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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 2000
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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, 1999
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)
65926 FRANKFURT AM MAIN, 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
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<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)
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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:
Ordinary Shares with no par value...........................55,915,369
(as of December 31, 1999)
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
PART I
<TABLE>
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PAGE
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<S> <C>
Item 1. Description of Business............................. 3
Introduction.............................................. 3
Background................................................ 3
Segment Overview.......................................... 4
Strategy.................................................. 5
Segments.................................................. 6
Other Activities.......................................... 18
Discontinued Operations................................... 18
Raw Materials and Energy.................................. 18
Intellectual Property..................................... 19
Research and Development.................................. 19
Environmental and Other Regulation........................ 20
Employees................................................. 22
Item 2. Description of Property............................. 23
Item 3. Legal Proceedings................................... 25
Item 4. Control of Registrant............................... 28
Item 5. Nature of Trading Market............................ 29
General................................................... 29
Trading on the Frankfurt Stock Exchange................... 29
Trading on the New York Stock Exchange.................... 30
Item 6. Exchange Controls and Other Limitations Affecting
Security Holders.......................................... 31
Item 7. Taxation............................................ 31
Item 8. Selected Financial Data............................. 35
Item 9. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 38
Introduction.............................................. 38
1999 Compared with 1998................................... 40
1998 Compared with 1997................................... 47
Liquidity and Capital Resources........................... 51
Environmental Matters..................................... 52
Market Risks.............................................. 53
Year 2000................................................. 55
Introduction of the Euro.................................. 56
Outlook................................................... 56
Item 9A. Quantitative and Qualitative Disclosures about
Market Risk............................................... 56
Item 10. Directors and Officers of Registrant............... 58
Item 11. Compensation of Directors and Officers............. 63
Item 12. Options to Purchase Securities from Registrant or
Subsidiaries.............................................. 64
Item 13. Interest of Management in Certain Transactions..... 64
<CAPTION>
PART II
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Item 14. Description of Securities to be Registered......... 65
<CAPTION>
PART III
<S> <C>
Item 15. Defaults Upon Senior Securities.................... 65
Item 16. Changes in Securities and Changes in Security for
Registered Securities..................................... 65
<CAPTION>
PART IV
<S> <C>
Item 17. Financial Statements............................... 65
Item 18. Financial Statements............................... 65
Item 19. Financial Statements and Exhibits.................. 65
Index to Consolidated Financial Statements.................. F-1
</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 consolidated affiliates. See Note 1 to the
Consolidated Financial Statements for Celanese contained in this Annual Report
(the "Consolidated Financial Statements").
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ADDITIONAL INFORMATION
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. generally
accepted accounting principles ("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 English versions of these notices, reports and
announcements to ChaseMellon Shareholder 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 all of Celanese's U.S. shareholders. As
a foreign private issuer, Celanese is exempt under the U.S. Securities Exchange
Act of 1934 (the "Exchange Act") from the proxy rules and the short-swing profit
recovery provisions of Section 16 of the Exchange Act.
Celanese is subject to the informational requirements of the Exchange Act
and files reports and other information with the Securities and Exchange
Commission (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 Suite 1400, Citicorp Center,
500 West Madison Street, Chicago, Illinois, 60661-2511 and Room 1300, Seven
World Trade Center, New York, New York 10048. 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.
The Consolidated Financial Statements were prepared in accordance with 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 ("Hoechst") in a demerger which became effective on October
22, 1999. The Consolidated Financial Statements and other financial information
included in this Annual Report, unless otherwise specified, have been presented
to exclude the effects of discontinued operations. See "Item 1. Description of
Business-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 five business
segments, Acetyl Products, Chemical Intermediates, Acetate Products, 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
<PAGE> 4
accounting policies which Celanese might have adopted had it been an independent
company during those periods.
Effective January 1, 1999, Germany and 10 other member states of the
European Union introduced the euro or E as their common currency and established
fixed conversion rates between their existing sovereign currencies and the euro.
The Consolidated Financial Statements for each period presented on or before
December 31, 1998 have been prepared using the Deutsche Mark or DM and have been
restated into euro using the official fixed conversion rate between the euro and
the Deutsche Mark of DM 1.95583 per E1.00. Celanese does not represent that
these restated euro amounts for periods ended on or before December 31, 1998,
actually represent the DM amounts in the Consolidated Financial Statements as
prepared or could be converted into DM at the rate indicated. Since January 1,
1999, Celanese's Consolidated Financial Statements have been prepared in euro
and are no longer restated from Deutsche Mark into euro. U.S. dollar or U.S. $
amounts are unaudited and have been converted solely for convenience of the
readers for the year ended December 31, 1999 from euro into U.S. dollars, at an
exchange rate of U.S.$1.0070 per E1.00, the noon buying rate in the City of New
York for cable transfers in foreign currencies announced by the Federal Reserve
Bank of New York for customs purposes (the "Noon Buying Rate") on December 31,
1999. For information regarding recent rates of exchange between euro and U.S.$,
see "Item 8. Selected Financial Data-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 20, 2000, the Noon Buying Rate for the euro was U.S.$.9710 per
E1.00.
------------------------
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.
When used in this document, words such as "anticipate", "believe", "estimate",
"expect" and similar expressions, as they relate to Celanese or its management,
are intended to identify forward-looking statements. These statements 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. 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: changes in general economic, business and political
conditions, fluctuating exchange rates, the length and depth of product and
industry business cycles, changes in the price and availability of raw
materials, actions which may be taken by competitors and by regulatory
authorities, changes in the degree of patent and other legal protection afforded
to Celanese's products, potential disruption or interruption of production due
to accidents or other unforeseen events, delays in the construction of
facilities, potential liability for remedial actions under existing or future
environmental regulations and potential liability resulting from pending or
future litigation, and various other factors, both referenced and not referenced
in this Annual Report. 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 or expected. Celanese does
not intend, and does not assume any obligation, to update these forward-looking
statements, which speak only as of their dates.
2
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
Celanese is a leading global industrial chemicals company with strong
competitive positions in its major products and production technologies.
Celanese's headquarters is currently located in Frankfurt am Main, Germany but
is expected to be relocated to Kronberg/Taunus, Germany in the near future. 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. For the year ended December 31,
1999, Celanese had net sales of E4,318 million and an operating loss of E521
million from continuing operations. At December 31, 1999, Celanese had
approximately 14,900 employees worldwide from continuing operations. Celanese
has 32 production plants and five research centers in nine countries. Most of
Celanese's facilities are located in the Americas, principally in the three
North America Free Trade Association, or NAFTA, countries: the United States,
Canada and Mexico. Celanese also has major operations, including significant
joint ventures, in Asia. In 1999, 60 percent of net sales was derived from sales
in North America, 37 percent from sales in Europe, 2 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 comprised principally of major industrial
companies. In 1999, sales to the 10 largest customers of Celanese accounted for
less than 20 percent of its net sales and the single largest customer
represented less than 5 percent of its net sales. As of December 31, 1999,
Celanese had approximately 140,000 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.
BACKGROUND
Celanese traces its roots to 1918 when The American Cellulose & Chemical
Manufacturing Company was founded in the United States by two Swiss brothers,
Drs. Camille and Henry Dreyfus, to produce acetate fibers for fabrics used in
linings, apparel and home furnishings.
Following the successful start-up of this company, Celanese expanded its
operations in the United States. In the mid-1940s, Celanese commenced operation
of facilities for the production of basic chemicals and chemical intermediates.
In the 1950s, Celanese became a supplier of acetate tow.
In the 1960s, Celanese further expanded the scope of its activities.
Celanese started production of non-cellulosic fibers, such as polyester and
nylon, and developed and commercialized acetyl copolymer resin technology.
Since the mid-1940s, Celanese constructed and acquired significant
production and research facilities in North America and abroad and also entered
into a number of joint ventures in North America, Europe and the Far East with
other acetates, basic chemicals and plastics producers. In particular, in the
technical polymers area, Celanese entered into two joint ventures, one with
Hoechst, which was named Ticona, and another with the Japanese company Daicel
Chemical Industries Ltd. ("Daicel"), named Polyplastics Co., Ltd.
("Polyplastics"), to manufacture and market acetyl copolymer resins based on
Celanese licensed technology.
In 1987 Hoechst acquired Celanese Corporation. Following the acquisition,
Hoechst proceeded to integrate its complementary chemicals and technical
polymers operations with the businesses of Celanese, establishing a combined
basic chemicals, acetates and technical polymers business of global scale.
In 1994, Hoechst embarked on a comprehensive review and re-evaluation of
its strategic goals. Hoechst decided to concentrate on life sciences and to
transfer operational responsibility for the different businesses to the
management of legally separate companies. As a result of this process, Hoechst's
basic
3
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chemicals and acetates businesses were combined and were reported by Hoechst
under its Celanese segment and Hoechst's technical polymers businesses were
combined and were reported by Hoechst under its Ticona segment.
In implementing the strategy to realign and to change the focus of its
business, Hoechst restructured and divested many of its activities in the
industrial sector. As part of this process, Hoechst shareholders, at an
extraordinary general meeting on July 15 and 16, 1999, approved the demerger, or
spin-off, to Celanese AG of the basic chemicals, acetates and technical polymers
businesses that were reported by Hoechst in its Celanese and Ticona segments, as
well as some other businesses and activities of Hoechst. The demerger became
effective on October 22, 1999. On that date Hoechst distributed all of the
outstanding shares of Celanese to Hoechst's shareholders, with each Hoechst
shareholder receiving one Celanese share for every 10 Hoechst shares owned.
SEGMENT OVERVIEW
Celanese is an integrated company that operates through five principal
business segments: Acetyl Products, Chemical Intermediates, Acetate Products,
Ticona and Performance Products.
Acetyl Products. This segment produces and supplies acetyl products,
including acetic acid and vinyl acetate monomer. Acetic acid is a commodity used
in the production of other basic chemicals. Vinyl acetate monomer is primarily
used in a variety of adhesives, paints and coatings. Celanese is the world's
leading producer of acetic acid and vinyl acetate monomer and the largest
producer of methanol, the major raw material used for the production of acetic
acid, in North America.
Chemical Intermediates. This segment produces and supplies chemical
intermediates, including acrylic acid, acrylates, organic solvents and other
intermediates. Acrylic acid and acrylates are used in the manufacture of
superabsorbent polymers, paints and coatings, adhesives and in water treatment
applications. Most of the other chemicals produced in this segment are organic
solvents and intermediates for pharmaceutical, agricultural and chemical
products.
Acetate Products. This segment primarily produces and supplies acetate
filament and staple, and acetate filter products. Products from this segment are
found in fashion apparel, linings, home furnishings and cigarette filters.
Celanese is one of the world's leading producers of acetate tow, including
production by its joint ventures, and acetate filament.
Ticona. This segment develops 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 and its 50 percent-owned
affiliate Korea Engineering Plastics Company Ltd. ("Korea Engineering
Plastics"), Celanese is a leading participant in the global technical polymers
business.
Performance Products. This segment includes Trespaphan, the oriented
polypropylene, or OPP, films business, which produces thin films used in
packaging of products such as foodstuffs and cigarette packs, in labels and the
production of capacitors. It also includes Nutrinova, the high intensity
sweetener and food protection ingredients business.
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The chart below illustrates each segment's share of total segment net sales
to external customers in 1999. In total, the segments accounted for 99 percent
of Celanese's net sales in 1999.
1999 NET SALES TO EXTERNAL CUSTOMERS BY SEGMENT
GRAPH
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<S> <C>
Acetyl Products 34%
Chemical Intermediates 20%
Ticona 19%
Acetate Products 17%
Performance Products 9%
Other Activities 1%
</TABLE>
OTHER ACTIVITIES
The portfolio of Celanese contains other businesses and activities separate
from its principal chemical operations, consisting primarily of general
corporate functions and companies which provide infrastructure and procurement
services.
STRATEGY
Celanese's management has identified the following five key strategies for
continuing growth and increasing value for Celanese shareholders:
Strengthen Celanese's established global presence. Celanese operates
facilities throughout the world and intends to leverage its existing
infrastructure and expertise to expand in growth markets.
Enhance leading technology positions. Celanese intends to build on the
leading technology positions it holds in core products such as acetic acid,
vinyl acetate monomer, acrylic acid, and in a number of high performance
technical polymers.
Generate value-added solutions for customers. Celanese's Ticona segment
intends to continue to specialize in the development of new products and
applications for its products, often developing tailored solutions to meet the
specifications of its customers.
Achieve cost efficiencies through rationalization. Celanese is
implementing or intends to implement restructuring programs in each of its
businesses designed to:
- Reduce global manufacturing costs,
- Cut selling and general administrative costs,
- Lower costs for purchased raw materials, and
- Optimize its chemical supply chain.
Optimize Celanese's portfolio. Acquisitions, divestitures and joint
ventures will be an integral component of managing Celanese's asset base to
increase profitability and shareholder value. Celanese will continue to evaluate
its portfolio to create a more balanced mix of commodity and specialty products,
thereby reducing the cyclical effects in the chemical industry on Celanese and
to stabilize Celanese's earnings over the cycle. In the fourth quarter of 1999,
Celanese completed sales of a number of its non-core businesses, including its
ethylene oxide/ethylene glycol business, its U.S. and Japanese separation
products business, Celgard, its polyester business in Canada, and its interests
in the Dyneon fluoropolymer and Targor polypropylene joint ventures. In the
first quarter of 2000, Celanese sold its phosphorous and phosphorous derivatives
business conducted by the Thermphos Group and signed letters of intent for the
sale of its polyvinyl chloride business conducted by Vintron as well as its 50
percent interest in the
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Vinnolit polyvinyl chloride joint venture. Additional assets may be divested as
Celanese continues to evaluate its business portfolio. The chemical industry is
in the midst of a restructuring wave and Celanese intends to be an active
participant, whether through acquisitions, joint ventures or alliances, such as
Ticona's December 1999 acquisition of a 50 percent interest in Korea Engineering
Plastics, a leader in the marketing and production of polyacetals in Korea.
ACETYL PRODUCTS
The Acetyl Products segment consists of three business lines: Methyls,
Acetyls and Acetyl Derivatives. All business lines in this segment conduct
business using the "Celanese" trade name. The following table lists key Acetyl
Products and their major markets.
<TABLE>
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KEY ACETYL PRODUCTS MAJOR MARKETS
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Methanol Formaldehyde, Acetic Acid and Methyl
Tertiary Butyl Ether or MTBE, a gasoline
additive
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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
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Vinyl Acetate Monomer Paints, Adhesives, Paper Coatings, Films and
Textiles
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Acetic Anhydride Cellulose Acetate and Pharmaceuticals
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Acetate Esters Coatings, Inks
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</TABLE>
Business Lines
Methyls. The Methyls business line produces:
- Methanol, a basic chemical building block used in the production of a
variety of chemical intermediates;
- Formaldehyde, a methanol derivative primarily used to produce adhesive
resins for plywood, particle board, polyacetal engineering resins and a
compound used in making polyurethane;
- Paraformaldehyde, a solid form of formaldehyde used to make glyphosate
herbicides and in coating applications;
- Formcel(R), a water-free formaldehyde solution used in the production of
linking agents for coatings; and
- Polyol products such as pentaerythritol, used, for example, in coatings
and synthetic lubricants; trimethylolpropane, used, for example, in
synthetic lubricants; neopentyl glycol, used, for example, in powder
coatings; and 1,3 butylene glycol, used, for example, in flavorings and
plasticizers.
Prices for most of the products in the Methyls business line are dependent
on world market prices for methanol, a commodity produced by numerous
manufacturers in all parts of the world. The principal raw material for these
products is natural gas, from which methanol is derived. Celanese purchases
natural gas from numerous sources and substantially all its North American
requirements of acetaldehyde, which is used in the making of polyols, from
Petroleos Mexicanos, the Mexican national oil company. Petroleos Mexicanos has
been a reliable supplier, but acetaldehyde is also available from other sources.
Celanese is a leading producer of acetaldehyde in Europe.
Most of Celanese's methanol production is used internally, principally in
the production of formaldehyde and acetic acid. The balance is sold to the
merchant market of which approximately one third is used for the production of
methyl tertiary butyl ether, or MTBE, which is a gasoline additive.
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On March 25, 1999, the governor of California issued an executive order to
phase out the use of MTBE by December 31, 2002 in California, and other states
are considering whether to implement similar phase-out programs. Since then, a
Blue Ribbon Committee sponsored by the United States Environmental Protection
Agency ("EPA") recommended that usage of MTBE should be significantly reduced.
Recently the Clinton administration proposed an amendment to the CleanAir Act
which would result in such a reduction. Since this proposal has not been adopted
by Congress and other states have not yet issued orders, it is premature at this
time to assess the future impact of these measures on Celanese. However, these
measures are likely to lead to reduced usage of MTBE and therefore may result in
increased overcapacity in methanol and may adversely affect prices for methanol
and Celanese's other products in the Methyls business line. Celanese does not
manufacture MTBE but sells methanol to customers who produce MTBE.
Acetyls. The Acetyls business line produces two principal products, acetic
acid and vinyl acetate monomer. Acetic acid is used to manufacture vinyl acetate
monomer and other acetyl derivatives. Celanese manufactures acetic acid for its
own use, for example, by the Acetyl Derivatives business line. Celanese also
sells acetic acid to third parties, including producers of purified terephthalic
acid, or PTA, and to other participants in the acetyl derivatives business.
Vinyl acetate monomer is used in a variety of adhesives, paints, films, coatings
and textiles.
Celanese is the world's leading producer of acetic acid and is also the
world's leading producer of vinyl acetate monomer, according to the Tecnon
Consulting World Network Acetic Acid and Vinyl Acetate 1996-2006 World Survey.
Acetyls, like other commodity products, are characterized by cyclicality in
pricing. The principal raw materials in this business line are ethylene, which
Celanese purchases from multiple suppliers; methanol, which Celanese
manufactures itself; carbon monoxide, most of which is manufactured by Celanese;
and butane, which is purchased from several suppliers. All these raw materials
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 acid-optimization technology. Management
believes that Celanese's Clear Lake, Texas facility, which uses these
technologies, is one of the world's lowest cost acetic acid plants.
Acetyl Derivatives. The Acetyl Derivatives business line produces a
variety of solvents and other products, which in turn are used primarily in the
manufacture of cellulose acetate, paints and coatings, and adhesives.
Many products of the Acetyl Derivatives business line are derivatives from
Celanese's production of acetic acid and oxo alcohols. Primary products in this
business line are:
- Ethyl acetate, a solvent used in coatings, inks and adhesives and in the
manufacture of, among other things, photographic films and coated
papers;
- Butyl acetate, a solvent used, for example, in inks, pharmaceuticals and
perfume;
- Propyl acetate, a solvent used, for example, in inks, lacquers and
plastics;
- Methyl ethyl ketone, a solvent used, for example, in the production of
printing inks and magnetic tapes;
- Acetic anhydride, an agent in the preparation of cellulose acetate,
detergents and pharmaceuticals;
- Acetaldehyde, a major feedstock for the production of polyols and acetic
acid. Acetaldehyde is also used in other organic compounds such as
pyridines, which are used in agricultural products;
- Butyric acid, an intermediate for the production of esters used, for
example, in artificial flavors;
- Propionic acid, an organic acid used to protect and preserve grain; and
- Formic acid, an organic acid, used, for example, in textile dyeing and
leather tanning.
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Acetyl derivatives are commodity products characterized by pricing cycles.
The principal raw materials used in the Acetyl Derivatives business line are
acetic acid and various alcohols, all of which Celanese manufactures for its own
use as well as for sales to third parties, including its competitors in the
acetyl derivatives business.
Facilities
The Acetyl Products segment has production sites in the United States,
Canada, Mexico, Singapore, Spain, and Germany. Over the last few years, Celanese
has continued to shift its production capacity to lower cost production
facilities while expanding in growth markets. For example, in Singapore,
Celanese built a vinyl acetate plant which started production in the third
quarter of 1997, with a nameplate capacity of 170,000 metric tons per year and
an acetate esters plant which started production in January 2000 with a
nameplate capacity of 100,000 metric tons per year. At the same site, Celanese
is also completing an acetic acid plant with a nameplate capacity of 500,000
metric tons per year, which will use leading acid-optimization technology.
Celanese has completed closures of its high cost acetic acid plant in Frankfurt,
Germany, a full site closure of its acetaldehyde capacity in Lillebonne, France,
and has begun the process of a full site closure of its acetyl chemicals
capacity in Celaya, Mexico. Celanese also has a joint venture in Saudi Arabia
for this business segment.
Markets
The following chart illustrates the 1999 net sales by destination of
Celanese's Acetyl Products segment by geographic region.
1999 NET SALES BY DESTINATION - ACETYL PRODUCTS
GRAPH
<TABLE>
<S> <C>
North America 59%
Europe 26%
Asia/Australia 13%
Rest of World 2%
</TABLE>
In the Methyls business line, the markets for the methanol and formaldehyde
product lines are highly regional and highly dependent on the demand for
products made from methanol and formaldehyde. In addition to its own production
demands for these chemicals, Celanese's production is used by manufacturers of
chemical intermediates and, to a lesser extent, by manufacturers in the wood
products industry. Methanol and formaldehyde are mainly sold into the merchant
market to a few regional customers. Celanese typically enters into short-term
contracts for the sale of methanol. The sale of formaldehyde, primarily to
customers in the chemical derivatives industry, is based on long-term
agreements. Polyols are sold globally to a wide variety of customers, primarily
in the coatings and resins and the specialty products industries.
The Acetyls business line is a global business which has several large
customers, each of which purchases Celanese's products in different regions.
Generally, Celanese supplies these global customers under multi-year contracts.
The customers of the Acetyls business line produce polymers used in water based
paints, adhesives, paper coatings, film modifiers and textiles. Celanese has
long-standing relationships with most of these customers.
Acetyl derivatives 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 the Acetyl
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Derivatives business line are primarily engaged in the production of paints and
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.
Competition
Principal competitors of Celanese in the Acetyl Products segment include
Methanex Corporation ("Methanex"), Perstorp Inc. and Borden Chemicals & Plastics
L.P. in Methyls; Acetex Corporation, BP Amoco p.l.c. ("BP Amoco"), Daicel,
Eastman Chemical Corporation ("Eastman"), Millennium Chemicals Inc.
("Millennium") and Union Carbide Corporation ("Union Carbide") in Acetyls; and
Eastman, Union Carbide, BP Amoco and Showa Denko K.K. in Acetyl Derivatives.
CHEMICAL INTERMEDIATES
The Chemical Intermediates segment consists of three business lines:
Acrylates, Oxo Products and Specialties. All business lines in this segment
conduct business using the "Celanese" trade name. The following table lists key
Chemical Intermediates products and their major markets.
<TABLE>
<S> <C>
- -------------------------------------------- --------------------------------------------
KEY CHEMICAL INTERMEDIATES PRODUCTS MAJOR MARKETS
- -------------------------------------------- --------------------------------------------
Acrylic Acid and Acrylates Superabsorbent Polymers, Coatings and
Adhesives
- -------------------------------------------- --------------------------------------------
Amines Agricultural Products and Water Treatments
- -------------------------------------------- --------------------------------------------
Carboxylic Acids Lubricants, Detergents and Specialties
- -------------------------------------------- --------------------------------------------
Oxo Alcohols Plasticizers, Acrylates, Esters, Solvents
and Inks
- -------------------------------------------- --------------------------------------------
</TABLE>
BUSINESS LINES
Acrylates. The Acrylates business line produces and supplies:
- Acrylic acid and a variety of acrylates, such as methyl acrylate, ethyl
acrylate, butyl acrylate and 2-ethylhexyl acrylate.
The primary end uses of acrylic acid and acrylates are in the manufacture
of:
- Superabsorbent polymers that are used, for example, in diapers;
- Paints and coatings;
- Adhesives; and
- Water treatment applications, such as flocculating agents.
Prices for acrylate products are subject to the cyclical trends in the
basic chemicals industry.
The primary raw materials for these products are propylene, which Celanese
purchases from a variety of sources, and oxo alcohols, which it produces itself.
The expansion of acrylic acid annual production capacity at the Clear Lake,
Texas plant to 290,000 metric tons was completed in the first half of 1998.
Celanese has expanded further into the European market by operating a plant
owned by The Dow Chemical Company ("Dow") at a site in eastern Germany, which
came on stream in February 2000. Through this project, Celanese produces acrylic
acid and esters, sharing 50 percent of the offtake with Dow.
Oxo. The Oxo business line produces organic solvents and intermediates
such as:
- Butanol, used as a solvent for lacquers, dopes and thinners, and as an
intermediate in the manufacture of chemicals, such as butyl acrylate;
9
<PAGE> 12
- Propanol, used as an intermediate in the production of amines for
agricultural chemicals and as a solvent for inks, resins, insecticides
and waxes;
- Butyraldehyde, used, for example, in the production of polyols,
alcohols, safety glass and fabric coatings, and as an intermediate for
2-ethylhexanol and butanol;
- Propionaldehyde, used, for example, in the manufacture of propanol, the
synthesis of fertilizers, and in flavor and fragrance chemicals; and
- 2-ethylhexanol, used as an intermediate, for example, for plasticizers
and fuel additives, and in the production of 2-ethylhexyl acrylate,
which in turn is used, for example, to manufacture water based resins
for paint, textiles and paper coatings.
Generally, demand for oxo products depends on developments in the
construction and automotive industries. Uses for this business line's products
are, to a large degree, in the manufacture of lacquers and paints, as well as in
plasticizers, which can be found in floorings, PVC flex cables, synthetic
leather and covers for car chassis. They are also used in smaller scale
automotive applications, such as safety glass, synthetic motor oils or as cetane
enhancers.
Prices for oxo products, like other basic chemical commodity prices, follow
cyclical trends.
The primary raw materials for these products are ethylene and propylene,
both of which are purchased from a variety of sources, and synthesis gas, which
is manufactured from crude oil or natural gas.
A substantial portion of the Oxo business line products is consumed by
other Celanese business lines.
Specialties. The Specialties business line produces:
- Carboxylic acids such as pelargonic acid, used in detergents and
synthetic lubricants, and heptanoic acid, used in plasticizers and
synthetic lubricants;
- 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;
- 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; and
- The CelActiv(R) catalyst product range, used in applications for
hydrogenation reactions and related processes, as well as the Hoecat(R)
catalyst product range, used in the hydrogenation of fatty acids, fats
and oils.
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 sourced from the world market based on international prices.
Facilities
The Chemical Intermediates segment has production sites in the United
States, Germany and Mexico.
In the past several years, Celanese has expanded production at its Bay
City, Texas, its Bucks, Alabama and its Oberhausen, Germany, sites. These have
been low cost, incremental expansions of butanol, 2-ethylhexanol, alkyl amines
and carboxylic acid capacities that were made in response to increased demand
for these products from both customers and other Celanese business lines. These
expansions have reduced average production unit costs for all derivative
products.
10
<PAGE> 13
Markets
The following chart illustrates the destination of the 1999 net sales of
Celanese's Chemical Intermediates segment by geographic region.
1999 NET SALES BY DESTINATION - CHEMICAL INTERMEDIATES
GRAPH
North America 56%
Europe/Africa 35%
Asia/Australia 6%
Rest of World 3%
The market for the Acrylates business line is characterized by a large
number of medium and small customers and only a few large customers. These
customers are distributed across a broad range of acrylate end users. Celanese
focuses on the merchant market, where it is a preferred supplier because other
large suppliers are integrated forward into acrylate derivatives and compete
with many of these customers. Celanese believes a key to success in this
business is the ability to be a competitive and reliable supplier while
investing in the business to support long-term growth. Celanese's Oxo business
line has a broad customer base, and Celanese has long-standing relationships
with most of these customers.
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 chemicals which are
priced more like commodity chemicals.
Competition
The Chemical Intermediates segment competes with, among others, BASF AG
("BASF"), Rohm & Haas Company, Elf Atochem S.A. and Nippon Shokubai Co., Ltd in
Acrylates; and BASF, Eastman and Union Carbide in Oxo and Specialties. Air
Products and Chemicals, Inc. is also a significant competitor of the Specialties
business line.
ACETATE PRODUCTS
The Acetate Products segment consists of two major business lines, acetate
filament and acetate filter products, and one small business line, advanced
fiber materials. All 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>
<S> <C>
- -------------------------------------------- --------------------------------------------
KEY ACCETATE PRODUCTS MAJOR MARKETS
- -------------------------------------------- --------------------------------------------
Acetate Filament Fashion Apparel, Linings and Home
Furnishings
- -------------------------------------------- --------------------------------------------
Acetate Filter Products Cigarette Filters
- -------------------------------------------- --------------------------------------------
</TABLE>
Business Lines
Products from the two major business lines are found in fashion apparel,
linings and home furnishings and cigarette filters. Advanced fiber materials are
used in high temperature resistant products as well as in aerospace and in
industrial applications. According to the 1997 Stanford Research Institute
International
11
<PAGE> 14
Chemical Economics Handbook, Celanese is the world's leading producer of both
acetate tow, including production by its joint ventures, and acetate filament.
Acetate products are made by processing wood pulp with acetic anhydride to
form acetate flake. Celanese purchases from major suppliers wood pulp which is
made from reforested trees and produces acetic anhydride internally. The acetate
flake is then spun into acetate fiber in the form of a tow band or filament. The
Acetate Filament business line supplies products primarily to the textiles
industry. Demand for acetate filament is dependent on fashion trends and the
world economy. Recent fashion changes, such as the trend to casual office wear,
have negatively affected demand for lining and shell material. In addition,
depressed market conditions in Asia have significantly affected the overall
global textile business and negatively affected consumption of all fibers,
including acetate. Celanese is working 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.
Celanese is also pursuing opportunities in other market segments such as men's
shirts and pants.
The Acetate Filter Products business line produces acetate tow, which is
used primarily in cigarette filters. 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. World demand for acetate tow increased
substantially during the early to mid-1990s, principally as a result of
decisions by state-owned tobacco enterprises in China to convert production from
unfiltered to filtered cigarettes. With the Chinese conversion to filtered
cigarettes being substantially complete, demand growth from this source has
slowed significantly. Currently, the acetate tow market is characterized by
oversupply and projected demand growth is low.
The Acetate Products segment is implementing a major cost reduction and
operations improvement program. The program is directed toward achieving higher
productivity of employees and equipment. Celanese has announced major steps to
restructure its acetate products businesses as part of its strategy to maximize
its global manufacturing efficiency. The Drummondville, Canada acetate filament
facility will be shut down by the end of the first quarter of 2000. The Rock
Hill, South Carolina, acetate filament facility is scheduled to be phased out by
the end of the third quarter of 2001. The site will continue to produce acetate
flake, which is used as a raw material for acetate filament and acetate tow
production. Existing Rock Hill production will be shifted to Celanese's other
acetate filament plants and acetate filament capacity at Ocotlan, Mexico will be
expanded. As part of the rationalization of the manufacturing facilities of the
Acetate Products segment, Celanese plans to close Ocotlan's acetate flake
production by the third quarter of 2000. In addition, the filter products
business plans to permanently reduce annual acetate tow capacity by 10,000 tons
at Ocotlan by the third quarter of 2000. This will bring Celanese filter tow
capacity more in line with projected sales.
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.
12
<PAGE> 15
Markets
The following chart illustrates the distribution of 1999 net sales of
Celanese's Acetate Products segment by geographic region.
1999 NET SALES BY DESTINATION - ACETATE PRODUCTS
GRAPH
<TABLE>
<S> <C>
North America 41%
Asia/Australia 32%
Europe 21%
Rest of World 6%
</TABLE>
In the acetate filament industry, Celanese's sales are made to a large
number of textile companies which 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 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. Depressed market
conditions in Asia have reduced profitability in the textile industry throughout
the world, with many manufacturers in the textile chain reducing capacity,
vertically integrating with other manufacturers or exiting from the business.
Celanese's Acetate Products business has been adversely affected by these trends
in the industry.
Sales in the acetate filter products industry are principally to the major
tobacco companies that account for a majority of worldwide cigarette production.
Celanese typically enters into both long-term and short-term contracts with its
major customers. Celanese's contracts with its largest customer, with which it
has a long-standing relationship, have been entered into on a year-by-year
basis, and its second largest customer has been supplied under a long-term
contract that will expire at the end of 2000 and is being renegotiated. 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.
Competition
Principal competitors in the Acetate Products segment include the Acordis
Group, Daicel, Eastman, Rhodia S.A. ("Rhodia"), Mitsubishi Rayon Company,
Limited ("Mitsubishi Rayon") and Novaceta.
TICONA
Ticona, the technical polymers segment, develops and supplies a broad
portfolio of high performance technical polymers.
13
<PAGE> 16
The following table lists key Ticona products, for which Ticona has
developed individual trademarks, and their major markets.
<TABLE>
<S> <C>
- -------------------------------------------- --------------------------------------------
KEY TICONA PRODUCTS MAJOR MARKETS
- -------------------------------------------- --------------------------------------------
Hostaform(R)/Celcon(R)(Polyacetals) Automotive, Electronics and Consumer
Products
- -------------------------------------------- --------------------------------------------
GUR(R) (Ultra High Molecular Weight Profiles, Battery Separators and Industrial
Polyethylene or PE-UHMW) Specialties
- -------------------------------------------- --------------------------------------------
Celanex(R)/Vandar(R) (Polyester Engineering Electrical, Electronics, Automotive,
Resins) Appliances and Consumer Products
- -------------------------------------------- --------------------------------------------
Vectra(R) (Liquid Crystal Polymers) Electronics, Telecommunications and
Automotive
- -------------------------------------------- --------------------------------------------
Fortron(R) (Polyphenylene Sulfide or PPS) Electronics, Automotive and Industrial
- -------------------------------------------- --------------------------------------------
Celanese(R) Nylon 6/6 Automotive
- -------------------------------------------- --------------------------------------------
</TABLE>
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. 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, 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. In standard grades, pricing is much
more competitive, with many small minimum-service providers competing for volume
sales.
Product Lines
Following is a description of Ticona's principal product lines.
Polyacetals are sold under Ticona's own trademarks, Celcon(R) in North
America and Hostaform(R) in Europe and the rest of the world. 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 in the
United States from Celanese's Acetyl Products segment and, in Europe,
manufactures formaldehyde from purchased methanol. Methanol is a readily
available commodity.
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 artificial prostheses. Topas(R), a metallocene
catalyst based cycloolefin copolymer, or COC, is a newly engineered material.
Topas has been developed to be used in applications where transparency, high
temperature resistance and gas barrier properties are key requirements, such as
in optical applications and packaging films for sterile medical devices and food
storage. Ticona is building the first commercial plant to produce Topas, which
is expected to come on stream in the second half of 2000.
14
<PAGE> 17
The basic raw material for GUR and Topas is ethylene, a widely available
commodity chemical with cyclical pricing. Smaller volume specialty co-monomers
for COC production will be manufactured by Ticona.
Polyesters such as Celanex(R) polybutylene terephthalate, or PBT, and
Vandar(R) 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(R)
polyethylene terephthalate, or PET, is a polyester which exhibits rigidity and
strength useful in large injection molded part applications. Riteflex(R) is a
co-polyester which adds flexibility to the range of high performance properties
offered by Ticona's other products. 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 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, a 50-50
joint venture between Ticona and Kureha Chemicals Industry of Japan.
Celstran(R), Compel(R) and Fiberod(R) are long fiber reinforced thermoplastics,
which impart extra strength and stiffness, making them more suitable for larger
parts than conventional thermoplastics. Celanese(R) Nylon 6/6, a polyamide, is
resistant to lubricants and fuels, making it useful in automotive applications.
Raw materials for these products vary. Base monomers for polyesters, such
as dimethyl terephthalate or DMT and PTA, are widely available with pricing
dependent on the broader polyester fiber and packaging resins market conditions.
Smaller volume specialty co-monomers for these products are typically supplied
by a few companies. Celanese has entered into long-term contracts for the supply
of intermediate raw materials to produce Celanese Nylon 6/6.
Facilities
Ticona has polymerization, compounding and research and technology centers
in Germany and the United States, as well as additional compounding facilities
in the United Kingdom and Brazil. For the new COC materials, a Topas(R)
production facility is being built in Oberhausen, Germany, and is expected to
commence production in the second half of 2000. Polyplastics, in which Ticona
holds a 45 percent interest, completed the construction of a production facility
for polyacetals in Malaysia, which became operational in the first quarter of
2000. Polyplastics is a leading engineering resins supplier in the Asia/Pacific
region. In addition to Polyplastics, Ticona strengthened its position in the
Asia/Pacific region by acquiring a 50 percent share of Korea Engineering
Plastics in December 1999. Korea Engineering Plastics is a leader in the
marketing and production of polyacetals in Korea.
15
<PAGE> 18
Markets
The following chart illustrates the destination of 1999 net sales of the
Ticona segment by geographic region.
1999 NET SALES BY DESTINATION - TICONA SEGMENT
[PIE CHART]
<TABLE>
<S> <C>
North America 56
Europe/Africa 40
Rest of World 2
Asia/Australia 2
</TABLE>
Ticona's consolidated net sales do not include the sales of Polyplastics or
Korea Engineering Plastics, which are accounted for under the equity method. If
Ticona's portion of the sales made by Polyplastics and Korea Engineering
Plastics were included in the chart above, the percentage of sales sold in Asia/
Australia would increase substantially, reflecting Polyplastics' and Korea
Engineering Plastics' leading positions in those markets. Ticona's principal
customers are suppliers to the automotive industries as well as industrial
suppliers. These customers produce primarily engineered products, and Ticona
works closely with its customers to develop and improve specialized applications
and systems. Ticona has long-standing relationships with most of its major
customers, but it also uses distributors 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.
Competition
Ticona, together with its affiliates Polyplastics and Korea Engineering
Plastics, is one of the leading participants in the global technical polymers
business. Its principal competitors include Bayer AG, E. I. du Pont de Nemours
and Company ("DuPont") and General Electric Company. Smaller regional
competitors include Honeywell International Inc., Asahi/America, Inc., DSM NV
("DSM"), Mitsubishi, Royal Phillips Electronics N.V., Rhodia, Teijin Limited and
Toray Industries Inc.
PERFORMANCE PRODUCTS
The Performance Products segment consists of:
- the oriented polypropylene or OPP films business conducted by
Trespaphan, and
- the food ingredients business conducted by Nutrinova
These businesses use their own trade names to conduct business. The
following table lists key products of the Performance Products segment and their
major markets.
<TABLE>
<S> <C>
- -------------------------------------------- --------------------------------------------
KEY PERFORMANCE PRODUCTS MAJOR MARKETS
- -------------------------------------------- --------------------------------------------
OPP Films Packaging, Labeling and Electrical
Engineering (Capacitors)
- -------------------------------------------- --------------------------------------------
Sunett(R) Beverages, Confections, Dairy Products and
Pharmaceuticals
- -------------------------------------------- --------------------------------------------
Sorbates Dairy Products, Baked Goods, Beverages,
Animal Feeds, Spreads and Delicatessen
Products
- -------------------------------------------- --------------------------------------------
</TABLE>
16
<PAGE> 19
Business Lines
OPP Films. The OPP films business line, conducted by Trespaphan, was
formed in 1969. It manufactures and markets OPP films and is a significant
participant in the world-wide OPP films business and has a leading position in
Europe. Its OPP films are made from very pure polypropylene granules and are
oriented, high strength films which are very thin, ranging from 3.5um (0.0035
mm) to 100um (0.1 mm), which is about twice the diameter of a human hair. OPP
films are used in packaging of products such as foodstuffs and cigarette packs,
in labels and, because of their extreme purity, for highly technical purposes in
the production of capacitors.
The primary raw material of this business line is polypropylene, which is
readily available and is purchased from several third party suppliers. Prices
for the majority of this business's products are extremely sensitive to demand,
industry capacity and the cost of key raw materials.
Food Ingredients. The food ingredients business conducted by Nutrinova was
formed in 1997. Celanese's food ingredients business consists of two strategic
business lines: high intensity sweeteners and food protection ingredients, such
as sorbic acids and sorbates. Acesulfame K, a high intensity sweetener, marketed
under the trademark Sunett(R) is used in a wide variety of beverages,
confections and dairy products throughout the world.
The primary raw materials of this business line are diketene and sulfur
trioxide for Sunett(R) and ketene and crotonaldehyde for sorbic acids. Sunett
pricing for targeted applications reflects the value added in the precision
formulations and extensive technical services provided. Sorbates pricing is
extremely sensitive to demand and industry capacity and is not necessarily
dependent on the prices of raw materials.
Facilities
Trespaphan's primary activities are in Europe and North America, with
manufacturing plants in Germany, Mexico, France and South Africa. Trespaphan's
manufacturing plant in the United Kingdom was closed at the end of 1999 as part
of a strategic repositioning of the business. Nutrinova has production
facilities in Germany.
Markets
The following chart illustrates the destination of 1999 sales of the
Performance Products segment by geographic region.
1999 NET SALES BY DESTINATION - PERFORMANCE PRODUCTS
GRAPH
<TABLE>
<S> <C>
Europe/Africa 59
North America 28
Rest of World 10
Asia/Australia 3
</TABLE>
The market for OPP films is highly fragmented. Trespaphan has customers
mainly in the food packaging and tobacco industries. Nutrinova markets Sunett
directly, primarily to a limited number of large multinational and regional
customers in the beverage and food industry under long-term 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 under contracts which
typically have one-year terms.
<PAGE> 20
Competition
Principal competitors of Trespaphan are Exxon Mobil Corporation, AET Inc.,
Formosa Plastics Corporation and Moplefan; Nutrinova's principal competitors are
Monsanto Company, Inc., Holland Sweetener Company, Eastman, Daicel, several
other Japanese manufacturers and several Chinese manufacturers.
OTHER ACTIVITIES
The most significant of Celanese's Other Activities are its general
corporate functions and companies which provide infrastructure and procurement
services.
DISCONTINUED OPERATIONS
As part of Celanese's plan to shed its non-core businesses, Celanese
divested the following businesses during 1999:
In September 1999, Teva Pharmaceutical Industries, Ltd. acquired all the
outstanding shares of Copley Pharmaceutical, Inc. ("Copley"), of which Celanese
owned approximately 52 percent.
In December 1999, Celanese sold the following non-core businesses and
investments:
- its polyester fiber and bottle resin business in Millhaven, Ontario,
Canada, to KoSa, a company owned by a consortium between Koch
Industries, a U.S. company, and a Mexican company owned by Isaac Saba.
- its ethylene oxide/ethylene glycol business to Old World Industries,
Inc.
- its U.S. and Japanese separation products business, Celgard, to Daramic
Inc., a wholly owned subsidiary of Polypore Inc. Celgard manufactures
and markets flat sheet separators for use in batteries, disposable
lighters and blood oxygenators, and hollow fiber membranes for degassing
liquids. Celanese expects to sell the remaining portion of this business
during 2000.
- its 46 percent holding in the fluoropolymer manufacturer Dyneon to the
Minnesota Manufacturing and Mining Company ("3M"). Dyneon, a joint
venture founded in 1996, was created to integrate the fluoropolymer
businesses of 3M and Hoechst.
- its 50 percent share in the polypropylene joint venture Targor to BASF.
Founded in 1997, Targor GmbH was created to integrate the polypropylene
businesses of BASF and Hoechst.
Celanese's gross proceeds from these transactions totaled approximately
E1,001 million.
In January 2000, Celanese sold its phosphorus activities conducted by the
Thermphos Group, which produces phosphorus and phosphorus derivatives, to a
consortium that includes Thermphos' management.
In February 2000, Celanese signed letters of intent with Advent
International Corporation, a private equity firm that advises institutional
funds for the sale of its subsidiary Vintron, a manufacturer of polyvinyl
chloride located in Knapsack/Hurth, Germany, as well as its 50 percent interest
in Vinnolit, a joint venture with Wacker Chemie GmbH and a leading European
producer of high performance polyvinyl chloride or PVC. Both transactions are
expected to be completed during 2000. For more information on Discontinued
Operations, see Note 5 to the Consolidated Financial Statements.
RAW MATERIALS AND ENERGY
Celanese purchases a variety of raw materials for use in its production
processes. Celanese has a policy of maintaining, when available, multiple
sources of supply for materials. Although some of Celanese's individual
businesses may have single suppliers for some of their raw materials, Celanese
is not dependent on a limited number of suppliers for essential raw materials.
Celanese obtains its supplies of raw materials from a number of countries.
Celanese has not experienced difficulty in obtaining sufficient supplies of raw
materials in recent years and believes that it will be able to obtain them in
sufficient
18
<PAGE> 21
quantities in the future. However, there can be no assurance that Celanese's
ability to obtain sufficient raw materials will not be adversely affected by
unforeseen developments. In addition, the price of raw materials may vary,
perhaps substantially, from year to year.
Celanese's production facilities rely largely on coal, fuel oil, natural
gas and electricity for energy. In the United States, these raw materials and
energy are predominantly purchased directly by Celanese's operating businesses.
With respect to Celanese's European operations, most of these raw materials are
centrally purchased by special purpose subsidiaries of Celanese which also buy
raw materials on behalf of third parties.
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 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 grant 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. Celanese monitors its competitors
and vigorously challenges patent and trademark infringement.
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.
RESEARCH AND DEVELOPMENT
Celanese conducts its own research and development activities to increase
its competitiveness. Celanese's United States research and development functions
are located in Corpus Christi, Texas - Acetyl Products and Chemical
Intermediates; Charlotte, North Carolina - Acetate Products; and Auburn Hills,
Michigan and Summit, New Jersey - Ticona. Outside the United States, Celanese
has research facilities in Oberhausen, Germany - Acetyl Products, Chemical
Intermediates and Ticona; and Frankfurt, Germany - Ticona. Celanese entered into
an exclusive partnership with Symyx Technologies of Santa Clara, California for
research on the oxidation of hydrocarbons. Celanese also continues to source
some process technology from Axiva GmbH ("Axiva"). In December 1999 Celanese
signed an agreement with the owner of Axiva, Aventis Research & Technologies
GmbH & Co. KG, a Hoechst subsidiary, to purchase Axiva. In addition to the
process technology division, Axiva's business activities are in the areas of
engineering and production development consulting. The sale is expected to close
at the end of the second quarter of 2000. The estimated purchase price is
expected to be less than E40 million.
The Acetyl Products and Chemical Intermediates segments have been focusing
on improving core production technologies, for example, in acetic acid, oxo
products, acrylic acid, vinyl acetate monomer and polyols, on improving catalyst
development, and supporting both debottlenecking and cost reduction efforts. New
business opportunities for amines and oxo derivatives are developed in
conjunction with research and development support from both Oberhausen and
Corpus Christi technical centers.
The Acetate Products segment has been focusing on developing new fabrics
using acetate filament and new applications, such as wound dressings, for other
acetate materials and actively files patent applications worldwide for these new
applications.
19
<PAGE> 22
Research in the 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. This
effort involves the entire value chain from improved polymerization and
compounding to working closely with end-users to identify new applications that
can take advantage of these high performance features. Ticona is continuously
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 maintain low cost
leadership without sacrificing high quality processing. For example, Ticona has
developed a new technical material, Topas(R), a metallocene catalyst based
cycloolefin copolymer. Ticona's research efforts have focused on developing
manufacturing processes, and its market development efforts have focused on
specialized applications for Topas in such areas as high-performance films,
electronics, optical storage media and medical devices and packaging.
The research and development activities of the Performance Products segment
are conducted by the two businesses separately. Trespaphan's research and
development activities in Neunkirchen, Germany and Mantes, France, are focused
on the development of new film types for established and new applications.
Trespaphan also has focused on improving its manufacturing processes in order to
maintain low cost leadership as well as high quality for its film products.
Nutrinova's research and development activities in Frankfurt, Germany are
directed towards expanding its existing technologies and developing new
applications for existing products in close cooperation with its customers.
Celanese owns, or is licensed under, more than 10,000 patents relating to
its products and manufacturing processes, some of which are important to
specific commercial operations. As patents expire, the products and processes
described and claimed in those patents become generally available for use by the
public. No single patent or group of patents is considered material to the
business as a whole. Celanese also has licenses under patents and other
intellectual property developed by third parties, including Hoechst and its
current and former affiliates.
Celanese has developed and acquired technical information and owns patents,
some of which have been licensed to affiliates and others worldwide. Payments to
Celanese from these licenses in 1999 were E1 million.
Research and development costs are included in expenses as incurred.
Celanese's research and development costs for 1999, 1998 and 1997, were E79
million, E101 million and E133 million, respectively. For additional information
on Celanese's research and development expenses, see "Item 9. Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Annual Results of Operations: 1999 Compared with 1998", and "1998
Compared with 1997".
In research and development activities, at December 31, 1999, Celanese
employed approximately 600 individuals, including approximately 200
professionals.
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:
- Emissions to the air;
- Discharges to surface and subsurface waters;
- Other releases into the environment;
- Generation, handling, storage, transportation, treatment and disposal of
waste materials; and
- Maintenance of safe conditions in the workplace.
20
<PAGE> 23
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 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. As is typical for chemical businesses, soil and groundwater
contamination has occurred in the past at some Celanese sites, and might occur
or be discovered at other sites.
It is Celanese's policy to comply with all environmental, health and safety
requirements and to provide workplaces for employees that are safe and
environmentally sound. In some cases, compliance can be achieved only by
incurring capital expenditures. In 1999, Celanese's worldwide expenditures,
including those with respect to third party and divested sites, for compliance
with environmental control regulations and internal company initiatives totaled
E116 million, of which E14 million was for capital projects. Celanese's 2000
budget calls for expenses, including capital projects, of E122 million. 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.
