UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________
Form 10-K
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the fiscal year ended December 31, 2016 | ||
OR | ||
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
CELANESE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware (State or Other Jurisdiction of Incorporation or Organization) | 98-0420726 (I.R.S. Employer Identification No.) | |
222 West Las Colinas Blvd., Suite 900N Irving, TX (Address of Principal Executive Offices) | 75039-5421 (Zip Code) | |
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
Title of Each Class | Name of Each Exchange on Which Registered | |
Series A Common Stock, par value $0.0001 per share | New York Stock Exchange | |
3.250% Senior Notes due 2019 | New York Stock Exchange | |
1.125% Senior Notes due 2023 | New York Stock Exchange | |
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
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 has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
The aggregate market value of the registrant's Series A Common Stock held by non-affiliates as of June 30, 2016 (the last business day of the registrants' most recently completed second fiscal quarter) was $9,438,643,905.
The number of outstanding shares of the registrant's Series A Common Stock, $0.0001 par value, as of February 6, 2017 was 140,926,576.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's Definitive Proxy Statement relating to the 2017 annual meeting of stockholders, to be filed with the Securities and Exchange Commission, are incorporated by reference into Part III.
CELANESE CORPORATION
Form 10-K
For the Fiscal Year Ended December 31, 2016
TABLE OF CONTENTS
Page | ||
PART I | ||
PART II | ||
PART III | ||
PART IV | ||
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Special Note Regarding Forward-Looking Statements
Certain statements in this Annual Report on Form 10-K ("Annual Report") or in other materials we have filed or will file with the Securities and Exchange Commission ("SEC"), and incorporated herein by reference, are forward-looking in nature as defined in Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. You can identify these statements by the fact that they do not relate to matters of a strictly factual or historical nature and generally discuss or relate to forecasts, estimates or other expectations regarding future events. Generally, the words "believe," "expect," "intend," "estimate," "anticipate," "project," "plan," "may," "can," "could," "might," "will" and similar expressions identify forward-looking statements, including statements that relate to such matters as planned and expected capacity increases and utilization rates; anticipated capital spending; environmental matters; legal proceedings; sources of raw materials and exposure to, and effects of hedging of raw material and energy costs and foreign currencies; interest rate fluctuations; global and regional economic, political, business and regulatory conditions; expectations, strategies, and plans for individual assets and products, business segments, as well as for the whole Company; cash requirements and uses of available cash; financing plans; pension expenses and funding; anticipated restructuring, divestiture, and consolidation activities; planned construction or operation of facilities; cost reduction and control efforts and targets and integration of acquired businesses.
Forward-looking statements are not historical facts or guarantees of future performance but instead represent only our beliefs at the time the statements were made regarding future events, which are subject to significant risks, uncertainties, and other factors, many of which are outside of our control and certain of which are listed above. Any or all of the forward-looking statements included in this Annual Report and in any other materials incorporated by reference herein may turn out to be materially inaccurate. This can occur as a result of incorrect assumptions, in some cases based upon internal estimates and analyses of current market conditions and trends, management plans and strategies, economic conditions, or as a consequence of known or unknown risks and uncertainties. Many of the risks and uncertainties mentioned in this Annual Report, such as those discussed in Item 1A. Risk Factors, Item 3. Legal Proceedings and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations will be important in determining whether these forward-looking statements prove to be accurate. Consequently, neither our stockholders nor any other person should place undue reliance on our forward-looking statements and should recognize that actual results may differ materially from those anticipated by us.
All forward-looking statements made in this Annual Report are made as of the date hereof, and the risk that actual results will differ materially from expectations expressed in this Annual Report will increase with the passage of time. We undertake no obligation, and disclaim any duty, to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changes in our expectations or otherwise. However, we may make further disclosures regarding future events, trends and uncertainties in our subsequent reports on Forms 10-K, 10-Q and 8-K to the extent required under the Exchange Act. The above cautionary discussion of risks, uncertainties and possible inaccurate assumptions relevant to our business includes factors we believe could cause our actual results to differ materially from expected and historical results. Other factors beyond those listed above or in Item 1A. Risk Factors, Item 3. Legal Proceedings and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations below, including factors unknown to us and factors known to us which we have determined not to be material, could also adversely affect us.
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Item 1. Business
Basis of Presentation
In this Annual Report on Form 10-K, the term "Celanese" refers to Celanese Corporation, a Delaware corporation, and not its subsidiaries. The terms "Company," "we," "our" and "us" refer to Celanese and its subsidiaries on a consolidated basis. The term "Celanese US" refers to the Company's subsidiary, Celanese US Holdings LLC, a Delaware limited liability company, and not its subsidiaries.
Industry
This Annual Report on Form 10-K includes industry data obtained from industry publications and surveys as well as our own internal company surveys. Third-party industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable.
Overview
We are a global technology and specialty materials company. We are one of the world's largest producers of acetyl products, which are intermediate chemicals, for nearly all major industries, as well as a leading global producer of high performance engineered polymers that are used in a variety of high-value applications. As a recognized innovator in the chemicals industry, we engineer and manufacture a wide variety of products essential to everyday living. Our broad product portfolio serves a diverse set of end-use applications including paints and coatings, textiles, automotive applications, consumer and medical applications, performance industrial applications, filtration applications, paper and packaging, chemical additives, construction, consumer and industrial adhesives, and food and beverage applications. Our products enjoy leading global positions due to our differentiated business models, large global production capacity, operating efficiencies, proprietary technology and competitive cost structures.
Our large and diverse global customer base primarily consists of major companies in a broad array of industries. We hold geographically balanced global positions and participate in diversified end-use applications. We combine a demonstrated track record of execution, strong performance built on shared principles and objectives, and a clear focus on growth and value creation. Known for operational excellence and execution of our business strategies, we deliver value to customers around the globe with best-in-class technologies and solutions.
Celanese's history began in 1918, the year that its predecessor company, The American Cellulose & Chemical Manufacturing Company, was incorporated. The company, which manufactured cellulose acetate, was founded by Swiss brothers Drs. Camille and Henri Dreyfus. Since that time, the Company has transformed into a leading global technology and specialty materials company. The current Celanese was incorporated in 2004 under the laws of the State of Delaware and is a US-based public company traded on the New York Stock Exchange under the ticker symbol CE.
Headquartered in Irving, Texas, our operations are primarily located in North America, Europe and Asia and consist of 30 global production facilities, and an additional 8 strategic affiliate production facilities. As of December 31, 2016, we employed 7,293 people worldwide.
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Business Segment Overview
We are organized around two complementary cores, Materials Solutions and the Acetyl Chain. Together, these two value drivers share raw materials, technology, integrated systems and research resources to increase efficiency and quickly respond to market needs. The businesses within Materials Solutions drive value through intimate customer relationships, which drives development of value-added applications for these customers. The Acetyl Chain leverages our industry-leading, low-cost technology and global production platforms to serve a broad array of customers and end-use markets around the world.
Within Materials Solutions, we operate principally through two business segments, Advanced Engineered Materials and Consumer Specialties. In Advanced Engineered Materials we leverage our opportunity pipeline to drive growth. In Consumer Specialties we focus on managing our production landscape and productivity. Materials Solutions also includes certain strategic affiliates.
The Acetyl Chain includes our Industrial Specialties and Acetyl Intermediates business segments. Due to our geographic breadth, our net sales are balanced across global regions. See Business Segments below and Note 26 - Segment Information in the accompanying consolidated financial statements for further information.
Business Segments
Advanced Engineered Materials
Products | Major End-Use Applications | Principal Competitors | Key Raw Materials | |||
• Polyoxymethylene ("POM") • Ultra-high molecular weight polyethylene ("UHMW-PE") • Polybutylene terephthalate ("PBT")(1) • Long-fiber reinforced thermoplastics ("LFRT") • Liquid crystal polymers ("LCP") • Thermoplastic elastomers ("TPE") • Nylon • Polypropylene | • Fuel system components • Automotive safety systems • Medical • Industrial • Battery separators • Consumer electronics • Appliances • Filtration equipment • Telecommunications • Low-friction and low-wear grade acetal copolymer | • BASF SE • E. I. du Pont de Nemours and Company • Koninklijke DSM N.V. • SABIC Innovative Plastics • Solvay S.A. Other regional competitors: • Asahi Kasei Corporation • Braskem S.A. • Lanxess AG • Mitsubishi Gas Chemical Company, Inc. • Sumitomo Corporation • Teijin Limited • Toray Industries, Inc. | • Formaldehyde (for POM) • Ethylene (for UHMW-PE and TPE) • Polypropylene (for LFRT) • Fibers (for LFRT) • Acetic anhydride (for LCP) • Propylene (for TPE) • Styrene (for TPE) • Butadiene (for TPE) | |||
(1) | We compound PBT. |
• | Overview |
Our Advanced Engineered Materials segment includes our engineered materials business and certain strategic affiliates. The engineered materials business leverages our leading project pipeline model to more rapidly commercialize projects. Our unique approach is based on deep customer engagement to develop new projects that are aligned with our skill domains to address critical customer needs and ensure our success and growth.
Our project pipeline model leverages competitive advantages that include our global assets and resources, marketplace presence, broad materials portfolio and differentiated capabilities. Our global assets and resources are represented by our operations, including polymerization, compounding, research and development, and customer technology centers in all regions of the world, including Brazil, China, Germany, Italy, Mexico, South Korea and the US.
Our broad marketplace presence reflects our deep understanding of global and customer trends, including the growing global demand for vehicles, elevated environmental considerations, increased global connectivity, and improved health and wellness. These global trends drive a range of needed customer solutions, such as vehicle lightweighting, precise components, aesthetics
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and appearance, low emissions, heat resistance and low-friction for medical applications, that we are uniquely positioned to address with our materials portfolio.
Our materials portfolio offers differentiated chemical and physical properties that enable them to perform in a variety of conditions. These include enduring a wide range of temperatures, resisting adverse chemical interactions and withstanding deformation. POM, PBT and LFRT are used in a broad range of performance-demanding applications, including fuel system components, automotive safety systems, consumer electronics, appliances, industrial products and medical applications. UHMW-PE is used in battery separators, industrial products, filtration equipment, coatings and medical applications. Primary end uses for LCP are electrical applications or products and consumer electronics. These value-added applications in diverse end uses support the business' global growth objectives.
On December 1, 2016, we acquired 100% of the stock of the Forli, Italy based SO.F.TER. S.p.A., a leading thermoplastic compounder. The acquisition included its comprehensive product portfolio of engineering thermoplastics, including nylon and polypropylene polymers, and TPEs, as well as all of its manufacturing, technology and commercial facilities and customer agreements. TPEs' physical properties, including its toughness and elasticity, creep resistance, impact strength, flexibility at low temperatures, retention of characteristic at higher temperatures and chemical resistance, enable them to be used in automotive, construction, appliances and consumer applications. See Note 4 - Acquisitions, Dispositions and Plant Closures in the accompanying consolidated financial statements for further information.
We also have several differentiated polymer technologies designed for the utility industry, the oil and gas industry, original equipment manufacturers and companies that enhance supply chain efficiency. These include composite technologies for the utility industry that deliver greater reliability, capacity and performance for utility transmission lines.
On February 1, 2017, we signed a definitive agreement to acquire the nylon compounding division of Nilit Group, an independent producer of high performance nylon, resins, fibers and compounds. Subject to closing conditions, we will acquire Nilit Plastics' nylon compounding product portfolio, customer agreements and manufacturing, technology and commercial facilities.
Our differentiator capabilities are highlighted in our intimate and unique customer engagement which allows us to work across the entirety of our customers' value chain. For example, in the automotive industry we work with original equipment manufacturers as well as system and tier suppliers and injection molders in numerous areas, including polymer formulation and functionality, part and structural design, mold design, color development, part testing and part processing. This business segment also includes four strategic affiliates that complement our global reach, improve our ability to capture growth opportunities in emerging economies and positions us as a leading participant in the global specialty polymers industry.
• | Key Products |
POM. Commonly known as polyacetal in the chemical industry, POM is sold by our engineered materials business under the trademarks Celcon® and Hostaform®. POM is used for diverse end-use applications in the automotive, industrial, consumer and medical industries. These applications include mechanical parts in automotive fuel system components and window lift systems, water handling, conveyor belts, sprinkler systems, drug delivery systems and gears in large and small home appliances.
We continue to innovate and broaden the portfolio of Celcon® and Hostaform® in order to support the industry needs for higher performing polyacetal. We have expanded our portfolio to include products with higher impact resistance and stiffness, low emissions, improved wear resistance and enhanced appearance such as laser marking and metallic effects.
Polyplastics Co., Ltd., our 45%-owned strategic affiliate ("Polyplastics"), and Korea Engineering Plastics Co., Ltd., our 50%-owned strategic affiliate ("KEPCO"), also manufacture POM and other engineering resins in the Asia-Pacific region.
The primary raw material for POM is formaldehyde, which is manufactured from methanol. Raw materials are sourced from internal production and from third parties, generally through long-term contracts.
UHMW-PE. Celanese is the global leader in UHMW-PE products which are sold under the trademark GUR®. They are highly engineered thermoplastics designed for a variety of industrial, consumer and medical applications. Primary applications for the material include lead acid battery separators, heavy machine components, lithium ion separator membranes, and noise and vibration dampening tapes. Several specialty grades are also produced for applications in high performance filtration equipment, ballistic fibers, thermoplastic and elastomeric additives, as well as medical implants.
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Polyesters. Our products include a series of thermoplastic polyesters including Celanex® PBT, Impet® PET (polyethylene terephthalate) and Thermx® PCT (polycyclohexylene-dimethylene terephthalate), as well as Riteflex®, a thermoplastic polyester elastomer. These products are used in a wide variety of automotive, electrical and consumer applications, including ignition system parts, radiator grilles, electrical switches, appliance and sensor housings, light emitting diodes and technical fibers.
LFRT. Celstran® and Factor®, our LFRT products, impart extra strength and stiffness, making them more suitable for larger parts than conventional thermoplastics. These products are used in automotive, transportation and industrial applications, such as instrument panels, consoles and front end modules. LFRTs meet a wide range of end-user requirements and are excellent candidates for metal replacement where they provide the required structural integrity with significant weight reduction, corrosion resistance and the potential to lower manufacturing costs.
LCP. Vectra® and Zenite®, our LCP brands, are primarily used in electrical and electronics applications for precision parts with thin walls and complex shapes and applications requiring heat dissipation. They are also used in high heat cookware applications.
TPE. Forprene®, Sofprene® T, Pibiflex® and Laprene®, our TPE brands, are primarily used in automotive, construction, appliances and consumer applications due to their ability to combine the advantages of both flexible and plastic materials. These materials are selected for their ability to stretch and return to their near original shape creating a longer life and better physical range than other materials.
Nylon. Our nylon products include Nylfor® A (PA 6.6) and Nylfor® B (PA 6) and are used in automotive, appliances, industrial and consumer applications due to their mechanical properties, high impact resistance, resistance to organic solvents, high wear and fatigue resistance even at high temperatures, and easy processing and molding.
Polypropylene. Our polypropylene products include Polifor®, Litepol® and Tecnoprene® and are primarily used in automotive, appliances, electrical and consumer applications due to their high impact and fatigue resistance, exceptional rigidity at high temperatures and an ability to withstand chemical agents.
