10-Q
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
June 30, 2008
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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(Commission File Number)
001-32410
CELANESE CORPORATION
(Exact Name of Registrant as
Specified in its Charter)
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Delaware
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98-0420726
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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1601 West LBJ Freeway,
Dallas, TX
(Address of Principal
Executive Offices)
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75234-6034
(Zip Code)
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(Registrants telephone number, including area code)
(972) 443-4000
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The number of outstanding shares of the registrants
Series A common stock, $0.0001 par value, as of
July 18, 2008 was 150,148,914.
CELANESE
CORPORATION
Form 10-Q
For the
Quarterly Period Ended June 30, 2008
TABLE OF CONTENTS
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Page
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PART I FINANCIAL INFORMATION
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Item 1.
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Financial Statements
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a) Unaudited Interim Consolidated Statements of
Operations for the three and six months ended June 30, 2008
and 2007
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3
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b) Unaudited Consolidated Balance Sheets as of
June 30, 2008 and December 31, 2007
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4
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c) Unaudited Interim Consolidated Statements of
Shareholders Equity and Comprehensive Income (Loss) for
the six months ended June 30, 2008
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5
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d) Unaudited Interim Consolidated Statements of
Cash Flows for the six months ended June 30, 2008 and 2007
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6
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e) Notes to the Unaudited Interim Consolidated
Financial Statements
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7
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Item 2.
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Managements Discussion and Analysis of Financial Condition
and Results of Operations
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29
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Item 3.
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Quantitative and Qualitative Disclosures about Market Risk
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44
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Item 4.
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Controls and Procedures
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44
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PART II OTHER INFORMATION
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Item 1.
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Legal Proceedings
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45
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Item 1A.
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Risk Factors
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45
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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46
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Item 3.
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Defaults Upon Senior Securities
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46
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Item 4.
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Submission of Matters to a Vote of Security Holders
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46
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Item 5.
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Other Information
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47
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Item 6.
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Exhibits
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47
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Signatures
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48
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2
CELANESE
CORPORATION AND SUBSIDIARIES
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Three Months Ended June 30,
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Six Months Ended June 30,
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2008
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2007
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2008
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2007
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(in $ millions, except for per share data)
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Net sales
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1,868
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1,556
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3,714
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3,111
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Cost of sales
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(1,472
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(1,219
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(2,900
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(2,415
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Gross profit
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396
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337
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814
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696
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Selling, general and administrative expenses
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(138
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(122
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(274
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(238
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Amortization of intangible assets (primarily customer
relationships)
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(20
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(17
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(39
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(35
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Research and development expenses
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(18
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(19
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(41
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(36
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Other (charges) gains, net
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(7
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(105
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(23
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(106
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Foreign exchange gain (loss), net
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(3
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4
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Gain (loss) on disposition of assets, net
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(3
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(3
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(4
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Operating profit
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207
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71
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441
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277
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Equity in net earnings of affiliates
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17
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23
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27
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41
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Interest expense
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(63
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(61
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(130
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(133
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Refinancing expense
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(256
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(256
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Interest income
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10
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11
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19
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25
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Dividend income cost investments
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75
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49
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103
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64
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Other income (expense), net
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1
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(5
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5
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(15
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Earnings (loss) from continuing operations before tax and
minority interests
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247
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(168
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465
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3
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Income tax (provision) benefit
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(45
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44
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(118
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(5
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Earnings (loss) from continuing operations before minority
interests
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202
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(124
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347
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(2
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Minority interests
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1
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1
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Earnings (loss) from continuing operations
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203
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(124
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348
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(2
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Earnings (loss) from discontinued operations:
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Earnings (loss) from operation of discontinued operations
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(112
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(5
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(112
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38
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Gain (loss) on disposal of discontinued operations
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16
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47
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Income tax (provision) benefit
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43
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(4
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43
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1
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Earnings (loss) from discontinued operations
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(69
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7
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(69
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86
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Net earnings (loss)
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134
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(117
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)
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279
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84
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Cumulative preferred stock dividends
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(2
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(3
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(5
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(5
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Net earnings (loss) available to common shareholders
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132
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(120
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274
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79
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Earnings (loss) per common share basic:
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Continuing operations
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1.33
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(0.81
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2.26
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(0.04
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Discontinued operations
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(0.46
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0.05
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(0.45
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0.54
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Net earnings (loss) available to common shareholders
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0.87
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(0.76
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1.81
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0.50
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Earnings (loss) per common share diluted:
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Continuing operations
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1.21
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(0.81
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2.08
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(0.04
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)
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Discontinued operations
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(0.41
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0.05
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(0.41
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)
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0.54
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Net earnings (loss) available to common shareholders
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0.80
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(0.76
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)
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1.67
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0.50
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Weighted average shares basic:
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150,905,770
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156,932,929
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151,449,762
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158,102,411
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Weighted average shares diluted:
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167,814,803
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156,932,929
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167,561,793
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158,102,411
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See the accompanying notes to the unaudited interim consolidated
financial statements.
3
CELANESE
CORPORATION AND SUBSIDIARIES
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As of
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As of
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June 30,
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December 31,
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2008
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2007
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(in $ millions,
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except share amounts)
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ASSETS
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Current assets:
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Cash and cash equivalents
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983
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825
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Receivables:
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Trade third party and affiliates (net of allowance
for doubtful accounts 2008: $18; 2007: $18)
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1,061
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1,009
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Other
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381
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437
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Inventories
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754
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636
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Deferred income taxes
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68
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70
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Marketable securities, at fair value
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24
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46
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Other assets
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30
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40
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Total current assets
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3,301
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3,063
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Investments
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803
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814
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Property, plant and equipment (net of accumulated
depreciation 2008: $992; 2007: $838)
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2,542
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2,362
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Deferred income taxes
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50
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10
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Marketable securities, at fair value
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208
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209
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Other assets
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376
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309
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Goodwill
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897
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866
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Intangible assets, net
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437
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425
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Total assets
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8,614
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8,058
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LIABILITIES AND SHAREHOLDERS EQUITY
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Current liabilities:
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Short-term borrowings and current installments of long-term
debt third party and affiliates
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252
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272
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Trade payables third party and affiliates
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829
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818
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Other liabilities
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824
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888
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Deferred income taxes
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30
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30
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Income taxes payable
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38
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23
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Total current liabilities
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1,973
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2,031
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Long-term debt
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3,371
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3,284
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Deferred income taxes
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277
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265
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Income taxes payable
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|
259
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|
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|
220
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Benefit obligations
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|
676
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|
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696
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Other liabilities
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822
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|
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|
495
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Minority interests
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4
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5
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Commitments and contingencies
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Shareholders equity:
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Preferred stock, $0.01 par value, 100,000,000 shares
authorized (2008 and 2007: 9,600,000 issued and outstanding)
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Series A common stock, $0.0001 par value,
400,000,000 shares authorized (2008: 163,936,300 issued and
150,148,914 outstanding; 2007: 162,941,287 issued and
152,102,801 outstanding)
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Series B common stock, $0.0001 par value,
100,000,000 shares authorized (2008 and 2007: 0 shares
issued and outstanding)
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Treasury stock, at cost (2008:
13,787,386 shares; 2007: 10,838,486 shares)
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(529
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)
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|
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(403
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)
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Additional paid-in capital
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|
494
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469
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Retained earnings
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1,061
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|
799
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Accumulated other comprehensive income (loss), net
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|
206
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|
|
|
197
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|
|
|
|
|
|
|
|
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Total shareholders equity
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1,232
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|
|
|
1,062
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|
|
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Total liabilities and shareholders equity
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8,614
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|
|
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8,058
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See the accompanying notes to the unaudited interim consolidated
financial statements.
4
CELANESE
CORPORATION AND SUBSIDIARIES
SHAREHOLDERS
EQUITY AND COMPREHENSIVE INCOME (LOSS)
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|
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|
|
Six Months Ended
|
|
|
|
June 30, 2008
|
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|
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Shares Outstanding
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Amount
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(in $ millions, except share data)
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Preferred Stock
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|
|
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|
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Balance as of the beginning of the period
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9,600,000
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Issuance of preferred stock
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|
|
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|
|
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|
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|
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Balance as of the end of the period
|
|
|
9,600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Common Stock
|
|
|
|
|
|
|
|
|
Balance as of the beginning of the period
|
|
|
152,102,801
|
|
|
|
|
|
Stock option exercises
|
|
|
984,549
|
|
|
|
|
|
Purchases of treasury stock, including related fees
|
|
|
(2,948,900
|
)
|
|
|
|
|
Issuance of stock awards
|
|
|
10,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of the end of the period
|
|
|
150,148,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Stock
|
|
|
|
|
|
|
|
|
Balance as of the beginning of the period
|
|
|
10,838,486
|
|
|
|
(403
|
)
|
Purchases of treasury stock, including related fees
|
|
|
2,948,900
|
|
|
|
(126
|
)
|
|
|
|
|
|
|
|
|
|
Balance as of the end of the period
|
|
|
13,787,386
|
|
|
|
(529
|
)
|
|
|
|
|
|
|
|
|
|
Additional Paid-in Capital
|
|
|
|
|
|
|
|
|
Balance as of the beginning of the period
|
|
|
|
|
|
|
469
|
|
Indemnification of demerger liability
|
|
|
|
|
|
|
2
|
|
Stock-based compensation
|
|
|
|
|
|
|
6
|
|
Stock option exercises
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
Balance as of the end of the period
|
|
|
|
|
|
|
494
|
|
|
|
|
|
|
|
|
|
|
Retained Earnings
|
|
|
|
|
|
|
|
|
Balance as of the beginning of the period
|
|
|
|
|
|
|
799
|
|
Net earnings (loss)
|
|
|
|
|
|
|
279
|
|
Series A common stock dividends
|
|
|
|
|
|
|
(12
|
)
|
Preferred stock dividends
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
Balance as of the end of the period
|
|
|
|
|
|
|
1,061
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss), Net
|
|
|
|
|
|
|
|
|
Balance as of the beginning of the period
|
|
|
|
|
|
|
197
|
|
Unrealized loss on securities
|
|
|
|
|
|
|
(16
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
29
|
|
Unrealized loss on interest rate swaps
|
|
|
|
|
|
|
(2
|
)
|
Pension and postretirement benefits
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Balance as of the end of the period
|
|
|
|
|
|
|
206
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity
|
|
|
|
|
|
|
1,232
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss):
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
|
|
|
|
|
279
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
Unrealized loss on securities
|
|
|
|
|
|
|
(16
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
29
|
|
Unrealized loss on interest rate swaps
|
|
|
|
|
|
|
(2
|
)
|
Pension and postretirement benefits
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss), net of tax
|
|
|
|
|
|
|
288
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the unaudited interim consolidated
financial statements.
5
CELANESE
CORPORATION AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in $ millions)
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
|
279
|
|
|
|
84
|
|
Adjustments to reconcile net earnings to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Other (charges) gains, net of amounts used
|
|
|
5
|
|
|
|
11
|
|
Depreciation, amortization and accretion
|
|
|
178
|
|
|
|
158
|
|
Deferred income taxes, net
|
|
|
(8
|
)
|
|
|
(26
|
)
|
(Gain) loss on disposal of assets, net
|
|
|
|
|
|
|
(44
|
)
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
256
|
|
Other, net
|
|
|
29
|
|
|
|
6
|
|
Operating cash provided by (used in) discontinued operations
|
|
|
5
|
|
|
|
(101
|
)
|
Value-added tax on deferred proceeds from Ticona Kelsterbach
plant relocation
|
|
|
59
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Trade receivables third party and affiliates, net
|
|
|
(14
|
)
|
|
|
55
|
|
Inventories
|
|
|
(94
|
)
|
|
|
24
|
|
Other assets
|
|
|
(1
|
)
|
|
|
12
|
|
Trade payables third party and affiliates
|
|
|
6
|
|
|
|
(106
|
)
|
Other liabilities
|
|
|
(98
|
)
|
|
|
(250
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
346
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures on property, plant and equipment
|
|
|
(136
|
)
|
|
|
(116
|
)
|
Acquisitions and related fees, net of cash acquired
|
|
|
(1
|
)
|
|
|
(269
|
)
|
Net proceeds from sale of businesses and assets
|
|
|
3
|
|
|
|
658
|
|
Deferred proceeds on Ticona Kelsterbach plant relocation
|
|
|
311
|
|
|
|
|
|
Capital expenditures related to Ticona Kelsterbach plant
relocation
|
|
|
(62
|
)
|
|
|
(4
|
)
|
Proceeds from sale of marketable securities
|
|
|
96
|
|
|
|
34
|
|
Purchases of marketable securities
|
|
|
(83
|
)
|
|
|
(32
|
)
|
Changes in restricted cash
|
|
|
|
|
|
|
46
|
|
Settlement of cross currency swap agreement
|
|
|
(93
|
)
|
|
|
|
|
Other, net
|
|
|
(68
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(33
|
)
|
|
|
295
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Short-term borrowings (repayments), net
|
|
|
(47
|
)
|
|
|
(30
|
)
|
Proceeds from long-term debt
|
|
|
13
|
|
|
|
2,857
|
|
Repayments of long-term debt
|
|
|
(23
|
)
|
|
|
(3,038
|
)
|
Refinancing costs
|
|
|
|
|
|
|
(240
|
)
|
Purchases of treasury stock, including related fees
|
|
|
(126
|
)
|
|
|
(258
|
)
|
Stock option exercises
|
|
|
17
|
|
|
|
21
|
|
Dividend payments on Series A common stock and preferred
stock
|
|
|
(17
|
)
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(183
|
)
|
|
|
(706
|
)
|
|
|
|
|
|
|
|
|
|
Exchange rate effects on cash and cash equivalents
|
|
|
28
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
158
|
|
|
|
(321
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
825
|
|
|
|
791
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
|
983
|
|
|
|
470
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the unaudited interim consolidated
financial statements.
6
CELANESE
CORPORATION AND SUBSIDIARIES
|
|
1.
|
Description
of the Company and Basis of Presentation
|
Description
of the Company
Celanese Corporation and its subsidiaries (collectively the
Company) is a leading global integrated chemical and
advanced materials company. The Companys business involves
processing chemical raw materials, such as methanol, carbon
monoxide and ethylene, and natural products, including wood
pulp, into value-added chemicals, thermoplastic polymers and
other chemical-based products.
Basis
of Presentation
In this Quarterly Report on
Form 10-Q,
the term Celanese US refers to the Companys
subsidiary, Celanese US Holdings LLC, a Delaware limited
liability company, and not its subsidiaries. The term
Purchaser refers to the Companys subsidiary,
Celanese Europe Holding GmbH & Co. KG, a German
limited partnership, and not its subsidiaries, except where
otherwise indicated. The term Advisor refers to
Blackstone Management Partners, an affiliate of The Blackstone
Group. The term CAG refers to Celanese GmbH,
formerly known as Celanese AG, its consolidated subsidiaries,
its non-consolidated subsidiaries, ventures and other
investments. The term Original Shareholders refers,
collectively, to Blackstone Capital Partners (Cayman) Ltd. 1,
Blackstone Capital Partners (Cayman) Ltd. 2, Blackstone Capital
Partners (Cayman) Ltd. 3 and BA Capital Investors Sidecar Fund,
L.P.
The unaudited interim consolidated financial statements for the
three and six months ended June 30, 2008 and 2007 contained
in this Quarterly Report were prepared in accordance with
accounting principles generally accepted in the United States of
America (US GAAP) for all periods presented. The
unaudited interim consolidated financial statements and other
financial information included in this Quarterly Report, unless
otherwise specified, have been presented to separately show the
effects of discontinued operations.
In the opinion of management, the accompanying unaudited
consolidated balance sheets and related unaudited interim
consolidated statements of operations, cash flows and
shareholders equity and comprehensive income (loss)
include all adjustments, consisting only of normal recurring
items necessary for their fair presentation in conformity with
US GAAP. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with US
GAAP have been condensed or omitted in accordance with rules and
regulations of the Securities and Exchange Commission
(SEC). These unaudited interim consolidated
financial statements should be read in conjunction with the
Celanese Corporation and Subsidiaries consolidated financial
statements as of and for the year ended December 31, 2007,
as filed on February 29, 2008 with the SEC as part of the
Companys Annual Report on
Form 10-K
(the 2007
Form 10-K).
Operating results for the three and six months ended
June 30, 2008 and 2007 are not necessarily indicative of
the results to be expected for the entire year.
Estimates
and Assumptions
The preparation of consolidated financial statements in
conformity with US GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the
reported amounts of revenues, expenses and allocated charges
during the reporting period. Significant estimates pertain to
impairments of goodwill, intangible assets and other long-lived
assets, purchase price allocations, restructuring costs and
other (charges) gains, net, income taxes, pension and other
postretirement benefits, asset retirement obligations,
environmental liabilities and loss contingencies, among others.
Actual results could differ from those estimates.
Reclassifications
The Company has reclassified certain prior period amounts to
conform to the current periods presentation.
7
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED
FINANCIAL
STATEMENTS (Continued)
|
|
2.
|
Recent
Accounting Pronouncements
|
In March 2008, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 161, Disclosures about
Derivative Instruments and Hedging Activities, an amendment of
FASB Statement No. 133
(SFAS No. 161). SFAS No. 161
requires enhanced disclosures about a companys derivative
and hedging activities. These enhanced disclosures will discuss
(a) how and why a company uses derivative instruments,
(b) how derivative instruments and related hedged items are
accounted for under FASB Statement No. 133 and its related
interpretations and (c) how derivative instruments and
related hedged items affect a companys financial position,
results of operations and cash flows. SFAS No. 161 is
effective for the Company on January 1, 2009. This standard
will have no impact on the Companys financial position,
results of operations or cash flow.
In April 2008, the FASB issued FASB Staff Position
(FSP) SFAS
No. 142-3,
Determination of the Useful Life of Intangible Assets
(FSP SFAS
No. 142-3).
FSP SFAS
No. 142-3
amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under
SFAS No. 142, Goodwill and Other Intangible
Assets. The intent of this FSP is to improve the consistency
between the useful life of a recognized intangible asset and the
period of expected cash flows used to measure the fair value of
the asset under SFAS No. 141 (revised 2007),
Business Combinations, and other US GAAP. FSP
SFAS No. 142-3
is effective for the Company on January 1, 2009. The
Company is currently evaluating the impact of adopting FSP
SFAS No. 142-3
on the Companys financial position, results of operations
and cash flows.
In May 2008, the FASB issued SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles,
(SFAS No. 162), which becomes effective
60 days following the SECs approval of the Public
Company Accounting Oversight Board (PCAOB)
amendments to US Auditing Standards (AU)
Section 411, The Meaning of Present Fairly in Conformity
With Generally Accepted Accounting Principles.
SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting the principles to be
used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with
US GAAP. This standard is not expected to have an impact on the
Companys financial position, results of operations or cash
flow.
In June 2008, the FASB Emerging Issues Task Force
(EITF) reached a consensus on EITF Issue
No. 08-3,
Accounting by Lessees for Maintenance Deposits under Lease
Agreements (EITF
No. 08-3).
