Document jgrNQa1nan3yjMG6YvRRJgLdy

PLAINTIFF'S EXHIBIT CEL-1238 .O id ICC 0 6d 7V^- n SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 <2, ELANESE CORPORATION 1985 ANNUAL REPORT ON FORM 10-K For the Fiscal Year Ended December 31. 1985 SUBMITTED PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 Celanesa Corporation 1211 Avenue o< the Americas, New York, N.Y. 10036 Telephone (212) 719-8000 Commission File No. 1-1308 I.R.S. Employer Identification No. 13-5568434 State of incorporation: Delaware Securities registered pursuant to Section 12 (b) of the Act Title of each diu Name o4 each exchange on which regisSwad 11(1% Sinking Fund Debentures due 2005 4% Convertible Subordinated Debentures, due 1990 9%% Convertible Subordinated Debentures, due 2006 Pretened Slock. Series A Convertible Preference Stock 7% Second Preferred Stock Common Stock New 'fork Stock Exchange New Ybrk Stock Exchange New York Stock Exchange New Yo-k Stock Exchange Midwest Stock Exchange None New York Stock Exchange Midwest Stock Exchange Pacific Stock Exchange Indicate by check mark whether the Registrant (1) has tiled all reports required to be filed by Sec tion 13 or 15 (d) of tfie 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 * No____ The aggregate market value of voting stock held by non-affiliates as of December 31, 1985. was approximately 51,802 million. As of December 31, 1985. there were 12.020,620 shares of Cetanese Corporation common stock outstanding. Documents Htcorporaisd by iWeroncs Proxy Statement for 1986 Annual Meeting Pwt NOTES: ITEM (i) When used In this 1985 Annual Report on Fora 10-K (10-K). Celanese (or Che Corporation) refers to the consolidated corporation or any one or aore of its divisions, subsidiaries or affiliates as applicable. (11) Arnel, Celantx, Celcon, Durel, Flberset and Fortrel are registered trademarks and Vectra is a trademark of Celanese. TABLE OF CONTENTS PACE 1. la. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. PART I Business...................................................................................................... 2 Executive Officers of Celanese................................................... 12 Properties................................................................................................. 12 Legal Proceedings................................................................................. 20 Submission of Matters to a Voce of Security Holders......................................................................................................... 20 PART II Market for Registrant's Common Stock and Related Stockholder Mactera......................................................... 20 Selected Financial Daca.................................................................. 21 Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................................................................. 22 Financial Statements and Supplementary Data.................... 39 Disagreements on Accounting and Financial Disclosure.................................................................................................. 71 PART III Directors and Executive Officers of the Registrant.. 71 Management Remuneration................................................................... 71 Security Ownership of Certain Beneficial Owners and Management............ .................................................................................. 71 Certain Relationships and Related Transactions............ 71 PART IV Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................................................... 71 1 PART I ITEM 1. Business DESCRIPTION OF BUSINESS Celeries* Corporation was Incorporated In 1918 and began as a I'.S. manufacturer of acetate yarn. Celanese extended Its manufacturing outside the United States in 1944. Its initial investment was In Mexico, and It currently has ocher manufacturing operations In North and South America, Europe and Asia. Celanese. together with its subsidiaries and affiliates, manufactures and sells a diversified line of chemicals, fibers and specialty products. In the United States as veil as most other countries vhere plants are operated, Celanese, Its subsidiaries and affiliates are among the leading producers In most of their Important product areas. Most of these products are made by chemically processing and upgrading three basic cypes of raw materials: petroleum hydrocarbons, natural gas and wood pulp. Raw materials are purchased from affiliated and non-affillated suppliers throughout the world. Celanese products in the United States are generally sold directly cr through distributors or agents. Celanese foreign subsidiaries and affiliates sell principally chtough local sales personnel or agents. The principal customers worldwide are other manufacturers, who use Celanese products in a wide variety of Industrial and consumer Items. In general, Celanese sells its products in highly competitive worldwide markets. The number of competitors in a market or country and the Celanese competitive position vary widely with the products and countries involved. There is growing competition from private and state-owned industries In foreign