• | Geographic Regions |
Net sales by destination for the Advanced Engineered Materials segment by geographic region are as follows:
Year Ended December 31, | |||||||||||||||||
2016 | 2015 | 2014 | |||||||||||||||
(In $ millions, except percentages) | |||||||||||||||||
North America | 511 | 35 | % | 496 | 37 | % | 509 | 35 | % | ||||||||
Europe and Africa | 564 | 39 | % | 526 | 40 | % | 617 | 42 | % | ||||||||
Asia-Pacific | 332 | 23 | % | 266 | 20 | % | 284 | 20 | % | ||||||||
South America | 37 | 3 | % | 38 | 3 | % | 49 | 3 | % | ||||||||
Total | 1,444 | 100 | % | 1,326 | 100 | % | 1,459 | 100 | % | ||||||||
• | Customers |
Advanced Engineered Materials' principal customers are original equipment manufacturers and their suppliers serving the automotive, medical, industrial and consumer industries. By collaborating with our customers, our engineered materials business assists in developing and improving specialized applications and systems and offers customers global solutions. Our engineered materials business has long-standing relationships and multi-year arrangements with many of its major customers and utilizes distribution partners to expand its customer base.
The pricing of products by the Advanced Engineered Materials segment is primarily based on the value of the material we produce and is largely independent of changes in the cost of raw materials. Therefore, in general, margins may expand or contract in response to changes in raw material costs.
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Consumer Specialties
Products | Major End-Use Applications | Principal Competitors | Key Raw Materials | |||
Cellulose derivatives | ||||||
• Acetate tow • Acetate flake • Acetate film | • Filtration • Films • Flexible packaging | • Daicel Corporation • Eastman Chemical Company • Mitsubishi Rayon Co., Ltd • Solvay S.A. | • Wood pulp • Acetic acid • Acetic anhydride | |||
Food ingredients | ||||||
• Acesulfame potassium ("Ace-K") • Potassium sorbate • Sorbic acid • Sweetener systems | • Beverages • Confections • Baked goods | • Anhui Jinhe Industry Co., Ltd. • Suzhou Hope Technology Co., Ltd. • Ajinomoto Co. Inc. • The NutraSweet Company • Tate & Lyle plc • Daicel Corporation • Nantong Acetic Acid Chemical Co., Ltd. | • Diketene (for Ace-K) For potassium sorbate and sorbic acid: • Acetic acid • Crotonaldehyde • Ethylene • Potassium hydroxide | |||
• | Overview |
The Consumer Specialties segment includes our cellulose derivatives and food ingredients businesses, which serve consumer-driven applications.
Our cellulose derivatives business is a leading global producer and supplier of acetate tow, acetate flake and acetate film, primarily used in filter products applications. Our near-term focus in cellulose derivatives is to drive productivity initiatives through our business, including managing our own production landscape. We hold an approximately 30% ownership interest in three separate ventures in China that produce acetate flake and acetate tow. China National Tobacco Corporation, a Chinese state-owned tobacco entity, has been our venture partner for three decades and has driven successful growth in our cellulose derivatives business. Our cellulose derivatives business has production sites in Belgium, Mexico, the United Kingdom and the US, along with sites at our three cellulose derivatives ventures in China.
Our food ingredients business is a leading global supplier of Ace-K for the food and beverage industry and is a leading producer of food protection ingredients, such as potassium sorbate and sorbic acid. Similar to engineered materials, we leverage our leading project pipeline process in our food ingredients business in which we have over fifty years of experience in developing and marketing specialty ingredients for the food and beverages industry. Our food ingredients business has a production facility in Germany, with sales and distribution facilities in all major regions of the world.
• | Key Products |
Acetate tow, acetate flake and acetate film. Acetate tow is a fiber used primarily in cigarette filters. In order to produce acetate tow, we first produce acetate flake by processing wood pulp with acetic acid and acetic anhydride. Wood pulp generally comes from reforested trees and is purchased externally from a variety of sources, and acetic anhydride is an intermediate chemical that we produce from acetic acid in our Acetyl Intermediates segment. Acetate flake is then further processed into acetate tow. Acetate flake can also be a solvent that is cast to create a film, which is primarily used in packaging for food and high-end luxury goods, as well as other applications such as anti-fog films, which are sold under the trademark, Clarifoil®.
Sales of acetate tow amounted to 14%, 14% and 14% of our consolidated net sales for the years ended December 31, 2016, 2015 and 2014, respectively.
Sunett® sweetener. Ace-K, a non-nutritive high intensity sweetener sold under the trademark Sunett®, is used in a variety of beverages, confections and dairy products throughout the world. Sunett® sweetener is the ideal blending partner for caloric and non-caloric sweeteners as it balances the sweetness profile. It is recognized in the food industry for its consistent product quality and reliable supply. The primary raw material for Sunett is diketene, which is derived from acetic acid produced in our Acetyl Intermediates segment.
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Qorus® sweetener system. The Qorus® sweetener system is designed to assist food and beverage formulators in achieving their unique taste profile. This product enables the manufacturer to balance taste, without the need to mask certain notes, and ultimately provide the consumer with a pure, authentic taste. The Qorus® sweetener system is designed for low- to no-calorie carbonated and non-carbonated beverages, flavored waters, energy drinks, milk and dairy products.
Food protection ingredients. Our food protection ingredients, potassium sorbate and sorbic acid, are mainly used in foods, beverages and personal care products.
• | Geographic Regions |
Net sales by destination for the Consumer Specialties segment by geographic region are as follows:
___________________________
Year Ended December 31, | |||||||||||||||||
2016 | 2015 | 2014 | |||||||||||||||
(In $ millions, except percentages) | |||||||||||||||||
North America | 175 | 19 | % | 183 | 19 | % | 195 | 17 | % | ||||||||
Europe and Africa | 457 | 49 | % | 476 | 49 | % | 549 | 48 | % | ||||||||
Asia-Pacific | 248 | 27 | % | 255 | 26 | % | 352 | 30 | % | ||||||||
South America | 49 | 5 | % | 55 | 6 | % | 62 | 5 | % | ||||||||
Total(1) | 929 | 100 | % | 969 | 100 | % | 1,158 | 100 | % | ||||||||
(1) | Excludes intersegment sales of $0 million, $0 million and $2 million for the years ended December 31, 2016, 2015 and 2014, respectively. |
• | Customers |
Acetate tow is sold principally to the major tobacco companies that account for a majority of worldwide cigarette production. Contracts with most of our customers are generally entered into on an annual or multi-year basis. Our food ingredients business primarily sells Sunett® sweetener to a limited number of large multinational and regional customers and the Qorus® sweetener system to regional customers in the food and beverage industry under long-term and annual contracts. Food protection ingredients are primarily sold through regional distributors to small and medium sized customers and directly to large multinational customers in the food industry.
The pricing of products within the cellulose derivatives and food ingredients businesses is sensitive to demand and is primarily based on the value of the material we produce. Many sales in these businesses are conducted under contracts with pricing for one or more years. As a result, margins may expand or contract in response to changes in raw material costs over these similar periods, and we may be unable to adjust pricing also due to other factors, such as the intense level of competition in the industry.
• | Competition |
The European Commission instituted a dumping investigation into the sales of Ace-K produced in China into the European Union. As a result of this investigation, on November 1, 2015, "definitive dumping duties" became effective as published in the European Commission's Official Journal. The definitive duties range between €2.64 and €4.58 net per kg and have been imposed for a period of five years from the effective date. We do not produce Ace-K in China.
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Industrial Specialties
Products | Major End-Use Applications | Principal Competitors | Key Raw Materials | |||
Emulsion polymers | ||||||
• Conventional emulsions • Vinyl acetate ethylene ("VAE") emulsions | • Paints • Coatings • Adhesives • Textiles • Paper finishing | • BASF SE • Dairen Chemical Corporation • The Dow Chemical Company • Wacker Chemie AG | • Vinyl acetate monomer ("VAM") • Ethylene • Acrylate esters • Styrene | |||
EVA polymers | ||||||
• Ethylene vinyl acetate ("EVA") resins and compounds • Low-density polyethylene resins ("LDPE") | • Flexible packaging • Lamination products • Automotive parts | • Arkema • E. I. du Pont de Nemours and Company • ExxonMobil Chemical | • VAM • Ethylene | |||
• | Overview |
The Industrial Specialties segment, which includes our emulsion polymers and EVA polymers businesses, is active in every major global industrial sector and serves diverse industrial and consumer end-use applications. These include traditional vinyl-based end uses, such as paints and coatings and adhesives, as well as other unique, high-value end uses including flexible packaging, thermal laminations, wire and cable, and compounds.
Our emulsion polymers business is a leading global producer of vinyl acetate-based emulsions and develops products and application technologies to improve performance, create value and drive innovation in applications such as paints and coatings, adhesives, construction, glass fiber, textiles and paper. Our emulsion polymers products are sold under globally and regionally recognized brands including EcoVAE®, Mowilith®, Vinamul®, Celvolit®, Duroset®, TufCOR® and Avicor®. The emulsion polymers business has production facilities in Canada, China, Germany, the Netherlands, Singapore, Sweden and the US and is supported by expert technical service regionally.
Our EVA polymers business is a leading North American manufacturer of a full range of specialty EVA resins and compounds as well as select grades of LDPE. Sold under the Ateva® and VitalDose® brands, these products are used in many applications, including flexible packaging films, lamination film products, hot melt adhesives, automotive parts and carpeting. Our EVA polymers business has a production facility in Edmonton, Alberta, Canada.
The Industrial Specialties segment builds on our leading acetyl technology. Our Acetyl Intermediates segment produces VAM, a primary raw material for our emulsion polymers and EVA polymers businesses. Ethylene, another key raw material, is purchased externally from a variety of sources through annual or multi-year contracts.
Our emulsion polymers business has experienced significant growth in Asia, and we have made investments to support continued growth in the region. In September 2016, we began production at our new VAE emulsions unit in Singapore, which will support growing demand for ecologically friendly materials in Southeast Asia. In addition to geographic growth, the Industrial Specialties businesses are focused on supporting our overall manufacturing footprint strategy to increase value, such as integrating our production sites to provide critical economies of scale.
• | Key Products |
Our emulsion polymers business produces conventional vinyl- and acrylate-based emulsions and VAE emulsions. VAE emulsions are a key component of water-based architectural coatings, adhesives, non-wovens, textiles, glass fiber and other applications.
Our EVA polymers business produces low-density polyethylene, EVA resins and compounds. Low-density polyethylene is produced in high-pressure reactors from ethylene, while EVA resins and compounds are produced in high-pressure reactors from ethylene and VAM.
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• | Geographic Regions |
Net sales by destination for the Industrial Specialties segment by geographic region are as follows:
___________________________
Year Ended December 31, | |||||||||||||||||
2016 | 2015 | 2014 | |||||||||||||||
(In $ millions, except percentages) | |||||||||||||||||
North America | 337 | 35 | % | 401 | 37 | % | 461 | 38 | % | ||||||||
Europe and Africa | 460 | 47 | % | 485 | 45 | % | 562 | 46 | % | ||||||||
Asia-Pacific | 165 | 17 | % | 180 | 17 | % | 181 | 15 | % | ||||||||
South America | 14 | 1 | % | 16 | 1 | % | 20 | 1 | % | ||||||||
Total(1) | 976 | 100 | % | 1,082 | 100 | % | 1,224 | 100 | % | ||||||||
(1) | Excludes intersegment sales of $3 million, $0 million and $0 million for the years ended December 31, 2016, 2015 and 2014, respectively. |
• | Customers |
Industrial Specialties' products are sold to a diverse group of regional and multinational customers. Customers of our emulsion polymers business are manufacturers of water-based paints and coatings, adhesives, paper, building and construction products, glass fiber, non-wovens and textiles. Customers of our EVA polymers business are engaged in the manufacture of a variety of products, including hot melt adhesives, automotive components, thermal laminations, and flexible and food packaging materials.
Pricing of our products within Industrial Specialties is influenced by changes in the cost of raw materials. Therefore, in general, there is a direct correlation between the cost of raw materials and our net sales for most Industrial Specialties products. This impact to pricing typically lags changes in raw material costs over months or quarters.
Acetyl Intermediates
Products | Major End-Use Applications | Principal Competitors | Key Raw Materials | |||
• Acetic acid • VAM • Acetic anhydride • Acetaldehyde Solvents and derivatives: • Ethyl acetate • Formaldehyde • Butyl acetate • Ethanol | • Paints • Coatings • Adhesives • Lubricants • Pharmaceuticals • Films • Textiles • Inks • Plasticizers • Solvents | • BASF SE • BP PLC • Chang Chun Petrochemical Co., Ltd. • Daicel Corporation • The Dow Chemical Company • Eastman Chemical Company • E. I. du Pont de Nemours and Company • Jiangsu Sopo (Group) Co., Ltd. • Kuraray Co., Ltd. • LyondellBasell Industries N.V. • Nippon Gohsei • Perstorp Inc. • Showa Denko K.K. | For acetic acid and VAM: • Carbon monoxide • Methanol • Ethylene For solvents and derivatives: • Methanol • Acetic acid | |||
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• | Overview |
Our Acetyl Intermediates segment includes our intermediate chemistry business, which produces and supplies acetyl products, including acetic acid, VAM, acetic anhydride and acetate esters. These products are generally used as starting materials for colorants, paints, adhesives, coatings and pharmaceuticals. Our intermediate chemistry business also produces organic solvents and intermediates for pharmaceutical, agricultural and chemical products.
As an industry leader, our intermediate chemistry business has built on its leading technology, low cost production footprint and attractive competitive position to drive growth. With decades of experience, advanced proprietary process technology and favorable capital and production costs, we are a leading global producer of acetic acid and VAM. AOPlus®3 technology extends our historical technology advantage and enables us to construct a greenfield acetic acid facility with a capacity of 1.8 million tons at a lower capital cost than our competitors. Our VAntage®2 technology could increase VAM capacity by up to 50% to meet growing customer demand globally with minimal investment. We believe our production technology is among the lowest cost in the industry and provides us with global growth opportunities through low cost expansions and a cost advantage over our competitors. In addition, we have focused in recent years on enhancing our ability to drive incremental value through our global production network and productivity initiatives as well as proactively managing the intermediate chemistry business in response to trade flows and prevailing industry trends. Our intermediate chemistry business has production sites in China, Germany, Mexico, Singapore and the US.
• | Key Products |
Acetyl Products. Acetyl products include acetic acid, VAM, acetic anhydride and acetaldehyde. Acetic acid is primarily used to manufacture VAM, purified terephthalic acid and other acetyl derivatives. VAM is used in a variety of adhesives, paints, films, coatings and textiles. Acetic anhydride is a raw material used in the production of cellulose acetate, detergents and pharmaceuticals. Acetaldehyde is a major feedstock for the production of a variety of derivatives, such as pyridines, which are used in agricultural products. We manufacture acetic acid, VAM and acetic anhydride for our own use in producing downstream, value-added products, as well as for sale to third parties.
Acetic acid and VAM, our basic acetyl intermediates products, are primarily impacted by global supply and demand fundamentals. The principal raw materials in these products are carbon monoxide, which is purpose-made and in which we generally purchase under long-term contracts, and methanol and ethylene, which we generally purchase under both annual and multi-year contracts. Generally, methanol and ethylene are commodity products available from a wide variety of sources, while carbon monoxide is typically obtained from sources in close proximity.
