<DOCUMENT>
<TYPE>20-F
<SEQUENCE>1
<FILENAME>y94832e20vf.txt
<DESCRIPTION>FORM 20-F
<TEXT>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 17, 2004
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
COMMISSION FILE NUMBER 1-15419
CELANESE AG
(Exact name of Registrant as specified in its charter)
CELANESE CORPORATION
(Translation of Registrant's name into English)
FEDERAL REPUBLIC OF GERMANY
(Jurisdiction of incorporation or organization)
61476 KRONBERG/TAUNUS, GERMANY
(Address of principal executive offices)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<Table>
<Caption>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
Ordinary Shares with no par value New York Stock Exchange
</Table>
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SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
(Title of Class)
---------------------
SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION PURSUANT TO SECTION 15(d)
OF THE ACT:
NONE
(Title of Class)
---------------------
Indicate the number of outstanding shares of each of the issuer's classes
of capital or common stock as of the close of the period covered by the Annual
Report:
<Table>
<Caption>
<S> <C>
Ordinary Shares with no par value........................... 49,321,468
(as of December 31, 2003)
</Table>
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 [X] No [ ]
Indicate by check mark which financial statement item the registrant has
elected to follow.
Item 17 [ ] Item 18 [X]
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TABLE OF CONTENTS
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<S> <C> <C>
PART I
Item 1. Identity of Directors, Senior Management and Advisers....... 2
Item 2. Offer Statistics and Expected Timetable..................... 2
Item 3. Key Information............................................. 2
Selected Financial Data................................... 2
Exchange Rate Information................................. 4
Risk Factors.............................................. 4
Item 4. Information on the Company.................................. 11
Recent Developments....................................... 11
Introduction.............................................. 12
Business Summary.......................................... 12
Segment Overview.......................................... 12
Strategy.................................................. 13
Business Segments......................................... 15
Other Activities.......................................... 26
Acquisitions and Divestitures............................. 27
Raw Materials and Energy.................................. 27
Research and Development.................................. 28
Intellectual Property..................................... 29
Environmental and Other Regulation........................ 29
Organizational Structure.................................. 33
Description of Property................................... 33
Item 5. Operating and Financial Review and Prospects................ 36
Basis of Presentation..................................... 37
Major Events in 2003...................................... 38
Financial Highlights...................................... 40
Overview -- 2003 Compared with 2002....................... 41
Selected Data by Business Segment......................... 43
Summary by Business Segment -- 2003 Compared with 2002.... 44
Summary of Consolidated Results -- 2003 Compared with
2002.................................................... 46
Summary by Business Segment -- 2002 Compared with 2001.... 51
Summary of Consolidated Results -- 2002 Compared with
2001.................................................... 53
Liquidity and Capital Resources........................... 56
Market Risks.............................................. 62
Critical Accounting Policies and Estimates................ 64
Outlook................................................... 69
Item 6. Directors, Senior Management and Employees.................. 71
Directors and Senior Management........................... 71
Compensation of Directors and Officers.................... 74
Incentive Plans........................................... 79
Board Practices........................................... 80
Employees................................................. 82
Share Ownership........................................... 83
</Table>
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<Table>
<S> <C> <C>
Item 7. Major Shareholders and Related Party Transactions.............................................. 83
Major Shareholders........................................................................... 83
Related Party Transactions................................................................... 84
Item 8. Financial Information.......................................................................... 85
Export Sales................................................................................. 85
Legal Proceedings............................................................................ 85
Dividend Policy.............................................................................. 88
Item 9. The Offer and Listing.......................................................................... 88
Nature of Trading Market..................................................................... 88
Item 10. Additional Information......................................................................... 92
Articles of Association...................................................................... 92
Material Contracts........................................................................... 97
Exchange Controls and Other Limitations Affecting Security Holders........................... 97
Taxation..................................................................................... 97
Documents on Display......................................................................... 100
Item 11. Quantitative and Qualitative Disclosures About Market Risk..................................... 101
Interest-Rate Risk Management................................................................ 101
Foreign-Exchange Risk Management............................................................. 101
Commodity Risk Management.................................................................... 102
Stock Based Compensation Risk Management..................................................... 102
Item 12. Description of Securities Other Than Equity Securities......................................... 103
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies................................................ 103
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds................... 103
Item 15. Controls and Procedures........................................................................ 103
Item 16. Reserved....................................................................................... 103
Item 16A. Audit Committee Financial Expert............................................................... 103
Item 16B. Code of Ethics and Governance Matters.......................................................... 103
Item 16C. Principal Accountant Fees and Services......................................................... 104
Pre-Approval Policies and Procedures of the Finance and Audit Committee.................. 104
PART III
Item 17. Financial Statements........................................................................... 106
Item 18. Financial Statements........................................................................... 106
Item 19. Exhibits....................................................................................... 106
Index to Consolidated Financial Statements................................................... F-2
</Table>
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INTRODUCTION
Celanese AG is incorporated as a stock corporation organized under the laws
of the Federal Republic of Germany. As used in this annual report, "Celanese"
refers to Celanese AG, its consolidated subsidiaries and, except for accounting
purposes, its non-consolidated affiliates. For accounting purposes, "Celanese"
refers solely to Celanese AG and its majority owned subsidiaries over which
Celanese exercises control, as well as a special purpose entity which is a
variable interest entity where Celanese is deemed the primary beneficiary. See
Note 3 to the Consolidated Financial Statements contained in this annual report
(the "Consolidated Financial Statements").
---------------------
BASIS OF PRESENTATION
The Consolidated Financial Statements were prepared in accordance with
Accounting Principles generally accepted in the United States ("U.S. GAAP") for
all periods presented. The Consolidated Financial Statements reflect, for the
periods indicated, the financial condition, results of operations and cash flows
of the businesses transferred to Celanese from Hoechst Aktiengesellschaft, also
referred to as Hoechst, in a demerger that became effective on October 22, 1999,
adjusted for acquisitions and divestitures. The Consolidated Financial
Statements and other financial information included in this Annual Report,
unless otherwise specified, have been presented to separately show the effects
of discontinued operations. The Consolidated Financial Statements, for the
periods prior to the effective date of the demerger from Hoechst, assume that
Celanese had existed as a separate legal entity with four business segments,
Chemical Products, Acetate Products, Technical Polymers Ticona and Performance
Products, as well as the other businesses and activities of Hoechst transferred
to Celanese in the demerger. The financial results of Celanese, prior to the
effective date of the demerger, have been carved out from the consolidated
financial statements of Hoechst using the historical results of operations and
assets and liabilities of these businesses and activities and reflect the
accounting policies adopted by Hoechst in the preparation of its financial
statements and thus do not necessarily reflect the accounting policies which
Celanese might have adopted had it been an independent company during those
periods.
CURRENCY TRANSLATION
Celanese's Consolidated Financial Statements are prepared in euro. U.S.
dollar or U.S.$ amounts as of and for the year ended December 31, 2003 are
unaudited, and have been converted solely for the convenience of the readers for
2003 from euro into U.S. dollars, at an exchange rate of U.S.$1.2597 per E1.00,
the noon buying rate in New York City for cable transfers in foreign currencies
announced by the Federal Reserve Bank of New York for customs purposes (the
"Noon Buying Rate") on December 31, 2003. For information regarding recent rates
of exchange between euro and U.S. dollar, see "Item 3. Key
Information -- Exchange Rate Information." Celanese does not represent that the
U.S. dollar amounts presented in the U.S. dollar convenience translation or any
amounts translated from euro into other currencies could have been converted
from euro at the rates indicated.
On March 5, 2004, the Noon Buying Rate for the euro was U.S$1.2401 per
E1.00.
---------------------
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
Investors are cautioned that the forward-looking statements contained in this
Annual Report involve both risk and uncertainty. Many important factors could
cause actual results to differ materially from those anticipated by these
statements. Many of these statements are macroeconomic in nature and are,
therefore, beyond the control of management. See "Forward-Looking Statements May
Prove Inaccurate" in "Item 5. Operating and Financial Review and Prospects."
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PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
SELECTED FINANCIAL DATA
The following table presents selected consolidated financial information of
Celanese. You should read this table in conjunction with "Item 5. Operating and
Financial Review and Prospects," the audited Consolidated Financial Statements
and the notes to those statements that are included elsewhere in this Annual
Report.
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The balance sheet data shown below for 2003 and 2002, and the statement of
operations data for 2003, 2002 and 2001, all of which are set forth below, are
derived from the audited Consolidated Financial Statements included elsewhere in
this Annual Report and should be read in conjunction with those financial
statements and the notes thereto. The balance sheet for 2001, 2000 and 1999, and
the statement of operations data for 2000 and 1999 are derived from audited
Consolidated Financial Statements not included in this Annual Report.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
2003 2003 2002 2001 2000 1999
--------- ------ ------ ------ ------ ------
U.S. $(1) E
--------- ------------------------------------------
(IN MILLIONS, EXCEPT FOR SHARE AND PER SHARE DATA,
PERCENTAGES AND NUMBER OF EMPLOYEES)
------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................... 5,133 4,075 4,064 4,433 4,461 3,712
Cost of sales............................................... (4,328) (3,436) (3,340) (3,772) (3,755) (3,092)
Selling, general and administrative expenses................ (568) (451) (474) (547) (519) (516)
Research and development expenses........................... (100) (79) (69) (82) (82) (67)
Special charges(2).......................................... (6) (5) 5 (464) (19) (537)
Operating profit (loss)..................................... 133 106 202 (430) 92 (509)
Interest and other income, net(3)........................... 96 76 11 (2) 55 (93)
Income tax benefit (provision).............................. (68) (54) (70) 106 (90) 87
Minority interests.......................................... -- -- -- -- -- 7
Earnings (loss) from continuing operations.................. 161 128 143 (326) 57 (508)
Earnings (loss) from discontinued operations................ 5 4 25 (59) 1 301
Cumulative effect of changes in accounting principles, net
of income tax............................................. (1) (1) 19 -- -- --
Net earnings (loss)......................................... 165 131 187 (385) 58 (207)
Earnings (loss) per common share -- basic(4)................ 3.34 2.65 3.72 (7.65) 1.09 (3.70)
Earnings (loss) per common share -- diluted(5).............. 3.34 2.65 3.72 (7.65) 1.09 (3.70)
BALANCE SHEET DATA:
Total assets................................................ 6,801 5,399 6,127 7,064 7,642 7,789
Debt........................................................ 635 504 615 880 1,165 948
Shareholders' equity........................................ 2,580 2,048 2,005 2,210 2,843 2,866
Dividends paid per share(6)................................. 0.55 0.44 -- 0.40 0.11 --
Common stock................................................ 176 140 140 143 143 143
Weighted average shares -- basic
(in thousands)............................................ 49,446 49,446 50,329 50,332 53,293 55,915
Weighted average shares -- diluted
(in thousands)............................................ 49,457 49,457 50,329 50,332 53,293 55,915
OTHER DATA:
Operating margin (%)(7)..................................... 2.6% 2.6% 5.0% -9.7% 2.1% -13.7%
Depreciation and amortization............................... 328 260 262 364 333 287
Capital expenditures........................................ 233 185 214 213 200 238
Trade working capital(8).................................... 645 513 578 555 822 831
Number of employees on a continuing basis (end of period) in
thousands................................................. 9.5 9.5 10.5 10.6 11.4 12.9
</Table>
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(1) The U.S.$ figures are unaudited and have been translated solely for the
convenience of the reader at an exchange rate of U.S. $1.2597 per E1.00, the
noon buying rate of the Federal Reserve Bank of New York on December 31,
2003.
(2) Special charges include impairment charges, provisions for restructuring,
which include costs associated with employee termination benefits and, plant
and office closures, and other expenses and income incurred outside the
normal course of ongoing operations. See Note 27 to the Consolidated
Financial Statements.
(3) Interest and other income, net, represents equity in net earnings of
affiliates, interest expense, and interest and other income, net, as set
forth in the Consolidated Financial Statements.
(4) Earnings (loss) per common share -- basic, is calculated by dividing net
earnings (loss) by the weighted average diluted shares outstanding. On the
effective date of the demerger, Hoechst issued 55,915,369 shares of Celanese
to existing Hoechst shareholders; these shares are deemed to be outstanding
for 1999.
(5) Earnings (loss) per common share -- diluted is calculated by dividing net
earnings (loss) by the weighted average shares outstanding. At December 31,
2003, Celanese had approximately 11,000 dilutive common stock equivalents.
On the effective date of the demerger, Hoechst issued 55,915,369 shares of
Celanese to existing Hoechst shareholders; these shares are deemed to be
outstanding for 1999.
(6) See "Item 8. Financial Information -- Dividend Policy."
(7) Celanese defines operating margin as operating profit (loss) divided by net
sales.
(8) Celanese defines trade working capital as trade accounts receivable from
third parties and affiliates net of allowance for doubtful accounts, plus
inventories, less trade accounts payable to third parties and affiliates.
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EXCHANGE RATE INFORMATION
As noted in "Currency Translation" above, Celanese uses the euro as its
reporting currency and pays dividends on its shares in euro. Furthermore, prices
quoted for Celanese shares on the Frankfurt Stock Exchange are quoted in euro.
Fluctuations in the exchange rate between the euro and the U.S.$ will
affect:
o The U.S.$ equivalent for dividends received by U.S. holders of Celanese
shares; and
o The trading market price of Celanese shares on the Frankfurt and New York
Stock Exchanges.
The table below shows the Noon Buying Rates for the euro in U.S.$. The
average amounts set forth below under "Average" are calculated as the average of
the Noon Buying Rates on the last business day of each month.
<Table>
<Caption>
YEAR LOW HIGH AVERAGE END
---- ------ ------ ------- ------
<S> <C> <C> <C> <C>
1999............................................... 1.0016 1.1812 1.0660 1.0047
2000............................................... 0.8270 1.0335 0.9231 0.9388
2001............................................... 0.8437 0.9535 0.8952 0.8901
2002............................................... 0.8594 1.0485 0.9454 1.0485
2003
July.......................................... 1.1164 1.1580 1.1365 1.1231
August........................................ 1.0871 1.1390 1.1155 1.0986
September..................................... 1.0845 1.1650 1.1267 1.1650
October....................................... 1.1596 1.1833 1.1714 1.1609
November...................................... 1.1417 1.1995 1.1710 1.1995
December...................................... 1.1956 1.2597 1.2298 1.2597
2004
January....................................... 1.2389 1.2853 1.2638 1.2452
February...................................... 1.2426 1.2848 1.2640 1.2441
March (through March 5, 2004)................. 1.2088 1.2431 1.2271 1.2401
</Table>
For a more complete discussion of exchange rate fluctuations and the
hedging techniques used by Celanese to manage its exposure to these
fluctuations, please see "Risk Factors" set forth below and "Item 5. Operating
and Financial Review and Prospects -- Market Risks," "Item 11. Quantitative and
Qualitative Disclosures About Market Risk" and "Item 9. The Offer and
Listing -- Nature of the Trading Market."
RISK FACTORS
Many factors could have an effect on Celanese's financial condition, cash
flows and results of operations. Celanese is subject to various risks resulting
from changing economic, environmental, political, industry, business and
financial conditions. The principal factors are described below.
SUCCESSFUL COMPLETION OF THE BCP CRYSTAL OFFER AND THE RELATED SUBSEQUENT
RESTRUCTURING OF CELANESE CONTEMPLATED BY BCP CRYSTAL WILL LIKELY HAVE AN EFFECT
ON FUTURE OPERATIONS
On December 16, 2003, BCP Crystal Acquisition GmbH & Co. KG or BCP Crystal,
a German limited partnership controlled by a group of investment funds advised
by The Blackstone Group, announced its intention to launch a voluntary public
offer to acquire all the outstanding shares of Celanese AG for a price of E32.50
per share, without interest. The offer commenced on February 2, 2004. The offer
is subject to a number of conditions, of which certain conditions can be waived
by BCP Crystal, including that at least 85 percent of the outstanding registered
ordinary shares of Celanese be validly tendered into the offer and not
withdrawn. On March 12, BCP Crystal announced its decision to reduce the minimum
acceptance condition from 85 percent to 75 percent. In accordance with
applicable German law, such a change automatically extends the
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initial acceptance period of the offer, and an announcement as to the outcome of
the offer is expected on or about April 3, 2004.
If the offer is successfully completed, there will be a substantial
reduction in the number of Celanese shareholders and, consequently, there may no
longer be an active public market for Celanese ordinary shares. In addition, BCP
Crystal has indicated in its offer document that if the tender offer is
successful, it intends in due course and in accordance with applicable German
law, to delist Celanese ordinary shares from the New York Stock Exchange and,
depending on the level of acceptance of the offer, it may apply to revoke the
admission of the Celanese ordinary shares to the Frankfurt Stock Exchange.
The successful completion of the tender offer will likely result in
material changes to the financing structure, future results of operations and
cash flows of Celanese. These changes may include the following:
o It is expected that Celanese will be downgraded to a below investment
grade rating. If the downgrade is below a specified level and due to the
change of control upon the successful completion of the offer, it would
result in the acceleration of the maturity of approximately one-third of
total debt outstanding at December 31, 2003. The total debt outstanding
at December 31, 2003 was E504 million.
o The terms and conditions of the loan agreements being arranged by BCP
Crystal are expected to be more restrictive and the interest rates of the
financing are expected to be higher than the Company's current debt
financing.
o BCP Crystal has stated in its tender offer document, that it intends to
prevent, to the extent permitted by law, any dividend on the Celanese
shares for the fiscal year ended 2003 from being distributed to Celanese
shareholders. If the offer succeeds, it cannot be predicted whether
Celanese will pay dividends or conduct share buybacks in the future.
The successful completion of the offer may have a material adverse effect
on Celanese's ability to realize the benefit associated with its U.S. federal
net operating loss carryforward deferred tax asset. Under U.S. tax law, the U.S.
federal net operating loss carryforwards may be subject to limitation in the
event of an ownership change. Celanese is unable to determine what effect this
limitation would have, if any, on the deferred tax assets attributable to these
carryforwards. See "Item 4. Recent Developments", and "Item 5. Operating and
Financial Review and Prospects."
CELANESE IS AN INTERNATIONAL COMPANY AND IS EXPOSED TO GENERAL ECONOMIC,
POLITICAL AND REGULATORY CONDITIONS AND RISKS IN THE COUNTRIES IN WHICH IT HAS
SIGNIFICANT OPERATIONS
Celanese operates in the global market and has customers in many countries.
Celanese has major facilities located in North America, Europe and the Pacific
Rim, including facilities in Germany, China, Japan, Korea and Saudi Arabia
operated through joint ventures. Its principal customers are similarly global in
scope, and the prices of its most significant products are typically world
market prices. Consequently, Celanese's business and financial results are
affected directly and indirectly by world economic, political and regulatory
conditions.
Conditions such as the uncertainties associated with war, terrorist
activities, epidemics, pandemics, political instability in any of the countries
in which Celanese operates could affect Celanese by causing delays or losses in
the supply or delivery of raw materials and products as well as increased
security costs, insurance premiums and other expenses. These conditions could
also result in or lengthen economic recession in the United States, Germany,
Asia or elsewhere. Moreover, changes in laws or regulations, such as unexpected
changes in regulatory requirements (including import or export licensing
requirements), or changes in the reporting requirements of United States, German
or European Union governmental agencies, could increase the cost of doing
business in these regions. Any of these conditions may have an effect on
Celanese's business and financial results as a whole and may result in volatile
current and future prices for Celanese shares.
5
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CYCLICALITY IN THE INDUSTRIAL CHEMICALS INDUSTRY HAS IN THE PAST AND MAY IN THE
FUTURE RESULT IN REDUCED OPERATING MARGINS OR OPERATING LOSSES
Consumption of the basic chemicals that Celanese manufactures, in
particular those in acetyl products, such as methanol, formaldehyde, acetic acid
and vinyl acetate monomer, has increased significantly over the past 30 years.
Despite this growth in consumption, producers have experienced alternating
periods of inadequate capacity and excess capacity for these products. Periods
of inadequate capacity, including some due to raw material shortages, have
usually resulted in increased selling prices and operating margins. This has
often been followed by periods of capacity additions, which have resulted in
declining capacity utilization rates, selling prices and operating margins.
Celanese expects that these cyclical trends in selling prices and operating
margins relating to capacity shortfalls and additions will likely persist in the
future, principally due to the continuing combined impact of five factors:
o Significant capacity additions, whether through plant expansion or
construction, can take two to three years to come on stream and are
therefore necessarily based upon estimates of future demand.
o When demand is rising, competition to build new capacity may be
heightened because new capacity tends to be more profitable, with a lower
marginal cost of production. This tends to amplify upswings in capacity.
o When demand is falling, the high fixed cost structure of the
capital-intensive chemicals industry leads producers to compete
aggressively on price in order to maximize capacity utilization.
o As competition in these products is focused on price, being a low-cost
producer is critical to profitability. This favors the construction of
larger plants, which maximize economies of scale, but which also lead to
major increases in capacity that can outstrip current growth in demand.
o Cyclical trends in general business and economic activity produce swings
in demand for chemicals.
Celanese believes that the basic chemicals industry, particularly in the
commodity chemicals manufactured by Celanese's Chemical Products segment, is
currently characterized by overcapacity, and that there may be further capacity
additions in the next few years.
THE LENGTH AND DEPTH OF PRODUCT AND INDUSTRY BUSINESS CYCLES OF CELANESE'S
MARKETS, PARTICULARLY IN THE AUTOMOTIVE, ELECTRICAL, CONSTRUCTION AND TEXTILE
INDUSTRIES, MAY RESULT IN REDUCED OPERATING MARGINS OR OPERATING LOSSES
Some of the markets in which Celanese's customers participate, such as the
automotive, electrical, construction and textile industries, are cyclical in
nature, thus posing a risk to Celanese which is beyond its control. These
markets are highly competitive, to a large extent driven by end-use markets, and
may experience overcapacity, all of which may affect demand for and pricing of
Celanese's products.
CELANESE IS SUBJECT TO RISKS ASSOCIATED WITH THE INCREASED VOLATILITY IN RAW
MATERIALS PRICES AND THE AVAILABILITY OF KEY RAW MATERIALS
Celanese purchases significant amounts of natural gas, ethylene, butane,
and propylene from third parties for use in its production of basic chemicals in
the Chemical Products segment, principally methanol, formaldehyde, acetic acid,
vinyl acetate monomer, as well as oxo products. Celanese uses a portion of its
output of these chemicals, in turn, as inputs in the production of further
products in all its segments. Celanese also purchases significant amounts of
cellulose or wood pulp for use in its production of cellulose acetate in the
Acetate Products segment. Celanese purchases significant amounts of natural gas,
electricity, coal and fuel oil to supply the energy required in its production
processes.
Although Celanese has agreements providing for the supply of natural gas,
ethylene, propylene, wood pulp, electricity, coal and fuel oil, the contractual
prices for these raw materials and energy vary with market
6
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conditions and may be highly volatile. Factors which have caused volatility in
Celanese's raw material prices in the past and which may do so in the future
include:
o Shortages of raw materials due to increasing demand, e.g., from growing
uses or new uses;
o Capacity constraints, e.g., due to construction delays, strike action or
involuntary shutdowns;
o The general level of business and economic activity; and
o The direct or indirect effect of governmental regulation.
Celanese strives to improve profit margins of many of its products through
price increases when warranted and accepted by the market; however, Celanese's
operating margins may decrease if it cannot pass on increased raw material
prices to customers, or Celanese may not be able to capture the benefit of raw
material price declines if raw material prices fall to levels below those at
which Celanese is committed to purchase under forward purchase contracts. Even
in periods during which raw material prices decline, Celanese may suffer
decreasing operating profit margins if raw material price reductions occur at a
slower rate than decreases in the selling prices of Celanese's products.
A substantial portion of Celanese's products and raw materials are
commodities whose prices fluctuate as market supply/demand fundamentals change.
Celanese manages its exposure through the use of derivative instruments and
forward purchase contracts for commodity price hedging, entering into long-term
supply agreements, and multi-year purchasing and sales agreements. Celanese's
policy, for the majority of its natural gas and butane requirements, allows
entering into supply agreements and forward purchase or cash-settled swap
contracts, generally for up to 24 months. During 2003, Celanese entered into
forward purchase and cash-settled swap contracts for approximately 50 percent of
its estimated natural gas requirements, generally up to three to six months
forward. As these forward contracts expire, Celanese may be exposed to future
price fluctuations if the forward purchase contracts are not replaced, or if it
elects to replace them, Celanese may have to do so at higher costs. Although
Celanese seeks to offset increases in raw material prices with corresponding
increases in the prices of its products, it may not be able to do so, and there
may be periods when such product price increases lag behind raw material cost
increases. In the future, Celanese may modify its practice of purchasing a
portion of its commodity requirements forward, and consider utilizing a variety
of other raw material hedging instruments in addition to forward purchase
contracts in accordance with changes in market conditions.
Celanese has a policy of maintaining, when available, multiple sources of
supply for raw materials. However, some of Celanese's individual plants may have
single sources of supply for some of their raw materials, such as carbon
monoxide and acetaldehyde. There can be no assurance that the ability to obtain
sufficient raw materials will not be adversely affected by unforeseen
developments that would cause an interruption in supply. Even if Celanese has
multiple sources of supply for a raw material, there can be no assurance that
these sources can make up for the loss of a major supplier. Nor can there be any
guarantee that profitability will not be affected should Celanese be required to
qualify additional sources of supply in the event of the loss of a sole or a
major supplier.
FAILURE TO DEVELOP NEW PRODUCTS AND PRODUCTION TECHNOLOGIES OR TO IMPLEMENT
PRODUCTIVITY AND COST REDUCTION INITIATIVES SUCCESSFULLY MAY HARM CELANESE'S
COMPETITIVE POSITION
Celanese's operating results, especially in its Performance Products and
Technical Polymers Ticona segments, depend significantly on the development of
commercially viable new products, product grades and applications, as well as
production technologies. If Celanese is unsuccessful in developing new products,
applications and production processes in the future, its competitive position
and operating results will be negatively affected. Likewise, Celanese has
undertaken and is continuing to undertake initiatives in all segments to improve
productivity and performance and to generate cost savings. There can, however,
be no assurance that these initiatives will be completed or beneficial or that
the estimated cost savings from such activities will be realized.
7
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FRANKFURT AIRPORT EXPANSION COULD HAVE A NEGATIVE EFFECT ON CELANESE'S
KELSTERBACH PLANT
The Frankfurt airport's expansion plans include the construction of an
additional runway. One of the three sites under consideration, the northwest
option, would be located in close proximity to Celanese's Kelsterbach production
plant. The construction of this particular runway could have a negative effect
on the plant's current production capacity and future development. While the
state government and the owner of the Frankfurt airport promote the expansion of
the northwest option, it is uncertain whether this option is in accordance with
applicable laws. Neither the final outcome of this matter nor its timing can be
predicted at this time.
ENVIRONMENTAL LIABILITIES AND COMPLIANCE COSTS MAY HAVE A SIGNIFICANT NEGATIVE
EFFECT ON CELANESE'S OPERATING RESULTS
Costs related to Celanese's compliance with and potential obligations under
environmental laws for remediation of contaminated sites may have a significant
negative impact on its operating results. These include obligations related to
sites currently or formerly owned or operated by Celanese, or where waste from
its operations was disposed. Celanese also has obligations related to the
indemnity agreement contained in the demerger and transfer agreement between
Celanese AG and Hoechst, also referred to as the demerger agreement. Celanese's
accruals for environmental remediation obligations may be insufficient if the
assumptions underlying those accruals prove incorrect or if Celanese is held
responsible for currently undiscovered contamination. See "Celanese and Hoechst
have obligations to pay each other certain amounts, some of which are not yet
determinable" below, "Item 4. Information on the Company -- Environmental and
Other Regulation", and Notes 25 and 26 to the Consolidated Financial Statements.
Stricter environmental, safety and health laws, regulations and enforcement
policies could result in substantial costs and liabilities to Celanese and could
subject Celanese's handling, manufacture, use, reuse or disposal of substances
or pollutants to more rigorous scrutiny than at present. Consequently,
compliance with these laws could result in significant capital expenditures as
well as other costs and liabilities and materially adversely affect Celanese's
business and operating results. For example, recent European Union regulations
will require a trading system for carbon dioxide emissions to be in place by
January 1, 2005. This regulation will affect Celanese's power plants at the
Kelsterbach, Oberhausen and Lanaken sites. Celanese may be required to purchase
carbon dioxide credits, which could result in increased operating costs, or
develop additional cost-effective methods to reduce carbon dioxide emissions
further, which could result in increased capital expenditures. See "Item 4.
Information on the Company -- Environmental and Other Regulation".
Celanese is also involved in several claims, lawsuits and administrative
proceedings relating to environmental matters. While Celanese does not believe,
based upon currently available facts, that the ultimate resolution of any such
pending matters will have a material adverse effect on Celanese's operating
results, an adverse outcome in any of them may negatively affect Celanese's
earnings and cash flows in a particular reporting period.
CHANGES IN ENVIRONMENTAL, HEALTH AND SAFETY REGULATORY REQUIREMENTS COULD HAVE A
SIGNIFICANT NEGATIVE EFFECT ON THE DEMAND FOR CELANESE'S PRODUCTS
New or revised governmental regulations relating to health, safety and the
environment may also affect demand for Celanese's products.
Pursuant to the European Union regulation on Risk Assessment of Existing
Chemicals, the European Chemicals Bureau of the European Commission has been
conducting risk assessments on approximately 140 major chemicals. Some of the
chemicals initially being evaluated include vinyl acetate monomer or VAM, which
Celanese produces, as well as competitors' products, such as styrene and
1,3-butadiene. These risk assessments entail a multi-stage process to determine
to what extent the European Commission should classify the chemical as a
carcinogen and, if so, whether this classification and related labeling
requirements should apply only to finished products that contain specified
threshold concentrations of a particular chemical. In the case of VAM, a final
ruling is not expected until the end of 2004. Celanese and other VAM producers
are participating in this process with detailed scientific analyses supporting
the industry's position that VAM is
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<PAGE>
not a probable human carcinogen and that labeling of final products should not
be required. If labeling is required, then it should depend on relatively high
parts per million of residual VAM in these end products. It is not possible for
Celanese to predict the outcome or effect of any final ruling.
Several recent studies have investigated possible links between
formaldehyde exposure and various end points including leukemia. On the basis of
these new studies, the International Agency for Research on Cancer or IARC has
stated its intention to review whether it should change formaldehyde's
classification from Group 2A (probable human carcinogen) to Group 1 (known human
carcinogen). The results of IARC's review will be examined by government
agencies with responsibility for setting worker and environmental exposure
standards and labeling requirements. Celanese is a producer of formaldehyde and
plastics derived from formaldehyde. Celanese is participating together with
other producers and users in the evaluations of these findings. Celanese cannot
predict the final outcome or effect of any final ruling.
Other recent initiatives will potentially require toxicological testing and
risk assessments of a wide variety of chemicals, including chemicals used or
produced by Celanese. These initiatives include the Voluntary Children's
Chemical Evaluation Program and High Production Volume Chemical Initiative in
the United States, as well as various European Commission programs, such as the
new European Environment and Health Strategy, commonly known as SCALE, as well
as the Proposal for the Registration, Evaluation and Authorization and
Restriction of Chemicals or REACH. REACH, which the European Commission proposed
in October 2003, will establish a system to register and evaluate chemicals
manufactured or imported to the European Union. Depending on the final ruling,
additional testing, documentation and risk assessments will occur for the
chemical industry. This will affect European producers of chemicals as well as
all chemical companies worldwide that export to member states of the European
Union. The final ruling has not yet been decided.
Depending on the outcome of the above-mentioned assessments in the United
States and Europe, additional requirements may be placed on the production,
handling, labeling or use of the subject chemicals. Such additional requirements
could increase the cost incurred by Celanese's customers to use its chemical
products and otherwise limit the use of these products, which could adversely
affect the demand for these products.
CELANESE'S PRODUCTION FACILITIES HANDLE THE PROCESSING OF SOME VOLATILE AND
HAZARDOUS MATERIALS THAT SUBJECT CELANESE TO OPERATING RISKS THAT COULD
ADVERSELY AFFECT CELANESE'S OPERATING RESULTS
Celanese's operations are subject to operating risks associated with
chemical manufacturing, including the related storage and transportation of raw
materials, products and wastes. These hazards include, among other things:
o Pipeline and storage tank leaks and ruptures;
o Explosions and fires; and
o Discharges or releases of toxic or hazardous substances.
These operating risks can cause personal injury, property damage and
environmental contamination, and may result in the shutdown of affected
facilities and the imposition of civil or criminal penalties. The occurrence of
any of these events may materially adversely affect the productivity and
profitability of a particular manufacturing facility and Celanese's operating
results and cash flows.
Celanese maintains property, business interruption and casualty insurance
which it believes is in accordance with customary industry practices, but
Celanese cannot provide any assurance that this insurance will be adequate to
fully cover all potential hazards incidental to its business.
For more detailed information on environmental issues, see "Item 4.
Information on the Company -- Environmental and Other Regulations" and Note 26
to the Consolidated Financial Statements.
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<PAGE>
FLUCTUATIONS IN EXCHANGE AND INTEREST RATES MAY AFFECT CELANESE'S OPERATING
RESULTS
Celanese is exposed to market risk through commercial and financial
operations. Celanese's market risk consists principally of exposure to
fluctuations in currency exchange and interest rates.
As Celanese conducts a significant portion of its operations outside the
euro zone, fluctuations in currencies of such countries, especially the U.S.
dollar, may materially affect Celanese's operating results. For example, changes
in currency exchange rates may affect:
o The relative prices at which Celanese and its competitors sell products
in the same market; and
o The cost of items required in Celanese's operations.
Celanese uses financial instruments to hedge its exposure to foreign
currency fluctuations. The notional amounts under such foreign currency
contracts outstanding at December 31, 2003 were E606 million.
Celanese holds a variety of interest rate sensitive assets and liabilities
to manage the liquidity and cash needs of its day-to-day operations. Celanese is
primarily exposed to changes in interest rates in the U.S. dollar and the euro.
To manage these risks, Celanese enters into interest rate swap agreements to
reduce the exposure of interest rate risk inherent in Celanese's debt portfolio.
Celanese uses swaps for hedging purposes only. The maturities of these swaps
depend on the underlying debt portfolio.
SIGNIFICANT CHANGES IN PENSION FUND INVESTMENT PERFORMANCE OR ASSUMPTIONS
RELATING TO PENSION COSTS MAY HAVE A MATERIAL EFFECT ON THE VALUATION OF PENSION
OBLIGATIONS, THE FUNDED STATUS OF PENSION PLANS, AND CELANESE'S PENSION COST
Celanese's funding policy for pension plans is to accumulate plan assets
that, over the long run, will approximate the present value of projected benefit
obligations. Celanese's pension cost is materially affected by the discount rate
used to measure pension obligations, the level of plan assets available to fund
those obligations at the measurement date and the expected long-term rate of
return on plan assets. Significant changes in investment performance or a change
in the portfolio mix of invested assets can result in corresponding increases
and decreases in the valuation of plan assets, particularly equity securities,
or in a change of the expected rate of return on plan assets. A change in
discount rate would result in a significant increase or decrease in the
valuation of pension obligations, affecting the reported funded status of
Celanese's pension plans as well as the net periodic pension cost in the
following financial years. Similarly, changes in the expected return on plan
assets assumption can result in significant changes in the net periodic pension
cost of the following financial years. For further information see "Item 5:
Operating and Financial Review and Prospects -- Critical Accounting Policies"
and Note 20 to the Consolidated Financial Statements.
CELANESE AND HOECHST HAVE OBLIGATIONS TO PAY EACH OTHER CERTAIN AMOUNTS, SOME OF
WHICH ARE NOT YET DETERMINABLE
Under the demerger agreement, Celanese agreed to indemnify Hoechst for
environmental liabilities that Hoechst may incur with respect to Celanese's
German production sites, which were transferred from Hoechst to Celanese in
connection with the demerger. Celanese also has an obligation to indemnify
Hoechst against liabilities for environmental damages or contamination arising
under 17 divestiture agreements entered into by Hoechst prior to the demerger.
Celanese's obligation regarding two additional divestiture agreements had been
settled during 2002. As the indemnification obligations depend on the occurrence
of unpredictable future events, the costs associated with them are not yet
determinable and may materially affect operating results.
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Celanese's obligation to indemnify Hoechst against liabilities for
environmental contamination in connection with the divestiture agreements is
subject to the following thresholds:
o Celanese will indemnify Hoechst for the total amount of these liabilities
up to E250 million;
o Hoechst will bear the full amount of those liabilities between E250
million and E750 million; and
o Celanese will indemnify Hoechst for one third of those liabilities for
amounts exceeding E750 million.
Celanese has made payments through December 31, 2003 of E36 million for
environmental contamination liabilities in connection with the divestiture
agreements. As of December 31, 2003, Celanese has reserves of approximately E42
million for this contingency, and may be required to record additional reserves
in the future.
Also, Celanese has undertaken in the demerger agreement to indemnify
Hoechst to the extent that Hoechst is required to discharge liabilities,
including tax liabilities, in relation to assets included in the demerger, where
such liabilities have not been demerged due to transfer or other restrictions.
Celanese did not make any payments to Hoechst in either 2003 or 2002 in
connection with this indemnity.
Under the demerger agreement, Celanese will also be responsible, directly
or indirectly, for all of Hoechst's obligations to past employees of businesses
that were demerged to Celanese. Under the demerger agreement, Hoechst agreed to
indemnify Celanese from liabilities (other than liabilities for environmental
contamination) stemming from the agreements governing the divestiture of
Hoechst's polyester businesses, which were demerged to Celanese, insofar as such
liabilities relate to the European part of that business. Hoechst has also
agreed to bear 80 percent of the financial obligations arising in connection
with the government investigation and litigation associated with the sorbates
industry for price fixing described in "Item 8. Financial Information -- Legal
Proceedings" and Note 25 to the Consolidated Financial Statements, and Celanese
has agreed to bear the remaining 20 percent.
HOLDERS OF A SIGNIFICANT NUMBER OF SHARES IN CELANESE MAY BE ABLE TO BLOCK
CORPORATE ACTIONS
Kuwait Petroleum Corporation or KPC owned 29.2 percent of the Celanese
shares outstanding as of December 31, 2003. KPC has the ability, as a matter of
German corporate law, to block some corporate actions by Celanese such as
mergers, spin-offs and capital measures which require either a majority of 75
percent of the votes cast or 75 percent of the share capital represented at a
shareholders' meeting. An officer of Kuwait Petroleum Corporation has been
elected as one of the shareholder representatives on the supervisory board of
Celanese. On December 15, 2003, KPC entered into an agreement with BCP Crystal
to tender its 14,400,000 shares of Celanese in accordance with the terms of the
BCP Crystal offer.
If the BCP Crystal offer is successful, BCP Crystal has stated that it
intends to enter into a domination and profit and loss transfer agreement with
Celanese, pursuant to which, among other things, BCP Crystal will be entitled to
direct the management of Celanese and to receive all its profits, and remaining
minority shareholders of Celanese will lose the right to receive dividends,
other than a guaranteed dividend.
ITEM 4. INFORMATION ON THE COMPANY
RECENT DEVELOPMENTS
On December 16, 2003, BCP Crystal announced its intention to launch a
voluntary public offer to acquire all of the outstanding shares of Celanese AG
for a price of E32.50 per share, without interest. BCP Crystal filed a Schedule
TO-C with the Securities and Exchange Commission or the Commission on December
24, 2003, and its tender offer document was published and mailed to Celanese
shareholders on February 2, 2004, after being approved by the German Federal
Financial Supervisory Authority (Bundesanstalt fuer Finanzaufsicht or BaFin). In
accordance with the German Securities Acquisition and Takeover Act
(Wertpapiererwerbs- und Uebernahmegesetz), and applicable United States
securities laws. On February 10, 2004 the board of management and supervisory
board of Celanese delivered and published their reasoned opinions (begruendete
Stellungnahmen) on the offer and Celanese filed its Schedule 14D-9 with the
Commission. The offer is subject to a number of conditions, of which certain
conditions can be waived by BCP Crystal, including
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<PAGE>
that at least 85 percent of the registered outstanding shares of Celanese be
validly tendered into the offer and not withdrawn. On March 12, 2004 BCP Crystal
announced its decision to reduce the minimum acceptance condition from 85
percent to 75 percent. In accordance with applicable German law, such a change
automatically extends the initial acceptance period of the offer for two weeks,
and an announcement as to the outcome of the offer is expected on or about April
3, 2004.
INTRODUCTION
Celanese AG was incorporated as Diogenes Erste Vermoegensverwaltungs GmbH
as a stock corporation organized under the laws of the Federal Republic of
Germany on November 22, 1996. It changed its name to Celanese AG upon its
demerger from Hoechst on October 22, 1999. Celanese's registered office is
located at Frankfurter StraSSe 111, 61476 Kronberg/Taunus, Germany, telephone
+49 69 305 16000.
BUSINESS SUMMARY
Celanese is a leading global industrial chemicals company with strong
competitive positions in its major products and production technologies. Its
business involves processing chemical raw materials, such as ethylene and
propylene, and natural products, including natural gas and wood pulp, into
value-added chemicals and chemical-based products. Celanese's leadership
position is based on two key factors: its significant market shares and
competitive cost structures in its major products. Celanese's competitive cost
structures are based on economies of scale, vertical integration, technical
know-how and the use of advanced technologies. During the fourth quarter of
2003, Celanese realigned its business segments to reflect a change of how it
manages the business and assesses performance. See Notes 1 and 29 to the
Consolidated Financial Statements. The Celanese portfolio now consists of four
main business segments: Chemical Products, Acetate Products, Technical Polymers
Ticona and Performance Products.
In 2003, Celanese had net sales of E4,075 million and an operating profit
of E106 million from continuing operations. At December 31, 2003, Celanese had
approximately 9,500 employees worldwide on a continuing basis. As of December
31, 2003, Celanese had 24 production plants and six research centers in ten
countries. Most of Celanese's facilities are located in the Americas,
principally in the three North America Free Trade Agreement countries: the
United States, Canada and Mexico. Celanese also has major operations, including
significant joint ventures, in Asia. In 2003, 47 percent of net sales was
derived from sales in North America, 41 percent from sales in Europe, 11 percent
from sales in Asia and Australia and 1 percent from sales in the rest of the
world. Celanese has a large and diverse global customer base consisting
principally of major industrial companies. In 2003, sales to the 10 largest
customers of Celanese accounted for less than 30 percent of its net sales and
the single largest customer represented less than 7 percent of its net sales.
Celanese's aggregate capital expenditures for property, plant and equipment
were E185 million in 2003, E214 million in 2002, and E213 million in 2001. North
America and Europe accounted for 51 percent and 46 percent, respectively, of
Celanese's capital expenditures in 2003. The capital expenditures were financed
by means of Celanese's operating cash flows, cash reserves and additional funds
drawn down from existing credit facilities. See also "Business Segments" for
capital expenditures by business segment. For a description of principal
acquisitions and dispositions of businesses during the last three years, see
"Acquisitions and Divestitures," "Item 5. Operating and Financial Review and
Prospects -- Summary of Consolidated Results -- 2003 Compared to
2002 -- Discontinued Operations for the years ended December 31, 2003, 2002 and
2001", and Note 7 to the Consolidated Financial Statements.
As of December 31, 2003, Celanese had 49,321,468 shares outstanding and
approximately 90,000 shareholders. Its ordinary shares are traded on the
Frankfurt Stock Exchange under the symbol CZZ and on the New York Stock Exchange
under the symbol CZ.
SEGMENT OVERVIEW
Celanese is an integrated company that operates through four principal
business segments: Chemical Products, Acetate Products, Technical Polymers
Ticona and Performance Products.
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Chemical Products. This segment produces and supplies acetyl products,
including acetic acid, acetate esters, vinyl acetate monomer, polyvinyl alcohol,
and emulsions. Acetic acid is a commodity used in the production of other basic
chemicals. Acetate esters are used in coatings and inks. Vinyl acetate monomer
is primarily used in a variety of adhesives, paints and coatings. Polyvinyl
alcohol is made from vinyl acetate monomer and is used in adhesives, building
products, paper coatings, films and textiles. Emulsions and emulsion powders are
a key component of water based quality surface coatings, adhesives, non-woven
textiles and other applications. Most of the other chemicals produced in this
segment are organic solvents and intermediates for pharmaceutical, agricultural
and chemical products. Celanese is the world's leading producer of acetic acid
and vinyl acetate monomer and the largest North American producer of methanol,
the major raw material used for the production of acetic acid. Celanese is the
largest polyvinyl alcohol producer in North America and the second largest
producer in the world. Based on sales, the emulsions business holds a number two
position in conventional emulsions (excluding styrene butadiene resins or SBRs)
in Europe and a number one position in European VAM-based emulsions. The
business is also a leading supplier of emulsion powders globally.