countries where there is an abundance of low-cost labor or raw mate rials. This competition has a direct or indirect effect on many Celanese product lines. Of particular importance to the textile fibers business group is the impact of apparel imports into the United States and Canada from the Far East. Depending upon the characteristics of the particular market, Celanese competes on the basis of price, product quality and performance, and customer service. Celanese business is affected to socc degree by seasonality in tbe industries of Its customers, such as automotive, housing and textiles. The business la also sensitive to changes in tbe world economy. Operations outside the United -2- States are subnet to the economic and political risks Inherent in the ceuntries in vhicnfc^ey operate. Non-U.S. earnings cay be affected significantly by foreign cunlncy fluctuations and U.S. accounting practices relative to translating foreiji currencies into U.S. dollars. Since 1983 Celanese has been restructuring itc organization to enhance productivity, lover costs and improve the business base. The effort has Included special early retirement plans, capacity ratioualizstion, creation of profit centers through a decentralized structure, sale of non-strategir assets and the formation of business alliances with companies that complement the Corporation's technology base. The Corporation has also repurchased 2.2 million shares of its common stock in 1984 and 2.7 million shares of its common stock in 1985. (See Management's Discussion and Analysis of Financial Conditions and Results of Operations.) CHEMICALS Celanese entered the petrochemical field in the United States in 1945, pri marily to obtain supplies of acetic acid and related chemical raw materials for its fibers operations. Celanese Canada Inc. (56.22 owned) began to produce petrochemicals in 1953 at Edmonton, Alberta, and uses as rav materials the abundant supply of butane and natural gas available in the province. As its internal chemical usage expanded and additional products were developed, Celanese began selling chemicals to others. Today Celanese produces more than 40 different coeaicals for ultimate use in such familiar materials as apparel, adhesives, paint, synthetic lubricants and automobile engine coolants. Celanese produces chemicals by upgrading hydrocarbons such as ethylene, pro pylene, natural gas, butane and naphtha. These hydrocarbon raw materials are purchased on the open market, principally under long-term contracts. Harkxtin jind Xr3c5.s-- evelomen_t - During 1985, approximately 611 of U.S. sales were made to domestic merchant markets and 292 abroad. The remaining 102 was processed by other Celanese units in the United States into fibers and specialty products. A substantial portion of the chemical production of Celanese Canada is also sold in the export market, in competition with other world producers. Most chemical products are sold directly to other manufac turers in bulk containers such as tank cars, taok* wagons and tankers, but Celanese also sells to distributors who resell principally in smaller quanti ties. Direct sales efforts are supplemented by technical services that assist customers in the use of Celanese chemicals. With respect to substantially all of its major products listed below, Celanese is either the largest or second largest U.S. merchant market supplier. Other major U.S. producers are: of methyl chemicals, Borden, Du Pont, Georgia-Gulf and Hercules; of ethylene oxide and ethylene glycol, BASF, Dow, ICI Americas, Shell, Texaco and Uaion Carbide; of alcohols, Du Pont, Eastman, Shell and Union Carbide; and of monomers and acetyl chemicals, BASF, Du Pont, Eastman, National Distillers, Rohm and Haas, and Union Carbide. Celanese Canada is the only Canadian producer of acetic acid, acetic anhydride, pentaerythritol and vinyl acetate. -3- BUSINESS GROUP Methyl Chemicals Ethylene Oxide, Oxo Alcohols and Solvents MAJOR PRODUCTS Methanol Eoroaldehyde Pentaerythritol Synthetic fatty acids Triaethylolpropane Ethylene oxide Ethylene glycol Butanol Propanol Solvents PRINCIPAL USES Plastics, polyesters, adhesive**, solvents, synthetic lubricants, coatings. Surfactants, coatings, rocket propellants. anti-freeze, herbicides, polyesters. MonoDers and Acetyl Chemicals Acetic acid Acetic anhydride Acetaldehyde Acrylic acid Acrylate esters Vinyl acetate Vater-based paints, adhesives, textile finishes, paper coatings, man-made fibers, pharmaceuticals. herbicides, plastics. Celanese and Celar.ese Canada are participating vlth automobile manufacturers, refiners, governments and others to evaluate the wider use of methanol in fuel markets. To date there has been limited commercial production for this use. Celanese Canada operates a worldscale methanol unit at its Edmonton plant 6ite in Alberta. The methanol operation is owned directly or indirectly by Celanese Canada, Celanese Corporation and PanCanadian Petroleum ltd. Other major Canadian producers of methanol are Alberta Gas Chemicals and Ocelot Industries. Since 1984, Celanese, Texas Eastern Corporation and Saudi Basic Industries Corporation have owned, directly or indirectly, a worldscale methanol plant in A1 