Celanese is subject to claims brought by United States federal or state
regulatory agencies or private individuals regarding the clean-up of sites that
Celanese owns, owned, operated or where waste from its operations was disposed.
In particular, Celanese has a potential liability under the United States
Federal Comprehensive Environmental Response, Compensation, and Liability Act,
commonly known as Superfund, the United States Resource Conservation and
Recovery Act and related state laws for investigation and clean-up costs at
approximately 100 sites. At most of these sites, numerous companies, including
Celanese, or one of its predecessor companies, have been notified that the 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 clean-up process has not been
completed at most sites, and the status of the coverage under some insurance
policies for many of these proceedings is in litigation. Celanese regularly
reviews the liabilities for these sites and has accrued its best estimate of its
ultimate liability for investigation or clean-up costs, but, due to the many
variables involved in such estimation, the ultimate liability may vary from
these estimates. Expenditures for investigation, clean-up and related activities
have been E28 million for the three years ended December 31, 1999, with
expenditures in no year greater than E13 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, Kelsterbach and Muenchsmuenster.
Producers at the sites, including subsidiaries of Celanese, are owners of
limited partnership interests in the respective InfraServ companies. In
connection with the demerger, Hoechst transferred all of its limited partnership
interests in InfraServ companies for all of Hoechst's production sites in
Germany except for Marburg, which is a life sciences production site, to
Celanese. All other arrangements and the activities involving the InfraServ
companies and their shareholders remain unchanged.
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 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 which cannot be attributed to an
InfraServ partner is required to be borne by the InfraServ company in question.
The
21
<PAGE> 24
limited partners are also obligated to indemnify InfraServ Verwaltungs GmbH
against any such liability. In view of this potential obligation to eliminate
residual contamination, the InfraServ companies have recorded provisions
totaling approximately E262 million as of December 31, 1999, of which E55
million have been included in the consolidated reserves for environmental
liabilities of Celanese. 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 and
Transfer Agreement entered into between Hoechst and Celanese (the "Demerger
Agreement"). As between Hoechst and Celanese, Hoechst has agreed to indemnify
Celanese for two-thirds of these demerged residual liabilities.
Some of Celanese's facilities in Germany are over 100 years old, and there
may be significant contamination at these facilities. Consistent with German law
and with agreements with the relevant governmental entities, Celanese is
addressing this contamination at its German facilities. With respect to German
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. The provision includes
all costs estimated to be incurred over the next 10 years that are probable and
can be reasonably estimated.
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 Note 24 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.
Celanese reserved, as of December 31, 1999, E395 million for environmental
matters.
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. See Note 4 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.
EMPLOYEES
As of December 31, 1999, Celanese had approximately 14,900 employees
worldwide employed in continuing businesses. Celanese had about 6,300 employees
in the United States, 4,900 employees in Europe, 3,400 in Mexico, Brazil and
Canada, 140 employees in Asia and 160 employees in Africa. Many
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<PAGE> 25
of Celanese's employees are unionized, particularly in Germany, Canada, Mexico,
Brazil and France. However, in the United States, fewer 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 works 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 is typical. Celanese
offers comprehensive benefit plans for employees and their families and believes
its relations with employees are satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY
Celanese's principal executive offices are currently located in Frankfurt
am Main, Germany, but are expected to be relocated to Kronberg/Taunus, Germany
in the near future.
As of December 31, 1999, 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.
The following table sets forth a list of the principal production,
manufacturing and other facilities of Celanese throughout the world, including
its joint venture properties.
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
CORPORATE CENTER
- -------------------------------------------------------------------------------------------------------
SITE LEASED/OWNED
- -------------------------------------------------------------------------------------------------------
Frankfurt am Main, Germany Owned by InfraServ GmbH & Co. Hoechst KG in
which Celanese holds a 27.2 percent limited
partnership interest
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
ACETYL PRODUCTS
- -------------------------------------------------------------------------------------------------------
SITE LEASED/OWNED
- -------------------------------------------------------------------------------------------------------
Bay City, Texas, USA Owned
- -------------------------------------------------------------------------------------------------------
Bishop, Texas, USA Owned
- -------------------------------------------------------------------------------------------------------
Cangrejera, Veracruz, Mexico Owned
- -------------------------------------------------------------------------------------------------------
Clear Lake, Texas, USA Owned; the methanol operation of this
facility is owned by a joint venture
- -------------------------------------------------------------------------------------------------------
Edmonton, Alberta, Canada Owned
- -------------------------------------------------------------------------------------------------------
Frankfurt am Main, Germany Owned by InfraServ GmbH & Co. Hoechst KG in
which Celanese holds a 27.2 percent limited
partnership interest
- -------------------------------------------------------------------------------------------------------
Knapsack, Germany Owned by InfraServ GmbH & Co. Knapsack KG in
which Celanese holds a 42.0 percent limited
partnership interest
- -------------------------------------------------------------------------------------------------------
Pampa, Texas, USA Owned
- -------------------------------------------------------------------------------------------------------
Singapore, Singapore Owned
- -------------------------------------------------------------------------------------------------------
Tarragona, Spain Owned
- -------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 26
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
CHEMICAL INTERMEDIATES
- -------------------------------------------------------------------------------------------------------
SITE LEASED/OWNED
- -------------------------------------------------------------------------------------------------------
Bay City, Texas, USA Owned
- -------------------------------------------------------------------------------------------------------
Bucks, Alabama, USA Owned
- -------------------------------------------------------------------------------------------------------
Clear Lake, Texas, USA Owned
- -------------------------------------------------------------------------------------------------------
Oberhausen, Germany Owned by InfraServ GmbH & Co. Oberhausen KG
in which Celanese holds an 84.0 percent
limited partnership interest
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
ACETATE PRODUCTS
- -------------------------------------------------------------------------------------------------------
SITE LEASED/OWNED
- -------------------------------------------------------------------------------------------------------
Edmonton, Alberta, Canada Owned
- -------------------------------------------------------------------------------------------------------
Kunming, Yunnan, China Leased by a joint venture in which Celanese
has an interest
- -------------------------------------------------------------------------------------------------------
Lanaken, Belgium Owned
- -------------------------------------------------------------------------------------------------------
Nantong, Jiangsu, China Leased by a joint venture in which Celanese
has an interest
- -------------------------------------------------------------------------------------------------------
Narrows, Virginia, USA Owned
- -------------------------------------------------------------------------------------------------------
Ocotlan, Jalisco, Mexico Owned
- -------------------------------------------------------------------------------------------------------
Rock Hill, South Carolina, USA Owned
- -------------------------------------------------------------------------------------------------------
Zhuhai, Guandang, China Leased by a joint venture in which Celanese
has an interest
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
TICONA
- -------------------------------------------------------------------------------------------------------
SITE LEASED/OWNED
- -------------------------------------------------------------------------------------------------------
Auburn Hills, Michigan, USA Leased
- -------------------------------------------------------------------------------------------------------
Bayport, Texas, USA Leased
- -------------------------------------------------------------------------------------------------------
Bishop, Texas, USA Owned
- -------------------------------------------------------------------------------------------------------
Florence, Kentucky, USA Owned
- -------------------------------------------------------------------------------------------------------
Frankfurt am Main, Germany Owned by InfraServ GmbH & Co. Hoechst KG in
which Celanese holds a 27.2 percent limited
partnership interest
- -------------------------------------------------------------------------------------------------------
Kelsterbach, Germany Owned by InfraServ GmbH & Co. Kelsterbach KG
in which Celanese holds a 100.0 percent
limited partnership interest
- -------------------------------------------------------------------------------------------------------
Oberhausen, Germany Owned by InfraServ GmbH & Co. Oberhausen KG
in which Celanese holds an 84.0 percent
limited partnership interest
- -------------------------------------------------------------------------------------------------------
Shelby, North Carolina, USA Owned
- -------------------------------------------------------------------------------------------------------
Summit, New Jersey, USA Owned
- -------------------------------------------------------------------------------------------------------
Wilmington, North Carolina, USA Owned by a joint venture in which Celanese
has a controlling interest
- -------------------------------------------------------------------------------------------------------
Winona, Minnesota, USA Owned
- -------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 27
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------
PERFORMANCE PRODUCTS
- -------------------------------------------------------------------------------------------------------
SITE LEASED/OWNED
- -------------------------------------------------------------------------------------------------------
Frankfurt am Main, Germany (Nutrinova) Owned by InfraServ GmbH & Co. Hoechst KG in
which Celanese holds a 27.2 percent limited
partnership interest
- -------------------------------------------------------------------------------------------------------
Neunkirchen, Germany (Trespaphan) Owned
- -------------------------------------------------------------------------------------------------------
Zacapu, Michoacan, Mexico (Trespaphan) Owned
- -------------------------------------------------------------------------------------------------------
</TABLE>
Also, other affiliates of Celanese have production facilities in Saudi
Arabia, Taiwan, Japan, South Korea and Malaysia. Polyplastics has its principal
production facilities in Japan and Taiwan.
In 1999, Celanese and its consolidated subsidiaries, in the aggregate, had
capital expenditures for the expansion and modernization of production,
manufacturing, research and administrative facilities of E262 million. In 1998
these expenditures amounted to E345 million. 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.
For information on environmental issues associated with Celanese's
properties, see "Item 1. Description of Business - Environmental and Other
Regulation" and "Item 9. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Environmental Matters." Additional
information with respect to Celanese's property, plant and equipment, and leases
is contained in Notes 10 and 21 to the Consolidated Financial Statements.
ITEM 3. 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.
Plumbing Actions
CNA Holdings Inc. ("CNA Holdings") is a United States subsidiary of
Celanese that previously operated under the HNA Holdings, Inc. and Hoechst
Celanese Corporation corporate names and currently serves as a holding company
for Celanese's businesses in North America, including the United States business
now conducted by Ticona. CNA Holdings, along with Shell and 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. 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 nine putative class actions, as
well as a defendant in other non-class actions filed in thirteen states 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. The putative class actions are pending in:
- the Ninth Judicial Circuit Court of Common Pleas of South Carolina,
Charleston County;
- the Territorial Court of the Virgin Islands, St. Croix Division;
- the Supreme Court of British Columbia, Canada;
- the Superior Court, Province of Quebec, Canada;
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<PAGE> 28
- the Ontario Canada Court, General Division; and
- the U.S. District Court of the Eastern District of Texas, Texarkana
Division
A conditionally certified class action (of recreational vehicle owners) is
pending in the Chancery Court of Tennessee, Weakley County.
A putative class action (of insurance companies with respect to subrogation
claims), as well as an individual action (by Prudential Property & Casualty
Insurance Company with respect to its subrogation claims), are pending in the
United States District Court for the District of New Jersey and in the Superior
Court of New Jersey, Camden.
A putative class action pending in the Circuit Court of the Fifth Judicial
Circuit, Florida, Marion County was certified on behalf of homeowners who
claimed to have opted out of the national settlement discussed below. The Fifth
District Court of Appeals for the State of Florida reversed that ruling in an en
banc order filed in February 2000, which order is subject to further appeal.
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 E944 million. There are additional pending lawsuits in
approximately 20 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. The allocation of certain
payments already made to the claimants and certain future payments was subject
to a binding arbitration between CNA Holdings and Shell, which was completed in
June 1999. Appeals from the arbitration decision were filed in the Supreme Court
of the State of New York, New York County and in the Superior Court of the
District of Columbia. In February 2000, CNA Holdings and Shell reached an
agreement which, among other things, resolved the appeals and other claims
between the parties, and pursuant to which Celanese paid an amount which was
fully accrued for in prior periods.
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 E145 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. CNA Holdings' and Shell's contributions under
this settlement were subject to allocation in the above binding arbitration.
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.
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 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. For further information on this matter, see also Note 23 to the
Consolidated Financial Statements.
Fugitive Emissions Standards
In 1990, the EPA issued a notice of violation to CNA Holdings alleging that
its Rock Hill, South Carolina plant was subject to fugitive emissions standard
for benzene under the Clean Air Act based upon
26
<PAGE> 29
the volume of benzene used at the facility. CNA Holdings contested the notice of
violation because it believed it had correctly determined in 1984 that the
calculation of benzene usage for determining applicability of the standard did
not include amounts recirculated within the process after initial use. By 1991,
CNA Holdings met the fugitive emissions standard as interpreted by the EPA for
its three facilities that used benzene: Rock Hill, South Carolina, Narrows,
Virginia and Bishop, Texas.
In 1992, 1993 and 1995, the United States Department of Justice, on behalf
of the EPA, filed enforcement actions against CNA Holdings regarding the three
plants in federal district courts in South Carolina, Virginia and Texas seeking
penalties of up to $25,000 per day. The Virginia and Texas cases were, for most
of the time, stayed by consent of the parties while the South Carolina case was
litigated through denial of a petition for certiorari to the U.S. Supreme Court.
The appellate court in that case upheld the EPA's interpretation of the standard
but affirmed that CNA Holdings did not have notice of that interpretation prior
to August 1989; thus no penalties could be assessed prior to that date. The
appellate court remanded the case to the district court for a determination of
what penalty, if any, should be assessed for the period from August 1989 when
CNA Holdings received actual notice of EPA's interpretation through the plants'
achievement of compliance in September 1991. The parties have agreed to
non-binding mediation to aid settlement negotiations before resuming litigation
in the district court and are currently discussing the timetable for this
non-binding mediation.
Generic Pharmaceuticals Litigation
In September 1998, Great Neck Capital Appreciation Partnership filed a
complaint derivatively on behalf of Copley, a former subsidiary of Celanese
Americas Corporation ("Celanese Americas"), formerly known as Hoechst
Corporation in a Massachusetts Superior Court against six of Copley's directors,
which was thereafter amended to add Celanese Americas as a defendant. The
amended complaint alleged that Celanese Americas used Copley for its own
benefit, injured Copley's ability to compete and compromised the independence of
Copley's independent directors. The complaint also alleged that the six
directors allowed Celanese Americas to use Copley and otherwise breached their
fiduciary duties to Copley. In February 2000, a final judgment dismissing the
case was entered, with no costs or damages being awarded to the plaintiffs.
In May 1999, two Copley shareholders filed a complaint derivatively on
behalf of Copley in the Delaware Chancery Court against Celanese Americas,
Hoechst and five Copley directors. This complaint alleged that Celanese Americas
breached various fiduciary duties to Copley in connection with agreements
between Celanese Americas and Copley and also breached these agreements. It also
alleged that Celanese Americas took various actions with respect to the
management of Copley and its efforts to find a buyer for Copley and that it
prevented Copley from developing a product that would compete with a product
sold by an affiliate of Hoechst. In January 2000, a final judgment dismissing
the case was entered, with no costs or damages being awarded to the plaintiffs.
Antitrust
In 1998, Nutrinova Inc., a U.S. subsidiary of Nutrinova Nutrition
Specialties & Food Ingredients 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 government agreed to recommend that the U.S. District Court fine Hoechst
E31 million. Hoechst also agreed to cooperate with the 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.
27
<PAGE> 30
In addition, the following 15 civil antitrust actions seeking monetary
damages and other relief for alleged conduct involving the sorbates industry,
have been filed in California, Tennessee, Wisconsin and Kansas naming Nutrinova
and other Hoechst and Celanese subsidiaries as defendants.
- Five actions, four filed in Superior Court of the State of California,
County of San Francisco, and one filed in the Superior Court of the
State of California, County of Sacramento, relating to indirect
purchasers of sorbates in California, were consolidated into a single
action in May 1999.
- Kelley Supply, Inc. v. Nutrinova Inc. and Hoechst AG, filed on July 1,
1999 in the Circuit Court for the State of Wisconsin, Dane County.
- Williams Foods, Inc. v. Eastman Chemical Co., and others, was filed on
December 3, 1999 in the District Court of the State of Kansas, Johnson
County.
- Orlando's Bakery v. Nutrinova Nutrition Specialties & Food Ingredients
GmbH, et. al. was filed on February 24, 1999 in the 20th Judicial
District, Chancery Court in Nashville, Tennessee.
- Seven separate actions involving plaintiffs who purchased sorbates
directly from manufacturers, their subsidiaries, and their agents in the
United States from 1979 through 1997 and filed in the United States
District Court for the Northern District of California were consolidated
into one single action in June 1999. On March 9, 2000, Hoechst AG,
Nutrinova, Inc., Nutrinova Nutrition Specialties & Food Ingredients
GmbH, CNA Holdings, and other defendants entered into a settlement of
this consolidated civil antitrust federal action. Under the settlement
agreement, which is subject to court approval, Hoechst AG and the named
Celanese subsidiaries will make a $20 million (approximately E20
million) payment in the first quarter of 2000. Pursuant to the Demerger
Agreement, Celanese's portion of the payment is approximately E4
million. This amount had been fully accrued for at December 31, 1999.
Except for the consolidated civil antitrust federal action, these actions
are in the early stages of litigation.
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. In the Demerger Agreement,
Hoechst agreed to pay 80 percent of liabilities that may arise from the
government investigation and the civil antitrust actions related to the sorbates
industry.
ITEM 4. CONTROL OF REGISTRANT
The capital stock of Celanese consists of ordinary shares, no par value
(Stuckaktien), which are issued in registered form.
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 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.
28
<PAGE> 31
The table below sets forth, as of December 31, 1999, the number of Celanese
ordinary shares held by holders of more than 10 percent of Celanese ordinary
shares and their percentage ownership, and the total number and percent of
Celanese ordinary shares owned by members of Celanese's supervisory board and
its management board and other officers of Celanese (including those 14 officers
of Celanese who are not members of the management board but have primary
responsibility for a Celanese global business or corporate function
("Officers")) as a group:
<TABLE>
<CAPTION>
IDENTITY OF PERSON OR GROUP SHARES OWNED PERCENT
--------------------------- ------------ -------
<S> <C> <C>
Kuwait Petroleum Corporation ("KPC").................... 14,400,000 25.8
Members of the supervisory and management boards and
Officers (31 persons)................................. 213,622 0.38
</TABLE>
Celanese has been informed that KPC, which is controlled by the Government
of Kuwait, had direct shareholdings representing approximately 25.8 percent of
the outstanding Celanese shares as of December 31, 1999. Celanese is not aware
of any voting agreements or other agreements of any kind between KPC and any of
Celanese's other shareholders. 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 may have 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 10.
Directors and Officers of Registrant."
ITEM 5. NATURE OF TRADING MARKET
GENERAL
In connection with the demerger, the Celanese shares were listed on the
Frankfurt Stock Exchange and on the New York Stock Exchange. As 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 the symbol "CZZ" and under the German securities code number
(Wertpapierkennummer) 575 300.
The transfer agents for Celanese ordinary shares are Registrar Services
GmbH in Germany (the "Transfer Agent") and ChaseMellon Shareholder Services in
the United States (the "U.S. Transfer Agent"). As of March 17, 2000, Celanese
had approximately 140,000 shareholders. Approximately 7,000 of these
shareholders were U.S. holders. Approximately 13 percent of Celanese ordinary
shares were held by U.S. holders as of that date.
TRADING ON THE FRANKFURT STOCK EXCHANGE
The Frankfurt Stock Exchange, which is operated by Deutsche Borse AG
("Deutsche Borse"), is the most significant of the eight German stock exchanges
and accounted for approximately 80 percent of the turnover in exchange-traded
shares in Germany in 1999. As of December 31, 1999, the equity securities of
3,265 corporations, including 2,554 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 5:30 p.m., Central European Time. Securities listed
on the Frankfurt Stock Exchange are generally traded in the auction market, but
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.
29
<PAGE> 32
A computerized trading system known as Xetra is operated by Deutsche Borse.
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 5:30 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, e.g., some 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.
Celanese shares have been included in the M-DAX index since March 20, 2000.
The M-DAX is a continuously updated, capital-weighted performance index of the
lower 70 of the top 100 German highly capitalized companies. In principle, the
shares included in the M-DAX are selected on the basis of their stock exchange
turnover and their market capitalization.
The table below sets forth, for the periods indicated, the high and low
sales prices on the Frankfurt Stock Exchange for Celanese ordinary shares from
October 25, 1999, the first day on which Celanese ordinary shares officially
traded on the Frankfurt Stock Exchange, as reported by that exchange.
<TABLE>
<CAPTION>
PRICE PER
ORDINARY SHARE
-----------------
HIGH LOW
----- -----
(IN E)
<S> <C> <C>
1999
Fourth Quarter (from October 25, 1999).................... 18.43 14.20
2000
First Quarter (through March 17, 2000).................... 24.50 17.90
</TABLE>
Based on turnover statistics supplied by the Frankfurt Stock Exchange, the
average daily volume of Celanese ordinary shares traded on the exchange between
October 25, 1999 and December 31, 1999 was 115,122, and 260,430 on the Xetra
system.
On March 17, 2000, the closing sales price per Celanese ordinary share on
the Frankfurt Stock Exchange was E19.30, which was equivalent to U.S.$19.00 per
ordinary share, translated at the Noon Buying Rate for euro on such date. See
the discussion under "Item 8. Selected Financial Data" 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.
30
<PAGE> 33
The following table sets forth, for the period 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>
1999
Fourth Quarter (from October 25, 1999)*................... 19.00 14.88
2000
First Quarter (through March 17, 2000).................... 24.56 17.50
</TABLE>
- ------------------------------
* Official "regular way" trading of Celanese ordinary shares commenced on
October 26, 1999. Celanese ordinary shares were traded on a when-issued basis
from October 25, 1999 to October 26, 1999.
On March 17, 2000, 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.$19.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
Effective January 1, 1999, Germany and 10 other member states of the
European Union introduced the euro as their common currency and established
fixed conversion rates between their existing sovereign currency and the euro.
The DM and the euro are fully convertible currencies. 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), subject only to immaterial
exceptions, any payment received from or made to an individual or a corporation
resident outside Germany if such payment exceeds DM 5,000 or the equivalent in a
foreign currency or in euro. 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 DM 3 million or the equivalent in a
foreign currency or in euro during any one month. German residents must also
report any direct investment outside Germany if such investment exceeds DM
100,000 or the equivalent in a foreign currency or in euro.
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.
ITEM 7. TAXATION
The following is a discussion of the 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 which (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 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
31
<PAGE> 34
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 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 in an amount equal to 25 percent of the gross amount paid to resident
and nonresident shareholders. Subject to limitations, a partial refund of this
25 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 income taxes paid. The amount of
the refund of German withholding tax and the determination of the foreign tax
credit allowable against United States federal income tax generally depend on
whether or not the Qualified Holder is a United States corporation owning at
least 10 percent of Celanese shares.
In the case of any Qualified Holder, the German withholding tax is
partially refunded under the Income Tax Treaty, effectively reducing the
withholding tax to 15 percent of the gross amount of the dividend. In addition,
so long as the German imputation system provides German resident individual
shareholders with a tax credit in respect of dividends paid by German
corporations, the Income Tax Treaty provides that Qualified Holders are entitled
to an additional refund equal to 5 percent of the gross amount of the dividend.
For United States federal income tax purposes, the benefit resulting from this
additional 5 percent treaty refund is treated as a refund received by the
Qualified Holder with respect to German corporate taxes equal to 5.88 percent of
the gross amount of the dividend, subject to a German withholding tax of 0.88
percent (15 percent of 5.88 percent). Qualified Holders will not be entitled to
the dividends received deduction with respect to dividends paid by Celanese.
Thus, for each U.S.$100 of gross dividend paid by Celanese to a Qualified
Holder, the dividend after partial refund of the 25 percent withholding tax
under the Income Tax Treaty will be subject to a German withholding tax of
U.S.$15. If the Qualified Holder also applies for the additional 5 percent
treaty refund, German withholding tax is effectively reduced to U.S.$10; the
cash received per U.S.$100 of gross dividend is U.S.$90. For United States
federal income tax purposes, the Qualified Holder is generally treated as
receiving a total dividend of U.S.$105.88 (to the extent paid out of current or
accumulated earnings and profits of Celanese as determined for United States
federal income tax purposes), consisting of the U.S.$100 gross dividend and the
deemed refund of German corporate tax of U.S.$5.88. The notional U.S.$105.88
dividend is deemed to have been subject to German withholding tax of U.S.$15.88.
Thus, for each U.S.$100 of gross dividend, the Qualified Holder will include
U.S.$105.88 in gross income and may be entitled to a foreign tax credit of
U.S.$15.88, subject to applicable limitations of United States federal income
tax law.
The German government recently proposed the repeal, generally effective for
profits generated as of January 1, 2001, of the German imputation system that
provides German resident individual shareholders with a tax credit in respect of
dividends paid by German corporations. If the proposed repeal of the German
imputation system were enacted, Qualified Holders would not thereafter be
entitled to the additional 5 percent treaty refund. Celanese cannot predict
whether this proposal will be enacted into law in Germany.
Dividends paid in DM (or 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
32
<PAGE> 35
(including any deemed refund of German corporate tax) are received or treated as
received by such holder. If dividends paid in DM (or 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. Effective January 1, 1998, the
rate of this surtax has been reduced from 7.5 percent to 5.5 percent. Based on
the new rate, the surtax amounts to 1.375 percent (5.5 percent x 25 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 reduction of the German withholding tax
from 25 percent to 15 percent, the additional 5 percent treaty refund and the
refund of the 5.5 percent German surtax, when applicable, a Qualified Holder
must submit (either directly or, if arrangements are made with a depositary,
through a depositary) 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, from the
Embassy of the Federal Republic of Germany, 4645 Reservoir Road, N.W.,
Washington, D.C. 20007-1998 or from the Office of the Assistant Commissioner
(International), Internal Revenue Service, 950 L'Enfant Plaza South, S.W.,
Washington, D.C. 20224.
Qualified Holders must also submit to the German tax authorities
certification (IRS Form 6166) 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 certification with
the Internal Revenue Service Center in Philadelphia, Pennsylvania, Foreign
Certificate 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. 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.
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 reduction in German
withholding tax from 25 percent to 15 percent (to 5 percent for 10 percent
Qualified Holders), the additional 5 percent treaty refund 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 (IRS Form 6166) of their last filed United States federal
income tax return. The U.S. Transfer Agent will attach the signed statement, the
IRS Form 6166 and the documentation issued by the paying agency documenting the
33
<PAGE> 36
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 DM or 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 Sates 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 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.
34
<PAGE> 37
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.
ITEM 8. SELECTED FINANCIAL DATA
The following table presents selected consolidated financial information of
Celanese. You should read this table in conjunction with "Item 9. Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
audited Consolidated Financial Statements and the notes to those statements that
are included elsewhere in this annual report. The Consolidated Financial
Statements reflect, for the periods indicated, the financial condition, results
of operations and cash flows of the businesses transferred from Hoechst and have
been presented to exclude the effects of discontinued operations. All the
consolidated financial data have been prepared in accordance with U.S. GAAP.
The balance sheet data set forth below for the fiscal years 1999 and 1998,
and the statement of operations data for the fiscal years 1999, 1998 and 1997,
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 data for the year end 1997 is derived from audited Consolidated
Financial Statements not included in this Annual Report. The statement of
operations and balance sheet data for the fiscal years ended 1996 and 1995 are
derived from unaudited Consolidated Financial Statements not included in this
Annual Report. The selected financial data for the fiscal years 1996 and 1995
have been prepared on a basis consistent with that of the audited Consolidated
Financial Statements and, in the opinion of Celanese's management, include all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation.
Effective January 1, 1999, Germany and 10 other member states of the
European union introduced the euro as their common currency and established
fixed conversion rates between their existing sovereign currencies and the euro.
The Consolidated Financial Statements for each period presented on or before
December 31, 1998 have been prepared using the Deutsche Mark and have been
restated in euro using the official fixed conversion rate between the euro and
the Deutsche Mark of DM 1.95583 per E1.00. Accordingly, the Consolidated
Financial Statements for all periods prior to December 31, 1998 depict the same
trends that would have been presented had they been presented using the Deutsche
Mark. Because the consolidated financial information for those periods was
originally prepared using the Deutsche Mark, it is not necessarily comparable to
financial statements of other companies which originally prepared financial
statements in a European currency other than the Deutsche Mark and subsequently
converted that other currency into euro. Beginning January 1, 1999, Celanese's
Consolidated Financial Statements have been prepared in euro and are no longer
restated from Deutsche Mark into euro.
35
<PAGE> 38
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
(UNAUDITED) (AUDITED) (UNAUDITED)
-------------- ------------------------------------ ---------------------
U.S. $ E E E E E
------ --------- ------------ --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA, PERCENTAGES AND NUMBER OF EMPLOYEES)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (FOR
PERIOD):
Net sales............................... 4,348 4,318 4,344 4,951 4,325 4,395
Cost of sales........................... (3,646) (3,621) (3,454) (3,862) (3,392) (3,251)
Gross profit............................ 702 697 890 1,089 933 1,144
Selling, general and administrative
expenses.............................. (574) (570) (535) (575) (329) (233)
Research and development expenses....... (80) (79) (101) (133) (128) (114)
Special charges(1)...................... (563) (559) (100) (103) (119) (266)
Operating profit (loss)(2).............. (524) (521) 168 267 347 587
Interest and other income, net(3)....... 72 71 75 83 93 109
Income tax benefit (expense)............ 84 83 (109) (83) (148) (177)
Minority interests...................... 7 7 (40) (63) (61) (88)
Earnings (loss) from continuing
operations............................ (505) (502) (56) 38 46 212
Earnings (loss) from discontinued
operations............................ 312 310 12 9 (128) (210)
Net earnings (loss)..................... (208) (207) (44) 47 (82) 2
Basic net earnings (loss) per ordinary
share(4).............................. (3.72) (3.70) (0.79) 0.84 (1.47) 0.04
BALANCE SHEET DATA (END OF PERIOD):
Total assets............................ 7,581 7,527 7,358 6,185 5,657 5,254
Debt.................................... 955 948 1,479 1,888 1,903 1,844
Shareholders' equity(5)................. 2,886 2,866 2,736 1,250 1,024 936
OTHER DATA:
Operating margin (%).................... (12.06) (12.06) 3.87 5.39 8.02 13.36
Depreciation and amortization of
tangible and intangible assets........ 341 339 312 290 195 256
Capital expenditures on tangible fixed
assets................................ 264 262 345 368 338 306
Number of employees on a continuing
basis (end of period) in thousands.... 14.9 15.8 17.5 17.9 17.2
</TABLE>
- ------------------------------
(1) Special charges represent charges in the applicable period for the
impairment of goodwill and fixed assets, litigation charges and
restructuring charges, which include employee termination costs, plant and
office closures and other costs. See Note 25 to the Consolidated Financial
Statements.
(2) Hoechst acquired substantially all the 49 percent minority interest in its
Mexican subsidiary, Grupo Celanese, in December 1998, and contributed it to
Celanese. If this minority interest had been contributed to Celanese as of
January 1, 1998, Celanese's operating profit for the year ended December 31,
1998 would have been reduced by E30 million, for the amortization of
goodwill associated with the acquisition. See Note 4 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) Basic net earnings (loss) per share is calculated by dividing net earnings
(loss) by the number of ordinary shares outstanding. On the effective date
of the demerger, Hoechst issued 55,915,369 shares of Celanese to existing
Hoechst shareholders which are deemed to be outstanding for all periods
presented.
(5) Shareholders' equity increased significantly from 1997 to 1998 and reflects
the contribution of net assets to Celanese by Hoechst prior to the demerger.
The principal factors for this increase are the contribution of the minority
interest in Grupo Celanese of E592 million, the contribution of Hoechst
receivables amounting to E384 million, the transfer of some other activities
from Celanese to Hoechst of E350 million and the recognition of a deferred
tax asset in connection with the contribution of the Dyneon equity
investment of E109 million. Dyneon was a joint venture with 3M in which
Celanese had a 46 percent interest. In December 1999, Celanese sold its
interest in Dyneon to 3M. See Note 4 to the Consolidated Financial
Statements.
36
<PAGE> 39
EXCHANGE RATE INFORMATION
Effective January 1, 1999, Germany and 10 other member states of the
European Union introduced the euro as their common currency and established
fixed conversion rates between their existing sovereign currencies and the euro.
Currency exchanges traded the euro beginning on January 4, 1999. Beginning on
January 1, 2002, the euro will be the official currency of all euro zone
countries. There will be a transaction period ending July 1, 2002 during which
the local currencies of participating countries may still be used alongside the
euro.
Celanese began using the euro as its reporting currency on January 1, 1999
and will pay any dividends on its shares in euro. Furthermore, prices quoted for
the 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:
- The U.S.$ equivalent for dividends received by U.S. holders of Celanese
shares; and
- The trading market price of the Celanese shares on the Frankfurt and
New York Stock Exchanges.
The table below sets forth the Noon Buying Rates for the Deutsche Mark
versus the U.S.$, restated in euro for all periods prior to January 1, 1999,
and, for all subsequent periods, sets forth the Noon Buying Rates for the euro
in U.S.$. For the calculation of the euro amounts for all periods prior to
December 31, 1998, Celanese has restated the applicable Noon Buying Rate for the
DM per U.S.$ into euro at the official fixed DM/euro conversion rate of DM
1.95583 per E1.00. This restatement matches the restatement into euro of the
Consolidated Financial Statements, which, for all periods prior to January 1,
1999, were prepared in Deutsche Mark and restated into euro. Celanese does not
represent that the U.S.$ amounts referred to below could have been or could be
converted into euro at any particular rate indicated. 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>
1995................................................ 1.2528 1.4418 1.3715 1.3634
1996................................................ 1.2493 1.3626 1.2978 1.2711
1997................................................ 1.0398 1.2689 1.1244 1.0871
1998................................................ 1.0548 1.2178 1.1115 1.1733
1999................................................ 1.0080 1.1825 1.0660 1.0046
</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 "Item 9A. Quantitative and Qualitative Disclosures
about Market Risk" and "Item 9. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Market Risk and General Risks."
37
<PAGE> 40
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OF AND
RESULTS OF OPERATIONS
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 Item 9 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".
INTRODUCTION
On October 22, 1999, the effective date of the demerger, Celanese became an
independent company. Celanese was formed through the demerger of the principal
industrial chemicals businesses and some other businesses and activities from
Hoechst as part of Hoechst's realignment as a life sciences company. Prior to
the effective date of the demerger, Celanese conducted the worldwide operations
of Hoechst's basic chemicals, acetates, technical polymer and several other
industrial businesses. Hoechst distributed all the outstanding shares of
Celanese to existing Hoechst shareholders at a rate of one Celanese share for
every ten Hoechst shares outstanding. In connection with the demerger and
pursuant to the Demerger Agreement between Celanese and Hoechst, Celanese
assumed all of the assets and liabilities (including contractual rights and
obligations related to other current and former Hoechst businesses) of the
demerged businesses.
The Consolidated Financial Statements reflect, for the periods indicated,
the financial condition, results of operations and cash flows of the businesses
transferred from Hoechst and have been presented to exclude the effects of
discontinued operations. See "Discontinued Operations". The Consolidated
Financial Statements, for the periods prior to the effective date of the
demerger, assume that Celanese had existed as a separate legal entity with five
business segments: Acetyl Products, Chemical Intermediates, Acetate Products,
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. Some costs have been reflected in the Consolidated Financial
Statements which are not necessarily indicative of the costs that Celanese would
have incurred had it operated as an independent, stand-alone entity for all
periods presented. These costs include allocated Hoechst corporate overhead,
interest expense and income taxes. Prior to the effective date of the demerger,
the businesses and activities demerged to Celanese were not managed as a single
strategic business entity. These businesses and activities were operated by
separate management teams which coordinated with strategic management at the
Hoechst holding company level. Subsequent to the effective date of the demerger,
Celanese has been managed as a single strategic entity.
Effective January 1, 1999, Germany and 10 other member states of the
European Union introduced the euro as their common currency and established
fixed conversion rates between their existing sovereign currencies and the euro.
The Consolidated Financial Statements for each period presented on or before
December 31, 1998 have been prepared using the Deutsche Mark or DM and have been
restated into euro using the official fixed conversion rate between the euro and
the Deutsche Mark of DM 1.95583 per E1.00. Accordingly, the Consolidated
Financial Statements for all periods prior to December 31, 1998 depict the
trends that would have been presented had they been using the Deutsche Mark.
Because the consolidated financial information for those periods was originally
prepared using the Deutsche Mark, it is not necessarily comparable to financial
statements of other companies which originally prepared financial statements in
a European currency other than the Deutsche Mark and subsequently converted that
other
38
<PAGE> 41
currency into euro. See Note 1 to the Consolidated Financial Statements. Since
January 1, 1999, Celanese's financial statements have been prepared in euro and
are no longer restated from Deutsche Mark into euro.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1999 1998 1997
------ ------ ------
(IN E MILLIONS)
<S> <C> <C> <C>
Net sales................................................. 4,318 4,344 4,951
Cost of sales............................................. (3,621) (3,454) (3,862)
------ ------ ------
GROSS PROFIT................................................ 697 890 1,089
Selling, general & administrative expense................. (570) (535) (575)
Research & development expense............................ (79) (101) (133)
Special charges........................................... (559) (100) (103)
Other operating income(expense)(1)........................ (10) 14 (11)
------ ------ ------
OPERATING PROFIT (LOSS)..................................... (521) 168 267
Equity in net earnings of affiliates...................... 7 11 6
Interest expense.......................................... (111) (133) (138)
Interest & other income, net.............................. 33 47 49
------ ------ ------
EARNINGS (LOSS) BEFORE TAXES
FROM CONTINUING OPERATIONS................................ (592) 93 184
Income taxes benefit (expense)............................ 83 (109) (83)
Minority interests........................................ 7 (40) (63)
------ ------ ------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS.................. (502) (56) 38
Earnings from discontinued operations, net................ 310 12 9
Extraordinary expense, net................................ (15) - -
------ ------ ------
NET EARNINGS (LOSS)......................................... (207) (44) 47
SUPPLEMENTARY FINANCIAL DATA:
Total assets................................................ 7,527 7,358 6,185
Net financial debt(2)....................................... 570 1,479 1,888
------ ------ ------
</TABLE>
- ---------------
(1) Other operating income (expense) represents foreign exchange losses and gain
on disposition of assets.
(2) Total debt less cash and cash equivalents.
SELECTED DATA BY SEGMENT
The following table presents the segment results for Celanese's continuing
operations for 1999, 1998 and 1997. Earnings before interest, taxes,
depreciation, and amortization (EBITDA), excluding special charges, is believed
by management to be a useful measure for evaluating the operating performance of
Celanese's businesses as it eliminates the effect of depreciation and
amortization of tangible and intangible assets, most of which were from
acquisitions accounted for under the purchase method of accounting, as well as
the effects of special charges which unusually affect the operating results.
However, EBITDA, excluding special charges, should be considered in addition to,
not as a substitute for, operating earnings, net earnings, cash flows, and other
measures of financial performance reported in accordance with generally accepted
accounting principles.
39
<PAGE> 42
EBITDA differs from cash flows from operating activities primarily because
it does not consider changes in assets and liabilities from period to period,
and it does not include cash flows for interest and taxes.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1999 1998 1997
------------------ ------------------ -------------------
% OF % OF % OF
E SEGMENT(1) E SEGMENT(1) E SEGMENT(1)
----- ---------- ----- ---------- ------ ----------
(IN MILLIONS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
NET SALES(2)
Acetyl Products......................... 1,561 36 1,518 34 1,757 35
Chemical Intermediates.................. 884 20 920 21 1,123 22
Acetate Products........................ 739 17 839 19 994 20
Ticona.................................. 788 18 750 17 742 15
Performance Products.................... 397 9 407 9 436 8
----- --- ----- --- ------ ---
Segment Total............................. 4,369 100 4,434 100 5,052 100
--- --- ---
Other Activities.......................... 60 60 67
Intersegment Eliminations................. (111) (150) (168)
----- ----- ------
Total Net Sales........................... 4,318 4,344 4,951
===== ===== ======
EBITDA EXCLUDING SPECIAL CHARGES(3)
Acetyl Products......................... 89 21 246 36 298 37
Chemical Intermediates.................. 84 19 111 16 123 15
Acetate Products........................ 95 22 154 23 193 24
Ticona.................................. 123 28 115 17 117 15
Performance Products.................... 42 10 52 8 70 9
----- --- ----- --- ------ ---
Segment Total............................. 433 100 678 100 801 100
--- --- ---
Other Activities.......................... (56) (98) (141)
----- ----- ------
Total EBITDA Excluding Special Charges.... 377 580 660
===== ===== ======
OPERATING PROFIT (LOSS)(2)
Acetyl Products........................... (65) 19 152 45 221 41
Chemical Intermediates.................. (47) 13 54 16 73 13
Acetate Products........................ (46) 13 94 28 149 27
Ticona.................................. (96) 28 53 15 57 11
Performance Products.................... (93) 27 (12) (4) 42 8
----- --- ----- --- ------ ---
Segment Total............................. (347) 100 341 100 542 100
=== === ===
Other Activities.......................... (174) (173) (275)
----- ----- ------
Total Operating Profit (Loss)............. (521) 168 267
===== ===== ======
</TABLE>
- ---------------
(1) The percentages in this column represent the percentage contribution of each
segment to the total of all segments.
(2) Derived from the accompanying audited Consolidated Financial Statements.
(3) For a further discussion of special charges, see "Results of
Operations - 1999 Compared with 1998 - Special Charges" and "Results of
Operations - 1998 Compared with 1997 - Special Charges."
1999 COMPARED WITH 1998
OVERVIEW
For a description of factors affecting Celanese's financial performance, see
"Market Risks" and "General Risks" contained in the sections below.
Net sales declined 1% to E4,318 million in 1999 as compared to E4,344
million in 1998 primarily as a result of lower selling prices which were
partially offset by favorable currency movements and slightly higher volumes.
Lower selling prices were experienced in all segments due largely to industry
overcapacity
40
<PAGE> 43
in most segments. Favorable currency movements were primarily due to the
strengthening of the U.S. dollar versus the euro. Volume increases were reported
in the Acetyl Products, Ticona and Performance Products segments, while Acetate
Products and Chemical Intermediates experienced volume declines.
EBITDA, excluding special charges, totaled E377 million in 1999 compared to
E580 million in 1998. Acetyl Products decreased mainly due to higher raw
material costs. Chemical Intermediates and Acetate Products decreased primarily
as a result of lower volumes and prices as well as higher raw material costs in
Chemical Intermediates. Performance Products decreased primarily due to a
decrease in sales of oriented polypropylene (OPP) films, partially offset by
increased sales in food ingredients. Ticona's favorable development was mainly
due to higher sales volumes, as raw material prices remained relatively stable.
An operating loss of E521 million was sustained in 1999 compared to an
operating profit in 1998 of E168 million. The principal cause for the operating
loss was special charges of E559 million incurred as a result of restructuring
as well as other unusual expenses, primarily related to litigation incurred
outside the ordinary course of business. In the Acetyl Products, Chemical
Intermediates and Acetate Products segments, these charges were approximately
E191 million mainly consisting of restructuring charges relating to the shift of
production capacity to other facilities in order to increase production
efficiency and reduce administration overhead. Special charges in the Ticona
segment amounted to E154 million and related mainly to the plumbing cases (see
Note 23 to the Consolidated Financial Statements). The Performance Products
segment recorded special charges of E99 million, of which E75 million arose from
antitrust actions in the sorbates industry (see Note 23 to the Consolidated
Financial Statements), and the remainder is primarily attributable to
restructuring expenses in the OPP films business related to the closure of a
higher cost production facility. Pursuant to the Demerger Agreement, Hoechst has
agreed to indemnify Celanese for 80% of any costs Celanese may incur for
the antitrust actions in the sorbates industry. The remainder of the special
charges primarily relates to environmental and other costs associated with
previously divested entities of Hoechst (E52 million) (see Note 24 to the
Consolidated Financial Statements), demerger costs (E28 million) as well as to
restructuring charges related to the closure of two administrative facilities.
The restructuring measures initiated in 1999 are expected to result in the
elimination of approximately 2,000 positions upon completion.
The results of discontinued operations of E310 million in 1999 include a
net gain of E298 million on the divestment of non-core businesses during the
year and to other businesses to be sold in 2000. See "Discontinued Operations".
Total assets increased mainly as a result of the strengthening of the U.S.
dollar against the euro. During 1999, Celanese acquired the minority interests
in Celanese Canada and a 50% interest in Korea Engineering Plastics Company Ltd.
Net receivables due from Hoechst of E706 million were collected, mostly in the
fourth quarter. Divestitures generated liquidity exceeding E900 million. Cash
and cash equivalents increased significantly due to proceeds from divestitures
late in the fourth quarter.
Net financial debt decreased significantly, as the majority of the
divestiture proceeds and the receivables collected from Hoechst were used to
repay debt.
RESULTS OF OPERATIONS
NET SALES
Acetyl Products. Net sales for the Acetyl Products segment increased by
3% to E1,561 million in 1999 from E1,518 million in 1998 as a result of volume
increases (5%) and favorable currency movements (3%), which were partially
offset by lower selling prices (5%). The year was characterized by a very
difficult pricing environment. Despite average cost increases of 10% for natural
gas and 32% for ethylene, selling prices for this segment actually declined. For
example, average selling prices for two key products, acetic acid and vinyl
acetate, were down 15% and 5%, respectively. Excess industry capacity made it
difficult to pass on higher costs to customers, and it was necessary to reduce
selling prices in order to
41
<PAGE> 44
maintain market positions. The typical time lag between changes in both raw
material costs and product selling prices has been extended by the severe
competitive situation in the industry.
Chemical Intermediates. Net sales for the Chemical Intermediates segment
decreased by 4% to E884 million in 1999 from E920 million in 1998. Excluding the
receipt in 1999 of a license fee of E13 million related to an acrylates project
in Germany, net sales decreased by 5% primarily as a result of price decreases
(6%) and volume decreases (2%), which were partially offset by favorable
currency movements (3%). Prices throughout the segment declined. For example,
prices decreased for butanol (7%), butyl acrylate (12%), acrylic acid (12%) and
2-ethyl-hexanol (3%). The decline in sales prices reflects the adverse effects
of global industry capacity outpacing market growth. Higher butyl acrylate
volumes reflected additional capacity at the Clear Lake plant while lower
butanol volumes reflected production difficulties at both the Bay City and
Oberhausen plants in the first half of 1999. The principal currency movement
favorably affecting net sales was the appreciation of the U.S. dollar against
the euro.
Acetate Products. Net sales for the Acetate Products segment decreased by
12% to E739 million in 1999 from E839 million in 1998 as a result of volume
decreases (12%) and price decreases (4%), which were partially offset by
favorable currency movements (4%). Acetate tow sales volumes were lower as
compared to 1998 due to continuing competitive pressure, and pricing continued
to suffer due to industry overcapacity. Cellulose acetate filament experienced a
sharp decline in volumes and weaker pricing as a result of declines in the
demand for acetate filament driven by a shift in fashion away from
filament-based fabrics, inter-fiber substitution and Asian competition. In
response to the difficult market conditions, Celanese has announced plans to
reduce capacity in acetate filament by 39,000 tons over the next two years.
Ticona. Net sales for the Ticona segment increased by 5% to E788 million
in 1999 from E750 million in 1998 as a result of higher volumes (6%) and
favorable currency movements (3%), which were partly offset by price erosion
(4%). The higher volumes were mainly a result of higher demand for new
applications in the automotive and telecommunication industries. The price
declines were mainly attributable to pricing pressure in standard grade
products, particularly in Europe. However, in the fourth quarter of 1999, the
European trend began to improve as price increases were announced and partly
implemented. The results of the fourth quarter were significantly above
expectations due to unusually high demand resulting from the strong economy in
the U.S. and Europe as well as pre-buying by customers ahead of an announced
price increase.
Performance Products. Net sales for the Performance Products segment
decreased by 2% to E397 million in 1999 from E407 million in 1998. OPP film
sales for 1999, which represented 71% of net sales in this segment, decreased by
7% primarily because of lower selling prices in most product lines resulting
from worldwide overcapacity and the pass-through of lower raw material prices to
customers. Food ingredients sales for 1999, which represented 29% of total
segment net sales, increased by 11% because of higher volumes of the high
intensity sweetener - Sunett(R) - in part because of a July 1998 approval by the
U.S. Food and Drug Administration for the use of Sunett in liquid beverages. A
volume increase in sorbates was offset by lower prices resulting from global
overcapacity and pricing pressure from Japanese and Chinese competitors.
Other Activities. Net sales of Other Activities were E60 million in 1999
and 1998. Other Activities includes revenues associated with Celanese's captive
insurance companies in addition to the research activities previously conducted
by Hoechst Research & Technology in the U.S., as well as several service
companies which do not have significant sales.
COST OF SALES AND OTHER OPERATING EXPENSES
Cost of Sales. Cost of sales increased by 5% to E3,621 million in 1999
compared with E3,454 million in 1998. Cost of sales as a percentage of sales
increased to 84% in 1999 from 80% in 1998 which reflects generally higher raw
material costs and lower selling prices. Apart from the effect of volume changes
noted above, raw material price increases were experienced primarily in the
Acetyl Products and Chemical Intermediates segments as raw material prices in
the Ticona and Acetate Products segments remained
42
<PAGE> 45
relatively stable. Cost of sales in the Performance Products segment increased
slightly due to higher volumes in food ingredients as volumes in OPP films
remained relatively flat.
