Celanese Corporation — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014; filed February 6, 2015. Celanese is a global technology and specialty materials company operating in acetyl products and engineered polymers, through four principal segments.
Financial performance
| Metric | 2014 | 2013 |
|---|---|---|
| Net sales | $6.802 billion | $6.510 billion |
| Gross profit / margin | $1.616 billion / 23.8% | $1.365 billion / 21.0% |
| Operating profit / margin | $758 million / 11.1% | $1.508 billion / 23.2% |
| Net earnings attributable to Celanese | $624 million | $1.101 billion |
| Diluted EPS | $4.00 | $6.91 |
| Operating cash flow | $962 million | $762 million |
| Capital expenditures | $681 million | $408 million |
| Cash and cash equivalents | $780 million | $984 million |
| Total debt | $2.745 billion | $3.064 billion |
Sales rose 4.5%, driven mainly by higher acetyl-intermediate prices and greater engineered-materials volumes. Operating profit and earnings declined substantially, in part because 2013 included a $742 million gain tied to the Kelsterbach plant relocation settlement. In 2014, SG&A increased by $447 million, largely reflecting a $379 million increase in pension and postretirement benefit cost. The effective tax rate was 33%, versus 32% in 2013.
Segment trends: Advanced Engineered Materials sales increased 7.9%, with higher volumes offset partly by lower prices; Consumer Specialties sales fell 4.4% on lower acetate-tow volumes and flake pricing, while profit improved; Industrial Specialties sales grew 6.0% on higher pricing and volume; Acetyl Intermediates sales rose 7.8%, principally on higher VAM and acetic-acid prices, and operating profit increased to $558 million from $153 million.
Fourth-quarter 2014 net sales were $1.559 billion, versus $1.616 billion in fourth-quarter 2013. The company reported an operating loss of $54 million and net loss attributable to Celanese of $84 million for the quarter. The filing attributes the quarterly operating result in part to $349 million of net actuarial losses on benefit obligations.
Cash, debt and liquidity
Operating cash flow increased $200 million year over year, supported by stronger earnings, higher VAT refunds and greater affiliate dividends, partly offset by increased pension contributions and cash taxes. Investing activities used $705 million, including $424 million for Fairway Methanol and $254 million of other capital expenditures. Financing activities used $415 million; cash declined by $204 million, including a $46 million unfavorable foreign-exchange effect.
Debt fell by $319 million. Celanese refinanced or extended portions of its term loans and extended and increased its revolving credit facility to $900 million, maturing in October 2018; no revolver borrowings were outstanding at year-end. The company reported $900 million available under that facility and $21 million available under its receivables securitization facility. It stated that available resources were expected to meet 2015 liquidity needs, including debt service. The $600 million 6.625% notes due 2018 were redeemed; the company issued €300 million of 3.250% notes due 2019 and recorded a $24 million extinguishment loss. Debt covenants were reported in compliance at year-end.
Outlook, risks and unusual items
Management offered no specific earnings guidance. It described the core business as strong entering 2015 and cited productivity initiatives focused on energy savings, plant efficiency and aligning product development with customer needs. Expected 2015 capital expenditures were $375–$400 million, including Celanese’s share of Fairway Methanol investment. The 1.3-million-ton-per-year Fairway facility was expected to begin operating in the second half of 2015.
Key risks include cyclical demand and pricing, volatility or disruption in key raw-material and energy supplies, the ability to pass costs through to customers, foreign-exchange and interest-rate exposure, global economic and regulatory conditions, plant outages, environmental obligations, pension assumptions and funding, and debt-service and covenant constraints.
Environmental remediation reserves were $84 million at year-end. For the Lower Passaic River, the EPA’s proposed cleanup alternatives ranged from $365 million to $3.2 billion; the company said its share could not be reliably estimated and stated it believed its ultimate allocable share would not be material. A 2014 arbitration decision required payment of $13 million in damages plus $7 million in fees, costs and interest to a raw-material supplier. The filing also describes indemnification and divestiture obligations whose possible losses beyond accrued amounts could not be estimated.
Other notable items include the $742 million Kelsterbach-related gain recognized in 2013, 2013 closure and impairment charges for European acetyl facilities and the Singapore acetic-acid unit, the 2014 pension actuarial loss, the $10 million Cool Polymers asset acquisition, and $250 million of 2014 share repurchases. The quarterly dividend was raised to $0.25 per share in 2014; the company declared another $0.25 quarterly dividend in February 2015.
Important facts for investors to verify
- How much of the 2014 earnings decline reflects recurring operating performance versus the prior-year Kelsterbach gain and 2014 pension remeasurement effects.
- Whether higher acetyl-intermediate pricing and segment volume trends persist, and whether raw-material costs can be passed through.
- Fairway Methanol’s remaining investment, construction schedule, expected startup and eventual operating contribution.
- Cash conversion after capital spending, dividends, share repurchases and pension funding; also the location and accessibility of cash, as $669 million was held by foreign subsidiaries.
- Potential changes in pension obligations and contributions, and developments in environmental matters, particularly the Passaic River proceeding.