Jubail, Saudi Arabia. Utilizing both acquired and internally developed technology, Celanese is con tinually upgrading its chemical processes to improve energy, rr material and capital utilization. By producing a number of its major chemicals at different plant locations, Celanese can avoid or minimize the effect of production disruptions at any one location. Restructuring - In 1984 , Celanese closed its U.S. based methanol unit at Clear leke, TX. During 1985, Celanese implemented an organizational realignment in chemicals. The operations were restructured by transferring management and operational responsibility for multifunctional monomers and the Bishop, TX plant to the Specialties operations, although Celanese Chesiical Company, Inc. continues to market the commodity chemicals produced at Bishop, TX. Early retirement was offered to eligible employees as part of the program. Certain Celanese chemical assets, primarily in methanol investment, were written down in the second quarter. FIBERS Celanese Is the second largest U.S. producer of nan-made fibers. It nanufactures polyester, acetate and triacetate fibers aro sells then fcr a wide variety of end uses. Other major U.S. man-made fiber producers are Allied-Signal, American Hoec'nst, Du Pont, Eastman and Monsanto. Celanese Textile Fibers produces and sells polyester staple, polyestei fila ment, acetate filament and triacetate filament. Fot industrial tr; uses, Celanese Industrial Fibers produces and sells polyester staple and polyester filament. Celanese Smoking Products produces and sells cigarette tc-w, plasti cizer, polyester polymer and cellulose acetate flake. Polyester fibers are produced from either tereph'.halic acid or dimethylterephrhalate, which ere purchased, and ethylene glycol, which is produced by Celanese and also purchased. Celanese acetate and triacetate fibers are made principally from acetic anhydride produced oy Celanese and purchased wood pulp. Open market purchases of raw materials =re generally under long-term contract. Celanese is the second largest of six U.S. producers of polyester textile filament yarn. Celanese is the second largest of five U.S. producers of poly ester staple, the world's largest selling man-made fiber. Celanese is the largest of five U.S. producers of polyester industrial filament yarn used for tire reinforcement and industrial applications. Celanese sells polyester staple and filament yarn under the trademark Fortrel. Celanese is the largest producer of acetate filament yarn, accounting for approximately 801 of U.S. output, and is the only U.S. producer of triacetate filament yarn, which is sold under the trademark Amel. In January 1936, Celanese announced that it will discontinue production of triacetate filament yam by the er.d of the year. Celanese is one of two U.S. producers of acetate flake end acetate cigarette filter tov; the latter is sold to all major U.S. cigarette companies. The ocher U.S. producer of acetate products is Eastman. Celanese S.A., a Celanese subsidiary in Belgium, produces acetate and tria cetate filament yam and acetate cigarette filter tow. Celanese Canada is Canada's only producer of polyester 6taple, polyester industrial filament, acecace filament, cellulose acetate flake and cigarette tow, and through its (751 owned) subsidiary, Monterey Textiles Inc., is a major producer of woven fabrics. Other major European producers are: of acetate filament yams, Courcaulds, Montefibre and Novaceta; of triacetate filament yams, Courtaulds; and of acetate tow, Courtaulds, Ectona and Rhodia A.G. Marketing and_ Tcchnical_ Sugport_ - Celanese t'ells most of its fibers and yams directly to textile stills, tire manufacturers, cigarette makers and other intermediate processors. Indirect marketing efforts are extended through technical service, advertising and promotion. These efforts reach each level of the manufacturing and distribution system, as well as consumers of apparel, home furnishings and industrial producta. -5- Celanese anticipates and meets changes in fashion and demand by conducting market research and maintaining regular communication with designers, con verters, fabricators and retailers. Celanese maintains development labora tories that simulate typical mill and other customer facilities, and research, pilot and commercial-scale facilities for development of improved yam and fiber products. Coordinated research, through testing of processing tech niques and preparation of sample materials for customers, is an important factor in marketing Celanese fibers and yams. BUSINESS CROUP Textile Fibers MAJOR PRODUCTS PRINCIPAL USES Polyester fllamenc yam (Fortrel) Polyester staple (Fortrel) Acetate filament yam Woven fabrics Men's, women's and children's wearing aprarel, upholstery, drapery and other home furnishings fabrics. Industrial Fibers Polyester industrial filament (Fortrel) Acetate filament Polyester staple (Fortrel) Seat belts, tires, conveyor belts, hoses, ribbon, plastic reinforcement, sewing thread, woven and non-woven fabrics, pillows. Seeking Products Acetate filter tow Acecate flake Polyester polymer Plasticizer (Fiberset) Cigarette filters, film, plastics, fibers. Restructuring - In 