Selling, General and Administrative Expense. Selling, general and
administrative expense increased by 7% to E570 million in 1999 from E535 million
in 1998. Selling, general and administrative expense as a percentage of sales
increased to 13% in 1999 from 12% in 1998. In 1999, Celanese received an
insurance claim settlement of E17 million for damages associated with an acrylic
acid reactor as well as an E18 million insurance settlement related to
environmental claims, which were partially offset by additional goodwill
amortization expense of E30 million. The increase in goodwill amortization is
directly related to the additional goodwill amortization resulting from Hoechst
acquiring substantially all the minority interest in Grupo Celanese and
subsequently contributing this interest to Celanese in December 1998 and
Celanese acquiring the minority interest in Celanese Canada in the third quarter
1999 as well as the change in the remaining estimated life of the 1987 Celanese
merger goodwill from 27 to 20 years. In 1998, Celanese received a settlement in
connection with a patent infringement lawsuit of E46 million. Excluding the
effects of the items noted above, selling, general and administrative expense
decreased to E575 million in 1999 from E581 million in 1998.
Research and Development Expense. Research and development expense
decreased by 22% to E79 million in 1999 from E101 million in 1998, principally
as a result of the continuing impact of a strategic reorientation of research,
according to which most research activity is now undertaken by the operating
businesses themselves instead of by a separate research unit. This decision led
to lower personnel and overall research and development expense from the former
Hoechst Research & Technology in the United States, which did not have any
expenses in 1999 as compared to E39 million in 1998. Accordingly, the segments
experienced increased costs in 1999 as compared to 1998 due to the assumption of
some of the research activities previously performed by Hoechst Research &
Technology in the United States. Research and development expense as a
percentage of sales remained flat at 2% for both 1999 and 1998.
Special Charges.
The financial condition and results of operations of Celanese have been,
and may in the future be, affected by special charges. Special charges include
provisions for restructuring and other unusual expenses incurred outside the
ordinary course of business. (see Note 25 to the Consolidated Financial
Statements).
The restructuring measures for which provisions have been taken, in the
periods presented, were undertaken to achieve cost efficiencies through
rationalization and to optimize Celanese's portfolio. The restructuring is
expected to benefit Celanese through reduction of its fixed cost base. Further
restructuring provisions relating to the cost of employee terminations, the cost
of facility closures and other restructuring costs may be incurred in the
future, but their timing or extent cannot yet be quantified.
In 1999, Celanese recorded special charges totaling E559 million. This
amount consists of non-restructuring special charges of E341 million relating
primarily to the plumbing cases (E128 million; see Note 23 to the Consolidated
Financial Statements), the U.S. antitrust actions in the sorbates industry (E75
million; see Note 23 to the Consolidated Financial Statements), asset
impairments (E56 million), environmental and other costs associated with
previously divested Hoechst entities (E52 million) and demerger costs (E28
million). The remaining amount of E218 million relates to restructuring charges
of which E116 million represents personnel severance costs and E102 million is
associated with plant and office closures. The personnel severance costs are
associated with the expected elimination of approximately 2,000 positions.
The Acetyl Products segment recorded E53 million of special charges
primarily related to the closure of an acetaldehyde unit in Europe and an acetyl
and acetyl derivatives unit in Mexico as well as costs related to downsizing
across all operations. The Chemical Intermediates segment recorded special
charges totaling E57 million, of which E40 million was related to an asset
impairment charge associated with a European facility, as well as restructuring
charges associated with general downsizing in the business. The Acetate Products
segment recorded E81 million of special charges, of which E66 million related
primarily to restructuring charges associated with the closures of acetate
filament units in the U.S. and Canada and
43
<PAGE> 46
the partial shutdown of a filter products unit in Mexico as well as severance
costs associated with downsizing across the business. The remainder is related
to an asset impairment charge in acetate filament. Ticona recorded E154 million
of special charges of which E128 million was related to the plumbing cases (see
Note 23 to the Consolidated Financial Statements). The remainder related mainly
to restructuring charges associated with employee severance costs. The
Performance Products segment recorded E99 million of special charges, of which
E75 million related to antitrust actions in the sorbates industry (see Note 23
to the Consolidated Financial Statements). The remainder related mainly to
restructuring charges associated with the closure of an OPP films unit in the
United Kingdom.
Other Activities recorded E115 million of special charges, of which E52
million related to environmental and other costs associated with previously
divested entities of Hoechst and E28 million to demerger costs. The remainder
relates to restructuring charges associated with the closure of an
administrative facility in the U.S. and Canada as well as final closure costs
related to Hoechst Research & Technology in the United States.
Annual cost savings from all of the 1999 restructuring initiatives are
estimated to be in excess of E130 million upon completion of these initiatives.
In 1998, Celanese recorded special charges totaling E100 million. This
amount consists of restructuring charges (E73 million) and antitrust actions in
the sorbates industry (E27 million). The restructuring charges related primarily
to personnel severance costs (E34 million) and other plant and office closure
costs (E39 million). The Acetyl Products segment recorded E9 million of special
charges associated with the closure of an acetic acid unit in Europe. The
Chemical Intermediates segment recorded E1 million of personnel severance costs
associated with a plant in Germany. The Acetate Products segment recorded E6
million of severance costs associated with downsizing across the business. The
Performance Products segment recorded E3 million of special charges associated
with the shutdown of an OPP production line in the United Kingdom. Other
Activities recorded E54 million of special charges primarily related to the
discontinuation of Hoechst Research & Technology in the U.S. (E21 million) as
well as the shutdown of the former U.S. corporate headquarters (E29 million).
Annual cost savings from the 1998 restructuring are estimated to be
approximately E24 million upon completion of these initiatives.
Other Operating Income (Expense). Other operating income (expense)
decreased to a loss of E10 million in 1999 from income of E14 million in 1998.
This change is primarily attributable to lower gains on the disposition of
assets (E16 million), primarily related to the sale of facilities in the United
States, and increased losses on foreign exchange transactions of E8 million. The
loss on foreign exchange transactions is primarily due to an increase in net
U.S. dollar-denominated assets in Mexico compounded by the appreciation of the
peso against the U.S. dollar for the affected period.
OPERATING PROFIT AND EBITDA EXCLUDING SPECIAL CHARGES
Acetyl Products. Operating profit for the Acetyl Products segment declined
to an operating loss of E65 million in 1999 from an operating profit of E152
million in 1998. Operating profit in 1999 was negatively affected by E53 million
of special charges together with an increase in amortization of goodwill and
incremental depreciation of E16 million resulting primarily from the
acquisitions of minority interests in Grupo Celanese and Celanese Canada.
EBITDA, excluding special charges, decreased to E89 million in 1999 as compared
to E246 million in 1998, primarily as a result of price declines and raw
material price increases, which were slightly offset by cost reduction efforts.
In addition, 1998 was positively affected by a E46 million settlement of a
patent infringement lawsuit.
Chemical Intermediates. Operating profit for the Chemical Intermediates
segment decreased to an operating loss of E47 million in 1999 from an operating
profit of E54 million in 1998. In 1999, the Chemical Intermediates segment was
negatively affected by special charges of E57 million, primarily related to an
asset impairment, compounded by an increase in goodwill amortization and
incremental depreciation of E18 million resulting primarily from the
acquisitions of minority interests of Grupo Celanese and Celanese Canada. In
addition, the effects of a full year of depreciation, related to the acrylates
expansion at Clear Lake and the butanol expansion at Bay City, further affected
operating
44
<PAGE> 47
results. EBITDA, excluding special charges, of E84 million in 1999 as compared
to E111 million in 1998 decreased primarily as a result of price and volume
changes, compounded by higher propylene costs, which increased by approximately
7%. These factors were partially offset by the receipt in 1999 of an insurance
claim settlement of E17 million for damages associated with an acrylic acid
reactor as well as a E13 million license fee associated with the successful
start up of an acrylates project in Germany.
Acetate Products. Operating profit for the Acetate Products segment
declined to an operating loss of E46 million in 1999 from an operating profit of
E94 million in 1998. The Acetate Products segment was negatively affected in
1999 by special charges of E81 million, compounded by an increase in
amortization of goodwill and incremental depreciation of E6 million resulting
primarily from the acquisitions of minority interests in Grupo Celanese and
Celanese Canada. EBITDA, excluding special charges, of E95 million in 1999 as
compared to E154 million in 1998 decreased primarily as a result of the price
and volume declines discussed above, offset in part by cost reduction efforts at
all locations.
Ticona. Ticona's operating profit declined to an operating loss of E96
million in 1999 from an operating profit of E53 million in 1998. The Ticona
segment was negatively affected in 1999 by E154 million of special charges which
mainly reflected a charge of E128 million relating to the plumbing cases (see
Note 23 to the Consolidated Financial Statements). The year was also negatively
affected by restructuring charges. EBITDA, excluding special charges, of E123
million in 1999 as compared to E115 million in 1998, increased primarily as a
result of higher volumes as raw material pricing remained relatively stable.
Performance Products. Operating profit of the Performance Products segment
decreased to an operating loss of E93 million in 1999 as compared to an
operating loss of E12 million in 1998. The Performance Products segment was
negatively affected by special charges of E99 million in 1999 as compared to E30
million in 1998. The majority of these special charges are related to antitrust
actions in the sorbates industry (see Note 23 to the Consolidated Financial
Statements), of which E75 million was recorded in 1999 as compared to E27
million in 1998. The remainder of these special charges related to
restructuring. EBITDA, excluding special charges, decreased to E42 million in
1999 compared to E52 million in 1998. The lower results in the OPP films
business was mainly a result of depressed sales prices for all products and
increased expenses associated with the expansion of the Mexican OPP facility.
Improved results in the food ingredients business were mainly due to higher
gross profit in the high intensity sweetener product line resulting from
increased volumes reinforced by the positive effects of cost reduction efforts.
Other Activities. Operating profit of Other Activities declined slightly
to an operating loss of E174 million in 1999 from an operating loss of E173
million in 1998. Other Activities was negatively affected by special charges in
1999 of E115 million, including demerger costs and environmental and other costs
associated with previously divested entities of Hoechst (see Note 24 to the
Consolidated Financial Statements). This compares with E54 million of special
charges in 1998. EBITDA, excluding special charges, improved to a loss of E56
million in 1999 as compared to a loss of E98 million in 1998. The lower loss is
principally attributable to a reduction of the costs associated with the
discontinuation of Hoechst Research & Technology in the U.S. and to the receipt
of an E18 million insurance settlement related to environmental claims.
EQUITY IN NET EARNINGS OF AFFILIATES
Equity in net earnings of affiliates decreased to E7 million in 1999 from
E11 million in 1998. This decrease was mainly attributable to a reduction in
earnings of InfraServ Hochst, in which Celanese owns a 27% interest. Earnings in
Polyplastics and the other equity investments remained relatively flat.
INTEREST EXPENSE
Interest expense decreased by 17% to E111 million in 1999 from E133 million
in 1998. This decrease was mainly a result of lower net average debt outstanding
during 1999 compared to 1998, significantly affected by a debt reduction in the
fourth quarter of 1999. This was partially offset by an increase in
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<PAGE> 48
average interest rates as well as the impact of the appreciation of the U.S.
dollar against the euro, as the majority of Celanese's debt is denominated in
U.S. dollars.
INTEREST AND OTHER INCOME, NET
Interest and other income, net decreased to E33 million in 1999 from E47
million in 1998. Interest and other income was mainly generated from interest
and dividend income earned by Celanese's captive insurance subsidiaries.
Additionally, transaction gains and losses were recorded relating to
intercompany foreign currency transactions.
INCOME TAXES
Income taxes was a benefit of E83 million in 1999 as compared to an expense
of E109 million in 1998. The effective tax rate was 117% in 1998 as compared to
14% in 1999. The effective tax rate in 1999 was impacted by goodwill
amortization, new tax consolidation rules in Mexico and losses in Germany for
which no benefit was recognized.
The net deferred tax asset at December 31, 1999 and 1998 totaled E271
million and E184 million, respectively. At December 31, 1999, the significant
sources of the net deferred tax asset were the cumulative net temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes representing
future net income tax deductions.
These temporary differences relate to obligations for postretirement
benefits, reserves for the plumbing cases, environmental, restructuring and
other matters. The tax effects of these temporary differences are shown in Note
12 to the Consolidated Financial Statements. Management believes that Celanese
will have future taxable income to make it more likely than not that the net
deferred tax asset will be realized.
MINORITY INTERESTS
Earnings attributable to minority interests increased to income of E7
million in 1999 from a expense of E40 million in 1998. This increase was
principally attributable to net losses incurred in Celanese Canada in 1999. In
September 1999, Celanese acquired all the remaining interest of Celanese Canada,
thereby giving Celanese 100% ownership of Celanese Canada. In addition, Hoechst
acquired substantially all the remaining interest in Grupo Celanese and
contributed this interest to Celanese in December 1998.
DISCONTINUED OPERATIONS
In 1999, Celanese completed the sales of a number of its non-core
businesses, including its interest in Copley Pharmaceuticals Inc., its Ethylene
Oxide/Ethylene Glycol business, its U.S. and Japanese separation products
business, Celgard, its polyester fiber and bottle resin business in Millhaven,
Ontario, Canada and its interests in the Dyneon fluoropolymer and Targor
polypropylene joint ventures.
Celanese received gross proceeds of E1,001 million from the sales of these
discontinued operations, which led to a net cash inflow of E913 million in 1999.
As a result of these sales, Celanese recognized a net gain, net of taxes, of
E452 million on disposals of discontinued operations in the consolidated
statements of operations and recorded E14 million in earnings from operations of
discontinued operations relating to these divested businesses in 1999 (see Note
5 to the Consolidated Financial Statements).
As part of its strategy to optimize its portfolio, Celanese continues to
evaluate its businesses. In January 2000, Celanese sold its phosphorus and
phosphorus derivatives business and expects to divest its remaining interests in
inorganic chemicals, including Vinnolit and Vintron, in 2000. Letters of intent
for the sales of these businesses were signed with Advent International
Corporation during February 2000 with respect to Vinnolit and Vintron. In 1999,
Celanese recorded a loss of E154 million, of which Vintron represents E138
million, for the expected loss associated with these transactions in gain on
disposal of discontinued operations and a loss of E2 million in earnings from
operations of discontinued operations relating to these additional discontinued
operations.
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Earnings from discontinued operations, net of tax, in 1999 of E310 million
consists of the net gain associated with the sales discussed above of E452
million, the expected loss on the transactions associated with the businesses to
be divested in 2000 of E154 million and the earnings from operations of
discontinued operations of E12 million.
The following table summarizes the results of the discontinued operations
for the years ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
EQUITY IN NET
OPERATING EARNINGS OF
SALES PROFIT (LOSS) AFFILIATES
------------------ ------------------ ------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ---- ---- ---- ----
(IN E MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Discontinued operations of Performance
Products............................... 54 50 44 10 6 5 - - -
Discontinued operations of Other
Activities............................. 649 765 780 (38) 9 8 - - -
Discontinued operations of Equity
Investments............................ - - - - - - 36 9 7
--- --- --- --- -- -- -- -- --
Total Discontinued
Operations................... 703 815 824 (28) 15 13 36 9 7
=== === === === == == == == ==
</TABLE>
EXTRAORDINARY ITEM
Celanese incurred extraordinary expenses of E15 million in 1999 for early
termination costs relating to the extinguishment of debt and the associated
interest rate swaps. No extraordinary expense was incurred in 1998.
NET LOSS
As a result of the factors mentioned above, the net loss of Celanese
increased by E163 million to E207 million in 1999 from E44 million in 1998.
1998 COMPARED WITH 1997
NET SALES
Acetyl Products. Net sales for the Acetyl Products segment decreased by
14% to E1,518 million in 1998 from E1,757 million in 1997, primarily as a result
of price decreases (14%) and volume decreases (1%), which were slightly offset
by favorable currency movements (1%). For example, the price of methanol, which
was U.S. $0.55 per gallon in 1997, declined to U.S. $0.35 per gallon in 1998 as
excess capacity and the effects of a general decline in demand were felt. Prices
for acetic acid, vinyl acetate monomer and many other chemical products also
declined significantly. These declining sales reflected the adverse conditions
in the global chemical industry, compounded by the depressed market conditions
in Asia.
Chemical Intermediates. Net sales for the Chemical Intermediates segment
decreased by 18% to E920 million in 1998 from E1,123 million in 1997. Excluding
the positive effect of a one-time license fee of E31 million related to an
acrylates project in Germany in 1997, sales decreased by 16%, primarily due to
price decreases (16%) and volume decreases (1%) offset by favorable currency
movements (1%). The decreases in prices resulted primarily from downward pricing
pressure in acrylic acid, butanol and 2-ethylhexanol caused by industry
overcapacity and depressed economic conditions in Asia. Volume decreases were
not as significant as the price decreases, not only because of the addition of
acrylic acid capacity at the Clear Lake, Texas facility but also because of
improved volumes in acrylates, which rebounded from production outages in 1997.
Acetate Products. Net sales for the Acetate Products segment decreased by
16% to E839 million in 1998 from E994 million in 1997 primarily as a result of
price decreases (5%) and volume decreases (12%), which were slightly offset by
favorable currency movements (1%). Increased competitive pressure
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<PAGE> 50
resulted in volume losses as well as lower overall pricing in the cellulose
acetate tow business. Cellulose acetate filament experienced significantly lower
volumes and weaker pricing as a result of the ongoing impact of the depressed
market conditions in Asia and declines in the demand for acetate filament from
the fashion industry.
Ticona. Net sales for the Ticona segment increased by 1% to E750 million
in 1998 from E742 million in 1997 as favorable currency movements (1%) and
increased sales volumes (3%) were offset by price declines (3%). Volume growth
was driven by favorable market conditions, including strong growth in automotive
sales in continental Europe as well as the development of new applications for
Ticona's products. This growth was partially offset by lower demand in the
United States, in part the result of the negative impact on orders from
suppliers resulting from the strike at General Motors. In the United States and
Europe, Ticona lost business in standard grades of polymers as a result of
competitive pricing from Asian imports.
Performance Products. Net sales for the Performance Products segment
decreased by 7% to E407 million in 1998 from E436 million in 1997. The 1998 OPP
film sales, which represented 71% of sales in this segment, decreased by 4%
primarily because of lower selling prices in all product lines resulting from
worldwide overcapacity in the OPP films market, which were partially offset by
increased volumes resulting from debottlenecking in European facilities and the
expansion of the Mexican facility. The 1998 food ingredients sales, which
represented 29% of total segment sales, decreased by 14% primarily because of
lower selling prices and sales volumes in the sorbates product lines resulting
from worldwide overcapacity and pricing pressure from Chinese competitors. The
high intensity sweeteners product line experienced significant volume growth in
part because of a July 1998 approval by the U.S. Food and Drug Administration
for the use of Sunett in beverages and in part as a result of business from new
customers in the food industry, particularly in the United States, partially
offset by lower prices resulting from competition from sweetener substitutes and
price discounts.
Other Activities. Net sales from Other Activities decreased by 10% to E60
million in 1998 compared to E67 million in 1997 as a result of lower sales in
ancillary businesses, which was partially offset by an increase in premiums from
captive insurance policies with Hoechst.
COST OF SALES AND OTHER OPERATING EXPENSES
Cost of Sales. Cost of sales decreased by 11%, to E3,454 million in 1998
compared with E3,862 million in 1997. This decrease was principally attributable
to reductions in raw material prices in the Acetyl Products, Chemical
Intermediates and Performance Products segments in addition to favorability
resulting from the liquidation of LIFO reserves in the Acetyl Products, Chemical
Intermediates, Acetate Products and Ticona segments. These decreases were
partially offset by higher cost of sales in the Ticona segment as a result of a
temporary shutdown associated with scheduled maintenance at one of its European
facilities as well as higher cost of sales in the Performance Products segment
resulting mainly from increased volumes. Cost of sales as a percentage of sales
increased to 80% in 1998 from 78% in 1997, which reflects raw material prices
not dropping as quickly as selling prices.
Selling, General and Administrative Expense. Selling, general and
administrative expense decreased by 7% to E535 million in 1998 from E575 million
in 1997. Selling, general and administrative expense as a percentage of sales
was 12% in 1998 and 1997. Celanese received a settlement in 1998 in connection
with a patent infringement lawsuit of E46 million. Selling, general and
administrative expense related to Hoechst Research & Technology in the United
States in 1998 was significantly less than in 1997, reflecting progress made in
winding down the Hoechst Research & Technology activities. After eliminating the
effect of the settlement payment and the selling, general and administrative
expense associated with the discontinuation of Hoechst Research & Technology in
the United States, selling, general and administrative expense increased to E641
million in 1998 as compared with E638 million in 1997.
Research and Development Expense. Research and development expense
decreased by 24% to E101 million in 1998 from E133 million in 1997 principally
as a result of a strategic reorientation of research. Most research activity was
to be undertaken by the business segments themselves instead of by a
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separate research entity, with more emphasis to be placed on applied research
than on basic research. This decision led to lower personnel and overall
research and development expense related to Hoechst Research & Technology in the
United States, which accounted for a E26 million decline. Research and
development expense as a percentage of sales decreased to 2% in 1998 from 3% in
1997.
Special Charges. In 1998, Celanese recorded special charges totaling E100
million. This amount consists of restructuring charges (E73 million) and
antitrust actions in the sorbates industry (E27 million). The restructuring
charges related primarily to personnel severance costs (E34 million) and other
plant and office closure costs (E39 million). The Acetyl Products segment
recorded E9 million of special charges associated with the closure of an acetic
acid unit in Europe. The Chemical Intermediates segment recorded E1 million of
personnel severance costs associated with a plant in Germany. The Acetate
Products segment recorded E6 million of severance costs associated with
downsizing across the business. The Performance Products segment recorded E3
million associated with the shutdown of an OPP production line in the United
Kingdom. Other Activities recorded E54 million of special charges primarily
related to the discontinuation of Hoechst Research & Technology in the U.S. (E21
million) as well as the shutdown of the former U.S. corporate headquarters (E29
million). Annual cost savings from the 1998 restructuring are estimated to be
approximately E24 million upon completion of these initiatives.
In 1997, Celanese recorded special charges totaling E103 million. As a
result of Hoechst's reorientation of basic research, Celanese recorded special
charges of E45 million for fixed asset impairment and personnel costs and E43
million resulting from the related impairment of goodwill associated with the
discontinuation of Hoechst Research & Technology in the United States. Further
special charges related to severance costs associated with the downsizing of the
former U.S. corporate headquarters (E8 million).
Other Operating Income (Expense). Other operating income (expense)
increased to income of E14 million in 1998 from expense of E11 million in 1997.
This increase is primarily a result of E20 million higher gains on the
disposition of assets, primarily related to the sale of idle facilities in the
United States, and decreased losses on foreign exchange transactions of E5
million.
OPERATING PROFIT AND EBITDA EXCLUDING SPECIAL CHARGES
Acetyl Products. Operating profit for the Acetyl Products segment declined
by 31% to E152 million in 1998 from E221 million in 1997. Operating profit in
1998 was negatively affected by special charges of E9 million together with an
increase in depreciation and amortization of E8 million. EBITDA, excluding
special charges, of E246 million in 1998 as compared to E298 million in 1997
decreased primarily as a result of price and volume declines discussed above,
compounded by raw material price decreases occurring at a slower rate than
decreases in selling prices for this segment's products. These factors were
offset in part by cost reduction efforts, particularly at U.S. facilities, and a
substantial settlement in 1998 of a long-standing suit for patent infringement.
Chemical Intermediates. Operating profit for the Chemical Intermediates
segment decreased by 26% to E54 million from E73 million in 1997. Operating
profit in 1998 was negatively affected by special charges of E1 million together
with an increase in depreciation and amortization of E6 million. EBITDA,
excluding special charges, was E111 million in 1998 as compared to E123 million
in 1997. Excluding the positive effect of the receipt in 1997 of a E31 million
one-time license fee for an acrylates project in Germany, EBITDA, excluding
special charges, increased to E111 million in 1998 from E92 million in 1997,
primarily as a result of lower raw material costs, in particular for propylene,
which more than offset the effects of price reductions of 16%.
Acetate Products. Operating profit for the Acetate Products segment
declined by 37% to E94 million in 1998 from E149 million in 1997. Operating
profit in 1998 was negatively affected by special charges of E6 million together
with an increase in depreciation and amortization of E10 million. EBITDA,
excluding special charges, of E154 million in 1998 as compared to E193 million
in 1997 decreased primarily as a result of declines in sales prices and sales
volumes discussed above. These factors were offset in part by cost reduction
efforts, particularly at U.S. plants. Cost reduction efforts accounted for a
significant portion of the reduction of the cost of goods sold.
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Ticona. Ticona's operating profit declined 7% to E53 million in 1998 from
E57 million in 1997. Operating profit in 1998 was negatively affected by an
increase in depreciation and amortization of E2 million. EBITDA, excluding
special charges, of E115 million in 1998 as compared to E117 million in 1997
decreased primarily as a result of price declines described above and
implementation costs for SAP software that were approximately E11 million higher
in 1998 than in 1997, partially offset by the benefits of volume growth and, to
a lesser extent, exchange rate effects. Raw material pricing remained relatively
stable in 1998. Legal fees in connection with the plumbing litigation were
slightly lower as compared with 1997 levels (See Note 23 to the Consolidated
Financial Statements).
Performance Products. The Performance Products segment experienced an
operating loss of E12 million in 1998 as compared to an operating profit of E42
million in 1997. Operating profit in 1998 was negatively affected by special
charges of E30 million, primarily related to the U.S. antitrust actions in the
sorbates industry (E27 million), and an increase in depreciation and
amortization of E6 million. EBITDA, excluding special charges, was E52 million
in 1998 as compared to E70 million in 1997. Lower results in the OPP films
business was mainly due to lower sales prices, which were only partially offset
by lower raw material costs. Lower results in the food ingredients business was
a result of lower prices and volumes in the sorbates product lines and lower
prices in high intensity sweeteners.
Other Activities. Operating losses of Other Activities decreased by 37% to
an operating loss of E173 million in 1998 from an operating loss of E275 million
in 1997. Operating profit in 1998 was negatively affected by special charges of
E54 million relating primarily to general corporate functions (E29 million) and
the discontinuation of Hoechst Research & Technology in the United States (E21
million), and other chemicals (E4 million). This compares to E103 million of
special charges in 1997 primarily associated with general corporate functions
(E8 million) and Hoechst Research & Technology in the United States (E88
million). EBITDA, excluding special charges, improved to a loss of E98 million
in 1998 as compared to a loss of E141 million in 1997, primarily as a result of
lower operating losses in Hoechst Research & Technology in the United States and
in general corporate functions as a result of an effort to reduce employment
levels.
EQUITY IN NET EARNINGS OF AFFILIATES
Equity in net earnings of affiliates increased by 83% to E11 million in
1998 from E6 million in 1997. This change was mainly attributable to increased
earnings in Celanese's investments in InfraServ Hochst and InfraServ Gendorf,
which were partially offset by a reduction in earnings of Polyplastics, a joint
venture in which Celanese holds a 45% interest.
INTEREST EXPENSE
Interest expense decreased by 4% to E133 million in 1998 from E138 million
in 1997. This decrease was mainly the result of lower net average debt
outstanding during 1998 compared to 1997.
INTEREST AND OTHER INCOME, NET
Interest and other income, net decreased by 4% to E47 million in 1998 from
E49 million in 1997. Interest and other income was mainly generated from
interest on loans to Hoechst and affiliates and interest income earned by
Celanese's captive insurance subsidiaries.
INCOME TAXES
Income tax expense increased to E109 million in 1998 from E83 million in
1997. The effective tax rate increased from 45% in 1997 to 117% in 1998. The
increase is mainly attributable to the nondeductibility of goodwill
amortization, the limitation on foreign tax credit utilization, the tax costs of
restructuring in the United States and the 1998 losses in Germany for which no
benefit was recognized as it was determined that the associated net operating
loss carryforwards may not be realized.
MINORITY INTEREST
Expense attributable to minority interest decreased by 37% to E40 million
in 1998 from E63 million in 1997. This decrease is principally attributable to
lower earnings in Grupo Celanese. In December 1998,
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Hoechst acquired substantially all the remaining interest in Grupo Celanese and
contributed this interest to Celanese.
NET EARNINGS (LOSS)
As a result of the factors mentioned above, net earnings (loss) of Celanese
decreased by E91 million to a loss of E44 million in 1998 from net earnings of
E47 million in 1997.
LIQUIDITY AND CAPITAL RESOURCES
NET CASH PROVIDED BY OPERATING ACTIVITIES
Net cash provided by operating activities decreased to E183 million in 1999
compared to E330 million in 1998. The decrease is primarily attributable to the
weaker operating results in 1999. The special charges recorded in 1999 include
E102 million of non cash items and cash items amounting to E457 million of which
only a small amount was paid out during 1999. The changes in operating assets
and liabilities also affected cash flow. An increase in receivables due from
reinsurance companies was offset by a corresponding increase in loss reserves by
Celanese's captive insurance companies. Inventories decreased and trade
receivables increased. Income tax payables decreased due to payments made for
previous periods. Income tax liabilities did not increase as a result of lower
taxable income in 1999.
For the year 2000, it is expected that nearly all of the remaining cash
items of the special charges will be paid, which will lead to respective cash
outflows.
Net cash provided by operating activities decreased to E330 million in 1998
from E487 million in 1997. Net cash provided by operating activities decreased
primarily because of a decrease in earnings from operations, as well as by an
increase in net third party receivables, partially offset by an increase in
accounts payable and accrued liabilities. The fluctuation in net receivables is
attributable to an increase in trade receivables and other receivables.
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Net cash provided by (used in) investing activities increased by E554
million to a net cash inflow of E257 million in 1999 from a use of cash of E297
million in 1998.
Net cash provided by investing activities in 1999 was positively affected
by significant cash proceeds from the sale of discontinued businesses amounting
to E913 million (see Note 5 to the Consolidated Financial Statements). This
inflow was partially offset by the acquisition of the minority interest in
Celanese Canada as well as the acquisition of a 50% interest in Korea
Engineering Plastics Company Ltd., amounting to E397 million.
Capital expenditures on property, plant & equipment decreased to E262
million in 1999, compared to E345 million in 1998. This decrease was reflected
in all segments, except for the Acetyl Products segment due to the acetic acid
and acetate esters expansions in Singapore.
Net cash provided by (used in) investing activities decreased to a use of
E297 million in 1998 from a use of E398 million in 1997. The decrease was
primarily as a result of a decrease in capital expenditures on property, plant
and equipment from E368 million in 1997 to E345 million in 1998 in addition to a
net reduction in the purchases of marketable securities from net purchases of
E51 million in 1997 to net proceeds from sale of E6 million in 1998.
NET CASH USED IN FINANCING ACTIVITIES
Net cash used in financing activities increased by E27 million to E72
million in 1999 from E45 million in 1998.
The net cash flow from financing activities in 1999 was significantly
affected by the collection of demerged receivables and other financing
receivables from Hoechst amounting to E706 million. The majority of this cash
inflow, as well as the cash inflows from the divestiture program amounting to
E913 million, were used to repay debt in the fourth quarter of 1999. The debt
level peaked in the third
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quarter, primarily as a result of the financing of the acquisition of the
minority interests in Celanese Canada. Amounts which could not be used to repay
debt increased the cash balance to E378 million. In connection with the
refinancing of certain portions of external debt, triggered by the demerger,
early extinguishment charges amounting to E15 million, net of tax, were reported
as extraordinary expense.
Net cash used in financing activities decreased to E45 million in 1998 from
E84 million in 1997.
In 1998, net cash used in financing activities of E45 million was a result
of payments to reduce debt of E381 million, offset by contributions of E336
million received from Hoechst. In 1997, net cash used in financing activities of
E84 million was a result of net payments on third party long-term debt of E103
million and net payments on debt to Hoechst of E263 million offset by E80
million of proceeds received from net short-term borrowings with third parties
and E202 million of net contributions with Hoechst.
SHORT-TERM AND LONG-TERM BORROWINGS
Celanese's combined debt primarily consists of commercial paper, bank
loans, notes with affiliates, term notes, and pollution control and industrial
revenue bonds. Celanese had a U.S. $700 million (E697 million) commercial paper
program at December 31, 1999. At December 31, 1999, there were no borrowings
against the commercial paper program. Celanese maintains committed revolving
credit lines and term loans with several banks aggregating E2,041 million at
December 31, 1999; the aggregate unused part thereof amounted to E1,752 million,
of which U.S. $700 million (E697 million) was used as credit backup for
Celanese's commercial paper program. Celanese had outstanding letters of credit
amounting to E109 million at December 31, 1999 and E231 million at December 31,
1998. The loans are principally denominated in U.S. dollars, euro, South African
rand, and British pound sterling. In connection with the demerger, Celanese
incurred refinancing costs and other fees associated with the refinancing of
third party debt. Total debt decreased to E948 million at December 31, 1999 from
E1,479 million at December 31, 1998. This decrease is primarily attributable to
the repayment of long-term debt from the proceeds of the recent divestitures and
the collection of receivables from Hoechst.
TOTAL SHAREHOLDERS' EQUITY
Prior to the effective date of the demerger, Combined equity represented
Celanese's historical equity in the businesses and activities which were
demerged to form Celanese (See Note 4 to the Consolidated Financial Statements).
At December 31, 1999, shareholders' equity amounted to E2,866 million, compared
to E2,736 million at December 31, 1998. The increase was primarily attributable
to the positive impact of foreign currency translations.
On the basis of the Consolidated Financial Statements, at December 31,
1998, shareholders' equity amounted to E2,736 million, compared to E1,250
million at December 31, 1997. This increase was due principally to a positive
impact of E1,617 million resulting from net transactions with Hoechst, partially
offset by the net loss for 1998 of E44 million. The Hoechst transactions
principally included the contribution of the Grupo Celanese minority interest
which was not already owned by Celanese of E643 million, the contribution of
Hoechst receivables of E384 million, the transfer of other businesses from
Celanese to Hoechst of E350 million and the recognition of a deferred tax asset
in connection with the contribution of Hoechst's investment in Dyneon of E109
million.
By virtue of divesting a majority of the non-core activities earlier than
expected, Celanese generated positive net income at the parent company level.
Accordingly, Celanese is in a position to propose a dividend. Management intends
to recommend a dividend of E0.11 per share, totaling E6 million, at this year's
annual general meeting to be held in May 2000.
ENVIRONMENTAL MATTERS
In 1999, Celanese's worldwide expenditures, including expenditures for
third party and divested sites, for compliance with environmental regulations
and internal company initiatives totaled E116 million, of which E14 million was
for capital projects. In 2000, total annual environmental expenditures are
expected
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to be approximately E122 million, of which E16 million is 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 environmental expenditures, especially
expenditures beyond 2000, management believes that the current spending trends
will continue.
The total environmental costs charged to operations for remediation efforts
amounted to E77 million in 1999, E94 million in 1998 and E45 million in 1997.
The E94 million recorded in 1998 is net of E56 million, as a result of
discounting future outlays for fixed period remediation projects using a 6%
discount rate.
MARKET RISKS
The information provided below contains forward-looking statements that
involve inherent risks and uncertainties, principally with respect to
unanticipated changes in foreign exchange or interest rates and changes in the
level of Celanese's exposure to such market risks. Actual results may differ
from those set forth in these forward-looking statements.
DERIVATIVE FINANCIAL INSTRUMENTS
Celanese is exposed to market risk through commercial and financial
operations. Celanese's market risk consists principally of exposure to currency
exchange rates and interest rates. Celanese has in place policies of hedging
against changes in currency exchange rates and interest rates as described
below.
FOREIGN EXCHANGE RISK MANAGEMENT
Prior to January 1, 1999, Celanese's functional currency was the DM, but
since the adoption of the euro by Germany and the other euro zone countries on
that date, Celanese's functional currency has been 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, South African rand, Belgian franc and Mexican peso 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 firm commitments
and anticipated transactions. The terms of these contracts are generally under
one year. Celanese will implement a centralized hedging strategy in which
foreign currency denominated receivables or liabilities booked by the operating
entities will be hedged on a consolidated basis.
INTEREST-RATE RISK MANAGEMENT
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.
EQUITY RISK MANAGEMENT
Celanese has two Stock Appreciation Rights Plans (see Note 20 to the
Consolidated Financial Statements). To limit financial exposure under these
plans, Celanese has purchased call options on Celanese shares.
See "Item 9A. Quantitative and Qualitative Disclosures about Market Risk"
below.
GENERAL RISKS
Factors affecting Celanese's financial condition, cash flows and results of
operations are described below.
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GENERAL ECONOMIC CONDITIONS
Celanese operates in the global market and has customers in many countries.
Celanese has major facilities located throughout North America, Europe and the
Pacific Rim, including facilities in 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 and political conditions. In
recent years the financial turmoil in Asia has adversely affected volumes sold
by Celanese to its Asian customers and has adversely affected selling prices
achievable in Asian and other markets.
HISTORICAL CYCLICALITY IN PARTS OF THE INDUSTRIAL CHEMICALS INDUSTRY
Consumption of the basic chemicals which Celanese manufactures in the
commodity portions of the acetyl and acrylic products, principally methanol,
formaldehyde, acetic acid and acrylic acid, 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:
- 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.
- 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.
- 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.
- 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 which can outstrip current growth in demand.
- 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 portions of the products manufactured by Celanese's Acetyl Products
and Chemical Intermediates segments, is currently characterized by overcapacity,
and that there may be further capacity additions in the next few years.
COST OF RAW MATERIALS
Celanese purchases significant amounts of natural gas, ethylene and
propylene from third parties for use in its production of basic chemicals in the
acetyl and acrylic products, principally methanol, formaldehyde, acetic acid and
acrylic acid, as well as acrylates and oxo products. Celanese uses a portion of
its output of these chemicals, in turn, as inputs in the production of further
products in the Acetyl Products, Chemical Intermediates and Acetate Products
segments, as well as some products in the Ticona and Performance Products
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.
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<PAGE> 57
While 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 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:
- Shortages of raw materials due to increasing demand, e.g., from growing
uses or new uses;
- Capacity constraints, e.g., due to construction delays, strike action or
involuntary shutdowns;
- The general level of business and economic activity; and
- The direct or indirect effect of governmental regulation.
Celanese typically does not enter into hedging arrangements with respect to
prices of raw materials. While Celanese seeks to balance increases in raw
material prices with corresponding increases in the prices of its products,
there have been in the past, and may be in the future, periods during which
there is a time lag before raw material price increases are passed on to
customers.
VARIATIONS IN EXCHANGE RATES
Celanese's Consolidated Financial Statements for periods prior to January
1, 1999 have been prepared using the Deutsche Mark or DM and are restated from
DM to euro using the official fixed conversion rate between the DM and the euro
of DM 1.95583 per E1.00. Beginning January 1, 1999, Celanese's financial
statements have been prepared in euro. 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
these currencies' values against the euro, and in the past against the DM,
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. As noted above,
for periods prior to January 1, 1999, Celanese's Consolidated Financial
Statements have been restated from DM into euro. Celanese estimates that the
translation effects of changes in the value of other currencies against the euro
reduced the fall in net sales by approximately 3% in 1999 and that the
translation effects of changes in the value of other currencies against the DM
reduced the fall in net sales by approximately 1% in 1998. Celanese estimates
that the translation effects of changes in the value of other currencies against
the euro increased total assets by approximately 12% in 1999. Celanese's
exposure to transactional effects of variations in exchange rates is greatly
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.
Celanese's policy with respect to limiting its exposure to transactional
effects of variations in exchange rates is to use financial instruments that
reduce such exposure. The principal instruments used are forward exchange
contracts generally with terms of less than one year. See "Market Risk" and Note
22 to the Consolidated Financial Statements.
YEAR 2000
The "Year 2000" or Y2K issue arose due to a date related problem programmed
into many computer software systems and hardware components. Computer hardware
and software may experience problems as the year code changed from "99" to "00".
As of the date of this Annual Report, none of the applications or
information technology systems critical to Celanese has experienced Y2K
failures. Celanese is also not aware of any Y2K problems affecting its
customers, suppliers or key business partners that might materially disrupt
Celanese's business.
Indications are that Celanese operated successfully through this transition
period and that it did not incur any material financial loss as a result of the
event. The total amount expended on programs through December 31, 1999 was
approximately E32 million. These costs include the direct costs incurred or
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<PAGE> 58
expected to be incurred for all consolidated entities, including the internal
costs of personnel dedicated to the Y2K programs, and have been funded from
operating cash flows. These costs do not include internal costs of personnel who
monitored Celanese's programs but were not dedicated entirely to achieving Y2K
compliance. No projects material to Celanese's business or its financial results
were deferred or delayed as a result of the Y2K compliance programs.
INTRODUCTION OF THE EURO
On January 1, 1999, the euro became a currency in its own right. Until
January 1, 2002, the euro can only be used as transaction currency. Beginning on
January 1, 2002, the euro will be the official currency of all euro zone
countries. There will be a transition period ending July 1, 2002 during which
the local currencies of participating countries may still be used alongside the
euro. Beginning January 1, 1999, Celanese has adopted the euro as the currency
in which it presents its financial statements.
Every Celanese company has examined the risks of the euro for its
businesses and markets. Celanese does not expect the euro to lead to short-term
changes in business-specific cost structures or its market positions, although
Celanese believes that the euro may contribute to the ongoing convergence of
prices in Europe over the longer term.
Celanese does not expect its exposure to currency risk to change materially
as a result of the introduction of the euro. The impact of exchange rate changes
of a non-euro currency such as the U.S. dollar, the British pound sterling or
the Japanese yen versus the euro will continue to depend on the actual exposure
at the time of the risk assessment.
OUTLOOK
Celanese's results of operations for 1999 have been adversely affected by
difficult market conditions in the chemicals industry as well as by special
charges, principally relating to restructuring and litigation which totaled E559
million in 1999. The difficult market conditions are expected to persist in
2000.
Celanese has taken measures to reduce costs. In 1999, restructuring charges
totaling E218 million were recorded under special charges. These restructuring
measures, which include the planned elimination of approximately 2,000 positions
and the closure of 6 production facilities worldwide, are expected to reduce our
cost base significantly. No assurance can be given, however, that the cost
reduction measures taken are sufficient to improve Celanese's margins or that
additional special charges will not be required in the future.
In January 2000, Celanese sold its phosphorous activities, conducted by the
Thermphos Group, to the management of Thermphos. Celanese expects to sell its
chlorine and chlorine derivatives business lines (including Vintron) in 2000.
Letters of intent were signed with a third party during February 2000. The sale
of these inorganic businesses are expected to generate a loss of E154 million of
which Vintron represents E138 million, which is fully accrued for and recorded
in gain on disposal of discontinued operations in 1999. In connection with this
transaction, Celanese expects to sell its 50% share in Vinnolit, a leading PVC
producer in Europe. The Vinnolit sale is expected to generate a significant book
gain in 2000. The Vinnolit and Vintron transactions are subject to the
completion of negotiations and satisfaction of conditions, and no assurance can
be given, that these sales will be consummated on the terms outlined in the
letters of intent or will occur at all.
The operating performance in the Ticona segment is showing signs of
improvement whereas the cyclical situation in the Acetyl Products, Chemical
Intermediates and Acetate Products segments remain difficult and the outlook for
the Performance Products segments is mixed.
ITEM 9A. 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 9.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Market Risk" and Notes 2 and 22 to the Consolidated Financial
Statements.
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<PAGE> 59
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, 1999. The information is presented
in euro equivalents, which is Celanese's reporting currency, at December 31,
1999 exchange rates.
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, 1999. For interest rate swaps, the table
presents notional amounts and weighted average interest rates or strike rates by
expected maturity date. Weighted average variable rates are based on the
respective implied forward rates at December 31, 1999.
INTEREST-RATE RISK MANAGEMENT - DEBT
PRINCIPAL (NOTIONAL) AMOUNT BY EXPECTED MATURITY
AVERAGE INTEREST RATE
DECEMBER 31, 1999
<TABLE>
<CAPTION>
FAIR VALUE
DECEMBER 31,
2000 2001 2002 2003 2004 THEREAFTER TOTAL 1999
---- ---- ---- ---- ---- ---------- ----- ------------
(IN E MILLIONS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DEBT, INCLUDING CURRENT PORTION
Fixed rate (U.S. dollar)............ 57 20 7 5 41 212 342 327
Average interest rate............... 7.4% 6.1% 6.5% 6.6% 6.5% 6.6% -
Variable rate (U.S. dollar)......... 55 - - 224 - - 279 279
Average interest rate............... 7.5% - - 7.0% - - - -
Fixed rate (euro)................... - - - - - - - -
Average interest rate............... - - - - - - - -
Variable rate (euro)................ 307 - - - - - 307 307
Average interest rate............... 3.3% - - - - - - -
Fixed rate (Belgian franc).......... 2 2 1 1 1 5 12 11
Average interest rate............... 4.3% 4.3% 4.3% 4.3% 4.3% 4.3% - -
Variable rate (Belgian franc)....... - - - - - - - -
Average interest rate............... - - - - - - - -
Fixed rate (South African rand)..... - - - - - - - -
Average interest rate............... - - - - - - - -
Variable rate (South African
rand)............................. 6 - - - - - 6 6
Average interest rate............... 11.2% - - - - - - -
Other currencies.................... 2 - - - - - 2 2
TOTAL...................... 429 22 8 230 42 217 948 932
</TABLE>
INTEREST RATE RISK MANAGEMENT - SWAPS
PRINCIPAL (NOTIONAL) AMOUNT BY EXPECTED MATURITY
AVERAGE INTEREST (SWAP) RATE/OPTION STRIKE PRICE
DECEMBER 31, 1999
<TABLE>
<CAPTION>
FAIR VALUE
DECEMBER 31,
2000 2001 2002 2003 2004 THEREAFTER TOTAL 1999
---- ---- ---- ---- ---- ---------- ----- ------------
(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)...... - 20 299 - - - 319 17
Average pay rate (fixed)............ - 6.7% 6.3% - - - - -
Average receive rate (variable)..... - 0.6% 5.4% - - - - -
</TABLE>
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<PAGE> 60
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, 1999. 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 less than one year. Celanese had E688
million notional amount of foreign currency forward contracts outstanding in
various currencies at December 31, 1999. There were no foreign currency options
outstanding as of December 31, 1999.
<TABLE>
<CAPTION>
AVERAGE
CONTRACT CONTRACTUAL
AMOUNT FORWARD FAIR VALUE
CURRENCY PAIRS BUY (SELL) EXCHANGE RATE DECEMBER 31, 1999
-------------- ---------- ------------- -----------------
(IN E MILLIONS, EXCEPT FOR
AVERAGE CONTRACTUAL FORWARD EXCHANGE RATE)
<S> <C> <C> <C>
FOREIGN CURRENCY FORWARD CONTRACTS
EURO
U.S. dollar........................................... (612.7) 1.0172 (5.67)
Japanese yen.......................................... (8.6) 110.0300 (0.70)
British pound......................................... (65.2) 0.6343 (1.15)
Australian dollar..................................... (1.2) 1.6596 (0.09)
U.S. DOLLAR
British pound......................................... 0.6 1.6031 0.00
</TABLE>
Most of the foreign currency forward contracts are currency swaps entered
into to hedge inter-company loans.
As a result of the introduction of the euro, outstanding currency
derivatives between currencies of the euro zone countries that have adopted the
euro as their common currency are risk neutral as of January 1, 1999.
EQUITY-RISK MANAGEMENT
As of December 31, 1999, Celanese had purchased 1.2 million call options to
offset the costs associated with the long-term incentive plan and the equity
participation plan. See "Item 11. Compensation of Directors and
Officers -- Incentive Plans". The total premium as of December 31, 1999 was E3.8
million. Subsequent to year end 1999, Celanese plans to purchase up to
approximately 5.2 million call options to offset the costs associated with these
plans. These options have a maturity of six months, a strike price of E16.37 per
share and an average premium of E3.16. A share buy-back program will be proposed
at the next annual general meeting. Such a share buy-back program would enable
Celanese to receive shares on exercise of any purchased call options. The
subsequent resale of the acquired shares would be a possible means to cover
future costs relating to stock appreciation rights.
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
As required by the German Stock Corporation Act (Aktiengesetz), Celanese
has a two-tier board system consisting of a management board (Vorstand) and a
supervisory board (Aufsichtsrat). The Celanese management board 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 management board 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 management board
must obtain the prior consent of the Celanese supervisory board for certain
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, where the specific matter is considered to
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<PAGE> 61
be of substantial economic importance to Celanese. The supervisory board is also
authorized to subject other actions of the management board to its prior
consent.
The Celanese management board must submit regular reports on the operations
of Celanese to the Celanese supervisory board, and the Celanese supervisory
board is also entitled to request special reports at any time. The German Stock
Corporation Act prohibits simultaneous membership on the management board and
the supervisory board of a company.
In carrying out their duties, members of both the Celanese management board
and the Celanese supervisory board must exercise the standard of care of a
prudent and diligent businessperson. Both the members of the Celanese management
board and the members of the Celanese supervisory board owe a duty of loyalty
and care to Celanese. 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 management board and the
Celanese supervisory board must take all these interests into account when
taking actions or making decisions. Although there is no explicit obligation to
act solely in the interests of shareholders, the Celanese management board is
required to respect their rights to equal treatment and equal information.
Under German law, shareholders, like other persons, are prohibited from
using their influence on Celanese to cause a member of the Celanese management
board or the Celanese supervisory board to act in a way that is harmful to
Celanese. A controlling enterprise may not cause Celanese to take measures that
are unfavorable to Celanese unless any resulting disadvantage is compensated. An
individual shareholder or any other person exerting influence on Celanese to
cause a member of the Celanese management board or of the Celanese supervisory
board or holders of special powers of attorney (Prokuristen or
Handlungsbevollmaechtigte) to act in a way that is unfavorable to Celanese or
its shareholders is liable for damages to Celanese as well as to Celanese's
shareholders to the extent the shareholders have been directly damaged over and
beyond their damages resulting from the damage to Celanese. Members of the
Celanese management or supervisory boards who have acted in violation of their
duties in taking the actions are likewise liable for damages.