EITF
No. 08-3
provides that all nonrefundable maintenance deposits paid by a
lessee, under an arrangement accounted for as a lease, should be
accounted for as a deposit. When the underlying maintenance is
performed, the deposit is expensed or capitalized in accordance
with the lessees maintenance accounting policy. Once it is
determined that an amount on deposit is not probable of being
used to fund future maintenance expense, it is recognized as
additional rent expense at that time. EITF
No. 08-3
is effective for the Company on January 1, 2009. The
Company is currently evaluating the impact of adopting EITF
No. 08-3
on the Companys financial position, results of operations
and cash flows.
In June 2008, the EITF reached a consensus on EITF Issue
No. 08-4,
Transition Guidance for Conforming Changes to EITF Issue
No. 98-5,
Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion
Ratios (EITF
No. 08-4).
Subsequent to the issuance of EITF
No. 98-5,
certain portions of the guidance contained in EITF
No. 98-5
were nullified by EITF Issue
No. 00-27,
Application of EITF Issue
No. 98-5,
Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion
Ratios (EITF
No. 00-27).
However, the portions of EITF
No. 98-5
that were nullified by EITF
No. 00-27
were not specifically identified in EITF
No. 98-5,
nor were the illustrative examples in EITF
No. 98-5
updated for the effects of EITF
No. 00-27.
EITF
No. 08-4
specifically addresses the conforming changes to EITF Issue
No. 98-5
and provides transition guidance for the conforming changes.
EITF
No. 08-4
is effective for the Company for the fiscal year ending
December 31, 2008. The Company is currently evaluating the
impact of adopting EITF
No. 08-4
on the Companys financial position, results of operations
and cash flows.
8
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED
FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
Acquisitions,
Ventures and Divestitures
|
Acquisitions
On January 31, 2007, the Company completed the acquisition
of the cellulose acetate flake, tow and film businesses of
Acetate Products Limited, a subsidiary of Corsadi B.V. The
purchase price for the transaction was approximately
£57 million ($112 million), in addition to direct
acquisition costs of approximately £4 million
($7 million). As contemplated prior to closing of the
acquisition, the Company closed the acquired tow production
plant at Little Heath, United Kingdom in September 2007. In
accordance with the Companys sponsor services agreement
dated January 26, 2005, as amended, the Company paid the
Advisor $1 million in connection with the acquisition. The
acquired business is included in the Companys Consumer
Specialties segment.
On April 6, 2004, the Company acquired 84% of CAG. During
2005, the Company acquired an additional 14% of CAG. On
May 30, 2006, CAGs shareholders approved a transfer
to the Purchaser of all shares owned by minority shareholders
against payment of cash compensation in the amount of
66.99 per share (the Squeeze-Out). As a result
of the effective registration of the Squeeze-Out in the
commercial register in Germany in December 2006, the Company
acquired the remaining 2% of CAG in January 2007. The
Companys current ownership percentage in CAG is 100%.
Ventures
In March 2007, the Company entered into a strategic partnership
with Accsys Technologies PLC (Accsys), and its
subsidiary, Titan Wood Ltd., to become the exclusive supplier of
acetyl products to Titan Woods technology licensees for
use in wood acetylation. In conjunction with this partnership,
in May 2007, the Company acquired 8,115,883 shares of
Accsys common stock representing approximately 5.45% of
the total voting shares of Accsys for 22 million
($30 million). The investment is treated as an
available-for-sale
security and is included as a component of current Marketable
securities on the Companys unaudited consolidated balance
sheet. In November 2007, the Company and Accsys announced an
agreement to amend their business arrangements so that each
company will have a nonexclusive at-will trading and
supply relationship to give both companies greater flexibility.
As part of this amendment, the Company has the ability to sell
its common stock ownership in Accsys through an orderly
placement of the Companys Accsys shares. As of
June 30, 2008, the Company has sold a total of
6,740,309 shares of Accsys common stock for
approximately 17 million ($25 million), which
resulted in a loss of $2 million.
Divestitures/Discontinued
Operations
In connection with the Companys strategy to optimize its
portfolio and divest non-core operations, the Company announced
on December 13, 2006 its agreement to sell its Acetyl
Intermediates segments oxo products and derivatives
businesses, including European Oxo GmbH (EOXO), a
50/50
venture between CAG and Degussa AG (Degussa), to
Advent International, for a purchase price of
480 million ($636 million) subject to final
agreement adjustments and the successful exercise of the
Companys option to purchase Degussas 50% interest in
EOXO. On February 23, 2007, the option was exercised and
the Company acquired Degussas interest in the venture for
a purchase price of 30 million ($39 million), in
addition to 22 million ($29 million) paid to
extinguish EOXOs debt upon closing of the transaction. The
Company completed the sale of its oxo products and derivatives
businesses, including the acquired 50% interest in EOXO, on
February 28, 2007. The sale included the oxo and
derivatives businesses at the Oberhausen, Germany, and Bay City,
Texas facilities as well as portions of its Bishop, Texas
facility. Also included were EOXOs facilities within the
Oberhausen and Marl, Germany plants. The former oxo and
derivatives businesses acquired by Advent International were
renamed Oxea. Taking into account agreed deductions by the buyer
for pension and other employee benefits and various costs for
separation activities, the Company received proceeds of
approximately 443 million ($585 million) at
closing. The transaction resulted in the recognition of a
$47 million pre-tax gain, which includes certain working
capital and other adjustments, in 2007.
9
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED
FINANCIAL
STATEMENTS (Continued)
Due to certain lease-back arrangements between the Company and
the buyer and related environmental obligations of the Company,
approximately $51 million of the transaction proceeds
attributable to the fair value of the underlying land at Bay
City ($1 million) and Oberhausen (36 million) is
included in deferred proceeds in long-term Other liabilities,
and divested land with a book value of $14 million
(10 million at Oberhausen and $1 million at Bay
City) remains on the Companys unaudited consolidated
balance sheet.
The Company concluded, based on the nature and limited projected
magnitude of the continuing business relationship between the
Company and Oxea, that the divestiture of the oxo products and
derivatives businesses should be accounted for as a discontinued
operation. Third party sales of $5 million for the six
months ended June 30, 2007 would have been eliminated upon
consolidation were the divestiture not accounted for as a
discontinued operation.
In accordance with the Companys sponsor services agreement
dated January 26, 2005, as amended, the Company paid the
Advisor $6 million in connection with the sale of the oxo
products and derivatives businesses.
During the second quarter of 2007, the Company discontinued its
Edmonton, Alberta, Canada methanol operations, which were
included in the Acetyl Intermediates segment. As a result, the
earnings (loss) related to the Edmonton methanol operations are
accounted for as a discontinued operations.
Net sales and gross profit (loss) for discontinued operations
for the three months ended June 30, 2007 were
$6 million and $(2) million, respectively. Net sales
and gross profit for discontinued operations for the six months
ended June 30, 2007 were $197 million and
$47 million, respectively.
Asset
Sales
In July 2007, the Company reached an agreement with
Babcock & Brown, a worldwide investment firm which
specializes in real estate and utilities development, to sell
the Companys Pampa, Texas, facility. The Company will
maintain its chemical operations at the site until at least
2009. Proceeds received upon certain milestone events will be
treated as deferred proceeds and included in long-term Other
liabilities until the transaction is complete (expected to be in
2010), as defined in the sales agreement.
In May 2008, shareholders of the Companys Koper, Slovenia
legal entity voted to approve the April 2008 decision by the
Company to permanently shut down this emulsions production site.
The decision to shut down the site resulted in employee
severance of less than $1 million which is included in
Other (charges) gains, net, during the three months ended
June 30, 2008. Currently, the facility is idle and the
existing fixed assets, including machinery and equipment,
buildings and land are being marketed for sale. The net book
value of the assets held for sale is approximately
$1 million.
Cost
Method Investments
In February 2007, the Company wrote-off its remaining
1 million ($1 million) cost investment in
European Pipeline Development Company B.V. (EPDC)
and expensed 7 million ($9 million) associated
with contingent liabilities that became payable due to the
Companys decision to exit the pipeline development
project. In June 2008, the outstanding contingent
liabilities were resolved and the Company recognized
2 million ($2 million), included in Other income
(expense), net, to remove the remaining accrual. The investment
in EPDC related to the construction of a pipeline system, solely
dedicated to the transportation of propylene, which was to
connect Rotterdam via Antwerp, Netherlands, with the
Companys Oberhausen and Marl production facilities in
Germany. However, on February 15, 2007, EPDC shareholders
voted to cease the pipeline project as originally envisaged and
go into liquidation. The Company was a 12.5% shareholder of EPDC.
10
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED
FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in $ millions)
|
|
|
Finished goods
|
|
|
602
|
|
|
|
500
|
|
Work-in-process
|
|
|
29
|
|
|
|
29
|
|
Raw materials and supplies
|
|
|
123
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
|
754
|
|
|
|
636
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
|
Goodwill
and Intangible Assets, Net
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineered
|
|
|
Consumer
|
|
|
Industrial
|
|
|
Acetyl
|
|
|
|
|
|
|
Materials
|
|
|
Specialties
|
|
|
Specialties
|
|
|
Intermediates
|
|
|
Total
|
|
|
|
(in $ millions)
|
|
|
As of December 31, 2007
|
|
|
277
|
|
|
|
264
|
|
|
|
47
|
|
|
|
278
|
|
|
|
866
|
|
Adjustments to pre-acquisition tax uncertainties
|
|
|
(3
|
)
|
|
|
4
|
|
|
|
(5
|
)
|
|
|
(3
|
)
|
|
|
(7
|
)
|
Exchange rate changes
|
|
|
12
|
|
|
|
7
|
|
|
|
2
|
|
|
|
17
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2008
|
|
|
286
|
|
|
|
275
|
|
|
|
44
|
|
|
|
292
|
|
|
|
897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
Assets, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and
|
|
|
Customer
|
|
|
Developed
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
|
Tradenames
|
|
|
Relationships
|
|
|
Technology
|
|
|
Other
|
|
|
Total
|
|
|
|
(in $ millions)
|
|
|
Gross Asset Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007
|
|
|
|
|
|
|
85
|
|
|
|
562
|
|
|
|
12
|
|
|
|
12
|
|
|
|
671
|
|
Additions(1)
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
Exchange rate changes
|
|
|
|
|
|
|
3
|
|
|
|
33
|
|
|
|
1
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2008
|
|
|
28
|
|
|
|
88
|
|
|
|
595
|
|
|
|
13
|
|
|
|
12
|
|
|
|
736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
(228
|
)
|
|
|
(9
|
)
|
|
|
(9
|
)
|
|
|
(246
|
)
|
Amortization
|
|
|
(1
|
)
|
|
|
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
(39
|
)
|
Exchange rate changes
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2008
|
|
|
(1
|
)
|
|
|
|
|
|
|
(277
|
)
|
|
|
(10
|
)
|
|
|
(11
|
)
|
|
|
(299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value as of June 30, 2008
|
|
|
27
|
|
|
|
88
|
|
|
|
318
|
|
|
|
3
|
|
|
|
1
|
|
|
|
437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Acquisition of a sole and exclusive license to patents and
patent applications related to acetic acid. |
11
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED
FINANCIAL
STATEMENTS (Continued)
Aggregate amortization expense for intangible assets with finite
lives during the three months ended June 30, 2008 and 2007
was $20 million and $18 million, respectively.
Aggregate amortization expense for intangible assets with finite
lives during the six months ended June 30, 2008 and 2007
was $39 million and $36 million, respectively.
Estimated amortization expense for the succeeding five fiscal
years is approximately $63 million in 2009,
$55 million in 2010, $51 million in 2011,
$39 million in 2012 and $24 million in 2013.
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in $ millions)
|
|
|
Short-term borrowings and current installments of long-term
debt third party and affiliates
|
|
|
|
|
|
|
|
|
Current installments of long-term debt
|
|
|
57
|
|
|
|
44
|
|
Short-term borrowings, principally comprised of amounts due to
affiliates
|
|
|
195
|
|
|
|
228
|
|
|
|
|
|
|
|
|
|
|
Total short-term borrowings and current installments of
long-term debt third party and affiliates
|
|
|
252
|
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
Senior Credit Facilities: Term Loan facility due 2014
|
|
|
2,881
|
|
|
|
2,855
|
|
Term notes 7.125%, due 2009
|
|
|
14
|
|
|
|
14
|
|
Pollution control and industrial revenue bonds, interest rates
ranging from 5.7% to 6.7%, due at various dates through 2030
|
|
|
181
|
|
|
|
181
|
|
Obligations under capital leases and other secured and unsecured
borrowings due at various dates through 2023
|
|
|
165
|
|
|
|
110
|
|
Other bank obligations, interest rates ranging from 5.9% to
7.1%, due at various dates through 2014
|
|
|
187
|
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
3,428
|
|
|
|
3,328
|
|
Less: Current installments of long-term debt
|
|
|
57
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
3,371
|
|
|
|
3,284
|
|
|
|
|
|
|
|
|
|
|
Senior
Credit Facilities
The Companys senior credit agreement consists of
$2,280 million of US dollar-denominated and
400 million of Euro-denominated term loans due 2014,
a $650 million revolving credit facility terminating in
2013 and a $228 million credit-linked revolving facility
terminating in 2014. Borrowings under the senior credit
agreement bear interest at a variable interest rate based on
LIBOR (for US dollars) or EURIBOR (for Euros), as applicable,
or, for US dollar-denominated loans under certain circumstances,
a base rate, in each case plus an applicable margin. The
applicable margin for the term loans and any loans under the
credit-linked revolving facility is 1.75%, subject to potential
reductions as defined in the senior credit agreement. As of
June 30, 2008, the applicable margin was 1.5% and continues
to be subject to potential adjustments as defined in the senior
credit agreement. The term loans under the senior credit
agreement are subject to amortization at 1% of the initial
principal amount per annum, payable quarterly. The remaining
principal amount of the term loans is due on April 2, 2014.
As of June 30, 2008, there were no outstanding borrowings
or letters of credit issued under the revolving credit facility;
accordingly, $650 million remained available for borrowing.
As of June 30, 2008, there were $130 million
12
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED
FINANCIAL
STATEMENTS (Continued)
of letters of credit issued under the credit-linked revolving
facility and $98 million remained available for borrowing.
The senior credit agreement is guaranteed by Celanese Holdings
LLC, a subsidiary of Celanese Corporation, and certain domestic
subsidiaries of Celanese US, and is secured by a lien on
substantially all assets of Celanese US and such guarantors,
subject to certain agreed exceptions, pursuant to the Guarantee
and Collateral Agreement, dated as of April 2, 2007, by and
among Celanese Holdings LLC, Celanese US, certain subsidiaries
of Celanese US and Deutsche Bank AG, New York Branch, as
Administrative Agent and as Collateral Agent.
The Company is in compliance with all of the covenants related
to its debt agreements as of June 30, 2008.
Debt
Refinancing
In March 2007, the Company announced a comprehensive
recapitalization plan to refinance its debt and repurchase
shares. On April 2, 2007, the Company, through certain of
its subsidiaries, entered into a new senior credit agreement.
Proceeds from the new senior credit agreement, together with
available cash, were used to retire the Companys
$2,454 million amended and restated (January
2005) senior credit facilities, which consisted of
$1,626 million in term loans due 2011, a $600 million
revolving credit facility terminating in 2009 and an approximate
$228 million credit-linked revolving facility terminating
in 2009, and to retire all of the Companys
9.625% senior subordinated notes due 2014 and
10.375% senior subordinated notes due 2014 (the
Senior Subordinated Notes) and 10% senior
discount notes due 2014 and 10.5% senior discount notes due
2014 (the Senior Discount Notes) as discussed below.
On March 6, 2007, the Company commenced cash tender offers
(the Tender Offers) with respect to any and all of
the Senior Discount Notes, and any and all of the Senior
Subordinated Notes. The Tender Offers expired on April 2,
2007. Substantially all of the Senior Discount Notes and Senior
Subordinated Notes were tendered in conjunction with the Tender
Offers. The remaining outstanding Senior Discount Notes and
Senior Subordinated Notes not tendered in conjunction with the
Tender Offers were redeemed by the Company in May 2007 through
optional redemption allowed in the indentures.
As a result of the refinancing, the Company incurred premiums
paid on early redemption of debt, accelerated amortization and
other refinancing expense. The components of refinancing expense
are as follows:
|
|
|
|
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
|
June 30, 2007
|
|
|
|
(in $ millions)
|
|
|
Premiums paid on early redemption of debt
|
|
|
207
|
|
Accelerated amortization of premiums and deferred financing
costs on early redemption and prepayment of debt
|
|
|
33
|
|
Debt issuance costs and other
|
|
|
16
|
|
|
|
|
|
|
Total refinancing expense
|
|
|
256
|
|
|
|
|
|
|
13
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED
FINANCIAL
STATEMENTS (Continued)
The components of current Other liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in $ millions)
|
|
|
Salaries and benefits
|
|
|
125
|
|
|
|
168
|
|
Environmental
|
|
|
18
|
|
|
|
19
|
|
Restructuring
|
|
|
36
|
|
|
|
40
|
|
Insurance
|
|
|
35
|
|
|
|
41
|
|
Sorbates litigation
|
|
|
184
|
|
|
|
170
|
|
Asset retirement obligations
|
|
|
5
|
|
|
|
16
|
|
Derivatives
|
|
|
56
|
|
|
|
129
|
|
Other
|
|
|
365
|
|
|
|
305
|
|
|
|
|
|
|
|
|
|
|
Total current Other liabilities
|
|
|
824
|
|
|
|
888
|
|
|
|
|
|
|
|
|
|
|
Cross
Currency Swaps
To protect the foreign currency exposure of a net investment in
a foreign operation, the Company entered into cross currency
swaps with certain financial institutions in 2004. Under the
terms of the cross currency swap arrangements, the Company paid
approximately 13 million in interest and received
approximately $16 million in interest on June 15 and
December 15 of each year. The fair value of the net obligation
under the cross currency swaps was included in current Other
liabilities as of December 31, 2007. Upon maturity of the
cross currency swap arrangements in June 2008, the Company owed
276 million ($426 million) and was owed
$333 million. In settlement of the obligation, the Company
paid $93 million (net of interest of $3 million) in
June 2008.
The components of long-term Other liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in $ millions)
|
|
|
Environmental
|
|
|
91
|
|
|
|
96
|
|
Insurance
|
|
|
85
|
|
|
|
78
|
|
Deferred revenue
|
|
|
67
|
|
|
|
71
|
|
Deferred proceeds (see Notes 3 and 16)
|
|
|
412
|
|
|
|
93
|
|
Asset retirement obligations
|
|
|
43
|
|
|
|
31
|
|
Derivatives
|
|
|
15
|
|
|
|
37
|
|
Other
|
|
|
109
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
Total long-term Other liabilities
|
|
|
822
|
|
|
|
495
|
|
|
|
|
|
|
|
|
|
|
14
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED
FINANCIAL
STATEMENTS (Continued)
The components of net periodic benefit costs recognized are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Postretirement Benefits
|
|
|
Pension Benefits
|
|
|
Postretirement Benefit
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(in $ millions)
|
|
|
Components of net periodic benefit costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
|
9
|
|
|
|
10
|
|
|
|
1
|
|
|
|
1
|
|
|
|
16
|
|
|
|
19
|
|
|
|
1
|
|
|
|
1
|
|
Interest cost
|
|
|
57
|
|
|
|
48
|
|
|
|
5
|
|
|
|
4
|
|
|
|
99
|
|
|
|
92
|
|
|
|
9
|
|
|
|
9
|
|
Expected return on plan assets
|
|
|
(64
|
)
|
|
|
(56
|
)
|
|
|
|
|
|
|
|
|
|
|
(111
|
)
|
|
|
(106
|
)
|
|
|
|
|
|
|
|
|
Recognized actuarial (gain) loss
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
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(2
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)
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(1
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)
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Net periodic benefit costs
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2
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2
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5
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4
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4
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5
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8
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9
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The Company expects to contribute $40 million to its
defined benefit pension plans in 2008. As of June 30, 2008,
$17 million of contributions have been made. The
Companys estimates of its US defined benefit pension plan
contributions reflect the provisions of the Pension Funding
Equity Act of 2004 and the Pension Protection Act of 2006.