1983, Celanese streamlined its U.S. fibers businesses and permanently closed its celluloslc yams plant at Cumberland, MD. During 1984, Celanese reorganized the Fibers operations into what are now three business groups, Celanese Textile Fibers, Celanese Industrial Fibers, and Celanese Smoking Products, each with worldwide responsibility for developing and implementing its business strategies. Also in 1984, Celanese Textile Fibers began to consolidate its polyestei textile filament operations at Greenville, SC into Shelby, NC by 1987. In 1985, Celanese Textile Fibers acquired the vinyon staple fiber business of Avtex fibers Inc. to expand the business base into non-vcven and automotive applications, and closed the Pama Manufacturing Co., a producer of tricot fabric. The Fibers businesses also wrote down certain assets, principally related to polyester textile filament, during 1985. SPECIALTIES/NEW BUSINESS DEVELOPMENT/ADVANCED TECHNOLOGY In 1985, Specialties was reorganized into three business groups: Specialties, New Business Development and Advanced Technology. -6- Marketing and Research - Produce development and technical service personnel supplement direct sales efforts by assisting customers in using existing products and developing new ones. Celanese has an active research and develop ment program in each of the business groups described above. Reiructurln - In 1984, Celanese established investments and formed alliances with Osmooics, Inc. and Endotronics, Inc., to develop new applications for advanced separations materials. During 1985, Celanese increased its Inver.tceDC in Os.nonics 3rd Endotronics and formed two additional alliances in the non-liiear optics markets with Codenoll Technology Corporation and Interactive Radiation, Inc. Celanese also completed the sale of its AgProducts business, structural composite operations, Almatex Ltd. and Stein, Hall S.A. (Fty.) Led. The Charleston Water-Soluble Polymers plant wes closed. The Specialties operations also had a write-down of assets, mainly in water-soluble polymers. Early retirement programs were also offered to eligible employees in specialty resins, water-soluble polymers and Virginia Chemicals. SPECIALTIES Celanese manufactures, processes and markets a range of specialty products both in the United States and other countries. Engi"eering Resins Engineering itesins - Celanese Engineering Resins, Inc., a subsidiary, was incorporated in late 1985. It will continue Che operation of the engineering resins division as well as the Bishop site. It produce, three high-perfor mance thermoplastic engineering resins in the United States: acetal copolymer, sold under the trademark CeIcon as a replacement for metals and other plastic" in a wide variety of end uses; nvlon 6/6, used in a broad range of industrial and automotive applications; and polybutyleue terephthalate, sold under the trademark Celanex for use principally in automotive and elec trical applications. Celanese produces the basic raw materials for Celcon resin and purchases them for nylon and Celanex resins. In 1985, Celanese Engineering Resins acquired specialty compounder in the United Kingdom and completed a pilot plant for production of Durel polyarylate. Other major U.S. producers of one or more similar engineering resins are Du Pont and General Electric. In Japan, Celanese has a 451 interest in Polyplastics Co., Ltd., which pro duces and sells acetal copolymer and polybutylene terephthalate resins, and sells nylon 6/6 resin manufactured by Celanese. In West Germany, Celanese has a 411 interest in Ticona Polymerwerke GmbH, which produces acetal copolymer resin. VirginjLa_Chemicals_Inc_:_ - Virginia Chemicals Inc., a subsidiary, is engaged principally in the production and sale of organic and inorganic chemicals. Its principal products include industrial chemicals for a variety of markets, chemicals for agriculture and food (principally amino intermediates for production of herbicides), and specialty chemicals and product? for a variety of customers. Virginia Chemicals' principal customers are textile, pulp and paper, and agricultural chemical manufacturers. With respect to its major products, alkylamines and sodium hydrosulfite, Virginia Chemicals is either the largest or second largest D.S. merchant market supplier. rl Major U.S. competitors ere: of alkylanir.es. Air Products, Penr.valt and Union Carbide; and of sodiun hydrosulfite, Olin and Ventron. In 1985, 13 Chenicals Company, a partnership, owned 501 by Virginia Chenicals and 501 by necbers of the Mitsubishi group started manufaccuring isobutyiidenediurea, a slow release fertiliser. In England, Virgin!,-. Chenicals has a 401 interesc In R.V. Chenicals United, which produces and sells sodiun hydrosulfite and sulfur dioxide. A Virginia Chemicals subsidiary, VirChem Canada Inc., blends and sells sodiun hydrotulfite. In Brazil, Virginia Chemicals cvms a 33.31 interest in Quinica da Bahia, a joint venture formed for the production of alkylamines. Construction of a plant in Canacari, 3ahia was completed in 1985 and commercial production began late in the year. In Seigiua, Virginia Chemicals hap a 511 interest in Virchem S.A./X.V., which produces and sells