FORM 10-Q
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 2007
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or
|
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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001-32410
(Commission File Number)
CELANESE CORPORATION
(Exact Name of Registrant as
Specified in its Charter)
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|
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Delaware
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|
98-0420726
|
(State or Other Jurisdiction
of
Incorporation or Organization)
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|
(I.R.S. Employer
Identification No.)
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1601 West LBJ Freeway,
Dallas, TX
(Address of Principal
Executive Offices)
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|
75234-6034
(Zip
Code)
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(972) 443-4000
(Registrants telephone
number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act.
Large Accelerated
Filer þ Accelerated
Filer o Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange Act).
Yes o No þ
The number of outstanding shares of the registrants
Series A common stock, $0.0001 par value, as of
July 25, 2007 was 149,244,751.
CELANESE
CORPORATION
Form 10-Q
For the
Quarterly Period Ended June 30, 2007
TABLE OF CONTENTS
1
CELANESE
CORPORATION AND SUBSIDIARIES
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Three Months Ended
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Six Months Ended
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June 30,
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June 30,
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June 30,
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June 30,
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2007
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2006
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2007
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2006
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(In $ millions, except for share and per share data)
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Net sales
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1,556
|
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|
1,457
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|
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|
3,111
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|
2,877
|
|
Cost of sales
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|
(1,219
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)
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|
(1,121
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)
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(2,415
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)
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(2,217
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)
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Gross profit
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337
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336
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696
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660
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Selling, general and
administrative expenses
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(122
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)
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(136
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)
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(238
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)
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|
|
(273
|
)
|
Amortization of intangible assets
(customer related)
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|
|
(17
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)
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(18
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)
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(35
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)
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(32
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)
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Research and development expenses
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|
(19
|
)
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|
(16
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)
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|
(36
|
)
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|
(33
|
)
|
Other (charges) gains, net
|
|
|
(105
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)
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|
|
(12
|
)
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|
(106
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)
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(12
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)
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Foreign exchange loss, net
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|
(1
|
)
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|
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(1
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)
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Loss on disposition of assets, net
|
|
|
(3
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)
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|
(1
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)
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(4
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)
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(1
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)
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|
|
|
|
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Operating profit
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|
71
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|
|
|
152
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|
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|
277
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|
|
|
308
|
|
Equity in net earnings of
affiliates
|
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|
23
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|
|
|
18
|
|
|
|
41
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|
|
|
36
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|
Interest expense
|
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|
(61
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)
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|
(73
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)
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|
(133
|
)
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(144
|
)
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Refinancing expenses
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|
|
(256
|
)
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(256
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)
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Interest income
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11
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|
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|
8
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25
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|
16
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|
Dividend income - cost investments
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49
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|
|
|
39
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|
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|
64
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|
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|
46
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|
Other income (expense), net
|
|
|
(5
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)
|
|
|
(10
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)
|
|
|
(15
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)
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(11
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)
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|
|
|
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|
|
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|
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|
|
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Earnings (loss) from continuing
operations before tax and minority interests
|
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(168
|
)
|
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|
134
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|
|
|
3
|
|
|
|
251
|
|
Income tax (provision) benefit
|
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|
44
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|
|
|
(38
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)
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(5
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)
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(68
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)
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|
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|
|
|
|
|
|
|
|
|
|
|
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|
Earnings (loss) from continuing
operations before minority interests
|
|
|
(124
|
)
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|
|
96
|
|
|
|
(2
|
)
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|
183
|
|
Minority interests
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|
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|
|
|
|
(1
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)
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|
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|
|
|
|
(1
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)
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|
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|
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|
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|
|
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|
|
|
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Earnings (loss) from continuing
operations
|
|
|
(124
|
)
|
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|
95
|
|
|
|
(2
|
)
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|
182
|
|
Earnings (loss) from discontinued
operations:
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|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Earnings (loss) from operation of
discontinued operations
|
|
|
(5
|
)
|
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|
11
|
|
|
|
38
|
|
|
|
56
|
|
Gain on disposal of discontinued
operations
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|
16
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|
|
|
1
|
|
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|
47
|
|
|
|
1
|
|
Income tax (provision) benefit
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
1
|
|
|
|
(19
|
)
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Earnings from discontinued
operations
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|
7
|
|
|
|
8
|
|
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|
86
|
|
|
|
38
|
|
|
|
|
|
|
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|
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|
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Net earnings (loss)
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|
(117
|
)
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|
103
|
|
|
|
84
|
|
|
|
220
|
|
Cumulative preferred stock dividend
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|
|
(3
|
)
|
|
|
(2
|
)
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|
|
(5
|
)
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|
(5
|
)
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Net earnings (loss) available to
common shareholders
|
|
|
(120
|
)
|
|
|
101
|
|
|
|
79
|
|
|
|
215
|
|
|
|
|
|
|
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|
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Earnings (loss) per common
share basic:
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|
|
|
|
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|
|
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|
|
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Continuing operations
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|
|
(0.81
|
)
|
|
|
0.59
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|
|
(0.04
|
)
|
|
|
1.12
|
|
Discontinued operations
|
|
|
0.05
|
|
|
|
0.05
|
|
|
|
0.54
|
|
|
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net earnings (loss) available to
common shareholders
|
|
|
(0.76
|
)
|
|
|
0.64
|
|
|
|
0.50
|
|
|
|
1.36
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
Earnings (loss) per common
share diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
(0.81
|
)
|
|
|
0.55
|
|
|
|
(0.04
|
)
|
|
|
1.06
|
|
Discontinued operations
|
|
|
0.05
|
|
|
|
0.05
|
|
|
|
0.54
|
|
|
|
0.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net earnings (loss) available to
common shareholders
|
|
|
(0.76
|
)
|
|
|
0.60
|
|
|
|
0.50
|
|
|
|
1.28
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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Weighted average
shares basic:
|
|
|
156,932,929
|
|
|
|
158,562,161
|
|
|
|
158,102,411
|
|
|
|
158,562,161
|
|
Weighted average
shares diluted:
|
|
|
156,932,929
|
|
|
|
172,066,546
|
|
|
|
158,102,411
|
|
|
|
171,974,477
|
|
See the accompanying notes to the unaudited interim consolidated
financial statements.
2
CELANESE
CORPORATION AND SUBSIDIARIES
|
|
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As of
|
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|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In $ millions, except share amounts)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
470
|
|
|
|
791
|
|
Restricted cash
|
|
|
|
|
|
|
46
|
|
Receivables:
|
|
|
|
|
|
|
|
|
Trade receivables third
party and affiliates, net
|
|
|
857
|
|
|
|
1,001
|
|
Other receivables
|
|
|
467
|
|
|
|
475
|
|
Inventories
|
|
|
575
|
|
|
|
653
|
|
Deferred income taxes
|
|
|
76
|
|
|
|
76
|
|
Other assets
|
|
|
51
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,496
|
|
|
|
3,111
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
745
|
|
|
|
763
|
|
Property, plant and equipment, net
of accumulated depreciation of $744 million and
$687 million as of June 30, 2007 and December 31,
2006, respectively
|
|
|
2,176
|
|
|
|
2,155
|
|
Deferred income taxes
|
|
|
67
|
|
|
|
22
|
|
Other assets
|
|
|
565
|
|
|
|
506
|
|
Goodwill
|
|
|
869
|
|
|
|
875
|
|
Intangible assets, net
|
|
|
437
|
|
|
|
463
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
7,355
|
|
|
|
7,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term borrowings and current
installments of long-term debt third party and
affiliates
|
|
|
187
|
|
|
|
309
|
|
Trade payables third
party and affiliates
|
|
|
667
|
|
|
|
823
|
|
Other current liabilities
|
|
|
731
|
|
|
|
787
|
|
Deferred income taxes
|
|
|
8
|
|
|
|
18
|
|
Income taxes payable
|
|
|
11
|
|
|
|
279
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,604
|
|
|
|
2,216
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
3,198
|
|
|
|
3,189
|
|
Deferred income taxes
|
|
|
301
|
|
|
|
297
|
|
Benefit obligations
|
|
|
898
|
|
|
|
889
|
|
Other liabilities
|
|
|
693
|
|
|
|
443
|
|
Minority interests
|
|
|
5
|
|
|
|
74
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par
value, 100,000,000 shares authorized and 9,600,000 issued
and outstanding as of June 30, 2007 and December 31,
2006, respectively
|
|
|
|
|
|
|
|
|
Series A common stock,
$0.0001 par value, 400,000,000 shares authorized,
160,000,096 issued and 152,726,710 outstanding as of
June 30, 2007 and 158,668,666 issued and outstanding as of
December 31, 2006
|
|
|
|
|
|
|
|
|
Series B common stock,
$0.0001 par value, 100,000,000 shares authorized and
0 shares issued and outstanding as of June 30, 2007
and December 31, 2006, respectively
|
|
|
|
|
|
|
|
|
Treasury stock, at cost:
7,273,386 shares as of June 30, 2007 and 0 shares
as of December 31, 2006
|
|
|
(258
|
)
|
|
|
|
|
Additional paid-in capital
|
|
|
392
|
|
|
|
362
|
|
Retained earnings
|
|
|
474
|
|
|
|
394
|
|
Accumulated other comprehensive
income (loss), net
|
|
|
48
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
656
|
|
|
|
787
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity
|
|
|
7,355
|
|
|
|
7,895
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the unaudited interim consolidated
financial statements.
3
CELANESE
CORPORATION AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
Treasury Stock
|
|
|
Additional
|
|
|
|
|
|
Comprehensive
|
|
|
Total
|
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Income (Loss),
|
|
|
Shareholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Net
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In $ millions, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
9,600,000
|
|
|
|
|
|
|
|
158,562,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
337
|
|
|
|
24
|
|
|
|
(126
|
)
|
|
|
235
|
|
Issuance of Series A shares
related to stock option exercises, including related tax benefits
|
|
|
|
|
|
|
|
|
|
|
106,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Comprehensive income (loss), net of
tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
406
|
|
|
|
|
|
|
|
406
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
13
|
|
Unrealized gain on derivative
contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
Pension and postretirement benefits
(revised)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
269
|
|
|
|
269
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (revised)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
289
|
|
|
|
289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (revised)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
695
|
|
Adjustment to initially apply FASB
Statement No. 158, net of tax (revised)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(132
|
)
|
|
|
(132
|
)
|
Indemnification of demerger
liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Common stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
(26
|
)
|
Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
(10
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
9,600,000
|
|
|
|
|
|
|
|
158,668,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
362
|
|
|
|
394
|
|
|
|
31
|
|
|
|
787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series A common
stock related to stock option exercises, including related tax
benefits
|
|
|
|
|
|
|
|
|
|
|
1,324,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
Issuance of Series A common
stock
|
|
|
|
|
|
|
|
|
|
|
7,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of treasury stock,
including related fees
|
|
|
|
|
|
|
|
|
|
|
(7,273,386
|
)
|
|
|
|
|
|
|
7,273,386
|
|
|
|
(258
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(258
|
)
|
Comprehensive income (loss), net of
tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
|
|
|
|
|
|
|
|
84
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
22
|
|
Unrealized gain on derivative
contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
20
|
|
Pension and postretirement benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45
|
)
|
|
|
(45
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
|
|
Indemnification of demerger
liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Common stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
(13
|
)
|
Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
(5
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2007
|
|
|
9,600,000
|
|
|
|
|
|
|
|
152,726,710
|
|
|
|
|
|
|
|
7,273,386
|
|
|
|
(258
|
)
|
|
|
392
|
|
|
|
474
|
|
|
|
48
|
|
|
|
656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the unaudited interim consolidated
financial statements.
4
CELANESE
CORPORATION AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30, 2007
|
|
|
June 30, 2006
|
|
|
|
(In $ millions)
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
84
|
|
|
|
220
|
|
Adjustments to reconcile net
earnings to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Other (charges) gains, net of
amounts used
|
|
|
11
|
|
|
|
(23
|
)
|
Depreciation, amortization and
accretion
|
|
|
158
|
|
|
|
162
|
|
Deferred income taxes, net
|
|
|
(26
|
)
|
|
|
25
|
|
Gain on disposition of assets, net
|
|
|
(44
|
)
|
|
|
|
|
Loss on extinguishment of debt
|
|
|
256
|
|
|
|
|
|
Other, net
|
|
|
6
|
|
|
|
8
|
|
Operating cash used in
discontinued operations
|
|
|
(101
|
)
|
|
|
(28
|
)
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
Trade receivables
third party and affiliates, net
|
|
|
55
|
|
|
|
(46
|
)
|
Inventories
|
|
|
24
|
|
|
|
9
|
|
Other assets
|
|
|
12
|
|
|
|
(9
|
)
|
Trade payables third
party and affiliates
|
|
|
(106
|
)
|
|
|
(31
|
)
|
Other liabilities
|
|
|
(250
|
)
|
|
|
(120
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
79
|
|
|
|
167
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures on property,
plant and equipment
|
|
|
(116
|
)
|
|
|
(113
|
)
|
Acquisitions and related fees, net
of cash acquired
|
|
|
(269
|
)
|
|
|
|
|
Net proceeds from sale of
businesses and assets
|
|
|
658
|
|
|
|
|
|
Proceeds from sale of marketable
securities
|
|
|
34
|
|
|
|
54
|
|
Purchases of marketable securities
|
|
|
(32
|
)
|
|
|
(48
|
)
|
Changes in restricted cash
|
|
|
46
|
|
|
|
(42
|
)
|
Investing cash used in
discontinued operations
|
|
|
|
|
|
|
(2
|
)
|
Other, net
|
|
|
(26
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities
|
|
|
295
|
|
|
|
(164
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
Short-term borrowings
(repayments), net
|
|
|
(30
|
)
|
|
|
(24
|
)
|
Proceeds from long-term debt
|
|
|
2,857
|
|
|
|
7
|
|
Repayments of long-term debt
|
|
|
(3,038
|
)
|
|
|
(16
|
)
|
Refinancing costs
|
|
|
(240
|
)
|
|
|
|
|
Purchases of treasury stock,
including related fees
|
|
|
(258
|
)
|
|
|
|
|
Stock option exercises
|
|
|
21
|
|
|
|
|
|
Dividend payments on Series A
common stock and preferred stock
|
|
|
(18
|
)
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in financing
activities
|
|
|
(706
|
)
|
|
|
(51
|
)
|
Exchange rate effects on cash
|
|
|
11
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash
equivalents
|
|
|
(321
|
)
|
|
|
(36
|
)
|
Cash and cash equivalents at
beginning of period
|
|
|
791
|
|
|
|
390
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end
of period
|
|
|
470
|
|
|
|
354
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the unaudited interim consolidated
financial statements.
5
CELANESE
CORPORATION AND SUBSIDIARIES
|
|
1.
|
Description
of the Company and Basis of Presentation
|
Description
of the Company
Celanese Corporation and its subsidiaries (collectively the
Company) is an integrated global hybrid chemical
company. The Companys business involves processing
chemical raw materials, such as methanol, carbon monoxide and
ethylene, and natural products, including wood pulp, into
value-added chemicals, thermoplastic polymers and other
chemical-based products.
Basis
of Presentation
In this Quarterly Report on
Form 10-Q,
the term Celanese refers to Celanese Corporation, a
Delaware corporation, and not its subsidiaries. The term
Celanese US refers to the Companys subsidiary
Celanese US Holdings LLC, a Delaware limited liability company,
formally known as BCP Crystal US Holdings Corp., a Delaware
corporation, and not its subsidiaries. The term
Purchaser refers to the Companys subsidiary,
Celanese Europe Holding GmbH & Co. KG, formerly known
as BCP Crystal Acquisition GmbH & Co. KG, a German
limited partnership, and not its subsidiaries, except where
otherwise indicated. The term Original Shareholders
refers, collectively, to Blackstone Capital Partners (Cayman)
Ltd. 1, Blackstone Capital Partners (Cayman) Ltd. 2, Blackstone
Capital Partners (Cayman) Ltd. 3 and BA Capital Investors
Sidecar Fund, L.P. The terms Sponsor and
Advisor refer to certain affiliates of The
Blackstone Group.
As used in this document, the term CAG refers to
(i) prior to the Organizational Restructuring (as defined
in Note 2 below), Celanese AG and Celanese Americas
Corporation (CAC), their consolidated subsidiaries,
their non-consolidated subsidiaries, ventures and other
investments, and (ii) following the Organizational
Restructuring, Celanese AG, its consolidated subsidiaries, its
non-consolidated subsidiaries, ventures and other investments,
except that with respect to shareholder and similar matters
where the context indicates, CAG refers to
Celanese AG.
The unaudited interim consolidated financial statements for the
three and six months ended June 30, 2007 and 2006 and as of
June 30, 2007 and December 31, 2006 contained in this
Quarterly Report were prepared in accordance with accounting
principles generally accepted in the United States of America
(U.S. GAAP) for all periods presented. The
unaudited interim consolidated financial statements and other
financial information included in this Quarterly Report, unless
otherwise specified, have been presented to separately show the
effects of discontinued operations.
In the opinion of management, the accompanying unaudited
consolidated balance sheets and related unaudited interim
consolidated statements of operations, cash flows and
shareholders equity include all adjustments, consisting
only of normal recurring items, necessary for their fair
presentation in conformity with U.S. GAAP. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with U.S. GAAP
have been condensed or omitted in accordance with rules and
regulations of the Securities and Exchange Commission
(SEC). These unaudited interim consolidated
financial statements should be read in conjunction with the
Celanese Corporation and Subsidiaries consolidated financial
statements as of and for the year ended December 31, 2006,
as filed on February 21, 2007 with the SEC as part of the
Companys Annual Report on
Form 10-K
(the 2006
Form 10-K).
Operating results for the three and six months ended
June 30, 2007 and 2006 are not necessarily indicative of
the results to be expected for the entire year.
Estimates
and Assumptions
The preparation of consolidated financial statements in
conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and
liabilities at the date of the consolidated financial statements
and the reported amounts of revenues,
6
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
expenses and allocated charges during the reporting period.
Significant estimates pertain to purchase price allocations,
impairments of intangible assets and other long-lived assets,
restructuring costs, other (charges) gains, income taxes,
pension and other postretirement benefits, asset retirement
obligations, environmental liabilities and loss contingencies,
among others. Actual results could differ from those estimates.
As discussed in Note 3, the Company adopted the provisions
of Financial Accounting Standards Board (FASB)
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes an interpretation of FASB Statement
No. 109 (FIN 48) on January 1,
2007. The Company considers many factors when evaluating and
estimating its tax positions and tax benefits, which may require
periodic adjustments and which may not accurately anticipate
actual outcomes. Tax positions are recognized only when it is
more-likely-than-not (likelihood of greater than 50%), based on
technical merits, that the positions will be sustained upon
examination. Tax positions that meet the more-likely-than-not
threshold are measured using a probability weighted approach as
the largest amount of tax benefit that is greater than 50%
likely of being realized upon settlement. Whether the
more-likely-than-not recognition threshold is met for a tax
position is a matter of judgment based on the individual facts
and circumstances of that position evaluated in light of all
available evidence.
Restricted
Cash
As of December 31, 2006, the Company had $46 million
of restricted cash. The cash was paid in January 2007 to certain
CAG shareholders pursuant to the terms of the Squeeze-Out as
discussed in Note 4.
Reclassifications
The Company has reclassified certain prior period amounts to
conform to current periods presentation.
|
|
2.
|
Domination
Agreement and Organizational Restructuring
|
Domination
Agreement
The domination and profit and loss transfer agreement (the
Domination Agreement) was approved at the CAG
extraordinary shareholders meeting on July 31, 2004.
The Domination Agreement between CAG and the Purchaser became
effective on October 1, 2004 and cannot be terminated by
the Purchaser in the ordinary course of business until
September 30, 2009. The Companys subsidiaries,
Celanese International Holdings Luxembourg S.à r.l.
(CIH), formerly Celanese Caylux Holdings Luxembourg
S.C.A., (Celanese Caylux), and Celanese US, have
each agreed to provide the Purchaser with financing to
strengthen the Purchasers ability to fulfill its
obligations under, or in connection with, the Domination
Agreement and to ensure that the Purchaser will perform all of
its obligations under, or in connection with, the Domination
Agreement when such obligations become due, including, without
limitation, the obligation to compensate CAG for any statutory
annual loss incurred by CAG during the term of the Domination
Agreement. If CIH
and/or
Celanese US are obligated to make payments under such guarantees
or other security to the Purchaser, the Company may not have
sufficient funds for payments on its indebtedness when due. The
Company has not had to compensate CAG for an annual loss for any
period during which the Domination Agreement has been in effect.
