Celanese Corporation — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing also reports fourth-quarter results. Celanese is a global specialty materials and chemicals producer organized into Advanced Engineered Materials, Consumer Specialties, Industrial Specialties, and Acetyl Intermediates.
Key financial results
| Metric | FY2015 | FY2014 |
|---|---|---|
| Net sales | $5.674 billion | $6.802 billion |
| Gross profit | $1.318 billion | $1.616 billion |
| Operating profit | $326 million | $758 million |
| Operating margin | 5.7% | 11.1% |
| Continuing-operations earnings attributable to Celanese | $306 million | $631 million |
| Net earnings attributable to Celanese | $304 million | $624 million |
| Diluted EPS, continuing operations | $2.01 | $4.04 |
| Cash from operating activities | $862 million | $962 million |
| Capital expenditures, as reported in selected financial data | $483 million | $681 million |
| Cash and cash equivalents at year-end | $967 million | $780 million |
| Total debt at year-end | $2.981 billion | $2.723 billion |
Reported capital expenditures include accrued expenditures; cash-flow investing outlays were $520 million in 2015, including $288 million for Fairway Methanol. The filing does not provide a defined free-cash-flow measure.
Fourth-quarter snapshot
Fourth-quarter 2015 net sales were $1.334 billion, versus $1.559 billion in fourth-quarter 2014. Operating loss was $305 million, compared with a $54 million loss; net loss attributable to Celanese was $298 million, compared with an $84 million loss. Fourth-quarter 2015 included substantial charges and pension-related losses described below.
Changes and segment performance
- Full-year sales fell 16.6%. Management attributed the decline principally to unfavorable foreign exchange, lower Acetyl Intermediates prices and volumes, and weaker acetate tow sales.
- Advanced Engineered Materials sales declined 9.1% to $1.326 billion, mainly from currency effects; operating profit rose 6.3% to $235 million, supported by lower energy and raw-material costs.
- Consumer Specialties sales decreased 16.5% to $969 million and operating profit fell 32.5% to $262 million, reflecting lower acetate tow volumes and pricing, restructuring charges, and higher benefit costs.
- Industrial Specialties sales declined 11.6% to $1.082 billion. Operating profit decreased 5.3% to $72 million; currency, lower pricing, and facility closure costs weighed on results.
- Acetyl Intermediates sales declined 21.4% to $2.744 billion, including intersegment sales. Operating loss was $3 million versus $558 million of profit, driven by lower VAM and acetic acid pricing and volume, currency effects, and unusual charges.
Liquidity, debt, and capital allocation
Operating cash flow was $862 million, down $100 million year over year, primarily because earnings declined; lower pension and postretirement contributions partly offset the reduction. Cash increased by $187 million to $967 million. Of that balance, $923 million was held by foreign subsidiaries. Net cash used in investing activities was $558 million, while net cash used in financing activities was $66 million.
Total debt rose $258 million to $2.981 billion. Short-term borrowings and current installments increased to $513 million from $137 million, including $350 million drawn on the revolving facility. The $900 million revolving facility had $550 million available at year-end. Celanese reported compliance with debt covenants and a first-lien leverage ratio estimate of 0.92, below the 3.90 maximum. It paid $420 million for share repurchases and $174 million in common-stock dividends during 2015.
Unusual items, outlook, and risks
- Celanese recorded $351 million of net other charges in 2015, including a $174 million charge to terminate a Singapore raw-materials contract and a $123 million impairment of ethanol-related assets in Nanjing. It also recorded employee termination and other restructuring costs.
- Capacity and site actions included a 50% reduction at the Lanaken acetate tow facility and closure of VAE facilities in Meredosia and Tarragona. Fairway Methanol, a consolidated 50%-owned venture, began production in October 2015.
- Management expected 2016 capital expenditures of $250 million to $300 million, primarily for Industrial Specialties growth projects, and stated it believed resources would be available to meet 2016 liquidity requirements. The filing gives no consolidated earnings or revenue guidance. A Singapore VAE unit was expected to begin production by mid-2016.
- Key risks include volatile raw-material and energy prices, chemical-industry cyclicality and pricing pressure, foreign-exchange exposure, plant outages and supply interruptions, environmental and product-liability exposure, legal and tax uncertainty, pension funding and assumptions, and debt service and covenant constraints. The company estimated that a one-cent change in the euro/U.S. dollar exchange rate would affect annual earnings by about $5 million.
- Environmental remediation reserves were $72 million. For the Lower Passaic River site, cleanup alternatives ranged from $365 million to $3.2 billion; Celanese estimated its share at substantially less than 1% and said it did not believe the amount would be material. The company could not estimate potential losses beyond accrued amounts for certain indemnification obligations.
Important facts for investors to verify
- Whether 2015’s weaker demand, prices, and currency effects persist, particularly in Acetyl Intermediates and acetate tow.
- The remaining cash and operational effects of the Singapore contract termination, Nanjing ethanol impairment, and facility closures.
- Fairway’s production, economics, and contribution to methanol supply following startup.
- Debt maturities, revolving-facility availability, covenant headroom, and the location and accessibility of foreign-held cash.
- Potential environmental, tax, pension, and other contingent liabilities, including developments in the Passaic River matter.
- Whether announced 2016 capital spending and the Singapore VAE startup proceed on schedule and within expected cost.