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| CE > SEC Filings for CE > Form 10-Q on 29-Jul-2009 | All Recent SEC Filings |
29-Jul-2009
Quarterly Report
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 "Celanese US" refers to our subsidiary, Celanese US Holdings LLC, a Delaware limited liability company, formerly known as BCP Crystal US Holdings Corp., a Delaware corporation, and not its subsidiaries. The term "Purchaser" refers to our subsidiary, Celanese Europe Holding GmbH & Co. KG, formerly known as BCP Crystal Acquisition GmbH & Co. KG, a German limited partnership, and not its subsidiaries, except where otherwise indicated.
Forward-Looking Statements May Prove Inaccurate
Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") and other parts of this Quarterly Report on Form 10-Q contain certain forward-looking statements and information relating to us that are based on the beliefs of our management as well as assumptions made by, and information currently available to, us. When used in this document, words such as "anticipate," "believe," "estimate," "expect," "intend," "plan" and "project" and similar expressions, as they relate to us are intended to identify forward-looking statements. These statements reflect our current views with respect to future events, are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Further, certain forward-looking statements are based upon assumptions as to future events that may not prove to be accurate.
The following discussion should be read in conjunction with the Celanese Corporation and Subsidiaries consolidated financial statements as of and for the year ended December 31, 2008, as filed on February 13, 2009 with the Securities and Exchange Commission ("SEC") as part of the Company's Annual Report on Form 10-K (the "2008 Form 10-K") and the unaudited interim consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.
See the Risk Factors section under Part II, Item 1A of this Quarterly Report on Form 10-Q for a description of risk factors that could significantly affect our financial results. In addition, the following factors could cause our actual results to differ materially from those results, performance or achievements that may be expressed or implied by such forward-looking statements. These factors include, among other things:
changes in general economic, business, political and regulatory conditions in the countries or regions in which we operate;
the length and depth of product and industry business cycles particularly in the automotive, electrical, electronics and construction industries;
changes in the price and availability of raw materials, particularly changes in the demand for, supply of, and market prices of ethylene, methanol, natural gas, wood pulp, fuel oil and electricity;
the ability to pass increases in raw material prices on to customers or otherwise improve margins through price increases;
the ability to maintain plant utilization rates and to implement planned capacity additions and expansions;
the ability to reduce production costs and improve productivity by implementing technological improvements to existing plants;
increased price competition and the introduction of competing products by other companies;
changes in the degree of intellectual property and other legal protection afforded to our products;
compliance costs and potential disruption or interruption of production due to accidents or other unforeseen events or delays in construction of facilities;
potential liability for remedial actions under existing or future environmental regulations;
potential liability resulting from pending or future litigation, or from changes in the laws, regulations or policies of governments or other governmental activities in the countries in which we operate;
changes in currency exchange rates and interest rates; and
various other factors, both referenced and not referenced in this Quarterly Report on Form 10-Q.
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.
Overview
We are a leading global integrated producer of chemicals and advanced materials. We are one of the world's largest producers of acetyl products, which are intermediate chemicals for nearly all major industries, as well as a leading global producer of high-performance engineered polymers that are used in a variety of high-value end-use applications. As an industry leader, we hold geographically balanced global positions and participate in diversified end-use markets. Our operations are primarily located in North America, Europe and Asia. We combine a demonstrated track record of execution, strong performance built on shared principles and objectives, and a clear focus on growth and value creation.
2009 Significant Events:
We announced the Frankfurt, Germany, Airport ("Fraport") supervisory board approved the acceleration of the 2009 and 2010 payments of 200 million and 140 million, respectively, required by the settlement agreement signed in June 2007. On February 5, 2009, we received a discounted amount of approximately 322 million ($412 million), excluding value-added tax of 59 million ($75 million).
We shut down our vinyl acetate monomer ("VAM") production unit in Cangrejera, Mexico, and ceased VAM production at the site during the first quarter of 2009.
Standard and Poor's affirmed our ratings and revised our outlook from positive to stable in February 2009.
We received the American Chemistry Council's ("ACC") Responsible Careฎ Sustained Excellence Award for mid-size companies. The annual award, the most prestigious award given under ACC's Responsible Care initiative, recognized companies for outstanding leadership under ACC's Environmental Health and Safety performance criteria.