alkylamines. Specia_ltjr ?.rdCts - Plast-Labor S.A., a Swiss subsidiary, produces ground and finely divided polyolefin powders which are sold in the textile, molding, coating and explosives markets. In West Germany, Celanese has a 501 interest in Hager 4 Kassner GmbB, which produces and sells polyurethane specialties. In August 1985, Celanese obtained an exclusive license from Sanyo Chemical Industries, Led. (Kyoto, Japan) for manufacturing and marketing Sanwet super absorbent polymers in North and South America and non-exclusive marketing rights in Europe. Super absorbent polymers are materials that absorb high levels of fluid and retain most of that fluid, even under pressure. the principal market is disposable baby diapers. Specialty Chemicals Vaj^er_-SoU;y e_Polvriecs_ - Celanese Water Soluble Polymers, Inc., a subsidiary, sells a variety of natural and synthetic water-soluble polymers. The prin cipal narural polymer is guar, which is processed by Celanese. Other important U.S. processors of guar are Henkel and Lyndal. Guar raw materials are supplied principally from India and Pakistan. Celanese sells guar-based products in a chemically modified form to the oil and gas industry and for a wide variety of end-use markets in competition with other water-soluble polymers, both natural and synthetic. Meyhall Chemical A.G., a Swiss subsidiary, processes guar, guar derivatives and other natural gums which are sold chiefly in Europe and Asia. ^peci.al_r Resins - Ceiane3e Specialty P.eslns, Inc., a subsidiary, manufac tures primarily acrylic and epery resins. These resins are sold by many other manufacturers in a wide variecy of markets for various end uses. In 1985, Celanese Specialty Resins issumed responsibility rot "niltlfunctional monomers. The raw materials for specialty resins are principally purchased under long term contract. In November 1985, Celanese announced that it would consider offers to purchase its specialty resins and water soluble polymers businesses. The effect of a sale on net income and financial position is not expected to be significant. -8- BUSINESS CROUP Engineering Resins Virginia Chemicals Specialty Products Water-Soluble PoI;*mers MAJOR PRODUCTS Acetal copolymer (Celcon) Nylon 6/6 Polybutylene terephchalate (Celanex) Alkylamin-s Sodium hydrosulfite Sodium bisulfite Sulfur dioxide Polyolefin powders Polyurethane Formulations Cuar gum and derivatives Gum arable Cum karaya Other water- soluble polymers Specialty Resins Acrylic and epoxy resins Multifunctional monomers PRINCIPAL USES Automotive, appliances, plumbing fixtures, hard ware, Industrial and communication equipment, audio and video recording devices, tool housings, electrical insulation, electrical connectors. Herbicide intermediates. Textile, pulp, paper and clay processing. Food uses. Fibers and vaste treatmect. Textile, molding, coating and explosives markets, industrial construction and housing, ath letic surfaces and iusulrtion. Processing aid9 for oil and gas production, mining, explosive systems, textile and paper manu facturing; thickeners, extenders and encapsulants for cultured dairy products, foods, soft drinks, con fectioneries and pharma ceutical products. Pipe coatings, electrical insulation, printed cir cuits, industrial, finishes, powder coating*, beverage '--n linings, coatings for flexible substrates, UV/EB radiation curable coating systems. NEW BUSINESS DEVELOPMENT The New Business Development effort administers the commercialization of emerging businesses, primarily in advanced materials. Emerging businesses are based on products that have been developed by Celanese. Currently included are separations products - polymer-based products for specialty separations applications; pci/benziaidazole (FBI) - a specialty Industrial fiber with both high tecper.-iturj and chemical resistance; and liquid crystal polymers (LCPs) high performance thermoplastic materials. During 1985, Celanese broadened existing alliances in the separations area by increasing investments in Osmcn.cs. Inc. (25Z) and Endotronics, Inc. (35Z), established significant distributorships for PBX in Europe anc the Far East and announced plans for commercialization of LCP, sold under the trademark Vectra. ADVANCED TECHNOLOGY The Advanced Technology Group is composed of three units: the Celanese P.esearch Company in Summit, NJ, the Corpus Christ! Technical Center in Corpus Christ!, TX and the Technology Development Department headquartered in New York, NY. The mission of this group is co translate advanced technologies into new businesses for Celanese. These new technologies build on the Celanese skills base in polymers, fibers, organic chemistry and materials technologies. These technologies are directed to service markets in structural ceramics, alectro-optics, optical storage, biotechnology, specialty chemicals, membrane separations and high performance polymers and fibers. As part of its activities in translating technologies into businesses, in 1985, Celanese has taken a 10Z equity position in Codenoll Technology Corporation and a 21Z equity position in Interactive Radiation, Inc., companies which service the electro-optics markets. BRAZIL/MEXICO Brazil - Celanese is