See additional discussion in the 2006
Form 10-K.
The Domination Agreement was further challenged in eight Null
and Void actions in the Frankfurt District Court. These actions
were seeking to have the shareholders resolution approving
the Domination Agreement declared null and void based on an
alleged violation of formal requirements relating to the
invitation for the shareholders meeting. During the three
months ended June 30, 2007, the Frankfurt District Court
dismissed all Null and Void actions.
7
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Organizational
Restructuring
In October 2004, Celanese and certain of its subsidiaries
completed an organizational restructuring (the
Organizational Restructuring) pursuant to which the
Purchaser effected, by giving a corresponding instruction under
the Domination Agreement, the transfer of all of the shares of
CAC from Celanese Holding GmbH, a wholly-owned subsidiary of
CAG, to Celanese Caylux, which resulted in Celanese Caylux
owning 100% of the equity of CAC and indirectly, all of its
assets, including subsidiary stock. This transfer was effected
by CAG selling all outstanding shares in CAC for a
291 million note. This note eliminates in
consolidation.
|
|
3.
|
Recent
Accounting Pronouncements
|
In July 2006, the FASB issued FIN 48, which clarifies the
accounting for uncertainty in tax positions. The interpretation
prescribes a recognition threshold and measurement criteria for
financial statement recognition of a tax position taken or
expected to be taken in a tax return. FIN 48 requires that
the Company recognize in its financial statements the impact of
a tax position if that position is more-likely-than-not of being
sustained upon examination, including resolution of any related
appeals or litigation processes, based on the technical merits
of the position. The interpretation also provides guidance on
derecognition, classification, interest and penalties,
accounting during interim periods, disclosure and transition.
The Company adopted the provisions of FIN 48 effective
January 1, 2007. The Company recorded the initial impact of
FIN 48 as a cumulative effect of a change in accounting
principle recorded as an adjustment to opening retained earnings
and as an adjustment to Goodwill. See the unaudited interim
consolidated statements of shareholders equity and
Note 15 for additional information related to the impact of
the adoption of FIN 48.
In September 2006, the FASB issued Statement of Financial
Accounting Standards (SFAS) No. 157, Fair
Value Measurements (SFAS No. 157),
which defines fair value, establishes guidelines for measuring
fair value and expands disclosures regarding fair value
measurements. SFAS No. 157 establishes a fair value
hierarchy that prioritizes inputs to valuation techniques used
for financial and non-financial assets and liabilities.
SFAS No. 157 does not require any new fair value
measurements but rather eliminates inconsistencies in guidance
found in various prior accounting pronouncements.
SFAS No. 157 is effective for fiscal years beginning
after November 15, 2007. The Company is currently
evaluating the impact of adopting SFAS No. 157 on the
Companys financial position, results of operations and
cash flows.
On February 15, 2007, the FASB issued
SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities Including an
Amendment of FASB Statement No. 115
(SFAS No. 159). This standard permits
companies to choose to measure many financial assets and
liabilities and certain other items at fair value. A company
will report unrealized gains and losses on items for which the
fair value option has been elected in earnings at each
subsequent reporting date. The fair value option may be applied
on an
instrument-by-instrument
basis, with several exceptions, such as those investments
accounted for by the equity method, and once elected, the option
is irrevocable unless a new election date occurs. The fair value
option can be applied only to entire instruments and not to
portions thereof. SFAS No. 159 is effective for fiscal
years beginning after November 15, 2007. The Company is
currently evaluating the impact of SFAS No. 159 on the
Companys financial position, results of operations and
cash flows.
In May 2007, the FASB issued FASB Staff Position
(FSP)
No. FIN 48-1,
Definition of Settlement in FIN 48. This FSP
clarifies FIN 48 to provide guidance that a company may
recognize a previously unrecognized tax benefit if the tax
position is effectively (as opposed to ultimately)
settled through examination, negotiation or litigation. The
Company incorporated the guidance in this FSP when it initially
adopted FIN 48 in January 2007.
In June 2007, the FASB Emerging Issues Task Force
(EITF) reached a conclusion on EITF Issue
No. 06-11,
Accounting for Income Tax Benefits of Dividends on
Share-Based Payment Awards (EITF
No. 06-11).
The scope of EITF
No. 06-11
consists of the application to share-based payment arrangements
with dividend protection
8
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
features that entitle employees to receive (a) dividends on
equity-classified non-vested shares, (b) dividend
equivalents on equity-classified non-vested share units or
(c) payments equal to the dividends paid on the underlying
shares while an equity-classified share option is outstanding,
when those dividends or dividend equivalents are charged to
retained earnings under SFAS No. 123(R), Share
Based Payment (SFAS No. 123(R)), and
result in an income tax deduction for the employer. EITF
No. 06-11
should be applied prospectively to the income tax benefits of
dividends on equity-classified employee share-based payment
awards that are declared in fiscal years beginning after
September 15, 2007. The Company does not expect the impact
of adopting
EITF No. 06-11
to be material to the Companys financial position, results
of operations and cash flows.
|
|
4.
|
Acquisitions,
Ventures and Divestitures
|
Acquisitions
On January 31, 2007, the Company completed the acquisition
of the cellulose acetate flake, tow and film business of Acetate
Products Limited (APL), a subsidiary of Corsadi B.V.
The purchase price for the transaction was approximately
£57 million ($112 million), in addition to direct
acquisition costs of approximately £4 million
($7 million). Pro forma financial information has not been
provided as the acquisition did not have a material impact on
the Companys results of operations. As contemplated prior
to closing, on March 14, 2007, the Company announced plans
to close the acquired tow production plant at Little Heath,
United Kingdom during 2007. In accordance with the
Companys sponsor services agreement dated January 26,
2005, as amended, the Company paid the Advisor $1 million
in connection with the acquisition of APL.
The following table presents the preliminary allocation of APL
acquisition costs to the assets acquired and liabilities
assumed, based on their fair values. This preliminary allocation
is subject to change upon finalization of purchase accounting.
|
|
|
|
|
|
|
(In $ millions)
|
|
|
Accounts receivable
|
|
|
34
|
|
Inventories
|
|
|
28
|
|
Property, plant, and equipment
|
|
|
88
|
|
Goodwill
|
|
|
24
|
|
Intangible assets
|
|
|
1
|
|
Other current assets/liabilities,
net
|
|
|
(45
|
)
|
Non-current liabilities
|
|
|
(11
|
)
|
|
|
|
|
|
Net assets acquired
|
|
|
119
|
|
|
|
|
|
|
On April 6, 2004, the Company acquired 84% of CAG (the
Acquisition). During 2005, the Company acquired an
additional 14% of CAG. See additional discussion of these
acquisitions in the 2006
Form 10-K.
On May 30, 2006, CAGs shareholders approved a
transfer to the Purchaser of all shares owned by minority
shareholders against payment of cash compensation in the amount
of 66.99 per share (the Squeeze-Out). The
Squeeze-Out was registered in the commercial register in Germany
on December 22, 2006, after several lawsuits by minority
shareholders challenging the shareholders resolution
approving the Squeeze-Out were withdrawn pursuant to a
settlement agreement entered into between plaintiff
shareholders, the Purchaser and CAG on the same day. An
aggregate purchase price of approximately 62 million
was paid to minority shareholders in January 2007 as fair cash
compensation for the acquisition of their shares in CAG,
excluding direct acquisition costs of approximately
2 million. As a result of this acquisition, the
Company recorded an increase to Goodwill of approximately
$5 million during the six months ended June 30, 2007.
The amount of the fair cash compensation of 66.99 per
share could increase based on the outcome of award proceedings
pending in German courts. As of June 30, 2007, the
Companys ownership percentage in CAG was 100%.
9
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Ventures
On March 28, 2007, the Company announced that it entered
into a strategic partnership with Accsys Technologies PLC
(Accsys), and its subsidiary Titan Wood, to become
the exclusive supplier of acetyl products to Titan Woods
technology licensees for use in wood acetylation. In conjunction
with this partnership, in May 2007, the Company acquired
8,115,883 shares of Accsys common stock representing
approximately 5.45% of the total voting shares of Accsys for
22 million ($30 million). The investment is
treated as an available-for-sale security and is included as a
component of long-term Other assets on the Companys
unaudited consolidated balance sheet.
Divestitures
In connection with the Companys strategy to optimize its
portfolio and divest non-core operations, the Company announced
on December 13, 2006 its agreement to sell its Chemical
Products segments oxo products and derivatives businesses,
including European Oxo GmbH (EOXO), a 50/50 venture
between Celanese AG and Degussa AG (Degussa), to
Advent International, for a purchase price of
480 million subject to final agreement adjustments
and the successful exercise of the Companys option to
purchase Degussas 50% interest in EOXO. On
February 23, 2007, the option was exercised and the Company
acquired Degussas interest in the venture for a purchase
price of 30 million ($39 million), in addition
to 22 million ($29 million) paid to extinguish
EOXOs debt upon closing of the transaction. The Company
completed the sale of its oxo products and derivatives
businesses, including the acquired 50% interest in EOXO, on
February 28, 2007. The sale included the oxo and
derivatives businesses at the Oberhausen, Germany, and Bay City,
Texas facilities as well as portions of its Bishop, Texas
facility. Also included were EOXOs facilities within the
Oberhausen and Marl, Germany plants. The former oxo and
derivatives businesses acquired by Advent International was
renamed Oxea. Taking into account agreed deductions by the buyer
for pension and other employee benefits and various costs for
separation activities, the Company received proceeds of
approximately 443 million ($585 million) at
closing. The transaction resulted in the recognition of a
$31 million pre-tax gain in the first quarter of 2007. The
Company recorded an additional pre-tax gain of approximately
$16 million during the second quarter of 2007 primarily
related to working capital and other adjustments as specified in
the sale agreement. Due to certain lease-back arrangements
between the Company and the buyer and related environmental
obligations of the Company, approximately $49 million of
the transaction proceeds attributable to the fair value of the
underlying land at Bay City and Oberhausen is deferred as an
other long-term liability, and divested land with a book value
of $14 million remains on the Companys unaudited
consolidated balance sheet.
Subsequent to closing, the Company and Oxea have certain site
service and product supply arrangements. The site services
include, but are not limited to, administrative, utilities,
health and safety, waste water treatment and maintenance
activities for terms which range from one to fifteen years.
Product supply agreements contain initial terms of up to fifteen
years. The Company has no contractual ability through these
agreements or any other arrangements to significantly influence
the operating or financial policies of Oxea. The Company
concluded, based on the nature and limited projected magnitude
of the continuing business relationship between the Company and
Oxea, that the divestiture of the oxo products and derivatives
businesses should be accounted for as a discontinued operation.
Third party sales include $0 million and $9 million
for the three months ended June 30, 2007 and 2006,
respectively, and $5 million and $18 million for the
six months ended June 30, 2007 and 2006, respectively, that
would have been eliminated upon consolidation were the
divestiture not accounted for as a discontinued operation. These
amounts relate to sales from the continuing operations of the
Company to the divested business.
In accordance with the Companys sponsor services agreement
dated January 26, 2005, as amended, the Company paid the
Advisor $6 million in connection with the sale of the oxo
products and derivatives businesses.
10
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During the third quarter of 2006, the Company discontinued its
Pentaerythritol (PE) operations, which were included
in the Chemical Products segment. During the second quarter of
2007, the Company discontinued its Edmonton, Canada methanol
operations, which were included in the Chemical Products
segment. As a result, the earnings (loss) from operations
related to the Edmonton methanol and PE operations are reflected
as components of discontinued operations in the unaudited
interim consolidated statements of operations.
The following table summarizes the results of the discontinued
operations for the periods presented in the unaudited interim
consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007(1)
|
|
|
2006
|
|
|
2007(1)
|
|
|
2006
|
|
|
|
(In $ millions)
|
|
|
Net sales
|
|
|
6
|
|
|
|
218
|
|
|
|
197
|
|
|
|
450
|
|
Cost of sales
|
|
|
(8
|
)
|
|
|
(205
|
)
|
|
|
(150
|
)
|
|
|
(393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
(2
|
)
|
|
|
13
|
|
|
|
47
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
(5
|
)
|
|
|
11
|
|
|
|
38
|
|
|
|
56
|
|
Gain on disposal of discontinued
operations
|
|
|
16
|
|
|
|
1
|
|
|
|
47
|
|
|
|
1
|
|
Income tax benefit (provision)
from operation of discontinued operations
|
|
|
2
|
|
|
|
(4
|
)
|
|
|
(12
|
)
|
|
|
(19
|
)
|
Income tax benefit (provision)
from gain on disposal of discontinued operations
|
|
|
(6
|
)
|
|
|
|
|
|
|
13
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from discontinued
operations
|
|
|
7
|
|
|
|
8
|
|
|
|
86
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The three and six months ended June 30, 2007 include only
two months of operations for the oxo products and derivatives
businesses as these businesses were sold on February 28,
2007. |
|
(2) |
|
Income tax benefit on gain from disposal of discontinued
operations of $13 million is comprised of $29 million
tax expense related to the divestiture of facilities in the
U.S., offset by $42 million tax benefit on the divestiture
of facilities and investments in Germany. |
The following table presents the major classes of assets and
liabilities of the oxo products and derivatives businesses
divested:
|
|
|
|
|
|
|
(In $ millions)
|
|
|
Trade receivables
third party and affiliates, net
|
|
|
145
|
|
Inventories
|
|
|
75
|
|
Other assets current
|
|
|
8
|
|
Investments(1)
|
|
|
125
|
|
Property, plant and equipment
|
|
|
139
|
|
Other assets
|
|
|
21
|
|
Goodwill
|
|
|
42
|
|
Intangible assets, net
|
|
|
10
|
|
|
|
|
|
|
Total assets
|
|
|
565
|
|
|
|
|
|
|
Current liabilities
|
|
|
4
|
|
Other liabilities
|
|
|
19
|
|
|
|
|
|
|
Total liabilities
|
|
|
23
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes the Companys 50% investment in EOXO and the 50%
interest in EOXO purchased from Degussa in February 2007. |
11
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Cost
Method Investment
In February 2007, the Company wrote-off its remaining
1 million ($1 million) cost investment in
European Pipeline Development Company B.V. (EPDC).
In addition, the Company expensed 7 million
($9 million) associated with contingent liabilities that
became payable due to the Companys decision to exit the
pipeline development project. The investment in EPDC related to
the construction of a pipeline system, solely dedicated to the
transportation of propylene, which was to connect Rotterdam via
Antwerp, Netherlands, with the Companys Oberhausen and
Marl production facilities in Germany. However, on
February 15, 2007, EPDC shareholders voted to cease the
pipeline project as originally envisaged and go into
liquidation. The Company was a 12.5% shareholder of EPDC.
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
|
(In $ millions)
|
|
|
Trade receivables
third party and affiliates
|
|
|
870
|
|
|
|
1,017
|
|
Allowance for doubtful
accounts third party and affiliates
|
|
|
(13
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
857
|
|
|
|
1,001
|
|
Reinsurance receivables
|
|
|
79
|
|
|
|
85
|
|
Other
|
|
|
388
|
|
|
|
390
|
|
|
|
|
|
|
|
|
|
|
Net receivables
|
|
|
1,324
|
|
|
|
1,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
|
(In $ millions)
|
|
|
Finished goods
|
|
|
413
|
|
|
|
500
|
|
Work-in-process
|
|
|
29
|
|
|
|
33
|
|
Raw materials and supplies
|
|
|
133
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
|
575
|
|
|
|
653
|
|
|
|
|
|
|
|
|
|
|
|
|
7.
|
Goodwill
and Intangible Assets
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemical
|
|
|
Acetate
|
|
|
|
|
|
Performance
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Products
|
|
|
Ticona
|
|
|
Products
|
|
|
Other
|
|
|
Total
|
|
|
|
(In $ millions)
|
|
|
As of December 31, 2006
|
|
|
368
|
|
|
|
156
|
|
|
|
256
|
|
|
|
84
|
|
|
|
11
|
|
|
|
875
|
|
Acquisition of
CAG(1)
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
4
|
|
Acquisition of APL
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
Acquisition of Acetex
Corporation(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
(5
|
)
|
Sale of oxo and derivatives
businesses
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42
|
)
|
Adoption of
FIN 48(2)
|
|
|
(23
|
)
|
|
|
(5
|
)
|
|
|
15
|
|
|
|
11
|
|
|
|
|
|
|
|
(2
|
)
|
Exchange rate changes
|
|
|
6
|
|
|
|
3
|
|
|
|
4
|
|
|
|
2
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2007
|
|
|
312
|
|
|
|
177
|
|
|
|
276
|
|
|
|
98
|
|
|
|
6
|
|
|
|
869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The adjustments recorded during the six months ended
June 30, 2007 consist primarily of goodwill recorded
related to the purchase of the remaining outstanding CAG shares
during the Squeeze-Out of $5 million partially offset by
reversals of certain pre-acquisition tax valuation allowances of
$1 million. |
|
(2) |
|
See Note 15 for additional discussion of FIN 48. |
|
(3) |
|
The adjustments recorded during the six months ended
June 30, 2007 consist of reversals of certain
pre-acquisition deferred tax balances. |
12
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other
Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and
|
|
|
Customer Related
|
|
|
Developed
|
|
|
Covenants not to
|
|
|
|
|
|
|
Tradenames
|
|
|
Intangible Assets
|
|
|
Technology
|
|
|
Compete and Other
|
|
|
Total
|
|
|
|
(In $ millions)
|
|
|
Gross Asset Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006
|
|
|
79
|
|
|
|
523
|
|
|
|
13
|
|
|
|
12
|
|
|
|
627
|
|
Acquisitions
|
|
|
2
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
Divestitures
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
(15
|
)
|
Exchange rate changes
|
|
|
2
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2007
|
|
|
83
|
|
|
|
527
|
|
|
|
13
|
|
|
|
12
|
|
|
|
635
|
|
Accumulated
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006
|
|
|
(1
|
)
|
|
|
(149
|
)
|
|
|
(8
|
)
|
|
|
(6
|
)
|
|
|
(164
|
)
|
Current period amortization
|
|
|
|
|
|
|
(34
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(36
|
)
|
Divestitures
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
Exchange rate changes
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2007
|
|
|
(1
|
)
|
|
|
(181
|
)
|
|
|
(9
|
)
|
|
|
(7
|
)
|
|
|
(198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Book Value as of
June 30, 2007
|
|
|
82
|
|
|
|
346
|
|
|
|
4
|
|
|
|
5
|
|
|
|
437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate amortization expense charged against earnings for
intangible assets with finite lives during the three months
ended June 30, 2007 and 2006 totaled $18 million and
$18 million, respectively. Aggregate amortization expense
charged against earnings for intangible assets with finite lives
during the six months ended June 30, 2007 and 2006 totaled
$36 million and $35 million, respectively.