We completed the sale of our polyvinyl alcohol ("PVOH") business to Sekisui Chemical Co., Ltd. for the purchase price of approximately $173 million, excluding the value of accounts receivable and payable retained by Celanese.
We agreed to a Project of Closure for our acetic acid and vinyl acetate monomer production operations at our Pardies, France, site. These operations are expected to cease by December 2009. As a result of the Pardies Project of Closure, we expect to record exit costs of approximately $90 to $100 million primarily in the second half of 2009.
We announced that Celanese US has amended its $650 million revolving credit facility. The amendment lowered the total revolver commitment to $600 million and increased the first lien senior secured leverage ratio for a period of six quarters, beginning June 30, 2009, and ending December 31, 2010.
We announced the creation of our new and proprietary AOPlusฎ2 acetic acid technology, which allows for expansion up to 1.5 million tons per reactor. We also announced plans to double the current capacity of our Nanjing, China acetic acid facility from 600,000 tons to 1.2 million tons by the end of 2009.
Results of Operations
Financial Highlights
Three Months Ended June 30, Six Months Ended June 30,
% of % of % of % of
2009 Net Sales 2008 Net Sales 2009 Net Sales 2008 Net Sales
(unaudited)
(In $ millions, except for percentages)
Statement of Operations Data
Net sales 1,244 100.0 1,868 100.0 2,390 100.0 3,714 100.0
Gross profit 248 19.9 396 21.2 448 18.7 814 21.9
Selling, general and administrative
expenses (114 ) (9.2 ) (138 ) (7.4 ) (228 ) (9.5 ) (274 ) (7.4 )
Other (charges) gains, net (6 ) (0.5 ) (7 ) (0.4 ) (27 ) (1.1 ) (23 ) (0.6 )
Operating profit 89 7.2 207 11.1 116 4.9 441 11.9
Equity in net earnings (loss) of affiliates 27 2.2 17 0.9 25 1.0 27 0.7
Interest expense (54 ) (4.3 ) (63 ) (3.4 ) (105 ) (4.4 ) (130 ) (3.5 )
Dividend income - cost investments 56 4.5 75 4.0 62 2.6 103 2.8
Earnings (loss) from continuing operations
before tax 122 9.8 247 13.2 106 4.4 465 12.5
Amounts attributable to Celanese
Corporation
Earnings (loss) from continuing operations 105 8.4 203 10.9 84 3.5 348 9.4
Earnings (loss) from discontinued
operations (1 ) (0.1 ) (69 ) (3.7 ) - - (69 ) (1.9 )
Net earnings (loss) 104 8.3 134 7.2 84 3.5 279 7.5
Depreciation and amortization 79 6.4 82 4.4 150 6.3 165 4.4
As of As of
June 30, December 31,
2009 2008
(unaudited)
(In $ millions)
Short-term borrowings and current installments of long-term
debt - third party and affiliates 224 233
Add: Long-term debt 3,268 3,300
Total debt 3,492 3,533
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Summary of Consolidated Results for the Three and Six Months Ended June 30, 2009 compared to the Three and Six Months Ended June 30, 2008
The economic slowdown that severely impacted the global economy late in 2008 continued to impact net sales and profitability through the second quarter of 2009. Net sales decreased 33% and 36% during the three and six months ended June 30, 2009, respectively, compared to the same periods in 2008, primarily due to lower volumes and unfavorable foreign currency impacts across all segments and lower prices for acetyl intermediates products. Decreased demand for automotive and industrial products drove the decline in volumes. Volume declines occurred primarily in Europe and the Americas. Demand increased in Asia for most of our major acetyl intermediates products. Selling prices during the period were negatively impacted by lower industry utilization of acetyl intermediates products, particularly in Europe and the Americas, coupled with lower raw material prices. Selling price increases for acetate tow, ultra-high molecular weight polyethylene ("GURฎ") and Vectraฎ liquid crystal polymer ("LCP") partially offset the overall decline in net sales.
Gross profit declined due to lower net sales, partially offset by decreased raw material and energy costs, and depreciation and amortization across all businesses. Depreciation and amortization declines result partially from the shutdown of our Pampa, Texas facility and the effects of long-lived asset impairment losses recognized during the fourth quarter of 2008 on depreciation.