The Company expects to make benefit payments of $34 million
under the provisions of its other postretirement benefit plans
in 2008. As of June 30, 2008, $14 million of benefit
payments have been made.
The Company participates in multiemployer defined benefit plans
in Europe covering certain employees. The Companys
contributions to the multiemployer defined benefit plans are
based on specified percentages of employee contributions and
aggregate $3 million and $2 million for the six months
ended June 30, 2008 and 2007, respectively.
As a result of the sale of the oxo products and derivatives
businesses in February 2007 (see Note 3), there was a
reduction of approximately 1,076 employees triggering a
settlement and remeasurement of the affected pension plans due
to certain changes in actuarial valuation assumptions. The
settlement and remeasurement resulted in a net increase in the
projected benefit obligation of $44 million with an offset
to Accumulated other comprehensive income (loss), net (net of
tax of $1 million) and a settlement gain of
$11 million (included in Gain on disposal of discontinued
operations) for the pension plan during the six months ended
June 30, 2007.
In February 2008, the Companys Board of Directors
authorized the repurchase of up to $400 million of the
Companys Series A common stock. The authorization
gives management discretion in determining the conditions under
which shares may be repurchased. During the six months ended
June 30, 2008, the Company repurchased
2,948,900 shares of its Series A common stock at an
average purchase price of $42.71 per share for a total of
approximately $126 million pursuant to this authorization.
Purchases of treasury stock reduce the number of shares
outstanding and the repurchased shares may be used by the
Company for compensation programs utilizing the Companys
stock and other corporate purposes. The Company accounts for
treasury stock using the cost method and includes treasury stock
as a component of Shareholders equity.
15
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED
FINANCIAL
STATEMENTS (Continued)
Adjustments to net earnings (loss) for comprehensive income
(loss), net of tax totaled $9 million and $17 million
for the six months ended June 30, 2008 and 2007,
respectively. These amounts were net of tax benefit of
$0 million and $1 million for the six months ended
June 30, 2008 and 2007, respectively. Adjustments to net
earnings (loss) for comprehensive income (loss), net of tax,
totaled $42 million and $57 million for the three months
ended June 30, 2008 and 2007, respectively. These amounts
were net of tax benefit of $0 for both the three months ended
June 30, 2008 and 2007.
|
|
10.
|
Commitments
and Contingencies
|
The Company is involved in a number of legal proceedings,
lawsuits and claims incidental to the normal conduct of
business, relating to such matters as product liability,
antitrust, past waste disposal practices and release of
chemicals into the environment. While it is impossible at this
time to determine with certainty the ultimate outcome of these
proceedings, lawsuits and claims, the Company believes, based on
the advice of legal counsel, that adequate provisions have been
made and that the ultimate outcomes will not have a material
adverse effect on the financial position; however, the ultimate
outcome of any given matter may have a material impact on the
results of operations or cash flows of the Company in a given
accounting period.
Plumbing
Actions
CNA Holdings, Inc. (CNA Holdings), a US subsidiary
of the Company, which included the US business now conducted by
the Ticona business which is included in the Advanced Engineered
Materials segment, along with Shell Oil Company
(Shell), E.I. DuPont de Nemours and Company
(DuPont) and others, has been a defendant in a
series of lawsuits, including a number of class actions,
alleging that plastics manufactured by these companies that were
utilized in the production of plumbing systems for residential
property were defective or caused such plumbing systems to fail.
Based on, among other things, the findings of outside experts
and the successful use of Ticonas acetal copolymer in
similar applications, CNA Holdings does not believe
Ticonas acetal copolymer was defective or caused the
plumbing systems to fail. In many cases CNA Holdings
potential future exposure may be limited by invocation of the
statute of limitations since CNA Holdings ceased selling the
resin for use in the plumbing systems in site-built homes during
1986 and in manufactured homes during 1990.
In November 1995, CNA Holdings, DuPont and Shell entered into
national class action settlements which called for the
replacement of plumbing systems of claimants who have had
qualifying leaks, as well as reimbursements for certain leak
damage. In connection with such settlement, the three companies
had agreed to fund these replacements and reimbursements up to
an aggregate amount of $950 million. As of June 30,
2008, the aggregate funding is $1,103 million, due to
additional contributions and funding commitments made primarily
by other parties.
During the period between 1995 and 2001, CNA Holdings was also
named as a defendant in the following putative class actions:
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Cox, et al. v. Hoechst Celanese Corporation, et al.,
No. 94-0047
(Chancery Ct., Obion County, Tennessee).
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Couture, et al. v. Shell Oil Company, et al.,
No. 200-06-000001-985
(Quebec Superior Court, Canada).
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Dilday, et al. v. Hoechst Celanese Corporation, et al.,
No. 15187 (Chancery Ct., Weakley County, Tennessee).
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Furlan v. Shell Oil Company, et al.,
No. C967239 (British Columbia Supreme Court, Vancouver
Registry, Canada).
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Gariepy, et al. v. Shell Oil Company, et al.,
No. 30781/99 (Ontario Court General Division, Canada).
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Shelter General Insurance Co., et al. v. Shell Oil
Company, et al., No. 16809 (Chancery Ct., Weakley
County, Tennessee).
|
16
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED
FINANCIAL
STATEMENTS (Continued)
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St. Croix Ltd., et al. v. Shell Oil Company, et al.,
No. 1997/467 (Territorial Ct., St. Croix Division, The
Virgin Islands).
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Tranter v. Shell Oil Company, et al.,
No. 46565/97 (Ontario Court General Division, Canada).
|
In addition, between 1994 and 2003 CNA Holdings was named as a
defendant in approximately 20 non-class actions filed in ten
states, the US Virgin Islands and Canada that are currently
pending. In all of these actions, the plaintiffs have sought
recovery for alleged damages caused by leaking polybutylene
plumbing. Damage amounts have generally not been specified but
these cases generally do not involve (either individually or in
the aggregate) a large number of homes.
As of both June 30, 2008 and December 31, 2007, the
Company had remaining accruals of $65 million, of which
$3 million is included in current Other liabilities.
Plumbing
Insurance Indemnifications
CAG entered into agreements with insurance companies related to
product liability settlements associated with
Celcon®
plumbing claims. These agreements, except those with insolvent
insurance companies, require the Company to indemnify
and/or
defend these insurance companies in the event that third parties
seek additional monies for matters released in these agreements.
The indemnifications in these agreements do not provide for time
limitations.
In certain of the agreements, CAG received a fixed settlement
amount. The indemnities under these agreements generally are
limited to, but in some cases are greater than, the amount
received in settlement from the insurance company. The maximum
exposure under these indemnifications is $95 million. Other
settlement agreements have no stated limits.
There are other agreements whereby the settling insurer agreed
to pay a fixed percentage of claims that relate to that
insurers policies. The Company has provided
indemnifications to the insurers for amounts paid in excess of
the settlement percentage. These indemnifications do not provide
for monetary or time limitations.
The Company has reserves associated with these product liability
claims which the Company believes are adequate.
Sorbates
Antitrust Actions
In May 2002, the European Commission informed Hoechst AG
(Hoechst) of its intent to officially investigate
the sorbates industry. In early January 2003, the European
Commission served Hoechst, Nutrinova, Inc., a US subsidiary of
Nutrinova Nutrition Specialties & Food Ingredients
GmbH and previously a wholly owned subsidiary of Hoechst
(Nutrinova), and a number of competitors of
Nutrinova with a statement of objections alleging unlawful,
anticompetitive behavior affecting the European sorbates market.
In October 2003, the European Commission ruled that Hoechst,
Chisso Corporation, Daicel Chemical Industries Ltd.
(Daicel), The Nippon Synthetic Chemical Industry Co.
Ltd. and Ueno Fine Chemicals Industry Ltd. operated a cartel in
the European sorbates market between 1979 and 1996. The European
Commission imposed a total fine of 138 million on
such companies, of which 99 million was assessed
against Hoechst and its legal successors. The case against
Nutrinova was closed. The fine against Hoechst, and its legal
successors, is based on the European Commissions finding
that Hoechst does not qualify under the leniency policy, is a
repeat violator and, together with Daicel, was a co-conspirator.
In June 2008, the Court of First Instance of the European
Communities (Fifth Chamber) reduced the fine against Hoechst to
74.25 million. The fine is subject to a
two-month-and-ten-day
appeal period that expires in September 2008. The Company is
unable to predict the likelihood of an appeal by the European
Commission and any resulting actions. Accordingly, the Company
has not reduced its reserve until the appeal is final.
17
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED
FINANCIAL
STATEMENTS (Continued)
In addition, in 2004 a civil antitrust action styled Freeman
Industries LLC v. Eastman Chemical Co., et. al. was filed
against Hoechst and Nutrinova, Inc. in the Law Court for
Sullivan County in Kingsport, Tennessee. The plaintiff sought
monetary damages and other relief for alleged conduct involving
the sorbates industry. The trial court dismissed the
plaintiffs claims and upon appeal the Supreme Court of
Tennessee affirmed the dismissal of the plaintiffs claims.
In December 2005, the plaintiff lost an attempt to amend its
complaint and the entire action was dismissed with prejudice by
the trial court. Plaintiffs counsel has subsequently filed
a new complaint with new class representatives in the District
Court of the District of Tennessee. The Companys motion to
strike the class allegations was granted in April 2008 and the
plaintiffs appeal of such ruling is currently pending.
Based on the advice of external counsel and a review of the
existing facts and circumstances relating to the sorbates
antitrust matters, including the status of government
investigations, as well as civil claims filed and settled, the
Company has remaining accruals as of June 30, 2008 of
$184 million, included in current Other liabilities. As of
December 31, 2007, the accrual was $170 million. The
change in the accrual amounts is primarily due to fluctuations
in the currency exchange rate between the US dollar and the Euro.
Pursuant to the Demerger Agreement with Hoechst, CAG was
assigned the obligation related to the sorbates antitrust
matter. However, Hoechst, and its legal successors, agreed to
indemnify CAG for 80% of any costs CAG may incur relative to
this matter. Accordingly, CAG has recognized a receivable from
Hoechst and a corresponding contribution of capital, net of tax,
from this indemnification. As of June 30, 2008 and
December 31, 2007, the Company has receivables, recorded
within current Other assets, relating to the sorbates
indemnification from Hoechst totaling $145 million and
$137 million, respectively.
Acetic
Acid Patent Infringement Matters
On May 9, 1999, Celanese International Corporation filed a
private criminal action styled Celanese International
Corporation v. China Petrochemical Development Corporation
against China Petrochemical Development Corporation
(CPDC) in the Taiwan Kaoshiung District Court
alleging that CPDC infringed Celanese International
Corporations patent covering the manufacture of acetic
acid. Celanese International Corporation also filed a
supplementary civil brief which, in view of changes in Taiwanese
patent laws, was subsequently converted to a civil action
alleging damages against CPDC based on a period of infringement
of ten years,
1991-2000,
and based on CPDCs own data and as reported to the
Taiwanese securities and exchange commission. Celanese
International Corporations patent was held valid by the
Taiwanese patent office. On August 31, 2005, the court held
that CPDC infringed Celanese International Corporations
acetic acid patent and awarded Celanese International
Corporation approximately $28 million (plus interest) for
the period of 1995 through 1999. On January 16, 2006, the
court awarded Celanese International Corporation $800,000 (plus
interest) for the period of 1990. In addition, on June 29,
2007, the court awarded Celanese International Corporation
$60 million (plus interest) for the period of 2000 through
2005. CPDC has appealed all three awards. The Company will not
record income associated with these favorable judgments until
cash is received. CPDC has recently filed three patent
cancellation actions seeking decisions to revoke the patents
that are at issue in the litigation. The Company is contesting
these patent cancellation actions.
Domination
Agreement
The domination and profit and loss transfer agreement (the
Domination Agreement) between CAG and the Purchaser
was approved at the CAG extraordinary shareholders meeting
on July 31, 2004. The Domination Agreement became effective
on October 1, 2004 and cannot be terminated by the
Purchaser in the ordinary course of business until
September 30, 2009. Two of the Companys subsidiaries,
Celanese International Holdings Luxembourg S.à r.l.
(CIH), and Celanese US, have each agreed to provide
the Purchaser with financing to strengthen the Purchasers
ability to fulfill its obligations under, or in connection with,
the Domination Agreement and to ensure that the Purchaser will
perform all of its obligations under, or in connection with, the
Domination
18
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED
FINANCIAL
STATEMENTS (Continued)
Agreement when such obligations become due, including, without
limitation, the obligation to compensate CAG for any statutory
annual loss incurred by CAG during the term of the Domination
Agreement. If CIH
and/or
Celanese US are obligated to make payments under such guarantees
or other security to the Purchaser, the Company may not have
sufficient funds for payments on its indebtedness when due. The
Company has not had to compensate CAG for an annual loss for any
period during which the Domination Agreement has been in effect.
Shareholder
Litigation
The amounts of the fair cash compensation and of the guaranteed
annual payment offered under the Domination Agreement may be
increased in special award proceedings initiated by minority
shareholders, which may further reduce the funds the Purchaser
can otherwise make available to the Company. As of
March 30, 2005, several minority shareholders of CAG had
initiated special award proceedings seeking the courts
review of the amounts of the fair cash compensation and of the
guaranteed annual payment offered under the Domination
Agreement. As a result of these proceedings, the amount of the
fair cash consideration and the guaranteed annual payment
offered under the Domination Agreement could be increased by the
court so that all minority shareholders, including those who
have already tendered their shares into the mandatory offer and
have received the fair cash compensation could claim the
respective higher amounts. The court dismissed all of these
proceedings in March 2005 on the grounds of
inadmissibility. Thirty-three plaintiffs appealed the dismissal,
and in January 2006, twenty-three of these appeals were granted
by the court. They were remanded back to the court of first
instance, where the valuation will be further reviewed. On
December 12, 2006, the court of first instance appointed an
expert to help determine the value of CAG. In the first quarter
of 2007, certain minority shareholders that received 66.99
per share as fair cash compensation also filed award proceedings
challenging the amount they received as fair cash compensation.
As a result of the special proceedings discussed above, amounts
paid as fair cash compensation to certain minority shareholders
of CAG could be increased by the court such that minority
shareholders could be awarded amounts in excess of the fair cash
compensation they have previously received.
The Company received applications for the commencement of award
proceedings filed by 79 shareholders against the Purchaser
with the Frankfurt District Court requesting the court to set a
higher amount for the
Squeeze-Out
compensation. The motions are based on various alleged
shortcomings and mistakes in the valuation of CAG done for
purposes of the Squeeze-Out. On May 11, 2007, the court of
first instance appointed a common representative for those
shareholders that have not filed an application on their own.
The shareholders resolution approving the Squeeze-Out
passed at the shareholders meeting on May 30, 2006
was challenged in June 2006 by seventeen actions seeking to set
aside such resolution. In addition, a null and void action was
served upon CAG in November 2006. The Squeeze-Out required
registration in the commercial register and such registration
was not possible while the lawsuits were pending. Therefore, CAG
initiated fast track release proceedings asking the court to
find that the lawsuits did not prevent registration of the
Squeeze-Out. The court of first instance granted the motion
regarding the actions to set aside the shareholders
resolution in a ruling dated October 10, 2006 that was
appealed by plaintiff shareholders. In a ruling dated
November 30, 2006, the court of first instance also granted
the motion with respect to the null and void action.
On December 22, 2006, the Purchaser and CAG signed a
settlement agreement with the plaintiff shareholders challenging
the shareholders resolution approving the Squeeze-Out
(Settlement Agreement I). Pursuant to Settlement
Agreement I, the plaintiffs agreed to withdraw their
actions and to drop their complaints in exchange for the
Purchaser agreeing to pay the guaranteed annual payment for the
fiscal year ended on September 30, 2006 to those minority
shareholders who had not yet requested early payment of such
dividend and to pay a pro rata share of the guaranteed annual
payment for the first five months of the fiscal year ending on
September 30, 2007 to all minority shareholders. The
Purchaser further agreed to make a donation in the amount of
0.5 million to a charity, to introduce, upon request
by plaintiffs, into the award proceedings regarding the cash
compensation and the
19
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED
FINANCIAL
STATEMENTS (Continued)
guaranteed annual payment under the Domination Agreement the
prospectus governing the January 20, 2005, listing on the
NYSE of the shares of the Company and to accord the squeezed-out
minority shareholders preferential treatment if, within three
years after effectiveness of the Squeeze-Out, the shares of CAG
were to be listed on a stock exchange again. As a result of the
effective registration of the Squeeze-Out in the commercial
register in Germany in December 2006, the Company acquired the
remaining 2% of CAG in January 2007.
Polyester
Staple Antitrust Litigation
CNA Holdings, the successor in interest to Hoechst Celanese
Corporation (HCC), Celanese Americas Corporation and
CAG (collectively, the Celanese Entities) and
Hoechst, the former parent of HCC, were named as defendants in
two actions (involving 25 individual participants) filed in
September 2006 by US purchasers of polyester staple fibers
manufactured and sold by HCC. The actions allege that the
defendants participated in a conspiracy to fix prices, rig bids
and allocate customers of polyester staple sold in the Unites
States. These actions were consolidated in a proceeding by a
Multi-District Litigation Panel in the United States District
Court for the Western District of North Carolina styled In re
Polyester Staple Antitrust Litigation, MDL 1516. On
June 12, 2008 the court dismissed these actions against all
Celanese Entities in consideration of a payment by the Company
of $107 million. This proceeding related to sales by the
polyester staple fibers business which Hoechst AG sold to KoSa,
Inc. in 1998. Accordingly, the impact of this settlement is
reflected within discontinued operations on the Companys
2008 unaudited interim consolidated statements of operations.
The Company also previously entered into tolling arrangements
with four other alleged US purchasers of polyester staple fibers
manufactured and sold by the Celanese Entities. These purchasers
were not included in the settlement.
In 1998, HCC sold its polyester staple business as part of the
sale of its Film & Fibers Division to KoSa B.V.,
f/k/a Arteva B.V. and a subsidiary of Koch Industries, Inc.
