UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

 

Form 10-K

 

 

001-32410
(Commission File Number)

 

 

 

 

CELANESE CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

 

 

 

 

(972) 443-4000
(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act

 

 

Securities registered pursuant to Section 12(g) of the Act
None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ     No o

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ     No o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

                                           (Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b2 of the Act).  Yes o     No þ

 

The aggregate market value of the registrant’s Series A Common Stock held by non-affiliates as of June 30, 2009 (the last business day of the registrants’ most recently completed second fiscal quarter) was $3,393,984,918.

 

The number of outstanding shares of the registrant’s Series A Common Stock, $0.0001 par value, as of February 5, 2010 was 145,861,703.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Certain portions of the registrant’s Definitive Proxy Statement relating to the 2010 annual meeting of shareholders, to be filed with the Securities and Exchange Commission, are incorporated by reference into Part III.

 

 

CELANESE CORPORATION

Form 10-K
For the Fiscal Year Ended December 31, 2009

TABLE OF CONTENTS

 

 

Certain statements in this Annual Report or in other materials we have filed or will file with the Securities and Exchange Commission (“SEC”), as well as information included in oral statements or other written statements made or to be made by us, are forward-looking in nature as defined in Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995. You can identify these statements by the fact that they do not relate to matters of a strictly factual or historical nature and generally discuss or relate to forecasts, estimates or other expectations regarding future events. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “may,” “can,” “could,” “might,” “will” and similar expressions identify forward-looking statements, including statements that relate to, such matters as planned and expected capacity increases and utilization; anticipated capital spending; environmental matters; legal proceedings; exposure to, and effects of hedging of, raw material and energy costs and foreign currencies; global and regional economic, political, and business conditions; expectations, strategies, and plans for individual assets and products, business segments, as well as for the whole Company; cash requirements and uses of available cash; financing plans; pension expenses and funding; anticipated restructuring, divestiture, and consolidation activities; cost reduction and control efforts and targets and integration of acquired businesses. From time to time, forward-looking statements also are included in our other periodic reports on Forms 10-Q and 8-K, in our press releases and presentations, on our web site and in other material released to the public.

 

Forward-looking statements are not historical facts or guarantees of future performance but instead represent only our beliefs at the time the statements were made regarding future events, which are subject to significant risks, uncertainties, and other factors, many of which are outside of our control and certain of which are listed above. Any or all of the forward-looking statements included in this Report and in any other reports, presentations or public statements made by us may turn out to be materially inaccurate. This can occur as a result of incorrect assumptions, in some cases based upon internal estimates and analyses of current market conditions and trends, management plans and strategies, economic conditions, or as a consequence of known or unknown risks and uncertainties. Many of the risks and uncertainties mentioned in this Report, such as those discussed in Item 1A. Risk Factors, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements May Prove Inaccurate, or in another report or public statement made by us, will be important in determining whether these forward-looking statements prove to be accurate. Consequently, neither our stockholders nor any other person should place undue reliance on our forward-looking statements and should recognize that actual results may differ materially from those anticipated by us.

 

All forward-looking statements made in this Report are made as of the date hereof, and the risk that actual results will differ materially from expectations expressed in this Report will increase with the passage of time. We undertake no obligation, and disclaim any duty, to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changes in our expectations or otherwise. However, we may make further disclosures regarding future events, trends and uncertainties in our subsequent reports on Forms 10-K, 10-Q and 8-K to the extent required under the Exchange Act. The above cautionary discussion of risks, uncertainties and possible inaccurate assumptions relevant to our business include factors we believe could cause our actual results to differ materially from expected and historical results. Other factors beyond those listed above or in Item 3. Legal Proceedings below, including factors unknown to us and factors known to us which we have not determined to be material, could also adversely affect us.

 

 

Basis of Presentation

 

In this Annual Report on Form 10-K, the term “Celanese” refers to Celanese Corporation, a Delaware corporation, and not its subsidiaries. The terms the “Company,” “we,” “our” and “us” refer to Celanese and its subsidiaries on a consolidated basis. The term “Celanese US” refers to our subsidiary, Celanese US Holdings LLC, a Delaware limited liability company, formerly known as BCP Crystal US Holdings Corp., a Delaware corporation, and not its subsidiaries. The term “Purchaser” refers to our subsidiary, Celanese Europe Holding GmbH & Co. KG, formerly known as BCP Crystal Acquisition GmbH & Co. KG, a German limited partnership, and not its subsidiaries, except where otherwise indicated.

Overview

 

Celanese Corporation was formed in 2004 when affiliates of The Blackstone Group purchased 84% of the ordinary shares of Celanese GmbH, formerly known as Celanese AG, a diversified German chemical company. Celanese Corporation was incorporated in 2005 under the laws of the state of Delaware and its shares are traded on the New York Stock Exchange under the symbol “CE”. During the period from 2005 through 2007, Celanese Corporation purchased the remaining 16% interest in Celanese GmbH.

 

We are a leading, global integrated producer of chemicals and advanced materials. We are one of the world’s largest producers of acetyl products, which are intermediate chemicals for nearly all major industries, as well as a leading global producer of high performance engineered polymers that are used in a variety of high-value, end-use applications. As an industry leader, we hold geographically balanced global positions and participate in diversified, end-use markets. Our operations are primarily located in North America, Europe and Asia. We combine a demonstrated track record of execution, strong performance built on our principles and objectives, and a clear focus on growth, productivity and value creation.

 

Our large and diverse global customer base primarily consists of major companies in a broad array of industries. For the year ended December 31, 2009, approximately 27% of our net sales were to customers located in North America, 42% to customers in Europe and Africa, 28% to customers in Asia-Pacific and 3% to customers in South America. We have property, plant and equipment in the United States of $634 million and outside the United States of $2,163 million.

 

Industry

 

This Annual Report on Form 10-K includes industry data obtained from industry publications and surveys as well as our own internal company surveys. Third-party industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable. The statements regarding Celanese’s market position in this document are based on information derived from, among others, the 2009 Stanford Research Institute International Chemical Economics Handbook.

Business Segment Overview

 

We operate principally through four business segments: Advanced Engineered Materials, Consumer Specialties, Industrial Specialties and Acetyl Intermediates. For further details on our business segments, see Note 26 to the consolidated financial statements. The table below illustrates each business segment’s net sales to external customers for the year ended December 31, 2009, as well as each business segment’s major products and end-use markets.

 

 

 

Competitive Strengths

 

We benefit from a number of competitive strengths, including the following:

 

• Leading Positions

 

We believe that we are a leading global integrated producer of acetyl, acetate and vinyl emulsion products. Advanced Engineered Materials and our strategic affiliates, Polyplastics Co., Ltd. (“Polyplastics”) and Korea Engineering Plastics Co., Ltd. (“KEPCO”), are leading producers and suppliers of engineered polymers in North America, Europe and the Asia-Pacific region. Our leadership positions are based on our large share of global production capacity, operating efficiencies, proprietary production technology and competitive cost structures in our major product lines.

• Proprietary Production Technology and Operating Expertise

 

Our production of acetyl products employs industry-leading proprietary and licensed technologies, including our proprietary AOPlus^®2 and AOPlus^tm technologies for the production of acetic acid and VAntage^tm and VAntage Plus^tm vinyl acetate monomer technology. AOPlus^®2 builds on the industry benchmark with the ability to increase acetic acid production from our current capacity of 1.2 million tons per reactor per year to approximately 1.5 million tons per reactor per year at a fraction of the cost of a new facility. This technology is applicable to existing and new greenfield units. AOPlus^tm enables increased raw material efficiencies, lower operating costs and the ability to expand plant capacity with minimal investment. VAntage^tm and VAntage Plus^tm enable significant increases in production efficiencies, lower operating costs and increases in capacity at ten to fifteen percent of the cost of building a new plant.

 

• Low Cost Producer

 

Our competitive cost structures are based on production and purchasing economies of scale, vertical integration, technical expertise and the use of advanced technologies.

 

• Global Reach

 

We own or lease thirty-two production facilities throughout the world, of which five sites are no longer operating as of December 31, 2009. We participate in strategic ventures which operate thirteen additional facilities. Our infrastructure of manufacturing plants, terminals, warehouses and sales offices provides us with a competitive advantage in anticipating and meeting the needs of our global and local customers in well-established and growing markets, while our geographic diversity reduces the potential impact of volatility in any individual country or region. We have a strong, growing presence in Asia, particularly in China, and we have a defined strategy to continue this growth. For more information regarding our financial information with respect to our geographic areas, see Note 26 to the consolidated financial statements.

 

• Strategic Investments

 

Our strategic investments have enabled us to gain access, minimize costs and accelerate growth in new markets, while also generating significant cash flow and earnings. Our equity investments and cost investments represent an important component of our growth strategy. See Note 8 to the consolidated financial statements and Item 1. Business — Investments for additional information on our equity and cost investments.

 

• Diversified Products and End-Use Markets

 

We offer our customers a broad range of products in a wide variety of end-use markets. Our diversified end-use markets include paints and coatings, textiles, automotive applications, consumer and medical applications, performance industrial applications, filter media, paper and packaging, chemical additives, construction, consumer and industrial adhesives, and food and beverage applications. This product and market diversity reduces the potential impact of volatility in any individual segment.

 

Business Strategies

 

Our strategic foundation is based on the following four pillars which are focused on increasing operating cash flows, improving profitability, delivering high return on investments and increasing shareholder value:

 

• Focus

 

We focus on businesses where we have a sustainable and proven competitive advantage. We continue to optimize our business portfolio in order to achieve market, cost and technology leadership while expanding our product mix into higher value-added products.

 

• Investment

 

We build on advantaged positions that optimize our portfolio of products. In order to improve our competitive advantage, we have invested in: our core group of businesses through acquisitions; growth in Asia bolstered by our integrated chemical complex in Nanjing, China; and new applications of our advanced engineered polymers products.

 

• Growth

 

We aggressively align with our customers and their end-use markets to capture growth. We are quickly expanding in Asia, the fastest-growing region in the world, in order to meet increasing demand for our products. As part of our strategy, we also continue to develop new products and industry-leading production technologies that deliver value-added solutions for our customers.

 

• Redeployment

 

We divest non-core assets and revitalize underperforming businesses. We have divested or exited businesses where we no longer maintain a competitive advantage. We also continue to make key strategic decisions to revitalize businesses that have significant potential for improved performance and enhanced efficiency.

 

Underlying all of these strategies is a culture of execution and productivity. We continually seek ways to reduce costs, increase productivity and improve process technology. Our commitment to operational excellence is an integral part of our strategy to maintain our cost advantage and productivity leadership.

 

Business Segments

 

Advanced Engineered Materials

 

Our Advanced Engineered Materials segment develops, produces and supplies a broad portfolio of high performance technical polymers for application in automotive and electronics products, as well as other consumer and industrial applications. Together with our strategic affiliates, we are a leading participant in the global technical polymers industry. The primary products of Advanced Engineered Materials are POM, PPS, LFRT, PBT, PET, GUR^® and LCP. POM, PPS, LFRT, PBT and PET are used in a broad range of products including automotive components, electronics, appliances and industrial applications. GUR^® is used in battery separators, conveyor belts, filtration equipment, coatings and medical devices. Primary end markets for LCP are electrical and electronics.

 

Advanced Engineered Materials’ technical polymers have chemical and physical properties enabling them, among other things, to withstand extreme temperatures, resist chemical reactions with solvents and withstand fracturing or stretching. These products are used in a wide range of performance-demanding applications in the automotive and electronics sectors as well as in other consumer and industrial goods.

