ millions)
|
|
|
As of December 31, 2005
|
|
|
380
|
|
|
|
188
|
|
|
|
285
|
|
|
|
79
|
|
|
|
17
|
|
|
|
949
|
|
Acquisition of Acetex
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
8
|
|
Acquisition of CAG (1)
|
|
|
(19
|
)
|
|
|
(16
|
)
|
|
|
(15
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
(52
|
)
|
Exchange rate changes
|
|
|
(15
|
)
|
|
|
2
|
|
|
|
(16
|
)
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2006
|
|
|
359
|
|
|
|
174
|
|
|
|
254
|
|
|
|
80
|
|
|
|
9
|
|
|
|
876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The adjustments recorded during the nine months ended
September 30, 2006 consist primarily of reversals of
certain pre-acquisition tax valuation allowances.
|
In connection with the acquisition of Acetex (See Note 6),
the Company has allocated the purchase price to assets acquired
and liabilities assumed based on fair value. The excess of the
purchase price over the amounts allocated to assets and
liabilities is included in Goodwill, and is $170 million at
September 30, 2006. The Company finalized the purchase
accounting for this transaction during the three months ended
June 30, 2006.
16
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other
Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In $ millions)
|
|
|
Trademarks and tradenames
|
|
|
81
|
|
|
|
73
|
|
Customer related intangible assets
|
|
|
515
|
|
|
|
474
|
|
Developed technology
|
|
|
12
|
|
|
|
12
|
|
Covenants not to compete
|
|
|
11
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets, gross
|
|
|
619
|
|
|
|
570
|
|
Less: accumulated amortization
|
|
|
(150
|
)
|
|
|
(89
|
)
|
|
|
|
|
|
|
|
|
|
Total intangible assets, net
|
|
|
469
|
|
|
|
481
|
|
|
|
|
|
|
|
|
|
|
Aggregate amortization expense charged against earnings for
intangible assets with finite lives during the three months
ended September 30, 2006 and 2005 totaled $17 million
and $14 million, respectively. Aggregate amortization
expense charged against earnings for intangible assets with
finite lives during the nine months ended September 30,
2006 and 2005 totaled $52 million and $38 million,
respectively.
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In $ millions)
|
|
|
Short-term borrowings and
current installments of long-term debt third party
and affiliates
|
|
|
|
|
|
|
|
|
Current installments of long-term
debt
|
|
|
29
|
|
|
|
20
|
|
Short-term borrowings, principally
comprised of amounts due to affiliates
|
|
|
176
|
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
Total short-term borrowings and
current installments of long-term debt third party
and affiliates
|
|
|
205
|
|
|
|
155
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
|
|
|
|
|
|
Senior Credit Facilities: Term
Loan facility
|
|
|
1,613
|
|
|
|
1,708
|
|
Senior Subordinated
Notes 9.625%, due 2014
|
|
|
799
|
|
|
|
800
|
|
Senior Subordinated
Notes 10.375%, due 2014
|
|
|
165
|
|
|
|
153
|
|
Senior Discount Notes 10.5%,
due 2014
|
|
|
330
|
|
|
|
306
|
|
Senior Discount Notes 10%,
due 2014
|
|
|
79
|
|
|
|
73
|
|
Term notes 7.125%, due 2009
|
|
|
14
|
|
|
|
14
|
|
Pollution control and industrial
revenue bonds, interest rates ranging from 5.2% to 6.7%, due at
various dates through 2030
|
|
|
191
|
|
|
|
191
|
|
Obligations under capital leases
and other secured borrowings due at various dates through 2023
|
|
|
27
|
|
|
|
28
|
|
Other borrowings
|
|
|
55
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
3,273
|
|
|
|
3,302
|
|
Less: Current installments of
long-term debt
|
|
|
29
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
3,244
|
|
|
|
3,282
|
|
|
|
|
|
|
|
|
|
|
17
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The $600 million revolving credit facility provides for the
availability of letters of credit in U.S. dollars and euros
and for borrowings on same-day notice. As of September 30,
2006, there were no borrowings under the revolving credit
facility and $68 million of letters of credit had been
issued under the revolving credit facility; accordingly,
$532 million remained available for borrowing. On
October 18, 2006, letters of credit under the revolving
credit facility totaling $36 million were cancelled by the
beneficiaries.
The Company has a $228 million credit-linked revolving
facility available for the issuance of letters of credit, which
matures in 2009. As of September 30, 2006, there were
$193 million of letters of credit issued under the
credit-linked revolving facility and $35 million was
available for borrowing. On October 18, 2006, letters of
credit under the credit-linked revolving facility totaling
$8 million were cancelled by the beneficiaries.
On July 14, 2006, the Company made a $100 million
equivalent voluntary prepayment on its Senior Term Loan
facility. In connection with the voluntary prepayment, the
Company wrote-off approximately $1 million of unamortized
deferred financing fees associated with the Senior Term Loan
facility.
The Company is in compliance with all of the financial covenants
related to its debt agreements as of September 30, 2006.
Interest
expense
The components of interest expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
(In $ millions)
|
|
|
Amortization of deferred financing
costs on early redemption and prepayment of debt
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
28
|
|
Premium paid on early redemption
of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
|
|
Interest expense
|
|
|
73
|
|
|
|
72
|
|
|
|
217
|
|
|
|
214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
74
|
|
|
|
72
|
|
|
|
218
|
|
|
|
316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.
|
Other
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In $ millions)
|
|
|
Salaries and benefits
|
|
|
182
|
|
|
|
159
|
|
Environmental
|
|
|
26
|
|
|
|
25
|
|
Restructuring
|
|
|
42
|
|
|
|
45
|
|
Insurance
|
|
|
98
|
|
|
|
141
|
|
Sorbates litigation
|
|
|
141
|
|
|
|
129
|
|
Other
|
|
|
237
|
|
|
|
288
|
|
|
|
|
|
|
|
|
|
|
Total other current liabilities
|
|
|
726
|
|
|
|
787
|
|
|
|
|
|
|
|
|
|
|
18
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of net periodic benefit costs recognized are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Postretirement Benefits
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
(In $ millions)
|
|
|
Components of net periodic
benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
|
10
|
|
|
|
11
|
|
|
|
|
|
|
|
1
|
|
Interest cost
|
|
|
46
|
|
|
|
46
|
|
|
|
6
|
|
|
|
6
|
|
Expected return on plan assets
|
|
|
(52
|
)
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
Recognized actuarial loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special termination charge
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Curtailment loss
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
|
4
|
|
|
|
9
|
|
|
|
6
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Postretirement Benefits
|
|
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
(In $ millions)
|
|
|
Components of net periodic
benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
|
30
|
|
|
|
31
|
|
|
|
1
|
|
|
|
2
|
|
Interest cost
|
|
|
137
|
|
|
|
136
|
|
|
|
16
|
|
|
|
18
|
|
Expected return on plan assets
|
|
|
(155
|
)
|
|
|
(149
|
)
|
|
|
|
|
|
|
|
|
Recognized actuarial loss
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special termination charge
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Curtailment (gain)/loss
|
|
|
1
|
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
|
14
|
|
|
|
21
|
|
|
|
16
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company expects to contribute $42 million to its
defined benefit pension plans in 2006. As of September 30,
2006, $32 million of contributions have been made. The
Company expects its defined benefit pension plan contributions
for 2007 to be at the same level as 2006. The Companys
estimates of its defined benefit pension plan contributions
reflect the provisions of the Pension Funding Equity Act of 2004
and the Pension Protection Act of 2006.
The Company previously disclosed in its consolidated financial
statements as of and for the year ended December 31, 2005
that it expected to make benefit payments of $39 million
under the provisions of its other postretirement benefit plans
in 2006. As of September 30, 2006, $31 million of
benefit payments have been made.
Contributions to the defined contribution plans are based on
specified percentages of employee contributions and aggregated
$7 million and $9 million for the nine months ended
September 30, 2006 and 2005, respectively.
As part of the restructuring program announced in October 2004,
the Company closed certain plants related to its acetate
filament production and has consolidated its acetate flake and
tow operations from five locations to three.
19
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
This restructuring program resulted in the reduction of nearly
600 U.S. employees triggering a curtailment. The
curtailment resulted in an increase in the Projected Benefit
Obligation (PBO) and a corresponding curtailment loss of
$2 million for the pension plan during the three months
ended September 30, 2005.
See table below for share activity:
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
Series A
|
|
|
|
Stock
|
|
|
Common Stock
|
|
|
|
(Number of shares)
|
|
|
Balance as of December 31,
2005
|
|
|
9,600,000
|
|
|
|
158,562,161
|
|
Issuance of common stock related
to the exercise of stock options
|
|
|
|
|
|
|
66,685
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30,
2006
|
|
|
9,600,000
|
|
|
|
158,628,846
|
|
|
|
|
|
|
|
|
|
|
As a result of the offering in January 2005, the Company has
$240 million aggregate liquidation preference of
outstanding preferred stock. Holders of the preferred stock are
entitled to receive, when, as and if declared by the
Companys Board of Directors, out of funds legally
available therefore, cash dividends at the rate of
4.25% per annum of liquidation preference, payable
quarterly in arrears commencing on May 1, 2005. Dividends
on the preferred stock are cumulative from the most recent
payment date. Accumulated but unpaid dividends accumulate at an
annual rate of 4.25%. The preferred stock is convertible, at the
option of the holder, at any time into approximately
1.25 shares of Series A common stock, subject to
adjustments, per $25.00 liquidation preference of preferred
stock and upon conversion will be recorded in Shareholders
equity.
On May 9, 2006, the Company filed with the SEC a universal
shelf registration statement on
Form S-3,
thus registering shares of its Series A common stock,
shares of its preferred stock and depository shares. On
May 10, 2006, Blackstone Capital Partners (Cayman)
Ltd. 1, Blackstone Capital Partners (Cayman) Ltd. 2,
Blackstone Capital Partners (Cayman) Ltd. 3 and BA Capital
Investors Sidecar Fund, L.P. agreed to sell
35,000,000 shares of Series A common stock through a
public secondary offering and granted to the underwriter an
over-allotment option to purchase up to an additional
5,250,000 shares of the Companys Series A common
stock. The underwriter did not exercise the over-allotment
option. The Company did not receive any of the proceeds from the
offering. The transaction closed on May 15, 2006. The
Company incurred and expensed approximately $2 million of
fees related to this transaction.
On March 8, 2005, the Company declared a special cash
dividend to holders of the Companys Series B common
stock of $804 million, which was paid on April 7,
2005. Upon payment of the $804 million dividend, all of the
outstanding shares of Series B common stock converted
automatically to shares of Series A common stock.
On March 9, 2005, the Company issued 7,500,000 shares
of Series A common stock in the form of a stock dividend to
the Original Shareholders of its Series B common stock.
During the nine months ended September 30, 2006, the
Company declared and paid cash dividends to holders of its
Series A common shares of $19 million.
During the nine months ended September 30, 2006, the
Company declared and paid cash dividends on its
4.25% convertible perpetual preferred stock amounting to
approximately $8 million.
Accumulated
Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) totaled
$(10) million and $(117) million, respectively, for
the nine months ended September 30, 2006 and 2005. These
amounts were net of tax expense (benefit) of $8 million and
$(13) million, respectively, for the nine months ended
September 30, 2006 and 2005.
20
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
14.
|
Commitments
and Contingencies
|
The Company is involved in a number of legal proceedings,
lawsuits and claims incidental to the normal conduct of
business, relating to such matters as product liability,
antitrust, past waste disposal practices and release of
chemicals into the environment. While it is impossible at this
time to determine with certainty the ultimate outcome of these
proceedings, lawsuits and claims, management believes, based on
the advice of legal counsel, that adequate provisions have been
made and that the ultimate outcomes will not have a material
adverse effect on the financial position of the Company, but may
have a material adverse effect on the results of operations or
cash flows in any given accounting period.
The following disclosure should be read in conjunction with the
Companys Annual Report on
Form 10-K
as of and for the year ended December 31, 2005.
Plumbing
Actions
CNA Holdings, Inc. (CNA Holdings), a
U.S. subsidiary of Celanese, has accrued its best estimate
of its potential liability for defective plumbing actions. At
September 30, 2006 and December 31, 2005, the Company
has remaining accruals of $66 million and $68 million,
respectively, for this matter, of which $4 million and
$6 million, respectively, is included in current
liabilities. Management believes that the plumbing actions are
adequately provided for in the Companys financial
statements and that they will not have a material adverse effect
on our financial position. However, if the Company were to incur
an additional charge for this matter, such a charge would not be
expected to have a material adverse effect on our financial
position, but may have a material adverse effect on our results
of operations or cash flows in any given accounting period. The
Company continuously monitors this matter and assesses the
adequacy of this reserve.
The Company has reached settlements with CNA Holdings
insurers specifying their responsibility for these claims; as a
result, the Company has recorded receivables relating to the
anticipated recoveries from certain third party insurance
carriers. These receivables are based on the probability of
collection, an opinion of external counsel, the settlement
agreements with the Companys insurance carriers whose
coverage level exceeds the receivables and the status of current
discussions with other insurance carriers. At September 30,
2006 and December 31, 2005, the Company has
$23 million and $22 million, respectively, of
receivables related to a settlement with an insurance carrier.
Sorbates
Antitrust Actions
Based on the advice of external counsel and a review of the
existing facts and circumstances relating to the sorbates
antitrust matters, including the status of government
investigations, as well as civil claims filed and settled, the
Company has remaining accruals at September 30, 2006 of
$141 million. This amount is included in current
liabilities for the estimated loss related to this matter. At
December 31, 2005, the accrual was $129 million. The
change in the accrual amounts is primarily due to fluctuations
in the currency exchange rate between the U.S. dollar and
the euro. Although the outcome of this matter cannot be
predicted with certainty, managements best estimate of the
range of possible additional future losses and fines (in excess
of amounts already accrued), including any that may result from
the above noted governmental proceedings, as of
September 30, 2006 is between $0 and $9 million. The
estimated range of such possible future losses is
managements best estimate based on the advice of external
counsel taking into consideration potential fines and claims,
both civil and criminal that may be imposed or made in other
jurisdictions.
Pursuant to the Demerger Agreement with Hoechst, Celanese AG was
assigned the obligation related to the sorbates matter. However,
Hoechst agreed to indemnify Celanese AG for 80% of any costs
Celanese may incur relative to this matter. Accordingly,
Celanese AG has recognized a receivable from Hoechst and a
corresponding contribution of capital, net of tax, from this
indemnification. As of September 30, 2006 and
December 31, 2005, the
21
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Company has receivables, recorded within other current assets,
relating to the sorbates indemnification from Hoechst totaling
$113 million and $103 million, respectively. The
Company believes that any resulting liabilities, net of amounts
recoverable from Hoechst, will not, in the aggregate, have a
material adverse effect on its financial position, but may have
a material adverse effect on the results of operations or cash
flows in any given period.
Shareholder
Litigation
At the beginning of August 2006, CAG was served seventeen
actions filed by minority shareholders with the Frankfurt
District Court to set aside the resolution passed by the
shareholders of CAG in approval of the Squeeze-Out. Several
minority shareholders joined these proceedings via a third party
intervention in support of the plaintiffs. As long as these
lawsuits are pending, the Squeeze-Out cannot be entered into the
commercial register unless the court, in a separate release
proceeding to be initiated by the Company, holds that the
lawsuits should not prevent registration of the Squeeze-Out
because (i) they are inadmissible, (ii) they are
obviously without merit or (iii) in the courts
discretion and taking into account the violations alleged by
plaintiffs, the Companys and shareholders interest
in an early effectiveness of the Squeeze-Out outweighs the
plaintiffs interest. At the end of August 2006, CAG filed
a motion to initiate a release proceeding. In October 2006, the
court granted the petition. This decision is subject to appeal.
Based upon the information available as of November 1,
2006, the outcome of the foregoing proceedings is uncertain.
Guarantees
The Company has agreed to guarantee or indemnify third parties
for environmental and other liabilities pursuant to a variety of
agreements, including asset and business divestiture agreements,
leases, settlement agreements, and various agreements with
affiliated companies. Although many of these obligations contain
monetary
and/or
time
limitations, others do not provide such limitations.
The Company has accrued for all probable and reasonably
estimable losses associated with all known matters or claims
that have been brought to its attention.
These known obligations include the following:
Demerger
Obligations
The Company has obligations to indemnify Hoechst for various
liabilities under the Demerger Agreement as follows:
|
|
|
|
|
The Company agreed to indemnify Hoechst for environmental
liabilities associated with contamination arising under 19
divestiture agreements entered into by Hoechst prior to the
demerger, two of which have been settled.
|
The Companys obligation to indemnify Hoechst is subject to
the following thresholds:
|
|
|
|
|
The Company will indemnify Hoechst against those liabilities up
to 250 million;
|
|
|
|
Hoechst will bear those liabilities exceeding
250 million, however the Company will reimburse
Hoechst for one-third of those liabilities for amounts that
exceed 750 million in the aggregate.
|
The aggregate maximum amount of environmental indemnifications
under the remaining divestiture agreements that provide for
monetary limits is 750 million. Three of the divested
agreements do not provide for monetary limits.
22
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Based on the estimate of the probability of loss under this
indemnification, the Company has reserves of $31 million
and $33 million as of September 30, 2006 and
December 31, 2005, respectively, for this contingency.
Where the Company is unable to reasonably determine the
probability of loss or estimate such loss under an
indemnification, the Company has not recognized any related
liabilities.
The Company has also undertaken in the Demerger Agreement to
indemnify Hoechst to the extent that Hoechst is required to
discharge liabilities, including tax liabilities, associated
with businesses that were included in the demerger where such
liabilities were not demerged, due to legal restrictions on the
transfers of such items. These indemnities do not provide for
any monetary or time limitations. The Company has not provided
for any reserves associated with this indemnification. The
Company has not made any payments to Hoechst during the three
and nine months ended September 30, 2006 and 2005,
respectively, in connection with this indemnification.
Divestiture
Obligations
The Company and its predecessor companies agreed to indemnify
third party purchasers of former businesses and assets for
various pre-closing conditions, as well as for breaches of
representations, warranties and covenants. Such liabilities also
include environmental liability, product liability, antitrust
and other liabilities. These indemnifications and guarantees
represent standard contractual terms associated with typical
divestiture agreements and, other than environmental
liabilities, the Company does not believe that they expose the
Company to any significant risk.
The Company has divested in the aggregate over 20 businesses,
investments and facilities, through agreements containing
indemnifications or guarantees to the purchasers. Many of the
obligations contain monetary
and/or
time
limitations, ranging from one year to thirty years. The
aggregate amount of guarantees provided for under these
agreements is approximately $2.9 billion as of
September 30, 2006. Other agreements do not provide for any
monetary or time limitations.
Based on historical claims experience and its knowledge of the
sites and businesses involved, the Company believes that it is
adequately reserved for these matters. As of September 30,
2006 and December 31, 2005, the Company has reserves in the
aggregate of $49 million and $54 million,
respectively, for all such matters.