In February 2014, we formed a joint venture, Fairway Methanol LLC ("Fairway"), with Mitsui & Co., Ltd., of Tokyo, Japan ("Mitsui"), in which we own a 50% interest, for the production of methanol at our integrated chemical plant in Clear Lake, Texas. The methanol unit utilizes natural gas in the US Gulf Coast region as a feedstock and benefits from the existing infrastructure at our Clear Lake facility. The methanol facility has an annual capacity of 1.3 million tons. Fairway began production in October 2015. Almost all of our North American methanol needs are met from our share of the production, as well as the long-term contract we have with our joint venture partner, Mitsui.
In 2015, we announced capacity expansions for our acetic acid and VAM facilities in Clear Lake, Texas. The expansions will provide an additional 150kt of product for both facilities. The expansion at our VAM facility will make it the largest and most efficient VAM plant in the world and is expected to be completed by 2018.
Sales from acetyl products amounted to 29%, 31% and 33% of our consolidated net sales for the years ended December 31, 2016, 2015 and 2014, respectively.
Solvents and Derivatives. We manufacture a variety of solvents, formaldehyde and other chemicals, which in turn are used in the manufacture of paints, coatings, adhesives and other products. Many solvents and derivatives products are derived from our production of acetic acid. Primary products are:
• | Ethyl acetate, an acetate ester that is a solvent used in coatings, inks and adhesives and in the manufacture of photographic films and coated papers; |
• | Butyl acetate, an acetate ester that is a solvent used in inks, pharmaceuticals and perfume; |
• | Formaldehyde and paraformaldehyde, which are primarily used to produce adhesive resins for plywood, particle board, coatings, POM engineering resins and a compound used in making polyurethane; and |
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• | Other chemicals, such as crotonaldehyde, which are used by our food ingredients business for the production of sorbic acid and potassium sorbates, as well as raw materials for the fragrance and food ingredients industry. |
Sales from solvents and derivatives products amounted to 9%, 10% and 11% of our consolidated net sales for the years ended December 31, 2016, 2015 and 2014, respectively.
• | Geographic Regions |
Net sales by destination for the Acetyl Intermediates segment by geographic region are as follows:
___________________________
Year Ended December 31, | |||||||||||||||||
2016 | 2015 | 2014 | |||||||||||||||
(In $ millions, except percentages) | |||||||||||||||||
North America | 645 | 32 | % | 588 | 26 | % | 743 | 25 | % | ||||||||
Europe and Africa | 493 | 24 | % | 711 | 31 | % | 905 | 31 | % | ||||||||
Asia-Pacific | 833 | 41 | % | 932 | 40 | % | 1,210 | 41 | % | ||||||||
South America | 69 | 3 | % | 66 | 3 | % | 103 | 3 | % | ||||||||
Total(1) | 2,040 | 100 | % | 2,297 | 100 | % | 2,961 | 100 | % | ||||||||
(1) | Excludes intersegment sales of $401 million, $447 million and $532 million for the years ended December 31, 2016, 2015 and 2014, respectively. |
• | Customers |
Our intermediate chemistry business sells its products both directly to customers and through distributors. Acetic acid, VAM and acetic anhydride are global businesses, and we generally supply our customers under multi-year contracts. Acetic acid, VAM and acetic anhydride customers produce polymers used in water-based paints, adhesives, paper coatings, polyesters, film modifiers, pharmaceuticals, cellulose acetate and textiles. We have long-standing relationships with most of these customers.
Solvents and derivatives are sold to a diverse group of regional and multinational customers under multi-year contracts and on the basis of long-standing relationships. Solvents and derivatives customers are primarily engaged in the production of paints, coatings and adhesives. We manufacture formaldehyde for our own use as well as for sale to a few regional customers that include manufacturers in the wood products and chemical derivatives industries. The sale of formaldehyde is based on long- and short-term agreements. Specialty solvents are sold globally to a wide variety of customers, primarily in the coatings and resins and the specialty products industries. These products serve global regions in the synthetic lubricant, agrochemical, rubber processing and other specialty chemical areas.
Pricing of acetic acid, VAM and other acetyl products is influenced by changes in the cost of raw materials. Therefore, in general, there is a direct correlation between the cost of raw materials and our net sales for most intermediate chemistry products. This impact to pricing typically lags changes in raw material costs over months or quarters.
Other Activities
Other Activities primarily consists of corporate center costs, including administrative activities such as finance, information technology and human resource functions, interest income and expense associated with our financing activities and results of our captive insurance companies. Our two wholly-owned captive insurance companies are a key component of our global risk management program, as well as a form of self-insurance for our liability and workers compensation risks. The captive insurance companies retain risk at levels approved by management and obtain reinsurance coverage from third parties to limit the net risk retained. One of the captive insurance companies also insures certain third-party risks. Other Activities also includes the interest cost, expected return on assets and net actuarial gains and losses components of our net periodic benefit cost for our defined benefit pension plans and other postretirement plans, which are not allocated to our business segments.
Strategic Affiliates
Our strategic affiliates represent an important component of our strategy for accelerated growth and global expansion. We have a substantial portfolio of affiliates in various regions, including Asia-Pacific, North America and the Middle East. These affiliates, some of which date back as far as the 1960s, have sizeable operations and are significant within their industries.
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Our strategic affiliates have similar business models as our core businesses. With shared characteristics such as products, applications and manufacturing technology, these strategic affiliates complement and extend our technology and specialty materials portfolio. We have historically entered into these investments to gain access to local demand, minimize costs and accelerate growth in areas we believe have significant future business potential. Depending on the level of investment and other factors, we account for our strategic affiliates using either the equity method or cost method of accounting.
Our strategic affiliates contribute substantial earnings and cash flows to us. During the year ended December 31, 2016, our equity method strategic affiliates generated combined sales of $2.0 billion, resulting in our recording $122 million of equity in net earnings of affiliates and $92 million of dividends.
Our strategic affiliates as of December 31, 2016 are as follows:
Location of Headquarters | Ownership | Partner(s) | Year Entered | ||||
Equity Method Investments | |||||||
Advanced Engineered Materials | |||||||
National Methanol Company | Saudi Arabia | 25 % | Saudi Basic Industries Corporation (50%); Texas Eastern Arabian Corporation Ltd. (25%) | 1981 | |||
KEPCO | South Korea | 50 % | Mitsubishi Gas Chemical Company, Inc. (40%); Mitsubishi Corporation (10%) | 1999 | |||
Polyplastics | Japan | 45 % | Daicel Corporation (55%) | 1964 | |||
Fortron Industries LLC | US | 50 % | Kureha America Inc. (50%) | 1992 | |||
Cost Method Investments | |||||||
Consumer Specialties | |||||||
Kunming Cellulose Fibers Co. Ltd. | China | 30 % | China National Tobacco Corporation (70%) | 1993 | |||
Nantong Cellulose Fibers Co. Ltd. | China | 31 % | China National Tobacco Corporation (69%) | 1986 | |||
Zhuhai Cellulose Fibers Co. Ltd. | China | 30 % | China National Tobacco Corporation (70%) | 1993 | |||
National Methanol Company (Ibn Sina). National Methanol Company represents approximately 1% of the world's methanol production capacity and is one of the world's largest producers of methyl tertiary-butyl ether, a gasoline additive. Its production facilities are located in Saudi Arabia. Saudi Basic Industries Corporation ("SABIC") is responsible for all product marketing. Methanol is a key feedstock for POM production and is produced by our Ibn Sina affiliate which provides an economic hedge against raw material costs in our engineered materials business.
Ibn Sina is currently constructing a 50,000 ton POM production facility in Saudi Arabia. The new facility will supply POM to support Advanced Engineered Materials' future growth plans as well as our venture partners' regional business development. Upon successful startup of the POM facility, which is expected to occur in mid-2017, our indirect economic interest in Ibn Sina will increase from 25% to 32.5%. SABIC's economic interest will remain unchanged.
KEPCO. KEPCO is the leading producer of POM in South Korea. KEPCO has polyacetal production facilities in Ulsan, South Korea, compounding facilities for PBT and nylon in Pyongtaek, South Korea, and participates with Polyplastics and Mitsubishi Gas Chemical Company, Inc. in a world-scale POM facility in Nantong, China.
Polyplastics. Polyplastics is a leading supplier of engineered plastics. Polyplastics is a manufacturer and/or marketer of POM, LCP and PPS, with principal production facilities located in Japan and Malaysia.
Fortron Industries LLC. Fortron Industries LLC ("Fortron") is a leading global producer of PPS, sold under the Fortron® brand, which is used in a wide variety of automotive and other applications, especially those requiring heat and/or chemical resistance. Fortron's facility is located in Wilmington, North Carolina. This venture combines our sales, marketing, distribution, compounding and manufacturing expertise with the PPS polymer technology expertise of Kureha America Inc.
Cellulose derivatives strategic ventures. Our cellulose derivatives ventures within our Consumer Specialties segment generally fund their operations using operating cash flow and pay dividends based on each ventures' performance in the preceding year. In 2016, 2015 and 2014, we received cash dividends of $107 million, $106 million and $115 million, respectively.
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Although our ownership interest in each of our cellulose derivatives ventures exceeds 20%, we account for these investments using the cost method of accounting because we determined that we cannot exercise significant influence over these entities due to local government investment in and influence over these entities, limitations on our involvement in the day-to-day operations and the present inability of the entities to provide timely financial information prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP").
Other Equity Method Investments
InfraServs. We hold indirect ownership interests in several German InfraServ Groups that own and develop industrial parks and provide on-site general and administrative support to tenants. Our ownership interest in the equity investments in InfraServ affiliates are as follows:
As of December 31, 2016 | |
(In percentages) | |
InfraServ GmbH & Co. Gendorf KG | 39 |
InfraServ GmbH & Co. Hoechst KG | 32 |
InfraServ GmbH & Co. Knapsack KG | 27 |
Research and Development
Our businesses are innovation-oriented and conduct research and development activities to develop new, and optimize existing, production technologies, as well as to develop commercially viable new products and applications. Research and development expense was $78 million, $119 million and $86 million for the years ended December 31, 2016, 2015 and 2014, respectively. We consider the amounts spent during each of the last three fiscal years on research and development activities to be sufficient to execute our current strategic initiatives.
Intellectual Property
We attach importance to protecting our intellectual property, including safeguarding our confidential information and through our patents, trademarks and copyrights, in order to preserve our investment in research and development, manufacturing and marketing. Patents may cover processes, equipment, products, intermediate products and product uses. We also seek to register trademarks as a means of protecting the brand names of our Company and products.
Patents. In most industrial countries, patent protection exists for new substances and formulations, as well as for certain unique applications and production processes. However, we do business in regions of the world where intellectual property protection may be limited and difficult to enforce.
Confidential Information. We maintain stringent information security policies and procedures wherever we do business. Such information security policies and procedures include data encryption, controls over the disclosure and safekeeping of confidential information and trade secrets, as well as employee awareness training.
Trademarks. AOPlus®, Ateva®, Avicor®, BriteCoat®, Celanese®, Celanex®, Celcon®, CelFX®, Celstran®, Celvolit®, Clarifoil®, Duroset®, EcoVAE®, Factor®, Fortron®, GUR®, Hostaform®, Impet®, Mowilith®, MetaLX®, MT®, Nutrinova®, Qorus®, Riteflex®, SlideX™, Sunett®, TCX®, Thermx®, TufCOR®, VAntage®, VAntagePlus™, Vectra®, Vinamul®, VitalDose®, Zenite® and certain other branded products and services named in this document are registered or reserved trademarks or service marks owned or licensed by Celanese. The foregoing is not intended to be an exhaustive or comprehensive list of all registered or reserved trademarks and service marks owned or licensed by Celanese. Fortron® is a registered trademark of Fortron Industries LLC. Hostaform® is a registered trademark of Hoechst GmbH. Mowilith® is a registered trademark of Celanese in most European countries.
We monitor competitive developments and defend against infringements on our intellectual property rights. Neither Celanese nor any particular business segment is materially dependent upon any one patent, trademark, copyright or trade secret.
Environmental and Other Regulation
Matters pertaining to environmental and other regulations are discussed in Item 1A. Risk Factors, as well as Note 2 - Summary of Accounting Policies, Note 16 - Environmental and Note 24 - Commitments and Contingencies in the accompanying consolidated financial statements.
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Employees
Our employees employed on a continuing basis throughout the world are as follows:
Employees as of December 31, 2016 | ||
North America | ||
US | 2,600 | |
Canada | 249 | |
Mexico | 691 | |
Total | 3,540 | |
Europe | ||
Germany | 1,400 | |
Other Europe | 1,234 | |
Total | 2,634 | |
Asia | 997 | |
Rest of World | 122 | |
Total | 7,293 | |
Backlog
We do not consider backlog to be a significant indicator of the level of future sales activity. In general, we do not manufacture our products against a backlog of orders. Production and inventory levels are based on the level of incoming orders as well as projections of future demand. Therefore, we believe that backlog information is not material to understanding our overall business and should not be considered a reliable indicator of our ability to achieve any particular level of net sales or financial performance.
Available Information — Securities and Exchange Commission ("SEC") Filings and Corporate Governance Materials
We make available free of charge, through our internet website (http://www.celanese.com), our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as well as ownership reports on Form 3 and Form 4, as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC. References to our website in this report are provided as a convenience, and the information on our website is not, and shall not be deemed to be a part of this report or incorporated into any other filings we make with the SEC. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers, including Celanese Corporation, that electronically file with the SEC at http://www.sec.gov.
We also make available free of charge, through our website, our Corporate Governance Guidelines of our Board of Directors and the charters of each of the standing committees of our Board of Directors.
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Item 1A. Risk Factors
Many factors could have an effect on our financial condition, cash flows and results of operations. We are subject to various risks resulting from changing economic, environmental, political, industry, business, financial and regulatory conditions. The factors described below represent our principal risks.
Risks Related to Our Business
We are exposed to general economic, political and regulatory conditions and risks in the countries in which we have operations and customers.
We operate globally and have customers in many countries. Our major facilities are primarily located in North America, Europe and Asia, and we hold interests in affiliates that operate in the United States ("US"), Germany, China, Japan, Malaysia, South Korea and Saudi Arabia. Our principal customers are similarly global in scope and the prices of our most significant products are typically regional or world market prices. Consequently, our business and financial results are affected, directly and indirectly, by world economic conditions, including instability in credit markets, declining consumer and business confidence, fluctuating commodity prices and interest rates, volatile exchange rates and other challenges such as the changing regulatory environment.
Our operations are also subject to global political conditions. For example, the US' withdrawal from the Trans-Pacific Partnership, any future withdrawal or renegotiation of trade agreements, including the North American Free Trade Agreement, or the more aggressive prosecution of trade disputes with countries like China, may adversely affect our ability to operate our business and execute our growth strategy. In addition, it may be more difficult for us to enforce agreements, collect receivables, receive dividends and repatriate earnings through foreign legal systems. In certain foreign jurisdictions our operations are subject to nationalization and expropriation risk and some of our contractual relationships within these jurisdictions are subject to cancellation without full compensation for loss. Furthermore, in certain cases where we benefit from local government subsidies or other undertakings, such benefits are subject to the solvency of local government entities and are subject to termination without meaningful recourse or remedies.
