Celanese Corporation — 2013 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2013. The filing also reports unaudited fourth-quarter results. Unless otherwise noted, amounts are in U.S. dollars.
Business context
Celanese is a global specialty materials and chemicals company operating through Advanced Engineered Materials, Consumer Specialties, Industrial Specialties and Acetyl Intermediates. Its products include engineered polymers, acetate products, food ingredients, emulsions, EVA polymers and acetyl chemicals.
Financial performance and liquidity
- Revenue: $6.510 billion, up 1.4% from $6.418 billion in 2012. Management attributed the increase primarily to higher Advanced Engineered Materials volumes; consolidated price and volume were approximately flat, with currency contributing about 1%.
- Profit: Operating profit was $1.508 billion versus $175 million; net earnings were $1.101 billion versus $372 million. Diluted EPS was $6.91 versus $2.35. Results included a $742 million gain on the Kelsterbach, Germany plant-site transfer to Fraport and substantial pension-accounting effects, so reported growth was not solely operating performance.
- Margins: Gross profit was $1.365 billion, approximately 21.0% of sales, versus $1.181 billion, or 18.4%, in 2012. Reported operating margin rose to 23.2% from 2.7%, substantially reflecting the Fraport gain and pension items.
- Fourth quarter: Revenue was $1.616 billion versus $1.501 billion in Q4 2012. Operating profit was $944 million versus an operating loss of $290 million, and net earnings were $654 million versus a net loss of $169 million. Q4 included the Fraport gain and $147 million of other charges, including facility-closure and impairment costs.
- Cash flow: Operating cash flow was $762 million, up from $722 million. Investing cash outflow was $422 million and financing cash outflow was $326 million. Capital expenditures were $370 million, excluding $7 million for the German POM relocation; operating cash flow less the stated $370 million of capex was $392 million.
- Cash, debt and liquidity: Cash and equivalents were $984 million, including $700 million held by foreign subsidiaries. Total debt was $3.064 billion, down from $3.098 billion; cash less total debt was approximately $2.080 billion net debt. Celanese reported $600 million available on its revolving facility and $18 million available under its receivables facility. It stated that it expected sufficient resources to meet 2014 liquidity needs.
- Other metrics: Equity in affiliate earnings was $180 million versus $242 million; dividends from cost-method investments were $93 million versus $85 million. Capital expenditures, including accrued amounts in selected financial data, were $408 million. Dividends paid per common share were $0.53 versus $0.27.
Material changes versus 2012
- Advanced Engineered Materials sales increased $91 million to $1.352 billion; operating profit was $904 million, including the $742 million Fraport gain, versus $95 million in 2012.
- Consumer Specialties sales increased $28 million to $1.214 billion and operating profit rose $95 million to $346 million, supported by acetate-tow pricing and lower costs following the Spondon production shutdown.
- Industrial Specialties sales fell $29 million to $1.155 billion and operating profit declined $22 million to $64 million, principally reflecting lower pricing.
- Acetyl Intermediates sales were nearly flat at $3.241 billion, while operating profit declined $116 million to $153 million. The segment recorded closure and impairment charges, including a full impairment of its Singapore acetic acid unit.
- Celanese closed its Roussillon acetic anhydride and Tarragona VAM facilities in December 2013. It expected annual savings of $20 million to $30 million in 2014.
- The company changed its pension and postretirement accounting policy effective January 1, 2013, immediately recognizing actuarial gains and losses and changes in plan-asset fair values in operating results. Prior periods were retrospectively adjusted. The change increased reported 2013 net earnings by $189 million versus the previous method and reduced 2012 net earnings by $233 million.
Outlook, risks and contingencies
- 2014 outlook: Management expected earnings growth primarily from plant operations, upstream and downstream efficiencies, and converting innovation into earnings; it also anticipated some economic improvement across Europe, China and North America. The filing provides no specific 2014 earnings or revenue target.
- Investment plans: Expected 2014 capital outflows were $450 million to $500 million, including the Clear Lake methanol project and boiler conversion at Narrows. The Clear Lake joint venture project was estimated at $800 million total, with Celanese’s share about $300 million; the 1.3-million-ton-per-year facility was expected to start up in the second half of 2015. Narrows boiler investment was estimated at more than $150 million.
- Principal operating risks: Exposure to raw-material and energy-price volatility, supply interruptions, cyclical customer industries, foreign-exchange movements, global economic and political conditions, environmental regulation, plant disruptions, product liability, cybersecurity, pension assumptions and indebtedness.
- Legal and tax matters: In a Singapore supplier arbitration, a panel found a breach of an implied duty of good faith; a damages hearing was expected in the first half of 2014. The supplier had sought $38 million for the period through 2012 plus unspecified damages. A French tax assessment could result in €81 million of incremental tax, interest and penalties; Celanese disputed the claim and had accrued no significant amount. For the Lower Passaic River matter, the company could not reliably estimate its share of cleanup costs, though it believed its share would be below approximately 1% to 2% of the potential remedy.
- Pensions: Pension plans had a $1.090 billion underfunded status at year-end, and postretirement plans had a $136 million deficit. Celanese froze benefits for eligible U.S. non-union participants and closed the qualified pension plan to new participants effective December 31, 2013; it also planned to terminate the U.S. non-union retiree health plan effective December 31, 2014.
- Capital allocation: The board doubled the quarterly dividend to $0.18 per share during 2013 and approved a further $400 million share-repurchase authorization in February 2014. Dividends and repurchases remain subject to cash needs, debt restrictions and board discretion.
Important facts for investors to verify
- How much of 2013’s reported earnings and margin increase is attributable to the $742 million Fraport gain and pension-accounting changes, versus recurring segment performance.
- The effects of facility closures, the Singapore unit impairment and the expected $20 million to $30 million in 2014 savings on future Acetyl Intermediates profitability.
- Progress, total funding requirements and execution risks for the Clear Lake methanol and Narrows boiler projects, including the anticipated 2015 startup/completion dates.
- Developments and potential cash impacts from the Singapore arbitration, French tax assessment, environmental matters and other contingencies.
- Debt-service capacity, covenant compliance, availability of liquidity and the location of cash: $700 million of year-end cash was held by foreign subsidiaries, with possible U.S. tax costs if repatriated.
- The recurring cash-flow outlook after planned capital spending, pension contributions, dividends and share repurchases.
KPMG issued an unqualified opinion on the consolidated financial statements and concluded that internal control over financial reporting was effective as of December 31, 2013.