Acetate Products. This segment primarily produces and supplies acetate tow
(filter products) and acetate filament. Products from this segment are found in
cigarette filters, fashion apparel, linings, and home furnishings. Celanese is
one of the world's leading producers of acetate tow and acetate filament,
including production by its joint ventures in Asia.
Technical Polymers Ticona. This segment develops, produces and supplies a
broad portfolio of high performance technical polymers for application in
automotive and electronics products and in other consumer goods, often replacing
metal or glass. Together with its 45 percent-owned affiliate Polyplastics, its
50 percent-owned affiliate Korea Engineering Plastics Company Ltd., and Fortron
Industries, its 50-50 joint venture with Kureha Chemicals Industry of Japan,
Celanese is a leading participant in the global technical polymers business.
Performance Products. This segment consists of Nutrinova, the food
ingredients business, which produces and sells high intensity sweeteners and
food protection ingredients, such as sorbic acids and sorbates, for the food,
beverage and pharmaceuticals industries.
The table below illustrates each segment's share of total segment net sales
to external customers for the years ended December 31, 2003, 2002 and 2001.
NET SALES TO EXTERNAL CUSTOMERS BY SEGMENT
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2003 2002 2001
------------------ ------------------ ------------------
% OF % OF % OF
E SEGMENT(1) E SEGMENT(1) E SEGMENT(1)
----- ---------- ----- ---------- ----- ----------
(IN MILLIONS, EXCEPT PERCENTAGES)
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Chemical Products............... 2,628 65% 2,482 62% 2,723 62%
Acetate Products................ 578 14% 670 17% 762 18%
Technical Polymers Ticona....... 675 17% 696 17% 706 16%
Performance Products............ 150 4% 161 4% 159 4%
----------------------------------------------------------------------------------------------
</Table>
---------------
(1) The percentages in this column represent the percentage contribution of each
segment to the total of all segments.
OTHER ACTIVITIES
The portfolio of Celanese contains other businesses and activities separate
from its principal chemical operations, which consists primarily of general
corporate functions, captive insurance companies, the innovative products
subsidiaries Celanese Ventures GmbH and Celanese Advanced Materials, Inc.,
companies that provide infrastructure services, and other ancillary businesses.
Celanese Advanced Materials, Inc.
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consists of the high performance polymer, polybenzimidazole or PBI, and the
Vectran(R) polymer fiber product lines.
STRATEGY
Celanese will continue to pursue its strategy of investing in new
production capacity in growth areas and extending its value chain into higher
value products; enhancing the value of its portfolio; reducing costs and
increasing productivity; and focusing on financial soundness.
CELANESE IS INVESTING IN NEW PRODUCTION CAPACITY IN GROWTH AREAS AND EVALUATING
OPPORTUNITIES TO EXTEND ITS VALUE CHAIN INTO HIGHER VALUE PRODUCTS
Celanese took further steps to position its strong value chain in acetyl
products for growth and greater profitability by investing in new capacity in
high-growth regions and by integrating its European emulsions business, acquired
at year-end 2002, into the Chemical Products segment.
Celanese is preparing to build a 600,000 metric ton world-scale acetic acid
plant in China, the world's fastest growing market for acetic acid and its
derivatives. Celanese received government approval to build the Nanjing plant in
March 2003 and it is expected to come on stream in late 2005 or early 2006.
Celanese Acetate LLC and the China National Tobacco Company announced an
agreement in 2003 to double the capacity of the three filter tow plants in
China, in which Celanese owns a 30 percent interest. The expansions are expected
to be completed by 2007.
Ticona announced plans to increase the capacity of its GUR(R) ultra high
molecular weight polyethylene plant in Oberhausen, Germany, by 10,000 tons. With
this expansion, Ticona's total worldwide capacity is expected to increase by 17
percent in the second half of 2004.
Celanese's joint venture with Hatco Corporation, Estech GmbH, brought on
stream in October 2003 a plant to produce neopolyol esters at Oberhausen,
Germany. The plant supplies the growing specialty lubricants markets in Europe,
Africa and the Middle East.
Ticona and its Asian partners broke ground in July 2003 for a new
polyacetal plant in China, a major growth market for engineering plastics. The
new plant is expected to start operations in the second quarter of 2005.
CELANESE IS ENHANCING THE VALUE OF ITS PORTFOLIO OF BUSINESSES
Celanese continues to optimize its business portfolio to focus on
businesses in which it can achieve market, cost and technology leadership over
the long term. Celanese took major steps in 2003 to find solutions for several
noncore and underperforming businesses. In September, Celanese reached an
agreement to sell its acrylates business to The Dow Chemical Company or Dow. The
transaction was completed in February 2004. In October 2003, European Oxo GmbH,
Celanese's European oxo chemicals joint venture with Degussa AG, began
operations. This joint venture combines Celanese's and Degussa's commercial,
technical and operational C3-oxo business activities. In December 2003, Celanese
divested its nylon business in the Technical Polymers Ticona segment to BASF
Aktiengesellschaft or BASF. Celanese is exploring options to extract greater
value from its Nutrinova food ingredients business in the Performance Products
segment. These options could include joint ventures or a partial or full sale.
CELANESE IS STRIVING FOR COST AND PRODUCTIVITY LEADERSHIP BY SEEKING TO REDUCE
ITS RELIANCE ON U.S. GULF COAST NATURAL GAS AND BY USING A NUMBER OF TOOLS, SUCH
AS SIX SIGMA, TO INCREASE OPERATIONAL EXCELLENCE
Celanese is continually seeking opportunities to reduce its consumption of
high-cost U.S. Gulf Coast natural gas. In July 2003, it announced that it will
purchase most of its North American internal methanol requirements from Southern
Chemical Corporation beginning in 2005 under a multi-year agreement. The
methanol will be produced from natural gas at a facility in Trinidad at a lower
cost. In addition, Celanese is engaged in several projects and process
technology improvements focused on energy reduction.
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Celanese also uses best practices to reduce costs and increase equipment
reliability in maintenance and project engineering. Advanced process control
projects help to generate significant savings in energy and raw materials while
increasing yields in production units. Most significantly, Six Sigma, a
structured process based on statistics for achieving greater productivity and
growth, has become a pervasive and important tool in both operations and
administration for projects ranging from lowering costs to increasing capacity
and from reducing working capital to minimizing capital expenditures required
for expansion.
CELANESE HAS A POLICY OF SOUND FINANCIAL POSITION
In 2003, Celanese further strengthened its financial position. As the
result of favorable currency movements, strong cash flow management and cash
from insurance recoveries, Celanese reduced its debt in 2003. Celanese
contributed E115 million to its U.S. qualified pension plan in 2003 as part of
its goal to close the gap between plan assets and obligations. In addition,
strong cash generation enabled Celanese to pay a E0.44 per share 2002 dividend
and complete a share buyback of 2 percent of outstanding shares in April 2003.
THE SUCCESS OF THE BCP CRYSTAL OFFER MAY HAVE AN EFFECT ON CELANESE'S STRATEGY
BCP Crystal has indicated in its offer document that it agrees with
management's current strategy and would continue to support Celanese's
management. However, it also indicated that, upon successful completion of the
offer, it intends to review Celanese's assets, corporate structure,
capitalization, operations, policies management and personnel to determine what
changes, if any, would be desirable. As a result of this review or in light of
future developments, according to the offer document, BCP crystal may then
reconsider its current intentions and views and may attempt to make any changes
that it deems necessary or appropriate with respect to Celanese to the extent
permitted by law.
BUSINESS SEGMENTS
CHEMICAL PRODUCTS
The Chemical Products segment consists of six business lines: Acetyls,
Acetyl Derivatives and Polyols, Polyvinyl Alcohol, Emulsions, Specialties, and
other chemical activities. All business lines in this segment mainly conduct
business using the "Celanese" trade name, except Polyvinyl Alcohol, which uses
the
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trademark Celvol(R), and Emulsions, which uses the trademarks Mowilith(R) and
Celvolit(R). The following table lists key products and their major end use
markets.
<Table>
<Caption>
----------------------------------------------- -----------------------------------------------
KEY CHEMICAL PRODUCTS MAJOR END USE MARKETS
----------------------------------------------- -----------------------------------------------
<S> <C>
Methanol Formaldehyde and Acetic Acid
----------------------------------------------- -----------------------------------------------
Acetic Acid Vinyl Acetate Monomer, Acetic Anhydride and
Purified Terephthalic Acid or PTA, an
intermediate used in the production of
polyester resins, films and fibers
----------------------------------------------- -----------------------------------------------
Acetic Anhydride Cellulose Acetate and Pharmaceuticals
----------------------------------------------- -----------------------------------------------
Vinyl Acetate Monomer Paints, Adhesives, Paper Coatings, Films and
Textiles
----------------------------------------------- -----------------------------------------------
Acetate Esters Coatings, Inks
----------------------------------------------- -----------------------------------------------
Oxo Alcohols Plasticizers, Acrylates, Esters, Solvents and
Inks
----------------------------------------------- -----------------------------------------------
Polyvinyl Alcohol Adhesives, Building Products, Paper Coatings,
Films and Textiles
----------------------------------------------- -----------------------------------------------
Emulsions Water-Based Quality Surface Coatings,
Adhesives, Non-Woven Textiles
----------------------------------------------- -----------------------------------------------
Emulsion Powders Building Products
----------------------------------------------- -----------------------------------------------
Carboxylic Acids Lubricants, Detergents and Specialties
----------------------------------------------- -----------------------------------------------
Amines Agricultural Products and Water Treatments
----------------------------------------------- -----------------------------------------------
</Table>
Business Lines
Acetyls. The acetyls business line produces:
o Methanol, principally used internally in the production of acetic acid
and formaldehyde. The balance is sold to the merchant market.
o Acetic acid, used to manufacture vinyl acetate monomer and other
acetyl derivatives. Celanese manufactures acetic acid for its own use,
as well as for sale to third parties, including producers of purified
terephthalic acid, or PTA, and to other participants in the acetyl
derivatives business.
o Vinyl acetate monomer, used in a variety of adhesives, paints, films,
coatings and textiles. Celanese manufactures vinyl acetate monomer for
its own use, as well as for sale to third parties.
o Acetic anhydride, a raw material used in the production of cellulose
acetate, detergents and pharmaceuticals.
o Acetaldehyde, a major feedstock for the production of polyols.
Acetaldehyde is also used in other organic compounds such as
pyridines, which are used in agricultural products.
Celanese is a leading global producer of acetic acid and the world's
leading producer of vinyl acetate monomer according to the Tecnon Orbichem's
Acetic Acid and Vinyl Acetate 1999-2009 World Survey. According to data from the
CMAI 2002-2003 World Methanol Analysis, Celanese is the largest producer of
methanol in North America.
Acetic acid, methanol, and vinyl acetate monomer, like other commodity
products, are characterized by cyclicality in pricing. The principal raw
materials in these products are natural gas and ethylene, which are purchased
from numerous sources; carbon monoxide, which is purchased by Celanese under
long-term contracts; methanol, which is both manufactured and purchased by
Celanese under short-term contracts; and
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<PAGE>
butane, which is purchased from several suppliers. All these raw materials,
except carbon monoxide, are themselves commodities and are available from a wide
variety of sources.
Celanese's production of acetyl products employs leading proprietary and
licensed technologies, including Celanese's proprietary AO Plus(TM)
acid-optimization technology for the production of acetic acid and VAntage(TM)
vinyl acetate monomer technology. AO Plus enables plant capacity to be increased
with minimal investment, while VAntage enables significant increases in
production efficiencies, lower operating costs and increases in capacity at 10
to 15 percent of the cost of building a new plant.
Acetyl Derivatives and Polyols. The acetyl derivatives and polyols
business line produces a variety of solvents, polyols, formaldehyde and other
chemicals, which in turn are used in the manufacture of paints, coatings,
adhesives, and other products.
Many acetyl derivatives products are derived from Celanese's production of
acetic acid and oxo alcohols. Primary products are:
o Ethyl acetate, an acetate ester that is a solvent used in coatings,
inks and adhesives and in the manufacture of photographic films and
coated papers;
o Butyl acetate, an acetate ester that is a solvent used in inks,
pharmaceuticals and perfume;
o Propyl acetate, an acetate ester that is a solvent used in inks,
lacquers and plastics;
o Methyl ethyl ketone, a solvent used in the production of printing inks
and magnetic tapes;
o Butyric acid, an intermediate for the production of esters used in
artificial flavors;
o Propionic acid, an organic acid used to protect and preserve grain;
and
o Formic acid, an organic acid used in textile dyeing and leather
tanning.
Polyols and formaldehyde products are derivatives of methanol and are made
up of the following products:
o Formaldehyde, primarily used to produce adhesive resins for plywood,
particle board, polyacetal engineering resins and a compound used in
making polyurethane;
o Polyol products such as pentaerythritol, used in coatings and
synthetic lubricants; trimethylolpropane, used in synthetic
lubricants; neopentyl glycol, used in powder coatings; and 1,3
butylene glycol, used in flavorings and plasticizers.
Oxo alcohols and intermediates are produced from propylene and ethylene and
include:
o Butanol, used as a solvent for lacquers, dopes and thinners, and as an
intermediate in the manufacture of chemicals, such as butyl acrylate;
o Propanol, used as an intermediate in the production of amines for
agricultural chemicals, and as a solvent for inks, resins,
insecticides and waxes;
o Synthesis gas, used as an intermediate in the production of oxo
alcohols and specialties.
Acetyl derivatives and polyols are commodity products characterized by
cyclicality in pricing. The principal raw materials used in the acetyl
derivatives business line are acetic acid, various alcohols, methanol,
acetaldehyde, propylene, ethylene and synthesis gas. Celanese manufactures many
of these raw materials for its own use as well as for sales to third parties,
including its competitors in the acetyl derivatives business. Celanese purchases
propylene and ethylene from a variety of sources. Celanese manufactures
acetaldehyde for its European production, but it purchases all its acetaldehyde
requirements for its North American operations from Petroleos Mexicanos, the
Mexican national oil company. Petroleos Mexicanos has been a reliable supplier.
Acetaldehyde is also available from other sources.
Polyvinyl Alcohol. Polyvinyl alcohol is a performance chemical engineered
to satisfy particular customer requirements. It is used in adhesives, building
products, paper coatings, films and textiles. The
17
<PAGE>
primary raw material to produce polyvinyl alcohol is vinyl acetate monomer,
while acetic acid is produced as a by-product. Prices vary depending on industry
segment and end use application. Products are sold on a global basis, and
competition is from all regions of the world. Therefore, regional economies and
supply and demand balances affect the level of competition in other regions.
According to Stanford Research International's December 2003 report on PVOH,
Celanese is the largest North American producer of polyvinyl alcohol and the
second largest producer in the world.
Emulsions. Celanese purchased the emulsions business of Clariant AG on
December 31, 2002. The products in this business are sold under the Mowilith(R)
and Celvolit(R) brands and include conventional emulsions, high-pressure vinyl
acetate ethylene emulsions, and powders. Emulsions are made from vinyl acetate
monomer, acrylate esters and styrene. Emulsions are a key component of
water-based quality surface coatings, adhesives, non-woven textiles and other
applications. According to Kline & Co., a chemicals industry consultant, based
on sales the business held a number two position in emulsions (excluding SBRs)
in Europe and a number one position in European VAM-based emulsions in 2001.
Specialties. The specialties business line produces:
o Carboxylic acids such as pelargonic acid, used in detergents and
synthetic lubricants, and heptanoic acid, used in plasticizers and
synthetic lubricants;
o Amines such as methyl amines, used in agrochemicals, monoisopropynol
amines, used in herbicides, and butyl amines, used in the treatment of
rubber and in water treatment; and
o Oxo derivatives and special solvents, such as crotonaldehyde, which is
used by the Performance Products segment for the production of
sorbates, as well as raw materials for the fragrance and food
ingredients industry.
The prices for these products are relatively stable due to long-term
contracts with customers whose industries are not generally subject to the
cyclical trends of commodity chemicals.
The primary raw materials for these products are olefins and ammonia, which
are purchased from world market suppliers based on international prices.
In March 2002, Celanese formed Estech, a venture with Hatco Corporation, a
leading producer of synthetic lubricants, for the production and marketing of
neopolyol esters or NPEs. This venture, in which Celanese holds a 51 percent
interest, built and operates a 7,000 metric ton per year NPE plant at Celanese's
Oberhausen, Germany site. The plant came on stream in the fourth quarter of
2003. Neopolyol esters are used as base stocks for synthetic lubricants in
refrigeration, automotive, aviation and industrial applications, as well as in
hydraulic fluids. Celanese supplies Estech with carboxylic acids and polyols,
the main raw materials for producing NPEs.
Celanese contributed its commercial, technical and operational C3-oxo
business activities in Oberhausen, Germany to European Oxo GmbH, Celanese's
European oxo chemicals joint venture with Degussa AG. The joint venture began
operations in October 2003.
Facilities
The Chemical Products segment has production sites in the United States,
Canada, Mexico, Singapore, Spain, Sweden, Slovenia and Germany. The emulsions
business line also has tolling arrangements in the United Kingdom, France and
Greece. Celanese also participates in a joint venture in Saudi Arabia that
produces methanol and MTBE. Over the last few years, Celanese has continued to
shift its production capacity to lower cost production facilities while
expanding in growth markets, such as China. As a result, Celanese plans to shut
down its formaldehyde unit in Edmonton, Alberta, Canada during 2004. Celanese
announced plans to build a 600,000 metric ton acetic acid plant in Nanjing,
China, which is expected to come on stream in late 2005 or early 2006.
18
<PAGE>
Capital Expenditures
The Chemical Products segment's capital expenditures were E96 million, E106
million, and E70 million for the years 2003, 2002 and 2001, respectively. The
capital expenditures incurred during the last three years related primarily to
efficiency and safety improvement-related items associated with the normal
operations of the business, as well as spending for a new plant for synthesis
gas, an important raw material for the production of oxo alcohols and
specialties, at Celanese's Oberhausen site. The new plant, which will supply
European Oxo GmbH and Celanese, came on stream in the third quarter of 2003 and
is expected to improve reliability and reduce production costs. Capital
expenditures in 2003 also included the integration of a company-wide SAP system.
Markets
The following table illustrates net sales by destination of the Chemical
Products segment by geographic region for the years ended December 31, 2003,
2002 and 2001.
NET SALES TO EXTERNAL CUSTOMERS BY DESTINATION -- CHEMICAL PRODUCTS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2003 2002 2001
--------------- --------------- ---------------
% OF % OF % OF
E SEGMENT E SEGMENT E SEGMENT
----- ------- ----- ------- ----- -------
(IN MILLIONS, EXCEPT PERCENTAGES)
---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
North America....................... 1,046 39% 1,100 44% 1,273 47%
Europe/Africa....................... 1,047 40% 865 35% 958 35%
Asia/Australia...................... 462 18% 442 18% 411 15%
Rest of World....................... 73 3% 75 3% 81 3%
</Table>
The Chemical Products segment markets its products both directly to
customers and through distributors. It also utilizes a number of "e-channels",
including its website at www.chemvip.com, as well as system to system linking
through its industry portal, Elemica.
In the acetyls business line, the methanol market is regional and highly
dependent on the demand for products made from methanol. In addition to its own
demands for methanol, Celanese's production is sold to a few regional customers
who are manufacturers of chemical intermediates and to a lesser extent, by
manufacturers in the wood products industry. Celanese typically enters into
short-term contracts for the sale of methanol. Acetic acid and vinyl acetate
monomer are global businesses which have several large customers. Generally,
Celanese supplies these global customers under multi-year contracts. The
customers of acetic acid and vinyl acetate monomer produce polymers used in
water-based paints, adhesives, paper coatings, film modifiers and textiles.
Celanese has long-standing relationships with most of these customers.
Polyvinyl alcohol is sold to a diverse group of regional and multinational
customers mainly under single year contracts. The customers of the polyvinyl
alcohol business line are primarily engaged in the production of adhesives,
paper, films, building products, and textiles.
Emulsions and emulsion powders are sold to a diverse group of regional and
multinational customers. Customers for emulsions are manufacturers of
water-based quality surface coatings, adhesives, and non-woven textiles.
Customers for emulsion powders are primarily manufacturers of building products.
Acetyl derivatives and polyols are sold to a diverse group of regional and
multinational customers both under multi-year contracts and on the basis of
long-standing relationships. The customers of acetyl derivatives are primarily
engaged in the production of paints, coatings and adhesives. In addition to its
own demand for acetyl derivatives to produce cellulose acetate, Celanese sells
acetyl derivatives to other participants in the cellulose acetate industry.
Celanese manufactures formaldehyde for its own use as well as for sale to a few
regional customers that include manufacturers in the wood products and chemical
derivatives industries. The sale of formaldehyde is based on both long and short
term agreements. Polyols are sold globally to a wide
19
<PAGE>
variety of customers, primarily in the coatings and resins and the specialty
products industries. Oxo products are sold to a wide variety of customers,
primarily in the construction and automotive industries. The oxo market is
characterized by oversupply and numerous competitors.
The specialties business line primarily serves global markets in the
synthetic lubricant, agrochemical, rubber processing and other specialty
chemical areas. Much of the specialties business line involves "one customer,
one product" relationships, where the business develops customized products with
the customer, but the specialties business line also sells several chemicals
which are priced more like commodity chemicals.
Competition
Principal competitors of Celanese in the Chemical Products segment include
Acetex Corporation, Air Products and Chemicals, Inc., Atofina S.A., BASF, Borden
Chemical, Inc., BP p.l.c. ("BP"), Chang Chun Petrochemical Co., Ltd., Daicel,
Dow, Eastman Chemical Corporation ("Eastman"), E. I. Du Pont de Nemours and
Company ("DuPont"), Methanex Corporation ("Methanex"), Millennium Chemicals Inc.
("Millennium"), Nippon Goshei, Perstorp Inc., Rohm & Haas Company, Showa Denko
K.K., and Kuraray Co. Ltd.
ACETATE PRODUCTS
The Acetate Products segment consists of two major business lines, acetate
filter products and acetate filament. Both these business lines use the
"Celanese" brand to market their products. The following table lists key
products of the Acetate Products segment and their major markets.
<Table>
<Caption>
----------------------------------------------- -----------------------------------------------
KEY ACETATE PRODUCTS MAJOR MARKETS
----------------------------------------------- -----------------------------------------------
<S> <C>
Acetate Tow Cigarette Filters
----------------------------------------------- -----------------------------------------------
Acetate Filament Fashion Apparel, Linings and Home Furnishings
----------------------------------------------- -----------------------------------------------
</Table>
Business Lines
Products from the two major business lines are found in cigarette filters,
fashion apparel, linings and home furnishings. According to the 2002 Stanford
Research Institute International Chemical Economics Handbook, Celanese is the
world's leading producer of acetate fibers, including production of its joint
ventures in Asia.
Celanese produces acetate flake by processing wood pulp with acetic
anhydride. Celanese purchases wood pulp that is made from reforested trees from
major suppliers and produces acetic anhydride internally. The acetate flake is
then further processed into acetate fiber in the form of a tow band or filament.
The acetate filter products business line produces acetate tow, which is
used primarily in cigarette filters. The acetate tow market continues to be
characterized by stability and slow growth.
Celanese has a 30 percent interest in three manufacturing joint ventures
with Chinese state-owned enterprises that produce cellulose acetate flake and
tow in China. Additionally, in 2003, 21 percent of Celanese's sales of acetate
tow were sold to the state-owned tobacco enterprises, the largest single market
for acetate tow in the world. As demand for acetate tow in China exceeds local
supply, Celanese and its Chinese partners have agreed to expand capacity at
their three manufacturing joint ventures. Although increases in manufacturing
capacity of the joint ventures will reduce, beginning in 2005, the volume of
Celanese's future direct sales of cellulose acetate tow to China, the dividends
paid by the joint ventures to Celanese are projected to increase once the
expansions are complete in 2007.
The acetate filament business line is a supplier to the textile industry.
Demand for acetate filament is dependent on fashion trends and the world
economy. Although the popularity of knit garments in the U.S. fashion industry
has had a positive effect on demand for acetate filament, global demand for
lining and
20
<PAGE>
shell material has declined due to fashion trends, such as the prevalence of
casual office wear. In addition, market conditions in North America and Asia
have significantly affected the global textile business and negatively affected
consumption of all fibers, including acetate. Product substitution from acetate
filament to polyester fibers and other filaments has also occurred. Celanese
continues to work more closely with downstream apparel manufacturers and major
retailers to increase awareness of acetate's suitability for high-end fashion
apparel due to its breathable and luxurious qualities.
The Acetate Products segment is continuing its cost reduction and
operations improvement efforts. These efforts are directed toward reducing costs
while achieving higher productivity of employees and equipment. In addition to
restructuring activities undertaken in prior periods, Celanese outsourced the
operation and maintenance of its utility operations at the Narrows, Virginia and
Rock Hill, South Carolina plants in 2003. Celanese also announced the closure of
its Charlotte, North Carolina administrative and research and development
facility; these functions will be relocated to the Rock Hill and Narrows
locations in 2004. Celanese is continuing to assess its worldwide acetate
production capacity, and it is probable that Celanese will close certain
facilities in the latter half of this decade.
Facilities
The Acetate Products segment has production sites in the United States,
Canada, Mexico and Belgium, and participates in three manufacturing joint
ventures in China.
Capital Expenditures
The Acetate Products segment's capital expenditures were E34 million, E31
million, and E35 million for the years 2003, 2002 and 2001, respectively. The
capital expenditures incurred during these years related primarily to
efficiency, environmental and safety improvement-related items associated with
the normal operations of the business. Capital expenditures in 2003 also
included the integration of a company-wide SAP system.
Markets
The following table illustrates the destination of the net sales of the
Acetate Products segment by geographic region for the years ending December 31,
2003, 2002 and 2001.
NET SALES TO EXTERNAL CUSTOMERS BY DESTINATION -- ACETATE PRODUCTS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------
2003 2002 2001
------------- ------------- -------------
% OF % OF % OF
E SEGMENT E SEGMENT E SEGMENT
--- ------- --- ------- --- -------
(IN MILLIONS, EXCEPT PERCENTAGES)
---------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
North America........................... 167 29% 199 30% 253 33%
Europe/Africa........................... 169 29% 177 26% 166 22%
Asia/Australia.......................... 228 40% 272 41% 321 42%
Rest of World........................... 14 2% 22 3% 22 3%
</Table>
Sales in the acetate filter products industry are principally to the major
tobacco companies that account for a majority of worldwide cigarette production.
Celanese's contracts with most of its customers, including its largest customer,
with whom it has a long-standing relationship, are entered into on an annual
basis. In recent years, the cigarette industry has experienced consolidation. In
the acetate filter products industry, changes in the cigarette manufacturer
customer base and shifts among suppliers to those customers have had significant
effects on acetate tow prices in the industry as a whole.
In the acetate filament industry, Celanese's sales are made to textile
companies that range in size from the largest in the industry to others which
are quite small. The textile companies either weave or knit the acetate filament
yarns to produce greige fabrics. The greige fabrics are then dyed and finished,
either by the
21
<PAGE>
greige fabrics manufacturer or by converters who buy the fabrics and contract
with dyeing and finishing companies to process the fabrics. The finished fabrics
are sold to manufacturers who cut and sew the fabrics into apparel for retail
stores.
The textile industry, in particular the apparel portion of the industry,
continues to undergo structural changes as production moves from high-wage to
low-wage countries. In recent years, this has resulted in a changing customer
base for all participants in the textile chain from the yarn manufacturer to the
garment manufacturer. Market conditions in North America and Asia have reduced
profitability in the global textile industry. Many North American manufacturers
in the textile chain have reduced capacity, vertically integrated with other
manufacturers or exited from the business. Although demand in the Asian market
continues to rise, intense competition has eroded pricing and reduced
profitability. Product substitution to polyester and other fibers has also
occurred. Celanese's acetate filament business has been adversely affected by
these trends in the industry.
Celanese is participating in the expanding Asian filament market through
its marketing alliance with Teijin Limited. Teijin agreed to assist Celanese
with qualifying its acetate filament with customers beginning in January 2002
and Celanese has successfully transitioned a majority of that business. Teijin
discontinued acetate filament production in March 2002.
Competition
Principal competitors in the Acetate Products segment include Acordis
Industrial Nederland bv, Daicel, Eastman, Mitsubishi Rayon Company, Limited,
Novaceta S.p.a., and Rhodia S.A. ("Rhodia").
TECHNICAL POLYMERS TICONA
Ticona develops, produces and supplies a broad portfolio of high
performance technical polymers. The following table lists key Ticona products,
their trademarks, and their major markets.
<Table>
<Caption>
----------------------------------------------- -----------------------------------------------
KEY TICONA PRODUCTS MAJOR MARKETS
----------------------------------------------- -----------------------------------------------
<S> <C>
Hostaform(R)/Celcon(R) (Polyacetals) Automotive, Electronics, Consumer Products and
Medical
----------------------------------------------- -----------------------------------------------
GUR(R) (Ultra High Molecular Weight Profiles, Battery Separators, Industrial
Polyethylene or PE-UHMW) Specialties. Filtration, Coatings and Medical
----------------------------------------------- -----------------------------------------------
Celanex(R)/Vandar(R)/Riteflex(R)/Impet(R) Electrical, Electronics, Automotive, Appliances
(Polyester Engineering Resins) and Consumer Products
----------------------------------------------- -----------------------------------------------
Vectra(R) (Liquid Crystal Polymers) Electronics, Telecommunications, Medical and
Consumer Products
----------------------------------------------- -----------------------------------------------
Fortron(R)* (Polyphenylene Sulfide or PPS) Electronics, Automotive and Industrial
----------------------------------------------- -----------------------------------------------
Celstran(R), Compel(R) (long fiber reinforced Automotive and Industrial
thermoplastics)
----------------------------------------------- -----------------------------------------------
</Table>
---------------
* Fortron is a registered trademark of Fortron Industries.
Ticona's technical polymers have chemical and physical properties enabling
them, among other things, to withstand high temperatures, resist chemical
reactions with solvents and resist fracturing or stretching. These products are
used in a wide range of performance-demanding applications in the automotive and
electronics sectors and in other consumer and industrial goods, often replacing
metal or glass.
Ticona is an innovation-oriented business. Ticona focuses its efforts on
developing new markets and applications for its product lines, often developing
custom formulations to satisfy the technical and processing requirements of a
customer's applications. For example, Ticona has worked closely with fuel system
suppliers to develop an acetal copolymer with the chemical and impact resistance
necessary to withstand exposure to
22
<PAGE>
hot diesel fuels in the new generation of common rail diesel engines. The
product can also be used in automotive fuel sender units where it remains stable
at the high operating temperatures present in direct-injection diesel engines.
Ticona is also developing products such as Topas(R), a metallocene catalyst
based cycloolefin copolymer, or COC. Topas is developing markets and
applications where transparency, high temperature resistance and water vapor
barrier properties are key requirements.
Ticona's customer base consists primarily of a large number of plastic
molders and component suppliers, which are often the primary suppliers to
original equipment manufacturers, or OEMs. Ticona works with these molders and
component suppliers as well as directly with the OEMs to develop and improve
specialized applications and systems.
Prices for most of these products, particularly specialized product grades
for targeted applications, generally reflect the value added in complex polymer
chemistry, precision formulation and compounding, and the extensive application
development services provided. The specialized product lines are not
particularly susceptible to cyclical swings in pricing. Polyacetals pricing,
mainly in standard grades, is, however, somewhat more price competitive, with
many minimum-service providers competing for volume sales.
Product Lines
Polyacetals are sold under the trademarks Celcon(R) in North America and
Hostaform(R) in Europe and the rest of the world. Polyplastics and Korea
Engineering Plastics, in which Ticona holds 45 and 50 percent ownership
interests, respectively, are leading suppliers of polyacetals and other
engineering resins in the Asia/ Pacific region. Polyacetals are used for
mechanical parts, including door locks and seat belt mechanisms, in automotive
applications and in electrical, consumer and industrial applications such as
keyboards, ski bindings, and gears for appliances.
The primary raw material for polyacetals is formaldehyde, which is
manufactured from methanol. Ticona currently purchases formaldehyde and methanol
in the United States from Celanese's Chemical Products segment and, in Europe,
manufactures formaldehyde from purchased methanol.
GUR(R), an ultra high molecular weight polyethylene or PE-UHMW, is an
engineered material used in heavy-duty automotive and industrial applications
such as car battery separator panels and industrial conveyor belts, as well as
in specialty medical and consumer applications, such as porous tips for marker
pens, sports equipment and prostheses. The basic raw material for GUR is
ethylene.
Polyesters such as Celanex(R) polybutylene terephthalate, or PBT, and
Vandar(R), a series of PBT-polyester blends, are used in a wide variety of
automotive, electrical and consumer applications, including ignition system
parts, radiator grilles, electrical switches, appliance housings, boat fittings
and perfume bottle caps. Impet-Hi(TM) polyethylene terephthalate, or PET, is a
polyester which exhibits rigidity and strength useful in large injection molded
part applications, as well as high temperature resistance in automotive or
electrical/ electronic applications. Riteflex(R) is a co-polyester which adds
flexibility to the range of high performance properties offered by Ticona's
other products. Raw materials for polyesters vary. Base monomers, such as
dimethyl terephthalate or DMT and PTA, are widely available with pricing
dependent on broader polyester fiber and packaging resins market conditions.
Smaller volume specialty co-monomers for these products are typically supplied
by a few companies.
Liquid crystal polymers, or LCPs, such as Vectra(R), are used in electrical
and electronics applications and for precision parts with thin walls and complex
shapes. Fortron(R), a polyphenylene sulphide, or PPS, product, is used in a wide
variety of automotive and other applications, especially those requiring heat
and/or chemical resistance, including fuel system parts, radiator pipes and
halogen lamp housings, and often replaces metal in these demanding applications.
Fortron is manufactured by Fortron Industries, Ticona's 50-50 joint venture with
Kureha Chemicals Industry of Japan. Celstran(R) and Compel(R) are long fiber
reinforced thermoplastics, which impart extra strength and stiffness, making
them more suitable for larger parts than conventional thermoplastics.
23
<PAGE>
Facilities
Ticona has polymerization, compounding and research and technology centers
in Germany and the United States, as well as additional compounding facilities
in Brazil. Ticona's Kelsterbach, Germany production site is located in close
proximity to one of the sites being considered for a new runway under the
Frankfurt airport's expansion plans. The construction of this particular runway
could have a negative effect on the plant's current production capacity and
future development. While the state government and the owner of the airport
promote the expansion of this option, it is uncertain whether this option is in
accordance with applicable laws. Neither the final outcome of this matter nor
its timing can be predicted at this time.
Capital Expenditures
Ticona's capital expenditures were E49 million, E66 million, and E96
million for the years 2003, 2002 and 2001, respectively. Ticona had expenditures
in each of these three years relating primarily to efficiency and safety
improvement-related items associated with the normal operations of the business.
In addition, Ticona had expenditures in 2001 and 2002 for significant capacity
expansions at its Bishop, Texas and Shelby, North Carolina sites. Ticona doubled
its U.S. capacity for GUR PE-UHMW by building a new 30,000 metric tons per year
facility in Bishop, Texas, replacing the existing plant in Bayport, Texas. The
new plant came on stream in the third quarter of 2002. Ticona is expanding its
Oberhausen GUR PE-UHMW capacity by 10,000 metric tons per year. This expansion
is expected to come on stream in 2004. In the fourth quarter of 2002, Ticona
increased capacity by 6,000 metric tons at its polyacetals facility in
Kelsterbach, Germany and commenced a further increase of 17,000 metric tons,
which will come on stream in 2004. The capital expenditures for 2003 also
include construction of a new administrative building in Florence, Kentucky and
integration of a company-wide SAP system.
Markets
The following table illustrates the destination of the net sales of the
Technical Polymers Ticona segment by geographic region for the years ending
December 31, 2003, 2002 and 2001.
NET SALES TO EXTERNAL CUSTOMERS BY DESTINATION -- TECHNICAL POLYMER TICONA
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------
2003 2002 2001
------------- ------------- -------------
% OF % OF % OF
E SEGMENT E SEGMENT E SEGMENT
--- ------- --- ------- --- -------
(IN MILLIONS, EXCEPT PERCENTAGES)
---------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
North America........................... 310 45% 339 48% 353 50%
Europe/Africa........................... 330 49% 318 46% 317 45%
Asia/Australia.......................... 17 3% 19 3% 14 2%
Rest of World........................... 18 3% 20 3% 22 3%
</Table>
Ticona's sales in the Asian market are made through its joint ventures,
Polyplastics, Korea Engineering Plastics and Fortron Industries, which are
accounted for under the equity method and therefore not included in Ticona's
consolidated net sales. If Ticona's portion of the sales made by these joint
ventures were included in the chart above, the percentage of sales sold in
Asia/Australia would be substantially higher. A number of Ticona's polyacetals
customers, particularly in the appliance, electrical components, toys and
certain sections of the electronics/telecommunications fields, have moved
tooling and molding operations to Asia, particularly southern China. To meet the
expected increased demand in this region, Ticona, along with Polyplastics,
Mitsubishi Gas Chemical Company Inc., and Korea Engineering Plastics agreed on a
joint venture to construct and operate a world-scale 60,000 metric ton
polyacetals facility in China. When completed, Ticona will indirectly own an
approximate 38 percent interest in this joint venture. Work on the new facility
commenced in July 2003, and the new plant is expected to start operations in the
second quarter of 2005.
24
<PAGE>
Ticona's principal customers are suppliers to the automotive industries as
well as industrial suppliers. These customers primarily produce engineered
products, and Ticona works closely with its customers to assist them to develop
and improve specialized applications and systems. Ticona has long-standing
relationships with most of its major customers, but it also uses distributors
for most of its major products, as well as a number of electronic channels, such
as its BuyTiconaDirect(TM) on-line ordering system, and other electronic
marketplaces to reach a larger customer base. For most of Ticona's product
lines, contracts with customers typically have a term of one to two years. A
significant swing in the economic conditions of the end markets of Ticona's
principal customers could significantly affect the demand for Ticona's products.
Competition
Ticona's principal competitors include BASF, Bayer AG, DuPont, General
Electric Company and Solvay S.A. Smaller regional competitors include Asahi
Kasei Corporation, DSM NV, Mitsubishi Plastics, Inc., Chevron Phillips Chemical
Company, L.P., Braskem S.A., Teijin and Toray Industries Inc.
PERFORMANCE PRODUCTS
The Performance Products segment consists of the food ingredients business
conducted by Nutrinova.
This business uses its own trade names to conduct business. The following
table lists key products of the Performance Products segment and their major
markets.
<Table>
<Caption>
----------------------------------------------- -----------------------------------------------
KEY PERFORMANCE PRODUCTS MAJOR MARKETS
----------------------------------------------- -----------------------------------------------
<S> <C>
Sunett(R) (Acesulfame-K) Beverages, Confections, Dairy Products and
Pharmaceuticals
----------------------------------------------- -----------------------------------------------
Sorbates Dairy Products, Baked Goods, Beverages, Animal
Feeds, Spreads and Delicatessen Products
----------------------------------------------- -----------------------------------------------
</Table>
Business Lines
Nutrinova's food ingredients business consists of the production and sale
of high intensity sweeteners and food protection ingredients, such as sorbic
acids and sorbates, as well as the resale of dietary fiber products worldwide
and the resale of other food ingredients in Japan, Australia, Mexico and the
United States.
Acesulfame-K, a high intensity sweetener marketed under the trademark
Sunett, is used in a variety of beverages, confections and dairy products
throughout the world. The primary raw materials for this product are diketene
and sulfur trioxide. Sunett pricing for targeted applications reflects the value
added in the precision formulations and extensive technical services provided.
Nutrinova's strategy is to be the most reliable and highest quality producer of
this product, to develop new applications for the product and to expand into new
markets. Nutrinova maintains a strict patent enforcement strategy, which has
resulted in favorable outcomes in a number of patent infringement matters in
Europe and the United States. Nutrinova's European and U.S. patents for making
Sunett expire in 2005.
Nutrinova's food protection ingredients are used in foods, beverages and
personal care products. The primary raw materials for these products are ketene
and crotonaldehyde. Sorbates pricing is extremely sensitive to demand and
industry capacity and is not necessarily dependent on the prices of raw
materials.
Facilities
Nutrinova has production facilities in Germany, as well as sales and
distribution facilities in all major world markets.
25
<PAGE>
Capital Expenditures
The Performance Products segment's capital expenditures were E2 million, E4
million, and E2 million for the years 2003, 2002 and 2001, respectively. The
capital expenditures incurred during these years related to efficiency and
safety improvement items associated with the normal operation of the business.
Markets
The following table illustrates the destination of the net sales of the
Performance Products segment by geographic region for the years ending December
31, 2003, 2002 and 2001.
NET SALES TO EXTERNAL CUSTOMERS BY DESTINATION -- PERFORMANCE PRODUCTS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------
2003 2002 2001
------------- ------------- -------------
% OF % OF % OF
E SEGMENT E SEGMENT E SEGMENT
--- ------- --- ------- --- -------
(IN MILLIONS, EXCEPT PERCENTAGES)
---------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
North America.............................. 65 43% 60 37% 57 36%
Europe/Africa.............................. 52 35% 58 36% 58 37%
Asia/Australia............................. 25 17% 27 17% 26 16%
Rest of World.............................. 8 5% 16 10% 18 11%
</Table>
Nutrinova directly markets Sunett(R) primarily to a limited number of large
multinational and regional customers in the beverage and food industry under
long-term and annual contracts. Nutrinova markets food protection ingredients
primarily through regional distributors to small and medium sized customers and
directly through regional sales offices to large multinational customers in the
food industry. Nutrinova is currently developing markets and new applications
for its omega-3 fatty acid, docosahexanoeic acid, Nutrinova -- DHA(TM).
Potential application areas include functional foods and beverages, dietary
supplements, clinical nutrition and pharmaceutical end-uses.
Competition
The principal competitors for Nutrinova's Sunett sweetener are Holland
Sweetener Company, The Nutrasweet Company, Ajinomoto Co., Inc. and several
Chinese manufacturers. In sorbates, Nutrinova competes with Nantong AA, Daicel,
Chisso Corporation, Yu Yao/Ningbo, Yancheng AmeriPac and other Japanese and
Chinese manufacturers of sorbates.
OTHER ACTIVITIES
Other Activities includes revenues mainly from the captive insurance
companies, Celanese Ventures GmbH, Celanese Advanced Materials, Inc., as well as
corporate activities, several service companies and other ancillary businesses,
which do not have significant sales.
Celanese's two wholly-owned captive insurance companies are a key component
of Celanese's global risk management program, as well as a form of self
insurance for the property, liability and workers compensation risks of
Celanese. The captive insurance companies issue insurance policies to Celanese
subsidiaries to provide consistent coverage amid fluctuating costs in the
insurance market and to lower long-term insurance costs by avoiding or reducing
commercial carrier overhead and regulatory fees. The captive insurance companies
issue insurance policies and coordinate claims handling services with third
party service providers. They retain risk at levels approved by the board of
management and obtain reinsurance coverage from third parties to limit the net
risk retained. One of the captive insurance companies also insures certain third
party risks.
Celanese Ventures promotes research projects that lie outside Celanese's
principal businesses or, due to their long-term perspective and widely-spread
application possibilities, cannot be operated by the principal businesses alone.
Celanese Ventures is presently active in developing high temperature membrane
electrode
26
<PAGE>
assemblies or MEAs for fuel cells, and it inaugurated the world's first pilot
plant for MEAs at the Celanese's Frankfurt site. Celanese Ventures is also
developing new catalysts for high performance polymers. Celanese Advanced
Materials consists of the high performance polymer PBI and the Vectran(R)
polymer fiber product lines.
ACQUISITIONS AND DIVESTITURES
CELANESE ACQUIRED THE FOLLOWING BUSINESSES:
o As a part of its strategy of forward integration, Celanese purchased the
European emulsions and global emulsion powders business of Clariant AG on
December 31, 2002 valued at E147 million.
CELANESE DIVESTED THE FOLLOWING BUSINESSES:
o In September 2003, Celanese and Dow reached an agreement for Dow to
purchase the acrylates business of Celanese. This transaction was
completed in February 2004.
o In December 2003, the Ticona segment completed the sale of its nylon
business line to BASF.
o Effective January 1, 2002, Celanese sold its interest in InfraServ GmbH &
Co. Deponie Knapsack KG ("Deponie") to Trienekens AG.
o In December 2002, Celanese sold Trespaphan, its global oriented
polypropylene film business, to a consortium consisting of the
Dor-Moplefan Group and Bain Capital, Inc.
o During 2002, Celanese sold its global allylamines and U.S. alkylamines
businesses to U.S. Amines Ltd.
o In January 2001, Celanese sold its investment in Infraserv GmbH & Co.
Muenchsmuenster KG to Ruhr Oel GmbH.
o In January 2001, Celanese sold its CelActiv(TM) and Hoecat(R) catalyst
business to Synetix.
o In April 2001, Celanese sold NADIR filtration GmbH, formerly Celgard
GmbH, to KCS Industrie Holding AG.
o In June 2001, Celanese sold its ownership interest in Hoechst Service
Gastronomie GmbH to Eurest Deutschland GmbH and Infraserv GmbH & Co.