(KoSa). In March 2001 the US Department of
Justice (DOJ) commenced an investigation of possible
price fixing regarding the sales of polyester staple fibers in
the US subsequent to the period the Celanese Entities were
engaged in the polyester staple fiber business. The Celanese
Entities were never named in these DOJ actions. As a result of
the DOJ action, during August of 2002, Arteva Specialties,
S.a.r.l., a subsidiary of KoSa, (Arteva Specialties)
plead guilty to criminal violation of the Sherman Act related to
anti-competitive
conduct occurring after the 1998 sale of the polyester staple
fiber business and paid a fine of $29 million. In a
complaint pending against the Celanese Entities and Hoechst in
the United States District Court for the Southern District of
New York, Koch Industries, Inc., KoSa, Arteva Specialties and
Arteva Services S.a.r.l. seek, among other things,
indemnification under the asset purchase agreement pursuant to
which KoSa and Arteva Specialties agreed to purchase
defendants polyester business for all damages related to
the defendants participation in, and failure to disclose,
the alleged conspiracy, or alternatively, rescission of the
agreement. KoSa alleges damages for recoupment of the cash paid
in criminal fines, attorney fees and civil settlements payments.
The Company is actively defending this matter.
Guarantees
The Company has agreed to guarantee or indemnify third parties
for environmental and other liabilities pursuant to a variety of
agreements, including asset and business divestiture agreements,
leases, settlement agreements and various agreements with
affiliated companies. Although many of these obligations contain
monetary
and/or time
limitations, others do not provide such limitations.
20
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED
FINANCIAL
STATEMENTS (Continued)
The Company has accrued for all probable and reasonably
estimable losses associated with all known matters or claims
that have been brought to its attention. These known obligations
include the following:
Demerger
Obligations
The Company has obligations to indemnify Hoechst, and its legal
successors, for various liabilities under the Demerger Agreement
as follows:
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|
The Company agreed to indemnify Hoechst, and its legal
successors, for environmental liabilities associated with
contamination arising under 19 divestiture agreements entered
into by Hoechst prior to the demerger.
|
The Companys obligation to indemnify Hoechst, and its
legal successors, is subject to the following thresholds:
|
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|
|
The Company will indemnify Hoechst, and its legal successors,
against those liabilities up to 250 million;
|
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|
Hoechst, and its legal successors, will bear those liabilities
exceeding 250 million, however the Company will
reimburse Hoechst, and its legal successors, for one-third of
those liabilities for amounts that exceed 750 million
in the aggregate.
|
The aggregate maximum amount of environmental indemnifications
under the remaining divestiture agreements that provide for
monetary limits is approximately 750 million. Three
of the divestiture agreements do not provide for monetary limits.
Based on the estimate of the probability of loss under this
indemnification, the Company had reserves of $28 million
and $27 million as of June 30, 2008 and
December 31, 2007, respectively, for this contingency.
Where the Company is unable to reasonably determine the
probability of loss or estimate such loss under an
indemnification, the Company has not recognized any related
liabilities.
The Company has also undertaken in the Demerger Agreement to
indemnify Hoechst, and its legal successors, to the extent that
Hoechst is required to discharge liabilities, including tax
liabilities, associated with businesses that were included in
the demerger where such liabilities were not demerged, due to
legal restrictions on the transfers of such items. These
indemnities do not provide for any monetary or time limitations.
The Company has not provided for any reserves associated with
this indemnification. The Company has not made any payments to
Hoechst, and its legal successors, during the six months ended
June 30, 2008 and 2007, respectively, in connection with
this indemnification.
Divestiture
Obligations
The Company and its predecessor companies agreed to indemnify
third-party purchasers of former businesses and assets for
various pre-closing conditions, as well as for breaches of
representations, warranties and covenants. Such liabilities also
include environmental liability, product liability, antitrust
and other liabilities. These indemnifications and guarantees
represent standard contractual terms associated with typical
divestiture agreements and, other than environmental
liabilities, the Company does not believe that they expose the
Company to any significant risk.
The Company has divested numerous businesses, investments and
facilities, through agreements containing indemnifications or
guarantees to the purchasers. Many of the obligations contain
monetary
and/or time
limitations, ranging from one year to thirty years. The
aggregate amount of guarantees provided for under these
agreements is approximately $2.5 billion as of
June 30, 2008. Other agreements do not provide for any
monetary or time limitations.
21
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED
FINANCIAL
STATEMENTS (Continued)
Based on historical claims experience and its knowledge of the
sites and businesses involved, the Company believes that it is
adequately reserved for these matters. As of June 30, 2008
and December 31, 2007, the Company has reserves in the
aggregate of $24 million and $27 million,
respectively, for these matters.
Other
Obligations
The Company is secondarily liable under a lease agreement which
the Company assigned to a third party. The lease expires on
April 30, 2012. The lease liability for the period from
July 1, 2008 to April 30, 2012 is estimated to be
approximately $30 million.
As indemnification obligations often depend on the occurrence of
unpredictable future events, the future costs associated with
them cannot be determined at this time.
Asbestos
Claims
As of June 30, 2008, Celanese Ltd. and/or CNA Holdings,
Inc., both US subsidiaries of the Company, are defendants in
approximately 611 asbestos cases. During the three months ended
June 30, 2008, 19 new cases were filed against the Company,
41 cases were resolved and two cases were revised after further
analysis by outside counsel. Because many of these cases involve
numerous plaintiffs, the Company is subject to claims
significantly in excess of the number of actual cases. The
Company has reserves for defense costs related to claims arising
from these matters. The Company believes that there is no
significant exposure related to these matters.
|
|
11.
|
Fair
Value Measurements
|
On January 1, 2008, the Company adopted the provisions of
SFAS No. 157, Fair Value Measurements
(SFAS No. 157) for financial assets
and liabilities. SFAS No. 157 became effective for
financial assets and liabilities on January 1, 2008. On
January 1, 2009, the Company will apply the provisions of
SFAS No. 157 for
non-recurring
fair value measurements of non-financial assets and liabilities,
such as goodwill, indefinite-lived intangible assets, property,
plant and equipment and asset retirement obligations.
SFAS No. 157 defines fair value, thereby eliminating
inconsistencies in guidance found in various prior accounting
pronouncements, and increases disclosures surrounding fair value
calculations.
SFAS No. 157 establishes a three-tiered fair value
hierarchy that prioritizes inputs to valuation techniques used
in fair value calculations. The three levels of inputs are
defined as follows:
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Level 1
|
unadjusted quoted prices for identical assets or liabilities in
active markets accessible by the Company
|
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Level 2
|
inputs that are observable in the marketplace other than those
inputs classified as Level 1
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Level 3
|
inputs that are unobservable in the marketplace and significant
to the valuation
|
SFAS No. 157 requires the Company to maximize the use
of observable inputs and minimize the use of unobservable
inputs. If a financial instrument uses inputs that fall in
different levels of the hierarchy, the instrument will be
categorized based upon the lowest level of input that is
significant to the fair value calculation.
The Companys financial assets and liabilities are measured
at fair value on a recurring basis and include securities
available for sale and derivative financial instruments.
Securities available for sale include US government and
corporate bonds, mortgage-backed securities and equity
securities. Derivative financial instruments include interest
rate swaps and foreign currency forwards and swaps.
Marketable Securities. Where possible, the
Company utilizes quoted market prices to measure debt and equity
securities; such items are classified as Level 1 in the
hierarchy and include equity securities and US government bonds.
When quoted market prices for identical assets are unavailable,
varying valuation techniques are
22
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED
FINANCIAL
STATEMENTS (Continued)
used. Common inputs in valuing these assets include, among
others, benchmark yields, issuer spreads, forward
mortgage-backed securities trade prices and recently reported
trades. Such assets are classified as Level 2 in the
hierarchy and typically include mortgage-backed securities,
corporate bonds and other US government securities.
Derivatives. Derivative financial instruments
are valued in the market using discounted cash flow techniques.
These techniques incorporate Level 1 and Level 2
inputs such as interest rates and foreign currency exchange
rates. These market inputs are utilized in the discounted cash
flow calculation considering the instruments term,
notional amount, discount rate and credit risk. Significant
inputs to the derivative valuation for interest rate swaps and
foreign currency forwards and swaps are observable in the active
markets and are classified as Level 2 in the hierarchy.
The following fair value hierarchy table presents information
about the Companys assets and liabilities measured at fair
value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement as of
|
|
|
|
|
|
|
June 30, 2008 Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
As of
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
June 30, 2008
|
|
|
|
(in $ millions)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
|
101
|
|
|
|
131
|
|
|
|
232
|
|
Derivatives (included in current Other assets)
|
|
|
|
|
|
|
14
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
101
|
|
|
|
145
|
|
|
|
246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Current derivatives (included in current Other liabilities)
|
|
|
|
|
|
|
56
|
|
|
|
56
|
|
Long-term derivatives (included in long-term Other liabilities)
|
|
|
|
|
|
|
15
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
71
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.
|
Other
(Charges) Gains, Net
|
The components of Other (charges) gains, net are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(in $ millions)
|
|
|
Employee termination benefits
|
|
|
(4
|
)
|
|
|
(25
|
)
|
|
|
(11
|
)
|
|
|
(25
|
)
|
Plant/office closures
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
Ticona Kelsterbach plant relocation (see Note 16)
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
(5
|
)
|
|
|
(3
|
)
|
Deferred compensation triggered by Exit Event
|
|
|
|
|
|
|
(74
|
)
|
|
|
|
|
|
|
(74
|
)
|
Asset impairments
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other (charges) gains, net
|
|
|
(7
|
)
|
|
|
(105
|
)
|
|
|
(23
|
)
|
|
|
(106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee termination benefits relate primarily to the
Companys continued strategy to simplify and optimize its
business portfolio.
23
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED
FINANCIAL
STATEMENTS (Continued)
In May 2007, the Original Shareholders sold their remaining
equity interest in the Company (Exit Event as
defined in the deferred compensation plan document) triggering a
clause in the 2004 deferred compensation program that resulted
in the vesting of certain awards. As a result, the Company
expensed $74 million representing deferred compensation plan
payments for the respective participants 2005 and 2006
contingent benefits.
Additions to the restructuring reserves are employee termination
benefits recorded as Other (charges) gains, net. The changes in
the restructuring reserves are as follows:
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30, 2008
|
|
|
|
(in $ millions)
|
|
|
Restructuring reserves as of December 31, 2007
|
|
|
45
|
|
Additions
|
|
|
11
|
|
Cash payments
|
|
|
(20
|
)
|
Exchange rate changes
|
|
|
1
|
|
|
|
|
|
|
Restructuring reserves as of June 30, 2008
|
|
|
37
|
|
|
|
|
|
|
Included in the restructuring reserves are $1 million and
$5 million as of June 30, 2008 and December 31,
2007, respectively, of reserves recorded in long-term Other
liabilities.
The Companys effective income tax rate for the three
months ended June 30, 2008 was 18% compared to 26% for the
three months ended June 30, 2007. The Companys
effective income tax rate for the six months ended June 30,
2008 was 25% compared to 167% for the six months ended
June 30, 2007. The effective income tax rate decreased for
the six months ended June 30, 2008 primarily due to the
limitation of tax benefit in the US on fees incurred in
connection with the 2007 debt refinancing and the US income tax
effect resulting from the maturity of cross currency swap
arrangements in June 2008 (see Note 7). These decreases are
partially offset by the U.S. income tax effect on increased
foreign earnings and dividends. The overall effective income tax
rate is less than the US statutory federal and state rates due
to income being taxed at lower rates in various foreign
jurisdictions.
FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes an interpretation of FASB Statement
No. 109, (FIN No. 48) liabilities for
unrecognized tax benefits and related interest and penalties are
recorded as long-term Income taxes payable. For the six months
ended June 30, 2008, the total unrecognized tax benefits
recorded under FIN No. 48 increased by approximately
$39 million primarily due to additional interest and
increases in unrecognized tax benefits in foreign jurisdictions
as well as currency translation adjustments. Of the
$39 million increase, approximately $7 million relates
to current year increases, $21 million relates to prior
year increases and $11 million relates to currency
translation.
24
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED
FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineered
|
|
|
Consumer
|
|
|
Industrial
|
|
|
Acetyl
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Materials
|
|
|
Specialties
|
|
|
Specialties
|
|
|
Intermediates
|
|
|
Activities
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in $ millions)
|
|
|
For the three months ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
300
|
|
|
|
292
|
|
|
|
386
|
|
|
|
1,067
|
(1)
|
|
|
1
|
|
|
|
(178
|
)
|
|
|
1,868
|
|
Earnings (loss) from continuing operations before tax and
minority interests
|
|
|
48
|
|
|
|
94
|
|
|
|
20
|
|
|
|
181
|
|
|
|
(96
|
)
|
|
|
|
|
|
|
247
|
|
Depreciation and amortization
|
|
|
19
|
|
|
|
13
|
|
|
|
14
|
|
|
|
34
|
|
|
|
2
|
|
|
|
|
|
|
|
82
|
|
Capital
expenditures(3)
|
|
|
14
|
|
|
|
10
|
|
|
|
18
|
|
|
|
17
|
|
|
|
1
|
|
|
|
|
|
|
|
60
|
|
For the three months ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
257
|
|
|
|
281
|
|
|
|
355
|
|
|
|
829
|
(1)
|
|
|
|
|
|
|
(166
|
)
|
|
|
1,556
|
|
Earnings (loss) from continuing operations before tax and
minority interests
|
|
|
48
|
|
|
|
82
|
|
|
|
(1
|
)
|
|
|
110
|
|
|
|
(407
|
)
|
|
|
|
|
|
|
(168
|
)
|
Depreciation and amortization
|
|
|
17
|
|
|
|
13
|
|
|
|
16
|
|
|
|
26
|
|
|
|
1
|
|
|
|
|
|
|
|
73
|
|
Capital expenditures
|
|
|
9
|
|
|
|
6
|
|
|
|
23
|
|
|
|
28
|
|
|
|
1
|
|
|
|
|
|
|
|
67
|
|
For the six months ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
594
|
|
|
|
574
|
|
|
|
751
|
|
|
|
2,163
|
(2)
|
|
|
1
|
|
|
|
(369
|
)
|
|
|
3,714
|
|
Earnings (loss) from continuing operations before tax and
minority interests
|
|
|
87
|
|
|
|
144
|
|
|
|
37
|
|
|
|
387
|
|
|
|
(190
|
)
|
|
|
|
|
|
|
465
|
|
Depreciation and amortization
|
|
|
39
|
|
|
|
27
|
|
|
|
28
|
|
|
|
66
|
|
|
|
5
|
|
|
|
|
|
|
|
165
|
|
Capital
expenditures(3)
|
|
|
27
|
|
|
|
20
|
|
|
|
29
|
|
|
|
41
|
|
|
|
4
|
|
|
|
|
|
|
|
121
|
|
Total assets as of June 30, 2008
|
|
|
1,903
|
|
|
|
1,194
|
|
|
|
1,048
|
|
|
|
2,802
|
|
|
|
1,667
|
|
|
|
|
|
|
|
8,614
|
|
For the six months ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
519
|
|
|
|
550
|
|
|
|
701
|
|
|
|
1,668
|
(2)
|
|
|
1
|
|
|
|
(328
|
)
|
|
|
3,111
|
|
Earnings (loss) from continuing operations before tax and
minority interests
|
|
|
98
|
|
|
|
129
|
|
|
|
11
|
|
|
|
246
|
|
|
|
(481
|
)
|
|
|
|
|
|
|
3
|
|
Depreciation and amortization
|
|
|
34
|
|
|
|
24
|
|
|
|
30
|
|
|
|
50
|
|
|
|
3
|
|
|
|
|
|
|
|
141
|
|
Capital expenditures
|
|
|
15
|
|
|
|
15
|
|
|
|
26
|
|
|
|
57
|
|
|
|
3
|
|
|
|
|
|
|
|
116
|
|
Total assets as of December 31, 2007
|
|
|
1,751
|
|
|
|
1,157
|
|
|
|
995
|
|
|
|
2,530
|
|
|
|
1,625
|
|
|
|
|
|
|
|
8,058
|
|
|
|
|
(1) |
|
Includes $178 million and $166 million of
inter-segment sales eliminated in consolidation for the three
months ended June 30, 2008 and 2007, respectively. |
|
(2) |
|
Includes $369 million and $328 million of
inter-segment sales eliminated in consolidation for the six
months ended June 30, 2008 and 2007, respectively. |
|
(3) |
|
Includes increase of $5 million and decrease of
$15 million in accrued capital expenditures for the three
and six months ended June 30, 2008, respectively. |
25
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED
FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Basic
|
|
|
Diluted
|
|
|
Basic
|
|
|
Diluted
|
|
|
|
(in $ millions, except for share and per share data)
|
|
|
Earnings (loss) from continuing operations
|
|
|
203
|
|
|
|
203
|
|
|
|
(124
|
)
|
|
|
(124
|
)
|
Earnings (loss) from discontinued operations
|
|
|
(69
|
)
|
|
|
(69
|
)
|
|
|
7
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
|
134
|
|
|
|
134
|
|
|
|
(117
|
)
|
|
|
(117
|
)
|
Less: cumulative preferred stock dividends
|
|
|
(2
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) available to common shareholders
|
|
|
132
|
|
|
|
134
|
|
|
|
(120
|
)
|
|
|
(117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares basic
|
|
|
150,905,770
|
|
|
|
150,905,770
|
|
|
|
156,932,929
|
|
|
|
156,932,929
|
|
Dilutive stock options
|
|
|
|
|
|
|
4,089,106
|
|
|
|
|
|
|
|
|
|
Dilutive restricted stock
|
|
|
|
|
|
|
768,053
|
|
|
|
|
|
|
|
|
|
Assumed conversion of preferred stock
|
|
|
|
|
|
|
12,051,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares diluted
|
|
|
150,905,770
|
|
|
|
167,814,803
|
|
|
|
156,932,929
|
|
|
|
156,932,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
|
1.33
|
|
|
|
1.21
|
|
|
|
(0.81
|
)
|
|
|
(0.81
|
)
|
Earnings (loss) from discontinued operations
|
|
|
(0.46
|
)
|
|
|
(0.41
|
)
|
|
|
0.05
|
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
|
0.87
|
|
|
|
0.80
|
|
|
|
(0.76
|
)
|
|
|
(0.76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Basic
|
|
|
Diluted
|
|
|
Basic
|
|
|
Diluted
|
|
|
|
(in $ millions, except for share and per share data)
|
|
|
Earnings (loss) from continuing operations
|
|
|
348
|
|
|
|
348
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Earnings (loss) from discontinued operations
|
|
|
(69
|
)
|
|
|
(69
|
)
|
|
|
86
|
|
|
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
|
279
|
|
|
|
279
|
|
|
|
84
|
|
|
|
84
|
|
Less: cumulative preferred stock dividends
|
|
|
(5
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) available to common shareholders
|
|
|
274
|
|
|
|
279
|
|
|
|
79
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares basic
|
|
|
151,449,762
|
|
|
|
151,449,762
|
|
|
|
158,102,411
|
|
|
|
158,102,411
|
|
Dilutive stock options
|
|
|
|
|
|
|
3,434,591
|
|
|
|
|
|
|
|
|
|
Dilutive restricted stock
|
|
|
|
|
|
|
625,566
|
|
|
|
|
|
|
|
|
|
Assumed conversion of preferred stock
|
|
|
|
|
|
|
12,051,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares diluted
|
|
|
151,449,762
|
|
|
|
167,561,793
|
|
|
|
158,102,411
|
|
|
|
158,102,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
|
2.26
|
|
|
|
2.08
|
|
|
|
(0.04
|
)
|
|
|
(0.04
|
)
|
Earnings (loss) from discontinued operations
|
|
|
(0.45
|
)
|
|
|
(0.41
|
)
|
|
|
0.54
|
|
|
|
0.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
1.81
|
|
|
|
1.67
|
|
|
|
0.50
|
|
|
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED
FINANCIAL
STATEMENTS (Continued)
The following securities were not included in the computation of
diluted net earnings per share as their effect would have been
antidilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Stock options
|
|
|
109,973
|
|
|
|
5,166,015
|
|
|
|
119,556
|
|
|
|
4,141,373
|
|
Restricted stock units
|
|
|
|
|
|
|
451,028
|
|
|
|
|
|
|
|
225,514
|
|
Convertible preferred stock
|
|
|
|
|
|
|
12,043,299
|
|
|
|
|
|
|
|
12,043,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
109,973
|
|
|
|
17,660,342
|
|
|
|
119,556
|
|
|
|
16,410,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.
|
Ticona
Kelsterbach Plant Relocation
|
In 2007, the Company finalized a settlement agreement with the
Frankfurt, Germany, Airport (Fraport) to relocate
the Kelsterbach, Germany Ticona business, resolving several
years of legal disputes related to the planned Frankfurt airport
expansion. As a result of the settlement, the Company will
transition Ticonas operations from Kelsterbach to the
Hoechst Industrial Park in the Rhine Main area in Germany by
mid-2011. Over a five-year period, Fraport will pay Ticona a
total of 670 million to offset the costs associated
with the transition of the business from its current location
and the closure of the Kelsterbach plant. In June 2008, the
Company received 200 million ($311 million) from
Fraport under this agreement. Amounts received from Fraport are
accounted for as deferred proceeds and are included in long-term
Other liabilities. In addition, the Company received
38 million ($59 million) in value-added tax from
Fraport which will be remitted to the tax authorities in
August 2008.