As a general rule under German law, a shareholder has no direct recourse
against the members of the Celanese management board or the Celanese supervisory
board if they are believed to have breached a duty to Celanese. Only Celanese
has the right to claim damages from the members of the two Celanese boards.
However, shareholders holding one-tenth or more of the nominal share capital may
request the enforcement of a claim. Celanese may only waive damages or settle
claims against the members of its two boards if at least three years have passed
since the claim has arisen and if the shareholders approve that waiver or
settlement at a shareholders' meeting with a simple majority of the votes;
provided that the opposing shareholders do not hold, in the aggregate, one tenth
or more of the nominal share capital of Celanese and do not formally express
their opposition at the shareholders' meeting by having their opposition noted
in the minutes of the meeting maintained by a German notary (Notar).
Management Board
The Celanese management board currently consists of five members who were
appointed on September 1, 1999 by the Celanese supervisory board with immediate
effect for a period of three years commencing upon the effectiveness of the
demerger in accordance with the German Stock Corporation Act.
Under the Articles of Association (Satzung) of Celanese, any two members of
the Celanese management board or any member of the Celanese management board
together with the holder of a special power of attorney (Prokurist) granted by
the Celanese management board, may bind Celanese. The Celanese management board
must report regularly to the Celanese supervisory board, in particular, on
proposed business policy and strategy, profitability and on the current business
of Celanese as well as on any exceptional matters which may arise from time to
time.
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The members of the Celanese management board are 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 management board may be removed by the Celanese supervisory
board prior to the expiration of such term of office. A member of the Celanese
management board may not deal with, or vote on, matters relating to proposals,
arrangements or contracts between himself and Celanese.
Celanese management board decisions are taken with a simple majority of the
votes, if the law does not require a larger majority. In case of a tie, the vote
of the chairman of the Celanese management board is decisive.
Celanese's management board is mainly comprised of persons who are
responsible for the management of Celanese's operating businesses and corporate
functions. The current members of the Celanese management board, their
respective ages as of March 31, 2000 and their functions are as follows:
<TABLE>
<CAPTION>
NAME AGE FUNCTION
---- --- --------------------------------------
<S> <C> <C>
Claudio Sonder........................ 57 Chairman of the Celanese Management
Board
Perry W. Premdas...................... 47 Chief Financial Officer
Knut Zeptner.......................... 56 CEO, Celanese Chemicals and Acetates;
Responsible for the Acetyl Products,
Chemical Intermediates and Acetate
Products segments
Edward H. Munoz....................... 56 CEO, Ticona; Responsible for the
Ticona segment
Dr. Ernst Schadow..................... 57 Director of Personnel, Affiliates,
Environmental Health and Safety
Affairs, Infrastructure and Technology
</TABLE>
The term of office of each member of the Celanese management board will
expire in 2002.
Claudio Sonder served, from 1996 until the demerger, on the Hoechst
management board. There he was responsible for the agricultural chemicals,
animal health and nutrition businesses, before becoming responsible for
Hoechst's Celanese business segment, which is now largely reported under the
Acetyl Products, Chemical Intermediates and Acetate Products segments, and
Ticona. 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 and
chief executive officer of Hoechst do Brazil from 1983 to 1994.
Perry W. Premdas 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. In his 23 years
with Celanese, 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.
Knut Zeptner has been president and chief executive officer of Hoechst's
Celanese Chemicals and Acetate business segments, which are now largely reported
under the Acetyl Products, Chemical Intermediates and Acetate Products segments,
based in the United States, since 1998. Mr. Zeptner worked with Hoechst's
industrial businesses for more than 30 years in Germany, the United Kingdom,
Japan and the United States. He was the head of Hoechst's Plastics and Films
Division in Frankfurt, Germany, from 1996 to 1998, chief executive officer of
Hoechst Diafoil, the former polyester film joint venture with
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Mitsubishi, based in Wiesbaden, Germany, from 1993 to 1996, and executive
managing director of Hoechst Japan in Tokyo from 1990 to 1993.
Edward H. Munoz has been the chief executive officer of Ticona since
January 1, 1999. Previously, he was the president of worldwide technical fibers
for Trevira, Hoechst's former global polyester fibers and resins business, where
he also led the strategy group for divesting Trevira. Mr. Munoz worked with the
industrial businesses of Hoechst and the former Celanese Corporation for almost
30 years in the United States, Mexico and Germany. He served as president of
Hoechst's Pigments strategic business unit in Frankfurt, Germany from 1995 to
1997, as director general of Celanese Mexicana from 1993 to 1995, and as
president of Hoechst Celanese Corporation's Advanced Materials Group from 1991
to 1993.
Dr. Ernst Schadow was a member of Hoechst's management board from 1988
until the demerger, serving as director of personnel and having responsibility
for environmental health and safety affairs, Aventis Research & Technology,
Messer, Uhde, Wacker and the InfraServ companies in Germany. From 1985 to 1988,
he was head of Hoechst's Chemicals Division. In his 25 years with Hoechst, he
also held positions in corporate planning for Hoechst and in production and
technology for the Hoechst's Chemicals Division.
Supervisory Board
Celanese has approximately 4,000 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.
The term of a Celanese supervisory board member ordinarily expires at the
end of the general meeting of shareholders in which the shareholders discharge
the Celanese supervisory board member for the fourth fiscal year following the
year in which such member was elected. The remuneration of the members of the
Celanese supervisory board is determined by resolution at shareholder meetings.
At the constituent meeting of the supervisory board of Celanese on
September 1, 1999, Dr. Guenter Metz was elected Chairman of the Celanese
supervisory board. Additional shareholder representatives appointed to the
Celanese supervisory board were: Khaled Saleh Buhamrah, Alan R. Hirsig, Dr.
Joannes C.M. Hovers, Dr. Alfons Titzrath, and Kendrick R. Wilson III. The
business address of the members of the Celanese supervisory board is the
business address of Celanese AG.
The composition of the Celanese supervisory board under the German
Co-determination Law was confirmed in a special status proceeding
(Statusverfahren) according to Section 97 of the German Stock Corporation Act.
Furthermore, the employee representatives were initially appointed to the
Celanese
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supervisory board under Section 104 of the German Stock Corporation Act by the
local court in Frankfurt for an interim period until Celanese's employees in
Germany elected new representatives in accordance with the provisions of the
German Co-determination Act. Employees of Celanese outside Germany are not
entitled to participate in these elections. Reiner Nause was elected Deputy
Chairman of the supervisory board at the meeting of the supervisory board of
Celanese on December 14, 1999.
The incumbent members of the supervisory board of Celanese, their
respective ages as of March 31, 2000 and their principal occupations are as
follows:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION YEAR FIRST ELECTED/APPOINTED
---- --- ------------------------------- ----------------------------
<S> <C> <C> <C>
Dr. Guenter Metz............... 64 Chairman of the Celanese 1999
supervisory board; former
deputy chairman of the
supervisory board of Hoechst
AG, Germany
Reiner Nause*.................. 55 Deputy chairman of the Celanese 1999
supervisory board; chairman of
the group workers' council of
Celanese Chemicals Europe GmbH
Dr. Hanswilhelm Bach*.......... 52 Chairman of the senior 1999
executives group
Khaled Saleh Buhamrah.......... 56 Chairman and managing director 1999
of Petrochemical Industries
Company, Kuwait
Gerd Decker*................... 56 Chairman of the workers' 1999
council of Trespaphan GmbH
Alan R. Hirsig................. 60 Former president and chief 1999
executive officer of ARCO
Chemical Company, United States
Dr. Joannes C. M. Hovers....... 56 Former chief executive officer 1999
of Oce N.V., the Netherlands
Ralf Sikorski*................. 38 Deputy Regional Head of IG BCE, 1999
Hessen
Ute Sturm*..................... 40 Deputy chairman of the workers' 1999
council of Celanese Chemicals
Europe GmbH, Frankfurt Site
Dr. Alfons Titzrath............ 68 Chairman of the supervisory 1999
board of Dresdner Bank AG,
Germany
Kendrick R. Wilson III......... 53 Managing director, financial 1999
institutions Group, Goldman,
Sachs & Co., United States
Werner Zwoboda*................ 58 Chairman of the central 1999
workers' council of Ticona GmbH
</TABLE>
- ---------------
* Representative of the employees
62
<PAGE> 65
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
The aggregate amount of compensation paid during the year ended December
31, 1999 to the members of the Celanese management board and Officers of
Celanese (19 persons), was approximately E15.4 million*. This amount includes
compensation payment by Hoechst made to persons in that group for the positions
they held with Hoechst prior to the demerger and Celanese for the positions they
held with Celanese following the demerger.
The aggregate amount of compensation paid during the year ended December
31, 1999 to the members of the Celanese management board was approximately E10
million*. This amount also includes compensation paid by both Hoechst and
Celanese in 1999.
Celanese is currently proposing to this year's annual general meeting the
following compensation for the supervisory board members. In addition to
reimbursement of out-of-pocket expenses, members of the Celanese supervisory
board are to receive a fixed annual payment which amounts to E62,000 for the
Chairman, E46,500 for the Deputy Chairman and E31,000 for all other members of
the Celanese supervisory board, prorated based on the time period they serve on
the Celanese supervisory board. To the extent that on the due date Celanese has
shares of its own which it may use for this purpose, half of these fixed annual
amounts are to be paid in Celanese ordinary shares with the remainder to be paid
in cash. In addition, for each Celanese supervisory board meeting, they are to
receive a meeting fee of E3,000 for the Chairman, E2,250 for the Deputy Chairman
and E1,500 for all other members of the Celanese supervisory board. Also, each
member of the Celanese supervisory board is to receive a committee retainer for
each membership in a committee of the Celanese supervisory board. The committee
retainer amounts to E3,000 for the chairman of the committee and E1,500 for all
other members of the committee. All members of the Celanese supervisory board
are also to be reimbursed for value added tax on these amounts. In addition,
Celanese is currently proposing to this year's annual general meeting the
implementation of a stock appreciation rights plan for members of the Celanese
supervisory board, the broad terms of which would be similar to the long-term
incentive plan described below. Based on the current proposal for the year ended
December 31, 1999, the aggregate compensation of the members of the supervisory
board amounted to approximately E0.3 million. According to German law,
compensation of supervisory board members requires shareholder approval.
The members of the Celanese management board and Officers of Celanese are
eligible to participate in Celanese's annual bonus program. This program
provides for annual bonus payments subject to (i) Celanese's EBITDA excluding
special charges; (ii) the operating results of the relevant business unit; and
(iii) the personal performance of the participating manager. In 1999, such bonus
payments could account for up to 70 percent of the manager's base salary, or up
to 140 percent of base salary if all targets are significantly exceeded.
INCENTIVE PLANS
An important component of Celanese's compensation programs is the provision
of additional encouragement for the attainment of 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 will participate in the benefits of achieving financial and
business performance targets through annual incentive plans. The Celanese
management board has approved two stock appreciation
- ---------------
* The aggregate amounts of compensation do not include any cash distributions
relating to the 1998 Hoechst Stock Option Plan received by members of the
Celanese management board and Officers of Celanese. Celanese employees who
were granted such options under the 1998 Hoechst Stock Option Plan had the
alternative to continue their participation in the plan which, following the
business combination of Hoechst and Rhone-Poulenc to form Aventis, became the
Aventis Option Plan, to receive Celanese stock appreciation rights, or to
receive a cash distribution. The aggregate amount of such cash distributions
for members of the Celanese management board and Officers is E0.3 million.
For further information on the 1998 Hoechst Stock Option Plan, see Note 20 to
the Consolidated Financial Statements.
63
<PAGE> 66
rights plans, one being an equity participation plan and the other being a
long-term incentive plan, both of which took effect on October 25, 1999, and
pursuant to which grants will be made for only a limited period of time.
In 1999, the Celanese management board and executives of Celanese worldwide
(totaling 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 must 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 have indicated their
intent to participate in this plan through substantial investment in Celanese
shares, therefore, potentially entitling participants to receive 2.5 million
stock appreciation rights. Since all members of the Celanese management board
and Officers of Celanese have committed to take part in this plan, this group is
expected to receive 630,000 stock appreciation rights.
Celanese board members and senior executives worldwide participate in the
long-term incentive plan, which gives the participants the cash difference
between the base price and the price of the shares on the day of exercise. The
long-term incentive plan is identical to the equity participation plan, except
that it does not require an investment in Celanese shares by the participants.
The base price under this as well as the equity participation plan was based on
the average prices for the first 20 trading days of Celanese ordinary shares and
has been set at E16.37 per share. At October 25, 1999, 2.5 million stock
appreciation rights were awarded to 168 employees. Of this amount, 830,000 stock
appreciation rights were awarded to the members of the management board and
Officers.
Under both 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 either plan have a ten year term and generally
will be exercisable in whole or in part, subject to certain limitations, at any
time during the period between October 25, 2001 and October 25, 2009, 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 companies as defined by Celanese's management
board*. Celanese is offsetting its exposure under these plans by purchasing in
the market call options covering Celanese shares. See "Item 9A. Quantitative and
Qualitative Disclosures about Market Risk", and for additional information
related to incentive plans, see Note 20 to the Consolidated Financial
Statements.
Subject to shareholder approval required under German law, Celanese plans
to implement a stock option plan in the second half of 2000, the term, vesting
and exercise periods, as well as performance goals of which would be similar to
the long-term incentive plan described above. The stock option plan may contain
provisions enabling Celanese to deliver Celanese ordinary shares or to pay the
monetary value of the stock options in cash upon exercise of the options.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
None.
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
None.
- ---------------
* The peer group currently consists of Dow, Union Carbide, DSM, Eastman,
Georgia Gulf Corp., Imperial Chemical Industries PLC, Lyondell Chemical Co.,
Methanex, Rhodia, and Millennium.
64
<PAGE> 67
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
Not applicable.
PART III
ITEM 15. DEFAULT UPON SENIOR SECURITIES
None.
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES
None.
PART IV
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. FINANCIAL STATEMENTS AND 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:
Index to Consolidated Financial Statements
Report of the Board of Management
Report of Independent Accountants
Consolidated Financial Statements:
Consolidated Statements of Operations for the Years Ended December 31,
1999, 1998 and 1997
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Cash Flow Statements for the Years Ended December 31, 1999,
1998 and 1997
Notes to the Consolidated Financial Statements
KEY FIGURES IN EURO
All Schedules are omitted because they are not applicable or because the
required information is contained in the Consolidated Financial Statements or
Notes thereto.
65
<PAGE> 68
(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
4.1 Form of Definitive Stock Certificate of Celanese AG
10.1 Dyneon Purchase and Assignment Agreement dated as of
December 28, 1999 by and between Celanese AG, Diogenes
Dreizehnte Vermoegensverwaltungs GmbH, Celanese
Fluoropolymer Holdings, Inc., Celanese Americas
Fluoropolymer Holdings, Inc., Minnesota Mining and
Manufacturing Company and 3M Deutschland GmbH
10.2 English translation of the Targor Purchase and Transfer
Agreement dated as of December 17, 1999 by and between
Diogenes Dreizehnte Vermoegensverwaltungs GmbH, Celanese AG
and BASF Aktiengesellschaft.
23.1 Consent of KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft Wirtschaftspruefungsgesellschaft
</TABLE>
66
<PAGE> 69
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 31, 2000
By: /s/ CLAUDIO SONDER
--------------------------------------
Name: Claudio Sonder
Title: Chairman of the Management
Board
By: /s/ PERRY W. PREMDAS
--------------------------------------
Name: Perry W. Premdas
Title: Member of the Management Board
and Chief Financial Officer
67
<PAGE> 70
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Report of the Board of Management........................... F-2
Independent Auditors' Report................................ F-3
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997....................... F-4
Consolidated Balance Sheets as of December 31, 1999 and
1998................................................... F-5
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1999, 1998 and 1997........... F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998
and 1997............................................... F-7
Notes to Consolidated Financial Statements................ F-8
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
Schedule II - Valuation and Qualifying Accounts........... F-47
</TABLE>
F-1
<PAGE> 71
REPORT TO 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 the Group.
The Financial Statements have been prepared in accordance with U.S. GAAP.
The exemption of article 292a HGB has been applied.
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 are reviewed by corporate auditing
for their reliability and effectiveness are intended to enable the Board of
Management to recognize the potential impact of negative factors on the Group's
assets and developments in a timely fashion. This ensures that all business
developments are correctly reflected and that a reliable basis for the
consolidated financial statements is created.
The Board of Management runs the company in the interests of its
stockholders and in awareness of its responsibility towards employees and
society. Our declared aim is to employ the resources entrusted to us so as 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 Wirstschaftsprufungsgesellschaft 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 Financial 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 Board of Management members 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.
Frankfurt am Main, February 24, 2000
The Board of Management
F-2
<PAGE> 72
INDEPENDENT AUDITORS' REPORT
To the Management 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 German and United States
generally accepted auditing standards. 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, 1999 and 1998, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
1999 in conformity with United States generally accepted accounting principles.
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.
Frankfurt am Main, Germany
February 24, 2000
KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft Wirtschaftsprufungsgesellschaft
F-3
<PAGE> 73
CELANESE
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1999 1999 1998(2) 1997(2)
------------------ ------------ ------------ ------------
(IN $ MILLIONS)(1)
EXCEPT FOR PER
SHARE DATA) (IN E MILLIONS EXCEPT FOR PER SHARE DATA)
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales................................. 4,348 4,318 4,344 4,951
Cost of sales............................. (3,646) (3,621) (3,454) (3,862)
Selling, general and administrative
expenses................................ (574) (570) (535) (575)
Research and development expenses......... (80) (79) (101) (133)
Special charges........................... (563) (559) (100) (103)
Foreign exchange losses................... (12) (12) (4) (9)
Gain (loss) on disposition of assets...... 3 2 18 (2)
---------- ---------- ---------- ----------
Operating profit (loss)................. (524) (521) 168 267
Equity in net earnings of affiliates...... 7 7 11 6
Interest expense.......................... (112) (111) (133) (138)
Interest and other income, net............ 33 33 47 49
---------- ---------- ---------- ----------
Earnings (loss) before income taxes,
minority interests, discontinued
operations and extraordinary
expense.............................. (596) (592) 93 184
Income tax benefit (expense).............. 84 83 (109) (83)
---------- ---------- ---------- ----------
Earnings (loss) before minority
interests, discontinued operations
and extraordinary expense............ (512) (509) (16) 101
Minority interests........................ 7 7 (40) (63)
---------- ---------- ---------- ----------
Earnings (loss) from continuing
operations........................... (505) (502) (56) 38
Discontinued operations, net of income tax
of E77 million:
Earnings from operations of discontinued
operations........................... 13 12 12 9
Gain on disposal of discontinued
operations........................... 299 298 - -
---------- ---------- ---------- ----------
Earnings from discontinued operations... 312 310 12 9
Extraordinary expense, net of income
tax..................................... (15) (15) - -
---------- ---------- ---------- ----------
Net earnings (loss)..................... (208) (207) (44) 47
---------- ---------- ---------- ----------
Earnings (loss) per common share - basic
and diluted:
Continuing operations................... (9.03) (8.98) (1.00) 0.68
Discontinued operations, net of income
tax.................................. 5.58 5.55 0.21 0.16
Extraordinary item, net of income tax... (0.27) (0.27) - -
---------- ---------- ---------- ----------
Net earnings (loss)..................... (3.72) (3.70) (0.79) 0.84
========== ========== ========== ==========
Weighted average shares - basic and
diluted................................. 55,915,369 55,915,369 55,915,369 55,915,369
</TABLE>
- ---------------
(1) The 1999 figures are unaudited and have been translated solely for the
convenience of the reader at an exchange rate of U.S.$1.0070 per E1.00, the
noon buying rate of the Federal Reserve Board of New York on December 31,
1999.
(2) All balances have been restated from Deutsche Mark into euro using the
Official Fixed Exchange Rate as of January 1, 1999.
See the accompanying notes to the consolidated financial statements.
F-4
<PAGE> 74
CELANESE
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
<TABLE>
<CAPTION>
1999 1999 1998(2)
------------------ ----- -------
(IN $ MILLIONS)(1) (IN E MILLIONS)
------------------ ---------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. 381 378 -
Receivables, net.......................................... 1,485 1,475 1,073
Receivables from Hoechst and affiliates................... 124 123 823
Inventories............................................... 593 588 586
Deferred income taxes..................................... 127 126 133
Other assets.............................................. 53 52 60
Net assets (liabilities) of discontinued operations....... (42) (42) 541
----- ----- -----
Total current assets.............................. 2,721 2,700 3,216
----- ----- -----
Investments................................................. 584 580 455
Property, plant and equipment, net.......................... 1,946 1,932 1,677
Deferred income taxes....................................... 231 230 140
Other assets................................................ 708 703 653
Intangible assets, net...................................... 1,391 1,382 1,217
----- ----- -----
Total assets...................................... 7,581 7,527 7,358
===== ===== =====
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current installments of
long-term debt......................................... 432 429 400
Accounts payable and accrued liabilities.................. 2,110 2,096 1,333
Liabilities to Hoechst.................................... 15 15 74
Deferred income taxes..................................... 16 16 16
Income taxes payable...................................... 237 235 298
----- ----- -----
Total current liabilities......................... 2,810 2,791 2,121
----- ----- -----
Long-term debt.............................................. 523 519 1,079
Deferred income taxes....................................... 70 69 73
Other liabilities........................................... 1,269 1,259 1,192
Minority interests.......................................... 23 23 157
Shareholders' equity:
Common stock, no par value, E143 million aggregate
registered value, 55,915,369 shares authorized, issued
and outstanding........................................ 144 143 -
Additional paid-in capital................................ 2,518 2,500 -
Call options.............................................. 4 4 -
Retained earnings......................................... 40 40 -
Accumulated other comprehensive income (loss)............. 180 179 (115)
Combined equity, exclusive of accumulated other
comprehensive loss..................................... - - 2,851
----- ----- -----
Total shareholders' equity........................ 2,886 2,866 2,736
----- ----- -----
Total liabilities and shareholders' equity........ 7,581 7,527 7,358
===== ===== =====
</TABLE>
- ---------------
(1) The 1999 figures are unaudited and have been translated solely for the
convenience of the reader at an exchange rate of U.S.$1.0070 per E1.00, the
noon buying rate of the Federal Reserve Board of New York on December 31,
1999.
(2) All balances have been restated from Deutsche Mark into euro using the
Official Fixed Exchange Rate as of January 1, 1999.
See the accompanying notes to the consolidated financial statements.
F-5
<PAGE> 75
CELANESE
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER PRE- TOTAL
COMMON PAID-IN CALL RETAINED COMPREHENSIVE DISTRIBUTION SHAREHOLDERS'
STOCK CAPITAL OPTIONS EARNINGS INCOME (LOSS) EQUITY EQUITY
------ ---------- ------- -------- ------------- ------------ -------------
(IN E MILLIONS)(1)
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996....................... - - - - (56) 1,082 1,026
Comprehensive loss, net of
tax:
Net earnings............... - - - - - 47 47
Other comprehensive income
(loss):
Foreign currency
translation............ - - - - 28 - 28
---- -----
Other comprehensive
income................. - - - - 28 - 28
-----
Comprehensive income......... - - - - - - 75
Net activity with Hoechst.... - - - - - 149 149
--- ----- -- -- ---- ------ -----
Balance at December 31,
1997....................... - - - - (28) 1,278 1,250
--- ----- -- -- ---- ------ -----
Comprehensive loss, net of
tax:
Net loss................... - - - - - (44) (44)
Other comprehensive income
(loss):
Unrealized gains (losses)
on securities.......... - - - - 9 - 9
Foreign currency
translation............ - - - - (45) - (45)
Minimum pension
liability.............. - - - - (51) - (51)
---- -----
Other comprehensive
loss................... - - - - (87) - (87)
-----
Comprehensive loss........... - - - - - - (131)
-----
Net activity with Hoechst.... - - - - - 1,617 1,617
--- ----- -- -- ---- ------ -----
Balance at December 31,
1998....................... - - - - (115) 2,851 2,736
--- ----- -- -- ---- ------ -----
Comprehensive loss, net of
tax:
Net earnings (loss)........ - - - 40 - (247) (207)
Other comprehensive income
(loss):
Unrealized gains (losses)
on securities.......... - - - - (11) - (11)
Foreign currency
translation............ - - - - 261 - 261
Minimum pension
liability.............. - - - - 44 - 44
---- -----
Other comprehensive
income................. - - - - 294 - 294
-----
Comprehensive income......... - - - - - - 87
-----
Net activity with Hoechst.... - - - - - 39 39
Issuance of common stock on
the effective date of the
demerger................... 143 2,500 - - - (2,643) -
Call options................. - - 4 - - - 4
--- ----- -- -- ---- ------ -----
Balance at December 31,
1999....................... 143 2,500 4 40 179 - 2,866
=== ===== == == ==== ====== =====
</TABLE>
- ---------------
(1) All balances through December 31, 1998 have been restated from Deutsche Mark
into euro using the Official Fixed Exchange Rate as of January 1, 1999.
See the accompanying notes to consolidated financial statements.
F-6
<PAGE> 76
CELANESE
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1999 1999 1998(2) 1997(2)
------------------ ---- ------- -------
(IN $ MILLIONS)(1) (IN E MILLIONS)
------------------ ------------------------
<S> <C> <C> <C> <C>
Operating activities from continuing operations:
Net earnings (loss)................................. (208) (207) (44) 47
Earnings from operations of discontinued
operations....................................... (12) (12) (12) (9)
Special charges, net of amounts used............. 485 482 6 (14)
Depreciation and amortization.................... 341 339 312 290
Change in equity of affiliates................... 7 7 4 (5)
Deferred income taxes............................ 2 2 (97) (6)
Gain (loss) on disposition of assets, net........ (2) (2) (18) 6
Gain on disposal of discontinued operations,
net............................................ (507) (503) - -
Changes in operating assets and liabilities:
Receivables, net............................... (111) (110) (49) 191
Inventories.................................... 69 68 (18) (62)
Accounts payable, accrued liabilities and other
liabilities................................. 234 232 164 (6)
Income taxes payable........................... (111) (110) 65 39
Other, net..................................... (3) (3) 17 16
---- ---- ---- ----
Net cash provided by operating activities........ 184 183 330 487
Investing activities from continuing operations:
Capital expenditures on property, plant and
equipment...................................... (264) (262) (345) (368)
Acquisitions of businesses and purchase of
investment..................................... (400) (397) - -
Proceeds from disposition of assets.............. 10 10 42 21
Proceeds from disposal of discontinued
operations..................................... 919 913 - -
Proceeds from sale of marketable securities...... 55 54 311 172
Purchases of marketable securities............... (60) (60) (305) (223)
Other, net....................................... (1) (1) - -
---- ---- ---- ----
Net cash provided by (used in) investing
activities..................................... 259 257 (297) (398)
Financing activities from continuing operations:
Short-term borrowings with third parties, net.... (144) (143) 27 80
Proceeds from long-term debt due to third
parties........................................ 166 164 48 126
Payments of long-term debt due to third
parties........................................ (851) (845) (506) (229)
Short-term borrowings from Hoechst, net.......... (253) (251) 50 (263)
Short-term borrowings from affiliates............ 304 302 - -
Other net activities with Hoechst................ 711 706 336 202
Other............................................ (5) (5) - -
---- ---- ---- ----
Net cash used in financing activities............ (72) (72) (45) (84)
Exchange rate effects on cash......................... 10 10 2 5
---- ---- ---- ----
Net increase (decrease) in cash and cash
equivalents.................................... 381 378 (10) 10
---- ---- ---- ----
Cash and cash equivalents at beginning of year... - - 10 -
---- ---- ---- ----
Cash and cash equivalents at end of year......... 381 378 - 10
==== ==== ==== ====
Net cash provided by (used in) discontinued
operations:
Operating activities............................. 18 18 25 38
Investing activities............................. (38) (38) (38) (45)
Financing activities............................. 15 15 5 18
---- ---- ---- ----
Net cash provided by (used in) discontinued
operations..................................... (5) (5) (8) 11
==== ==== ==== ====
</TABLE>
- ---------------
(1) The 1999 figures are unaudited and have been translated solely for the
convenience of the reader at an exchange rate of U.S.$1.0070 per E1.00, the
noon buying rate of the Federal Reserve Board of New York on December 31,
1999.
(2) All balances have been restated from the Deutsche Mark into euro using the
Official Fixed Exchange Rate as of January 1, 1999.
See the accompanying notes to the consolidated financial statements.
F-7
<PAGE> 77
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF CONSOLIDATION AND PRESENTATION
On October 22, 1999 (the "Effective Date"), Celanese AG ("Celanese"),
formerly a subsidiary of Hoechst AG ("Hoechst"), was demerged from Hoechst and
became an independent publicly traded company. In the demerger, Hoechst
distributed all of the outstanding shares of Celanese's common stock to existing
Hoechst shareholders at a rate of one share of Celanese's common stock for every
ten shares of Hoechst common stock outstanding. Prior to the Effective Date,
Celanese conducted the worldwide operations of Hoechst's basic chemicals,
acetates, technical polymer and certain other industrial businesses
(collectively, the "Businesses"). In connection with the demerger and pursuant
to the Demerger Agreement between Celanese and Hoechst, Celanese assumed all of
the assets and liabilities of the Businesses as well as certain contractual
rights and obligations related to other current and former Hoechst businesses.
The financial statements have been prepared in accordance with United
States ("U.S.") generally accepted accounting principles ("U.S. GAAP") for all
periods presented. The historical consolidated results of operations, financial
position, changes in equity and cash flows of the Businesses for periods prior
to the Effective Date presented in the accompanying financial statements were
prepared on a basis as if Celanese had been a separate legal entity during these
periods. All transactions between and among Celanese's Businesses have been
eliminated.
In 1998 and 1997, Hoechst allocated a portion of its corporate expenses to
the Businesses. These expenses, totaling E36 million in 1998, include, but were
not limited to, benefit administration, risk management administration, tax
services, finance services, treasury management services, environmental
services, litigation support services, intellectual property management services
and executive functions. Allocations and charges were based on either a direct
identification or an allocation for such services based on factors such as
employment levels or floor space. Management believes that the basis used for
the allocation of corporate services was reasonable and that the terms of these
transactions would not have materially differed from those among unrelated
parties. The income tax provision was calculated based on each Business's
contributions to the total provision for income taxes of the multiactivity legal
entity within a tax jurisdiction. As such, the financial results for 1998 and
1997 may not necessarily reflect the financial position and results of
operations that would have occurred had the Businesses operated as a stand-alone
entity on the dates, and for the periods, indicated. In 1999, Celanese incurred
direct corporate expenses of approximately E40 million.
With the introduction of the European Monetary Union euro ("E") on January
1, 1999, Celanese has elected to present the accompanying financial statements
in euro. Accordingly, the consolidated financial statements as of and for the
years ended December 31, 1998 and 1997 have been restated into euro using the
euro/Deutsche Mark ("DM") exchange rate as of January 1, 1999 of DM 1.95583 to
one (1) euro. The restated euro financial statements depict the same trends as
would have been presented had Celanese continued to present its consolidated
financial statements and notes thereto in DM. The financial statements for
periods prior to January 1, 1999 are not comparable to those of other companies
reporting in euro which have restated amounts from currencies other than the DM.
All amounts in the accompanying financial statements are shown in millions of
euro.
F-8
<PAGE> 78
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. SUMMARY OF ACCOUNTING POLICIES
- REVENUE RECOGNITION
Revenues are recorded at the time of shipment of products.
- CASH AND CASH EQUIVALENTS
All highly liquid investments with maturities of three months or less from
the date of acquisition are considered cash equivalents.
- INVESTMENTS IN MARKETABLE SECURITIES
Celanese has classified its investments in debt and equity securities as
"available-for-sale" and has reported those investments at their fair or market
value in the balance sheet as other assets. Unrealized gains or losses net of
the related tax effect on available-for-sale securities are excluded from
earnings and are reported as a component of accumulated other comprehensive loss
until realized.
- FINANCIAL INSTRUMENTS
As a matter of principle, Celanese does not use derivative financial
instruments for trading purposes. Celanese is party to interest rate swaps as
well as foreign currency forward contracts in the management of its interest
rate and exchange rate exposures. Celanese generally utilizes interest rate
derivative contracts in order to fix or limit the interest paid on existing
variable rate debt. Celanese utilizes currency derivative financial instruments
to eliminate or reduce the exposure of its foreign currency denominated
receivables and payables.
Differences between amounts paid or received on interest rate swap
agreements are recognized as adjustments to interest expense over the life of
each swap, thereby adjusting the effective interest rate on the hedged
obligation. Realized gains and losses and unrealized losses on instruments not
meeting the criteria for hedge accounting treatment, or that cease to meet hedge
accounting criteria, are included as income or expense currently.
Foreign exchange contracts relating to accounts receivable or accounts
payable are accounted for as hedges. The gain or loss arising from the
settlement of the contracts is recognized as income or expense at the same time
the transaction being hedged is settled.
Financial instruments which potentially subject Celanese to concentrations
of credit risks are primarily receivables concentrated in various geographic
locations and cash equivalents. Celanese performs ongoing credit evaluations of
its customers' financial condition. Generally, collateral is not required from
customers. Allowances are provided for specific risks inherent in receivables.
Celanese purchases call options from various financial institutions to
reduce the exposure of its stock appreciation rights related to the Long-Term
Incentive Plan ("LTIP") and Equity Participation Plan ("EPP"). (See Note 22)
- INVENTORIES
Inventories held for resale are stated at the lower of cost or market. Cost
is primarily determined using the first-in, first-out or FIFO method, although
certain locations, primarily in the U.S., have opted to utilize the last-in,
first-out or LIFO method. Cost includes raw materials, direct labor and
manufacturing overhead.
The cost of stores and supplies are valued at cost or market, whichever is
lower. Cost is generally determined by the average cost method.
F-9
<PAGE> 79
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. SUMMARY OF ACCOUNTING POLICIES - (CONTINUED)
- INVESTMENTS AND EQUITY IN NET EARNINGS OF AFFILIATES
Investments in which Celanese owns a voting interest of between 20 percent
and 50 percent are accounted for using the equity method. Investments in which
Celanese holds a voting interest of less than 20 percent are carried at cost.
The excess of cost over underlying equity in net assets acquired is amortized
over the anticipated life of the investment, not to exceed 20 years.
- LONG-LIVED ASSETS
Long-lived assets include:
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are
capitalized at cost. Depreciation is calculated on a straight-line basis over
the following estimated useful lives of the assets:
<TABLE>
<S> <C>
Land Improvements........................................... 20 years
Buildings................................................... 30 years
Building and Leasehold Improvements......................... 10 years
Machinery and Equipment..................................... 10 years
</TABLE>
Leasehold improvements are amortized over 10 years or the remaining life of
the respective lease, whichever is shorter.
Repair costs that do not extend the useful life of the asset are charged
against earnings as incurred. Major replacements, renewals and significant
improvements are capitalized.
Interest costs incurred during the construction period of assets are
estimated using a weighted average percentage applied to the average value of
constructed assets. The interest capitalized is amortized over the life of the
asset.
INTANGIBLE ASSETS - The excess of purchase price over fair value of net
identifiable assets and liabilities acquired ("Goodwill") is amortized on a
straight line basis over the expected periods to be benefited, not to exceed 20
years. Patents and trademarks are amortized on a straight line basis over their
estimated economic or legal life, whichever is shorter. (See Note 11)
Subsequent to the demerger, Celanese undertook a review of its accounting
policies which included goodwill lives. This process resulted in a review of the
goodwill associated with the 1987 merger of Celanese and American Hoechst which
was originally assigned a 40 year life, of which 27 years remain. Based upon its
review of the business operations associated with this goodwill, Celanese
management has concluded that the remaining life is 20 years. Therefore, as of
the Effective Date, Celanese has begun amortizing the remaining goodwill over 20
years. This change in amortization period will result in an increase of
approximately E9 million of amortization expense annually.
IMPAIRMENT OF LONG-LIVED ASSETS - Celanese assesses the recoverability of
the carrying value of its long-lived assets, including goodwill, whenever events
or changes in circumstances indicate that the carrying amount of the asset may
not be fully recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net
undiscounted cash flows expected to be generated by the asset. If assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying value of the assets exceeds the fair value of the
assets.
- INCOME TAXES
The provision for income taxes has been determined using the asset and
liability approach of accounting for income taxes. Under this approach, deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
F-10
<PAGE> 80
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. SUMMARY OF ACCOUNTING POLICIES - (CONTINUED)
and the amounts used for income tax purposes, net operating loss and tax credit
carryforwards. The amount of deferred taxes on these temporary differences is
determined using the tax rates that are expected to apply to the period when the
asset is realized or the liability is settled, as applicable, based on tax
rates, and tax laws, in the respective tax jurisdiction then in effect.
Subsequent to the Effective Date, Celanese is responsible for its income
taxes and files its own income tax returns. In 1999, prior to the Effective
Date, Celanese was an operating business of Hoechst and was included as part of
the tax returns filed by Hoechst. However, Celanese's tax provisions for these
periods were computed as if it had been a separate company.
- ENVIRONMENTAL LIABILITIES
Celanese manufactures and sells a highly diversified 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 the event of loss
is probable and reasonably estimable. 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. Celanese estimates environmental liabilities on a
case by case basis using available information. Environmental liabilities in
which the remediation period is fixed and associated costs are readily
determinable are recorded at their net present value. It is Celanese's policy
not to record as an asset any anticipated recoveries from third parties relating
to environmental matters. (See Note 24)
- MINORITY INTERESTS
Minority interests in the equity and results of operations of the entities
controlled by Celanese are shown as a separate item in the consolidated
financial statements. The entities included in the consolidated financial
statements that have minority interests at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
OWNERSHIP
PERCENTAGE
----------
<S> <C>
InfraServ GmbH & Co. Oberhausen KG.......................... 84%
Synthesegasanlage Ruhr GmbH................................. 50%
</TABLE>
As of December 31, 1998, Celanese owned 56 percent of the outstanding
voting shares of Celanese Canada, Inc., and exercised management control. In the
third quarter of 1999, Celanese acquired the remaining interest in Celanese
Canada, Inc., thereby giving Celanese 100 percent ownership. In connection with
this transaction, Celanese also acquired the remaining 24 percent minority
interest of Edmonton Methanol Company. (See Note 5)
As of December 31, 1998, Celanese owned 51 percent of the outstanding
voting shares of Copley Pharmaceuticals Inc., and exercised management control.
In September 1999, Teva Pharmaceutical Industries, Ltd., acquired all the
outstanding shares of Copley Pharmaceuticals Inc. (See Note 5)
As of December 31, 1998, Celanese owned 79 percent of the outstanding
voting shares of InfraServ GmbH & Co. Munchsmunster KG. During 1999, Celanese
sold 30 percent of its interest in this company to SKW Trostberg. (See Note 9)
As of December 31, 1997, Celanese owned 51 percent of the outstanding
voting shares of Grupo Celanese, S.A. and exercised management control. In
December 1998, Hoechst acquired the remaining interest in Grupo Celanese, S.A.
and subsequently contributed this interest to Celanese. (See Note 4)
F-11
<PAGE> 81
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. SUMMARY OF ACCOUNTING POLICIES - (CONTINUED)
As of December 31, 1997, Celanese owned 72 percent of the outstanding
voting shares of Trespaphan GmbH. During 1998, Hoechst acquired the remaining 28
percent interest in Trespaphan GmbH and subsequently contributed the interest to
Celanese. (See Note 4)
Celanese has a 60 percent voting interest and the right to appoint a
majority of the management board of Synthesegasanlage Ruhr GmbH, which results
in Celanese controlling this entity, and, accordingly, Celanese consolidates
this entity in its consolidated financial statements.
- RESEARCH AND DEVELOPMENT
The costs of research and development are charged as an expense in the
period in which they are incurred.
- FUNCTIONAL CURRENCIES
For most of Celanese's international operations where the functional
currency is other than euro, assets and liabilities are generally translated
using period-end exchange rates, while the statement of operations is translated
using the average exchange rates for the respective year. Differences arising
from the translation of assets and liabilities in comparison with the
translation of the previous periods are included as a separate component of
accumulated other comprehensive loss.
- EARNINGS PER SHARE
Basic earnings (loss) per share is based on the net earnings (loss) divided
by the weighted average number of common shares outstanding during the period.
On the Effective Date, Hoechst issued 55,915,369 shares of Celanese to existing
Hoechst shareholders, which are deemed to be outstanding for all periods
presented. Celanese had 55,915,369 shares outstanding and no common stock
equivalents at December 31, 1999.
- STOCK-BASED COMPENSATION
Celanese applies the intrinsic value-based method of accounting prescribed
by Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations, in accounting for stock based
compensation. Celanese also applies the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, Accounting for Stock-based Compensation,
which allows entities to continue to apply the provisions of APB Opinion No. 25
and provide pro forma net earnings disclosures for employee stock based
compensation grants as if the fair value based method defined in SFAS No. 123
had been applied. Compensation expense for stock appreciation rights is recorded
based on the difference between the base unit price at the date of grant and the
quoted market price of Celanese's common stock at the end of the period through
the time of vesting.
- ESTIMATES AND ASSUMPTIONS
The preparation of consolidated financial statements in conformity with
U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, allocated balances and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues, expenses and allocated charges during the
reporting period. Actual results could differ from those estimates.
F-12
<PAGE> 82
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. SUMMARY OF ACCOUNTING POLICIES - (CONTINUED)
- PRESENTATION
Certain amounts in prior years have been reclassified to conform to the
current year presentation.
- NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements ("SAB 101"). SAB 101 summarizes the staffs' views in applying
generally accepted accounting principles to revenue recognition in financial
statements, including the recognition of non-refundable fees received upon
entering into arrangements. We are in the process of evaluating SAB 101 and the
effect it will have on our financial statements and current revenue recognition
policy.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This statement
standardizes the accounting for derivative instruments including certain
derivative instruments embedded in other contracts. The effective date of SFAS
No. 133 was delayed to fiscal year 2001 by the issuance of SFAS No. 137.
Celanese will adopt this statement as of January 1, 2001. Celanese has not
determined the impact this statement will have on its Consolidated Financial
Statements and believes that such determination will not be meaningful until
closer to the date of adoption.
3. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(IN E MILLIONS)
------------------
<S> <C> <C> <C>
Cash paid during the year for:
Taxes.................................................. 140 245 103
Interest, net of amounts capitalized................... 113 151 197
Noncash investing and financing activities:
Contribution by Hoechst of net receivables to Celanese
(See Note 4)........................................... - 384 -
Contribution by Hoechst of Grupo Celanese S.A. minority
interest (See Note 4).................................. - 643 -
Contribution by Hoechst of Trespaphan GmbH minority
interest (See Note 4).................................. - 24 -
Contribution by Hoechst of investments (See Note 4)....... - 7 57
Contribution by Hoechst of Dyneon GmbH deferred tax asset
(See Note 4)........................................... - 109 -
Recognition (reduction) of additional minimum pension
liability, net of tax (See Note 18).................... (113) 116 4
Acquisition of plant and equipment through capital
leases................................................. - 3 15
Fair value adjustment to securities available for sale,
net of tax (See Note 6)................................ (11) 9 -
</TABLE>
4. TRANSACTIONS AND RELATIONSHIP WITH AFFILIATES
Celanese is a party to various transactions with Affiliated companies.
Companies for which Celanese has investments accounted for under the equity
method of accounting are considered affiliates; any transactions or balances
with such companies are considered affiliate transactions. Additionally,
transactions and balances with Hoechst prior to the effective date are also
considered related party transactions. Transactions and balances with Hoechst
after the Effective Date are considered third-party
F-13
<PAGE> 83
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. TRANSACTIONS AND RELATIONSHIP WITH AFFILIATES - (CONTINUED)
transactions. The following tables represent Celanese's transactions with
affiliated companies, as defined above, for the periods presented.
<TABLE>
<CAPTION>
1999 1998 1997
---- ----- ----
(IN E MILLIONS)
-------------------
<S> <C> <C> <C>
INCOME STATEMENT TRANSACTIONS
Purchases from Affiliates(1).............................. 19 54 156
Sales to Affiliates(1).................................... 128 172 442
Interest income from Affiliates........................... 22 8 16
Interest expense paid to Affiliates....................... 5 9 21
Expenses allocated from Affiliates(2)..................... - 36 36
EQUITY TRANSACTIONS(5)
Contribution of net receivables to Celanese(3)(11)........ 97 384 -
Contribution of Grupo Celanese S.A. minority
interest(6)............................................ - 643 -
Contribution of Trespaphan GmbH minority interest(7)...... - 24 -
Contribution of investments(8)............................ - 13 57
Transfer of certain other activities from Celanese to
Hoechst(9)............................................. (58) 350 -
Contribution of Dyneon GmbH deferred tax asset(10)........ - 109 -
Net other activities with Hoechst......................... - 94 92
--- ----- ---
Net transfers from Hoechst............................. 39 1,617 149
--- ----- ---
</TABLE>
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN E MILLIONS)
-------------------
<S> <C> <C>
BALANCE SHEET TRANSACTIONS
Trade and other receivables from Affiliates(3)............ 118 798
Current notes receivable (including interest) from
Affiliates............................................. 5 25
Long-term notes receivable from Affiliates................ 20 23
---- ---
Total receivables with Affiliates................. 143 846
Accounts payable and other liabilities due Affiliates..... 15 72
Accrued interest payable due Affiliates................... - 2
Short-term borrowings from Affiliates(4).................. 302 238
---- ---
Total due Affiliates.............................. 317 312
---- ---
Net receivables (payables) with Affiliates............. (174) 534
==== ===
</TABLE>
- ---------------
(1) Purchases/Sales from/to Affiliates
Purchases and sales from/to Affiliates are accounted for at prices
approximating those charged to third party customers for similar goods. Celanese
made purchases from Hoechst amounting to E17 million and E49 million in 1999,
1998 and 1997, respectively. Celanese had sales with Hoechst of E45 million in
1999 and E95 million in 1998, respectively.
(2) Expenses allocated from Affiliates
Hoechst provided certain services to Celanese including, but not limited
to, benefit administration, risk management administration, tax services,
finance services, treasury management services, environmental services,
litigation support services, intellectual property management services and
executive functions. Fees were based on either a direct identification or an
allocation for such services based on factors such as
F-14
<PAGE> 84
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. TRANSACTIONS AND RELATIONSHIP WITH AFFILIATES - (CONTINUED)
employment levels or floor space. Expenses allocated to Celanese from Hoechst
totaled E36 million in 1998 and 1997. In 1999, these expenses were incurred
directly and amounted to approximately E40 million.
(3) Trade and other receivables from Affiliates
Trade and other receivables from Affiliates amounted to E118 million and
E798 million at December 31, 1999 and December 31, 1998, respectively. In both
years the majority of these amounts was outstanding from Hoechst. The decrease
in 1999 is due to payments made by Hoechst in the fourth quarter of 1999.
Hoechst contributed to Celanese net receivables totaling E97 million during 1999
and E384 million during 1998. At December 31, 1999, included in receivables due
from Hoechst are E81 million related to reimbursement for the sorbates
litigation. See Demerger Agreement below and Note 23 for further discussion.
Also included in receivables due from Hoechst are E11 million relating to
reimbursement for demerger costs and certain taxes. See Demerger Agreement
below. Remaining receivables with Affiliates are considered short-term and will
be settled through net cash payments to Celanese within one year. The prior year
balance contains deposits of liquid funds with Hoechst as a result of the
Businesses' participation in the centralized cash management programs of
Hoechst. Under these programs, excess cash was invested, and disbursements were
funded, by Hoechst on behalf of the Businesses. Subsequent to the demerger,
Celanese assumed the responsibility for the cash management of the Businesses.
(4) Short-term borrowings from Affiliates (See Note 14)
The 1999 balance reflects Celanese's short-term borrowings from Affiliates.
In 1998, the amounts were due to Hoechst, which were settled during the fourth
quarter of 1999. For all periods, interest rates were adjusted monthly to
reflect market conditions.
(5) Shareholders' Equity
Prior to the Effective Date, shareholders' equity represented the
historical equity of the Businesses and activities combined as Celanese.
Shareholders' equity represented combined equity less accumulated other
comprehensive loss items of the combined Businesses and the effects of transfers
between Celanese and Hoechst which did not give rise to receivables or payables
intended to be settled between these two groups of companies.
Upon the Effective Date of the demerger, Hoechst shareholders received a
special dividend from Hoechst in the form of Celanese shares. Each Hoechst
shareholder received one (1) share of Celanese for every ten (10) shares of
Hoechst they held. Hoechst did not retain any Celanese shares, following the
special dividend.
(6) Investment in Grupo Celanese, S.A.
During the year ended December 31, 1997, Celanese owned 51 percent of the
outstanding voting shares of Grupo Celanese, S.A. and exercised management
control. On December 10, 1998, Hoechst exchanged substantially all of its
polyester fiber and bottle resin businesses in the U.S., Europe and Mexico for
the 49 percent minority interest in Grupo Celanese, S.A., which was not already
owned by Celanese. On December 10, 1998, Hoechst contributed this interest to
Celanese. As a result of the acquisition of the minority interest in Grupo
Celanese, S.A., the unallocated purchase price over the net assets acquired and
liabilities assumed related to the acquisition totaled E592 million. Celanese
performed an appraisal of the underlying assets and liabilities of Grupo
Celanese, S.A. to determine the amount of the unallocated purchase price
pertaining to these items. This process has been finalized.