Plumbing
Insurance Indemnifications
CAG entered into agreements with insurance companies related to
product liability settlements associated with
Celcon
®
plumbing claims. These agreements, except those with insolvent
insurance companies, require the Company to indemnify
and/or
defend these insurance companies in the event that third parties
seek additional monies for matters released in these agreements.
The indemnifications in these agreements do not provide for time
limitations.
In certain of the agreements, CAG received a fixed settlement
amount. The indemnities under these agreements generally are
limited to, but in some cases are greater than, the amount
received in settlement from the insurance company. The maximum
exposure under these indemnifications is $95 million. Other
settlement agreements have no stated limits.
There are other agreements whereby the settling insurer agreed
to pay a fixed percentage of claims that relate to that
insurers policies. The Company has provided
indemnifications to the insurers for amounts paid in excess of
the settlement percentage. These indemnifications do not provide
for monetary or time limitations.
The Company has reserves associated with these product liability
claims. See
Plumbing Actions
above.
23
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Polyester
Staple Antitrust Litigation
CNA Holdings, the successor in interest to Hoechst Celanese
Corporation (HCC), CAC and CAG (collectively, the
Celanese Entities) and Hoechst AG (HAG),
the former parent of HCC, were named as defendants in two
actions filed in September 2006 by U.S. purchasers of polyester
staple fibers manufactured and sold by HCC. The actions allege
that the defendants participated in a conspiracy to fix prices,
rig bids and allocate customers of polyester staple sold in the
United States. These actions have been consolidated for
pre-trial discovery by a Multi-District Litigation Panel in the
United States District Court for the Western District of North
Carolina and are styled
In re Polyester Staple Antitrust
Litigation
, MDL 1516. Already pending in that consolidated
proceeding are five other actions commenced by five other
alleged U.S. purchasers of polyester staple fibers manufactured
and sold by the Celanese Entities, which also allege the
defendants participation in the conspiracy.
In 1998, HCC sold its polyester staple business as part of its
sale of its Film & Fibers Division to KoSa, Inc. In a
complaint now pending against the Celanese Entities and HAG in
the United States District Court for the Southern District of
New York, Koch Industries, Inc., Kosa B.V. (KoSa),
Arteva Specialties, S.A.R.L. (Arteva Specialties)
and Arteva Services, S.A.R.L. seek, among other things,
indemnification under the asset purchase agreement pursuant to
which KoSa and Arteva Specialties agreed to purchase
defendants polyester business for all damages related to
the defendants participation in, and failure to disclose,
the alleged conspiracy, or alternatively, rescission of the
agreement.
The Company does not believe that the Celanese Entities engaged
in any conduct that should result in liability in these actions.
However, the outcome of the foregoing actions cannot be
predicted with certainty. The Company believes that any
resulting liabilities from an adverse result will not, in the
aggregate, have a material adverse effect on the Companys
financial position, but may have a material adverse effect on
its results of operations in any given period.
Other
Obligations
|
|
|
|
|
The Company is secondarily liable under a lease agreement
pursuant to which the Company has assigned a direct obligation
to a third party. The lease assumed by the third party expires
on April 30, 2012. The lease liability for the period from
October 1, 2006 to April 30, 2012 is estimated to be
approximately $43 million.
|
|
|
|
The Company has agreed to indemnify various insurance carriers,
for amounts not in excess of the settlements received, from
claims made against these carriers subsequent to the settlement.
The aggregate amount of guarantees under these settlements is
approximately $10 million, which is unlimited in term.
|
As indemnification obligations often depend on the occurrence of
unpredictable future events, the future costs associated with
them cannot be determined at this time. However, if the Company
were to incur additional charges for these matters, such charges
may have a material adverse effect on the financial position,
results of operations or cash flows of the Company in any given
accounting period.
Other
Matters
During the nine months ended September 30, 2006, the
Company entered into two fifteen year take or pay contracts with
an annual commitment of approximately $6 million.
As of September 30, 2006, Celanese Ltd. and/or CNA
Holdings, Inc., both U.S. subsidiaries of the Company, are
defendants in approximately 640 asbestos cases. During the three
months ended September 30, 2006, 13 new cases were filed
against the Company and 24 cases were resolved. Because many of
these cases involve numerous plaintiffs, the Company is subject
to claims significantly in excess of the number of actual cases.
The Company has reserves for defense costs related to claims
arising from these matters. The Company believes that there is
not significant exposure related to these matters.
24
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
From time to time, certain of the Companys foreign
subsidiaries have made sales of acetate, sweeteners and polymer
products to customers in countries that are or have previously
been subject to sanctions and embargoes imposed by the
U.S. government. These countries include Cuba, Iran, Sudan
and Syria, four countries currently identified by the
U.S. State Department as terrorist-sponsoring states and
other countries that previously have been identified by the
U.S. State Department as terrorist-sponsoring states, or
countries to which sales have been regulated in connection with
other foreign policy concerns. In September 2005, the Company
began an investigation of these transactions and initially
identified approximately $10 million of sales by its
foreign subsidiaries to the above-referenced countries. The
Company now believes that approximately $5 million of these
sales were in violation of U.S. law or regulation. The
violations uncovered by the investigation include approximately
$180,000 of sales of emulsions to Cuba by two of the
Companys foreign subsidiaries. Sales to Cuba are
violations of the U.S. Treasury Departments Office of
Foreign Assets Control, or OFAC, regulations. In addition, the
Company determined that its sales office in Turkey sold polymer
products to companies in Iran and Syria, including indirectly
selling product through other companies located in non-embargoed
countries. Certain of these transactions involved an intentional
violation of the Companys policies and federal regulations
by employees of a subsidiary in Turkey. If OFAC or the
Department of Commerces Bureau of Industry and Security
determine that the Company violated U.S. export control
laws, the Company could be subject to civil penalties of
$11,000 $65,000 per violation, and criminal
penalties could range up to the greater of $1 million per
violation, or five times the value of the goods sold. If such
violations occurred, the U.S. Government could deny the
Company export privileges.
The Company has voluntarily disclosed these matters to the
U.S. Treasury Department and the U.S. Department of
Commerce. The Company has taken corrective actions, including
dismissal of responsible individuals, directives to senior
business leaders prohibiting such sales, enhancement of the
business conduct policy training in the area of export control,
as well as modifications to its accounting systems that are
intended to prevent the initiation of sales to countries that
are subject to the U.S. Treasury Department or the
U.S. Department of Commerce restrictions. The Company, in
conjunction with outside counsel, has concluded an internal
investigation of the facts and circumstances surrounding the
illegal export issues. As a result of this investigation, the
Company has terminated an employee and liquidated its subsidiary
in Turkey. The Company has communicated the results of its
investigation to the federal authorities responsible for these
matters. The ultimate resolution of this matter is subject to a
final ruling or settlement with the government. Accordingly, the
Company cannot estimate the potential sanctions or fines
relating to this matter. During the second quarter of 2006,
management concluded that it had taken the necessary actions to
remediate this matter, which it had previously identified as a
significant deficiency.
15. Other
(Charges) Gains, net
The components of other (charges) gains, net are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
(In $ millions)
|
|
|
Employee termination benefits
|
|
|
|
|
|
|
(9
|
)
|
|
|
(11
|
)
|
|
|
(18
|
)
|
Plant/office closures
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring
|
|
|
|
|
|
|
(10
|
)
|
|
|
(11
|
)
|
|
|
(20
|
)
|
Environmental related plant
closures
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
(12
|
)
|
Asset impairments
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(25
|
)
|
Insurance recoveries associated
with plumbing cases
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
4
|
|
Other
|
|
|
|
|
|
|
(1
|
)
|
|
|
(4
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (charges) gains, net
|
|
|
|
|
|
|
(24
|
)
|
|
|
(12
|
)
|
|
|
(89
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In connection with the completion of the initial public offering
in January 2005, the parties amended and restated the
transaction and monitoring fee agreement to terminate the
monitoring services and all obligations to pay future monitoring
fees and paid the Advisor $35 million, which is included in
other (charges) gains, net in the table above.
Asset impairments primarily relate to the Companys
decision to divest its Cyclo-olefin Copolymer (COC)
business.
The components of the September 30, 2006 and
December 31, 2005 restructuring reserves are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
Plant/Office
|
|
|
|
|
|
|
Benefits
|
|
|
Closures
|
|
|
Total
|
|
|
|
(In $ millions)
|
|
|
Restructuring reserve at
December 31, 2005
|
|
|
51
|
|
|
|
14
|
|
|
|
65
|
|
Restructuring additions
|
|
|
11
|
|
|
|
|
|
|
|
11
|
|
Cash uses
|
|
|
(31
|
)
|
|
|
(5
|
)
|
|
|
(36
|
)
|
Currency translation adjustments
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring reserve at
September 30, 2006
|
|
|
33
|
|
|
|
9
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.
|
Stock-based
and Other Management Compensation Plans
|
In December 2004, the Company approved a deferred compensation
plan for executive officers and key employees, a stock incentive
plan for executive officers, key employees and directors, as
well as other management incentive programs.
These plans allow for the issuance or delivery of up to
16,250,000 shares of the Companys Series A
common stock through a discounted share program and stock
options.
Deferred
compensation
The deferred compensation plan has an aggregate maximum amount
payable of $192 million. The initial component of the
deferred compensation plan vested in 2004 and was paid in the
first quarter of 2005. The remaining aggregate maximum amount
payable of $142 million (of which $19 million has been
accrued at September 30, 2006 due to the accelerated
vesting of certain plan participants) is subject to
downward adjustment if the price of the Companys
Series A common stock falls below the initial public
offering price of $16 per share and vests subject to both
(1) continued employment or the achievement of certain
performance criteria and (2) the disposition by three of
the four Original Shareholders of at least 90% of their equity
interest in the Company with at least a 25% cash internal rate
of return on their equity interest. During the three and nine
months ended September 30, 2006, the Company recorded
compensation expense of $6 million and $19 million,
respectively. During the three and nine months ended
September 30, 2005, the Company did not record any
compensation expense associated with this plan.
Long-term
incentive plan
Effective January 1, 2004, the Company adopted a long-term
incentive plan (the LTIP Plan) which covers certain
members of management and other key employees of the Company.
The LTIP Plan is a three-year cash based plan in which awards
are based on annual and three-year cumulative targets (as
defined in the LTIP Plan). Payouts to employees could be
considerably increased if the annual and three-year cumulative
targets are significantly exceeded. As of September 30,
2006, management believes that these targets will be
significantly exceeded. Payout under the LTIP Plan will occur
following the end of year three of the LTIP Plan and will be
payable in the first quarter of 2007. The amount the Company
expects to pay out under this plan is approximately
$25 million. During the three and nine months ended
September 30, 2006, the Company recorded expense of
$5 million and $15 million, respectively, related
26
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
to the LTIP Plan. During the three and nine months ended
September 30, 2005, the Company recorded expense of
$2 million and $4 million, respectively, related to
the LTIP Plan.
Stock-based
compensation
The Company has a stock-based compensation plan that makes
awards of stock options to certain employees. Prior to
January 1, 2006, the Company accounted for awards granted
under this plan using the intrinsic value method of expense
recognition, which follows the recognition and measurement
principles of APB 25 and related interpretations.
Compensation cost, if any, was recorded based on the excess of
the quoted market price at grant date over the amount an
employee must pay to acquire the stock. Under the provisions of
APB 25, there was no compensation expense resulting from
the issuance of the stock options as the exercise price was
equivalent to the fair market value at the date of grant.
Effective January 1, 2006, the Company adopted the fair
value recognition provisions of SFAS No. 123(R). The
Company has elected the modified prospective transition method
as permitted by SFAS No. 123(R) and, accordingly,
prior periods have not been restated to reflect the impact of
SFAS No. 123(R). Under this transition method,
compensation cost recognized for the three and nine months ended
September 30, 2006 includes: (i) compensation cost for
all stock-based payments granted prior to, but not yet vested as
of, January 1, 2006 (based on the grant-date fair value
estimated in accordance with the original provisions of
SFAS No. 123 and previously presented in the pro forma
footnote disclosures), and (ii) compensation cost for all
stock-based payments granted subsequent to January 1, 2006
(based on the grant-date fair value estimated in accordance with
the new provisions of SFAS No. 123(R)).
It is the Companys policy to grant options with an
exercise price equal to the price of the Companys
Series A common stock on the grant date. The options issued
have a ten-year term with vesting terms pursuant to a schedule,
with all vesting to occur no later than the eighth anniversary
of the date of the grant. Accelerated vesting depends on meeting
specified performance targets. The estimated value of the
Companys stock-based awards less expected forfeitures is
amortized over the awards respective vesting period on the
applicable graded or straight-line basis, subject to
acceleration as discussed above. As a result of adopting
SFAS No. 123(R), the Companys net earnings for
the three and nine months ended September 30, 2006, was
$3 million (net of tax of $2 million) and
$9 million (net of tax of $5 million), respectively,
lower than it would have been if the Company had continued to
account for share-based compensation under APB 25. These
amounts are included in selling, general and administrative
expense.
The fair value of each option granted is estimated on the date
of grant using the Black-Scholes option pricing method. The
weighted average assumptions used in the model are outlined in
the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Risk free interest rate
|
|
|
4.6
|
%
|
|
|
4.0
|
%
|
|
|
5.1
|
%
|
|
|
4.0
|
%
|
Estimated life in years
|
|
|
6.9
|
|
|
|
7.8
|
|
|
|
7.3
|
|
|
|
7.5
|
|
Dividend yield
|
|
|
0.88
|
%
|
|
|
0.96
|
%
|
|
|
0.81
|
%
|
|
|
0.77
|
%
|
Volatility
|
|
|
30.6
|
%
|
|
|
27.4
|
%
|
|
|
31.4
|
%
|
|
|
26.2
|
%
|
Expected annual forfeiture rate
|
|
|
5.6
|
%
|
|
|
0.5
|
%
|
|
|
5.6
|
%
|
|
|
0.5
|
%
|
The computation of the expected volatility assumption used in
the Black-Scholes calculations for new grants is based on
historical volatilities and volatilities of peer companies. When
establishing the expected life assumptions, the Company reviews
annual historical employee exercise behavior of option grants
with similar vesting periods and the expected life assumptions
of peer companies. The Company utilized the review of peer
companies based on its own lack of extensive history.
27
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of changes in stock options outstanding during the
nine months ended September 30, 2006 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Grant
|
|
|
Contractual
|
|
|
Value
|
|
|
|
(In millions)
|
|
|
Price in $
|
|
|
Term
|
|
|
(In $ millions)
|
|
|
Outstanding at beginning of period
|
|
|
12
|
|
|
|
16.15
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2
|
|
|
|
20.88
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
17.34
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(1
|
)
|
|
|
16.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
13
|
|
|
|
16.80
|
|
|
|
7.2
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable and expected to
exercise in the future at September 30, 2006
|
|
|
8
|
|
|
|
16.91
|
|
|
|
7.2
|
|
|
|
12
|
|
Options exercisable at end of
period
|
|
|
5
|
|
|
|
16.07
|
|
|
|
6.2
|
|
|
|
9
|
|
The weighted-average grant-date fair value of stock options
granted during the nine months ended September 30, 2006 was
$8.19 per option. At September 30, 2006, the Company
had approximately $32 million of total unrecognized
compensation expense, net of the estimated forfeitures, related
to stock options to be recognized over the remaining vesting
periods of the options. Cash received from stock option
exercises was approximately $1 million during the three and
nine months ended September 30, 2006, respectively.
Prior
Period Pro Forma Presentations
Under the modified prospective transition method, results for
prior periods have not been restated to reflect the effects of
implementing SFAS No. 123(R). The following pro forma
information, as required by SFAS No. 148,
Accounting for Stock-Based Compensation
Transition and Disclosure, an amendment of FASB Statement
No. 123
, is presented for comparative purposes and
illustrates the pro forma effect on Net earnings and Earnings
per common share for each period presented as if the Company had
applied the fair value recognition provisions of
SFAS No. 123 to stock-based employee compensation
prior to January 1, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2005
|
|
|
Nine Months Ended September 30, 2005
|
|
|
|
|
|
|
Basic
|
|
|
Diluted
|
|
|
|
|
|
Basic
|
|
|
Diluted
|
|
|
|
|
|
|
Earnings
|
|
|
Earnings
|
|
|
|
|
|
Earnings
|
|
|
Earnings
|
|
|
|
Net
|
|
|
Per Common
|
|
|
Per Common
|
|
|
Net
|
|
|
Per Common
|
|
|
Per Common
|
|
|
|
Earnings
|
|
|
Share
|
|
|
Share
|
|
|
Earnings
|
|
|
Share
|
|
|
Share
|
|
|
|
(In $ millions, except per share information)
|
|
|
Net earnings available to common
shareholders, as reported
|
|
|
42
|
|
|
|
0.26
|
|
|
|
0.26
|
|
|
|
95
|
|
|
|
0.62
|
|
|
|
0.62
|
|
Add: stock-based employee
compensation expense included in reported net earnings, net of
the related tax effects
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Less: stock-based compensation
under SFAS No. 123, net of the related tax effects
|
|
|
(2
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(6
|
)
|
|
|
(0.04
|
)
|
|
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net earnings available
to common shareholders
|
|
|
41
|
|
|
|
0.25
|
|
|
|
0.25
|
|
|
|
90
|
|
|
|
0.58
|
|
|
|
0.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Income taxes for the three and nine months ended
September 30, 2006 and 2005 are recorded based on the
estimated annual effective tax rate. As of September 30,
2006, the estimated annualized tax rate is 32%, which is less
than the combination of the statutory federal rate and state
income tax rates in the U.S. The estimated annual effective
tax rate for 2006 reflects earnings in low tax jurisdictions and
a partial benefit for reversal of valuation allowance on 2006
projected U.S. income, offset by higher tax rates in
certain
non-U.S. jurisdictions.
Reversals of the valuation allowance established at the
Acquisition resulting from positive earnings or a change in
judgment regarding the realizabilty of the net deferred tax
asset are primarily reflected as a reduction of goodwill.
Therefore, the effective tax rate reflects only a partial
benefit for reversal of valuation allowance of approximately
$7 million for the nine months ended September 30,
2006.
For the three months ended September 30, 2006 and 2005, the
Company recorded tax expense of $72 million and
$27 million, respectively, which resulted in an effective
tax rate of 40% and 35%, respectively. The higher effective tax
rate for the three months ended September 30, 2006 was due
to the increase in the estimated annual effective rate from the
prior quarter and adjustments for tax return to provision
estimates in certain taxing jurisdictions. For the nine months
ended September 30, 2006 and 2005, the Company recorded tax
expense of $159 million and $79 million, respectively,
which resulted in an effective tax rate of 32% and 37%,
respectively. The higher effective rate for the nine months
ended September 30, 2006 compared to the six months ended
June 30, 2006 was due to increased earnings in high tax
jurisdictions. The effective tax rate in 2005 was significantly
affected by the non-recognition of tax benefits associated with
acquisition related expenses.