Below is a summary of the financial statement impact associated
with the Ticona Kelsterbach plant relocation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Total From
|
|
|
|
June 30,
|
|
|
Inception Through
|
|
|
|
2008
|
|
|
2007
|
|
|
June 30, 2008
|
|
|
|
(in $ millions)
|
|
|
Proceeds received from Fraport
|
|
|
311
|
|
|
|
|
|
|
|
338
|
|
Costs expensed
|
|
|
5
|
|
|
|
3
|
|
|
|
11
|
|
Costs capitalized
|
|
|
62
|
|
|
|
4
|
|
|
|
102
|
|
General The Company is subject to
environmental laws and regulations worldwide which impose
limitations on the discharge of pollutants into the air and
water and establish standards for the treatment, storage and
disposal of solid and hazardous wastes. The Company believes
that it is in substantial compliance with all applicable
environmental laws and regulations. The Company is also subject
to retained environmental obligations specified in various
contractual agreements arising from divestiture of certain
businesses by the Company or one of its predecessor companies.
The Companys environmental reserves for remediation
matters were $109 million and $115 million as of
June 30, 2008 and December 31, 2007, respectively.
Remediation Due to its industrial history and
through retained contractual and legal obligations, the Company
has the obligation to remediate specific areas on its own sites
as well as on divested, orphan or US Superfund sites. In
addition, as part of the demerger agreement between the Company
and Hoechst, a specified portion of the responsibility for
environmental liabilities from a number of Hoechst divestitures
was transferred to the Company. The Company provides for such
obligations when the event of loss is probable and reasonably
estimable. The Company believes that environmental remediation
costs will not have a material adverse effect on the financial
position of the Company, but may have a material adverse effect
on the results of operations or cash flows in any given
accounting period.
27
CELANESE
CORPORATION AND SUBSIDIARIES
NOTES TO
THE UNAUDITED INTERIM CONSOLIDATED
FINANCIAL
STATEMENTS (Continued)
US Superfund Sites In the US, the Company may
be subject to substantial claims brought by US federal or state
regulatory agencies or private individuals pursuant to statutory
authority or common law. In particular, the Company has a
potential liability under the US Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980,
as amended, and related state laws (collectively referred to as
Superfund) for investigation and cleanup costs at
approximately 50 sites. At most of these sites, numerous
companies, including certain companies comprising the Company,
or one of its predecessor companies, have been notified that the
Environmental Protection Agency, state governing bodies or
private individuals consider such companies to be potentially
responsible parties (PRP) under Superfund or related
laws. The proceedings relating to these sites are in various
stages. The cleanup process has not been completed at most sites
and the status of the insurance coverage for most of these
proceedings is uncertain. Consequently, the Company cannot
determine accurately its ultimate liability for investigation or
cleanup costs at these sites.
As events progress at each site for which it has been named a
PRP, the Company accrues, as appropriate, a liability for site
cleanup. Such liabilities include all costs that are probable
and can be reasonably estimated. In establishing these
liabilities, the Company considers its shipment of waste to a
site, its percentage of total waste shipped to the site, the
types of wastes involved, the conclusions of any studies, the
magnitude of any remedial actions that may be necessary and the
number and viability of other PRPs. Often the Company joins with
other PRPs to sign joint defense agreements that settle, among
PRPs, each partys percentage allocation of costs at the
site. Although the ultimate liability may differ from the
estimate, the Company routinely reviews the liabilities and
revises the estimate, as appropriate, based on the most current
information available. The Company had provisions totaling
$12 million and $13 million, respectively, for
June 30, 2008 and December 31, 2007 for US Superfund
sites.
Additional information relating to environmental remediation
activity is contained in the footnotes to the Companys
consolidated financial statements included in the 2007
Form 10-K.
On July 3, 2008, the Company declared a cash dividend on
its 4.25% convertible perpetual preferred stock amounting to
approximately $3 million and a cash dividend of $0.04 per
share on its Series A common stock amounting to
approximately $6 million. Both cash dividends are for the
period May 1, 2008 to July 31, 2008 and will be paid
on August 1, 2008 to holders of record as of July 15,
2008.
On July 17, 2008, the Company sold its 55.46% interest in
Derivados Macroquimicos S.A. de C.V. (DEMACSA) for
proceeds of approximately $3 million. DEMACSA produces
Cellulose Ethers at an industrial complex in Zacapu, Michoacan,
Mexico. In June 2008, the Company recorded an impairment charge
of $1 million. As a result, the proceeds from the sale
approximated the carrying value of DEMACSA on the date of the
sale. The Company concluded the sale of DEMACSA is not a
discontinued operation due to certain forms of continuing
involvement between the Company and DEMACSA subsequent to the
sale.
28
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
In this Quarterly Report on
Form 10-Q,
the term Celanese refers to Celanese Corporation, a
Delaware corporation, and not its subsidiaries. The terms the
Company, we, our and
us, refer to Celanese and its subsidiaries on a
consolidated basis. The term Celanese US refers to
our subsidiary, Celanese US Holdings LLC, a Delaware limited
liability company, formally known as BCP Crystal US Holdings
Corp., a Delaware corporation, and not its subsidiaries. The
term Purchaser refers to our subsidiary, Celanese
Europe Holding GmbH & Co. KG, formerly known as BCP
Crystal Acquisition GmbH & Co. KG, a German limited
partnership, and not its subsidiaries, except where otherwise
indicated.
Managements Discussion and Analysis of Financial Condition
and Results of Operations (MD&A) and other
parts of this Quarterly Report on
Form 10-Q
contain certain forward-looking statements and information
relating to us that are based on the beliefs of our management
as well as assumptions made by, and information currently
available to, us. When used in this document, words such as
anticipate, believe,
estimate, expect, intend,
plan and project and similar
expressions, as they relate to us are intended to identify
forward-looking statements. These statements reflect our current
views with respect to future events, are not guarantees of
future performance and involve risks and uncertainties that are
difficult to predict. Further, certain forward-looking
statements are based upon assumptions as to future events that
may not prove to be accurate. Factors that might cause such
differences include, but are not limited to, those discussed in
the subsection entitled Factors That May Affect Future
Results and Financial Condition below. The following
discussion should be read in conjunction with our 2007
Form 10-K
filed with the Securities and Exchange Commission
(SEC) on February 29, 2008 and the unaudited
interim consolidated financial statements and notes thereto
included elsewhere in this Quarterly Report on
Form 10-Q.
We assume no obligation to revise or update any forward-looking
statements for any reason, except as required by law.
Overview
We are a leading global integrated producer of chemicals and
advanced materials. We are one of the worlds largest
producers of acetyl products, which are intermediate chemicals
for nearly all major industries, as well as a leading global
producer of high-performance engineered polymers that are used
in a variety of high-value end-use applications. As an industry
leader, we hold geographically balanced global positions and
participate in diversified end-use markets. Our operations are
primarily located in North America, Europe and Asia. We combine
a demonstrated track record of execution, strong performance
built on shared principles and objectives, and a clear focus on
growth and value creation.
We have experienced several recent highlights.
|
|
|
|
|
Successfully started up our newly constructed 20,000 ton
GUR®
ultra-high molecular weight polyethylene (UHMW-PE)
facility, 100,000 ton acetic anhydride facility and 300,000 ton
vinyl acetate monomer (VAM) facility, all located at
our integrated chemical complex in Nanjing, China.
|
|
|
|
Signed an agreement to establish a 20,000 square-meter
integrated technology and marketing facility in Shanghai. The
facility, expected to be completed in early 2010, will combine
the headquarters for our Asia businesses, customer application
development and research and development center.
|
|
|
|
Our Nutrinova business and BRAIN AG, a leading European white
biotech company, identified all-natural compounds for high
intensity sweeteners and sweetness enhancers.
|
|
|
|
Introduced EcoVAE, a new vinyl acetate/ethylene emulsion
technology designed to facilitate the manufacture of high
quality, eco-friendly paints for North America.
|
|
|
|
Resolved certain legacy litigation matters by entering into a
settlement agreement for $107 million related to sales by
the polyester staple fibers business, which Hoechst AG sold to
KoSa, Inc. in 1998.
|
|
|
|
Announced intent to divest ownership interest in legacy
Infraserv investments located in Knapsack, Gendorf and
Wiesbaden, Germany, where we no longer have manufacturing
operations.
|
29
Results
of Operations
Financial
Highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
2008
|
|
|
Net Sales
|
|
|
2007
|
|
|
Net Sales
|
|
|
2008
|
|
|
Net Sales
|
|
|
2007
|
|
|
Net Sales
|
|
|
|
(unaudited)
|
|
|
|
(in $ millions, except for percentages)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
1,868
|
|
|
|
100.0
|
|
|
|
1,556
|
|
|
|
100.0
|
|
|
|
3,714
|
|
|
|
100.0
|
|
|
|
3,111
|
|
|
|
100.0
|
|
Gross profit
|
|
|
396
|
|
|
|
21.2
|
|
|
|
337
|
|
|
|
21.7
|
|
|
|
814
|
|
|
|
21.9
|
|
|
|
696
|
|
|
|
22.4
|
|
Selling, general and administrative expenses
|
|
|
(138
|
)
|
|
|
(7.4
|
)
|
|
|
(122
|
)
|
|
|
(7.8
|
)
|
|
|
(274
|
)
|
|
|
(7.4
|
)
|
|
|
(238
|
)
|
|
|
(7.7
|
)
|
Other (charges) gains, net
|
|
|
(7
|
)
|
|
|
(0.4
|
)
|
|
|
(105
|
)
|
|
|
(6.7
|
)
|
|
|
(23
|
)
|
|
|
(0.6
|
)
|
|
|
(106
|
)
|
|
|
(3.4
|
)
|
Operating profit
|
|
|
207
|
|
|
|
11.1
|
|
|
|
71
|
|
|
|
4.6
|
|
|
|
441
|
|
|
|
11.9
|
|
|
|
277
|
|
|
|
8.9
|
|
Equity in net earnings of affiliates
|
|
|
17
|
|
|
|
0.9
|
|
|
|
23
|
|
|
|
1.5
|
|
|
|
27
|
|
|
|
0.7
|
|
|
|
41
|
|
|
|
1.3
|
|
Interest expense
|
|
|
(63
|
)
|
|
|
(3.4
|
)
|
|
|
(61
|
)
|
|
|
(3.9
|
)
|
|
|
(130
|
)
|
|
|
(3.5
|
)
|
|
|
(133
|
)
|
|
|
(4.3
|
)
|
Refinancing expense
|
|
|
|
|
|
|
|
|
|
|
(256
|
)
|
|
|
(16.5
|
)
|
|
|
|
|
|
|
|
|
|
|
(256
|
)
|
|
|
(8.2
|
)
|
Dividend income cost investments
|
|
|
75
|
|
|
|
4.0
|
|
|
|
49
|
|
|
|
3.1
|
|
|
|
103
|
|
|
|
2.8
|
|
|
|
64
|
|
|
|
2.1
|
|
Earnings (loss) from continuing operations before tax and
minority interests
|
|
|
247
|
|
|
|
13.2
|
|
|
|
(168
|
)
|
|
|
(10.8
|
)
|
|
|
465
|
|
|
|
12.5
|
|
|
|
3
|
|
|
|
0.1
|
|
Earnings (loss) from continuing operations
|
|
|
203
|
|
|
|
10.9
|
|
|
|
(124
|
)
|
|
|
(8.0
|
)
|
|
|
348
|
|
|
|
9.4
|
|
|
|
(2
|
)
|
|
|
(0.1
|
)
|
Earnings (loss) from discontinued operations
|
|
|
(69
|
)
|
|
|
(3.7
|
)
|
|
|
7
|
|
|
|
0.4
|
|
|
|
(69
|
)
|
|
|
(1.9
|
)
|
|
|
86
|
|
|
|
2.8
|
|
Net earnings (loss)
|
|
|
134
|
|
|
|
7.2
|
|
|
|
(117
|
)
|
|
|
(7.5
|
)
|
|
|
279
|
|
|
|
7.5
|
|
|
|
84
|
|
|
|
2.7
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
82
|
|
|
|
4.4
|
|
|
|
73
|
|
|
|
4.7
|
|
|
|
165
|
|
|
|
4.4
|
|
|
|
141
|
|
|
|
4.5
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(unaudited)
|
|
|
|
(in $ millions)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
Short-term borrowings and current installments of long-term
debt third party and affiliates
|
|
|
252
|
|
|
|
272
|
|
Add: Long-term debt
|
|
|
3,371
|
|
|
|
3,284
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
3,623
|
|
|
|
3,556
|
|
|
|
|
|
|
|
|
|
|
Summary
of Consolidated Results for the Three and Six Months Ended
June 30, 2008 compared to the Three and Six Months Ended
June 30, 2007
Net
Sales
Net sales for the three and six months ended June 30, 2008
increased 20% to $1,868 million and 19% to
$3,714 million, respectively, compared to the same periods
in 2007. Higher prices and favorable foreign currency impacts
(primarily related to the Euro across all segments) increased
net sales 11% and 6%, respectively, during the three months
ended June 30, 2008 compared to the three months ended
June 30, 2007, and 11% and 7%, respectively, during the six
months ended June 30, 2008 compared to the six months ended
June 30, 2007. Higher prices were primarily driven by a
tight global supply of acetyl, polyvinyl alcohol
(PVOH) and AT Plastics products coupled with our
ability to pass on higher raw materials prices to our customers
for both acetyl and emulsions products. Volumes increased due to
strong demand in Asia for Advanced Engineered Materials
products
30
and from the startup of our acetic acid unit in Nanjing, China
in mid-2007. These increases were partially offset by decreased
volumes resulting from the transfer of flake production to our
China ventures, weakened demand in the US construction
markets and the slowing of the European economy.
Gross
Profit
Gross profit as a percentage of net sales remained relatively
flat for the three and six months ended June 30, 2008
compared to the same periods in 2007. Higher energy and raw
material costs more than offset the increase in net sales,
causing a modest decrease in gross profit as a percentage of net
sales.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses increased
$16 million and $36 million for the three and six
months ended June 30, 2008, respectively, compared to the
same periods in 2007. Additional spending on business
optimization and finance improvement initiatives increased
selling, general and administrative expenses by $8 million
and $18 million for the three and six months ended
June 30, 2008, respectively, as compared to the same
periods in 2007. The remaining increase in selling, general and
administrative expenses is driven primarily by foreign currency
impacts.
Other
(Charges) Gains, Net
The components of Other (charges) gains, net are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(unaudited)
|
|
|
|
(in $ millions)
|
|
|
Employee termination benefits
|
|
|
(4
|
)
|
|
|
(25
|
)
|
|
|
(11
|
)
|
|
|
(25
|
)
|
Plant/office closures
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
Ticona Kelsterbach plant relocation
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
(5
|
)
|
|
|
(3
|
)
|
Deferred compensation triggered by Exit Event
|
|
|
|
|
|
|
(74
|
)
|
|
|
|
|
|
|
(74
|
)
|
Asset Impairments
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other (charges) gains, net
|
|
|
(7
|
)
|
|
|
(105
|
)
|
|
|
(23
|
)
|
|
|
(106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee termination benefits relate primarily to our continued
strategy to simplify and optimize our business portfolio.
In May 2007, as a result of the triggering of an Exit Event, as
defined in Note 12 of the accompanying unaudited interim
consolidated financial statements, we expensed $74 million
representing deferred compensation plan payments for the
respective participants 2005 and 2006 contingent benefits.
Operating
Profit
Operating profit increased $136 million and
$164 million for the three and six months ended
June 30, 2008, respectively, compared to the same periods
in 2007. The increases are principally driven by increases in
gross profit and decreases in other (charges) gains, net during
the three and six months ended June 30, 2008 compared to
the same periods in 2007. The increases are partially offset by
increases in selling, general and administrative expenses
described above.
Interest
Expense
Interest expense for the three months ended June 30, 2008
increased $2 million compared to the same period in 2007
due to an increase in interest expense related to China
financing activities, partially offset by lower interest rates
for our senior credit facilities. Interest expense for the six
months ended June 30, 2008 decreased $3 million
compared to the six months ended June 30, 2007 due to lower
interest rates on our senior credit facilities compared
31
to our senior discount notes and senior subordinated notes,
which were fully repaid by May 2007, partially offset by an
increase in interest expense related to China financing
activities.
In April 2007, we refinanced our outstanding debt by entering
into a new senior credit agreement. As a result of the
refinancing, we expensed $207 million of premiums paid on
early redemption of debt. In addition, we expensed
$33 million of unamortized deferred financing costs and
premiums related to the former $2,454 million senior credit
facility, Senior Discount Notes and Senior Subordinated Notes
and $16 million of debt issuance and other refinancing
expenses. These amounts were recorded as a component of
refinancing expense in the unaudited interim consolidated
statement of operations for the three and six months ended
June 30, 2007.
Equity
in Net Earnings of Affiliates
Equity in net earnings of affiliates decreased $6 million
and $14 million for the three and six months ended
June 30, 2008, respectively, compared to the same periods
in 2007. The decreases primarily relate to reduced earnings from
our Advanced Engineered Materials affiliates due to higher
raw material and energy costs and a decline in volumes.