13
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In $ millions)
|
|
|
Short-term borrowings and
current installments of long-term debt third party
and affiliates
|
|
|
|
|
|
|
|
|
Current installments of long-term
debt
|
|
|
32
|
|
|
|
127
|
|
Short-term borrowings, principally
comprised of amounts due to affiliates
|
|
|
155
|
|
|
|
182
|
|
|
|
|
|
|
|
|
|
|
Total short-term borrowings and
current installments of long-term debt third party
and affiliates
|
|
|
187
|
|
|
|
309
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
Senior Credit Facilities: Term
Loan facility due
2011(1)
|
|
|
|
|
|
|
1,622
|
|
Senior Credit Facilities: Term
Loan facility due 2014
|
|
|
2,820
|
|
|
|
|
|
Senior Subordinated
Notes 9.625%, due
2014(1)
|
|
|
|
|
|
|
799
|
|
Senior Subordinated
Notes 10.375%, due
2014(1)
|
|
|
|
|
|
|
171
|
|
Senior Discount Notes 10.5%,
due
2014(1)
|
|
|
|
|
|
|
339
|
|
Senior Discount Notes 10%,
due
2014(1)
|
|
|
|
|
|
|
81
|
|
Term notes 7.125%, due 2009
|
|
|
14
|
|
|
|
14
|
|
Pollution control and industrial
revenue bonds, interest rates ranging from 5.2% to 6.7%, due at
various dates through 2030
|
|
|
181
|
|
|
|
191
|
|
Obligations under capital leases
and other secured borrowings due at various dates through 2023
|
|
|
100
|
|
|
|
30
|
|
Other borrowings
|
|
|
115
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
3,230
|
|
|
|
3,316
|
|
Less: Current installments of
long-term debt
|
|
|
32
|
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
3,198
|
|
|
|
3,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These facilities were repaid in full in conjunction with the
debt refinancing discussed below. |
As of December 31, 2006, the amended and restated (January
2005) senior credit facilities consisted of a term loan
facility, a revolving credit facility and a credit-linked
revolving facility. The $600 million revolving credit
facility provided for the availability of letters of credit in
U.S. dollars and Euros and for borrowings on
same-day
notice. As of December 31, 2006, there were no letters of
credit issued or outstanding borrowings under the revolving
credit facility; accordingly, $600 million remained
available for borrowing. The Company had an approximate
$228 million credit-linked revolving facility available for
the issuance of letters of credit. As of December 31, 2006,
there were $218 million of letters of credit issued under
the credit-linked revolving facility and $10 million
remained available for borrowing.
Debt
Refinancing
In March 2007, the Company announced a comprehensive
recapitalization plan to refinance its debt and repurchase
shares. On April 2, 2007, the Company, through certain of
its subsidiaries, entered into a new senior credit agreement.
The new senior credit agreement consists of $2,280 million
of U.S. dollar denominated and 400 million of
Euro denominated term loans due 2014, a $650 million
revolving credit facility terminating in 2013 and a
$228 million credit-linked revolving facility terminating
in 2014. Borrowings under the new senior credit
14
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
agreement bear interest at a variable interest rate based on
LIBOR (for U.S. dollars) or EURIBOR (for Euros), as
applicable, or, for U.S. dollar denominated loans under
certain circumstances, a base rate, in each case plus an
applicable margin. The applicable margin for the term loans and
any loans under the credit-linked revolving facility is 1.75%,
subject to potential reductions as defined in the new senior
credit agreement. The term loans under the new senior credit
agreement are subject to amortization at 1% of the initial
principal amount per annum, payable quarterly. The remaining
principal amount of the term loans is due on April 2, 2014.
As of June 30, 2007, there were $154 million of
letters of credit issued under the credit-linked revolving
facility and $74 million remained available for borrowing.
As of June 30, 2007, there were no outstanding borrowings
or letters of credit issued under the revolving credit facility;
accordingly $650 million remained available for borrowing.
The new senior credit agreement is guaranteed by Celanese
Holdings LLC and certain domestic subsidiaries of Celanese US,
and is secured by a lien on substantially all assets of Celanese
US and such guarantors, subject to certain agreed exceptions,
pursuant to the Guarantee and Collateral Agreement, dated as of
April 2, 2007, by and among Celanese Holdings LLC, Celanese
US, certain subsidiaries of Celanese US and Deutsche Bank AG,
New York Branch, as Administrative Agent and as Collateral
Agent.
The new senior credit agreement contains a number of covenants
that, subject to certain exceptions, restrict, among other
things, the ability of Celanese Holdings LLC and its
subsidiaries to incur new debt, repurchase shares, make certain
investments, acquire new entities, sell assets and pay dividends
in excess of amounts specified in the agreement. Additionally,
the revolving credit facility requires Celanese Holdings LLC and
its subsidiaries to maintain a maximum First-Lien Senior Secured
Leverage Ratio, as defined in the agreement, when there is
outstanding credit exposure under the revolver. The Company is
in compliance with all of the financial covenants related to its
debt agreements as of June 30, 2007.
Proceeds from the new senior credit agreement, together with
available cash, were used to retire the Companys
$2,454 million amended and restated (January
2005) senior credit facilities, which consisted of
$1,626 million in term loans due 2011, a $600 million
revolving credit facility terminating in 2009 and an approximate
$228 million credit-linked revolving facility terminating
in 2009 and to retire all of the Companys Senior
Subordinated Notes and Senior Discount Notes as discussed below.
On March 6, 2007, the Company commenced cash tender offers
(the Tender Offers) with respect to any and all of
the outstanding 10% senior discount notes due 2014 and
10.5% senior discount notes due 2014 (the Senior
Discount Notes), and any and all of the outstanding
9.625% senior subordinated notes due 2014 and
10.375% senior subordinated notes due 2014 (the
Senior Subordinated Notes). The Tender Offers
expired on April 2, 2007. Substantially all of the Senior
Discount Notes and Senior Subordinated Notes were tendered in
conjunction with the Tender Offers. The remaining outstanding
Senior Discount Notes and Senior Subordinated Notes not tendered
in conjunction with the Tender Offers were redeemed by the
Company in May 2007 through optional redemption allowed in the
indentures.
15
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As a result of the refinancing, the Company incurred premiums
paid on early redemption of debt, accelerated amortization and
other refinancing costs. The components of refinancing costs are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(In $ millions)
|
|
|
Premium paid on early redemption
of debt
|
|
|
207
|
|
|
|
|
|
|
|
207
|
|
|
|
|
|
Accelerated amortization of
premiums and deferred financing costs on early redemption and
prepayment of debt
|
|
|
33
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
Debt issuance costs and other
|
|
|
16
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total refinancing expenses
|
|
|
256
|
|
|
|
|
|
|
|
256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the refinancing, the Company recorded
deferred financing costs of $39 million related to the new
senior credit agreement, which are included in Other assets on
the accompanying unaudited consolidated balance sheet as of
June 30, 2007 and will be amortized over the term of the
new senior credit agreement. The deferred financing costs
consist of $23 million of costs incurred to acquire the new
senior credit facility and $16 million of debt issue costs
existing prior to the refinancing which will be retained and
amortized over the term of the new senior credit agreement. As a
result of the refinancing, the Company incurred, through
June 30, 2007, approximately $9 million of loss for
the mark-to-market on the cross currency swap and the Euro
denominated term loan that had been used as a hedge of the
Companys net investment in its European subsidiaries. The
Company designated the net investment hedge as such during July
2007.
Principal payments scheduled to be made on the Companys
debt, including short-term borrowings, are as follows:
|
|
|
|
|
|
|
(In $ millions)
|
|
|
Remainder of 2007
|
|
|
170
|
|
2008
|
|
|
44
|
|
2009
|
|
|
72
|
|
2010
|
|
|
64
|
|
2011
|
|
|
66
|
|
2012
|
|
|
37
|
|
Thereafter
|
|
|
2,932
|
|
|
|
|
|
|
Total
|
|
|
3,385
|
|
|
|
|
|
|
Interest
Rate Risk Management
In March 2007, in anticipation of the April 2, 2007 debt
refinancing, the Company entered into various U.S. dollar
and Euro interest rate swaps, which became effective on
April 2, 2007, with notional amounts of $1.6 billion
and 150 million, respectively. The U.S. dollar
interest rate swaps have a maturity date of January 3,
2012. The notional amount of the U.S. dollar swaps will
reduce over time according to an amortization schedule. The Euro
interest rate swap has a maturity date of April 2, 2011.
The notional amount of the Euro swap will remain at its original
level throughout the term of the swap. The interest rate swaps
have been designated as effective hedges of the Companys
variable rate debt under SFAS No. 133 and qualify for
hedge accounting. On March 29, 2007, in connection with the
April 2, 2007 debt refinancing, the Company terminated its
previously outstanding interest rate swap with a notional value
of $300 million and recorded a gain of $2 million.
16
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
9.
|
Other
Current Liabilities and Other Liabilities
|
The components of other current liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In $ millions)
|
|
|
Salaries and benefits
|
|
|
131
|
|
|
|
198
|
|
Environmental
|
|
|
18
|
|
|
|
26
|
|
Restructuring
|
|
|
49
|
|
|
|
34
|
|
Insurance
|
|
|
59
|
|
|
|
68
|
|
Sorbates litigation
|
|
|
154
|
|
|
|
148
|
|
Other
|
|
|
320
|
|
|
|
313
|
|
|
|
|
|
|
|
|
|
|
Total other current liabilities
|
|
|
731
|
|
|
|
787
|
|
|
|
|
|
|
|
|
|
|
The components of other liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In $ millions)
|
|
|
Environmental
|
|
|
100
|
|
|
|
88
|
|
Insurance
|
|
|
83
|
|
|
|
86
|
|
Uncertain tax
positions(1)
|
|
|
194
|
|
|
|
|
|
Deferred
revenue(2)
|
|
|
147
|
|
|
|
98
|
|
Other
|
|
|
169
|
|
|
|
171
|
|
|
|
|
|
|
|
|
|
|
Total other liabilities
|
|
|
693
|
|
|
|
443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
At December 31, 2006, the liability was primarily recorded
as a component of Income taxes payable. |
|
(2) |
|
The increase is primarily attributed to $49 million of
deferred transaction proceeds from the sale of the oxo products
and derivatives businesses to Advent International (see
Note 4). The proceeds are deferred due to certain
lease-back arrangements between the Company and the buyer and
related environmental obligations of the Company. |
17
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of net periodic benefit costs recognized are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Postretirement Benefits
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
(In $ millions)
|
|
|
|
|
|
Components of net periodic
benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
|
10
|
|
|
|
10
|
|
|
|
1
|
|
|
|
|
|
Interest cost
|
|
|
48
|
|
|
|
45
|
|
|
|
4
|
|
|
|
5
|
|
Expected return on plan assets
|
|
|
(56
|
)
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
Recognized actuarial (gain)/loss
|
|
|
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
Curtailment (gain)/loss
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
|
2
|
|
|
|
5
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Postretirement Benefits
|
|
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
(In $ millions)
|
|
|
|
|
|
Components of net periodic
benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
|
19
|
|
|
|
20
|
|
|
|
1
|
|
|
|
1
|
|
Interest cost
|
|
|
92
|
|
|
|
91
|
|
|
|
9
|
|
|
|
10
|
|
Expected return on plan assets
|
|
|
(106
|
)
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
Recognized actuarial (gain)/loss
|
|
|
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
Curtailment (gain)/loss
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
|
5
|
|
|
|
10
|
|
|
|
9
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company expects to contribute $49 million to its
defined benefit pension plans in 2007. As of June 30, 2007,
$23 million of contributions have been made. The
Companys estimates of its defined benefit pension plan
contributions reflect the provisions of the Pension Funding
Equity Act of 2004 and the Pension Protection Act of 2006.
The Company expects to make benefit payments of $38 million
under the provisions of its other postretirement benefit plans
in 2007. As of June 30, 2007, $23 million of benefit
payments have been made.
Contributions to the Companys defined contribution plans
are based on specified percentages of employee contributions and
aggregated $5 million and $5 million for the six
months ended June 30, 2007 and 2006, respectively.
Contributions to the multiemployer plans in which the Company
participates are based on specified percentages of employee
contributions and aggregated $4 million and $3 million
for the six months ended June 30, 2007 and 2006,
respectively.
As a result of the sale of the oxo products and derivatives
businesses in February 2007 (see Note 4), there was a
reduction of approximately 1,076 employees triggering a
settlement and remeasurement of the affected pension plans due
to certain changes in actuarial valuation assumptions. The
settlement and remeasurement resulted in a net increase in the
projected benefit obligation of $44 million with an offset
to Accumulated other comprehensive
18
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
income (loss), net (net of tax of $1 million) and a
settlement gain of $11 million (included in Gain on
disposal of discontinued operations) for the pension plan during
the six months ended June 30, 2007.
During the second quarter of 2007, the Company finalized the
shutdown of its Edmonton, Canada methanol operations. This
resulted in the reduction of approximately 175 employees
triggering a settlement loss of less than $1 million during
the three and six months ended June 30, 2007.
See table below for share activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
Series A
|
|
|
|
|
|
|
Stock
|
|
|
Common Stock
|
|
|
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
Treasury Stock
|
|
|
|
(Number of shares)
|
|
|
Balance as of December 31,
2006
|
|
|
9,600,000
|
|
|
|
158,668,666
|
|
|
|
|
|
Issuance of common stock related
to the exercise of stock options
|
|
|
|
|
|
|
1,324,030
|
|
|
|
|
|
Issuance of common stock
|
|
|
|
|
|
|
7,400
|
|
|
|
|
|
Purchases of treasury stock
|
|
|
|
|
|
|
(7,273,386
|
)
|
|
|
7,273,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2007
|
|
|
9,600,000
|
|
|
|
152,726,710
|
|
|
|
7,273,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has $240 million aggregate liquidation
preference of outstanding preferred stock. Holders of the
preferred stock are entitled to receive, when, as and if
declared by the Companys Board of Directors, out of funds
legally available, cash dividends at the rate of 4.25% per annum
of liquidation preference, payable quarterly in arrears
commencing on May 1, 2005. Dividends on the preferred stock
are cumulative from the date of initial issuance. Accumulated
but unpaid dividends accumulate at an annual rate of 4.25%. The
preferred stock is convertible, at the option of the holder, at
any time into approximately 1.25 shares of Series A
common stock, subject to adjustments, per $25.00 liquidation
preference of preferred stock and upon conversion will be
recorded in Shareholders equity.
On May 9, 2006, the Company registered shares of its
Series A common stock, shares of its preferred stock and
depository shares pursuant to the Companys universal shelf
registration statement on
Form S-3,
filed with the SEC on May 9, 2006. On May 9, 2006, the
Original Shareholders sold 35,000,000 shares of
Series A common stock through a public secondary offering
and granted to the underwriter an over-allotment option to
purchase up to an additional 5,250,000 shares of the
Companys Series A common stock. The underwriter did
not exercise the over-allotment option. The Company did not
receive any of the proceeds from the offering. The transaction
closed on May 15, 2006. The Company incurred and expensed
approximately $2 million of fees related to this
transaction.
On May 14, 2007, the Original Shareholders sold their
remaining 22,106,597 shares of Series A common stock
in a registered public secondary offering pursuant to the
universal shelf registration statement on
Form S-3,
filed with the SEC on May 9, 2006. The Company did not
receive any of the proceeds from the offering. The Company
incurred and expensed less than $1 million of fees related
to this transaction. As of June 30, 2007, the Original
Shareholders ownership interest in the Company was 0%.
During the six months ended June 30, 2007 and 2006, the
Company declared and paid $13 million of cash dividends in
each period to holders of its Series A common shares.
During the six months ended June 30, 2007 and 2006, the
Company declared and paid $5 million of cash dividends in
each period on its 4.25% convertible perpetual preferred stock.
In conjunction with the April 2007 debt refinancing discussed in
Note 8, the Company, through its wholly-owned subsidiary
Celanese International Holdings Luxembourg S.à r.l.,
repurchased 2,021,775 shares of its
19
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
outstanding Series A common stock in a modified Dutch
Auction tender offer from public shareholders, which
expired on April 3, 2007, at a purchase price of $30.50 per
share. The total price paid for these shares was approximately
$62 million. The number of shares purchased in the tender
offer represented approximately 1.3% of the Companys
current outstanding Series A common stock at that time. The
Company also separately purchased, through its wholly-owned
subsidiary Celanese International Holdings Luxembourg S.à
r.l., 329,011 shares of Series A common stock at
$30.50 per share from the investment funds associated with The
Blackstone Group L.P. The total price paid for these shares was
approximately $10 million. The number of shares purchased
from Blackstone represented approximately 0.2% of the
Companys current outstanding Series A common stock at
that time.
Additionally, on June 4, 2007, the Companys Board of
Directors authorized the repurchase of up to $330 million
of its Series A common stock. During the three months ended
June 30, 2007, the Company repurchased
4,922,600 shares of its Series A common stock at an
average purchase price of $37.61 per share for a total of
approximately $185 million pursuant to this authorization.
These purchases reduced the number of shares outstanding and may
be used by the Company for compensation programs utilizing the
Companys stock and other corporate purposes. The Company
accounts for treasury stock using the cost method and includes
treasury stock as a component of Shareholders Equity.
Other
Comprehensive Income (Loss)
Other comprehensive income (loss) totaled $17 million and
$(30) million, respectively, for the six months ended
June 30, 2007 and 2006. These amounts were net of tax
expense of $1 million and $0 million, respectively,
for the six months ended June 30, 2007 and 2006.
|
|
12.
|
Commitments
and Contingencies
|
The Company is involved in a number of legal proceedings,
lawsuits and claims incidental to the normal conduct of
business, relating to such matters as product liability,
antitrust, past waste disposal practices and release of
chemicals into the environment. While it is impossible at this
time to determine with certainty the ultimate outcome of these
proceedings, lawsuits and claims, the Company believes, based on
the advice of legal counsel, that adequate provisions have been
made and that the ultimate outcomes will not have a material
adverse effect on the financial position of the Company, but may
have a material adverse effect on the results of operations or
cash flows in any given accounting period.
The following disclosure should be read in conjunction with the
2006
Form 10-K.
Plumbing
Actions
As of both June 30, 2007 and December 31, 2006, the
Company has remaining accruals of $66 million for cases
related to the plumbing actions, of which $4 million is
included in current liabilities. The Company believes that the
plumbing actions are adequately provided for in the
Companys consolidated financial statements and that they
will not have a material adverse effect on its financial
position. However, if the Company were to incur an additional
charge for this matter, such a charge would not be expected to
have a material adverse effect on its financial position, but
may have a material adverse effect on the Companys results
of operations or cash flows in any given accounting period. The
Company continuously monitors this matter and assesses the
adequacy of this reserve.
The Company has reached settlements with CNA Holdings
insurers specifying their responsibility for these claims. As a
result, the Company has recorded receivables relating to the
anticipated recoveries from certain third party insurance
carriers. These receivables are based on the probability of
collection, an opinion of external counsel, the settlement
agreements with the Companys insurance carriers whose
coverage level exceeds the receivables and
20
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the status of current discussions with other insurance carriers.
As of June 30, 2007 and December 31, 2006, the Company
has $18 million and $23 million, respectively, of
receivables related to the settlement with these insurance
carriers. These receivables are recorded within other current
assets.
Plumbing
Insurance Indemnifications
CAG entered into agreements with insurance companies related to
product liability settlements associated with
Celcon®
plumbing claims. These agreements, except those with insolvent
insurance companies, require the Company to indemnify
and/or
defend these insurance companies in the event that third parties
seek additional monies for matters released in these agreements.
The indemnifications in these agreements do not provide for time
limitations.
In certain of the agreements, CAG received a fixed settlement
amount. The indemnities under these agreements generally are
limited to, but in some cases are greater than, the amount
received in settlement from the insurance company. The maximum
exposure under these indemnifications is $95 million. Other
settlement agreements have no stated limits.
There are other agreements whereby the settling insurer agreed
to pay a fixed percentage of claims that relate to that
insurers policies. The Company has provided
indemnifications to the insurers for amounts paid in excess of
the settlement percentage. These indemnifications do not provide
for monetary or time limitations.
The Company has reserves associated with these product liability
claims.
Sorbates
Antitrust Actions
Based on the advice of external counsel and a review of the
existing facts and circumstances relating to the sorbates
antitrust matters, including the status of government
investigations, as well as civil claims filed and settled, the
Company has remaining accruals as of June 30, 2007 of
$154 million, included in current liabilities. As of
December 31, 2006, the accrual was $148 million. The
change in the accrual amounts is primarily due to fluctuations
in the currency exchange rate between the U.S. dollar and
the Euro. Although the outcome of this matter cannot be
predicted with certainty, the Companys best estimate of
the range of possible additional future losses and fines (in
excess of amounts already accrued), including any that may
result from the above noted governmental proceedings, as of
June 30, 2007 is between $0 and $9 million. The
estimated range of such possible future losses is based on the
advice of external counsel taking into consideration potential
fines and claims, both civil and criminal that may be imposed or
made in other jurisdictions.
Pursuant to the Demerger Agreement with Hoechst AG
(Hoechst), Celanese AG was assigned the obligation
related to the sorbates antitrust matter. However, Hoechst
agreed to indemnify Celanese AG for 80% of any costs Celanese
may incur relative to this matter. Accordingly, Celanese AG has
recognized a receivable from Hoechst and a corresponding
contribution of capital, net of tax, from this indemnification.