On May 17, 2006, the President signed into law the Tax
Increase Prevention and Reconciliation Act of 2005 (TIPRA),
which among other things, provided for a new temporary exception
to certain U.S. taxed foreign passive income inclusion
rules for 2006 to 2008. This change reduced the expected amount
of foreign income taxed currently in the U.S.
29
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemical
|
|
|
|
|
|
Acetate
|
|
|
Performance
|
|
|
Total
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Ticona
|
|
|
Products
|
|
|
Products
|
|
|
Segments
|
|
|
Activities
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In $ millions)
|
|
|
As of and for the three months
ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
|
|
1,174
|
|
|
|
230
|
|
|
|
171
|
|
|
|
41
|
|
|
|
1,616
|
|
|
|
69
|
|
|
|
|
|
|
|
1,685
|
|
Inter-segment revenues
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
|
|
Operating profit
|
|
|
170
|
|
|
|
37
|
|
|
|
23
|
|
|
|
10
|
|
|
|
240
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
200
|
|
Earnings (loss) from continuing
operations before tax and minority interests
|
|
|
192
|
|
|
|
50
|
|
|
|
23
|
|
|
|
8
|
|
|
|
273
|
|
|
|
(92
|
)
|
|
|
|
|
|
|
181
|
|
Depreciation and amortization
|
|
|
39
|
|
|
|
16
|
|
|
|
6
|
|
|
|
3
|
|
|
|
64
|
|
|
|
6
|
|
|
|
|
|
|
|
70
|
|
Capital expenditures
|
|
|
32
|
|
|
|
7
|
|
|
|
18
|
|
|
|
|
|
|
|
57
|
|
|
|
4
|
|
|
|
|
|
|
|
61
|
|
Total assets
|
|
|
3,378
|
|
|
|
1,604
|
|
|
|
735
|
|
|
|
355
|
|
|
|
6,072
|
|
|
|
1,554
|
|
|
|
|
|
|
|
7,626
|
|
As of and for the three months
ended September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
|
|
1,051
|
|
|
|
212
|
|
|
|
162
|
|
|
|
46
|
|
|
|
1,471
|
|
|
|
55
|
|
|
|
|
|
|
|
1,526
|
|
Inter-segment revenues
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
(40
|
)
|
|
|
|
|
Operating profit
|
|
|
101
|
|
|
|
18
|
|
|
|
4
|
|
|
|
13
|
|
|
|
136
|
|
|
|
(41
|
)
|
|
|
|
|
|
|
95
|
|
Earnings (loss) from continuing
operations before tax and minority interests
|
|
|
136
|
|
|
|
34
|
|
|
|
5
|
|
|
|
10
|
|
|
|
185
|
|
|
|
(108
|
)
|
|
|
|
|
|
|
77
|
|
Depreciation and amortization
|
|
|
45
|
|
|
|
13
|
|
|
|
3
|
|
|
|
4
|
|
|
|
65
|
|
|
|
5
|
|
|
|
|
|
|
|
70
|
|
Capital expenditures
|
|
|
22
|
|
|
|
12
|
|
|
|
8
|
|
|
|
|
|
|
|
42
|
|
|
|
4
|
|
|
|
|
|
|
|
46
|
|
Total assets(1)
|
|
|
3,280
|
|
|
|
1,583
|
|
|
|
691
|
|
|
|
342
|
|
|
|
5,896
|
|
|
|
1,549
|
|
|
|
|
|
|
|
7,445
|
|
As of and for the nine months
ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
|
|
3,459
|
|
|
|
691
|
|
|
|
514
|
|
|
|
138
|
|
|
|
4,802
|
|
|
|
198
|
|
|
|
|
|
|
|
5,000
|
|
Inter-segment revenues
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
|
|
|
|
|
|
|
|
(99
|
)
|
|
|
|
|
Operating profit
|
|
|
475
|
|
|
|
116
|
|
|
|
75
|
|
|
|
43
|
|
|
|
709
|
|
|
|
(147
|
)
|
|
|
|
|
|
|
562
|
|
Earnings (loss) from continuing
operations before tax and minority interests
|
|
|
522
|
|
|
|
159
|
|
|
|
96
|
|
|
|
40
|
|
|
|
817
|
|
|
|
(327
|
)
|
|
|
|
|
|
|
490
|
|
Depreciation and amortization
|
|
|
118
|
|
|
|
48
|
|
|
|
18
|
|
|
|
11
|
|
|
|
195
|
|
|
|
18
|
|
|
|
|
|
|
|
213
|
|
Capital expenditures
|
|
|
97
|
|
|
|
18
|
|
|
|
55
|
|
|
|
1
|
|
|
|
171
|
|
|
|
5
|
|
|
|
|
|
|
|
176
|
|
Total assets
|
|
|
3,378
|
|
|
|
1,604
|
|
|
|
735
|
|
|
|
355
|
|
|
|
6,072
|
|
|
|
1,554
|
|
|
|
|
|
|
|
7,626
|
|
As of and for the nine months
ended September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
|
|
3,105
|
|
|
|
674
|
|
|
|
499
|
|
|
|
140
|
|
|
|
4,418
|
|
|
|
75
|
|
|
|
|
|
|
|
4,493
|
|
Inter-segment revenues
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98
|
|
|
|
|
|
|
|
(98
|
)
|
|
|
|
|
Operating profit
|
|
|
436
|
|
|
|
62
|
|
|
|
24
|
|
|
|
41
|
|
|
|
563
|
|
|
|
(157
|
)
|
|
|
|
|
|
|
406
|
|
Earnings (loss) from continuing
operations before tax and minority interests
|
|
|
481
|
|
|
|
107
|
|
|
|
27
|
|
|
|
36
|
|
|
|
651
|
|
|
|
(435
|
)
|
|
|
|
|
|
|
216
|
|
Depreciation and amortization
|
|
|
118
|
|
|
|
42
|
|
|
|
21
|
|
|
|
10
|
|
|
|
191
|
|
|
|
9
|
|
|
|
|
|
|
|
200
|
|
Capital expenditures
|
|
|
66
|
|
|
|
35
|
|
|
|
22
|
|
|
|
3
|
|
|
|
126
|
|
|
|
6
|
|
|
|
|
|
|
|
132
|
|
Total assets(1)
|
|
|
3,280
|
|
|
|
1,583
|
|
|
|
691
|
|
|
|
342
|
|
|
|
5,896
|
|
|
|
1,549
|
|
|
|
|
|
|
|
7,445
|
|
|
|
|
(1)
|
|
Due to purchase accounting related to the acquisition of CAG not
being finalized as of September 30, 2005, these amounts
represent the balances as of December 31, 2005.
|
30
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
19.
|
Transactions
and Relationships with Affiliates and Related Parties
|
Upon closing of the Acquisition, the Company entered into a
transaction and monitoring fee agreement with the Advisor, an
affiliate of the Sponsor. Under the agreement, the Advisor
agreed to provide monitoring services to the Company for a
12 year period. Also, the Advisor may receive additional
compensation for providing investment banking or other advisory
services provided to the Company by the Advisor or any of its
affiliates, and may be reimbursed for certain expenses, in
connection with any specific acquisition, divestiture,
refinancing, recapitalization, or similar transaction. In
connection with the completion of the initial public offering,
the parties amended and restated the transaction and monitoring
fee agreement to terminate the monitoring services and all
obligations to pay future monitoring fees and paid the Advisor
$35 million. The Company also paid $10 million to the
Advisor for the 2005 monitoring fee. The transaction based
agreement remains in effect.
In connection with the acquisition of Vinamul, the Company paid
the Advisor a fee of $2 million, which was included in the
computation of the purchase price for the acquisition. In
connection with the acquisition of Acetex, the Company paid the
Advisor an initial fee of $1 million. Additional fees of
$3 million were paid in August 2005 to the Advisor upon the
successful completion of this acquisition. In addition, the
Company has paid the Advisor aggregate fees of approximately
3 million (approximately $4 million) in
connection with the Companys acquisition of
5.9 million additional CAG shares in August 2005 (See
Note 2).
During the nine months ended September 30, 2005, the
Company reimbursed the Advisor approximately $2 million for
other costs.
For the three and nine months ended September 30, 2006, the
Company did not make any payments or reimbursements to the
Advisor.
|
|
20.
|
Consolidating
Guarantor Financial Information
|
The following unaudited consolidating financial statements are
presented in the provided form because: (i) Crystal
U.S. Holdings 3 LLC and Crystal U.S. Sub 3 Corp (the
Issuers) are wholly owned subsidiaries of Celanese
Corporation (the Parent Guarantor); (ii) the
guarantee is considered to be full and unconditional, that is,
if the Issuers fail to make a scheduled payment, the Parent
Guarantor is obligated to make the scheduled payment immediately
and, if they do not, any holder of notes may immediately bring
suit directly against the Parent Guarantor for payment of all
amounts due and payable.
Separate financial statements and other disclosures concerning
the Parent Guarantor are not presented because management does
not believe that such information is material to investors.
31
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
UNAUDITED
CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2006
|
|
|
|
Parent
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In $ millions)
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
1,685
|
|
|
|
|
|
|
|
1,685
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
(1,318
|
)
|
|
|
|
|
|
|
(1,318
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
367
|
|
|
|
|
|
|
|
367
|
|
Selling, general and
administrative expenses
|
|
|
(1
|
)
|
|
|
|
|
|
|
(146
|
)
|
|
|
|
|
|
|
(147
|
)
|
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
(16
|
)
|
Other (charges) gains, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance recoveries associated
with plumbing cases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring, impairment and
other (charges) gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange loss, net
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
Loss on disposition of assets, net
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
(1
|
)
|
|
|
|
|
|
|
201
|
|
|
|
|
|
|
|
200
|
|
Equity in net earnings of
affiliates
|
|
|
108
|
|
|
|
115
|
|
|
|
20
|
|
|
|
(223
|
)
|
|
|
20
|
|
Interest expense
|
|
|
|
|
|
|
(10
|
)
|
|
|
(64
|
)
|
|
|
|
|
|
|
(74
|
)
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
9
|
|
Other income (expense), net
|
|
|
2
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing
operations before tax and minority interests
|
|
|
109
|
|
|
|
105
|
|
|
|
190
|
|
|
|
(223
|
)
|
|
|
181
|
|
Income tax benefit (provision)
|
|
|
|
|
|
|
3
|
|
|
|
(75
|
)
|
|
|
|
|
|
|
(72
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing
operations before minority interests
|
|
|
109
|
|
|
|
108
|
|
|
|
115
|
|
|
|
(223
|
)
|
|
|
109
|
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations
|
|
|
109
|
|
|
|
108
|
|
|
|
113
|
|
|
|
(223
|
)
|
|
|
107
|
|
Earnings from operation of
discontinued operations
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
109
|
|
|
|
108
|
|
|
|
115
|
|
|
|
(223
|
)
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
UNAUDITED
CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2005
|
|
|
|
Parent
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In $ millions)
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
1,526
|
|
|
|
|
|
|
|
1,526
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
(1,240
|
)
|
|
|
|
|
|
|
(1,240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
286
|
|
|
|
|
|
|
|
286
|
|
Selling, general and
administrative expenses
|
|
|
(1
|
)
|
|
|
|
|
|
|
(143
|
)
|
|
|
|
|
|
|
(144
|
)
|
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
(22
|
)
|
Other (charges) gains, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance recoveries associated
with plumbing cases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring, impairment and
other (charges) gains
|
|
|
|
|
|
|
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
(24
|
)
|
Foreign exchange gain (loss), net
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
Gain on disposition of assets, net
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
(1
|
)
|
|
|
|
|
|
|
96
|
|
|
|
|
|
|
|
95
|
|
Equity in net earnings of
affiliates
|
|
|
47
|
|
|
|
57
|
|
|
|
21
|
|
|
|
(104
|
)
|
|
|
21
|
|
Interest expense
|
|
|
|
|
|
|
(10
|
)
|
|
|
(62
|
)
|
|
|
|
|
|
|
(72
|
)
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
Other income (expense), net
|
|
|
(1
|
)
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing
operations before tax and minority interests
|
|
|
45
|
|
|
|
47
|
|
|
|
89
|
|
|
|
(104
|
)
|
|
|
77
|
|
Income tax provision
|
|
|
|
|
|
|
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing
operations before minority interests
|
|
|
45
|
|
|
|
47
|
|
|
|
62
|
|
|
|
(104
|
)
|
|
|
50
|
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations
|
|
|
45
|
|
|
|
47
|
|
|
|
59
|
|
|
|
(104
|
)
|
|
|
47
|
|
Loss from operation of
discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
45
|
|
|
|
47
|
|
|
|
57
|
|
|
|
(104
|
)
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
UNAUDITED
CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2006
|
|
|
|
Parent
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In $ millions)
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
|
|
5,000
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
(3,916
|
)
|
|
|
|
|
|
|
(3,916
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
1,084
|
|
|
|
|
|
|
|
1,084
|
|
Selling, general and
administrative expenses
|
|
|
(6
|
)
|
|
|
|
|
|
|
(446
|
)
|
|
|
|
|
|
|
(452
|
)
|
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
(52
|
)
|
|
|
|
|
|
|
(52
|
)
|
Other (charges) gains, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance recoveries associated
with plumbing cases
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
Restructuring, impairment and
other (charges) gains, net
|
|
|
|
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
(15
|
)
|
Foreign exchange gain, net
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
Loss on disposition of assets, net
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
(6
|
)
|
|
|
|
|
|
|
568
|
|
|
|
|
|
|
|
562
|
|
Equity in net earnings of
affiliates
|
|
|
336
|
|
|
|
355
|
|
|
|
59
|
|
|
|
(691
|
)
|
|
|
59
|
|
Interest expense
|
|
|
|
|
|
|
(30
|
)
|
|
|
(188
|
)
|
|
|
|
|
|
|
(218
|
)
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
26
|
|
Other income (expense), net
|
|
|
(1
|
)
|
|
|
|
|
|
|
62
|
|
|
|
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing
operations before tax and minority interests
|
|
|
329
|
|
|
|
325
|
|
|
|
527
|
|
|
|
(691
|
)
|
|
|
490
|
|
Income tax benefit (provision)
|
|
|
|
|
|
|
11
|
|
|
|
(170
|
)
|
|
|
|
|
|
|
(159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing
operations before minority interests
|
|
|
329
|
|
|
|
336
|
|
|
|
357
|
|
|
|
(691
|
)
|
|
|
331
|
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations
|
|
|
329
|
|
|
|
336
|
|
|
|
354
|
|
|
|
(691
|
)
|
|
|
328
|
|
Earnings from operation of
discontinued operations
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
329
|
|
|
|
336
|
|
|
|
355
|
|
|
|
(691
|
)
|
|
|
329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
UNAUDITED
CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2005
|
|
|
|
Parent
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In $ millions)
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
4,493
|
|
|
|
|
|
|
|
4,493
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
(3,491
|
)
|
|
|
|
|
|
|
(3,491
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
1,002
|
|
|
|
|
|
|
|
1,002
|
|
Selling, general and
administrative expenses
|
|
|
(6
|
)
|
|
|
|
|
|
|
(432
|
)
|
|
|
|
|
|
|
(438
|
)
|
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
(68
|
)
|
|
|
|
|
|
|
(68
|
)
|
Other (charges) gains, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance recoveries associated
with plumbing cases
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
Restructuring, impairment and
other (charges) gains, net
|
|
|
|
|
|
|
|
|
|
|
(93
|
)
|
|
|
|
|
|
|
(93
|
)
|
Loss on disposition of assets, net
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
(6
|
)
|
|
|
|
|
|
|
412
|
|
|
|
|
|
|
|
406
|
|
Equity in net earnings of
affiliates
|
|
|
103
|
|
|
|
152
|
|
|
|
48
|
|
|
|
(255
|
)
|
|
|
48
|
|
Interest expense
|
|
|
|
|
|
|
(55
|
)
|
|
|
(261
|
)
|
|
|
|
|
|
|
(316
|
)
|
Interest income
|
|
|
6
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
31
|
|
Other income (expense), net
|
|
|
(1
|
)
|
|
|
|
|
|
|
48
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing
operations before tax and minority interests
|
|
|
102
|
|
|
|
97
|
|
|
|
272
|
|
|
|
(255
|
)
|
|
|
216
|
|
Income tax benefit (provision)
|
|
|
|
|
|
|
6
|
|
|
|
(85
|
)
|
|
|
|
|
|
|
(79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing
operations before minority interests
|
|
|
102
|
|
|
|
103
|
|
|
|
187
|
|
|
|
(255
|
)
|
|
|
137
|
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
(41
|
)
|
|
|
|
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations
|
|
|
102
|
|
|
|
103
|
|
|
|
146
|
|
|
|
(255
|
)
|
|
|
96
|
|
Earnings from operation of
discontinued operations
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
102
|
|
|
|
103
|
|
|
|
152
|
|
|
|
(255
|
)
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
UNAUDITED
CONSOLIDATING BALANCE SHEET INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2006
|
|
|
|
Parent
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In $ millions)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
513
|
|
|
|
|
|
|
|
513
|
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
44
|
|
Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables, net
|
|
|
|
|
|
|
|
|
|
|
987
|
|
|
|
|
|
|
|
987
|
|
Other receivables
|
|
|
1
|
|
|
|
|
|
|
|
565
|
|
|
|
(14
|
)
|
|
|
552
|
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
639
|
|
|
|
|
|
|
|
639
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
37
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
68
|
|
|
|
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1
|
|
|
|
|
|
|
|
2,853
|
|
|
|
(14
|
)
|
|
|
2,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
557
|
|
|
|
947
|
|
|
|
787
|
|
|
|
(1,504
|
)
|
|
|
787
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
2,085
|
|
|
|
|
|
|
|
2,085
|
|
Deferred income taxes
|
|
|
|
|
|
|
12
|
|
|
|
73
|
|
|
|
|
|
|
|
85
|
|
Other assets
|
|
|
|
|
|
|
7
|
|
|
|
477
|
|
|
|
|
|
|
|
484
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
876
|
|
|
|
|
|
|
|
876
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
469
|
|
|
|
|
|
|
|
469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
558
|
|
|
|
966
|
|
|
|
7,620
|
|
|
|
(1,518
|
)
|
|
|
7,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings and current
installments of long-term debt third party and
affiliates
|
|
|
|
|
|
|
|
|
|
|
205
|
|
|
|
|
|
|
|
205
|
|
Trade payables third
party and affiliates
|
|
|
|
|
|
|
|
|
|
|
741
|
|
|
|
|
|
|
|
741
|
|
Other current liabilities
|
|
|
12
|
|
|
|
|
|
|
|
728
|
|
|
|
(14
|
)
|
|
|
726
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
27
|
|
Income taxes payable
|
|
|
|
|
|
|
|
|
|
|
248
|
|
|
|
|
|
|
|
248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
12
|
|
|
|
|
|
|
|
1,949
|
|
|
|
(14
|
)
|
|
|
1,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
409
|
|
|
|
2,835
|
|
|
|
|
|
|
|
3,244
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
300
|
|
|
|
|
|
|
|
300
|
|
Benefit obligations
|
|
|
|
|
|
|
|
|
|
|
1,070
|
|
|
|
|
|
|
|
1,070
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
449
|
|
|
|
|
|
|
|
449
|
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
70
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
546
|
|
|
|
557
|
|
|
|
947
|
|
|
|
(1,504
|
)
|
|
|
546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity
|
|
|
558
|
|
|
|
966
|
|
|
|
7,620
|
|
|
|
(1,518
|
)
|
|
|
7,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONSOLIDATING
BALANCE SHEET INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2005
|
|
|
|
Parent
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In $ millions)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
1
|
|
|
|
|
|
|
|
389
|
|
|
|
|
|
|
|
390
|
|
Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables, net
|
|
|
|
|
|
|
|
|
|
|
919
|
|
|
|
|
|
|
|
919
|
|
Other receivables
|
|
|
|
|
|
|
|
|
|
|
486
|
|
|
|
(5
|
)
|
|
|
481
|
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
650
|
|
|
|
|
|
|
|
650
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
37
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
91
|
|
|
|
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1
|
|
|
|
|
|
|
|
2,572
|
|
|
|
(5
|
)
|
|
|
2,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
238
|
|
|
|
610
|
|
|
|
775
|
|
|
|
(848
|
)
|
|
|
775
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
2,036
|
|
|
|
|
|
|
|
2,036
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
139
|
|
|
|
|
|
|
|
139
|
|
Other assets
|
|
|
|
|
|
|
8
|
|
|
|
489
|
|
|
|
|
|
|
|
497
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
949
|
|
|
|
|
|
|
|
949
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
481
|
|
|
|
|
|
|
|
481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
239
|
|
|
|
618
|
|
|
|
7,441
|
|
|
|
(853
|
)
|
|
|
7,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings and current
installments of long-term debt third party and
affiliates
|
|
|
|
|
|
|
|
|
|
|
155
|
|
|
|
|
|
|
|
155
|
|
Trade payables third
party and affiliates
|
|
|
|
|
|
|
|
|
|
|
811
|
|
|
|
|
|
|
|
811
|
|
Other current liabilities
|
|
|
4
|
|
|
|
1
|
|
|
|
787
|
|
|
|
(5
|
)
|
|
|
787
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
36
|
|
Income taxes payable
|
|
|
|
|
|
|
|
|
|
|
224
|
|
|
|
|
|
|
|
224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
4
|
|
|
|
1
|
|
|
|
2,013
|
|
|
|
(5
|
)
|
|
|
2,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
379
|
|
|
|
2,903
|
|
|
|
|
|
|
|
3,282
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
285
|
|
|
|
|
|
|
|
285
|
|
Benefit obligations
|
|
|
|
|
|
|
|
|
|
|
1,126
|
|
|
|
|
|
|
|
1,126
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
440
|
|
|
|
|
|
|
|
440
|
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
64
|
|
|
|
|
|
|
|
64
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
235
|
|
|
|
238
|
|
|
|
610
|
|
|
|
(848
|
)
|
|
|
235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity
|
|
|
239
|
|
|
|
618
|
|
|
|
7,441
|
|
|
|
(853
|
)
|
|
|
7,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
UNAUDITED
CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2006
|
|
|
|
Parent
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In $ millions)
|
|
|
Net cash provided by (used in)
operating activities
|
|
|
|
|
|
|
|
|
|
|
415
|
|
|
|
|
|
|
|
415
|
|
Investing activities from
continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures on property,
plant and equipment
|
|
|
|
|
|
|
|
|
|
|
(176
|
)
|
|
|
|
|
|
|
(176
|
)
|
Proceeds from sale of assets
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
11
|
|
Advances to affiliates, net
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
(6
|
)
|
Proceeds from sale of marketable
securities
|
|
|
|
|
|
|
|
|
|
|
78
|
|
|
|
|
|
|
|
78
|
|
Purchases of marketable securities
|
|
|
|
|
|
|
|
|
|
|
(56
|
)
|
|
|
|
|
|
|
(56
|
)
|
Increase in restricted cash
|
|
|
|
|
|
|
|
|
|
|
(42
|
)
|
|
|
|
|
|
|
(42
|
)
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
|
|
|
|
|
|
|
|
(193
|
)
|
|
|
|
|
|
|
(193
|
)
|
Financing activities from
continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
(repayments), net
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
12
|
|
Proceeds from long-term debt
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
25
|
|
Payments of long-term debt
|
|
|
|
|
|
|
|
|
|
|
(120
|
)
|
|
|
|
|
|
|
(120
|
)
|
Dividends from subsidiary
|
|
|
25
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends to parent
|
|
|
|
|
|
|
(25
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
Stock option exercises
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Dividend payments on preferred
stock
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
Dividend payments on common stock
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing
activities
|
|
|
(1
|
)
|
|
|
|
|
|
|
(108
|
)
|
|
|
|
|
|
|
(109
|
)
|
Exchange rate effects on cash
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash
equivalents
|
|
|
(1
|
)
|
|
|
|
|
|
|
124
|
|
|
|
|
|
|
|
123
|
|
Cash and cash equivalents at
beginning of period
|
|
|
1
|
|
|
|
|
|
|
|
389
|
|
|
|
|
|
|
|
390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end
of period
|
|
|
|
|
|
|
|
|
|
|
513
|
|
|
|
|
|
|
|
513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
UNAUDITED
CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2005
|
|
|
|
Parent
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In $ millions)
|
|
|
Net cash provided by (used in)
operating activities
|
|
|
8
|
|
|
|
1
|
|
|
|
504
|
|
|
|
|
|
|
|
513
|
|
Investing activities from
continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures on property,
plant and equipment
|
|
|
|
|
|
|
|
|
|
|
(132
|
)
|
|
|
|
|
|
|
(132
|
)
|
Investments in subsidiaries, net
|
|
|
(189
|
)
|
|
|
18
|
|
|
|
|
|
|
|
171
|
|
|
|
|
|
Acquisition of CAG, net of cash
acquired
|
|
|
|
|
|
|
|
|
|
|
(397
|
)
|
|
|
|
|
|
|
(397
|
)
|
Fees associated with acquisitions
|
|
|
|
|
|
|
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
(27
|
)
|
Acquisition of Vinamul, net of
cash reimbursed
|
|
|
|
|
|
|
|
|
|
|
(208
|
)
|
|
|
|
|
|
|
(208
|
)
|
Acquisition of Acetex, net of cash
acquired
|
|
|
|
|
|
|
|
|
|
|
(216
|
)
|
|
|
|
|
|
|
(216
|
)
|
Proceeds from sale of assets
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
40
|
|
Advances to affiliates, net
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
8
|
|
Net proceeds from disposal of
discontinued operations
|
|
|
|
|
|
|
|
|
|
|
75
|
|
|
|
|
|
|
|
75
|
|
Proceeds from sale of marketable
securities
|
|
|
|
|
|
|
|
|
|
|
179
|
|
|
|
|
|
|
|
179
|
|
Purchases of marketable securities
|
|
|
|
|
|
|
|
|
|
|
(105
|
)
|
|
|
|
|
|
|
(105
|
)
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities
|
|
|
(189
|
)
|
|
|
18
|
|
|
|
(778
|
)
|
|
|
171
|
|
|
|
(778
|
)
|
Financing activities from
continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption of senior subordinated
notes, including related premium
|
|
|
|
|
|
|
|
|
|
|
(572
|
)
|
|
|
|
|
|
|
(572
|
)
|
Repayment of floating rate term
loan, including related premium
|
|
|
|
|
|
|
|
|
|
|
(354
|
)
|
|
|
|
|
|
|
(354
|
)
|
Borrowings under term loan facility
|
|
|
|
|
|
|
|
|
|
|
1,135
|
|
|
|
|
|
|
|
1,135
|
|
Contribution from Parent
|
|
|
|
|
|
|
779
|
|
|
|
572
|
|
|
|
(1,351
|
)
|
|
|
|
|
Proceeds from issuance of
Series A common stock, net
|
|
|
752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
752
|
|
Proceeds from issuance of
preferred stock, net
|
|
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
233
|
|
Proceeds from issuance of
discounted common stock
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
Redemption of senior discount
notes, including related premium
|
|
|
|
|
|
|
(207
|
)
|
|
|
|
|
|
|
|
|
|
|
(207
|
)
|
Redemption of Acetex bonds
|
|
|
|
|
|
|
|
|
|
|
(280
|
)
|
|
|
|
|
|
|
(280
|
)
|
Distribution to Series B
shareholders
|
|
|
(804
|
)
|
|
|
(590
|
)
|
|
|
(590
|
)
|
|
|
1,180
|
|
|
|
(804
|
)
|
Short-term borrowings
(repayments), net
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
18
|
|
Proceeds from long-term debt
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
22
|
|
Payments of long-term debt
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
(14
|
)
|
Fees associated with financing
|
|
|
|
|
|
|
(1
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
(8
|
)
|
Dividend payments on preferred
stock
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
Dividend payments on common stock
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
182
|
|
|
|
(19
|
)
|
|
|
(70
|
)
|
|
|
(171
|
)
|
|
|
(78
|
)
|
Exchange rate effects on cash
|
|
|
|
|
|
|
|
|
|
|
(94
|
)
|
|
|
|
|
|
|
(94
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash
equivalents
|
|
|
1
|
|
|
|
|
|
|
|
(438
|
)
|
|
|
|
|
|
|
(437
|
)
|
Cash and cash equivalents at
beginning of period
|
|
|
|
|
|
|
|
|
|
|
838
|
|
|
|
|
|
|
|
838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end
of period
|
|
|
1
|
|
|
|
|
|
|
|
400
|
|
|
|
|
|
|
|
401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2006
|
|
|
Three Months Ended September 30, 2005
|
|
|
|
Continuing
|
|
|
Discontinued
|
|
|
|
|
|
Continuing
|
|
|
Discontinued
|
|
|
|
|
|
|
Operations
|
|
|
Operations
|
|
|
Net Earnings
|
|
|
Operations
|
|
|
Operations
|
|
|
Net Earnings
|
|
|
|
(In $ millions, except for share and per share data)
|
|
|
Net earnings(loss)
|
|
|
107
|
|
|
|
2
|
|
|
|
109
|
|
|
|
47
|
|
|
|
(2
|
)
|
|
|
45
|
|
Less: cumulative declared
preferred stock dividends
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) available to
common shareholders
|
|
|
104
|
|
|
|
2
|
|
|
|
106
|
|
|
|
44
|
|
|
|
(2
|
)
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
|
0.66
|
|
|
|
0.01
|
|
|
|
0.67
|
|
|
|
0.27
|
|
|
|
(0.01
|
)
|
|
|
0.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
|
0.63
|
|
|
|
0.01
|
|
|
|
0.64
|
|
|
|
0.27
|
|
|
|
(0.01
|
)
|
|
|
0.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares basic
|
|
|
158,609,246
|
|
|
|
158,609,246
|
|
|
|
158,609,246
|
|
|
|
158,546,594
|
|
|
|
158,546,594
|
|
|
|
158,546,594
|
|
Dilutive stock options
|
|
|
560,172
|
|
|
|
560,172
|
|
|
|
560,172
|
|
|
|
1,377,185
|
|
|
|
1,377,185
|
|
|
|
1,377,185
|
|
Assumed conversion of preferred
stock
|
|
|
12,006,708
|
|
|
|
12,006,708
|
|
|
|
12,006,708
|
|
|
|
12,006,491
|
|
|
|
12,006,491
|
|
|
|
12,006,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares diluted
|
|
|
171,176,126
|
|
|
|
171,176,126
|
|
|
|
171,176,126
|
|
|
|
171,930,270
|
|
|
|
171,930,270
|
|
|
|
171,930,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2006
|
|
|
Nine Months Ended September 30, 2005
|
|
|
|
Continuing
|
|
|
Discontinued
|
|
|
|
|
|
Continuing
|
|
|
Discontinued
|
|
|
|
|
|
|
Operations
|
|
|
Operations
|
|
|
Net Earnings
|
|
|
Operations
|
|
|
Operations
|
|
|
Net Earnings
|
|
|
|
(In $ millions, except for share and per share data)
|
|
|
Net earnings
|
|
|
328
|
|
|
|
1
|
|
|
|
329
|
|
|
|
96
|
|
|
|
6
|
|
|
|
102
|
|
Less: cumulative declared
preferred stock dividends
|
|
|
(8
|
)
|
|
|
|
|
|
|
(8
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings available to common
shareholders
|
|
|
320
|
|
|
|
1
|
|
|
|
321
|
|
|
|
89
|
|
|
|
6
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
|
2.01
|
|
|
|
0.01
|
|
|
|
2.02
|
|
|
|
0.58
|
|
|
|
0.04
|
|
|
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
|
1.91
|
|
|
|
0.01
|
|
|
|
1.92
|
|
|
|
0.58
|
|
|
|
0.04
|
|
|
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares basic
|
|
|
158,578,083
|
|
|
|
158,578,083
|
|
|
|
158,578,083
|
|
|
|
153,001,360
|
|
|
|
153,001,360
|
|
|
|
153,001,360
|
|
Dilutive stock options
|
|
|
992,762
|
|
|
|
992,762
|
|
|
|
992,762
|
|
|
|
535,442
|
|
|
|
535,442
|
|
|
|
535,442
|
|
Assumed conversion of preferred
stock
|
|
|
12,006,708
|
|
|
|
12,006,708
|
|
|
|
12,006,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares diluted
|
|
|
171,577,553
|
|
|
|
171,577,553
|
|
|
|
171,577,553
|
|
|
|
153,536,802
|
|
|
|
153,536,802
|
|
|
|
153,536,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Basic earnings per common share is based on the net earnings
available to common shareholders divided by the weighted average
number of common shares outstanding during the period. Diluted
earnings per common share is based on the net earnings available
to common shareholders divided by the weighted average number of
common shares outstanding during the period adjusted to give
effect to common stock equivalents, if dilutive.
On December 31, 2004, the capital structure of the Company
consisted of 650,494 shares of Series B common stock,
par value $0.01 per share. In January 2005, the Company
amended its certificate of incorporation and increased its
authorized common stock to 500,000,000 shares and the
Company effected a 152.772947 for 1 stock split for the
outstanding shares of the Series B common stock. Upon
payment of the special cash dividend (See Note 13), all of
the outstanding shares of Series B common stock converted
automatically to shares of Series A common stock.
Accordingly, basic and diluted shares for the three and nine
months ended September 30, 2005 have been calculated based
on the weighted average shares outstanding, adjusted for the
stock split.
As a result of the Sponsors sale of 35,000,000 shares
of the Companys Series A common stock in May 2006,
affiliates of the Sponsor control less than a majority of the
voting power of the Companys outstanding common stock. As
a result, the Company is no longer a controlled
company within the meaning of the New York Stock Exchange
rules and, thus, is required to have a board of directors
comprised of a majority of independent directors and nominating
and compensation committees composed entirely of independent
directors. However, the Company will be permitted to phase in
these corporate governance requirements prior to May 15,
2007.
Under the New York Stock Exchange rules, the Compensation
Committee and Nominating and Corporate Governance Committee was
required to have a majority of independent directors by
August 15, 2006 and must be comprised entirely of
independent directors by May 15, 2007. In addition, the
Companys Board of Directors will be required to be
comprised of a majority of independent directors by May 15,
2007. On August 14, 2006, Martin G. McGuinn and John
K. Wulff were elected to the Celanese Board of Directors. As a
result of the election of Messrs. Wulff and McGuinn, they,
along with other independent directors, were appointed to the
Compensation Committee and the Nominating and Corporate
Governance Committee, which resulted in such committees being
populated by a majority of independent directors. In addition,
the election of Messrs. McGuinn and Wulff resulted in the
Board of Directors being populated by a majority of independent
directors.
General
The Company is subject to
environmental laws and regulations worldwide which impose
limitations on the discharge of pollutants into the air and
water and establish standards for the treatment, storage and
disposal of solid and hazardous wastes. The Company believes
that it is in substantial compliance with all applicable
environmental laws and regulations. The Company is also subject
to retained environmental obligations specified in various
contractual agreements arising from divestiture of certain
businesses by the Company or one of its predecessor companies.
The Companys environmental reserves for remediation
matters were $115 million and $124 million as of
September 30, 2006 and December 31, 2005,
respectively, which represents the Companys best estimate.
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 U.S. Superfund sites. In
addition, as part of the demerger agreement between the
Predecessor and Hoechst AG (Hoechst), a specified
portion of the responsibility for environmental liabilities from
a number of Hoechst divestitures was transferred to the
Predecessor. The Company provides for such obligations when the
event of loss is probable and reasonably estimable. Management
believes that environmental remediation costs will not have a
material adverse effect on the financial position of the
Company, but may have a material adverse effect on the results
of operations or cash flows in any given accounting period.
41
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company did not record any insurance recoveries related to
these matters for the reported periods. There are no receivables
for recoveries as of September 30, 2006 and
December 31, 2005.
German InfraServs
On January 1, 1997,
coinciding with a reorganization of the Hoechst businesses in
Germany, real estate service companies (InfraServs)
were created to own directly the land and property and to
provide various technical and administrative services at each of
the manufacturing locations. The Company has manufacturing
operations at three InfraServ locations in Germany: Oberhausen,
Frankfurt am Main-Hoechst and Kelsterbach, and holds interests
in the companies which own and operate the former Hoechst sites
in Gendorf, Knapsack and Wiesbaden.
InfraServs are liable for any residual contamination and other
pollution because they own the real estate on which the
individual facilities operate. In addition, Hoechst, as the
responsible party under German public law, is liable to third
parties for all environmental damage that occurred while it was
still the owner of the plants and real estate. The contribution
agreements entered into in 1997 between Hoechst and the
respective operating companies, as part of the divestiture of
these companies, provide that the operating companies will
indemnify Hoechst against environmental liabilities resulting
from the transferred businesses. Additionally, the InfraServs
have agreed to indemnify Hoechst against any environmental
liability arising out of or in connection with environmental
pollution of any site. Likewise, in certain circumstances the
Company could be responsible for the elimination of residual
contamination on a few sites that were not transferred to
InfraServ companies, in which case Hoechst must reimburse the
Company for two-thirds of any costs so incurred.
The InfraServ partnership agreements provide that, as between
the partners, each partner is responsible for any contamination
caused predominantly by such partner. Any liability, which
cannot be attributed to an InfraServ partner and for which no
third party is responsible, is required to be borne by the
InfraServ Partnership. In view of this potential obligation to
eliminate residual contamination, the InfraServs, primarily
relating to equity and cost affiliates which are not
consolidated by the Company, have reserves of $74 million
and $81 million as of September 30, 2006 and
December 31, 2005, respectively.