 

Advanced Engineered Materials works in concert with its customers to enable innovations and develop new or enhanced products. Advanced Engineered Materials focuses its efforts on developing new markets and applications for its product lines, often developing custom formulations to satisfy the technical and processing requirements of a customer’s applications. For example, Advanced Engineered Materials has collaborated with fuel system suppliers to develop an acetal copolymer with the chemical and impact resistance necessary to withstand exposure to hot diesel fuels in the new generation of common rail diesel engines. The product can also be used in automotive fuel sender units where it remains stable at the high operating temperatures present in direct-injection diesel engines and can meet the requirements of the new generation of bio fuels.

 

Advanced Engineered Materials’ customer base consists primarily of a large number of plastic molders and component suppliers, which typically supply original equipment manufacturers (“OEMs”). Advanced Engineered Materials works with these molders and component suppliers as well as directly with the OEMs to develop and improve specialized applications and systems.

 

Prices for most of these products, particularly specialized product grades for targeted applications, generally reflect the value added in complex polymer chemistry, precision formulation and compounding, and the extensive

application development services provided. These specialized products are not typically susceptible to cyclical swings in pricing.

 

• Key Products

 

POM is sold under the trademark Hostaform^® in all regions but North America, where it is sold under the trademark Celcon^®. Polyplastics and KEPCO are leading suppliers of POM and other engineering resins in the Asia-Pacific region. POM is used for mechanical parts, including door locks and seat belt mechanisms, in automotive applications and in electrical, consumer and medical applications such as drug delivery systems and gears for large appliances.

 

The primary raw material for POM is formaldehyde, which is manufactured from methanol. Advanced Engineered Materials currently purchases formaldehyde in the United States from our Acetyl Intermediates segment and, in Europe, manufactures formaldehyde from purchased methanol.

 

GUR^® is an engineered material used in heavy-duty automotive and industrial applications such as car battery separator panels and industrial conveyor belts, as well as in specialty medical and consumer applications, such as sports equipment and prostheses. GUR^® micro powder grades are used for high-performance filters, membranes, diagnostic devices, coatings and additives for thermoplastics and elastomers. GUR^® fibers are also used in protective ballistic applications.

 

Celstran^® and Compel^® are long fiber reinforced thermoplastics, which impart extra strength and stiffness, making them more suitable for larger parts than conventional thermoplastics and are used in automotive, transportation and industrial applications.

 

Polyesters such as Celanex^® PBT, Celanex^® PET, Vandar^®, a series of PBT-polyester blends and Riteflex^®, a thermoplastic polyester elastomer, are used in a wide variety of automotive, electrical and consumer applications, including ignition system parts, radiator grilles, electrical switches, appliance and sensor housings, light emitting diodes (“LEDs”) and technical fibers. Raw materials for polyesters vary. Base monomers, such as dimethyl terephthalate and purified terephthalic acid (“PTA”), are widely available with pricing dependent on broader polyester fiber and packaging resins market conditions. Smaller volume specialty co-monomers for these products are typically supplied by a limited number of companies.

 

Liquid crystal polymers, such as Vectra^®, are used in electrical and electronics applications and for precision parts with thin walls and complex shapes or on high-heat cookware applications.

 

Fortron^®, a PPS product, is used in a wide variety of automotive and other applications, especially those requiring heat and/or chemical resistance, including fuel system parts, radiator pipes and halogen lamp housings, often replacing metal. Other possible application fields include non-woven filtration devices such as coal fired power plants. Fortron^® is manufactured by Fortron Industries LLC (“Fortron”), Advanced Engineered Materials’ 50% owned strategic venture with Kureha Corporation of Japan.

 

• Facilities

 

Advanced Engineered Materials has polymerization, compounding and research and technology centers in Germany, Brazil, China and the United States.

• Geographic Regions

 

The following table illustrates the destination of the net sales of the Advanced Engineered Materials segment by geographic region.

 

Net Sales to External Customers by Destination — Advanced Engineered Materials

 

 

Advanced Engineered Materials’ sales in Asia are made directly and through distributors including its strategic affiliates. Polyplastics, KEPCO and Fortron are accounted for under the equity method and therefore not included in Advanced Engineered Materials’ consolidated net sales. If Advanced Engineered Materials’ portion of the sales made by these strategic affiliates were included in the table above, the percentage of sales sold in Asia-Pacific would be substantially higher. A number of Advanced Engineered Materials’ POM customers, particularly in the appliance, electrical components and certain sections of the electronics/telecommunications fields, have moved tooling and molding operations to Asia, particularly southern China. In addition to our Advanced Engineered Materials affiliates, we directly service Asian demand by offering our customers global solutions.

 

Advanced Engineered Materials’ principal customers are consumer product manufacturers and suppliers to the automotive industry. These customers primarily produce engineered products, and Advanced Engineered Materials collaborates with its customers to assist in developing and improving specialized applications and systems. Advanced Engineered Materials has long-standing relationships with most of its major customers, but also uses distributors for its major products, as well as a number of electronic marketplaces to reach a larger customer base. For most of Advanced Engineered Materials’ products, contracts with customers typically have a term of one to two years.

 

• Competition

 

Advanced Engineered Materials’ principal competitors include BASF AG (“BASF”), E. I. DuPont de Nemours and Company (“DuPont”), DSM N.V., Sabic Innovative Plastics and Solvay S.A. Smaller regional competitors include Asahi Kasei Corporation, Mitsubishi Gas Chemicals, Inc., Chevron Phillips Chemical Company, L.P., Braskem S.A., Lanxess AG, Teijin, Sumitomo, Inc. and Toray Industries Inc.

 

Consumer Specialties

 

The Consumer Specialties segment consists of our Acetate Products and Nutrinova businesses. Our Acetate Products business 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. Our Nutrinova business produces and sells Sunett^®, a high intensity sweetener, and food protection ingredients, such as sorbates, for the food, beverage and pharmaceutical industries.

 

• Key Products

 

Acetate tow is used primarily in cigarette filters. We produce acetate flake by processing wood pulp with acetic anhydride. We purchase wood pulp that is made from reforested trees from major suppliers and produce acetic anhydride internally. The acetate flake is then further processed into acetate fiber in the form of a tow band.

According to the 2009 Stanford Research Institute International Chemical Economics Handbook, as of 2008 we are the world’s leading producer of acetate tow, including production of our China ventures.

 

Sales of acetate tow amounted to approximately 16%, 12% and 11% of our consolidated net sales for the years ended December 31, 2009, 2008 and 2007, respectively.

 

We have an approximate 30% interest in three manufacturing China ventures, which are accounted for as cost method investments (see Note 8 to the consolidated financial statements) that produce acetate flake and tow. Our partner in each of the ventures is the Chinese state-owned tobacco entity, China National Tobacco Corporation. In addition, approximately 12% of our 2009 acetate tow sales were sold directly to China, the largest consuming country for acetate tow.

 

Acesulfame potassium, a high intensity sweetener marketed under the trademark Sunett^®, is used in a variety of beverages, confections and dairy products throughout the world. Sunett^® pricing for targeted applications reflects the value added by Nutrinova, through consistent product quality and reliable supply. Nutrinova’s strategy is to be the most reliable and highest quality producer of this product, to develop new product applications and expand into new markets.

 

Nutrinova’s food ingredients business consists of the production and sale of food protection ingredients, such as sorbic acid and sorbates, and high intensity sweeteners worldwide. Nutrinova’s food protection ingredients are mainly used in foods, beverages and personal care products. The primary raw materials for these products are ketene and crotonaldehyde. Sorbates pricing is extremely sensitive to demand and industry capacity and is not necessarily dependent on the prices of raw materials.

 

•  Facilities

 

Acetate Products has production sites in the United States, Mexico, the United Kingdom and Belgium, and participates in three manufacturing ventures in China.

 

Nutrinova has a production facility in Germany, as well as sales and distribution facilities in all major world markets.

 

•  Geographic Regions

 

The following table illustrates the destination of the net sales of the Consumer Specialties segment by geographic region.

 

Net Sales to External Customers by Destination — Consumer Specialties

 

 

 

 

Sales of acetate tow are principally to the major tobacco companies that account for a majority of worldwide cigarette production. Our contracts with most of our customers are entered into on an annual basis.

 

Nutrinova primarily markets Sunett^® to a limited number of large multinational and regional customers in the beverage and food industry under long-term and annual contracts. Nutrinova markets food protection ingredients

primarily through regional distributors to small and medium sized customers and directly through regional sales offices to large multinational customers in the food industry.

 

• Competition

 

Acetate Products’ principal competitors include Daicel Chemical Industries Ltd. (“Daicel”), Eastman Chemical Corporation (“Eastman”) and Rhodia S.A.

 

The principal competitors for Nutrinova’s Sunett^® sweetener are Holland Sweetener Company, The NutraSweet Company, Ajinomoto Co., Inc., Tate & Lyle PLC and several Chinese manufacturers. In sorbates, Nutrinova competes with Nantong AA, Daicel, Yu Yao/Ningbo, Yancheng AmeriPac and other Chinese manufacturers of sorbates.

 

Industrial Specialties

 

Our Industrial Specialties segment includes our Emulsions, PVOH and EVA Performance Polymers businesses. Our Emulsions business is a global leader which produces a broad product portfolio, specializing in vinyl acetate ethylene emulsions, and is a recognized authority on low VOC (volatile organic compounds), an environmentally-friendly technology. Our PVOH business was sold in July 2009 to Sekisui Chemical Co., Ltd. (“Sekisui”) for a net cash purchase price of $168 million. The PVOH business produced a broad portfolio of performance PVOH chemicals engineered to meet specific customer requirements. Our emulsions products are used in a wide array of applications including paints and coatings, adhesives, building and construction, glass fiber, textiles and paper. EVA Performance Polymers offers a complete line of low-density polyethylene and specialty ethylene vinyl acetate resins and compounds. EVA Performance Polymers’ products are used in many applications including flexible packaging films, lamination film products, hot melt adhesives, medical tubing and devices, automotive carpet and solar cell encapsulation films.

 

• Key Products

 

The products in our Emulsions business include conventional vinyl and acrylate based emulsions and high-pressure vinyl acetate ethylene emulsions. Emulsions are made from VAM, acrylate esters and styrene. Our Emulsions business is a leading producer of vinyl acetate ethylene emulsions in Europe. These products are a key component of water-based architectural coatings, adhesives, non-wovens, textiles, glass fiber and other applications.

 

Sales from the Emulsions business amounted to approximately 15%, 13% and 14% of our consolidated net sales for the years ended December 31, 2009, 2008 and 2007, respectively.

 

PVOH is used in adhesives, building products, paper coatings, films and textiles. The primary raw material to produce PVOH is VAM, while acetic acid is produced as a by-product. Our PVOH business was sold to Sekisui in July 2009.

 

EVA Performance Polymers produces low-density polyethylene and EVA resins and compounds that are used in the manufacture of hot melt adhesives, automotive carpet, lamination film products, flexible packaging films, medical tubing and solar cell encapsulation films. EVA resins and compounds are produced in high-pressure reactors from ethylene and VAM.

 

• Facilities

 

The Emulsions business has production sites in the United States, Canada, China, Spain, Sweden, the Netherlands and Germany. EVA Performance Polymers has a production facility in Edmonton, Alberta, Canada. Our PVOH production sites in the United States and Spain were sold to Sekisui in July 2009.

• Geographic Regions

 

The following table illustrates the destination of the net sales of the Industrial Specialties segment by geographic region.