As of June 30, 2007 and December 31, 2006, the Company
has receivables, recorded within other current assets, relating
to the sorbates indemnification from Hoechst totaling
$123 million and $118 million, respectively. The
Company believes that any resulting liabilities, net of amounts
recoverable from Hoechst, will not, in the aggregate, have a
material adverse effect on its financial position, but may have
a material adverse effect on the results of operations or cash
flows in any given period.
Shareholder
Litigation
On May 30, 2006, CAGs shareholders approved a
transfer to the Purchaser of all shares owned by minority
shareholders against payment of cash compensation in the amount
of 66.99 per share. The Squeeze-Out was registered in the
commercial register in Germany on December 22, 2006, after
several lawsuits by minority shareholders challenging the
shareholders resolution approving the Squeeze-Out were
withdrawn pursuant to a
21
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
settlement agreement entered into between plaintiff
shareholders, the Purchaser and CAG on the same day. An
aggregate purchase price of approximately 62 million
was paid to minority shareholders in January 2007 as fair cash
compensation for the acquisition of their shares in CAG,
excluding direct acquisition costs of approximately
2 million.
Several minority shareholders of CAG initiated special award
proceedings seeking the courts review of the amounts of
the fair cash compensation and of the guaranteed annual payment
offered under the Domination Agreement. On March 14, 2005,
the Frankfurt District Court dismissed on grounds of
inadmissibility the motions of all minority shareholders
regarding the initiation of these special award proceedings. In
January 2006, the Frankfurt Higher District Court ruled that the
appeals were admissible, and the proceedings would therefore
continue. On December 2, 2006, the Frankfurt District Court
appointed an expert to help determine the value of CAG. In the
first quarter of 2007, certain minority shareholders that
received 66.99 per share as fair cash compensation also
filed award proceedings challenging the amount they received as
fair cash compensation.
As a result of the special proceedings discussed above, amounts
paid as fair cash compensation to certain minority shareholders
of CAG could be increased by the court such that minority
shareholders could be awarded a higher amount, which could have
a material adverse effect on the results of operations or cash
flows in any given period.
Guarantees
The Company has agreed to guarantee or indemnify third parties
for environmental and other liabilities pursuant to a variety of
agreements, including asset and business divestiture agreements,
leases, settlement agreements, and various agreements with
affiliated companies. Although many of these obligations contain
monetary
and/or time
limitations, others do not provide such limitations.
The Company has accrued for all probable and reasonably
estimable losses associated with all known matters or claims
that have been brought to its attention (see Note 20).
These known obligations include the following:
Demerger
Obligations
The Company has obligations to indemnify Hoechst for various
liabilities under the Demerger Agreement as follows:
|
|
|
|
|
The Company agreed to indemnify Hoechst for environmental
liabilities associated with contamination arising under 19
divestiture agreements entered into by Hoechst prior to the
demerger.
|
The Companys obligation to indemnify Hoechst is subject to
the following thresholds:
|
|
|
|
|
The Company will indemnify Hoechst against those liabilities up
to 250 million;
|
|
|
|
Hoechst will bear those liabilities exceeding
250 million, however the Company will reimburse
Hoechst for one-third of those liabilities for amounts that
exceed 750 million in the aggregate.
|
The aggregate maximum amount of environmental indemnifications
under the remaining divestiture agreements that provide for
monetary limits is 750 million. Three of the divested
agreements do not provide for monetary limits.
Based on the estimate of the probability of loss under this
indemnification, the Company has reserves of $31 million
and $33 million as of June 30, 2007 and
December 31, 2006, respectively, for this contingency.
Where the Company is unable to reasonably determine the
probability of loss or estimate such loss under an
indemnification, the Company has not recognized any related
liabilities (see Note 20).
22
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company has also undertaken in the Demerger Agreement to
indemnify Hoechst to the extent that Hoechst is required to
discharge liabilities, including tax liabilities, associated
with businesses that were included in the demerger where such
liabilities were not demerged, due to legal restrictions on the
transfers of such items. These indemnities do not provide for
any monetary or time limitations. Due to the uncertain nature of
these indemnities, the Company has not provided for any reserves
associated with this indemnification. The Company has not made
any payments to Hoechst during the three and six months ended
June 30, 2007 and 2006, respectively, in connection with
this indemnification.
Divestiture
Obligations
The Company and its predecessor companies agreed to indemnify
third party purchasers of former businesses and assets for
various pre-closing conditions, as well as for breaches of
representations, warranties and covenants. Such liabilities also
include environmental liability, product liability, antitrust
and other liabilities. These indemnifications and guarantees
represent standard contractual terms associated with typical
divestiture agreements and, other than environmental
liabilities, the Company does not believe that they expose the
Company to any significant risk.
The Company has divested numerous businesses, investments and
facilities, through agreements containing indemnifications or
guarantees to the purchasers. Many of the obligations contain
monetary
and/or time
limitations, ranging from one year to thirty years. The
aggregate amount of guarantees provided for under these
agreements is approximately $2.3 billion as of
June 30, 2007. Other agreements do not provide for any
monetary or time limitations.
Based on historical claims experience and its knowledge of the
sites and businesses involved, the Company believes that it is
adequately reserved for these matters. As of June 30, 2007
and December 31, 2006, the Company has reserves in the
aggregate of $29 million and $30 million,
respectively, for these environmental matters.
Polyester
Staple Antitrust Litigation
CNA Holdings, the successor in interest to Hoechst Celanese
Corporation (HCC), CAC and CAG (collectively, the
Celanese Entities) and Hoechst AG (HAG),
the former parent of HCC, were named as defendants in two
actions (involving 25 individual participants) filed in
September 2006 by U.S. purchasers of polyester staple
fibers manufactured and sold by HCC. The actions allege that the
defendants participated in a conspiracy to fix prices, rig bids
and allocate customers of polyester staple sold in the United
States. These actions have been consolidated for pre-trial
discovery by a Multi-District Litigation Panel in the United
States District Court for the Western District of North Carolina
and are styled In re Polyester Staple Antitrust
Litigation, MDL 1516. Already pending in that consolidated
proceeding are five other actions commenced by five other
alleged U.S. purchasers of polyester staple fibers
manufactured and sold by the Celanese Entities, which also
allege the defendants participation in the conspiracy.
In 1998, HCC sold its polyester staple business as part of its
sale of its Film & Fibers Division to KoSa, Inc. In a
complaint now pending against the Celanese Entities and HAG in
the United States District Court for the Southern District of
New York, Koch Industries, Inc., KoSa B.V. (KoSa),
Arteva Specialties, S.A.R.L. (Arteva Specialties)
and Arteva Services, S.A.R.L. seek, among other things,
indemnification under the asset purchase agreement pursuant to
which KoSa and Arteva Specialties agreed to purchase
defendants polyester business for all damages related to
the defendants participation in, and failure to disclose,
the alleged conspiracy, or alternatively, rescission of the
agreement.
The Company does not believe that the Celanese Entities engaged
in any conduct that should result in liability in these actions.
However, the outcome of the foregoing actions cannot be
predicted with certainty. The Company believes that any
resulting liabilities from an adverse result will not, in the
aggregate, have a material adverse effect
23
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
on the Companys financial position, but may have a
material adverse effect on its results of operations or cash
flows in any given accounting period.
Other
Obligations
|
|
|
|
|
The Company is secondarily liable under a lease agreement
pursuant to which the Company has assigned a direct obligation
to a third party. The lease assumed by the third party expires
on April 30, 2012. The lease liability for the period from
July 1, 2007 to April 30, 2012 is estimated to be
approximately $38 million.
|
|
|
|
The Company has agreed to indemnify various insurance carriers,
for amounts not in excess of the settlements received, from
claims made against these carriers subsequent to the settlement.
The aggregate amount of guarantees under these settlements is
approximately $10 million, which is unlimited in term.
|
As indemnification obligations often depend on the occurrence of
unpredictable future events, the future costs associated with
them cannot be determined at this time. However, if the Company
were to incur additional charges for these matters, such charges
may have a material adverse effect on the financial position,
results of operations or cash flows of the Company in any given
accounting period.
Other
Matters
As of June 30, 2007, Celanese Ltd. and/or CNA Holdings,
Inc., both U.S. subsidiaries of the Company, are defendants
in approximately 674 asbestos cases. During the three months
ended June 30, 2007, 23 new cases were filed against the
Company and 7 cases were resolved. Because many of these cases
involve numerous plaintiffs, the Company is subject to claims
significantly in excess of the number of actual cases. The
Company has reserves for defense costs related to claims arising
from these matters. The Company believes that there is not
significant exposure related to these matters.
|
|
13.
|
Other
(Charges) Gains, Net
|
The components of Other (charges) gains, net are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(In $ millions)
|
|
|
Employee termination benefits
|
|
|
(25
|
)
|
|
|
(9
|
)
|
|
|
(25
|
)
|
|
|
(11
|
)
|
Plant/office closures
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring
|
|
|
(25
|
)
|
|
|
(11
|
)
|
|
|
(25
|
)
|
|
|
(11
|
)
|
Insurance recoveries associated
with plumbing cases
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
3
|
|
Deferred compensation triggered by
Exit Event (see Note 14)
|
|
|
(74
|
)
|
|
|
|
|
|
|
(74
|
)
|
|
|
|
|
Asset impairments
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
Ticona Kelsterbach relocation (see
Note 19)
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
Other
|
|
|
|
|
|
|
(3
|
)
|
|
|
(1
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other (charges) gains, net
|
|
|
(105
|
)
|
|
|
(12
|
)
|
|
|
(106
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In May 2007, the Company announced a plan to simplify and
optimize its Emulsions and PVOH business to become a leader in
technology and innovation and grow in both new and existing
markets. As a result of this plan, the Company recorded
approximately $16 million of employee termination benefits
during the three and six months ended June 30, 2007. In
addition, the Company recorded an impairment of long-lived
assets of approximately
24
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$3 million during the three and six months ended
June 30, 2007. Certain long-lived assets with a book value
of approximately $16 million as of June 30, 2007 will
be depreciated on an accelerated basis over periods ranging from
three months to two years.
The components of the June 30, 2007 and December 31,
2006 restructuring reserves are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
Plant/Office
|
|
|
|
|
|
|
Benefits
|
|
|
Closures
|
|
|
Total
|
|
|
|
(In $ millions)
|
|
|
Restructuring reserve as of
December 31, 2006
|
|
|
28
|
|
|
|
7
|
|
|
|
35
|
|
Restructuring additions
|
|
|
34
|
(1)
|
|
|
|
|
|
|
34
|
|
Cash uses
|
|
|
(22
|
)
|
|
|
|
|
|
|
(22
|
)
|
Currency translation adjustment
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring reserve as of
June 30, 2007
|
|
|
42
|
|
|
|
7
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included in this amount is $25 million of employee
termination benefits, of which $16 million relates to the
Emulsions and PVOH restructuring discussed above. Also included
in this amount is $9 million of reserves generated by the
closure of the Little Heath, United Kingdom production plant
acquired in the APL acquisition. |
|
|
14.
|
Stock-based
and Other Management Compensation Plans
|
In December 2004, the Company approved a stock incentive plan
for executive officers, key employees and directors, a deferred
compensation plan for executive officers and key employees as
well as other management incentive programs.
These plans allow for the issuance or delivery of up to
16,250,000 shares of the Companys Series A
common stock through a discounted share purchase program, stock
options and restricted stock issuances.
Deferred
Compensation
The deferred compensation plan provides an aggregate maximum
amount payable of $196 million. The initial component of
the deferred compensation plan vested in 2004 and was paid in
the first quarter of 2005. The amount payable under the deferred
compensation plan is subject to downward adjustment if the price
of the Companys Series A common stock falls below the
initial public offering price of $16 per share and vests subject
to both (1) continued employment or the achievement of
certain performance criteria and (2) the disposition by
three of the four Original Shareholders of at least 90% of their
equity interest in the Company with at least a 25% cash internal
rate of return on their equity interest (an Exit
Event). In May 2007, the Original Shareholders sold their
remaining equity interest in the Company (see
Note 11) triggering an Exit Event. Cash compensation
of $73 million, excluding unpaid amounts of
$1 million, representing the participants 2005 and
2006 contingent benefits, was paid to the participants at the
time of the Exit Event. Participants continuing in the 2004
deferred compensation plan (see below for discussion regarding
certain participants decision to participate in a revised
program) will continue to vest in their 2007, 2008 and 2009
time-based and performance-based entitlements as defined in the
deferred compensation plan. During the three and six months
ended June 30, 2007, the Company recorded compensation
expense of $76 million and $78 million, respectively,
associated with this plan. During the three and six months ended
June 30, 2006, the Company recorded compensation expense of
$10 million and $13 million, respectively, associated
with this plan.
On April 2, 2007, certain participants in the
Companys deferred compensation plan elected to participate
in a revised program, which included both cash awards and
restricted stock units (see Restricted Stock Units below). Under
the revised program, participants relinquished their cash awards
of up to $30 million that would have contingently
25
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
accrued from
2007-2009
under the original plan. In lieu of these awards, the revised
deferred compensation program provides for a future cash award
in an amount equal to 90% of the maximum potential payout under
the original plan, plus growth pursuant to one of three
participant-selected notional investment vehicles, as defined in
the associated agreements. Participants must remain employed
through 2010 to vest in the new award. The Company will make
award payments under the revised program in the first quarter of
2011, unless participants elect to further defer the payment of
their individual awards. Based on current participation in the
revised program, the award, which will be expensed between
April 2, 2007 and December 31, 2010, aggregates to
approximately $27 million plus notional earnings. The
Company expensed approximately $2 million and
$2 million, respectively, during the three and six months
ended June 30, 2007 related to the revised program.
The maximum remaining amount payable to participants who did not
elect to participate in the revised program as of June 30,
2007 is $31 million, of which $16 million is accrued
as of June 30, 2007. Subsequent to June 30, 2007, an
employee who remained a participant in the deferred compensation
plan retired. As a result, the employee will forfeit
approximately $3 million that is included in the
$31 million as of June 30, 2007.
Long-Term
Incentive Plan
Effective January 1, 2004, the Company adopted a long-term
incentive plan (the LTIP Plan) which covers certain
members of management and other key employees of the Company.
The LTIP Plan is a three-year cash based plan in which awards
are based on annual and three-year cumulative targets (as
defined in the LTIP Plan). On February 16, 2007,
approximately $26 million was paid to the LTIP plan
participants. During the three and six months ended
June 30, 2006, the Company recorded expense of
$5 million and $10 million, respectively, related to
the LTIP Plan. There are no additional amounts due under the
LTIP plan.
Stock-Based
Compensation
The Company has a stock-based compensation plan that makes
awards of stock options to certain employees. Effective
January 1, 2006, the Company adopted the fair value
recognition provisions of SFAS No. 123(R). The Company
elected the modified prospective transition method as permitted
by SFAS No. 123(R) and, accordingly, prior periods
have not been restated to reflect the impact of
SFAS No. 123(R). Under this transition method,
compensation cost recognized includes: (i) compensation
cost for all stock-based payments granted prior to, but not yet
vested as of, January 1, 2006 (based on the grant-date fair
value estimated in accordance with the original provisions of
SFAS No. 123 and previously presented in the pro forma
footnote disclosures), and (ii) compensation cost for all
stock-based payments granted subsequent to January 1, 2006
(based on the grant-date fair value estimated in accordance with
the new provisions of SFAS No. 123(R)).
It is the Companys policy to grant options with an
exercise price equal to the price of the Companys
Series A common stock on the grant date. The options issued
have a ten-year term with vesting terms pursuant to a schedule,
with all vesting to occur no later than the eighth anniversary
of the date of the grant. Accelerated vesting for certain awards
depends on meeting specified performance targets. The estimated
value of the Companys stock-based awards less expected
forfeitures is amortized over the awards respective
vesting period on the applicable graded or straight-line basis,
subject to acceleration as discussed above.
26
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair value of each option granted is estimated on the date
of grant using the Black-Scholes option pricing method. The
weighted average assumptions used in the model are outlined in
the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Risk free interest rate
|
|
|
4.5
|
%
|
|
|
4.9
|
%
|
|
|
4.5
|
%
|
|
|
4.9
|
%
|
Estimated life in years
|
|
|
7.2
|
|
|
|
7.0
|
|
|
|
7.2
|
|
|
|
7.0
|
|
Dividend yield
|
|
|
0.49
|
%
|
|
|
0.8
|
%
|
|
|
0.49
|
%
|
|
|
0.8
|
%
|
Volatility
|
|
|
26.2
|
%
|
|
|
30.3
|
%
|
|
|
26.2
|
%
|
|
|
30.3
|
%
|
The computation of the expected volatility assumption used in
the Black-Scholes calculations for new grants is based on
historical volatilities and volatilities of peer companies. When
establishing the expected life assumptions, the Company reviews
annual historical employee exercise behavior of option grants
with similar vesting periods and the expected life assumptions
of peer companies. The Company utilized the review of peer
companies based on its own lack of extensive history.
A summary of changes in stock options outstanding during the six
months ended June 30, 2007 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2007
|
|
|
|
|
|
|
Weighted-
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Grant
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price in
|
|
|
Contractual
|
|
|
Value
|
|
|
|
(In millions)
|
|
|
$
|
|
|
Term
|
|
|
(In $ millions)
|
|
|
Outstanding at beginning of period
|
|
|
12.5
|
|
|
|
16.81
|
|
|
|
7.0
|
|
|
|
113
|
|
Granted
|
|
|
0.1
|
|
|
|
30.98
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1.3
|
)
|
|
|
16.04
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(0.3
|
)
|
|
|
19.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
11.0
|
|
|
|
16.98
|
|
|
|
6.4
|
|
|
|
238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of
period
|
|
|
6.1
|
|
|
|
16.11
|
|
|
|
7.1
|
|
|
|
137
|
|
The weighted-average grant-date fair value of stock options
granted during the six months ended June 30, 2007 was
$11.47 per option. As of June 30, 2007, the Company had
approximately $21 million of total unrecognized
compensation expense related to stock options, excluding
estimated forfeitures, to be recognized over the remaining
vesting periods of the options. Cash received from stock option
exercises was approximately $21 million during the six
months ended June 30, 2007 and the related tax benefit was
zero.
Restricted
Stock Units
Participants in the revised deferred compensation program also
received an award of restricted stock units (RSUs).
The RSUs, which were granted on April 2, 2007, generally
cliff vest on December 31, 2010 and have a fair value of
$23.63 per unit. The number of RSUs that ultimately vest depends
on market performance targets measured by comparison of the
Companys stock performance versus a defined peer group.
The ultimate award will range from zero to 263,030 RSUs, based
on the market performance measurement at the cliff vesting date.
The market performance feature is factored into the estimated
fair value per unit, and compensation expense for the award is
based on the maximum RSUs of 263,030. Dividends on RSUs are
reinvested in additional RSUs. During each of the three and six
months ended June 30, 2007, the Company recorded
compensation expense associated with these RSUs of less than
$1 million.
27
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In addition to the RSUs granted to participants in the revised
deferred compensation program, the Company granted RSUs to
certain employees with a fair value of $21.30 per unit. The RSUs
generally vest annually in equal tranches beginning
September 30, 2008 through September 30, 2011. The
RSUs contain the same market performance criteria as those
described in the previous paragraph, with an ultimate award that
will range from zero to 917,361 RSUs. The awards include a
catch-up
provision that provides for vesting on September 30, 2012
of previously unvested amounts, subject to certain maximums.
During each of the three and six months ended June 30,
2007, the Company recorded compensation expense associated with
these RSUs of $1 million.
The Company also granted 26,070 RSUs to its non-management Board
of Directors with a fair value of $32.61 per unit, which
was equal to the price of the Companys Series A
common stock on the grant date. During the three months ended
June 30, 2007, two directors resigned from the board and
forfeited a total of 5,214 RSUs. The Director RSUs will vest on
April 26, 2008. During each of the three and six months
ended June 30, 2007, the Company recorded compensation
expense associated with these RSUs of less than $1 million.
Fair value for the Companys RSUs (excluding Director RSUs)
was estimated at the grant date using a Monte Carlo Simulation
approach. Monte Carlo Simulation was utilized to randomly
generate future stock returns for the Company and each company
in the peer group based on company-specific dividend yields,
volatilities and stock return correlations. These returns are
used to calculate future RSU vesting percentages and the
simulated values of the vested RSUs are then discounted to
present value using a risk free rate, yielding the expected
value of these RSUs.
