Celanese Corporation — FY 2009 Form 10-K
Reporting period: Fiscal year ended December 31, 2009. The filing also provides unaudited fourth-quarter results; it is an annual report, not a standalone Q4 filing. Amounts are in U.S. dollars unless stated otherwise.
Business context
Celanese is a global chemicals and advanced materials producer operating through Advanced Engineered Materials, Consumer Specialties, Industrial Specialties and Acetyl Intermediates. The company reported that the global downturn weakened demand, particularly in automotive, electronics, construction and industrial markets. Management saw gradually improving demand in some businesses in the second half of 2009.
Key financial results
| Metric | FY 2009 | FY 2008 |
|---|---|---|
| Net sales | $5.082 billion | $6.823 billion |
| Gross profit | $1.003 billion | $1.256 billion |
| Operating profit | $290 million | $440 million |
| Operating margin | 5.7% | 6.4% |
| Continuing-operations earnings attributable to Celanese | $484 million | $372 million |
| Net earnings attributable to Celanese | $488 million | $282 million |
| Cash from operating activities | $596 million | $586 million |
| Cash and cash equivalents, year-end | $1.254 billion | $676 million |
| Total debt, year-end | $3.501 billion | $3.533 billion |
| Net debt, year-end | $2.247 billion | $2.857 billion |
Capital expenditures excluding the Kelsterbach relocation were $176 million, down from $274 million. Cash flow from investing activities was positive $31 million, including PVOH-sale proceeds and Fraport relocation payments; financing activities used $112 million. The effective tax rate for continuing operations was a benefit of 101%, largely reflecting the release of the U.S. deferred-tax valuation allowance; this boosted reported earnings and is not indicative of operating performance.
Fourth-quarter results
Q4 2009 net sales were $1.388 billion versus $1.286 billion in Q4 2008. Operating profit was $109 million, compared with an operating loss of $152 million. Net earnings were $5 million versus a net loss of $155 million. The filing describes a gradual recovery in demand during Q4; year-over-year comparisons also reflect the prior-year downturn and charges.
Material changes versus 2008
- Full-year sales fell about 26%, driven mainly by lower prices and volumes amid weak demand, the PVOH divestiture, and slightly unfavorable currency effects. Lower raw-material and energy costs contributed to lower selling prices but supported gross margin as a percentage of sales.
- Operating profit declined $150 million. Acetyl Intermediates operating profit fell to $95 million from $309 million, largely due to lower selling prices; Industrial Specialties improved to $89 million from $47 million, and Consumer Specialties improved to $231 million from $190 million.
- Operating cash flow rose modestly to $596 million. Cash increased by $578 million, and net debt declined by $610 million, reflecting cash accumulation and debt repayments.
- Other charges, net increased to $136 million from $108 million. Major 2009 items included $105 million of employee termination benefits and $17 million for plant and office closures. The Pardies, France closure accounted for $89 million of exit costs.
Outlook, management commentary and risks
- For 2010, management expected overall demand to rise as the global economy gradually recovered, with Asia growing faster than other regions. Raw-material and energy costs were expected to be modestly higher, partly offset by selling-price increases.
- Management targeted an additional $100 million of fixed-spending reductions in 2010. Capital expenditures excluding the Kelsterbach relocation were expected to be approximately $265 million.
- Celanese expected to have resources to meet 2010 liquidity needs and debt service. At year-end, $600 million was available under the revolver and $140 million under the credit-linked facility. The estimated first-lien leverage ratio was 3.39x against a 5.25x limit for Q4 2009; future limits tighten to 3.90x by December 2010.
- Variable-rate debt exposure remained: the filing estimates a 1 percentage-point rate increase would add approximately $13 million to annual interest expense.
- The Kelsterbach plant relocation was scheduled for completion by mid-2011. Fraport had paid €542 million by year-end, with €110 million expected in 2011 subject to adjustments; relocation execution, cost overruns and customer supply disruption remain risks.
- Other significant risks include economic and industry cyclicality, raw-material and energy volatility, plant outages, foreign-exchange exposure, environmental and product-related regulation, litigation, pension funding and substantial indebtedness.
- Potential contingencies include plumbing litigation reserves of $55 million, environmental remediation reserves of $106 million, and ongoing legal matters. The company said it believed reserves were adequate, while noting that outcomes could materially affect results or cash flows in a particular period.
Important facts for investors to verify
- How much of 2009 earnings came from the U.S. valuation-allowance release and whether future earnings can support the deferred tax assets.
- Whether the anticipated demand recovery, $100 million cost reductions and improved pricing/margins were realized after year-end.
- Progress, remaining cash costs and final Fraport funding for the Kelsterbach relocation, including any schedule or supply interruptions.
- Debt covenant headroom, variable-rate exposure, liquidity availability and the effect of the planned February 2010 preferred-stock redemption on share count and dividends.
- Developments in environmental, product-liability and antitrust proceedings, the $55 million plumbing reserve, and pension funding requirements.