Selling, general and administrative expenses decreased $24 million and $46 million for the three and six months ended June 30, 2009, respectively, compared to the same period in 2008. Selling, general and administrative expenses declined due to our fixed spending reduction efforts, restructuring efficiencies, decreased costs resulting from the shutdown of our Pampa, Texas facility and favorable currency impacts on overall spending.
The components of Other (charges) gains, net are as follows:
Three Months Ended Six Months Ended
June 30, June 30,
2009 2008 2009 2008
(In $ millions)
Employee termination benefits (5 ) (4 ) (29 ) (11 )
Plant/office closures - - - (7 )
Ticona Kelsterbach plant relocation (3 ) (3 ) (6 ) (5 )
Plumbing actions 2 - 3 -
Insurance recoveries associated with Clear Lake, Texas - - 6 -
Asset impairments - - (1 ) -
Total (6 ) (7 ) (27 ) (23 )
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During the first quarter of 2009, we began efforts to align production capacity and staffing levels with our view of an economic environment of prolonged lower demand. For the six months ended June 30, 2009, Other charges included employee termination benefits of $28 million related to this endeavor. As a result of the shutdown of the VAM production unit in Cangrejera, Mexico, we recognized employee termination benefits of $1 million and long-lived asset impairment losses of $1 million during the six months ended June 30, 2009.
Other charges for the six months ended June 30, 2009 was partially offset by $6 million of insurance recoveries in satisfaction of claims the Company made related to the unplanned outage of the Company's Clear Lake, Texas acetic acid facility during 2007, a $2 million decrease in legal reserves for plumbing claims for which the statute of limitations has expired and $1 million of insurance recoveries associated with plumbing cases.
Employee termination benefits during the three months ended June 30, 2009 relates primarily to our strategy to simplify and optimize our business portfolio. Plant/office closures during 2008 included accelerated depreciation expense related to the shutdown of our Pampa, Texas facility.
Operating profit decreased $118 million and $325 million for the three and six months ended June 30, 2009, respectively, compared to the same periods in 2008. The decline in operating profit is primarily attributable to a decrease in gross profit due to the global economic downturn. The decline was partially offset by decreased selling, general and administrative expenses.
Earnings (loss) from continuing operations before tax decreased $125 million and $359 million during the three and six months ended June 30, 2009, respectively, compared to the same periods in 2008. The decline is primarily due to lower operating profit and reduced dividend income from cost investments offset by $19 million in earnings related to a one-time reversal of deferred tax liabilities associated with our Polyplastics Co., Ltd equity-method investee due to a foreign tax law enactment. Dividend income from our Acetyl Intermediates segment's cost investment, Ibn Sina, declined $27 million and $50 million for the three and six months ended June 30, 2009, respectively, compared to the same periods in 2008 as a result of lower earnings from declining margins for methanol and methyl tertiary-butyl ether ("MTBE"). A $9 million and $25 million reduction in interest expense for the three and six months ended June 30, 2009, respectively, partially offset the decline in Earnings (loss) from continuing operations before tax. The reduction in interest expense is attributable to lower interest rates.
Our effective income tax rate for the three months ended June 30, 2009 was 14% compared to 18% for the three months ended June 30, 2008. Our effective income tax rate for the six months ended June 30, 2009 was 21% compared to 25% for the six months ended June 30, 2008. The decrease in the effective rate is primarily due to a decrease in additions to liabilities for unrecognized tax benefits and related interest, partially offset by an increase in valuation allowances on certain foreign net deferred tax assets and lower earnings in jurisdictions participating in tax holidays.