We have invested significant resources in China and other Asian countries. This region's growth may slow, and we may fail to realize the anticipated benefits associated with our investment there and, consequently, our financial results may be adversely impacted.
In addition, we have significant operations and financial relationships based in Europe. Historically sales originating in Europe have accounted for over one-third of our net sales. For example, in 2016, sales originating in Europe accounted for approximately 40% of our net sales. Adverse conditions in the European economy related to the United Kingdom's European Union ("EU") membership referendum or otherwise may negatively impact our overall financial results due to reduced economic growth and resulting decreased end-use customer demand.
We are subject to risks associated with the increased volatility in the prices and availability of key raw materials and energy, which could have a significant adverse effect on the margins of our products and our financial results.
We purchase significant amounts of ethylene, methanol, carbon monoxide and natural gas from third parties primarily for use in our production of basic chemicals in the Acetyl Intermediates segment, principally acetic acid, vinyl acetate monomer ("VAM") and formaldehyde. We use a portion of our output of these chemicals, in turn, as inputs in the production of downstream products in all of our business segments. We also purchase some of these raw materials for use in our Industrial Specialties segment, primarily for vinyl acetate ethylene emulsions and ethylene vinyl acetate production, as well as significant amounts of wood pulp for use in our production of cellulose derivatives in our Consumer Specialties segment. The price of many of these items is dependent on the available supply of that item and may increase significantly as a result of uncertainties associated with war, terrorist activities, civil unrest, epidemics, pandemics, weather, natural disasters, the effects of climate change or political instability, plant or production disruptions, strikes or other labor unrest, breakdown or degradation of transportation infrastructure used in the delivery of strategic raw materials and energy commodities, or changes in laws or regulations in any of the countries in which we have significant suppliers. In particular, to the extent of our vertical integration in the production of chemicals, shortages in the availability of raw material chemicals, such as natural gas, ethylene and methanol, or the loss of our dedicated supplies of carbon monoxide, may have an increased adverse impact on us as it can cause a shortage in intermediate and finished products. Such shortages would adversely impact our ability to produce certain products and increase our costs resulting in reduced margins and adverse financial results.
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We are exposed to volatility in the prices of our raw materials and energy. Although we have long-term supply agreements, multi-year purchasing and sales agreements and forward purchase contracts providing for the supply of ethylene, methanol, carbon monoxide, wood pulp, natural gas and electricity, the contractual prices for these raw materials and energy can vary with economic conditions and may be highly volatile. In addition to the factors noted above that may impact supply or price, factors that have caused volatility in our raw material prices in the past and which may do so in the future include:
• | Shortages of raw materials due to increasing demand, e.g., from growing uses or new uses; |
• | Capacity constraints, e.g., due to construction delays, labor disruption, involuntary shutdowns or turnarounds; |
• | The inability of a supplier to meet our delivery orders or a supplier's choice not to fulfill orders or to terminate a supply contract or our inability to obtain or renew supply contracts on favorable terms; |
• | The general level of business and economic activity; and |
• | The direct or indirect effect of governmental regulation (including the impact of government regulation relating to climate change). |
If we are not able to fully offset the effects of higher energy and raw material costs through price increases, productivity improvements or cost reduction programs, or if such commodities become unavailable, it could have a significant adverse effect on our ability to timely and profitably manufacture and deliver our products resulting in reduced margins and adverse financial results.
We have a practice of maintaining, when available, multiple sources of supply for raw materials and services. However, some of our individual plants may have single sources of supply for some of their raw materials, such as carbon monoxide, steam and ethylene, or services. Although we have been able to obtain sufficient supplies of raw materials and services, there can be no assurance that unforeseen developments will not affect our ability to source raw materials or services in the future. Even if we have multiple sources of supply for a raw material or a service, there can be no assurance that these sources can make up for the loss of a major supplier. Furthermore, if any sole source or major supplier were unable or unwilling to deliver a raw material or a service for an extended period of time, we may not be able to find an acceptable alternative or any such alternative could result in increased costs. It is also possible profitability will be adversely affected if we are required to qualify additional sources of supply for a raw material or a service to our specifications in the event of the loss of a sole source or major supplier.
A portion of our supply of methanol in North America is currently obtained from our joint venture, Fairway Methanol LLC ("Fairway"), with Mitsui & Co., Ltd., of Tokyo, Japan, in which we own a 50% interest, for the production of methanol at our integrated chemical plant in Clear Lake, Texas. Fairway began production in October 2015.
Production at our manufacturing facilities could be disrupted for a variety of reasons, which could prevent us from producing enough of our products to maintain our sales and satisfy our customers' demands.
A disruption in production at one or more of our manufacturing facilities could have a material adverse effect on our business. Disruptions could occur for many reasons, including fire, natural disasters, weather, unplanned maintenance or other manufacturing problems, disease, strikes or other labor unrest, transportation interruption, government regulation, political unrest or terrorism. Alternative facilities with sufficient capacity or capabilities may not be available, may cost substantially more or may take a significant time to start production, each of which could negatively affect our business and financial performance. If one of our key manufacturing facilities is unable to produce our products for an extended period of time, our sales may be reduced by the shortfall caused by the disruption and we may not be able to meet our customers' needs, which could cause them to seek other suppliers. In particular, production disruptions at our manufacturing facilities that produce chemicals used as inputs in the production of chemicals in other business segments, such as acetic acid, VAM and formaldehyde, could have a more significant adverse effect on our business and financial performance and results of operations to the extent of such vertical integration. Furthermore, to the extent a production disruption occurs at a manufacturing facility that has been operating at or near full capacity, the resulting shortage of our product could be particularly harmful because production at such manufacturing facility may not be able to reach levels achieved prior to the disruption.
Failure to develop new products and production technologies or to implement productivity and cost reduction initiatives successfully may harm our competitive position.
Our operating results depend significantly on the development of commercially viable new products, product grades and applications, as well as process technologies, free of any legal restrictions. If we are unsuccessful in developing new products, applications and production processes in the future, including failing to leverage our opportunity pipeline in our Advanced
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Engineered Materials segment, our competitive position and operating results may be negatively affected. However, as we invest in new technology, we face the risk of unanticipated operational or commercialization difficulties, including an inability to obtain necessary permits or governmental approvals, the development of competing technologies, failure of facilities or processes to operate in accordance with specifications or expectations, construction delays, cost over-runs, the unavailability of financing, required materials or equipment and various other factors. Likewise, we have undertaken and are continuing to undertake initiatives in all of our business segments to improve productivity and performance and to generate cost savings. These initiatives may not be completed or beneficial or the estimated cost savings from such activities may not be realized.
Our business exposes us to potential product liability claims and recalls, which could adversely affect our financial condition and performance.
The development, manufacture and sale of specialty chemical products by us, including products produced for the food and beverage, cigarette, automobile, aerospace, medical device and pharmaceutical industries, involves a risk of exposure to product liability claims, product recalls, product seizures and related adverse publicity. A product liability claim or judgment against us could also result in substantial and unexpected expenditures, affect consumer or customer confidence in our products, and divert management's attention from other responsibilities. Although we maintain product liability insurance, there can be no assurance that this type or the level of coverage is adequate or that we will be able to continue to maintain our existing insurance or obtain comparable insurance at a reasonable cost, if at all. A product recall or a partially or completely uninsured judgment against us could have a material adverse effect on our results of operations or financial condition. Although we have standard contracting policies and controls, we may not always be able to contractually limit our exposure to third party claims should our failure to perform result in downstream supply disruptions or product recalls.
We could be subject to damages based on claims brought against us by our customers or lose customers as a result of the failure of our products to meet certain quality specifications.
Our products provide important performance attributes to our customers' products. If a product fails to perform in a manner consistent with quality specifications, a customer could seek replacement of the product or damages for costs incurred as a result of the product failing to perform as guaranteed. A successful claim or series of claims against us could have a material adverse effect on our financial condition and results of operations and could result in a loss of one or more key customers.
Our future success depends in part on our ability to protect our intellectual property rights. Our inability to protect and enforce these rights could reduce our ability to maintain our industry position and our profit margins.
We rely on our patents, trademarks, copyrights, know-how and trade secrets and patents and other technology licensed from third parties to protect our investment in research and development and our competitive commercial positions in manufacturing and marketing our products. We have adopted internal policies for protecting our know-how and trade secrets. In addition, our practice is to seek patent or trade secret protection for significant developments that provide us competitive advantages and freedom to practice for our businesses. Patents may cover catalysts, processes, products, intermediate products and product uses. These patents are usually filed in strategic countries throughout the world and provide varying periods and scopes of protection based on the filing date and the type of patent application. The legal life and scope of protection provided by a patent may vary among those countries in which we seek protection. As patents expire, the catalysts, processes, products, intermediate products and product uses described and claimed in those patents generally may become available for use by the public subject to our continued protection for associated know-how and trade secrets. We also seek to register trademarks as a means of protecting the brand names of our products, which brand names become more important once the corresponding product or process patents have expired. We operate in regions of the world where intellectual property protection may be limited and difficult to enforce and our continued growth strategy may result in us seeking intellectual property protection in additional regions with similar challenges. If we are not successful in protecting or maintaining our patent, license, trademark or other intellectual property rights, our net sales, results of operations and cash flows may be adversely affected.
Our business is exposed to risks associated with the creditworthiness of our suppliers, customers and business partners and the industries in which our suppliers, customers and business partners participate are cyclical in nature, both of which may adversely affect our business and results of operations.
Our business is exposed to risks associated with the creditworthiness of our key suppliers, customers and business partners and reductions in demand for our customers' products. These risks include the interruption of production at the facilities of our customers, the reduction, delay or cancellation of customer orders, delays in or the inability of customers to obtain financing to purchase our products, delays in or interruptions of the supply of raw materials we purchase and bankruptcy of customers, suppliers or other creditors. Furthermore, some of the industries in which our end-use customers participate, such as the automotive, electrical, construction and textile industries, are highly competitive, to a large extent driven by end-use
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applications, and may experience overcapacity, all of which may affect demand for and the pricing of our products. In addition, many of these industries are cyclical in nature, thus posing risks to us that vary throughout the year. The occurrence of any of these events may adversely affect our cash flow, profitability and financial condition.
Failure to comply with applicable laws or regulations and/or changes in applicable laws or regulations may adversely affect our business and financial results as a whole.
We are subject to extensive international, national, state, local and other laws and regulations. Failure to comply with these laws, including antitrust and anticorruption laws, rules, regulations or court decisions, could expose us to fines, penalties and other costs. Although we have implemented policies and procedures designed to ensure compliance with these laws, rules, regulations and court decisions, there can be no assurance that our employees and business partners and other third parties acting on our behalf will comply with these laws, rules, regulations and court decisions, which could result in fines, penalties and costs and damage to our business reputation.
Moreover, changes in laws or regulations, such as unexpected changes in regulatory requirements (including import or export licensing requirements), or changes in reporting requirements of the US, Canadian, Mexican, German, EU or Asian governmental agencies, could increase the cost of doing business in these regions. Any of these conditions may have an effect on our business and financial results as a whole and may result in volatile current and future prices for our securities, including our stock.
Environmental regulations and other obligations relating to environmental matters could subject us to liability for fines, clean-ups and other damages, require us to incur significant costs to modify our operations and increase our manufacturing and delivery costs.
Costs related to our compliance with environmental laws and regulations, and potential obligations with respect to sites currently or formerly owned or operated by us, may have a significant negative impact on our operating results. We also have obligations related to the indemnity agreement contained in the demerger and transfer agreement between Celanese GmbH and Hoechst AG for environmental matters arising out of certain divestitures that took place prior to the demerger.
Our operations are subject to extensive international, national, state, local and other laws and regulations that govern environmental and health and safety matters. We incur substantial capital and other costs to comply with these requirements. If we violate any one of those laws or regulations, we can be held liable for substantial fines and other sanctions, including limitations on our operations as a result of changes to or revocations of environmental permits involved. Stricter environmental, safety and health laws and regulations could result in substantial costs and liabilities to us or limitations on our operations. Consequently, compliance with these laws and regulations may negatively affect our earnings and cash flows in a particular reporting period. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources for further information.
Changes in environmental, health and safety regulations in the jurisdictions where we manufacture or sell our products could lead to a decrease in demand for our products.
New or revised governmental regulations and independent studies relating to the effect of our products on health, safety or the environment may affect demand for our products and the cost of producing our products. In addition, products we produce, including VAM, formaldehyde and plastics derived from formaldehyde, may be classified in a manner that would adversely affect demand for such products. For example, the International Agency for Research on Cancer ("IARC"), a private research agency, classified formaldehyde as carcinogenic to humans (Group 1) based on studies linking formaldehyde exposure to nasopharyngeal cancer, a rare cancer in humans. In addition, several studies have investigated possible links between formaldehyde exposure and various end points, including leukemia. In October 2009, IARC concluded that there is sufficient evidence of a causal association between formaldehyde and the development of leukemia. In 2011, the National Toxicology Program ("NTP") released the 12th report on carcinogens, which changed the classification of formaldehyde from "reasonably anticipated to be a human carcinogen" to "known to be a human carcinogen". Similar to the IARC modification in 2009, the NTP report also implicates formaldehyde as a leukemogen. We anticipate that the results of the IARC's and the NTP's reviews will be examined and considered by government agencies with responsibility for setting worker and environmental exposure standards and labeling requirements.
Other pending initiatives potentially will require toxicological testing and risk assessments of a wide variety of chemicals, including chemicals used or produced by us. These initiatives include the Voluntary Children's Chemical Evaluation Program, High Production Volume Chemical Initiative and expected modifications to the Toxic Substances Control Act in the US, as well as various European Commission programs, such as the Registration, Evaluation, Authorization and Restriction of Chemicals,
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and new initiatives in Asia and other regions. These assessments may result in heightened concerns about the chemicals involved and additional requirements being placed on the production, handling, labeling or use of the subject chemicals. Such concerns and additional requirements could also increase the cost incurred by our customers to use our chemical products and otherwise limit the use of these products, which could lead to a decrease in demand for these products. Such a decrease in demand would likely have an adverse impact on our business and results of operations.
Our production facilities, including facilities we own and/or operate and operations at our facilities owned and/or operated by third parties, handle the processing of some volatile and hazardous materials that subject us to operating and other risks that could have a negative effect on our operating results.
Although we take precautions to enhance the safety of, and minimize the disruption to, our operations and operations at our facilities owned and/or operated by third parties, we are subject to operating and other risks associated with chemical manufacturing, including the storage and transportation of raw materials, finished products and waste. These risks include, among other things, pipeline and storage tank leaks and ruptures, explosions and fires and discharges or releases of toxic or hazardous substances. In addition, we may have limited control over operations at our facilities owned and/or operated by third parties or such operations may not be fully integrated into our safety programs.
These operating and other risks can cause personal injury, property damage, third-party damages and environmental contamination, and may result in the shutdown of affected facilities and the imposition of civil or criminal penalties. The occurrence of any of these events may disrupt production and have a negative effect on the productivity and profitability of a particular manufacturing facility, our operating results and cash flows.
US federal regulations aimed at increasing security at certain chemical production plants and similar legislation that may be proposed in the future, if passed into law, may increase our operating costs and cause an adverse effect on our results of operations.
