Celanese Corporation — FY2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. Celanese is a global specialty materials and chemicals producer operating in four segments: Advanced Engineered Materials, Consumer Specialties, Industrial Specialties and Acetyl Intermediates.
Financial performance
| Metric | FY2012 | FY2011 |
|---|---|---|
| Net sales | $6.418 billion | $6.763 billion |
| Gross profit / margin | $1.192 billion / 18.6% | $1.434 billion / 21.2% |
| Operating profit / margin | $511 million / 8.0% | $690 million / 10.2% |
| Continuing-operations earnings | $609 million | $606 million |
| Net earnings attributable to Celanese | $605 million | $607 million |
| Diluted EPS | $3.79 | $3.82 |
| Cash from operations | $722 million | $638 million |
| Cash and cash equivalents at year-end | $959 million | $682 million |
| Total debt at year-end | $3.098 billion | $3.017 billion |
| Capital expenditures | $410 million, including $49 million for the POM relocation | $553 million, including $204 million for the relocation |
Sales fell 5% year over year, chiefly from lower Acetyl Intermediates prices and unfavorable foreign exchange. Operating profit declined 26%, and operating margin contracted 2.2 percentage points. Net income was nearly unchanged, supported in part by a lower effective tax rate of 7%, versus 20% in 2011. Cash from operations increased $84 million; year-end debt rose $81 million. Cash less total debt was approximately $2.139 billion. The current ratio was approximately 2.1.
Fourth-quarter 2012 net sales were $1.501 billion, operating profit $86 million, net earnings $95 million and diluted EPS $0.59. Compared with the fourth quarter of 2011, sales were lower ($1.614 billion) while operating profit and net earnings were also lower ($97 million and $95 million, respectively); diluted EPS was $0.60 in Q4 2011.
Segments and year-over-year changes
- Advanced Engineered Materials: Sales $1.261 billion, down $37 million; operating profit $86 million, up $10 million. Pricing and affiliate earnings improved, partly offsetting weaker European demand, lower volume and currency effects.
- Consumer Specialties: Sales $1.186 billion, up $25 million; operating profit $244 million, up $17 million. Higher acetate pricing outweighed lower volume, including effects of the Spondon, UK tow and flake shutdown.
- Industrial Specialties: Sales $1.184 billion, down $39 million; operating profit $82 million, down $18 million. Higher volume and lower raw-material costs did not offset lower pricing and unfavorable currency.
- Acetyl Intermediates: Segment sales, including intersegment sales, were $3.231 billion, down $320 million; operating profit was $263 million, down $196 million. Lower acetic acid pricing and unfavorable currency were the principal causes; volumes were broadly flat.
Liquidity, debt and capital allocation
Cash and cash equivalents were $959 million, including $674 million held by foreign subsidiaries. Available borrowing capacity was $600 million under the revolving facility and $108 million under the credit-linked facility. The company reported compliance with its debt covenants at year-end. In November 2012, it issued $500 million of 4.625% senior notes due 2022, used $400 million to prepay Term C loans and contributed $100 million to its US pension plan. The company paid $43 million in common dividends and repurchased $45 million of shares during 2012; the quarterly dividend was increased 25% to $0.075 per share.
Defined-benefit pension plans were underfunded by $1.303 billion at year-end, and total benefit obligations on the balance sheet were $1.602 billion. The filing lists $3.332 billion of unconditional purchase obligations and $9.136 billion of total contractual obligations, including debt, leases, pension funding and environmental obligations.
Outlook, risks and notable items
- Management expected a challenging global economy in 2013, particularly in Europe, with modest Chinese growth. It forecast 2013 earnings growth consistent with its long-term objective of 12%–14%, driven by company-specific initiatives; this is forward-looking guidance, not a guarantee.
- Expected 2013 capital expenditures were $375 million–$400 million. Projects include a planned Clear Lake methanol plant expected to start up after July 1, 2015, and a Nanjing ethanol unit expected to start up in late 2013. The filing also describes possible additional ethanol complexes in China, subject to approvals.
- Compliance with Boiler MACT emissions requirements is expected to require significant spending over the next three to four years. A planned replacement of coal-fired boilers at Narrows, Virginia was estimated to cost more than $150 million.
- Material operating risks include volatile raw-material and energy prices, the ability to pass costs through, cyclical end markets, plant outages, foreign-exchange exposure, European economic weakness, regulation and environmental liabilities. A North American methanol supply contract expires in 2015; the company planned a US methanol plant partly to replace that supply.
- Legal matters include an unresolved Linde Gas Singapore arbitration for which Celanese said it could not estimate possible loss, and German shareholder award proceedings with some potential exposure not estimable. Celanese reported a favorable jury verdict in 2012 in Southern Chemical’s methanol-contract lawsuit; Southern’s motion for a new trial was denied.
- The company recorded $14 million of net other charges in 2012, including $8 million of Spondon asset impairments and $7 million of German POM relocation costs, partly offset by other items. Affiliate earnings included a $22 million benefit from debt restructuring at an InfraServ Hoechst subsidiary. The 7% effective tax rate reflected a $142 million foreign-tax-credit benefit and a $38 million deferred tax charge related to Polyplastics.
- Management and the auditor concluded that disclosure controls and internal control over financial reporting were effective; KPMG issued unqualified opinions on the financial statements and internal controls.
Most important facts for investors to verify
- Whether Acetyl Intermediates pricing and operating profitability recover after the sharp 2012 decline, and whether the 2013 earnings-growth objective is achieved.
- Whether forecast capital spending, including emissions compliance and the methanol and ethanol projects, remains within plan and is supported by expected returns and financing.
- How much of reported earnings and cash generation depends on tax benefits, affiliate earnings and dividends, and whether foreign-held cash can be accessed without material tax cost.
- The trajectory of pension funding and environmental, legal and purchase-obligation exposures, including matters for which potential losses are not estimable.
- Debt service capacity and the effects of currency, raw-material prices and global demand on margins and liquidity.