Celanese Corporation — FY2010 Form 10-K
Reporting period: Fiscal year ended December 31, 2010. The filing also reports fourth-quarter results. Celanese is a global technology and specialty materials company operating in Advanced Engineered Materials, Consumer Specialties, Industrial Specialties, and Acetyl Intermediates.
Financial performance
| Metric | FY2010 | FY2009 |
|---|---|---|
| Net sales | $5.918 billion | $5.082 billion |
| Gross profit | $1.180 billion | $1.003 billion |
| Operating profit | $503 million | $290 million |
| Continuing-operations earnings | $426 million | $494 million |
| Net earnings attributable to Celanese | $377 million | $498 million |
| Diluted EPS, continuing operations | $2.69 | $3.14 |
| Diluted EPS, net earnings | $2.38 | $3.17 |
| Cash from operating activities | $452 million | $596 million |
| Capital expenditures, excluding Kelsterbach relocation | $201 million cash outflow | $176 million cash outflow |
- Sales rose 16%, reflecting recovering demand, higher volumes and price increases. Gross margin was approximately 19.9% versus 19.7%; operating margin was 8.5% versus 5.7%.
- Net earnings fell despite higher operating profit, chiefly because 2009 benefited from a large deferred-tax valuation-allowance release. The effective tax rate was 21% in 2010 versus negative 97% in 2009.
- At year-end, cash and cash equivalents were $740 million, down $514 million year over year. Total debt was $3.218 billion, down from $3.501 billion. Current assets were $2.668 billion and current liabilities $1.542 billion.
- Liquidity included $600 million available under a revolving facility and $145 million under a credit-linked facility. The company reported compliance with debt covenants.
- Dividends paid on common stock were $28 million; the quarterly rate increased 25%, from $0.04 to $0.05 per share, beginning in August 2010.
Fourth-quarter snapshot
Fourth-quarter 2010 net sales were $1.507 billion, gross profit $313 million, operating profit $140 million, continuing-operations earnings $103 million, and net earnings $58 million. Diluted EPS was $0.36. In fourth-quarter 2009, sales were $1.388 billion, operating profit $109 million, continuing-operations earnings $2 million, net earnings $6 million, and diluted EPS $0.03. The 2010 quarter included a $45 million loss from discontinued operations.
Changes, strategy and outlook
- Operating profit improved to $503 million from $290 million. Acetyl Intermediates and Advanced Engineered Materials led the improvement; Consumer Specialties profit declined, while Industrial Specialties profit was flat.
- Acetyl Intermediates sales increased 18% to $3.082 billion, supported by stronger volume and pricing. Advanced Engineered Materials sales increased to $1.109 billion, with higher volumes and acquisitions contributing. Consumer Specialties sales were approximately flat; Industrial Specialties sales rose 6%.
- Other charges, net improved to $46 million of expense from $136 million. Items included a $72 million impairment related to the planned Spondon, UK acetate-operations closure, $22 million accelerated amortization of a supplier prepayment, and $59 million of plumbing-action recoveries and legal-reserve reductions.
- Celanese issued $600 million of 6.625% senior notes due 2018 and amended its secured credit facilities. It used the proceeds and $200 million of cash to repay $800 million of term loans, extending part of the debt maturity profile.
- Management expected 2011 results to improve versus 2010, with earnings growth in every segment, healthy demand and continued benefits from innovation and productivity. This was an expectation, not a guarantee.
- Planned investments included approximately $350 million of 2011 capital expenditures excluding the Kelsterbach relocation and European capacity expansion. Kelsterbach relocation capital outflows were expected to be €186 million in 2011; total project spending was expected to exceed Fraport’s agreed contribution.
- Proposed ethanol projects in Nanjing and Zhuhai, China, were subject to approvals. Each was described as having planned nameplate capacity of 400,000 tons annually and an initial investment of approximately $300 million.
Risks, contingencies and unusual items
- Key exposures include cyclical end markets, volatile and sometimes concentrated raw-material and energy supplies, currency and interest-rate movements, production interruptions, leverage, and environmental, health and safety regulation.
- Debt was approximately $3.2 billion. Variable-rate exposure remained; management estimated a 1 percentage-point rate increase would add about $5 million to annual interest expense.
- Environmental remediation reserves were $101 million at year-end. The company also disclosed legal proceedings and indemnities, including plumbing-related matters, antitrust claims, and German award proceedings whose outcomes or potential payments were uncertain.
- Defined-benefit pension obligations exceeded plan assets by approximately $1.073 billion. Management’s estimates and future funding requirements are sensitive to discount rates, asset performance and other assumptions.
- The Spondon closure was expected to generate total expenses of approximately $35 million to $45 million, with substantial cash outflows through 2011. The company also reported $1.642 billion of unconditional purchase obligations, principally take-or-pay commitments, and did not expect material losses under them.
- The filing states that the 2010 discontinued-operations loss included a settlement of a legacy polyester-staple dispute; the settlement terms were confidential and the filing does not provide a clear settlement amount.
Investor verification priorities
- Reconcile the reported annual and fourth-quarter earnings, particularly tax effects and discontinued operations, against the audited statements and notes.
- Assess whether higher 2010 pricing and volumes can be sustained as input costs, demand and product mix change.
- Verify available liquidity, debt maturities, covenant headroom, variable-rate exposure and the cash needed for planned investment and dividends.
- Review the costs, timing and customer-supply implications of the Spondon closure and Kelsterbach relocation, alongside the expected savings and Fraport receipts.
- Monitor pension funding, environmental reserves, legal contingencies and progress toward approvals, funding and commercialization of the proposed ethanol facilities.