This transaction was reflected as a capital contribution, totaling E643
million, net of a E51 million tax benefit, from Hoechst. Accordingly, the
historical results of operations of the polyester fiber and bottle resin
businesses have been excluded from the accompanying consolidated financial
statements. Celanese
F-15
<PAGE> 85
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. TRANSACTIONS AND RELATIONSHIP WITH AFFILIATES - (CONTINUED)
would have recognized additional amortization expense of E30 million for fiscal
1998 had this capital contribution been made on January 1, 1998.
(7) Investment in Trespaphan GmbH
On March 31, 1998, Hoechst acquired the remaining 28 percent interest in
Trespaphan GmbH and contributed the interest to Celanese in connection with the
demerger. The unallocated purchase price over the net assets acquired and
liabilities assumed related to the acquisition totaled E10 million. This
transaction is reflected as a capital contribution, totaling E24 million, net of
an E11 million tax benefit, from Hoechst.
(8) Contribution of investments
During 1998, Hoechst contributed cost investments totaling E13 million to
Celanese. In July 1997, Hoechst acquired a 50 percent interest in Targor GmbH
and contributed its E57 million equity investment to Celanese. All investments
have been contributed at their historical basis. Celanese sold its investments
in Targor and Dyneon in December 1999 (See Note 5). For presentation purposes,
entities which have been discontinued are shown on the consolidated balance
sheets as net assets (liabilities) of discontinued operations.
(9) Non-Celanese activities transferred to Hoechst
During 1998, in anticipation of the demerger, Celanese transferred other
activities to Hoechst. These activities were not managed or controlled by
Celanese. As a result of this transfer, Celanese received capital contributions
totaling E350 million in 1998 which are included as a transfer from Hoechst in
the consolidated statement of shareholders' equity and as net activity with
Hoechst in the financing section of the consolidated statement of cash flows. In
1999, prior to the demerger, Celanese incurred E58 million in charges associated
with the non-Celanese activities, which were treated as a capital distribution
to Hoechst.
(10) Dyneon GmbH deferred tax asset
At December 31, 1998, included in net assets of discontinued operations in
Celanese's consolidated financial statements is an investment in Dyneon GmbH,
the worldwide fluoropolymer joint venture between Hoechst and 3M. The
contribution of this investment to Celanese resulted in a step-up to the tax
basis of the investment. The differential in tax basis versus book basis
resulted in a deferred tax asset totaling E109 million. This deferred tax asset
was contributed to Celanese in 1998 and is shown as an increase to combined
equity. The contribution of this deferred tax asset is a non-cash item in the
supplemental cash flow information. Celanese sold its investment in Dyneon GmbH
in 1999. (See Note 5)
(11) Demerger Agreement
In connection with the demerger, Celanese and Hoechst executed and
delivered the Demerger Agreement. The Demerger Agreement, among other things,
provided for the following:
Demerger Costs
Demerger costs were shared equally between Celanese and Hoechst. Such
amount totaled E28 million in 1999 and is recorded as a component of special
charges on the statement of operations.
Antitrust Actions Related to Sorbates Industry
Pursuant to the Demerger Agreement, Hoechst has agreed to indemnify
Celanese for 80 percent of any costs Celanese may incur for the antitrust
actions related to the sorbates industry.
F-16
<PAGE> 86
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. TRANSACTIONS AND RELATIONSHIP WITH AFFILIATES - (CONTINUED)
Environmental Liabilities
As part of the Demerger Agreement, Celanese has agreed to indemnify Hoechst
for the first E250 million of future environmental liabilities arising from
certain previously divested Hoechst entities. If these future environmental
liabilities exceed E250 million, Hoechst will bear the excess up to an
additional E500 million. Thereafter, Celanese will bear one third and Hoechst
will bear two-thirds of any further environmental liabilities. Celanese has
established total reserves of E158 million related to these potential
liabilities, of which E40 million was recorded in 1999.
OTHER MATTERS
Consolidation of Hoechst Procurement Olefin
Hoechst Procurement Olefin ("HPO"), a wholly-owned subsidiary of Celanese,
acts as a purchasing agent on behalf of Celanese and on behalf of third parties.
HPO enters into sale and purchase agreements for raw materials on a commission
type. Accordingly, the commission fee on these sales is classified as other
operating income. This income amounted to E4 million in 1999 and E1 million in
1998, respectively. The raw material sales volume commissioned by HPO between
refineries and third parties and Celanese amounted to E482 million and E444
million in 1999 and 1998, respectively.
5. ACQUISITIONS AND DISPOSALS
Celanese made the following acquisitions of businesses during 1999:
In the third quarter of 1999, Celanese acquired all the outstanding shares
of Celanese Canada, Inc., not previously owned by Celanese. Celanese paid CAD
486 million (E303 million) for this 44 percent minority interest, resulting in
goodwill of E154 being recorded.
In December 1999, Ticona, the Engineering Polymers Business of Celanese,
acquired a 50 percent ownership in Korea Engineering Plastics Company Ltd.
(KEP), for approximately 110 billion Korean Won (E94 million). Celanese's
interest in KEP is accounted for under the equity method. (See Note 9)
As part of Celanese's plan to shed its non-core businesses, Celanese
divested the following businesses during 1999. These divestitures were
classified as discontinued operations in accordance with APB Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual, and Infrequently Occurring
Events and Transactions":
In September 1999, Celanese sold its approximate 52 percent interest in
Copley Pharmaceuticals Inc. to Teva Pharmaceutical Industries, Ltd.
In December 1999, Celanese sold the following businesses and investments:
- its polyester fiber and bottle resin business in Millhaven, Ontario,
Canada, to KoSa , a company owned by a consortium between Koch
Industries, a U.S. company, and a Mexican company owned by Mr. Isaac
Saba.
- its Ethylene Oxide/Ethylene Glycol business to Old World Industries, Inc.
- its U.S. and Japanese separation products businesses, Celgard, to Daramic
Inc., a wholly-owned subsidiary of Polypore Inc. Celgard manufactures and
markets flat sheet separators for use in batteries, disposable lighters
and blood oxygenators, and hollow fiber membranes for degassing liquids.
Celanese expects to sell the remaining portion of this business, which
had net sales of E7 million in 1999, during 2000.
F-17
<PAGE> 87
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
5. ACQUISITIONS AND DISPOSALS - (CONTINUED)
- its 46 percent holding in the fluoropolymer manufacturer Dyneon to 3M.
Dyneon, a joint venture founded in 1996, was created to integrate the
fluoropolymer businesses of 3M and Celanese.
- its 50 percent share in the polypropylene joint venture Targor to BASF
AG. Founded in 1997, Targor was created to integrate the polypropylene
businesses of BASF and Celanese.
Celanese received gross proceeds of E1,001 million from the sale of these
discontinued operations, which led to a net cash inflow of E913 million in 1999.
Celanese recognized a gain, net of taxes, of E452 million in gain on disposal of
discontinued operations in the consolidated statements of operations in 1999.
Celanese recorded earnings of E14 million in net earnings from operations of
discontinued operations relating to these divested businesses in 1999.
Celanese made the following decisions regarding its plans to divest
businesses during 2000. These divestitures were classified as discontinued
operations in accordance with APB Opinion No. 30:
In December 1999, Celanese signed an agreement for the sale of its
phosphorous and phosphorous derivatives business, conducted by the Thermphos
Group, to the Thermphos Group's management. The sale was completed in January
2000. The loss was fully accrued at December 31, 1999 and was included as a
component of net assets (liabilities) of discontinued operations.
During 1999, Celanese decided to sell its 50 percent interest in Vinnolit
Kunstoff GmbH, its joint venture with Wacker Chemie GmbH, a leading European
producer of high performance polyvinyl chloride or PVC products. In February
2000, Celanese signed a letter of intent with Advent International Corporation,
to sell its ownership interest in Vinnolit. Celanese expects to complete this
transaction during 2000 and recognize a book gain on this sale.
During 1999, Celanese decided to sell Vintron, a wholly owned subsidiary of
Celanese and a manufacturer of polyvinyl chloride. In February 2000, Celanese
signed a letter of intent, with Advent International Corporation, to sell
Vintron GmbH. Celanese expects to complete this transaction during 2000 and
recognize a book loss of E138 million related to this transaction which was
fully accrued for in 1999.
During 1999, Celanese announced its intention to shut down its bulk active
pharmaceutical business line, which supplies pharmaceutical raw materials to
Pharmacyclics, Inc. The shutdown was completed by the end of 1999.
Celanese recorded a loss, net of taxes, of E154 million in gain on disposal
of discontinued operations and a loss of E2 million in earnings from operations
of discontinued operations relating to these additional discontinued operations.
6. SECURITIES AVAILABLE FOR SALE
At December 31, 1999 and 1998, Celanese had E160 million and E137 million
of marketable securities available for sale, respectively. These marketable
securities were included as a component of other assets at December 31, 1999 and
1998. These securities are held by Celanese's captive insurance businesses.
There were no realized gains or losses in 1999 and 1998. The amortized cost,
gross unrealized
F-18
<PAGE> 88
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. SECURITIES AVAILABLE FOR SALE - (CONTINUED)
gains, gross unrealized losses and fair values for available-for-sale securities
by major security type at December 31, 1999 and 1998, were as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -----
(IN E MILLIONS)
-------------------------------------------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1999
Debt Securities
U.S. Government....................................... 28 - 2 26
U.S. municipal........................................ 3 - - 3
Other government...................................... 6 - - 6
U.S. corporate........................................ 98 - 2 96
--- -- -- ---
Total debt securities......................... 135 - 4 131
Bank certificates of deposit............................ 8 - - 8
Equity securities....................................... 5 1 - 6
Mortgage-backed securities.............................. 15 - - 15
--- -- -- ---
163 1 4 160
=== == == ===
AT DECEMBER 31, 1998
Debt Securities
U.S. Government....................................... 20 - - 20
U.S. municipal........................................ 3 - - 3
Other government...................................... 8 - - 8
U.S. corporate........................................ 73 2 - 75
--- -- -- ---
Total debt securities......................... 104 2 - 106
Bank certificates of deposit............................ 10 - - 10
Equity securities....................................... 6 1 - 7
Mortgage-backed securities.............................. 14 - - 14
--- -- -- ---
134 3 - 137
=== == == ===
</TABLE>
Fixed maturities at December 31, 1999 by contractual maturity are shown
below. Actual maturities could differ from contractual maturities because
borrowers may have the right to call or prepay obligations, with or without call
or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- -----
(IN E MILLIONS)
-----------------
<S> <C> <C>
Within one year............................................. 21 21
From one to five years...................................... 55 54
From six to ten years....................................... 55 53
Greater than ten years...................................... 27 26
--- ---
158 154
=== ===
</TABLE>
F-19
<PAGE> 89
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. RECEIVABLES, NET
<TABLE>
<CAPTION>
1999 1998
------ ------
(IN E MILLIONS)
---------------
<S> <C> <C>
Trade....................................................... 873 702
Reinsurance receivables..................................... 402 204
Other....................................................... 240 202
----- -----
Subtotal.................................................. 1,515 1,108
Allowance for doubtful accounts............................. (40) (35)
----- -----
Net receivables........................................... 1,475 1,073
===== =====
</TABLE>
As of December 31, 1999 and 1998, Celanese had no significant
concentrations of credit risk since Celanese's customer base is dispersed across
many different industries and geographies.
8. INVENTORIES
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(IN E MILLIONS)
-----------------------
<S> <C> <C>
Finished goods.............................................. 450 478
Work-in-process............................................. 20 24
Raw materials and supplies.................................. 105 85
--- ---
Subtotal.................................................. 575 587
LIFO reserve................................................ 13 (1)
--- ---
Total inventories................................. 588 586
=== ===
</TABLE>
At December 31, 1999 and 1998, E229 million and E251 million, respectively,
of total inventories were valued by the LIFO method. Celanese realized E14
million and E19 million for the fiscal years ended December 31, 1999 and 1998,
respectively, from the liquidation of LIFO reserves.
9. INVESTMENTS
Celanese has investments in a number of affiliates, which are accounted for
under the equity method. Significant equity affiliates include:
<TABLE>
<CAPTION>
PERCENT
AFFILIATE OWNERSHIP
--------- ---------
<S> <C>
Clear Lake Methanol Co., LLC................................ 50.0%
Fortron Industries.......................................... 50.0%
Korea Engineering Plastics Co., Ltd......................... 50.0%
InfraServ GmbH & Co. Muenchsmuenster KG..................... 49.0%
Polyplastics Co., Ltd....................................... 45.0%
InfraServ GmbH & Co. Gendorf KG............................. 39.0%
InfraServ GmbH & Co. Hoechst KG............................. 27.2%
InfraServ GmbH & Co. Knapsack KG............................ 27.0%
</TABLE>
F-20
<PAGE> 90
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. INVESTMENTS - (CONTINUED)
<TABLE>
<CAPTION>
1999 1998
------ ------
(IN E MILLIONS)
---------------
<S> <C> <C>
Affiliates totals:
Net sales................................................. 1,935 1,958
Net earnings.............................................. 40 52
Celanese's share:
Net earnings.............................................. 7 11
Dividends................................................. 15 9
Total assets................................................ 1,976 1,876
Total liabilities........................................... 771 762
Interests of others......................................... 739 706
----- -----
Celanese's equity......................................... 466 408
Write-down of Celanese's investment......................... (15) -
Excess of cost over underlying equity in net assets
acquired.................................................. 129 47
----- -----
Celanese's investment..................................... 580 455
===== =====
</TABLE>
<TABLE>
<CAPTION>
ACQUISITION WRITE
COST DOWNS NET BOOK VALUE
----------- --------------- --------------
(IN E MILLIONS)
----------------------------------------------
<S> <C> <C> <C>
January 1, 1999*....................................... 455 - 455
Additions............................................ - (15) (15)
Disposals............................................ (7) - (7)
Reclassifications.................................... (13) - (13)
Exchange rate changes................................ 73 - 73
Acquisitions and divestitures........................ 94 - 94
Celanese's share of equity method investee
earnings.......................................... (7) - (7)
--- --- ---
December 31, 1999...................................... 595 (15) 580
=== === ===
</TABLE>
- ---------------
* Amounts reclassified to show only continued operations.
In December 1999, Celanese sold its investments in Dyneon GmbH and Targor
GmbH. A decision was made to sell Vinnolit GmbH, therefore, this investment is
included on the balance sheet as a component of net assets (liabilities) of
discontinued operations. (See Note 5)
In December 1999, Celanese sold a portion of its investment in InfraServ
GmbH & Co. Wiesbaden KG. As a result, Celanese's investment percentage decreased
from 29 percent to 18.9 percent. Therefore, Celanese changed its method of
accounting for this investment from the equity method to the cost method. This
activity is shown as a reclassification in the above schedule.
During the fourth quarter of 1999, events occurring in the methanol
industry indicated that an other than temporary decrease in the value in
Celanese's investment in the Clear Lake Methanol Joint Venture ("CLMV") had
occurred, resulting in Celanese writing down its investment in CLMV by E15
million.
F-21
<PAGE> 91
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
BUILDING,
BUILDING
LAND IMPROVEMENTS
AND LAND AND LEASEHOLD MACHINERY CONSTRUCTION CAPITALIZED
IMPROVEMENTS IMPROVEMENTS AND EQUIPMENT IN PROGRESS INTEREST TOTAL
------------ ------------- ------------- ------------ ----------- ------
(IN E MILLIONS)
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ACQUISITION OR CONSTRUCTION COST
January 1, 1999(1)......................... 139 288 2,313 242 98 3,080
Additions................................ 4 1 31 213 13 262
Disposals................................ - (11) (118) (5) (16) (150)
Book transfers........................... 6 12 218 (236) - -
Acquisition and divestitures............. - 3 27 - - 30
Reclassifications........................ - 41 77 - - 118
Exchange rate changes.................... 22 24 205 29 16 296
------ ------ ------ ------ ------ ------
December 31, 1999.......................... 171 358 2,753 243 111 3,636
------ ------ ------ ------ ------ ------
DEPRECIATION
January 1, 1999(1)......................... (59) (86) (1,206) - (52) (1,403)
Additions................................ (4) (35) (320) - (8) (367)
Disposals................................ - 4 128 - 13 145
Book transfers........................... - - - - - -
Acquisitions and divestitures............ - - - - - -
Exchange rate changes.................... (11) 3 (63) - (8) (79)
------ ------ ------ ------ ------ ------
December 31, 1999.......................... (74) (114) (1,461) - (55) (1,704)
------ ------ ------ ------ ------ ------
Book value at December 31, 1999.............. 97 244 1,292 243 56 1,932
====== ====== ====== ====== ====== ======
</TABLE>
- ---------------
(1) Amounts reclassified to show only continued operations.
Included in reclassifications is the purchase price allocation from
goodwill to fixed assets and current assets, relating to Grupo Celanese, S.A.
The total investment in property, plant and equipment was E262 million and
E345 million in 1999 and 1998, respectively. Scheduled depreciation totaled E275
million and E280 million in 1999 and 1998, respectively. Write-downs due to
asset impairment amounting to E92 million and E8 million were recorded to
special charges in 1999 and 1998, respectively. The asset impairment write-downs
are included in additions to depreciation.
Assets under capital leases amounted to E37 million in both 1999 and 1998.
Interest costs capitalized were E13 million, E8 million and E9 million in
1999, 1998 and 1997, respectively.
F-22
<PAGE> 92
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
11. INTANGIBLE ASSET
<TABLE>
<CAPTION>
PATENTS, LICENSES,
TRADEMARKS AND
SIMILAR RIGHTS GOODWILL TOTAL
------------------ -------- -----
(IN E MILLIONS)
<S> <C> <C> <C>
ACQUISITION COST
January 1, 1999(1).......................................... 17 1,543 1,560
Additions................................................. 1 - 1
Disposals................................................. (1) - (1)
Exchange rate changes..................................... 1 253 254
Acquisitions and divestitures............................. - 154 154
Reclassifications......................................... - (123) (123)
--- ----- -----
December 31, 1999........................................... 18 1,827 1,845
--- ----- -----
AMORTIZATION
January 1, 1999(1).......................................... (11) (332) (343)
Additions................................................. (2) (62) (64)
Disposals................................................. 1 - 1
Exchange rate changes..................................... (1) (56) (57)
Acquisitions and divestitures............................. - - -
--- ----- -----
December 31, 1999........................................... (13) (450) (463)
--- ----- -----
Book value on December 31, 1999............................. 5 1,377 1,382
=== ===== =====
</TABLE>
- ---------------
(1) Amounts reclassified to show only continued operations.
Intangible assets arising from acquisitions of companies are included in
acquisitions and divestitures, whereas intangible assets acquired as individual
assets are included in additions.
Included in reclassifications is the purchase price allocation from
goodwill to fixed assets and current assets, relating to Grupo Celanese, S.A.
12. INCOME TAXES
Celanese is headquartered in Germany. Germany has both a corporate tax and
a trade income tax, the latter of which varies based upon location. German
corporate tax law applies a split rate computation with regard to the taxation
of the income of a corporation. Retained corporate income is initially subject
to a German federal corporation tax of 40 percent in 1999 and 45 percent in 1998
plus a solidarity surcharge of 5.5 percent on the German corporate tax payable.
Including the impact of the surcharge, the German corporate tax rate amounted to
42 percent in 1999 and 47 percent in 1998. Upon distribution of a dividend to
shareholders, the corporate income tax rate on those earnings is adjusted to 30
percent plus the solidarity surcharge of 5.5 percent in both years. Including
the impact of the surcharge, the German federal corporate distribution tax rate
amounted to 32 percent in both years. Upon distribution of retained
F-23
<PAGE> 93
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. INCOME TAXES - (CONTINUED)
earnings in the form of a dividend, shareholders who are taxpayers in Germany
are entitled to a tax credit in the amount of German corporation tax paid by the
corporation.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(IN E MILLIONS)
------------------
<S> <C> <C> <C>
Earnings (loss) before income taxes, minority interests and
extraordinary expense:
Germany................................................ (216) (65) 36
United States.......................................... (290) 22 (71)
Other.................................................. (86) 136 219
---- --- ---
Total............................................. (592) 93 184
==== === ===
Provision (benefit) for income taxes:
Current:
Germany.............................................. 3 6 15
United States........................................ (17) 158 4
Other................................................ 36 44 63
---- --- ---
Total current..................................... 22 208 82
Deferred:
Germany.............................................. (50) (15) (5)
United States........................................ (41) (89) (7)
Other................................................ (14) 5 13
---- --- ---
Total deferred.................................... (105) (99) 1
---- --- ---
Income tax provision (benefit).................... (83) 109 83
==== === ===
Effective income tax rate reconciliation:
Income tax computed at statutory tax rates.................. (266) 42 83
Increase (decrease) in taxes resulting from:
Change in valuation allowance.......................... 83 34 11
Equity income.......................................... (5) (6) (3)
Non-deductible depreciation and amortization........... 15 5 21
Settlement of open tax years........................... - - (31)
Investments............................................ 1 7 24
Import/export activities............................... 5 12 20
Additional U.S. tax provision.......................... 10 13 2
United States foreign tax credit....................... (6) - (39)
United States tax rate differentials................... 29 (2) 7
Other foreign tax rate differentials................... 37 (3) (12)
Other.................................................. 14 7 -
---- --- ---
Income tax provision (benefit)......................... (83) 109 83
==== === ===
</TABLE>
F-24
<PAGE> 94
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. INCOME TAXES - (CONTINUED)
The tax effects of the temporary differences which give rise to a
significant portion of deferred tax assets and liabilities as of December 31,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
(IN E MILLIONS)
---------------
<S> <C> <C>
Postretirement obligations.................................. 216 229
Accrued expenses............................................ 265 196
Net operating loss carryforwards............................ 314 97
Investments................................................. 5 15
Other....................................................... 41 35
---- ---
Subtotal............................................... 841 572
Valuation allowance......................................... (278) (70)
---- ---
Deferred tax assets.................................... 563 502
---- ---
Depreciation................................................ 238 226
Interest.................................................... 8 4
Inventory................................................... 26 48
Other....................................................... 20 40
---- ---
Deferred tax liabilities............................... 292 318
---- ---
Net deferred tax assets........................... 271 184
==== ===
</TABLE>
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. Celanese has
established valuation allowances primarily for U.S. state and German net
operating loss carryforwards which may not be realizable. Based on Celanese's
historical and current pretax earnings, management believes it is more likely
than not that Celanese will realize the benefit of the remaining deferred tax
assets existing at December 31, 1999 and 1998.
At December 31, 1999, Celanese has net operating loss carryforwards of
approximately E434 million, primarily in Germany and Mexico with varying
expiration dates. In addition, Celanese has capital loss carryforwards of E345
million which will expire in 2004.
13. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
1999 1998
------ ------
(IN E MILLIONS)
---------------
<S> <C> <C>
Accounts payable trade...................................... 451 422
Accrued salaries and benefits............................... 134 133
Accrued environmental....................................... 78 54
Accrued restructuring....................................... 188 46
Insurance loss reserves..................................... 595 315
Accrued legal............................................... 359 125
Other....................................................... 291 238
----- -----
Total accounts payable and accrued liabilities.... 2,096 1,333
===== =====
</TABLE>
F-25
<PAGE> 95
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
14. DEBT
SHORT-TERM BORROWINGS AND CURRENT INSTALLMENTS OF LONG-TERM DEBT
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
AT INTEREST
DECEMBER 31, RATES
--------------- -----------
1999 1998 1999 1998
------ ------ ---- ----
(IN E MILLIONS)
---------------
<S> <C> <C> <C> <C>
Current installments of long-term debt...................... 2 16 5.3% 7.3%
Bank loans.................................................. 125 146 7.7% 11.0%
Notes and revolver with Hoechst (See Note 4)................ - 238 - 6.0%
Notes with affiliates....................................... 302 - 3.3% -
--- ---
Total short-term borrowings and current
installments of long-term debt.................. 429 400
=== ===
</TABLE>
Celanese has a U.S.$700 million (E697 million) commercial paper program at
December 31, 1999. At December 31, 1999, there were no borrowings against the
commercial paper program. Celanese maintains committed revolving credit lines
and term loans with several banks aggregating E2,041 million at December 31,
1999; the aggregate unused part thereof amounted to E1,752 million, of which
U.S.$700 million (E697 million) was used as credit backup for Celanese's
commercial paper program. Celanese had outstanding letters of credit amounting
to E109 million at December 31, 1999 and E231 million at December 31, 1998. The
bank loans are principally denominated in U.S. dollars, euro, South African
rand, Mexican pesos and British pound sterling.
F-26
<PAGE> 96
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
14. DEBT - (CONTINUED)
LONG-TERM BORROWINGS
<TABLE>
<CAPTION>
AT
DECEMBER 31,
---------------
1999 1998
------ ------
(IN E MILLIONS)
---------------
<S> <C> <C>
Term notes:
6.125% notes, due 2004................................. 25 213
8.23% notes, due 2002.................................. - 103
7.125% medium-term notes, due 2009..................... 14 85
7.39% bank loan, due 1999-2004......................... - 60
7.86% notes, due 2001.................................. - 43
8.24% notes, due 2002.................................. - 26
7.5% medium-term notes, due 2004....................... - 26
8.48% senior promissory notes, due 1999-2002........... - 17
9.8% medium-term notes, due 2013 and 2018.............. - 21
Variable rate loans with interest rates as of December 31,
1999, adjusted periodically:
Due in 2000............................................ - 85
Due in 2001............................................ - 128
Due in 2002............................................ - 85
Due in 2003, interest rate of 6.50%.................... 50 -
Due in 2003, interest rate of 6.60%.................... 174 -
Pollution control and industrial revenue bonds, interest
rates ranging from 5.2% to 9.0%, due at various dates
through 2026.............................................. 218 187
Obligations under capital leases, due at various dates
through 2012.............................................. 20 20
Other....................................................... 20 19
Amounts to be settled with Hoechst.......................... - (23)
--- -----
Subtotal.................................................. 521 1,095
Less: Current installments of long-term debt................ 2 16
--- -----
Total long-term debt.............................. 519 1,079
=== =====
</TABLE>
Substantially all the above long-term borrowings are denominated in U.S.
dollars. Certain of Celanese's loan agreements, which are legally held by
certain Celanese subsidiaries, include tangible net worth and other covenants
that limit their ability to enter into certain transactions. During December
1999, Celanese Canada sold its Millhaven plant assets for cash. This resulted in
an unusually high level of cash, which represented more than 45 percent of the
total assets of the company at year end, resulting in non-compliance with the
equity to total assets debt covenant. In January 2000, a waiver through June 30,
2000, was obtained for this non-compliance. All other subsidiaries were in
compliance with all debt covenants at December 31, 1999.
Upon the demerger, Celanese used the proceeds it received from the
collection of the net receivables from Hoechst as well as proceeds from
divestitures to pay down its long-term debt.
Due to majority ownership clauses in the third party debt instruments,
certain instruments had to be terminated by Celanese in connection with the
demerger. Accordingly, Celanese incurred early termination costs of E15 million,
net of E10 million in taxes, which are included as an extraordinary item in 1999
in the accompanying consolidated statements of operations.
F-27
<PAGE> 97
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
14. DEBT - (CONTINUED)
The maturities in 2000 and thereafter are as follows:
<TABLE>
<CAPTION>
TOTAL
---------------
(IN E
MILLIONS)
---------------
<S> <C>
2000........................................................ 429
2001........................................................ 22
2002........................................................ 8
2003........................................................ 230
2004........................................................ 42
Thereafter.................................................. 217
---
Total............................................. 948
===
</TABLE>
15. OTHER LIABILITIES
<TABLE>
<CAPTION>
1999 1998
------ ------
(IN E MILLIONS)
---------------
<S> <C> <C>
Pension and postretirement medical and life obligations (See
Note 18).................................................. 752 717
Environmental liabilities (See Note 24)..................... 317 252
Other....................................................... 190 223
----- -----
Total other liabilities........................... 1,259 1,192
===== =====
</TABLE>
16. COST OF RAW MATERIALS AND SUPPLIES
The following cost of raw materials and supplies reflect total costs
incurred by continuing and discontinued operations in the respective periods:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
(IN E MILLIONS)
---------------------
<S> <C> <C> <C>
Cost of raw materials, supplies and merchandise............. 3,160 3,135 2,982
Cost of services purchased (primarily energy)............... 348 344 379
----- ----- -----
Total Cost of Raw Materials and Supplies.......... 3,508 3,479 3,361
===== ===== =====
</TABLE>
17. PERSONNEL EXPENSES
The following personnel expenses reflect total costs incurred by continuing
and discontinued operations in the respective periods:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
(IN E MILLIONS)
---------------------
<S> <C> <C> <C>
Wages and salaries.......................................... 814 775 771
Compulsory social security contributions.................... 87 89 89
Other....................................................... 67 60 68
----- ----- -----
Personnel expenses excluding pensions and similar
benefits............................................... 968 924 928
Pensions and similar benefits............................... 122 132 104
----- ----- -----
Total Cost of Personnel Expenses.................. 1,090 1,056 1,032
===== ===== =====
</TABLE>
F-28
<PAGE> 98
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
18. BENEFIT OBLIGATIONS
PENSION OBLIGATIONS - Provisions for pension obligations are established
for benefits payable in the form of retirement, disability and surviving
dependent pensions. The benefits offered vary according to the legal, fiscal and
economic conditions of each country. The commitment results from participation
in defined contribution and defined benefit plans, primarily in the United
States. Benefits are dependent on years of service and the employee's
compensation. Supplemental retirement benefits provided to certain employees are
nonqualified for U.S. tax purposes. Separate trusts are sometimes established
for nonqualified plans.
Defined benefit pension plans also exist at certain locations in Europe and
North America. Independent trusts or insurance companies administer the majority
of these benefit plans. Actuarial valuations for these plans are generally
prepared annually. The remaining plans are valued at least every three years.
Celanese sponsors various defined contribution plans in the United States,
Mexico, Canada and Europe covering certain employees. Employees may contribute
to these plans and the Company may match these contributions in varying amounts.
Celanese's contributions to the defined contribution plans are based on
specified percentages of employee contributions and aggregated E14 million in
both 1999 and 1998.
OTHER POSTRETIREMENT BENEFIT PLANS - Certain retired employees receive
postretirement health care and life insurance benefits under plans established
by Celanese. Nearly all Celanese employees in the United States and Canada are
eligible to receive such benefits after reaching normal retirement age with a
minimum of 10 years of service. Generally, the medical plans pay a stated
percentage, based upon years of service, of qualifying medical expenses reduced
for any deductible and payments made by government programs and other group
coverage. Celanese is generally self-insured for these costs and the plans are
not funded. Provisions of the plans include caps which limit future
contributions for medical coverage.
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
----------------- ---------------
1999 1998 1999 1998
------- ------- ------ ------
(IN E MILLIONS)
-----------------------------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATIONS
Benefit obligations at beginning of year.................. 2,082 1,957 352 346
Service cost.............................................. 36 49 4 6
Interest cost............................................. 142 146 26 28
Participant contributions................................. 1 1 5 4
Actuarial losses.......................................... 3 213 14 30
Acquisitions.............................................. - 2 - -
Divestitures.............................................. (313) (1) (10) -
Settlements............................................... (7) (16) (4) -
Curtailments.............................................. 4 (11) - -
Benefits paid............................................. (117) (107) (34) (33)
Foreign currency exchange rate changes.................... 324 (151) 63 (29)
----- ----- ---- ----
Benefit obligations at end of year........................ 2,155 2,082 416 352
===== ===== ==== ====
</TABLE>
F-29
<PAGE> 99
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
18. BENEFIT OBLIGATIONS - (CONTINUED)
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
----------------- ---------------
1999 1998 1999 1998
------- ------- ------ ------
(IN E MILLIONS)
-----------------------------------
<S> <C> <C> <C> <C>
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year............ 1,578 1,738 - -
Actual return (loss) on plan assets....................... 285 (59) - -
Company contributions..................................... 19 149 39 29
Participant contributions................................. 1 1 5 4
Divestitures.............................................. (253) (1) (10) -
Settlements............................................... (7) (17) - -
Benefits paid............................................. (117) (107) (34) (33)
Foreign currency exchange rate changes.................... 259 (126) - -
----- ----- ---- ----
Fair value of plan assets at end of year............. 1,765 1,578 - -
===== ===== ==== ====
Funded status............................................. (390) (504) (416) (352)
Unrecognized prior service cost........................... 16 80 - -
Unrecognized actuarial loss............................... 69 280 67 54
Unrecognized net transition obligation (asset)............ 32 (12) - -
Contributions............................................. 3 2 8 6
Curtailment recognized.................................... - (19) - -
Settlement recognized..................................... - (23) - (7)
----- ----- ---- ----
Net amount recognized................................ (270) (196) (341) (299)
===== ===== ==== ====
AMOUNTS RECOGNIZED IN THE ACCOMPANYING CONSOLIDATED
BALANCE SHEETS
Accrued benefit cost...................................... (305) (328) (341) (299)
Intangible assets(1)...................................... 35 57 - -
Accumulated other comprehensive income.................... - 75 - -
----- ----- ---- ----
Net amount recognized................................ (270) (196) (341) (299)
===== ===== ==== ====
WEIGHTED-AVERAGE ASSUMPTIONS AS OF SEPTEMBER 30,
Discount rate............................................... 7.50% 6.75% 7.50% 6.75%
Expected long-term rate of return on plan assets............ 9.25% 9.25%
Rate of increase in future compensation levels.............. 3.40% 3.40%
</TABLE>
- ---------------
(1) Amount is classified as other assets on the consolidated balance sheets.
F-30
<PAGE> 100
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
18. BENEFIT OBLIGATIONS - (CONTINUED)
For measurement purposes, a 6.8 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed in 1999. The rate was
assumed to decrease gradually to 5.5 percent in 2001 and remain at that level
thereafter.
<TABLE>
<CAPTION>
PENSION OTHER
BENEFITS BENEFITS
----------- -----------
1999 1998 1999 1998
---- ---- ---- ----
(IN E MILLIONS)
-------------------------
<S> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost................................................ 36 49 4 4
Interest cost............................................... 142 146 26 25
Expected return on plan assets.............................. (129) (117) - -
Amortization of prior service cost.......................... 9 11 - -
Recognized actuarial loss................................... 10 3 1 -
Amortization of the unamortized obligation.................. (2) (2) - -
Curtailment loss (gain)..................................... 5 15 (3) -
Settlement loss............................................. - 24 - -
---- ---- -- --
Net periodic benefit cost.............................. 71 129 28 29
==== ==== == ==
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were E1,983 million, E1,901 million, and E1,585 million
as of December 31, 1999, and E1,971 million, E1,790 million, and E1,453 million,
respectively, as of December 31, 1998.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
ONE ONE
PERCENT PERCENT
INCREASE DECREASE
-------- --------
(IN E MILLIONS)
-------------------
<S> <C> <C>
Effect on total of service and interest cost components..... 2 (1)
Effect on postretirement obligation......................... 20 (19)
</TABLE>
The following table represents additional pension liabilities and other
similar obligations:
<TABLE>
<CAPTION>
1999 1998
------ ------
(IN E MILLIONS)
---------------
<S> <C> <C>
OTHER OBLIGATIONS
Long-term disability........................................ 77 69
Other....................................................... 29 21
--- --
106 90
=== ==
</TABLE>
19. SHAREHOLDERS' EQUITY
Prior to the Effective Date, shareholders' equity represented the
historical equity of the Businesses and activities combined as Celanese.
Combined equity represented equity less accumulated other comprehensive loss
items of the combined Businesses and the effects of transfers between Celanese
and
F-31
<PAGE> 101
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
19. SHAREHOLDERS' EQUITY - (CONTINUED)
which do not give rise to receivables or payables intended to be settled between
these two groups of companies. Considering the net income at the parent company
level, management will be recommending a nominal dividend of E0.11 per share
aggregating E6 million at this year's annual general meeting to be held in May
2000. (See Note 4)
20. STOCK-BASED COMPENSATION
In connection with the demerger, Celanese assumed obligations associated
with the Hoechst 1997 Stock Appreciation Rights Plan (the "1997 Hoechst SAR
Plan") and the Hoechst 1998 Stock Option Plan (the "1998 Hoechst Option Plan")
for participating Celanese employees under these compensation programs. As a
result of the merger of Hoechst and Rhone-Poulenc to form Aventis in December
1999, it became necessary to modify the terms and conditions of these
compensation programs to take into account the changed circumstances.
During 1997, Celanese employees participating in the 1997 Hoechst SAR Plan
were granted 168,500 stock appreciation rights ("Rights"). These Rights have a
five-year term and generally were exercisable in whole or in part, subject to
certain limitations, at any time during the period between September 9, 1999 and
September 9, 2002, provided that at the time of exercise, the closing price of
an ordinary share of Hoechst on the Frankfurt Stock Exchange was at least 125
percent of the grant price. The grant price of these Rights was E37.73. Rights
remaining unexercised as of September 9, 2002 will automatically be exercised as
of that date only if the closing price of the shares are at least 125 percent of
the grant price. Following the demerger and the creation of Aventis, the terms
of the 1997 Hoechst SAR Plan have been modified to take into consideration the
conversion of Hoechst shares into Aventis shares. The grant price of E37.73 per
Hoechst share has been converted to E45.43 per Aventis share. As a result of
this modification, the number of rights granted was converted to 139,922 from
168,500, of which 101,372 Rights remain outstanding as of December 31, 1999. The
creation of Aventis triggered a change of control provision contained in the
1997 Hoechst SAR Plan and accordingly, these rights are now considered fully
vested. Additionally, all hurdles for the exercise of the Rights were
eliminated. In 1999, Celanese recognized expense of E1 million for the 1997
Hoechst SAR Plan. As part of the demerger, Hoechst has agreed to indemnify
Celanese for all expenses associated with the 1997 Hoechst SAR Plan.
During 1998, Celanese employees participating in the 1998 Hoechst Option
Plan were granted 97,600 options. These options have a five-year term and
generally will be exercisable in whole or in part, subject to certain
limitations, at any time during the period between September 30, 2001 until
September 30, 2003, provided that, at the time of exercise, the closing price of
an ordinary share of Hoechst on the Frankfurt Stock Exchange must meet the
following hurdles, such as, the closing price must be at least 125 percent of
the grant price and the Hoechst share price must exceed the performance of the
share price of eight out of seventeen peer group companies as defined by the
Board of Management of Hoechst. As a result of the demerger and the creation of
Aventis, the terms of the 1998 Hoechst Option Plan were modified to take into
consideration the conversion of Hoechst shares into Aventis shares. The grant
price of these options was E34.88. Options remaining unexercised as of September
30, 2003 will be forfeited as of that date. In 1999, Celanese recognized expense
of E0.6 million for the 1998 Hoechst Option Plan.
Celanese employees that were covered under the 1998 Hoechst Stock Option
Plan had the option to continue the plan as the Aventis Option Plan or convert
it into a form of Celanese Rights or to receive a cash distribution. In the case
of continuing the plan as the Aventis Option Plan, the grant price was converted
to E42.01 per Aventis share. The creation of Aventis triggered a change of
control provision contained in the 1998 Hoechst Option Plan and accordingly,
these rights are now considered fully vested. Additionally, all hurdles for the
exercise of options were eliminated. As of December 31, 1999, 45,354 Aventis
options remain outstanding. As a result of elections by Celanese employees, the
number of shares
F-32
<PAGE> 102
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
20. STOCK-BASED COMPENSATION - (CONTINUED)
under option were converted to 36,750 Celanese Rights, all of which remain
outstanding as of December 31, 1999. The conditions for the exercise of these
Celanese Rights are based on the same requirements as those in the 1999 Celanese
Equity Participation Plan discussed below. The base price of the Rights was
fixed at E15.30.
Celanese has adopted the disclosure-only provisions of SFAS No. 123 and
applies APB Opinion No. 25 and related interpretations in accounting for options
granted to employees. The weighted average per share fair value of the options
referred to above was E15.67 on the date of grant using the Black Scholes
option-pricing model with the following assumptions: dividend yield of 3
percent, risk-free interest rate of 4.08 percent, a life of 5 years and
volatility of 36 percent. Had Celanese determined the compensation cost based on
the fair value at the grant date for these options under SFAS No. 123,
Celanese's net loss would have been as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- ----
(IN E MILLIONS)
--------------------
<S> <C> <C> <C>
Net loss - as reported...................................... (207) (44) (47)
Net loss - Proforma......................................... (208) (46) (46)
Net loss per basic and dilutive share - as reported......... (3.70) (0.79) (.84)
Net loss per basic and dilutive share - Proforma............ (3.72) (0.82) (.82)
</TABLE>
During 1999, Celanese adopted the Equity Participation Plan (the "EPP") and
the Long-Term Incentive Plan (the "LTIP"). The EPP covers the Board of
Management and executives of Celanese. The participants in the EPP must purchase
a defined value of Celanese stock over a one or two year period. The Rights
granted under the EPP are based on the required amount of money invested in
Celanese shares by the participant, divided by the base price of the stock and
multiplied by two. Rights granted under the EPP have a ten-year term and
generally will be exercisable in whole or in part, subject to certain
limitations, at any time during the period between October 25, 2001 and October
25, 2009, provided at the time of exercise, the performance of an ordinary share
of Celanese on the Frankfurt Stock Exchange must exceed the performance of the
median of the share prices of Celanese's peer group companies as defined by the
Board of Management of Celanese. Under the EPP, the participant will receive the
cash difference between the base price and the Celanese share price on the day
of exercise. During 1999, Celanese granted approximately 2.5 millions Rights to
the EPP participants, all of which remain outstanding at December 31, 1999.
Rights remaining unexercised as of October 26, 2009 will be deemed to have been
forfeited as of that date. The grant price per Right was E16.37. Celanese
recognized expense of E0.4 million for the EPP during 1999.
The LTIP covers the Board of Management and senior executives of Celanese.
Rights granted under the LTIP have a ten-year term and generally will be
exercisable in whole or in part, subject to certain limitations, at any time
during the period between October 25, 2001 and October 25, 2009, provided at the
time of exercise, the performance of an ordinary share of Celanese on the
Frankfurt Stock Exchange must exceed the performance of the median of the share
prices of Celanese's peer group companies as defined by the Board of Management
of Celanese. Under the LTIP, the participant will receive the cash difference
between the base price and the share price of Celanese on the day of exercise.
During 1999, Celanese granted approximately 2.5 million Rights to the
participants under the LTIP, all of which remain outstanding at December 31,
1999. Rights remaining unexercised as of October 26, 2009 will be deemed to have
been forfeited as of that date. The grant price per Right was E16.37. In 1999,
Celanese recognized expense of E0.4 million for the LTIP.
F-33
<PAGE> 103
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
21. LEASES
Total minimum rent charged to operations under all operating leases was E67
million, E58 million and E45 million in 1999, 1998 and 1997, respectively.
Future minimum lease payments under rental and lease agreements which have
initial or remaining terms in excess of one year at December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- ---------
(IN E MILLIONS)
-------------------
<S> <C> <C>
2000........................................................ 4 68
2001........................................................ 3 56
2002........................................................ 3 53
2003........................................................ 3 51
2004........................................................ 3 50
Later years................................................. 13 150
Sublease income............................................. - (10)
-- ---
Minimum lease commitments.............................. 29 418
== ===
Less amounts representing interest.......................... 7
--
Present value of net minimum lease obligations......... 22
==
</TABLE>
The related assets for capital leases are included in machinery and
equipment in the consolidated balance sheets.
Management expects that, in the normal course of business, leases that
expire will be renewed or replaced by other leases.
22. FINANCIAL INSTRUMENTS
In the normal course of business, Celanese uses various financial
instruments, including derivative financial instruments, to cover interest rate
or currency exposures. Celanese does not use derivative financial instruments
for speculative purposes.
Interest Rate Risk Management
Celanese entered into interest rate swap agreements to reduce the exposure
of interest rate risk inherent in Celanese's debt portfolio. Celanese's
derivative policy provides the ability to lock in borrowing rates and promotes
the achievement of a desired level of fixed/floating rate mix. Celanese had open
interest rate swaps with a notional amount of E319 million and E936 million at
December 31, 1999 and 1998, respectively. Celanese's credit risk exposure
related to counterparty default on instruments is not material. Celanese
recognized total interest expense associated with its interest rate swaps of E8
million in 1999 and E5 million in 1998.
For periods prior to the Effective Date, Hoechst managed its interest rate
risk exposure on a worldwide basis, of which Celanese was a component, for the
periods presented in the accompanying consolidated financial statements.
Pursuant to the Demerger Agreement, Celanese maintained interest rate swaps that
were used to hedge variable rate debt of Celanese as well as other Hoechst
affiliates. In the periods prior to the Effective Date, the excess notional
values of these swaps over the variable rate debt being maintained by Celanese
had not been marked to market in the accompanying Consolidated Financial
Statements. On the Effective Date, Celanese recognized a marked to market
adjustment of E1 million, associated with these excess swaps, as an equity
adjustment and a corresponding deferred credit to be amortized over the
remaining life of the swaps. Additionally, Celanese unwound the excess swaps
F-34
<PAGE> 104
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
22. FINANCIAL INSTRUMENTS - (CONTINUED)
that previously hedged the Hoechst related debt, which resulted in a E1 million
charge to the consolidated statements of operations in 1999.
During the second half of 1999, Celanese tendered a portion of its variable
rate debt portfolio. As a result, Celanese unwound the related interest rate
swaps associated with this variable rate debt and recorded the related costs as
a component of extraordinary expense on the consolidated statements of
operations in 1999.
Foreign Exchange Risk Management
As a result of the introduction of the euro, outstanding currency
derivatives between currencies of the countries that have adopted the euro as
their common currency are risk neutral as of January 1, 1999.
Certain Celanese entities have receivables and payables denominated in
currencies other than the respective functional currencies of Celanese, which
create foreign exchange risk. Accordingly, Celanese enters into foreign currency
forwards and options to minimize its exposure to foreign currency fluctuations.
The foreign currency contracts are designated mainly for booked exposure. In
some cases, anticipated exposure is hedged as well. Contracts totaling
approximately E688 million at December 31, 1999, are predominantly in U.S.
dollars and British pounds. Contracts totaling approximately E273 million at
December 31, 1998 were in various currencies.
Fair Value of Financial Instruments
Summarized below are the carrying values and estimated fair values of
Celanese's financial instruments as of December 31, 1999 and 1998. For these
purposes, the fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties.
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----
(IN E MILLIONS)
-----------------------------------
<S> <C> <C> <C> <C>
Other assets - investments.................................. 268 268 272 272
Long-term debt.............................................. 519 503 1,079 1,193
Debt-related derivative instruments......................... - 17 - (27)
Foreign exchange-related derivative instruments............. - (8) - 4
</TABLE>
At December 31, 1999 and 1998, the fair values of cash and cash
equivalents, receivables, notes payable, trade payables, short-term debt and the
current installments of long-term debt approximate carrying values due to the
short-term nature of these instruments. Accordingly, these items have been
excluded from the table.
Included in other assets are certain investments accounted for under the
cost method and long-term marketable securities classified as available for
sale. In general, the cost investments are not publicly traded; however,
Celanese believes that the carrying value approximates the fair value.
The fair value of long-term debt and debt-related financial instruments is
estimated based upon the respective implied forward rates as of December 31,
1999, as well as quotations from investment bankers and on current rates of debt
for similar type instruments.
F-35
<PAGE> 105
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
22. FINANCIAL INSTRUMENTS - (CONTINUED)
Equity Risk Management
As of December 31, 1999, Celanese had purchased 1.2 million call options to
offset its exposure of the LTIP and EPP. These options have a maturity of six
months, a strike price of E16.3705 per share and an average premium of E3.16 so
that the total premium paid through December 31, 1999 amounted to E3.8 million.
The market value of these options at December 31, 1999 is E3.8 million. As the
options allow settlement in either cash or stock, at the choice of Celanese,
E3.8 million was recorded as a credit to additional paid in capital.
23. COMMITMENTS AND CONTINGENCIES
Celanese is involved in a number of legal proceedings and claims incidental
to the normal conduct of its business, relating to such matters as product
liability, competition, past waste disposal practices and release of chemicals
into the environment. While it is impossible at this time to determine with
certainty the ultimate outcome of these lawsuits, 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 may have a material adverse effect on the results of
operations or cash flows in any given accounting period. (See Note 24)
Plumbing Actions
CNA Holdings, Inc. ("CNA Holdings"), formerly known as HNA Holdings, Inc.
and Hoechst Celanese Corporation, is a U.S. subsidiary of Celanese and currently
serves as the North American holding company, for Celanese's businesses
including the U.S. business now conducted by Ticona. CNA Holdings 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. 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 CNA Holdings ceased selling the
resin 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 nine putative class actions as
well as a defendant in other non-class actions filed in thirteen states and
Canada. In these actions, the plaintiffs typically have sought recovery for
alleged property damages, and, in certain cases, additional damages under the
Texas Deceptive Trade Practices Act or similar type statutes. Damage amounts
have not been specified. The putative class actions are pending in the Ninth
Judicial Circuit Court of Common Pleas of South Carolina, Charleston County, the
Territorial Court of the Virgin Islands, St. Croix Division, the Supreme Court
of British Columbia, Canada, Superior Court, Province of Quebec, Canada, the
Ontario Canada Court, General Division and the U.S. District Court for the
eastern district of Texas, Texarkana Division.
A conditionally certified class action (of recreational vehicle owners) is
pending in the Chancery Court of Tennessee, Weakley County. A putative class
action (of insurance companies with respect to subrogation claims), as well as
an individual action (by Prudential Property & Casualty Insurance Company with
respect to its subrogation claims), are pending in the United States District
Court for the District of New Jersey and in the Superior Court of New Jersey,
Camden. Celanese's appeal to deny certification in a putative class action
pending in the Circuit Court of the Fifth Judicial Circuit, Florida, Marion
County that has been certified on behalf of homeowners who claim to have opted
out of the
F-36
<PAGE> 106
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
23. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
national settlement described below, was granted in February 2000. An appeal
from the order certifying that action is pending.