The Chemical Facility Anti-Terrorism Standards program ("CFATS Program"), which is administered by the Department of Homeland Security ("DHS"), identifies and regulates chemical facilities to ensure that they have security measures in place to reduce the risks associated with potential terrorist attacks on chemical plants located in the US. In December 2014, the Protecting and Securing Chemical Facilities from Terrorist Attacks Act of 2014 ("CFATS Act") was enacted. The CFATS Act reauthorizes the CFATS Program for four years. DHS has released an interim final rule under the CFATS Program that imposes comprehensive federal security regulations for high-risk chemical facilities in possession of specified quantities of chemicals of interest. This rule establishes risk-based performance standards for the security of our nation's chemical facilities. It requires covered chemical facilities to prepare Security Vulnerability Assessments, which identify facility security vulnerabilities, and to develop and implement Site Security Plans, which include measures that satisfy the identified risk-based performance standards. We cannot determine with certainty the costs associated with any security measures that DHS may require.
We are subject to risks associated with possible climate change legislation, regulation and international accords.
Greenhouse gas emissions have become the subject of a large amount of international, national, regional, state and local attention. For example, the Environmental Protection Agency has promulgated rules concerning greenhouse gas emissions and cap and trade initiatives to limit greenhouse gas emissions have been introduced in the EU. In addition, regulation of greenhouse gas also could occur pursuant to future treaty obligations, statutory or regulatory changes or new climate change legislation. For instance, the 2015 Paris Climate Summit Agreement resulted in voluntary commitments by numerous countries to reduce their greenhouse gas emissions, which ultimately could result in firm commitments by various nations with respect to future greenhouse gas emissions. As such, future environmental legislative and regulatory developments related to climate change are possible, which could materially increase operating costs in the chemical industry and thereby increase our manufacturing and delivery costs.
Our business and financial results may be adversely affected by various legal and regulatory proceedings.
We are involved in legal and regulatory proceedings, lawsuits, claims and investigations in the normal course of business and could become subject to additional claims in the future, some of which could be material. The outcome of existing proceedings, lawsuits, claims and investigations may differ from our expectations because the outcomes of such proceedings, including regulatory matters, are often difficult to reliably predict. Various factors or developments can lead us to change current estimates of liabilities and related insurance receivables where applicable, or permit us to make such estimates for matters previously not susceptible to reasonable estimates, such as a significant judicial ruling or judgment, a significant settlement, significant regulatory developments, or changes in applicable law. A future adverse ruling, settlement, or unfavorable development could result in charges that could have a material adverse effect on our business, results of operations or financial
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condition in any particular period. See Note 16 - Environmental and Note 24 - Commitments and Contingencies in the accompanying consolidated financial statements for further information.
Changes in, or the interpretation of, tax legislation or rates throughout the world could materially impact our results.
Our future effective tax rate and related tax balance sheet attributes could be impacted by changes in tax legislation throughout the world. The overall tax environment has made it increasingly challenging for multinational corporations to operate with certainty about taxation in many jurisdictions. For example, the European Commission has been conducting investigations focusing on whether local country tax rulings or tax legislation provide preferential tax treatment that violates EU state aid rules. In addition, the Organization of Economic Cooperation and Development, which represents a coalition of member countries, is supporting changes to numerous long-standing tax principles through its base erosion and profit shifting project, which is focused on a number of issues, including the shifting of profits among affiliated entities located in different tax jurisdictions. Furthermore, a number of countries where we do business, including the US and many countries in the EU, are considering changes in relevant tax, accounting and other laws, regulations and interpretations, including changes to tax laws applicable to multinational corporations. The increasingly complex global tax environment could have a material adverse effect on our effective tax rate, results of operations, cash flows and financial condition.
Currently, the majority of our net sales are generated from customers located outside of the US, and a substantial portion of our assets and employees are located outside of the US. If these offshore funds are needed for our operations in the US, we will access such funds in a tax efficient manner to satisfy cash flow needs.
We have not accrued income taxes or foreign withholding taxes on undistributed earnings for most non-US subsidiaries, because those earnings are intended to be indefinitely reinvested in the operations of those subsidiaries. Certain tax proposals with respect to such earnings could substantially increase our tax expense, which would substantially reduce our income and have a material adverse effect on our results of operations and cash flows from operating activities. Currently, there are no contemplated cash distributions that will result in incremental US taxes payable in excess of applicable foreign tax credits related to such undistributed earnings. As a result, we have not provided any deferred income taxes on the portion of undistributed foreign earnings determined not to be permanently reinvested in foreign operations.
Our future effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, expirations of tax holidays or rulings, changes in the assessment regarding the realization of deferred tax assets, or changes in tax laws and regulations or their interpretation. We are subject to the regular examination of our income tax returns by various tax authorities. Examinations in material jurisdictions or changes in laws, rules, regulations or interpretations by local taxing authorities could result in impacts to tax years open under statute or to foreign operating structures currently in place. We regularly assess the likelihood of adverse outcomes resulting from these examinations or changes in laws, rules, regulations or interpretations to determine the adequacy of our provision for taxes. It is possible the outcomes from these examinations will have a material adverse effect on our financial condition and operating results.
Our significant non-US operations expose us to global exchange rate fluctuations that could adversely impact our profitability.
We conduct a significant portion of our operations outside the US. Consequently, fluctuations in currencies of other countries, especially the Euro, may materially affect our operating results. Because our consolidated financial statements are presented in US dollars, we must translate revenues, income and expenses, as well as assets and liabilities, into US dollars based on average exchange rates prevailing during the reporting period or the exchange rate at the end of that period. Therefore, increases or decreases in the value of the US dollar against other major currencies will affect our net operating revenues, operating income and the cost of balance sheet items denominated in foreign currencies. Foreign exchange rates can also impact the competitiveness of products produced in certain jurisdictions and exported for sale into other jurisdictions. These changes may impact the value received for the sale of our goods versus those of our competitors.
In addition to currency translation risks, we incur a currency transaction risk whenever one of our operating subsidiaries enters into a purchase or sales transaction using a currency different from the operating subsidiary's functional currency. Given the volatility of exchange rates, particularly the strengthening of the US dollar against major currencies or the currencies of large developing countries, we may not be able to manage our currency transaction and translation risks effectively.
We use financial instruments to hedge certain exposure to foreign currency fluctuations, but those hedges in most cases cover existing balance sheet exposures and not future transactional exposures. We cannot guarantee that our hedging strategies will be effective. In addition, the use of financial instruments creates counterparty settlement risk. Failure to effectively manage these risks could have an adverse impact on our financial position, results of operations and cash flows.
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We are subject to information technology security threats that could materially affect our business.
We have been and will continue to be subject to advanced persistent information technology security threats. While some unauthorized access to our information technology systems occurs, we believe to date these threats have not had a material impact on our business. We seek to detect and investigate these security incidents and to prevent their recurrence but in some cases we might be unaware of an incident or its magnitude and effects. The theft, mis-use or publication of our intellectual property and/or confidential business information or the compromising of our systems or networks could harm our competitive position, cause operational disruption, reduce the value of our investment in research and development of new products and other strategic initiatives or otherwise adversely affect our business or results of operations. To the extent that any security breach results in inappropriate disclosure of our employees', customers' or vendors' confidential information, we may incur liability as a result. Although we attempt to mitigate these risks by employing a number of measures, including monitoring of our systems and networks, and maintenance of backup and protective systems, our systems, networks, products and services remain potentially vulnerable to increasingly sophisticated advanced persistent threats that may have a material effect on our business. In addition, the devotion of additional resources to the security of our information technology systems in the future could significantly increase the cost of doing business or otherwise adversely impact our financial results.
Our success depends upon our ability to attract and retain key employees and the identification and development of talent to succeed senior management.
We rely heavily on our management team. Accordingly, our success depends on our ability to attract and retain key personnel. The inability to recruit and retain key personnel or the unexpected loss of key personnel may adversely affect our operations. In addition, because of our reliance on our management team, our future success depends in part on our ability to identify and develop talent to succeed senior management. The retention of key personnel and appropriate senior management succession planning will continue to be important to the successful implementation of our strategies.
Significant changes in pension fund investment performance or assumptions relating to pension costs may have a material effect on the valuation of pension obligations, the funded status of pension plans and our pension cost.
The cost of our pension plans is incurred over long periods of time and involves many uncertainties during those periods of time. Our funding policy for pension plans is to accumulate plan assets that, over the long run, will approximate the present value of projected benefit obligations. Our pension cost is materially affected by the discount rate used to measure pension obligations, the level and value of plan assets available to fund those obligations at the measurement date and the expected long-term rate of return on plan assets. Significant changes in investment performance or a change in the portfolio mix of invested assets will likely result in corresponding increases and decreases in the valuation of plan assets and a change in the discount rate or mortality assumptions, which will likely result in an increase or decrease in the valuation of pension obligations. The combined impact of these changes will affect the reported funded status of our pension plans as well as the net periodic pension cost in the following fiscal years. In recent years, an extended duration strategy in the asset portfolio has been implemented in some plans to reduce the influence of liability volatility due to changes in interest rates. If the funded status of a pension plan declines, we may be required to make unscheduled contributions in addition to those contributions for which we have already planned.
Some of our employees are unionized, represented by workers councils or are subject to local laws that are less favorable to employers than the laws of the US.
As of December 31, 2016, we had 7,293 employees globally. Approximately 17% of our 2,600 US-based employees are unionized. In addition, a large number of our employees are employed in countries in which employment laws provide greater bargaining or other employment rights than the laws of the US. Such employment rights require us to work collaboratively with the legal representatives of the employees to effect any changes to labor agreements. Most of our employees in Europe are represented by workers councils and/or unions that must approve any changes in terms and conditions of employment, including potentially salaries and benefits. They may also impede efforts to restructure our workforce. Although we believe we have a good working relationship with our employees and their legal representatives, a strike, work stoppage, or slowdown by our employees could occur, resulting in a disruption of our operations or higher ongoing labor costs.
Provisions in our certificate of incorporation and bylaws, as well as any stockholders' rights plan, may discourage a takeover attempt.
Provisions contained in our certificate of incorporation and bylaws could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our stockholders. Provisions of our certificate of incorporation and bylaws impose various procedural and other requirements, which could make it more difficult for stockholders to effect certain corporate
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actions. For example, our certificate of incorporation authorizes our Board of Directors to determine the rights, preferences, privileges and restrictions of unissued series of preferred stock, without any vote or action by our stockholders. Thus, our Board of Directors can authorize and issue shares of preferred stock with voting or conversion rights that could adversely affect the voting or other rights of holders of our Series A common stock, par value $0.0001 per share ("Common Stock"). These rights may have the effect of delaying or deterring a change of control of our Company. In addition, a change of control of our Company may be delayed or deterred as a result of any stockholders' rights plan that our Board of Directors may adopt. These provisions could limit the price that certain investors might be willing to pay in the future for shares of our Common Stock.
We may incur significant charges in the event we close or divest all or part of a manufacturing plant or facility.
We periodically assess our manufacturing operations in order to manufacture and distribute our products in the most efficient manner. Based on our assessments, we may make capital improvements to modernize certain units, move manufacturing or distribution capabilities from one plant or facility to another plant or facility, discontinue manufacturing or distributing certain products or close or divest all or part of a manufacturing plant or facility. We also have shared services agreements at several of our plants and if such agreements are terminated or revised, we would assess and potentially adjust our manufacturing operations. The closure or divestiture of all or part of a manufacturing plant or facility could result in future charges that could be significant. See Note 4 - Acquisitions, Dispositions and Plant Closures in the accompanying consolidated financial statements for further information.
We may not be able to complete future acquisitions or successfully integrate future acquisitions into our business, which could adversely affect our business or results of operations.
As part of our growth strategy, we intend to pursue acquisitions and joint venture opportunities. Successful accomplishment of this objective may be limited by the availability and suitability of acquisition candidates and by our financial resources, including available cash and borrowing capacity. Acquisitions involve numerous risks, including difficulty determining appropriate valuation, integrating operations, technologies, services and products of the acquired lines or businesses, personnel turnover and the diversion of management's attention from other business matters. In addition, we may be unable to achieve anticipated benefits from these acquisitions in the time frame that we anticipate, or at all, which could adversely affect our business or results of operations.
The insurance coverage that we maintain may not fully cover all operational risks.
We maintain property, business interruption and casualty insurance but such insurance may not cover all of the risks associated with the hazards of our business and is subject to limitations, including deductibles and maximum liabilities covered. We may incur losses beyond the limits, or outside the coverage, of our insurance policies, including liabilities for environmental remediation. In the future, the types of insurance we obtain and the level of coverage we maintain may be inadequate or we may be unable to continue to maintain our existing insurance or obtain comparable insurance at a reasonable cost.
Differences in views with our joint venture participants may cause our joint ventures not to operate according to their business plans, which may adversely affect our results of operations.
We currently participate in a number of joint ventures and may enter into additional joint ventures in the future. The nature of a joint venture requires us to work cooperatively with unaffiliated third parties. Differences in views among joint venture participants may result in delayed decisions or failure to agree on major decisions. If these differences cause the joint ventures to deviate from their business plans or to fail to achieve their desired operating performance, our results of operations could be adversely affected.
Risks Related to Our Indebtedness
Our level of indebtedness and other liabilities could diminish our ability to raise additional capital to fund our operations or refinance our existing indebtedness when it matures, limit our ability to react to changes in the economy or the chemicals industry and prevent us from meeting obligations under our indebtedness.
See Note 14 - Debt in the accompanying consolidated financial statements for further information about our indebtedness. See Note 13 - Noncurrent Other Liabilities, Note 15 - Benefit Obligations and Note 16 - Environmental in the accompanying consolidated financial statements for further information about our other obligations.
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Our level of indebtedness and other liabilities could have important consequences, including:
• | Increasing our vulnerability to general economic and industry conditions, including exacerbating the impact of any adverse business effects that are determined to be material adverse events under our existing senior credit agreement (the "New Credit Agreement") or our indentures (the "Indentures") governing our €300 million in aggregate principal amount of 3.250% senior unsecured notes due 2019, $400 million in aggregate principal amount of 5.875% senior unsecured notes due 2021, $500 million in aggregate principal amount of 4.625% senior unsecured notes due 2022 and €750 million in aggregate principal amount of 1.125% senior unsecured notes due 2023 (collectively, the "Senior Notes"); |
• | Requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on indebtedness and amounts payable in connection with the satisfaction of our other liabilities, therefore reducing our ability to use our cash flow to fund operations, capital expenditures and future business opportunities or pay dividends on our Common Stock; |
• | Exposing us to the risk of increased interest rates as certain of our borrowings are at variable rates of interest; |
• | Exposing us to the risk of changes in currency exchange rates as certain of our borrowings are denominated in foreign currencies; |
• | Limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions and general corporate or other purposes; |
• | Limiting our ability to enter into certain commercial arrangements because of concerns of counterparty risks; and |
• | Limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who have less debt. |
We may incur additional indebtedness in the future, which could increase the risks described above.
Although covenants under the New Credit Agreement and the Indentures limit our ability to incur certain additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the indebtedness we could incur in compliance with these restrictions could be significant. To the extent that we incur additional indebtedness, the risks associated with our debt described above, including our possible inability to service our debt, including the Senior Notes, would increase.