The range of assumptions used in the Monte Carlo Simulation
approach are outlined in the following table:
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30, 2007
|
|
|
Risk free interest rate
|
|
|
4.53 - 4.55
|
%
|
Dividend yield
|
|
|
0.00 - 2.76
|
%
|
Volatility
|
|
|
20.0 - 45.0
|
%
|
A summary of changes in RSUs (excluding Director RSUs)
outstanding during the six months ended June 30, 2007 is
presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
|
Units
|
|
|
Fair Value
|
|
|
Nonvested at beginning of period
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,180,391
|
|
|
|
21.82
|
|
Forfeited
|
|
|
(2,250
|
)
|
|
|
21.30
|
|
|
|
|
|
|
|
|
|
|
Nonvested at end of period
|
|
|
1,178,141
|
|
|
|
21.90
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2007, there was approximately
$25 million of unrecognized compensation cost related to
RSUs, excluding estimated forfeitures, which is expected to be
amortized on a straight-line basis over the remaining vesting
periods as discussed above.
Income taxes for the three and six months ended June 30,
2007 and 2006 are recorded based on the estimated annual
effective tax rate. As of June 30, 2007, the estimated
annualized tax rate is 26%, which is less than the combination
of the statutory federal rate and state income tax rates in the
U.S. The estimated annual effective tax rate for 2007
reflects earnings in low tax jurisdictions offset by higher tax
rates in certain
non-U.S. jurisdictions.
28
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For the three months ended June 30, 2007 and 2006, the
Company recorded a tax benefit of $44 million and tax
expense of $38 million, respectively, which resulted in an
effective tax rate of 26% and 28%, respectively. For the six
months ended June 30, 2007 and 2006, the Company recorded
tax expense of $5 million and $68 million,
respectively, which resulted in an effective tax rate of 167%
and 27%, respectively. The higher effective tax rate for the six
months ended June 30, 2007 was primarily due to limitation
of tax benefit in the U.S. on the fees incurred in connection
with the debt refinancing described in Note 8. The tax
benefit of approximately $59 million associated with the
deduction of the refinancing fees has been reflected entirely in
U.S. tax expense for the three months ended June 30,
2007. This tax benefit is partially offset by $31 million
of tax expense allocated to discontinued operations during the
three months ended March 31, 2007. The debt refinancing was
determined to be unusual in nature and not included in the
computation of the estimated annual effective rate in accordance
with Accounting Principles Board Opinion No. 28, Interim
Financial Reporting.
The Company adopted the provisions of FIN 48 effective
January 1, 2007. The Company made a comprehensive review of
its portfolio of uncertain tax positions in each of the
jurisdictions in which it operates. As a result of this review,
the Company adjusted the estimated value of its uncertain tax
positions by recognizing an increase to retained earnings of
$14 million and reduced the carrying value of Goodwill by
$2 million for uncertain tax positions relating to periods
prior to the Acquisition. The total amount of the Companys
estimated uncertain tax positions at the date of adoption was
$193 million. Of this amount, $167 million is
classified as other long-term liabilities. If the tax positions
are settled in the Companys favor, approximately
$133 million would be treated as a reduction of Goodwill
and $41 million would reduce the Companys effective
tax rate.
The Company recognizes interest and penalties related to
uncertain tax positions in the provision for income taxes. As of
January 1, 2007, the Company had recorded a liability of
approximately $22 million for the payment of interest and
penalties. The liability for the payment of interest increased
approximately $4 million as of June 30, 2007.
The Company operates in the United States (including multiple
state jurisdictions), Germany, and approximately 40 other
foreign jurisdictions, including Mexico, Canada, China, France
and Singapore. Examinations are ongoing in a number of those
jurisdictions, including, most significantly, in Germany for the
years 2001 to 2004 for numerous subsidiaries. During the quarter
ended March 31, 2007, the Company received final
assessments for the prior examination period, 1997 to 2000. The
effective settlement of those examinations resulted in a
reduction to Goodwill of approximately $42 million with a
net expected cash outlay of $4 million. The Companys
U.S. federal income tax returns for 2003 and beyond are
open tax years, but not currently under examination. The Company
previously concluded an examination of tax year 2000 to 2003 in
2005 with no material impact on the financial position of the
Company. The Company reasonably expects to pay approximately
$10 million of the liability within the next twelve months.
On May 17, 2006, the President signed into law the Tax
Increase Prevention and Reconciliation Act of 2005
(TIPRA), which among other things, provided for a
new temporary exception to certain U.S. taxed foreign
passive income inclusion rules for 2006 to 2008. This change
reduced the expected amount of foreign income taxed currently in
the U.S.
German Tax Reform 2008 was passed by the Bundestag (Lower House)
on May 25, 2007 and the Bundesrat (Upper House) on
July 6, 2007. It will become law when signed by the German
Federal President, which is expected to occur during the third
quarter of 2007. The Company is currently evaluating the
potential impact of the provisions of the proposed legislation.
The proposed legislation would reduce the statutory tax rate
while imposing limitations on the deductibility of certain
expenses, including interest expense.
29
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemical
|
|
|
|
|
|
Acetate
|
|
|
Performance
|
|
|
Total
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Ticona
|
|
|
Products
|
|
|
Products
|
|
|
Segments
|
|
|
Activities
|
|
|
Reconciliation
|
|
|
Consolidated
|
|
|
|
(In $ millions)
|
|
|
As of and for the three months
ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
|
|
959
|
|
|
|
257
|
|
|
|
235
|
|
|
|
47
|
|
|
|
1,498
|
|
|
|
58
|
|
|
|
|
|
|
|
1,556
|
|
Inter-segment revenues
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
(43
|
)
|
|
|
|
|
Earnings (loss) from continuing
operations before tax and minority interests
|
|
|
108
|
|
|
|
48
|
|
|
|
63
|
|
|
|
19
|
|
|
|
238
|
|
|
|
(406
|
)
|
|
|
|
|
|
|
(168
|
)
|
Depreciation and amortization
|
|
|
37
|
|
|
|
17
|
|
|
|
9
|
|
|
|
4
|
|
|
|
67
|
|
|
|
6
|
|
|
|
|
|
|
|
73
|
|
Capital expenditures
|
|
|
51
|
|
|
|
9
|
|
|
|
5
|
|
|
|
|
|
|
|
65
|
|
|
|
2
|
|
|
|
|
|
|
|
67
|
|
Total assets
|
|
|
2,892
|
|
|
|
1,555
|
|
|
|
884
|
|
|
|
202
|
|
|
|
5,533
|
|
|
|
1,822
|
|
|
|
|
|
|
|
7,355
|
|
For the three months ended
June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
|
|
935
|
|
|
|
230
|
|
|
|
176
|
|
|
|
48
|
|
|
|
1,389
|
|
|
|
68
|
|
|
|
|
|
|
|
1,457
|
|
Inter-segment revenues
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
(42
|
)
|
|
|
|
|
Earnings (loss) from continuing
operations before tax and minority interests
|
|
|
145
|
|
|
|
53
|
|
|
|
50
|
|
|
|
17
|
|
|
|
265
|
|
|
|
(131
|
)
|
|
|
|
|
|
|
134
|
|
Depreciation and amortization
|
|
|
42
|
|
|
|
16
|
|
|
|
5
|
|
|
|
4
|
|
|
|
67
|
|
|
|
7
|
|
|
|
|
|
|
|
74
|
|
Capital expenditures
|
|
|
41
|
|
|
|
6
|
|
|
|
21
|
|
|
|
|
|
|
|
68
|
|
|
|
1
|
|
|
|
|
|
|
|
69
|
|
Total assets as of
December 31, 2006
|
|
|
3,489
|
|
|
|
1,584
|
|
|
|
711
|
|
|
|
361
|
|
|
|
6,145
|
|
|
|
1,750
|
|
|
|
|
|
|
|
7,895
|
|
As of and for the six months
ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
|
|
1,925
|
|
|
|
519
|
|
|
|
458
|
|
|
|
92
|
|
|
|
2,994
|
|
|
|
117
|
|
|
|
|
|
|
|
3,111
|
|
Inter-segment revenues
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
|
|
|
|
|
|
|
|
(79
|
)
|
|
|
|
|
Earnings (loss) from continuing
operations before tax and minority interests
|
|
|
260
|
|
|
|
98
|
|
|
|
92
|
|
|
|
34
|
|
|
|
484
|
|
|
|
(481
|
)
|
|
|
|
|
|
|
3
|
|
Depreciation and amortization
|
|
|
71
|
|
|
|
34
|
|
|
|
16
|
|
|
|
8
|
|
|
|
129
|
|
|
|
12
|
|
|
|
|
|
|
|
141
|
|
Capital expenditures
|
|
|
83
|
|
|
|
15
|
|
|
|
14
|
|
|
|
|
|
|
|
112
|
|
|
|
4
|
|
|
|
|
|
|
|
116
|
|
Total assets
|
|
|
2,892
|
|
|
|
1,555
|
|
|
|
884
|
|
|
|
202
|
|
|
|
5,533
|
|
|
|
1,822
|
|
|
|
|
|
|
|
7,355
|
|
For the six months ended
June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
|
|
1,847
|
|
|
|
461
|
|
|
|
343
|
|
|
|
97
|
|
|
|
2,748
|
|
|
|
129
|
|
|
|
|
|
|
|
2,877
|
|
Inter-segment revenues
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
|
|
|
|
|
|
|
|
(67
|
)
|
|
|
|
|
Earnings (loss) from continuing
operations before tax and minority interests
|
|
|
272
|
|
|
|
109
|
|
|
|
73
|
|
|
|
32
|
|
|
|
486
|
|
|
|
(235
|
)
|
|
|
|
|
|
|
251
|
|
Depreciation and amortization
|
|
|
75
|
|
|
|
32
|
|
|
|
12
|
|
|
|
8
|
|
|
|
127
|
|
|
|
12
|
|
|
|
|
|
|
|
139
|
|
Capital expenditures
|
|
|
63
|
|
|
|
11
|
|
|
|
37
|
|
|
|
|
|
|
|
111
|
|
|
|
2
|
|
|
|
|
|
|
|
113
|
|
Total assets as of
December 31, 2006
|
|
|
3,489
|
|
|
|
1,584
|
|
|
|
711
|
|
|
|
361
|
|
|
|
6,145
|
|
|
|
1,750
|
|
|
|
|
|
|
|
7,895
|
|
30
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
17.
|
Transactions
and Relationships with Affiliates and Related Parties
|
Upon closing of the Acquisition, the Company entered into a
transaction and monitoring fee agreement with the Advisor, an
affiliate of the Sponsor. Under the agreement, the Advisor
agreed to provide monitoring services to the Company for a
12 year period. Also, the Advisor may receive additional
compensation for providing investment banking or other advisory
services provided to the Company by the Advisor or any of its
affiliates, and may be reimbursed for certain expenses, in
connection with any acquisition, divestiture, refinancing,
recapitalization or similar transaction. In connection with the
completion of the initial public offering, the parties amended
and restated the transaction and monitoring fee agreement to
terminate the monitoring services and all obligations to pay
future monitoring fees. In connection with the Original
Shareholders sale of its remaining shares of Series A
common stock in May 2007 (see Note 11), the transaction
based agreement was terminated.
In connection with the recent debt refinancing (see
Note 8), certain Blackstone managed funds that market
collateralized loan obligations to institutional investors
invested an aggregate of $50 million in the Companys
term loan under the new senior credit agreement. At the time of
the debt refinancing, Blackstone was considered an affiliate of
the Company. As a result of the Original Shareholders sale
of its remaining shares of Series A common stock in May
2007 (see Note 11), Blackstone is no longer an affiliate of
the Company.
For the three and six months ended June 30, 2007, the
Company made payments to the Advisor of $0 million and
$7 million, respectively, in accordance with the sponsor
services agreement dated January 26, 2005, as amended.
These payments were related to the sale of the oxo products and
derivatives businesses and the acquisition of APL (see
Note 4). For the three and six months ended June 30,
2006, the Company did not make any payments to the Advisor.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2007
|
|
|
Three Months Ended June 30, 2006
|
|
|
|
Continuing
|
|
|
Discontinued
|
|
|
|
|
|
Continuing
|
|
|
Discontinued
|
|
|
|
|
|
|
Operations
|
|
|
Operations
|
|
|
Net Earnings
|
|
|
Operations
|
|
|
Operations
|
|
|
Net Earnings
|
|
|
|
(In $ millions, except for share and per share data)
|
|
|
Net earnings (loss)
|
|
|
(124
|
)
|
|
|
7
|
|
|
|
(117
|
)
|
|
|
95
|
|
|
|
8
|
|
|
|
103
|
|
Less: cumulative declared
preferred stock dividends
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) available to
common shareholders
|
|
|
(127
|
)
|
|
|
7
|
|
|
|
(120
|
)
|
|
|
93
|
|
|
|
8
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common
share
|
|
|
(0.81
|
)
|
|
|
0.05
|
|
|
|
(0.76
|
)
|
|
|
0.59
|
|
|
|
0.05
|
|
|
|
0.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common
share
|
|
|
(0.81
|
)
|
|
|
0.05
|
|
|
|
(0.76
|
)
|
|
|
0.55
|
|
|
|
0.05
|
|
|
|
0.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares basic
|
|
|
156,932,929
|
|
|
|
156,932,929
|
|
|
|
156,932,929
|
|
|
|
158,562,161
|
|
|
|
158,562,161
|
|
|
|
158,562,161
|
|
Dilutive stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,498,489
|
|
|
|
1,498,489
|
|
|
|
1,498,489
|
|
Dilutive restricted stock units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed conversion of preferred
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,005,896
|
|
|
|
12,005,896
|
|
|
|
12,005,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares diluted
|
|
|
156,932,929
|
|
|
|
156,932,929
|
|
|
|
156,932,929
|
|
|
|
172,066,546
|
|
|
|
172,066,546
|
|
|
|
172,066,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2007
|
|
|
Six Months Ended June 30, 2006
|
|
|
|
Continuing
|
|
|
Discontinued
|
|
|
|
|
|
Continuing
|
|
|
Discontinued
|
|
|
|
|
|
|
Operations
|
|
|
Operations
|
|
|
Net Earnings
|
|
|
Operations
|
|
|
Operations
|
|
|
Net Earnings
|
|
|
|
(In $ millions, except for share and per share data)
|
|
|
Net earnings (loss)
|
|
|
(2
|
)
|
|
|
86
|
|
|
|
84
|
|
|
|
182
|
|
|
|
38
|
|
|
|
220
|
|
Less: cumulative declared
preferred stock dividends
|
|
|
(5
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) available to
common shareholders
|
|
|
(7
|
)
|
|
|
86
|
|
|
|
79
|
|
|
|
177
|
|
|
|
38
|
|
|
|
215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common
share
|
|
|
(0.04
|
)
|
|
|
0.54
|
|
|
|
0.50
|
|
|
|
1.12
|
|
|
|
0.24
|
|
|
|
1.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common
share
|
|
|
(0.04
|
)
|
|
|
0.54
|
|
|
|
0.50
|
|
|
|
1.06
|
|
|
|
0.22
|
|
|
|
1.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares basic
|
|
|
158,102,411
|
|
|
|
158,102,411
|
|
|
|
158,102,411
|
|
|
|
158,562,161
|
|
|
|
158,562,161
|
|
|
|
158,562,161
|
|
Dilutive stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,406,420
|
|
|
|
1,406,420
|
|
|
|
1,406,420
|
|
Dilutive restricted stock units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed conversion of preferred
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,005,896
|
|
|
|
12,005,896
|
|
|
|
12,005,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares diluted
|
|
|
158,102,411
|
|
|
|
158,102,411
|
|
|
|
158,102,411
|
|
|
|
171,974,477
|
|
|
|
171,974,477
|
|
|
|
171,974,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following securities were not included in the computation of
diluted net earnings per share as their effect would have been
anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Stock options
|
|
|
5,166,015
|
|
|
|
|
|
|
|
4,141,373
|
|
|
|
|
|
Restricted stock units
|
|
|
451,028
|
|
|
|
|
|
|
|
225,514
|
|
|
|
|
|
Convertible preferred stock
|
|
|
12,043,299
|
|
|
|
|
|
|
|
12,043,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
17,660,342
|
|
|
|
|
|
|
|
16,410,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19.
|
Relocation
of Ticona Plant in Kelsterbach
|
On November 29, 2006, the Company reached a settlement with
the Frankfurt, Germany, Airport (Fraport) to
relocate its Kelsterbach, Germany, business, resolving several
years of legal disputes related to the planned Frankfurt airport
expansion. The final settlement agreement was approved by the
Fraport supervisory board on May 8, 2007 at an
extraordinary board meeting. The final settlement agreement was
signed on June 12, 2007. As a result of the settlement, the
Company will transition Ticonas administration and
operations from Kelsterbach to another location in Germany by
mid-2011. In July 2007, the Company announced that it would
relocate the Kelsterbach, Germany, business to the Hoechst
Industrial Park in the Rhine Main area. Over a five-year period,
Fraport will pay Ticona a total of 670 million to
offset the costs associated with the transition of the business
from its current location and the closure of the Kelsterbach
plant. The payment amount was increased by 20 million
from 650 million in consideration of the
Companys agreement to waive certain obligations of Fraport
set forth in the settlement agreement. These obligations related
to the hiring of Ticona employees in the event the Ticona Plant
relocated out of the Rhine Main area. From the settlement date
through June 30, 2007, Fraport has paid the
32
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Company a total of 20 million towards the transition
and the Company has incurred approximately 6 million
of costs associated with the relocation, of which
2 million is included in 2007 Other (charges) gains,
net and 3 million was capitalized. The amount
received from Fraport has been accounted for as deferred income
and is included in Other liabilities in the consolidated balance
sheet as of June 30, 2007.
General The Company is subject to
environmental laws and regulations worldwide which impose
limitations on the discharge of pollutants into the air and
water and establish standards for the treatment, storage and
disposal of solid and hazardous wastes. The Company believes
that it is in substantial compliance with all applicable
environmental laws and regulations. The Company is also subject
to retained environmental obligations specified in various
contractual agreements arising from divestiture of certain
businesses by the Company or one of its predecessor companies.
The Companys environmental reserves for remediation
matters were $118 million and $114 million as of
June 30, 2007 and December 31, 2006, respectively. The
increase in 2007 was primarily due to environmental liabilities
assumed related to the APL acquisition.
Remediation Due to its industrial history and
through retained contractual and legal obligations, the Company
has the obligation to remediate specific areas on its own sites
as well as on divested, orphan or U.S. Superfund sites (as
defined below). In addition, as part of the demerger agreement
between the Company and Hoechst, a specified portion of the
responsibility for environmental liabilities from a number of
Hoechst divestitures was transferred to the Company. The Company
provides for such obligations when the event of loss is probable
and reasonably estimable. The Company believes that
environmental remediation costs will not have a material adverse
effect on the financial position of the Company, but may have a
material adverse effect on the results of operations or cash
flows in any given accounting period.
U.S. Superfund Sites In the U.S., the
Company may be subject to substantial claims brought by
U.S. federal or state regulatory agencies or private
individuals pursuant to statutory authority or common law. In
particular, the Company has a potential liability under the
U.S. Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, and related
state laws (collectively referred to as Superfund)
for investigation and cleanup costs at approximately 50 sites.
At most of these sites, numerous companies, including certain
companies comprising the Company, or one of its predecessor
companies, have been notified that the Environmental Protection
Agency, state governing bodies or private individuals consider
such companies to be potentially responsible parties
(PRP) under Superfund or related laws. The
proceedings relating to these sites are in various stages. The
cleanup process has not been completed at most sites and the
status of the insurance coverage for most of these proceedings
is uncertain. Consequently, the Company cannot determine
accurately its ultimate liability for investigation or cleanup
costs at these sites. As of both June 30, 2007 and
December 31, 2006, the Company had provisions totaling
$15 million for U.S. Superfund sites.