Hoechst KG.
o In October 2001, Celanese sold its ownership interest in Covion Organic
Semiconducters GmbH, a developer and producer of light-emitting organic
polymers, to Avecia, its joint venture partner in Covion Organic
Semiconductors GmbH.
For further information on the acquisitions and divestitures discussed
above, see "Item 5. Operating and Financial Review and Prospects -- Summary of
Consolidated Results -- 2003 Compared with 2002 -- Discontinued Operations for
the Years Ended December 31, 2003, 2002 and 2001" and Note 7 to the Consolidated
Financial Statements.
RAW MATERIALS AND ENERGY
Celanese purchases a variety of raw materials from sources in many
countries for use in its production processes. Celanese has a policy of
maintaining, when available, multiple sources of supply for materials. However,
some of Celanese's individual plants may have single sources of supply for some
of their raw materials, such as carbon monoxide and acetaldehyde. In 2003, a
primary U.S. supplier of wood pulp to the Acetate Products segment shut down its
pulp facility. This closure resulted in increased operating costs for expenses
associated with qualifying wood pulp from alternative suppliers and significant
increases in wood pulp inventory levels. Celanese has secured alternative
sources of wood pulp supply. Although Celanese has been able to obtain
sufficient supplies of raw materials, there can be no assurance that unforeseen
developments will not affect Celanese's raw material supply. Even if Celanese
has multiple sources of supply for a raw material, there can be no assurance
that these sources can make up for the loss of a major supplier. Nor can there
be any guarantee that profitability will not be affected should Celanese be
required to qualify additional sources of
27
<PAGE>
supply in the event of the loss of a sole supplier. In addition, the price of
raw materials varies, often substantially, from year to year.
A substantial portion of Celanese's products and raw materials are
commodities whose prices fluctuate as market supply/demand fundamentals change.
For example, the volatility of prices for natural gas and ethylene (whose cost
is in part linked to natural gas prices) has increased in recent years.
Celanese's production facilities rely largely on coal, fuel oil, natural gas and
electricity for energy. Most of the raw materials for Celanese's European
operations are centrally purchased by a subsidiary of Celanese, which also buys
raw materials on behalf of third parties. Celanese manages its exposure through
the use of derivative instruments and forward purchase contracts for commodity
price hedging, entering into long-term supply agreements, and multi-year
purchasing and sales agreements. Celanese's policy, for the majority of its
natural gas and butane requirements, allows entering into supply agreements and
forward purchase or cash-settled swap contracts, generally for up to 24 months.
During 2003, Celanese entered into forward purchase and cash-settled swap
contracts for approximately 50 percent of its estimated natural gas
requirements, generally for up to three to six months forward. As these forward
contracts expire, Celanese may be exposed to future price fluctuations if the
forward purchase contracts are not replaced, or if it elects to replace them,
Celanese may have to do so at higher costs. Although Celanese seeks to offset
increases in raw material prices with corresponding increases in the prices of
its products, it may not be able to do so, and there may be periods when such
product price increases lag behind raw material cost increases. In the future,
Celanese may modify its practice of purchasing a portion of its commodity
requirements forward, and consider utilizing a variety of other raw material
hedging instruments in addition to forward purchase contracts in accordance with
changes in market conditions.
RESEARCH AND DEVELOPMENT
All of Celanese's businesses conduct research and development activities to
increase competitiveness. Celanese's Technical Polymers Ticona and Performance
Products segments in particular are innovation-oriented businesses that conduct
research and development activities to develop new, and optimize existing,
production technologies, as well as to develop commercially viable new products
and applications.
The Chemical Products segment has been focusing on improving core
production technologies, such as improving catalyst development, and supporting
both debottlenecking and cost reduction efforts.
The Acetate Products segment has been concentrating on developing new
fabrics using acetate filament and new applications for other acetate materials,
such as their use in disposable consumer materials.
Research in the Technical Polymers Ticona segment is focused on the
development of new formulations and applications for its products, improved
manufacturing processes and new polymer materials with varying chemical and
physical properties in order to meet customer needs and to generate growth. This
effort involves the entire value chain from new or improved monomer production,
polymerization and compounding, to working closely with end-users to identify
new applications that can take advantage of these high performance features.
Ticona is continually improving compounding recipes to extend product properties
and grades, while offering grade consistency on a global basis. In addition,
Ticona is developing new polymerization and manufacturing technology in order to
meet economic and ecological goals without sacrificing high quality processing.
The research and development activities of the Performance Products segment
are conducted at Nutrinova's Frankfurt, Germany location. They are directed
towards expanding its existing technologies and developing new applications for
existing products in close cooperation with its customers.
Celanese's innovative products subsidiary, Celanese Ventures GmbH, promotes
research projects that lie outside Celanese's core businesses or are in an early
stage of development. Presently, Celanese Ventures is developing and marketing
membrane-electrode assemblies for high temperature fuel cells. Another area of
competency is high performance catalysts. Celanese Ventures captures the value
of promising technologies with licensing and development agreements, as well as
by selling to strategic investors those projects that no longer fit Celanese's
long-term goals. Celanese Ventures operates research and development and pilot
manufacturing facilities in Frankfurt, Germany and Charlotte, North Carolina.
28
<PAGE>
Research and development costs are included in expenses as incurred.
Celanese's research and development costs for 2003, 2002 and 2001 were E79
million, E69 million and E82 million, respectively. For additional information
on Celanese's research and development expenses, see "Item 5. Operating and
Financial Review and Prospects -- Summary of Consolidated Results -- 2003
Compared with 2002."
INTELLECTUAL PROPERTY
Celanese attaches great importance to patents, trademarks, copyrights and
product designs in order to protect its investment in research and development,
manufacturing and marketing. Celanese's policy is to seek the widest possible
protection for significant product and process developments in its major
markets. Patents may cover products, processes, intermediate products and
product uses. Protection for individual products extends for varying periods in
accordance with the date of patent application filing and the legal life of
patents in the various countries. The protection afforded, which may also vary
from country to country, depends upon the type of patent and its scope of
coverage.
In most industrial countries, patent protection exists for new substances
and formulations, as well as for unique applications and production processes.
However, Celanese's continued growth strategy may bring it to regions of the
world where intellectual property protection may be limited and difficult to
enforce. Celanese maintains strict information security policies and procedures
wherever it does business. Such information security policies and procedures
include data encryption, controls over the disclosure and safekeeping of
confidential information, as well as employee awareness training. Moreover,
Celanese monitors its competitors and vigorously challenges patent and trademark
infringement. For example, the Chemical Products segment maintains a strict
patent enforcement strategy, which has resulted in favorable outcomes in a
number of patent infringement matters in Europe, Asia and the United States.
Celanese is currently pursuing a number of matters relating to the infringement
of its acetic acid patents. Some of Celanese's earlier acetic acid patents will
expire in 2007; other patents covering acetic acid are presently pending.
As patents expire, the products and processes described and claimed in
those patents become generally available for use by the public. Celanese
believes that the loss of no single patent which may expire in the next several
years will materially adversely affect the business or financial results of
Celanese.
Celanese also seeks to register trademarks extensively as a means of
protecting the brand names of its products, which brand names become more
important once the corresponding patents have expired. Celanese protects its
trademarks vigorously against infringement and also seeks to register design
protection where appropriate.
ENVIRONMENTAL AND OTHER REGULATION
Obtaining, producing and distributing many of Celanese's products involves
the use, storage, transportation and disposal of toxic and hazardous materials.
Celanese is subject to extensive, evolving and increasingly stringent national
and local environmental laws and regulations, which address, among other things,
the following:
o Emissions to the air;
o Discharges to surface and subsurface waters;
o Other releases into the environment;
o Generation, handling, storage, transportation, treatment and disposal of
waste materials;
o Maintenance of safe conditions in the workplace; and
o Production, handling, labeling or use of chemicals used or produced by
Celanese.
Celanese is subject to environmental laws and regulations that may require
it to remove or mitigate the effects of the disposal or release of chemical
substances at various sites. Under some of these laws and regulations, a current
or previous owner or operator of property may be held liable for the costs of
removal or remediation of hazardous substances on, under, or in its property,
without regard to whether the owner or
29
<PAGE>
operator knew of, or caused the presence of the contaminants, and regardless of
whether the practices that resulted in the contamination were legal at the time
they occurred. As many of Celanese's production sites have an extended history
of industrial use, it is impossible to predict precisely what effect these laws
and regulations will have on Celanese in the future. Soil and groundwater
contamination has occurred at some Celanese sites, and might occur or be
discovered at other sites.
In December 1997, the Conference of the Parties of the United Nations
Framework Convention on Climate Change drafted the Kyoto Protocol, which would
establish significant emission reduction targets for six gases considered to
have global warming potential (referred to as greenhouse gases) and would drive
mandatory reductions in developed nations subject to the Protocol. To date, the
Protocol has not been adopted by enough of the larger, industrialized countries
(defined in Annex I to the Protocol) to come into effect. The European Union or
EU, including Germany and other countries where Celanese has interests, ratified
the Kyoto Protocol in 2002 and is formulating applicable regulations. In July
2003 the Parliament of the European Union passed a regulation to implement one
of the mechanisms of the Kyoto Protocol for all member states. Germany, like all
EU member states, is required to enact a national regulation based on the EU
regulation for emission trading. An emission trading system covering carbon
dioxide emissions must be in place by January 1, 2005. The new regulation will
affect Celanese AG power plants at the Kelsterbach, Oberhausen and Lanaken
sites. In addition the power plants being operated by InfraServ entities are
subject to this regulation. The governments of the member states are currently
developing drafts of their national allocation plans for allowances. The draft
plans are to be submitted to the European Commission by March 31, 2004.
In 2002, President Bush announced new climate change initiatives for the
U.S. Among the policies to be pursued is a voluntary commitment to reduce the
"greenhouse gas intensity" of the U.S. economy by 18 percent within the next ten
years. The Bush Administration is seeking to partner with various industrial
sectors, including the chemical industry, to reach this goal. The American
Chemistry Council, of which Celanese is a member, has committed to pursue
additional reductions in greenhouse gas intensity toward an overall target of 18
percent by 2012, using 1990 emissions intensity as the baseline. Celanese
currently emits carbon dioxide and smaller amounts of methane and experiences
some losses of polyfluorinated hydrocarbons used as refrigerants. Celanese has
invested and continues to invest in improvements to its processes that increase
energy efficiency and decrease greenhouse gas intensity.
It is Celanese's policy to comply with all environmental, health and safety
requirements and to provide safe and environmentally sound workplaces for
employees. In some cases, compliance can be achieved only by incurring capital
expenditures. For example, various draft regulations under consideration in the
United States, including the Miscellaneous Organic National Emissions Standards
for Hazardous Air Pollutants regulations, and various approaches to regulating
boilers and incinerators could impose additional requirements on Celanese's
operations. Celanese's worldwide expenditures in 2003, including those with
respect to third party and divested sites, for compliance with environmental
control regulations and internal company initiatives totaled E71 million, of
which E9 million was for capital projects. It is anticipated that stringent
environmental regulations will continue to be imposed on Celanese and the
industry in general. Although Celanese cannot predict with certainty future
expenditures, management believes that the current spending trends will
continue.
Other new or revised regulations may place additional requirements on the
production, handling, labeling or use of some chemical products. Pursuant to a
European Union regulation on Risk Assessment of Existing Chemicals, the European
Chemicals Bureau of the European Commission has been conducting risk assessments
on approximately 140 major chemicals. Some of the chemicals initially being
evaluated include vinyl acetate monomer or VAM, which Celanese produces, as well
as competitors' products, such as styrene and 1,3-butadiene. These risk
assessments entail a multi-stage process to determine whether and to what extent
the Commission should classify the chemical as a carcinogen and, if so, whether
this classification, and related labelling requirements, should apply only to
finished products that contain specified threshold concentrations of a
particular chemical. In the case of VAM, a final ruling is not expected until
the end of 2004. Celanese and other VAM producers are participating in this
process with detailed scientific analyses supporting the industry's position
that VAM is not a probable human carcinogen and that labeling of end products
should not be required but that, if it is, should only be at relatively high
parts per million of residual
30
<PAGE>
VAM levels in the end products. It is not possible for Celanese to predict the
outcome or effect of any final ruling.
Several recent studies have investigated possible links between
formaldehyde exposure and various medical conditions, including leukemia. On the
basis of these new studies, the International Agency for Research on Cancer or
IARC has stated its intention to review whether it should change formaldehyde's
classification from Group 2A (probable human carcinogen) to Group 1 (known human
carcinogen). The results of IARC's review will be examined by government
agencies with responsibility for setting worker and environmental exposure
standards and labeling requirements. Celanese is a producer of formaldehyde and
plastics derived from formaldehyde. Celanese, together with other producers and
users, is evaluating these findings. Celanese cannot predict the final outcome
or effect of any final ruling.
Other recent initiatives will potentially require toxicological testing and
risk assessments of a wide variety of chemicals, including chemicals used or
produced by Celanese. These initiatives include the Voluntary Children's
Chemical Evaluation Program and High Production Volume Chemical Initiative in
the United States, as well as various European Commission programs, such as the
new European Environment and Health Strategy, commonly known as SCALE, and the
Proposal for the Registration, Evaluation and Authorization and Restriction of
Chemicals or REACH. REACH, which was proposed by the European Commission in
October 2003, will establish a system to register and evaluate chemicals
manufactured or imported to the European Union. Depending on the final ruling,
additional testing, documentation and risk assessments will occur for the
chemical industry. This will affect European producers of chemicals as well as
all chemical companies worldwide that export to member states of the European
Union. The final ruling has not yet been decided.
Depending on the outcome of the above-mentioned assessments in the United
States and Europe, additional requirements may be placed on the production,
handling, labeling or use of the subject chemicals. Such additional requirements
could increase the cost incurred by Celanese's customers to use its chemical
products and otherwise limit the use of these products, which could adversely
affect the demand for these products.
Celanese is subject to claims brought by United States federal or state
regulatory agencies, regulatory agencies in other jurisdictions or private
individuals regarding the cleanup of sites that Celanese owns, owned, operated
or where waste from its operations was disposed, treated or recycled. In
particular, Celanese has a potential liability under the United States Federal
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, commonly known as Superfund, the United States Resource Conservation
and Recovery Act, and related state laws, or regulatory requirements in other
jurisdictions, or through obligations retained by contractual agreements for
investigation and cleanup costs at approximately 50 sites. At many of these
sites, numerous companies, including Celanese, or one of its predecessor
companies, have been notified that the Environmental Protection Agency or EPA,
state governing body or private individuals consider such companies to be
potentially responsible parties 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. Celanese regularly reviews the liabilities for these
sites and has accrued its best estimate of its ultimate liability for
investigation or cleanup costs, but, due to the many variables involved in such
estimation, the ultimate liability may vary from these estimates. Expenditures
for investigation, cleanup and related activities have been E5 million for the
three years ended December 31, 2003, with expenditures in no year greater than
E2 million.
Celanese's wholly-owned subsidiary, InfraServ Verwaltungs GmbH, is the
general partner of the InfraServ companies that provide on-site general and
administrative services at German sites in Frankfurt am Main-Hoechst, Gendorf,
Huerth-Knapsack, Wiesbaden, Oberhausen and Kelsterbach. Producers at the sites,
including subsidiaries of Celanese, are owners of limited partnership interests
in the respective InfraServ companies.
The InfraServ companies are liable for any residual contamination and other
pollution because they own the real estate on which the individual facilities
operate. In addition, Hoechst, as the responsible party under German public law,
is liable to third parties for all environmental damage that occurred while it
was still the
31
<PAGE>
owner of the plants and real estate. However, the InfraServ companies have
agreed to indemnify Hoechst from any environmental liability arising out of or
in connection with environmental pollution of any InfraServ site. The
partnership agreements provide that, as between the limited partners, each
limited partner is responsible for any contamination caused predominantly by
such partner. The limited partners have also undertaken to indemnify Hoechst
against such liabilities. Any liability that cannot be attributed to an
InfraServ partner and for which no third party is responsible, is required to be
borne by the InfraServ company in question. In view of this potential obligation
to eliminate residual contamination, the InfraServ companies in which Celanese
has an interest, have recorded provisions totaling approximately E57 million as
of December 31, 2003. If the InfraServ companies default on their respective
indemnification obligations to eliminate residual contamination, the limited
partners in the InfraServ companies have agreed to fund such liabilities,
subject to a number of limitations. To the extent that any liabilities are not
satisfied by either the InfraServ companies or the limited partners, these
liabilities are to be borne by Celanese in accordance with the demerger
agreement. As between Hoechst and Celanese, Hoechst has agreed to indemnify
Celanese for two-thirds of these demerged residual liabilities. Likewise, in
some circumstances Celanese could be responsible for the elimination of residual
contamination on a few sites that were not transferred to Infraserv companies,
in which case Hoechst must reimburse Celanese for two-thirds of any costs so
incurred.
Some of Celanese's facilities in Germany are over 100 years old, and there
may be significant contamination at these facilities. With respect to its German
sites, as with its other sites, Celanese records a provision for environmental
matters when it is obligated by law, through irrevocable agreements with
governmental authorities or through firm commitments, to remediate the
facilities.
Provisions are not recorded for potential soil contamination liability at
facilities still under operation, as German law does not currently require such
contamination to be remedied until the facility is closed and dismantled, unless
the authorities otherwise direct. If Celanese were to terminate operations at
one of its facilities or if German law were changed to require such removal or
clean up, the cost could be material to Celanese. Celanese cannot accurately
determine the ultimate potential liability for investigation and clean up at
such sites. Celanese adjusts provisions as new remedial commitments are made.
See Notes 25 and 26 to the Consolidated Financial Statements.
It is difficult to estimate the future costs of environmental protection
and remediation because of many uncertainties, including uncertainties about the
status of laws, regulations and information related to individual locations and
sites. Subject to the foregoing, but taking into consideration Celanese's
experience to date regarding environmental matters of a similar nature and facts
currently known, Celanese believes that capital expenditures and remedial
actions to comply with existing laws governing environmental protection will not
have a material adverse effect on Celanese's business and financial results. As
of December 31, 2003, Celanese has reserves of E126 million for environmental
matters worldwide.
In the demerger agreement, Celanese agreed to indemnify Hoechst against
environmental liabilities for environmental contamination that could arise under
some divestiture agreements regarding chemical businesses, participations or
assets that were entered into by Hoechst prior to the demerger. Celanese and
Hoechst have agreed that Celanese will indemnify Hoechst against those
liabilities up to an amount of E250 million. Hoechst will bear those liabilities
exceeding E250 million, but Celanese will reimburse Hoechst for one-third of
those liabilities for amounts that exceed E750 million. Celanese has made
payments through December 31, 2003 of E36 million for environmental
contamination liabilities in connection with the divestiture agreements. As of
December 31, 2003, Celanese has reserves of E42 million for this contingency and
may be required to record additional reserves in the future. See Notes 25 and 26
to the Consolidated Financial Statements.
Celanese believes it is in substantial compliance with all environmental,
health and safety laws and regulations and continues to devote attention to the
health and safety of its employees and the protection of the public health and
the environment in the regions where it operates. Such compliance has not had an
adverse effect on Celanese's competitive position or business. Celanese cannot
predict the effect of regulations that may be adopted in the future by
governmental bodies responsible for air, water and solid waste pollution
controls and employee and community health and safety.
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ORGANIZATIONAL STRUCTURE
SIGNIFICANT SUBSIDIARIES
Celanese AG operates its global businesses through subsidiaries in Europe,
North America and Asia, most of which are owned indirectly through a German
holding company and wholly-owned subsidiary, Celanese Holding GmbH. Celanese
Chemicals Europe GmbH and Ticona GmbH are owned directly by Celanese AG. In
North America, many of the businesses are consolidated under Celanese Americas
Corporation, a wholly-owned subsidiary which, through its wholly-owned
subsidiary, CNA Holdings, Inc., directly or indirectly owns the North American
operating companies. The table below sets forth Celanese's significant
subsidiaries:
<Table>
<Caption>
NAME OF COMPANY COUNTRY OF INCORPORATION PERCENTAGE OWNED
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Celanese Canada Inc. Canada 100.00%
-----------------------------------------------------------------------------------------------------
Celanese Chemicals Europe GmbH Germany 100.00%
-----------------------------------------------------------------------------------------------------
Celanese Holding GmbH Germany 100.00%
-----------------------------------------------------------------------------------------------------
Nutrinova Nutrition Specialties & Food Germany 100.00%
Ingredients GmbH
-----------------------------------------------------------------------------------------------------
Ticona GmbH Germany 100.00%
-----------------------------------------------------------------------------------------------------
Grupo Celanese SA Mexico 99.88%
-----------------------------------------------------------------------------------------------------
Celanese Singapore Pte. Ltd. Singapore 100.00%
-----------------------------------------------------------------------------------------------------
Celanese Acetate LLC USA 100.00%
-----------------------------------------------------------------------------------------------------
Celanese Americas Corporation USA 100.00%
-----------------------------------------------------------------------------------------------------
Celanese Ltd. USA 100.00%
-----------------------------------------------------------------------------------------------------
CNA Holdings, Inc. USA 100.00%
-----------------------------------------------------------------------------------------------------
Ticona Polymers, Inc. USA 100.00%
</Table>
DESCRIPTION OF PROPERTY
Celanese's principal executive offices are located in Kronberg/Taunus,
Germany.
As of December 31, 2003, Celanese had numerous production and manufacturing
facilities throughout the world. Celanese also owns or leases other properties,
including office buildings, warehouses, pipelines, research and development
facilities and sales offices.
33
<PAGE>
The following table sets forth a list of the principal production and other
facilities of Celanese throughout the world.
<Table>
<Caption>
-------------------------------------------------------------------------------------------------
CORPORATE CENTER
-------------------------------------------------------------------------------------------------
SITE LEASED/OWNED PRODUCTS/FUNCTION
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Kronberg/Taunus, Germany Leased Administrative offices
-------------------------------------------------------------------------------------------------
CHEMICAL PRODUCTS
-------------------------------------------------------------------------------------------------
Bay City, Texas, USA Owned Butyl acetate
Iso-butylacetate
Propylacetate
Vinyl acetate monomer
Carboxylic acids
n/i-Butyraldehyde
Butyl alcohols
Propionaldehyde,
Propyl alcohol
-------------------------------------------------------------------------------------------------
Bishop, Texas, USA Owned Formaldehyde
Methanol
Pentaerythritol
Polyols
-------------------------------------------------------------------------------------------------
Calvert City, Kentucky, USA Owned Polyvinyl alcohol
-------------------------------------------------------------------------------------------------
Cangrejera, Veracruz, Mexico Owned Acetic anhydride
Acetone derivatives
Ethyl acetate
Vinyl acetate monomer
Methyl amines
-------------------------------------------------------------------------------------------------
Clear Lake, Texas, USA Owned Acetic acid
Vinyl acetate monomer
-------------------------------------------------------------------------------------------------
Edmonton, Alberta, Canada Owned Methanol
-------------------------------------------------------------------------------------------------
Frankfurt am Main, Germany Owned by InfraServ GmbH & Co. Acetaldehyde
Hoechst KG, in which Celanese holds Butyl acetate
a 31.2 percent limited partnership Vinyl acetate monomer
interest
-------------------------------------------------------------------------------------------------
Frankfurt am Main, Germany Leased Conventional emulsions
Emulsion powders
Vinyl acetate ethylene
emulsions
-------------------------------------------------------------------------------------------------
Oberhausen, Germany Owned by InfraServ GmbH & Co. Amines
Oberhausen KG, in which Celanese Carboxylic Acids
holds an 84.0 percent limited Neopentyl Glycols
partnership interest
-------------------------------------------------------------------------------------------------
Pampa, Texas, USA Owned Acetic acid
Acetic anhydride
Ethyl acetate
-------------------------------------------------------------------------------------------------
Pasadena, Texas, USA Owned Polyvinyl alcohol
-------------------------------------------------------------------------------------------------
Jurong Island, Singapore Owned Acetic acid
Butyl acetate
Ethyl acetate
Vinyl acetate monomer
-------------------------------------------------------------------------------------------------
Koper, Slovenia Owned Conventional emulsions
-------------------------------------------------------------------------------------------------
Tarragona, Spain Owned by Complejo Industrial Taqsa Vinyl acetate monomer
AIE, in which Celanese holds a 15.0
percent share
-------------------------------------------------------------------------------------------------
</Table>
34
<PAGE>
<Table>
<Caption>
-------------------------------------------------------------------------------------------------
CHEMICAL PRODUCTS
-------------------------------------------------------------------------------------------------
SITE LEASED/OWNED PRODUCTS/FUNCTION
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Tarragona, Spain Owned Vinyl acetate ethylene
emulsions
-------------------------------------------------------------------------------------------------
Tarragona, Spain Leased Conventional emulsions
-------------------------------------------------------------------------------------------------
Perstorp, Sweden Owned Conventional emulsions
Vinyl acetate ethylene
emulsions
-------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
-----------------------------------------------------------------------------------------------
ACETATE PRODUCTS
-----------------------------------------------------------------------------------------------
SITE LEASED/OWNED PRODUCTS/FUNCTION
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Edmonton, Alberta, Canada Owned Tow, Flake
-----------------------------------------------------------------------------------------------
Lanaken, Belgium Owned Tow
-----------------------------------------------------------------------------------------------
Narrows, Virginia, USA Owned Tow, Filament, Flake
-----------------------------------------------------------------------------------------------
Ocotlan, Jalisco, Mexico Owned Tow, Filament
-----------------------------------------------------------------------------------------------
Rock Hill, South Carolina, Owned Flake
USA(1)
-----------------------------------------------------------------------------------------------
</Table>
(1) Due to overcapacity of acetate flake, the Rock Hill plant operates at
significantly less than commercial capacity.
<Table>
<Caption>
-----------------------------------------------------------------------------------------------
TECHNICAL POLYMERS TICONA
-----------------------------------------------------------------------------------------------
SITE LEASED/OWNED PRODUCTS/FUNCTION
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Auburn Hills, Michigan, Leased Automotive Development Center
USA
-----------------------------------------------------------------------------------------------
Bishop, Texas, USA Owned Celanex(R)
GUR(R)
Polyacetal Compounding
-----------------------------------------------------------------------------------------------
Florence, Kentucky, USA Owned Compounding
-----------------------------------------------------------------------------------------------
Kelsterbach, Germany Owned by InfraServ GmbH & Co. Celstran(R)Polyacetals
Kelsterbach KG, in which Celanese Compounding
holds a 100.0% limited partnership
interest
-----------------------------------------------------------------------------------------------
Oberhausen, Germany Owned by InfraServ GmbH & Co. GUR
Oberhausen KG, in which Celanese Norbornene
holds an 84.0% limited partnership Topas(R)(2)
interest
-----------------------------------------------------------------------------------------------
Shelby, North Carolina, Owned LCP(3)
USA PBT
Compounding
-----------------------------------------------------------------------------------------------
Wilmington, North Leased by a non-consolidated joint Fortron(R) PPS
Carolina, USA venture, in which Celanese has a 50%
interest
-----------------------------------------------------------------------------------------------
Winona, Minnesota, USA Owned Celstran
-----------------------------------------------------------------------------------------------
</Table>
(2) Technical Polymers Ticona's leased plant for its Topas cycloolefin copolymer
in Oberhausen, Germany commenced production in September 2000. As Topas
continues to undergo market development, the plant is operating at
significantly less than commercial capacity. For further information on
Topas, see "Information on the Company -- Technical Polymers Ticona."
(3) Technical Polymers Ticona completed a significant expansion of its Vectra
LCP plant in Shelby, North Carolina in the second quarter of 2002. Continued
depressed levels in the telecommunications industry, a principal market for
Vectra, coupled with the increased capacity, has resulted in this plant
operating at significantly less than commercial capacity.
35
<PAGE>
<Table>
<Caption>
-----------------------------------------------------------------------------------------------
PERFORMANCE PRODUCTS
-----------------------------------------------------------------------------------------------
SITE LEASED/OWNED PRODUCTS/FUNCTION
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Frankfurt am Main, Germany Owned by InfraServ GmbH & Co. Sorbates
Hoechst KG, in which Celanese holds Sunett(R)
a 31.2% limited partnership interest
-----------------------------------------------------------------------------------------------
</Table>
Polyplastics has its principal production facilities in Japan, Taiwan and
Malaysia. Korea Engineering Plastics has its principal production facilities in
South Korea. Celanese's Chemical Products segment has joint ventures with
manufacturing facilities in Saudi Arabia and Germany and its Acetate Products
segment has three joint ventures with production facilities in China.
In 2003, Celanese and its consolidated subsidiaries, in the aggregate, had
capital expenditures for the expansion and modernization of production,
manufacturing, research and administrative facilities of E185 million. In 2002
and 2001, these expenditures amounted to E214 million and E213 million,
respectively. Celanese believes that its current facilities and those of its
consolidated subsidiaries are adequate to meet the requirements of Celanese's
present and foreseeable future operations. Celanese continues to review its
capacity requirements as part of its strategy to maximize its global
manufacturing efficiency.
For information on environmental issues associated with Celanese's
properties, see "Information on the Company -- Environmental and Other
Regulation" and "Item 5. Operating and Financial Review and
Prospects -- Liquidity and Capital Resources -- Environmental Matters."
Additional information with respect to Celanese's property, plant and equipment,
and leases is contained in Notes 12 and 23 to the Consolidated Financial
Statements.
36
<PAGE>
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
You should read the following discussion and analysis of the financial
condition and the results of operations of Celanese together with Celanese's
Consolidated Financial Statements and the notes to those financial statements,
which were prepared in accordance with U.S. GAAP.
Investors are cautioned that the forward-looking statements contained in
this section involve both risk and uncertainty. Several important factors could
cause actual results to differ materially from those anticipated by these
statements. Many of these statements are macroeconomic in nature and are,
therefore, beyond the control of management. See "Forward-Looking Statements May
Prove Inaccurate" located at the end of this section.
BASIS OF PRESENTATION
On October 22, 1999, the effective date of the demerger, Celanese was
formed through the demerger of the principal industrial chemicals businesses and
some other businesses and activities from Hoechst AG ("Hoechst"). Hoechst
distributed all of the outstanding shares of Celanese to existing Hoechst
shareholders.
The Consolidated Financial Statements reflect, for the periods indicated,
the financial condition, results of operations and cash flows of Celanese and
majority owned subsidiaries over which Celanese exercises control as well as a
special purpose entity which is a variable interest entity where Celanese is
deemed the primary beneficiary (See discussion below for Financial Accounting
Standards Board ("FASB") Interpretation ("FIN") No. 46, Consolidation of
Variable Interest Entities). The Consolidated Financial Statements also have
been presented to show separately the effects of discontinued operations. See
"Summary of Consolidated Results -- 2003 Compared with 2002 -- Discontinued
Operations for the Years Ended December 31, 2003, 2002 and 2001."
The financial condition, results of operations and cash flows of Celanese
have been, and may in the future be, affected by special charges. Special
charges include provisions for restructuring, asset impairments and other
unusual expenses and income incurred outside the ordinary course of business.
Special charges totaled E5 million of expense in 2003, E5 million of income in
2002 and E464 million of expense in 2001. For a further discussion of special
charges, see "Summary by Business Segment -- 2003 Compared with 2002 -- Special
Charges," "Summary of Consolidated Results -- 2003 Compared with 2002 -- Special
Charges," "Summary by Business Segment -- 2002 Compared with 2001 -- Special
Charges" and "Summary of Consolidated Results -- 2002 Compared with
2001 -- Special Charges."
On October 1, 2003, Celanese and Degussa AG completed the combination of
their European oxo businesses. Celanese contributed net assets with a carrying
value of E10 million for a 50% interest in the joint venture. Celanese has
accounted for its ownership interest using the equity method.
In the fourth quarter of 2003, Celanese realigned its business segments to
reflect a change of how the Company manages the business and assesses
performance. This change resulted from recent transactions, including completed
and pending divestitures and the formation of a joint venture. A new segment,
Chemical Products, has been introduced and consists primarily of the former
Acetyl Products and Chemical Intermediates segments. In addition, legacy pension
and other postretirement benefit costs associated with previously divested
Hoechst businesses are reflected as part of Other Activities. Historically,
these costs were allocated to the business segments. Prior year amounts have
been reclassified to conform to the current year presentation.
Celanese adopted Statement of Financial Accounting Standards ("SFAS") No.
143, Accounting for Asset Retirement Obligations, on January 1, 2003. The
Statement requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred. The liability is
measured at the discounted fair value and is adjusted to its present value in
subsequent periods as accretion expense is recorded. The corresponding asset
retirement costs are capitalized as part of the carrying amount of the related
long-lived asset and depreciated over the asset's useful life. On January 1,
2003, Celanese recognized transition amounts for existing asset retirement
obligation liabilities, associated capitalized costs and accumulated
depreciation. Prior to the adoption of SFAS No. 143, Celanese had E31 million of
post closure
37
<PAGE>
liabilities included within environmental liabilities. As provided under SFAS
No. 143, such amounts were reversed, and E36 million of asset retirement
obligations were established. As a result, an after-tax transition charge of E1
million was recorded as a cumulative effect of changes in accounting principles.
The ongoing expense on an annual basis resulting from the initial adoption of
SFAS No. 143 is not material. The effect of the adoption of SFAS 143 on proforma
net income and proforma earnings per share for prior periods presented is not
material.
In January 2003, and subsequently revised in December 2003, the FASB issued
FIN No. 46, Consolidation of Variable Interest Entities and FIN No. 46 Revised
(collectively "FIN No. 46"). FIN No. 46 clarifies the application of Accounting
Research Bulletin No. 51, "Consolidation of Financial Statements" requiring the
consolidation of certain variable interest entities ("VIEs") which are defined
as entities having equity that is not sufficient to permit such entity to
finance its activities without additional subordinate financial support or whose
equity holders lack certain characteristics of a controlling financial interest.
The company deemed to be the primary beneficiary is required to consolidate the
VIE. FIN No. 46 requires VIEs that meet the definition of a special purpose
entity to be consolidated by the primary beneficiary as of December 31, 2003.
For VIEs that do not meet the definition of a special purpose entity,
consolidation is not required until March 31, 2004; however, expanded disclosure
is required at December 31, 2003. As of December 31, 2003, Celanese has not
identified any VIEs other than the VIE disclosed below.
At December 31, 2003, Celanese recorded E35 million of additional assets
and liabilities from the consolidation of a special purpose entity associated
with an operating lease. The consolidation of this entity is not expected to
have a material impact on Celanese's future results of operations and cash
flows.
The European Commission announced a decision on October 1, 2003 regarding
antitrust matters in the sorbates industry. The commission concluded that
Hoechst and other producers operated a cartel between 1979 and 1996. Hoechst was
fined E99 million related to this matter. In accordance with the demerger
agreement between Hoechst and Celanese, which became effective October 1999,
Celanese, successor to Hoechst's sorbates business, was assigned the obligation
related to this matter. However, Hoechst agreed to indemnify Celanese for 80
percent of payments for such obligations. Expenses related to this matter are
recorded gross of any such recoveries from Hoechst while the recoveries from
Hoechst, which represent 80 percent of such expenses, are recorded directly to
shareholders' equity, net of tax, as a contribution of capital. Considering this
accounting treatment and a previously recorded reserve of E15 million, Celanese
recorded in 2003 a special charge of E84 million and a related contribution of
capital of E39 million, net of tax. Hoechst appealed the ruling in December
2003. Payment of the obligation is deferred pending a ruling on the appeal.
MAJOR EVENTS IN 2003
In 2003, Celanese took major steps to enhance the value of its businesses,
invest in new production capacity in growth areas, reduce costs and increase
productivity.
OPTIMIZING THE PORTFOLIO
o Agreed to sell its acrylates business to The Dow Chemical Company as part
of its strategy to focus on core businesses; transaction completed in
February 2004
o Completed the joint venture of its European oxo businesses with Degussa
o Sold its nylon business to BASF.
INVESTING IN GROWTH AREAS
o Received governmental approval and began preparations to build a
world-scale acetic acid plant in China, the world's fastest growing
market for acetic acid and its derivatives
o Announced agreement with China National Tobacco Corporation to double
capacities of three acetate tow plants in China, in which Celanese owns a
30% share
38
<PAGE>
o Brought on stream the Estech GmbH joint venture plant to produce
neopolyol esters at Oberhausen, Germany, to supply the growing specialty
lubricants markets in Europe, Africa and the Middle East
o Announced plans to expand its GUR(R) ultra high molecular weight
polyethylene plant in Oberhausen, Germany, by 10,000 tons, increasing
total worldwide capacity by 17% in the second half of 2004
o Broke ground with Asian partners for a new investment in a polyacetal
plant in China, the world's highest growth market for engineering
plastics.
REDUCING COSTS AND INCREASING PRODUCTIVITY
o Agreed to source methanol from Southern Chemical Corporation in 2005
under a multi-year contract expected to reduce significantly overall
exposure to U.S. Gulf Coast natural gas volatility
o Initiated measures to redesign Ticona's organization, reduce costs and
increase productivity
o Achieved significant cost savings from completion of Focus and Forward
restructuring programs
o Intensified use of Six Sigma and other productivity tools throughout the
organization to reduce costs and generate additional revenue
o Began implementation of a Company-wide SAP platform to reduce
administrative costs by eliminating complexity in information systems and
to provide for ongoing improvement in business processes and service
o Completed a new, more efficient plant for synthesis gas, a primary raw
material used at the Oberhausen, Germany site.
POSITIONING MANAGEMENT FOR THE FUTURE
o David N. Weidman, vice chairman of the Board of Management and chief
operating officer, was appointed chairman, effective November 2004; the
promotion related to the retirement of current Chairman Claudio Sonder
upon expiration of his contract in October 2004
o Perry W. Premdas, chief financial officer, announced in February 2004 his
intention not to extend his contract which expires in October 2004; a
search is underway for a successor
o Lyndon Cole, president of Ticona, named to the Board of Management and
leader of the Celanese Growth Excellence Council.
RECENT DEVELOPMENTS
On December 16, 2003, BCP Crystal Acquisition GmbH & Co. KG ("BCP"), a
German limited partnership controlled by a group of investor funds advised by
The Blackstone Group, announced its intention to launch a voluntary public offer
to acquire all of the outstanding shares of Celanese AG for a price of E32.50
per share, without interest. The offer commenced on February 2, 2004.
Shareholders of Celanese AG can accept the offer until March 15, 2004 (Midnight
Central European Time, 6 p.m. New York City Time) unless extended. The offer is
subject to a number of conditions, including receipt of antitrust clearances, a
minimum acceptance of 85% of the outstanding registered ordinary shares of
Celanese AG and the absence of certain material adverse changes with respect to
Celanese; however, certain of these conditions can be waived by BCP. The
successful completion of the tender offer will likely result in material changes
to the financing structure, results of future operations and cash flows.
39
<PAGE>
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2003 2003 2002 2001
------------------ ---------- ---------- ----------
(IN $ MILLIONS(1),
EXCEPT FOR SHARE
AND PER SHARE (IN E MILLIONS, EXCEPT FOR SHARE
DATA) AND PER SHARE DATA)
------------------ ------------------------------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................................... 5,133 4,075 4,064 4,433
Cost of sales...................................... (4,328) (3,436) (3,340) (3,772)
Special charges.................................... (6) (5) 5 (464)
Operating profit (loss)............................ 133 106 202 (430)
Earnings (loss) from continuing operations before
tax and minority interests....................... 229 182 213 (432)
Earnings (loss) from continuing operations......... 161 128 143 (326)
Earnings (loss) from discontinued operations....... 5 4 25 (59)
Cumulative effect of changes in accounting
principles....................................... (1) (1) 19 -
Net earnings (loss)................................ 165 131 187 (385)
Weighted average shares -- diluted................. 49,457,145 49,457,145 50,329,346 50,331,847
========== ========== ========== ==========
Earnings (loss) per common share -- diluted:
from continuing operations....................... 3.26 2.59 2.84 (6.48)
from discontinued operations..................... 0.10 0.08 0.50 (1.17)
from cumulative effect of changes in accounting
principles..................................... (0.02) (0.02) 0.38 -
---------- ---------- ---------- ----------
net earnings (loss).............................. 3.34 2.65 3.72 (7.65)
========== ========== ========== ==========
</Table>
<Table>
<Caption>
AS OF DECEMBER 31,
------------------------------------
2003 2003 2002
------------------ ------ ------
(IN $ MILLIONS(1)) (IN E MILLIONS)
------------------------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Trade receivables, net -- third party and affiliates........ 719 571 634
Plus: Inventories........................................... 516 410 490
Less: Trade payables -- third party and affiliates.......... 590 468 546
----- ----- -----
Trade working capital....................................... 645 513 578
===== ===== =====
Short-term borrowings and current installments of long-term
debt -- third party and affiliates........................ 147 117 195
Plus: Long-term debt........................................ 488 387 420
----- ----- -----
Total debt.................................................. 635 504 615
Less: Cash and cash equivalents............................. 147 117 118
----- ----- -----
Net debt.................................................... 488 387 497
===== ===== =====
Total assets................................................ 6,801 5,399 6,127
Shareholders' equity........................................ 2,580 2,048 2,005
</Table>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------
2003 2003 2002 2001
--------------- ----- ----- ------
(IN $ MILLIONS,
EXCEPT (IN E MILLIONS, EXCEPT
PERCENTAGES)(1) PERCENTAGES)
--------------- ----------------------
<S> <C> <C> <C> <C>
OTHER DATA:
Depreciation and amortization............................... 328 260 262 364
Operating margin(2)......................................... 2.6% 2.6% 5.0% -9.7%
Earnings (loss) from continuing operations before tax and
minority interests as a percentage of net sales........... 4.5% 4.5% 5.2% -9.7%
Asset turnover(3)........................................... 70.7% 70.7% 61.6% 60.3%
Return on equity(4)......................................... 6.5% 6.5% 8.9% -15.2%
Return on assets(5)......................................... 3.9% 3.9% 4.1% -4.8%
</Table>
---------------
(1) The U.S. $ figures are unaudited and have been translated solely for the
convenience of the reader at an exchange rate of U.S. $1.2597 per E1.00, the
noon buying rate of the Federal Reserve Bank of New York on December 31,
2003.
(2) Defined as operating profit (loss) divided by net sales.
(3) Defined as net sales divided by the average of total assets, at the
beginning and end of the year.
(4) Defined as net earnings (loss) divided by the average of total shareholders'
equity, at the beginning and end of the year.
(5) Defined as earnings (loss) from continuing operations before interest
expense, tax and minority interests divided by the average of total assets,
calculated using total assets as of the beginning and end of the year.
40
<PAGE>
OVERVIEW -- 2003 COMPARED WITH 2002
In a global business environment characterized by higher raw material and
energy costs and modest growth, Celanese achieved full year 2003 net earnings of
E131 million, or E2.65 per share, compared to net earnings of E187 million, or
E3.72 per share, for 2002. Earnings from continuing operations decreased to E128
million, or E2.59 per share in 2003 compared to E143 million, or E2.84 per share
in 2002. Earnings from continuing operations excludes the results of the nylon
and the majority of the acrylates businesses, which were divested on December
31, 2003 and February 1, 2004, respectively, and are included in earnings (loss)
from discontinued operations. Net sales in 2003 remained relatively unchanged at
E4.1 billion compared to net sales in 2002, as price and volume increases offset
unfavorable currency movements.
Earnings from continuing operations before tax and minority interests
declined by 15% to E182 million in 2003 compared to E213 million in 2002, mainly
on higher costs for raw materials and energy, increased expense for stock
appreciation rights as well as unfavorable currency movements. This decrease was
partially offset by higher pricing, mainly in the Chemical Products segment,
increased volumes in all segments, cost reductions and productivity
improvements. Additional offsetting favorable adjustments included greater
earnings from affiliates, mainly in Asia, increased interest and income from
insurance companies and the demutualization of an insurance provider, as well as
the addition of the emulsions business acquired at the end of 2002.
Although the Company recorded special charges of only E5 million, special
charges significantly affected the operating results of the Technical Polymers
Ticona and Performance Products segments in 2003. Ticona's operating profit
benefited from income of E94 million from insurance recoveries related to the
plumbing cases. The insurance recoveries more than offset special charges
related to Ticona's organizational redesign efforts and the closing of a
facility in the United Kingdom. Performance Products' operating profit was
burdened by E84 million in special charges relating to a European Commission
decision to fine Hoechst E99 million for antitrust matters in the sorbates
industry that occurred prior to the demerger.
Segment net sales in 2003 increased 1% compared to 2002 due to the
inclusion of the emulsions business acquired at year-end 2002 (+6%), and higher
pricing (+5%) and volumes (+3%). Unfavorable currency effects (-13%) largely
offset this increase. Operating profit declined by 48% to E106 million in 2003
compared to E202 million in 2002. This decline reflected increased raw material
and energy costs, as well as higher expense for stock appreciation rights and
special charges discussed below. These factors outweighed increased pricing in
the Chemical Products and Acetate Products segments, higher volumes in all
segments, particularly in Ticona and Performance Products, cost reductions,
productivity improvements, increased income from the captive insurance companies
and the addition of the emulsions business.