a major manufacturer of polyester staple in Brazil. The only other Brazilian producer is R1- -lia. Celanese owns a minority interest in Metanor S.A. - Metanol do Nordeste, a major producer of methanol in Brazil, Other major Brazilian producers are Alba and Prosinc. Metanor wholly owns Copenor-Companhia Petroquimica do Nordeste, which produces pentaerythritol, HMTA, formaldehyde and sodium formate. Mexico_ 1 Celanese Mexicana, S.A. (*0Z owned) is Mexico's largest producer of man-made fibers and the largest publicly held producer of petrochemicals in the private sector. Under Mexican law basic petrochemicals are reserved to the government-owned petroleum company, Petroleos Mexicznos, S.A. (Pemex). Celanese Mexicana purchases basic petrochemicals for further processing from Pemex. Ocher major Mexican producers of man-made fibers are Cydsa, Fibres Sinteticas and Grupo Industrial Alfa. Celanese Mexicana is the sole Mexican croducer of most of the petrochemicals and the sole or leading producer of most of the fibers it manufactures. EXPORl' SALES Celanese exports a broad range of products to countries throughout the world. These products are marketed mainly by Celanese sales personnel, agents and distributors. The export market is highly competitive and cjn be affected significantly by fluctuating currency values, import laws and regulations, and raw material and energy cost differentials. During the past three fiscal years, Celanese and non-U.S. subsidiary export sales have ranged from approxi mately 17Z to 22Z of consolidated sales. - 10 - ! RESEARCH, PATENTS AND LICENSING Ceianese maintains principal research and development laboratories at Summit, N.J., Charlotte, N.C., Corpus Christ!, Texas, and Louisville, Ky. In addition, product and process development laboratories are maintained at some plants. Some subsidiaries and affiliates also maintain research laboratories. Approxi mately 1,600 employees, including 760 professionals, are engaged in basic and applied research and development. In 198 3, 1984 and 1963, Celanese- spent approximately $85 million, $94 million and $103 ulllioc, respectively, on research activities to develop new products, processes cr services, or to improve existing ones. Cclanese owns or is licensed under nunerous patents, some rf which are impor tant to specific commercial operations. No one patent or group of patents is considered of material importance to the business as a whole. Celanese has developed and acquired technical information ard owns patents in the chemicals, fibers and specialties fields, some of which'rave bed licensed to affiliates and others worldwide. EMPLOYEES At December 31, 1985, worldwide employment for Celanese anc consolidated sub sidiaries was approximately 18,500, including about 4,400 technical, managerial and administrative employees. In addition, major affiliates abroad employee about 10,100 persons, of whom approximrttly 2,130 were technical, managerial and administrative employees. In the United States, fewer than half of the Celanese plants and employees are organized by labor unions. Most labor agreements are for terms of two or three years. Celanese offers comprehensive benefit plans for employees and their families and believes relations with employees are satisfactory. EE7ECTS OF ENVIRONMENTAL POLICIES In 1985, expenditures for compliance with federal, state and local environ mental control regulations totaled about $55 million, of wiirh $12 million was for capital projects. In 1986, such expenditures ara expected to be about $57 million and $17 million, respectively, and in 1987 to be about $67 million and $24 million, respectively. It is anticipated that stringent environmental regulations will continue to be imposed on Celanese aid the industry in general. Compliance with lews, regulations or enforcement policies may require expenditures in addition to those currently projected, depending upon the compliance requirements. raw materials and fuel supplies Celanese has contracts or commitments for, or readily available sources of, raw materials and fuel supplies which it believes will meet its anticipated needs in all of its major product areas. The availability and price of raw materials and fuel supplies are subject to world market eruditions. Although Celanese produces some of its raw materials, the major portion is purchased from outside r-ources. Celanese does not consider itself depenleat upon any one supplier o'- a material amount of its raw material or fuel purchases; hcvever, in th . United States, wood pulp (a raw material for cellalosica) is - 11 - obtained from two suppliers, and terephthalic acid (a raw material for poly ester) Is largely obtained from one supplier. Celanese operations depend upon the availability of hydrocarbon feedstock, and fuel which are purchased from diverse domestic sources, primarily large energy companies. *** See Notes ? and Q to the financial statements set forth at Item 8 of this 10-K for financial information about non-U.S. subsidiaries and product groups. la. Executive Officers of Celanese The name, age, date appointed officer and business experience during the past five years of Celanese executive officers are listed below. John D. Macomber, 58, June 1973: Director since 6/73. Chairman, President and Chief Executive Officer since 7/83. Chairman and Chief'Executive Officer. Robert L. Mitchell. 