In November 1995, CNA Holdings, DuPont and Shell entered into national
class action settlements, which have been approved by the courts. The
settlements call for the replacement of plumbing systems of claimants who have
had qualifying leaks, as well as reimbursements for certain leak damage.
Furthermore, the three companies have agreed to fund such replacements and
reimbursements up to U.S. $950 million (E944 million). There are additional
pending lawsuits in approximately 20 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. The allocation of certain payments already made to the claimants and
certain future payments was subject to a binding arbitration between CNA
Holdings and Shell, which was completed in June 1999. During the fourth quarter
of 1999, appeals from the arbitration decision were filed in the Supreme Court
of the State of New York, New York County, and in the Superior Court of the
District of Columbia. In February 2000, CNA Holdings and Shell reached an
agreement which, among other things, resolved the appeals and other claims
between the parties and pursuant to which Celanese paid an amount which was
fully accrued for in prior periods.
In 1995, CNA Holdings and Shell settled the claims of certain individuals,
owning 110,000 property units, who are represented by a Texas law firm for an
amount not to exceed U.S.$170 million (E169 million). These claimants are also
eligible for a replumb of their homes in accordance with the terms similar to
those of the national class action settlement. CNA Holdings' and Shell's
contributions under this settlement were subject to allocation in the above
binding arbitration. In addition, a lawsuit filed in November 1989, in Delaware
Chancery Court between CNA Holdings and certain of its insurance companies
relating to all claims incurred and to be incurred for the product liability
exposure resulted in 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 such claims.
CNA Holdings has accrued its best estimate of its share of the plumbing
actions. At December 31, 1999, Celanese had accrued E351 million for this
matter, of which E260 million is included in current liabilities. Management
believes that the plumbing actions are provided for in the consolidated
financial statements. However, if Celanese were to incur an additional charge
for this matter, such a charge will not 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, 1999, Celanese had
recorded E179 million in outstanding insurance claim receivables that are
expected to be collected within the next five years. Collectability could vary
depending on the financial status of the insurance carriers.
Fugitive Emissions Standards
In 1990, the United States Environmental Protection Agency ("EPA") issued a
notice of violation alleging that CNA Holdings' Rock Hill, South Carolina plant,
located in the U.S., was subject to fugitive emissions standard for benzene
under the Clean Air Act based upon the volume of benzene used at the facility.
CNA Holdings contested the notice of violation because it believed it had
correctly determined in 1984 that the calculation of benzene usage for
determining applicability of the standard did not include
F-37
<PAGE> 107
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
23. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
amounts recirculated within the process after initial use. By 1991, CNA Holdings
met the fugitive emissions standard as interpreted by the EPA for its three U.S.
facilities that used benzene.
In 1992, 1993 and 1995, the U.S. Department of Justice, on behalf of the
EPA, filed enforcement actions against CNA Holdings regarding the three plants
in federal district courts in South Carolina, Virginia and Texas seeking
penalties of up to U.S.$25,000 per day. The Virginia and Texas cases were, for
most of the time, stayed by consent of the parties while the South Carolina case
was litigated through denial of a petition for certiorari to the U.S. Supreme
Court. The appellate court in that case upheld the EPA's interpretation of the
standard but affirmed that CNA Holdings did not have notice of that
interpretation prior to August 1989 and thus no penalties could be assessed
prior to that date. The appellate court remanded the case to the district court
for a determination of what penalty, if any, should be assessed for the period
from August 1989, when CNA Holdings received actual notice of the EPA's
interpretation, through the plant's achievement of compliance in September 1991.
The parties have agreed to nonbinding mediation to aid settlement negotiations
before resuming litigation in the district court and are currently discussing
the timetable for this nonbinding mediation. Management believes a material loss
from this matter is remote.
Generic Pharmaceutical Litigation
In September 1998, Great Neck Capital Appreciation Partnership filed a
complaint derivatively on behalf of the directors of Copley Pharmaceuticals Inc.
("Copley"), a former subsidiary of Celanese Americas Corporation, formerly known
as Hoechst Corporation, in a Massachusetts Superior Court against six of
Copley's directors which was thereafter amended to add Celanese Americas as a
defendant. The amended complaint alleged that Celanese Americas used Copley for
its own benefit, injured Copley's ability to compete and compromised the
independence of Copley's independent directors. The complaint also alleged that
the six directors allowed Celanese Americas to use Copley and otherwise breached
their fiduciary duties to Copley. In 1999. the parties filed a joint motion to
dismiss the case, and in February 2000, a final judgment dismissing the case was
entered with no cost of damages being awarded to the plaintiffs.
Antitrust
In 1998, Nutrinova Inc., a U.S. subsidiary of Nutrinova Nutrition
Specialties & Food Ingredients GmbH, then a wholly-owned subsidiary of Hoechst,
received a grand jury subpoena from the U.S. District Court for the Northern
District of California in connection with a U.S. criminal antitrust
investigation of the sorbates industry. On May 3, 1999, Hoechst and the
Government of the United States of America 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. Government agreed to
recommend that the U.S. District Court fine Hoechst E31 million (U.S. $36
million). Hoechst also agreed to cooperate with the Government's investigation
and prosecutions related to the sorbates industry. The U.S. District Court
accepted this plea on June 18, 1999 and imposed a penalty as recommended in the
plea agreement. In addition, during 1999, fifteen civil antitrust actions,
seeking monetary damages and other relief for alleged conduct involving the
sorbates industry were filed in Federal and various state courts. These actions
are in the early stages of litigation. Based on the advice of external counsel
and a review of the existing facts and circumstances relating to the matter,
including new claims filed and the penalty related to the U.S. criminal case
imposed in June 1999, Celanese has accrued liabilities of E90 million at
December 31, 1999 for the estimated loss relative to this matter including
potential risks in other jurisdictions. Of this accrued amount, Celanese
recorded E75 million during 1999. Although the outcome of this matter cannot be
predicted with certainty,
F-38
<PAGE> 108
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
23. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
management's best estimate of the range of possible future losses (in addition
to the amounts already recorded in the financial statements) as of December 31,
1999 is between E0 and E65 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 that may be imposed or made
in other jurisdictions. Pursuant to the Demerger Agreement, Hoechst has agreed
to indemnify Celanese for 80 percent of any costs Celanese may incur relative to
this matter. Accordingly, Celanese has recognized a receivable from Hoechst and
a corresponding contribution of capital from this indemnification. The
additional reserve recognized during 1999 and the estimated range of possible
future losses, noted above, for this matter are gross of any recovery from
Hoechst. 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.
Other Matters
In 1998, Celanese received a substantial settlement in connection with a
patent infringement lawsuit. This is included as a component of selling, general
and administrative expenses.
In December 1999, Celanese has signed a letter of intent to acquire Axiva
GmbH from Aventis Research and Technologies GmbH and Co. KG, a subsidiary of
Hoechst, during the second quarter of 2000. The estimated purchase price is
expected to be less than E40 million.
In the normal course of business, Celanese enters into commitments to
purchase goods and services over a fixed period of time. Celanese maintains a
number of "take-or-pay" contracts for the purchase of raw materials and
utilities. At December 31, 1999, Celanese does not expect to incur any losses
under these contractual arrangements. Additionally, at December 31, 1999, there
were outstanding commitments relating to capital projects of approximately E57
million.
24. ENVIRONMENTAL
General - Celanese is subject to environmental laws and regulations
worldwide which impose limitations on the discharge of pollutants into the air
and water and establish standards for the treatment, storage and disposal of
solid and hazardous wastes. Celanese believes that it is in substantial
compliance with all applicable environmental laws and regulations.
Hoechst Liabilities - As part of the demerger, Celanese will indemnify
Hoechst for the first E250 million of future environmental liabilities arising
from certain previously divested Hoechst entities of which Celanese has reserved
approximately (E150 million) that is included as a component of the total
environmental reserves discussed below. If such future liabilities exceed E250
million, Hoechst will bear such excess up to an additional E500 million.
Thereafter, Celanese will bear one-third and Hoechst will bear two-thirds of any
further liabilities. Where Celanese is unable to reasonably determine the
probability of loss or estimate such loss under this indemnification, Celanese
has not recognized any accrued liabilities relative to this indemnification.
U.S. Superfund Sites - In the United States, Celanese may be subject to
substantial claims brought by U.S. Federal or state regulatory agencies or
private individuals pursuant to statutory authority or common law. In
particular, Celanese has a potential liability under the U.S. Federal
Comprehensive and Liability Act ("Superfund") and related state laws for
investigation and cleanup costs at approximately 100 sites. At most of these
sites, numerous companies, including certain companies comprising Celanese, or
one of its predecessor companies, have been notified that the EPA, state
governing bodies or private individuals consider such companies to be
potentially responsible parties ("PRP") under Superfund or related laws. The
proceedings relating to these sites are in various stages. The cleanup process
has not been completed
F-39
<PAGE> 109
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
24. ENVIRONMENTAL - (CONTINUED)
at most sites and the status of the insurance coverage for most of these
proceeds is uncertain. Consequently, Celanese cannot determine accurately its
ultimate liability for investigation or cleanup costs at these sites. At
December 31, 1999 and 1998, Celanese had provisions totaling E16 million and E17
million, respectively, for U.S. Superfund sites and utilized E1 and E5 million
of these reserves in December 1999 and 1998, respectively. There were no
additional provisions recorded during 1999 or 1998.
As events progress at each site for which it has been named a PRP, Celanese
accrues, as appropriate, a liability for site cleanup. Such liabilities include
all costs that are probable and can be reasonably estimated. In establishing
these liabilities, Celanese considers its shipment of waste to a site, its
percentage of total waste shipped to the site, the types of wastes involved, the
conclusions of any studies, the magnitude of any remedial actions that may be
necessary, and the number and viability of other PRPs. Often Celanese will join
with other PRPs to sign joint defense agreements that will settle, among PRPs,
each party's percentage allocation of costs at the site. Although the ultimate
liability may differ from the estimate, Celanese routinely reviews the
liabilities and revises the estimate, as appropriate, based on the most current
information available.
German InfraServs - Celanese has manufacturing operations at five locations
in Germany: Oberhausen, Hochst, Wiesbaden, Kelsterbach and Knapsack. On January
1, 1997, coinciding with a reorganization of the Hoechst businesses in Germany,
real estate service companies ("InfraServs") were created to own directly the
land and property and to provide various technical and administrative services
at each of the manufacturing locations.
InfraServs 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 owner of the plants and real estate. The contribution agreements entered
into in 1997 between Hoechst and the respective operating companies, as part of
the carving out of these companies, provide that the operating companies will
indemnify Hoechst against environmental liabilities resulting from the
transferred businesses. Additionally, the InfraServs have agreed to indemnify
Hoechst against any environmental liability arising out of or in connection with
environmental pollution of any site. The partnership agreements provide that, as
between the partners, each partner is responsible for any contamination caused
predominantly by such partner. Any liability which cannot be attributed to an
InfraServ partner is required to be borne by the InfraServ in question. In view
of this potential obligation to eliminate residual contamination, the InfraServs
have recorded provisions totaling about E262 million as of December 31, 1999, of
which E55 million has been included in the consolidated reserves for
environmental liabilities of Celanese. The provision of E55 million was recorded
for measures ordered by German authorities, mainly for landfill and land
reclamation activities of InfraServ GmbH & Co. Deponie Knapsack KG. Those
measures were verified by third-party appraisals determining the amount of
provision. Based on the facts and circumstances at December 31, 1999, no
additional charges are expected. If the InfraServ companies default on their
respective indemnification obligations to eliminate residual contamination, the
owners of the remaining participation 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 InfraServs or their owners,
these liabilities are to be borne by Celanese in accordance with the Demerger
Agreement. However, Hoechst will reimburse Celanese for two-thirds of any such
costs.
The German InfraServs are owned partially by Celanese, as noted below, and
the remaining ownership is held by various other companies. Celanese's ownership
interest and environmental liability
F-40
<PAGE> 110
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
24. ENVIRONMENTAL - (CONTINUED)
participation percentages for such liabilities which cannot be attributed to an
InfraServ partner were as follows at December 31, 1999:
<TABLE>
<CAPTION>
COMPANY OWNERSHIP % LIABILITY %
------- ----------- -----------
<S> <C> <C>
InfraServ GmbH & Co. Gendorf KG............................. 39.0% 10.0%
InfraServ GmbH & Co. Oberhausen KG.......................... 84.0% 75.0%
InfraServ GmbH & Co. Knapsack KG (1)........................ 42.0% 47.0%
InfraServ GmbH & Co. Deponie Knapsack KG.................... 100.0% 100.0%
InfraServ GmbH & Co. Kelsterbach KG......................... 100.0% 100.0%
InfraServ GmbH & Co. Hoechst KG............................. 27.2% 33.0%
InfraServ GmbH & Co. Muenchsmuenster KG..................... 49.0% 49.0%
InfraServ GmbH & Co. Wiesbaden KG........................... 18.9% 10.0%
InfraServ Verwaltungs GmbH.................................. 100.0% -
</TABLE>
- ---------------
(1) Includes the 15 percent interest owned by Vintron which is shown as
discontinued operations.
Celanese also has obligations related to previously divested entities,
including the Hoechst related liabilities discussed above, and has provided for
such obligations, when the event of loss is probable and reasonably estimable.
(See Note 4)
In 1999, 1998 and 1997, the total environmental costs charged to operations
for remediation efforts amounted to E77 million, E94 million and E45 million,
respectively. The E94 million recorded in 1998 is net of E56 million, as a
result of discounting future outlays for certain fixed period remediation
projects using a 6 percent discount rate. Celanese recognized E3 million of
accretion in 1999, related to the discounted liability. Celanese has no other
discounted environmental reserves.
Management believes that the environmental costs will not have a material
adverse effect on the financial position of Celanese, but may have a material
adverse effect on the results of operations or cash flows in any given year.
25. SPECIAL CHARGES
Special charges on the accompanying consolidated statements of operations
include provisions for restructuring which represent costs related to severance
and other benefit programs, 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
F-41
<PAGE> 111
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
25. SPECIAL CHARGES - (CONTINUED)
announcement of the restructuring plan. The components of the 1999 and 1998
restructuring charges were as follows:
<TABLE>
<CAPTION>
EMPLOYEE
TERMINATION PLANT/OFFICE
BENEFITS CLOSURES TOTAL
----------- ------------ -----
(IN E MILLIONS)
----------------------------------
<S> <C> <C> <C>
Restructuring reserve at December 31, 1997.................. 10 33 43
Restructuring expense recorded in 1998................. 34 39 73
Other additions........................................ 12 - 12
Cash and noncash uses during 1998...................... (27) (42) (69)
Currency translation adjustments during 1998........... (3) - (3)
--- --- ---
Restructuring reserve at December 31, 1998.................. 26 30 56
Restructuring expense recorded in 1999................. 116 102 218
Other additions........................................ 2 - 2
Cash and noncash uses during 1999...................... (44) (49) (93)
Currency translation adjustments during 1999........... 8 4 12
--- --- ---
Restructuring reserve at December 31, 1999.................. 108 87 195
=== === ===
</TABLE>
Included in the above restructuring reserves of E195 million and E56
million at December 31, 1999 and December 31, 1998, respectively, are E7 million
and E10 million of long-term reserves included in other liabilities at December
31, 1999 and December 31, 1998, respectively.
In 1999, Celanese recorded special charges totaling E559 million, of which
E218 million was recorded as an addition to the restructuring reserve. The
increase to the restructuring reserve pertained primarily to employee
termination severance costs of E116 million. The E116 million was comprised
mainly of E15 million for the restructuring of Mexican production facilities,
E23 million related to the Ticona business, E13 million was due to the
restructuring of Canadian production facilities, E22 million pertained to the
Acetate business in both the U.S. and Europe, E15 million for both U.S. and
European chemical businesses, E10 million for the shutdown of an oriented
polypropylene ("OPP") production line at a European chemical plant, and E5
million resulted from Hoechst's reorientation of basic research. In addition,
E12 million was recorded due to the closure of administrative facilities in
Canada and Mexico.
In 1999, Celanese also recognized E102 million of restructuring costs for
plant and office closures, of which E29 million related to 3 facilities in
Mexico, E30 million pertained to closure costs associated with administrative
facilities in the U. S. and Canada, E15 million for contractual losses and other
closure costs associated with the shutdown of an acetaldehyde unit in Europe,
and E12 million for the impairment of fixed assets and other closure costs
associated with the shutdown of an OPP production line at a European plant. In
addition, E16 million was recorded for fixed asset impairments and closure costs
associated with the shutdown of an acetate facility in Canada.
Special charges of E341 million in 1999 pertained primarily to the
recognition of a E128 million charge as a result of the plumbing cases (See Note
23), E75 million related to the antitrust actions related to the sorbates
industry (See Note 23), E56 million for fixed asset impairments which related
primarily to the Acetate and Chemical Intermediates businesses, E28 million for
costs associated with the demerger, E52 million for costs associated with
previously divested Hoechst entities of which E40 million related to
environmental.
F-42
<PAGE> 112
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
25. SPECIAL CHARGES - (CONTINUED)
In 1999, new restructuring initiatives identified approximately 2,000
positions to be eliminated, of which 200 positions had been eliminated as of
December 31, 1999. At December 31, 1999, the remaining employee termination
benefits reserve of E108 million pertained primarily to employee severance
payments related to E13 million for the restructuring of Mexican production
facilities, E21 million related to the Ticona business, E12 million was due to
the restructuring of Canadian production facilities, E18 million pertained to
the Acetate business in both the U.S. and Europe, E16 million for both U.S. and
European chemical businesses, E9 million for the shutdown of an OPP production
line in Europe, and E3 million resulted from Hoechst's reorientation of basic
research. In addition, E16 million was due to the closure of administrative
facilities in the U.S., Canada, and Mexico.
The remaining plant/office closures reserve of E87 million at December 31,
1999 pertained primarily to a reserve for E9 million related to 3 facilities in
Mexico, E48 million related to the closure of administrative facilities in the
U.S. and Canada, E12 million for the shutdown of an acetaldehyde unit in Europe,
E2 million for the shutdown of an OPP production line at a European plant and E8
million for the shutdown of an acetate facility in Canada. In addition, E8
million related to estimated contractual losses on a long-term service agreement
associated with the 1998 shutdown of an acetic acid unit in Europe.
In 1998, Celanese recorded special charges totaling E100 million, of which
E73 million was recorded as an addition to the restructuring reserve. The
increase to the restructuring reserve of E73 million pertained primarily to
employee termination severance costs of E34 million, of which E33 million
related to downsizing in the businesses. The E33 million was comprised of E21
million resulting from Hoechst's reorientation of basic research, E6 million
associated with two U.S. acetate facilities, E5 million associated with the U.S.
corporate headquarters and E2 million related to two European plant facilities.
Additionally, Celanese recognized E39 million of restructuring costs for plant
and office closures, of which E24 million pertained to the estimated loss on the
lease and asset impairments related to the U.S. corporate headquarters, E9
million of estimated contractual losses on a service agreement associated with
the shutdown of an acetic acid unit in Europe, E4 million for the closure of a
European chlorine plant and E2 million for the impairment of fixed assets
associated with the shutdown of an OPP production line at a European plant. The
remaining special charge in 1998 of E27 million pertained to the Nutrinova
antitrust actions. (See Note 23)
Additionally, in 1998 Celanese recorded other additions of E12 million
associated with Hoechst's exchange of substantially all of its polyester fiber
and bottle resins business in the U.S., Europe and Mexico for the 49 percent
minority interest in Grupo Celanese, S.A., which was not already owned by
Celanese. As a result of this transaction, Celanese is responsible for the
payment of severance and other benefits associated with the elimination of
polyester fiber and bottle resin business employees. This transaction was
reflected as a capital contribution in 1998. (See Note 4)
In 1998 and 1997, employee termination benefits primarily represented
severance and other benefits associated with the elimination of approximately
675 positions worldwide, of which approximately 625 positions had been
eliminated as of December 31, 1999.
F-43
<PAGE> 113
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
26. BUSINESS AND GEOGRAPHICAL SEGMENTS
Effective January 1, 1998, Celanese adopted SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. Information with respect to
Celanese's industry segments follows:
Business Segments
ACETYL PRODUCTS, the methyls, acetyls and acetyl derivatives segment,
primarily produces and supplies methanol, formaldehyde, polyols, acetic acid,
vinyl acetate monomer, acetic anhydride and acetate esters;
CHEMICAL INTERMEDIATES, the acrylates, oxo products and specialties
segment, produces and supplies acrylic acid, acrylates, amines, carboxylic acids
and oxo alcohols;
ACETATE PRODUCTS produces and supplies cellulose acetate filament and
staple, acetate filter products and advanced fiber material;
TICONA, the technical polymers segment, develops and supplies a broad
portfolio of high performance technical polymers products; and
PERFORMANCE PRODUCTS includes Trespaphan, the oriented polypropylene film
business, and Nutrinova, the high intensity sweetener and food protection
ingredients business.
The segment management reporting and controlling systems are based on the
same accounting policies as those described in the summary of significant
accounting policies in Note 1. Celanese evaluates performance based on earnings
before interest, taxes, depreciation and amortization (EBITDA), excluding
special charges, EBITDA is calculated by adding depreciation and amortization
expense back to operating profit. Management believes that EBITDA, excluding
special charges, is an appropriate measure for evaluating the performance of its
operating segments as it closely reflects cash flow management. Celanese
excludes special charges from EBITDA for better comparability between periods.
EBITDA eliminates the effect of depreciation and amortization of tangible and
intangible assets. EBITDA, excluding special charges, should be considered in
addition to, not as a substitute for, operating profit, net earnings, cash flows
and other measures of financial performance reported in accordance with U.S.
GAAP.
Sales and revenues related to transactions between segments are generally
recorded at values that approximate third-party selling prices. Revenues and
long-term assets are allocated to countries based on the location of the
business. Capital expenditures represent the purchase of property, plant and
equipment.
<TABLE>
<CAPTION>
ACETYL CHEMICAL ACETATE PERFORMANCE TOTAL
PRODUCTS INTERMEDIATES PRODUCTS TICONA PRODUCTS SEGMENTS RECONCILIATION CONSOLIDATED
-------- ------------- -------- ------ ----------- -------- -------------- ------------
(IN E MILLIONS)
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999:
Sales to external
customers............... 1,487 847 739 788 397 4,258 60 4,318
Inter-segment revenues.... 74 37 - - - 111 (111) -
Operating profit (loss)... (65) (47) (46) (96) (93) (347) (174) (521)
EBITDA, excluding special
charges................. 89 84 95 123 42 433 (56) 377
Depreciation and
amortization............ 101 74 60 65 36 336 3 339
Capital expenditures...... 127 46 30 40 12 255 7 262
Special charges........... 53 57 81 154 99 444 115 559
Total assets.............. 1,805 1,221 916 1,493 518 5,953 1,574 7,527
</TABLE>
F-44
<PAGE> 114
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
26. BUSINESS AND GEOGRAPHICAL SEGMENTS - (CONTINUED)
<TABLE>
<CAPTION>
ACETYL CHEMICAL ACETATE PERFORMANCE TOTAL
PRODUCTS INTERMEDIATES PRODUCTS TICONA PRODUCTS SEGMENTS RECONCILIATION CONSOLIDATED
-------- ------------- -------- ------ ----------- -------- -------------- ------------
(IN E MILLIONS)
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998:
Sales to external
customers............... 1,438 850 839 750 407 4,284 60 4,344
Inter-segment revenues.... 80 70 - - - 150 (150) -
Operating profit (loss)... 152 54 94 53 (12) 341 (173) 168
EBITDA, excluding special
charges................. 246 111 154 115 52 678 (98) 580
Depreciation and
amortization............ 85 56 54 62 34 291 21 312
Capital expenditures...... 70 97 69 66 35 337 8 345
Special charges........... 9 1 6 - 30 46 54 100
Total assets.............. 1,541 1,070 808 1,352 406 5,177 2,181 7,358
1997:
Sales to external
customers............... 1,661 1,051 994 742 436 4,884 67 4,951
Inter-segment revenues.... 96 72 - - - 168 (168) -
Operating profit.......... 221 73 149 57 42 542 (275) 267
EBITDA, excluding special
charges................. 298 123 193 117 70 801 (141) 660
Depreciation and
amortization............ 77 50 44 60 28 259 31 290
Capital expenditures...... 75 120 42 44 46 327 41 368
Special charges........... - - - - - - 103 103
Total assets.............. 1,239 806 748 1,408 378 4,579 1,606 6,185
</TABLE>
The reconciliation column includes (a) operations of certain other
operating entities and their related assets, liabilities, revenues and expenses,
(b) the elimination of inter-segment sales and net receivables and payables, (c)
assets and liabilities not allocated to a segment, and (d) corporate center
costs for support services such as legal, accounting and treasury functions.
Additionally, Celanese recognized special charges in 1999 and 1998 related to
restructuring costs, write-off of fixed assets, shutdown of a facility, and
impairment of goodwill (See Note 25). Other operating entities consist primarily
of companies which provide infrastructure and procurement services.
The following table presents financial information based on the geographic
location of the manufacturing facilities of Celanese:
<TABLE>
<CAPTION>
NORTH THEREOF THEREOF THEREOF THEREOF REST OF
AMERICA USA CANADA MEXICO EUROPE GERMANY ASIA WORLD CONSOLIDATED
------- ------- ------- ------- ------ ------- ---- ------- ------------
(IN E MILLIONS)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999:
Total assets...................... 5,394 4,042 335 1,017 1,611 1,265 259 263 7,527
Long-lived assets................. 1,349 1,031 86 232 362 297 212 9 1,932
Operating profit (loss)........... (117) (32) (29) (56) (411) (353) 5 2 (521)
Net sales......................... 2,572 2,189 127 256 1,593 1,183 103 50 4,318
Depreciation and amortization..... 246 174 14 58 82 69 10 1 339
Capital expenditures.............. 98 82 4 12 66 52 98 - 262
1998:
Total assets...................... 4,945 3,656 328 961 2,074 1,794 131 208 7,358
Long-lived assets................. 1,150 964 63 123 415 347 101 11 1,677
Operating profit (loss)........... 246 114 77 55 (80) (81) 4 (2) 168
Net sales......................... 2,573 2,137 179 257 1,618 1,063 91 62 4,344
Depreciation and amortization..... 221 193 11 17 79 64 10 2 312
Capital expenditures.............. 231 179 12 40 96 78 16 2 345
</TABLE>
F-45
<PAGE> 115
CELANESE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
26. BUSINESS AND GEOGRAPHICAL SEGMENTS - (CONTINUED)
<TABLE>
<CAPTION>
NORTH THEREOF THEREOF THEREOF THEREOF REST OF
AMERICA USA CANADA MEXICO EUROPE GERMANY ASIA WORLD CONSOLIDATED
------- ------- ------- ------- ------ ------- ---- ------- ------------
(IN E MILLIONS)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997:
Total assets...................... 4,298 3,664 350 284 1,484 1,193 134 269 6,185
Long-lived assets................. 1,249 1,055 74 120 406 332 102 13 1,770
Operating profit (loss)........... 231 (5) 142 94 49 46 (9) (4) 267
Net sales......................... 3,006 2,527 193 286 1,850 1,157 39 56 4,951
Depreciation and amortization..... 214 190 12 12 70 58 4 2 290
Capital expenditures.............. 273 214 9 50 58 46 36 1 368
</TABLE>
F-46
<PAGE> 116
CELANESE
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS (IN E MILLIONS)
<TABLE>
<S> <C>
Balance as of December 31, 1997............................. 27
Provisions................................................ 6
Recoveries................................................ 4
Charge-offs............................................... -
Translation Adjustments................................... (2)
---
Balance as of December 31, 1998............................. 35
Provisions................................................ 5
Recoveries................................................ (2)
Charge-offs............................................... (9)
Translation Adjustments................................... 11
---
Balance as of December 31, 1999............................. 40
===
</TABLE>
F-47
<PAGE> 117
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 English translation of the Articles of Association (Satzung)
of Celanese AG as amended to date
4.1 Form of Definitive Stock Certificate of Celanese AG
10.1 Dyneon Purchase and Assignment Agreement dated as of
December 28, 1999 by and between Celanese AG, Diogenes
Dreizehnte Vermoegensverwaltungs GmbH, Celanese
Fluoropolymer Holdings, Inc., Celanese Americas
Fluoropolymer Holdings, Inc., Minnesota Mining and
Manufacturing Company and 3M Deutschland GmbH
10.2 English translation of the Targor Purchase and Transfer
Agreement dated as of December 17, 1999 by and between
Diogenes Dreizehnte Vermoegensverwaltungs GmbH, Celanese AG
and BASF AG
23.1 Consent of KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft Wirtschaftspruefungsgesellschaft
</TABLE>
<PAGE> 1
Exhibit 1.1
ARTICLES OF ASSOCIATION OF CELANESE AG
I. GENERAL PROVISIONS
SECTION 1 NAME AND REGISTERED OFFICE
(1) The name of the Company is
Celanese AG.
(2) The Company has its registered office in Frankfurt am Main.
SECTION 2 OBJECT OF THE COMPANY
(1) The Company directs, as a group holding company, a group of enterprises
which carry on business, in particular, in the areas of chemicals and
plastics.
(2) The Company may carry on business itself in the areas mentioned in
subparagraph (1) above as well as in other areas. It is entitled to
take all actions and measures which relate to or which otherwise
directly or indirectly serve its objectives.
(3) The Company may also form, acquire, participate in enterprises, or
bring them together under common control, in particular with regard to
enterprises operating in the areas mentioned in subparagraph (1) above.
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, the Company may restrict
itself to the administration of its interests, as well as dispose of
it.
<PAGE> 2
-2-
SECTION 3 CAPITAL STOCK AND SHARES
The capital stock amounts to DM 279,576,845 (in words: Deutsche Mark two hundred
seventy-nine million five hundred seventy-six thousand eight hundred
forty-five) and is divided into 55,915,369 registered shares without par value.
SECTION 4 SHARE CERTIFICATES
(1) The form and contents of share certificates, dividend coupons and
renewal coupons, if any, shall be determined by the Board of Management
with the consent of the Supervisory Board. The same shall apply to
debentures and interest coupons.
(2) The right of the shareholder to ask for certificates representing his
shares is excluded to the extent legally permissible and unless
certification is required under the rules of a stock exchange where the
shares are listed. The Company may issue global certificates
representing single shares (Einzelurkunden) as well as several shares
(Sammelurkunden).
SECTION 5 BUSINESS YEAR
The business year is the calendar year.
<PAGE> 3
-3-
II. CORPORATE GOVERNANCE
A. THE BOARD OF MANAGEMENT
SECTION 6 COMPOSITION, RULES OF PROCEDURE
(1) The Board of Management shall consist of several members, the number of
whom shall be determined by the Supervisory Board.
(2) The Supervisory Board may appoint a member of the Board of Management
as Chairman of the Board of Management.
(3) Resolutions of the Board of Management are passed by a simple majority
of votes unless a greater majority is required by mandatory law. If
resolutions are to be passed by a simple majority, in the case of a
tie, the Chairman has the casting vote if the Board of Management
consists of more than two persons.
SECTION 7 POWER OF REPRESENTATION
(1) The Company is legally represented by two members of the Board of
Management or by one member of the Board of Management together with an
authorized signatory (Prokurist).
(2) No authorized signatory (Prokurist) shall be granted sole power of
representation (Einzelprokura).
<PAGE> 4
-4-
B. THE SUPERVISORY BOARD
SECTION 8 COMPOSITION, ELECTIONS, TERM OF OFFICE
(1) The Supervisory Board consists of twelve members. Six of the members
shall be elected by the general shareholders' meeting and six members
by the employees in accordance with the provisions of the German
Co-Determination Act (Mitbestimmungsgesetz).
(2) The members are elected for the period up to the termination of the
annual general shareholders' meeting which decides on the ratification
of their acts for the fourth business year following commencement of
their term of office, not counting the business year in which that term
begins. The general shareholders' meeting may, when electing, determine
a shorter period of office for the shareholders' representatives.
(3) Retiring members are eligible for re-election.
(4) A member of the Supervisory Board may, upon written notice, at any time
render his resignation to take effect at the termination of the next
annual general shareholders' meeting. Immediate resignation is
permitted for important reasons or with the approval of the Chairman of
the Supervisory Board, or in case of resignation by the Chairman, with
the approval of his deputy.
(5) The general shareholders' meeting may appoint substitute members for
the ordinary members of the Supervisory Board to be elected by the
general shareholders' meeting. Such substitute members will become
members of the Supervisory Board as provided in detail by such general
shareholders' meeting when ordinary members retire prematurely. The
term of office of a substitute member shall end with the termination of
the annual general meeting following his assumption of office as an
ordinary member; if no election of a successor takes
<PAGE> 5
-5-
place at the next annual general meeting, the term of office shall
continue until the end of the term of office of the prematurely retired
ordinary member of the Supervisory Board. Successors of ordinary
members shall be elected for the remainder of the term of office of the
retired member.
SECTION 9 CHAIRMAN AND COMMITTEES
(1) Following the annual general meeting in which all of the members of the
Supervisory Board to be elected by the annual general meeting have been
elected, a meeting of the Supervisory Board is held for which no
special invitation to attend is required. At this meeting the
Supervisory Board shall elect in accordance with the provisions of the
German Co-Determination Act a Chairman and a Deputy Chairman for the
duration of its term of office.
(2) Following the election of the Chairman and the Deputy Chairman, the
Supervisory Board shall form a committee which shall carry out the
tasks defined in Section 31 subparagraph 3 of the German
Co-Determination Act, and which shall be composed of the Chairman, his
deputy and two other members, one of whom is elected by the members of
the Supervisory Board representing the employees and the other one by
the members of the Supervisory Board representing the stockholders,
such other members being elected by a majority of the votes cast.
(3) If the Chairman or his deputy, or any of the other members mentioned in
subparagraph (2), retires prematurely from office, the Supervisory
Board immediately shall elect a successor for the remainder of the
term.
(4) The Supervisory Board may, in addition to the committee mentioned in
subparagraph (2), form other committees from among its members and, so
far as legally permissible, delegate decision-making powers to them.
<PAGE> 6
-6-
SECTION 10 CONVENING OF MEETINGS, QUORUM, VOTING
(1) The Supervisory Board draws up its own rules of procedure. The
following provisions apply with respect to the convening of its
meetings, its quorum and the conduct of meetings; the rules of
procedure may provide additional rules.
(2) The members of the Board of Management shall attend meetings of the
Supervisory Board for consultation purposes, unless in an individual
case the Supervisory Board or its Chairman, or in the latter's absence
his deputy, should decide otherwise.
(3) Meetings of the Supervisory Board are convened by the Chairman or, if
the Chairman is prevented from doing so, by his deputy by giving 14
days prior notice. In urgent cases the period of notice may be reduced.
The notice of the meeting shall set forth the specific items of the
agenda with such clarity to allow members of the Supervisory Board not
present at the meeting to make use of their right to cast a vote in
writing pursuant to subparagraph (7).
(4) Provided that all members of the Supervisory Board have been sent
invitations to their last known address, a quorum shall be constituted
if not less than six members participate in the resolution.
(5) Unless other majorities are required by mandatory law, resolutions are
passed by a simple majority of the votes cast. In determining the
result of the vote, abstentions shall not be counted. The Chairman
determines the conduct of the meeting as well as the method of voting.
In the case of a tie, the Chairman decides whether the vote should be
held again. If he considers it necessary, he is entitled to interrupt
the meeting for a period of no longer than one week.
(6) Resolutions should only be passed on such items on the agenda for which
due notice pursuant to subparagraph (3) has been given in the
invitation to attend the
<PAGE> 7
-7-
meeting. If due notice has not been given for an item on the agenda, a
resolution on the latter may only be passed if no member objects. In
such a case members of the Supervisory Board who do not attend the
meeting must be given the opportunity to object to the passing of the
resolution within a reasonable period of time as determined by the
Chairman; the resolution shall take effect only if the members of the
Supervisory Board not having attended the meeting have not objected
within such period.
(7) Members of the Supervisory Board who do not attend a meeting may
participate in the passing of resolutions by the Supervisory Board and
its committees by authorising other members of the Supervisory Board to
present their written votes at the meeting.
(8) The Chairman may arrange for a resolution of the Supervisory Board to
be passed by written, telegraphic or telephonic statements provided no
other member objects to this procedure within a reasonable period as
determined by the Chairman.
(9) Legally binding declarations by the Supervisory Board shall be made by
the Chairman in the name of the Supervisory Board, or in his absence,
by his deputy.
C. General Meetings
SECTION 11 PLACE
General meetings shall be held at the registered office of the Company or in
cities of the Federal Republic of Germany having a stock exchange or in German
cities having at least 500,000 inhabitants or in German cities with no less than
100,000 inhabitants in which the Company or one of its affiliates has a place of
business.
<PAGE> 8
-8-
SECTION 12 NOTICE OF GENERAL MEETINGS
Notice of the meeting shall be given at least one month prior to the last day on
which the shareholders have to register for the general meeting. The term of
notice shall be calculated exclusive of the day on which notice is given and the
last day of the period of registration.
SECTION 13 RIGHT TO ATTEND GENERAL MEETINGS
Those shareholders who are registered in the share register on the day of the
general meeting and who have notified the Company no later than the third day
before the General Meeting shall be entitled to attend general meetings and to
exercise voting rights.
SECTION 14 CHAIRMAN OF GENERAL MEETINGS
(1) The Chairman of the Supervisory Board or the additional member of the
committee mentioned in Section 9 subparagraph (2) who is elected to the
Supervisory Board by the general meeting, or a member of the
Supervisory Board or of the Board of Management nominated by the
Supervisory Board, shall take the chair at general meetings. If no
member of the Supervisory Board or of the Board of Management takes the
chair, the Chairman shall be elected by the meeting.
(2) The Chairman of the meeting shall decide the order of items on the
agenda. He shall determine the manner, form and order of voting on the
resolutions.
<PAGE> 9
-9-
SECTION 15 RESOLUTIONS AND ELECTIONS
(1) Each share entitles the owner to one vote at the general meeting.
(2) 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
different requirements are mandatorily stipulated by law.
(3) Alterations to these Articles of Association which only affect the
wording may be decided upon by the Supervisory Board.
III. ANNUAL ACCOUNTS, ANNUAL GENERAL MEETINGS, NOTICES
SECTION 16 ANNUAL ACCOUNTS
(1) Within the first three months of each business year, the Board of
Management shall prepare the annual accounts for the previous business
year and the Management Report and submit them to the auditor.
Immediately after receipt of the auditor's report the annual accounts
and the Management Report together with the auditor's report and the
proposal for the appropriation of the profits shall be submitted to the
Supervisory Board.
(2) The annual accounts, the Management Report, the report of the
Supervisory Board, and the proposal of the Board of Management for the
appropriation of the profits shall be made available for inspection by
the shareholders at the office of the Company as from the date of the
calling of the annual general meeting.
<PAGE> 10
-10-
SECTION 17 ANNUAL GENERAL MEETING
(1) The annual general meeting shall take place within the first eight
months of every business year.
(2) The annual general meeting shall resolve, in particular, regarding the
appropriation of the profits, the election of the auditor, the
ratification of the acts of the Board of Management and of the
Supervisory Board, and, where required by law, the approval of the
annual accounts.
SECTION 18 APPROPRIATION OF, AND PARTICIPATION IN PROFITS
(1) The profits as shown by the annual accounts, after deducting
depreciation and write-downs and amounts allocated by the Board of
Management and the Supervisory Board to provisions and reserves, shall
be distributed to the shareholders except to the extent that the annual
general shareholders' meeting resolves to use it in another manner.
(2) The dividends paid to the shareholders shall be proportional to their
shares in the capital stock.
(3) On an increase of the share capital the participation of the new shares
in the profits may be determined in a different manner from that set
out in Section 60 of the German Stock Corporation Act (Aktiengesetz).
<PAGE> 11
-11-
SECTION 19 ANNOUNCEMENTS
The Company's announcements are published in the "Bundesanzeiger".
SECTION 20 EXPENSES OF FORMATION
Expenses incurred in connection with its formation shall be borne by the Company
up to an amount of DM 1.500.
The Registrant hereby represents that the above English translation is a fair
and accurate English translation of the Articles of Association of Celanese AG.
Celanese AG
By: /s/ Joachim Kaffanke
Joachim Kaffanke
The German text is authoritative.
<PAGE> 1
WKN 575300 ISIN Nr./No. DE 0005753008
CINS Nr./No. D1497A 10 1
Nummer der Urkunde Celanese AG Stueck/Shares
Certificate Number Deutschland/Germany
C
Dr. Camille Dreyfus (1878-1956) Dr. Henri Dreyfus (1882-1944)
Gruender von Celanese Gruender von Celanese
Founder of Celanese Founder of Celanese
ist mit
is the owner of
voll eingezahlten, nicht nachschusspflichtigen, auf den Namen lautenden
Stueckaktie(n) an der Celanese AG, Deutschland, nach Mass gabe ihrer Satzung in
der jeweiligen Fassung, die bei der Gesellschaft erhaeltlich ist, als Aktionaer
beteiligt.
Die Stuecknummer(n) der in dieser Urkunde verbrieften Aktie(n) ergibt/ergeben
sich aus dem Aktienbuch. Erwerber dieser Aktie(n) werden auf Antrag im
Aktienbuch eingetragen, sofern diese Urkunde entweder ordnungsgemaess
indossiert oder zusammen mit einer unterschriebenen Abtretungserklaerung
vorgelegt wird.
Die in dieser Urkunde verbriefte(n) Aktie(n) kann/koennen bei der Registrar
Services GmbH, Frankfurt am Main und in den Vereinigten Staaten von Amerika bei
der ChaseMellon Shareholder Services, L.L.C., New Jersey umgeschrieben werden.
fully paid and non-assessable no par value registered share(s) of Celanese AG,
Germany, pursuant to the terms of its Articles of Association and amendments
thereto (copies of which are on file with the US Transfer Agent).
The number(s) identifying the share(s) represented by this certificate is/are
noted in the share register.
A transfer of the share(s) represented by this certificate will be registered in
the share register upon application and surrender of this certificate, properly
endorsed or accompanied by a duly executed form of assignment.
The share(s) represented by this certificate is/are transferable at the
Registrar Services GmbH, Frankfurt am Main and in the United States of America
at the offices of ChaseMellon Shareholder Services, L.L.C., New Jersey.
<PAGE> 2
Datum/Date
Aufsichtsrat/Supervisory Board
Vorstand/Board of Management
Countersigned and Registered:
ChaseMellon Shareholder Services, L.L.C.
Transfer Agent
and Registrar,
By
Authorized Signature.
Kontrollunterschrift/Control Signature
<PAGE> 3
Transfers in the United States of America
Uebertragungen in den Vereinigten Staaten von Amerika
The following form of endorsement is intended for share transfers in the United
States of America and may be used in other jurisdictions where accepted as a
valid endorsement.
Das folgende Indossament ist fuer die Uebertragung von Aktien in den Vereinigten
Staaten von Amerika bestimmt. Es kann in anderen Staaten verwendet werden, die
es als wirksames Indossament anerkennen.
For value received, the undersigned hereby sells, assigns and transfers unto
(Please print or typewrite name, occupation and address including postal/zip
code of assignee)
________________________________________________________________________________
Please insert social security number, tax identification number or other
identification number of assignee
________________________________________________________________________________
no par value registered shares represented by the within Certificate,
and does hereby irrevocably constitute and appoint
_______________ Attorney to transfer the said shares on the share register of
Celanese AG with full power of substitution in the premises.
Date _______ Signature ___________
Notice: The signature to this assignment must correspond with the name written
upon the face of this certificate in every particular, without alteration or
enlargement or any change whatever. The signature must be guaranteed by an
Eligible Guarantor Institution such as a commercial bank, trust company,
securities broker/dealer, credit union or a savings association participating in
a Medallion program approved by the Securities Transfer Association, Inc.
Uebertragung in der Bundesrepublik Deutschland
Transfers in the Federal Republic of Germany
Uebertragung aller in dieser Urkunde verbrieften Aktien
Transfer of all shares represented by this certificate
Das folgende Indossament ist fuer die Uebertragung der Aktien in der
Bundesrepublik Deutschland bestimmt, wenn saemtliche umseitig genannte Aktien
uebertragen werden. Es kann ausser in den Vereinigten Staaten von Amerika in
anderen Staaten verwendet werden, die es als wirksames Indossament anerkennen.
The following form of endorsement is intended for share transfers in the Federal
Republic of Germany if all the shares stated on the face hereof are transferred.
It may be used in other jurisdictions, other than the United States of America,
where accepted as a valid endorsement.
Ich/wir uebertrage(n) saemtliche in dieser Urkunde verbrieften, auf den Namen
lautenden Stueckaktien der Celanese AG auf
<PAGE> 4
Name
-----------------------------
Adresse
-----------------------------
Beruf
-----------------------------
Datum Unterschrift
----------------------------- ----------------------
Uebertragung von weniger als der Gesamtzahl der in dieser Urkunde verbrieften
Aktien
Transfer of less than all of the shares represented by this certificate
Die nachfolgende Erklaerung ist zusaetzlich zur Vorlage der Abtretungserklaerung
abzugeben, wenn ein Aktionaer ausserhalb der Vereinigten Staaten von Amerika
weniger als die umseitig genannten Aktien uebertragen hat.
The following statement must be provided in addition to presenting the form of
assignment if a shareholder has effected a transfer outside the United States of
America of less than all of the shares stated on the face hereof.
Ich/wir zeige(n) hiermit an, Stueck auf den Namen lautende Stueckaktien
der Celanese AG an
Name
----------------------------
Adresse
----------------------------
Beruf
----------------------------
(nachfolgend "Zessionar(e)") abgetreten zu haben und beantrage(n), auf den/die
Namen des Zessionars/der Zessionare eine Aktienurkunde ueber die genannte Anzahl
abgetretener Aktien sowie eine weitere Aktienurkunde auf meinen/unseren Namen
ueber die weiterhin von mir/uns gehaltenen auf den Namen lautenden Stueckaktien
der Celanese AG auszustellen. Beide Aktienurkunden sollen mir/uns persoenlich
uebergeben oder an folgende Anschrift (auch bei Personenmehrheit nur eine
Anschrift angeben) uebersandt werden:
<PAGE> 5
Datum Unterschrift
------------------------ ---------------------
<PAGE> 1
EXHIBIT 10.1
A.Prot. 1999/234
dated December 28, 1999 of the Notary
Dr. Dieter Granicher, Basel (Switzerland)
NOTARIAL DEED
PURCHASE AND ASSIGNMENT AGREEMENT
Negotiated at Basel/Switzerland this 28th (twenty-eighth) day of December 1999
(nineteen hundred and ninety-nine).
Before me, the undersigned Notary Public
DR. DIETER GRANICHER
at Basel/Switzerland appeared today:
1. Mr. Johannes J. de Kock, lawyer, born August 11, 1960, with business
address at Bruenningstrasse 50, D-65926 Frankfurt am Main and private
domicile at Breckenheimerstrasse 28, D-65719 Hofheim am Taunus,
identified by his passport,
according to his own statement acting not in his own name, but in the
name and on behalf of
a) Celanese AG, with its seat in Frankfurt am Main, registered with
the Commercial Register of the Local Court of Frankfurt am Main
under HRB 42283, according to the attached written power of
attorney dated December 22, 1999 (Exhibit 1a),
- hereinafter referred to as "Celanese" -
b) Diogenes Dreizehnte Vermoegensverwaltungs GmbH, with its seat in
Frankfurt am Main, registered with the Commercial Register of the
Local Court of Frankfurt am Main under HRB 45203, according to the
attached written power of attorney dated December 22, 1999
(Exhibit 1b),
<PAGE> 2
ii
- hereinafter referred to as "Seller 1"-
c) Celanese Flouropolymer Holdings, Inc., with head office at 90
Morris Avenue, Summit, New Jersey 07901 (United States of
America), according to the attached certified power of attorney
dated December 22, 1999 and two certified Secretary's Certificates
each dated December 22, 1999 (Exhibit 1c),
- hereinafter referred to as "Seller 2" -
d) Celanese Americas Flouropolymers Holdings, Inc., (formerly known
as HCC Flouropolymer Holding Inc.), with head office at 50 Milton
Drive, Aston, Pennsylvania 19014 (United States of America),
according to the attached certified power of attorney dated
December 22, 1999 and two certified Secretary's Certificates each
dated December 22, 1999 (Exhibit 1d),
- hereinafter referred to as "Seller 3" -
- together with Celanese, Seller 1 and Seller 2
hereinafter referred to as the "Sellers" -
2. Mr. Raoul Sidler, born April 30, 1971, attorney-at-law, Swiss citizen,
domiciled at CH-4053 Basel, Gundeldingerstrasse 131, known by person,
according to his own statement acting not in his own name, but excluding
any personal liability in the name and on behalf of
a) Minnesota Mining and Manufacturing Company, with business seat in
St. Paul, Minesota (United States of America), according to the
attached fascimile copies of a written power of attorney dated
December 27, 1999 and of a Officer's Certificate dated December
27, 1999 (Exhibit 2a), subject to submitting the originals
thereof,
- hereinafter referred to as"3M" -
b) 3M Deutschland GmbH, with its seat in Neuss and head office at
Carl-Schurz-Strasse 1, D-41453 Neuss, registered with the
Commercial Register of the Local Court of Neuss under HRB 1878,
according to the
<PAGE> 3
iii
attached certified power of attorney dated December 21, 1999
(Exhibit 2b),
- hereinafter referred to as "Buyer 1" -
- together with 3M hereinafter referred
to as the the "Purchasers")
- Sellers and Purchasers
hereinafter collectively referred to as the "Parties") -
The persons appeared requested this Deed including its Annexes to be recorded in
the English language. The acting Notary Public who is in sufficient command of
the English language ascertained that the persons appeared are also in command
of the English language. After having been instructed by the acting Notary, the
persons appeared waived the right to obtain the assistance of a sworn
interpreter and to obtain a certified translation of this Deed including the
Annexes hereto.
