Celanese Corporation — Q2 2009 Form 10-Q
Business context and reporting period. Celanese is a global chemicals and advanced materials producer. This unaudited report covers the quarter and six months ended June 30, 2009, compared with the corresponding 2008 periods; amounts are in millions of dollars except per-share data.
Financial performance and position
| Metric | Q2 2009 | Q2 2008 | Six months 2009 | Six months 2008 |
|---|---|---|---|---|
| Net sales | $1,244 | $1,868 | $2,390 | $3,714 |
| Gross profit / margin | $248 / 19.9% | $396 / 21.2% | $448 / 18.7% | $814 / 21.9% |
| Operating profit | $89 | $207 | $116 | $441 |
| Continuing operations earnings attributable to Celanese | $105 | $203 | $84 | $348 |
| Net earnings attributable to Celanese | $104 | $134 | $84 | $279 |
| Diluted EPS | $0.66 | $0.80 | $0.54 | $1.67 |
- Q2 operating margin was 7.2%, down from 11.1%. Six-month operating margin was 4.9%, down from 11.9%.
- Cash provided by operations for the first half was $299, versus $346 in 2008. Capital expenditures were $96, excluding $147 for the Ticona relocation.
- Cash and equivalents were $1,145 at June 30, up from $676 at year-end 2008. Total debt was $3,492, down from $3,533; shareholders’ equity was $248.
- Current assets were $2,778 and current liabilities $1,342. The company reported $139 available under its credit-linked facility and $600 available under its revolving facility; no revolving-facility borrowings were outstanding.
Material changes and business drivers
- Sales fell 33% in Q2 and 36% for the first half, primarily from lower volumes, unfavorable currency effects, and lower acetyl-intermediates prices. Management cited weak automotive and industrial demand, especially in Europe and the Americas; demand improved in Asia for many acetyl products.
- Operating profit declined $118 in Q2 and $325 for the first half. Lower sales and gross profit were partly offset by reduced raw-material and energy costs and lower SG&A.
- Acetyl Intermediates was the largest source of deterioration: Q2 sales declined 42% and operating profit fell to $40 from $148. Advanced Engineered Materials sales fell 39% and its Q2 operating profit was approximately break-even. Consumer Specialties operating profit improved to $66 from $46, helped by acetate-tow pricing and cost reductions.
- Discontinued operations generated a $69 loss in first-half 2008, compared with no discontinued-operations result in first-half 2009; this affects the comparison of total net earnings.
Outlook, unusual items, and risks
- Management described demand weakness as prolonged and said it expected liquidity resources to meet requirements, including debt service, through the remainder of 2009. The filing gives no specific earnings or revenue guidance.
- The company expected 2009 capital expenditures of approximately $185, excluding $350–$370 for the Ticona Kelsterbach relocation. It received $412 in accelerated Fraport relocation proceeds in the first half; these are recorded as deferred proceeds, not sales revenue.
- Following the July 2009 sale of its PVOH business for approximately $173, the company announced plans to cease manufacturing at Pardies, France, by December 2009. It expected $90–$100 of exit costs, primarily in the second half of 2009.
- Other unusual items included $28 of first-half employee termination benefits related to capacity and staffing adjustments and a $19 one-time deferred-tax-liability reversal recognized through an equity affiliate.
- Debt covenants were met at June 30. The amended credit agreement temporarily relaxed leverage limits, which step down to 3.90x from December 31, 2010 onward; estimated June-quarter leverage was 3.80x, or 4.59x if the revolver were fully drawn.
- Key exposures include environmental remediation (reserves of $101), plumbing claims (remaining accruals of $62), ongoing litigation and indemnities, and $1,746 of future take-or-pay purchase commitments. Management said legal outcomes could materially affect results or cash flows in an individual period, though not expected to materially affect financial position.
- Principal operating risks include continued economic and end-market weakness, raw-material and energy price changes, pricing pressure, currency and interest-rate movements, plant utilization, and environmental or litigation costs.
Investor verification priorities
- Check whether demand, volumes, pricing, and margins recover after the sharp first-half declines, especially in Acetyl Intermediates and Advanced Engineered Materials.
- Track cash generation and liquidity against debt service, planned capital spending, and the Pardies closure costs; distinguish recurring operating cash flow from Fraport relocation proceeds.
- Monitor compliance with leverage covenants as limits tighten and verify availability under the revolving facilities.
- Confirm completion and financial effects of the PVOH sale, Pardies shutdown, and Ticona relocation, including timing and total relocation costs.
- Review developments in environmental, plumbing, antitrust, and other legal matters and whether recorded reserves remain adequate.