 

Net Sales to External Customers by Destination — Industrial Specialties

 

 

Industrial Specialties’ products are sold to a diverse group of regional and multinational customers. Customers for emulsions are manufacturers of water-based paints and coatings, adhesives, paper, building and construction products, glass fiber, non-wovens and textiles. The customers of the PVOH business are primarily engaged in the production of adhesives, paper, films, building products and textiles. Customers of EVA Performance Polymers are primarily engaged in the manufacture of adhesives, automotive components, packaging materials, print media and solar energy products.

 

• Competition

 

Principal competitors in the Emulsions business include The Dow Chemical Company (“Dow”), BASF, Dairen, Wacker and several smaller regional manufacturers.

 

Principal competitors for the EVA Performance Polymers EVA resins and compounds business include DuPont, ExxonMobil Chemical, Arkema and several Asian manufacturers.

 

Acetyl Intermediates

 

Our Acetyl Intermediates segment produces and supplies acetyl products, including acetic acid, VAM, acetic anhydride and acetate esters. These products are generally used as starting materials for colorants, paints, adhesives, coatings, and medicines. Other chemicals produced in this business segment are organic solvents and intermediates for pharmaceutical, agricultural and chemical products.

 

• Key Products

 

Acetyl Products. Acetyl products include acetic acid, VAM, acetic anhydride and acetaldehyde. Acetic acid is primarily used to manufacture VAM, PTA and other acetyl derivatives. VAM is used in a variety of adhesives, paints, films, coatings and textiles. Acetic anhydride is a raw material used in the production of cellulose acetate, detergents and pharmaceuticals. Acetaldehyde is a major feedstock for the production of a variety of derivatives, such as pyridines, which are used in agricultural products. We manufacture acetic acid, VAM and acetic anhydride for our own use, as well as for sale to third parties.

 

Acetic acid and VAM, our basic acetyl intermediates products, are impacted by global supply and demand fundamentals and are cyclical in nature. The principal raw materials in these products are ethylene, which we purchase from numerous sources; carbon monoxide, which we purchase under long-term contracts; and methanol, which we purchase under long-term and short-term contracts. With the exception of carbon monoxide, these raw materials are commodity products available from a wide variety of sources.

Our production of acetyl products employs leading proprietary and licensed technologies, including our proprietary AOPlus^®2 and AOPlus^tm technologies for the production of acetic acid and VAntage^tm and VAntage Plus^tm VAM technology.

 

Solvents and Derivatives. Solvents and derivatives products include a variety of solvents, formaldehyde and other chemicals, which in turn are used in the manufacture of paints, coatings, adhesives and other products.

 

Many solvents and derivatives products are derived from our production of acetic acid. Primary products are:

 

•    Ethyl acetate, an acetate ester that is a solvent used in coatings, inks and adhesives and in the manufacture of photographic films and coated papers; and

 

•    Butyl acetate, an acetate ester that is a solvent used in inks, pharmaceuticals and perfume.

 

Formaldehyde and formaldehyde derivative products are derivatives of methanol and are made up of the following products:

 

•    Formaldehyde, paraformaldehyde and formcels are primarily used to produce adhesive resins for plywood, particle board, coatings, POM engineering resins and a compound used in making polyurethane;

 

•    Amines such as methyl amines, monisopropynol amines and butyl amines are used in agrochemicals, herbicides and the treatment of rubber and water; and

 

•    Special solvents, such as crotonaldehyde, which are used by the Nutrinova line for the production of sorbates, as well as raw materials for the fragrance and food ingredients industry.

 

Solvents and derivatives are commodity products characterized by cyclicality in pricing. The principal raw materials used in solvents and derivatives products are acetic acid, various alcohols, methanol, ethylene and ammonia. We manufacture many of these raw materials for our own use as well as for sales to third parties, including our competitors in the solvents and derivatives business. We purchase ethylene from a variety of sources. We manufacture acetaldehyde in Europe for our own use, as well as for sale to third parties.

 

Sales from acetyl products amounted to approximately 34%, 35% and 34% of our consolidated net sales for the years ended December 31, 2009, 2008 and 2007, respectively. Sales from solvents and derivatives products amounted to approximately 10%, 12% and 12% of our consolidated net sales for the years ended December 31, 2009, 2008 and 2007, respectively.

 

• Facilities

 

Acetyl Intermediates has production sites in the United States, China, Mexico, Singapore, Spain, France and Germany. As of December 31, 2009, acetic acid and VAM production at our Pardies, France location had ceased. In addition, our Cangrejera, Mexico site no longer produced VAM as of December 31, 2009. We also participate in a strategic venture in Saudi Arabia that produces methanol and methyl tertiary-butyl ether (“MTBE”). Over the last few years, we have continued to shift our production capacity to lower cost production facilities while expanding in growth markets, such as China.

• Geographic Regions

 

The following table illustrates net sales by destination of the Acetyl Intermediates segment by geographic region.

 

Net Sales to External Customers by Destination — Acetyl Intermediates

 

 

 

Acetyl Intermediates markets its products both directly to customers and through distributors.

 

Acetic acid, VAM and acetic anhydride are global businesses which have several large customers. Generally, we supply these global customers under multi-year contracts. The customers of acetic acid, VAM and acetic anhydride produce polymers used in water-based paints, adhesives, paper coatings, polyesters, film modifiers, pharmaceuticals, cellulose acetate and textiles. We have long-standing relationships with most of these customers.

 

Solvents and derivatives are sold to a diverse group of regional and multinational customers both under multi-year contracts and on the basis of long-standing relationships. The customers of solvents and derivatives are primarily engaged in the production of paints, coatings and adhesives. We manufacture formaldehyde for our own use as well as for sale to a few regional customers that include manufacturers in the wood products and chemical derivatives industries. The sale of formaldehyde is based on both long and short-term agreements. Specialty solvents and amines are sold globally to a wide variety of customers, primarily in the coatings and resins and the specialty products industries. These products serve global markets in the synthetic lubricant, agrochemical, rubber processing and other specialty chemical areas.

 

• Competition

 

Our principal competitors in the Acetyl Intermediates segment include Atofina S.A., BASF, British Petroleum PLC, Chang Chun Petrochemical Co., Ltd., Daicel, Dow, Eastman, DuPont, LyondellBasell Industries, Nippon Gohsei, Perstorp Inc., Jiangsu Sopo Corporation (Group) Ltd., Showa Denko K.K., and Kuraray Co. Ltd.

 

Other Activities

 

Other Activities primarily consists of corporate center costs, including financing and administrative activities such as legal, accounting and treasury functions, interest income and expense associated with our financing activities, and our captive insurance companies. Our two wholly-owned captive insurance companies are a key component of our global risk management program, as well as a form of self-insurance for our property, liability and workers compensation risks. The captive insurance companies issue insurance policies to our subsidiaries to provide consistent coverage amid fluctuating costs in the insurance market and to lower long-term insurance costs by avoiding or reducing commercial carrier overhead and regulatory fees. The captive insurance companies retain risk at levels approved by management and obtain reinsurance coverage from third parties to limit the net risk retained. One of the captive insurance companies also insures certain third-party risks.

Investments

 

We have a significant portfolio of strategic investments, including a number of ventures in Asia-Pacific, North America and Europe. In aggregate, these strategic investments enjoy significant sales, earnings and cash flow. We have entered into these strategic investments in order to gain access to local demand, minimize costs and accelerate growth in areas we believe have significant future business potential. See Note 8 to the consolidated financial statements for additional information.

 

The table below represents our significant strategic ventures as of December 31, 2009:

 

 

• Major Equity Method Investments

 

Korea Engineering Plastics Co. Ltd. Founded in 1987, KEPCO is the leading producer of polyacetal in South Korea. Mitsubishi Gas Chemical Company, Inc. owns 40% and Mitsubishi Corporation owns 10% of KEPCO. KEPCO operates a POM plant in Ulsan, South Korea and participates with Polyplastics and Mitsubishi Gas Chemical Company, Inc. in a world-scale POM facility in Nantong, China.

 

Polyplastics Co., Ltd. We believe Polyplastics is a leading supplier of engineered plastics in the Asia-Pacific region. Polyplastics’ principal production facilities are located in Japan, Taiwan, Malaysia and China. We believe Polyplastics is a leading producer and marketer of POM in the Asia-Pacific region.

 

Fortron Industries LLC. We believe Fortron Industries LLC (“Fortron”) is a leading global producer of PPS. Fortron’s facility is located in Wilmington, North Carolina. We believe Fortron has the leading technology in linear polymer applications.

 

• Major Cost Method Investments

 

National Methanol Co. (“Ibn Sina”). With production facilities in Saudi Arabia, Ibn Sina represents approximately 2% of the world’s methanol production capacity and is the world’s eighth largest producer of MTBE. Methanol and MTBE are key global commodity chemical products. We indirectly own a 25% interest in Ibn Sina through CTE Petrochemicals Co., a joint venture with Texas Eastern Arabian Corporation Ltd. (which also indirectly owns 25%), with the remainder held by SABIC (50%). SABIC has responsibility for all product marketing.

 

China Acetate Products ventures. We hold approximately 30% ownership interests (50% board representation) in three separate Acetate Products production entities in China: the Nantong, Kunming and Zhuhai Cellulose Fiber Companies. In each instance, the Chinese state-owned tobacco entity, China National Tobacco Corporation, controls the remainder. The China ventures fund operations using operating cash flows.

These cost investments where we own greater than a 20% ownership interest are accounted for under the cost method of accounting because we cannot exercise significant influence over these entities. We determined that we cannot exercise significant influence over these entities due to local government investment in and influence over these entities, limitations on our involvement in the day-to-day operations and the present inability of the entities to provide timely financial information prepared in accordance with generally accepted accounting principles in the United States (“US GAAP”).

 

• Other Equity Investments

 

InfraServs. We hold ownership interests in several InfraServ entities located in Germany. InfraServs own and develop industrial parks and provide on-site general and administrative support to tenants. The table below represents our equity investments in InfraServ ventures as of December 31, 2009:

 

 

Raw Materials and Energy

 

We purchase a variety of raw materials and energy from sources in many countries for use in our production processes. We have a policy of maintaining, when available, multiple sources of supply for materials. However, some of our individual plants may have single sources of supply for some of their raw materials, such as carbon monoxide, steam and acetaldehyde. Although we have been able to obtain sufficient supplies of raw materials, there can be no assurance that unforeseen developments will not affect our raw material supply. Even if we have multiple sources of supply for a raw material, there can be no assurance that these sources can make up for the loss of a major supplier. There cannot be any guarantee that profitability will not be affected should we be required to qualify additional sources of supply to our specifications in the event of the loss of a sole supplier. In addition, the price of raw materials varies, often substantially, from year to year.

 

A substantial portion of our products and raw materials are commodities whose prices fluctuate as market supply/demand fundamentals change. Our production facilities rely largely on fuel oil, natural gas and electricity for energy. Most of the raw materials for our European operations are centrally purchased by one of our subsidiaries, which also buys raw materials on behalf of third parties. We manage our exposure through forward purchase contracts, long-term supply agreements and multi-year purchasing and sales agreements. During 2009, we did not enter into any commodity financial derivative contracts. See Note 2 and Note 22 to the consolidated financial statements for additional information.

 

We also currently purchase and lease supplies of various precious metals, such as rhodium, used as catalysts for the manufacture of Acetyl Intermediates products. For precious metals, the leases are distributed between a minimum of three lessors per product and are divided into several contracts.

 

Research and Development

 

All of our businesses conduct research and development activities to increase competitiveness. Our businesses are innovation-oriented and conduct research and development activities to develop new, and optimize existing, production technologies, as well as to develop commercially viable new products and applications. We consider the amount spent during each of the last three fiscal years on research and development activities to be adequate to drive our strategic initiatives.