As events progress at each site for which it has been named a
PRP, the Company accrues, as appropriate, a liability for site
cleanup. Such liabilities include all costs that are probable
and can be reasonably estimated. In establishing these
liabilities, the Company considers its shipment of waste to a
site, its percentage of total waste shipped to the site, the
types of wastes involved, the conclusions of any studies, the
magnitude of any remedial actions that may be necessary and the
number and viability of other PRPs. Often the Company joins with
other PRPs to sign joint defense agreements that settle, among
PRPs, each partys percentage allocation of costs at the
site. Although the ultimate liability may differ from the
estimate, the Company routinely reviews the liabilities and
revises the estimate, as appropriate, based on the most current
information available.
Additional information relating to environmental remediation
activity is contained in the footnotes to the Companys
consolidated financial statements included in the 2006
Form 10-K.
33
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On July 6, 2007, the Company declared a cash dividend on
its 4.25% convertible perpetual preferred stock amounting to
approximately $2 million and a cash dividend of $0.04 per
share on its Series A common stock amounting to
approximately $6 million. Both cash dividends are for the
period May 1, 2007 to July 31, 2007 and will be paid
on August 1, 2007 to holders of record as of July 15,
2007.
In July 2007, in connection with the Board of Directors
authorization to repurchase shares of Series A common stock
(as discussed in Note 11), the Company repurchased
3,565,100 shares of its Series A common stock at an
average purchase price of $40.63 per share for a total of
approximately $145 million. The Company has completed
repurchasing shares related to this authorization.
In May 2007, the Company announced that it had an unplanned
outage at its Clear Lake, Texas acetic acid facility. At that
time, the Company originally expected the outage to last until
the end of May. Upon restart of the facility, additional
operating issues were identified which necessitated an extension
of the outage for further, more extensive repairs. In July 2007,
the Company announced that the further repairs were unsuccessful
on restart of the unit. Although there can be no assurances, at
this time, the Company expects that it will be able to repair
the unit within weeks and that the unit will not have to be
replaced. The Company has not recorded any contingent
liabilities associated with the outage. The Company believes
that any liabilities resulting from the outage will not, in the
aggregate, have a material adverse effect on the Companys
financial position, but may have a material adverse effect on
its results of operations or cash flows in any given accounting
period; however, if the unit needs to be replaced or if repairs
take significantly longer than anticipated, the liabilities
resulting from the outage may, in the aggregate, have a material
adverse effect on the Companys financial position. In
addition, any liabilities resulting from the outage may be
mitigated by the Companys insurance policies.
34
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
In this Quarterly Report on
Form 10-Q,
the term Celanese refers to Celanese Corporation, a
Delaware corporation, and not its subsidiaries. The terms the
Company, we, our, and
us, refer to Celanese and its subsidiaries on a
consolidated basis. The term Celanese US refers to
our subsidiary, Celanese US Holdings LLC, a Delaware limited
liability company, formally known as BCP Crystal US Holdings
Corp., a Delaware corporation, and not its subsidiaries. The
term Purchaser refers to our subsidiary, Celanese
Europe Holding GmbH & Co. KG, formerly known as BCP
Crystal Acquisition GmbH & Co. KG, a German limited
partnership, and not its subsidiaries, except where otherwise
indicated.
Managements Discussion and Analysis of Financial Condition
and Results of Operations (MD&A) and other
parts of this Quarterly Report on
Form 10-Q
contain certain forward-looking statements and information
relating to us that are based on the beliefs of our management
as well as assumptions made by, and information currently
available to, us. When used in this document, words such as
anticipate, believe,
estimate, expect, intend,
plan and project and similar
expressions, as they relate to us are intended to identify
forward-looking statements. These statements reflect our current
views with respect to future events, are not guarantees of
future performance and involve risks and uncertainties that are
difficult to predict. Further, certain forward-looking
statements are based upon assumptions as to future events that
may not prove to be accurate. Factors that might cause such
differences include, but are not limited to, those discussed in
the subsection entitled Factors That May Affect Future
Results and Financial Condition below. The following
discussion should be read in conjunction with our 2006
Form 10-K
filed with the Securities and Exchange Commission
(SEC) on February 21, 2007 and the unaudited
interim consolidated financial statements and notes thereto
included elsewhere in this Quarterly Report on
Form 10-Q.
We assume no obligation to revise or update any forward-looking
statements for any reason, except as required by law.
Overview
We are an integrated global hybrid producer of value-added
industrial chemicals and engineered polymers. We are the
worlds largest producer of acetyl products, including
acetic acid and vinyl acetate monomer (VAM),
polyacetal products (POM), as well as a leading
global producer of high-performance engineered polymers used in
consumer and industrial products and designed to meet highly
technical customer requirements. We believe that approximately
95% of our differentiated intermediate and specialty products
hold first or second market positions globally. Our operations
are located in North America, Europe and Asia. We believe we are
one of the lowest-cost producers of key building block chemicals
in the acetyls chain, such as acetic acid and VAM, due to our
economies of scale, operating and purchasing efficiencies and
proprietary production technologies. In addition, we have a
significant portfolio of strategic investments, including a
number of ventures in North America, Europe and Asia.
Collectively, these strategic investments create value for us
and contribute significantly to earnings and cash flow. These
investments play an integral role in our strategy for growth and
expansion of our global reach. We have entered into these
strategic investments in order to gain access to local markets,
minimize costs and accelerate growth in areas we believe have
significant future business potential.
We operate principally through four business segments: Chemical
Products, Technical Polymers Ticona (Ticona),
Acetate Products and Performance Products. For further detail on
the business segments, see below Summary by Business
Segment in the Results of Operations section
of MD&A.
Sale
of Oxo Products and Derivative Businesses
In connection with our strategy to optimize our portfolio and
divest non-core operations, we announced on December 13,
2006 our agreement to sell our Chemical Products segments
oxo products and derivatives businesses, including European Oxo
GmbH (EOXO), a 50/50 venture between Celanese AG and
Degussa AG (Degussa), to Advent International, for a
purchase price of 480 million subject to final
agreement adjustments and the successful exercise of our option
to purchase Degussas 50% interest in EOXO. On
February 23, 2007, the option was exercised and we acquired
Degussas interest in the venture for a purchase price of
30 million ($39 million), in addition to
22 million ($29 million) paid to extinguish
EOXOs debt upon closing of the transaction. We completed
the sale of our oxo products and derivatives businesses,
including the acquired 50% interest in EOXO, on
February 28, 2007. The
35
transaction resulted in the recognition of a $31 million
pre-tax gain in the first quarter of 2007. We recorded an
additional pre-tax gain of approximately $16 million during
the second quarter of 2007 primarily related to working capital
and other adjustments as specified in the sale agreement. See
Note 4 of the unaudited interim consolidated financial
statements for additional information.
Acquisition
of Acetate Products Limited
On January 31, 2007, we completed the acquisition of the
cellulose acetate flake, tow and film business of Acetate
Products Limited (APL), a subsidiary of Corsadi B.V.
The purchase price for the transaction was approximately
£57 million ($112 million), in addition to direct
acquisition costs of approximately £4 million
($7 million). As contemplated prior to closing, on
March 14, 2007, we announced plans to close the acquired
tow production plant at Little Heath, United Kingdom during
2007. See Note 4 of the unaudited interim consolidated
financial statements for additional information.
Relocation
of Ticona Plant in Kelsterbach
On November 29, 2006, we reached a settlement with the
Frankfurt, Germany, Airport (Fraport) to relocate
our Kelsterbach, Germany, business, resolving several years of
legal disputes related to the planned Frankfurt airport
expansion. The final settlement agreement was approved by the
Fraport supervisory board on May 8, 2007 at an
extraordinary board meeting. The final settlement agreement was
signed on June 12, 2007. As a result of the settlement, we
will transition Ticonas administration and operations from
Kelsterbach to another location in Germany by mid-2011. In July
2007, we announced that we would relocate the Kelsterbach,
Germany, business to the Hoechst Industrial Park in the Rhine
Main area. Over a five-year period, Fraport will pay Ticona a
total of 670 million to offset the costs associated
with the transition of the business from its current location
and the closure of the Kelsterbach plant. The payment amount was
increased by 20 million from 650 million
in consideration of our agreement to waive certain obligations
of Fraport set forth in the settlement agreement. These
obligations related to the hiring of Ticona employees in the
event the Ticona Plant relocated out of the Rhine Main area.
From the settlement date through June 30, 2007, Fraport has
paid us a total of 20 million towards the transition
and we have incurred approximately 6 million of costs
associated with the relocation, of which 2 million is
included in 2007 Other (charges) gains, net and
3 million was capitalized. The amount received from
Fraport has been accounted for as deferred income and is
included in Other liabilities in the consolidated balance sheet
as of June 30, 2007.
Clear
Lake, Texas Outage
In May 2007, we announced that we had an unplanned outage at our
Clear Lake, Texas acetic acid facility. At that time, we
originally expected the outage to last until the end of May.
Upon restart of the facility, additional operating issues were
identified which necessitated an extension of the outage for
further, more extensive repairs. In July 2007, we announced that
the further repairs were unsuccessful on restart of the unit.
Although there can be no assurances, at this time, we expect
that we will be able to repair the unit within weeks and that
the unit will not have to be replaced.
36
Results
of Operations
Financial
Highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
% of
|
|
|
June 30,
|
|
|
% of
|
|
|
June 30,
|
|
|
% of
|
|
|
June 30,
|
|
|
% of
|
|
|
|
2007
|
|
|
Net Sales
|
|
|
2006
|
|
|
Net Sales
|
|
|
2007
|
|
|
Net Sales
|
|
|
2006
|
|
|
Net Sales
|
|
|
|
(Unaudited)
|
|
|
|
(In $ millions)
|
|
|
Statement of Operations
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
1,556
|
|
|
|
100.0
|
%
|
|
|
1,457
|
|
|
|
100.0
|
%
|
|
|
3,111
|
|
|
|
100.0
|
%
|
|
|
2,877
|
|
|
|
100.0
|
%
|
Gross profit
|
|
|
337
|
|
|
|
21.7
|
%
|
|
|
336
|
|
|
|
23.1
|
%
|
|
|
696
|
|
|
|
22.4
|
%
|
|
|
660
|
|
|
|
22.9
|
%
|
Selling, general and administrative
expenses
|
|
|
(122
|
)
|
|
|
(7.8
|
)%
|
|
|
(136
|
)
|
|
|
(9.3
|
)%
|
|
|
(238
|
)
|
|
|
(7.7
|
)%
|
|
|
(273
|
)
|
|
|
(9.5
|
)%
|
Other (charges) gains, net
|
|
|
(105
|
)
|
|
|
(6.7
|
)%
|
|
|
(12
|
)
|
|
|
(0.8
|
)%
|
|
|
(106
|
)
|
|
|
(3.4
|
)%
|
|
|
(12
|
)
|
|
|
(0.4
|
)%
|
Operating profit
|
|
|
71
|
|
|
|
4.6
|
%
|
|
|
152
|
|
|
|
10.4
|
%
|
|
|
277
|
|
|
|
8.9
|
%
|
|
|
308
|
|
|
|
10.7
|
%
|
Equity in net earnings of affiliates
|
|
|
23
|
|
|
|
1.5
|
%
|
|
|
18
|
|
|
|
1.2
|
%
|
|
|
41
|
|
|
|
1.3
|
%
|
|
|
36
|
|
|
|
1.3
|
%
|
Interest expense
|
|
|
(61
|
)
|
|
|
(3.9
|
)%
|
|
|
(73
|
)
|
|
|
(5.0
|
)%
|
|
|
(133
|
)
|
|
|
(4.3
|
)%
|
|
|
(144
|
)
|
|
|
(5.0
|
)%
|
Refinancing expenses
|
|
|
(256
|
)
|
|
|
(16.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
(256
|
)
|
|
|
(8.2
|
)%
|
|
|
|
|
|
|
|
|
Dividend income - cost investments
|
|
|
49
|
|
|
|
3.1
|
%
|
|
|
39
|
|
|
|
2.7
|
%
|
|
|
64
|
|
|
|
2.1
|
%
|
|
|
46
|
|
|
|
1.6
|
%
|
Earnings (loss) from continuing
operations before tax and minority interests
|
|
|
(168
|
)
|
|
|
(10.8
|
)%
|
|
|
134
|
|
|
|
9.2
|
%
|
|
|
3
|
|
|
|
0.1
|
%
|
|
|
251
|
|
|
|
8.7
|
%
|
Earnings (loss) from continuing
operations
|
|
|
(124
|
)
|
|
|
(8.0
|
)%
|
|
|
95
|
|
|
|
6.5
|
%
|
|
|
(2
|
)
|
|
|
(0.1
|
)%
|
|
|
182
|
|
|
|
6.3
|
%
|
Earnings from discontinued
operations
|
|
|
7
|
|
|
|
0.4
|
%
|
|
|
8
|
|
|
|
0.5
|
%
|
|
|
86
|
|
|
|
2.8
|
%
|
|
|
38
|
|
|
|
1.3
|
%
|
Net earnings
|
|
|
(117
|
)
|
|
|
(7.5
|
)%
|
|
|
103
|
|
|
|
7.1
|
%
|
|
|
84
|
|
|
|
2.7
|
%
|
|
|
220
|
|
|
|
7.6
|
%
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
73
|
|
|
|
4.7
|
%
|
|
|
74
|
|
|
|
5.1
|
%
|
|
|
141
|
|
|
|
4.5
|
%
|
|
|
139
|
|
|
|
4.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
(In $ millions)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
Short-term borrowings and current
installments of long-term debt third party and
affiliates
|
|
|
187
|
|
|
|
309
|
|
Plus: Long-term debt
|
|
|
3,198
|
|
|
|
3,189
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
3,385
|
|
|
|
3,498
|
|
|
|
|
|
|
|
|
|
|
Summary
of Consolidated Results for the Three and Six Months Ended
June 30, 2007 compared to the Three and Six Months Ended
June 30, 2006
Net
Sales
Net sales for the three and six months ended June 30, 2007
increased 7% and 8%, respectively, compared to the same periods
in 2006. An increase in selling price of 3% for both the three
and six months ended June 30, 2007 driven by overall strong
demand for acetyls and emulsions in the Chemicals Products
segment as well as higher tow and flake prices in the Acetate
Products segment contributed to the improvement in net sales for
both periods. In addition, the acquisition of APL during 2007
increased net sales by approximately $63 million and
$104 million, respectively, for the three and six months
ended June 30, 2007. Overall volumes decreased 3% and 1%,
respectively, for the three and six months ended June 30,
2007 compared to the same periods in 2006; strong volume
increases due to increased market penetration from several of
Ticonas key products and the successful startup of our
acetic acid unit in Nanjing, China helped offset the decrease in
volumes in the Chemicals Products segment resulting from the
temporary unplanned outage of the acetic acid unit at our Clear
Lake, Texas facility. Favorable currency impacts
37
of 3% (particularly related to the Euro) for both the three and
six months ended June 30, 2007, primarily in the Chemicals
Products and Ticona business segments, also contributed to the
increases in net sales.
Gross
Profit
Gross profit decreased to 21.7% and 22.4% of net sales for the
three and six months ended June 30, 2007, respectively,
from 23.1% and 22.9% of net sales for the same periods in 2006.
The decreases were primarily due to lower overall volumes and
higher energy and raw material costs more than offsetting the
higher overall prices and favorable currency impacts
(particularly related to the Euro). Volumes decreased primarily
in Chemicals Products acetyls business line as a result of
the temporary unplanned outage of the acetic acid unit at our
Clear Lake, Texas facility. Pricing increased for products such
as Chemical Products acetyls and emulsions products and
Acetate Products tow and flake products.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses decreased
$14 million and $35 million, respectively, for the
three and six months ended June 30, 2007 compared to the
same periods in 2006. The decreases were primarily due to the
absence of executive severance and legal costs associated with
the Squeeze-out (as defined in Note 4 of the unaudited
interim consolidated financial statements) of $13 million
and $23 million, respectively, and long-term incentive plan
expenses of $5 million and $10 million, respectively,
expensed during the three and six months ended June 30,
2006. In addition, stock option expenses incurred during the
three and six months ended June 30, 2007 were lower by
$3 million and $2 million, respectively, compared to
the same periods in 2006. These decreases were partially offset
by additional selling, general and administrative expenses
incurred during the second quarter of 2007 of $2 million
related to restricted stock units (RSUs) and
$4 million of costs related to our upgrade of certain
financial and accounting systems.
Other
(Charges) Gains, Net
The components of other (charges) gains, net are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(In $ millions)
|
|
|
Employee termination benefits
|
|
|
(25
|
)
|
|
|
(9
|
)
|
|
|
(25
|
)
|
|
|
(11
|
)
|
Plant/office closures
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring
|
|
|
(25
|
)
|
|
|
(11
|
)
|
|
|
(25
|
)
|
|
|
(11
|
)
|
Insurance recoveries associated
with plumbing cases
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
3
|
|
Deferred compensation triggered by
Exit Event
|
|
|
(74
|
)
|
|
|
|
|
|
|
(74
|
)
|
|
|
|
|
Asset impairments
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
Ticona Kelsterbach relocation
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
Other
|
|
|
|
|
|
|
(3
|
)
|
|
|
(1
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (charges) gains, net
|
|
|
(105
|
)
|
|
|
(12
|
)
|
|
|
(106
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In May 2007, we announced a plan to simplify and optimize our
Emulsions and PVOH business to become a leader in technology and
innovation and grow in both new and existing markets. As a
result of this plan, we recorded approximately $16 million
of employee termination benefits during the three and six months
ended June 30, 2007. In addition, we recorded an impairment
of long-lived assets of approximately $3 million during the
three and six months ended June 30, 2007.
In May 2007, as a result of the triggering of an Exit Event, as
defined in Note 14 of the unaudited interim consolidated
financial statements, we expensed $74 million representing
deferred compensation plan payments for the respective
participants 2005 and 2006 contingent benefits.
38
Operating
Profit
Operating profit decreased 53% and 10%, respectively, for the
three and six months ended June 30, 2007 compared to the
same periods in 2006. This is principally driven by the increase
in Other (charges) gains, net during 2007, partially offset by
the decrease in Selling, general and administrative expenses as
discussed above.
Interest
Expense and Refinancing Expenses
Interest expense decreased $12 million and
$11 million, respectively, for the three and six months
ended June 30, 2007 compared to the same periods in 2006.
The decrease is primarily related to lower overall debt balances
in 2007 compared to 2006 and lower interest rates on the new
senior credit agreement compared to the interest rates on the
senior discount notes and senior subordinated notes, which were
repaid in April 2007 in conjunction with the debt refinancing
(see Note 8 of the unaudited interim consolidated financial
statements for more information).
In April 2007, we refinanced our outstanding debt by entering
into a new senior credit agreement. As a result of the
refinancing, we expensed $207 million of premiums paid on
early redemption of debt. In addition, we expensed
$33 million of unamortized deferred financing costs and
premiums related to the former $2,454 million senior credit
facility, Senior Discount Notes and Senior Subordinated Notes
and $16 million of debt issuance and other refinancing
expenses. These amounts were recorded as a component of
Refinancing expenses in the unaudited interim consolidated
statement of operations for the three and six months ended
June 30, 2007.
Equity
in Net Earnings of Affiliates
Equity in net earnings of affiliates increased slightly for the
three and six months ended June 30, 2007 compared to the
same periods in 2006 due to improved performance from our Asian
investments.
Income
Taxes
Income taxes for the three and six months ended June 30,
2007 and 2006 are recorded based on the estimated annual
effective tax rate. As of June 30, 2007, the estimated
annualized tax rate is 26%, which is less than the combination
of the statutory federal rate and state income tax rates in the
U.S. The estimated annual effective tax rate for 2007
reflects earnings in low tax jurisdictions offset by higher tax
rates in certain
non-U.S. jurisdictions.
For the three months ended June 30, 2007 and 2006, we
recorded a tax benefit of $44 million and tax expense of
$38 million, respectively, which resulted in an effective
tax rate of 26% and 28%, respectively. For the six months ended
June 30, 2007 and 2006, we recorded tax expense of
$5 million and $68 million, respectively, which
resulted in an effective tax rate of 167% and 27%, respectively.