62, June 1972: Director since 6/77. Vice Chairman. C. Robert Tully, 64, March I960: Director since 11/78. Vice President and Chief Financial Officer. Kenneth G. Anderson, 62, February 1973: Vice President, Employee Affsus. Harry B. hartley, Jr., 58, February 1976: Vice Fresident, President and General Manager, Celanese Chemical Company, Inc. James J. Bigham, 48, April 1975: Vice President, President, Celanese Interna tional Company and Vice President, New Business Development, Specialties since 6/85. President, Celanese International Coapany, 7/84. Vice President, Finance and Planning, Celanese International Company 9/82. Vice Fresident, Finance, Celanese International Company 11/81. Vice President and Treasurer, Celanese Corporation. Richard M. Clarke, 54, May i.387: Group Vice President, Specialties Operations, New Business Development, Advanced Technology since 6/85. President, Celanese Specialty Operations 5/82, President and Chief Executive Officer, Celanese Canada Inc. Ernest H, Drew, 48, June 1984: Group Vice President, Fibers Operations, Commodity Chemicals, Corporate Quality Management since 6/85. President, Celanese Fibers Operations 6/84. President and Chief Executive Officer, Celanese Canada Inc. 5/32. Director, Strategic Planning, Celanese Corporation 7/81. Vice President, Planning, Celanese Chemical Company, Inc. Robert A. Longman, 56, January 1974: Vice President-General Counsel. Ronald K. Shelp, 44, July 1385: Vice President since 7/83. Vice President, American International Group. 2. Properties The principal manufacturing facilities, all of which are in good operating condition and in the opinion of management have adequate productive capacity, are listed below. Celanese also owns or leases certain facilities related to its operations, such as warehouse, pipeline and laboratory facilities, and executive and sales offices. The D.S. subsidiaries listed below are incorporated in Delaware, except for Celanese Chemical Company, Tnc., which is incorporated in Texas, and aie 10~ owned unless otherwise indicated. Non-O.S. subsidiaries and affiliates are incorporated in the country of residence and are 1001 owned (direct or indirect) unless a different direct or indirect percentage is indicated. CHEMICALS U.S. (2,250 employees) Celanese Chemical Company, Inc. Harry B. Bartley Jr., President and General Manager Dallas, TX Bay City, TX Acetaldehyde; n-butanol; heptanolc acid; isobutanol; pelargonic acid; propanol; vinyl acetate Bishop, TX Acetate esters; 1,3-butylene glycol; n-butyraldehyde; diace tone alcohol; formaldehyde; formaldenyde solucicns; isoboryraldehyde; methanol; methylal; paraformaldehyde; pentaerythritol; tvimethylolpropane Clear Lake, TX Acetic acid; acrylate esters; acrylic acid; ethylene glycol; ethylene oxide; vinyl acetate Pampa, TX Acetic acid; acetic anhydride; acrylate cetera; butyric acid; ethyl acetate; formic acid; methyl ethyl ketone; methyl formate; propionic acid Terminals: Bayport, TX Newark, NJ** Rock Hill, SC* Non--U.S. Canada** Celanese Canada Inc. (56.22 owned) Pierre Cote, Chairman, Montreal Edmonton, Alta. Acetic acid; acetic anhydride; formaldehyde; methanol***; pentaerythritol; vinyl acetate * ** *** Formaldehyde is also produced at these locations. Celanese Canada employees are reported under Ion-0.S. Fibers. The methanol emit is owned directly or indirectly by Celsneae Canada Inc., Celanese Corporation and FanCanadian Petroleum Ltd. /- Virginia Chemicals Inc. Bishop, TX Sodium formate Bucks, AL Alkylamines; sodium bisulfite solution; sodium hydrosulfite; specialty blended products; sulfur dioxide Kalama, UA Sodium hydrosulfite solution Leeds, SC Sodium bisulfite solution; sodium hydrosulfite; sodium hydrosulfite solution; specialty blended products Portsmouth, VA Alkylamines; sodium metabisulfite; sodium sulfate; specialty blended products Hon-O.S. (1,640 employees) Belgium Virchem S.A./N.V. (511 owned) Philippe Vierir., .Manager, Brussels Alkylamiies .Brazil Celanese do Brasil S.A. Sao Paulo Engineering resins sales Quircica da Bahia (33.31 ovnea) Karclo Cardoso, Director Superintendent, Camacarl, Bahia Alkylamlnes Canada_ VlrChem Canada Inc. John de Belle, Vice President and General Manager, Oakville, Dnt. Blended sodium hydrosulfite Portugal_ Indal-Industriaa de Alfarroba, Ltda. Antonio Boroaha. Manager, Faro Locust bean gum Switzerland^ Meyhall Chemical A G Bans Bohl, Managing Director, Kreuzlingen Guar gum; other natural products Plast-Labor S.A. Ulrich Vyss, Manager, Bulle Ground and finely divided polyolefin powders Vest_Germany_ Hager 4 Kassn>-.r GmbH (501 owned) Helmut Koch, General Manager, Ahlen Polyurethane specialties Aprithan GmLH (501 owned) cjelmjr Koch, General Manager, Abscg^und Polyurethane panels Ticona Polymerwerke GmbH (All owned) Heinz Bair, Henry E. Kieffer and Josef Blaschke, Managers Kelsterbach (Main) Acetal copolymer FEU BUSINESS DEVELOPMEHT D.S. (215 employees) James J. Bigham, Vice President, Hew Tort, HT Charlotte, HC Separations Rock Hill, SC Polybenzimidazole - 18 - I