Selected Data by Business Segment
Three Months Ended Six Months Ended
June 30, June 30,
Change Change
2009 2008 in $ 2009 2008 in $
(unaudited)
(In $ millions)
Net sales
Advanced Engineered Materials 184 300 (116 ) 349 594 (245 )
Consumer Specialties 280 292 (12 ) 546 574 (28 )
Industrial Specialties 267 386 (119 ) 509 751 (242 )
Acetyl Intermediates 622 1,067 (445 ) 1,194 2,163 (969 )
Other Activities 1 1 - 1 1 -
Inter-segment Eliminations (110 ) (178 ) 68 (209 ) (369 ) 160
Total 1,244 1,868 (624 ) 2,390 3,714 (1,324 )
Other (charges) gains, net
Advanced Engineered Materials (4 ) (3 ) (1 ) (13 ) (6 ) (7 )
Consumer Specialties (3 ) - (3 ) (3 ) (1 ) (2 )
Industrial Specialties (1 ) (1 ) - (3 ) (4 ) 1
Acetyl Intermediates - (2 ) 2 (1 ) (9 ) 8
Other Activities 2 (1 ) 3 (7 ) (3 ) (4 )
Total (6 ) (7 ) 1 (27 ) (23 ) (4 )
Operating profit (loss)
Advanced Engineered Materials - 37 (37 ) (19 ) 67 (86 )
Consumer Specialties 66 46 20 132 96 36
Industrial Specialties 19 20 (1 ) 29 37 (8 )
Acetyl Intermediates 40 148 (108 ) 52 325 (273 )
Other Activities (36 ) (44 ) 8 (78 ) (84 ) 6
Total 89 207 (118 ) 116 441 (325 )
Earnings (loss) from continuing operations
before tax
Advanced Engineered Materials 23 48 (25 ) (4 ) 87 (91 )
Consumer Specialties 119 94 25 188 144 44
Industrial Specialties 19 20 (1 ) 29 37 (8 )
Acetyl Intermediates 44 181 (137 ) 60 387 (327 )
Other Activities (83 ) (96 ) 13 (167 ) (190 ) 23
Total 122 247 (125 ) 106 465 (359 )
Depreciation and amortization
Advanced Engineered Materials 19 19 - 36 39 (3 )
Consumer Specialties 12 13 (1 ) 24 27 (3 )
Industrial Specialties 14 14 - 27 28 (1 )
Acetyl Intermediates 32 34 (2 ) 59 66 (7 )
Other Activities 2 2 - 4 5 (1 )
Total 79 82 (3 ) 150 165 (15 )
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Factors Affecting Segment Net Sales
The charts below set forth the percentage increase (decrease) in net sales from
the period ended June 30, 2008 to the period ended June 30, 2009 attributable to
each of the factors indicated for the following business segments.
Volume Price Currency Other Total
(unaudited)
(In percentages)
Second Quarter 2009 Compared to
Second Quarter 2008
Advanced Engineered Materials (34 ) - (5 ) - (39 )
Consumer Specialties (10 ) 9 (3 ) - (4 )
Industrial Specialties (14 ) (12 ) (5 ) - (31 )
Acetyl Intermediates (11 ) (28 ) (3 ) - (42 )
Total Company(1) (16 ) (17 ) (4 ) 4 (33 )
Six Months Ended June 30, 2009 Compared to
Six Months Ended June 30, 2008
Advanced Engineered Materials (38 ) 2 (5 ) - (41 )
Consumer Specialties (10 ) 8 (3 ) - (5 )
Industrial Specialties (20 ) (7 ) (5 ) - (32 )
Acetyl Intermediates (15 ) (27 ) (3 ) - (45 )
Total Company(1) (20 ) (16 ) (4 ) 4 (36 )
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(1) Includes the effects of the captive insurance companies and the impact of fluctuations in intersegment eliminations.
Summary by Business Segment for the Three and Six Months Ended June 30, 2009 compared to the Three and Six Months Ended June 30, 2008
Advanced Engineered Materials
Three Months Ended Six Months Ended
June 30, June 30,
Change Change
2009 2008 in $ 2009 2008 in $
(unaudited)
(In $ millions, except for percentages)
Net sales 184 300 (116 ) 349 594 (245 )
Net sales variance
Volume (34 )% (38 )%
Price - 2 %
Currency (5 )% (5 )%
Other - -
Other (charges) gains, net (4 ) (3 ) (1 ) (13 ) (6 ) (7 )
Operating profit - 37 (37 ) (19 ) 67 (86 )
Operating margin - 12.3 % (5.4 )% 11.3 %
Earnings (loss) from continuing operations
before tax 23 48 (25 ) (4 ) 87 (91 )
Depreciation and amortization 19 19 - 36 39 (3 )
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Our Advanced Engineered Materials segment develops, produces and supplies a broad portfolio of high performance technical polymers for application in automotive and electronics products, as well as other consumer and industrial applications. Together with our strategic affiliates, we are a leading participant in the global technical polymers industry. The primary products of Advanced Engineered Materials are polyacetal products ("POM"),
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