 

Intellectual Property

 

We attach great importance to patents, trademarks, copyrights and product designs in order to protect our investment in research and development, manufacturing and marketing. Our policy is to seek the widest possible protection for significant product and process developments in our major markets. Patents may cover processes, products, intermediate products and product uses. We also seek to register trademarks extensively as a

means of protecting the brand names of our products, which brand names become more important once the corresponding products or process patents have expired. We protect our trademarks vigorously against infringement and also seek to register design protection where appropriate.

 

In most industrial countries, patent protection exists for new substances and formulations, as well as for unique applications and production processes. However, we do business in regions of the world where intellectual property protection may be limited and difficult to enforce. We maintain strict information security policies and procedures wherever we do business. Such information security policies and procedures include data encryption, controls over the disclosure and safekeeping of confidential information, as well as employee awareness training. Moreover, we monitor our competitors and vigorously defend and enforce infringements on our intellectual property rights.

 

Neither Celanese nor any particular business segment is materially dependent upon any one particular patent, trademark, copyright or trade secret.

 

• Trademarks

 

AOPlus^®2, AOPlus^®, VAntage^®, VAntage Plus^tm, BuyTiconaDirect^tm, Celanex^®, Celcon^®, Celstran^®, Celvolit^®, Compel^®, Erkol^®, GUR^®, Hostaform^®, Impet^®, Mowilith^®, Nutrinova^®, Riteflex^®, Sunett^®, Vandar^®, Vectra^®, Vinamul^®, EcoVAE^®, Duroset^®, Ateva^®, Acetex^® and certain other products and services named in this document are trademarks, service marks or registered trademarks of Celanese. The foregoing is not intended to be an exhaustive or comprehensive list of all trademarks, service marks or registered trademarks owned by Celanese. Fortron^® is a registered trademark of Fortron Industries LLC, a venture of Celanese.

 

Environmental and Other Regulation

 

Matters pertaining to environmental and other regulations are discussed in Item 1A. Risk Factors, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates – Accounting for Commitments and Contingencies, and Note 16 and Note 24 to the consolidated financial statements.

 

Employees

 

As of December 31, 2009, we had 7,400 employees worldwide. The following table sets forth the approximate number of employees on a continuing basis.

 

 

Many of our employees are unionized, particularly in Germany, Canada, Mexico, Brazil, Belgium and France. However, in the United States, less than one quarter of our employees are unionized. Moreover, in Germany and France, wages and general working conditions are often the subject of centrally negotiated collective bargaining agreements. Within the limits established by these agreements, our various subsidiaries negotiate directly with the

unions and other labor organizations, such as workers’ councils, representing the employees. Collective bargaining agreements between the German chemical employers associations and unions relating to remuneration generally have a term of one year, while in the United States a three year term for collective bargaining agreements is typical. We offer comprehensive benefit plans for employees and their families and believe our relations with employees are satisfactory.

 

Backlog

 

We do not consider backlog to be a significant indicator of the level of future sales activity. In general, we do not manufacture our products against a backlog of orders. Production and inventory levels are based on the level of incoming orders as well as projections of future demand. Therefore, we believe that backlog information is not material to understanding our overall business and should not be considered a reliable indicator of our ability to achieve any particular level of revenue or financial performance.

 

Available Information — Securities and Exchange Commission (“SEC”) Filings and Corporate Governance Materials

 

We make available free of charge, through our internet website (http://www.celanese.com), our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers, including Celanese Corporation, that electronically file with the SEC at http://www.sec.gov.

 

We also make available free of charge, through our internet website, our Corporate Governance Guidelines of our Board of Directors and the charters of each of the committees of the Board. Such materials are also available in print upon the written request of any shareholder to Celanese Corporation, 1601 West LBJ Freeway, Dallas, Texas, 75234-6034, Attention: Investor Relations.

 

 

Many factors could have an effect on our financial condition, cash flows and results of operations. We are subject to various risks resulting from changing economic, environmental, political, industry, business and financial conditions. The factors described below represent our principal risks.

 

Risks Related to Our Business

 

The worldwide economic downturn and difficult conditions in the global capital and credit markets have affected and may continue to adversely affect our business, as well as the industries of many of our customers and suppliers, which are cyclical in nature.

 

Some of the markets in which our end-use customers participate, such as the automotive, electrical, construction and textile industries, are cyclical in nature, thus posing a risk to us which is beyond our control. These markets are highly competitive, to a large extent driven by end-use markets, and may experience overcapacity, all of which may affect demand for and pricing of our products.

 

Recent declines in consumer and business confidence and spending, together with severe reductions in the availability and cost of credit and volatility in the capital and credit markets, have adversely affected the business and economic environment in which we operate and the profitability of our business. Our business is exposed to risks associated with the creditworthiness of our key suppliers, customers and business partners. In particular, we are exposed to risks associated with reduced levels of automotive and textile production and declines in the housing market. These conditions have resulted in financial instability or other adverse effects at many of our suppliers, customers or business partners. The consequences of such adverse effects could include the interruption of production at the facilities of our customers, the reduction, delay or cancellation of customer orders, delays in or the inability of customers to obtain financing to purchase our products, delays or interruptions of the supply of raw

materials we purchase and bankruptcy of customers, suppliers or other creditors. The continuation of any of these events may adversely affect our cash flow, profitability and financial condition.

 

During 2008 and 2009, as a result of the economic downturn, lenders and institutional investors reduced and, in some cases, ceased to provide funding to borrowers reducing the availability of liquidity and credit to fund or support the continuation and expansion of business operations worldwide. Although the markets have stabilized since 2008, future disruption of the credit markets could adversely affect our customer’s access to credit which supports the continuation and expansion of their businesses worldwide and could result in contract cancellations or suspensions, payment delays or defaults by our customers.

 

We are a company with operations around the world and are exposed to general economic, political and regulatory conditions and risks in the countries in which we have significant operations.

 

We operate in the global market and have customers in many countries. We have major facilities primarily located in North America, Europe and Asia, and hold interests in ventures that operate in the US, Germany, China, Japan, South Korea, Taiwan and Saudi Arabia. Our principal customers are similarly global in scope, and the prices of our most significant products are typically world market prices. Consequently, our business and financial results are affected, directly and indirectly, by world economic, political and regulatory conditions.

 

In addition to the worldwide economic downturn, conditions such as the uncertainties associated with war, terrorist activities, epidemics, pandemics, weather or political instability in any of the countries in which we operate could affect us by causing delays or losses in the supply or delivery of raw materials and products, as well as increasing security costs, insurance premiums and other expenses. These conditions could also result in or lengthen economic recession in the United States, Europe, Asia or elsewhere.

 

Moreover, changes in laws or regulations, such as unexpected changes in regulatory requirements (including import or export licensing requirements), or changes in the reporting requirements of the United States, German or European Union (“EU”) governmental agencies, could increase the cost of doing business in these regions. Any of these conditions may have an effect on our business and financial results as a whole and may result in volatile current and future prices for our securities, including our stock.

 

In particular, we have invested significant resources in China and other Asian countries. This region’s growth has slowed and we may fail to realize the anticipated benefits associated with our investment there and our financial results may be adversely impacted.

 

We are subject to risks associated with the increased volatility in the prices and availability of key raw materials and energy.

 

We purchase significant amounts of natural gas, ethylene and methanol from third parties for use in our production of basic chemicals in the Acetyl Intermediates segment, principally formaldehyde, acetic acid and VAM. We use a portion of our output of these chemicals, in turn, as inputs in the production of further products in all our business segments. We also purchase significant amounts of wood pulp for use in our production of cellulose acetate in the Consumer Specialties segment. The price of many of these items is dependent on the available supply of such item and may increase significantly as a result of production disruptions or strikes. For example, the unplanned shutdown of our Clear Lake, Texas facility during 2007 together with other tight supply conditions caused a shortage of acetic acid and increased the price for such product.

 

We are exposed to volatility in the prices of our raw materials and energy. Although we have agreements providing for the supply of natural gas, ethylene, wood pulp, electricity and fuel oil, the contractual prices for these raw materials and energy vary with market conditions and may be highly volatile. Factors that have caused volatility in our raw material prices in the past and which may do so in the future include:

 

 

 

If we are not able to fully offset the effects of higher energy and raw material costs, or if such commodities were unavailable, it could have a significant adverse effect on our financial results.

 

Failure to develop new products and production technologies or to implement productivity and cost reduction initiatives successfully may harm our competitive position.

 

Our operating results, especially in our Consumer Specialties and Advanced Engineered Materials segments, depend significantly on the development of commercially viable new products, product grades and applications, as well as production technologies. If we are unsuccessful in developing new products, applications and production processes in the future, our competitive position and operating results may be negatively affected. Likewise, we have undertaken and are continuing to undertake initiatives in all business segments to improve productivity and performance and to generate cost savings. These initiatives may not be completed or beneficial or the estimated cost savings from such activities may not be realized.

 

Recent federal regulations aimed at increasing security at certain chemical production plants and similar legislation that may be proposed in the future could, if passed into law, require us to relocate certain manufacturing activities and require us to alter or discontinue our production of certain chemical products, thereby increasing our operating costs and causing an adverse effect on our results of operations.

 

Regulations have recently been issued by the US Department of Homeland Security (“DHS”) aimed at decreasing the risk, and effects, of potential terrorist attacks on chemical plants located within the United States. Pursuant to these regulations, these goals would be accomplished in part through the requirement that certain high-priority facilities develop a prevention, preparedness, and response plan after conducting a vulnerability assessment. In addition, companies may be required to evaluate the possibility of using less dangerous chemicals and technologies as part of their vulnerability assessments and prevention plans and implementing feasible safer technologies in order to minimize potential damage to their facilities from a terrorist attack. We have registered certain of our sites with DHS in accordance with these regulations, and are conducting vulnerability assessments for our sites and until that is done we cannot state with certainty the costs associated with any security plans that DHS may require. These regulations may be revised further, and additional legislation may be proposed in the future on this topic. It is possible that such future legislation could contain terms that are more restrictive than what has recently been passed and which would be more costly to us. We cannot predict the final form of currently pending legislation, or other related legislation that may be passed and can provide no assurance that such legislation will not have an adverse effect on our results of operations in a future reporting period.

 

Environmental regulations and other obligations relating to environmental matters could subject us to liability for fines, clean-ups and other damages, require us to incur significant costs to modify our operations and increase our manufacturing and delivery costs.

 

Costs related to our compliance with environmental laws and regulations, and potential obligations with respect to contaminated sites may have a significant negative impact on our operating results. These obligations include the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”) and the Resource Conservation and Recovery Act of 1976 (“RCRA”) related to sites currently or formerly owned or operated by us, or where waste from our operations was disposed. We also have obligations related to the indemnity agreement contained in the demerger and transfer agreement between Celanese GmbH and Hoechst, also referred to as the demerger agreement, for environmental matters arising out of certain divestitures that took place prior to the demerger.

 

Our operations are subject to extensive international, national, state, local and other supranational laws and regulations that govern environmental and health and safety matters, including CERCLA and RCRA. We incur substantial capital and other costs to comply with these requirements. If we violate them, we can be held liable for substantial fines and other sanctions, including limitations on our operations as a result of changes to or revocations of environmental permits involved. Stricter environmental, safety and health laws, regulations and enforcement

policies could result in substantial costs and liabilities to us or limitations on our operations and could subject our handling, manufacture, use, reuse or disposal of substances or pollutants to more rigorous scrutiny than at present. Consequently, compliance with these laws and regulations could result in significant capital expenditures as well as other costs and liabilities, which could cause our business and operating results to be less favorable than expected. An adverse outcome in these claim procedures may negatively affect our earnings and cash flows in a particular reporting period.