U.S. Superfund Sites
In the U.S., the
Company may be subject to substantial claims brought by
U.S. 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
U.S. Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, and related
state laws (collectively referred to as Superfund)
for investigation and cleanup costs at approximately 50 sites.
At most of these sites, numerous companies, including certain
companies comprising the Company, or one of its predecessor
companies, have been notified that the Environmental Protection
Agency, state governing bodies or private individuals consider
such companies to be potentially responsible parties
(PRP) under Superfund or related laws. The
proceedings relating to these sites are in various stages. The
cleanup process has not been completed at most sites and the
status of the insurance coverage for most of these proceedings
is uncertain. Consequently, the Company cannot determine
accurately its ultimate liability for investigation or cleanup
costs at these sites. As of both September 30, 2006 and
December 31, 2005, the Company had provisions totaling
$15 million for U.S. Superfund sites.
As events progress at each site for which it has been named a
PRP, the Company accrues, as appropriate, a liability for site
cleanup. Such liabilities include all costs that are probable
and can be reasonably estimated. In establishing these
liabilities, the Company considers its shipment of waste to a
site, its percentage of total waste shipped to the site, the
types of wastes involved, the conclusions of any studies, the
magnitude of any remedial actions that may be necessary and the
number and viability of other PRPs. Often the Company will join
with other PRPs to sign joint defense agreements that will
settle, among PRPs, each partys percentage allocation of
costs at the site. Although the ultimate liability may differ
from the estimate, the Company routinely reviews the liabilities
and revises the estimate, as appropriate, based on the most
current information available.
42
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Additional information relating to environmental remediation
activity is contained in the Footnotes to the Companys
consolidated financial statements included in the Companys
Annual Report on
Form 10-K
for the year ended December 31, 2005.
On October 3, 2006, the Company declared a cash dividend on
its 4.25% convertible perpetual preferred stock amounting to
approximately $2 million and a cash dividend of
$0.04 per share on its Series A common stock amounting
to approximately $7 million. Both cash dividends are for
the period August 1, 2006 to October 31, 2006 and are
payable on November 1, 2006 to holders of record as of
October 15, 2006.
43
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
In this Quarterly Report on
Form 10-Q,
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 BCP Crystal refers to
our subsidiary, BCP Crystal US Holdings Corp., a Delaware
corporation, and not its subsidiaries. The term
Purchaser refers to our subsidiary, Celanese Europe
Holding GmbH & Co. KG, formerly known as BCP Crystal
Acquisition GmbH & Co. KG, a German limited partnership
(Kommanditgesellschaft, KG), and not its subsidiaries, except
where otherwise indicated. The term Original
Shareholders refers, collectively, to Blackstone Capital
Partners (Cayman) Ltd. 1, Blackstone Capital Partners
(Cayman) Ltd. 2, Blackstone Capital Partners (Cayman) Ltd.
3 and BA Capital Investors Sidecar Fund, L.P. The terms
Sponsor and Advisor refer to certain
affiliates of The Blackstone Group.
Managements Discussion and Analysis of Financial Condition
and Results of Operations (MD&A) and other parts
of this
Form 10-Q
contain forward-looking statements that involve risks and
uncertainties. Forward-looking statements can be identified by
words such as anticipates, expects,
believes, plans, predicts,
and similar terms. Forward-looking statements are not guarantees
of future performance and our actual results may differ
significantly from the results discussed in the forward-looking
statements. Factors that might cause such differences include,
but are not limited to, those discussed in the subsection
entitled Factors That May Affect Future Results and
Financial Condition below. The following discussion should
be read in conjunction with our 2005
Form 10-K
filed with the Securities and Exchange Commission
(SEC) on March 31, 2006 and the Unaudited
Interim Consolidated Financial Statements and notes thereto
included elsewhere in this
Form 10-Q.
We assume no obligation to revise or update any forward-looking
statements for any reason, except as required by law.
Overview
We are a global hybrid producer of value-added industrial
chemicals and have the first or second market positions
worldwide in products comprising the majority of our sales. We
are the worlds largest producer of acetyl products,
including acetic acid and vinyl acetate monomer
(VAM), polyacetal products (POM), as
well as a leading global producer of high-performance engineered
polymers used in consumer and industrial products and designed
to meet highly technical customer requirements. Our operations
are located in North America, Europe and Asia. We believe we are
one of the lowest-cost producers of key building block chemicals
in the acetyls chain, such as acetic acid and VAM, due to our
economies of scale, operating efficiencies and proprietary
production technologies. In addition, we have a significant
portfolio of strategic investments, including a number of
ventures in North America, Europe and Asia. In aggregate, these
strategic investments enjoy significant sales, earnings and cash
flow. We have entered into these strategic investments in order
to gain access to local markets, minimize costs and accelerate
growth in areas we believe have significant future business
potential.
We operate principally through four business segments: Chemical
Products, Technical Polymers Ticona (Ticona),
Acetate Products and Performance Products. For further detail on
the business segments, see below Summary by Business
Segment in the Results of Operations section
of MD&A.
Financial
Reporting Changes
On December 16, 2004, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 123 (revised
2004),
Share Based Payment
(123(R)),
effective for a companys first fiscal year beginning after
June 15, 2005. SFAS No. 123(R) supersedes
Accounting Principles Board Opinion No. 25,
Accounting
for Stock Issued to Employees
(APB No. 25).
SFAS No. 123(R) requires all stock-based compensation,
including grants of stock options, to be recognized in the
consolidated statement of earnings.
During the first quarter of 2006, we adopted
SFAS No. 123(R). As a result, our net earnings for the
three and nine months ended September 30, 2006 was
$3 million (net of tax of $2 million) and
$9 million (net of tax of $5 million), respectively,
lower than if we had continued to account for share-based
compensation under APB No. 25 and related
interpretations. For additional details, see Note 16 to the
unaudited interim notes to consolidated financial statements.
44
European
Oxo Transaction
On October 1, 2003, CAG and Degussa AG
(Degussa) completed the combination of their
European oxo businesses. The venture, European Oxo GmbH
(EOXO), consists of both companies
propylene-based oxo chemical activities. CAG contributed net
assets with a carrying value of $12 million for a 50%
interest in the venture. CAG retained substantially all the
accounts receivable, accounts payable and accrued liabilities of
its contributed business existing on September 30, 2003. In
addition, CAG and Degussa each have committed to fund the
venture equally. Under a multi-year agreement, Degussa has the
option to sell its interest in EOXO to us beginning in January
2008 for a price based on a formula which considers the
profitability and net debt of the venture and the purchase price
of rhodium.
On August 28, 2006, Celanese Chemicals Europe GmbH
(CCE), a wholly owned subsidiary of CAG, entered
into an agreement with Degussa pursuant to which Degussa granted
CCE an option to purchase Degussas interest in EOXO for a
purchase price not materially different than the formula
described above and the assumption of certain liabilities. The
option is exercisable until June 30, 2007 and is subject to
certain conditions. Degussa has given notice that if CCE does
not exercise its option to purchase by June 30, 2007,
Degussa will exercise its right to sell its interest in EOXO to
us beginning in 2008 for a price based on the same formula
described above.
Our European oxo business is part of our Chemical Products
segment. We report our investment in EOXO using the equity
method of accounting.
Pending
Acquisition of Acetate Products Limited
In August 2006, we signed a definitive agreement to purchase the
cellulose acetate flake, tow and film business of Acetate
Products Limited (APL). Under the terms of the
agreement, we will not assume any debt obligations. The
agreement is subject to the receipt of certain regulatory
approvals and other customary closing conditions. The
transaction is expected to close during the fourth quarter of
2006. This acquisition is not expected to be material to our
financial position or the results of operations. We plan to fund
the acquisition using available cash from operations.
Results
of Operations
Financial
Highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
% of
|
|
|
September 30,
|
|
|
% of
|
|
|
September 30,
|
|
|
% of
|
|
|
September 30,
|
|
|
% of
|
|
|
|
2006
|
|
|
Net Sales
|
|
|
2005
|
|
|
Net Sales
|
|
|
2006
|
|
|
Net Sales
|
|
|
2005
|
|
|
Net Sales
|
|
|
|
(Unaudited)
|
|
|
|
(In $ millions)
|
|
|
Statement of Operations
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
1,685
|
|
|
|
100.0
|
%
|
|
|
1,526
|
|
|
|
100.0
|
%
|
|
|
5,000
|
|
|
|
100.0
|
%
|
|
|
4,493
|
|
|
|
100.0
|
%
|
Gross profit
|
|
|
367
|
|
|
|
21.8
|
%
|
|
|
286
|
|
|
|
18.7
|
%
|
|
|
1,084
|
|
|
|
21.7
|
%
|
|
|
1,002
|
|
|
|
22.3
|
%
|
Other (charges) gains, net
|
|
|
|
|
|
|
|
|
|
|
(24
|
)
|
|
|
(1.6
|
)%
|
|
|
(12
|
)
|
|
|
(0.2
|
)%
|
|
|
(89
|
)
|
|
|
(2.0
|
)%
|
Operating profit
|
|
|
200
|
|
|
|
11.9
|
%
|
|
|
95
|
|
|
|
6.2
|
%
|
|
|
562
|
|
|
|
11.2
|
%
|
|
|
406
|
|
|
|
9.0
|
%
|
Equity in net earnings of affiliates
|
|
|
20
|
|
|
|
1.2
|
%
|
|
|
21
|
|
|
|
1.4
|
%
|
|
|
59
|
|
|
|
1.2
|
%
|
|
|
48
|
|
|
|
1.1
|
%
|
Earnings from continuing operations
before tax and minority interests
|
|
|
181
|
|
|
|
10.7
|
%
|
|
|
77
|
|
|
|
5.0
|
%
|
|
|
490
|
|
|
|
9.8
|
%
|
|
|
216
|
|
|
|
4.8
|
%
|
Earnings from continuing operations
|
|
|
107
|
|
|
|
6.4
|
%
|
|
|
47
|
|
|
|
3.1
|
%
|
|
|
328
|
|
|
|
6.6
|
%
|
|
|
96
|
|
|
|
2.1
|
%
|
Earnings (loss) from discontinued
operations
|
|
|
2
|
|
|
|
0.1
|
%
|
|
|
(2
|
)
|
|
|
(0.1
|
)%
|
|
|
1
|
|
|
|
0.0
|
%
|
|
|
6
|
|
|
|
0.1
|
%
|
Net earnings
|
|
|
109
|
|
|
|
6.5
|
%
|
|
|
45
|
|
|
|
2.9
|
%
|
|
|
329
|
|
|
|
6.6
|
%
|
|
|
102
|
|
|
|
2.3
|
%
|
Depreciation and amortization
|
|
|
70
|
|
|
|
4.2
|
%
|
|
|
70
|
|
|
|
4.6
|
%
|
|
|
213
|
|
|
|
4.3
|
%
|
|
|
200
|
|
|
|
4.5
|
%
|
45
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
|
(In $ millions)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
Short-term borrowings and current
installments of long-term debt third party and
affiliates
|
|
|
205
|
|
|
|
155
|
|
Plus: Long-term debt
|
|
|
3,244
|
|
|
|
3,282
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
3,449
|
|
|
|
3,437
|
|
|
|
|
|
|
|
|
|
|
Summary
of Consolidated Results for the Three and Nine Months Ended
September 30, 2006 compared to the Three and Nine Months
Ended September 30, 2005
Net
Sales
Net sales for the three and nine months ended September 30,
2006 increased 10.4% and 11.3%, respectively. An increase in
pricing of 4% and 3% for the three and nine months ended
September 30, 2006, respectively, driven by higher raw
material and energy costs contributed to the improvement in net
sales. Also, an increase in volumes of 4% and 2% for the three
and nine months ended September 30, 2006, respectively,
driven by our Ticona and Performance Products business segments,
contributed significantly to the increase in net sales. The
volume increases are the results of increased market penetration
from Ticonas POM products, an improved business
environment in Europe and continued growth in new and existing
applications from our
Sunett
®
sweetener. Additionally, net sales from Acetex of
$413 million contributed to the increase in net sales for
the nine months ended September 30, 2006 as compared to
$115 million of net sales from Acetex for the same period
in 2005. The Acetex business was acquired in July 2005.
Gross
Profit
Gross profit increased to 21.8% of net sales for the three
months ended September 30, 2006 from 18.7% of net sales for
the same period in 2005. Gross profit decreased to 21.7% of net
sales for the nine months ended September 30, 2006 from
22.3% of net sales for the same period in 2005. The increase for
the three months ended September 30, 2006 is primarily due
to higher volumes and pricing more than offsetting higher raw
material and energy costs. Volumes increased for such products
as acetyls, acetyl derivative products, POM, Vectra and GUR
while pricing increased for acetyls and derivative products. The
decrease for the nine months ended September 30, 2006 is
primarily due to higher overall raw material and energy costs
for the period. Downstream products experienced margin recovery
while overall price increases in basic products for the period
could not offset the increases in raw material costs. Downstream
products are products driven by innovation and are typically
priced based on their value to their customers rather than on
supply and demand characteristics in the market. In addition,
Ticona experienced a decline in average pricing due to a larger
mix of sales from lower priced products.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses was relatively flat
for the three and nine months ended September 30, 2006,
respectively, compared to the same periods in 2005. The slight
increases in the three months and nine months ended
September 30, 2006 consist of stock-based compensation
expense of $5 million and $14 million, respectively,
resulting from our adoption of SFAS No. 123(R) and
$5 million and $15 million, respectively, related to
our long-term incentive plan. Additionally, the nine months
ended September 30, 2006 included selling, general and
administrative expenses from the Acetex business as well as
costs related to executive severance and legal costs associated
with the Squeeze-Out of CAG shareholders of $23 million.
These expenses were mostly offset by ongoing cost savings
initiatives from the Ticona and Acetate Products segments and
lower costs from the divestiture of the Cyclo-olefin Copolymer
(COC) business.
46
Other
(Charges) Gains, net
The components of other (charges) gains, net for the three and
nine months ended September 30, 2006 and 2005 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
|
(In $ millions)
|
|
|
Employee termination benefits
|
|
|
|
|
|
|
(9
|
)
|
|
|
(11
|
)
|
|
|
(18
|
)
|
Plant/office closures
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring
|
|
|
|
|
|
|
(10
|
)
|
|
|
(11
|
)
|
|
|
(20
|
)
|
Environmental related plant
closures
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
(12
|
)
|
Asset impairments
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(25
|
)
|
Insurance recoveries associated
with plumbing cases
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
4
|
|
Other
|
|
|
|
|
|
|
(1
|
)
|
|
|
(4
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (charges) gains, net
|
|
|
|
|
|
|
(24
|
)
|
|
|
(12
|
)
|
|
|
(89
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (charges) gains, net decreased by $24 million and
$77 million for the three and nine months ended
September 30, 2006 compared to the same periods in 2005.
The decrease for the three months ended September 30, 2006
is due to the absence of environmental related plant closures of
$12 million recorded in 2005 as well as an overall
reduction of employee termination benefits and other
restructuring charges. The decrease for the nine months ended
September 30, 2006 is due to the absence of asset
impairment charges of $25 million related to the
divestiture of our COC business, environmental related plant
closures of $12 million and the absence of $35 million
related to the termination of advisor monitoring services, all
of which were recorded in 2005.
Operating
Profit
Operating profit increased 110.5% and 38.4% for the three and
nine months ended September 30, 2006, respectively,
compared to the same periods in 2005. This is principally driven
by higher pricing, lower other (charges) gains, net and
productivity improvements. The nine months ended
September 30, 2006 included operating profit from Acetex of
$14 million, an increase of $16 million compared to
the same period in 2005.
Equity
in Net Earnings of Affiliates
Equity in net earnings of affiliates was relatively flat for the
three months ended September 30, 2006 and increased 22.9%
for the nine months ended September 30, 2006 compared to
the same periods in 2005. Cash distributions received from
equity affiliates decreased by $8 million for the nine
months ended September 30, 2006 due to the timing of
dividend receipts from Ticonas high performance products
ventures and its POM ventures.
Interest
Expense
Interest expense was relatively flat for the three months ended
September 30, 2006 and decreased 31.0% for the nine months
ended September 30, 2006 compared to the same period in
2005. The decrease for the nine month period is primarily due to
$28 million related to accelerated amortization of deferred
financing costs and $74 million related to early redemption
premiums associated with the partial redemption of the senior
subordinated notes, senior discount notes and floating rate term
loan, both recorded in 2005.
Other
Income (Expense), Net
Other income (expense), net was flat for the three months ended
September 30, 2006 and increased 29.8% for the nine months
ended September 30, 2006 compared to the same periods in
2005. The increase is primarily related to lower anticipated
guaranteed payments to CAG minority shareholders of
$18 million for the nine months ended
47
September 30, 2006 due to our increased ownership in CAG.
In addition, dividend income related to investments accounted
for under the cost method increased by $8 million for the
nine months ended September 30, 2006 compared to the same
period in 2005. This is primarily driven by the timing of
dividend receipts and higher dividends from our investments in
recently expanded China ventures.
Income
Taxes
Income taxes for the three and nine months ended
September 30, 2006 and 2005 are recorded based on the
estimated annual effective tax rate. As of September 30,
2006, the estimated annualized tax rate is 32%, which is less
than the combination of the statutory federal rate and state
income tax rates in the U.S. The estimated annual effective
tax rate for 2006 reflects earnings in low tax jurisdictions and
a partial benefit for reversal of valuation allowance on 2006
projected U.S. income, offset by higher tax rates in
certain
non-U.S. jurisdictions.
Reversals of the valuation allowance established at the
Acquisition resulting from positive earnings or a change in
judgment regarding the realizability of the net deferred tax
asset are primarily reflected as a reduction of goodwill.
Therefore, the effective tax rate reflects only a partial
benefit for reversal of valuation allowance of approximately
$7 million for the nine months ended September 30,
2006.
For the three and nine months ended September 30, 2006, we
recorded tax expense of $72 million and $159 million,
respectively, which resulted in an effective tax rate of 40% and
32%, respectively. The higher effective tax rate for the three
months ended September 30, 2006 was due to the increase in
the estimated annual effective rate from the prior quarter and
adjustments for tax return to provision estimates in certain
taxing jurisdictions. The higher effective rate for the nine
months ended September 30, 2006 compared to the six months
ended June 30, 2006 was due to increased earnings in high
tax jurisdictions. For the three and nine months ended
September 30, 2005, we recorded tax expense of
$27 million and $79 million, respectively, which
resulted in an effective tax rate of 35% and 37%, respectively.
The effective tax rate in 2005 was significantly affected by the
non-recognition of tax benefits associated with acquisition
related expenses.
Earnings
(loss) from Discontinued Operations
Earnings from discontinued operations primarily relates to
Acetate Products filament operations, which were
discontinued during the fourth quarter of 2005, and Chemical
Products Pentaerythritol (PE) operations,
which were discontinued during the third quarter of 2006. As a
result, revenues and expenses related to the filament and PE
operations lines are reflected as a component of discontinued
operations.