Income
Taxes
Our effective income tax rate for the three months ended
June 30, 2008 was 18% compared to 26% for the three months
ended June 30, 2007. Our effective income tax rate for the
six months ended June 30, 2008 was 25% compared to 167% for
the six months ended June 30, 2007. The effective income
tax rate decreased for the six months ended June 30, 2008
primarily due to the limitation of tax benefit in the US on fees
incurred in connection with the 2007 debt refinancing and the US
income tax effect resulting from the maturity of cross currency
swap arrangements in June 2008 (see Note 7 to the
accompanying unaudited interim consolidated financial
statements). These decreases are partially offset by the
US income tax effect on increased foreign earnings and
dividends. The overall effective income tax rate is less than
the US statutory federal and state rates due to income being
taxed at lower rates in various foreign jurisdictions.
Earnings
(Loss) from Discontinued Operations
Earnings from discontinued operations for the three and six
months ended June 30, 2008 primarily relate to a legal
settlement agreement we entered into in June 2008. Under the
settlement agreement, we agreed to pay $107 million to
resolve certain legacy items. Because the legal proceeding
related to sales by the polyester staple fibers business which
Hoechst AG sold to KoSa, Inc. in 1998, the impact of the
settlement is reflected within discontinued operations in the
current period. See the Polyester Staple Antitrust
Litigation in Note 10 of the accompanying unaudited
interim consolidated financial statements.
Earnings from discontinued operations for the three and six
months ended June 30, 2007 primarily relate to Acetyl
Intermediates sale of its oxo products and derivatives
businesses in February 2007, and the shut down of our Edmonton,
Alberta, Canada methanol facility during the second quarter of
2007. As a result, revenues and expenses related to these
businesses are reflected as a component of discontinued
operations.
Expansion
in China
The acetic acid facility located in our Nanjing, China complex
has been running at full production rates since June 2007 and we
commenced production of vinyl acetate emulsions at the complex
during the fourth quarter of 2007. During the first quarter of
2008, we commissioned the startup of our
Celstran®
long fiber-reinforced thermoplastic unit in Nanjing. Our newly
constructed 20,000 ton
GUR®
ultra-high molecular weight polyethylene (UHMW-PE)
facility, 100,000 ton acetic anhydride facility and 300,000 ton
VAM facility started up in the third quarter of 2008. Operations
for the compounding plant at the complex are expected to begin
by 2009.
The complex brings world-class scale to one site for the
production of acetic acid, VAM, acetic anhydride, emulsions,
Celstran®
long fiber-reinforced thermoplastic, UHMW-PE (GUR),
an ultra-high molecular weight polyethylene and compounding. We
believe the Nanjing complex will further enhance our
capabilities to better meet the growing needs of our customers
in a number of industries across Asia.
32
Selected
Data by Business Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2008
|
|
|
2007
|
|
|
in $
|
|
|
2008
|
|
|
2007
|
|
|
in $
|
|
|
|
(unaudited)
|
|
|
|
(in $ millions)
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered Materials
|
|
|
300
|
|
|
|
257
|
|
|
|
43
|
|
|
|
594
|
|
|
|
519
|
|
|
|
75
|
|
Consumer Specialties
|
|
|
292
|
|
|
|
281
|
|
|
|
11
|
|
|
|
574
|
|
|
|
550
|
|
|
|
24
|
|
Industrial Specialties
|
|
|
386
|
|
|
|
355
|
|
|
|
31
|
|
|
|
751
|
|
|
|
701
|
|
|
|
50
|
|
Acetyl Intermediates
|
|
|
1,067
|
|
|
|
829
|
|
|
|
238
|
|
|
|
2,163
|
|
|
|
1,668
|
|
|
|
495
|
|
Other Activities
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
Inter-segment Eliminations
|
|
|
(178
|
)
|
|
|
(166
|
)
|
|
|
(12
|
)
|
|
|
(369
|
)
|
|
|
(328
|
)
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Sales
|
|
|
1,868
|
|
|
|
1,556
|
|
|
|
312
|
|
|
|
3,714
|
|
|
|
3,111
|
|
|
|
603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (Charges) Gains, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered Materials
|
|
|
(3
|
)
|
|
|
(5
|
)
|
|
|
2
|
|
|
|
(6
|
)
|
|
|
(5
|
)
|
|
|
(1
|
)
|
Consumer Specialties
|
|
|
|
|
|
|
(7
|
)
|
|
|
7
|
|
|
|
(1
|
)
|
|
|
(8
|
)
|
|
|
7
|
|
Industrial Specialties
|
|
|
(1
|
)
|
|
|
(19
|
)
|
|
|
18
|
|
|
|
(4
|
)
|
|
|
(19
|
)
|
|
|
15
|
|
Acetyl Intermediates
|
|
|
(2
|
)
|
|
|
(11
|
)
|
|
|
9
|
|
|
|
(9
|
)
|
|
|
(11
|
)
|
|
|
2
|
|
Other Activities
|
|
|
(1
|
)
|
|
|
(63
|
)
|
|
|
62
|
|
|
|
(3
|
)
|
|
|
(63
|
)
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other (Charges) Gains, Net
|
|
|
(7
|
)
|
|
|
(105
|
)
|
|
|
98
|
|
|
|
(23
|
)
|
|
|
(106
|
)
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Profit (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered Materials
|
|
|
37
|
|
|
|
32
|
|
|
|
5
|
|
|
|
67
|
|
|
|
68
|
|
|
|
(1
|
)
|
Consumer Specialties
|
|
|
46
|
|
|
|
48
|
|
|
|
(2
|
)
|
|
|
96
|
|
|
|
96
|
|
|
|
|
|
Industrial Specialties
|
|
|
20
|
|
|
|
(1
|
)
|
|
|
21
|
|
|
|
37
|
|
|
|
11
|
|
|
|
26
|
|
Acetyl Intermediates
|
|
|
148
|
|
|
|
91
|
|
|
|
57
|
|
|
|
325
|
|
|
|
223
|
|
|
|
102
|
|
Other Activities
|
|
|
(44
|
)
|
|
|
(99
|
)
|
|
|
55
|
|
|
|
(84
|
)
|
|
|
(121
|
)
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Profit (Loss)
|
|
|
207
|
|
|
|
71
|
|
|
|
136
|
|
|
|
441
|
|
|
|
277
|
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) from Continuing Operations Before Tax and
Minority Interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered Materials
|
|
|
48
|
|
|
|
48
|
|
|
|
|
|
|
|
87
|
|
|
|
98
|
|
|
|
(11
|
)
|
Consumer Specialties
|
|
|
94
|
|
|
|
82
|
|
|
|
12
|
|
|
|
144
|
|
|
|
129
|
|
|
|
15
|
|
Industrial Specialties
|
|
|
20
|
|
|
|
(1
|
)
|
|
|
21
|
|
|
|
37
|
|
|
|
11
|
|
|
|
26
|
|
Acetyl Intermediates
|
|
|
181
|
|
|
|
110
|
|
|
|
71
|
|
|
|
387
|
|
|
|
246
|
|
|
|
141
|
|
Other Activities
|
|
|
(96
|
)
|
|
|
(407
|
)
|
|
|
311
|
|
|
|
(190
|
)
|
|
|
(481
|
)
|
|
|
291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Earnings (Loss) from Continuing Operations Before Tax and
Minority Interests
|
|
|
247
|
|
|
|
(168
|
)
|
|
|
415
|
|
|
|
465
|
|
|
|
3
|
|
|
|
462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation & Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered Materials
|
|
|
19
|
|
|
|
17
|
|
|
|
2
|
|
|
|
39
|
|
|
|
34
|
|
|
|
5
|
|
Consumer Specialties
|
|
|
13
|
|
|
|
13
|
|
|
|
|
|
|
|
27
|
|
|
|
24
|
|
|
|
3
|
|
Industrial Specialties
|
|
|
14
|
|
|
|
16
|
|
|
|
(2
|
)
|
|
|
28
|
|
|
|
30
|
|
|
|
(2
|
)
|
Acetyl Intermediates
|
|
|
34
|
|
|
|
26
|
|
|
|
8
|
|
|
|
66
|
|
|
|
50
|
|
|
|
16
|
|
Other Activities
|
|
|
2
|
|
|
|
1
|
|
|
|
1
|
|
|
|
5
|
|
|
|
3
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Depreciation & Amortization
|
|
|
82
|
|
|
|
73
|
|
|
|
9
|
|
|
|
165
|
|
|
|
141
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
Factors
Affecting Segment Net Sales
The charts below set forth the percentage increase (decrease) in
net sales from the 2007 period to the 2008 period attributable
to each of the factors indicated for the following business
segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
Price
|
|
|
Currency
|
|
|
Other
|
|
|
Total
|
|
|
|
(unaudited)
|
|
|
|
(in percentages)
|
|
|
Factors Affecting Second Quarter 2008 Segment Net Sales
Compared to Second Quarter 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered Materials
|
|
|
8
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
17
|
|
Consumer Specialties
|
|
|
(4
|
)
|
|
|
5
|
|
|
|
3
|
|
|
|
|
|
|
|
4
|
|
Industrial Specialties
|
|
|
(9
|
)
|
|
|
13
|
|
|
|
8
|
|
|
|
(3
|
)(a)
|
|
|
9
|
|
Acetyl Intermediates
|
|
|
10
|
|
|
|
13
|
|
|
|
6
|
|
|
|
|
|
|
|
29
|
|
Total
Company(c)
|
|
|
4
|
|
|
|
11
|
|
|
|
6
|
|
|
|
(1
|
)
|
|
|
20
|
|
Factors Affecting the Six Months Ended June 30, 2008
Segment Net Sales Compared to Six Months Ended June 30,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Engineered Materials
|
|
|
7
|
|
|
|
(1
|
)
|
|
|
8
|
|
|
|
|
|
|
|
14
|
|
Consumer Specialties
|
|
|
(7
|
)
|
|
|
4
|
|
|
|
3
|
|
|
|
4
|
(b)
|
|
|
4
|
|
Industrial Specialties
|
|
|
(10
|
)
|
|
|
12
|
|
|
|
7
|
|
|
|
(2
|
)(a)
|
|
|
7
|
|
Acetyl Intermediates
|
|
|
9
|
|
|
|
15
|
|
|
|
6
|
|
|
|
|
|
|
|
30
|
|
Total
Company(c)
|
|
|
2
|
|
|
|
11
|
|
|
|
7
|
|
|
|
(1
|
)
|
|
|
19
|
|
|
|
|
(a) |
|
Includes the loss of sales related to the AT Plastics
Films business. |
|
(b) |
|
Includes net sales from the Acetate Products Limited
(APL) acquisition. |
|
(c) |
|
Includes the effects of the captive insurance companies. |
Summary
by Business Segment for the Three and Six Months Ended
June 30, 2008 compared to the Three and Six Months Ended
June 30, 2007
Advanced
Engineered Materials
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
Three Months Ended June 30,
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2008
|
|
|
2007
|
|
|
in $
|
|
|
2008
|
|
|
2007
|
|
|
in $
|
|
|
|
(unaudited)
|
|
|
|
(in $ millions, except for percentages)
|
|
|
Net sales
|
|
|
300
|
|
|
|
257
|
|
|
|
43
|
|
|
|
594
|
|
|
|
519
|
|
|
|
75
|
|
Net sales variance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
Currency
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (charges) gains, net
|
|
|
(3
|
)
|
|
|
(5
|
)
|
|
|
2
|
|
|
|
(6
|
)
|
|
|
(5
|
)
|
|
|
(1
|
)
|
Operating profit
|
|
|
37
|
|
|
|
32
|
|
|
|
5
|
|
|
|
67
|
|
|
|
68
|
|
|
|
(1
|
)
|
Operating margin
|
|
|
12.3
|
%
|
|
|
12.5
|
%
|
|
|
|
|
|
|
11.3
|
%
|
|
|
13.1
|
%
|
|
|
|
|
Earnings (loss) from continuing operations before tax and
minority interests
|
|
|
48
|
|
|
|
48
|
|
|
|
|
|
|
|
87
|
|
|
|
98
|
|
|
|
(11
|
)
|
Depreciation and amortization
|
|
|
19
|
|
|
|
17
|
|
|
|
2
|
|
|
|
39
|
|
|
|
34
|
|
|
|
5
|
|
Our Advanced Engineered Materials segment develops, produces and
supplies a broad portfolio of high-performance technical
polymers for application in automotive and electronics products
and in other consumer and
34
industrial applications, often replacing metal or glass. The
primary products of Advanced Engineered Materials are polyacetal
products (POM), polybutylene terephthalate
(PBT) and GUR. POM and PBT are used in a broad range
of products including automotive components, electronics and
appliances. GUR is used in battery separators, conveyor belts,
filtration equipment, coatings and medical devices.
Advanced Engineered Materials net sales increased
$43 million and $75 million for the three and six
months ended June 30, 2008, respectively, compared to the
same periods in 2007. Volume increases improved net sales by 8%
and 7% for the three and six months ended June 30, 2008,
respectively, as compared to 2007, primarily as a result of
growth in Asia. Successful implementation of new automotive and
GUR projects and high strength fiber accounts in China also
continue to contribute to volume growth. Favorable foreign
currency impacts increased net sales by 9% and 8% for the three
and six months ended June 30, 2008, respectively, as
compared to 2007. Overall, prices remained relatively flat as
price increases in the GUR and PBT product lines were offset by
price decreases in the POM product line, primarily due to
product mix. Volume increases in the first six months of 2008
are expected to moderate for the remainder of the year as the
US automotive industry continues to face challenges.
Operating profit increased $5 million during the three
months ended June 30, 2008 compared to the three months
ended June 30, 2007. Slight increases in gross profit,
coupled with decreases in research and development costs and
other charges (gains), net were partially offset by increases in
selling, general and administrative expenses. Operating profit
for the six months ended June 30, 2008 was relatively flat
compared to the six months ended June 30, 2007 as higher
gross profit was offset by increased selling, general and
administrative expenses. Other (charges) gains, net decreased in
2008 primarily due to the absence of $2 million of deferred
compensation plan expenses incurred in 2007. The remaining
portion of other (charges) gains, net consists of charges
related to the relocation of our Ticona plant in Kelsterbach.
See Ticona Kelsterbach Plant Relocation below.
Earnings (loss) from continuing operations before tax and
minority interests remained flat for the three months ended
June 30, 2008 compared to the three months ended
June 30, 2007 and decreased $11 million for the six
months ended June 30, 2008 compared to the same period in
2007. During the three months ended June 30, 2008, the
increase in operating profit (loss) was offset primarily by
decreased earnings from equity affiliates. During the six months
ended June 30, 2008, the decrease in operating profit
(loss) was the result of decreased earnings from equity
affiliates of $10 million. Earnings from equity affiliates
declined in both periods primarily due to significantly higher
raw material and energy costs.
Increases to depreciation and amortization for the six months
ended June 30, 2008 compared to the six months ended
June 30, 2007 are primarily due to the impact of foreign
currency.
Ticona
Kelsterbach Plant Relocation
In 2007, we finalized a settlement agreement with the Frankfurt,
Germany, Airport (Fraport) to relocate our
Kelsterbach, Germany, Ticona business resolving several years of
legal disputes related to the planned Frankfurt airport
expansion. As a result of the settlement, we will transition
Ticonas operations from Kelsterbach to the Hoechst
Industrial Park in the Rhine Main area in Germany by mid-2011.
Over a five-year period, Fraport will pay Ticona a total of
670 million to offset the costs associated with the
transition of the business from its current location and the
closure of the Kelsterbach plant. In June 2008, we received
200 million ($311 million) from Fraport under this
agreement. Amounts received from Fraport are accounted for as
deferred proceeds and are included in long-term other
liabilities in the unaudited consolidated balance sheets as of
June 30, 2008 and December 31, 2007. In addition, we
received 38 million ($59 million) in value-added
tax from Fraport which will be remitted to the tax authorities
in August 2008.
35
Below is a summary of the financial statement impact associated
with the Ticona Kelsterbach plant relocation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Total From
|
|
|
|
June 30,
|
|
|
Inception Through
|
|
|
|
2008
|
|
|
2007
|
|
|
June 30, 2008
|
|
|
|
(unaudited)
|
|
|
|
(in $ millions)
|
|
|
Proceeds received from Fraport
|
|
|
311
|
|
|
|
|
|
|
|
338
|
|
Costs expensed
|
|
|
5
|
|
|
|
3
|
|
|
|
11
|
|
Costs capitalized
|
|
|
62
|
|
|
|
4
|
|
|
|
102
|
|
Consumer
Specialties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2008
|
|
|
2007
|
|
|
in $
|
|
|
2008
|
|
|
2007
|
|
|
in $
|
|
|
|
(unaudited)
|
|
|
|
(in $ millions, except for percentages)
|
|
|
Net sales
|
|
|
292
|
|
|
|
281
|
|
|
|
11
|
|
|
|
574
|
|
|
|
550
|
|
|
|
24
|
|
Net sales variance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
|
|
(7
|
)%
|
|
|
|
|
|
|
|
|
Price
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
Currency
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
Other (charges) gains, net
|
|
|
|
|
|
|
(7
|
)
|
|
|
7
|
|
|
|
(1
|
)
|
|
|
(8
|
)
|
|
|
7
|
|
Operating profit
|
|
|
46
|
|
|
|
48
|
|
|
|
(2
|
)
|
|
|
96
|
|
|
|
96
|
|
|
|
|
|
Operating margin
|
|
|
15.8
|
%
|
|
|
17.1
|
%
|
|
|
|
|
|
|
16.7
|
%
|
|
|
17.5
|
%
|
|
|
|
|
Earnings (loss) from continuing operations before tax and
minority interests
|
|
|
94
|
|
|
|
82
|
|
|
|
12
|
|
|
|
144
|
|
|
|
129
|
|
|
|
15
|
|
Depreciation and amortization
|
|
|
13
|
|
|
|
13
|
|
|
|
|
|
|
|
27
|
|
|
|
24
|
|
|
|
3
|
|
Our Consumer Specialties segment consists of our Acetate
Products and Nutrinova businesses. Our Acetate Products business
primarily produces and supplies acetate tow, which is used in
the production of filter products. We also produce acetate flake
which is processed into acetate fiber in the form of a tow band.
The successful completion of the acquisition of APL on
January 31, 2007 further increases our global position and
enhances our ability to service our customers. Our Nutrinova
business produces and sells
Sunett®,
a high intensity sweetener, and food protection ingredients,
such as sorbates, for the food, beverage and pharmaceuticals
industries.
Consumer Specialties net sales increased 4% for both the
three and six months ended June 30, 2008 compared to the
same periods in 2007. Higher tow pricing on continued strong
demand and favorable currency impacts drove the increase in net
sales. During the six months ended June 30, 2008, a portion
of the increase in net sales was due to an additional month of
sales from the APL acquisition. The increase in both periods was
partially offset by lower acetate flake volumes as a result of
the shift in flake production to our China ventures and modest
declines in
Sunett®
prices and volumes.