The higher effective tax rate for the six months ended
June 30, 2007 was primarily due to limitation of tax
benefit in the U.S. on the fees incurred in connection with the
debt refinancing described in Note 8 of the unaudited
interim consolidated financial statements. The tax benefit of
approximately $59 million associated with the deduction of the
refinancing fees has been reflected entirely in tax expense for
the three months ended June 30, 2007. This tax benefit is
partially offset by $31 million of U.S. tax expense allocated to
discontinued operations during the three months ended
March 31, 2007. The debt refinancing was determined to be
unusual in nature and not included in the computation of the
estimated annual effective rate in accordance with Accounting
Principles Board Opinion No. 28, Interim Financial
Reporting.
Earnings
from Discontinued Operations
Earnings from discontinued operations primarily relate to
Chemical Products sale of its oxo products and derivatives
businesses in February 2007, its shut down of its Edmonton,
Canada methanol facility during the second quarter of 2007 and
its Pentaerythritol operations, which were discontinued during
the third quarter of 2006. As a result, revenues and expenses
related to these businesses are reflected as a component of
discontinued operations. See Note 4 of the unaudited
interim consolidated financial statements for the summary table
of the results of operations for the discontinued operations.
39
Selected
Data by Business Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Change
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Change
|
|
|
|
2007
|
|
|
2006
|
|
|
in $
|
|
|
2007
|
|
|
2006
|
|
|
in $
|
|
|
|
(Unaudited)
|
|
|
|
(In $ millions)
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemical Products
|
|
|
1,002
|
|
|
|
977
|
|
|
|
25
|
|
|
|
2,004
|
|
|
|
1,914
|
|
|
|
90
|
|
Technical Polymers Ticona
|
|
|
257
|
|
|
|
230
|
|
|
|
27
|
|
|
|
519
|
|
|
|
461
|
|
|
|
58
|
|
Acetate Products
|
|
|
235
|
|
|
|
176
|
|
|
|
59
|
|
|
|
458
|
|
|
|
343
|
|
|
|
115
|
|
Performance Products
|
|
|
47
|
|
|
|
48
|
|
|
|
(1
|
)
|
|
|
92
|
|
|
|
97
|
|
|
|
(5
|
)
|
Other Activities
|
|
|
58
|
|
|
|
68
|
|
|
|
(10
|
)
|
|
|
117
|
|
|
|
129
|
|
|
|
(12
|
)
|
Inter-segment Eliminations
|
|
|
(43
|
)
|
|
|
(42
|
)
|
|
|
(1
|
)
|
|
|
(79
|
)
|
|
|
(67
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Sales
|
|
|
1,556
|
|
|
|
1,457
|
|
|
|
99
|
|
|
|
3,111
|
|
|
|
2,877
|
|
|
|
234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (Charges) Gains,
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemical Products
|
|
|
(32
|
)
|
|
|
(8
|
)
|
|
|
(24
|
)
|
|
|
(32
|
)
|
|
|
(7
|
)
|
|
|
(25
|
)
|
Technical Polymers Ticona
|
|
|
(5
|
)
|
|
|
2
|
|
|
|
(7
|
)
|
|
|
(5
|
)
|
|
|
4
|
|
|
|
(9
|
)
|
Acetate Products
|
|
|
(7
|
)
|
|
|
|
|
|
|
(7
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
(8
|
)
|
Performance Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Activities
|
|
|
(61
|
)
|
|
|
(6
|
)
|
|
|
(55
|
)
|
|
|
(61
|
)
|
|
|
(9
|
)
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Charges, Net
|
|
|
(105
|
)
|
|
|
(12
|
)
|
|
|
(93
|
)
|
|
|
(106
|
)
|
|
|
(12
|
)
|
|
|
(94
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Profit
(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemical Products
|
|
|
91
|
|
|
|
130
|
|
|
|
(39
|
)
|
|
|
239
|
|
|
|
251
|
|
|
|
(12
|
)
|
Technical Polymers Ticona
|
|
|
32
|
|
|
|
38
|
|
|
|
(6
|
)
|
|
|
68
|
|
|
|
79
|
|
|
|
(11
|
)
|
Acetate Products
|
|
|
29
|
|
|
|
29
|
|
|
|
|
|
|
|
58
|
|
|
|
52
|
|
|
|
6
|
|
Performance Products
|
|
|
16
|
|
|
|
16
|
|
|
|
|
|
|
|
32
|
|
|
|
33
|
|
|
|
(1
|
)
|
Other Activities
|
|
|
(97
|
)
|
|
|
(61
|
)
|
|
|
(36
|
)
|
|
|
(120
|
)
|
|
|
(107
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Profit
|
|
|
71
|
|
|
|
152
|
|
|
|
(81
|
)
|
|
|
277
|
|
|
|
308
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) from Continuing
Operations Before Tax and Minority Interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemical Products
|
|
|
108
|
|
|
|
145
|
|
|
|
(37
|
)
|
|
|
260
|
|
|
|
272
|
|
|
|
(12
|
)
|
Technical Polymers Ticona
|
|
|
48
|
|
|
|
53
|
|
|
|
(5
|
)
|
|
|
98
|
|
|
|
109
|
|
|
|
(11
|
)
|
Acetate Products
|
|
|
63
|
|
|
|
50
|
|
|
|
13
|
|
|
|
92
|
|
|
|
73
|
|
|
|
19
|
|
Performance Products
|
|
|
19
|
|
|
|
17
|
|
|
|
2
|
|
|
|
34
|
|
|
|
32
|
|
|
|
2
|
|
Other Activities
|
|
|
(406
|
)
|
|
|
(131
|
)
|
|
|
(275
|
)
|
|
|
(481
|
)
|
|
|
(235
|
)
|
|
|
(246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Earnings (Loss) from
Continuing Operations Before Tax and Minority Interests
|
|
|
(168
|
)
|
|
|
134
|
|
|
|
(302
|
)
|
|
|
3
|
|
|
|
251
|
|
|
|
(248
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation &
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemical Products
|
|
|
37
|
|
|
|
42
|
|
|
|
(5
|
)
|
|
|
71
|
|
|
|
75
|
|
|
|
(4
|
)
|
Technical Polymers Ticona
|
|
|
17
|
|
|
|
16
|
|
|
|
1
|
|
|
|
34
|
|
|
|
32
|
|
|
|
2
|
|
Acetate Products
|
|
|
9
|
|
|
|
5
|
|
|
|
4
|
|
|
|
16
|
|
|
|
12
|
|
|
|
4
|
|
Performance Products
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
8
|
|
|
|
8
|
|
|
|
|
|
Other Activities
|
|
|
6
|
|
|
|
7
|
|
|
|
(1
|
)
|
|
|
12
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Depreciation &
Amortization
|
|
|
73
|
|
|
|
74
|
|
|
|
(1
|
)
|
|
|
141
|
|
|
|
139
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
Factors
Affecting Second Quarter 2007 Segment Net Sales Compared to
Second Quarter 2006
The charts below set forth the percentage increase (decrease) in
net sales from the 2006 period attributable to each of the
factors indicated in each of our business segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
Price
|
|
|
Currency
|
|
|
Other
|
|
|
Total
|
|
|
|
(In percentages)
|
|
|
Chemical Products
|
|
|
(5
|
)
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
3
|
|
Technical Polymers Ticona
|
|
|
8
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
12
|
|
Acetate Products
|
|
|
(8
|
)
|
|
|
6
|
|
|
|
|
|
|
|
36
|
(b)
|
|
|
34
|
|
Performance Products
|
|
|
(4
|
)
|
|
|
(2
|
)
|
|
|
4
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Company(a)
|
|
|
(3
|
)
|
|
|
3
|
|
|
|
3
|
|
|
|
4
|
|
|
|
7
|
|
|
Factors
Affecting Six Months Ended June 30, 2007 Segment Net Sales
Compared to Six Months Ended June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
Price
|
|
|
Currency
|
|
|
Other
|
|
|
Total
|
|
|
|
(In percentages)
|
|
|
Chemical Products
|
|
|
(3
|
)
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
5
|
|
Technical Polymers Ticona
|
|
|
9
|
|
|
|
(1
|
)
|
|
|
5
|
|
|
|
|
|
|
|
13
|
|
Acetate Products
|
|
|
(4
|
)
|
|
|
7
|
|
|
|
|
|
|
|
31
|
(b)
|
|
|
34
|
|
Performance Products
|
|
|
(8
|
)
|
|
|
(2
|
)
|
|
|
5
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Company(a)
|
|
|
(1
|
)
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
8
|
|
|
|
|
|
(a) |
|
Includes the effects of AT Plastics and the captive insurance
companies. |
|
(b) |
|
Includes net sales from the APL acquisition. |
41
Summary
by Business Segment for the Three and Six Months Ended
June 30, 2007 compared to the Three and Six Months Ended
June 30, 2006
Chemical
Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Change
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Change
|
|
|
|
2007
|
|
|
2006
|
|
|
in $
|
|
|
2007
|
|
|
2006
|
|
|
in $
|
|
|
|
(Unaudited)
|
|
|
|
(In $ millions)
|
|
|
Net sales
|
|
|
1,002
|
|
|
|
977
|
|
|
|
25
|
|
|
|
2,004
|
|
|
|
1,914
|
|
|
|
90
|
|
Net sales variance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
(5
|
)%
|
|
|
|
|
|
|
|
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
Price
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
Currency
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
Other
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
91
|
|
|
|
130
|
|
|
|
(39
|
)
|
|
|
239
|
|
|
|
251
|
|
|
|
(12
|
)
|
Operating margin
|
|
|
9.1
|
%
|
|
|
13.3
|
%
|
|
|
|
|
|
|
12.0
|
%
|
|
|
13.1
|
%
|
|
|
|
|
Other (charges) gains, net
|
|
|
(32
|
)
|
|
|
(8
|
)
|
|
|
(24
|
)
|
|
|
(32
|
)
|
|
|
(7
|
)
|
|
|
(25
|
)
|
Earnings from continuing
operations before tax and minority interests
|
|
|
108
|
|
|
|
145
|
|
|
|
(37
|
)
|
|
|
260
|
|
|
|
272
|
|
|
|
(12
|
)
|
Depreciation and amortization
|
|
|
37
|
|
|
|
42
|
|
|
|
(5
|
)
|
|
|
71
|
|
|
|
75
|
|
|
|
(4
|
)
|
Our Chemical Products segment produces and supplies acetyl
products, including acetic acid, acetate esters, VAM, polyvinyl
alcohol and emulsions. These products are generally used as
building blocks for value-added products or in intermediate
chemicals used in the paints, coatings, inks, adhesives, films,
textiles and building products industries. Other chemicals
produced in this segment are organic solvents and intermediates
for pharmaceutical, agricultural and chemical products.
Chemical Products net sales increased 3% and 5%,
respectively, for the three and six months ended June 30,
2007 compared to the same periods in 2006. Pricing increases and
favorable currency impacts (particularly related to the Euro)
during both the three and six months ended June 30, 2007
more than offset lower volumes for both periods. The pricing
increases, primarily for the segments acetyls and
emulsions products, were driven by higher methanol costs,
general tightening of supply in the market and an overall strong
demand in all regions for these products. Lower volumes for the
three and six months ended June 30, 2007 were the results
of lower product availability due to the temporary unplanned
outage of the acetic acid unit at our Clear Lake, Texas
facility. The decrease in volumes was partially offset by the
successful startup of our acetic acid plant in Nanjing, China.
Operating profit decreased 30% to $91 million and 5% to
$239 million, respectively, for the three and
six months ended June 30, 2007 compared to the same
periods in 2006, principally driven by lower volumes resulting
from the temporary unplanned outage of the acetic acid unit at
our Clear Lake, Texas facility and overall higher raw material
costs. Operating profit for the three and six months ended
June 30, 2007 also included an increase in Other (charges)
gains, net of $10 million for deferred compensation plan
expenses and $19 million of expenses relating to the PVOH
and Emulsions restructuring (see further discussion of these
expenses in Notes 13 and 14 of the unaudited interim
consolidated financial statements). The decrease for the six
months ended June 30, 2007 was partially offset by the
benefits of a favorable methanol production contract entered
into in January 2007 and which expired on March 31, 2007.
Earnings from continuing operations before tax and minority
interests decreased 26% and 4%, respectively, for the three and
six months ended June 30, 2007 compared to the same periods
in 2006. The decreases were primarily driven by the decreases in
operating profit. The decrease for the six months ended
June 30, 2007 was partially offset by higher dividend
income of $8 million received from cost investments during
the first quarter of 2007 compared to the same period in 2006.
42
Technical
Polymers Ticona
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Change
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Change
|
|
|
|
2007
|
|
|
2006
|
|
|
in $
|
|
|
2007
|
|
|
2006
|
|
|
in $
|
|
|
|
(Unaudited)
|
|
|
|
(In $ millions)
|
|
|
Net sales
|
|
|
257
|
|
|
|
230
|
|
|
|
27
|
|
|
|
519
|
|
|
|
461
|
|
|
|
58
|
|
Net sales variance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
Price
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
Currency
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
Other
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
32
|
|
|
|
38
|
|
|
|
(6
|
)
|
|
|
68
|
|
|
|
79
|
|
|
|
(11
|
)
|
Operating margin
|
|
|
12.5
|
%
|
|
|
16.5
|
%
|
|
|
|
|
|
|
13.1
|
%
|
|
|
17.1
|
%
|
|
|
|
|
Other (charges) gains, net
|
|
|
(5
|
)
|
|
|
2
|
|
|
|
(7
|
)
|
|
|
(5
|
)
|
|
|
4
|
|
|
|
(9
|
)
|
Earnings from continuing
operations before tax and minority interests
|
|
|
48
|
|
|
|
53
|
|
|
|
(5
|
)
|
|
|
98
|
|
|
|
109
|
|
|
|
(11
|
)
|
Depreciation and amortization
|
|
|
17
|
|
|
|
16
|
|
|
|
1
|
|
|
|
34
|
|
|
|
32
|
|
|
|
2
|
|
Our Ticona segment develops, produces and supplies a broad
portfolio of high performance technical polymers for application
in automotive and electronics products and in other consumer and
industrial applications, often replacing metal or glass. The
primary products of Ticona are POM, polybutylene terephthalate
(PBT) and GUR, an ultra-high molecular weight
polyethylene. POM and PBT are used in a broad range of products
including automotive components, electronics and appliances. GUR
is used in battery separators, conveyor belts, filtration
equipment, coatings and medical devices.
Ticonas net sales increased 12% and 13% for the three and
six months ended June 30, 2007, respectively, compared to
the same periods in 2006. Volume increases of 8% and 9% during
the three and six months ended June 30, 2007, respectively,
in all major business lines were due to increased market
penetration and a continued strong business environment in
Europe. Favorable currency impacts of 4% and 5%, respectively,
(particularly related to the Euro) for the three and six months
ended June 30, 2007 compared to the same periods in 2006,
also contributed to the increase in net sales. Ticona
experienced a slight decline in average pricing primarily driven
by a larger mix of sales from lower priced products.
Operating profit decreased by $6 million and
$11 million for the three and six months ended
June 30, 2007, respectively, compared to the same periods
in 2006 as higher volumes and favorable currency impacts
(particularly related to the Euro) were more than offset by
higher overall raw material costs, production costs and energy
costs and increased Other (charges) gains, net. Other (charges)
gains, net increased primarily due to $2 million of
deferred compensation plan expenses and $3 million of
Kelsterbach plant relocation costs incurred in 2007.
Additionally, operating profit was further decreased by the
absence of $3 million of income received in 2006 related to
certain plumbing cases.
Earnings from continuing operations before tax and minority
interests decreased 9% and 10% for the three and six months
ended June 30, 2007, respectively, compared to the same
periods in 2006. The decrease is principally driven by the
decrease in operating profit. Equity in net earnings of
affiliates remained relatively flat for the three and six months
ended June 30, 2007 compared to the same periods in 2006.
43
Acetate
Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Change
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Change
|
|
|
|
2007
|
|
|
2006
|
|
|
in $
|
|
|
2007
|
|
|
2006
|
|
|
in $
|
|
|
|
(Unaudited)
|
|
|
|
(In $ millions)
|
|
|
Net sales
|
|
|
235
|
|
|
|
176
|
|
|
|
59
|
|
|
|
458
|
|
|
|
343
|
|
|
|
115
|
|
Net sales variance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
(8
|
)%
|
|
|
|
|
|
|
|
|
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
Price
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
Currency
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
Other
|
|
|
36
|
%
|
|
|
|
|
|
|
|
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
29
|
|
|
|
29
|
|
|
|
|
|
|
|
58
|
|
|
|
52
|
|
|
|
6
|
|
Operating margin
|
|
|
12.3
|
%
|
|
|
16.5
|
%
|
|
|
|
|
|
|
12.7
|
%
|
|
|
15.2
|
%
|
|
|
|
|
Other (charges) gains, net
|
|
|
(7
|
)
|
|
|
|
|
|
|
(7
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
(8
|
)
|
Earnings from continuing
operations before tax and minority interests
|
|
|
63
|
|
|
|
50
|
|
|
|
13
|
|
|
|
92
|
|
|
|
73
|
|
|
|
19
|
|
Depreciation and amortization
|
|
|
9
|
|
|
|
5
|
|
|
|
4
|
|
|
|
16
|
|
|
|
12
|
|
|
|
4
|
|
Our Acetate Products segment primarily produces and supplies
acetate tow, which is used in the production of filter products.
We also produce acetate flake which is processed into acetate
fiber in the form of a tow band. The successful completion of
the acquisition of APL on January 31, 2007 further
increases our global position and enhances our ability to
service our customers.
Acetate Products net sales increased 34% to
$235 million and 34% to $458 million for the three and
six months ended June 30, 2007, respectively, compared to
the same periods in 2006. The increases were primarily driven by
additional net sales from the APL acquisition completed on
January 31, 2007 as well as higher flake and tow prices,
partially offset by lower volumes. Net sales for APL were
$63 million and $104 million, respectively, during the
three and six months ended June 30, 2007.
Operating profit was flat for the three months ended
June 30, 2007 and increased $6 million for the six
months ended June 30, 2007 compared to the same periods in
2006. Increased sales due to the APL acquisition and an increase
in flake and tow prices more than offset increases in raw
material costs and Other (charges) gains, net. Other (charges)
gains, net during the three and six months ended June 30,
2007 includes $3 million of deferred compensation plan
expenses and $4 million of other restructuring charges.
Earnings from continuing operations before tax and minority
interests increased by 26% and 26%, respectively, for the three
and six months ended June 30, 2007 compared to the same
periods in 2006. The increases were driven principally by
increases in operating profit and an increase of
$13 million in dividends received from our China ventures
during the three months ended June 30, 2007 compared to the
same periods in 2006.
44
Performance
Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Change
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Change
|
|
|
|
2007
|
|
|
2006
|
|
|
in $
|
|
|
2007
|
|
|
2006
|
|
|
in $
|
|
|
|
(Unaudited)
|
|
|
|
(In $ millions)
|
|
|
Net sales
|
|
|
47
|
|
|
|
48
|
|
|
|
(1
|
)
|
|
|
92
|
|
|
|
97
|
|
|
|
(5
|
)
|
Net sales variance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
|
|
(8
|
)%
|
|
|
|
|
|
|
|
|
Price
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
Currency
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
Other
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
16
|
|
|
|
16
|
|
|
|
|
|
|
|
32
|
|
|
|
33
|
|
|
|
(1
|
)
|
Operating margin
|
|
|
34.0
|
%
|
|
|
33.3
|
%
|
|
|
|
|
|
|
34.8
|
%
|
|
|
34.0
|
%
|
|
|
|
|
Other (charges) gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing
operations before tax and minority interests
|
|
|
19
|
|
|
|
17
|
|
|
|
2
|
|
|
|
34
|
|
|
|
32
|
|
|
|
2
|
|
Depreciation and amortization
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
8
|
|
|
|
8
|
|
|
|
|
|
The Performance Products segment operates under the trade name
of Nutrinova and produces and sells
Sunett®
high intensity sweetener and food protection ingredients, such
as sorbates, for the food, beverage and pharmaceuticals
industries.
Performance Products net sales decreased 2% and 5% for the
three and six months ended June 30, 2007, respectively,
compared to the same periods in 2006, principally driven by
decreases in overall volumes and selling prices, which was
partially offset by favorable currency movements (particularly
related to the Euro). Volumes decreased 4% and 8%, respectively,
for the three and six months ended June 30, 2007, primarily
related to the exit of a lower margin, non-core trading business
in the fourth quarter of 2006. This was partially offset by an
increase in volumes for
Sunett®
reflecting continued growth in the global beverage and
confectionary markets. Pricing for both sorbates and
Sunett®
continued to decline due to increased competition. Favorable
currency impacts (particularly related to the Euro) were 4% and
5%, respectively, for the three and six months ended
June 30, 2007.