48
Selected
Data by Business Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Change
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Change
|
|
|
|
2006
|
|
|
2005
|
|
|
in $
|
|
|
2006
|
|
|
2005
|
|
|
in $
|
|
|
|
(Unaudited)
|
|
|
|
(In $ millions)
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemical Products
|
|
|
1,206
|
|
|
|
1,091
|
|
|
|
115
|
|
|
|
3,558
|
|
|
|
3,203
|
|
|
|
355
|
|
Technical Polymers Ticona
|
|
|
230
|
|
|
|
212
|
|
|
|
18
|
|
|
|
691
|
|
|
|
674
|
|
|
|
17
|
|
Acetate Products
|
|
|
171
|
|
|
|
162
|
|
|
|
9
|
|
|
|
514
|
|
|
|
499
|
|
|
|
15
|
|
Performance Products
|
|
|
41
|
|
|
|
46
|
|
|
|
(5
|
)
|
|
|
138
|
|
|
|
140
|
|
|
|
(2
|
)
|
Other Activities
|
|
|
69
|
|
|
|
55
|
|
|
|
14
|
|
|
|
198
|
|
|
|
75
|
|
|
|
123
|
|
Inter-segment Eliminations
|
|
|
(32
|
)
|
|
|
(40
|
)
|
|
|
8
|
|
|
|
(99
|
)
|
|
|
(98
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Sales
|
|
|
1,685
|
|
|
|
1,526
|
|
|
|
159
|
|
|
|
5,000
|
|
|
|
4,493
|
|
|
|
507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (Charges) Gains,
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemical Products
|
|
|
|
|
|
|
(12
|
)
|
|
|
12
|
|
|
|
(7
|
)
|
|
|
(16
|
)
|
|
|
9
|
|
Technical Polymers Ticona
|
|
|
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
4
|
|
|
|
(22
|
)
|
|
|
26
|
|
Acetate Products
|
|
|
|
|
|
|
(9
|
)
|
|
|
9
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
10
|
|
Performance Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Activities
|
|
|
|
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
(9
|
)
|
|
|
(41
|
)
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Charges, Net
|
|
|
|
|
|
|
(24
|
)
|
|
|
24
|
|
|
|
(12
|
)
|
|
|
(89
|
)
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Profit
(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemical Products
|
|
|
170
|
|
|
|
101
|
|
|
|
69
|
|
|
|
475
|
|
|
|
436
|
|
|
|
39
|
|
Technical Polymers Ticona
|
|
|
37
|
|
|
|
18
|
|
|
|
19
|
|
|
|
116
|
|
|
|
62
|
|
|
|
54
|
|
Acetate Products
|
|
|
23
|
|
|
|
4
|
|
|
|
19
|
|
|
|
75
|
|
|
|
24
|
|
|
|
51
|
|
Performance Products
|
|
|
10
|
|
|
|
13
|
|
|
|
(3
|
)
|
|
|
43
|
|
|
|
41
|
|
|
|
2
|
|
Other Activities
|
|
|
(40
|
)
|
|
|
(41
|
)
|
|
|
1
|
|
|
|
(147
|
)
|
|
|
(157
|
)
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Profit
|
|
|
200
|
|
|
|
95
|
|
|
|
105
|
|
|
|
562
|
|
|
|
406
|
|
|
|
156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) from Continuing
Operations Before Tax and Minority Interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemical Products
|
|
|
192
|
|
|
|
136
|
|
|
|
56
|
|
|
|
522
|
|
|
|
481
|
|
|
|
41
|
|
Technical Polymers Ticona
|
|
|
50
|
|
|
|
34
|
|
|
|
16
|
|
|
|
159
|
|
|
|
107
|
|
|
|
52
|
|
Acetate Products
|
|
|
23
|
|
|
|
5
|
|
|
|
18
|
|
|
|
96
|
|
|
|
27
|
|
|
|
69
|
|
Performance Products
|
|
|
8
|
|
|
|
10
|
|
|
|
(2
|
)
|
|
|
40
|
|
|
|
36
|
|
|
|
4
|
|
Other Activities
|
|
|
(92
|
)
|
|
|
(108
|
)
|
|
|
16
|
|
|
|
(327
|
)
|
|
|
(435
|
)
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Earnings from Continuing
Operations Before Tax and Minority Interests
|
|
|
181
|
|
|
|
77
|
|
|
|
104
|
|
|
|
490
|
|
|
|
216
|
|
|
|
274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation &
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemical Products
|
|
|
39
|
|
|
|
45
|
|
|
|
(6
|
)
|
|
|
118
|
|
|
|
118
|
|
|
|
|
|
Technical Polymers Ticona
|
|
|
16
|
|
|
|
13
|
|
|
|
3
|
|
|
|
48
|
|
|
|
42
|
|
|
|
6
|
|
Acetate Products
|
|
|
6
|
|
|
|
3
|
|
|
|
3
|
|
|
|
18
|
|
|
|
21
|
|
|
|
(3
|
)
|
Performance Products
|
|
|
3
|
|
|
|
4
|
|
|
|
(1
|
)
|
|
|
11
|
|
|
|
10
|
|
|
|
1
|
|
Other Activities
|
|
|
6
|
|
|
|
5
|
|
|
|
1
|
|
|
|
18
|
|
|
|
9
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Depreciation &
Amortization
|
|
|
70
|
|
|
|
70
|
|
|
|
|
|
|
|
213
|
|
|
|
200
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
Factors
Affecting Third Quarter 2006 Segment Net Sales Compared to Third
Quarter 2005
The charts below set forth the percentage increase (decrease) in
net sales from the 2005 period attributable to each of the
factors indicated in each of our business segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
Price
|
|
|
Currency
|
|
|
Other
|
|
|
Total
|
|
|
|
(In percentages)
|
|
|
Chemical Products
|
|
|
3
|
|
|
|
5
|
|
|
|
2
|
|
|
|
0
|
|
|
|
10
|
|
Technical Polymers Ticona
|
|
|
10
|
|
|
|
(3
|
)
|
|
|
2
|
|
|
|
(1
|
)(a)
|
|
|
8
|
|
Acetate Products
|
|
|
0
|
|
|
|
6
|
|
|
|
0
|
|
|
|
0
|
|
|
|
6
|
|
Performance Products
|
|
|
(6
|
)
|
|
|
(6
|
)
|
|
|
1
|
|
|
|
0
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Company (b)
|
|
|
4
|
|
|
|
4
|
|
|
|
2
|
|
|
|
0
|
|
|
|
10
|
|
|
|
|
|
(a)
|
|
Includes loss of sales related to the COC divestiture
|
|
(b)
|
|
Includes the effects of AT Plastics and the captive insurance
companies
|
Factors
Affecting Nine Months Ended 2006 Segment Net Sales Compared to
Nine Months Ended 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
Price
|
|
|
Currency
|
|
|
Other
|
|
|
Total
|
|
|
|
(In percentages)
|
|
|
Chemical Products
|
|
|
1
|
|
|
|
4
|
|
|
|
0
|
|
|
|
6
|
(a)
|
|
|
11
|
|
Technical Polymers Ticona
|
|
|
6
|
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)(b)
|
|
|
2
|
|
Acetate Products
|
|
|
(4
|
)
|
|
|
7
|
|
|
|
0
|
|
|
|
0
|
|
|
|
3
|
|
Performance Products
|
|
|
11
|
|
|
|
(10
|
)
|
|
|
(2
|
)
|
|
|
0
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company
|
|
|
2
|
|
|
|
3
|
|
|
|
0
|
|
|
|
6
|
(c)
|
|
|
11
|
|
|
|
|
|
(a)
|
|
Includes net sales from the Acetex business, excluding AT
Plastics
|
|
(b)
|
|
Includes loss of sales related to the COC divestiture
|
|
(c)
|
|
Includes the effects of AT Plastics and the captive insurance
companies
|
50
Summary
by Business Segment for the Three and Nine Months Ended
September 30, 2006 compared to the Three and Nine Months
Ended September 30, 2005
Chemical
Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Change
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Change
|
|
|
|
2006
|
|
|
2005
|
|
|
in $
|
|
|
2006
|
|
|
2005
|
|
|
in $
|
|
|
|
(Unaudited)
|
|
|
|
(In $ millions)
|
|
|
Net sales
|
|
|
1,206
|
|
|
|
1,091
|
|
|
|
115
|
|
|
|
3,558
|
|
|
|
3,203
|
|
|
|
355
|
|
Net sales variance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
Price
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
Currency
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
Other
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
170
|
|
|
|
101
|
|
|
|
69
|
|
|
|
475
|
|
|
|
436
|
|
|
|
39
|
|
Operating margin
|
|
|
14.1
|
%
|
|
|
9.3
|
%
|
|
|
|
|
|
|
13.4
|
%
|
|
|
13.6
|
%
|
|
|
|
|
Other (charges) gains, net
|
|
|
|
|
|
|
(12
|
)
|
|
|
12
|
|
|
|
(7
|
)
|
|
|
(16
|
)
|
|
|
9
|
|
Earnings from continuing
operations before tax and minority interests
|
|
|
192
|
|
|
|
136
|
|
|
|
56
|
|
|
|
522
|
|
|
|
481
|
|
|
|
41
|
|
Depreciation and amortization
|
|
|
39
|
|
|
|
45
|
|
|
|
(6
|
)
|
|
|
118
|
|
|
|
118
|
|
|
|
|
|
Our Chemical Products segment produces and supplies acetyl
products, including acetic acid, acetate esters, VAM, polyvinyl
alcohol and emulsions. These products are generally used as
building blocks for value-added products or in intermediate
chemicals used in the paints, coatings, inks, adhesives, films,
textiles and building products industries. Other chemicals
produced in this segment are organic solvents and intermediates
for pharmaceutical, agricultural and chemical products.
Chemical Products net sales increased 10% and 11% for the
three and nine months ended September 30, 2006,
respectively, compared to the same periods in 2005. Pricing
increased for most products driven by higher raw material costs,
particularly ethylene, butane and propylene. Overall, volumes
increased 3% and 1% for the three and nine months ended
September 30, 2006, respectively, compared to the same
periods in 2005 primarily due to increased demand in Asia and
competitor outages during the third quarter of 2006. The
increase for the nine months ended September 30, 2006 was
also due to the inclusion of net sales from Acetex (excluding AT
Plastics), which was acquired in July 2005, of
$230 million, an increase of $165 million compared to
the same period in 2005.
Operating profit increased 68% and 9% for the three and nine
months ended September 30, 2006, respectively, compared to
the same period in 2005 as higher volumes in all product lines,
price increases in both acetyl and acetyl derivative products
and lower other charges more than offset raw material price
increases, primarily in ethylene and propylene. Acetex
(excluding AT Plastics) had operating profit of $15 million
for the nine months ended September 30, 2006, an increase
of $12 million from the same period in 2005.
Earnings from continuing operations before tax and minority
interests increased 41% and 9% for the three and nine months
ended September 30, 2006 compared to the same period in
2005. The increases are primarily due to the increases in
operating profit. Equity in net earnings of affiliates increased
$9 million for the nine months ended September 30,
2006 compared to the same period in 2005.
51
Technical
Polymers Ticona
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Change
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Change
|
|
|
|
2006
|
|
|
2005
|
|
|
in $
|
|
|
2006
|
|
|
2005
|
|
|
in $
|
|
|
|
(Unaudited)
|
|
|
|
(In $ millions)
|
|
|
Net sales
|
|
|
230
|
|
|
|
212
|
|
|
|
18
|
|
|
|
691
|
|
|
|
674
|
|
|
|
17
|
|
Net sales variance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
Price
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
Currency
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
Other
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
37
|
|
|
|
18
|
|
|
|
19
|
|
|
|
116
|
|
|
|
62
|
|
|
|
54
|
|
Operating margin
|
|
|
16.1
|
%
|
|
|
8.5
|
%
|
|
|
|
|
|
|
16.8
|
%
|
|
|
9.2
|
%
|
|
|
|
|
Other (charges) gains, net
|
|
|
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
4
|
|
|
|
(22
|
)
|
|
|
26
|
|
Earnings from continuing
operations before tax and minority interests
|
|
|
50
|
|
|
|
34
|
|
|
|
16
|
|
|
|
159
|
|
|
|
107
|
|
|
|
52
|
|
Depreciation and amortization
|
|
|
16
|
|
|
|
13
|
|
|
|
3
|
|
|
|
48
|
|
|
|
42
|
|
|
|
6
|
|
Our Ticona segment develops, produces and supplies a broad
portfolio of high performance technical polymers for application
in automotive and electronics products and in other consumer and
industrial applications, often replacing metal or glass. The
primary products of Ticona are POM, polybutylene terephthalate
(PBT) and GUR, an ultra-high molecular weight
polyethylene. POM and PBT are used in a broad range of products
including automotive components, electronics and appliances. GUR
is used in battery separators, conveyor belts, filtration
equipment, coatings and medical devices.
Ticonas net sales increased 8% and 2% for the three and
nine months ended September 30, 2006 compared to the same
periods in 2005. The increase for the quarter is driven by 10%
higher volumes, partially offset by 3% lower pricing. Volumes
increased in all product lines, particularly in POM, Vectra and
GUR, due to increased market penetration and a stronger business
environment in Europe. Ticona experienced a decline in average
pricing driven by a larger mix of sales from lower priced
products. Improved volumes for the nine months ended
September 30, 2006 of 6% were partially offset by negative
currency effects of 2% and the absence of net sales due to the
divestiture of the COC business in December 2005. During the
nine months ended September 30, 2005, COC recorded
approximately $8 million in net sales.
Operating profit increased significantly for the three and nine
months ended September 30, 2006 compared to the same
periods in 2005, as improved net sales more than offset higher
raw material and energy costs. Also contributing to the
increases are positive effects from the exit of the COC business
(including a reduction in other charges due to the 2005 asset
impairment charge of $25 million), productivity
improvements and lower spending due to an organizational
redesign. During the three and nine months ended
September 30, 2005, COC recorded approximately
$7 million and $42 million, respectively, in operating
loss, which includes asset impairments.
Earnings from continuing operations before tax and minority
interests increased 47% and 49% for the three and nine months
ended September 30, 2006, respectively, compared to the
same periods in 2005. The increases are primarily due to the
increases in operating profit. Equity in net earnings of
affiliates remained flat for the three and nine months ended
September 30, 2006 compared to the same periods in 2005.
52
Acetate
Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Change
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Change
|
|
|
|
2006
|
|
|
2005
|
|
|
in $
|
|
|
2006
|
|
|
2005
|
|
|
in $
|
|
|
|
(Unaudited)
|
|
|
|
(In $ millions)
|
|
|
Net sales
|
|
|
171
|
|
|
|
162
|
|
|
|
9
|
|
|
|
514
|
|
|
|
499
|
|
|
|
15
|
|
Net sales variance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
Price
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
Currency
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
Other
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
23
|
|
|
|
4
|
|
|
|
19
|
|
|
|
75
|
|
|
|
24
|
|
|
|
51
|
|
Operating margin
|
|
|
13.5
|
%
|
|
|
2.5
|
%
|
|
|
|
|
|
|
14.6
|
%
|
|
|
4.8
|
%
|
|
|
|
|
Other (charges) gains, net
|
|
|
|
|
|
|
(9
|
)
|
|
|
9
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
10
|
|
Earnings from continuing
operations before tax and minority interests
|
|
|
23
|
|
|
|
5
|
|
|
|
18
|
|
|
|
96
|
|
|
|
27
|
|
|
|
69
|
|
Depreciation and amortization
|
|
|
6
|
|
|
|
3
|
|
|
|
3
|
|
|
|
18
|
|
|
|
21
|
|
|
|
(3
|
)
|
Our Acetate Products segment primarily produces and supplies
acetate tow, which is used in the production of filter products.
We also produce acetate flake which is processed into acetate
fiber in the form of a tow band.
Acetate Products net sales increased 6% and 3% for the
three and nine months ended September 30, 2006,
respectively, compared to the same periods in 2005 as higher
prices and increased flake volumes more than offset lower tow
volumes. The lower tow volumes which were a result of shutting
down our Canadian tow plant were partially offset by an increase
in flake sales to our China tow ventures.
Operating profit increased 475% and 213% for the three and nine
months ended September 30, 2006, respectively, compared to
the same periods in 2005. Higher pricing, savings from
restructuring and lower other charges more than offset lower
overall sales volumes and higher raw material and energy costs
for the three and nine months ended September 30, 2006.
Depreciation and amortization increased $3 million for the
three months ended September 30, 2006 due to an increased
asset base, but decreased overall by $3 million for the
nine months ended September 30, 2006 primarily due to a
charge in 2005 related to additions to asset retirement
obligations.
Earnings from continuing operations before tax and minority
interests benefited from the higher operating profits for the
three and nine months ended September 30, 2006, as well as
higher dividends from our China ventures for the nine months
ended September 30, 2006.
53
Performance
Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Change
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Change
|
|
|
|
2006
|
|
|
2005
|
|
|
in $
|
|
|
2006
|
|
|
2005
|
|
|
in $
|
|
|
|
(Unaudited)
|
|
|
|
(In $ millions)
|
|
|
Net sales
|
|
|
41
|
|
|
|
46
|
|
|
|
(5
|
)
|
|
|
138
|
|
|
|
140
|
|
|
|
(2
|
)
|
Net sales variance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
(6
|
)%
|
|
|
|
|
|
|
|
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
Price
|
|
|
(6
|
)%
|
|
|
|
|
|
|
|
|
|
|
(10
|
)%
|
|
|
|
|
|
|
|
|
Currency
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
Other
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
10
|
|
|
|
13
|
|
|
|
(3
|
)
|
|
|
43
|
|
|
|
41
|
|
|
|
2
|
|
Operating margin
|
|
|
24.4
|
%
|
|
|
28.3
|
%
|
|
|
|
|
|
|
31.2
|
%
|
|
|
29.3
|
%
|
|
|
|
|
Other (charges) gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing
operations before tax and minority interests
|
|
|
8
|
|
|
|
10
|
|
|
|
(2
|
)
|
|
|
40
|
|
|
|
36
|
|
|
|
4
|
|
Depreciation and amortization
|
|
|
3
|
|
|
|
4
|
|
|
|
(1
|
)
|
|
|
11
|
|
|
|
10
|
|
|
|
1
|
|
The Performance Products segment operates under the trade name
of Nutrinova and produces and sells
Sunett
®
high intensity sweetener and food protection ingredients, such
as sorbates, for the food, beverage and pharmaceuticals
industries.
Performance Products net sales decreased 11% and remained
relatively flat for the three and nine months ended
September 30, 2006, respectively, compared to the same
periods in 2005. A 6% decline in volumes and a 6% decline in
pricing for the three months ended September 30, 2006 were
partially offset by positive currency effects of 1%. An 11%
improvement in volumes for the nine months ended
September 30, 2006 was offset by lower pricing of 10% and
negative currency effects of 2%. Volumes decreased slightly from
the Sunett sweetener for the three months ended
September 30, 2006, but increased overall by 14% for the
nine months ended September 30, 2006. The Sunett sweetener
products experienced strong volume growth during the nine months
ended September 30, 2006, due to strong demand from our
customers associated with new product launches, as well as the
impact from the warmer than normal temperatures in Europe and
North America. However, volume growth is expected to decline to
more normal single digit rates in the final quarter of 2006.