Operating profit decreased $2 million and remained relatively
flat for the three and six months ended June 30, 2008,
respectively, compared to the same periods in 2007. Operating
margins decreased in both periods due to increased raw material
costs in both the Acetate Products and Nutrinova businesses and
higher freight and energy costs in the Acetate Products
business. The decreases were partially offset by decreased other
(charges) gains, net of $7 million in each period. Other
(charges) gains, net for the three and six months ended
June 30, 2007 included $3 million of deferred
compensation plan expenses and $4 million of other
restructuring charges.
Earnings (loss) from continuing operations before tax and
minority interests increased $12 million and
$15 million for the three and six months ended
June 30, 2008, respectively, compared to the same periods
in 2007.
36
The increases were driven principally by higher annual dividends
received from our China ventures during the three months ended
June 30, 2008 compared to the same period in 2007.
Industrial
Specialties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2008
|
|
|
2007
|
|
|
in $
|
|
|
2008
|
|
|
2007
|
|
|
in $
|
|
|
|
(unaudited)
|
|
|
|
(in $ millions, except for percentages)
|
|
|
Net sales
|
|
|
386
|
|
|
|
355
|
|
|
|
31
|
|
|
|
751
|
|
|
|
701
|
|
|
|
50
|
|
Net sales variance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
(9
|
)%
|
|
|
|
|
|
|
|
|
|
|
(10
|
)%
|
|
|
|
|
|
|
|
|
Price
|
|
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
Currency
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
Other
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
Other (charges) gains, net
|
|
|
(1
|
)
|
|
|
(19
|
)
|
|
|
18
|
|
|
|
(4
|
)
|
|
|
(19
|
)
|
|
|
15
|
|
Operating profit
|
|
|
20
|
|
|
|
(1
|
)
|
|
|
21
|
|
|
|
37
|
|
|
|
11
|
|
|
|
26
|
|
Operating margin
|
|
|
5.2
|
%
|
|
|
(0.3
|
)%
|
|
|
|
|
|
|
4.9
|
%
|
|
|
1.6
|
%
|
|
|
|
|
Earnings (loss) from continuing operations before tax and
minority interests
|
|
|
20
|
|
|
|
(1
|
)
|
|
|
21
|
|
|
|
37
|
|
|
|
11
|
|
|
|
26
|
|
Depreciation and amortization
|
|
|
14
|
|
|
|
16
|
|
|
|
(2
|
)
|
|
|
28
|
|
|
|
30
|
|
|
|
(2
|
)
|
Our Industrial Specialties segment includes our Emulsions, PVOH
and AT Plastics businesses. Our Emulsions business is a global
leader which produces a broad product portfolio, specializing in
vinyl acetate/ethylene emulsions and is a recognized authority
on low VOC (volatile organic compounds), an
environmentally-friendly technology. As a global leader, our
PVOH business produces and sells a broad portfolio of
performance PVOH chemicals engineered to meet specific customer
requirements. Our emulsions and PVOH products are used in a wide
array of applications including paints and coatings, adhesives,
building and construction, glass fiber, textiles and paper. AT
Plastics offers a complete line of low-density polyethylene and
specialty ethylene vinyl acetate copolymers. AT Plastics
products are used in many applications including flexible
packaging films, lamination film products, hot melt adhesives,
medical tubing and automotive carpeting.
Industrial Specialties net sales increased
$31 million and $50 million during the three and six
months ended June 30, 2008, respectively, compared to the
same periods in 2007. The increases were primarily driven by
higher pricing across all businesses and favorable foreign
currency impacts. Higher overall pricing was primarily due to
market tightness for PVOH and increasing raw material costs
which allowed for upward movement in pricing across all regions.
The increase was partially offset by decreased volumes and the
absence of net sales in the first six months of 2008 from the AT
Plastics Films business, which was divested in the third
quarter of 2007. Volumes decreased in the Emulsions and PVOH
businesses due to the weakened demand in US construction
markets. Additionally, slowing in certain European end-markets
drove the Emulsions volume declines.
Operating profit increased $21 million and $26 million
for the three and six months ended June 30, 2008,
respectively, compared to the same periods in 2007. Operating
margins increased during the three and six months ended
June 30, 2008 compared to the same periods in 2007, due
primarily to decreases in other (charges) gains, net. During
2007, we initiated a plan to simplify and optimize our Emulsions
and PVOH businesses to become a leader in technology and
innovation. Other charges (gains), net includes a charge of
$4 million for employee termination benefits incurred under
this plan during the six months ended June 30, 2008. Other
charges (gains), net includes a charge of $16 million and
$3 million for employee severance and impairment of
long-lived assets, respectively, under this plan for the three
and six months ended June 30, 2007. The increases in
operating profit are due to lower expenses under this plan
during the three and six months ended June 30, 2008
compared to the same periods in 2007.
37
Earnings (loss) from continuing operations before tax and
minority interests increased $21 million and
$26 million for the three and six months ended
June 30, 2008, respectively, compared to the same periods
in 2007, principally driven by higher operating profit.
Acetyl
Intermediates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2008
|
|
|
2007
|
|
|
in $
|
|
|
2008
|
|
|
2007
|
|
|
in $
|
|
|
|
(unaudited)
|
|
|
|
(in $ millions, except for percentages)
|
|
|
Net sales
|
|
|
1,067
|
|
|
|
829
|
|
|
|
238
|
|
|
|
2,163
|
|
|
|
1,668
|
|
|
|
495
|
|
Net sales variance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
Price
|
|
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
Currency
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (charges) gains, net
|
|
|
(2
|
)
|
|
|
(11
|
)
|
|
|
9
|
|
|
|
(9
|
)
|
|
|
(11
|
)
|
|
|
2
|
|
Operating profit
|
|
|
148
|
|
|
|
91
|
|
|
|
57
|
|
|
|
325
|
|
|
|
223
|
|
|
|
102
|
|
Operating margin
|
|
|
13.9
|
%
|
|
|
11.0
|
%
|
|
|
|
|
|
|
15.0
|
%
|
|
|
13.4
|
%
|
|
|
|
|
Earnings (loss) from continuing operations before tax and
minority interests
|
|
|
181
|
|
|
|
110
|
|
|
|
71
|
|
|
|
387
|
|
|
|
246
|
|
|
|
141
|
|
Depreciation and amortization
|
|
|
34
|
|
|
|
26
|
|
|
|
8
|
|
|
|
66
|
|
|
|
50
|
|
|
|
16
|
|
Our Acetyl Intermediates segment produces and supplies acetyl
products, including acetic acid, VAM, acetic anhydride and
acetate esters. These products are generally used as starting
materials for colorants, paints, adhesives, coatings, medicines
and more. Other chemicals produced in this segment are organic
solvents and intermediates for pharmaceutical, agricultural and
chemical products.
Acetyl Intermediates net sales increased $238 million
and $495 million during the three and six months ended
June 30, 2008, respectively, compared to the same periods
in 2007. Volumes increased due to the
start-up of
our acetic acid unit at our Nanjing, China facility in mid-2007
coupled with the absence of the temporary unplanned outage of
the acetic acid unit at our Clear Lake, Texas facility during
2007. Pricing increases were driven by the tight global supply
of acetyl products, higher methanol and ethylene costs and
favorable currency impacts during the three and six months ended
June 30, 2008 compared to the same periods in 2007.
Operating profit increased $57 million and
$102 million for the three and six months ended
June 30, 2008, respectively, compared to the same periods
in 2007. Operating margins increased slightly as increases in
raw material, freight and energy costs were more than offset by
increases in net sales. During the three and six months ended
June 30, 2008, increases in gross profit and decreases in
other charges (gains), net more than offset increases in
selling, general and administrative expenses and research and
development costs. Other (charges) gains, net incurred during
the six months ended June 30, 2008 were primarily related
to the planned shutdown of our Pampa, Texas facility. Other
(charges) gains, net incurred during the six months ended
June 30, 2007 principally consist of $10 million of
deferred compensation plan expenses. Increases in selling,
general and administrative expenses are consistent with the
increase in net sales. Research and development costs increased
primarily due to a ramp up of research and development projects
in China, including research and development activities
associated with the sole and exclusive license to patents and
patent applications related to acetic acid. Depreciation and
amortization expense for the three and six months ended
June 30, 2008 compared to the same periods in 2007
increased primarily as a result of the startup of our acetic
acid plant in Nanjing, China in 2007 and as a result of
accelerated depreciation associated with the planned shutdown of
our Pampa, Texas facility.
Earnings (loss) from continuing operations before tax and
minority interests increased $71 million and
$141 million for the three and six months ended
June 30, 2008, respectively, compared to the same periods
in 2007 due to higher operating profit and dividend income from
our cost investment. Dividend income from our cost
38
investment, Ibn Sina, increased $14 million and
$26 million for the three and six months ended
June 30, 2008, respectively, compared to the same periods
in 2007 as a result of higher earnings from expanding margins
for methanol and methyl tertiary-butyl ether.
Other
Activities
Other Activities primarily consists of corporate center costs,
including financing and administrative activities, and the
captive insurance companies.
Net sales increased $1 million for the three months ended
June 30, 2008 compared to the three months ended
June 30, 2007. The increase was driven by the increase in
third-party revenues from our captive insurance companies. Net
sales remained flat for the six months ended June 30, 2008
compared to the six months ended June 30, 2007. We do not
expect third-party revenues from our captive insurance companies
to increase significantly in the near future.
The operating loss for Other Activities decreased
$55 million and $37 million for the three and six
months ended June 30, 2008, respectively, compared to the
same periods in 2007. The decrease in operating loss was due to
decreases in other (charges) gains, net offset by higher
selling, general and administrative expenses. Other (charges)
gains, net decreased principally due to the absence of
$59 million in deferred compensation plan costs that were
expensed during the three months ended June 30, 2007.
Selling, general and administrative expenses increased due to
additional spending on business optimization and finance
improvement initiatives of $8 million and $18 million
for the three and six month periods ended June 30, 2008,
respectively, as compared to the same periods in 2007.
The loss from continuing operations before tax and minority
interests decreased $311 million and $291 million for
the three and six months ended June 30, 2008, respectively,
compared to the same periods in 2007, primarily due to
refinancing costs incurred in 2007 and the decrease in operating
loss discussed above. During the three months ended
June 30, 2007, we incurred $256 million of refinancing
expenses associated with the April 2, 2007 debt refinancing.
Liquidity
and Capital Resources
Our primary source of liquidity is cash generated from
operations, available cash and cash equivalents and dividends
from our portfolio of strategic investments. In addition, we
have availability under our senior credit agreement to assist,
if required, in meeting our working capital needs and other
contractual obligations. We believe we will have available
resources to meet our liquidity requirements, including debt
service, for the remainder of 2008 and for the subsequent twelve
months. If our cash flow from operations is insufficient to fund
our debt service and other obligations, we may be required to
use other means available to us such as increasing our
borrowings, reducing or delaying capital expenditures, seeking
additional capital or seeking to restructure or refinance our
indebtedness. There can be no assurance, however, that we will
continue to generate cash flows at or above current levels or
that we will be able to maintain our ability to borrow under our
revolving credit facilities.
Cash
Flows
Cash and cash equivalents as of June 30, 2008 were
$983 million, which was an increase of $158 million
from December 31, 2007.
Net Cash
Provided by Operating Activities
Cash flow from operations increased $267 million during the
six months ended June 30, 2008 as compared to the six
months ended June 30, 2007. An increase in operating profit
of $164 million and lower cash taxes paid of
$100 million during the six months ended June 30, 2008
as compared to the same period in 2007 contributed to the
increase. Also contributing to the increase was the absence in
2008 of cash spent on our long-term incentive plan,
$59 million for value-added tax received from Fraport which
will be remitted to the tax authorities in August 2008 and
adjustments to cash for discontinued operations. Adjustments to
cash for discontinued operations of $101 million during the
six months ended June 30, 2007 primarily related to working
capital changes of the oxo products and derivatives businesses
we sold and the shutdown of our Edmonton, Alberta, Canada
methanol facility during 2007.
39
Negative changes to trade working capital and costs incurred in
a legal settlement of $107 million (see the Polyester
Staple Antitrust Litigation in Note 10 of the
accompanying unaudited interim consolidated financial
statements) partially offset the increases.
Net Cash
Provided by (Used in) Investing Activities
Net cash from investing activities decreased from a cash inflow
of $295 million for the six months ended June 30, 2007
to a cash outflow of $33 million for the same period in
2008. Cash outflows during the six months ended June 30,
2008 included capital expenditures of $136 million, cash
spent on the Ticona Kelsterbach plant relocation of
$62 million and $93 million spent in settlement of our
cross currency swaps (see Cross Currency Swaps
below). Cash received from Fraport in connection with the Ticona
Kelsterbach plant relocation partially offset cash outflows
during 2008. Cash inflows during the six months ended
June 30, 2007 primarily consisted of cash received from the
sale of our oxo products and derivatives businesses, partially
offset by cash outflows spent on the APL acquisition and capital
expenditures.
Our cash outflow for capital expenditures were $136 million
and $116 million for the six months ended June 30,
2008 and 2007, respectively. Capital expenditures were primarily
related to major replacements of equipment, capacity expansions,
major investments to reduce future operating costs, and
environmental and health and safety initiatives. Capital
expenditures also included cash spent on the expansion of our
integrated chemical complex in Nanjing, China. Capital
expenditures are expected to be approximately $300 million
for 2008.
Net Cash
Used in Financing Activities
Net cash used in financing activities decreased from a cash
outflow of $706 million for the six months ended
June 30, 2007 to a cash outflow of $183 million for
the same period in 2008. The decrease primarily related to cash
outflows attributable to the debt refinancing in 2007 as
discussed in Note 6 to the accompanying unaudited interim
consolidated financial statements. As a result of the
refinancing, we incurred a net cash outflow of $211 million
related to repayments of our debt during the six months ended
June 30, 2007. In addition, our cash outlay for various
refinancing expenses was approximately $240 million during
the six months ended June 30, 2007. Further contributing to
the decrease was $132 million less cash spent on
repurchases of our Series A common stock during the six
months ended June 30, 2008 as compared to the six months
ended June 30, 2007.
Liquidity
Our contractual obligations, commitments and debt service
requirements over the next several years are significant. As
stated above, our primary source of liquidity is cash generated
from operations, available cash and cash equivalents and
dividends from our portfolio of strategic investments. In
addition, we have availability under our senior credit agreement
to assist, if required, in meeting our working capital needs and
other contractual obligations.
Celanese has no material assets other than the stock of its
subsidiaries and no independent external operations of its own.
As such, we generally will depend on the cash flow of our
subsidiaries to meet our obligations.
Debt and
Capital
Holders of our preferred stock are entitled to receive, when, as
and if declared by our Board of Directors, out of funds legally
available, cash dividends at the rate of 4.25% per annum (or
$1.06 per share) of liquidation preference, payable quarterly in
arrears commencing on May 1, 2005. Dividends on the
preferred stock are cumulative from the date of initial
issuance. As of June 30, 2008, the dividend is expected to
result in an annual payment of approximately $10 million.
The preferred stock is convertible, at the option of the holder,
at any time into approximately 1.26 shares of our
Series A common stock, subject to adjustments, per $25.00
liquidation preference of the preferred stock. During the three
months ended June 30, 2008 and 2007, we paid
$2 million and $3 million, respectively, of cash
dividends on our preferred stock. On July 3, 2008, we
declared a $3 million cash dividend on our preferred stock,
which will be paid on August 1, 2008.
40
In July 2005, our Board of Directors adopted a policy of
declaring, subject to legally available funds, a quarterly cash
dividend on each share of our Series A common stock at an
annual rate initially equal to approximately 1% of the $16.00
initial public offering price per share of our Series A
common stock (or $0.16 per share) unless our Board of Directors
in its sole discretion determines otherwise. During the three
months ended June 30, 2008 and 2007, we paid
$6 million of cash dividends in each period on our
Series A common stock and on July 3, 2008, we declared
a $6 million cash dividend which will be paid on
August 1, 2008. Based upon the number of outstanding shares
as of June 30, 2008, the annual cash dividend payment is
approximately $24 million.
Our senior credit agreement consists of $2,280 million of
US dollar-denominated and 400 million of
Euro-denominated term loans due 2014, a $650 million
revolving credit facility terminating in 2013 and a
$228 million credit-linked revolving facility terminating
in 2014. Borrowings under the senior credit agreement bear
interest at a variable interest rate based on LIBOR (for US
dollars) or EURIBOR (for Euros), as applicable, or, for US
dollar-denominated loans under certain circumstances, a base
rate, in each case plus an applicable margin. The applicable
margin for the term loans and any loans under the credit-linked
revolving facility is 1.75%, subject to potential reductions as
defined in the senior credit agreement. As of June 30,
2008, the applicable margin was 1.5% and continues to be subject
to potential adjustments as defined in the senior credit
agreement. The term loans under the senior credit agreement are
subject to amortization at 1% of the initial principal amount
per annum, payable quarterly. The remaining principal amount of
the term loans will be due on April 2, 2014.
As of June 30, 2008, we had total debt of
$3,623 million compared to $3,556 million as of
December 31, 2007. We were in compliance with all of the
covenants related to our debt agreements as of June 30,
2008.
As of June 30, 2008, there were no outstanding borrowings
or letters of credit issued under the revolving credit facility;
accordingly, $650 million remained available for borrowing.
As of June 30, 2008, there were $130 million of
letters of credit issued under the credit-linked revolving
facility and $98 million remained available for borrowing.
In March 2008, Crystal US Holdings 3 LLC, a subsidiary of
Celanese Corporation, was upgraded by Moodys Investors
Service with a positive outlook and a corporate credit rating of
Ba2 from Ba3.
Contractual Debt and Cash Obligations. There
have been no material revisions to our contractual obligations
as filed in our Annual Report on
Form 10-K
as of and for the year ended December 31, 2007 as filed
with the SEC on February 29, 2008.
Purchases
of Treasury Stock
On February 8, 2008, our Board of Directors authorized the
repurchase of up to $400 million of our Series A
common stock. The authorization gives management discretion in
determining the conditions under which shares may be
repurchased. During the six months ended June 30, 2008, we
repurchased 2,948,900 shares of our Series A common
stock at an average purchase price of $42.71 per share for a
total of approximately $126 million pursuant to this
authorization.
Treasury stock purchases reduce the number of shares outstanding
and the repurchased shares may be used by us for compensation
programs utilizing our stock and other corporate purposes. We
account for treasury stock using the cost method and include
treasury stock as a component of Shareholders equity.
Cross
Currency Swaps
To protect the foreign currency exposure of a net investment in
a foreign operation, we entered into cross currency swaps with
certain financial institutions in 2004. Under the terms of the
cross currency swap arrangements, we paid approximately
13 million in interest and received approximately
$16 million in interest on June 15 and December 15 of each
year. Upon maturity of the cross currency swap arrangements in
June 2008, we owed 276 million ($426 million)
and were owed $333 million. In settlement of the
obligation, we paid $93 million (net of interest of
$3 million) in June 2008.