Our variable rate and euro denominated indebtedness subjects us to interest rate risk and foreign currency exchange rate risk, which could cause our debt service obligations to increase significantly and affect our operating results.
Certain of our borrowings are at variable rates of interest or are euro denominated, which exposes us to interest rate risk and currency exchange rate risk, respectively. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources, Item 7A. Quantitative and Qualitative Disclosures About Market Risk below and Note 22 - Derivative Financial Instruments in the accompanying consolidated financial statements for further information.
We may not be able to generate sufficient cash to service our indebtedness and may be forced to take other actions to satisfy obligations under our indebtedness, which may not be successful.
Our ability to make scheduled payments on or to refinance our debt obligations depends on the financial condition and operating performance of our subsidiaries, which are subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. We may not be able to consummate those dispositions or to obtain the proceeds that we could realize from them, and these proceeds may not be adequate to meet any debt service obligations then due.
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Restrictive covenants in our debt agreements may limit our ability to engage in certain transactions and may diminish our ability to make payments on our indebtedness or pay dividends.
The New Credit Agreement, the Indentures and the Receivables Purchase Agreement (the "Purchase Agreement") governing our receivables securitization facility each contain various covenants that limit our ability to engage in specified types of transactions. The New Credit Agreement contains covenants including, but not limited to, restrictions on our ability to incur additional debt; incur liens securing debt; enter into sale-leaseback transactions; merge or consolidate with any other person; and sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the Issuer's assets or the assets of its subsidiaries.
In addition, the Indentures limit Celanese US Holdings LLC ("Celanese US") and certain of its subsidiaries' ability to, among other things, incur liens securing debt; enter into sale-leaseback transactions; merge or consolidate with any other person; and sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of Celanese US's assets or the assets of its restricted subsidiaries.
The Purchase Agreement also contains covenants including, but not limited to, restrictions on CE Receivables LLC, a wholly-owned, "bankruptcy remote" special purpose subsidiary of the Company, and certain other Company subsidiaries' ability to incur indebtedness; grant liens on assets; merge, consolidate, or sell certain assets; prepay or modify certain indebtedness; and engage in other businesses.
Such restrictions in our debt obligations could result in us having to obtain the consent of our lenders and holders of the Senior Notes in order to take certain actions. Disruptions in credit markets may prevent us from obtaining or make it more difficult or more costly for us to obtain such consents. Our ability to expand our business or to address declines in our business may be limited if we are unable to obtain such consents.
A breach of any of these covenants could result in a default, which, if not cured or waived, could have a material adverse effect on our business, financial condition and results of operations. Furthermore, a default under the New Credit Agreement could permit lenders to accelerate the maturity of our indebtedness under the New Credit Agreement and to terminate any commitments to lend. If the lenders under the New Credit Agreement accelerate the repayment of such indebtedness, we may not have sufficient liquidity to repay such amounts or our other indebtedness, including the Senior Notes. In such event, we could be forced into bankruptcy or liquidation.
Celanese and Celanese US are holding companies and depend on subsidiaries to satisfy their obligations under the Senior Notes and the guarantee of Celanese US's obligations under the Senior Notes and the New Credit Agreement by Celanese.
As holding companies, Celanese and Celanese US conduct substantially all of their operations through their subsidiaries, which own substantially all of our consolidated assets. Consequently, the principal source of cash to pay Celanese and Celanese US's obligations, including obligations under the Senior Notes and the guarantee of Celanese US's obligations under the New Credit Agreement and the Indentures by Celanese, is the cash that our subsidiaries generate from their operations. We cannot assure that our subsidiaries will be able to, or be permitted to, make distributions to enable Celanese US and/or Celanese to make payments in respect of their obligations. Each of our subsidiaries is a distinct legal entity and, under certain circumstances, applicable country or state laws, regulatory limitations and terms of our debt instruments may limit our subsidiaries' ability to distribute cash to Celanese US and Celanese. While the New Credit Agreement and the Indentures limit the ability of our subsidiaries to put restrictions on paying dividends or making other intercompany payments to us, these limitations are subject to certain qualifications and exceptions, which may have the effect of significantly restricting the applicability of those limits. In the event Celanese US and/or Celanese do not receive distributions from our subsidiaries, Celanese US and/or Celanese may be unable to make required payments on the indebtedness under the New Credit Agreement, the Indentures, the guarantee of Celanese US's obligations under the New Credit Agreement and the Indentures by Celanese, or our other indebtedness.
Item 1B. Unresolved Staff Comments
None.
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Item 2. Properties
Description of Property
We and our affiliates own or lease numerous production and manufacturing facilities throughout the world. We also own or lease other properties, including office buildings, warehouses, pipelines, research and development facilities and sales offices. We continuously review and evaluate our facilities as a part of our strategy to optimize our business portfolio. The following table sets forth a list of our principal offices, production and other facilities throughout the world as of December 31, 2016.
Site | Leased/Owned | Products/Functions | ||
Corporate Offices | ||||
Amsterdam, Netherlands | Leased | Administrative offices | ||
Budapest, Hungary | Leased | Administrative offices | ||
Irving, Texas, US | Leased | Corporate headquarters | ||
Nanjing, China | Leased | Administrative offices | ||
Shanghai, China | Leased | Administrative offices | ||
Sulzbach, Germany | Leased | Administrative offices | ||
Advanced Engineered Materials | ||||
Auburn Hills, Michigan, US | Leased | Automotive Development Center | ||
Bishop, Texas, US | Owned | Polyoxymethylene ("POM"), Ultra-high molecular weight polyethylene ("UHMW-PE"), Compounding | ||
Calhoun, Georgia, US | Owned | Polypropylene recycling | ||
Campo Bom, Brazil | Leased | Compounding | ||
Ferrara, Italy | Leased | Compounding | ||
Florence, Kentucky, US | Owned | Compounding | ||
Forli, Italy | Leased | Compounding | ||
Frankfurt am Main, Germany(1) | Owned by InfraServ GmbH & Co. Hoechst KG(5) | POM, Compounding | ||
Fuji City, Japan | Owned by Polyplastics Co., Ltd.(5) | POM, Polybutylene terephthalate, Liquid crystal polymers ("LCP"), Compounding | ||
Jubail, Saudi Arabia | Owned by National Methanol Company(5) | Methyl tertiary-butyl ether, Methanol | ||
Kaiserslautern, Germany(1) | Leased | Long-fiber reinforced thermoplastics ("LFRT") | ||
Kuantan, Malaysia | Owned by Polyplastics Co., Ltd.(5) | POM, Compounding | ||
Lebanon, Tennessee, US | Owned | Compounding | ||
Mantova, Italy | Leased | Compounding | ||
Nanjing, China(2) | Owned | LFRT, UHMW-PE, Compounding | ||
Oberhausen, Germany(1) | Leased | UHMW-PE | ||
Shelby, North Carolina, US | Owned | LCP, Compounding | ||
Silao, Mexico | Leased | Compounding | ||
Suzano, Brazil(1) | Leased | Compounding | ||
Ulsan, South Korea | Owned by Korea Engineering Plastics Co., Ltd.(5) | POM | ||
Wilmington, North Carolina, US | Owned by Fortron Industries LLC(5) | Polyphenylene sulfide | ||
Winona, Minnesota, US | Owned | LFRT | ||
Consumer Specialties | ||||
Frankfurt am Main, Germany(3) | Owned by InfraServ GmbH & Co. Hoechst KG(5) | Sorbates, Sunett® sweetener, Qorus® sweetener system | ||
Kunming, China | Leased by Kunming Cellulose Fibers Co. Ltd.(6) | Acetate tow | ||
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Site | Leased/Owned | Products/Functions | ||
Consumer Specialties | ||||
Lanaken, Belgium | Owned | Acetate tow | ||
Nantong, China | Owned by Nantong Cellulose Fibers Co. Ltd.(7) | Acetate tow, Acetate flake | ||
Narrows, Virginia, US | Owned | Acetate tow, Acetate flake | ||
Ocotlán, Mexico | Owned | Acetate tow, Acetate flake | ||
Spondon, Derby, United Kingdom | Owned | Acetate film | ||
Zhuhai, China | Leased by Zhuhai Cellulose Fibers Co. Ltd.(8) | Acetate tow | ||
Industrial Specialties | ||||
Boucherville, Quebec, Canada | Owned | Conventional emulsions | ||
Edmonton, Alberta, Canada | Owned | Low-density polyethylene resins, Ethylene vinyl acetate | ||
Enoree, South Carolina, US | Owned | Conventional emulsions, Vinyl acetate ethylene ("VAE") emulsions | ||
Frankfurt am Main, Germany(3) | Owned by InfraServ GmbH & Co. Hoechst KG(5) | Conventional emulsions, VAE emulsions | ||
Geleen, Netherlands | Owned | VAE emulsions | ||
Nanjing, China(2) | Owned | Conventional emulsions, VAE emulsions | ||
Perstorp, Sweden | Owned | Conventional emulsions, VAE emulsions | ||
Jurong Island, Singapore(1) | Leased | VAE emulsions | ||
Acetyl Intermediates | ||||
Bay City, Texas, US(1) | Leased | Vinyl acetate monomer ("VAM") | ||
Bishop, Texas, US | Owned | Formaldehyde | ||
Cangrejera, Mexico | Owned | Acetic anhydride, Ethyl acetate | ||
Clear Lake, Texas, US(4) | Owned | Acetic acid, VAM, Methanol | ||
Frankfurt am Main, Germany(3) | Owned by InfraServ GmbH & Co. Hoechst KG(5) | Acetaldehyde, VAM, Butyl acetate | ||
Jurong Island, Singapore(1) | Leased | Acetic acid, Butyl acetate, Ethyl acetate, VAM | ||
Nanjing, China(2) | Owned | Acetic acid, Acetic anhydride, VAM, Ethanol | ||
(1) | Celanese owns the assets on this site and leases the land through the terms of a long-term land lease. |
(2) | Multiple Celanese business segments conduct operations at the Nanjing facility. Celanese owns the assets on this site. Celanese also owns the land through "land use right grants" for 46 to 50 years with the right to transfer, mortgage or lease such land during the term of the respective land use right grant. |
(3) | Multiple Celanese business segments conduct operations at the Frankfurt Hoechst Industrial Park located in Frankfurt am Main, Germany. |
(4) | Methanol is produced by our joint venture, Fairway Methanol LLC, in which Celanese owns a 50% interest. |
(5) | A Celanese equity method investment. |
(6) | A Celanese cost method investment. Kunming Cellulose Fibers Co. Ltd. owns the assets on this site and leases the land from China National Tobacco Corporation. |
(7) | A Celanese cost method investment. Nantong Cellulose Fibers Co. Ltd. owns the assets on this site and the land through "land use right grants" with the right to transfer, mortgage or lease such land during the term of the respective land use right grant. |
(8) | A Celanese cost method investment. Zhuhai Cellulose Fibers Co. Ltd. owns the assets on this site and leases the land from China National Tobacco Corporation. |
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Item 3. Legal Proceedings
See Note 16 - Environmental and Note 24 - Commitments and Contingencies in the accompanying consolidated financial statements for a discussion of environmental matters and commitments and contingencies related to legal and regulatory proceedings.
Item 4. Mine Safety Disclosures
None.
Executive Officers of the Registrant
The names, ages and biographies of our executive officers as of February 10, 2017 are as follows:
Name | Age | Position | |||
Mark C. Rohr | 65 | Chairman of the Board of Directors and Chief Executive Officer, President | |||
Patrick D. Quarles | 49 | Executive Vice President and President, Acetyl Chain and Integrated Supply Chain | |||
Scott M. Sutton | 52 | Executive Vice President and President, Materials Solutions | |||
Peter G. Edwards | 55 | Executive Vice President and General Counsel | |||
Christopher W. Jensen | 50 | Senior Vice President, Finance and Chief Financial Officer | |||
Kevin S. Oliver | 45 | Chief Accounting Officer and Controller | |||
Mark C. Rohr was named our Chairman of the Board of Directors, President and Chief Executive Officer in April 2012 after being a member of our Board of Directors since April 2007. Prior to joining the Company, Mr. Rohr was Executive Chairman and director of Albemarle Corporation, a global developer, manufacturer and marketer of highly-engineered specialty chemicals. During his 11 years with Albemarle, he held various executive positions, including Chairman and Chief Executive Officer. Earlier in his career, Mr. Rohr held executive leadership roles with various companies, including Occidental Chemical Corporation and The Dow Chemical Company. Mr. Rohr has served on the board of directors of Ashland Global Holdings Inc. (f/k/a Ashland Inc.) since 2008, and currently serves as a member of its audit committee and its environmental, health & safety committee. In 2016, he also served as Chairman of the American Chemistry Council's Executive Committee and as Chairman of the International Association of Chemical Associations. Mr. Rohr received a bachelor's degree in chemistry and chemical engineering from Mississippi State University.
Patrick D. Quarles has served as our Executive Vice President and President, Acetyl Chain and Integrated Supply Chain since June 2015. Prior to joining the Company, Mr. Quarles held a variety of leadership positions at LyondellBasell Industries N.V. before serving as Executive Vice President of the Intermediates and Derivatives (I&D) segment and the supply chain and procurement functions from January 2015 to June 2015, including serving as a member of LyondellBasell's Management Board from April 2014 to June 2015, Senior Vice President - I&D from 2009 to April 2014 and Vice President of Performance Chemicals from 2004 to 2009. Mr. Quarles began his career in 1990 at ARCO Chemical/Union Carbide where he held various positions in sales, marketing and business management. Mr. Quarles earned a bachelor of science degree in mechanical engineering from Clemson University and a master of management degree from The Kellogg School of Management at Northwestern University.
Scott M. Sutton has served as our Executive Vice President and President, Materials Solutions since June 2015. From January 2015 to June 2015, Mr. Sutton served as our Vice President and General Manager of the Engineered Materials business. Prior to January 2015, Mr. Sutton served as our Vice President of Supply Chain from March 2014 to January 2015 and as our Vice President of Acetic Acid and Anhydride from August 2013 to March 2014. Mr. Sutton had 28 years of industry experience prior to joining the Company, including serving as President and General Manager of Chemtura Corporation's AgroSolutions business, business manager for Landmark Structures and Vice President of a division of Albemarle Corporation. Mr. Sutton earned a civil engineering degree from Louisiana State University and is a registered professional engineer in Texas.
Peter G. Edwards has served as our Executive Vice President and General Counsel since January 23, 2017. Mr. Edwards previously was Executive Vice President and General Counsel of Baxalta Incorporated, the biopharmaceutical spin-off from Baxter, from June 2015 until its merger with Shire plc in July 2016. Before that, he was Senior Vice President and General Counsel of the global specialty pharmaceuticals company Mallinckrodt plc from June 2013 to June 2015, and served as its Vice President and General Counsel from May 2010 to its spin-off from Covidien plc in June 2013. He previously served as Executive Vice President and General Counsel for Solvay Pharmaceuticals in Brussels, Belgium from June 2007 until April 2010 and as its Senior Vice President and General Counsel in the US from October 2005 to June 2007. Before that, he held in-
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house positions of increasing responsibility within Mettler-Toledeo, Inc. and Eli Lilly and Company. Mr. Edwards began his career in 1990 as an associate in the Kansas City, Missouri office of Shook, Hardy & Bacon L.L.P. Mr. Edwards received his J.D., cum laude, from Brigham Young University.