In the Chemical Products segment, the contribution from the emulsions
business and cost reductions were outweighed by higher energy costs and an
increase in stock appreciation rights expense. Overall in 2003, increased
selling prices offset higher raw material costs, although pricing outpaced raw
material costs in the first half of the year and lagged in the second. In
Acetate Products, increased pricing and volumes as well as productivity gains
only partially offset higher raw material and energy prices. Increased demand
led to volume improvements in the Ticona segment on the development of new
applications and entry into new markets, partially offset by organizational
redesign costs. Volume increases for Performance Products' Sunett(R) sweetener
were offset by lower pricing for Sunett and sorbates.
Celanese reduced its net debt by 22% to E387 million as of December 31,
2003 compared to E497 million as of December 31, 2002. The decrease primarily
represents the net repayment of E63 million of debt, favorable currency
movements of E88 million offset by the addition of E30 million of debt related
to the consolidation of a variable interest entity under FIN 46. Trade working
capital decreased to E513 million at December 31, 2003 from E578 million at
December 31, 2002, primarily related to foreign currency effects as well as a
reduction in inventory from the high levels at the end of 2002, resulting from
advance purchases of wood pulp in the Acetate Products segment, a key raw
material, caused by the shutdown of a major supplier. This decrease was slightly
offset by lower payables. Operating cash flow benefited by E160 million relating
to the effects of hedging of currency exposure on intercompany funding of
operations in U.S. dollars, compared to approximately E100 million in 2002.
Benefit obligations decreased by E290 million to E922 million in 2003
41
<PAGE>
from E1,212 million largely due to favorable currency movements, an increase in
the fair value of plan assets, contributions, payments and a plan amendment
related to the U.S. postretirement medical plan. These factors were partially
offset by the effects of a decrease in the discount rate.
In 2003, Celanese took major steps to concentrate on its core businesses.
In September, Celanese reached an agreement, pending approval, to sell its
acrylates business to The Dow Chemical Company. The transaction was completed on
February 1, 2004. On October 1, European Oxo GmbH, Celanese's oxo chemicals
joint venture with Degussa, began operations. The joint venture is expected to
enable the businesses to compete more effectively in an oversupplied industry.
Celanese streamlined its manufacturing operations and administrative
functions, mainly in the Chemical Products and Ticona segments, and, as a
result, recorded termination benefit expenses of E22 million in cost of sales,
primarily in the fourth quarter 2003. These measures are expected to continue
and are estimated to result in expenses of approximately E21 million in 2004.
The Company also continued its use of Six Sigma, a powerful tool to increase
efficiency and generate additional revenue.
During 2003, Ticona started a redesign of its operations. These efforts
resulted in special charges of E10 million related to termination benefit
expenses. In 2004, costs related to the redesign are expected to be E4 million
to E8 million per quarter, of which approximately E1 million per quarter will be
recorded in special charges.
42
<PAGE>
SELECTED DATA BY BUSINESS SEGMENT
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
2003 2003 2002 2001
----- ------------------- ------------------- -------------------
% OF % OF % OF
$(1) E SEGMENTS(2) E SEGMENTS(2) E SEGMENTS(2)
----- ----- ----------- ----- ----------- ----- -----------
(IN MILLIONS, EXCEPT PERCENTAGES)
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES(3)
Chemical Products....................... 3,418 2,713 66 2,561 63 2,816 63
Acetate Products........................ 728 578 14 670 16 762 17
Technical Polymers Ticona............... 850 675 16 696 17 706 16
Performance Products.................... 189 150 4 161 4 159 4
----- ----- ---- ----- --- ----- ---
Segment Total........................... 5,185 4,116 100 4,088 100 4,443 100
==== === ===
Other Activities........................ 55 44 55 83
Intersegment Eliminations............... (107) (85) (79) (93)
----- ----- ----- -----
Total Net Sales......................... 5,133 4,075 4,064 4,433
===== ===== ===== =====
SPECIAL CHARGES(3)
Chemical Products....................... 1 1 (17) 1 (25) (421) 91
Acetate Products........................ - - - - - (50) 11
Technical Polymers Ticona............... 97 77 n.m. (5) 125 9 (2)
Performance Products.................... (105) (84) n.m. - - - -
----- ----- ---- ----- --- ----- ---
Segment Total........................... (7) (6) 100 (4) 100 (462) 100
==== === ===
Other Activities........................ 1 1 9 (2)
----- ----- ----- -----
Total Special Charges................... (6) (5) 5 (464)
===== ===== ===== =====
OPERATING PROFIT (LOSS)(3)
Chemical Products....................... 153 122 60 179 63 (368) 102
Acetate Products........................ 14 11 5 30 10 (27) 8
Technical Polymers Ticona............... 137 109 54 29 10 (7) 2
Performance Products.................... (49) (39) (19) 48 17 44 (12)
----- ----- ---- ----- --- ----- ---
Segment Total........................... 255 203 100 286 100 (358) 100
==== === ===
Other Activities........................ (122) (97) (84) (72)
----- ----- ----- -----
Total Operating Profit (Loss)........... 133 106 202 (430)
===== ===== ===== =====
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS BEFORE TAX AND MINORITY
INTERESTS(3)
Chemical Products....................... 201 160 57 203 61 (334) 111
Acetate Products........................ 18 14 5 43 13 (12) 4
Technical Polymers Ticona............... 187 149 52 40 12 (1) -
Performance Products.................... (49) (39) (14) 48 14 45 (15)
----- ----- ---- ----- --- ----- ---
Segment Total........................... 357 284 100 334 100 (302) 100
==== === ===
Other Activities........................ (128) (102) (121) (130)
----- ----- ----- -----
Total Earnings (Loss) from Continuing
Operations Before Tax and Minority
Interests............................. 229 182 213 (432)
===== ===== ===== =====
</Table>
---------------
(1) The U.S. $ figures are unaudited and have been translated solely for the
convenience of the reader at an exchange rate of U.S. $1.2597 per E1.00, the
noon buying rate of the Federal Reserve Bank of New York on December 31,
2003.
(2) The percentages in this column represent the percentage contribution of each
segment to the total of all segments.
(3) Derived from the accompanying audited Consolidated Financial Statements.
n.m. = not meaningful
43
<PAGE>
SUMMARY BY BUSINESS SEGMENT -- 2003 COMPARED WITH 2002
Chemical Products
Net sales of Chemical Products rose 6% to E2,713 million in 2003 compared
to E2,561 million in 2002, due to the full year effect of the emulsions business
acquired at year-end 2002 (+10%), higher selling prices (+9%) and increased
volumes (+1%). These increases were partly offset by unfavorable currency
effects (-13%) and the transfer of the European oxo business to a joint venture
in the fourth quarter 2003 (-1%).
Compared to 2002, selling prices in 2003 increased for major products,
including acetic acid and vinyl acetate monomer, following the substantial rise
in raw material costs, particularly natural gas, ethylene, and propylene.
Volumes rose for acetic acid, particularly in Asia, as volumes were comparably
higher due, in part, to an interruption in production in 2002. Vinyl acetate
monomer volumes were higher in most regions, partly due to competitor outages,
while volumes declined for polyvinyl alcohol in Asia and specialties mainly in
Europe due to competitive pricing.
Chemical Products had income from special charges of E1 million for both
2003 and 2002. The income recorded in 2003 and 2002 relate to favorable
adjustments to previously recorded restructuring reserves that more than offset
employee severance costs related to production facility closures.
Operating profit decreased to E122 million in 2003 from E179 million in
2002. The contribution from the emulsions business and cost reductions were
outweighed by higher energy costs, an increase in stock appreciation rights
expense of E10 million and unfavorable currency movements. Termination benefit
expenses of E12 million were recorded in cost of sales, primarily in the fourth
quarter of 2003, related to the streamlining of manufacturing operations and
administrative functions. Overall in 2003, increased selling prices offset
higher raw material costs, although pricing outpaced raw material costs in the
first half of the year and lagged in the second half.
Operating profit as a percentage of sales declined to 4.5% in 2003 compared
to 7.0% in 2002.
Earnings (loss) from continuing operations before tax and minority
interests declined to E160 million in 2003 compared to E203 million in 2002.
This decline resulted from lower operating profit, partially offset by higher
dividends from the Saudi Arabian methanol investment, primarily due to higher
methanol pricing.
Acetate Products
Net sales, for the Acetate Products segment decreased by 14% to E578
million in 2003 from E670 million in 2002 largely due to unfavorable currency
movements (-17%), which were partly offset by higher pricing (+2%) and higher
volumes (+1%).
Average pricing rose in 2003 as higher tow prices offset slightly lower
filament prices. Volumes grew as higher demand for filament and flake more than
offset slightly lower tow volumes, primarily in Europe and Africa. Despite a
long-term trend of declining global demand for filament, volumes improved mainly
due to higher demand from the U.S. fashion industry. Volumes of acetate flake, a
primary raw material in acetate filament and tow production, also increased due
to higher opportunistic sales in the merchant market.
The Acetate Products segment recorded an operating profit of E11 million in
2003, compared to E30 million in 2002 as higher pricing and volumes, as well as
productivity gains, only partially offset higher raw material and energy prices
as well as unfavorable currency movements. The segment also incurred costs for
transitioning to new wood pulp suppliers as a primary supplier closed its U.S.
facility in 2003. Celanese is assessing its worldwide acetate production
capacity, and it is probable that the Company will close certain facilities in
the latter half of this decade. As a result and in accordance with SFAS No. 143,
the Acetate Products segment recorded a charge of E7 million, included within
depreciation expense, related to these potential asset retirement obligations.
Operating profit as a percentage of sales declined to 1.9% in 2003 compared
to 4.5% in 2002.
44
<PAGE>
Earnings (loss) from continuing operations before tax and minority
interests declined to E14 million in 2003 compared to E43 million in 2002. This
decline resulted from lower operating profit and lower dividend income from
investments in China, where earnings are being reinvested for capacity
expansions.
Technical Polymers Ticona
Net sales for Ticona decreased by 3% to E675 million in 2003 from E696
million in 2002 as higher volumes (+10%) did not offset unfavorable currency
movements (-10%) and lower selling prices (-3%).
Volumes increased in most business lines, particularly in polyacetal and
GUR(R) ultra high molecular weight polyethylene. The global volume growth in
polyacetals resulted from sales to new customers and end-uses. Volumes for GUR
increased as the result of the commercialization of new applications in North
America and Europe, as well as the exit of a major competitor in North America.
Pricing declined on a higher percentage of sales from lower priced products and
increased competitive pressure from Asian imports of polyacetal into North
America.
Ticona recorded income from special charges of E77 million in 2003 compared
to expense of E5 million in 2002. The income in 2003 primarily resulted from
insurance recoveries of E94 million associated with the plumbing cases, which
was partially offset by restructuring charges for organizational redesign costs
of E10 million and the closure of the Telford, UK, compounding facility of E7
million. The 2002 expense resulted from restructuring costs associated with the
consolidation of manufacturing operations in Europe and the United States.
Operating profit increased to E109 million in 2003 versus E29 million in
2002. Income from insurance recoveries, higher volumes, and reduced spending
more than offset higher raw material and energy costs, lower pricing, and higher
expense associated with stock appreciation rights of E10 million. Ticona
continued to incur significant market development costs for cyclo-olefin
copolymers in 2003. Termination benefit expenses of E8 million were recorded in
cost of sales, primarily in the fourth quarter 2003, related to the streamlining
of manufacturing operations and administrative functions.
Operating profit as a percentage of sales increased from 4.2% in 2002 to
16.1% in 2003, which included the favorable effects of E94 million of income
associated with the plumbing cases.
Earnings (loss) from continuing operations before tax and minority
interests increased to E149 million in 2003 compared to E40 million in 2002.
This increase resulted from higher operating profit and higher equity earnings
from Polyplastics, due to growth in the Chinese and Taiwanese economies in 2003,
as well as interest income from insurance recoveries.
Performance Products
Net sales for the Performance Products segment, which consists of the
Nutrinova food ingredients business, decreased by 7% to E150 million in 2003
from E161 million in 2002 due to price decreases (-12%), partially offset by
increased volumes (+5%).
Pricing for Sunett(R) sweetener declined on lower unit selling prices
associated with higher volumes to major customers and the anticipated expiration
of the European and U.S. production patents in 2005. Increased Sunett volumes
reflected strong growth from new applications in the U.S. and European beverage
and confectionary markets. In sorbates, pricing and volume pressure from Asian
producers intensified during 2003 due to worldwide overcapacity. We expect these
conditions for both products to continue in 2004.
Performance Products recorded special charges of E84 million in 2003,
related to a decision by the European Commission on antitrust matters in the
sorbates industry.
Operating profit and earnings (loss) from continuing operations before tax
and minority interests declined from E48 million in 2002 to a loss of E39
million in 2003, due to special charges and lower pricing. This decline was
slightly offset by higher Sunett volumes, cost reductions and increased
productivity.
45
<PAGE>
Other Activities
Net sales for Other Activities decreased by 20% to E44 million in 2003 from
E55 million in 2002, primarily reflecting unfavorable currency movements and
slightly lower third party sales by the captive insurance companies.
Other Activities recorded E1 million of income in special charges in 2003
compared to E9 million of income in 2002. The E1 million represented higher than
expected collections of a note receivable. The E9 million of income in 2002
related to a reduction in environmental reserves due to a settlement of
obligations associated with former Hoechst entities.
The operating loss of Other Activities increased to E97 million in 2003
compared to E84 million in 2002. This increase was primarily the result of
higher expense for stock appreciation rights of E22 million and lower income
from special charges, offset by E18 million of increased income from the captive
insurance companies mainly due to a reduction in loss reserves resulting from
expired policies and actuarial revaluations.
Earnings (loss) from continuing operations before tax and minority
interests declined to a loss of E102 million in 2003 compared to a loss of E121
million in 2002. This improvement resulted from lower interest expense and
higher interest and other income, net partially offset by higher operating
losses. Lower interest expense is primarily due to lower interest rates and
currency translation effects as well as lower average debt levels. Higher
interest and other income, net resulted primarily from income of E16 million
from the demutualization of an insurance provider and the gain on sale of
investments of E4 million, partially offset by expense of E12 million related to
the unfavorable currency effects on the unhedged position of intercompany net
receivables denominated in U.S. dollars.
SUMMARY OF CONSOLIDATED RESULTS -- 2003 COMPARED WITH 2002
Net Sales
Net sales increased by E11 million to E4,075 million in 2003 as compared to
E4,064 million in 2002 due primarily to the full year effect of the emulsions
business acquired at year-end 2002 as well as higher selling prices and volumes.
These effects were partially offset by unfavorable currency movements resulting
from the strengthening of the euro versus the U.S. dollar. Decreases in the
Acetate Products, Ticona, and Performance Products segments were partially
offset by an increase in the Chemical Products segment.
Cost of Sales
Cost of sales increased by 3% to E3,436 million in 2003 compared with
E3,340 million in 2002. Cost of sales as a percentage of net sales also
increased to 84% in 2003 from 82% in 2002, reflecting significantly higher raw
material and energy costs, partly offset by increased selling prices primarily
in the Chemical Products segment.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased by 5% to E451
million in 2003 from E474 million in 2002 primarily due to currency effects and
cost reduction efforts, partially offset by a E44 million increase in expenses
for stock appreciation rights, as well as the inclusion of the emulsions
business.
Research and Development Expenses
Research and development expenses increased by 14% to E79 million in 2003
from E69 million in 2002. This increase resulted primarily from the inclusion of
the emulsions business and expiration of cost sharing arrangements at Celanese
Ventures during 2002. Research and development expenses as a percentage of sales
remained flat at 2% for both 2003 and 2002.
46
<PAGE>
Special Charges
Special charges include provisions for restructuring and other expenses and
income incurred outside the normal course of ongoing operations. Restructuring
provisions represent costs related to severance and other benefit programs
related to major activities undertaken to redesign our operations, as well as
costs incurred in connection with a decision to exit non-strategic businesses
and the related closure of facilities. These measures are based on formal
management decisions, establishment of agreements with the employees'
representatives or individual agreements with the affected employees as well as
the public announcement of the restructuring plan.
The components of special charges for 2003, 2002 and 2001 were as follows:
<Table>
<Caption>
2003 2002 2001
---- ---- ----
(IN E MILLIONS)
------------------
<S> <C> <C> <C>
Employee termination benefits............................... 16 9 125
Plant/office closures....................................... 6 6 104
Restructuring adjustments................................... (6) (10) (19)
--- --- ---
Total Restructuring....................................... 16 5 210
Sorbates antitrust matters.................................. 84 - -
Plumbing actions............................................ (94) - (31)
Asset impairments........................................... - - 291
Third-party reimbursements of restructuring charges......... - (1) (8)
Other....................................................... (1) (9) 2
--- --- ---
Total Special Charges..................................... 5 (5) 464
=== === ===
</Table>
In 2003, Celanese recorded expense of E5 million in special charges, which
consisted of E22 million of restructuring charges, E6 million of income from
favorable adjustments to restructuring reserves that were recorded previously,
and E11 million of income from other special charges. The E22 million of
additions to the restructuring reserve included employee severance costs of E16
million and plant and office closure costs of E6 million. Within other special
charges there was income of E94 million related to insurance recoveries
associated with the plumbing cases, partially offset by E84 million of expenses
for antitrust matters in the sorbates industry, primarily related to a decision
by the European Commission.
In 2003, the Chemical Products segment recorded employee severance charges
of E4 million, which primarily related to the shutdown of an obsolete synthesis
gas unit in Germany. There will be minimal additional costs in 2004 associated
with the shutdown of this unit.
Ticona started a redesign of its operations. Approximately 160 positions
are expected to be reduced by 2005, as a result of the redesign. These plans
included a decision to sell the Summit, New Jersey site and to relocate
administrative and research and development activities to the existing Ticona
site in Florence, Kentucky in 2004. As a result of this decision, Celanese
recorded termination benefit expenses of E4 million in 2003. In addition to the
relocation in the United States, Ticona has streamlined its operations in
Germany, primarily through offering employees early retirement benefits under an
existing employee benefit arrangement. As a result of this arrangement, Ticona
recorded a charge of E6 million in 2003. Additional severance costs to be
recorded in special charges, related to the redesign, are expected to be
approximately E1 million per quarter in 2004.
In addition, Ticona ceased its manufacturing operations in Telford, United
Kingdom during 2003, based on a 2002 restructuring initiative to concentrate its
European manufacturing operations in Germany. As a result, Ticona recorded
contract termination costs and asset impairments totaling E6 million and
employee severance costs of E1 million in 2003. The total costs of the Telford
shutdown through 2003 are E11 million.
The E6 million of income from favorable adjustments of previously recorded
restructuring reserves consisted of a E1 million adjustment to the 2002
reserves, a E4 million adjustment to the 2001 reserves and a
47
<PAGE>
E1 million adjustment to the 1999 reserves. The adjustment to the 2002 reserve
related to lower than expected costs related to the demolition of the GUR
Bayport facility. The adjustment to the 2001 reserve was primarily due to the
lower than expected decommissioning costs of the Mexican production facility.
The adjustment to the 1999 reserve was due to lower than expected payments
related to the closure of a former administrative facility in the United States.
In 2002, Celanese recorded income from special charges of E5 million, which
consisted of E15 million of restructuring charges, E10 million of income from
favorable adjustments to previously recorded restructuring reserves, E1 million
of income from reimbursements from third party site partners related to prior
year initiatives, and E9 million of income from other special charges. The E15
million of restructuring charges included employee severance costs of E9 million
and plant and office closure costs of E6 million.
Project Focus, initiated in early 2001, set goals to reduce trade working
capital, limit capital expenditures and improve earnings before interest, taxes,
depreciation and amortization from programs to increase efficiency. Project
Forward was announced in August 2001 and initiated additional restructuring and
other measures to reduce costs and increase profitability. During 2002, Celanese
recorded employee severance charges of E9 million, of which E4 million related
to adjustments to the 2001 forward initiatives and E4 million for streamlining
efforts of production facilities in Germany and the United States, and E1
million for employee severance costs in the polyvinyl alcohol business.
Ticona recorded asset impairments of E4 million in 2002 related to a
decision in 2002 to shutdown operations in Telford, United Kingdom in 2003. In
addition, with the construction of a new and expanded GUR(R) plant in Bishop,
Texas, the GUR operations in Bayport, Texas, were transferred to a new facility.
Decommissioning and demolition costs associated with the Bayport shutdown were
E2 million.
The E10 million of favorable adjustments of previously recorded
restructuring reserves consisted of an E8 million adjustment to the 2001
reserves and a E2 million adjustment to the 2000 reserves. The 2001 adjustment
was primarily due to lower than expected personnel and closure costs associated
with the streamlining of chemical facilities in the United States, Canada, and
Germany. The 2000 adjustment was due to lower than expected demolition costs for
the Chemical Products production facility in Knapsack, Germany. The other
special charges income of E9 million related to a reduction in reserves
associated with settlements of environmental indemnification obligations
associated with former Hoechst entities.
Foreign Exchange Gain (Loss)
Foreign exchange gain (loss) decreased to a loss of E3 million in 2003 from
a gain of E4 million in 2002. This change is primarily attributable to the
strengthening of the Mexican peso and Canadian dollar against the U.S. dollar.
Operating Profit
Operating profit declined to E106 million in 2003 compared to E202 million
in 2002. The favorable effects of higher selling prices primarily in the
Chemical Products segment, cost reductions, and income from insurance recoveries
of E94 million in the Ticona segment, were offset by expenses of E84 million in
the Performance Products segment related to antitrust matters, E10 million of
organizational redesign costs at Ticona, increased stock appreciation rights
expense, higher raw material and energy costs in most segments as well as
unfavorable currency movements. Stock appreciation rights expense for 2003 was
E50 million compared to E4 million in 2002. Celanese streamlined its
manufacturing operations, mainly in the Chemical Products segment and, as a
result, recorded termination benefit expenses, in cost of sales, of E22 million,
primarily in the fourth quarter of 2003.
Equity in Net Earnings of Affiliates
Equity in net earnings of affiliates increased to E31 million in 2003 from
E22 million in 2002. This increase was mainly attributable to an increase in the
earnings from Polyplastics, an investment held by the Ticona segment, partly due
to growth in the Chinese and Taiwanese economies in 2003.
48
<PAGE>
Interest Expense
Interest expense decreased by 27% to E43 million in 2003 from E59 million
in 2002. This decrease is primarily related to lower interest rates and currency
translation effects, as well as lower average debt levels.
Interest and Other Income, Net
Interest and other income, net increased to E88 million in 2003 from E48
million in 2002, mainly due to interest of E18 million on insurance recoveries
in the Ticona segment and other income of E16 million resulting from the
demutualization of an insurance provider. These increases were partially offset
by expense of E12 million related to the unfavorable currency effects on the
unhedged position of intercompany net receivables denominated in U.S. dollars.
Investments accounted for under the cost method contributed dividend income of
E52 million and E41 million in 2003 and 2002, respectively. The increase in 2003
primarily resulted from higher dividends from the Saudi Arabian methanol
investment on higher methanol pricing, which were slightly offset by lower
dividend income from the Acetate Products investments in China, where earnings
are being reinvested for capacity expansions.
Income Taxes
Celanese recognized income tax expense of E54 million in 2003 compared to
E70 million in 2002.
The effective tax rate for Celanese in 2003 was 30 percent compared to 33
percent in 2002. In comparison to the German statutory rate, the 2003 effective
tax rate was favorably affected by unrepatriated low-taxed earnings, favorable
settlement of prior year (1996) taxes in the U.S., equity earnings from
Polyplastics Co. Ltd., which are excluded from U.S. taxable income and
utilization of a U.S. capital loss carryforward that had been subject to a
valuation allowance. The effective tax rate was unfavorably affected in 2003 by
dividend distributions from subsidiaries and writedowns of certain German
corporate and trade tax benefits related to prior years.
In comparison to the German statutory rate, the effective tax rate in 2002
was favorably affected by the utilization of certain net operating loss
carryforwards in Germany, the release of certain valuation allowances on prior
years' deferred tax assets, unrepatriated low-taxed earnings and a lower
effective minimum tax burden in Mexico. The effective tax rate was unfavorably
affected in 2002 by distributions of taxable dividends from certain equity
investments and the reversal of a tax-deductible writedown in 2000 of a German
investment.
Discontinued Operations for the Years Ended December 31, 2003, 2002 and 2001
In September 2003, Celanese and Dow reached an agreement for Dow to
purchase the acrylates business of Celanese. This transaction was completed in
February 2004. Dow acquired Celanese's acrylates business line, including
inventory, intellectual property and technology for crude acrylic acid, glacial
acrylic acid, ethyl acrylate, butyl acrylate, methyl acrylate and 2-ethylhexyl
acrylate, as well as acrylates production assets at the Clear Lake, Texas
facility. In related agreements, Celanese will provide certain contract
manufacturing services to Dow, and Dow will supply acrylates to Celanese for use
in its emulsions production. The preliminary sale price for the business,
subject to purchase price adjustments, was U.S. $154 million (E124 million),
which consisted of cash proceeds of U.S. $109 million (E88 million) and a note
receivable from Dow of U.S. $45 million (E36 million) that is due in March 2004.
Simultaneously with the sale, Celanese repaid an unrelated obligation of U.S.
$95 million (E76 million) to Dow. Any gain or loss on this transaction is not
expected to be material. The acrylates business was part of Celanese's former
Chemical Intermediates segment. As a result of this transaction, the assets,
liabilities, revenues and expenses related to the acrylates product lines at the
Clear Lake, Texas facility are reflected as a component of discontinued
operations in the consolidated financial statements in accordance with SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets.
In December 2003, the Ticona segment completed the sale of its nylon
business line to BASF. Ticona received cash proceeds of E8 million and recorded
a gain of E2 million.
49
<PAGE>
In 2003, Celanese recorded E2 million in losses from operations of
discontinued operations related to the acrylates and nylon business
divestitures. In 2003, Celanese also recorded adjustments related to prior year
discontinued operations representing a gain of E4 million.
In December 2002, Celanese completed the sale of Trespaphan, its global
oriented polypropylene ("OPP") film business, to a consortium consisting of
Dor-Moplefan Group and Bain Capital, Inc. for a value of E209 million. Net of
the purchase price adjustments of E19 million and the repayment of E78 million
in intercompany debt that Trespaphan owed Celanese, Celanese received net
proceeds of E112 million. Trespaphan was formerly part of Celanese's Performance
Products segment.
During 2002, Celanese sold its global allylamines and U.S. alkylamines
businesses to U.S. Amines Ltd. These businesses were part of Celanese's former
Chemical Intermediates segment.
In 2002, Celanese received net proceeds of E123 million and recorded a
pre-tax gain of E14 million on the disposal of discontinued operations relating
to these divestitures. Pre-tax earnings from operations of discontinued
operations in 2002 were E1 million. Celanese recognized a tax benefit of E40
million for discontinued operations, which includes a tax benefit associated
with a tax deductible writedown of the tax basis for Trespaphan's subsidiary in
Germany relating to tax years ended December 31, 2001 and 2000. Since this tax
benefit related to an entity solely engaged in a business designated as
discontinued operations, this tax benefit has been correspondingly included in
earnings (loss) from discontinued operations.
In 2001, Celanese completed the sale of NADIR Filtration GmbH, formerly
Celgard GmbH, and received minimal proceeds from this sale and recorded a E2
million pre-tax gain on disposal of discontinued operations. Celanese recorded
an additional pre-tax gain in 2001 of E12 million on disposal of discontinued
operations related to a business divested in 2000. Additionally, Celanese
recognized a tax expense of E5 million for discontinued operations.
The following table summarizes the results of the discontinued operations
for the years ended December 31, 2003, 2002 and 2001.
<Table>
<Caption>
OPERATING
SALES PROFIT (LOSS)
------------------ ------------------
2003 2002 2001 2003 2002 2001
---- ---- ---- ---- ---- ----
(IN E MILLIONS)
---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discontinued operations of Chemical Products... 208 262 335 (2) (54) (90)
Discontinued operations of Performance
Products..................................... - 273 281 - 10 (5)
Discontinued operations of Ticona.............. 40 61 67 - (1) (4)
--- --- --- ---- --- ---
Total discontinued operations.................. 248 596 683 (2) (45) (99)
=== === === ==== === ===
</Table>
Cumulative Effect of Changes in Accounting Principles
Celanese recorded E1 million in a cumulative effect of changes in
accounting principles, net of tax, on January 1, 2003, related to the adoption
of SFAS 143. Celanese recognized transition amounts for existing asset
retirement obligation liabilities, associated capitalized costs and accumulated
depreciation. The ongoing expense on an annual basis resulting from the initial
adoption of SFAS No. 143 is not material.
In 2002, Celanese recorded income of E19 million for the cumulative effect
of two changes in accounting principles, net of tax of E5 million. The adoption
of SFAS No. 142, Goodwill and Other Intangible Assets, in 2002 resulted in
income of E10 million (E0.20 per share), as it required unamortized negative
goodwill (excess of fair value over cost) on the balance sheet to be written off
immediately and classified as a cumulative effect of change in accounting
principle in the consolidated statement of operations. Additionally, in 2002
Celanese changed the actuarial measurement date for its U.S. pension and other
postretirement benefit plans from September 30 to December 31. As this change
was accounted for as a change in accounting principle, a cumulative effect
adjustment of income of E9 million (E0.18 per share), net of taxes of E5
million, was recorded in 2002.
50
<PAGE>
Net Earnings
As a result of the factors mentioned above, the net earnings of Celanese
decreased by E56 million to net earnings of E131 million in 2003 compared to
E187 million in 2002.
SUMMARY BY BUSINESS SEGMENT -- 2002 COMPARED WITH 2001
Chemical Products
Net sales for Chemical Products decreased (-9%) to E2,561 million in 2002
from E2,816 million in 2001 primarily due to lower pricing (-10%) and
unfavorable currency effects (-3%), partially offset by higher volumes (+4%).
Selling prices for major products decreased in 2002, following the decline in
raw material costs, particularly natural gas, ethylene, and propylene. Although
overall selling prices were lower, acetyl pricing rose steadily throughout 2002,
as a result of higher demand, temporarily tight supply conditions and a
sequential quarterly increase in raw material costs. Increased demand as well as
temporary supply-demand imbalances resulted in higher volumes for vinyl acetate
monomer in the United States and Asia, and for acetic acid and polyvinyl
alcohol, primarily in Asia.
Chemical Products recorded income of E1 million of special charges in 2002
compared to expense of E421 million in 2001. Special charges in 2002 include
employee severance costs associated with cost savings initiatives at production
sites, offset by favorable adjustments to restructuring reserves recorded in
2001, due to lower than expected severance and other closure costs. The 2001
special charges resulted from the impairment of goodwill and fixed assets, as
well as from 2001 restructuring initiatives.
Of the E421 million in special charges in 2001, E243 million related to
goodwill impairments, E138 million to 2001 restructuring initiatives, and E60
million to fixed asset impairments. These charges were offset by a E14 million
favorable adjustment to prior year restructuring activities and in recoveries of
E6 million from third party site partners. The E243 million goodwill impairment
resulted primarily from the deterioration in the outlook of the acrylates and
oxo products businesses. The E138 million in restructuring initiatives included
E78 million for the shutdown of the acetic acid, pentaerythritol, and vinyl
acetate monomer units in Edmonton, Alberta, and E60 million relating primarily
to employee severance costs at plant and administrative sites as well as closure
costs associated with a research and development center in the United States.
The closure of the research and development center resulted from the decision to
relocate these functions to production sites. The E60 million fixed asset
impairment was associated with the reassessment in the expected long-term value
of the acetyl derivatives and polyol business lines.
Operating profit for Chemical Products of E179 million in 2002 improved
from an operating loss of E368 million. This improvement was primarily due to
lower special charges. Operating profit also benefited from productivity
improvements and cost savings from restructuring initiatives. Acetyl and acetyl
derivative and polyol business lines benefited from higher sales volumes and
selling prices increasing at a greater rate than raw material costs. Lower
amortization expense of E50 million resulting from the adoption of SFAS No. 142
also had a positive effect in 2002. Operating profit in 2001 benefited from a
E39 million non-recurring compensation payment associated with operational
problems experienced by the carbon monoxide supplier to Celanese's Singapore
facility from July 2000 through May 2001. The carbon monoxide supplier
experienced operational difficulties in the third quarter 2002, which were
corrected during the fourth quarter and had minimal impact on full year 2002
operating results due to insurance recoveries.
At the end of 2002, Celanese completed the acquisition of the European
emulsions businesses of Clariant. Beginning in 2003, the businesses were
integrated into the Chemical Products segment.
Acetate Products
Net sales for the Acetate Products segment decreased by 12% to E670 million
in 2002 from E761 million in 2001. Lower sales volumes (-7%) and unfavorable
currency movements (-5%) contributed to the decline in sales in 2002. Average
pricing for acetate was stable in 2002 as higher tow prices offset lower
filament pricing. Volumes declined mainly due to lower demand for acetate
filament from the U.S. and European textile industries and ongoing fiber
substitution. Volumes of acetate flake, a primary raw material in acetate
51
<PAGE>
filament and tow production, also decreased due to lower merchant sales. Tow
volumes were slightly lower in 2002 mainly due to reduced volumes in North
America and Europe, partially offset by improvements in other regions.
The Acetate Products segment recorded no special charges in 2002 compared
to E50 million in 2001. The charges in 2001 resulted from the costs associated
with the closure of acetate filament operations in Rock Hill, South Carolina and
Lanaken, Belgium as well as costs incurred for with the relocation of filament
operations within the United States. Additional special charges were incurred in
connection with employee severance costs associated with a production facility
in Mexico.
The Acetate Products segment recorded an operating profit of E30 million in
2002, compared to an operating loss of E27 million in 2001. Operating profit in
2002 benefited from the absence of special charges and a E10 million decrease in
amortization expense resulting from the implementation of SFAS No. 142. Cost
reductions from the Forward program and other productivity initiatives partially
offset the effects of lower sales volumes.
Technical Polymers Ticona
Net sales for the Ticona segment decreased by 1% to E696 million in 2002
from E706 million in 2001 as the result of lower selling prices (-3%) and
unfavorable currency movements (-3%), which were mostly offset by higher volumes
(+5%). Volumes increased mainly in polyacetal, reflecting some improvement in
demand from the automotive and other end-use industries, especially in Europe.
Volumes also improved in ultra-high molecular weight polyethylene, but declined
or were flat in other product lines. Average selling prices declined for most
product lines, primarily polyacetal. Polyacetal standard-grade pricing was
reduced in response to competitive pressure, mainly from Asian suppliers.
In special charges, the Ticona segment had expense of E5 million in 2002
compared to income of E9 million in 2001. The 2002 expense resulted from
restructuring costs associated with the consolidation of manufacturing
operations in Europe and the United States. The favorable adjustment in 2001 was
primarily due to higher than expected insurance reimbursements associated with
the plumbing cases, which were largely offset by restructuring expenses for
employee severance costs in the United States and Europe. These 2001
restructuring initiatives were taken to streamline administrative and
operational functions under Celanese's Forward initiative.
The Ticona segment recorded an operating profit of E29 million in 2002
compared to an operating loss of E7 million in 2001. The major factors
contributing to the earnings improvement were reduced raw material costs and
increased sales volumes. Operating results in 2002 also benefited from E22
million of lower amortization expense due to the adoption of SFAS No. 142. These
improvements were partially offset by costs for maintenance shutdowns and
startup costs related to expansions, as well as the higher special charges noted
above. The Ticona segment continued to incur market development costs for
cyclo-olefin copolymers in 2002.
Performance Products
Net sales for the Performance Products segment, which consists of the
Nutrinova food ingredients business, increased by 1% to E161 million in 2002
from E159 million in 2001 due to increased volumes (+10%), largely offset by
price decreases (-9%). Increased volumes reflected strong growth of the high
intensity sweetener Sunett(R) from new applications in the beverage and
confectionary industries in the United States and Europe. Overall pricing
declined, mainly in connection with higher Sunett volumes to major customers. In
sorbates, pricing pressure from Asian competitors intensified in 2002, mainly in
the fourth quarter, due to worldwide overcapacity.
Operating profit for the Performance Products segment of E48 million in
2002 improved from E44 million in 2001. The increase is mainly a result of
higher volumes from new applications in Sunett, increased yields from
manufacturing efficiencies and cost reductions, which were mostly offset by
lower pricing as noted above.
52
<PAGE>
Other Activities
Net sales for Other Activities decreased by 35% to E55 million in 2002 from
E84 million in 2001. This decline was primarily due to the divestiture of an
InfraServ subsidiary during the first quarter of 2002 and the expiration of a
number of service contracts and licensing fees at Celanese Ventures GmbH.
Other Activities recorded E9 million of income in special charges in 2002
compared to a charge of E2 million in 2001. The E9 million income in 2002
relates to a reduction in environmental reserves due to a settlement of
obligations associated with former Hoechst entities. The E2 million expense in
2001 primarily consisted of corporate employee severance costs, which were
partially offset by a E4 million favorable adjustment related to a net reduction
in reserves associated with settlements of environmental indemnification and
other obligations associated with former Hoechst entities.
The operating loss of Other Activities increased to E84 million in 2002
from E72 million in 2001. This was primarily due to an adjustment to loss
reserves at the captive insurance companies and the reduction of revenues from
Celanese Ventures. This decrease was partially offset by a gain of E10 million
on the sale of an InfraServ subsidiary and an increase in income related to
adjustments in special charges.
SUMMARY OF CONSOLIDATED RESULTS -- 2002 COMPARED WITH 2001
Net Sales
Net sales decreased by 8% to E4,064 million in 2002 as compared to E4,433
million in 2001 primarily as a result of lower selling prices and unfavorable
currency movements despite improved volumes in most segments. Decreases in the
Chemical Products, Acetate Products and Ticona segments were only slightly
offset by an increase in the Performance Products segment.
Cost of Sales
Cost of sales decreased by 11% to E3,340 million in 2002 compared with
E3,772 million in 2001. Cost of sales as a percentage of net sales decreased to
82% in 2002 from 85% in 2001, reflecting lower raw material and energy costs,
primarily in the Chemical Products and Ticona segments, and cost reductions from
productivity and restructuring initiatives.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased by 13% to E474
million in 2002 from E547 million in 2001 driven largely by an E77 million
decline in amortization expense resulting from the implementation of SFAS No.
142. Excluding the effects of this amortization expense, selling, general and
administrative expenses as a percentage of sales were relatively flat. Selling,
general and administrative expenses were affected by lower third party
commission income earned by a purchasing subsidiary of Celanese, and increased
selling efforts by the Ticona segment, offset by favorable currency fluctuations
and benefits from cost reduction efforts. In 2002 and 2001, Celanese had
favorable adjustments of E15 million and E12 million, respectively, relating to
reduction in environmental reserves due to favorable trends in environmental
remediation.
Research and Development Expenses
Research and development expenses decreased by 16% to E69 million in 2002
from E82 million in 2001. The reduction resulted primarily from Celanese's
strategy to concentrate the research and development efforts at production sites
within most businesses. Research and development expenses as a percentage of
sales remained flat at 2% for both 2002 and 2001.
Special Charges
In 2002, Celanese recorded income from special charges of E5 million, which
consisted of E15 million of restructuring charges, E10 million of income from
favorable adjustments to previously recorded restructuring
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<PAGE>
reserves, E1 million of income from reimbursements from third party site
partners related to prior year initiatives and E9 million of income from other
special charges. The E15 million of restructuring charges included employee
severance costs of E9 million and plant and office closure costs of E6 million.
Project Focus, initiated in early 2001, set goals to reduce trade working
capital, limit capital expenditures and improve earnings before interest, taxes,
depreciation and amortization from programs to increase efficiency. Project
Forward was announced in August 2001 and initiated additional restructuring and
other measures to reduce costs and increase profitability. During 2002, Celanese
recorded employee severance charges of E9 million, of which E4 million related
to adjustments to the 2001 Forward initiatives and E4 million for streamlining
efforts of production facilities in Germany and the United States, and E1
million for employee severance costs in the polyvinyl alcohol business.
Ticona recorded asset impairments of E4 million in 2002 related to a
decision in 2002 to shutdown operations in Telford, United Kingdom in 2003. In
addition, with the construction of a new and expanded GUR(R) plant in Bishop,
Texas the GUR operations in Bayport, Texas were transferred to a new facility.
Decommissioning and demolition costs associated with the Bayport closure were E2
million.
The E10 million of favorable adjustments of previously recorded
restructuring reserves consisted of an E8 million adjustment to the 2001
reserves and a E2 million adjustment to the 2000 reserves. The 2001 adjustment
was primarily due to lower than expected personnel and closure costs associated
with the streamlining of chemical facilities in the United States, Canada and
Germany. The 2000 adjustment was due to lower than expected demolition costs for
the Chemical Products production facility in Knapsack, Germany. The other
special charges income of E9 million related to a reduction in reserves
associated with settlements of environmental indemnification obligations
associated with former Hoechst entities.
In 2001, Celanese recorded special charges of E464 million, which consisted
of E229 million of restructuring charges. These charges were reduced by E8
million of income from reimbursements from third party site partners and
forfeited pension plan assets, E19 million of favorable adjustments to
restructuring reserves recorded in 2001 and 2000 and E262 million of other
special charges.
The E229 million of additions to the restructuring reserve included
employee severance costs primarily of E125 million and plant and office closure
costs of E104 million. Employee severance costs consisted primarily of E38
million for the streamlining of chemical production and administrative positions
in the United States, Germany and Singapore, E28 million for administrative and
production positions at Ticona in the United States and Germany, and E22 million
for the restructuring of production and administrative positions in Mexico. In
addition, other related severance costs consisted of E8 million for the closure
of the acetic acid, pentaerythritol and vinyl acetate monomer units and the
elimination of administrative positions in Edmonton, E7 million for the
elimination of corporate administrative positions, E6 million resulting from the
closure of a chemical research and development center in the United States, E5
million for the shutdown of acetate filament production at Lanaken, Belgium, and
E11 million for the shutdown of acetate filament production at Rock Hill, South
Carolina.
The E104 million of additions to the restructuring reserve related to plant
and office closures consisting mainly of E74 million for fixed asset
impairments, the cancellation of supply contracts, and other required
decommissioning and environmental closure costs relating to the closure of the
acetic acid, pentaerythritol and vinyl acetate monomer units in Edmonton. Also
included in plant and office closure costs were E11 million for fixed asset
impairments, contract cancellation and other costs associated with the closure
of the chemical research and development center in the United States, E4 million
of fixed asset impairments and other closure costs related to the closure of a
chemical distribution terminal in the United States, E8 million for fixed asset
impairments and shutdown costs at the acetate filament facility in Lanaken, E6
million for equipment shutdown and other decommissioning costs for the acetate
filament production facility at Rock Hill and E1 million associated with the
cancellation of a lease associated with the closure of an administrative
facility in Germany.
The E19 million of favorable adjustments of previous year restructuring
reserves consisted of a E14 million adjustment to the 2000 reserves and a E5
million adjustment to the 1999 reserves. The entire 2000 adjustment
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<PAGE>
was due to lower than expected demolition and decommissioning costs for the
Chemical Products production facility in Knapsack, Germany. This adjustment
resulted from a third party site partner assuming ownership of an existing
facility and its obligations. Of the 1999 adjustment, E3 million related to the
reversal of a reserve for closure costs for a parcel of land in Celaya, Mexico,
that Celanese donated to the Mexican government, which assumed the remaining
liabilities. The 1999 adjustment also included E2 million relating to less than
anticipated severance costs for Ticona employees in Germany.
The other special charges of E262 million consisted of goodwill impairments
of E243 million and fixed asset impairments of E30 million, related to the
former Chemical Intermediates segment, E18 million of fixed asset impairments
related to the former Acetyl Products segment and E6 million for the relocation
of acetate filament production assets associated with restructuring initiatives.
Also included in other special charges was E31 million of income from the
receipt of higher than expected insurance reimbursements linked to the plumbing
cases and E4 million of income related to a net reduction in reserves associated
with settlements of environmental indemnification and other obligations
associated with former Hoechst entities.
Foreign Exchange Gain
Foreign exchange gain (loss) increased to E4 million in 2002 from E2
million in 2001. This change is primarily attributable to the weakening of the
Mexican peso against the U.S. dollar as well as the weakening of the U.S. dollar
against the euro.
Operating Profit (Loss)
An operating profit of E202 million was generated in 2002 compared to a
loss of E430 million in 2001 primarily due to a decrease in special charges from
E464 million in 2001 to income of E5 million in 2002. Also contributing to the
profit improvement were lower raw material and energy costs in most segments,
cost reductions throughout Celanese and improved volumes. The profit increase
was partially offset by the unfavorable effect of lower selling prices. Lower
amortization expense of E77 million resulting from the adoption of SFAS No. 142
also had a positive effect in 2002.