 

Changes in environmental, health and safety regulations in the jurisdictions where we manufacture and sell our products could lead to a decrease in demand for our products.

 

New or revised governmental regulations and independent studies relating to the effect of our products on health, safety and the environment may affect demand for our products and the cost of producing our products.

 

In June 2009, the California Office of Environmental Health Hazard Assessment (“OEHHA”) formally proposed to list vinyl acetate monomer (“VAM”), along with 11 other substances, to a list of chemicals “known to the state of California” to cause cancer. OEHHA is required to maintain this list under the Safe Drinking Water and Toxic Enforcement Act of 1986 (“Proposition 65”). Celanese filed comments in opposition to the proposed listing because the listing was not based on a scientific review of the relevant data and the legal standard for adding VAM to the Proposition 65 list had not been met. Celanese also filed an action in the Sacramento County Supervisor Court seeking declaration that OEHHA’s proposed listing of VAM would be contrary to law. The Superior Court granted Celanese’s request for relief. It is anticipated that OEHHA will appeal that decision.

 

We can provide no assurance that the Sacramento County Superior Court decision will be affirmed on appeal, or that VAM or other chemicals we produce will not be classified in other jurisdictions in a manner that would adversely affect demand for such products.

 

We are a producer of formaldehyde and plastics derived from formaldehyde. Several studies have investigated possible links between formaldehyde exposure and various end points including leukemia. The International Agency for Research on Cancer (“IARC”), a private research agency, has reclassified formaldehyde from Group 2A (probable human carcinogen) to Group 1 (known human carcinogen) based on studies linking formaldehyde exposure to nasopharyngeal cancer, a rare cancer in humans. In October 2009, IARC also concluded based on a recent study that there is sufficient evidence for a casual association between formaldehyde and the development of leukemia. We expect the results of IARC’s review will be examined and considered by government agencies with responsibility for setting worker and environmental exposure standards and labeling requirements.

 

Other pending initiatives will potentially require toxicological testing and risk assessments of a wide variety of chemicals, including chemicals used or produced by us. These initiatives include the Voluntary Children’s Chemical Evaluation Program, High Production Volume Chemical Initiative and expected modifications to the Toxic Substances Control Act (TSCA) in the United States, as well as various European Commission programs, such as the Registration, Evaluation, Authorization and Restriction of Chemicals (REACh).

 

The above-mentioned assessments in the United States and Europe may result in heightened concerns about the chemicals involved and additional requirements being placed on the production, handling, labeling or use of the subject chemicals. Such concerns and additional requirements could also increase the cost incurred by our customers to use our chemical products and otherwise limit the use of these products, which could lead to a decrease in demand for these products. Such a decrease in demand would likely have an adverse impact on our business and results of operations.

 

We are subject to risks associated with possible climate change legislation, regulation and international accords.

 

Greenhouse gas emissions have increasingly become the subject of a large amount of international, national, regional, state and local attention. Cap and trade initiatives to limit greenhouse gas emissions have been introduced in the EU. Similarly, numerous bills related to climate change have been introduced in the US Congress, which could adversely impact all industries. In addition, future regulation of greenhouse gas could occur pursuant to future US treaty obligations, statutory or regulatory changes under the Clean Air Act or new climate change legislation.

While not all are likely to become law, this is a strong indication that additional climate change related mandates will be forthcoming, and it is expected that they may adversely impact our costs by increasing energy costs and raw material prices and establishing costly emissions trading schemes and requiring modification of equipment.

 

A step toward potential federal restriction on greenhouse gas emissions was taken on December 7, 2009 when the Environmental Protection Agency (“EPA”) issued its Endangerment Finding in response to a decision of the Supreme Court of the United States. The EPA found that the emission of six greenhouse gases, including carbon dioxide (which is emitted from the combustion of fossil fuels), may reasonably be anticipated to endanger public health and welfare. Based on this finding, the EPA defined the mix of these six greenhouse gases to be “air pollution” subject to regulation under the Clean Air Act. Although the EPA has stated a preference that greenhouse gas regulation be based on new federal legislation rather than the existing Clean Air Act, many sources of greenhouse gas emissions may be regulated without the need for further legislation.

 

The US Congress is considering legislation that would create an economy-wide “cap-and-trade” system that would establish a limit (or cap) on overall greenhouse gas emissions and create a market for the purchase and sale of emissions permits or “allowances.” Under the leading cap-and-trade proposals before Congress, the chemical industry likely would be affected due to anticipated increases in energy costs as fuel providers pass on the cost of the emissions allowances, which they would be required to obtain, to cover the emissions from fuel production and the eventual use of fuel by the Company or its energy suppliers. In addition, cap-and-trade proposals would likely increase the cost of energy, including purchases of steam and electricity, and certain raw materials used by the Company. Other countries are also considering or have implemented “cap-and-trade” systems. Future environmental regulatory developments related to climate change are possible, which could materially increase operating costs in the chemical industry and thereby increase our manufacturing and delivery costs.

 

Our production facilities handle the processing of some volatile and hazardous materials that subject us to operating risks that could have a negative effect on our operating results.

 

Our operations are subject to operating risks associated with chemical manufacturing, including the related storage and transportation of raw materials, products and waste. These risks include, among other things, pipeline and storage tank leaks and ruptures, explosions and fires and discharges or releases of toxic or hazardous substances.

 

These operating risks can cause personal injury, property damage and environmental contamination, and may result in the shutdown of affected facilities and the imposition of civil or criminal penalties. The occurrence of any of these events may disrupt production and have a negative effect on the productivity and profitability of a particular manufacturing facility and our operating results and cash flows.

 

Production at our manufacturing facilities could be disrupted for a variety of reasons, which could prevent us from producing enough of our products to maintain our sales and satisfy our customers’ demands.

 

A disruption in production at our manufacturing facilities could have a material adverse effect on our business. Disruptions could occur for many reasons, including fire, natural disasters, weather, unplanned maintenance or other manufacturing problems, disease, strikes, transportation interruption, government regulation or terrorism. Alternative facilities with sufficient capacity or capabilities may not be available, may cost substantially more or may take a significant time to start production, each of which could negatively affect our business and financial performance. If one of our key manufacturing facilities is unable to produce our products for an extended period of time, our sales may be reduced by the shortfall caused by the disruption and we may not be able to meet our customers’ needs, which could cause them to seek other suppliers. For example, during 2007, production was disrupted for an extended period of time at our Clear Lake, Texas facility that produces primarily acetic acid and VAM. The disruption was caused by an unplanned outage of our acetic acid unit. Because of this disruption, the volumes of our Acetyl Intermediates segment were lower than we had expected for 2007 as we were unable to fully offset the lost production. Similar outages could occur in the future from unexpected disruptions at any of our other manufacturing facilities of key products. Such outages could have an adverse effect on our results of operations in future reporting periods.

Our business and financial results may be adversely affected by various legal and regulatory proceedings.

 

We are subject to legal and regulatory proceedings, lawsuits and claims in the normal course of business and could become subject to additional claims in the future, some of which could be material. The outcome of existing proceedings, lawsuits and claims may differ from our expectations because the outcomes of litigation, including regulatory matters, are often difficult to reliably predict. Various factors or developments can lead us to change current estimates of liabilities and related insurance receivables where applicable, or make such estimates for matters previously not susceptible to reasonable estimates, such as a significant judicial ruling or judgment, a significant settlement, significant regulatory developments, or changes in applicable law. A future adverse ruling, settlement, or unfavorable development could result in charges that could have a material adverse effect on our business, results of operations or financial condition in any particular period. For a more detailed discussion of our legal proceedings, see Item 3. Legal Proceedings below.

 

We may experience unexpected difficulties and incur unexpected costs in the relocation of our Ticona plant from Kelsterbach to the Rhine Main area, which may increase our costs, delay the transition or disrupt our ability to supply our customers.

 

We have agreed with Frankfurt, Germany Airport (“Fraport”) to relocate our Kelsterbach, Germany business, resolving several years of legal disputes related to the planned Frankfurt airport expansion. As a result of the settlement, we will transition Ticona’s 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 agreed to 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. While the settlement and related payment amount was meant to be cost-neutral and represent the amount required to select a site, build new production facilities, demolish old production facilities and transition business activities according to schedule and without any disruptions to customer supply, we may encounter unexpected costs or other difficulties during the relocation process that bring the total costs of the relocation to an amount greater than the compensation provided by Fraport. The relocation of these facilities represents a major logistical undertaking, and we may have underestimated the amount that will be required to carry out every aspect of the relocation. We may lose the services of valuable experienced employees during the transition if they decide not to work at the new location. The construction of the new facilities may not be complete on time or may face cost overruns. If our costs relating to the relocation exceed the amount of payments from Fraport or if the relocation causes other unexpected difficulties, our expenses may increase or supplies to our customers may be disrupted.

 

If supply to our customers is disrupted for an extended period, this could negatively impact the reputation of this business and result in the loss of customers. Such effects could have an adverse impact on our results of operations in future periods.

 

Our significant non-US operations expose us to global exchange rate fluctuations that could adversely impact our profitability.

 

Because we conduct a significant portion of our operations outside the United States, fluctuations in currencies of other countries, especially the Euro, may materially affect our operating results. For example, changes in currency exchange rates may decrease our profits in comparison to the profits of our competitors on the same products sold in the same markets and increase the cost of items required in our operations.

 

A substantial portion of our net sales is denominated in currencies other than the US dollar. In our consolidated financial statements, we translate our local currency financial results into US dollars based on average exchange rates prevailing during a reporting period or the exchange rate at the end of that period. During times of a strengthening US dollar our reported international sales, earnings, assets and liabilities will be reduced because the local currency will translate into fewer US dollars.

 

In addition to currency translation risks, we incur a currency transaction risk whenever one of our operating subsidiaries enters into either a purchase or a sales transaction using a currency different from the operating subsidiary’s functional currency. Given the volatility of exchange rates, we may not be able to manage our currency transaction and translation risks effectively, and volatility in currency exchange rates may expose our financial

condition or results of operations to a significant additional risk. Since a portion of our indebtedness is and will be denominated in currencies other than US dollars, a weakening of the US dollar could make it more difficult for us to repay our indebtedness.

 

We use financial instruments to hedge our exposure to foreign currency fluctuations, but we cannot guarantee that our hedging strategies will be effective. Failure to effectively manage these risks could have an adverse impact on our financial position, results of operations and cash flows.

 

Significant changes in pension fund investment performance or assumptions relating to pension costs may have a material effect on the valuation of pension obligations, the funded status of pension plans and our pension cost.

 

The cost of our pension plans is incurred over long periods of time and involves many uncertainties during those periods of time. Our funding policy for pension plans is to accumulate plan assets that, over the long run, will approximate the present value of projected benefit obligations. Our pension cost is materially affected by the discount rate used to measure pension obligations, the level of plan assets available to fund those obligations at the measurement date and the expected long-term rate of return on plan assets. Significant changes in investment performance or a change in the portfolio mix of invested assets can result in corresponding increases and decreases in the valuation of plan assets, particularly equity securities, or in a change of the expected rate of return on plan assets. During 2008, the value of our plan assets declined significantly due to the decline in the overall equity markets. A change in the discount rate would result in a significant increase or decrease in the valuation of pension obligations, affecting the reported funded status of our pension plans as well as the net periodic pension cost in the following fiscal years. In recent years, an extended duration strategy in the asset portfolio has been implemented to minimize the influence of liability volatility due to interest rate movements. Similarly, changes in the expected return on plan assets can result in significant changes in the net periodic pension cost for subsequent fiscal years. If the value of our pension fund’s portfolio declines or does not perform as expected or if our experience with the fund leads us to change our assumptions regarding the fund, we may be required to contribute additional capital to the fund.