Consistent with our strategy, Sunett sweetener pricing declined
on lower unit selling prices associated with higher volumes to
our major customers. Pricing for sorbates remained relatively
flat during the three and nine months ended September 30,
2006, while worldwide capacity still prevailed in the industry.
Earnings from continuing operations before tax and minority
interests decreased for the three months ended
September 30, 2006 and increased for the nine months ended
September 30, 2006 primarily due to the similar movements
in operating profit.
Other
Activities
Other Activities primarily consists of corporate center costs,
including financing and administrative activities, and certain
other operating entities, including the captive insurance
companies and the AT Plastics business.
Net sales increased to $69 million from $55 million
for the three months ended September 30, 2006 compared to
the same period in 2005. Net sales increased to
$198 million from $75 million for the nine months
ended September 30, 2006 compared to the same period in
2005. The increase in net sales is primarily due to the
acquisition of AT Plastics which occurred in the third quarter
of 2005. Net sales for AT Plastics increased to $65 million
from $49 million for the three months ended
September 30, 2006 compared to the same period in 2005. Net
sales for AT Plastics increased to $182 million from
$49 million for the nine months ended September 30,
2006
54
compared to the same period in 2005. The increase for the nine
months ended September 30, 2006 is partially offset by an
$8 million decrease in net sales resulting from the sale of
PBI and the Vectran product lines during the second quarter of
2005.
The operating loss for Other Activities remained flat for the
three months ended September 30, 2006 and improved by
$10 million for the nine months ended September 30,
2006 compared to the same periods in 2005. Increases for the
quarter due to stock-based compensation expense of
$5 million resulting from our adoption of
SFAS No. 123(R) and $5 million related to our
long-term incentive plan were offset by increased operating
profit from the AT Plastics business of $7 million. The
improvement for the nine months ended September 30, 2006 is
largely due to the absence of $45 million related to the
2005 advisor monitoring fee and the termination of advisor
monitoring services agreement during the first quarter of 2005,
a $4 million increase in operating profit from the AT
Plastics business and a $4 million accrual reversal related
to a plant relocation. This improvement is partially offset by
executive severance and legal costs associated with the
Squeeze-Out of $23 million, stock-based compensation
expense of $14 million resulting from our adoption of
SFAS No. 123(R) and $11 million of additional
expense related to our long-term incentive plan.
Loss from continuing operations before tax and minority
interests decreased by $16 million and $108 million
for the three and nine months ended September 30, 2006,
respectively, compared to the same periods in 2005. The decrease
for the nine months ended September 30, 2006 is primarily
due to the decrease in operating losses previously discussed
above within this segment and a decrease in interest expense of
$102 million. The decrease for the nine month period is
primarily due to $28 million in 2005 related to accelerated
amortization of deferred financing costs and $74 million in
2005 related to early redemption premiums associated with the
partial redemption of the senior subordinated notes, senior
discount notes and floating rate term loan, both recorded in
2005.
Liquidity
and Capital Resources
Our primary source of liquidity will continue to be cash
generated from operations, available cash and cash equivalents
and funds from our portfolio of strategic investments. In
addition, we have availability under our amended and restated
credit facilities to assist, if required, in meeting our working
capital needs and other contractual obligations. We believe we
will have available resources to meet our liquidity requirements
for the remainder of the year and for the subsequent twelve
months, including debt service. If our cash flow from operations
is insufficient to fund our debt service and other obligations,
we may be forced to use other means available to us such as to
increase our borrowings under our lines of credit, reduce or
delay capital expenditures, seek additional capital or seek to
restructure or refinance our indebtedness. There can be no
assurance, however, that we will continue to generate cash flows
at or above current levels or that we will be able to maintain
our ability to borrow under our revolving credit facilities.
Cash
Flows
Cash and cash equivalents at September 30, 2006 were
$513 million, which was an increase of $123 million
from December 31, 2005. See below for details on the change
in cash and cash equivalents from December 31, 2005.
Net Cash
Provided by Operating Activities
Cash provided by operating activities was $415 million for the
nine months ended September 30, 2006, compared with $513
million for the same period in 2005. The reduction in operating
cash flows was due primarily to an increase in cash used from
changes in operating assets and liabilities partially offset by
increased earnings from continuing operations. Earnings from
continuing operations increased to $328 million for the nine
months ended September 30, 2006, compared with $96 million
for the same period in 2005. The changes in operating assets and
liabilities were driven by higher trade and other receivables
and lower inventories and trade payables. The increase in
receivables is due to higher net sales. The decrease in
inventory is due to the favorable reduction associated with the
hurricanes in 2005, and the decrease in trade payables is due to
the timing of payments.
55
Net Cash
Used in Investing Activities
Net cash from investing activities resulted in a cash outflow of
$193 million for the nine months ended September 30,
2006 compared to a cash outflow of $778 million for the
same period in 2005. The decrease in cash outflow is primarily
due to cash paid of $397 million for the purchase of
additional CAG shares in August 2005, $216 million for the
purchase of Acetex in July 2005 and $208 million for the
purchase of Vinamul in February 2005. These decreases were
offset by the net effect of an increase in capital expenditures
of $44 million, an increase in restricted cash of
$42 million, a decrease in net proceeds from the sale and
purchase of marketable securities of $52 million, a
decrease in net proceeds received for the disposal of
discontinued operations of $75 million, a decrease in fees
associated with the 2005 acquisitions of $27 million and a
decrease in the proceeds received from the sales of assets of
$29 million.
Our capital expenditures were $176 million and
$132 million for the nine months ended September 30,
2006 and 2005, respectively. Capital expenditures were primarily
related to major replacements of equipment, capacity expansions,
major investments to reduce future operating costs, and
environmental and health and safety initiatives. Capital
expenditures in 2006 and 2005 included costs for the expansion
of our Nanjing, China site into an integrated chemical complex.
Capital expenditures are expected to be approximately
$250 million for 2006.
Net Cash
Used in Financing Activities
Net cash from financing activities decreased to a cash outflow
of $109 million for the nine months ended
September 30, 2006 compared to a cash outflow of
$78 million for the same period in 2005. The cash outflow
in 2006 primarily relates to the $100 million voluntary
repayment of the Senior Term Loan facility on July 14,
2006. The cash outflow in 2005 primarily relates to the
following major financing activities:
|
|
|
|
|
Borrowings under the term loan facility of $1,135 million.
|
|
|
|
Distribution to Series B shareholders of $804 million.
|
|
|
|
Redemption and related premiums of the senior subordinated notes
of $572 million and senior discount notes of
$207 million.
|
|
|
|
Proceeds from the issuances of common stock of
$752 million, net and preferred stock of $233 million,
net.
|
|
|
|
Repayment of floating rate term loan, including related premium,
of $354 million.
|
|
|
|
Exercise of Acetexs option to redeem its
10
7
/
8
% senior
notes for approximately $280 million.
|
Liquidity
Our contractual obligations, commitments and debt service
requirements over the next several years are significant and are
substantially higher than historical amounts. As stated above,
our primary source of liquidity will continue to be cash
generated from operations, available cash and cash equivalents
and funds from our portfolio of strategic investments. In
addition, we have availability under our amended and restated
credit facilities to assist, if required, in meeting our working
capital needs and other contractual obligations.
Debt and
Capital
In 2005, we issued 9,600,000 shares of liquidation
preference preferred stock for proceeds of $240 million.
Holders of the preferred stock are entitled to receive, when, as
and if declared by our Board of Directors, out of funds legally
available therefor, cash dividends at the rate of 4.25% per
annum (or $1.06 per share), payable quarterly in arrears,
which commenced on May 1, 2005. Dividends on the preferred
stock are cumulative from the date of initial issuance. As of
September 30, 2006, the dividend is expected to result in
an annual payment of approximately $10 million. Unpaid
declared dividends accumulate at an annual rate of 4.25%. The
preferred stock is convertible, at the option of the holder, at
any time into shares of our Series A common stock at a
conversion rate of approximately 1.25 shares of our
Series A common stock per $25.00 liquidation preference of
the preferred stock. During the nine months ended
September 30, 2006, we paid $8 million in dividends on
our preferred stock. On October 3, 2006 we declared a
$2 million cash dividend on our convertible perpetual
preferred stock which is payable on November 1, 2006.
56
In July 2005, our Board of Directors adopted a policy of
declaring, subject to legally available funds, a quarterly cash
dividend on each share of our Series A common stock at an
annual rate initially equal to approximately 1% of the $16.00
initial public offering price per share of our Series A
common stock (or $0.16 per share) unless our Board of
Directors in its sole discretion determines otherwise. During
the nine months ended September 30, 2006, we paid
$19 million in aggregate dividends on our Series A
common stock and on October 3, 2006 we declared a
$7 million cash dividend which is payable on
November 1, 2006. Based upon the number of outstanding
shares as of September 30, 2006, the annual cash dividend
payment is approximately $25 million. However, there is no
assurance that sufficient cash will be available to pay such
dividend.
On May 9, 2006, we filed with the SEC a universal shelf
registration statement on
Form S-3,
thus registering shares of our Series A common stock,
shares of our preferred stock and depository shares. On
May 10, 2006, Blackstone Capital Partners (Cayman)
Ltd. 1, Blackstone Capital Partners (Cayman) Ltd. 2,
Blackstone Capital Partners (Cayman) Ltd. 3 and BA Capital
Investors Sidecar Fund, L.P. agreed to sell
35,000,000 shares of Series A common stock through a
public secondary offering and granted to the underwriter an
over-allotment option to purchase up to an additional
5,250,000 shares of our Series A common stock. The
underwriter did not exercise the over-allotment option. We did
not receive any of the proceeds from the offering. The
transaction closed on May 15, 2006. We incurred and
expensed approximately $2 million of fees related to this
transaction.
As of September 30, 2006, we had total debt of
$3,449 million compared to $3,437 million as of
December 31, 2005. We were in compliance with all of the
financial covenants related to our debt agreements as of
September 30, 2006.
Contractual Debt Obligations.
The following
table sets forth our fixed contractual debt obligations as of
September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
2007-
|
|
|
2009-
|
|
|
2011 and
|
|
Fixed Contractual Debt Obligations
|
|
Total
|
|
|
2006
|
|
|
2008
|
|
|
2010
|
|
|
Thereafter
|
|
|
|
(In $ millions)
|
|
|
Term loan facilities
|
|
|
1,613
|
|
|
|
4
|
|
|
|
33
|
|
|
|
33
|
|
|
|
1,543
|
|
Interest payments on debt(1)
|
|
|
1,919
|
|
|
|
61
|
|
|
|
489
|
|
|
|
532
|
|
|
|
837
|
|
Senior subordinated notes(2)
|
|
|
961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
961
|
|
Senior discount notes(3)
|
|
|
554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
554
|
|
Other debt(4)
|
|
|
465
|
|
|
|
176
|
|
|
|
21
|
|
|
|
50
|
|
|
|
218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed contractual debt
obligations
|
|
|
5,512
|
|
|
|
241
|
|
|
|
543
|
|
|
|
615
|
|
|
|
4,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
For future interest expense, we assumed no change in variable
rates. (See Note 10 for the applicable interest rates).
|
|
(2)
|
|
Does not include $3 million of premium.
|
|
(3)
|
|
Reflects the accreted value of the notes at maturity of
$145 million.
|
|
(4)
|
|
Does not include a $2 million reduction due to purchase
accounting.
|
Senior Credit Facilities.
As of
September 30, 2006, the senior credit facilities of
$2,441 million consist of a term loan facility of
$1,613 million, a revolving credit facility of
$600 million and a credit-linked revolving facility of
$228 million.
Term loan facility Subsequent to the consummation of
the initial public offering in January 2005, we entered into
amended and restated senior credit facilities which increased
the term loan facility. The terms of the amended and restated
senior credit facilities are substantially similar to the terms
of our immediately previous senior credit facilities. As of
September 30, 2006, the term loan facility had a balance of
$1,613 million, which matures in 2011. On July 14,
2006, we made a $100 million equivalent voluntary
prepayment on our Senior Term Loan facility. In connection with
the voluntary prepayment, we wrote-off approximately
$1 million of unamortized deferred financing fees
associated with our Senior Term Loan facility.
Revolving credit facility The revolving credit
facility, through a syndication of banks, provides for
borrowings up to $600 million, including the availability
of letters of credit in U.S. dollars and euros and for
57
borrowings on same-day notice. As of September 30, 2006,
there were no borrowings under the revolving credit facility;
however, $68 million of letters of credit had been issued
under the facility; accordingly, $532 million remained
available for borrowing. On October 18, 2006, letters of
credit under the revolving credit facility totaling
$36 million were cancelled by the beneficiaries, increasing
the available borrowings under this facility to $568 million as
of that date.
Credit-linked revolving facility The
$228 million credit-linked facility matures in 2009 and
provides borrowing capacity for the issuance of letters of
credit. As of September 30, 2006, $193 million of
letters of credit had been issued under the facility and
$35 million was available for borrowing. On
October 18, 2006, letters of credit under the credit-linked
revolving facility totaling $8 million were cancelled by
the beneficiaries, increasing the available borrowings under
this facility to $43 million as of that date.
Substantially all of the assets of Celanese Holdings LLC
(Celanese Holdings), the direct parent of
BCP Crystal, and subject to certain exceptions,
substantially all of its existing and future
U.S. subsidiaries, referred to as U.S. Guarantors,
secure these senior credit facilities.
Other
Contractual Obligations
During the nine months ended September 30, 2006, we entered
into two fifteen year take or pay contracts with an annual
commitment of approximately $6 million.
Deferred
compensation
Please see Note 16, Stock-based and Other Management
Compensation Plans, of the Unaudited Interim Consolidated
Financial Statements for additional information. Should the
payout be triggered we will fund the payments with either
existing cash, or borrowings from the revolving credit facility,
or a combination thereof. Upon the occurrence of the triggering
events mentioned in Note 16 to the Unaudited Interim
Consolidated Financial Statements, the maximum amount earned and
vested under the plan through 2006 would be approximately
$62 million.
Long-term
incentive plan
Please see Note 16, Stock-based and Other Management
Compensation Plans, of the Unaudited Interim Consolidated
Financial Statements for additional information. Payout under
the LTIP Plan will occur following the end of year three of the
LTIP Plan (December 31, 2006) and will be payable in the
first quarter of 2007. The amount the Company expects to pay out
under the LTIP Plan is approximately $25 million.
Squeeze-Out
Payment
On May 30, 2006, we announced that the fair cash
compensation in relation to the transfer of shares held by the
minority shareholders is set at 66.99 per share. Based on
the amount of 66.99 per share, the total amount of
funds to be paid as fair cash compensation once the Squeeze-Out
becomes effective is approximately 62 million
(approximately $78 million at September 30, 2006). For
an update of the Squeeze-Out proceedings, see
Part II Other Information
Item 1. Legal Proceedings Squeeze-Out.
Domination
Agreement
The domination and profit and loss transfer agreement (the
Domination Agreement) was approved at the CAG
extraordinary shareholders meeting on July 31, 2004.
The Domination Agreement between CAG and the Purchaser became
effective on October 1, 2004. See further details in our
2005 Annual Report on
Form 10-K
which was filed with the SEC on March 31, 2006.
On June 1, 2006, the guaranteed dividend for the fiscal
year ended on September 30, 2005, which amounted to
3 million ($3 million), was paid. In addition,
pursuant to a settlement agreement entered into with plaintiff
shareholders in March 2006, the Purchaser paid
1 million ($1 million) on June 30, 2006,
the guaranteed dividend for the fiscal year ending on
September 30, 2006, to those shareholders who signed a
letter waiving any further rights with respect to such
guaranteed dividend that ordinarily would become due after next
years annual general meeting. The remaining liability at
September 30, 2006 to be paid in 2007 for CAGs 2006
fiscal year is 1 million ($2 million).
58
While the Domination Agreement is operative, the Purchaser is
required to compensate CAG for any statutory annual loss
incurred by CAG, the dominated entity, on a non-consolidated
basis, at the end of its fiscal year when the loss was incurred.
If the Purchaser were obligated to make cash payments to CAG to
cover an annual loss, the Purchaser might not have sufficient
funds to pay interest when due and, unless the Purchaser is able
to obtain funds from a source other than annual profits of CAG,
the Purchaser might not be able to satisfy its obligation to
fund such shortfall. The Purchaser has not had to compensate CAG
for an annual loss for any period during which the Domination
Agreement has been in effect. The Domination Agreement cannot be
terminated by the Purchaser in the ordinary course of business
until September 30, 2009.
Our subsidiaries, Celanese Caylux Holdings Luxembourg S.C.A.,
formerly BCP Caylux Holdings Luxembourg S.C.A (Celanese
Caylux) and BCP Crystal, have each agreed to provide the
Purchaser with financing to strengthen the Purchasers
ability to fulfill its obligations under, or in connection with,
the Domination Agreement and to ensure that the Purchaser will
perform all of its obligations under, or in connection with, the
Domination Agreement when such obligations become due,
including, without limitation, the obligations to make a
guaranteed annual payment to the outstanding minority
shareholders, to offer to acquire all outstanding CAG shares
from the minority shareholders in return for payment of fair
cash consideration and to compensate CAG for any statutory
annual loss incurred by CAG during the term of the Domination
Agreement. In addition, the Company expects to guarantee all
obligations of the Purchaser under, or in connection with, the
Domination Agreement, including the repayment of all existing
and future intercompany indebtedness of the Companys
subsidiaries to CAG. Further, under the terms of the
Companys guarantee, in certain limited circumstances CAG
may be entitled to require the immediate repayment of some or
all of the intercompany indebtedness owed by the Companys
subsidiaries to CAG. If the Company, Celanese Caylux
and/or
BCP
Crystal are obligated to make payments under such guarantees to
the Purchaser, CAG
and/or
the
minority shareholders, as the case may be, or if the
intercompany indebtedness owed to CAG is accelerated, we may not
have sufficient funds for payments on our indebtedness when due
or to make funds available to the Company.
Off-Balance
Sheet Arrangements
We have not entered into any material off-balance sheet
arrangements.
Critical
Accounting Policies and Estimates
The preparation of our consolidated financial statements
requires management to apply accounting principles generally
accepted in the United States of America to our specific
circumstances and make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the
financial statements, the disclosure of contingent assets and
liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
We describe our significant accounting policies in Note 4,
Summary of Accounting Policies, of the Notes to Consolidated
Financial Statements included in our Annual Report on
Form 10-K
as of and for the year ended December 31, 2005. We discuss
our critical accounting policies and estimates in MD&A in
our Annual Report on
Form 10-K
as of and for the year ended December 31, 2005.