Equity in Net Earnings of Affiliates
Equity in net earnings of affiliates increased to E22 million in 2002 from
E13 million in 2001. This increase was partially attributable to an increase in
the earnings of Korea Engineering Plastics Co. Ltd. Lower goodwill amortization
expense of E6 million due to the adoption of SFAS No. 142 also had a positive
effect on 2002 results.
Interest Expense
Interest expense decreased by 26% to E59 million in 2002 from E80 million
in 2001, as a result of lower average financial debt and lower interest rates.
Interest and Other Income, Net
Interest and other income, net decreased to E48 million in 2002 from E65
million in 2001, mainly due to lower dividend income from our investments,
primarily from our methanol joint venture in Saudi Arabia, writedown of
investments and lower interest income, partially offset by higher transaction
gains on foreign currency financing. Additionally, in 2001, Celanese received
gross proceeds of E10 million and recorded a gain of E6 million relating to the
sale of its ownership interests in InfraServ GmbH & Co. Munchsmunster KG,
Hoechst Service Gastronomie GmbH, and Covion Organic Semiconducters GmbH.
Investments accounted for under the cost method contributed dividend income of
E41 million and E52 million in 2002 and 2001, respectively.
Income Taxes
In 2002, Celanese recognized income tax expense of E70 million as compared
to an income tax benefit of E106 million in 2001. Celanese also recognized in
2002 a E43 million German tax benefit relating to a tax
55
<PAGE>
deductible writedown of its investment in Trespaphan GmbH. This tax benefit is
attributable to a discontinued business and is therefore reported as part of
discontinued operations and is not included in the 2002 income tax provision.
The effective tax rate for Celanese in 2002 was 33 percent compared to 25
percent in 2001. In comparison to the German statutory rate, the Celanese
effective tax rate in 2002 was favorably affected by the utilization of certain
net operating loss carryforwards in Germany, the release of certain valuation
allowances on prior years' deferred tax assets, unrepatriated low-taxed earnings
and a lower effective minimum tax burden in Mexico. The effective tax rate was
unfavorably affected in 2002 by distributions of taxable dividends from certain
equity investments and the reversal of a tax-deductible writedown in 2000 of a
German investment.
In 2001, Celanese recognized an income tax benefit of E106 million and
reported an effective tax rate of 25 percent. In comparison to the German
statutory rate, the effective tax rate in 2001 was favorably affected by the
full recognition of previously reserved deferred tax assets of a subsidiary in
Germany, the utilization of net operating loss carryforwards, offset by
non-deductible goodwill amortization and impairment charges.
Cumulative Effect of Changes in Accounting Principles
Celanese recorded income of E19 million for the cumulative effect of two
changes in accounting principles, net of tax of E5 million, in 2002. The
adoption of SFAS No. 142 in 2002 resulted in income of E10 million (E0.20 per
share), as it required unamortized negative goodwill (excess of fair value over
cost) on the balance sheet to be written off immediately and classified as a
cumulative effect of change in accounting principle in the consolidated
statement of operations. Additionally, in 2002 Celanese changed the actuarial
measurement date for its U.S. pension and other postretirement benefit plans
from September 30 to December 31. As this change was accounted for as a change
in accounting principle, a cumulative effect adjustment of income E9 million
(E0.18 per share), net of taxes of E5 million, was recorded in 2002.
Net Earnings (Loss)
As a result of the factors mentioned above, the net earnings (loss) of
Celanese increased by E572 million to net earnings of E187 million in 2002 from
a net loss of E385 million in 2001.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
NET CASH PROVIDED BY OPERATING ACTIVITIES
Net cash provided by operating activities was E347 million, E382 million,
and E518 million for the years ended December 31, 2003, 2002 and 2001,
respectively.
Net cash provided by operating activities decreased by E35 million to E347
million in 2003 as compared to 2002 primarily due to higher net taxes paid of
E118 million and lower dividends from equity investments of E48 million largely
offset by insurance recoveries of E120 million. In addition, higher
contributions were made to our U.S. qualified defined benefit pension plan of
E115 million in 2003 compared to E101 million in 2002. The hedging activity of
foreign currency denominated intercompany net receivables served to partially
offset unfavorable currency effects on net earnings of E135 million and resulted
in a E160 million cash inflow in 2003 compared to E100 million in 2002 due to
the timing of settlements of these contracts.
The decrease in net cash provided by operating activities of E136 million
in 2002 as compared to 2001 is primarily due to changes in cash generated by
trade working capital. In 2002, trade working capital increased slightly due to
an increase in trade receivables resulting from higher sales in the fourth
quarter of 2002 as compared to the fourth quarter in 2001, which was partially
offset by lower inventory and increased trade accounts payable. In 2001, cash
generated by trade working capital improvements related to the Project Focus
initiatives was E295 million. Partially offsetting this trade working capital
effect was a reduction in the cash outflow for special charges of E33 million, a
lower pension contribution to our U.S. qualified defined benefit
56
<PAGE>
pension plan of E101 million in 2002 compared to E161 million in 2001 and an
increase in dividends from equity investments of E48 million.
NET CASH USED IN INVESTING ACTIVITIES
Net cash used in investing activities was E239 million, E145 million and
E117 million for the years ended December 31, 2003, 2002 and 2001, respectively.
The increase in cash outflows of E94 million in 2003 compared to 2002 is
mainly due to lower proceeds from disposal of discontinued operations of E193
million and the receipt of E41 million in returns of capital from investments in
non-consolidated InfraServ companies in 2002. This increase in cash outflow for
2003 was partially offset by a E125 million cash outflow for the 2002 purchase
of the net assets of the emulsions businesses. Additionally, net cash outflows
increased by E36 million related to higher net purchases of marketable
securities.
Capital expenditures decreased by E29 million to E185 million in 2003,
primarily due to foreign currency effects. Spending in 2003 primarily related to
the completion of a production facility for synthesis gas, a primary raw
material at the Oberhausen site in Germany, major replacements of equipment,
capacity expansions, major investments to reduce future operating costs,
environmental, health and safety initiatives and the integration of a
Company-wide SAP platform. The spending in 2002 included the start of
construction of the synthesis gas production facility at the Oberhausen site. In
addition, major projects included the completion of the new GUR(R) plant at the
Bishop, Texas, facility and the capacity expansion for Vectra(R) at Shelby,
North Carolina. The Vectra expansion was built to supply the projected long-term
demand of the telecommunications industry and to develop and grow emerging
markets.
The increase in cash outflows of E28 million in 2002 compared to 2001 is
mainly due to a E125 million cash outflow for the fourth quarter purchase of the
net assets of the Emulsions business. Additionally, a net outflow of E18 million
for the purchase of marketable securities in 2002 compared to a net inflow of
E50 million on the sale of marketable securities in 2001 and an outflow of E25
million related to a long-term raw material supply contract increased the cash
used compared to the prior year. Partially offsetting these effects were E201
million in proceeds from the disposal of discontinued operations in 2002 as
compared to E38 million in 2001 and E41 million in distributions from
investments in InfraServ companies. Capital expenditures in 2002 remained
consistent with 2001 spending levels.
Capital expenditures on property, plant and equipment remained relatively
flat at E214 million in 2002, compared to E213 million in 2001. The spending in
2002 included the start of construction on a new production facility for
synthesis gas, a primary raw material at the Oberhausen site in Germany. In
addition, major projects included the completion of the new GUR(R) plant at the
Bishop, Texas, facility and the capacity expansion for Vectra(R) at Shelby,
North Carolina. The Vectra expansion was needed to supply the projected
long-term demand of the telecommunications industry and to develop and grow
emerging markets.
NET CASH PROVIDED USED IN FINANCING ACTIVITIES
Net cash used in financing activities was E99 million, E156 million and
E376 million for the years ended December 31, 2003, 2002 and 2001, respectively.
Net cash used in financing activities declined by E57 million to an outflow
of E99 million in 2003 compared to 2002. This decrease is primarily related to
lower net payments of short-term borrowings of E137 million, offset by net
payments of long-term debt in 2003 of E46 million. In addition, in 2003,
Celanese paid a cash dividend of E22 million, E0.44 per share, and repurchased
749,848 of its shares, to be held in treasury, for approximately E14 million.
Net cash used in financing activities in 2002 was primarily due to net debt
repayments aggregating E150 million. In addition, Celanese repurchased 284,798
of its shares, to be held in treasury, for approximately E6 million.
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<PAGE>
Net cash used in financing activities amounted to E376 million in 2001. The
net cash used in financing activities in 2001 was primarily due to net debt
repayments aggregating E356 million. In addition, Celanese paid a cash dividend
of E20 million, E0.40 per share, in 2001.
LIQUIDITY
Cash generated from operating activities in 2003 was primarily used to
repay debt and to fund capital expenditures. Cash generated from operating
activities in 2003 reflects a contribution of E115 million into the U.S.
qualified defined benefit pension plan obligations. In addition, net current
assets (defined as total current assets, less total current liabilities),
excluding assets and liabilities of discontinued operations, increased to a net
current asset position of E120 million in 2003 from a net current liability
position of E3 million in 2002.
As of December 31, 2003, Celanese had E504 million of total debt, of which
E117 million is due in 2004. We expect that our primary source of liquidity for
2004 will be cash from operations. During 2003, Celanese extended the maturity
of $150 million (E119 million) of debt, previously due in 2005 to 2008. In
addition, Celanese arranged for a new $100 million (E79 million) credit facility
expiring in 2008. Celanese also reduced a credit facility from E150 million to
E130 million, while extending the expiration from 2003 to 2008. In the event of
a significant decrease in customer demand for our products, coupled with
prolonged unfavorable industry conditions, cash generated from operations could
be materially reduced. If necessary, Celanese has unused credit facilities
available to fund its cash flow needs (as discussed below under "Short-term and
Long-term Borrowings"). In addition, Celanese has in place an asset
securitization program which allows participating operating subsidiaries to sell
up to U.S. $120 million (E95 million) of eligible U.S. trade receivables,
through a consolidated special-purpose entity, as long as the performance of the
receivable portfolio meets certain ratios and Celanese maintains an investment
grade debt rating. As of December 31, 2003, Celanese was in compliance with the
required ratios under the program. There were no outstanding sales of
receivables under this program as of December 31, 2003.
As of December 31, 2003, Celanese had 3.1 million stock appreciation rights
outstanding. There were 2.1 million stock appreciation rights exercised during
2003. The stock appreciation rights exercised resulted in total payments of E22
million, of which E16 million was paid in 2003.
Based on Celanese's current financial situation and current industry
conditions, we believe the funding available from operations, committed credit
facilities and the asset securitization program will be sufficient to satisfy
our capital expenditures, investments and working capital requirements for the
foreseeable future.
At December 31, 2003, Celanese had fixed contractual cash obligations as
follows:
<Table>
<Caption>
LESS THAN 1-3 4-5 AFTER 5
FIXED CONTRACTUAL CASH OBLIGATIONS TOTAL 1 YEAR YEARS YEARS YEARS
---------------------------------- ----- ----------- ----- ----- -------
(IN E MILLIONS)
---------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Debt................................... 504 117 51 129 207
of which Capital Lease Obligations and
Other Secured Borrowings................ 42 6 30 3 3
Operating Leases............................. 164 38 52 35 39
Unconditional Purchase Obligations........... 804 192 141 86 385
Other Contractual Obligations................ 36 32 3 1 -
----- --- --- --- ---
Fixed Contractual Cash Obligations......... 1,508 379 247 251 631
===== === === === ===
</Table>
Unconditional Purchase Obligations include take or pay contracts and fixed
price forward contracts. Celanese does not expect to incur any material losses
under these contractual arrangements. In addition, these contracts may include
variable price components.
Other Contractual Obligations primarily includes committed capital spending
and fines associated with the U.S. antitrust settlement described in Note 25 to
the Consolidated Financial Statements. However, the E99 million fine from the
European Commission related to antitrust matters in the sorbates industry has
been excluded from Other Contractual Obligations pending an appeal.
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At December 31, 2003, Celanese has contractual guarantees and commitments
as follows:
<Table>
<Caption>
EXPIRATION PER PERIOD
-------------------------------------
LESS THAN 1 1-3 4-5 AFTER 5
CONTRACTUAL GUARANTEES AND COMMITMENTS TOTAL YEAR YEARS YEARS YEARS
-------------------------------------- ----- ----------- ----- ----- -------
(IN E MILLIONS)
---------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Guarantees......................... 49 5 11 12 21
Standby Letters of Credit.................... 118 118 - - -
--- --- -- -- --
Contractual Guarantees and Commitments..... 167 123 11 12 21
=== === == == ==
</Table>
Celanese is secondarily liable under a lease agreement pursuant to which
Celanese has assigned a direct obligation to a third party. The lease assumed by
the third party expires on April 30, 2012. The lease liability for the period
from January 1, 2004 to April 30, 2012 is estimated to be approximately E49
million (U.S. $62 million). Standby letters of credit of E118 million at
December 31, 2003 are irrevocable obligations of an issuing bank that ensure
payment to third parties in the event that certain Celanese subsidiaries fail to
perform in accordance with specified contractual obligations. Celanese believes
the likelihood is remote that material payments will be required under these
agreements.
For additional commitments and contingences see Note 25 to the Consolidated
Financial Statements.
At December 31, 2003, Celanese has available sources of liquidity, net of
amounts used, as follows:
<Table>
<Caption>
EXPIRATION PER PERIOD
-------------------------------------
LESS THAN 1 1-3 4-5 AFTER 5
AVAILABLE SOURCES OF LIQUIDITY TOTAL YEAR YEARS YEARS YEARS
------------------------------ ----- ----------- ----- ----- -------
(IN E MILLIONS)
---------------------------------------------
<S> <C> <C> <C> <C> <C>
Unused Lines of Credit....................... 1,032(1) 99 621 233 79
Asset Securitization Program................. 95 95 - - -
----- --- --- --- --
Available Sources of Liquidity............. 1,127 194 621 233 79
===== === === === ==
</Table>
---------------
(1) Total committed lines of credit are E1,219 million, of which E187 million
were utilized at December 31, 2003 (E0 million for less than 1 year; E20
million for 1-3 years; E119 million for 4-5 years, and E48 million for after
5 years). At December 31, 2003, amounts denominated in U.S. dollars were
E629 million (U.S. $795 million) and E490 million (U.S. $620 million)
related to total committed lines of credit and unused lines of credit,
respectively.
If the tender offer is successfully completed, the available sources of
liquidity listed above may be terminated and replaced with alternative financing
arranged by BCP.
In addition to the items noted in the tables above, Celanese expects to
continue to incur costs for the following significant obligations. Although,
Celanese cannot predict with certainty the annual spending for these matters,
such matters will affect future cash flows of Celanese.
<Table>
<Caption>
2003 2004
ACTUAL PROJECTED
OTHER OBLIGATIONS SPENDING SPENDING
----------------- -------- ---------
(IN E MILLIONS)
--------------------
<S> <C> <C>
Environmental Matters....................................... 71 85
Pension and Other Benefits.................................. 194 195(1)
Special Charges............................................. 38(2) 35
Plumbing Actions and Sorbates Litigation.................... 13(4) 17(3)
--- ---
Other Obligations......................................... 316 332
=== ===
</Table>
---------------
(1) If the tender offer is successfully completed, BCP has committed to provide
for the pre-funding of $463 million (E367 million) of certain Celanese
pension obligations.
(2) Excludes insurance receipts and payments relating to plumbing actions.
(3) Projected payments associated with the sorbates litigation of E5 million for
2004 are included in "Fixed Contractual Cash Obligations" above. Spending in
2004 related to the sorbates litigation cannot be reasonably estimated.
(4) Receipts associated with the plumbing actions and sorbates litigation were
E124 million in 2003 and are projected to be E46 million in 2004.
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ENVIRONMENTAL MATTERS
In 2003, Celanese's worldwide expenditures, including expenditures for
legal compliance, internal environmental initiatives and remediation of active,
orphan, divested and U.S. Superfund sites, were E71 million. Capital project
related environmental expenditures in 2003, included in worldwide expenditures,
were E9 million. Environmental reserves for remediation matters were E126
million as of December 31, 2003. (See Notes 15 and 17 to the Consolidated
Financial Statements.)
It is anticipated that stringent environmental regulations will continue to
be imposed on the chemical industry in general. Although Celanese cannot predict
with certainty future environmental expenditures, especially expenditures beyond
2004, management believes that spending will continue at the current year level.
Due to its industrial history, Celanese has the obligation to remediate
specific areas on its active sites as well as on divested, orphan or U.S.
Superfund sites. In addition, as part of the demerger agreement with Hoechst, a
specified proportion of the responsibility for environmental liabilities from a
number of pre-demerger divestitures was transferred to Celanese. Celanese has
provided for such obligations when the event of loss is probable and reasonably
estimable. Management believes that the environmental costs will not have a
material adverse effect on the financial position of Celanese, but they may have
a material adverse effect on the results of operations or cash flows in any
given accounting period. (See Note 26 to the Consolidated Financial Statements.)
PENSION AND OTHER BENEFITS
Celanese's funding policy for pension plans is to accumulate plan assets
that, over the long run, will approximate the present value of projected benefit
obligations. In 2003 and 2002, Celanese made pension contributions to the U.S.
qualified defined benefit pension plan of E115 million and E101 million,
respectively. Also in 2003 and 2002, payments to Celanese's other non-qualified
plans totaled E21 million and E20 million, respectively. Celanese expects to
make aggregate pension contributions and cash payments at similar levels in
2004. Actual contributions in 2005 and future years may vary based on a number
of factors including prevailing interest rates, return on plan assets and
successful completion of the tender offer.
Spending associated with other benefit plans, primarily retiree medical,
defined contribution and long-term disability, amounted to E58 million and E64
million in 2003 and 2002, respectively. Celanese expects spending to continue at
comparable levels in 2004. (See Note 20 to the Consolidated Financial
Statements.)
If the tender offer is successfully completed, BCP has committed to provide
for the pre-funding of $463 million (E367 million) of certain Celanese pension
obligations.
SPECIAL CHARGES
During 2003, Celanese paid E38 million related to special charges. This
amount relates to payments associated with employee termination benefits and
plant/office closures, primarily recorded in previous years. Celanese projects
spending of approximately E35 million in 2004, primarily associated with
restructuring initiatives.
PLUMBING ACTIONS AND SORBATES LITIGATION
Celanese is involved in a number of legal proceedings and claims incidental
to the normal conduct of its business. During 2003, Celanese had net cash
inflows of approximately E111 million in connection with the plumbing actions
and sorbates litigation. As of December 31, 2003, Celanese had reserves of E168
million for these matters. In addition, Celanese had receivables from insurance
companies and Hoechst in connection with the plumbing and sorbates matters of
E137 million as of December 31, 2003.
Although it is impossible at this time to determine with certainty the
ultimate outcome of these matters, management believes, based on the advice of
legal counsel, that adequate provisions have been made and that the ultimate
outcome will not have a material adverse effect on the financial position of
Celanese, but could
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have a material adverse effect on the results of operations or cash flows in any
given accounting period. (See Note 25 to the Consolidated Financial Statements.)
CAPITAL EXPENDITURES
Celanese's capital expenditures were E185 million in 2003. Capital
expenditures primarily related to the completion of a production facility for
synthesis gas, a primary raw material at the Oberhausen site in Germany, major
replacements of equipment, capacity expansions, major investments to reduce
future operating costs, environmental, health and safety initiatives and the
integration of a Company-wide SAP platform. Capital expenditures remained below
depreciation levels as Celanese continued to make selective capital investments
to enhance the market positions of its products.
Capital expenditures were financed principally with cash from operations.
Celanese anticipates spending in 2004 to be approximately E244 million. At
December 31, 2003, there were approximately E25 million of outstanding
commitments related to capital projects, which are included within the fixed
contractual cash obligations table above.
SHORT-TERM AND LONG-TERM BORROWINGS
Celanese's total debt primarily consists of bank loans, notes due
affiliates, commercial paper, term notes, capital leases and pollution control
and industrial revenue bonds. The loans are principally denominated in U.S.
dollars and euro. Total debt decreased to E504 million at December 31, 2003 from
E615 million at December 31, 2002. During 2003, Celanese extended the maturity
of $150 million (E119 million) of debt, previously due in 2005 to 2008. In
addition, Celanese arranged for a new $100 million (E79 million) credit facility
expiring in 2008. Celanese also reduced a credit facility from E150 million to
E130 million, while extending the expiration from 2003 to 2008. Celanese used
the cash generated from operations to repay bank loans and notes with
affiliates. Celanese has a U.S. $700 million (E554 million) commercial paper
program at December 31, 2003. As of December 31, 2003, there were no borrowings
under the commercial paper program. Celanese maintains committed backup
facilities, revolving credit lines and term loans with several banks aggregating
E1,219 million at December 31, 2003; the aggregate unused part thereof amounted
to E1,032 million, of which U.S. $320 million (E253 million) was available for
use as credit backup for Celanese's commercial paper program. These credit
backup facilities for the commercial paper program are 364 day facilities, which
are subject to renewal annually. Of these credit backup facilities, U.S. $200
million (E159 million) of these facilities have terms whereby if amounts are
drawn down by the initial 364 day period, the drawn amounts can be extended for
an additional 364 days.
Celanese had outstanding letters of credit amounting to E118 million at
December 31, 2003 and December 31, 2002.
Several non-consolidated affiliates pool their excess cash with Celanese,
and the excess cash is loaned to Celanese under a revolving credit agreement.
The outstanding payables for these agreements from Celanese to its affiliates of
E79 million and E96 million at December 31, 2003 and 2002, respectively, are
included within short-term borrowings. Celanese expects to continue these
arrangements at a comparable level in 2004, depending on the level of liquidity
of the non-consolidated affiliates.
A number of Celanese's bank loan agreements have ratio or credit rating
covenants. At December 31, 2003, Celanese was in compliance with these
covenants. Based on Celanese's financial situation, we believe that the risk is
minimal that Celanese will not be in compliance with the terms and conditions of
its loan agreements. Approximately one-third of total debt outstanding at
December 31, 2003 is subject to repayment in the case of a specified downgrade
in our credit rating. Should Celanese fail to meet the ratio or credit rating
covenants of a particular loan, we believe that Celanese has adequate liquidity
sources, as noted above, to meet its ongoing requirements.
As a result the tender offer and the Company's contemplated capital
structure post-acquisition, Celanese has been placed on credit watch with
negative implications by Moody's Investors Service and Standard and Poor's
Rating Services. According to the tender offer document of BCP, BCP has arranged
a debt financing
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package of E2,180 million. This is sufficient to finance the acquisition of all
Celanese shares, refinance all existing debt of the Company and finance the
pre-funding of $463 million (E367 million) of certain Celanese pension
obligations. If the tender offer is successful, it is expected that the Company
will be downgraded to a below investment grade rating. If the downgrade is below
a specified level and due to the change of control, it would result in the
acceleration of the maturity of approximately one-third of total debt
outstanding. The terms and conditions of the loan agreement arranged by BCP are
expected to be more restrictive and the interest rates of the financing are
expected to be higher than the Company's current debt financing.
TOTAL SHAREHOLDERS' EQUITY
At December 31, 2003, shareholders' equity amounted to E2,048 million,
compared to E2,005 million at December 31, 2002. The increase was primarily
attributable to current year net earnings of E131 million and E39 million
related the indemnification from Hoechst related to the sorbates antitrust
matters partially offset by the impact of foreign currency translation
adjustments of E114 million and dividends of E22 million.
At December 31, 2002, shareholders' equity amounted to E2,005 million,
compared to E2,210 million at December 31, 2001. The decrease was primarily
attributable to the impact of foreign currency translation adjustments of E173
million and the recognition of an additional minimum liability adjustment for
pensions of E220 million due to pension plan asset valuation losses and a
reduction in the discount rate used to calculate pension plan obligations. These
reductions were partially offset by current year net earnings.
As of December 31, 2003, Celanese had 3.1 million stock appreciation rights
outstanding. There were 2.1 million stock appreciation rights exercised during
2003. The stock appreciation rights exercised resulted in total payments of E22
million, of which E16 million was paid in 2003.
In its tender offer document, BCP has stated that it intends to prevent, to
the extent permitted by law, any dividend on the Celanese shares for the fiscal
year ended 2003 from being distributed to Celanese shareholders. If the offer
succeeds, it is unknown whether the Company will pay dividends or conduct share
buybacks in the future. (For additional information refer to the offer document
filed by BCP with the Commission on February 2, 2004.)
If the tender offer is successfully completed, the right to exercise stock
appreciation rights will remain unchanged for a period of six months, regardless
of whether the exercise hurdle has been met. Under the terms of the BCP tender
offer, stock options will be unaffected. However, the trading volume and
liquidity of Celanese shares may be negatively affected due to actions that BCP
may take in the future.
MARKET RISKS
Celanese is exposed to market risk through commercial and financial
operations. Celanese's market risk consists principally of exposure to currency
exchange rates, interest rates and commodity prices. Celanese has in place
policies of hedging against changes in currency exchange rates, interest rates
and commodity prices as described below. These contracts are accounted for under
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities
amended by SFAS No. 138, Accounting for Certain Derivative Instruments and
Certain Hedging Activities and SFAS No. 148, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. (See Note 25 to the Consolidated
Financial Statements.)
Foreign Exchange Risk Management
Celanese's reporting currency is the euro. Celanese has receivables and
payables denominated in currencies other than the functional currencies of the
various subsidiaries of Celanese, which create foreign exchange risk. With the
introduction of the euro on January 1, 1999, the exposure to exchange rate
fluctuations is eliminated in relation to the euro zone countries that have
adopted the euro as their common currency, leaving the U.S. dollar, Mexican
peso, Japanese yen, British pound sterling, and Canadian dollar as the most
significant sources of currency risk. Accordingly, Celanese enters into foreign
currency forwards and options to minimize its exposure to foreign currency
fluctuations. The foreign currency contracts are designated for recognized
assets and liabilities and forecasted transactions. The terms of these contracts
are
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generally under one year. Celanese's centralized hedging strategy states that
foreign currency denominated receivables or liabilities recorded by the
operating entities will be used to hedge the exposure on a consolidated basis.
As a result, Celanese's foreign currency forward contracts relating to this
centralized strategy did not meet the criteria of SFAS No. 133 to qualify for
hedge accounting. Accordingly, these contracts are accounted for as fair value
hedges. Celanese recognizes net foreign currency transaction gains or losses on
the underlying transactions, which are offset by losses and gains related to
foreign currency forward contracts.
Contracts with notional amounts totaling approximately E606 million and
E955 million at December 31, 2003 and 2002, respectively, are denominated in
U.S. dollars, British pound sterling, Japanese yen, and Canadian dollars. During
2003, Celanese's foreign currency forward contracts, designated as fair value
hedges, resulted in a decrease in total assets of E7 million and an increase in
total liabilities of E1 million. As of December 31, 2003, these contracts hedged
a portion (approximately 85% as of December 31, 2003) of Celanese dollar
denominated intercompany net receivables held by euro denominated entities.
Related to the unhedged portion, a net loss of approximately E12 million from
foreign exchange gains or losses was recorded to interest and other income, net
in 2003. During the years ended December 31, 2002 and 2001, Celanese hedged all
of its dollar denominated intercompany net receivables held by euro denominated
entities. Therefore, there was no material net effect from foreign exchange
gains or losses in interest and other income, net. Hedging activities related to
intercompany net receivables yielded cash flows from operating activities of
approximately E160 million, E100 million and E15 million, in 2003, 2002 and
2001, respectively.
A substantial portion of Celanese's assets, liabilities, revenues and
expenses is denominated in currencies other than the euro zone currencies,
principally the U.S. dollar. Fluctuations in the value of these currencies
against the euro, particularly the value of the U.S. dollar, can have, and in
the past have had, a direct and material impact on Celanese's business and
financial results. For example, a decline in the value of the U.S. dollar versus
the euro, results in a decline in the euro value of Celanese's sales denominated
in U.S. dollars and earnings due to translation effects. Likewise, an increase
in the value of the U.S. dollar versus the euro would result in an opposite
effect. Celanese estimates that the translation effects of changes in the value
of other currencies against the euro decreased net sales by approximately 13% in
2003 and increased net sales by approximately 3% in 2002. Celanese estimates
that the translation effects of changes in the value of other currencies against
the euro decreased total assets by approximately 13% in 2003. Celanese's
exposure to transactional effects is further reduced by a high degree of overlap
between the currencies in which sales are denominated and the currencies in
which the raw material and other costs of goods sold are denominated.
Interest Rate Risk Management
Celanese enters into interest rate swap agreements to reduce the exposure
of interest rate risk inherent in Celanese's outstanding debt. Celanese's
interest rate derivative policy is to lock in borrowing rates to achieve a
desired level of fixed/floating rate debt depending on market conditions.
Celanese had open interest rate swaps with a notional amount of E158 million and
E286 million at December 31, 2003 and 2002, respectively. Celanese believes its
credit risk exposure related to counterparty default on instruments is not
material. Celanese recognized net interest expense from hedging activities
relating to interest rate swaps of E10 million in 2003 and E13 million in 2002.
During 2003, Celanese's interest rate swaps, designated as cash flow hedges,
resulted in a decrease in total assets and total liabilities and an increase in
shareholders' equity of E3 million, E11 million and E5 million, net of related
income tax of E3 million, respectively. During 2003, the Company recorded a net
gain of E1 million in interest and other income, net, for the ineffective
portion of the interest rate swaps. During 2003, Celanese recorded a loss of E6
million in interest and other income, net, associated with the early termination
of one of its interest rate swaps. During 2002, Celanese's interest rate swaps
resulted in an increase in total assets and total liabilities and a decrease in
shareholders' equity of E4 million, E17 million and E8 million, net of related
income tax of E4 million, respectively. Celanese recorded a net loss of E3
million and E5 million in interest and other income, net for the ineffective
portion of the interest rate swaps, during the years ended December 31, 2002 and
December 31, 2001, respectively. The amount of losses expected to be
reclassified from accumulated other comprehensive income (loss) into earnings
within the next twelve months is not currently determinable.
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Commodity Risk Management
Celanese's policy allows the purchase of up to 80 percent of its natural
gas, butane and methane requirements generally up to 18 months forward using
forward purchase or cash-settled swap contracts to manage its exposure to
fluctuating feed stock and energy costs. Throughout 2003, Celanese had entered
into natural gas forward and cash-settled swap contracts for approximately 50
percent of its natural gas requirements, generally for up to 6 months forward.
The fixed price natural gas forward contracts are principally settled through
actual delivery of the physical commodity. The maturities of the cash-settled
swap contracts correlate to the actual purchases of the commodity and have the
effect of securing predetermined prices for the underlying commodity. Although
these contracts are structured to limit Celanese's exposure to increases in
commodity prices, they can also limit the potential benefit Celanese might have
otherwise received from decreases in commodity prices. These cash-settled swap
contracts are accounted for as cash flow hedges. Realized gains and losses on
these contracts are included in the cost of the commodity upon settlement of the
contract. Celanese recognized losses of E3 million and less than E1 million from
natural gas swap as well as butane and methane contracts in 2003 and 2002,
respectively. There was no material impact on the balance sheet at December 31,
2003 and December 31, 2002. The effective portion of unrealized gains and losses
associated with the cash-settled swap contracts are E0 million and E1 million as
of December 31, 2003 and 2002, respectively, are recorded as a component of
accumulated other comprehensive income (loss) until the underlying hedged
transactions are reported in earnings. Celanese had open swaps with a notional
amount of E4 million as of December 31, 2003.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our Consolidated Financial Statements are based on the selection and
application of significant accounting policies. The preparation of these
financial statements and application of these policies requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. However, Celanese is not currently aware of any reasonably likely
events or circumstances that would result in materially different results.
Celanese's senior management has reviewed these critical accounting
policies and estimates with the Finance and Audit Committee of the Supervisory
Board.
Celanese believes the following accounting polices and estimates are
critical to understanding the financial reporting risks present in the current
economic environment. These matters, and the judgments and uncertainties
affecting them, are also essential to understanding our reported and future
operating results. See Note 3 to the Consolidated Financial Statements for a
more comprehensive discussion of Celanese's significant accounting policies.
Recoverability of Long-Lived Assets
Our business is capital intensive and has required, and will continue to
require, significant investments in property, plant and equipment. At December
31, 2003, the carrying amount of property, plant and equipment was E1,354
million. As discussed in Note 3 to the Consolidated Financial Statements,
Celanese assesses the recoverability of property, plant and equipment to be held
and used by a comparison of the carrying amount of an asset or group of assets
to the future net undiscounted cash flows expected to be generated by the asset
or group of assets. If such assets are considered impaired, the impairment
recognized is measured as the amount by which the carrying amount of the assets
exceeds the fair value of the assets.
Celanese assesses the recoverability of the carrying value of its goodwill
and other intangible assets with indefinite useful lives at least annually or
whenever events or changes in circumstances indicate that the carrying amount of
the asset may not be fully recoverable. Recoverability of goodwill is measured
at the reporting unit level based on a two-step approach. First, the carrying
amount of the reporting unit is compared to the fair value as estimated by the
future net discounted cash flows expected to be generated by the reporting unit.
To the extent that the carrying value of the reporting unit exceeds the fair
value of the reporting unit, a
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second step is performed, wherein the reporting unit's assets and liabilities
are fair valued. The implied fair value of goodwill is calculated as the fair
value of the reporting unit in excess of the fair value of all non-goodwill
assets and liabilities allocated to the reporting unit. To the extent that the
reporting unit's carrying value of goodwill exceeds its implied fair value,
impairment exists and must be recognized.
During 2003, Celanese performed the annual impairment test of goodwill and
determined that there was no impairment.
A prolonged general economic downturn and, specifically, a continued
downturn in the chemical industry as well as other market factors could
intensify competitive pricing pressure, create an imbalance of industry supply
and demand, or otherwise diminish volumes or profits. Such events, combined with
changes in interest rates, could adversely affect our estimates of future net
cash flows to be generated by our long-lived assets. Consequently, it is
possible that our future operating results could be materially and adversely
affected by additional impairment charges related to the recoverability of our
long-lived assets.
Restructuring and Special Charges
Special charges include provisions for restructuring and other expenses and
income incurred outside the normal ongoing course of operations. Restructuring
provisions represent costs related to severance and other benefit programs
related to major activities undertaken to fundamentally redesign our operations
as well as costs incurred in connection with a decision to exit non-strategic
businesses. These measures are based on formal management decisions,
establishment of agreements with the employees' representatives or individual
agreements with the affected employees as well as the public announcement of the
restructuring plan. The related reserves reflect certain estimates, including
those pertaining to separation costs, settlements of contractual obligations and
other closure costs. We reassess the reserve requirements to complete each
individual plan under our restructuring program at the end of each reporting
period. Actual experience has been and may continue to be different from these
estimates. (See Note 27 to the Consolidated Financial Statements.)
Environmental Liabilities
Celanese manufactures and sells a diverse line of chemical products
throughout the world. Accordingly, Celanese's operations are subject to various
hazards incidental to the production of industrial chemicals including the use,
handling, processing, storage and transportation of hazardous materials.
Celanese recognizes losses and accrues liabilities relating to environmental
matters if available information indicates that it is probable that a liability
has been incurred and the amount of loss is reasonably estimated. If the event
of loss is neither probable nor reasonably estimable, but is reasonably
possible, Celanese provides appropriate disclosure in the notes to its
Consolidated Financial Statements if the contingency is material.
Total environmental liabilities were E126 million at December 31, 2003.
Measurement of environmental reserves is based on the evaluation of currently
available information with respect to each individual site and considers factors
such as existing technology, presently enacted laws and regulations and prior
experience in remediation of contaminated sites. An environmental reserve
related to cleanup of a contaminated site might include, for example, provision
for one or more of the following types of costs: site investigation and testing
costs, cleanup costs, costs related to soil and water contamination resulting
from tank ruptures and post-remediation monitoring costs. These reserves do not
take into account any claims or recoveries from insurance. The measurement of
environmental liabilities is based on a range of management's periodic estimate
of what it will cost to perform each of the elements of the remediation effort.
Celanese uses its best estimate within the range to establish its environmental
reserves. The Company utilizes third parties to assist in the management and the
development of its cost estimates for its sites. Changes to environmental
regulations or other factors affecting environmental liabilities are reflected
in the Consolidated Financial Statements in the period in which they occur.
Celanese accrues for legal fees related to litigation matters when the costs
associated with defense can be reasonably estimated and are probable to occur.
All other fees are expensed as incurred. (See Note 26 to the Consolidated
Financial Statements.)
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Asset Retirement Obligations
As of December 31, 2003, Celanese has reserves for asset retirement
obligations of E37 million. SFAS No. 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred. The liability is measured at the discounted fair value and
is adjusted to its present value in subsequent periods as accretion expense is
recorded. The corresponding asset retirement costs are capitalized as part of
the carrying amount of the related long-lived asset and depreciated over the
asset's useful life. The Company has identified but not recognized asset
retirement obligations related to substantially all its existing operating
facilities. Examples of these types of obligations include demolition,
decommissioning, disposal and restoration activities. Legal obligations exist in
connection with the retirement of these assets upon closure of the facilities or
abandonment of the existing operations. However, Celanese currently plans on
continuing operations at these facilities indefinitely and therefore a
reasonable estimate of fair value cannot be determined at this time. In the
event Celanese considers plans to abandon or cease operations at these sites, an
asset retirement obligation will be reassessed at that time. If certain
operating facilities were to close, the related asset retirement obligations
could significantly effect our results of operations and cash flows.
Celanese is assessing its worldwide acetate production capacity, and it is
probable that the Company will close certain facilities in the latter half of
this decade. As a result and in accordance with SFAS No. 143, the Acetate
Products segment recorded a charge of E7 million, included within 2003
depreciation expense, related to these potential asset retirement obligations.
Realization of Deferred Tax Assets
Total net deferred tax assets were E437 million at December 31, 2003.
Celanese regularly reviews its deferred tax assets for recoverability and
establishes a valuation allowance based on historical taxable income, projected
future taxable income, applicable tax strategies, and the expected timing of the
reversals of existing temporary differences. A valuation allowance is provided
when it is more likely than not that some portion or all of the deferred tax
assets will not be realized. Such evaluations require significant management
judgments. Celanese has established valuation allowances primarily for U.S.
state net operating losses and federal capital loss carryforwards, German trade
income tax loss carryforwards and Mexican net operating loss carryforwards.
Based on Celanese's historical and projected pretax earnings, management
believes it is more likely than not that Celanese will realize the benefit of
the remaining net deferred tax assets existing at December 31, 2003. (See Note
14 to the Consolidated Financial Statements.)
The successful completion of the tender offer may have a material adverse
effect on Celanese's ability to realize the benefit associated with its U.S.
federal net operating loss carryforward deferred tax asset. Under U.S. tax law,
the U.S. federal net operating loss carryforwards may be subject to limitation
in the event of an ownership change. Celanese is unable to determine what effect
this limitation would have, if any, on the deferred tax assets attributable to
these carryforwards.
Benefit Obligations
Celanese sponsors pension and other postretirement benefit plans covering
substantially all employees who meet eligibility requirements. With respect to
its U.S. qualified defined benefit pension plan, minimum funding requirements
are determined by the Employee Retirement Income Security Act. For the periods
presented, Celanese has not been required to contribute under these minimum
funding requirements. However, Celanese chose to contribute E115 million, E101
million, and E161 million for the years ended December 31, 2003, 2002 and 2001,
respectively. Benefits are generally based on years of service and/or
compensation. Various assumptions are used in the calculation of the actuarial
valuation of Celanese-sponsored plans. These assumptions include the weighted
average discount rate, rates of increase in compensation levels, expected
long-term rates of return on plan assets and increases or trends in health care
costs. In addition to the above mentioned assumptions, Celanese's actuarial
consultants use subjective factors such as withdrawal and mortality rates to
estimate the projected benefit obligation. The actuarial assumptions used by
Celanese may differ materially from actual results due to changing market and
economic conditions,
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higher or lower withdrawal rates or longer or shorter life spans of
participants. These differences may result in a significant impact to the amount
of pension expense recorded by Celanese in future periods.
The amounts recognized in the Consolidated Financial Statements related to
pension and postretirement benefits are determined on an actuarial basis. A
significant assumption used in determining our pension expense is the expected
long-term rate of return on plan assets. In 2003, we assumed an expected
long-term rate of return on plan assets of 9.0% for Celanese's U.S. qualified
defined benefit pension plan, which represents greater than 90 percent and 80
percent of Celanese's pension plan assets and liabilities, respectively. On
average, the actual return on plan assets over the long-term (15 to 20 years)
has substantially exceeded 9.0%. In 2003, the plans experienced market related
returns as compared to losses in 2002.
For 2003, our expected long-term rate of return assumption for our U.S.
plans remained at 9.0%, reflecting the generally expected moderation of
long-term rates of return in the financial markets. We estimate a 25 basis point
decline in the expected long-term rate of return for our U.S. qualified defined
benefit pension plan to increase pension expense by an estimated E4 million in
2004. Another estimate that affects our pension and postretirement benefit
expense is the discount rate used in the annual actuarial valuations of pension
and postretirement benefit plan obligations. At the end of each year, we
determine the appropriate discount rate, which represents the interest rate that
should be used to determine the present value of future cash flows currently
expected to be required to settle the pension and postretirement benefit
obligations. The discount rate is generally based on the yield on high-quality
corporate fixed-income securities. At December 31, 2003, we lowered our discount
rate to 6.25% from 6.75% at December 31, 2002 for our U.S. plans. We estimate
that a 50 basis point decline in the discount rate for our U.S. pension and
postretirement medical plans will increase pension and postretirement benefit
expense in 2004 by an estimated E4 million and less than E1 million,
respectively, and our liabilities by approximately E100 million and
approximately E10 million, respectively.
Celanese sponsors other postretirement benefit plans. These plans provide
medical and life insurance benefits to retirees who meet minimum age and service
requirements. The accrued postretirement benefit cost at December 31, 2003 and
2002, includes E31 million and E41 million, respectively, in accrued expenses
and E253 million and E311 million, respectively, in other noncurrent
liabilities. The key determinants of the accumulated postretirement benefit
obligation ("APBO") are the discount rate and the healthcare cost trend rate.
The healthcare cost trend rate has a significant effect on the reported amounts
of APBO and related expense. For example, increasing the healthcare cost trend
rate by one percentage point in each year would increase the APBO at December
31, 2003, and the 2003 postretirement benefit cost by approximately E1 million
and less than E1 million, and decreasing the healthcare cost trend rate by one
percentage point in each year would decrease the APBO at December 31, 2003 and
the 2003 postretirement benefit cost by approximately E1 million and less than
E1 million, respectively. (See Note 20 to the Consolidated Financial
Statements.)
Accounting for Commitments & Contingencies
Celanese is subject to a number of lawsuits, claims, and investigations,
incidental to the normal conduct of its business, relating to and including
product liability, patent and intellectual property, commercial, contract,
antitrust, and employment matters, which are handled and defended in the
ordinary course of business. (See Note 25 to the Consolidated Financial
Statements.) Celanese routinely assesses the likelihood of any adverse judgments
or outcomes to these matters as well as ranges of probable and reasonably
estimable losses. Reasonable estimates involve judgments made by management
after considering a broad range of information including: notifications,
demands, settlements which have been received from a regulatory authority or
private party, estimates performed by independent companies and outside counsel,
available facts, identification of other potentially responsible parties and
their ability to contribute, as well as prior experience. A determination of the
amount of loss contingency required, if any, is assessed in accordance with SFAS
No. 5 "Contingencies and Commitments" and recorded if probable and estimable
after careful analysis of each individual matter. The required reserves may
change in the future due to new developments in each matter and as additional
information becomes available.
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CNA Holdings, Inc. ("CNA Holdings"), a U.S. subsidiary of Celanese, which
includes the U.S. business now conducted by Ticona, along with Shell Chemical
Company ("Shell") and E. I. du Pont de Nemours ("DuPont"), among others, have
been the defendants in a series of lawsuits, 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. CNA
Holdings has accrued its best estimate of its share of the plumbing actions. At
December 31, 2003, Celanese had accruals of E60 million for this matter, of
which E11 million is included in current liabilities. Management believes that
the plumbing actions are adequately provided for in the Consolidated Financial
Statements. However, if Celanese were to incur an additional charge for this
matter, such a charge would not be expected to have a material adverse effect on
the financial position, but may have a material adverse effect on the results of
operations or cash flows of Celanese in any given accounting period. Celanese
has recorded receivables relating to the anticipated recoveries from third party
insurance carriers relating to this product liability matter. These receivables
are based on the probability of collection, an opinion of external counsel, the
settlement agreements reached with a majority of Celanese's insurance carriers
whose coverage level exceeds the receivables and the status of current
discussions with other insurance carriers. As of December 31, 2003, Celanese had
recorded E50 million in outstanding insurance claim receivables. Collectability
could vary depending on the financial status of the insurance carriers. In 2003,
Celanese recorded income from special charges of E94 million and interest income
of E18 million, related to settlements from insurers in excess of the recorded
receivable amounts. (See Note 25 to the Consolidated Financial Statements).