 

Our future success will depend in part on our ability to protect our intellectual property rights. Our inability to enforce these rights could reduce our ability to maintain our market position and our profit margins.

 

We attach great importance to our patents, trademarks, copyrights and product designs in order to protect our investment in research and development, manufacturing and marketing. We also license patents and other technology from third parties. Our policy is to seek the widest possible protection for significant product and process developments in our major markets. Patents may cover processes, products, intermediate products and product uses. Protection for individual products extends for varying periods in accordance with the date of patent application filing and the legal life of patents in the various countries. The protection afforded, which may also vary from country to country, depends upon the type of patent and its scope of coverage. As patents expire, the products and processes described and claimed in those patents become generally available for use by the public. We also seek to register trademarks extensively as a means of protecting the brand names of our products, which brand names become more important once the corresponding product or process patents have expired. Our continued growth strategy may bring us to regions of the world where intellectual property protection may be limited and difficult to enforce. If we are not successful in protecting or maintaining our patent, license, trademark or other intellectual property rights, our revenues, results of operations and cash flows may be adversely affected.

 

Provisions in certificate of incorporation and bylaws, as well as any shareholders’ rights plan, may discourage a takeover attempt.

 

Provisions contained in our certificate of incorporation and bylaws could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our shareholders. Provisions of our certificate of incorporation and bylaws impose various procedural and other requirements, which could make it more difficult for shareholders to effect certain corporate actions. For example, our certificate of incorporation authorizes our Board of Directors to determine the rights, preferences, privileges and restrictions of unissued series of preferred stock, without any vote or action by our shareholders. Thus, our Board of Directors can authorize and issue shares of preferred stock with

voting or conversion rights that could adversely affect the voting or other rights of holders of our Series A common stock. These rights may have the effect of delaying or deterring a change of control of our Company. In addition, a change of control of our company may be delayed or deterred as a result of our having three classes of directors (each class elected for a three year term) or as a result of any shareholders’ rights plan that our Board of Directors may adopt. These provisions could limit the price that certain investors might be willing to pay in the future for shares of our Series A common stock.

 

Risks Related to the Acquisition of Celanese GmbH, formerly Celanese AG

 

The amounts of the fair cash compensation and of the guaranteed annual payment offered under the domination and profit and loss transfer agreement (“Domination Agreement”) and/or the compensation paid in connection with the squeeze-out may be increased, which may further reduce the funds the Purchaser can otherwise make available to us.

 

Several minority shareholders of Celanese GmbH have initiated special award proceedings seeking the court’s review of the amounts of the fair cash compensation and of the guaranteed annual payment offered under the Domination Agreement. On December 12, 2006, the Frankfurt District Court appointed an expert to help determine the value of Celanese AG as of July 31, 2004, on which date an extraordinary shareholder meeting of Celanese AG was held to resolve the Domination Agreement. As a result of these proceedings, the amounts of the fair cash compensation and of the guaranteed annual payment could be increased by the court, and the Purchaser would be required to make such payments within two months after the publication of the court’s ruling. Any such increase may be substantial. All minority shareholders would be entitled to claim the respective higher amounts. This may reduce the funds the Purchaser can make available to us and, accordingly, diminish our ability to make payments on our indebtedness. See Note 24 to the consolidated financial statements for further information.

 

The Company also received applications for the commencement of award proceedings filed by 79 shareholders against the Purchaser with the Frankfurt District Court requesting the court to set a higher amount for the Squeeze-Out compensation. Should the court set a higher value for the Squeeze-Out compensation, former Celanese AG shareholders who ceased to be shareholders of Celanese AG due to the Squeeze-Out are entitled, pursuant to a settlement agreement between the Purchaser and certain former Celanese AG shareholders, to claim for their shares the higher of the compensation amounts determined by the court in these different proceedings. Previously received compensation for their shares will be offset so that those shareholders who ceased to be shareholders of Celanese AG due to the Squeeze-Out are not entitled to more than higher of the amount set in the two court proceedings.

 

The Purchaser may be required to compensate Celanese GmbH for annual losses, which may reduce the funds the Purchaser can otherwise make available to us.

 

Under the Domination Agreement, the Purchaser is required, among other things, to compensate Celanese GmbH for any annual loss incurred, determined in accordance with German accounting requirements, by Celanese GmbH at the end of the fiscal year in which the loss was incurred. This obligation to compensate Celanese GmbH for annual losses will apply during the entire term of the Domination Agreement. If Celanese GmbH incurs losses during any period of the operative term of the Domination Agreement and if such losses lead to an annual loss of Celanese GmbH at the end of any given fiscal year during the term of the Domination Agreement, the Purchaser will be obligated to make a corresponding cash payment to Celanese GmbH to the extent that the respective annual loss is not fully compensated for by the dissolution of profit reserves accrued at the level of Celanese GmbH during the term of the Domination Agreement. The Purchaser may be able to reduce or avoid cash payments to Celanese GmbH by off-setting against such loss compensation claims by Celanese GmbH any valuable counterclaims against Celanese GmbH that the Purchaser may have. If the Purchaser is obligated to make cash payments to Celanese GmbH to cover an annual loss, we may not have sufficient funds to make payments on our indebtedness when due and, unless the Purchaser is able to obtain funds from a source other than annual profits of Celanese GmbH, the Purchaser may not be able to satisfy its obligation to fund such shortfall. See Note 24 to the consolidated financial statements. Since the Domination Agreement has been terminated effective as of December 31, 2009, there will be no obligation by the Purchaser to compensate Celanese GmbH for any losses incurred after December 31, 2009.

We and two of our subsidiaries have taken on certain obligations with respect to the Purchaser’s obligation under the Domination Agreement and intercompany indebtedness to Celanese GmbH, which may diminish our ability to make payments on our indebtedness.

 

Our subsidiaries, Celanese International Holdings Luxembourg S.à r.l. (“CIH”), formerly Celanese Caylux Holdings Luxembourg S.C.A., and Celanese US, have each agreed to provide the Purchaser with financing so that the Purchaser is at all times in a position to completely meet its obligations under, or in connection with, the Domination Agreement. In addition, Celanese has guaranteed (i) that the Purchaser will meet its obligation under the Domination Agreement to compensate Celanese GmbH for any annual loss incurred by Celanese GmbH during the term of the Domination Agreement; and (ii) the repayment of all existing intercompany indebtedness of Celanese’s subsidiaries to Celanese GmbH. Further, under the terms of Celanese’s guarantee, in certain limited circumstances Celanese GmbH may be entitled to require the immediate repayment of some or all of the intercompany indebtedness owed by Celanese’s subsidiaries to Celanese GmbH. If CIH and/or Celanese US are obligated to make payments under their obligations to the Purchaser or Celanese GmbH, as the case may be, or if the intercompany indebtedness owed to Celanese GmbH is accelerated, we may not have sufficient funds for payments on our indebtedness when due. Since the Domination Agreement has been terminated effective as of December 31, 2009, there will be no obligation by the Purchaser to compensate Celanese GmbH for any losses incurred after December 31, 2009 and our subsidiaries will be released from their obligations.

 

Risks Related to Our Indebtedness

 

See also Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Debt and Other Obligations.

 

Our level of indebtedness could diminish our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or the chemicals industry and prevent us from meeting obligations under our indebtedness.

 

Our total indebtedness is approximately $3.5 billion as of December 31, 2009.

 

Our debt could have important consequences, including:

 

•    increasing vulnerability to general economic and industry conditions including exacerbating any adverse business effects that are determined to be material adverse effects under our senior credit facility;

 

•    requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on indebtedness, therefore reducing our ability to use our cash flow to fund operations, capital expenditures and future business opportunities;

 

•    exposing us to the risk of increased interest rates as certain of our borrowings are at variable rates of interest;

 

•    limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions and general corporate or other purposes; and

 

•    limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who have less debt.

 

A breach of a covenant or other provision in any debt instrument governing our current or future indebtedness could result in a default under that instrument and, due to cross-default provisions, could result in a default under our senior credit facility. Upon the occurrence of an event of default under the senior credit facility, the lenders could elect to declare all amounts outstanding to be immediately due and payable and terminate all commitments to extend further credit. If we were unable to repay those amounts, the lenders could proceed against the collateral, if any, granted to them to secure the indebtedness. If the lenders under the senior credit facility were to accelerate the payment of the indebtedness, there is no guarantee that our assets or cash flow would be sufficient to repay in full our outstanding indebtedness.

Moreover, the terms of our existing debt do not fully prohibit us or our subsidiaries from incurring substantial additional indebtedness in the future. If new debt, including amounts available under our senior credit agreement, is added to our current debt levels, the related risks that we now face could intensify. See also Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Debt and Other Obligations.

 

Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly and affect our operating results.

 

Certain of our borrowings are at variable rates of interest and expose us to interest rate risk. If interest rates were to increase, our debt service obligations on our variable rate indebtedness would increase, net of the impacts of hedges in place. As of December 31, 2009, we had $2.2 billion, €440 million and CNY 1.4 billion of variable rate debt, of which $1.6 billion and €150 million is hedged with interest rate swaps, which leaves $643 million, €290 million and CNY 1.4 billion of variable rate debt subject to interest rate exposure. Accordingly, a 1% increase in interest rates would increase annual interest expense by approximately $13 million.

 

Our senior credit agreement consists of $2,280 million of US dollar denominated and €400 million of Euro denominated term loans due 2014, a $600 million revolving credit facility terminating in 2013 and a $228 million credit-linked revolving facility terminating in 2014. Borrowings under the senior credit agreement bear interest at a variable interest rate based on LIBOR (for US dollars) or EURIBOR (for Euros), as applicable, or, for US 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 senior credit agreement are subject to amortization at 1% of the initial principal amount per annum, payable quarterly, commencing in July 2007. The remaining principal amount of the term loans will be due on April 2, 2014.

 

An increase in interest rates could have an adverse impact on our future results of operations and cash flows. See also Item 7A. Quantitative and Qualitative Disclosures About Market Risk — Interest Rate Risk Management.

 

We may not be able to generate sufficient cash to service our indebtedness, and may be forced to take other actions to satisfy obligations under our indebtedness, which may not be successful.

 

Our ability to satisfy our cash needs depends on cash on hand, receipt of additional capital, including possible additional borrowings, and receipt of cash from our subsidiaries by way of distributions, advances or cash payments.

 

Our ability to make scheduled payments on or to refinance our debt obligations depends on the financial condition and operating performance of our subsidiaries, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.

 

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. The senior credit agreement governing our indebtedness restricts our ability to dispose of assets and use the proceeds from the disposition. We may not be able to consummate those dispositions or to obtain the proceeds which we could realize from them and these proceeds may not be adequate to meet any debt service obligations then due.

 

Restrictive covenants in our debt instruments may limit our ability to engage in certain transactions and may diminish our ability to make payments on our indebtedness.

 

The senior credit agreement governing our indebtedness contains various covenants that limit our ability to engage in specified types of transactions. The covenants contained in the senior credit agreement limit our ability to, among other things, incur additional indebtedness, pay dividends on or make other distributions on or repurchase capital

stock or make other restricted payments, make investments and sell certain assets. Such restrictions in our debt instruments could result in us having to obtain the consent of our lenders in order to take certain actions. Recent disruptions in credit markets may prevent us from or make it more difficult or more costly for us to obtain such consents from our lenders. Our ability to expand our business or to address declines in our business may be limited if we are unable to obtain such consents.