Operating profit remained relatively flat for the three and six
months ended June 30, 2007 compared to the same periods in
2006. The slight decrease during the six months ended
June 30, 2007 was primarily a result of lower overall net
sales, partially offset by the positive impact from cost savings
and lower manufacturing costs.
Earnings from continuing operations before tax and minority
interests increased slightly by $2 million and
$2 million for the three and six months ended June 30,
2007, respectively, compared to the same periods in 2006.
Other
Activities
Other Activities primarily consists of corporate center costs,
including financing and administrative activities, and certain
other operating entities, including the captive insurance
companies and the AT Plastics business.
Net sales decreased $10 million and $12 million,
respectively, for the three and six months ended June 30,
2007 compared to the same periods in 2006. This is principally
driven by the decrease in third party revenues from our captive
insurance companies of $5 million and $10 million,
respectively, for the three and six months ended June 30,
2007. We expect this trend in third party revenues from our
captive insurance companies to continue. The decrease in the six
months ended June 30, 2007 was partially offset by an
increase in sales at AT Plastics of $3 million driven by
higher volumes more than offsetting lower selling prices.
The operating loss for Other Activities increased
$36 million and $13 million for the three and six
months ended June 30, 2007 compared to the same periods in
2006. This increase was due primarily to an increase in Other
(charges) gains, net more than offsetting a decrease in Selling,
general and administrative expenses. Other (charges) gains, net
increased primarily due to $59 million of deferred
compensation plan costs expensed during the second
45
quarter of 2007. Selling, general and administrative expenses
decreased for the three and six months ended June 30, 2007
primarily due to the absence of executive severance and legal
costs associated with the Squeeze-Out of $13 million and
$23 million, respectively, and long-term incentive plan
expenses of $5 million and $10 million, respectively,
recorded during the three and six months ended June 30,
2006. In addition, the increase in operating loss was partially
offset by an increase in operating profits at AT Plastics of
$8 million and $6 million, respectively, for the three
and six months ended June 30, 2007 compared to the same
periods in 2006.
Loss from continuing operations before tax and minority
interests increased by $275 million and $246 million,
respectively, for the three and six months ended June 30,
2007 compared to the same periods in 2006, primarily driven by
increased operating losses and higher refinancing expenses
incurred in 2007, partially offset by lower interest expense and
higher interest and other income. During the three and six
months ended June 30, 2007, we incurred $256 million
of refinancing expenses associated with the April 2, 2007
debt refinancing. Interest expense decreased $12 million
and $11 million, respectively, for the three and six months
ended June 30, 2007 compared to the same periods in 2006
primarily related to lower overall debt balances in 2007
compared to 2006 and lower interest rates on the new senior
credit agreement compared to the interest rates on the senior
discount notes and senior subordinated notes, which were repaid
in April 2007 in conjunction with the debt refinancing. In
addition, during the three and six months ended June 30,
2007, we incurred approximately $9 million of expense for
the mark-to-market on the cross currency swap and the Euro
denominated term loan that had been used as a hedge of our net
investment in European subsidiaries.
Liquidity
and Capital Resources
Our primary source of liquidity will continue to be cash
generated from operations, available cash and cash equivalents
and dividends from our portfolio of strategic investments. In
addition, we have availability under our credit facilities to
assist, if required, in meeting our working capital needs and
other contractual obligations. We believe we will have available
resources to meet our liquidity requirements for the remainder
of the year and for the subsequent twelve months, including debt
service. If our cash flow from operations is insufficient to
fund our debt service and other obligations, we may be required
to use other means available to us such as to increase our
borrowings under our lines of credit, reduce or delay capital
expenditures, seek additional capital or seek to restructure or
refinance our indebtedness. There can be no assurance, however,
that we will continue to generate cash flows at or above current
levels or that we will be able to maintain our ability to borrow
under our revolving credit facilities.
Cash
Flows
Cash and cash equivalents as of June 30, 2007 were
$470 million, which was a decrease of $321 million
from December 31, 2006. See below for details on the change
in cash and cash equivalents from December 31, 2006 to
June 30, 2007.
Net Cash
Provided by Operating Activities
Cash provided by operating activities was $79 million for
the six months ended June 30, 2007 compared with a cash
inflow of $167 million for the six months ended
June 30, 2006. The decrease in operating cash flows was
primarily due to lower earnings from continuing operations and
cash used in discontinued operations, partially offset by a
decrease in cash used from operating assets and liabilities.
Earnings from continuing operations decreased to a loss of
$2 million for the six months ended June 30, 2007
compared to income of $182 million for the same period in
2006. The cash used in discontinued operations of
$101 million relates primarily to working capital changes
of the oxo and derivatives businesses and the shut down of our
Edmonton, Canada methanol facility during the second quarter of
2007. The changes in operating assets and liabilities were
driven primarily by lower trade receivables offset by lower
trade payables. The lower trade receivables were driven by
higher net sales offset by the timing of cash receipts. The
lower trade payables resulted from the timing of payments.
46
Net Cash
Used in Investing Activities
Net cash from investing activities increased to a cash inflow of
$295 million for the six months ended June 30, 2007
compared to a cash outflow of $164 million for the same
period in 2006. The increase in cash inflow was primarily due to
the proceeds from the sale of our oxo products and derivatives
businesses partially offset by the cash outflow for the APL
acquisition. During the six months ended June 30, 2006, we
increased restricted cash by $42 million related to the
anticipated payment to minority shareholders for their remaining
CAG shares. During the six months ended June 30, 2007, as a
result of the completion of the Squeeze-Out (see Note 4 of
the unaudited interim consolidated financial statements) and the
payment to minority shareholders for their remaining CAG shares,
restricted cash decreased $46 million.
Our capital expenditures were $116 million and
$113 million for the six months ended June 30, 2007
and 2006, respectively. Capital expenditures were primarily
related to major replacements of equipment, capacity expansions,
major investments to reduce future operating costs, and
environmental and health and safety initiatives. Capital
expenditures in 2007 and 2006 included costs for the expansion
of our Nanjing, China site into an integrated chemical complex.
Capital expenditures are expected to be approximately
$280 million for 2007.
Net Cash
Used in Financing Activities
Net cash from financing activities decreased to a cash outflow
of $706 million for the six months ended June 30, 2007
compared to a cash outflow of $51 million for the same
period in 2006. The decrease primarily relates to the repurchase
of shares of our Series A common stock and the debt
refinancing as discussed in Note 11 and 8 of the unaudited
interim consolidated financial statements, respectively. This
decrease was partially offset by $21 million of proceeds
received from the exercise of stock options. Primarily as a
result of the debt refinancing, we incurred a net cash outflow
of $211 million related to repayments of our debt during
the six months ended June 30, 2007. In addition, our net
cash outlay for various refinancing expenses was approximately
$240 million during the six months ended June 30,
2007. Furthermore, we paid a total of $258 million to
repurchase shares of our Series A common stock during the
six months ended June 30, 2007.
Liquidity
Our contractual obligations, commitments and debt service
requirements over the next several years are significant. As
stated above, our primary source of liquidity will continue to
be cash generated from operations, available cash and cash
equivalents and dividends from our portfolio of strategic
investments. In addition, we have availability under our credit
facilities to assist, if required, in meeting our working
capital needs and other contractual obligations.
Debt and
Capital
Holders of the preferred stock are entitled to receive, when, as
and if declared by our Board of Directors, out of funds legally
available, cash dividends at the rate of 4.25% per annum (or
$1.06 per share) of liquidation preference, payable quarterly in
arrears commencing on May 1, 2005. Dividends on the
preferred stock are cumulative from the date of initial
issuance. As of June 30, 2007, the dividend is expected to
result in an annual payment of approximately $10 million.
Accumulated but unpaid dividends accumulate at an annual rate of
4.25%. The preferred stock is convertible, at the option of the
holder, at any time into approximately 1.25 shares of our
Series A common stock, subject to adjustments, per $25.00
liquidation preference of the preferred stock. During the
six months ended June 30, 2007 and 2006, we paid
$5 million of cash dividends in each period on our
preferred stock. On July 6, 2007, we declared a
$2 million cash dividend on our convertible perpetual
preferred stock, which will be paid on August 1, 2007.
In July 2005, our Board of Directors adopted a policy of
declaring, subject to legally available funds, a quarterly cash
dividend on each share of our Series A common stock at an
annual rate initially equal to approximately 1% of the $16.00
initial public offering price per share of our Series A
common stock (or $0.16 per share) unless our Board of Directors
in its sole discretion determines otherwise. During the six
months ended June 30, 2007 and 2006, we paid
$13 million of cash dividends in each period on our
Series A common stock and on July 6, 2007, we declared
a $6 million cash dividend which will be paid on
August 1, 2007. Based upon the number
47
of outstanding shares as of June 30, 2007, the annual cash
dividend payment is approximately $24 million. However,
there is no assurance that sufficient cash or surplus will be
available to pay the remainder of the anticipated 2007 cash
dividend.
On May 9, 2006, we registered shares of our Series A
common stock, shares of our preferred stock and depository
shares pursuant to our universal shelf registration statement on
Form S-3,
filed with the SEC on May 9, 2006. On May 9, 2006,
Blackstone Capital Partners (Cayman) Ltd. 1, Blackstone Capital
Partners (Cayman) Ltd. 2, Blackstone Capital Partners (Cayman)
Ltd. 3 and BA Capital Investors Sidecar Fund, L.P. (the
Original Shareholders) sold 35,000,000 shares
of Series A common stock through a public secondary
offering and granted to the underwriter an over-allotment option
to purchase up to an additional 5,250,000 shares of our
Series A common stock. The underwriter did not exercise the
over-allotment option. We did not receive any of the proceeds
from the offering. The transaction closed on May 15, 2006.
We incurred and expensed approximately $2 million of fees
related to this transaction.
On May 14, 2007, the Original Shareholders sold their
remaining 22,106,597 shares of Series A common stock
in a registered public secondary offering pursuant to the
universal shelf registration statement on
Form S-3,
filed with the SEC on May 9, 2006. We did not receive any
of the proceeds from the offering. We incurred and expensed less
than $1 million of fees related to this transaction. As of
June 30, 2007, the Original Shareholders ownership interest
was 0%.
As of June 30, 2007, we had total debt of
$3,385 million compared to $3,498 million as of
December 31, 2006. We were in compliance with all of the
financial covenants related to our debt agreements as of
June 30, 2007.
As of December 31, 2006, the amended and restated (January
2005) senior credit facilities consisted of a term loan
facility, a revolving credit facility and a credit-linked
revolving facility. The $600 million revolving credit
facility provided for the availability of letters of credit in
U.S. dollars and Euros and for borrowings on
same-day
notice. We had an approximate $228 million credit-linked
revolving facility available for the issuance of letters of
credit. The amended and restated (January 2005) senior
credit facilities were paid in full in conjunction with the debt
refinancing discussed below.
Debt
Refinancing
In March 2007, we announced a comprehensive recapitalization
plan to refinance our debt and repurchase shares. On
April 2, 2007, we, through certain of our subsidiaries,
entered into a new senior credit agreement. The new senior
credit agreement consists of $2,280 million of
U.S. dollar denominated and 400 million of Euro
denominated term loans due 2014, a $650 million revolving
credit facility terminating in 2013 and a $228 million
credit-linked revolving facility terminating in 2014. Borrowings
under the new senior credit agreement bear interest at a
variable interest rate based on LIBOR (for U.S. dollars) or
EURIBOR (for Euros), as applicable, or, for U.S. dollar
denominated loans under certain circumstances, a base rate, in
each case plus an applicable margin. The applicable margin for
the term loans and any loans under the credit-linked revolving
facility is 1.75%, subject to potential reductions as defined in
the new senior credit agreement. The term loans under the new
senior credit agreement are subject to amortization at 1% of the
initial principal amount per annum, payable quarterly. The
remaining principal amount of the term loans will be due on
April 2, 2014.
Proceeds from the new senior credit agreement, together with
available cash, were used to retire our $2,454 million
amended and restated (January 2005) senior credit
facilities, which consisted of $1,626 million in term loans
due 2011, a $600 million revolving credit facility
terminating in 2009 and an approximate $228 million
credit-linked revolving facility terminating in 2009 and to
retire all of our Senior Subordinated Notes and Senior Discount
Notes as discussed below.
On March 6, 2007, we commenced cash tender offers (the
Tender Offers) with respect to any and all of the
outstanding 10% senior discount notes due 2014 and
10.5% senior discount notes due 2014 (the Senior
Discount Notes), and any and all of the outstanding
9.625% senior subordinated notes due 2014 and
10.375% senior subordinated notes due 2014 (the
Senior Subordinated Notes). The Tender Offers
expired on April 2, 2007. Substantially all of the Senior
Discount Notes and Senior Subordinated Notes were tendered in
conjunction with the Tender Offers. The remaining outstanding
Senior Discount Notes and Senior Subordinated Notes not tendered
in conjunction with the Tender Offers were redeemed in May 2007
through optional redemption allowed in the indentures.
48
As a result of the refinancing, we incurred $207 million of
premiums paid on early redemption of debt which is included in
Refinancing expenses on the accompanying unaudited interim
consolidated statements of operations for the three and six
months ended June 30, 2007. In addition, we expensed
$33 million of unamortized deferred financing costs and
premiums related to the former $2,454 million senior credit
facility, Senior Discount Notes and Senior Subordinated Notes
and $16 million of debt issuance and other refinancing
expenses.
In connection with the refinancing, we recorded deferred
financing costs of $39 million related to the new senior
credit agreement, which are included in Other assets on the
accompanying unaudited consolidated balance sheet as of
June 30, 2007 and will be amortized over the term of the
new senior credit agreement. The deferred financing costs
consist of $23 million of costs incurred to acquire the new
senior credit facility and $16 million of debt issue costs
existing prior to the refinancing which will be retained and
amortized over the term of the new senior credit agreement. As a
result of the refinancing, we incurred, through June 30,
2007, approximately $9 million of loss for the
mark-to-market on the cross currency swap and the Euro
denominated term loan that had been used as a hedge of our net
investment in our European subsidiaries. We designated the net
investment hedge as such during July 2007.
As of June 30, 2007, there were $154 million of
letters of credit issued under the credit-linked revolving
facility and $74 million remained available for borrowing.
As of June 30, 2007, there were no outstanding borrowings
or letters of credit issued under the revolving credit facility;
accordingly $650 million remained available for borrowing.
Contractual Debt Obligations. The following
table sets forth our fixed contractual debt obligations as of
June 30, 2007:
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Remaining
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|
|
2008-
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|
2010-
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2012 and
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|
Fixed Contractual Debt Obligations
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Total
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2007
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2009
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2011
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|
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Thereafter
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(In $ millions)
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Term loan facility
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|
|
2,820
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|
|
|
14
|
|
|
|
56
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|
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|
56
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|
|
|
2,694
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|
Interest payments on
debt(1)
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|
|
1,771
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|
|
|
117
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|
|
|
464
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|
|
|
446
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|
|
|
744
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|
Other
debt(2)
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|
|
567
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|
|
|
156
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|
|
|
59
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|
|
|
74
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|
|
278
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Total fixed contractual debt
obligations
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5,158
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|
|
|
287
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579
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|
576
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3,716
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(1) |
|
For future interest expense, we assumed no change in variable
rates. See Note 8 of the unaudited interim consolidated
financial statements for the applicable interest rates. |
|
(2) |
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Does not include a $2 million reduction due to purchase
accounting. |
Other
Contractual Obligations
We adopted the provisions of Financial Accounting Standards
Board (FASB) Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an
amendment of FASB Statement No. 109
(FIN No. 48), on January 1, 2007.
The timing of future payments of the uncertain tax positions of
$193 million resulting from the implementation of
FIN No. 48 is uncertain. However, we reasonably expect
to pay approximately $10 million of the liability for
uncertain tax positions over the next twelve months. See
Note 15 of the unaudited interim consolidated financial
statements for further discussion.
Purchases
of Treasury Stock
In conjunction with the debt refinancing discussed above, we,
through our wholly-owned subsidiary Celanese International
Holdings Luxembourg S.à r.l., repurchased
2,021,775 shares of our outstanding Series A common
stock in a modified Dutch Auction tender offer from
public shareholders, which expired on April 3, 2007, at a
purchase price of $30.50 per share. The total price paid for
these shares was approximately $62 million. The number of
shares purchased in the tender offer represented approximately
1.3% of our current outstanding Series A common stock at
that time. We also separately purchased, through our
wholly-owned subsidiary Celanese International Holdings
Luxembourg S.à r.l., 329,011 shares of Series A
common stock at $30.50 per share from the investment funds
associated with The Blackstone Group L.P. The total price paid
for these shares was
49
approximately $10 million. The number of shares purchased
from Blackstone represented approximately 0.2% of our current
outstanding Series A common stock at that time.
Additionally, on June 4, 2007, our Board of Directors
authorized the repurchase of up to $330 million of our
Series A common stock. During the three months ended
June 30, 2007, we repurchased 4,922,600 shares of our
Series A common stock at an average purchase price of
$37.61 per share for a total of approximately $185 million
pursuant to this authorization. Subsequent to June 30,
2007, we repurchased an additional 3,565,100 shares of our
Series A common stock at an average purchase price of
$40.63 per share for a total of approximately $145 million.
We have completed repurchasing shares related to this
authorization.
These purchases reduced the number of shares outstanding and may
be used by us for compensation programs utilizing our stock and
other corporate purposes. We account for treasury stock using
the cost method and include treasury stock as a component of
Shareholders Equity.
Deferred
compensation
In May 2007, the Original Shareholders sold their remaining
equity interest in our Company (see Note 11 of the
unaudited interim consolidated financial statements for
additional information) triggering an Exit Event, as defined in
Note 14 of the unaudited interim consolidated financial
statements. Cash compensation of $73 million, excluding
unpaid amounts of $1 million, representing the
participants 2005 and 2006 contingent benefits, was paid
to the participants at the time of the Exit Event. See
Note 14 of the unaudited interim consolidated financial
statements for additional information.
On April 2, 2007, certain participants in our deferred
compensation plan elected to participate in a revised program,
which included both cash awards and restricted stock units.
Under the revised program, participants relinquished their cash
awards of up to $30 million that would have contingently
accrued from
2007-2009
under the original plan. See additional discussion of the
revised program in Note 14 of the unaudited interim
consolidated financial statements. Based on current
participation in the revised program, the award, which will be
expensed between April 2, 2007 and December 31, 2010,
aggregates to approximately $27 million plus notional
earnings. We expensed approximately $2 million and
$2 million, respectively, during the three and six months
ended June 30, 2007 related to the revised program.
Restricted
Stock
Participants in the revised deferred compensation program also
received an award of restricted stock units (RSUs).
The number of RSUs that ultimately vest depends on market
performance targets measured by comparison of our stock
performance versus a defined peer group. The ultimate award will
range from zero to 263,030 RSUs, based on the market performance
measurement at the cliff vesting date. During each of the three
and six months ended June 30, 2007, we recorded
compensation expense associated with these RSUs of less than
$1 million. In addition to the RSUs granted to participants
in the revised deferred compensation program, we granted RSUs to
certain employees. The employee RSUs contain the same market
performance criteria as those granted to the deferred
compensation program participants, with an ultimate award that
will range from zero to 917,361 RSUs. During each of the three
and six months ended June 30, 2007, we recorded
compensation expense associated with these RSUs of
$1 million.
In addition, we granted 26,070 RSUs to our non-management Board
of Directors. The Director RSUs will vest on April 26,
2008. During each of the three and six months ended
June 30, 2007, we recorded compensation expense associated
with these RSUs of less than $1 million. See additional
discussion on all RSUs issued in Note 14 of the unaudited
interim consolidated financial statements.
Long-term
incentive plan
On February 16, 2007, approximately $26 million was
paid to the long-term incentive plan (LTIP)
participants. There are no additional amounts due under the LTIP
plan. See Note 14 of the unaudited interim consolidated
financial statements for additional information.
50