Nutrinova Inc., a U.S. subsidiary of Nutrinova Nutrition Specialties & Food
Ingredients GmbH, a wholly-owned subsidiary of Celanese, is party to various
legal proceedings in the United States, Canada and Europe alleging Nutrinova
Inc. engaged in unlawful, anticompetitive behavior which affected the sorbates
markets while it was a wholly-owned subsidiary of Hoechst. In accordance with
the demerger agreement between Hoechst and Celanese, which became effective
October 1999, Celanese, the successor to Hoechst's sorbates business, was
assigned the obligation related to these matters. However, Hoechst agreed to
indemnify Celanese for 80 percent of payments for such obligations. Expenses
related to this matter are recorded gross of any such recoveries from Hoechst
while the recoveries from Hoechst, which represents 80 percent of such expenses,
are recorded directly to shareholders' equity, net of tax, as a contribution of
capital.
Based on the advice of external counsel and a review of the existing facts
and circumstances relating to the sorbates matter, including the status of
governmental investigations, as well as civil claims filed and settled, Celanese
has remaining accruals of E108 million. This amount is included in current
liabilities at December 31, 2003 for the estimated loss relative to this matter.
Although the outcome of this matter cannot be predicted with certainty,
management's best estimate of the range of possible additional future losses and
fines, including any that may result from governmental proceedings, as of
December 31, 2003 is between E0 and E6 million. The estimated range of such
possible future losses is management's best estimate based on the advice of
external counsel taking into consideration potential fines and claims, both
civil and criminal, that may be imposed or made in other jurisdictions. At
December 31, 2003, Celanese has receivables, recorded within current assets,
relating to the sorbates indemnification from Hoechst of E87 million. (See Note
25 to the Consolidated Financial Statements).
Captive Insurance Companies
Celanese consolidates two wholly owned insurance companies (the
"Captives"). The Captives are a key component of Celanese's global risk
management program as well as a form of self-insurance for property, liability
and workers compensation risks. The Captives issue insurance policies to
Celanese subsidiaries to provide consistent coverage amid fluctuating costs in
the insurance market and to lower long-term insurance costs by avoiding or
reducing commercial carrier overhead and regulatory fees. The Captives issue
insurance policies and coordinate claims handling services with third party
service providers. They retain risk at levels approved by the Board of
Management and obtain reinsurance coverage from third parties to limit the net
risk retained. One of the Captives also insures certain third party risks.
The assets of the Captives consist primarily of marketable securities and
reinsurance receivables. Marketable securities values are based on quoted market
prices or dealer quotes. The carrying value of the
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amounts recoverable under the reinsurance agreements approximate fair value due
to the short-term nature of these items.
The liabilities recorded by the Captives relate to the estimated risk of
loss recorded by the Captives, which is based on management estimates and
actuarial valuations, and unearned premiums, which represent the portion of the
premiums written applicable to the terms of the policies in force. The
establishment of the provision for outstanding losses is based upon known facts
and interpretation of circumstances influenced by a variety of factors. In
establishing a provision, management considers facts currently known and the
current state of laws and litigation where applicable. Liabilities are
recognized for known claims when sufficient information has been developed to
indicate involvement of a specific policy and management can reasonably estimate
their liability. In addition, liabilities have been established to cover
additional exposure on both known and unasserted claims. Estimates of the
liabilities are reviewed and updated regularly. It is possible that actual
results could differ significantly from the recorded liabilities.
The Captives use reinsurance arrangements to reduce their risk of loss.
Reinsurance arrangements however do not relieve the Captives from their
obligations to policyholders. Failure of the reinsurers to honor their
obligations could result in losses to the Captives. The Captives evaluate the
financial condition of their reinsurers and monitor concentrations of credit
risk to minimize their exposure to significant losses from reinsurer
insolvencies and establish allowances for amounts deemed non-collectable.
Premiums written are recognized based on the terms of the policies.
Capitalization of the Captives is determined by regulatory guidelines.
OUTLOOK
At the start of 2004, signs of modest economic growth were evident,
although visibility remains low. Despite some positive initial indicators, broad
and sustainable improvement in demand in industrial markets and consumer
confidence remain to be seen.
Raw material and energy costs are expected to remain at high levels and to
weigh on first half 2004 results. A strong euro exchange rate versus the dollar
is also likely to continue. In this environment, we will take actions on prices
and costs.
We expect operating profit for the first half of 2004 to be lower than the
comparable period of last year when substantial insurance recoveries were
recorded. Absent the effect of such insurance recoveries, operating profit is
likely to approximate the level of the same period last year. If the BCP offer
is successfully completed, it will likely result in material changes to the
financing structure, results of future operations and cash flows.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
This Annual Report contains certain forward-looking statements and
information relating to Celanese that are based on the beliefs of its management
as well as assumptions made by and information currently available to Celanese.
These statements include, but are not limited to, statements about Celanese's
strategies, plans, objectives, expectations, intentions, expenditures, and
assumptions and other statements contained in this Annual Report that are not
historical facts. When used in this document, words such as "anticipate,"
"believe," "estimate," "expect," "intend," "plan" and "project" and similar
expressions, as they relate to Celanese or its management, are intended to
identify forward-looking statements. These statements reflect the current views
of Celanese 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.
69
<PAGE>
Many factors could cause the actual results, performance or achievements of
Celanese 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:
o changes in general economic, business, political and regulatory
conditions in the countries or regions in which Celanese operates;
o the length and depth of product and industry business cycles particularly
in the automotive, electrical, electronics, construction and textile
industries;
o changes in the price and availability of raw materials, particularly
changes in the demand for, supply of, and market prices of fuel oil,
natural gas, coal, wood pulp, electricity and petrochemicals such as
ethylene, propylene and butane, including changes in production quotas in
OPEC countries and the deregulation of the natural gas transmission
industry in Europe;
o the ability to pass increases in raw material prices on to customers or
otherwise improve margins through price increases;
o the ability to maintain plant utilization rates and to implement planned
capacity additions and expansions;
o the ability to reduce production costs and improve productivity by
implementing technological improvements to existing plants;
o the existence of temporary industry surplus production capacity resulting
from the integration and start-up of new world-scale plants;
o increased price competition and the introduction of competing products by
other companies
o the ability to develop, introduce and market innovative products, product
grades and applications, particularly in the Technical Polymers Ticona
and Performance Products segments;
o changes in the degree of patent and other legal protection afforded to
Celanese's products;
o compliance costs and potential disruption or interruption of production
due to accidents or other unforeseen events or delays in construction of
facilities;
o potential liability for remedial actions under existing or future
environmental regulations;
o 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 Celanese operates;
o changes in currency exchange rates and interest rates;
o changes in the composition or restructuring of Celanese and the
successful completion of acquisitions, divestitures and joint venture
activities including the successful completion of the BCP tender offer;
and
o various other factors, both referenced and not referenced in this Annual
Report.
Many of these factors are macroeconomic in nature and are, therefore,
beyond the control of Celanese's management. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
the actual results, performance or achievements of Celanese may vary materially
from those described herein as anticipated, believed, estimated, expected,
intended, planned or projected. Celanese does not intend, and does not assume
any obligation, to update these forward-looking statements, which speak only as
of their dates.
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<PAGE>
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
DIRECTORS AND SENIOR MANAGEMENT
The current members of the Celanese board of management, their respective
ages as of March 5, 2004 and their functions are as follows:
<Table>
<S> <C> <C>
Claudio Sonder..... Age: 61
First Elected: 1999
Function: Chairman of the Celanese AG Board of
Management
Supervisory Board
Memberships/Directorships: Dresdner Bank Lateinamerika AG, Companhia
Suzano de Papel e Celulose S.A., Brazil,
Ibero-Amerika Verein e.V.
Term Expires: October 31, 2004
David N. Weidman... Age: 48
First Elected: 2000
Function: Vice Chairman and Chief Operating Officer;
Responsible for the Chemical Products
segment
Supervisory Board
Memberships/Directorships: American Chemistry Council, National
Advisory
Council of the Marriott School of Management
Term Expires: October 31, 2005
Lyndon Cole........ Age: 51
First Elected: 2003
Function: Responsible for the Technical Polymers
Ticona segment
Term Expires: October 31, 2005
Andreas Pohlmann... Age: 46
First Elected: 2002
Function: Chief Administrative Officer, Director of
Personnel, Responsible for the Performance
Products segment, as well as Innovation,
Environment, Personnel, Law
Supervisory Board
Memberships/Directorships: Pensionskasse der Mitarbeiter der Hoechst-
Gruppe Vva G (German pension fund for
employees of the Hoechst Group)
Term Expires: October 31, 2005
Perry W. Premdas... Age: 51
First Elected: 1999
Function: Chief Financial Officer; Responsible for the
Acetate Products segment
Term Expires: October 31, 2004
</Table>
Claudio Sonder has been Chairman and Chief Executive Officer of Celanese AG
since its demerger from Hoechst on October 22, 1999. Prior to the demerger, he
served on the Hoechst board of management from 1996 until October 1999. There he
was responsible for the agricultural chemicals, animal health and nutrition
businesses, before becoming responsible for Hoechst's Ticona business segment,
which is now reported by Celanese under the Technical Polymers Ticona segment,
and its Celanese business segment, which is now largely reported by Celanese
under the Chemical Products and Acetate Products segments. Mr. Sonder worked
with Hoechst's industrial businesses for more than 30 years in Brazil and
Germany. He was the head of Hoechst's Plastics and Films Division in Frankfurt,
Germany from 1994 to 1996 and served as chairman
71
<PAGE>
and chief executive officer of Hoechst do Brazil from 1983 to 1994. Mr. Sonder
has announced he will retire from Celanese when his contract expires on October
31, 2004.
David N. Weidman was appointed Celanese AG's Vice Chairman on September 23,
2003 and Celanese AG's chief operating officer on January 1, 2002. He joined
Celanese as the chief executive officer of Celanese Chemicals on September 1,
2000. Before joining Celanese, he was a member of Honeywell/Allied Signal's
corporate executive council and the president of its performance polymers
business since 1998. Mr. Weidman joined Allied Signal in 1994 as vice president
and general manager of performance additives and became president and general
manager of fluorine products in 1995. Mr. Weidman began his career in the
chemical industry with American Cyanamid in 1980, serving as vice president and
general manager of its fibers division from 1990 to 1994, as vice president and
general manager of Cyanamid Canada from 1989 to 1990, and as managing director
of Cyanamid Nordiska in Stockholm, Sweden from 1987 to 1989. Mr. Wiedman is
slated to assume the position of Chairman and Chief Executive Officer on
November 1, 2004.
Lyndon Cole became Ticona's president and the head of the Celanese Growth
and Excellence Council on April 1, 2003. He was named to the Board of Management
on September 23, 2003. Dr. Cole joined Celanese in March of 2002 as president of
Celanese Chemicals. From 1998 to 2001 he had been chief executive officer of
United Kingdom based Elementis PLC, a global specialty chemicals company. Prior
to joining Elementis, he was general manager-Global Structured Products for GE
Plastics from 1990 to 1998 and previously held general management and commercial
positions with GE Plastics, Dow Chemicals Europe and ICI.
Andreas Pohlmann was appointed to the Celanese board of management on
October 22, 2002. He had served as Celanese AG's Vice President and Corporate
Secretary since October 1999, as well as managing director of Celanese Ventures
since February 2002. In his ten years at Hoechst, Dr. Pohlmann, an attorney,
held various positions of increasing responsibility in the Corporate Law,
Corporate Public and Governmental Affairs, and Corporate Controlling and
Development departments, ultimately serving as Hoechst AG's Corporate Secretary
from 1996 to 1999.
Perry W. Premdas has been Celanese AG's Chief Financial Officer since its
demerger from Hoechst on October 22, 1999. Prior to the demerger, he was senior
executive vice president and chief financial officer of Centeon LLC, Hoechst's
blood plasma protein joint venture with Rhone-Poulenc, from 1997 to 1998. From
January 1, 1999 until the demerger, he was on a special assignment at Hoechst
relating to the demerger. Since joining Celanese Corporation in 1976, Mr.
Premdas has held financial and line positions mainly with the industrial
businesses of Hoechst and the former Celanese Corporation in the United States,
Germany and Mexico. He served as vice president and treasurer of Hoechst
Celanese Corporation from 1996 to 1997 and as vice president and general manager
of Hoechst Celanese Corporation's Printing Products Division from 1992 to 1995.
Mr. Premdas has announced that he will leave Celanese upon the expiration of his
contract on October 31, 2004.
The incumbent members of the supervisory board of Celanese, their
respective ages as of March 5, 2004 and their principal occupations are as
follows:
<Table>
<S> <C> <C>
Guenter Metz(4)(5)(6)(7)........... Age: 68
Chairman First Elected: 1999
Principal Occupation: Former deputy chairman of the board of
management of Hoechst AG
Supervisory Board
Memberships/Directorships: Aventis S.A., Zuerich Beteiligungs AG
Term Expires: 2005
Reiner Nause(1)(5)(6)(7)........... Age: 58
Deputy Chairman First Elected: 1999
Principal Occupation: Technician, Chairman of the central
workers' council of Celanese
Chemicals Europe GmbH, Chairman of
the Celanese AG Group Workers' Council
Term Expires: 2005
</Table>
72
<PAGE>
<Table>
<S> <C> <C>
Saad Ali Al-Shuwaib(6)............. Age: 51
First Elected: 2002
Principal Occupation: Chairman and Managing Director of Petrochemical
Industries Co., Kuwait
Supervisory Board
Memberships/Directorships: Kuwait Petroleum Corporation
Term Expires: 2005
Hanswilhelm Bach(1)(4)............. Age: 56
First Elected: 1999
Principal Occupation: Graduate chemist, Business Liaison Manager
Environmental, Health & Safety Affairs at
Ticona GmbH, Kelsterbach site
Term Expires: 2005
Ralf Becker(1)(6).................. Age: 38
First Elected: 2003(3)
Principal Occupation: Labor Union Secretary, Deputy Regional Head of
IG BCE, Hesse/Thuringia
Supervisory Board
Memberships/Directorships: Kodak Holding GmbH, RAG Bildung GmbH
Term Expires: 2005
Hans-Juergen Brinkmann(1)(4)....... Age: 49
First Elected: 2002(2)
Principal Occupation: Plant mechanic, Member of the Celanese Joint
Workers' Council, Ruhrchemie plant
Term Expires: 2005
Armin Droth(1)..................... Age: 49
First Elected: 2000
Principal Occupation: Electrical Engineer, representative of the
German association of management and
professional staff (Verband angestellter
Akademiker), member of the Celanese joint
workers' council, Hochst site
Term Expires: 2005
Alan R. Hirsig(5)(6)............... Age: 64
First Elected: 1999
Principal Occupation: Former president and chief executive officer of
ARCO Chemical Company, United States
Supervisory Board
Memberships/Directorships: Checkpoint Systems Inc., Philadelphia Suburban
Corporation
Term Expires: 2005
Joannes C. M. Hovers(6)............ Age: 60
First Elected: 1999
Principal Occupation: Former chief executive officer of Oce N.V., the
Netherlands
Supervisory Board
Memberships/Directorships: GTI N.V., GVB N.V., Inter Access N.V.,
Koninklijke Grolsch N.V., Kusters Engineering
B.V., Mignos en De Block N.V., Multi Processing
Equipment Group N.V., De Nederlandsche Bank
N.V., NEM Holding N.V., Penguin Ventures N.V.,
Randstad Holding N.V., Schils N.V., Stork MPS
N.V., Tilburg University (KUB)
Term Expires: 2005
</Table>
73
<PAGE>
<Table>
<S> <C> <C>
Herbert Schmalz(1)(6)....... Age: 52
First Elected: 2003(2)
Principal Occupation: Chemistry Technician, Head of Warehouse and
Shipping for Technical Polymers, Ruhrchemie
Plant
Term Expires: 2005
Alfons Titzrath(4)(7)....... Age: 71
First Elected: 1999
Principal Occupation: Former chairman of the supervisory board of
Dresdner Bank AG, Germany
Term Expires: 2005
Kendrick R. Wilson III(4)... Age: 57
First Elected: 1999
Principal Occupation: Vice Chairman -- Investment Banking, Goldman,
Sachs & Co., United States
Supervisory Board
Memberships/Directorships: American Marine Holdings Corp.
Term Expires: 2005
</Table>
---------------
(1) Representative of the employees
(2) In May 2000, Celanese's employees in Germany elected 10 representatives to
the supervisory board in accordance with the German Co-Determination Law
(Mitbestimmungsgesetz). Six of these representatives took office
immediately; the other four were chosen as alternates to serve in the event
one of the employee representatives resigned or otherwise ceased to serve in
office. Mr. Brinkmann and Mr. Schmalz assumed their positions on the
supervisory board in 2003 and 2002, respectively, replacing Gerd Decker and
Werner Zwoboda, respectively.
(3) Appointed by the local court (Amtsgericht) in Koenigstein on September 30,
2003 to replace Ralf Sikorski, who resigned on September 15, 2003.
(4) Finance and Audit Committee
(5) Personnel and Compensation Committee
(6) Strategy Committee
(7) Ad Hoc Committee
COMPENSATION OF DIRECTORS AND OFFICERS
SUPERVISORY BOARD
Members of the Celanese supervisory board receive, in addition to
reimbursement of out-of-pocket expenses, a fixed annual payment which, for 2003,
amounted to E80,000 for the Chairman, E60,000 for the Deputy Chairman and
E40,000 for all other members of the Celanese supervisory board. To the extent
that on the due date Celanese has treasury stock that it may use for this
purpose, half of these fixed annual amounts are paid in Celanese ordinary shares
with the remainder paid in cash. In addition, for each Celanese supervisory
board meeting attended, members receive a meeting fee of E4,000 for the
Chairman, E3,000 for the Deputy Chairman and E2,000 for all other members of the
Celanese supervisory board. Also, each member of the Celanese supervisory board
receives a committee retainer for each membership in a committee of the Celanese
supervisory board. The committee retainer amounts to E4,000 for the chairman of
the committee and E2,000 for all other members of the committee. All members of
the Celanese supervisory board are also reimbursed for value added tax on these
amounts. They also participate in a stock appreciation rights plan, the broad
terms of which are similar to the stock appreciation rights plans included in
long-term incentive plans described below. For 2003, the aggregate compensation
of the members of the supervisory board amounted to approximately E0.94 million.
According to German law, compensation of supervisory board members requires
shareholder approval. Compensation for the Celanese supervisory board was
approved at the April 1, 2003 annual general meeting of shareholders and remains
in effect on the date of this Annual Report.
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<PAGE>
The following table shows the compensation paid to individual members of
the supervisory board who were active on the board as of December 31, 2003.
COMPENSATION OF SUPERVISORY BOARD
<Table>
<Caption>
FIXED ANNUAL REMUNERATION
-------------------------------
OF WHICH OF WHICH OTHER CASH VARIABLE ANNUAL TOTAL
NAME (E) CASH (E) SHARES(1) REMUNERATION (E)(2) REMUNERATION (E) REMUNERATION (E)
---- ------- -------- ---------- ------------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Guenter Metz........... 61,355 30,678 30,677 25,203 0 86,558
Chairman
Reiner Nause........... 46,016 23,008 23,008 22,602 31,403 100,021
Deputy Chairman
Saad Ali Al-Shuwaib.... 19,380 9,690 9,690 13,534 0 32,914
Hanswilhelm Bach....... 30,678 15,339 15,339 13,534 43,942 88,154
Ralf Becker(3)......... 0 0 0 4,000 0 4,000
Hans-Juergen Brinkman.. 30,678 15,339 15,339 13,534 0 44,212
Armin Droth............ 30,678 15,339 15,339 13,534 0 44,212
Alan R. Hirsig......... 30,678 15,339 15,339 16,602 0 47,280
Joannes C. M. Hovers... 30,678 15,339 15,339 15,068 0 45,746
Herbert Schmalz(3)..... 0 0 0 12,000 0 12,000
Ralf Sikorski.......... 30,678 15,339 15,339 7,534 35,291 73,503
Alfons Titzrath........ 30,678 15,339 15,339 15,068 0 45,746
Kendrick R. Wilson
III.................. 30,678 15,339 15,339 13,534 0 44,212
------- ------- ------- ------- ------- -------
372,175 186,088 186,087 185,747 110,636 668,558
======= ======= ======= ======= ======= =======
</Table>
---------------
(1) Based on a share price of E16.13, the average share price during the 20 days
prior to the grant date (annual general meeting date).
(2) Remuneration for Supervisory Board Meetings and Committee Meeting
attendance.
(3) Supervisory Board members receive their annual remuneration for the prior
year on the day of the annual general meeting. As Messrs. Schmalz and Becker
assumed their positions in 2003, they will not receive their remuneration
until the annual general meeting on June 15, 2004.
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<PAGE>
The table below shows the number of stock appreciation rights held and
issued to the Supervisory Board as of December 31, 2003, as well as the number
of stock appreciation rights exercised during 2003.
STOCK APPRECIATION RIGHTS
<Table>
<Caption>
TOTAL RIGHTS HELD
GRANTED IN 2003(1) EXERCISED IN 2003 AS OF 12/31/03
------------------------ ------------------------ ---------------------
GRANT PRICE PER
NAME NUMBER RIGHTS (E) NUMBER EARNINGS (E)(2) NUMBER VALUE (E)(3)
---- ------ --------------- ------ --------------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Guenter Metz.................... 4,300 19.40 0 0 13,950 190,045
Chairman
Reiner Nause.................... 3,250 19.40 3,950 31,403 6,550 91,910
Deputy Chairman
Saad Ali Al-Shuwaib............. 2,150 19.40 0 0 1,355 17,751
Hanswilhelm Bach................ 2,150 19.40 4,850 43,942 2,150 28,165
Ralf Becker(4).................. 0 0 0 0 0 0
Hans-Juergen Brinkman........... 2,150 19.40 0 0 2,150 28,165
Armin Droth..................... 2,150 19.40 0 0 7,000 95,346
Alan R. Hirsig.................. 2,150 19.40 0 0 8,050 112,282
Joannes C. M. Hovers............ 2,150 19.40 0 0 8,050 112,282
Herbert Schmalz(4).............. 0 0 0 0 0 0
Ralf Sikorski................... 2,150 19.40 4,150 35,291 2,850 38,630
Alfons Titzrath................. 2,150 19.40 0 0 8,050 112,282
Kendrick R. Wilson III.......... 2,150 19.40 0 0 8,050 112,282
------ ------ ------- ------ -------
26,900 12,950 110,636 68,205 939,140
====== ====== ======= ====== =======
</Table>
---------------
(1) Due to the share price on the grant date (April 4, 2003) there was no income
effect resulting from the stock appreciation rights granted in 2003.
(2) The earnings are included in the supervisory board members' compensation as
variable annual remuneration.
(3) Value determined by: (share price (E32.50 as of December 31, 2003) -- grant
price of respective plan) x number of rights of respective plan.
(4) Supervisory Board members receive their annual remuneration for the prior
year on the day of the annual general meeting. As Messrs. Schmalz and Becker
assumed their positions in 2003, they will not receive their remuneration
until the annual general meeting on June 15, 2004.
BOARD OF MANAGEMENT
The aggregate amount of compensation paid during 2003 to the members of the
Celanese board of management was E5.2 million. The aggregate amount accrued by
Celanese during 2003 to provide pension, retirement and similar benefits for the
members of the board of management was E2.2 million.
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<PAGE>
The following table shows the compensation expense for the individual
members of the board of management who were active on the board as of December
31, 2003.
TOTAL COMPENSATION EXPENSE TABLE(1)
<Table>
<Caption>
ANNUAL COMPENSATION
-------------------------------------------
FIXED ANNUAL TOTAL CASH
NAME AND PRINCIPAL POSITION SALARY (E) BONUS (E) COMPENSATION (E)
--------------------------- ------------ --------- ----------------
<S> <C> <C> <C>
Claudio Sonder(2)............................. 909,996 4,679,800 5,589,796
Chairman of the Board
David Weidman................................. 645,259 704,542 1,349,801
Vice Chairman & Chief Operating Officer
Perry Premdas................................. 519,600 406,592 926,192
Chief Financial Officer
Lyndon Cole................................... 120,900 125,000 245,900
Member of Board of Management
Andreas Pohlmann.............................. 474,320 461,191 935,511
Chief Administrative Officer
--------- --------- ---------
2,670,075 6,377,125 9,047,200
========= ========= =========
</Table>
---------------
(1) Disclosure of compensation in accordance with German Commercial Code.
(2) Included in Mr. Sonder's compensation is an accrued amount of E 3,800,000,
which he will receive upon expiration of his contract in October 2004.
The table below shows the number of stock appreciation rights and stock
options held by the board of management as of December 31, 2003.
INCENTIVE COMPENSATION TABLE
<Table>
<Caption>
STOCK APPRECIATION RIGHTS(1) STOCK OPTIONS(2)
---------------------------------------------- -------------------
NUMBER EARNINGS
OF RIGHTS FROM
NUMBER EXERCISED EXERCISE OF NUMBER
NAME AND PRINCIPAL POSITION HELD VALUE (E) IN 2003 RIGHTS (E) HELD VALUE (E)
--------------------------- ------- ---------- --------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Claudio Sonder................... 363,500 5,444,770 0 0 90,000 859,500
Chairman of the Board
David Weidman.................... 144,000 2,022,835 0 0 55,000 525,250
Vice Chairman & Chief Operating
Officer
Perry Premdas.................... 188,500 2,839,632 0 0 43,000 410,650
Chief Financial Officer
Lyndon Cole...................... 25,000 323,500 0 0 15,000 143,250
Member of Board of Management
Andreas Pohlmann................. 45,450 666,106 0 0 13,000 124,150
Chief Administrative Officer
------- ---------- -- -- ------- ---------
766,450 11,296,843 0 0 216,000 2,062,800
======= ========== == == ======= =========
</Table>
---------------
(1) No stock appreciation rights or stock options were granted in 2003.
(2) The stock options were valued based on their fair value.
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<PAGE>
BOARD SERVICE AGREEMENTS
Celanese AG has entered into service agreements with the members of the
board of management. These agreements establish the following four principal
elements of compensation:
o BASE SALARY: Base salary is established based on a comparative analysis
of base salaries paid within a selected peer group of international
companies.
o ANNUAL BONUS: The annual bonus is dependent on achieving the economic
and personal objectives agreed between the personnel and compensation
committee of the supervisory board and the board of management member. At
present, such objectives pertain to operating profit and trade working
capital of Celanese on a consolidated basis, as well as of the business
for which the board of management member is responsible. Bonuses are
expressed as a percentage of base salary and may be adjusted, upward or
downward, based on the degree to which the targets are achieved. In 2003,
under guidelines established by the personnel and compensation committee,
such bonus payments could account for up to 80 percent of the executive's
base salary, or up to 160 percent of base salary if all targets were
significantly exceeded.
o LONG-TERM INCENTIVE PLANS: The long-term incentive plans were based on
stock appreciation rights plans adopted in 1999 and 2001 and on a stock
option plan adopted in 2002. All the plans are based on the appreciation
of Celanese AG ordinary shares and are further described under Incentive
Plans below. In 1999, Celanese AG granted board of management members as
a group 459,000* stock appreciation rights at a base price of E16.37 per
share. In 2001, Celanese granted board of management members as a group
414,000 stock appreciation rights at a base price of E19.56 per share. In
2002, stock options covering 225,000 shares under the 2002 plan were
granted to the board as a whole with an exercise price of E27.54 per
share. No stock options were granted to the board of management in 2003.
o EQUITY PARTICIPATION PLAN: Board of management members have committed to
take part in the equity participation plan. Under this plan, a defined
amount of money must be invested in Celanese shares over a one to two
year period. Each board of management member must hold his shares as long
as he is a member of the board of management; however as a result of a
waiver granted by the supervisory board's personnel and compensation
committee, this would not prohibit board of management members from
tendering their shares pursuant to the BCP Crystal offer. The board of
management as a group received 325,000 stock appreciation rights under
this plan. Board of management members who enrolled after July 8, 2002
receive stock options, if available, pursuant to the terms and conditions
under which stock options may be granted (See Incentive Plans below). As
of March 4, 2004, no stock options were granted to the board of
management under this plan.
In accordance with German practice and the terms of their respective
service agreements, members of Celanese's board of management are entitled to
severance payments if Celanese terminates their employment before they are
entitled to receive retirement or pension benefits, or if they are entitled
under German law to terminate their employment with Celanese for good reasons.
In either case, the severance payment is based on a multiple of one to two times
the member's annual compensation, including salary, bonus payments for the
current year, and the current value of a one-year grant of stock appreciation
rights and/or stock options. The multiple declines as the member nears
retirement age.
If the termination of a member of Celanese's board of management occurs due
to a change in control of Celanese, the member may be entitled to a change in
control payment, depending on the conditions of his termination. Such change in
control payments are based on a multiple up to four times the member's annual
cash compensation, based on a three-year average base salary and bonus payment.
The multiple declines as the member nears retirement age.
---------------
*This amount includes stock appreciation rights granted to two retired
members of the board of management. One retired as of September 1, 2000 and
exercised his stock appreciation rights at the time of his retirement; the other
retired as of December 31, 2001 and exercised part of his stock appreciation
rights during 2003.
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<PAGE>
Claudio Sonder and Perry W. Premdas announced in 2003 and 2004,
respectively, that they would leave Celanese upon the expiration of their
service agreements on October 31, 2004. In accordance with the terms of Mr.
Premdas' service agreement, Celanese is obliged to make a severance payment to
him of approximately E2.5 million when he leaves. Mr. Sonder will receive a
payment of approximately E4.8 million when his service agreement expires.
Members of Celanese's supervisory board are not entitled to severance nor
to change in control payments.
INCENTIVE PLANS
An important component of Celanese's compensation programs is to provide
additional encouragement for attaining Celanese's annual as well as longer-term
objectives. These incentive plans are designed to attract, retain and motivate
executives and staff committed to achieving performance-related targets that
enhance in a sustainable manner the value of an investment in Celanese shares.
Employees participate in the benefits of achieving financial and business
performance targets through annual incentive plans. The Celanese board of
management approved two stock appreciation rights plans in 1999, one being an
equity participation plan and the other being a long-term incentive plan, both
of which took effect on October 25, 1999. In January 2001, the Celanese board of
management approved a second similar long-term incentive plan that took effect
on January 15, 2001. Under all three plans, grants were made for only a limited
period of time.
In 1999, the Celanese board of management and executives of Celanese
worldwide (totaling approximately 1,500 employees) were eligible to participate
in the equity participation plan, which gives the participants a right to
receive the cash difference between the base price and the price of the shares
on the day of exercise. For the equity participation plan, the participants were
required to invest over a one or two year period a defined amount of money in
Celanese shares. The number of stock appreciation rights to be granted is
defined by the required amount of money to be invested divided by the base price
of the shares and multiplied by two. Approximately 82 percent of all eligible
employees indicated their intent to participate in this plan through substantial
investment in Celanese shares, therefore, entitling participants to receive 2.6
million stock appreciation rights; 2.5 million of these stock appreciation
rights were granted during 1999 and 0.1 million were granted during 2001.
Approximately 0.8 million rights granted under this plan remain outstanding as
of December 31, 2003.
Celanese board of management members and senior executives worldwide
participate in two long-term incentive plans, which give the participants the
cash difference between the base price and the price of the shares on the day of
exercise. The long-term incentive plans are identical to the equity
participation plan, except that they do not require an investment in Celanese
shares by the participants. The base price under the 1999 long-term incentive
plan as well as the equity participation plan was based on the average prices
for the first 20 trading days of Celanese ordinary shares and was set at E16.37
per share. At October 25, 1999, approximately 2.4 million stock appreciation
rights were awarded to 168 employees, of which 0.9 million remain outstanding as
of December 31, 2003. The base price under the 2000 long-term incentive plan was
based on the average prices for the 20 trading days of Celanese ordinary shares
immediately preceding January 15, 2001 and was set at E19.56 per share. At
January 15, 2001, approximately 2 million stock appreciation rights were awarded
to 170 employees, of which 1.4 million remain outstanding as of December 31,
2003.
Under all three plans, every right entitles the eligible person to
participate in the long-term appreciation in the price of one share of Celanese.
Stock appreciation rights granted under these plans have a ten year term and are
generally exercisable in whole or in part, subject to limitations, at any time
during a period defined for each plan, provided at the time of exercise, the
performance of an ordinary share of Celanese on the Frankfurt Stock Exchange
exceeds the median of the performance of the share prices of Celanese's peer
group
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companies as defined by Celanese's board of management*. Following a change in
control of Celanese, the stock appreciation rights can be exercised during a
period of six months irrespective of whether Celanese's share price has
outperformed the median of the performance of the share prices of the peer
group.
At the Annual General Meeting of Celanese on May 15, 2002, shareholders
approved the 2002 Celanese Stock Option Plan (the "2002 Plan"). The 2002 Plan
authorized the issuance of up to 1.25 million options to purchase shares of
common stock. Options are granted at an exercise price reflecting the reference
price (twenty day average of market price prior to grant date) plus a 20 percent
premium and become exercisable five years from the date of grant. Two year
vesting is possible, if the market price per share outperforms the median
performance of Celanese's competitors as defined in the plan over the holding
period. All unexercised options expire ten years from the date of grant. If the
market price per Celanese share of common stock on the date of exercise is at
least 20 percent higher than the reference price at the time of the grant, the
holder is entitled to receive a cash payment equal to the original exercise
premium of 20 percent. The plan documents governing the 2002 Plan does not
contain any provisions dealing with a change in control of Celanese. Therefore
the legal terms of the stock options will not be affected by a successful
consummation of the BCP Crystal offer. On July 8, 2002, 1.1 million stock
options were awarded to 140 employees at an exercise price of E27.54 per share
and a reference price of E22.95 per share, all of which remained outstanding as
of December 31, 2003. On January 31, 2003, 0.1 million stock options were
awarded to 13 additional employees at an exercise price of E23.78 per share and
a reference price of E19.82 per share, all of which remained outstanding as of
December 31, 2003.
Celanese offset its exposure under the 1999 stock appreciation rights plans
by purchasing call options covering Celanese shares, and then exercising these
options for shares as part of its share buy-back program. During 2001, Celanese
purchased one million call options to cover its financial exposure under the
2000 long-term incentive stock appreciation rights plan. These options expired
in 2003 without being exercised. See "Item 11. Quantitative and Qualitative
Disclosures About Market Risk," and for additional information related to
incentive plans, see Note 22 to the Consolidated Financial Statements.
BOARD PRACTICES
As required by the German Stock Corporation Act (Aktiengesetz), Celanese
has a two-tier board system consisting of a board of management (Vorstand) and a
supervisory board (Aufsichtsrat). The Celanese board of management as a
collective body is responsible for managing Celanese and representing Celanese
in its dealings with third parties, while the Celanese supervisory board
appoints and removes the members of the Celanese board of management and
oversees the management of Celanese. Under the German Stock Corporation Act, the
Celanese supervisory board is not permitted to make management decisions.
Pursuant to the rules of procedure of the Celanese management and supervisory
boards, the Celanese board of management must obtain the prior consent of the
Celanese supervisory board for specific matters such as acquisitions and
divestitures, joint ventures, entry into new business areas, the incurrence of
indebtedness, issuance of guarantees and creation of mortgages on real estate,
if the specific matter is considered to be of substantial economic importance to
Celanese. The supervisory board is also authorized to subject other actions of
the board of management to its prior consent. The German Stock Corporation Act
prohibits simultaneous membership on the board of management and the supervisory
board of a company.
BOARD OF MANAGEMENT
The members of the Celanese board of management may be appointed by the
Celanese supervisory board for a maximum term of five years. They may be
reappointed or have their term of office extended for one or more five year
terms. Under some circumstances, such as a serious breach of duty or a bona fide
vote of no confidence by a majority of the votes cast at a shareholders'
meeting, a member of the Celanese board of management may be removed by the
Celanese supervisory board prior to the expiration of such term of office.
---------------
*The peer group consists of Dow, DSM, Eastman, Georgia Gulf Corp. (Solutia,
Inc. is substituted for Georgia Gulf Corp. in the peer group for the 2000
long-term incentive plan and for the 2002 Stock Option Program), ICI, Lyondell
Chemical Co., Methanex, Millennium and Rhodia.
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A member of the Celanese board of management may not deal with, or vote on,
matters relating to proposals, arrangements or contracts between himself and
Celanese.
Celanese board of management decisions are made by a simple majority vote.
In the event of a tie vote, the Chairman of the Celanese board of management has
the deciding vote.
Under the Articles of Association (Satzung) of Celanese, any two members of
the Celanese board of management, or any member of the Celanese board of
management together with the holder of a special power of attorney (Prokurist)
granted by the Celanese board of management, may represent Celanese. The
Celanese board of management must report regularly to the Celanese supervisory
board, in particular, on proposed business policy and strategy, profitability,
the performance of the businesses of Celanese, environment, health and safety,
and corporate governance matters, including risk management and compliance as
well as on any matters of particular significance that may arise from time to
time.
For information on service contracts between Celanese and the members of
its board of management, see "Compensation of Directors and Officers".
SUPERVISORY BOARD
Celanese has approximately 3,000 employees in Germany. Therefore, under the
German Stock Corporation Act, the German Co-Determination Law
(Mitbestimmungsgesetz) and the Articles of Association of Celanese, the Celanese
supervisory board consists of 12 members of whom six are elected by the
shareholders and six are elected by representatives of the German based
employees. Four of the Celanese supervisory board members representing the
employees must be employees of Celanese, whereas the remaining two must be union
representatives. Blue collar (Arbeiter) and white-collar (Angestellte) employees
must be represented in accordance with the ratio of employees who are entitled
to vote in the elections.
Any member elected by the shareholders in a general meeting may be removed
by a majority of the votes cast by the shareholders in a general meeting. Any
member of the Celanese supervisory board elected by a particular class of
employees may be removed by three-quarters of the votes cast by the
representatives of that class of employees.
The Celanese supervisory board appoints a chairman (Vorsitzender des
Aufsichtsrats) and a deputy chairman (Stellvertretender Vorsitzender des
Aufsichtsrats) from among its members. The chairman of the Celanese supervisory
board must be elected by a majority of two-thirds of the members of the Celanese
supervisory board. If that majority is not reached in the first vote, the
chairman will be elected in a second vote solely by the representatives of the
shareholders. At least half the members of the Celanese supervisory board must
be present to constitute a quorum. Unless otherwise provided for by law,
resolutions are passed by a simple majority of the Celanese supervisory board.
In the event of a tie, another vote is held and the chairman then has the
deciding vote.
Celanese supervisory board members are usually elected for five-year terms.
Supervisory board members may be re-elected. The remuneration of the members of
the Celanese supervisory board is determined by resolution at shareholder
meetings. For further information on supervisory board remuneration, see
"Compensation of Directors and Officers."
Five of the six shareholder representatives were appointed to the
supervisory board on September 1, 1999. Mr. Saad Ali Al Shuwaib, Chairman and
Managing Director of Petrochemical Industries Co., Kuwait was appointed on May
15, 2002.
In May 2000, Celanese's employees in Germany elected 10 representatives to
the supervisory board. Six of these representatives took office immediately; the
other four were chosen as alternates to serve in the event one of the employee
representatives resigned or otherwise left his membership. Mr. Brinkmann and Mr.
Schmalz assumed their positions on the supervisory board in 2002 and 2003,
respectively, replacing Gerd Decker and Werner Zwoboda, respectively. Ralf
Sikorski resigned his position on September 15, 2003. As no alternate had been
chosen for him, the board of management requested the local court (Amtsgericht)
in
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Koenigstein to appoint a replacement in accordance with Section 104 of the Stock
Corporation Act (Aktiengesetz). The court appointed Ralf Becker to the
Supervisory Board on September 30, 2003.
The supervisory board maintains the following standing committees, all of
which have their own written rules of procedure:
Finance and Audit Committee. The finance and audit committee reviews in
advance the annual financial statements, the consolidated annual financial
statements, the management report, the consolidated management report and the
proposals to be made to the annual general shareholders' meeting for the
appropriation of Celanese's profit and for the election of the external
auditors. The committee uses its review of these issues to prepare the
corresponding resolutions of the supervisory board. The finance and audit
committee also reviews the external auditors' engagement letter, including
proposed fees, and monitors the external auditors and their work. Furthermore,
the committee reviews Celanese's significant accounting policies and remains
informed of the processes, organization and work product of the Celanese's
internal auditing function. It monitors Celanese's internal risk management and
its compliance with all applicable legal and regulatory requirements. The
finance and audit committee met three times during 2003. The members of the
finance and audit committee during 2003 were: Alfons Titzrath (Chairman),
Hanswilhelm Bach, Hans-Juergen Brinkmann, Guenter Metz, and Kendrick R. Wilson,
III. See also "Item 16A. Audit Committee Financial Expert", and "Item 16C
Principal Accountant Fees and Services".
Personnel and Compensation Committee. The task of the personnel and
compensation committee is to prepare resolutions of the supervisory board on
personnel matters, in particular regarding the appointment of new board of
management members. In addition the personnel and compensation committee
approves the adoption, amendment and termination of service agreements with the
members of the board of management, as well as any dealings or proceedings
between them and Celanese. The personnel and compensation committee also
approves contracts and acts of members of the management and supervisory boards
which, according to German law, require the approval of the supervisory board.
Furthermore, it reviews Celanese's incentive and equity based compensation
plans, and prepares the supervisory board's proposal to the annual general
meeting on the election of new members of the supervisory board. Members of the
personnel and compensation committee are: Guenter Metz (Chairman), Alan Hirsig,
and Reiner Nause. The personnel and compensation committee met twice during
2003.
Strategy Committee. The strategy committee reviews the strategy for
Celanese presented to it by the board of management. It keeps itself informed
about developments and trends in the industries in which Celanese is active.
Members of the strategy committee in 2003 were: Alan Hirsig (Chairman), Saad Ali
Al-Shuwaib, Joannes Hovers, Guenter Metz, Reiner Nause, Herbert Schmalz and Ralf
Sikorski. Mr. Sikorski resigned his membership on September 15, 2003 and was
replaced by Ralf Becker on December 16, 2003. The strategy committee met once
during 2003.
Special Ad Hoc Committee. The supervisory board also established an ad hoc
committee on December 15, 2003. Its task is to ensure that the supervisory board
is kept fully informed of all matters connected with the BCP Crystal offer. This
committee will develop procedures and be the contact for the supervisory board's
external advisors; however, any supervisory board decisions regarding the BCP
Crystal offer must be made by the entire supervisory board. The members of this
committee are: Guenter Metz (Chairman), Rainer Nause, and Alfons Titzrath.
EMPLOYEES
As of December 31, 2003, Celanese had approximately 9,500 employees
worldwide from continuing operations, compared to 10,500 as of December 31,
2002. This represents a decrease of approximately 10 percent. Celanese had
approximately 5,600 employees in North America, 3,600 employees in Europe,
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200 employees in Asia and 100 employees in the rest of the world. The following
table sets forth the approximate number of employees on a continuing basis as of
December 31, 2003, 2002, and 2001.
<Table>
<Caption>
EMPLOYEES AS OF DECEMBER 31,
-----------------------------
2003 2002 2001
------- -------- --------
<S> <C> <C> <C>
North America............................................... 5,600 6,300 6,900
thereof USA............................................... 4,000 4,600 5,000
thereof Canada............................................ 400 500 600
thereof Mexico............................................ 1,200 1,200 1,300
Europe...................................................... 3,600 3,900 3,400
thereof Germany........................................... 3,000 2,800 2,900
Asia........................................................ 200 200 200
Rest of World............................................... 100 100 100
----- ------ ------
Total Celanese Employees.................................... 9,500 10,500 10,600
===== ====== ======
</Table>
Many of Celanese's employees are unionized, particularly in Germany,
Canada, Mexico, Brazil, Belgium and France. However, in the United States, less
than one quarter of Celanese's employees are unionized. Moreover, in Germany and
France, wages and general working conditions are often the subject of centrally
negotiated collective bargaining agreements. Within the limits established by
these agreements, the various subsidiaries of Celanese negotiate directly with
the unions and other labor organizations, such as workers' councils,
representing the employees. Collective bargaining agreements between the German
chemical employers associations and unions relating to remuneration typically
have a term of one year, while in the United States a three year term for
collective bargaining agreements is typical. Celanese offers comprehensive
benefit plans for employees and their families and believes its relations with
employees are satisfactory.
SHARE OWNERSHIP
During 2003, 12,840 Celanese shares were issued to members of Celanese's
supervisory board as a part of their annual compensation. See "Item 6.
Directors, Senior Management & Employees -- Compensation."