The Notary Public confirms that he has asked the participiants if there has been
a prior involvement in the meaning of Article 233 Section 1 Chiffer 4 of the
Introductory Act of the Canton Basel-Stadt to the Swiss Civil Code and Section 3
Section 1 Chiffer 7 of the German Act on Notarization. This question was
answered in the negative.
The persons appeared asked for the Notarization of the following:
TABLE OF CONTENTS
<TABLE>
<S> <C>
Preamble...............................................................................................1
1. FACTS; SUBJECT OF TRANSACTION.....................................................................2
2. SALE AND TRANSFER OF SHARES AND INTERESTS BY SELLERS..............................................3
3. CLOSING DATE......................................................................................4
</TABLE>
<PAGE> 4
iv
<TABLE>
<S> <C>
4. PURCHASE PRICE....................................................................................4
5. COVENANTS; ANTITRUST FILINGS......................................................................5
6. CLOSING DELIVERIES................................................................................8
7. REPRESENTATIONS AND WARRANTIES OF SELLERS.........................................................9
8. REPRESENTATIONS AND WARRANTIES OF PURCHASERS.....................................................12
9. POST-CLOSING COVENANTS...........................................................................13
10. INDEMNIFICATION FOR BREACHES OF REPRESENTATION AND WARRANTIES; INDEMNIFICATION
PROCEDURES......................................................................................18
11. OTHER INDEMNIFICATIONS...........................................................................22
12. TAX MATTERS......................................................................................22
13. GUARANTIES.......................................................................................31
14. NOMINATION OF REPRESENTATIVES....................................................................31
15. TERMINATION OF JVA; TERMINATION OF REGISTRATION AGREEMENT........................................32
16. EXPENSES AND FEES................................................................................33
17. GOVERNING LAW....................................................................................33
18. DISPUTE RESOLUTION...............................................................................33
19. NOTICES..........................................................................................35
20. MISCELLANEOUS....................................................................................36
</TABLE>
LIST OF DEFINED TERMS
3M.....................................................................ii
3M Business.............................................................1
<PAGE> 5
v
3M Permitted Designee..................................................36
Agreement...............................................................2
Antitrust Filings.......................................................6
Applicable C-Group.....................................................15
Basket.................................................................19
Business................................................................1
Buyer 1...............................................................iii
Cap I..................................................................18
Cap II.................................................................19
Caps...................................................................19
Celanese................................................................i
Celanese Bank Account...................................................9
Celanese Non-Executive Directors........................................9
C-Group.................................................................7
C-Group Indemnified Parties.............................................7
Claiming Party.........................................................19
Closing.................................................................4
Closing Date............................................................4
Code...................................................................30
Confidential Information...............................................14
Contractual Interest....................................................5
De Minimus.............................................................19
Disputant..............................................................33
Disputants.............................................................33
Dyneon Class B Equity Interest..........................................2
Dyneon Class C Equity Interest..........................................2
GmbH....................................................................2
GmbH Share..............................................................2
Hoechst.................................................................1
Hoechst Business........................................................1
Hoechst JV Parties.....................................................24
Indemnifying Party.....................................................19
Joint Venture...........................................................1
JV Companies............................................................1
JVA.....................................................................1
LLC Agreement...........................................................2
LLC Taxes..............................................................24
Parties...............................................................iii
Purchase Price..........................................................4
Purchasers............................................................iii
Purchasers' Known JV Claims............................................13
<PAGE> 6
vi
Retained Liabilities....................................................7
Returns................................................................22
Seller 1...............................................................ii
Seller 2...............................................................ii
Seller 3...............................................................ii
Seller Indemnifying Parties............................................18
Seller Indemnifying Party..............................................18
Sellers................................................................ii
Sellers' Known JV Claims...............................................12
Sold Interests..........................................................3
Structural Tax Principle...............................................23
Tax....................................................................22
Tax Indemnified Party..................................................25
Tax Indemnifying Party.................................................25
Tax Matter.............................................................26
Tax Referee............................................................29
Taxes..................................................................22
LIST OF ANNEXES
Annex 1 Organizational Structures
Annex 2.1 Approval Letter by Dyneon LLC and Dyneon N.V.
Annex 6.1(b) Consent of Management Board of the Hoechst Pension Fund
Annex 6.1(c) Hoechst Letter
Annex 6.1(d) Hoechst Insurance Consent Letter
Annex 6.1(e) Celanese Non-Executive Directors
Annex 10.13 Purchasers' list of persons whose knowledge of breaches of
representations and warranties is relevant
<PAGE> 7
1
Preamble
WHEREAS, Hoechst Aktiengesellschaft ("Hoechst") and 3M have entered
into a Joint Venture Agreement on July 8, 1996 as amended (the "JVA") to combine
Hoechst's business of the research, development, production, marketing and sale
of fluoromonomers and fluoropolymers (the "Hoechst Business") and 3M's
respective business relating to fluoromonomers, fluoroelastomers and additives
(the "3M Business") and thereby to create one or more new business enterprises
(the "Joint Venture");
WHEREAS, the Joint Venture is consisting of four legal entities: Dyneon
GmbH, a corporation organized under the laws of Germany, Dyneon LLC, a limited
liability company organized under the laws of Delaware, Dyneon SA/NV being a
fully-owned subsidiary of Dyneon GmbH and Dyneon LLC, a corporation organized
under the laws of Belgium, and Dyneon BV being a fully-owned subsidiary of
Dyneon LLC, a corporation organized under the laws of the Netherlands
(collectively the "JV Companies");
WHEREAS, the Joint Venture is conducting its business (the "Business")
on a stand-alone basis;
WHEREAS, Hoechst until recently has been holding its interest in the
Joint Venture by directly holding an interest in Dyneon GmbH and indirectly
through Seller 2 and Seller 3, which is a wholly-owned subsidiary of Seller 2;
WHEREAS, Hoechst has recently undergone a restructuring and has first
transferred all of its interests in the Joint Venture directly or indirectly to
Seller 1 (partially through Seller 1's acquisition of Seller 2) with legal
effect as of July 29, 1999 and has transferred with effect as of October 22,
1999 all outstanding shares in Seller 1 to Celanese by way of general
successorship (Gesamtrechtsnachfolge);
WHEREAS, under the restructuring of Hoechst referred to above, all
rights and obligations of Hoechst under the JVA have been transferred to and
assumed by Celanese, with Hoechst remaining liable as a guarantor for the
obligations under the JVA that have been transferred to Celanese as a result of
the demerger of Hoechst's legal position into Celanese.
<PAGE> 8
2
WHEREAS, the organizational structures of the aforementioned entities
are as set forth in Annex 1 hereto;
WHEREAS, 3M has expressed a general interest to become the sole owner
of the Joint Venture and Celanese has expressed a general interest to sell to 3M
all of its interest in the Joint Venture, all as set forth in more detail in a
letter of intent dated October 8, 1999;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements hereinafter set forth, each of the parties agrees to this Purchase
and Assignment Agreement (this "Agreement") as follows:
1. FACTS; SUBJECT OF TRANSACTION
1.1 Seller 1 is as of the date hereof the owner of one share in a
nominal value of DM 4,874,700 representing 97.49% of the capital and 38.4% of
the voting rights (384 votes) in Dyneon GmbH (the "GmbH Share"), a limited
liability corporation organized and existing under the laws of the Federal
Republic of Germany, registered with the commercial register of the Amtsgericht
Traunstein under No. HR B 9749 (the "GmbH"), whose stated share capital amounts
to DM 5,000,000 and the remaining outstanding shares of the GmbH are held by
Buyer 1 and Dyneon LLC.
1.2 Seller 2 is as of the date hereof the owner of the Class B
Equity Interest representing a voting interest of 38.4% in Dyneon LLC and an
interest in the Capital Account as defined in the Limited Liability Company
Agreement of Dyneon LLC dated as of August 1, 1996 (the "LLC Agreement") in
Dyneon LLC (collectively the "Dyneon Class B Equity Interest"), a limited
liability company organized and existing under the laws of Delaware, with place
of business in Oakdale, Minnesota.
1.3 Seller 3 is as of the date hereof the owner of the Class C
Equity Interest representing a voting interest of 7.6% in Dyneon LLC and an
interest in the Capital Account in Dyneon LLC, as defined in the LLC Agreement
(the "Dyneon Class C Equity Interest").
<PAGE> 9
3
(The GmbH Share, the Dyneon Class B Equity Interest and the Dyneon Class C
Equity Interest are hereinafter collectively referred to as the "Sold
Interests").
2. SALE AND TRANSFER OF SHARES AND INTERESTS BY SELLERS
2.1 Seller 1 hereby sells to Buyer 1 and Buyer 1 hereby purchases
from Seller 1 with effect as of the Closing Date the GmbH Share including all
dividend rights and all other ancillary rights related to the GmbH Share.
Subject to the terms and conditions of this Agreement, Seller 1 hereby assigns
to Buyer 1 the GmbH Share with effect in rem as of the Closing Date and Buyer 1
hereby accepts such assignment; provided that the transfer of the GmbH Share
from Seller 1 to Buyer 1 shall in any case be subject to the condition precedent
that Celanese has received on the Closing Date the full amount of the Purchase
Price due to the Sellers under Section 4.1 below.
Seller 1 and Buyer 1 hereby approve the aforementioned transfer of the GmbH
Share to Buyer 1 in accordance with the articles of Dyneon GmbH. Dyneon LLC and
Dyneon N.V. have approved such transfer pursuant to a letter as of December 23,
1999, a copy of which is attached hereto as Annex 2.1 for evidence purposes
only.
2.2 Seller 2 hereby sells to 3M (or to a 3M Permitted Designee
pursuant to Section 20.6 of this Agreement), and 3M (or such 3M Permitted
Designee) hereby purchases from Seller 2 with effect as of the Closing Date the
Dyneon Class B Equity Interest including all dividend rights and all other
ancillary rights related to the Dyneon Class B Equity Interest.
Subject to the terms and conditions stated hereinafter, Seller 2 shall
transfer to 3M (or such 3M Permitted Designee) the Dyneon Class B Equity
Interest at the Closing Date and 3M (or such 3M Permitted Designee) shall accept
such transfer; provided that the transfer of the Dyneon Class B Equity Interest
from Seller 2 to 3M (or such 3M Permitted Designee) shall in any case be subject
to the condition precedent that Celanese has received on the Closing Date the
full amount of the Purchase Price due to the Sellers under Section 4.1 below.
<PAGE> 10
4
2.3 Seller 3 hereby sells to 3M (or to a 3M Permitted Designee
pursuant to Section 20.6 of this Agreement), and 3M (or such 3M Permitted
Designee) hereby purchases from Seller 3 with effect as of the Closing Date the
Dyneon Class C Equity Interest, including all dividend rights and all other
ancillary rights related to the Dyneon Class C Equity Interest.
Subject to the terms and conditions stated hereinafter, Seller 3 shall
transfer to 3M (or such 3M Permitted Designee) the Dyneon Class C Equity
Interest at the Closing Date and 3M (or such 3M Permitted Designee) shall accept
such transfer; provided, that the transfer of the Dyneon Class C Equity Interest
from Seller 3 to 3M (or such 3M Permitted Designee) shall in any case be subject
to the conditions precedent that Celanese has received on the Closing Date the
full amount of the Purchase Price due to the Sellers under Section 4.1 below.
3. CLOSING DATE
The closing of all transactions contemplated by this Agreement (the "Closing")
shall take place on December 28, 1999. The date of the Closing is referred to
herein as the "Closing Date".
4. PURCHASE PRICE
4.1 The purchase price owed by 3M and Buyer 1 to the Sellers as
consideration for the sale and transfer of the Sold Interests hereunder, amounts
to an aggregate of US$ 338,500,000 plus Contractual Interest, if any (the
"Purchase Price").
The Purchase Price shall be allocated as follows:
US$ 282,309,000 (i.e., 83.4% of the Purchase Price) shall be allocated to the
GmbH Share;
US$ 30,000,000 (i.e., 8.9% of the Purchase Price) shall be allocated to the
Dyneon Class B Equity Interest; and
US$ 26,191,000 (i.e., 7.7% of the Purchase Price) shall be allocated to the
Dyneon Class C Equity Interest.
<PAGE> 11
5
"Contractual Interest" shall mean interest at a rate of EURIBOR (six
months) plus five percent (5%) calculated for the outstanding US$ amount of the
Purchase Price for the period between the Closing Date and receipt of the full
amount of the Purchase Price by Celanese in accordance with Section 6.2 of this
Agreement, and which interest shall be calculated on the basis of actual days
elapsed divided by 360 to be compounded semi-annually.
4.2 Purchasers and Sellers hereby confirm that they have freely
negotiated the Purchase Price and the allocation thereof among the Sold
Interests and believe that such Purchase Price and allocations represents a fair
value of the Sold Interests. The Purchase Price is not subject to any adjustment
other than any indemnifications to be paid by the Sellers under this Agreement.
Subject to the foregoing, each of Purchasers and Sellers hereby waive any rights
they may have in respect of renegotiating the Purchase Price, including as a
result of any events not known to them as of the date hereof or occurring after
the date hereof. The Parties hereby agree to report or cause to be reported, as
applicable, the sale and purchase of the Sold Interests for all United States
federal, state, local and non-United States Tax purposes in a manner consistent
with such Purchase Price (including any adjustments thereto under this
Agreement) and such allocation thereof, and not take or cause to be taken, as
applicable, any position on any Return or in any Tax Matter that is inconsistent
with such Purchase Price (including any adjustments thereto under this
Agreement) or such allocation thereof, except as may be required by applicable
law, without the consent of 3M or Celanese, as the case may be.
4.3 Purchasers cannot offset against the Purchase Price any claims
they may have or exercise a right of retention unless the counterclaim or right
of Purchasers, as the case may be, is undisputed or non-appealable.
5. COVENANTS; ANTITRUST FILINGS
5.1 Indemnification in connection with resignations. Celanese
shall indemnify each of the JV Companies with respect to any present, future,
vested and non-vested claims, if any, of the Celanese Non-Executive Directors
(as defined in Section 6.1(e), relating to the termination of such non-executive
function.
<PAGE> 12
6
5.2 No Distributions of Profits. It is understood and agreed by
the Sellers that the profits of the JV Companies earned in 1999 or any other
retained profits will not be distributed to any of the Sellers after the date
hereof and will remain in the Joint Venture.
5.3 Antitrust Filings. With respect to any necessary antitrust
filings the following is agreed:
5.3.1 Celanese and 3M have filed or caused to be filed with
antitrust authorities in the United States, Germany, and Italy, the
notifications required to be filed under said laws or regulations that
are applicable to the transactions contemplated hereby (collectively,
the "Antitrust Filings"). Celanese and 3M shall diligently cooperate
and respond to any requests for additional information made by any
applicable antitrust authorities in a timely, complete and correct
manner. The Parties confirm that they have received notification of
early termination from (i) the Federal Trade Commission in the United
States under the Hart Scott Rodino Antitrust Improvements Act and (ii)
the Federal Cartel Office in Germany. The Parties confirm to each other
that this transaction can be consummated in accordance with the laws of
the United States and Germany.
5.3.2 With respect to the pending filing with the antitrust
authorities in Italy, each party shall promptly notify the other party
of any material communication to that party from the Italian antitrust
authority and consult with the other party regarding any proposed
communication to such antitrust authority. Each party shall consult
with the other regarding any meeting with the Italian antitrust
authority in respect of any filings, investigation or other inquiry,
and to the extent appropriate give the other party the opportunity to
attend and participate thereat. Subject to the joint defense privilege,
each of the Parties will coordinate and cooperate fully with the other
in exchanging such information (either directly or through counsel) and
providing such assistance as the other may reasonably request in
connection with the foregoing or in connection with other consents
necessary to consummate the transactions contemplated hereby. Subject
to the joint defense privilege, counsel for the parties may exchange
copies of correspondence, filings or communications (or memoranda
setting forth the sub-
<PAGE> 13
7
stance thereof) between such party or any of its representatives, on
the one hand, and the Italian antitrust authority or members of its
staff, on the other hand, with respect to this Agreement and the
transactions contemplated hereby.
5.4 If and to the extent (i) Celanese and any of its affiliates
other than the JV Companies (collectively the "C-Group") is held liable for any
liability which is incurred as a result of any activities of the JV Companies or
their predecessors and under the JVA is a liability of the Joint Venture
including indemnification claims time barred under the JVA and (ii) the C-Group
is precluded by operation of law to hold the JV Companies responsible for such
liability, then 3M agrees to indemnify any company of the C-Group, (collectively
the "C-Group Indemnified Parties") from and against all liabilities and losses
such C-Group Indemnified Parties may have or incur in any connection therewith,
except for any claims (A) for which Hoechst has granted indemnification under
the JVA including but not limited to, Retained Liabilities (as defined in
Section 13.1 of the JVA) and (B) any claims for which Seller 1, Seller 2 or
Seller 3 have granted indemnification to 3M or Buyer 1 under this Agreement and
which have not been time barred as of the time a C-Group Indemnified Party makes
a claim. In furtherance of, and subject to the limitations set forth in the
foregoing sentence, 3M agrees to hold the C-Group Indemnified Parties free and
harmless from and against any and all claims by any person who is a beneficiary
of any guaranty (or understanding having the effect of a guaranty) made by any
of the C-Group Indemnified Parties with respect to, and for the benefit of, the
JV Companies and their affiliates and outstanding on the Closing Date if the
C-Group is precluded by law from holding the JV Companies liable for
indemnification in respect of such claims. The indemnification of the C-Group
provided in this Section 5.4 shall include liability of the C-Group arising from
claims by Hoechst or its affiliates against the C-Group covered by the subject
matter of this Section 5.4. The Parties intend that this Section 5.4 does not
otherwise change or increase the liability of 3M or the Joint Venture under the
JVA but rather clarifies the intent of the Parties on the handling of a
liability arising out of the Joint Venture that is imposed on C-Group solely by
operation of law.
5.5 Promptly after the Closing, Seller 1 and Buyer 1 will jointly
inform the management of Dyneon GmbH of the completion of the transfer of the
GmbH
<PAGE> 14
8
Share to Buyer 1 in accordance with Section 16 of the Limited Liability Company
Act (GmbHG).
5.6 The Parties waive and release the JV Companies from all claims
and liabilities (whether or not asserted) relating to or arising directly or
indirectly from the termination, prior to the Closing, of any sales agency or
distribution agreements between affiliates of the Parties and any of the JV
Companies and agree that none of the Parties or any of their affiliates or
predecessors will take any action against any of the other Parties or the JV
Companies in connection with any such termination. In the event that either
Party is in breach of this Section 5.6, the provisions of Section 11 shall
apply.
6. CLOSING DELIVERIES
6.1 At the Closing, Celanese shall deliver to 3M the following
documents, the receipt of which is confirmed by 3M.
(a) All necessary transfer documents reasonably required
to transfer the Dyneon Class B Interest and the Dyneon Class C
Interest;
(b) Written consent of the Management Board of the
Hoechst Pension Fund to the continued participation of the employees of
Dyneon GmbH in the Hoechst Pension Fund in the form attached as Annex
6.1(b);
(c) Letter agreement from Hoechst to 3M regarding
continued obligations of Hoechst in the form attached as Annex 6.1(c);
(d) Consent to the transaction contemplated hereby from
Hoechst insurance carriers and agreement by Hoechst to cooperate with
3M with respect to insurance claims arising in connection with the JV
Companies, their business or their assets prior to the Closing as set
forth in the form attached as Annex 6.1(d); and
(e) The resignation of all or certain board members or
members of other committees of each of the JV Companies which are
freely designated by Celanese or any of its affiliates (other than
companies being part of the Joint Venture) and which are not employees
or managers of the JV
<PAGE> 15
9
Companies (the "Celanese Non-Executive Directors") listed in Annex
6.1(e) and with effect as of the Closing Date.
6.2 At the Closing, 3M (i) shall pay the full amount of the
Purchase Price due to the Sellers under Section 4.1 and (ii) shall cause Dyneon
LLC to pay to Seller 3 the outstanding receivable in the amount of US$ 14.9
million owed by Dyneon LLC to Seller 3, which amount Seller 3 directs to be paid
to the Celanese Bank Account (as hereinafter defined) and which payment shall
satisfy in full and release Dyneon LLC from all payment obligations in
connection therewith. The payments referred to in this Section 6.2 shall be
effected at the Closing by wire transfer of immediately available funds free of
charge, with full value as of the Closing Date and without any restrictions to
the following bank account of Celanese: Chase Manhattan Bank, New York, ABA
021000021 in the account of CNA Holdings Inc. account number 322-002990, or as
otherwise directed by Celanese in writing no later than three business days
prior to the Closing Date (the "Celanese Bank Account"). The Sellers hereby
acknowledge that such payment shall release Purchasers from all payment
obligations under Section 4.1 to the Sellers.
7. REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers (each Seller only with regard to itself or, respectively, to the shares
of the companies sold by it) hereby represent and warrant as of the Closing Date
or such other date as expressly referred to hereinafter, unless disclosed to 3M
in writing by a member of the management board of Celanese or otherwise known by
3M (in accordance with Section 10.13 of this Agreement) on or before the date of
this Agreement and excluding any additional statutory warranty claims, that the
following is true and correct:
7.1 Seller 1 is a corporation duly organized and validly existing
under the laws of Germany, Seller 2 is a corporation duly organized and validly
existing under the laws of the State of Delaware and Seller 3 is a corporation
duly organized and validly existing under the laws of the Commonwealth of
Pennsylvania, and the execution and delivery of this Agreement does not and the
consummation of the transactions contemplated herein will not conflict with or
result in a breach of
<PAGE> 16
10
the terms, conditions or provisions of or constitute a default under their
respective certificates of incorporation or by-laws or any agreement or
instrument or a violation of any law or regulation, foreign or domestic, under
which they are bound or to which they are subject.
7.2 This Agreement has been approved on the part of Sellers by all
requisite corporate action and the instruments and documents referred to herein
and the transactions contemplated hereby have been approved by all requisite
corporate action of Sellers. This Agreement constitutes the valid and binding
obligation of Sellers, enforceable in accordance with its terms, without any
further condition unless otherwise specified herein except to the extent that
enforceability may be limited by bankruptcy, insolvency or other similar laws
affecting creditors' rights generally.
7.3 Immediately prior to the Closing, Sellers will be the sole
owner of the Sold Interests; such interests are free and clear of all liens
(other than transfer restrictions agreed with 3M or any of its affiliates, if
any, or resulting from local legal requirements). Sellers further represent and
warrant that the Sold Interests constitute 100% of the Sellers' equity interests
in the Joint Venture.
7.4 There are no assets, including but not limited to,
intellectual property rights, and other rights, contracts or permits used in the
Business that are owned, held by or licensable by Hoechst, Celanese or any of
their respective majority owned affiliates (other than the InfraServ companies)
that will not be transferred to the Purchasers under this Agreement, except on
the basis of valid written agreements, the absence of which agreements would
have a material adverse effect on the Business. Except for assets assigned,
transferred or licensed to the Joint Venture through the Hoechst Technology
Transfer and License Agreement (which is an Ancillary Document as that term is
defined in the JVA), the foregoing representation and warranty does not apply to
assets of the engineering resins business of Sellers known as Ticona, wherein
the term "engineering resins" includes compounded engineering resins that
contain fluoropolymer as an additive or filler, including, for example,
compounds that contain wholly or partially oxidized polyphenylene sulfide
(PPSO2) and fluoropolymer, such as the compounds sold under the trademark
Ceramer(R).
<PAGE> 17
11
7.5 Except with respect to the Antitrust Filings, merger control,
foreign investment and foreign securities and exchange legislation, no consent,
approval or authorization of, permit from, or declaration, filing or
registration with, any governmental or regulatory authority or any other person
or entity is required to be made or obtained by Sellers or Hoechst in connection
with the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby, except where the failure
to be made or obtained would not reasonably be expected to prevent or delay the
Closing.
7.6 To Sellers' best knowledge, there are no claims, proceedings
or litigation matters pending or threatened, and Sellers are not aware of any
facts which, as far as Sellers can reasonably foresee, would give rise to any
liability or litigation, claim or proceeding that individually or in the
aggregate, would have a material adverse effect on the continued operation of
the Joint Venture taken as a whole, or which might reasonably be expected to
affect the consummation of the transactions contemplated by this Agreement.
7.7 To Sellers' best knowledge, no representation or warranty made
by Sellers in this Agreement nor any statement contained in any document or
certificate furnished or to be furnished pursuant hereto or thereto by Sellers,
concerning the Sold Interests, considering all the representations, warranties
and statements of Sellers in this Agreement in total, contains, or will contain,
any untrue statement of material fact, or omits, or will omit to state a
material fact necessary to make the statements contained herein or therein not
misleading, which in any case would materially adversely affect the financial
condition of the Joint Venture taken as a whole.
7.8 None of the Sellers nor any of Sellers' affiliates have paid
or become obligated to pay any fee or commission to any broker, finder or
intermediary in connection with the transactions contemplated hereby.
7.9 To Sellers' best knowledge, none of the Sellers has as of the
date hereof a claim against any one or more of Purchasers or against any one or
more of the JV Companies for patent infringement, misappropriation of trade
secret, breach of confidential disclosure agreement, or trademark infringement
arising from any aspect of the JV Companies' current business.
<PAGE> 18
12
7.10 To Sellers' best knowledge, none of the Sellers is aware of
any asserted or potential claim by a third party against any one or more of
Purchasers or against any one or more of the JV Companies for patent
infringement, misappropriation of trade secret, breach of confidential
disclosure agreement, or trademark infringement arising from any aspect of the
JV Companies' current business which claim would have a material adverse effect,
taking the JV Companies as a whole, on the Business.
7.11 None of the Sellers has taken any action that will limit or
compromise any intellectual property including but not limited to any patent
application or patent that is owned by a JV Company and that is material to the
Business.
7.12 To Sellers' best knowledge, none of the Sellers nor any of
Sellers' majority owned affiliates have any claim for indemnification arising
from a breach of the JVA by the Purchasers (except for Purchasers to install
engineering controls in accordance with Section 12.4(a) and (b) of the JVA) or
any of their majority owned affiliates (the "Sellers' Known JV Claims"), and
Sellers hereby waive, also on behalf of their majority owned affiliates, any and
all such Sellers' Known JV Claims.
8. REPRESENTATIONS AND WARRANTIES OF PURCHASERS
Purchasers represent and warrant to Sellers that as of the date hereof
and the Closing Date:
8.1 Both Purchasers are corporations duly organized, validly
existing and in good standing with the laws of the jurisdiction of their
incorporation, and the execution and delivery of this Agreement does not, and
the consummation of the transactions contemplated herein will not, conflict with
or result in a breach of the terms, conditions or provisions of or constitute a
default under their respective certificates of incorporation or by-laws or any
agreement or instrument or a violation of any law or regulation, foreign or
domestic, under which they are bound or to which they are subject.
8.2 This Agreement has been approved on the part of Purchasers by
all requisite corporate action, if necessary, including Board of Directors
approval, and the instruments and documents referred to herein and the
transactions contem-
<PAGE> 19
13
plated hereby have been approved by any requisite corporate action of
Purchasers. This Agreement constitutes the valid and binding obligation of
Purchasers, enforceable in accordance with its terms, without any further
condition unless otherwise specified herein, except to the extent that
enforceability may be limited by bankruptcy, insolvency or other similar laws
affecting creditors' rights generally.
8.3 Except with respect to the Antitrust Filings, merger control,
foreign investment and foreign securities and exchange legislation, no consent,
approval or authorization of, permit from, or declaration, filing or
registration with, any governmental or regulatory authority or any other person
or entity is required to be made or obtained by Purchasers in connection with
the execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby, except where the failure to be made or
obtained would not reasonably be expected to prevent or delay the Closing.
8.4 To Purchasers' best knowledge neither Purchaser nor any of
their majority owned affiliates have any knowledge as of the date hereof of any
claim for indemnification arising from a breach of the JV Agreement by the
C-Group or by Hoechst (the "Purchasers' Known JV Claims") and Purchasers hereby
waive also on behalf of their majority owned affiliates any and all such
Purchasers' Known JV Claims. Notwithstanding the foregoing, this Section 8.4
shall not apply to any claims arising from any Retained Liabilities of Hoechst,
Celanese or their affiliates, even if Purchasers or any of its majority owned
affiliates have knowledge of such claims.
9. POST-CLOSING COVENANTS
9.1 The Parties agree as follows with respect to the period
following the Closing.
(a) General. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of
the Agreement, each of the Parties will take such further action
(including the execution and delivery of such further instruments and
documents) as any other party reasonably may request, all at the sole
cost and expense of the requesting party (unless the requesting party
is entitled to indemnification therefor un-
<PAGE> 20
14
der Section 10 below). Sellers acknowledge and agree that from and
after the Closing, the Purchasers will be entitled to possession of all
documents, books, records, agreements, and financial data of any sort
relating to the Joint Venture, with the exception of documents which
Sellers are obliged to keep for legal reasons, in which case Sellers
will provide Purchasers, upon reasonable request of Purchasers, with
copies at the cost and expense of Purchasers.
(b) Litigation Support. In the event and for so long as
any party actively is contesting or defending against any action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand
initiated by a third party in connection with (i) any transaction
contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence,
event, incident, action, failure to act, or transaction on or prior to
the Closing Date involving the Joint Venture, each of the other Parties
will cooperate with the contesting or defending party and its counsel
in the contest or defense, make available its personnel, and provide
such testimony and access to its books and records as shall be
reasonably necessary in connection with the contest or defense, all at
the sole cost and expense of the contesting or defending party (unless
the contesting or defending party is entitled to indemnification
therefor under Section 10 or Section 12 below).
(c) Transition. Sellers agree that, during the period of
non-competition as set forth in Section 9.1(e), they shall not actively
discourage, any person, firm, corporation or business entity from doing
business with the JV Companies or otherwise tortuously interfere with
actual or potential business relationships between the JV Companies and
any person, firm, corporation or other business entity.
(d) Confidentiality. Except with respect to tax or
antitrust authorities, the Parties will treat and hold as confidential
any information received pursuant to this Agreement ("Confidential
Information") until the fifth anniversary of the Closing Date and,
refrain from using any of the Confidential Information except in
connection with this Agreement or in connection with the ordinary
course of business of the JV Companies, subject to the re-
<PAGE> 21
15
maining provisions of this paragraph and, except as required by law or
the rules of any stock exchange or governmental or other regulatory
authority, including the requirement to make a disclosure of the value
of the consideration in the published accounts of either party. In the
event that any of the Sellers is requested or required (by oral
question or request for information or documents in any legal
proceeding, interrogatory, subpoena, civil investigative demand, or
similar process) to disclose any Confidential Information, the party
concerned will notify the other Parties promptly of the request or
requirement so that the parties concerned may seek an appropriate
protective order or waive compliance with the provisions of this
Section 9.1(d). If, in the absence of a protective order or the receipt
of a waiver hereunder, any of the parties are, on the advice in writing
of counsel, compelled to disclose any Confidential Information to any
tribunal or else stand liable for contempt, the party concerned may
disclose the Confidential Information to the tribunal; provided,
however, that the disclosing party shall use its reasonable best
efforts to obtain, at the request of other Parties, an order or other
assurance that confidential treatment will be accorded to such portion
of the Confidential Information required to be disclosed as the other
Parties shall designate. The obligations to maintain Confidential
Information and Know-How in confidence in accordance with the Hoechst
Technology Transfer and License Agreement are covered by that agreement
and shall survive in accordance with its terms and conditions.
(e) Covenant Not to Compete.
(1) For a period of two (2) years from and after the
Closing Date, Celanese and its majority owned affiliates, (collectively
the "Applicable C-Group"), will not engage directly or indirectly in
any business within the worldwide scope of the Business which would
compete with the Business as conducted and as presently planned to be
conducted at the Closing Date; provided, however, that nothing
contained herein shall prevent the Applicable C-Group from conducting
any business that it was permitted to conduct during the term of the
JVA and as set forth in Section 14.1(b) of the JVA. Nothing herein
shall prevent the Applicable C-Group from using or disclosing its own
intellectual property (including Know-how) which it li-
<PAGE> 22
16
censed to any of the JV Companies on a non-exclusive basis, provided
that such use or disclosure is consistent with Section 14.1(b) of the
JVA. It is understood that this non-compete shall not apply to
activities undertaken by Sellers in connection with the engineering
resins business known as Ticona, wherein the term "engineering resins"
includes compounded engineering resins that contain fluoropolymer as an
additive or filler, including, for example, compounds that contain
wholly or partially oxidized polyphenylene sulfide (PPSO2) and
fluoropolymer, such as the compounds sold under the trademark
Ceramer(R). As used above, the term "additive" or "filler" means an
ingredient comprising less than fifty weight percent (50%) of the total
composition, with the one exception that, with respect to Ceramer
products, polytetrafluoroethylene (ptfe) will be considered a filler in
compounded engineering resins in which the polymer content is ptfe and
at least twenty weight percent (20%) PPSO2.
(2) The restrictions in this Section shall not (i)
prohibit the Applicable C-Group (hereafter, the "Acquiring Party") from
making an acquisition or merger that includes an entity or assets
engaged in manufacturing, marketing or selling Products as defined in
the JVA (hereafter, the "Competing Business"), as long as the annual
revenues attributable to the Competing Business do not exceed
twenty-five (25) % of the annual revenues of the acquired entity or
assets and prior written notice of the proposed acquisition is given to
3M at least twenty-one (21) days prior to consummation of the
acquisition or (ii) be applicable if Celanese is either acquired by a
company with a larger market capitalization than Celanese (at the time
of the consummation of such transaction) or consummates a "merger of
equals" business combination with a third party, provided, however, in
such event the term of the non-solicitation period described in Section
9.2 shall automatically be extended for a period of two (2) years from
the date of consummation of such transaction and the date specified in
clause (i) of Section 9.2 shall be the date of the consummation of such
transaction.
(3) Notwithstanding any other provision of this
Agreement, each party shall be entitled to enforce its rights under
this Section 9.1(e) specifically to recover damages by reason of any
breach of any provision of this
<PAGE> 23
17
Section 9.1(e) and to exercise all other rights existing in its favor.
The Parties agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Section 9.1(e)
and that each party may in its sole discretion apply to any court of
law or equity of competent jurisdiction for specific performance and/or
injunctive relief (without posting a bond or other security) in order
to enforce or prevent any violation of the provisions of this Section
9.1(e), provided that if any breach by the Applicable C-Group of its
obligations set forth in this section 9.1(e) is the result of an
acquisition, merger or other business combination, then the Applicable
C-Group may cure the breach within a period of six (6) months from the
date such breach occurs. During such six-month cure period, the
Purchasers may not pursue remedies of specific performance and/or
injunctive relief without, however, any prejudice to any of the
Purchasers' rights, including the right to obtain money damages.
(4) This covenant shall be binding upon the Applicable
C-Group, and any successor to the Applicable C-Group by way of general
successorship (Gesamtrechtsnachfolge), including without limitation,
third parties that have succeeded to the assets or business of the
Applicable C-Group through corporate reorganizations, including
demergers.
(5) If the final judgment of a court of competent
jurisdiction declares that any term or provision of this Section 9.1(e)
is invalid or unenforceable, the Parties agree that the court making
the determination of invalidity or unenforceability shall have the
power to reduce the scope, duration, or area of the term or provision,
to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid
and enforceable and that comes closest to expressing the intention of
the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time
within which the judgment may be appealed.
9.2 Non-Solicitation. Without the prior written consent of the
Purchasers, for a period of two (2) years after the Closing Date (or such longer
period as set forth in Section 9.1(e)(2)) Sellers shall not (and will cause
their affiliates not to) directly or indirectly solicit, offer to employ or hire
any employee of the JV Compa-
<PAGE> 24
18
nies (i) as of December 1, 1999 who remains an employee of the JV Companies for
such time period, (ii) who has become an employee of the Purchasers or the JV
Companies during such time period, or (iii) who has terminated such employment
without the consent of Purchasers or resigned within such time period.
10. INDEMNIFICATION FOR BREACHES OF REPRESENTATION AND WARRANTIES;
INDEMNIFICATION PROCEDURES
10.1 The provisions of this Section 10 shall apply to all claims
for indemnification made by 3M and/or Buyer 1 against Celanese, Seller 1, Seller
2 and/or Seller 3 pursuant to Section 7 of this Agreement and against Celanese
pursuant to Section 13.2 of this Agreement. (For the avoidance of doubt the
indemnification claims relating to or arising from Section 12 (Tax Matters), are
exclusively governed by Section 12 of this Agreement except as expressly set
forth in Section 10.2 of this Agreement.) All caps on liability, including caps
on liability under the tax indemnification in Section 12 of this Agreement,
shall be governed by this Section 10. If Sellers breach any of the
representations and warranties in Section 7 of this Agreement, subject to
Section 10.2 of this Agreement, Sellers may take all such actions as shall be
necessary or desirable to cure the breach, including obtaining licenses and
covenants not to sue under intellectual property.
10.2 If Sellers fail to cure the breach in accordance with Section
10.1 above within a period of thirty (30) days (or, in the case of a breach that
is not capable of remedy, immediately) after notification by 3M (also
exclusively on behalf of Buyer 1) or if Sellers breach any of the
representations and warranties in Section 7 of this Agreement, whether or not
cured, the Seller that is the breaching party (such Seller, the "Seller
Indemnifying Party" and, all Sellers, collectively, the "Seller Indemnifying
Parties") shall indemnify and hold harmless 3M and its affiliates, including the
JV Companies, from all liabilities or losses in connection therewith which have
not been remedied in full by any cure or undertaking; provided that the
aggregate amount for which the Seller Indemnifying Parties taken as a whole
shall be liable under this Section 10 shall in the case of a breach of a
representation or warranty set forth in Sections 7.4 through 7.12 of this
Agreement in no event exceed 75% of the Purchase Price ("Cap I") and the overall
liability of the Seller Indemnifying Parties for all breaches of representations
and warranties in Section 7 and for all liabilities set forth in Section 12 (Tax
Matters) shall in no event
<PAGE> 25
19
exceed the Purchase Price ("Cap II", together with Cap I, the "Caps"); and
provided further that Purchasers may in any event only claim damages in respect
of such a breach of a representation or warranty if the individual claim exceeds
US$ 30,000 (the "De Minimus") and the aggregate of all individual claims exceeds
US$ 300,000 (the "Basket"), and then the Seller Indemnifying Parties shall
indemnify Purchasers for all claims (excluding the De Minimus) including those
claims aggregated in the Basket. It is understood that any indemnification
granted and actually paid by a Seller Indemnifying Party pursuant to this
Section 10.2 shall reduce the liability of the Seller Indemnifying Parties under
the Caps. With respect to any damage or loss arising out of a breach of the
representations and warranties set forth in Sections 7.6, 7.10 or 7.7 (to the
extent it covers subject matters of Sections 7.6 or 7.10) of this Agreement, the
liability of the Seller Indemnifying Parties is limited to 46% of the respective
damage without affecting other liabilities agreed in this Section 10. Any
liabilities or losses relating to a breach of the covenants contained in this
Agreement, shall not be subject to any Cap or the Basket limitations contained
in this Section 10.
10.3 In the event the Purchasers are in breach of any
representation under Section 8 of this Agreement, the party in breach shall
indemnify the Sellers for any loss as a result thereof upon the same terms and
subject to the same limitations (including, but not limited to, the De Minimus
and Basket and subject to a Cap equal to the Purchase Price) as those applicable
to the Sellers pursuant to Section 10.1 and 10.2 of this Agreement.
10.4 If any party seeks indemnification under any provisions of
this Agreement (a "Claiming Party") with respect to claims resulting from the
assertion of liability by third parties, the Claiming Party shall give written
notice to the party from whom such indemnification is sought (the "Indemnifying
Party") within forty-five (45) days after an officer of the Claiming Party
becomes aware of any such claim. The Parties shall then mutually agree whether
and which steps to take to defend themselves against such claims. If requested
by the Indemnifying Party, the Claiming Party concerned shall defend themselves
or itself against such claims as directed by the Indemnifying Party (including
the retaining of an outside counsel, reasonably acceptable for the Claiming
Party - as proposed by the Indemnifying Party); provided that the Indemnifying
Party agrees to bear the costs
<PAGE> 26
20
connected therewith (except that, general administration costs of the Claiming
Party shall always be borne by the Claiming Party).
10.5 Any claims of a Claiming Party pursuant to this Agreement
which does not result from a third party claim set forth in Section 10.4 above
shall be asserted by written notice from the Claiming Party to the Indemnifying
Party within forty-five (45) days of first learning of the claim and specifying
that the Claiming Party is seeking indemnification pursuant to this Agreement.
All such claims that are not timely asserted pursuant to this Section 10 shall
be deemed to be forever waived only to the extent that the Indemnifying Party
suffers a loss solely due to the delay. The Claiming Party's written notice
shall contain the material information as the Claiming Party has in its
possession regarding the alleged claim. The Indemnifying Party shall have a
period of forty-five (45) days (or such shorter time period as may be required
by law as indicated by the Claiming Party in the written notice) within which to
respond thereto.
10.6 If the Indemnifying Party accepts responsibility to make
payment for the loss, it shall have no further right, with respect to the
Claiming Party, to contest whether the Indemnifying Party is responsible for the
claim. If the Indemnifying Party does not respond within the 45-day (or lesser)
period contemplated in Section 10.4 or 10.5 (as applicable) or rejects in
writing such claim in whole or in part, then the Claiming Party shall be free to
pursue resolution as provided in Section 18 (Dispute Resolution) hereof within
six months of such failure to respond or receipt of such rejection or such claim
will be time barred.
10.7 Subject to Section 10.6, any claims of Purchasers pursuant to
this Section 10 in connection with Sections 7.4 through 7.12 of this Agreement
and any claims of Sellers pursuant to this Section 10 in connection with
Sections 8.3 and 8.4 of this Agreement shall be time-barred after the first
anniversary of the Closing Date. Subject to Section 10.6, any other claims of
Purchasers or Sellers pursuant to this Section 10 shall be time-barred after the
tenth anniversary of the Closing Date.
10.8 The Claiming Party shall ensure that all commercially
reasonable steps are taken which are necessary to mitigate the amount of any
liability of the Indemnifying Party under this Agreement.
<PAGE> 27
21
10.9 Any breach of a representation or warranty under this
Agreement is exclusively being indemnified pursuant to this Section 10. In
furtherance of the foregoing, Purchasers and Sellers hereby waive to the fullest
extent permitted under applicable law any and all other statutory or contractual
claims against the other party hereto relating to the subject matter of this
Agreement not covered by this Agreement. As amplification and without
limitation, any claims based on positive Vertragsverletzung and culpa in
contrahendo and any claims of Purchasers for cancellation (Wandlung) and
rescission (Rueckabwicklung) or challenge (Anfechtungsrechte) of this Agreement,
except for the challenge because of malicious deceit (Anfechtung wegen
arglistiger Taeuschung), are expressly excluded.
10.10 Any liability for a breach of representations pursuant to this
Section 10 is excluded if and to the extent the underlying circumstances (i) are
accrued for in the September 30, 1999 balance sheet of the Joint Venture, (ii)
will be settled within a reasonable time by corresponding performances of third
parties, in particular by insurance or (iii) are described in the JVA or are set
forth in the schedules to the JVA.
10.11 Neither Party is liable for the correctness of any oral
statements made by their managing directors, employees or consultants or made by
any directors, officers, employees or consultants of the JV Companies and the
knowledge of these persons cannot be attributed to any party.
10.12 If and to the extent, a representation and warranty is based
on the best knowledge of Sellers, this shall mean the actual knowledge of any of
the persons listed on Annex 6.1(e) at the time of Closing.
10.13 In accordance with the introduction of Section 7 of this
Agreement, Purchasers cannot hold Sellers liable for a breach of any of the
representations and warranties set forth in Section 7 if and to the extent any
of the persons listed in Annex 10.13 have actual knowledge of such breach as of
the Closing Date.
10.14 For purposes of this Section 10, indemnification of Purchasers
shall include indemnification of each of Purchasers' respective directors,
officers, employees, agents and affiliates.
<PAGE> 28
22
11. OTHER INDEMNIFICATIONS
In case either party is in breach of any covenants contained in this
Agreement, it shall indemnify and hold harmless the other non-breaching party,
its directors, officers, employees and agents from any loss or damage such other
party may suffer as a result of such breach. Each of the Parties acknowledge and
agree that the other Parties would be damaged irreparably in the event any
covenant of this Agreement is not performed in accordance with its specific
terms or is otherwise breached. Accordingly, each of the Parties agrees that the
other Parties shall be entitled to an injunction to prevent breaches of the
covenants of this Agreement and to enforce such covenants in addition or any
other remedy to which they may be entitled at law or in equity. Any liabilities
or losses relating to a breach of the covenants contained in this Agreement
shall not be subject to any Cap or the Basket limitations contained in Section
10 of this Agreement.
12. TAX MATTERS.
12.1 Definitions. For purposes of this Agreement, the following
definitions shall apply:
(i) The term "Tax" or "Taxes" means income or profits
taxes, property taxes, VAT taxes, stamp taxes, ad valorem taxes, sales
taxes, use taxes, gross receipt taxes, trade taxes and other similar
taxes, including any interest, penalties or other additions to tax that
may become payable in respect thereof, imposed by any federal,
territorial, state, local or foreign government or any agency or
political subdivision of any such government. Taxes will not include
deferred taxes.
(ii) The term "Returns" means all reports, estimates,
declarations of estimated Tax, information statements and returns
(including any schedules or attachments and any amendments thereto)
relating to, or required to be filed in connection with, any Taxes.
<PAGE> 29
23
12.2 Indemnification for Taxes by Sellers and 3M.
(a) Indemnification relating to Dyneon GmbH and Dyneon SA/NV.
(i) Sellers agree to be responsible for and to
indemnify and hold Purchasers free and harmless from and
against 46% of any and all Taxes in respect of the Business
that are imposed upon or assessed against Dyneon GmbH or
Dyneon SA/NV (collectively, "European JV Taxes") relating or
incidental to or by virtue of all taxable periods (or portions
thereof) ending on or prior to December 31, 1999 to the extent
that the amount of any such European JV Tax exceeds the amount
of such European JV Tax reflected in the financial statements
of Dyneon GmbH as of December 31, 1999 or the financial
statements of Dyneon SA/NV as of December 31, 1999, as the
case may be, provided, however, that such indemnification by
Sellers for the taxable period ending on December 31, 1999
shall only be made for issues (e.g., transfer pricing issues)
which are also raised by the relevant taxing authority for
prior taxable periods (or which also could have been raised by
the relevant taxing authority for prior taxable periods but
for the expiration of the applicable statute of limitations)
and are thus carryover issues (i.e., Sellers shall not
indemnify for incorrect preparation of or incorrect legal
conclusions relating to the financial statements or the
Returns relating solely to the taxable period ending on
December 31, 1999 (the "Structural Tax Principle"").
(ii) For avoidance of doubt, any liability for
European JV Taxes relating or incidental to or by virtue of
all taxable periods beginning after December 31, 1999 shall be
within the exclusive responsibility of Purchasers and, subject
to Section 12.2(a)(i), 54% of any and all European JV Taxes
relating or incidental to or by virtue of all taxable periods
(or portions thereof) ending on or prior to December 31, 1999
shall also be within the exclusive responsibility of
Purchasers.
<PAGE> 30
24
(b) Indemnification relating to Dyneon LLC. Sellers agree
to be responsible for and to indemnify and hold 3M free and harmless
from and against 46% of any and all Taxes in respect of the Business
that are imposed upon or assessed against Dyneon LLC (collectively,
"LLC Taxes") relating or incidental to or by virtue of all taxable
periods (or portions thereof) ending on or prior to December 31, 1999
to the extent that the amount of any such LLC Tax exceeds the amount of
such LLC Tax reflected in the financial statements of Dyneon LLC as of
December 31, 1999 (which exclude liabilities for income taxes),
provided, however, that the Structural Tax Principle shall apply to
this Section 12.2(b).
(c) Indemnification by 3M.
(i) 3M agrees to be responsible for and to
indemnify and hold each of Celanese, Hoechst and their
respective affiliates (including Sellers) (collectively, the
"Hoechst JV Parties") harmless from and against 54% of any and
all LLC Taxes" relating or incidental to or by virtue of all
taxable periods (or portions thereof) ending on or prior to
December 31, 1999 to the extent that the amount of any such
LLC Tax exceeds the amount of such LLC Tax that is reflected
in the financial statements of Dyneon LLC as of December 31,
1999 (which exclude liabilities for income taxes).
(ii) In addition, 3M agrees to be responsible for
and to indemnify and hold harmless each of the Hoechst JV
Parties from and against 100% of the amount of all Tax
liabilities that are reflected on the financial statements of
Dyneon LLC as of December 31, 1999 in accordance with U.S.
GAAP consistently applied in accordance with past practice.