Christopher W. Jensen has served as our Chief Financial Officer since July 2015 and as our Senior Vice President, Finance since April 2011. He served as our Interim Chief Financial Officer from May 2014 to July 2015. From August 2010 to April 2011, Mr. Jensen served as our Senior Vice President, Finance and Treasurer. Prior to August 2010, Mr. Jensen served as our Vice President and Corporate Controller from March 2009 to July 2010. From May 2008 to February 2009, he served as Vice President of Finance and Treasurer. In his current capacity, Mr. Jensen has global responsibility for corporate finance, treasury operations, insurance risk management, pensions, global business services, information technology, corporate accounting, tax and general ledger accounting. Mr. Jensen was previously the Assistant Corporate Controller from March 2007 through April 2008, where he was responsible for SEC reporting, internal reporting, and technical accounting. In his initial role at the Company from October 2005 through March 2007, he built and directed our technical accounting function. From August 2004 to October 2005, Mr. Jensen worked in the inspections and registration division of the Public Company Accounting Oversight Board. He spent 13 years of his career at PricewaterhouseCoopers LLP, an assurance, tax and advisory services firm, in various positions in both the auditing and mergers & acquisitions groups. Mr. Jensen earned bachelor's and master's degrees in accounting from Brigham Young University and is a Certified Public Accountant.
Kevin S. Oliver has served as our Chief Accounting Officer since July 2016 and as our Controller since July 2010. Prior to his current roles, Mr. Oliver held various executive positions at the Company, including serving as our Assistant Controller and our Director of Technical Accounting. Prior to joining the Company, Mr. Oliver served as an Associate Director of Inspections for the Public Company Accounting Oversight Board from December 2003 to February 2008. He spent 11 years of his career at public accounting firms, including as senior manager at Ernst & Young and Arthur Andersen, each an assurance, tax and advisory services firm, and in various positions in the auditing practice. Mr. Oliver holds a bachelor's degree in accounting from Southern Nazarene University and is a Certified Public Accountant.
PART II
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our Series A common stock, par value $0.0001 per share ("Common Stock") has traded on the New York Stock Exchange ("NYSE") under the symbol "CE" since January 21, 2005. The closing sale price of our Common Stock, as reported by the NYSE, on February 6, 2017 was $88.05. The following table sets forth the high and low intraday sales prices per share of our Common Stock, as reported by the NYSE, and the dividends declared per share on our Common Stock for the periods indicated.
Price Range | Dividends Declared | |||||||
High | Low | |||||||
(In $ per share) | ||||||||
2016 | ||||||||
Quarter ended March 31, 2016 | 67.99 | 55.07 | 0.30 | |||||
Quarter ended June 30, 2016 | 74.55 | 61.11 | 0.36 | |||||
Quarter ended September 30, 2016 | 71.18 | 60.59 | 0.36 | |||||
Quarter ended December 31, 2016 | 84.97 | 63.02 | 0.36 | |||||
2015 | ||||||||
Quarter ended March 31, 2015 | 60.61 | 52.56 | 0.25 | |||||
Quarter ended June 30, 2015 | 73.13 | 54.99 | 0.30 | |||||
Quarter ended September 30, 2015 | 74.19 | 54.35 | 0.30 | |||||
Quarter ended December 31, 2015 | 72.95 | 58.56 | 0.30 | |||||
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Holders
No shares of Celanese's Series B common stock and no shares of Celanese's 4.25% convertible perpetual preferred stock are issued and outstanding. As of February 6, 2017, there were 28 holders of record of our Common Stock. By including persons holding shares in broker accounts under street names, however, we estimate we have approximately 83,632 beneficial holders.
Dividend Policy
Our Board of Directors has a policy of declaring, subject to legally available funds, a quarterly cash dividend on each share of our Common Stock as determined in its sole discretion. Our Board of Directors may, at any time, modify or revoke our dividend policy on our Common Stock.
On February 9, 2017, we declared a cash dividend of $0.36 per share on our Common Stock amounting to $51 million. The cash dividend was for the period from November 1, 2016 to January 31, 2017 and will be paid on March 3, 2017 to holders of record as of February 21, 2017.
The amount available to us to pay cash dividends is not currently restricted by our existing senior credit facility and our indentures governing our senior unsecured notes. See Note 14 - Debt in the accompanying consolidated financial statements for further information. Any decision to declare and pay dividends in the future will be made at the discretion of our Board of Directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions and other factors that our Board of Directors may deem relevant.
Celanese Purchases of its Equity Securities
Information regarding repurchases of our Common Stock during the three months ended December 31, 2016 is as follows:
___________________________
Period | Total Number of Shares Purchased(1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Program | Approximate Dollar Value of Shares Remaining that may be Purchased Under the Program(2) | ||||||||||
October 1 - 31, 2016 | 794,085 | $ | 71.68 | 792,931 | $ | 674,000,000 | ||||||||
November 1 - 30, 2016 | 1,881,163 | $ | 76.11 | 1,880,872 | $ | 531,000,000 | ||||||||
December 1 - 31, 2016 | — | $ | — | — | $ | 531,000,000 | ||||||||
Total | 2,675,248 | 2,673,803 | ||||||||||||
(1) | Includes 1,154 and 291 for October and November 2016, respectively, related to shares withheld from employees to cover their statutory minimum withholding requirements for personal income taxes related to the vesting of restricted stock units. |
(2) | Our Board of Directors has authorized the aggregate repurchase of $2.4 billion of our Common Stock since February 2008. |
See Note 17 - Stockholders' Equity in the accompanying consolidated financial statements for further information.
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Performance Graph
The following performance graph compares the cumulative total return on Celanese Corporation common stock from December 31, 2011 through December 31, 2016 to that of the Standard & Poor's ("S&P") 500 Stock Index and the Dow Jones US Chemicals Index. Cumulative total return represents the change in stock price and the amount of dividends received during the indicated period, assuming reinvestment of all dividends. The performance graph assumes an investment of $100 on December 31, 2011. The stock performance shown in the graph is included in response to SEC requirements and is not intended to forecast or to be indicative of future performance.
Comparison of Cumulative Total Return
The above performance graph and related information shall not be deemed "soliciting material" or to be "filed" with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.
Recent Sales of Unregistered Securities
Our deferred compensation plan offers certain of our senior employees and directors the opportunity to defer a portion of their compensation in exchange for a future payment amount equal to their deferments plus or minus certain amounts based upon the market-performance of specified measurement funds selected by the participant. These deferred compensation obligations may be considered securities of Celanese. Participants were required to make deferral elections under the plan prior to January 1 of the year such deferrals will be withheld from their compensation. We relied on the exemption from registration provided by Section 4(2) of the Securities Act in making this offer to a select group of employees, fewer than 35 of which were non-accredited investors under the rules promulgated by the Securities and Exchange Commission.
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Item 6. Selected Financial Data
The balance sheet data as of December 31, 2016 and 2015 and the statements of operations data for the years ended December 31, 2016, 2015 and 2014, all of which are set forth below, are derived from the consolidated financial statements included elsewhere in this Annual Report and should be read in conjunction with those financial statements and the notes thereto. The balance sheet data as of December 31, 2014, 2013 and 2012 and the statement of operations data for the years ended December 31, 2013 and 2012 set forth below were derived from previously issued financial statements, adjusted for a change in accounting policy for defined benefit pension plans and other postretirement benefit plans and a change in accounting policy for debt issuance costs.
Year Ended December 31, | ||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||
(In $ millions, except per share data) | ||||||||||||||
Statement of Operations Data | ||||||||||||||
Net sales | 5,389 | 5,674 | 6,802 | 6,510 | 6,418 | |||||||||
Other (charges) gains, net | (11 | ) | (351 | ) | 15 | (158 | ) | (14 | ) | |||||
Operating profit (loss) | 893 | 326 | 758 | 1,508 | 175 | |||||||||
Earnings (loss) from continuing operations before tax | 1,030 | 488 | 941 | 1,609 | 321 | |||||||||
Earnings (loss) from continuing operations | 908 | 287 | 627 | 1,101 | 376 | |||||||||
Earnings (loss) from discontinued operations | (2 | ) | (2 | ) | (7 | ) | — | (4 | ) | |||||
Net earnings (loss) attributable to Celanese Corporation | 900 | 304 | 624 | 1,101 | 372 | |||||||||
Earnings (loss) per common share | ||||||||||||||
Continuing operations — basic | 6.22 | 2.03 | 4.07 | 6.93 | 2.37 | |||||||||
Continuing operations — diluted | 6.19 | 2.01 | 4.04 | 6.91 | 2.35 | |||||||||
Balance Sheet Data (as of the end of period) | ||||||||||||||
Total assets | 8,357 | 8,586 | 8,796 | 8,994 | 8,973 | |||||||||
Total debt | 3,008 | 2,981 | 2,723 | 3,040 | 3,071 | |||||||||
Total Celanese Corporation stockholders' equity | 2,588 | 2,378 | 2,818 | 2,699 | 1,730 | |||||||||
Other Financial Data | ||||||||||||||
Depreciation and amortization | 290 | 357 | 292 | 305 | 308 | |||||||||
Capital expenditures(1) | 247 | 483 | 681 | 408 | 339 | |||||||||
Dividends paid per common share(2) | 1.38 | 1.15 | 0.93 | 0.53 | 0.27 | |||||||||
________________________
(1) | Amounts include accrued capital expenditures. Amounts do not include capital expenditures related to capital lease obligations. |
(2) | Annual dividends for the year ended December 31, 2016 consist of one quarterly dividend payment of $0.30 per share and three quarterly dividend payments of $0.36 per share. Annual dividends for the year ended December 31, 2015 consist of one quarterly dividend payment of $0.25 per share and three quarterly dividend payments of $0.30 per share. See Note 17 - Stockholders' Equity in the accompanying consolidated financial statements for further information. |
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
In this Annual Report on Form 10-K ("Annual Report"), the term "Celanese" refers to Celanese Corporation, a Delaware corporation, and not its subsidiaries. The terms the "Company," "we," "our" and "us," refer to Celanese and its subsidiaries on a consolidated basis. The term "Celanese US" refers to the Company's subsidiary, Celanese US Holdings LLC, a Delaware limited liability company, and not its subsidiaries.
The following discussion should be read in conjunction with the accompanying consolidated financial statements and notes to the consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP").
Investors are cautioned that the forward-looking statements contained in this section and other parts of this Annual Report involve both risk and uncertainty. Several important factors could cause actual results to differ materially from those anticipated by these statements. Many of these statements are macroeconomic in nature and are, therefore, beyond the control of management. See "Forward-Looking Statements" below.
Forward-Looking Statements
Management's Discussion and Analysis of Financial Condition and Results of Operations and other parts of this Annual Report contain certain forward-looking statements and information relating to us that are based on the beliefs of our management as well as assumptions made by, and information currently available to, us. Generally, words such as "believe," "expect," "intend," "estimate," "anticipate," "project," "plan," "may," "can," "could," "might," "will" and similar expressions, as they relate to us are intended to identify forward-looking statements. These statements reflect our current views 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. See "Special Note Regarding Forward-Looking Statements" at the beginning of this Annual Report for further discussion.
Item 1A. Risk Factors of this Annual Report also contains a description of certain risk factors that you should consider which could significantly affect our financial results. In addition, the following factors could cause our actual results to differ materially from those results, performance or achievements that may be expressed or implied by such forward-looking statements. These factors include, among other things:
• | changes in general economic, business, political and regulatory conditions in the countries or regions in which we operate; |
• | the length and depth of product and industry business cycles particularly in the automotive, electrical, textiles, electronics and construction industries; |
• | changes in the price and availability of raw materials, particularly changes in the demand for, supply of, and market prices of ethylene, methanol, natural gas, wood pulp and fuel oil and the prices for electricity and other energy sources; |
• | the ability to pass increases in raw material prices on to customers or otherwise improve margins through price increases; |
• | the ability to maintain plant utilization rates and to implement planned capacity additions and expansions; |
• | the ability to reduce or maintain current levels of production costs and to improve productivity by implementing technological improvements to existing plants; |
• | increased price competition and the introduction of competing products by other companies; |
• | market acceptance of our technology; |
• | the ability to obtain governmental approvals and to construct facilities on terms and schedules acceptable to us; |
• | changes in the degree of intellectual property and other legal protection afforded to our products or technologies, or the theft of such intellectual property; |
• | compliance and other costs and potential disruption or interruption of production or operations due to accidents, interruptions in sources of raw materials, cyber security incidents, terrorism or political unrest, or other unforeseen events or delays in construction or operation of facilities, including as a result of geopolitical conditions, the occurrence of acts of war or terrorist incidents or as a result of weather or natural disasters; |
34
• | potential liability for remedial actions and increased costs under existing or future environmental regulations, including those relating to climate change; |
• | potential liability resulting from pending or future litigation, or from changes in the laws, regulations or policies of governments or other governmental activities in the countries in which we operate; |
• | changes in currency exchange rates and interest rates; |
• | our level of indebtedness, which could diminish our ability to raise additional capital to fund operations or limit our ability to react to changes in the economy or the chemicals industry; and |
• | various other factors, both referenced and not referenced in this Annual Report. |
Many of these factors are macroeconomic in nature and are, therefore, beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from those described in this Annual 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.