As of December 31, 2003, members of the supervisory board and board of
management of Celanese as a group owned 123,607 Celanese ordinary shares and
stock options covering 225,000 ordinary shares under the 2002 Celanese Stock
Option Plan described above. This represented approximately 0.71 percent of all
outstanding shares. As of March 5, 2004 substantially all of the Celanese
ordinary shares held by members of the supervisory board and board of management
have been either tendered into the BCP Crystal offer or otherwise sold.
As part of its value based management approach, Celanese has supported
employee stock ownership. Celanese has therefore instituted a number of employee
stock purchase plans for employees who are not eligible to participate in the
incentive plans mentioned above. Under these employee stock purchase plans,
active employees who invest a defined amount of money in Celanese shares during
a limited period of time are entitled to receive a 35 percent rebate from
Celanese, based on the amount invested. Most United States employees also have
the option of making their investment directly through a broker or through the
Company Stock Fund that was established in April 2000 as a part of the Celanese
Americas Retirement Savings Plan. The Company Stock Fund invests primarily in
Celanese ordinary shares. As of December 31, 2003, approximately 3,000 employees
had purchased a total of approximately one million shares under these stock
purchase plans.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
MAJOR SHAREHOLDERS
The capital stock of Celanese consists of ordinary shares, no par value
(Stueckaktien), which are issued in registered form.
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Under the German Securities Trading Act (Wertpapierhandelsgesetz), holders
of voting securities of a German company listed on a stock exchange in the
European Union must notify the company and the German Federal Supervisory
Authority for Securities Trading (Bundesaufsichtsamt fuer den Wertpapierhandel)
of the level of their holding whenever it reaches, exceeds or falls below
specified thresholds. These thresholds are 5 percent, 10 percent, 25 percent, 50
percent and 75 percent of a company's outstanding voting rights.
The German Takeover Act (Wertpapiererwerbs- und Uebernahmegesetz), adds
another threshold at 30 percent of the voting rights of the company. Pursuant to
the Takeover Act, a person who directly or indirectly obtains control over a
listed company must promptly publish this fact and must within four weeks
following publication submit a mandatory public offer for the remaining
outstanding shares. The Takeover Act defines control in the meaning of this
requirement as the holding of at least 30 percent of the voting rights in the
relevant company.
The table below sets forth, as of March 5, 2004, the number of Celanese
ordinary shares held by holders of more than 5 percent of Celanese ordinary
shares and their percentage ownership based on 49,321,468 Celanese ordinary
shares outstanding as of December 31, 2003:
<Table>
<Caption>
IDENTITY OF PERSON OR GROUP SHARES OWNED PERCENT
--------------------------- ------------ -------
<S> <C> <C>
Kuwait Petroleum Corporation ("KPC")........................ 14,400,000 29.2%
FMR Corporation*............................................ 5,395,049 10.9%
First Pacific Advisors, Inc.+............................... 3,123,150 6.3%
</Table>
As a result of Celanese's share buy-back program that was completed in
April 2003, KPC's percentage ownership of outstanding shares increased from 28.8
percent to 29.2 percent by December 31, 2003. During 2003, FMR Corporation's
outstanding share ownership decreased from 5,853,817 shares or 11.7 percent to
5,395,049 shares or 10.9 percent. See "Item 5. Operating and Financial Review
and Prospects -- Market Risk," "Item 11. Quantitative and Qualitative
Disclosures About Market Risk."
As of December 31, 2003, Celanese had approximately 90,000 shareholders.
Approximately 9,000 of these shareholders were U.S. holders. Based on the share
register, it is estimated that 36 percent of Celanese outstanding shares were
held by U.S. holders as of this date. Unregistered positions, those
shareholdings held by depository banks on behalf of unregistered shareholders,
totaled 6.4 million shares or 13 percent of shares outstanding as of year end
2003.
Celanese has been informed that KPC, which is controlled by the Government
of Kuwait, had direct shareholdings representing approximately 29.2 percent of
the outstanding Celanese shares as of March 5, 2004. There is one KPC
representative serving as a shareholder representative on the supervisory board;
however, KPC does not have the voting power to ensure the election of its
representative to the supervisory board. KPC has the ability, as a matter of
German corporate law, to block some corporate actions by Celanese which are
subject to approval by shareholders at a meeting with a majority of 75 percent
of the votes cast or, as the case may be, 75 percent of the share capital
represented at the meeting. See "Item 6. Directors, Senior Management and
Employees."
On December 15, 2003, KPC entered into an agreement with BCP Crystal to
tender its 14,400,000 shares of Celanese in accordance with the terms of the BCP
Crystal offer. This agreement will terminate automatically if the BCP Crystal
offer is not completed by July 31, 2004.
---------------
* According to FMR Corporation's Schedule 13G filed with the Commission on
February 17, 2004, FMR Corporation and/or its subsidiaries hold sole voting
power over 995,821 shares and sole dispositive power over 5,395,049 shares of
Celanese.
+ According to First Pacific Advisors, Inc.'s Schedule 13G filed with the
Commission on February 12, 2004, First Pacific holds shared voting power over
1,304,450 shares and shared dispositive power over 3,123,150 shares of Celanese.
RELATED PARTY TRANSACTIONS
As part of Celanese's cash management strategy, affiliates invest surplus
funds with Celanese AG. These balances were E79 million and E96 million at
December 31, 2003 and 2002, respectively. As of March 5, 2004,
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short-term borrowings from affiliates were E84 million. Interest rates on these
borrowings were adjusted on a short-term basis to reflect market conditions. The
weighted average annual interest rates on these borrowings were 2.3 percent and
3.2 percent in 2003 and 2002, respectively.
Celanese has not entered into any material transactions in the last three
years in which any shareholder or member of its management or supervisory
boards, or any associate of any shareholder or member of its management or
supervisory boards has or had any interest. No shareholder or member of its
management or supervisory boards or associate of any shareholder or member of
its management or supervisory boards is or was during the last three years
indebted to Celanese. Dresdner Bank and its subsidiaries provided various
financial and investment advisory services to Celanese in 2003, for which they
were paid reasonable and customary fees. Alfons Titzrath, who had been Chairman
of the supervisory board of Dresdner Bank until May 2002, has been a shareholder
representative on Celanese AG's supervisory board since 1999.
Celanese entered into an agreement with Goldman, Sachs & Co. on December
15, 2003 (the "Goldman Sachs Engagement Letter"), pursuant to which Goldman
Sachs will act as its financial advisor in connection with the BCP Crystal
offer. Pursuant to the terms of the Goldman Sachs Engagement Letter, Celanese AG
has agreed to pay Goldman Sachs a financial advisory fee equal to E11,000,000
and a discretionary bonus of up to E4,000,000, both of which are contingent on
the consummation of the BCP Crystal offer. Celanese AG has agreed to reimburse
Goldman Sachs for all its reasonable expenses and to indemnify Goldman Sachs and
related persons against various liabilities. Kendrick R. Wilson, III, Vice
Chairman -- Investment Banking of Goldman Sachs has been a shareholder
representative on Celanese's supervisory board since 1999.
ITEM 8. FINANCIAL INFORMATION
See "Item 18. Financial Statements" and pages F-1 through F-57 for
Consolidated Financial Statements and Other Financial Information.
EXPORT SALES
In 2003, approximately E348 million or 24 percent of all U.S. sales and
approximately E838 million or 63 percent of all German sales were export sales.
LEGAL PROCEEDINGS
Celanese is involved in a number of legal proceedings and claims incidental
to the normal conduct of its businesses, relating to such matters as product
liability, tax assessments, competition, past waste disposal practices and
release of chemicals into the environment. See also Note 25 to the Consolidated
Financial Statements.
PLUMBING ACTIONS
CNA Holdings, Inc., a Delaware corporation ("CNA Holdings"), along with
Shell, DuPont and others, have been the defendants in a series of lawsuits
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 Ticona's acetal copolymer in similar
applications, CNA Holdings does not believe Ticona's acetal copolymer was
defective or caused the plumbing systems to fail. In many cases CNA Holdings'
exposure may be limited by invocation of the statute of limitations since Ticona
ceased selling the acetal copolymer for use in the plumbing systems in site
built homes during 1986 and in manufactured homes during 1990.
CNA Holdings has been named a defendant in ten putative class actions,
further described below, as well as a defendant in other non-class actions filed
in ten states, the U.S. Virgin Islands, and Canada. In these actions, the
plaintiffs typically have sought recovery for alleged property damages and, in
some cases, additional damages under the Texas Deceptive Trade Practices Act or
similar type statutes. Damage amounts have not been specified.
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o Class certification of recreational vehicle owners was denied by the
Chancery Court of Tennessee, Weakley County in July 2001, and cases are
proceeding on an individual basis.
o In April 2000, the U.S. District Court for the District of New Jersey
denied class certification for a putative class action (of insurance
companies with respect to subrogation claims). The plaintiffs' appeal to
the Third Circuit Court of Appeals was denied in July 2000, and the case
was subsequently dismissed. In September 2000 a similar putative class
action seeking certification of the same class that was denied in the New
Jersey matter was filed in Tennessee state court. The Tennessee court
denied certification in March 2002, and plaintiffs are attempting an
appeal. Cases are continuing on an individual basis.
o Of the four putative class actions pending in Canadian courts, one was
denied class certification, but is currently on appeal. Dupont and Shell
have each settled this matter and Shell's settlement agreement is
awaiting court approval. Celanese is reviewing its options as to how to
proceed.
o Certification has been denied in putative class actions pending in South
Carolina and Florida state courts. Although plaintiffs subsequently
sought to bring actions individually, they were dismissed and are on
appeal.
o The U.S. District Court for the Eastern District of Texas denied
certification of a putative class action in March 2002, and the Fifth
Circuit Court has upheld the dismissal.
o The court in a putative class action pending in the U.S. Virgin Islands
denied certification to a U.S. territories-wide class and dismissed
Celanese on jurisdictional grounds. Plaintiffs are seeking
reconsideration of those rulings.
o A putative nationwide class action was filed in federal court in December
2002 against, among others, CNA Holdings and Shell. CNA Holding's motion
to dismiss this lawsuit was granted in December 2003.
In order to reduce litigation expenses and to provide relief to qualifying
homeowners, in November 1995, CNA Holdings, DuPont and Shell entered into a
national class action settlement, which has been approved by the courts. The
settlement calls for the replacement of plumbing systems of claimants who have
had qualifying leaks, as well as reimbursements for specified leak damage.
Furthermore, the three companies have agreed to fund these replacements and
reimbursements up to U.S.$950 million (which now amounts to U.S.$1,073 million,
due to additional contributions and funding commitments of primarily other
parties). There are additional pending lawsuits in approximately 10
jurisdictions not covered by this settlement; however, these cases do not
involve (either individually or in the aggregate) a large number of homes and
management does not expect the obligations arising from these lawsuits to have a
material adverse effect on CNA Holdings.
In 1995, CNA Holdings and Shell settled the claims relating to individuals
in Texas, owning 110,000 property units, who are represented by a Texas law firm
for an amount not to exceed U.S.$170 million. These claimants are also eligible
for a replumb of their homes in accordance with terms similar to those of the
national class action settlement.
In addition, a lawsuit filed in November 1989 in Delaware Chancery Court,
between CNA Holdings and various of its insurance companies relating to all
claims incurred and to be incurred for the product liability exposure led to a
partial declaratory judgment in CNA Holdings' favor. As a result, settlements
have been reached with a majority of CNA Holdings' insurers specifying their
responsibility for these claims. However, in January 2000, CNA Holdings filed a
motion in Superior State Court in Wilmington, Delaware to set a trial date with
respect to this lawsuit against one insurer, asserting that the settlement is
void because the insurer refused to make the required "coverage in place"
payments to CNA Holdings. The insurer and CNA Holdings signed a settlement
agreement in June 2003.
Management believes that the plumbing actions are provided for in the
Consolidated Financial Statements and that they will not have a material adverse
effect on the financial position of Celanese. However, if Celanese were to incur
an additional charge for this matter, such a charge may have a material
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adverse effect on the results of operations or cash flows in any given
accounting period. No assurance can be given that Celanese's litigation reserves
will be adequate or that Celanese will fully recover claims under its insurance
policies.
SORBATES ANTITRUST ACTIONS
In 1998, Nutrinova Inc., a U.S. subsidiary of Nutrinova Nutrition
Specialties & Food Ingredients GmbH ("Nutrinova GmbH"), then a wholly-owned
subsidiary of Hoechst, received a grand jury subpoena from the United States
District Court for the Northern District of California in connection with a
criminal antitrust suit relating to the sorbates industry. In May 1999, Hoechst
and the U.S. Federal Government entered into an agreement under which Hoechst
pled guilty to a one-count indictment charging Hoechst with participating in a
conspiracy to fix prices and allocate market shares of sorbates sold in the
United States. Hoechst and the U.S. Federal Government agreed to recommend that
the U.S. District Court fine Hoechst US$36 million, payable over five years,
with the last payment of US$5 million due in June 2004. Hoechst also agreed to
cooperate with the U.S. Federal Government's investigation and prosecutions
related to the sorbates industry. The U.S. District Court accepted this plea in
June 1999 and imposed a penalty as recommended in the plea agreement.
Nutrinova and Hoechst have cooperated with the European Commission since
1998 in connection with matters relating to the sorbates industry. In May 2002,
the European Commission informed Hoechst of its intent to officially investigate
the sorbates industry, and in early January 2003, the European Commission served
Hoechst, Nutrinova and a number of competitors 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., 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 E138.4 million, of which E99 million was assessed against
Hoechst. The case against Nutrinova was closed. The fine against Hoechst is
based on the European Commission's finding that Hoechst does not qualify under
the leniency policy, is a repeat violator and, together with Daicel, was a
co-conspirator. In Hoechst's favor, the European Commission gave a discount for
cooperating in the investigation. Hoechst appealed the European Commission's
decision in December 2003.
In addition, several civil antitrust actions by sorbates customers, seeking
monetary damages and other relief for alleged conduct involving the sorbates
industry, have been filed in U.S. state and federal courts naming Hoechst,
Nutrinova, and other Celanese subsidiaries, as well as other sorbates
manufacturers, as defendants. Many of these actions have been settled and
dismissed by the court. Two private actions are still pending in state courts in
Tennessee and New Jersey.
In July 2001, Hoechst and Nutrinova entered into an agreement with the
attorneys general of 33 states, pursuant to which the statutes of limitations
were tolled pending the states' investigations. This agreement expired in July
2003. Since October 2002, the attorneys general for New York, Illinois, Ohio,
Utah and Idaho filed suit on behalf of indirect purchasers in their respective
states. The Utah, Nevada and Idaho actions have been dismissed as to Hoechst,
Nutrinova and Celanese. The Ohio action has been settled and is awaiting court
approval. The New York and Illinois actions are in the early stages of
litigation. Since the fall of 2002, the attorneys general of Connecticut,
Florida, Nevada, South Carolina, Oregon and Washington gave notice of intent to
take legal action against sorbates manufacturers. Hoechst, Nutrinova, and the
other sorbates manufacturers are in the process of settling any claims from
these six attorneys general as well as those from Hawaii and Maryland, although
an affiliate of Aventis has received a request for information from the Attorney
General of Puerto Rico concerning sorbates.
Although the outcome of the foregoing proceedings and claims cannot be
predicted with certainty, Celanese believes that any resulting liabilities, net
of amounts recoverable from Hoechst, will not, in the aggregate, have a material
adverse effect on Celanese's financial position, but may have a material adverse
effect on the results of operations or cash flows in any given period. In the
demerger agreement, Hoechst
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agreed to pay 80 percent of liabilities that may arise from the government
investigation and the civil antitrust actions related to the sorbates industry.
ACETIC ACID PATENT INFRINGEMENT MATTERS
On February 7, 2001, Celanese filed a private criminal action for patent
infringement against certain employees of China Petrochemical Development
Corporation, or CPDC, in the Taiwan Kaohsiung District Court. Celanese is
alleging that CPDC's employees infringed its ROC Patent No. 27572 covering the
manufacture of acetic acid. On February 16, 2001, Celanese filed a Supplementary
Civil Brief in the same court alleging damages against CPDC in the amount of
about U.S.$450 million based on a period of infringement of 10 years, 1991-2000,
and based on CPDC's own data and as reported to the Taiwanese securities and
exchange commission. The Celanese ROC patent was held valid by the Taiwanese
Patent Office on March 8, 2001, after 14 months of legal proceedings before the
patent office based on two cancellation actions by CPDC. In view of the recent
changes in the Taiwanese patent laws, the supplementary civil action has been
converted into an independent civil action, and the amount of damages claimed by
Celanese has been reassessed at U.S. $35 million. This action is still pending.
DIVIDEND POLICY
The payment and amount of any dividends depends on Celanese's current and
future earnings, cash flow, financial condition and other factors. Dividends are
subject to recommendation by the Celanese supervisory board and board of
management and the approval of the shareholders at Celanese's annual general
meeting. Under German law, dividends are payable only out of unappropriated
retained earnings as shown in the unconsolidated annual financial statements of
Celanese AG, as adopted and approved by resolutions of the Celanese board of
management and the Celanese supervisory board, not from the consolidated profits
of Celanese.
Holders of record of Celanese ordinary shares on the date of the general
meeting of shareholders at which a dividend is declared are entitled to receive
the dividend, less any amounts required to be withheld on account of taxes or
other governmental charges. Cash dividends payable to holders of ordinary shares
will be distributed by Deutsche Bank AG as paying agent. In Germany, the payment
will be made to the holder's depot bank or other institution holding the shares
for the shareholder which will credit the payment to the shareholder's account.
For purposes of distribution in the United States, the dividend will be paid to
Mellon Investor Services as U.S. transfer agent. For shareholders in the United
States, the payment will be converted from euro into U.S. dollars. The U.S.
dollar amounts of dividends received by holders of ordinary shares may be
affected by fluctuations in exchange rates. See "Item 3. Key
Information -- Exchange Rate Information."
Although Celanese declared a dividend of E0.44 per share for the year 2002
at its annual general meeting on April 1, 2003, there can be no assurance as to
the payment of dividends or their particular amounts in future years. The
management of Celanese has indicated that in determining the dividend policy of
Celanese, it will consider what portion of the cash flow generated by Celanese
should be paid as dividends and what portion should be used in other ways to
enhance shareholder value, such as through share repurchases, reduction of debt
or capital investments. BCP Crystal has stated in its tender offer document,
that it intends to prevent, to the extent permitted by law, any dividend on the
Celanese shares for the fiscal year ended 2003 from being distributed to
Celanese shareholders. If the offer succeeds, it cannot be predicted whether
Celanese will pay dividends or conduct share buybacks in the future. See "Item
5. Operating and Financial Review and Prospects."
ITEM 9. THE OFFER AND LISTING
NATURE OF TRADING MARKET
In connection with the demerger, the Celanese shares were listed on the
Frankfurt Stock Exchange and on the New York Stock Exchange. Since the Celanese
shares are in registered form, they were listed directly on the New York Stock
Exchange without the creation of a depositary receipt facility. The Celanese
shares trade on the New York Stock Exchange under the symbol "CZ" and on the
Frankfurt Stock Exchange under
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the symbol "CZZ", under the German securities code number (Wertpapierkennnummer)
575 300 and under the International Securities Identification Number DE
0005753008.
The transfer agents for Celanese ordinary shares are registrar services
GmbH in Germany, or the Transfer Agent, and Mellon Investor Services in the
United States, or the U.S. Transfer Agent.
TRADING ON THE FRANKFURT STOCK EXCHANGE
The Frankfurt Stock Exchange, which is operated by Deutsche Boerse AG, is
the most significant of the eight German stock exchanges and accounted for
approximately 96 percent of the turnover in exchange-traded shares in Germany in
2003. As of December 31, 2003, the equity securities of 5,730 corporations,
including 4,901 foreign corporations, were traded on the Frankfurt Stock
Exchange.
Trading on the floor of the Frankfurt Stock Exchange begins every business
day at 9:00 a.m. and ends at 8:00 p.m., Central European Time. Securities listed
on the Frankfurt Stock Exchange are generally traded in the auction market, but
they also change hands in interbank dealer markets.
On behalf of the Frankfurt Stock Exchange, the Association of Members of
the Frankfurt Stock Exchange (Kursmaklerkammer Frankfurt am Main) publishes an
official daily list of quotations (Amtliches Kursblatt) containing the fixed
prices as well as the yearly high and low prices for all traded securities.
A computerized trading system known as Xetra is operated by Deutsche
Boerse. Trading may be conducted only by banks and securities dealers who have
been admitted to trading on at least one German stock exchange. Trading through
the Xetra system takes place from 9:00 a.m. to 8:00 p.m., Central European Time,
on each business day. Celanese shares are traded through the Xetra system.
Transactions on the Frankfurt Stock Exchange, including transactions
through the Xetra system, are settled on the second business day following the
trade. Transactions off the Frankfurt Stock Exchange, such as large trades or
trades with a non-German party, are generally also settled on the second
business day following the trade, although a different period may be agreed to
by the parties. Under the German banks' standard terms and conditions for
securities transactions, customers' orders for listed securities must be
executed on a stock exchange unless the customer gives specific instructions to
the contrary.
A quotation can be suspended by the Frankfurt Stock Exchange if orderly
trading is temporarily endangered or if a suspension is deemed to be necessary
in order to protect the public. Trading activities on the German stock exchanges
are monitored by the German Federal Supervisory Authority for Securities Trading
(Bundesaufsichtsamt fuer den Wertpapierhandel), the respective German state
stock exchange supervisory authorities and the respective supervisory
authorities for securities trading at the individual stock exchanges.
On October 16, 2002, the Frankfurt Stock Exchange adopted principles
relating to a new equity market segmentation, which went into effect on January
1, 2003. Companies admitted to the General Standard segment must meet the
requirements set forth under German law. Companies admitted to the Prime
Standard segment, including Celanese, must meet higher, internationally accepted
transparency standards, such as financial reporting in accordance with an
internationally accepted financial reporting standard, in addition to the German
legal requirements.
Celanese shares have been included in the M-DAX index since March 20, 2000.
The M-DAX is a continuously updated performance index of the lower 50 of the top
80 German highly capitalized companies. The shares included in the M-DAX are, in
principle, selected on the basis of their stock exchange turnover and their
market capitalization and must comply with the Prime Standard requirements. In
June 2002, the M-DAX switched from a market capitalization-based to a free
float-weighted performance scale to determine the relative weight of the shares.
Celanese did not experience any material change to the weight of its shares in
the M-DAX as a result of this change. Institutional funds that invest in indices
like the M-DAX (so called "Index Funds") are required to hold Celanese ordinary
shares to match the performance of the M-DAX. If the BCP Crystal offer is
successful, Celanese ordinary shares may be excluded from the M-DAX. The Index
Funds that still hold Celanese ordinary shares after the successful consummation
of the offer will therefore likely sell these shares in the open market.
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Celanese shares have been included in the Dow Jones Euro STOXX(SM) 600
index since the end of September 2001. This index includes the 600 largest
European companies ranked by free float market capitalization and is reviewed
quarterly. Celanese has also been part of the Morgan Stanley International Small
Cap Indexes (MSCI Germany Small Cap, MSCI Europe Small Cap, MSCI World Small
Cap) since May 2002. These indices are reviewed quarterly as well.
The tables below set forth, for the periods indicated, the high and low
sales prices on the Xetra System for Celanese ordinary shares from October 25,
1999, the first day on which Celanese ordinary shares officially traded on the
Xetra System, as reported by that exchange.
<Table>
<Caption>
PRICE PER
ORDINARY SHARE
---------------
HIGH LOW
------ ------
(IN E)
<S> <C> <C>
Annual Highs and Lows
1999 (from October 25, 1999)................................ 18.43 14.20
2000........................................................ 25.25 16.50
2001........................................................ 28.00 14.91
2002........................................................ 27.75 15.70
2003........................................................ 32.61 12.51
Quarterly Highs and Lows
2002
First Quarter............................................. 25.05 16.00
Second Quarter............................................ 27.75 20.35
Third Quarter............................................. 24.29 16.74
Fourth Quarter............................................ 24.15 15.70
2003
First Quarter............................................. 22.52 12.51
Second Quarter............................................ 22.10 15.70
Third Quarter............................................. 31.88 20.52
Fourth Quarter............................................ 32.61 25.99
2004
First Quarter (through March 5, 2004)..................... 33.00 32.14
</Table>
<Table>
<Caption>
PRICE PER
ORDINARY SHARE
---------------
HIGH LOW
------ ------
(IN E)
<S> <C> <C>
Monthly Highs and Lows
2003
July...................................................... 25.28 20.52
August.................................................... 29.30 24.00
September................................................. 32.98 26.94
October................................................... 30.57 26.10
November.................................................. 30.35 25.51
December.................................................. 33.50 27.71
2004
January................................................... 32.70 32.14
February.................................................. 33.00 32.21
March (through March 5, 2004)............................. 32.40 32.20
</Table>
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Based on turnover statistics supplied by both the Frankfurt Stock Exchange
and Xetra, the average daily volume of Celanese ordinary shares traded between
January 1, 2003 and December 31, 2003 was 6,460 on the Frankfurt Stock Exchange
and 136,606 on Xetra.
On March 5, 2004 the closing sales price per Celanese ordinary share on the
Xetra System was E32.27, which was equivalent to U.S.$40.02 per ordinary share,
translated at the Noon Buying Rate for euro on such date. See the discussion
under "Item 3. Key Information -- Exchange Rate Information" with respect to
rates of exchange between the dollar and the euro.
TRADING ON THE NEW YORK STOCK EXCHANGE
Official trading of Celanese ordinary shares on the New York Stock Exchange
commenced on October 25, 1999.
The following tables set forth, for the periods indicated, the high and low
sales prices per Celanese ordinary share, as reported on the New York Stock
Exchange Composite Tape.
<Table>
<Caption>
PRICE PER
ORDINARY SHARE
---------------
HIGH LOW
------ ------
(IN U.S. $)
---------------
<S> <C> <C>
Annual Highs and Lows
1999 (from October 25, 1999)................................ 19.00 14.88
2000........................................................ 24.56 14.88
2001........................................................ 23.76 13.91
2002........................................................ 25.52 15.74
2003........................................................ 40.90 14.59
Quarterly Highs and Lows
2002
First Quarter............................................. 22.30 20.78
Second Quarter............................................ 25.52 19.70
Third Quarter............................................. 23.65 16.80
Fourth Quarter............................................ 23.58 15.74
2003
First Quarter............................................. 23.07 14.59
Second Quarter............................................ 25.78 17.48
Third Quarter............................................. 36.20 23.84
Fourth Quarter............................................ 40.90 30.57
2004
First Quarter (through March 5, 2004)..................... 42.01 39.05
</Table>
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<Table>
<Caption>
PRICE PER
ORDINARY SHARE
---------------
HIGH LOW
------ ------
(IN U.S. $)
---------------
<S> <C> <C>
Monthly Highs and Lows
2003
July...................................................... 28.20 23.84
August.................................................... 31.45 27.80
September................................................. 36.20 29.90
October................................................... 35.29 30.71
November.................................................. 35.21 30.57
December.................................................. 40.90 34.26
2004
January................................................... 41.76 39.67
February.................................................. 42.01 40.03
March (through March 5, 2004)............................. 40.48 39.05
</Table>
On March 5 2004, the closing sales price per Celanese ordinary share on the
New York Stock Exchange as reported on the New York Stock Exchange Composite
Tape was U.S.$39.80.
BCP Crystal has indicated in its offer document that, if the offer is
successful, it will seek to delist Celanese ordinary shares from the New York
Stock Exchange, and, depending on the level of acceptance of the offer, may also
apply to revoke the admission of Celanese ordinary shares to the Frankfurt Stock
Exchange. Even if the Celanese ordinary shares are not delisted, the acquisition
of the Celanese ordinary shares by BCP Crystal will substantially reduce the
number of Celanese shareholders. Therefore, following consummation of the offer,
there may no longer be an active public trading market for the Celanese ordinary
shares.
ITEM 10. ADDITIONAL INFORMATION
ARTICLES OF ASSOCIATION
ORGANIZATION AND REGISTER
Celanese AG is a stock corporation organized in the Federal Republic of
Germany under the Stock Corporation Act (Aktiengesetz). It is registered in the
Commercial Register (Handelsregister) maintained by the local court in
Koenigstein im Taunus, Germany, under the entry number HRB 5277.
OBJECTS AND PURPOSES
Section 2 of Celanese AG's Articles of Association states that the company
directs, as a holding company, a group of companies which conduct business, in
particular, in the areas of chemicals and plastics. In addition, the company may
conduct business itself in these or other areas. It is entitled to take all
actions and measures which relate to or which otherwise directly or indirectly
serve its objectives. Celanese AG may also form, acquire or participate in
enterprises, or bring them together under common control, in particular with
regard to enterprises operating in the areas of chemicals and plastics. It is
entitled, mainly for investment purposes, to acquire interests in all kinds of
enterprises. With regard to group companies and other enterprises in which it
holds an interest, Celanese AG may restrict itself to the administration of its
interests, as well as dispose of them.
MANAGEMENT AND SUPERVISORY BOARDS
In carrying out their duties, members of both the Celanese board of
management and the Celanese supervisory board must exercise the standard of care
of a prudent and diligent businessperson. Both the members of the Celanese board
of management and the members of the Celanese supervisory board owe a duty of
loyalty and care to Celanese, and must act only in the interest of Celanese and
not in his or her own or
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any third party's interest. The interests of Celanese are deemed to include the
interests of the shareholders, the interests of the work force and, to some
extent, the common interest, and both the Celanese board of management and the
Celanese supervisory board must take all these interests into account when
taking actions or making decisions.
INTERESTED PARTY TRANSACTIONS; LOANS TO BOARD MEMBERS; COMPENSATION
According to the German Stock Corporation Act, the Celanese supervisory
board shall represent the interests of the company in the event Celanese enters
into a transaction or contract with a member of its board of management. Any
service or consulting agreement between the company and a member of its
supervisory board must be approved by a resolution of the supervisory board.
Further, a member of the management or supervisory board may not participate in
any resolution that involves a transaction between Celanese and the member, nor
the institution or settlement of legal proceedings between Celanese and the
member. A member of the management or supervisory board who is also a
shareholder may not vote his or her shares on any matter that concerns
ratification of his or her own acts or the release of his or her obligations.
Although the German Stock Corporation Act permits companies to grant certain
loans to members of its supervisory board, board or management, or other
executives, as well as to the families of these individuals with supervisory
board approval, the rules of procedure of the Personnel and Compensation
Committee of Celanese's supervisory board may permit the approval of such loans
only if they would not violate U.S. law. Celanese is in compliance with the
provisions of the U.S. Sarbanes-Oxley Act restricting loans to executive
officers and directors, which explicitly precludes the granting of such loans.
Compensation of supervisory board members requires shareholder approval.
AGE LIMIT
Celanese AG's Articles of Association do not mandate the retirement of
directors under an age limit requirement. However, the rules of the procedure
for the supervisory board's personnel and compensation committee prohibit the
proposal of candidates for the board of management and the supervisory board who
have reached the ages of 65 and 70, respectively.
SHARE OWNERSHIP REQUIREMENT
Celanese AG's Articles of Association do not require members of its
supervisory board and board of management to be shareholders in the company.
However, Celanese encourages management to purchase Celanese shares by offering
members of its board of management and executives worldwide the right to
participate in an equity participation plan that requires the investment of a
defined amount of money in Celanese shares over a one or two year period since
its introduction in 1999. Members of the Celanese board of management have
committed to hold their Celanese shares for at least as long as they are members
of the board of management; however, as a result of a waiver granted by the
supervisory board's personnel and compensation committee, this would not
prohibit board of management members from tendering their shares pursuant to the
BCP Crystal offer. Furthermore, Celanese may pay up to half of its supervisory
board's fixed annual compensation in Celanese shares, provided it has shares
available for this purpose.
See also "Item 6. Directors, Senior Management and Employees" for further
information about the supervisory and board of management.
ORDINARY SHARES
The share capital of Celanese AG consists of E140,069,354 divided into
54,790,369 ordinary shares of no par value issued in registered form, of which
5,468,901 ordinary shares are held by the company as treasury stock as of
December 31, 2003. Record holders of ordinary shares are registered in Celanese
AG's share register (Aktienregister). The share register is administered on
behalf of Celanese AG by registrar services GmbH, as transfer agent and
registrar in Germany and by Mellon Investor Services as transfer agent and
registrar in the United States.
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Celanese AG also has E6,391,148 in contingent capital. The contingent
capital may only be used to grant stock options to members of the boards of
management and other senior managers of Celanese AG and its subsidiaries.
DIVIDENDS
The board of management prepares and the supervisory board approves the
financial statements for each fiscal year, and both boards recommend the
disposition of all unappropriated retained earnings for approval by shareholders
at the annual general meeting, including the amount of net profits to be
distributed as a dividend. Owners of Celanese AG ordinary shares on the date of
the annual general meeting of shareholders at which a dividend is declared are
entitled to receive the dividend. Under German law, dividends are payable only
out of unappropriated retained earnings as shown in the unconsolidated annual
financial statements of Celanese AG as adopted and approved by resolutions of
the Celanese board of management and the Celanese supervisory board, not from
the consolidated profits of Celanese.
Dividends are paid to shareholders in proportion to their ownership of the
outstanding capital stock. However, in the event of an increase in capital, the
Articles of Association permit the participation of the new shares in the
profits of Celanese AG to be determined differently from that set forth in
Section 60 of the German Stock Corporation Act, which governs the allocation of
dividends.
VOTING RIGHTS
Each ordinary share entitles the owner to one vote at the general meeting.
Cumulative voting is not permitted under German law. Celanese AG's Articles of
Association provide that all resolutions of the general meeting may be passed by
a simple majority of votes cast and, if a majority of capital is required, by a
simple majority of the share capital represented in the meeting unless otherwise
mandatorily required by law. German law mandatorily requires that the following
matters, among others, be approved by the affirmative vote of 75 percent of the
issued shares present at the shareholders' meeting at which the matter is
proposed:
o Changing the objects and purposes provision in the articles of
association,
o Capital decreases,
o Capital increases in the form of authorized and conditional capital,
o Excluding preemptive rights of shareholders to subscribe for new shares,
o Dissolution,
o A merger into, or a consolidation with, another stock corporation, and
o A transfer of all or virtually all of the assets.
SUPERVISORY BOARD TERMS
The terms of the Celanese AG supervisory board members conclude at the
termination of the annual general meeting that votes on the ratification of
their acts for the fourth business year following the commencement of their term
of office, not counting the business year in which that term begins.
Shareholders at the annual general meeting may elect the shareholders'
representatives to the supervisory board to a shorter term. Supervisory board
members may also be re-elected.
LIQUIDATION
If Celanese AG were to be liquidated, any liquidation proceeds remaining
after all of its liabilities were paid would be distributed to its shareholders
in proportion to their share holdings.
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CAPITAL INCREASES
The share capital may be increased in consideration of contributions in
cash or in kind, or by establishing authorized capital or contingent capital.
Authorized capital provides the board of management with the flexibility to
issue new shares up to a maximum of 50 percent of the company's stated capital
for a period of up to five years. Contingent capital allows the board of
management to issue new shares up to a maximum of 50 percent of the company's
stated capital for specified purposes, including mergers and the issuance of
shares for convertible bonds. In the case of issuing new shares for employee
stock option plans no more than 10 percent of the company's stated capital may
be authorized. Capital increases require an amendment of the Articles of
Association approved, in the case of an increase in authorized or contingent
capital, by 75 percent of the issued shares present at the shareholders' meeting
at which the increase is proposed. The board of management must also obtain the
approval of the supervisory board before issuing new shares out of authorized
capital. Celanese AG's Articles of Association currently contain provisions for
contingent capital, but not for authorized capital; nor do they contain
conditions regarding changes in the share capital that are more stringent than
the law requires.
REDEMPTION
The share capital may be reduced by an amendment of the Articles of
Association approved by 75 percent of the issued shares present at the
shareholders' meeting. Shareholders may also authorize the board of management
for a period of up to 18 months to repurchase up to 10 percent of the issued and
outstanding shares for a specific purpose, such as employee share or option
grants or the cancellation of shares as may be authorized by the shareholders.
Such repurchase authorizations require approval by 50 percent of the issued
shares present at the shareholders' meeting unless the repurchased shares are to
be used in such a way that excludes shareholder subscription rights, in which
case a majority of 75 percent of the issued shares present is required.
CHANGES IN SHAREHOLDER RIGHTS
As a general rule, changes in shareholder rights require approval of all
the shareholders affected. However, for some changes in shareholder rights (such
as changes in the preferential rights of preferred shares), the law only
requires a resolution to be passed by a specific majority of the affected
shareholders present at a general meeting. In addition to such approval from the
shareholders affected, the articles of association must be amended by a
resolution of the majority of the share capital represented at the meeting.
SHAREHOLDER MEETINGS
German law requires a company's annual general meeting to be held within
the first eight months of each fiscal year. The board of management, supervisory
board, or shareholders owning an aggregate amount of at least 5 percent of the
issued shares may call a meeting of shareholders. There is no minimum quorum
requirement for shareholder meetings. Among other things, the annual general
meeting is asked to approve the appointment of an independent auditor, ratify
the actions of the management and supervisory boards during the prior year,
approve the disposition of unappropriated profit, and, in certain instances,
approve the annual accounts.
According to Celanese AG's Articles of Association, shareholders listed in
the shareholder register as of the date of the general meeting and who have
indicated their desire to attend the general meeting no later than seven days
prior to the meeting (unless a different period is prescribed by the board of
management) are entitled to attend and vote at the meeting. Shareholders may
also vote by proxy. Unless such proxies are granted to a credit institute or
shareholders' association, they may be submitted by mail, telefax, or electronic
media, as determined by the board of management and set forth in the invitation
to the meeting.
The Articles of Association delegate the responsibility for determining the
order of agenda items, as well as the manner, form and order of voting, to the
chairman of the meeting. The chairman may also allow the transmission of the
general meeting as well as the participation in the general meeting, voting, or
the exercise
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of other shareholders' rights, in each case either directly or by proxy, by
electronic or other media, as permitted by law.
Amendments to Celanese AG's Articles of Association may be proposed either
by the supervisory board and the board of management, or by a shareholder or
group of shareholders holding at least 195,583 shares.
NO LIMITATION ON FOREIGN OWNERSHIP
There are no limitations under German law or in Celanese AG's Articles of
Association on the right of persons who are not citizens or residents of Germany
to hold or vote ordinary shares in Celanese AG.
CHANGE IN CONTROL
There are no provisions in the Articles of Association that would have an
effect of delaying, deferring or preventing a change in control of Celanese AG
and that would only operate with respect to a merger, acquisition or corporate
restructuring involving it or any of its subsidiaries. German law does not
specifically regulate business combinations with interested shareholders.
However, general principles of German law may restrict business combinations
under some circumstances.
The German Takeover Act (Wertpapiererwerbs- und Uebernahmegesetz), which
became effective on January 1, 2002, standardizes the rules applicable to public
bids for the shares in German public stock corporations. The German Takeover Act
includes, among other things, a set of definitive rules applying to the
company's action in the case of a hostile takeover situation. As a general rule,
the board of management is obliged to remain neutral in such circumstances.
However, the board of management is allowed to proceed with actions which a
prudent (ordentlicher) and conscientious manager of a company, which is not
subject of a takeover offer, would have taken and, additionally, to seek
alternative offers from third parties. Any other actions of the board of
management which may have a negative impact on the takeover, require either the
approval by the shareholders or the consent of the supervisory board. Approvals
by the shareholders may either be granted by an extraordinary general meeting
called in connection with the hostile takeover bid or by way of shelf
resolutions passed before the commencement of such bid. However, such a shelf
resolution is limited to a maximum period of 18 months and requires a three
quarters majority of the present share capital in the general meeting.
DISCLOSURE OF SHAREHOLDINGS
The disclosure of shareholdings is governed by the German Securities
Trading Act (Wertpapierhandelsgesetz) and the German Takeover Act. Celanese AG
also complies with the disclosure requirements of the German Corporate
Governance Code.
The German Securities Trading Act requires holders of voting securities of
a company whose shares are listed on a stock exchange to notify the company and
the German Federal Supervisory Authority for Securities Trading
(Bundesaufsichtsamt fuer den Wertpapierhandel) of the number of shares they hold
if that number reaches, exceeds or falls below 5 percent, 10 percent, 25
percent, 50 percent and 75 percent of the company's outstanding voting rights.
Moreover, the German Securities Trading Act requires the board of management to
publish this information promptly.
The German Takeover Act requires any person who directly or indirectly
obtains control over a listed company to publish this fact promptly and submit a
mandatory tender offer for the outstanding shares within four weeks following
the publication. The Takeover Act defines control in the meaning of this
requirement as the holding of at least 30 percent of the voting rights in the
relevant company. See "Item 7. Major Shareholders and Related Party
Transactions."
The German Corporate Governance Code requires members of the board of
management and supervisory board to disclose to the company promptly the
purchase and sale of shares in the company or its consolidated subsidiaries, as
well as options or other instruments thereof. The company must publish this
information promptly thereafter in a suitable electronic information system or
in at least one official stock exchange gazette.
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MATERIAL CONTRACTS
As of September 26, 2002, Madionova GmbH, a wholly-owned subsidiary of
Celanese AG, entered into a Master Purchase Agreement with Clariant
International AG to purchase Clariant's European, U.S. and Canadian emulsions
business and seller's worldwide emulsion powders business, excluding Japan,
including Clariant's emulsions and emulsion powders plants in Frankfurt am Main,
Germany, Tarragona, Spain, Perstorp, Sweden, and Koper, Slovenia. The business
was acquired for a purchase price of CHF 213.5 million (E147 million) and closed
on December 31, 2002. For further information on the acquisition, see "Item 4.
Information on the Company -- Acquisitions and Divestitures", as well as Note 7
to the Consolidated Financial Statements.
EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
The euro is a fully convertible currency. There are, except in limited
embargo circumstances, no legal restrictions in Germany on international capital
movements and foreign exchange transactions. For statistical purposes only,
every individual or corporation residing in Germany must report to the German
Central Bank (Deutsche Bundesbank), any payment (other than those for the import
or export of goods or the payment or repayment of short term loans and deposits)
received from or made to an individual or a corporation resident outside Germany
if such payment exceeds E12,500 or the equivalent in a foreign currency. In
addition, German residents must report any claims against or any liabilities
payable to non-residents if such claims or liabilities, in the aggregate, exceed
E5 million or the equivalent in a foreign currency during any one month. German
residents must also report any direct investment outside Germany if such
investment exceeds 10 percent of the total investment (unless such investment is
in a company having total assets of less than E3 million).
Neither German law nor the Articles of Association of Celanese impose any
limitations on the right of non-resident or non-German owners to hold or vote
the Celanese shares.
TAXATION
The following is a discussion of material United States federal income and
German tax consequences to Qualified Holders holding Celanese shares. This
discussion is based upon existing United States federal income and German tax
law, including legislation, regulations, administrative rulings and court
decisions, as in effect on the date of this Annual Report, all of which are
subject to change, possibly with retroactive effect. For purposes of this
discussion, in general, a "Qualified Holder" means a beneficial owner of
Celanese shares that (1) is a resident of the United States for purposes of the
United States-Germany Income Tax Treaty (the "Income Tax Treaty"), which
generally includes an individual United States resident, a corporation created
or organized under the laws of the United States, any state thereof or the
District of Columbia and a partnership, estate or trust, to the extent its
income is subject to taxation in the United States as the income of a United
States resident, either in its hands or in the hands of its partners or
beneficiaries, (2) does not hold Celanese shares as part of the business
property of a permanent establishment located in Germany or as part of a fixed
base of an individual located in Germany and used for the performance of
independent personal services, (3) if not an individual, is not subject to the
limitation on benefits restrictions in the Income Tax Treaty and (4) owns,
directly or indirectly, less than 10 percent of the outstanding Celanese shares.
This discussion assumes that the Qualified Holder holds Celanese shares as a
capital asset. This discussion does not address all aspects of United States
federal income and German taxation that may be relevant to all Qualified Holders
in light of their particular circumstances, such as Qualified Holders whose
shares were acquired under the exercise of an employee stock option or otherwise
as compensation or Qualified Holders who are subject to special treatment under
United States federal income tax laws, for example, financial institutions,
insurance companies, tax-exempt organizations and broker-dealers. This
discussion also does not address any aspects of state, local or non-United
States tax law.
EACH QUALIFIED HOLDER IS STRONGLY URGED TO CONSULT HIS OR HER TAX ADVISORS
AS TO THE UNITED STATES FEDERAL INCOME AND GERMAN TAX CONSEQUENCES OF HOLDING
CELANESE SHARES, INCLUDING THE PARTICULAR FACTS AND
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CIRCUMSTANCES THAT MAY BE UNIQUE TO SUCH QUALIFIED HOLDER, AND AS TO ANY OTHER
TAX CONSEQUENCES OF HOLDING CELANESE SHARES.
TAXATION OF DIVIDENDS
Under German law, German corporations are required to withhold tax on
dividends distributed in 2003 out of prior years profits in an amount equal to
20 percent of the gross amount paid to resident and nonresident shareholders.