(iii) Furthermore, 3M agrees to be responsible for
and to indemnify and hold harmless each of the Hoechst JV
Parties from and against 100% of any and all LLC Taxes
relating or incidental to or by virtue of all taxable periods
beginning after December 31, 1999.
<PAGE> 31
25
(iv) It is agreed that the indemnification granted
by 3M hereunder with respect to any Hoechst JV Party which is
not a party hereof shall be deemed to be a third party
beneficiary agreement with the right of each of such third
parties to directly hold 3M liable hereunder; the right of
Sellers to claim any rights on behalf of any such third
parties remains unaffected. Sellers are entitled to notify
each of such third parties about their rights hereunder.
(v) It is agreed that, except as otherwise
provided in Section 16.2 hereof, Sellers shall be solely
responsible for any and all Taxes relating to or arising from
the purchase, sale and transfer of the Sold Interests.
(d) Related Costs. Sellers or Purchasers as the case may
be (the "Tax Indemnifying Party""), shall also pay and shall indemnify
and hold harmless each other or any other party to be indemnified
pursuant to this Section 12.2 (each a "Tax Indemnified Party"", as
applicable, from and against any losses, damages, liabilities,
obligations, deficiencies, costs and expenses (including, without
limitation, reasonable expenses and fees for attorneys and accountants
for the enforcement of this Section 12.2).
(e) Limitations on Indemnification. If and to the extent
a Tax liability indemnifiable hereunder results from a mere shifting of
the taxable period in which a deduction is taken or income is
recognized, the following shall apply: The Tax Indemnifying Party shall
be obliged to indemnify for an amount equal to the Tax liability to be
indemnified, reduced by the present value of any future Tax advantage,
including a future Tax advantage relating or incidental to or by virtue
of the taxable periods ending on December 31, 1999 or thereafter. The
respective future Tax advantage shall be discounted at an interest rate
equal to the cost of funds per annum of the Tax Indemnified Party at
the time the relevant indemnification payment is made, compounded
annually.
(f) Timing for Indemnity Claim. Any claim for
indemnification under this Section 12.2 may be made at any time prior
to three (3) months af-
<PAGE> 32
26
ter the expiration of the applicable statute of limitations with
respect to the relevant taxable period, including all periods of
extension thereof.
12.3 Preparation of Tax Returns; Payment of Taxes.
(a) Cooperation. Sellers and Purchasers shall reasonably
cooperate with one another in connection with (i) the preparation and
filing of any Returns and (ii) the conduct, prosecution and defense of
any matter, including any audit, proposed adjustment, claim,
assessment, administrative or judicial proceeding or the filing of any
amended Return (a "Tax Matter"), relating to Taxes in respect of the
Business, including, without limitation, by furnishing or causing to be
furnished to each other (at their own expense and as promptly as
practicable) information (including access to books and records) and
assistance, and making employees available on a mutually convenient
basis to provide additional information and explanations of any
material provided, relating to any such Return or Tax Matter.
(b) Approval by Celanese. Following the Closing,
Purchasers shall be responsible for preparing or causing to be prepared
all federal, foreign, state, provincial and local Returns required to
be filed by any of the JV Companies after the Closing Date. To the
extent any Taxes shown as due on any such Returns with respect to any
taxable period ending on or prior to December 31, 1998 are
indemnifiable by Sellers pursuant to Section 12.2, (i) such Returns
shall be prepared in accordance with the past practice of the JV
Companies, except to the extent otherwise required by applicable law,
(ii) 3M shall provide Celanese with copies of such Returns at least 20
calendar days prior to the due date, as extended, for the filing of
such Returns, and (iii) Celanese shall have the right to review and
approve (which approval shall not be unreasonably withheld, delayed or
conditioned) such Returns for 20 calendar days following receipt
thereof. The failure of Celanese to propose any changes to any such
Returns within such 20-day period shall be deemed to be an indication
of its approval thereof. Celanese and 3M shall attempt in good faith
mutually to resolve any disagreements regarding any such Returns prior
to the due date for filing thereof. Any disagreements regarding such
Returns that are not resolved prior to the filing thereof shall be
promptly resolved pursuant to Section 12.6 (b), which
<PAGE> 33
27
resolution shall be binding on the Parties. Sellers shall pay or cause
to be paid to the Purchasers any Taxes shown as due on any such Returns
that are indemnifiable by Sellers pursuant to Section 12.2 no later
than two business days after the due date, as extended, for the payment
of such Taxes shown as due on such Returns.
12.4 Tax Proceedings.
(a) Subject to Section 12.4(b) hereof, Purchasers shall
have the sole right to represent the JV Companies' interests in, and to
control and direct the conduct, defense, settlement or compromise of,
any Tax Matter involving any Taxes for which Purchasers bear sole
liability under Section 12.2, including, but not limited to, Tax
Matters involving any Taxes relating or incidental to or by virtue of
all taxable periods beginning after December 31, 1999.
(b) Purchasers shall conduct any Tax Matter relating to
Taxes for which liability is shared between the Sellers and the
Purchasers pursuant to Section 12.2, including, but not limited to, any
Taxes relating or incidental to or by virtue of all taxable periods (or
portions thereof) ending on or prior to December 31, 1999, provided,
however, that (i) Celanese (including, at Celanese's direction, its or
a Seller's personnel or consultants) shall have the right to
participate in the conduct of any such Tax Matter at its own expense,
and (ii) neither Sellers nor Purchasers shall (nor shall any of them
cause any of their affiliates to) settle or compromise any such Tax
Matter without the prior written consent of Celanese or 3M, as the case
may be, which consent shall not be unreasonably withheld, delayed or
conditioned. Any disagreements between 3M and Celanese regarding a
proposed settlement or compromise of any such Tax Matter shall be
promptly resolved pursuant to Section 12.6(b), which resolution shall
be binding on the Parties.
(c) If Sellers or Purchasers receive any written notice
from any taxing authority relating to any Tax Matter with respect to a
JV Company involving any Taxes indemnifiable hereunder, the party
receiving such notice shall promptly, but in any event no later than 20
calendar days after receipt
<PAGE> 34
28
of such notice, give written notice to Celanese, in the case of a
notice received by a Purchaser, or 3M, in the case of a notice received
by a Seller, of such Tax Matter. The failure or delay of a Seller or a
Purchaser in providing such notice shall excuse the obligation of
Purchasers or Sellers, respectively, to make indemnification payments
pursuant to Section 12.2 only to the extent that, but for such failure
or delay, the party required to make such indemnification payments
under Section 12.2 can reasonably demonstrate that it might have
avoided all or any portion of such obligation.
12.5 Refund Claims.
(a) To the extent any determination of Taxes of a JV
Company relating or incidental to or by virtue of any taxable period
(or portion thereof) ending on or prior to December 31, 1998, whether
as the result of a Tax Matter or otherwise, results in any refund of
such Taxes paid by such JV Company for which Sellers or Purchasers are
required to make indemnification payments pursuant to Section 12.2,
such refund shall be shared by the Sellers and the Purchasers in the
same portion as a Tax liability relating or incidental to or by virtue
of the relevant taxable period would have been shared or indemnified
pursuant to Section 12.2. If a Seller receives any such refund, it
shall promptly pay to Purchasers their share of any such refund
(including any interest actually received thereon), or if a JV Company
receives any such refund after the Closing, 3M shall promptly pay or
cause to be paid to Sellers their share of such refund (including any
interest actually received thereon).
(b) Any payments made under this Section 12.5 shall be
reduced by the amount of any Taxes payable with respect to such refund
by the recipient thereof, taking into account the amount of any actual
reduction in Tax liability realized upon the recipient's payment of
such refund pursuant to this Section 12.5.
12.6 Calculation and Payment of Taxes.
(a) Notice and Payment. Any Indemnified Party seeking
payments under this Section 12 at any time and from time to time shall
give the
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29
Tax Indemnifying Party notice of its claim, which notice shall include
all information and documentation reasonably necessary to support the
claim and a calculation, reasonably satisfactory to such Indemnifying
Party, of the amount of the request for payment. The Tax Indemnifying
Party shall make the applicable payment within 20 calendar days of its
receipt of such notice, or, in the case of a dispute, within 20
calendar days of the determination of the proper amount of the payment.
Written notice of a claim must be given to the Tax Indemnifying Party
(i) within 20 calendar days after knowledge of a claim in order to
ensure that the Tax Indemnifying Party can invoke its rights hereunder
and (ii) in any event prior to the expiration of the applicable tax
statute of limitations (including any extensions thereof) with respect
to the taxable period to which the claim relates. Failure to give any
Indemnifying Party timely notice under (i) or (ii), or delay in
providing such notice, shall excuse such party's indemnification
obligation to the extent that, but for such failure or delay, such
party can reasonably demonstrate that it might have avoided all or any
portion of such obligation.
(b) Disputes. In the event of a dispute arising with
respect to payments or requested payments under this Section 12, the
Tax Indemnifying Party requested to provide a payment shall notify in
writing the Tax Indemnified Party presenting the claim as to the amount
of the claim that is in dispute. If the Tax Indemnifying Party and the
Tax Indemnified Party cannot agree on the calculation of the payment,
such disagreement shall be referred for a resolution to such nationally
recognized independent certified public accounting firm as is mutually
agreed upon by 3M and Celanese (a "Tax Referee"). If 3M and Celanese
cannot agree on such a Tax Referee, the Tax Referee shall be picked by
two nationally recognized independent certified public accounting
firms, one picked by 3M and one picked by Celanese; provided, however,
that the Tax Referee so picked shall not at the time be the regular
auditor of 3M or Celanese, or any affiliate of any of them. The
decision of the Tax Referee shall be final and binding on the Tax
Indemnifying Party and the Tax Indemnified Party. The fee of the Tax
Referee shall be shared equally by 3M and Celanese.
<PAGE> 36
30
12.7 Tax Sharing Agreements. Sellers shall, on or prior to the
Closing Date, terminate all tax allocation agreements, tax sharing agreements or
similar agreements or arrangements with respect to any JV Company and shall
ensure that such agreements and arrangements are of no further force or effect
as to any JV Company and, after the Closing Date, there shall be no further
liability of any JV Company under any such agreements or arrangements. Celanese
hereby represents that no fiscal unity (Organschaft) exists between Dyneon GmbH
and Celanese.
12.8 Certification of Non-Foreign Status. Seller 2 and Seller 3
shall furnish to 3M on or before the Closing Date a certification of its
non-foreign status as set forth in United States Treasury Regulation Section
1.1445-2(b). Seller 1 shall furnish to Buyer 1 any certification required under
the United States Treasury regulations promulgated under Section 1445 of the
U.S. Internal Revenue Code of 1986, as amended (the "Code") to the effect that
the GmbH Shares are not United States real property interests such that
withholding of United States federal income tax will not be required under
Section 1445 of the Code.
12.9 Purchase Price Adjustments. The Parties agree to treat all
payments made under this Section 12 as adjustments to the Purchase Price (as
allocated pursuant to Section 6.1).
12.10 Conflicts with JVA. To the extent that the JVA contains
indemnification provisions which conflict with indemnification provisions
contained in this Section 12, the indemnification provision of the JVA shall
prevail.
12.11 Individual Obligations. Whenever in this Section 12 "Sellers"
or "Purchasers" shall have indemnification or other rights or obligations, each
of the Sellers or each of the Purchasers, as the case may be, shall have such
rights or obligations only with respect to the particular JV Company in which it
directly owns an interest (in the case of a Seller, immediately prior to the
Closing) without regard to its actual direct percentage ownership interest in
such JV Company (e.g., without regard to the fact that a Seller's direct
percentage ownership interest in such JV Company before the Closing may be less
or more than 46%); the Parties understand and agree that Section 13 (Guaranties)
is not affected in any respect by the preceding sentence.
<PAGE> 37
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13. GUARANTIES
13.1 3M hereby assumes full responsibility (selbstaendiges
Garantieversprechen) that Buyer 1 will promptly fulfill all obligations assumed
under this Agreement as if 3M would have directly assumed such obligations
without first pursuing any claim against Buyer 1.
13.2 Celanese hereby assumes full responsibility (selbstaendiges
Garantieversprechen) that Sellers will promptly fulfill all obligations assumed
under this Agreement as if Celanese would have directly assumed such
obligations, including, without limitation, any indemnity obligation of Seller
1, Seller 2 or Seller 3 without first pursuing any claim against any such
Seller.
14. NOMINATION OF REPRESENTATIVES
14.1 Buyer 1 hereby appoints 3M which shall act as Buyer 1's
exclusive attorney-in-fact and representative to do any and all things to
execute any and all documents or other papers in Purchasers' name, place and
stead, in any way that Buyer 1 could do if personally present in connection with
this Agreement and the transactions contemplated hereby, including without
limitation, (i) to amend, cancel or extend, waive the terms of this Agreement or
any agreement contemplated herein, and (ii) to act on behalf of Buyer 1 with
respect to any claims (including settlement thereof) made by Buyer 1 for
indemnification pursuant to Section 10. Buyer 1 agrees to be bound by any
actions taken by 3M in its capacity as Buyer 1's attorney-in-fact. Sellers shall
be entitled to rely, as being binding upon Buyer 1 and 3M, upon any document or
other paper believed by Sellers to be genuine and correct and to have been
signed or sent by 3M, in its capacity as attorney-in-fact of Buyer 1. Buyer 1
hereby agrees not to take any actions under this Agreement other than through 3M
as its attorney-in-fact.
14.2 Sellers hereby appoints Celanese which shall act as Sellers'
exclusive attorney-in-fact and representative to do any and all things to
execute any and all documents or other papers in Sellers' name, place and stead,
in any way that any Seller could do if personally present in connection with
this Agreement and the transactions contemplated hereby, including without
limitation, (i) to amend, cancel or extend, waive the terms of this Agreement or
any agreement
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32
contemplated herein, (ii) to act on behalf of Sellers with respect to any claims
(including settlement thereof) made by Sellers for indemnification pursuant to
Section 10. Sellers agree to be bound by any actions taken by Celanese in its
capacity as Sellers' attorney-in-fact. Purchasers shall be entitled to rely, as
being binding upon Sellers, upon any document or other paper believed by
Purchasers to be genuine and correct and to have been signed or sent by
Celanese, in its capacity as attorney-in-fact of Sellers.
15. TERMINATION OF JVA; TERMINATION OF REGISTRATION AGREEMENT
15.1 The Sellers and 3M agree that as of the Closing in respect of
the Sellers, Hoechst AG and 3M, the JVA shall be deemed to be terminated, except
that the Sellers, Hoechst AG and 3M, as the case may be, shall be and remain
liable for any indemnification granted by Hoechst AG and 3M under the JVA not
yet time barred which liability shall only terminate in accordance with the JVA.
In accordance with the foregoing, the following provisions of the JVA - Articles
11 (Representations and Warranties), 13 (Liabilities and Indemnification), 21
(Taxes and Expenses), 22 (Confidentiality), 24 (Governing Law) and 25 (Dispute
Resolution), and 26.3 (Binding Effect, Assignment) shall survive any termination
of the JVA.
15.2 The termination of the JVA and the execution of this Agreement
shall not affect the ongoing validity of the Ancillary Documents (as defined in
the JVA), or other agreements between the Sellers and any of the JV Companies
unless and to the extent the term of such Ancillary Document has been made
subject to the term of the JVA. However, the termination of the JVA shall not
affect in any way the validity of the GMBH Agreement, the Belgium Company
Charter, the Certificate of Formation or the LLC Agreement. In addition, nothing
in this Agreement shall affect the viability or enforceability of any other
agreements existing between the Parties or their affiliates, which shall be
governed by their respective terms.
15.3 The Parties agree that the Registration Agreement is deemed
terminated effective as of the Closing.
<PAGE> 39
33
16. EXPENSES AND FEES
16.1 Except as otherwise specifically provided in this Agreement,
each party shall pay and bear its own expenses and fees (including attorneys',
accountants', consultants' and advisors' fees) in connection with this Agreement
or any of the transactions contemplated hereby.
16.2 Any notarial, court or register fees for this Agreement, any
transfer taxes, any applicable sales tax (including value added tax), if any,
and any fees (including attorneys', accountants', consultants' and advisors'
fees) and costs of merger control procedures (except for the United States where
each party will bear its own fees and costs) shall be borne by Purchasers.
17. GOVERNING LAW
This Agreement shall be governed and construed in all respects by the
laws of (i) Germany for any claim or action by 3M or any of 3M's affiliates
against Celanese, or any of Celanese's affiliates, or (ii) the State of New York
for any claim or action by Celanese or any of Celanese's affiliates against 3M
or any of 3M's affiliates, in each case, without reference to the regulations on
the conflict of laws and except to the extent any obligations or rights of the
Parties under this Agreement are subject to mandatory rules and regulations
under other jurisdictions; provided that the transfer of the Sold Interests
shall in any event be governed by the laws of the jurisdiction under which the
respective companies are organized.
18. DISPUTE RESOLUTION
18.1 Dispute Resolution. Except as may be expressly provided in any
other agreement between the Parties entered into pursuant hereto, if a dispute
arises between or among (i) 3M or any of its affiliates, or (ii) Celanese or any
of its affiliates (each, a "Disputant" and collectively, the "Disputants") as to
the interpretation or alleged breach of this Agreement including, without
limitation, any matter involving any indemnification, the Disputants agree to
use the following procedures, in lieu of any Disputant pursuing other available
remedies or recourse and as the sole remedy and recourse, to resolve such
dispute.
<PAGE> 40
34
18.2 Initiation. A Disputant seeking to initiate the procedures
shall give written notice to the other Disputants, describing briefly the nature
of the dispute. A meeting shall be held between the Disputants within twenty
(20) days of the receipt of such notice, attended by individuals with
decision-making authority regarding the dispute, to attempt in good faith to
negotiate a resolution of the dispute.
18.3 Submission to Arbitration. If, within 30 days after such
meeting, the Disputants have not succeeded in negotiating a resolution of the
dispute, they agree to submit the dispute to arbitration in accordance with the
Rules of Conciliation and Arbitration of the International Chamber of Commerce
(Paris), such arbitration to be held by a Court of Arbitration consisting of
three arbitrators to be nominated in accordance with said rules. The language of
Arbitration will be English. Such arbitration will finally decide any such
controversy to the extent permitted by law. Judgment upon the award rendered by
the arbitrators may be entered in any court having jurisdiction in respect
thereof. The expenses of the arbitration, including reasonable attorneys' fees,
shall be borne by the defeated Disputant; in case of partial prevailing, the
expenses shall be allocated between the Disputants in proportion to their
prevailing.
18.4 Arbitration Venue. If 3M or any affiliate of 3M is seeking to
arbitrate a dispute hereunder against Celanese or any affiliates of Celanese,
the arbitration proceeding shall be held in Frankfurt, Germany. If Celanese or
any affiliate of Celanese is seeking to arbitrate a dispute hereunder against 3M
or any affiliates of 3M, the arbitration proceeding shall be held in New York
City.
18.5 Treatment of Negotiation and Arbitration. All negotiations
pursuant to this Section 18 shall be treated as compromise and settlement
negotiations for purposes of Rule 408 of the Federal Rules of Evidence and
comparable New York or German rules of evidence.
18.6 Equitable Relief; Consent to Jurisdiction. Nothing herein
shall preclude any Disputant from taking whatever actions are necessary to
prevent any immediate, irreparable harm to its interests, including, without
limitation, multiple breaches of this Agreement by the other Disputant and
breaches of Article 9 of this Agreement. In addition, any Disputant may seek
specific enforcement of any
<PAGE> 41
35
arbitrator's decision under this Section. The other Disputant's only defense to
such a request for specific enforcement shall be fraud by or on the arbitrator.
Each Disputant (i) irrevocably consents to the non-exclusive jurisdiction of any
federal or state court in the County of New York, State of New York or any court
in Frankfurt, Germany, and (ii) by execution and delivery of this Agreement
irrevocably submits to and accepts, with respect to any such action or
proceeding, for such Disputant and in respect of such Disputant's properties and
assets, generally and unconditionally, the jurisdiction of the aforesaid courts.
19. NOTICES
All notices hereunder shall be given to the respective parties hereto
by fax except in the case of claims for indemnification in which case all such
notices shall be given by registered letter with advice of receipt
(Einschreiben/Ruckschein) and shall be considered delivered in all respects when
delivered as follows:
To Celanese AG:
Corporate Center
Building C-660
65926
Frankfurt aM, Germany
Attention: General Counsel
Telephone: 49 69 305 7896
Fax: 49 69 305 82731
To 3M:
3M Center
Building 220-14
St. Paul, Minnesota 55144
Attention: General Counsel
Telephone: 651.733.8197
Fax: 651.736.7859
or to such other address as any party hereto shall have designated by written
notice to the other party from time to time.
<PAGE> 42
36
20. MISCELLANEOUS
20.1 Any amendment of or supplement to this Agreement, including
this provision and the Annexes, must be in writing to be valid, and must be
notarized if required by law.
20.2 In this Agreement the headings are inserted for convenience
only and shall not affect the interpretation of this Agreement. Where a German
term has been inserted in brackets it alone shall be authoritative for the
purpose of the interpretation of the relevant English term in this Agreement.
20.3 In the event that one of the Parties to this Agreement is in
default (Verzug) with payments under this Agreement, it shall pay default
interest at a rate of EURIBOR (three months) prevailing at the respective due
date and as adjusted from time to time thereafter plus six percent (6%) p.a. (in
addition to Contractual Interest, if due). Interest shall be compounded
quarterly and shall be calculated on the basis of actual days elapsed divided by
360.
20.4 Any rights of retention are excluded. Except as otherwise
provided in this Agreement and unless undisputed or confirmed by a
non-appealable decision, claims may not be set off against the purchase price or
any other payment claim pursuant to this Agreement.
20.5 This Agreement and the agreements expressly referenced in this
Agreement constitute the full understanding of the Parties and the complete and
exclusive statement of the terms and conditions of the Agreement relating to the
subject matter hereof and supersede any and all prior agreements, whether
written or oral, that may exist between the parties with respect thereto.
20.6 This Agreement shall inure to the benefit of and be binding
upon the respective successors and assigns of the Parties. This Agreement or any
rights and obligations hereunder shall not be assigned to any other person by
any party hereto without the prior written consent of the other Parties, other
than as expressly agreed herein, except that 3M may designate one or more of its
wholly-owned subsidiaries (each a "3M Permitted Designee") to perform its
obligations hereunder, in which case 3M nonetheless shall remain responsible for
the performance of all of its obligations hereunder. Nothing herein contained
shall pre-
<PAGE> 43
37
vent an assignment hereof in the event of a merger or consolidation involving a
transfer of ownership of all or substantially all of its assets by any party
hereto; provided that the successor to such party in any such transaction shall
assume in writing or as a matter of law the obligations of such party hereunder
with full continuing liability of such party and further provided that prior
written notice of such transaction shall be given by such party to all other
Parties. No assignment shall relieve any party hereto of its obligations
hereunder. Obligations to the JV Companies shall include obligations to the JV
Companies' successors and assigns.
20.7 Each of the Parties shall execute and deliver all such further
documents and agreements and do such further acts as are reasonably required to
effect the transactions contemplated hereby and are not inconsistent with any
other provisions of this Agreement.
20.8 After signature of this Agreement, the Parties shall jointly
issue a press release. Neither party shall, without the prior consultation of
the other, issue any oral or written statement to the press or to the public
regarding this Agreement, except as required by law or the rules of any stock
exchange or governmental or other regulatory authority, including the
requirement to make a disclosure of the value of the consideration in the
published accounts of either party. Subject to Article 18 of this Agreement,
nothing in this Agreement shall be understood to prevent any party from filing a
claim against the other party before court on the basis of this Agreement.
20.9 In addition to Section 20.8 and except as otherwise provided
in this Agreement, after the date of this Agreement Sellers shall not use or
disclose to third parties any information disclosed, transferred, assigned,
licensed or otherwise made available by or to Purchasers hereunder and relating
to the transfer of the Business, unless such information (i) is or becomes
public knowledge through no fault of Sellers, (ii) is passed to Sellers after
the Closing Date by a third party which is under no obligation of
confidentiality, or (iii) has to be disclosed by Sellers pursuant to law,
judicial or official order; in such case Sellers shall notify Purchasers in
advance about the impending disclosure.
20.10 The term "Party" or "Parties" as used in this Agreement shall
mean the Sellers, collectively, and the Purchasers, collectively, unless the
context oth-
<PAGE> 44
38
erwise clearly requires. The term "affiliates" when used in connection with any
of the Sellers or any of the Purchasers shall exclude the JV Companies unless
otherwise expressly provided; provided, however, that "affiliates" when used in
connection with 3M shall include the JV Companies following the Closing.
----------------------
(Continuation on the next page)
<PAGE> 45
39
IN WITNESS THEREOF this Notarial Deed including all Annexes hereto has been read
aloud to the persons appeared and the graphical chart contained in Annex 1 was
made available to the persons appeared for inspection and then - when the Annex
6.1(d) was translated to Mr. de Kock (who declared not to be in sufficient
command of the German language) by me, the Notary Public, into the English
language - this Notarial Deed including all its Annexes was confirmed and
approved by the persons appeared. The persons appeared then signed this Deed.
All this was done at the day herebelow written in the presence of me, the Notary
Public, who also signed this Deed and affixed my official Seal.
Basel (Switzerland), this 28th (twenty-eighth) day of December 1999 (nineteen
hundred and ninety-nine)
-----------------------------------
-----------------------------------
-----------------------------------
Dr. Dieter Granicher, Notary Public
A.Prot. 1999/234
<PAGE> 1
No. 236 of the Roll of Deeds for 1999 Uncertified Copy
dated December 17, 1999 of the notary ----------------
Dr. Werner Wenger, Basel
NOTARIAL DEED
PURCHASE AND TRANSFER AGREEMENT
Before me, the undersigned public notary
DR. WERNER WENGER
at Basel / Switzerland appeared today:
1. Attorney at law Mr. Wolfdietrich Geidel, born June 1, 1957, German
citizen, resident Am Wachholderberg 7B, D-61462 Koenigsstein,
business address Brueningstrasse 50, D-65929 Frankfurt am Main,
identified by submission of his official identity card,
acting in the name of
a) Diogenes Dreizehnte Vermoegensverwaltungs GmbH,
Brueningstrasse 50, D-65929 Frankfurt am Main,
registered with the commercial register of Frankfurt under
HRB No. 45203, by virtue of the power of attorney dated
December 10, 1999, submitted in the original and attached
hereto in a notarized copy as annex A, including the
certificate of power of representation,
-hereinafter referred to as "SELLER" -
b) Celanese AG, Brueningstrasse 50, D-65926 Frankfurt am
Main, registered with the commercial register of Frankfurt
under HRB No. 42283, by virtue of the power of attorney
dated December 10, 1999, submitted in the origi-
<PAGE> 2
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nal and attached hereto in a notarized copy as annex B,
including the certificate of power of representation,
-hereinafter referred to as "CELANESE" -
2. Attorney at law Dr. iur. Michael Winter, born April 10, 1964, German
citizen, resident Schloss-Wolfsbrunnenweg 32, D-69118 Heidelberg,
business address c/o BASF Aktiengesellschaft, Gebaeude D-100,
D-67056 Ludwigshafen, identified by submission of his official
identity card,
acting in the name of
BASF Aktiengesellschaft, Carl-Bosch-Strasse 38, D-67056
Ludwigshafen, registered with the commercial register of
Ludwigshafen under HRB No. 3000, by virtue of the power of
attorney dated December 14, 1999, submitted in the original
and attached hereto as annex C,
- hereinafter referred to as "BUYER" -.
-----------------
Before the beginning of the following notarization, the notary explained the
prohibition of participation pursuant to the Law of Notaries of the City of
Basel (baselstaedtisches Notariatsrecht) (EG/ZGB Section 233 subsection 1 no. 4)
and pursuant to the German Authentication Act (Beurkundungsgesetz) (Section 3
subsection 1 no. 7). He asked the persons appearing whether he or a person with
whom he is associated in order to jointly exercise his profession or with whom
he shares his business premises are or were already active in the matter within
the meaning of these provisions. The persons appearing and the notary stated
that this is not the case.
-----------------
Thereupon the persons appearing, acting as indicated, asked for notarization of
the following
PURCHASE AND TRANSFER AGREEMENT
<PAGE> 3
-3-
PURCHASE AND TRANSFER AGREEMENT
between
Diogenes Dreizehnte Vermoegensverwaltungs GmbH,
Brueningstrasse 50, 65929 Frankfurt am Main,
registered with the commercial register of Frankfurt under HRB No. 45203
- hereinafter referred to as ,,SELLER" -
Celanese AG,
Brueningstrasse 50, 65929 Frankfurt am Main,
registered with the commercial register of Frankfurt under HRB No. 42283
- hereinafter referred to as "CELANESE" -
BASF Aktiengesellschaft,
Carl-Bosch-Strasse 38, 67056 Ludwigshafen,
registered with the commercial register of Ludwigshafen under HRB No. 3000
- hereinafter referred to as "BUYER" -
<PAGE> 4
-4-
PREAMBLE
1. The Seller, the Buyer and BASF Nederland B.V. domiciled in Arnheim, the
Netherlands ("BASF B.V."), are the only shareholders of Targor GmbH
(hereinafter referred to as "Targor"), registered with the commercial
register of Mainz under HRB No. 6473, with a nominal capital of DM
19,994,000.00. Thereof, the Seller holds several shares in the aggregate
nominal value of DM 9,997,000.00, the Buyer holds several shares in the
aggregate nominal value of DM 9,996,000.00 and BASF B.V. holds one share in
the nominal value of DM 1,000.00. On December 16, 1998, the general
shareholders' meeting of Targor resolved an increase in the share capital
and admitted Buyer and Hoechst AG, Frankfurt am Main (hereinafter referred
to as "Hoechst AG"), to subscribe a share of DM 1,000.00 each (notarial
deed No. 2831/1887 S of the notary JR Hans Theo Schnatterer in Mainz). This
capital increase has not yet been registered with the commercial register
yet.
The nominal capital in the amount of DM 19,994,000.00 has been fully paid.
2. Hoechst AG and the Buyer jointly incorporated Targor on the basis of a
joint venture agreement dated June 12, 1997 (deed No. A.Prot 1997/35 of the
notary Dr. Werner Wenger, Basel) (the "JOINT VENTURE AGREEMENT"). Hoechst
AG has transferred its shares to the Seller, including the future share
resulting from the capital increase described under subsection 1 above,
within as part of the spin-off of its base chemicals, acetates and
technical polymer businesses. The spin-off became effective with the
registration with the commercial register of Hoechst AG on October 22,
1999.
3. On July 27, 1999 the Buyer, Hoechst AG, the Seller and Celanese (at that
time under the firm name "Diogenes Erste Vermoegensverwaltungs AG")
consented to the transfer of the share of Hoechst AG in Targor GmbH to the
Seller and to the subsequent spin-off of the share in the Seller to
Celanese. The Buyer simultaneously declared its consent to Hoechst AG
withdrawing from the Joint Venture Agreement and transferring all its
rights and duties arising from the Joint
<PAGE> 5
-5-
Venture Agreement to Celanese with exonerating effect as a result of the
spin-off. Furthermore, the Seller acceded to the Joint Venture Agreement by
virtue of the agreement concluded on July 27, 1999. (see notarial deed
A.Prot 1999/98 of the notary Dr. Werner Wenger, Basel).
4. Pursuant to the Joint Venture Agreement, the Buyer had a call-option and
the Seller had a put-option, both exercisable for the first time as of
January 1, 2001. In lieu of exercising these options, the parties have
agreed that the Seller shall transfer its shares described under subsection
1 in the aggregate amount of DM 9,997,000.00 as well as its future share in
the amount of DM 1,000.00 to the Buyer already now.
Therefore, the parties agree as follows:
SECTION 1
PURCHASE AND TRANSFER OF SHARES
1.1. The Seller hereby sells and, subject to the conditions precedent set forth
in Section 1.2., transfers to the Buyer the shares described in the
Preamble under subsection 1 in the amounts of DM 9,997,000.00 and DM
1,000.00 (the "SOLD SHARES"). The sale and transfer includes all rights and
duties attached to the shares, including the entitlement to all profits
retained.
1.2 The transfer of the Sold Shares shall become effective when the following
conditions have been satisfied (conditions precedent):
1.2.1 The purchase price pursuant to Section 2.1 has been credited
irrevocably and unconditionally to the Seller's account pursuant to
Section 2.2 and
1.2.2 the capital increase mentioned in subsection 1 of the Preamble has
been registered with the commercial register.
<PAGE> 6
-6-
The condition precedent in Section 1.2.2 shall only apply to the
transfer of the future share in the amount of DM 1,000.00. The
parties shall notify the undersigned notary of the fulfillment of the
conditions precedent without undue delay, providing a copy to the
other party. The notary will notify the parties when all conditions
precedent are met and will then apply for registration of the
transfer of the Sold Shares in Targor pursuant to Section 16 German
Limited Liability Companies Act (GmbH-Gesetz).
1.3 The parties declare that the sale and transfer of the Sold Shares is
carried out in derogation of Sections 21 and 22 of the Joint Venture
Agreement. The parties waive any rights ensuing from these
provisions. In particular, Seller and Buyer acknowledge the purchase
price laid down in this contract as binding and final and waive all
and any rights which might result from Section 22 of the Joint
Venture Agreement in connection with annex 22 thereto.
SECTION 2
PURCHASE PRICE
2.1 The purchase price for the Sold Shares is DM 520 Mio. (in words:
Deutsche Mark five hundred and twenty million).
2.2 The purchase price shall be due for payment on December 20, 1999.
The purchase price shall be paid into the following account of the
Seller:
Account No. 07 709 948
Dresdner Bank AG Frankfurt/Main
BLZ 500 800 00
2.3 The purchase price shall be paid without deductions for bank or other
processing fees. Payment of the purchase price is deemed to be
performed when the pur-
<PAGE> 7
-7-
chase price has been credited unconditionally and irrevocably to the
account of the Seller.
2.4 The Buyer shall have no right of retention regarding the purchase
price claim. The Buyer may set off claims against the purchase price
claim only to the extent acknowledged by the Seller or established by
final and non-appealable court judgement.
SECTION 3
REPRESENTATIONS AND WARRANTIES BY THE SELLER
3.1 The Seller represents and warrants that it is the sole and
unrestricted owner of the Sold Shares at the time of the transfer and
that they are neither charged with any encumbrances or other rights
which could be asserted by third parties.
3.2 The Seller accepts no further representations or warranties with
regard to the Sold Shares or to the business of Targor. Any further
claims by the Buyer of whatever nature resulting from the sale of the
Sold Shares, whether for a reduction of the purchase price
(Herabsetzung des Kaufpreises), rescission (Wandelung) or
cancellation of the contract (Ruecktritt), damages or other legal
consequences, and no matter on what basis (including breach of
precontractual duties (culpa in contrahendo) and voidability
(Anfechtbarkeit)), shall be excluded. The provisions in Section 5 of
this contract shall remain unaffected by this.
3.3 Claims for wilful misconduct of the Seller shall not be excluded or
restricted by the provisions of this contract.
<PAGE> 8
-8-
SECTION 4
MEMBERS OF THE SHAREHOLDERS' COMMITTEE (GESELLSCHAFTERAUSSCHUSS)
The Seller shall ensure that the members of the shareholders' committee of
Targor that are appointed by the Seller shall lay down their offices as member
of the shareholders' committee with effect from the day of effectiveness of the
transfer of the Sold Shares.
SECTION 5
SURVIVING OBLIGATIONS UNDER THE JOINT VENTURE AGREEMENT
5.1 The parties agree that the Joint Venture Agreement terminates with
the effectiveness of the transfer of the Sold Shares, with the
exception of Sections 7 to 9, 19.1 and 24 of the Joint Venture
Agreement.
5.2 With regard to the surviving Sections 7 to 9, 19.1 and 24 of the
Joint Venture Agreement, the parties confirm and agree as follows:
5.2.1 Claims under Sections 8.1, 8.2, 8.3, 8.4, 8.5 and 8.7 of the
Joint Venture Agreement are time-barred.
5.2.2 The Buyer confirms that up to now, it has not become aware of
any claims under Section 8 of the Joint Venture Agreement
against the Seller or Celanese. To the extent that such claims
have come into existence before the conclusion of this
agreement without the Buyer having knowledge thereof due to
gross negligence, the Buyer waives any such claims. Knowledge
within the meaning of this provision shall be determined by the
knowledge of both managing directors of Targor (and not only
one of them).
5.2.3 Beyond the provisions in Section 9.4 of the Joint Venture
Agreement the Buyer undertakes to notify Celanese without undue
delay of the coming into existence of a claim under the
provisions of the Joint Venture Agreement which are still in
force, and to inform Celanese without undue delay and in a
comprehensive manner as well as to keep it up-to-date about all
<PAGE> 9
-9-
circumstances that could give rise to such claim against the
Seller or Celanese. The Buyer shall grant Celanese the
opportunity to participate in all meetings and negotiations
relating thereto. Furthermore, the Buyer shall ensure that
Celanese will have full access to all files, documents and
information of Targor and its holding companies (as defined in
the Joint Venture Agreement) that could be useful in connection
with the defense against possible claims by the Buyer against
the Seller or Celanese under this contract or under the Joint
Venture Agreement, or that are asked for upon reasonable grounds
upon request of Celanese.
Moreover, in case of liability pursuant to Section 7 of the Joint
Venture Agreement, the Buyer shall ensure that Celanese gains
access to all relevant sites and is able to carry out
investigations at its own costs. The Buyer further undertakes to
provide Celanese with copies of all pertinent materials.
Liability pursuant to Section 8.6 of the Joint Venture Agreement
shall also apply to the extent that loss carry forwards are
reduced as a result of tax audits of the accounts which relate to
the period before the transfer of the Sold Shares becomes
effective. If Targor receives reimbursement of taxes as a result
of a tax audit, even if such reimbursement merely leads to an
increase in the loss carry forwards, shall reduce the Seller's
obligation to pay compensation. The compensation payment comes
into existence once Targor, due to a tax audit surplus, is
actually obliged to effect the tax payment.
In case of tax audits of the accounts which relate to a period
for which the Seller is liable under the Joint Venture Agreement
or this agreement, the Buyer shall grant the Seller the
opportunity to participate in all relevant tax audit activities
(Pruefungshandlungen). In particular, the Seller shall be
entitled to submit proposals for taking appropriate legal action.
The right of final decision remains with Targor. This right of
participation shall, however, be subject to the consent of a new
shareholder of the
<PAGE> 10
-10-
Targor group. The obligation to pay compensation shall arise only
if the Seller consents to the course of action taken by Targor or
if it would not have been entitled to deny such consent upon
reasonable assessment of the factual and legal position.
The Buyer shall ensure that Targor will support the Buyer in
fulfilling the aforementioned duties.
5.3 The Buyer shall ensure that Targor will fulfill the duties resulting
from Section 19.1 of the Joint Venture Agreement.
SECTION 6
CONTINUING OBLIGATIONS BETWEEN TARGOR AND CELANESE
6.1 After the transfer of the Sold Shares pursuant to Section 1.2 has
become effective, the agreements listed in Annex 1 which have been
concluded in connection with the Joint Venture Agreement (the
"IMPLEMENTATION AGREEMENTS") shall continue to apply between Targor
and Celanese or its affiliates.
6.2 In the context of the spin-off described in section 2 of the preamble
the parties contracting with Targor in the Implementation Agreements
have changed. The Buyer consents to the assumption of the rights and
obligation resulting from the Implementation Agreements by the
respective companies mentioned in Annex 1 and will ensure that Targor
also consents thereto.
6.3 As of the date of effectiveness of the transfer of the Sold Shares,
there are no further legal relationships between the Buyer and/ or
Targor on the one hand and Celanese and/ or the Seller on the other
hand with regard to the Seller's share in Targor which is transferred
pursuant to this contract, other than the legal relationships set
forth in Sections 5 and 6 of this contract.
6.4 For those employees heretofore insured in the pension fund
(Pensionskasse der Mitarbeiter der Hoechst -Gruppe VVaG), Targor shall
have the opportunity to carry on the full memberships within the
framework of the articles of the pension
<PAGE> 11
-11-
fund as amended. If and to the extent Targor decides to terminate the
pension plan by using the pension fund, both the vested rights and the
corresponding cover funds shall remain with the pension fund.
SECTION 7
NOTICES AND DECLARATIONS
7.1 Notices and declarations to the Buyer in connection with this
agreement shall be deemed to have been made validly if made by
registered mail or courier to the following address or to any other
address communicated in writing by the Buyer to Celanese:
BASF Aktiengesellschaft
- Zentralabteilung Recht-
Herrn Dr. Winter
Carl-Bosch-Strasse 38
67056 Ludwigshafen.
7.2 Notices and declarations to the Seller and/ or Celanese in connection
with this agreement shall be deemed to have been made validly if made
by registered mail or courier to the following address or to any other
address communicated in writing by the Seller or Celanese to the
Buyer; a notification of Celanese shall be deemed to represent a
notification of the Seller as well:
Celanese AG
- Rechtsabteilung -
Herrn Dr. Tino Preissler
Brueningstrasse 50
65926 Frankfurt am Main.
SECTION 8
MISCELLANEOUS
<PAGE> 12
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8.1 To the extent that the Buyer has undertaken in this agreement to
ensure that Targor behaves in a certain manner, this obligation of the
Buyer shall equally apply with regard to any legal successor of
Targor.
8.2 Changes and amendments to this contract, including this very
provision, shall be valid only if made in writing.
8.3 Any taxes and other public levies arising in connection with this
agreement, as well as the costs of the notarization of this agreement,
shall be borne by the Buyer and the Seller at one half each up to an
aggregate amount of DM 500,000.--; the Buyer shall bear any exceeding
amounts. The foregoing provision shall not apply to taxes to be borne
by the Seller for any capital gain.
8.4 Should any provision of this agreement be invalid or unenforceable,
the parties shall endeavour to agree upon a valid provision which most
effectively serves the intended economic purpose in order to replace
the invalid or unenforceable provision.
8.5 Rights and duties under this agreement may not be transferred to a
third party in whole or in part without prior consent of all other
parties.
SECTION 9
ARBITRATION
For all disputes arising under this Agreement, with regard to its validity or in
connection with this agreement Section 24 of the Joint Venture Agreement applies
mutatis mutandis.
The foregoing Purchase and Transfer Agreement together with Annex 1 was read by
me, the notary, to the persons appearing, was approved by the persons appearing
and was then personally signed by them and by me, the notary, affixing my seal
of office.
Basel, December 17 (seventeen) 1999 (nineteen hundred and ninety nine)
<PAGE> 13
-13-
[signatures]
[seal of office]
A.Prot. 1999/236
[fee stamps]
The Registrant hereby represents that the above English translation is a
fair and accurate translation of the Targor Purchase and Transfer Agreement
dated as of December 17, 1999 by and between Diogenes Dreizehnte
Vermoegensverwaltungs GmbH, Celanese AG and BASF Aktiengesellschaft.
Celanese AG
By: /s/ Joachim Kaffanke
--------------------------------
Dr. Joachim Kaffanke
<PAGE> 14
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ANNEXES A, B AND C
<PAGE> 15
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ANNEX A
POWER OF ATTORNEY
The undersigned Diogenes Dreizehnte Vermoegensverwaltungs GmbH, Frankfurt am
Main, hereby authorizes
Mr. Ulrich Bergrath
Mr. Ralf Christner
Mr. Wolfdietrich Geidel
Dr. Stephan Gutzler
Dr. Tino Preissler
joint business address Brueningstrasse 50, 65929 Frankfurt
am Main
each of them acting alone, to conclude a purchase and transfer agreement in the
name of Diogenes Dreizehnte Vermoegensverwaltungs GmbH with BASF AG,
Ludwigshafen/Rhein and with Celanese AG, Frankfurt am Main. In this contract,
the shares held by Diogenes Dreizehnte Vermoegensverwaltungs GmbH in Targor
GmbH, Mainz, shall be sold and transferred from Diogenes Dreizehnte
Vermoegensverwaltungs GmbH to BASF AG.
The proxies, each of them acting alone, shall be authorized to make and accept
all statements as well as to take all actions which they consider necessary or
appropriate in the aforementioned context.
The proxies, each of them acting alone, shall be relieved from the restrictions
set forth in Section 181 German Civil Code (BGB) and shall be authorized to
grant sub-powers of attorney with equal relief from the restrictions set forth
in Section 181 BGB.
This power of attorney is governed by the law of the Federal Republic of
Germany.
Frankfurt am Main, December 10, 1999
Diogenes Dreizehnte Vermoegensverwaltungs GmbH
- ------------------------ -------------------------
[signature] [signature]
<PAGE> 16
-16-
ANNEX B
POWER OF ATTORNEY
The undersigned Celanese AG, Frankfurt am Main, hereby authorizes
Mr. Ulrich Bergrath
Mr. Ralf Christner
Mr. Wolfdietrich Geidel
Dr. Stephan Gutzler
Dr. Tino Preissler
joint business address Brueningstrasse 50, 65929 Frankfurt
am Main
each of them acting alone, to conclude a purchase and transfer agreement in the
name of Celanese AG with BASF AG, Ludwigshafen/Rhein and with Diogenes
Dreizehnte Vermoegensverwaltungs GmbH, Frankfurt am Main. In this contract, the
shares held by Diogenes Dreizehnte Vermoegensverwaltungs GmbH in Targor GmbH,
Mainz, shall be sold and transferred from Diogenes Dreizehnte
Vermoegensverwaltungs GmbH to BASF AG.
The proxies, each of them acting alone, shall be authorized to make and accept
all statements as well as to take all actions which they consider necessary or
appropriate in the aforementioned context.
The proxies, each of them acting alone, shall be relieved from the restrictions
set forth in Section 181 German Civil Code (BGB) and shall be authorized to
grant sub-powers of attorney with equal relief from the restrictions set forth
in Section 181 BGB.
This power of attorney is governed by the law of the Federal Republic of
Germany.
Frankfurt am Main, December 10, 1999
CELANESE AG
- ------------------------ -------------------------
[signature] [signature]
<PAGE> 17
-17-
[BASF stationary]
ANNEX C
POWER OF ATTORNEY
We hereby authorize
Dr. Michael Winter, born April 10, 1964, German citizen, identity card
No. 6094335268, resident 69118 Heidelberg, Schloss Wolfsbrunnenweg
32
to conclude the contract in the name of BASF Aktiengesellschaft with Diogenes
Dreizehnte Vermoegensverwaltungs GmbH, Frankfurt am Main ("Diogenes") and with
Celanese AG, Frankfurt am Main, in which, among other things, all shares held by
Diogenes in Targor GmbH, Mainz, shall be transferred to BASF Aktiengesellschaft.
The proxy is authorized to make and accept all statements as well as to take all
actions which he considers necessary or appropriate in the aforementioned
context.
Ludwigshafen, December 14, 1999
BASF Aktiengesellschaft
[signature] [signature]
Goldmann von Heyl
<PAGE> 18
-18-
No. 4393 of the Roll of Deeds for 1999
I hereby certify that the foregoing signatures which have been subscribed
personally in my presence by
1. Dr. Heinz Gerd G o l d m a n n , lawyer,
in Ludwigshafen/ Rhein
2. Dr. Albrecht von H e y l , lawyer, in Ludwigshafen/ Rhein
acting for BASF AKTIENGESELLSCHAFT in Ludwigshafen/ Rhein
are genuine.
Dr. Goldmann and Dr. von Heyl are personally known to me
I further certify that the commercial register maintained by the local court in
Ludwigshafen/ Rhein -which I have inspected today- shows under docket number HR
B 3000 that Dr. Goldmann and Dr. von Heyl are authorized to represent BASF
AKTIENGESELLSCHAFT domiciled in Ludwigshafen/ Rhein in their capacity as
"Prokurists" by acting jointly.
Ludwigshafen/ Rhein, December 14, 1999
Notary
Maximum value
<PAGE> 19
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ANNEX 1
<PAGE> 20
-20-
ANNEX 1
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
NAME OF THE CONTRACT PARTIES
- ---------------------------------------------------------------------------------------------
<S> <C>
Contribution Agreement HOECHST Celanese AG - Targor GmbH
(Annex 5.1.2 to the Joint Venture Agreement)
between BASF AG and Hoechst AG dated
June 12, 1997 ("Joint Venture Agreement")
- ---------------------------------------------------------------------------------------------
Technology Agreement HOECHST Celanese AG - Targor GmbH
(Annex 6.4 to the Joint Venture Agreement)
- ---------------------------------------------------------------------------------------------
Trademark License Agreement HOECHST Celanese AG - Targor GmbH
(Annex 6.5 to the Joint Venture Agreement)
- ---------------------------------------------------------------------------------------------
Personnel Agreement HOECHST Celanese AG - Targor GmbH
(Annex 6.7 to the Joint Venture Agreement)
- ---------------------------------------------------------------------------------------------
Propylene Supply Contract HOECHST CPO Celanese AG & Co. Procurement
(Annex 19.4 to the Joint Venture Agreement) Olefin KG (before the spin-off of Celanese
AG from Hoechst AG: HPO Hoechst
Aktiengesellschaft & Co. Procurement
Olefin KG) - Targor GmbH
- ---------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
The Management Board
Celanese AG:
We consent to incorporation by reference in the Registration Statement on Form
S-8 (File No. 333-30284) of Celanese AG of our report dated February 24, 2000,
relating to the consolidated balance sheets of Celanese AG and subsidiaries as
of December 31, 1999 and 1998, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1999 and related schedule, which report
appears in the December 31, 1999, annual report on Form 20-F of Celanese AG.
/s/ KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft Wirtschaftspruefungsgesellschaft.
Frankfurt am Main, Germany
March 31, 2000