35
Results of Operations
Financial Highlights
_____________________________
Year Ended December 31, | Year Ended December 31, | ||||||||||||||||
2016 | 2015 | Change | 2015 | 2014 | Change | ||||||||||||
(In $ millions, except percentages) | |||||||||||||||||
Statement of Operations Data | |||||||||||||||||
Net sales | 5,389 | 5,674 | (285 | ) | 5,674 | 6,802 | (1,128 | ) | |||||||||
Gross profit | 1,405 | 1,318 | 87 | 1,318 | 1,616 | (298 | ) | ||||||||||
Selling, general and administrative ("SG&A") expenses | (416 | ) | (506 | ) | 90 | (506 | ) | (758 | ) | 252 | |||||||
Other (charges) gains, net | (11 | ) | (351 | ) | 340 | (351 | ) | 15 | (366 | ) | |||||||
Operating profit (loss) | 893 | 326 | 567 | 326 | 758 | (432 | ) | ||||||||||
Equity in net earnings (loss) of affiliates | 155 | 181 | (26 | ) | 181 | 246 | (65 | ) | |||||||||
Interest expense | (120 | ) | (119 | ) | (1 | ) | (119 | ) | (147 | ) | 28 | ||||||
Refinancing expense | (6 | ) | — | (6 | ) | — | (29 | ) | 29 | ||||||||
Dividend income - cost investments | 108 | 107 | 1 | 107 | 116 | (9 | ) | ||||||||||
Earnings (loss) from continuing operations before tax | 1,030 | 488 | 542 | 488 | 941 | (453 | ) | ||||||||||
Earnings (loss) from continuing operations | 908 | 287 | 621 | 287 | 627 | (340 | ) | ||||||||||
Earnings (loss) from discontinued operations | (2 | ) | (2 | ) | — | (2 | ) | (7 | ) | 5 | |||||||
Net earnings (loss) | 906 | 285 | 621 | 285 | 620 | (335 | ) | ||||||||||
Net earnings (loss) attributable to Celanese Corporation | 900 | 304 | 596 | 304 | 624 | (320 | ) | ||||||||||
Other Data | |||||||||||||||||
Depreciation and amortization | 290 | 357 | (67 | ) | 357 | 292 | 65 | ||||||||||
SG&A expenses as a percentage of Net sales | 7.7 | % | 8.9 | % | 8.9 | % | 11.1 | % | |||||||||
Operating margin(1) | 16.6 | % | 5.7 | % | 5.7 | % | 11.1 | % | |||||||||
Other (charges) gains, net | |||||||||||||||||
Employee termination benefits | (11 | ) | (53 | ) | 42 | (53 | ) | (7 | ) | (46 | ) | ||||||
Asset impairments | (2 | ) | (126 | ) | 124 | (126 | ) | — | (126 | ) | |||||||
Other plant/office closures | — | — | — | — | 2 | (2 | ) | ||||||||||
Singapore contract termination | — | (174 | ) | 174 | (174 | ) | — | (174 | ) | ||||||||
Commercial disputes | 2 | 2 | — | 2 | 11 | (9 | ) | ||||||||||
Other | — | — | — | — | 9 | (9 | ) | ||||||||||
Total Other (charges) gains, net | (11 | ) | (351 | ) | 340 | (351 | ) | 15 | (366 | ) | |||||||
(1) | Defined as Operating profit (loss) divided by Net sales. |
As of December 31, | |||||
2016 | 2015 | ||||
(In $ millions) | |||||
Balance Sheet Data | |||||
Cash and cash equivalents | 638 | 967 | |||
Short-term borrowings and current installments of long-term debt - third party and affiliates | 118 | 513 | |||
Long-term debt, net of unamortized deferred financing costs | 2,890 | 2,468 | |||
Total debt | 3,008 | 2,981 | |||
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Factors Affecting Business Segment Net Sales
The percentage increase (decrease) in net sales attributable to each of the factors indicated for each of our business segments is as follows:
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Volume | Price | Currency | Other | Total | |||||||||
(In percentages) | |||||||||||||
Advanced Engineered Materials | 11 | (2 | ) | — | — | 9 | |||||||
Consumer Specialties | 4 | (8 | ) | — | — | (4 | ) | ||||||
Industrial Specialties | (1 | ) | (8 | ) | (1 | ) | — | (10 | ) | ||||
Acetyl Intermediates | (2 | ) | (10 | ) | (1 | ) | 2 | (11 | ) | ||||
Total Company | 2 | (8 | ) | (1 | ) | 2 | (5 | ) | |||||
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
Volume | Price | Currency | Other | Total | |||||||||
(In percentages) | |||||||||||||
Advanced Engineered Materials | (1 | ) | (1 | ) | (7 | ) | — | (9 | ) | ||||
Consumer Specialties | (13 | ) | (3 | ) | (1 | ) | — | (17 | ) | ||||
Industrial Specialties | — | (4 | ) | (8 | ) | — | (12 | ) | |||||
Acetyl Intermediates | (3 | ) | (13 | ) | (6 | ) | — | (22 | ) | ||||
Total Company | (4 | ) | (8 | ) | (6 | ) | 1 | (17 | ) | ||||
Pension and Postretirement Benefit Plan Costs
The increase (decrease) in pension and other postretirement plan net periodic benefit cost for each of our business segments is as follows:
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
______________________________
Advanced Engineered Materials | Consumer Specialties | Industrial Specialties | Acetyl Intermediates | Other Activities | Total | ||||||||||||
(In $ millions) | |||||||||||||||||
Service cost | — | (1 | ) | (3 | ) | — | (1 | ) | (5 | ) | |||||||
Interest cost and expected return on plan assets | — | — | — | — | 5 | 5 | |||||||||||
Amortization of prior service credit | — | — | (3 | ) | — | — | (3 | ) | |||||||||
Special termination benefit | 1 | — | — | — | — | 1 | |||||||||||
Recognized actuarial (gain) loss(1) | — | — | — | — | (24 | ) | (24 | ) | |||||||||
Curtailment / settlement (gain) loss | — | — | 3 | — | — | 3 | |||||||||||
Total | 1 | (1 | ) | (3 | ) | — | (20 | ) | (23 | ) | |||||||
(1) | The decrease in recognized actuarial loss primarily relates to higher asset returns and a gain of $48 million reflecting the incorporation of the RP-2016 mortality tables into the actuarial assumptions for the US pension plans as of December 31, 2016, partially offset by a decrease in the weighted average discount rate used to determine benefit obligations from 4.0% to 3.7%. |
37
Advanced Engineered Materials | Consumer Specialties | Industrial Specialties | Acetyl Intermediates | Other Activities | Total | ||||||||||||
(In $ millions) | |||||||||||||||||
Cost of sales | — | (1 | ) | 1 | — | (3 | ) | (3 | ) | ||||||||
SG&A expenses | — | — | (4 | ) | — | (17 | ) | (21 | ) | ||||||||
Research and development expenses | — | — | — | — | (1 | ) | (1 | ) | |||||||||
Other charges (gains), net | 1 | — | — | — | 1 | 2 | |||||||||||
Total | 1 | (1 | ) | (3 | ) | — | (20 | ) | (23 | ) | |||||||
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
______________________________
Advanced Engineered Materials | Consumer Specialties | Industrial Specialties | Acetyl Intermediates | Other Activities | Total | ||||||||||||
(In $ millions) | |||||||||||||||||
Service cost | (1 | ) | — | 1 | — | 1 | 1 | ||||||||||
Interest cost and expected return on plan assets | — | — | — | — | (25 | ) | (25 | ) | |||||||||
Amortization of prior service credit(1) | 29 | 16 | 8 | 16 | 14 | 83 | |||||||||||
Special termination benefit | — | — | 1 | — | 1 | 2 | |||||||||||
Recognized actuarial (gain) loss(2) | — | — | — | — | (223 | ) | (223 | ) | |||||||||
Curtailment / settlement (gain) loss(3) | 26 | 16 | 3 | 16 | 14 | 75 | |||||||||||
Total | 54 | 32 | 13 | 32 | (218 | ) | (87 | ) | |||||||||
(1) | Primarily relates to the elimination of eligibility for current and future employees and the elimination of benefits for certain participants under a US postretirement health care plan in 2014. |
(2) | The decrease in recognized actuarial loss primarily relates to an increase in the weighted average discount rate used to determine benefit obligations from 3.7% to 4.0% and a gain of $62 million reflecting the incorporation of the RP-2015 mortality tables into the actuarial assumptions for the US pension plans as of December 31, 2015, partially offset by lower asset returns. |
(3) | Primarily relates to actions taken in 2014 to offer a limited-time, voluntary buyout to certain participants of our US qualified defined benefit pension plan with a vested benefit. |
Advanced Engineered Materials | Consumer Specialties | Industrial Specialties | Acetyl Intermediates | Other Activities | Total | ||||||||||||
(In $ millions) | |||||||||||||||||
Cost of sales | 31 | 26 | 7 | 16 | (20 | ) | 60 | ||||||||||
SG&A expenses | 16 | 4 | 3 | 8 | (195 | ) | (164 | ) | |||||||||
Research and development expenses | 7 | 2 | 2 | 8 | (3 | ) | 16 | ||||||||||
Other charges (gains), net | — | — | 1 | — | — | 1 | |||||||||||
Total | 54 | 32 | 13 | 32 | (218 | ) | (87 | ) | |||||||||
See Note 15 - Benefit Obligations in the accompanying consolidated financial statements for further information.
38
Consolidated Results
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Net sales decreased $285 million, or 5.0%, for the year ended December 31, 2016 compared to the same period in 2015 primarily due to:
• | lower pricing, primarily for acetic acid and VAM in our Acetyl Intermediates segment and acetate tow in our Consumer Specialties segment; and |
• | lower pricing in our Industrial Specialties segment; |
partially offset by:
• | higher volume, primarily for POM, in our Advanced Engineered Materials segment; and |
• | higher acetate tow volume in our Consumer Specialties segment. |
Selling, general and administrative expenses decreased $90 million, or 17.8%, for the year ended December 31, 2016 compared to the same period in 2015 primarily due to:
• | lower functional spending and incentive compensation costs of $31 million; |
• | productivity initiatives across all of our business segments; and |
• | a decrease in pension and other postretirement plan net periodic benefit cost of $21 million. |
Operating profit increased $567 million, or 173.9%, for the year ended December 31, 2016 compared to the same period in 2015 primarily due to:
• | lower raw material costs across all of our business segments; |
• | a favorable impact from Other (charges) gains, net of $340 million. In December 2015, we terminated our existing agreement with a raw materials supplier in Singapore. In connection with the contract termination, we recorded $174 million to Other (charges) gains, net, which did not recur in the current year. We also recorded long-lived asset impairment losses of $123 million to fully write-off certain ethanol related assets at our acetyl facility in Nanjing, China during the three months ended December 31, 2015, which did not recur in the current year. See Note 18 - Other (Charges) Gains, Net in the accompanying consolidated financial statements for further information; and |
• | a decrease in SG&A expenses; |
partially offset by:
• | lower Net sales. |
Equity in net earnings (loss) of affiliates decreased $26 million for the year ended December 31, 2016 compared to the same period in 2015 primarily due to:
• | a decrease in equity in net earnings (loss) of affiliates of $50 million from our Ibn Sina strategic affiliate as a result of lower pricing for methyl tertiary-butyl ether ("MTBE") and methanol. |
Our effective income tax rate for the year ended December 31, 2016 was 12% compared to 41% for the year ended 2015. The lower effective income tax rate is primarily attributable to the release of valuation allowances in foreign jurisdictions due to internal restructuring in Canada, improved operating results in China and settlement of uncertain tax positions and technical clarifications in Germany and the US. In February 2015, we established a centralized European headquarters for the purpose of improving the operational efficiencies and profitability of our European operations and certain global product lines. These activities directly impacted our mix of earnings and product flows and resulted in net favorable tax rate impacts in the jurisdictions in which we operate.
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Our effective income tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amounts and mix of income and loss in those jurisdictions to which they relate, as well as discrete items and non-deductible expenses that may occur in any given year, but are not consistent from year to year. See Note 19 - Income Taxes in the accompanying consolidated financial statements for further information.
Assuming no material changes to tax rules and regulations or cash repatriation plans, we expect continued realization of operational savings in connection with the establishment of our centralized European headquarters, which will directly impact the mix of our earnings and may result in favorable or unfavorable income tax impacts in subsequent years. Our effective tax rate will vary based on the jurisdictions in which income is actually generated and remains subject to potential volatility from changing tax legislation in the US and other tax jurisdictions. We continue to assess our business model and its impact in various jurisdictions. On October 16, 2016, the US Department of the Treasury released final and temporary Section 385 regulations regarding corporate tax inversions and related earnings stripping. These final and temporary regulations, which are to be effective 90 days after finalization, include provisions that may be interpreted to impact otherwise common tax structures including intercompany financing and obligations. We have evaluated the tax consequences of the new regulations to our cross-border treasury management practices and intercompany financing structure and do not expect any material impact.
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
Net sales decreased $1.1 billion, or 16.6%, for the year ended December 31, 2015 compared to the same period in 2014 primarily due to:
• | unfavorable currency impacts across all our business segments resulting from a strong US dollar relative to the Euro; |
• | lower pricing and volume in our Acetyl Intermediates segment for VAM and acetic acid; and |
• | lower acetate tow volume and pricing in our Consumer Specialties segment driven by customer destocking and reduced industry utilization, respectively. |
Selling, general and administrative expenses decreased $252 million, or 33.2%, for the year ended December 31, 2015 compared to the same period in 2014 primarily due to:
• | a decrease in pension and other postretirement plan net periodic benefit cost of $164 million; |
• | cost savings of $50 million related to productivity initiatives across all of our business segments; and |
• | lower functional spending and incentive compensation costs of $41 million. |
Operating profit decreased $432 million, or 57.0%, for the year ended December 31, 2015 compared to the same period in 2014 primarily due to:
• | a decrease in Net sales; and |
• | an unfavorable impact from Other (charges) gains, net. In December 2015, we terminated our existing agreement with a raw materials supplier in Singapore. In connection with the contract termination, we recorded $174 million to Other (charges) gains, net. We also recorded long-lived asset impairment losses of $123 million to fully write-off certain ethanol related assets at our acetyl facility in Nanjing, China during the three months ended December 31, 2015; |
partially offset by:
• | a decrease in SG&A and lower raw material costs across all of our business segments. |
Operating margin for the year ended December 31, 2015 decreased to 5.7% from 11.1% in 2014.
Equity in net earnings (loss) of affiliates decreased $65 million for the year ended December 31, 2015 compared to the same period in 2014 primarily due to:
• | a $48 million gain resulting from restructuring the debt of a subsidiary of InfraServ GmbH & Co. Hoechst KG during the three months ended June 30, 2014, which did not recur in 2015. Our equity investment in InfraServ GmbH & Co. Hoechst KG is primarily owned by an entity included in our Other Activities segment, while our Consumer Specialties and Acetyl Intermediates segments also each hold an ownership percentage; and |
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• | a decrease in equity in net earnings (loss) of affiliates of $27 million from our Ibn Sina strategic affiliate as a result of lower pricing for MTBE and methanol. |
Our effective income tax rate for the year ended December 31, 2015 was 41% compared to 33% for the year ended 2014. The higher effective income tax rate for the year ended December 31, 2015 was primarily attributable to an increase in the valuation allowance due to an increase in losses in jurisdictions with no tax benefit. The increase in losses primarily relates to a $123 million long-lived asset impairment recorded to fully write-off certain ethanol related assets at our acetyl facility in Nanjing, China and a $174 million charge related to the termination of a raw materials contract with a supplier in Singapore. See Note 18 - Other (Charges) Gains, Net in the accompanying consolidated financial statements for further information. The tax impact of these events was partially offset by decreases in uncertain tax positions of $29 million due to audit closures and technical jurisdictional clarifications.
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Business Segments
Advanced Engineered Materials
Year Ended December 31, | % | Year Ended December 31, | % | ||||||||||||||||||||
2016 | 2015 | Change | Change | 2015 | 2014 | Change | Change | ||||||||||||||||
(In $ millions, except percentages) | |||||||||||||||||||||||
Net sales | 1,444 | 1,326 | 118 | 8.9 | % | 1,326 | 1,459 | (133 | ) | (9.1 | )% | ||||||||||||
Net Sales Variance | |||||||||||||||||||||||
Volume | 11 | % | (1) | % | |||||||||||||||||||
Price | (2) | % | (1) | % | |||||||||||||||||||
Currency | — | % | (7) | % | |||||||||||||||||||
Other | — | % | — | % | |||||||||||||||||||
Other (charges) gains, net | (2 | ) | (7 | ) | 5 | (71.4 | )% | (7 | ) | (1 | ) | (6 | ) | 600.0 | % | ||||||||
Operating profit (loss) | 350 | 235 | 115 | 48.9 | % | 235 | 221 | 14 | 6.3 | % | |||||||||||||
Operating margin | 24.2 | % | 17.7 | % | 17.7 | % | 15.1 | % | |||||||||||||||
Equity in net earnings (loss) of affiliates | 122 | 150 | (28 | ) | |||||||||||||||||||