 

In addition, the senior credit agreement requires us to maintain a maximum first lien senior secured leverage ratio if there are outstanding borrowings under the revolving credit facility. Our ability to meet this financial ratio can be affected by events beyond our control, and we may not be able to meet this test at all.

 

A breach of any of these covenants could result in a default under the senior credit agreement. Upon the occurrence of an event of default under the senior credit agreement, the lenders could elect to declare all amounts outstanding under the senior credit agreement to be immediately due and payable and terminate all commitments to extend further credit. If we were unable to repay those amounts, the lenders under the senior credit agreement could proceed against the collateral granted to them to secure that indebtedness. Our subsidiaries have pledged a significant portion of our assets as collateral under the senior credit agreement. If the lenders under the senior credit agreement accelerate the repayment of borrowings, we may not have sufficient assets to repay amounts borrowed under the senior credit agreement as well as their other indebtedness, which could have a material adverse effect on the value of our stock.

 

The terms of our senior credit agreement limit the ability of Celanese Holdings LLC and its subsidiaries to pay dividends or otherwise transfer their assets to us.

 

Our operations are conducted through our subsidiaries and our ability to pay dividends is dependent on the earnings and the distribution of funds from our subsidiaries. However, the terms of our senior credit agreement limit the ability of Celanese Holdings LLC and its subsidiaries to pay dividends or otherwise transfer their assets to us. Accordingly, our ability to pay dividends on our stock is similarly limited.

 

 

None.

 

Description of Property

 

We own or lease numerous production and manufacturing facilities throughout the world. We also own or lease other properties, including office buildings, warehouses, pipelines, research and development facilities and sales offices. We continuously review and evaluate our facilities as a part of our strategy to optimize our business portfolio. The following table sets forth a list of our principal production and other facilities throughout the world as of December 31, 2009.

 

 

 

We believe that our current facilities are adequate to meet the requirements of our present and foreseeable future operations. We continue to review our capacity requirements as part of our strategy to maximize our global manufacturing efficiency.

 

See Note 8 to the consolidated financial statements for more information on our cost and equity method investments.

 

For information on environmental issues associated with our properties, see Item 1A. Risk Factors and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates – Accounting for Commitments and Contingencies. Additional information with respect to our property, plant and equipment, and leases is contained in Note 9 and Note 21 to the consolidated financial statements.

 

We are involved in a number of legal and regulatory proceedings, lawsuits and claims incidental to the normal conduct of our business, relating to such matters as product liability, antitrust, intellectual property, workers’ compensation, prior acquisitions, 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, we are actively defending those matters where the Company is named as a defendant. Additionally, we believe, based on the advice of legal counsel, that adequate reserves have been made and that the ultimate outcomes of all such litigation claims will not have a material adverse effect on our financial position, but may have a material adverse effect on our results of operations or cash flows in any given accounting period. See Note 24 to the consolidated financial statements for a discussion of material legal proceedings.

 

 

No matters were submitted to a vote of security holders during the fourth quarter of 2009.

 

Market Information

 

Our Series A common stock has traded on the New York Stock Exchange under the symbol “CE” since January 21, 2005. The closing sale price of our Series A common stock, as reported by the New York Stock Exchange, on February 5, 2010 was $29.89. The following table sets forth the high and low intraday sales prices per share of our common stock, as reported by the New York Stock Exchange, for the periods indicated.

 

 

Holders

 

No shares of Celanese’s Series B common stock are issued and outstanding. As of February 5, 2010, there were 64 holders of record of our Series A common stock, and one holder of record of our 4.25% convertible perpetual preferred stock (“Preferred Stock”). By including persons holding shares in broker accounts under street names, however, we estimate our shareholder base to be approximately 28,000 as of February 5, 2010.

 

On February 1, 2010, we announced we would elect to redeem all of our 9,600,000 outstanding shares of our Preferred Stock on February 22, 2010 (“Redemption Date”). On that date, each share of our Preferred Stock will be redeemed for a number of shares of our Series A common stock equal to the redemption price ($25.06) divided by 97.5% of the average closing price of our Series A common stock for the 10 trading days ending on the fifth trading day prior to February 22, 2010.

 

Holders of the Preferred Stock also have the right to convert their shares at any time prior to 5:00 p.m., New York City time, on February 19, 2010, the business day immediately preceding the Redemption Date. Holders who want to convert their shares of our Preferred Stock must satisfy all of the requirements as defined in the Certificate of Designations prior to 5:00 p.m., New York City time, in order to effect conversion of their shares of Preferred Stock. Each share of Preferred Stock is convertible into 1.2600 shares of our Series A common stock, subject to adjustment under certain circumstances as set forth in the Certificates of Designations.

 

Dividend Policy

 

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 of $0.16 per share unless our Board of Directors, in its sole discretion, determines otherwise. Pursuant to this policy, we paid quarterly dividends of $0.04 per share on February 1, 2009, May 1, 2009, August 3, 2009 and November 2, 2009 and similar quarterly dividends during each quarter of 2008. The annual cash dividend declared and paid during the years ended December 31, 2009 and 2008 were $23 million and $24 million, respectively. Dividends payable to holders of our Series A common stock cannot be declared or paid nor can any funds be set aside for the payment thereof, unless we have paid or set aside funds for the payment of all accumulated and unpaid dividends with respect to the shares of our Preferred Stock, as described below. Our Board of Directors may, at any time, modify or revoke our dividend policy on our Series A common stock.

We are required under the terms of our Preferred Stock to pay scheduled quarterly dividends, subject to legally available funds. For so long as the Preferred Stock remains outstanding, (1) we will not declare, pay or set apart funds for the payment of any dividend or other distribution with respect to any junior stock or parity stock and (2) neither we, nor any of our subsidiaries, will, subject to certain exceptions, redeem, purchase or otherwise acquire for consideration junior stock or parity stock through a sinking fund or otherwise, in each case unless we have paid or set apart funds for the payment of all accumulated and unpaid dividends with respect to the shares of Preferred Stock and any parity stock for all preceding dividend periods. Pursuant to this policy, we paid quarterly dividends of $0.265625 per share on our Preferred Stock on February 1, 2009, May 1, 2009, August 3, 2009 and November 2, 2009 and similar quarterly dividends during each quarter of 2008. The annual cash dividend declared and paid during the years ended December 31, 2009 and 2008 were $10 million and $10 million, respectively.

 

On January 5, 2010, we declared a cash dividend of $0.265625 per share on our Preferred Stock amounting to $3 million and a cash dividend of $0.04 per share on our Series A common stock amounting to $6 million. Both cash dividends are for the period from November 2, 2009 to January 31, 2010 and were paid on February 1, 2010 to holders of record as of January 15, 2010.

 

On February 1, 2010, we announced we would elect to redeem all of our outstanding Preferred Stock on February 22, 2010. Holders of the Preferred Stock also have the right to convert their shares at any time prior to 5:00 p.m., New York City time, on February 19, 2010, the business day immediately preceding the February 22, 2010 redemption date.

 

Based on the number of outstanding shares as of December 31, 2009 and considering the redemption of our Preferred Stock, cash dividends to be paid in 2010 are expected to result in annual dividend payments less than those paid in 2009.

 

The amount available to us to pay cash dividends is restricted by our senior credit agreement. Any decision to declare and pay dividends in the future will be made at the discretion of our Board of Directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions and other factors that our Board of Directors may deem relevant.

 

Celanese Purchases of its Equity Securities

 

The table below sets forth information regarding repurchases of our Series A common stock during the three months ended December 31, 2009:

 

 

 

Performance Graph

 

The following Performance Graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.

 

Comparison of Cumulative Total Return

 

Equity Compensation Plans

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

The following information is provided as of December 31, 2009 with respect to equity compensation plans:

 

 

Recent Sales of Unregistered Securities

 

Our deferred compensation plan offers certain of our senior employees and directors the opportunity to defer a portion of their compensation in exchange for a future payment amount equal to their deferments plus or minus certain amounts based upon the market-performance of specified measurement funds selected by the participant. These deferred compensation obligations may be considered securities of Celanese. Participants were required to make deferral elections under the plan prior to January 1 of the year such deferrals will be withheld from their compensation. We relied on the exemption from registration provided by Section 4(2) of the Securities Act in making this offer to a select group of employees, fewer than 35 of which were non-accredited investors under the rules promulgated by the Securities and Exchange Commission.

 

 

The balance sheet data shown below as of December 31, 2009 and 2008, and the statements of operations and cash flow data for the years ended December 31, 2009, 2008 and 2007, all of which are set forth below, are derived from the consolidated financial statements included elsewhere in this document and should be read in conjunction with those financial statements and the notes thereto. The balance sheet data as of December 31, 2007, 2006 and 2005 and the statements of operations and cash flow data for the years ended December 31, 2006 and 2005 shown below were derived from previously issued financial statements, adjusted for applicable discontinued operations.

 

 

 

 

 

 

 

 

In this Annual Report on Form 10-K, the term “Celanese” refers to Celanese Corporation, a Delaware corporation, and not its subsidiaries. The terms the “Company,” “we,” “our” and “us” refer to Celanese and its subsidiaries on a consolidated basis. The term “Celanese US” refers to our subsidiary Celanese US Holdings LLC, a Delaware limited liability company, formerly known as BCP Crystal US Holdings Corp., a Delaware corporation, and not its subsidiaries. The term “Purchaser” refers to our subsidiary, Celanese Europe Holding GmbH & Co. KG, formerly known as BCP Crystal Acquisition GmbH & Co. KG, a German limited partnership, and not its subsidiaries, except where otherwise indicated.

 

You should read the following discussion and analysis of the financial condition and the results of operations together with the consolidated financial statements and the accompanying notes to the consolidated financial statements, which were prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

 

Investors are cautioned that the forward-looking statements contained in this section involve both risk and uncertainty. Several important factors could cause actual results to differ materially from those anticipated by these statements. Many of these statements are macroeconomic in nature and are, therefore, beyond the control of management. See “Forward-Looking Statements May Prove Inaccurate” below.

 

Reconciliation of Non-US GAAP Measures: We believe that using non-US GAAP financial measures to supplement US GAAP results is useful to investors because such use provides a more complete understanding of the factors and trends affecting the business other than disclosing US GAAP results alone. In this regard, we disclose net debt, which is a non-US GAAP financial measure. Net debt is defined as total debt less cash and cash equivalents. We use net debt to evaluate the capital structure. Net debt is not a substitute for any US GAAP financial measure. In addition, calculations of net debt contained in this report may not be consistent with that of other companies. The most directly comparable financial measure presented in accordance with US GAAP in our financial statements for net debt is total debt. For a reconciliation of net debt to total debt, see “Financial Highlights” below.

 

Forward-Looking Statements May Prove Inaccurate

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and other parts of this Annual Report contain certain forward-looking statements and information relating to us that are based on the beliefs of our management as well as assumptions made by, and information currently available to, us. 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. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.

 

See Item 1A. Risk Factors for a description of risk factors that could significantly affect our financial results. In addition, the following factors could cause our actual results to differ materially from those results, performance or achievements that may be expressed or implied by such forward-looking statements. These factors include, among other things:

 

•       changes in general economic, business, political and regulatory conditions in the countries or regions in which we operate;

 

•       the length and depth of product and industry business cycles particularly in the automotive, electrical, electronics and construction industries;

 

•       changes in the price and availability of raw materials, particularly changes in the demand for, supply of, and market prices of ethylene, methanol, natural gas, wood pulp, fuel oil and electricity;

 

•       the ability to pass increases in raw material prices on to customers or otherwise improve margins through price increases;

•       the ability to maintain plant utilization rates and to implement planned capacity additions and expansions;

 

•       the ability to reduce production costs and improve productivity by implementing technological improvements to existing plants;

 

•       increased price competition and the introduction of competing products by other companies;

 

•       changes in the degree of intellectual property and other legal protection afforded to our products;

 

•       compliance costs and potential disruption or interruption of production due to accidents or other unforeseen events or delays in construction of facilities;

 

•       potential liability for remedial actions and increased costs under existing or future environmental regulations, including those related to climate change;

 

•       potential liability resulting from pending or future litigation, or from changes in the laws, regulations or policies of governments or other governmental activities in the countries in which we operate;

 

•       changes in currency exchange rates and interest rates; and

 

•       various other factors, both referenced and not referenced in this document.