Subject to limitations, a partial refund of this 20 percent withholding tax can
be obtained by Qualified Holders under the Income Tax Treaty. Qualified Holders
are generally subject to United States federal income tax on dividends paid by
German corporations. Subject to applicable limitations of United States federal
income tax law, Qualified Holders may be able to claim a foreign tax credit for
German withholding tax on dividends.
In the case of any Qualified Holder, the German withholding tax on
dividends paid in 2003 is partially refunded under the Income Tax Treaty,
effectively reducing the withholding tax to 15 percent of the gross amount of
the dividend. Qualified Holders are not entitled to the dividends received
deduction for United States federal income tax purposes with respect to
dividends paid by non-United States corporations.
Thus, for each U.S.$100 of gross dividend paid by Celanese in 2003 to a
Qualified Holder, the dividend after partial refund of the 20 percent
withholding tax under the Income Tax Treaty will be subject to a German
withholding tax of U.S.$15. Thus, for each U.S.$100 of gross dividend, the
Qualified Holder will include U.S.$100 in gross income and may be entitled to a
foreign tax credit of U.S.$15, subject to applicable limitations of United
States federal income tax law.
Dividends paid in euro to a Qualified Holder of Celanese shares will be
included in income in a U.S. dollar amount calculated by reference to the
exchange rate in effect on the date the dividends (including any deemed refund
of German corporate tax) are received or treated as received by such holder. If
dividends paid in euro are converted into dollars on the date received or
treated as received, Qualified Holders generally should not be required to
recognize foreign currency gain or loss in respect of each dividend.
A surtax on the German withholding tax is currently levied on dividend
distributions paid by a German resident company. The rate of this surtax is 5.5
percent, which is 1.1 percent (5.5 percent x 20 percent) of the gross dividend
amount. Under the Income Tax Treaty, Qualified Holders are entitled to a full
refund of this surtax.
REFUND PROCEDURES
To claim the refund reflecting the current reduction of the German
withholding tax from 20 percent to 15 percent, and the refund of the 5.5 percent
German surtax, when applicable, a Qualified Holder must submit a claim for
refund to the German tax authorities, with the original bank voucher (or
certified copy thereof) issued by the paying entity documenting the tax withheld
within four years from the end of the calendar year in which the dividend is
received. Claims for refunds are made on a special German claim for refund form,
which must be filed with the German tax authorities: Bundesamt fuer Finanzen,
Friedhofstrasse 1, 53225 Bonn, Germany. The German claim for refund forms may be
obtained from the German tax authorities at the same address where the
applications are filed or from the Embassy of the Federal Republic of Germany,
4645 Reservoir Road, N.W., Washington, D.C. 20007-1998.
Qualified Holders must also submit to the German tax authorities
certification of their last filed United States federal income tax return. That
certification is obtained from the office of the Director of the Internal
Revenue Service Center by filing a request for the certification with the
Internal Revenue Service's Philadelphia Service Center, Foreign Certification
Request, P.O. Box 16347, Philadelphia, PA 19114-0447. Requests for certification
are to be made in writing and must include the Qualified Holder's name, social
security number or employer identification number, tax return form number and
tax period for which certification is requested. The Internal Revenue Service
("IRS") will send the certification directly to the German tax authorities if
the Qualified Holder authorizes the IRS to do so. This certification is valid
for three years and need only be resubmitted in a fourth year in the event of a
subsequent application for refund.
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In accordance with arrangements under the Sub-Agency Agreement between the
Transfer Agent and the U.S. Transfer Agent relating to Celanese shares traded in
the United States, the Celanese shares held by Qualified Holders will be
registered with the U.S. Transfer Agent, which will receive and distribute
dividends to Qualified Holders of Celanese shares and perform administrative
functions necessary to claim the refund reflecting the current reduction in
German withholding tax from 20 percent to 15 percent, and the refund of the 5.5
percent German surtax, when applicable, for such Qualified Holders. These
arrangements may be amended or revoked at any time in the future.
The U.S. Transfer Agent will prepare the German claim for refund forms on
behalf of the Qualified Holders of Celanese shares and file them with the German
tax authorities. In order for the U.S. Transfer Agent to file the claim for
refund forms, the U.S. Transfer Agent will prepare and mail to the Qualified
Holders of those Celanese shares, and those holders will be requested to sign
and return to the U.S. Transfer Agent, (i) a statement authorizing the U.S.
Transfer Agent to perform these procedures and agreeing that the German tax
authorities may inform the IRS of any refunds of German taxes and (ii) a written
authorization to remit the refund of withholding to an account other than that
of the Qualified Holder. Qualified Holders must also submit to the U.S. Transfer
Agent certification of their last filed United States federal income tax return.
The U.S. Transfer Agent will attach the signed statement, the certification and
the documentation issued by the paying agency documenting the dividend paid and
the tax withheld to the claim for refund form and file them with the German tax
authorities.
A simplified refund procedure for Qualified Holders whose Celanese shares
are held through participants of the Depository Trust Company is in effect
between the Depository Trust Company and the German tax authorities. Under this
simplified refund procedure, the Depository Trust Company provides the German
tax authorities with electronic certification of the U.S. taxpayer status of
such Qualified Holders based on information it receives from its participants,
and claims a refund on behalf of those Qualified Holders. Accordingly, Qualified
Holders, using the simplified refund procedure, do not need to file refund claim
forms through the U.S. transfer agent.
The German tax authorities will issue refunds denominated in euro. In the
case of Celanese shares held by Qualified Holders, the refunds will be issued in
the name of the U.S. Transfer Agent, which will convert the refunds to U.S.
dollars and issue corresponding refund checks to the Qualified Holders of such
Celanese shares and brokers. Those brokers, in turn, will remit corresponding
refund amounts to the Qualified Holders holding Celanese shares registered with
such brokers. Qualified Holders of Celanese shares who receive a refund
attributable to reduced withholding taxes under the Income Tax Treaty may be
required to recognize foreign currency gain or loss, which will be treated as
ordinary income or loss, to the extent that the U.S. dollar value of the refund
received or treated as received by the Qualified Holder differs from the U.S.
dollar equivalent of the refund on the date the dividend on which such
withholding taxes were imposed was received or treated as received by the
Qualified Holder.
TAXATION OF CAPITAL GAINS
Under the Income Tax Treaty, a Qualified Holder will not be liable for
German tax on capital gains realized or accrued on the sale or other disposition
of Celanese shares.
Upon a sale or other disposition of Celanese shares, a Qualified Holder
will recognize capital gain or loss for United States federal income tax
purposes equal to the difference between the amount realized and the Qualified
Holder's adjusted tax basis in Celanese shares. In the case of an individual
Qualified Holder of Celanese shares, any such capital gain will be subject to a
maximum United States federal income tax rate of 20 percent, if the individual
Qualified Holder's holding period in these Celanese shares is more than 12
months.
GERMAN GIFT AND INHERITANCE TAXES
The United States-Germany estate tax treaty provides that an individual
whose domicile is determined to be in the United States for purposes of such
treaty will not be subject to German inheritance and gift tax (the equivalent of
the United States federal estate and gift tax) on the individual's death or
making of a gift unless
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the Celanese shares (1) are part of the business property of a permanent
establishment located in Germany or (2) are part of the assets of a fixed base
of an individual located in Germany and used for the performance of independent
personal services. An individual's domicile in the United States, however, does
not prevent imposition of German inheritance and gift tax with respect to an
heir, donee or other beneficiary who is domiciled in Germany at the time the
individual died or the gift was made.
The United States-Germany estate tax treaty also provides a credit against
United States federal estate and gift tax liability for the amount of
inheritance and gift tax paid in Germany, subject to limitations, in a case
where the Celanese shares are subject to German inheritance or gift tax and
United States federal estate or gift tax.
GERMAN CAPITAL TAX (VERMOEGENSTEUER)
The Income Tax Treaty provides that a Qualified Holder will not be subject
to German capital tax with respect to the Celanese shares. As a result of a
judicial decision, the German capital tax presently is not imposed.
UNITED STATES INFORMATION REPORTING AND BACKUP WITHHOLDING
Dividends on Celanese shares, and payments of the proceeds of a sale of
Celanese shares, paid within the United States or through U.S.-related financial
intermediaries are subject to information reporting and may be subject to backup
withholding at a 31 percent rate unless the Qualified Holder (1) is a
corporation or other exempt recipient or (2) provides a taxpayer identification
number and certifies that no loss of exemption from backup withholding has
occurred.
DOCUMENTS ON DISPLAY
Celanese furnishes its U.S. shareholders with annual reports in English.
These annual reports include a review of operations and annual audited
consolidated financial statements prepared in conformity with U.S. GAAP.
Celanese also furnishes its U.S. shareholders quarterly reports in English in
accordance with U.S. GAAP that include unaudited interim consolidated financial
information. Celanese furnishes its U.S. shareholders in English all notices of
shareholders' meetings and other reports and communications that are made
generally available to shareholders. Celanese transmits the English versions of
these notices, reports and announcements to Mellon Investor Services, Celanese's
transfer agent and registrar in New York, New York. The transfer agent arranges
for the prompt mailing of copies of these materials to Celanese's U.S.
shareholders. As a foreign private issuer, Celanese is exempt under the
Securities Exchange Act of 1934, as amended, or the 1934 Act, from the proxy
rules and the short-swing profit recovery provisions of Section 16 of the 1934
Act.
Celanese is subject to the informational requirements of the 1934 Act and
files reports and other information with the Commission. Reports and other
information filed by Celanese may be examined, without charge, at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C., 20549, and at the Commission's regional offices
located at 801 Brickell Ave., Suite 1800, Miami, FL 33131, 175 W. Jackson
Boulevard, Suite 900, Chicago, IL 60604, 1801 California Street, Suite 1500,
Denver, CO 80202-2656, 5670 Wilshire Boulevard, 11th Floor, Los Angeles, CA
90036-3648 and The Woolworth Building, 233 Broadway, New York, New York 10279.
Copies of such materials are also available by mail from the Commission's Public
Reference Branch at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. More information on the public reference rooms can be obtained
by calling the Commission at 1-800-SEC-0330. The Commission also maintains a Web
site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants, such as Celanese, that
file electronically with the Commission. Shares of Celanese are traded on the
New York Stock Exchange; the materials submitted by Celanese to the New York
Stock Exchange are also available for inspection and copying at their offices
located at 20 Broad Street, New York, New York 10005.
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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following tables present information regarding Celanese's use of
derivative financial instruments, and should be read together with "Item 5.
Operating and Financial Review and Prospects" and Notes 2 and 23 to the
Consolidated Financial Statements.
INTEREST-RATE RISK MANAGEMENT
The following tables provide information about Celanese's use of derivative
financial instruments and other financial instruments that are sensitive to
changes in interest rates as of December 31, 2003. The information is presented
in euro equivalents, which is Celanese's reporting currency, at December 31,
2003 exchange rates.
INTEREST-RATE RISK MANAGEMENT -- DEBT
PRINCIPAL (NOTIONAL) AMOUNT BY EXPECTED MATURITY
AVERAGE INTEREST RATE
DECEMBER 31, 2003
<Table>
<Caption>
FAIR VALUE
DECEMBER 31,
2004 2005 2006 2007 2008 THEREAFTER TOTAL 2003
----- ---- ---- ---- ----- ---------- ----- ------------
(IN E MILLIONS, EXCEPT PERCENTAGES)
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DEBT, INCLUDING CURRENT PORTION
Fixed rate (U.S. dollar)............ 0.5 0.5 0.6 8.5 0.7 158.6 169.4 200.3
Average interest rate............... 9.0% 9.0% 9.0% 4.3% 9.0% 6.5% - -
Variable rate (U.S. dollar)......... 31.9 19.8 - - 118.8 - 170.5 170.5
Average interest rate............... 1.8% 3.4% - - - - - -
Fixed rate (euro)................... 3.8 3.8 22.5 0.1 0.1 0.8 31.1 28.3
Average interest rate............... 5.0% 5.0% 5.0% 7.5% 7.5% 7.5% -
Variable rate (euro)................ 80.9 1.5 1.5 0.9 0.2 48.0 133.0 133.0
Average interest rate............... 2.5% 3.6% 4.1% 4.5% 4.7% 5% - -
Other currencies.................... 0.1 - - - - - 0.1 0.1
TOTAL............................. 117.2 25.6 24.6 9.5 119.8 207.4 504.1 532.1
</Table>
For Celanese's fixed rate and variable rate debt, the table presents
principal amounts and the related weighted average interest rates by expected
maturity date. Weighted average variable rates are based on the respective
implied forward rates at December 31, 2003. For interest rate swaps, the table
presents notional amounts and weighted average interest rates by expected
maturity date. Weighted average variable rates are based on the respective
implied forward rates at December 31, 2003.
INTEREST RATE RISK MANAGEMENT -- SWAPS
PRINCIPAL (NOTIONAL) AMOUNT BY EXPECTED MATURITY
AVERAGE INTEREST (SWAP) RATE/OPTION STRIKE PRICE
DECEMBER 31, 2003
<Table>
<Caption>
FAIR VALUE
DECEMBER 31,
2004 2005 2006 2007 2008 THEREAFTER TOTAL 2003
---- ---- ----- ---- ---- ---------- ----- ------------
(IN E MILLIONS, EXCEPT PERCENTAGES)
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-RATE SWAPS:
U.S. dollar
Payer swap (variable to
fixed)...................... - - 158.4 - - - 158.4 (9.7)
Average pay rate (fixed)...... - - 5.8% - - - - -
Average receive rate
(variable).................. - - 3.4% - - - - -
</Table>
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FOREIGN-EXCHANGE RISK MANAGEMENT
The table below provides information about Celanese's significant
derivative financial instruments that are sensitive to changes in exchange rates
as of December 31, 2003. For foreign currency forward contracts related to debt
management and certain sale and purchase transactions denominated in foreign
currencies, the table presents the notional amounts and the weighted average
contractual forward exchange rates. The foreign currency forward contracts
entered into by Celanese have a term of generally less than one year. Celanese
had E606 million notional amount of foreign currency forward contracts
outstanding in various currencies at December 31, 2003. There were no foreign
currency options outstanding as of December 31, 2003.
<Table>
<Caption>
AVERAGE
CONTRACT CONTRACTUAL FAIR VALUE
AMOUNT FORWARD DECEMBER 31,
CURRENCY PAIRS BUY (SELL) EXCHANGE RATE 2003
-------------- ------------ --------------- --------------
(IN E MILLIONS, EXCEPT FOR AVERAGE CONTRACTUAL
FORWARD EXCHANGE RATE)
-----------------------------------------------
<S> <C> <C> <C>
FOREIGN CURRENCY FORWARD CONTRACTS
EURO
U.S. dollar...................................... (549.6) 1.1712 37.2
Japanese yen..................................... (2.2) 110.1788 1.0
British pound.................................... (8.1) 0.7063 0.0
Canadian dollar.................................. 40.8 1.5722 (1.3)
Australian dollar................................ 0.5 1.6894 0.0
Swedish Krona.................................... (5.2) 9.1162 0.0
</Table>
Most of the foreign currency forward contracts are currency swaps entered
into to hedge inter-company loans.
COMMODITY RISK MANAGEMENT
Celanese recognized losses of E3 million and less than E1 million from
natural gas swap contracts in 2003 and 2002, respectively. The effective portion
of unrealized gains and losses associated with the cash-settled swap contracts
of E0 million and E1 million at December 31, 2003 and December 31, 2002,
respectively, are recorded as a component of accumulated other comprehensive
income (loss) until the underlying hedged transactions are reported in earnings.
Celanese had open swaps with a notional amount of E4 million as of December 31,
2003.
The following measures are taken to avoid and manage risks in the purchase
of raw materials:
o Celanese avoids supply problems generally by entering into long-term
contracts with at least two suppliers, when available in regional
markets, for each significant raw material. The quantities contracted are
divided by the suppliers to ensure supply security and the best cost
option. Celanese enters into long-term contracts only after a strict
evaluation of the supplier's financial condition and technical
capabilities as well as its environmental safety record, so that supply
problems and quality risks are reduced to a minimum.
o Price risks are managed through several measures. Purchasing raw
materials both through long-term contracts and on spot markets allows
Celanese to maintain security of supply while allowing for maximum price
flexibility. In long-term contracts, price conditions generally are based
on either changes in production cost or market conditions.
STOCK BASED COMPENSATION RISK MANAGEMENT
As of December 31, 1999, Celanese had 1.2 million call options on its own
ordinary shares outstanding to offset the costs associated with the 1999
long-term incentive plan and the 1999 equity participation plan. These options
had a maturity of six months, a strike price of E16.37 per share and an average
premium of E3.16 per share. The total premium as of December 31, 1999 was E3.8
million. During 2000, Celanese
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purchased an additional 3.9 million call options to offset the costs associated
with these plans. These options had a maturity of six months, a strike price of
E16.37 per share and an average premium of E6.46 per share. The total premium as
of December 31, 2000 was E25.2 million. The program enabled Celanese to receive
shares upon exercise of any purchased call options. As part of the share
buy-back program approved at the annual general meeting held in May 2000,
Celanese used the call options to purchase 5.1 million shares of treasury stock.
During 2001, Celanese purchased call options for one million shares of Celanese
stock to partially offset its exposure of the 2000 LTIP. These options have a
maturity of two years, a strike price of E19.56 per share and an average premium
of E4.39 per share. The options allow settlement in cash only. These options
expired during 2003. As a result, a net loss of E1 million was recorded to
interest and other income, net in 2003. See "Item 6. Compensation of Directors
and Officers -- Incentive Plans."
After canceling 1,125,000 of its treasury stock at the end of 2002,
Celanese repurchased an additional 284,798 shares in 2002 and 749,848 shares in
2003. Any further share repurchases by Celanese will be consistent with its
overall financial priorities at the time. See "Item 5. Operating and Financial
Review and Prospects -- Market Risk.")
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
None.
ITEM 15. CONTROLS AND PROCEDURES
On December 12, 2003, Celanese performed an evaluation of the effectiveness
of the design and operation of its disclosure controls and procedures.
Disclosure controls and procedures are designed to ensure that the material
financial and non-financial information required to be disclosed in this annual
report and filed with the Commission is recorded, processed, summarized and
reported in a timely manner. The evaluation was performed with the participation
of Celanese's key senior management, its financial and legal advisors, and under
the supervision of Celanese's Chief Executive Officer (CEO), Claudio Sonder, and
its Chief Financial Officer (CFO), Perry W. Premdas. Celanese's management,
including the CEO and CFO, concluded that its disclosure controls and procedures
were effective, and that there were no significant deficiencies in the design or
operation of such disclosure controls and procedures, nor material weaknesses in
internal controls. There was no evidence of fraud involving management or other
employees who have a significant role in Celanese's internal controls and
procedures for financial reporting. There have been no significant changes in
Celanese's internal controls over financial reporting or in other factors that
could significantly affect internal controls subsequent to the date of the
evaluation.
ITEM 16. RESERVED
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
In accordance with the Commission's rules in connection with the
Sarbanes-Oxley Act on the definition and disclosure of audit committee financial
experts, Celanese's supervisory board has assessed the qualifications and
experience of the members of its finance and audit committee and has determined
that its Chairman, Alfons Titzrath, qualifies as a financial expert to the
finance and audit committee.
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ITEM 16B. CODE OF ETHICS AND GOVERNANCE MATTERS
Celanese's Global Business Conduct Policy or BCP became effective in 2002.
The BCP sets forth universal rules of conduct for company management, including
the Chief Executive Officer, Chief Financial Officer, and Chief Accounting
Officer, as well as for all employees. The policy requires employees and
management to act honestly and ethically in all their dealings, and promotes the
ethical handling of actual or apparent conflicts of interest. It calls for full,
fair, accurate, timely and understandable disclosure in periodic reports and
public communications and adherence to applicable laws, rules and regulations.
Violations of the BCP may be subject to severe disciplinary action, up to and
including termination of employment. Various help lines have been established so
that every Celanese employee, regardless of where the employee works, can
contact a regional coordinator or the Governance and Risk Officer directly in
the event that he or she would like to voice policy concerns or report policy
infringements or risks affecting Celanese. All Celanese management and employees
receive periodic BCP training, either electronically or in person, and
management as well as a majority of Celanese employees must certify annually in
writing that they have read, understood, and are in compliance with the BCP.
During 2003, Celanese did not make any amendments to, or waivers from, the BCP
relating to its Chief Executive Officer or senior financial officers. Further
information on BCP processes and the policies can be found on the website noted
below.
Celanese currently communicates its governance standards internally and
externally. Celanese has introduced its own corporate governance site on its
intranet, where information about the global BCP and Celanese's corporate
governance guidelines can be accessed by every employee. Celanese has also added
a link on corporate governance issues to its Internet website at
http://www.celanese.com/index/about_index/governance.htm. This site provides
information about Celanese's corporate governance practices, such as the BCP,
its corporate governance guidelines, the statement of compliance with the German
Corporate Governance Code, the description of significant differences between
German corporate governance practices and the corporate governance requirements
of U.S. companies under the New York Stock Exchange listing standards, as well
as any current certifications made by Celanese or its responsible governing
bodies.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft
Wirtschaftspruefungsgesellschaft or KPMG has served as Celanese's independent
auditor for each of the fiscal years in the three year period ended December 31,
2003, for which audited financial statements appear in this annual report. The
independent auditor is selected each year by the Annual General Meeting.
Celanese's supervisory board will propose to the Annual General Meeting to be
held on June 15, 2004 that KPMG be selected as the independent auditor for the
2004 fiscal year.
In the annual meeting held on April 1, 2003, our shareholders appointed
KPMG Deutsche Treuhand-Gesellschaft AG Wirtschaftspruefungsgesellschaft (KPMG),
Frankfurt am Main, to serve as our independent auditors for the 2003 fiscal
year. KPMG billed the following fees for professional services in each of the
last two fiscal years:
<Table>
<Caption>
FOR YEAR ENDED FOR YEAR ENDED
TYPE OF FEES DECEMBER 31, 2003 DECEMBER 31, 2002
------------ ----------------- -----------------
(E IN MILLIONS) (E IN MILLIONS)
----------------- -----------------
<S> <C> <C>
Audit............................................... 2.8 2.4
Audit-Related....................................... .1 .4
Tax................................................. .4 1.0
All Other........................................... .5 0.0
--- ---
Total............................................... 3.8 3.8
=== ===
</Table>
Audit fees are the aggregate fees billed by KPMG for the audit of our
consolidated and annual financial statements, reviews of interim financial
statements and attestation services that are provided in connection with
statutory and regulatory filings or engagements. Audit-Related fees are those
charged by KPMG for assurance and related services that are reasonably related
to the performance of the audit or review of our
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financial statements and are not reported under Audit fees. This category
comprises fees billed for the audit of employee benefit plans and pension
schemes, agreed-upon procedure engagements and other attestation services
subject to regulatory requirements, as well as advisory services associated with
financial reporting. Tax fees are fees for professional services rendered by
KPMG for tax compliance, tax advice on actual or contemplated transactions and
expatriate employee tax services (for 2002 only). Fees disclosed under the
category "All Other" are mainly related to the review of selected documentation
in connection with the implementation of the SAP system. This category also
includes training and other immaterial support services.
PRE-APPROVAL POLICIES AND PROCEDURES OF THE FINANCE AND AUDIT COMMITTEE
The finance and audit committee of Celanese's supervisory board, among
other things, is responsible for monitoring the independent auditors and their
work. In particular it:
o Prepares the proposal of the supervisory board concerning the selection
of the independent auditors by the annual general meeting;
o Reviews the independent auditors' engagement letter, including proposed
fees;
o Defines the scope of the independent audit as well as key areas to be
audited;
o Reviews the independent auditors' significant findings and
recommendations together with the board of management's response; and
o Regularly reviews the independent auditors' quality control systems and
oversees their independence.
For more information on the finance and audit committee, see "Item 6.
Directors, Senior Management and Employees -- Board Practices".
In accordance with the Sarbanes-Oxley Act, the finance and audit committee
must approve all audit and non-audit services provided by KPMG. In February
2003, in compliance with sections 201 and 202 of the Sarbanes-Oxley Act, the
finance and audit committee approved the following non-audit services to be
provided by KPMG during 2003:
o Statement of Accounting Standard or SAS 100 Quarterly Reviews commencing
during the first quarter of 2003;
o Review of selected documentation in connection with the implementation of
the SAP system;
o tax planning;
o tax compliance (primarily Canada, Mexico and Belgium); and
o due diligence procedures related to merger and acquisition candidates
(assurance and tax planning).
The finance and audit committee also delegated the authority to grant such
approvals of services to its Chairman. The Chairman is required to report such
approvals to the entire finance and audit committee at the meeting immediately
following such approval.
In December 2003, the finance and audit committee approved the following
non-audit services to be provided by KPMG during 2004, as well as the work
processes needed to control and monitor them:
o Continuing SAS 100 quarterly reviews that commenced in 2003;
o Continue to review selected documentation in connection with the
implementation of the SAP system;
o Tax planning;
o Tax compliance (primarily Canada, Mexico and Belgium);
o Pre-approval for due diligence procedures related to merger and
acquisition candidates (assurance and tax planning); and
o Assistance with documentation of functional area process controls in
preparation of the certification process pursuant to section 404 of the
Sarbanes-Oxley Act.
105
<PAGE>
PART III
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
Reference is made to Item 19 for a list of all financial statements filed
as part of this Annual Report.
ITEM 19. EXHIBITS
(a) The following consolidated financial statements, together with the
report of KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft
Wirtschaftspruefungsgesellschaft, are filed as part of this Annual Report:
Report of the Board of Management
Index to Consolidated Financial Statements
Independent Auditors' Report
Consolidated Financial Statements:
Consolidated Statements of Operations for the Years Ended December 31,
2003, 2002 and 2001
Consolidated Balance Sheets as of December 31, 2003 and 2002
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 2003, 2002 and 2001
Consolidated Statements of Cash Flows for the Years Ended December 31,
2003, 2002 and 2001
Notes to the Consolidated Financial Statements
Schedule II -- Valuation and Qualifying Accounts
Other Schedules are omitted because they are not applicable or because the
required information is contained in the Consolidated Financial Statements or
Notes thereto.
(b) Documents filed as exhibits to this Annual Report:
<Table>
<C> <S>
1.1 English translation of Articles of Association (Satzung) of
Celanese AG as amended to date (filed with the Commission on
October 31, 2003 as Exhibit 4.1 to Post-Effective Amendment
No. 1 to Celanese's Registration Statement filed on Form
S-8, and incorporated herein by reference.)
2.1 Form of Definitive Stock Certificate of Celanese AG (filed
as Exhibit 4.1 to Celanese's Annual Report on Form 20-F for
the year ended December 31, 1999, and incorporated herein by
reference.)
4.1 Master Purchase Agreement between Madionova GmbH, as buyer
and Clariant International AG, as seller, dated as of
September 26, 2002 (filed as Exhibit 4.1 to Celanese's
Annual Report on Form 20-f for the year ended December 31,
2002, and incorporated herein by reference.)
4.2 Service Agreement between Celanese AG and Andreas Pohlmann,
dated as of October 22, 2002 (filed with the Commission on
February 10, 2004 as Exhibit (e)(11) to Celanese's
Solicitation/ Recommendation Statement on Schedule 14D-9,
and incorporated herein by reference.)
4.3 Service Agreement between Celanese AG and Perry Premdas,
dated as of October 22, 2002 (filed with the Commission on
February 10, 2004 as Exhibit (e)(12) to Celanese's
Solicitation/Recommendation Statement on Schedule 14D-9, and
incorporated herein by reference.)
</Table>
106
<PAGE>
<Table>
<C> <S>
4.4 Service Agreement between Celanese AG and Claudio Sonder,
dated as of October 22, 2002 (filed with the Commission on
February 10, 2004 as Exhibit (e)(13) to Celanese's
Solicitation/Recommendation Statement on Schedule 14D-9, and
incorporated herein by reference.)
4.5 Service Agreement between Celanese AG and David Weidman,
dated as of October 22, 2002 (filed with the Commission on
February 10, 2004 as Exhibit (e)(14) to Celanese's
Solicitation/ Recommendation Statement on Schedule 14D-9,
and incorporated herein by reference.)
4.6 Service Agreement between Celanese AG and Lyndon Cole, dated
as of September 23, 2003 (filed with the Commission on
February 10, 2004 as Exhibit (e)(15) to Celanese's
Solicitation/ Recommendation Statement on Schedule 14D-9,
and incorporated herein by reference.)
4.7 The total amount of long-term debt securities of Celanese AG
or any of its subsidiaries authorized under any instrument
does not exceed 10 percent of the total assets of Celanese
on a consolidated basis. Celanese agrees to furnish the
Commission upon request a copy of any instrument with
respect to long-term debt of Celanese AG and any subsidiary
for which consolidated or unconsolidated financial
statements are required to be filed and as to which the
amount of securities authorized thereunder does not exceed
10 percent of the total assets of Celanese AG and its
subsidiaries on a consolidated basis.
8.1 Significant subsidiaries as of the end of the year covered
by this annual report: See Significant Subsidiaries in "Item
4. Information on the Company."
10.1 Notice to the Members of the Supervisory Board
(Aufsichtsrat) and Board of Management (Vorstand) Directors
and Executive Officers of Celanese AG and Affiliates dated
February 9, 2004 pursuant to Rule 104 of Regulation BTR
(furnished to the Commission on February 9, 2004 as Exhibit
99.1 to Celanese's Report on Form 6-K).
11.1 Celanese Global Business Conduct Policy (filed as Exhibit
10.3 to Celanese's Annual Report on Form 20-f for the year
ended December 31, 2002, and incorporated herein by
reference).
12.1 Certification of the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
12.2 Certification of the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
13.1 Certification of the Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
13.2 Certification of the Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
23.1 Consent of KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft Wirtschaftspruefungsgesellschaft.
</Table>
107
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this Annual Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CELANESE AG
(Registrant)
Date: March 17, 2004
By: /s/ CLAUDIO SONDER
------------------------------------
Name: Claudio Sonder
Title: Chairman of the Board of
Management
By: /s/ PERRY W. PREMDAS
------------------------------------
Name: Perry W. Premdas
Title: Member of the Board of
Management
and Chief Financial Officer
108
<PAGE>
REPORT OF THE BOARD OF MANAGEMENT
The Board of Management of Celanese AG is responsible for the preparation,
the completeness, and the integrity of the consolidated financial statements as
well as for the information contained in the management report of Celanese AG
and subsidiaries ("Celanese").
Celanese has prepared the consolidated financial statements in accordance
with United States generally accepted accounting principles and has applied the
exemption of article 292a HGB.
The companies included in the consolidated financial statements are
required to maintain orderly accounting records and to establish effective
control systems. These control systems, which our corporate auditing function
reviews for reliability and effectiveness, are intended to enable the Board of
Management to recognize the potential impact of negative factors on Celanese's
assets and developments in a timely fashion. This ensures that the underlying
accounting records correctly reflect all business developments, thereby creating
a reliable basis for the consolidated financial statements.
The Board of Management runs Celanese in the interests of its stockholders
and in awareness of its responsibility towards employees and society. We manage
the resources entrusted to us to increase the value of Celanese.
Pursuant to a resolution passed at the last General Meeting, the
Supervisory Board has engaged KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft Wirtschaftsprufungsgesellschaft as independent auditors to
audit the consolidated financial statements. A separate long-form audit report
in accordance with German requirements is being prepared by the independent
auditors. The Finance and Audit Committee of the Supervisory Board will examine
the consolidated financial statements including the management report as well as
the audit report during its meeting on the annual financial statements, which
will be attended by the members of the Board of Management and the independent
auditors. Thereafter, the Supervisory Board will review the information relating
to the consolidated financial statements. The results of this review can be
inferred from the report of the Supervisory Board.
Kronberg im Taunus, February 17, 2004
The Board of Management
Claudio Sonder
Lyndon Cole Andreas Pohlmann Perry W. Premdas David N. Weidman
F-1
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<Table>
<Caption>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report.............................. F-3
Consolidated Statements of Operations for the years ended
December 31, 2003, 2002 and 2001....................... F-4
Consolidated Balance Sheets as of December 31, 2003 and
2002................................................... F-5
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 2003, 2002 and 2001........... F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 2003, 2002 and 2001....................... F-7
Notes to Consolidated Financial Statements................ F-8
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
Schedule II -- Valuation and Qualifying Accounts....... F-64
</Table>
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Supervisory Board and Shareholders
Celanese AG:
We have audited the consolidated financial statements of Celanese AG and
subsidiaries ("Celanese") as listed in the accompanying index. In connection
with our audits of the consolidated financial statements, we also have audited
the consolidated financial statement schedule as listed in the accompanying
index. These consolidated financial statements and schedule are the
responsibility of Celanese's management. Our responsibility is to express an
opinion on these consolidated financial statements and the consolidated
financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Celanese as
of December 31, 2003 and 2002, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2003 in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, the related consolidated financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
As discussed in Note 4 to the consolidated financial statements, Celanese
adopted Statement of Financial Accounting Standards ("SFAS") No. 143,
"Accounting for Asset Retirement Obligations," effective January 1, 2003.
As discussed in Note 4 to the consolidated financial statements, Celanese
adopted Financial Accounting Standards Board Interpretation No. 46 (Revised),
"Consolidation of Variable Interest Entities-an interpretation of ARB No. 51,"
effective December 31, 2003.
As discussed in Note 4 to the consolidated financial statements, Celanese
adopted SFAS No. 142, "Goodwill and Other Intangible Assets," effective January
1, 2002.
As discussed in Note 4 to the consolidated financial statements, Celanese
has early adopted SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities," effective October 1, 2002.
As discussed in Note 20 to the consolidated financial statements, Celanese
changed the actuarial measurement date for its Canadian and U.S. pension and
other postretirement benefit plans in 2003 and 2002, respectively.
Frankfurt am Main, Germany
February 17, 2004
KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft
Wirtschaftspruefungsgesellschaft
F-3
<PAGE>
CELANESE AG AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
<Table>
<Caption>
2003 2003 2002 2001
---- --------------- --------------- ---------------
(IN $ MILLIONS(1)
EXCEPT FOR SHARE AND
PER SHARE DATA) (IN E MILLIONS EXCEPT FOR SHARE AND PER SHARE DATA)
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales......................................... 5,133 4,075 4,064 4,433
Cost of sales..................................... (4,328) (3,436) (3,340) (3,772)
Selling, general and administrative expenses...... (568) (451) (474) (547)
Research and development expenses................. (100) (79) (69) (82)
Special charges................................... (6) (5) 5 (464)
Foreign exchange gain (loss)...................... (4) (3) 4 2
Gain on disposition of assets..................... 6 5 12 -
---------- ---------- ---------- ----------
Operating profit (loss)......................... 133 106 202 (430)
Equity in net earnings of affiliates.............. 39 31 22 13
Interest expense.................................. (54) (43) (59) (80)
Interest and other income, net.................... 111 88 48 65
---------- ---------- ---------- ----------
Earnings (loss) from continuing operations
before tax and minority interests............. 229 182 213 (432)
Income tax (provision) benefit.................... (68) (54) (70) 106
---------- ---------- ---------- ----------
Earnings (loss) from continuing operations
before minority interests..................... 161 128 143 (326)
Minority interests................................ - - - -
---------- ---------- ---------- ----------
Earnings (loss) from continuing operations...... 161 128 143 (326)
Earnings (loss) from operation of discontinued
operations (including gain on disposal of
discontinued operations of E6 million, E14
million and E14 million in 2003, 2002 and 2001,
respectively)................................... 5 4 (31) (85)
Income tax benefit.............................. - - 56 26
---------- ---------- ---------- ----------
Earnings (loss) from discontinued operations.... 5 4 25 (59)
Cumulative effect of changes in accounting
principles, net of income tax of E1 million and
E5 million in 2003 and 2002, respectively....... (1) (1) 19 -
---------- ---------- ---------- ----------
Net earnings (loss)............................. 165 131 187 (385)
========== ========== ========== ==========
Earnings (loss) per common share -- basic:
Continuing operations........................... 3.26 2.59 2.84 (6.48)
Discontinued operations......................... 0.10 0.08 0.50 (1.17)
Cumulative effect of changes in accounting
principles.................................... (0.02) (0.02) 0.38 -
---------- ---------- ---------- ----------
Net earnings (loss)............................. 3.34 2.65 3.72 (7.65)
========== ========== ========== ==========
Weighted average shares -- basic:................. 49,445,958 49,445,958 50,329,346 50,331,847
Earnings (loss) per common share -- diluted:
Continuing operations........................... 3.26 2.59 2.84 (6.48)
Discontinued operations......................... 0.10 0.08 0.50 (1.17)
Cumulative effect of changes in accounting
principles.................................... (0.02) (0.02) 0.38 -
---------- ---------- ---------- ----------
Net earnings (loss)............................. 3.34 2.65 3.72 (7.65)
========== ========== ========== ==========
Weighted average shares -- diluted................ 49,457,145 49,457,145 50,329,346 50,331,847
</Table>
---------------
(1) The U.S. $ figures are unaudited and have been translated solely for the
convenience of the reader at an exchange rate of U.S. $1.2597 per E1.00, the
noon buying rate of the Federal Reserve Bank of New York on December 31,
2003.
See the accompanying notes to consolidated financial statements.
F-4
<PAGE>
CELANESE AG AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
<Table>
<Caption>
2003 2003 2002
------------------ ---------------
(IN $ MILLIONS)(1) (IN E MILLIONS)
---------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. 147 117 118
Receivables, net:
Trade receivables, net -- third party and affiliates.... 719 571 634
Other receivables....................................... 587 466 443
Inventories............................................... 516 410 490
Deferred income taxes..................................... 67 53 80
Other assets.............................................. 52 41 44
Assets of discontinued operations......................... 164 130 172
----- ----- -----
Total current assets............................... 2,252 1,788 1,981
----- ----- -----
Investments................................................. 559 444 454
Property, plant and equipment, net.......................... 1,706 1,354 1,519
Deferred income taxes....................................... 602 478 598
Other assets................................................ 577 458 541
Intangible assets, net...................................... 1,105 877 1,034
----- ----- -----
Total assets....................................... 6,801 5,399 6,127
===== ===== =====
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current installments of
long-term debt -- third party and affiliates............ 147 117 195
Accounts payable and accrued liabilities:
Trade payables -- third party and affiliates............ 590 468 546
Other current liabilities............................... 915 727 659
Deferred income taxes..................................... 19 15 10
Income taxes payable...................................... 266 211 402
Liabilities of discontinued operations.................... 30 24 31
----- ----- -----
Total current liabilities.......................... 1,967 1,562 1,843
----- ----- -----
Long-term debt.............................................. 488 387 420
Deferred income taxes....................................... 100 79 52
Benefit obligations......................................... 1,161 922 1,212
Other liabilities........................................... 487 387 583
Minority interests.......................................... 18 14 12
Commitments and contingencies
Shareholders' equity:
Common stock, no par value, E140 million aggregate
registered value; 54,790,369 shares authorized and
issued; 49,321,468 and 50,058,476 shares outstanding in
2003 and 2002, respectively............................. 176 140 140
Additional paid-in capital................................ 3,200 2,540 2,496
Retained earnings (deficit)............................... (21) (17) (126)
Accumulated other comprehensive loss...................... (626) (497) (401)
----- ----- -----
2,729 2,166 2,109
Less: Treasury stock at cost (5,468,901 and 4,731,893 shares
in 2003 and 2002, respectively)........................... 149 118 104
----- ----- -----
Total shareholders' equity.............................. 2,580 2,048 2,005
----- ----- -----
Total liabilities and shareholders' equity.............. 6,801 5,399 6,127
===== ===== =====
</Table>
---------------
(1) The U.S. $ figures are unaudited and have been translated solely for the
convenience of the reader at an exchange rate of U.S. $1.2597 per E1.00, the
noon buying rate of the Federal Reserve Bank of New York on December 31,
2003.
See the accompanying notes to consolidated financial statements.
F-5
<PAGE>
CELANESE AG AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
<Table>
<Caption>
ACCUMULATED
ADDITIONAL RETAINED OTHER TOTAL
COMMON PAID-IN EARNINGS COMPREHENSIVE TREASURY SHAREHOLDERS'
STOCK CAPITAL (DEFICIT) INCOME (LOSS) STOCK EQUITY
------ ---------- --------- ------------- -------- -------------
(IN E MILLIONS)
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 2000............. 143 2,508 92 223 (123) 2,843
Comprehensive income (loss), net of tax:
Net loss............................... - - (385) - - (385)
Other comprehensive income (loss):
Unrealized loss on securities(1)..... - - - (4) - (4)
Foreign currency translation......... - - - 35 - 35
Additional minimum pension
liability(2)....................... - - - (255) - (255)
Unrealized loss on derivative
contracts(3)....................... - - - (4) - (4)
---- -----
Other comprehensive loss............. - - - (228) - (228)
-----
Comprehensive loss....................... - - - - - (613)
Dividends (E0.40 per share).............. - - (20) - - (20)
--- ----- ---- ---- ---- -----
Balance at December 31, 2001............. 143 2,508 (313) (5) (123) 2,210
--- ----- ---- ---- ---- -----
Comprehensive income (loss), net of tax:
Net earnings........................... - - 187 - - 187
Other comprehensive income (loss):
Unrealized gain on securities(1)..... - - - 2 - 2
Foreign currency translation......... - - - (173) - (173)
Additional minimum pension
liability(2)....................... - - - (220) - (220)
Unrealized loss on derivative
contracts(3)....................... - - - (5) - (5)
---- -----
Other comprehensive loss............. - - - (396) - (396)
-----
Comprehensive loss....................... - - - - - (209)
Amortization of deferred compensation.... - 3 - - - 3
Settlement of demerger liability......... - 7 - - - 7
Purchase of treasury stock............... - - - - (6) (6)
Retirement of treasury stock............. (3) (22) - - 25 -
--- ----- ---- ---- ---- -----
Balance at December 31, 2002............. 140 2,496 (126) (401) (104) 2,005
--- ----- ---- ---- ---- -----
Comprehensive income (loss), net of tax:
Net earnings........................... - - 131 - - 131
Other comprehensive income (loss):
Unrealized gain on securities(1)..... - - - 3 - 3
Foreign currency translation......... - - - (114) - (114)
Additional minimum pension
liability(2)....................... - - - 10 - 10
Unrealized gain on derivative
contracts(3)....................... - - - 5 - 5
---- -----
Other comprehensive loss............. - - - (96) - (96)
-----
Comprehensive income..................... - - - - - 35
Dividends (E0.44 per share).............. - - (22) - - (22)
Amortization of deferred compensation.... - 5 - - - 5
Settlement of demerger liability(4)...... - 39 - - - 39
Purchase of treasury stock............... - - - - (14) (14)
--- ----- ---- ---- ---- -----
Balance at December 31, 2003............. 140 2,540 (17) (497) (118) 2,048
=== ===== ==== ==== ==== =====
</Table>
---------------
(1) Net of tax (benefit) expense of E(1) million, E(1) million and E1 million in
2001, 2002 and 2003, respectively.
(2) Net of tax (benefit) expense of E(145) million, E(118) million and E4
million in 2001, 2002 and 2003, respectively.
(3) Net of tax (benefit) expense of E(2) million, E(2) million, and E3 million
in 2001, 2002 and 2003, respectively.
(4) Net of tax expense of E29 million in 2003.
See the accompanying notes to consolidated financial statements.
F-6
<PAGE>
CELANESE AG AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<Table>
<Caption>
2003 2003 2002 2001
------------------ ---- ---- ----
(IN $ MILLIONS)(1) (IN E MILLIONS)
---------------------------------------
<S> <C> <C> <C> <C>
Operating activities from continuing operations:
Net earnings (loss)..................................... 165 131 187 (385)
(Earnings) loss from discontinued operations, net....... (5) (4) (25) 59
Cumulative effect of changes in accounting principles..... 1 1 (19) -
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Special charges, net of amounts used.................. 98 78 (63) 371
Depreciation and amortization......................... 328 260 262 364
Change in equity of affiliates........................ (13) (10) 47 8
Deferred income taxes................................. 85 67 7 (280)
Gain on disposition of assets, net.................... (11) (9) (12) (7)
Write-downs of investments............................ 5 4 15 10
(Gain) loss on foreign currency....................... 170 135 128 (30)
Changes in operating assets and liabilities:
Trade receivables, net -- third party and
affiliates....................................... (6) (5) (94) 264
Other receivables.................................. 25 20 (20) 176
Inventories........................................ (13) (10) (7) 99
Trade payables -- third party and affiliates....... (47) (37) 2 (68)
Other liabilities.................................. (117) (93) (7) (224)
Income taxes payable.................................. (214) (170) (2) 158
Other, net............................................ (14) (11) (17) 3
---- ---- ---- ----
Net cash provided by operating activities............. 437 347 382 518
Investing activities from continuing operations:
Capital expenditures on property, plant and
equipment.......................................... (233) (185) (214) (213)
Acquisi