41
Domination
Agreement
The domination and profit and loss transfer agreement (the
Domination Agreement) was approved at the Celanese
AG (CAG) extraordinary shareholders meeting on
July 31, 2004. The Domination Agreement between CAG and the
Purchaser became effective on October 1, 2004 and cannot be
terminated by the Purchaser in the ordinary course of business
until September 30, 2009. Our subsidiaries, Celanese
International Holdings Luxembourg S.a.r.l. (CIH),
formerly Celanese Caylux Holdings Luxembourg S.C.A., and
Celanese US, have each agreed to provide the Purchaser with
financing to strengthen the Purchasers ability to fulfill
its obligations under, or in connection with, the Domination
Agreement and to ensure that the Purchaser will perform all of
its obligations under, or in connection with, the Domination
Agreement when such obligations become due, including, without
limitation, the obligation to compensate CAG for any statutory
annual loss incurred by CAG during the term of the Domination
Agreement. If CIH
and/or
Celanese US are obligated to make payments under such guarantees
or other security to the Purchaser, we may not have sufficient
funds for payments on our indebtedness when due. We have not had
to compensate CAG for an annual loss for any period during which
the Domination Agreement has been in effect.
Off-Balance
Sheet Arrangements
We have not entered into any material off-balance sheet
arrangements.
Critical
Accounting Policies and Estimates
Our consolidated financial statements are based on the selection
and application of significant accounting policies. The
preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United
States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the
reported amounts of revenues, expenses and allocated charges
during the reporting period. Actual results could differ from
those estimates. However, we are not currently aware of any
reasonably likely events or circumstances that would result in
materially different results.
We describe our significant accounting policies in Note 3,
Summary of Accounting Policies, of the Notes to Consolidated
Financial Statements included in our Annual Report on
Form 10-K
as of and for the year ended December 31, 2007. We discuss
our critical accounting policies and estimates in MD&A in
our Annual Report on
Form 10-K
as of and for the year ended December 31, 2007.
There have been no material revisions to the critical accounting
policies as filed in our Annual Report on
Form 10-K
as of and for the year ended December 31, 2007 as filed
with the SEC on February 29, 2008.
On January 1, 2008, we adopted the provisions of Statement
of Financial Accounting Standard No. 157, Fair Value
Measurements (SFAS No. 157) for
financial assets and liabilities. SFAS No. 157 defines
fair value, thereby eliminating inconsistencies in guidance
found in various prior accounting pronouncements, and increases
disclosures surrounding fair value calculations. The adoption of
SFAS No. 157 for financial assets and liabilities did
not have a material impact on our statement of operations,
financial position or cash flows for the six months ended
June 30, 2008.
SFAS No. 157 establishes a three-tiered fair value
hierarchy that prioritizes inputs to valuation techniques used
in fair value calculations. The three levels of inputs are
defined as follows:
Level 1 unadjusted quoted prices for identical
assets or liabilities in active markets accessible by us
Level 2 inputs that are observable in the
marketplace other than those inputs classified as Level 1
Level 3 inputs that are unobservable in the
marketplace and significant to the valuation
SFAS No. 157 requires us to maximize the use of
observable inputs and minimize the use of unobservable inputs.
If a financial instrument uses inputs that fall in different
levels of the hierarchy, the instrument will be categorized
based upon the lowest level of input that is significant to the
fair value calculation.
42
Our financial assets and liabilities are measured at fair value
on a recurring basis and include securities available for sale
and derivative financial instruments. Securities available for
sale include US government and corporate bonds, mortgage-backed
securities and equity securities. Derivative financial
instruments include interest rate swaps and foreign currency
forwards and swaps.
Marketable Securities. Where possible, we
utilize quoted market prices to measure debt and equity
securities; such items are classified as Level 1 in the
hierarchy and include equity securities and US government bonds.
When quoted market prices for identical assets are unavailable,
varying valuation techniques are used. Common inputs in valuing
these assets include, among others, benchmark yields, issuer
spreads, forward mortgage-backed securities trade prices and
recently reported trades. Such assets are classified as
Level 2 in the hierarchy and typically include
mortgage-backed securities, corporate bonds and other US
government securities.
Derivatives. Derivative financial instruments
are valued in the market using discounted cash flow techniques.
These techniques incorporate Level 1 and Level 2
inputs such as interest rates and foreign currency exchange
rates. These market inputs are utilized in the discounted cash
flow calculation considering the instruments term,
notional amount, discount rate and credit risk. Significant
inputs to the derivative valuation for interest rate swaps and
foreign currency forwards and swaps are observable in the active
markets and are classified as Level 2 in the hierarchy.
Recent
Accounting Pronouncements
See Notes 2 and 11 of the accompanying unaudited interim
consolidated financial statements included in this
Form 10-Q
for a discussion of recent accounting pronouncements.
Factors
That May Affect Future Results and Financial Condition
Because of the following factors, as well as other factors
affecting our operating results and financial condition, past
financial performance should not be considered to be a reliable
indicator of future performance, and investors should not use
historical trends to anticipate results or trends in future
periods. In addition, many factors could cause our actual
results, performance or achievements to be materially different
from any future results, performance or achievements that may be
expressed or implied by such forward-looking statements. These
factors include, among other things:
|
|
|
|
|
changes in general economic, business, political and regulatory
conditions in the countries or regions in which we operate;
|
|
|
|
the length and depth of product and industry business cycles
particularly in the automotive, electrical, electronics and
construction industries;
|
|
|
|
changes in the price and availability of raw materials,
particularly changes in the demand for, supply of, and market
prices of fuel oil, methanol, natural gas, coal, electricity and
petrochemicals such as ethylene and butane;
|
|
|
|
the ability to pass increases in raw material prices on to
customers or otherwise improve margins through price increases;
|
|
|
|
the ability to maintain plant utilization rates and to implement
planned capacity additions and expansions;
|
|
|
|
the ability to reduce production costs and improve productivity
by implementing technological improvements to existing plants;
|
|
|
|
increased price competition and the introduction of competing
products by other companies;
|
|
|
|
changes in the degree of intellectual property and other legal
protection afforded to our products;
|
|
|
|
compliance costs and potential disruption or interruption of
production due to accidents or other unforeseen events or delays
in construction of facilities;
|
|
|
|
potential liability for remedial actions under existing or
future environmental regulations;
|
43
|
|
|
|
|
potential liability resulting from pending or future litigation,
or from changes in the laws, regulations or policies of
governments or other governmental activities in the countries in
which we operate;
|
|
|
|
changes in currency exchange rates and interest rates; and
|
|
|
|
various other factors, both referenced and not referenced in
this document.
|
Many of these factors are macroeconomic in nature and are,
therefore, beyond our control. Additional information concerning
these and other factors can be found in our Annual Report on
Form 10-K
filed with the SEC on February 29, 2008, including in
Item 1A Risk Factors, and as may be
updated in Part II, Item 1A Risk
Factors, of this interim report on
Form 10-Q.
Should one or more of these risks or uncertainties materialize,
or should underlying assumptions prove incorrect, our actual
results, performance or achievements may vary materially from
those described in this Quarterly Report as anticipated,
believed, estimated, expected, intended, planned or projected.
We neither intend nor assume any obligation to update these
forward-looking statements, which speak only as of their dates.
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
Market risk for our Company has not changed materially from the
foreign exchange, interest rate and commodity risks disclosed in
Item 7A in our Annual Report on
Form 10-K
as of and for the year ended December 31, 2007 as filed
with the SEC on February 29, 2008. However, market risk
associated with the foreign currency exposure of a net
investment in a foreign operation has changed due to the
settlement of the cross currency swap arrangements. To protect
the foreign currency exposure of a net investment in a foreign
operation, we entered into cross currency swaps with certain
financial institutions in 2004. Under the terms of the cross
currency swap arrangements, we paid approximately
13 million in interest and received approximately
$16 million in interest on June 15 and December 15 of each
year. The fair value of the net obligation under the cross
currency swaps was included in current other liabilities at
December 31, 2007. Upon maturity of the cross currency swap
arrangements in June 2008, we owed 276 million
($426 million) and were owed $333 million. In
settlement of the obligation, we paid $93 million (net of
interest of $3 million) in June 2008.
This net investment along with a portion of other assets,
liabilities, revenues and expenses are denominated in currencies
other than the US dollar, principally the Euro. Fluctuations in
the value of these currencies against the US dollar,
particularly the value of the Euro, can have a direct and
material impact on our business and financial results.
|
|
Item 4.
|
Controls
and Procedures
|
Under the supervision and with the participation of our
management, including the Chief Executive Officer and Chief
Financial Officer, we have evaluated the effectiveness of our
disclosure controls and procedures pursuant to Exchange Act
Rule 13a-15(b)
as of the end of the period covered by this report. Based on
that evaluation, the Chief Executive Officer and Chief Financial
Officer have concluded that these disclosure controls and
procedures are effective.
Changes
in Internal Control Over Financial Reporting
We are currently transitioning finance and accounting functions
from multiple locations in various countries to a Financial
Shared Service Center in Budapest, Hungary. This transformation
has involved significant changes in personnel and certain
changes to internal processes and control procedures; however,
the basic internal controls over financial reporting have not
materially changed. As of the end of the period covered by this
report, there were no changes in internal control over financial
reporting that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
44
PART II
OTHER INFORMATION
|
|
Item 1.
|
Legal
Proceedings
|
We are involved in a number of legal proceedings, lawsuits and
claims incidental to the normal conduct of our business,
relating to such matters as product liability, antitrust, past
waste disposal practices and release of chemicals into the
environment. While it is impossible at this time to determine
with certainty the ultimate outcome of these proceedings,
lawsuits and claims, we believe, based on the advice of legal
counsel, that adequate provisions have been made and that the
ultimate outcomes will not have a material adverse effect on our
financial position, but may have a material adverse effect on
our results of operations or cash flows in any given accounting
period. See also Note 10 to the unaudited interim
consolidated financial statements for a discussion of legal
proceedings.
There have been no significant developments in the Legal
Proceedings described in our Annual Report on
Form 10-K
as of and for the year ended December 31, 2007 as filed
with the SEC on February 29, 2008 other than those
disclosed in Note 10 to the unaudited interim consolidated
financial statements under the headings Polyester Staple
Antitrust Litigation and Sorbates Antitrust
Actions and in the Form 8-K filed by the Company on
June 13, 2008.
There have been no material revisions to the Risk
factors as filed in our Annual Report on
Form 10-K
as of and for the year ended December 31, 2007 (2007
Form 10-K)
with the SEC on February 29, 2008 other than the revised
risk factor below, which replaces the risk factor appearing in
our 2007
Form 10-K
entitled Changes in environmental, health, and safety
regulatory requirements could lead to a decrease in demand for
our products.
Changes
in environmental, health and safety regulations in the
jurisdictions where we manufacture and sell our products could
lead to a decrease in demand for our products.
New or revised governmental regulations and independent studies
relating to the effect of our products on health, safety and the
environment may affect demand for our products and the cost of
producing our products.
Canada recently included vinyl acetate monomer (VAM)
as one of approximately 200 chemicals being assessed as part of
the Canadian Governments Chemicals Management Plan under
the Canadian Environmental Protection Act (CEPA). On
May 16, 2008, Health Canada published a draft screening
risk assessment and draft risk management scope document for VAM
that concluded, using a precautionary approach, that
VAM be listed as a toxic substance under CEPA. If
this classification is finalized, Health Canada will proceed to
develop a risk management plan that could impose conditions and
restrictions on the use of VAM in Canada, including the
prohibition of VAM in some end uses and the limitation of
residual VAM in others. The Company and other manufacturers and
users of VAM have provided Health Canada with information on
toxicological properties of VAM and the residual levels of VAM
in products manufactured or distributed in Canada.
Notwithstanding, it is unclear at this point which VAM
classification Health Canada will adopt. If Canada adopts its
current proposal, this may encourage other jurisdictions to
adopt similar standards which could have an adverse impact on
our business and results of operations.
The Registration, Evaluation, Authorization and Restriction of
Chemicals (REACh), which established a system to
register and evaluate chemicals manufactured in, or imported to,
the European Union, became effective on June 1, 2007. VAM
is one of the chemicals that the European Chemicals Agency
(ECHA) will regulate under REACh. ECHA will likely
rely on the work of the EU-Working group on classification and
labeling of dangerous substances. After extensive study, the
EU-Working Group agreed that VAM should be classified in the EU
as showing limited evidence of a carcinogenic effect. In
addition, a risk assessment was performed on VAM by the European
Chemicals Bureau of the European Commission. Risk reduction
strategies for human health and the environment were finalized
without the imposition of any restrictions or burdens atypical
to an industrial chemical. We can provide no assurance that the
EU classifications on VAM will not be revised in the future, or
that other chemicals we produce will not be classified in a
manner that would adversely affect demand for such products.
Such negative classifications could have an adverse affect on
our business and results of operations.
45
We are a producer of formaldehyde and plastics derived from
formaldehyde. Several studies have investigated possible links
between formaldehyde exposure and various end points including
leukemia. The International Agency for Research on Cancer
(IARC), a private research agency, has reclassified
formaldehyde from Group 2A (probable human carcinogen) to Group
1 (known human carcinogen) based on studies linking formaldehyde
exposure to nasopharyngeal cancer, a rare cancer in humans. We
expect the results of IARCs review will be examined and
considered by government agencies with responsibility for
setting worker and environmental exposure standards and labeling
requirements. If such agencies give strong consideration to
IARCs findings in setting such standards and requirements,
it could have an adverse effect on our business.
Other pending initiatives will potentially require toxicological
testing and risk assessments of a wide variety of chemicals,
including chemicals used or produced by us. These initiatives
include the Voluntary Childrens Chemical Evaluation
Program and High Production Volume Chemical Initiative in the
United States, as well as various European Commission programs,
such as REACh and the European Environment and Health Strategy
(SCALE).
The above-mentioned assessments in the United States, Canada and
Europe may result in heightened concerns about the chemicals
involved and additional requirements being placed on the
production, handling, labeling or use of the subject chemicals.
Such concerns and additional requirements could increase the
cost incurred by our customers to use our chemical products and
otherwise limit the use of these products, which could lead to a
decrease in demand for these products. Such a decrease in demand
would likely have an adverse impact on our business and results
of operations.
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
The table below sets forth information regarding repurchases of
our Series A common stock during the three months ended
June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate Dollar
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Value of Shares
|
|
|
|
Total Number
|
|
|
Average
|
|
|
Shares Purchased as
|
|
|
Remaining that may be
|
|
|
|
of Shares
|
|
|
Price Paid
|
|
|
Part of Publicly
|
|
|
Purchased Under
|
|
Period
|
|
Purchased(1)
|
|
|
per Share
|
|
|
Announced Program
|
|
|
the Program
|
|
|
April 28-30, 2008
|
|
|
53,300
|
|
|
$
|
44.90
|
|
|
|
53,300
|
|
|
$
|
337,600,000
|
|
May 1-27, 2008
|
|
|
581,800
|
|
|
$
|
47.27
|
|
|
|
581,800
|
|
|
$
|
310,100,000
|
|
June 17-25, 2008
|
|
|
732,100
|
|
|
$
|
49.28
|
|
|
|
732,100
|
|
|
$
|
274,100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,367,200
|
|
|
|
|
|
|
|
1,367,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Purchased pursuant to the $400 million share repurchase
program publicly announced on February 11, 2008. This
repurchase program does not have an expiration date. |
|
|
Item 3.
|
Defaults
Upon Senior Securities
|
None.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
We held our annual meeting of shareholders on April 24,
2008. During this meeting, our shareholders were asked to
consider and vote upon two proposals: 1) to elect three
Class I Directors to our Board of Directors to serve for a
term which expires at the annual meeting of shareholders in 2011
or until their successors are duly elected and qualified, and
2) to ratify the appointment of our independent registered
public accounting firm. James E. Barlett, David F. Hoffmeister
and Paul H. ONeill continue to serve as Class II
Directors whose terms expire at the annual meeting of
shareholders in 2009 and Mark C. Rohr, Farah M. Walters and
David N. Weidman continue to serve as Class III Directors
whose terms expire at the annual meeting of shareholders in
2010, or until their successors are duly elected and qualified.
46
On the record date of March 3, 2008, there were
154,766,024 shares of Series A common stock issued and
outstanding and entitled to be voted at the annual meeting, if
represented. For each proposal, the results of the shareholder
voting were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Votes For
|
|
|
Votes Withheld
|
|
|
Abstain
|
|
|
1. Election of the director nominees to serve in
Class I, for a term which expires at the Annual Meeting of
Shareholders in 2011, or until their successors are duly elected
and qualified, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Martin G. McGuinn
|
|
|
135,046,210
|
|
|
|
163,187
|
|
|
|
380,328
|
|
Daniel S. Sanders
|
|
|
134,791,933
|
|
|
|
415,705
|
|
|
|
382,087
|
|
John K. Wulff
|
|
|
134,184,466
|
|
|
|
1,015,801
|
|
|
|
389,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Votes For
|
|
|
Votes Against
|
|
|
Abstain
|
|
|
2. Ratification of appointment of KPMG LLP as our
independent registered public accounting firm
|
|
|
134,648,880
|
|
|
|
869,172
|
|
|
|
71,673
|
|
|
|
Item 5.
|
Other
Information
|
None.
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.1
|
|
Second Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to the Current
Report on
Form 8-K
filed with the SEC on January 28, 2005).
|
|
3
|
.2
|
|
Second Amended and Restated By-laws, effective as of
February 8, 2008 (incorporated by reference to
Exhibit 3.2 to the Current Report on
Form 8-K
filed with the SEC on February 14, 2008).
|
|
3
|
.3
|
|
Certificate of Designations of 4.25% Convertible Perpetual
Preferred Stock (incorporated by reference to Exhibit 3.2
to the Current Report on
Form 8-K
filed with the SEC on January 28, 2005).
|
|
10
|
.1
|
|
Change in Control Agreement, dated May 1, 2008, between the
Company and Christopher W. Jensen (filed herewith).
|
|
10
|
.2
|
|
Offer Letter Agreement, dated May 21, 2008 between the
Company and Michael L. Summers (filed herewith).
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
|
|
32
|
.1
|
|
Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
|
|
32
|
.2
|
|
Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
|
PLEASE NOTE: It is inappropriate for readers
to assume the accuracy of, or rely upon any covenants,
representations or warranties that may be contained in
agreements or other documents filed as Exhibits to, or
incorporated by reference in, this Quarterly Report. Any such
covenants, representations or warranties may have been qualified
or superseded by disclosures contained in separate schedules or
exhibits not filed with or incorporated by reference in this
Quarterly Report, may reflect the parties negotiated risk
allocation in the particular transaction, may be qualified by
materiality standards that differ from those applicable for
securities law purposes, and may not be true as of the date of
this Quarterly Report or any other date and may be subject to
waivers by any or all of the parties. Where exhibits and
schedules to agreements filed or incorporated by reference as
Exhibits hereto are not included in these exhibits, such
exhibits and schedules to agreements are not included or
incorporated by reference herein.
47
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CELANESE CORPORATION
Name: David N. Weidman
|
|
|
|
Title:
|
Chairman of the Board of Directors and Chief Executive Officer
|
Date: July 23, 2008
Name: Steven M. Sterin
|
|
|
|
Title:
|
Senior Vice President and
Chief Financial Officer
|
Date: July 23, 2008
48