 

Many of these factors are macroeconomic in nature and are, therefore, beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from those described in this Annual Report as anticipated, believed, estimated, expected, intended, planned or projected. We neither intend nor assume any obligation to update these forward-looking statements, which speak only as of their dates.

 

Overview

 

During 2009, we made significant progress in executing our strategic objectives. As detailed below, we optimized our portfolio, realigned our manufacturing footprint, continued our expansion efforts in Asia, made technological advancements, and took other strategic actions to deliver value for our shareholders.

 

2009 Highlights:

 

•       We announced the Frankfurt, Germany Airport (“Fraport”) supervisory board approved the acceleration of the 2009 and 2010 payments of €200 million and €140 million, respectively, required by the settlement agreement signed in June 2007. On February 5, 2009, we received a discounted amount of approximately €322 million ($412 million), excluding value-added tax of €59 million ($75 million).

 

•       We shut down our vinyl acetate monomer (“VAM”) production unit in Cangrejera, Mexico, and ceased VAM production at the site during the first quarter of 2009.

 

•       Standard and Poor’s affirmed our ratings and revised our outlook from positive to stable in February 2009.

 

•       We received the American Chemistry Council’s (“ACC”) Responsible Care^® Sustained Excellence Award for mid-size companies. The annual award, the most prestigious award given under ACC’s Responsible Care^® initiative, recognizes companies for outstanding leadership under ACC’s Environmental Health and Safety performance criteria.

 

•       We completed the sale of our polyvinyl alcohol (“PVOH”) business to Sekisui Chemical Co., Ltd. for the net cash purchase price of $168 million.

 

•       We agreed to a “Project of Closure” for our acetic acid and VAM production operations at our Pardies, France facility. We ceased the production of acetic acid and VAM at our facility in Pardies, France on December 1, 2009. As a result of the Pardies, France Project of Closure, we have incurred $89 million of exit costs in 2009. We may incur an additional $17 million in contingent employee termination benefits relates to the Pardies, France Project of Closure.

•       We announced that Celanese US had amended its $650 million revolving credit facility. The amendment lowered the total revolver commitment to $600 million and increased the first lien senior secured leverage ratio for a period of six quarters, beginning June 30, 2009 and ending December 31, 2010.

 

•       We announced the creation of our new and proprietary AOPlus^®2 acetic acid technology, which allows for expansion up to 1.5 million tons per reactor annually.

 

•       We successfully started up our expansion of our acetic acid unit in Nanjing, China which doubled the unit’s capacity from 600,000 tons to 1.2 million tons annually.

 

•       We announced the expansion of our vinyl acetate ethylene emulsions (“VAE”) manufacturing facility at our Nanjing, China integrated chemical complex to support continued growth plans throughout Asia. The expanded facility will double our VAE capacity in the region and is expected to be operational in the first half of 2011.

 

•       We launched a new, innovative polyacetal (“POM”) technology that is expected to create significant additional growth opportunities for our Advanced Engineered Materials segment.

 

•       We signed a memorandum of understanding with our acetate joint venture partner, the China National Tobacco Corporation, to expand the flake and tow capacities at our joint venture facility in Nantong, China.

 

•       We reached a long-term agreement to supply VAM to Jiangxi Jiangwei High-Tech Stock Co., Ltd (“Jiangwei”). Jiangwei will cease production of its calcium carbide-based alternative for economic and environmental reasons and source our VAM.

 

•       We acquired the long fiber reinforced thermoplastics (“LFT”) business of FACT GmbH (Future Advanced Composites Technology) of Germany, supporting our Advanced Engineered Materials segment.

 

•       We announced the redemption of our Convertible Perpetual Preferred Stock for our Series A Common Stock to be completed February 22, 2010.

 

2010 Outlook

 

In 2010 we expect to see an increase in overall demand versus 2009 as the global economy begins a gradual recovery. We would also expect growth in Asia to outpace growth in other regions of the world. Raw materials and energy costs are expected to be modestly higher in 2010 than in the prior year. Additionally, we expect to realize an incremental $100 million of fixed spending reductions, driven by structural streamlining of our manufacturing and administrative functions.

Financial Highlights

 

 

 

 

Summary of Consolidated Results — Year Ended December 31, 2009 compared with Year Ended December 31, 2008

 

The challenging economic environment in the United States and Europe during the second half of 2008 continued throughout 2009. Net sales declined in 2009 from 2008 primarily as a result of decreased demand due to the significant weakness of the global economy. In July 2009, we completed the sale of our PVOH business which also contributed to the declines in our sales volumes. In the fourth quarter of 2009, we began to see a gradual recovery in the global economy with increasing demand within some of our business segments. A decrease in selling prices was also a significant factor on the decrease in net sales. Decreases in key raw material and energy costs were the primary factors in lower selling prices. A slightly unfavorable foreign currency impact also contributed to the decrease in net sales.

Gross profit declined due to lower net sales. As a percentage of sales, gross profit increased as lower raw material and energy costs more than offset decreases in net sales during the period. In 2010 we expect raw material and energy costs to increase which will partially be offset by increases in selling prices.

 

Other (charges) gains, net increased $28 million during 2009 as compared to 2008:

 

 

During the first quarter of 2009, we began efforts to align production capacity and staffing levels with our view of an economic environment of prolonged lower demand. For the year ended December 31, 2009, other charges included employee termination benefits of $40 million related to this endeavor. As a result of the shutdown of the vinyl acetate monomer (“VAM”) production unit in Cangrejera, Mexico, we recognized employee termination benefits of $1 million and long-lived asset impairment losses of $1 million during the year ended December 31, 2009. The VAM production unit in Cangrejera, Mexico is included in our Acetyl Intermediates segment.

 

As a result of the Project of Closure at our Pardies, France facility, other charges included exit costs of $89 million during the year ended December 31, 2009, which consisted of $60 million in employee termination benefits, $17 million of contract termination costs and $12 million of long-lived asset impairment losses. The Pardies, France facility is included in the Acetyl Intermediates segment.

 

Due to continued declines in demand in automotive and electronic sectors, we announced plans to reduce capacity by ceasing polyester polymer production at our Ticona manufacturing plant in Shelby, North Carolina. Other charges for the year ended December 31, 2009 included employee termination benefits of $2 million and long-lived asset impairment losses of $1 million related to this event. The Shelby, North Carolina facility is included in the Advanced Engineered Materials segment.

 

Other charges for the year ended December 31, 2009 was partially offset by $6 million of insurance recoveries in satisfaction of claims we made related to the unplanned outage of our Clear Lake, Texas acetic acid facility during 2007, a $9 million decrease in legal reserves for plumbing claims due to the Company’s ongoing assessment of the likely outcome of the plumbing actions and the expiration of the statute of limitation.

 

Selling, general and administrative expenses decreased during 2009 primarily due to business optimization and finance improvement initiatives.

 

Operating profit decreased due to lower gross profit and higher other charges partially offset by lower selling, general and administrative costs.

 

Equity in net earnings of affiliates decreased slightly during 2009, primarily due to reduced earnings from our Advanced Engineered Materials’ affiliates resulting from decreased demand.

 

Our effective tax rate for continuing operations for the year ended December 31, 2009 was (101)% compared to 15% for the year ended December 31, 2008. Our effective tax rate for 2009 was favorably impacted by the release of the US valuation allowance, partially offset by lower earnings in jurisdictions participating in tax holidays, increases in valuation allowances on certain foreign net deferred tax assets and the effect of new tax legislation in Mexico.

Summary of Consolidated Results — Year Ended December 31, 2008 compared with Year Ended December 31, 2007

 

The challenging economic environment in the United States and Europe during the first half of 2008 resulted in higher raw material and energy costs which enabled price increase initiatives across all business segments. During the second half of 2008, the US credit crisis accelerated the economic slowdown and its spread to other regions of the world. Despite the halt in demand, we were able to maintain the majority of our enacted price increases through the remainder of 2008. As a result, increased prices improved net sales by 8%. Favorable foreign currency impacts also had a positive impact on net sales of 3%.

 

Net sales declined 5% due to decreased volumes. Lower volumes were primarily a result of decreased demand stemming from the global economic downturn. As demand declined, particularly during the fourth quarter of 2008, our customers began destocking to reduce their inventory levels. In response, we aggressively managed our global production capacity to align with the current environment. Decreased volumes in our acetate flake and tow businesses were not significantly impacted by the economic downturn. Rather, decreased flake volumes were the result of our strategic decision to shift our flake production to our China ventures, which we account for as cost investments.

 

Gross profit declined as higher raw material, energy and freight costs more than offset increases in net sales during the period. The uncertain economic environment resulted in higher natural gas, ethylene, methanol and other commodity prices during the first nine months of the year. Our freight costs also increased, primarily due to increased rates driven by higher energy prices. Late in 2008, raw material and energy prices declined.

 

Other (charges) gains, net increased $50 million during 2008 as compared to 2007:

 

 

Other charges increased in 2008 compared to 2007 and includes a long-lived asset impairment loss of $92 million in connection with the 2009 closure of our acetic acid and VAM production facility in Pardies, France, our VAM production unit in Cangrejera, Mexico and the potential closure of certain other facilities. This capacity reduction was necessitated by the significant change in the global economic environment and anticipated lower customer demand. Following the initial assessment of this capacity reduction, we shut down the Cangrejera VAM production unit in February 2009.

 

In addition, we recognized $23 million of long-lived asset impairment losses and $13 million of employee termination benefits in 2008 related to the shutdown of our Pampa, Texas facility.

 

During 2007, we fully impaired $6 million of goodwill related to our PVOH business.

 

Selling, general and administrative expenses increased $24 million during 2008 primarily due to business optimization and finance improvement initiatives.

Operating profit decreased due to lower gross profit and higher other charges and selling, general and administrative costs. The absence of a $34 million gain on the sale of our Edmonton, Alberta, Canada facility during 2007 also contributed to lower operating profit in 2008 as compared to 2007.

 

Equity in net earnings of affiliates decreased $28 million during 2008, primarily due to reduced earnings from our Advanced Engineered Materials’ affiliates resulting from higher raw material and energy costs and decreased demand. Our effective income tax rate for 2008 was 15% compared to 25% in 2007. The effective income tax rate decreased in 2008 due to: 1) a decrease in the valuation allowance, 2) tax credits generated on foreign jurisdictions and 3) the US tax impact of foreign operations.

 

The loss from discontinued operations of $90 million during 2008 primarily relates to a legal settlement agreement we entered into during 2008. Under the settlement agreement, we agreed to pay $107 million to resolve certain legacy items. Because the legal proceeding related to sales by the polyester staple fibers business which Hoechst AG sold to KoSa, Inc. in 1998, the impact of the settlement is reflected within discontinued operations in the current period. See the “Polyester Staple Antitrust Litigation” section in Note 24 of the consolidated financial statements.

Selected Data by Business Segment — 2009 Compared with 2008 and 2008 Compared with 2007