There have been no material revisions to the critical accounting
policies as filed in our Annual Report on
Form 10-K
as of and for the year ended December 31, 2005 with the SEC
on March 31, 2006.
Recent
Accounting Pronouncements
See Note 5 to the Unaudited Interim Consolidated Financial
Statements included in this
Form 10-Q
for discussion of new accounting pronouncements.
Factors
That May Affect Future Results And Financial Condition
Because of the following factors, as well as other factors
affecting our operating results and financial condition, past
financial performance should not be considered to be a reliable
indicator of future performance, and investors should not use
historical trends to anticipate results or trends in future
periods. In addition, many factors
59
could cause our actual results, performance or achievements to
be materially different from any future results, performance or
achievements that may be expressed or implied by such
forward-looking statements. These factors include, among other
things:
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changes in general economic, business, political and regulatory
conditions in the countries or regions in which we operate;
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the length and depth of product and industry business cycles
particularly in the automotive, electrical, electronics and
construction industries;
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changes in the price and availability of raw materials,
particularly changes in the demand for, supply of, and market
prices of fuel oil, natural gas, coal, electricity and
petrochemicals such as ethylene, propylene and butane, including
changes in production quotas in OPEC countries and the
deregulation of the natural gas transmission industry in Europe;
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the ability to pass increases in raw material prices on to
customers or otherwise improve margins through price increases;
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the ability to maintain plant utilization rates and to implement
planned capacity additions and expansions;
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the ability to reduce production costs and improve productivity
by implementing technological improvements to existing plants;
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the existence of temporary industry surplus production capacity
resulting from the integration and
start-up
of
new world-scale plants;
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increased price competition and the introduction of competing
products by other companies;
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the ability to develop, introduce and market innovative
products, product grades and applications, particularly in the
Ticona and Performance Products segments of our business;
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changes in the degree of patent and other legal protection
afforded to our products;
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compliance costs and potential disruption or interruption of
production due to accidents or other unforeseen events or delays
in construction of facilities;
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potential liability for remedial actions under existing or
future environmental regulations;
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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;
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changes in currency exchange rates and interest rates;
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changes in the composition or restructuring of us or our
subsidiaries and the successful completion of acquisitions,
divestitures and venture activities;
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inability to successfully integrate current and future
acquisitions;
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pending or future challenges to the Domination
Agreement; and
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various other factors, both referenced and not referenced in
this document.
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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. We neither intend nor assume any
obligation to update these forward-looking statements, which
speak only as of their dates.
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Item 3.
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Quantitative
and Qualitative Disclosures about Market Risk
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Market risk for our Company has not changed significantly from
the foreign exchange, interest rate, and commodity risks
disclosed in Item 7A of our Annual Report on
Form 10-K
as of and for the year ended December 31, 2005.
60
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Item 4.
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Controls
and Procedures
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Under the direction of the Chief Executive Officer and Chief
Financial Officer, we evaluated our disclosure controls and
procedures and internal control over financial reporting and our
CEO and CFO concluded that (i) our disclosure controls and
procedures were effective as of September 30, 2006, and
(ii) no change in internal control over financial reporting
occurred during the quarter ended September 30, 2006, that
has materially affected, or is reasonably likely to materially
affect, such internal control over financial reporting.
Internal
Control Over Financial Reporting
Beginning with the fiscal year ending December 31, 2006,
Section 404 of the Sarbanes-Oxley Act
(Section 404) will require us to include an
internal control report of management with our Annual Report on
Form 10-K.
The internal control report must contain (1) a statement of
managements responsibility for establishing and
maintaining adequate internal control over financial reporting
for us, (2) a statement identifying the framework used by
management to conduct the required evaluation of the
effectiveness of our internal control over financial reporting,
(3) managements assessment of the effectiveness of
our internal control over financial reporting as of the end of
our most recent fiscal year, including a statement as to whether
or not our internal control over financial reporting is
effective, and (4) a statement that our independent
auditors have issued an attestation report on managements
assessment of our internal control over financial reporting.
In connection therewith, we are currently performing the system
and process evaluation and testing required (and any necessary
remediation) in an effort to comply with the management
certification and auditor attestation requirements of
Section 404. In the course of our ongoing Section 404
evaluation, we have identified areas of internal controls that
may need improvement, and plan to design enhanced processes and
controls to address these and any other issues that might be
identified through this review. As we are still in the
evaluation process, we may identify other conditions that may
result in significant deficiencies or material weaknesses in the
future.
We cannot be certain as to the timing of completion of our
evaluation, testing and any remediation actions or the impact of
the same on our operations. If we are not able to implement the
requirements of Section 404 in a timely manner or with
adequate compliance or our independent auditors are not able to
certify as to the effectiveness of our internal control over
financial reporting, we may be subject to sanctions or
investigation by regulatory authorities, such as the SEC. As a
result, there could be a negative reaction in the financial
markets due to a loss of confidence in the reliability of our
financial statements. In addition, we may be required to incur
costs in improving our internal control system and the hiring of
additional personnel. Any such action could negatively affect
our results.
61
PART II
OTHER INFORMATION
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Item 1.
|
Legal
Proceedings
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We are involved in a number of legal proceedings, lawsuits and
claims incidental to the normal conduct of our business,
relating to such matters as product liability, antitrust, past
waste disposal practices and release of chemicals into the
environment. While it is impossible at this time to determine
with certainty the ultimate outcome of these proceedings,
lawsuits and claims, management believes, based on the advice of
legal counsel, that adequate provisions have been made and that
the ultimate outcomes will not have a material adverse effect on
our financial position, but may have a material adverse effect
on our results of operations or cash flows in any given
accounting period. See also Note 14 to the Unaudited
Interim Consolidated Financial Statements.
Polyester
Staple Antitrust Litigation
CNA Holdings, the successor in interest to Hoechst Celanese
Corporation (HCC), CAC and CAG (collectively, the
Celanese Entities) and Hoechst AG (HAG),
the former parent of HCC, were named as defendants in two
actions filed in September 2006 by U.S. purchasers of polyester
staple fibers manufactured and sold by HCC. The actions allege
that the defendants participated in a conspiracy to fix prices,
rig bids and allocate customers of polyester staple sold in the
United States. These actions have been consolidated for
pre-trial discovery by a Multi-District Litigation Panel in the
United States District Court for the Western District of North
Carolina and are styled
In re Polyester Staple Antitrust
Litigation
, MDL 1516. Already pending in that consolidated
proceeding are five other actions commenced by five other
alleged U.S. purchasers of polyester staple fibers manufactured
and sold by the Celanese Entities, which also allege the
defendants participation in the conspiracy.
In 1998, HCC sold its polyester staple business as part of its
sale of its Film & Fibers Division to KoSa, Inc. In a
complaint now pending against the Celanese Entities and HAG in
the United States District Court for the Southern District of
New York, Koch Industries, Inc., Kosa B.V. (KoSa),
Arteva Specialties, S.A.R.L. (Arteva Specialties)
and Arteva Services, S.A.R.L. seek, among other things,
indemnification under the asset purchase agreement pursuant to
which KoSa and Arteva Specialties agreed to purchase
defendants polyester business for all damages related to
the defendants participation in, and failure to disclose,
the alleged conspiracy, or alternatively, rescission of the
agreement.
We do not believe that the Celanese Entities engaged in any
conduct that should result in liability in these actions.
However, the outcome of the foregoing actions cannot be
predicted with certainty. We believe that any resulting
liabilities from an adverse result will not, in the aggregate,
have a material adverse effect on our financial position, but
may have a material adverse effect on the results of operations
in any given period.
Shareholder
Litigation
No material developments regarding this matter, other than those
discussed in Note 16 to the Unaudited Interim Consolidated
Financial Statements under the heading Shareholder Litigation,
occurred during the three months ended September 30, 2006.
Other
Matters
As of September 30, 2006, Celanese Ltd. and/or CNA
Holdings, Inc., both U.S. subsidiaries of the Company, are
defendants in approximately 640 asbestos cases. During the three
months ended September 30, 2006, 13 new cases were filed
against the Company and 24 cases were resolved. Because many of
these cases involve numerous plaintiffs, the Company is subject
to claims significantly in excess of the number of actual cases.
The Company has reserves for defense costs related to claims
arising from these matters. The Company believes that there is
not significant exposure related to these matters.
At the beginning of August 2006, we were served seventeen
actions filed by minority shareholders with the Frankfurt
District Court to set aside the resolution passed by the
shareholders of CAG in approval of the Squeeze-Out (described in
further detail in Note 2 to the Unaudited Interim
Consolidated Financial Statements filed herewith, subheading
Squeeze-Out). Several minority shareholders joined
these proceedings via a third party intervention in
62
support of the plaintiffs. As long as these lawsuits are
pending, the Squeeze-Out cannot be entered into the commercial
register unless the court, in a separate release proceeding to
be initiated by us, holds that the lawsuits should not prevent
registration of the Squeeze-Out because (i) they are
inadmissible, (ii) they are obviously without merit or
(iii) in the courts discretion and taking into
account the violations alleged by plaintiffs, our
shareholders and our interest in an early effectiveness of
the Squeeze-Out outweighs the plaintiffs interest. At the
end of August 2006, we filed a motion to initiate a release
proceeding. In October 2006, the court granted the petition.
This decision is subject to appeal. The outcome of the foregoing
legal proceedings cannot be predicted with certainty.
Except for the following risk factors listed below, there have
been no material revisions to the Risk factors as
filed in our Annual Report on
Form 10-K
as of and for the year ended December 31, 2005 with the SEC
on March 31, 2006.
Because
our Sponsor will continue to be able to significantly influence
us as long as it holds at least 25% of the total voting power of
our Series A common stock, the influence of our public
shareholders over significant corporate actions may be limited,
and conflicts of interest between our Sponsor and us or you
could arise in the future.
As a result of our Sponsors sale of 35,000,000 shares
of our Series A common stock in May 2006, our Sponsor
beneficially owns (or has a right to acquire) approximately
31.6% of our outstanding Series A common stock. Under the
terms of the stockholders agreement between us and certain
of the Original Shareholders that are affiliates of the Sponsor,
such Original Shareholders are also entitled to designate all
nominees for election to our board of directors for so long as
they hold at least 25% of the total voting power of our
Series A common stock. Thereafter, although our Sponsor
will not have an explicit contractual right to do so, it may
still nominate directors in its capacity as a stockholder. See
Certain Relationships and Related Party
Transactions Shareholders Agreement in
our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2005, which is
incorporated by reference herein. As a result, our Sponsor,
through its control over the composition of our board of
directors and its control of a significant percentage of the
voting power of our Series A common stock, will continue to
have significant influence or effective control over our
decisions to enter into any corporate transaction and will have
the ability to prevent any transaction that requires the
approval of equityholders, regardless of whether or not other
equityholders believe that any such transaction is in their own
best interests. For example, our Sponsor effectively could cause
us to make acquisitions that increase our indebtedness or to
sell revenue-generating assets. Additionally, our Sponsor is in
the business of making investments in companies and may from
time to time acquire and hold interests in businesses that
compete directly or indirectly with us. Our Sponsor may also
pursue acquisition opportunities that may be complementary to
our business, and as a result, those acquisition opportunities
may not be available to us. So long as our Sponsor continues to
own a significant amount of our equity, it will continue to be
able to significantly influence or effectively control our
decisions.
The
disposition by the Original Blackstone Shareholders of at least
90% of their equity interest will satisfy a vesting condition
under our deferred compensation plan.
In December 2004, we approved, among other incentive and
retention programs, a deferred compensation plan for executive
officers and key employees. The programs were intended to align
management performance with the creation of shareholder value.
The deferred compensation plan has an aggregate maximum amount
payable of $192 million over five years ending in 2009. The
initial component of the deferred compensation plan vested in
2004 and was paid in the first quarter of 2005. The remaining
aggregate maximum amount payable of $142 million (of which
$19 million has been accrued at September 30, 2006
related to the accelerated vesting of certain participants in
the plan) is subject to downward adjustment if the price of our
Series A common stock falls below the January 2005 initial
public offering price of $16.00 and vests as follows: (i) a
portion (ranging from 26% to 37%, depending on the participant)
will vest annually over the next four years based on continued
employment with us and the occurrence of a sale or other
disposition by the Original Blackstone Shareholders of at least
90% of its equity interest in us, in which the Original
Blackstone Shareholders receive at least a 25% cash internal
rate of return on their equity interest (a Qualifying
Sale) and (ii) the balance of the remaining amount
payable will vest
63
annually based on the achievement of specified performance
criteria, including meeting annual earnings and cash flow
targets, and the occurrence of a Qualifying Sale. The Original
Blackstone Shareholders have an equity interest of approximately
31.6%. At this point, it is likely that a disposition by the
Original Blackstone Shareholders of at least 90% of their equity
interest will be a Qualifying Sale. Upon the occurrence of a
Qualifying Sale, the amount vested and payable under the plan
for 2005 would be approximately $50 million.
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Item 2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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None.
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Item 3.
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Defaults
Upon Senior Securities
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None.
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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We held a special meeting of shareholders on August 14,
2006. During this meeting, our shareholders were asked to
consider and vote to elect two Class I Directors to our
Board of Directors to serve for a term which expires at the
annual meeting of shareholders in 2008 or until their successors
are duly elected and qualified. On the record date of
July 10, 2006, there were 158,592,161 shares of
Class A Common Stock issued and outstanding and entitled to
be voted at the annual meeting, if represented. There were no
broker non-votes. The results of the shareholder
voting were as follows:
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Votes For
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Votes Withheld
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1. Election of the director
nominees to serve in Class I, for a term which expires at
the Annual Meeting of Shareholders in 2008, or until their
successors are duly elected and qualified, as follows:
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Martin G. McGuinn
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142,521,896
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1,118,706
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John K. Wulff
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142,824,878
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815,724
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James E. Barlett, Chinh E. Chu, David F.
Hoffmeister, Benjamin J. Jenkins, Anjan Mukherjee,
Paul H. ONeill, James A. Quella, Daniel S.
Sanders, David N. Weidman are continuing to serve after the
meeting as directors in accordance with their respective terms.
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Item 5.
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Other
Information
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None.
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Exhibit
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Number
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|
Description
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3.1
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Second Amended and Restated
Certificate of Incorporation of Registrant (incorporated by
reference to Exhibit 3.1 to the Registrants Current
Report on
Form 8-K
(File No. 001-32410) filed with the SEC on January 28,
2005).
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3.2
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Amended and Restated By-laws of
Registrant (incorporated by reference to Exhibit 3.2 to the
Registrants Registration Statement on
Form S-4
(File
No. 333-124049-01)
filed with the SEC on April 13, 2005).
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3.3
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Certificate of Designations of
Convertible Perpetual Preferred Stock (incorporated by reference
to Exhibit 3.2 to the Registrants Current Report on
Form 8-K
(File No. 001-32410) filed with the SEC on January 28,
2005).
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4.1
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Form of certificate of
Series A common stock (incorporated by reference to
Exhibit 4.1 to Amendment No. 6 to the
Registrants Registration Statement on
Form S-1
(File
No. 333-120187)
(the
Form S-1)
filed with the SEC on January 19, 2005).
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4.2
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Form of certificate of Convertible
Perpetual Preferred Stock (incorporated by reference to
Exhibit 4.2 to Amendment No. 5 to the
Form S-1
filed with the SEC on January 13, 2005).
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64
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Exhibit
|
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|
Number
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|
Description
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|
4.3
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|
Third Amended and Restated
Shareholders Agreement, dated as of October 31, 2005,
among Celanese Corporation, Blackstone Capital Partners (Cayman)
Ltd. 1, Blackstone Capital Partners (Cayman) Ltd. 2,
Blackstone Capital Partners (Cayman) Ltd. 3 and BA Capital
Investors Sidecar Fund, L.P. (incorporated by reference to
Exhibit 4.3 to the Registrants Registration Statement
filed on
Form S-1
(File
No. 333-127902)
filed with the SEC on November 1, 2005).
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4.4
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Amended and Restated Registration
Rights Agreement, dated as of January 26, 2005, among
Blackstone Capital Partners (Cayman) Ltd. 1, Blackstone
Capital Partners (Cayman) Ltd. 2, Blackstone Capital
Partners (Cayman) Ltd. 3, BA Capital Investors Sidecar
Fund, L.P. and Celanese Corporation (incorporated by reference
to Exhibit 10.2 to the
Form 8-K
(File No. 001-32410) filed with the SEC on January 28,
2005).
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4.5
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Amendment No. 1 to the Third
Amended and Restated Shareholders Agreement, dated
November 14, 2005, by and among Celanese Corporation,
Blackstone Capital Partners (Cayman) Ltd. 1, Blackstone
Capital Partners (Cayman) Ltd. 2, Blackstone Capital
Partners (Cayman) Ltd. 3, and BA Capital Investors Sidecar
Fund, L.P. (incorporated by reference to Current Report on
Form 8-K,
filed with the SEC on November 18, 2005).
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4.6
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Amendment No. 2, dated
March 30, 2006, to the Third Amended and Restated
Shareholders Agreement, dated as of October 31, 2005,
as amended (the Agreement), by and among
Celanese Corporation, Blackstone Capital Partners (Cayman) Ltd.
1 (BCP 1), Blackstone Capital Partners
(Cayman) Ltd. 2 (BCP 2), Blackstone Capital
Partners (Cayman) Ltd. 3 (BCP 3 and, together
with BCP 1 and BCP 2 and their respective successors and
permitted assigns, the Blackstone Entities)
and BA Capital Investors Sidecar Fund, L.P., a Cayman Islands
limited partnership (BACI) (incorporated by
reference to Exhibit 4.6 to the
Form 10-K
filed with the SEC on March 31, 2006).
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10.28
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Non-qualified Stock Option
Agreement, dated September 13, 2006, between Celanese
Corporation and non-employee director Martin G. McGuinn (filed
herewith).
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10.29
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Non-qualified Stock Option
Agreement, dated September 13, 2006, between Celanese
Corporation and non-employee director John K. Wulff (filed
herewith).
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31.1
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Certification of Chief Executive
Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 (filed herewith).
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31.2
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Certification of Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 (filed herewith).
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32.1
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|
Certification of Chief Executive
Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (filed herewith).
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32.2
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|
Certification of Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (filed herewith).
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PLEASE NOTE: It is inappropriate for readers to assume the
accuracy of, or rely upon any covenants, representations or
warranties that may be contained in agreements or other
documents filed as Exhibits to, or incorporated by reference in,
this Quarterly Report. Any such covenants, representations or
warranties may have been qualified or superseded by disclosures
contained in separate schedules or exhibits not filed with or
incorporated by reference in this Quarterly Report, may reflect
the parties negotiated risk allocation in the particular
transaction, may be qualified by materiality standards that
differ from those applicable for securities law purposes, and
may not be true as of the date of this Quarterly Report or any
other date and may be subject to waivers by any or all of the
parties. Where exhibits and schedules to agreements filed or
incorporated by reference as Exhibits hereto are not included in
these exhibits, such exhibits and schedules to agreements are
not included or incorporated by reference herein.
65