Mexi0_ (8,300 employees) Celanese Mexicans, S.A. (401 owned) Federico Cttiz, Chairman and Director General, Mexico City Textile Fibers: Acetate filament; acrylic staple and cow; nylon filament and staple; polyester filamenc and staple; nylon bulked carpet yarn; textured polyester. Industrial Fibers: Acetate cow; nylon and polyester tire cord (greige and dipped); industrial nylon and polyester. Industrial Products: Cellulose acetate flake; polyester and nylon 6 polymers. Chemicals: Acetic acid; acetic anhydride; acrylates; alcohols; dimethyl formacide; escers; ketones; phthalic anhydride; vinyl acetate; methyl amines; plasticizers; sulfuric acid; anhydrous sodium sulfate. Plastics and Specialties: Cellophane; biaxially oriented polypropylene film; cellulose acetate film and resins, compounded acetal and nylon resins; modified resins; converted packaging film; cellulosic ethers. SON-MANUFACTURING Corporate (230 employees) New York and Charlotte 3. Legal Proceedings As of, and during the quarter ended, December 31, 1985, there were no material pending legal proceedings to which Celanese or any of its subsidiaries was a party or of which any of their property was the subject. 4. Submission or Matters to a Vote of Security Holders No matter was submitted during the fourth quarter of 1985 to a vote of security holders. PART II 5. Market for Registrant's Common Stock and Related Stockholder Matters Gnomon Stock Celanese como" stock is traded on three national stock, exchanges: The liew York Scock Exchange, the Midwest Stock Exchange and The Pacific Stock Exchange. N.Y. Stock Exchange symbol: CZ 1981 !982 1*3 1984 by quarter 20 X) 40 1985 by quarter IQ 2Q *3 Price: High 369 1/4 $59 7/8 $79 2/4 $74 3/4 S75 7/8 $75 7/8 $82 leu 51 5/8 41 1/4 45 ec 64 3/4 62 3/4 68 1/2 dose 55 7/8 45 1/4 69 71 64 3/4 73 1/2 81 1/8 Price earnings ratio (a) 6 (b) 10 8 6 6 Dividends $3.85 $4.00 $4.00 SI.00 51.00 $1.00 .10 S94 1/4$120 3/4 $123 1/2 $151 79 3/4 89 7/8 112 1/2 134 1/4 93 1/2 12D 1/8 124 3/8 150 1/4 9 11 $1.10 $1.10 10 $1.10 u $1-20 (a) Hased on closing prices and last four quarters' net income. (b) Not meaningful because of 1982 fourth quarter loss. Cquity Security Holders of Record at December 31 1981 1982 1933 1984 1985 Ccurnu stock (without par value)...................................................... Cuxuative preferred Btodc: Series A, 4 1/22 ($100 par value)............................ .................. .. Convertible preference 53 (without par wine)..................... 72 eeccod ($100 par value).............................................................. 4,582 523 476 41 convertible subordinated debentures (due i/yo)..................... . 5,827 9 3/4Z convertible subordinated debentures (iie 6/06)............. 146 meal.................................................................................................. 41,862 29,154 4,263 470 450 5,499 155 39,991 26,337 3,949 39d 413 5,171 167 36,975 25,687 3,702 348 379 4,818 187 35,121 23,052 3,415 :S6 343 4,135 31,304 Dividends The Corporation's strong cash flow iron operations enabled Increases In the dividend over the 1980 to 1985 period, as shown on the schedule above. In the fourth quarter of 1985, the quarterly dividend on . cocoon stock was increased by 10 cents to SI.20 per share. The record date for the 1985 coooon stock dividend has been set as the first day of the last month of each quarter (except wnen it falls on a Saturday, Sunday or holiday, in which case it is the last business day of the preceding month). The payment date is the last business day of each quarter. 6. Selected Financial Data Sales Net incooe/Closs) Per coonon share: Net income/(loss) Dividends Total assets Long-term debt (millions, except per share amounts) 1981 1982 1983 1984 1985 S3,752 144 S3,062 S3,261 (34)(a) 112 S3,328 161 S3.046 178 9.01 3.85 (2.453(a) 6.89 4.00 4.00 10.87 4.10 13.70 4.50 2,991 815 2,862 808 2.869 76? 3,104 662 2.809 434 (a) After a special provision related to the Corporation's 401 equity in Celanese Hexicana, S.A. (52.50 per share, or 539 million), and credits relating to accounting changes in the method of determin ing LIFO inventories (98^ per share, or S15 million) and th# method for determining pension expense (68^ per share, or 511 million). NOTZ: This table should be read in conjunction with the analysis of income per share changes included in Ilanageoent' s Dis cussion and Analysis snd the financial statements and related notes thereto. 21 Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Rcritv Return on Equity Return on average common stockholders' equity 1981 13. i: 1982 1983 (3.5)1 10.2Z 1984 1985 15.0Z 18.0Z The corporate objectives are to build shareholder value over the longer term and to improve and broaden continuously the business base. Achievement of these objectives should result in a re Cura on common stockholders' equity (ROE) that is at or near the top of the U.S. chemical industry. The 1985 ROE of 18Z is a record and is the resulc of strong earnings and the restructuring program that included the repurchase of common stock with excess cash. Strategy for Growth Celanese will grow within the chemical industry by improving and broadening the business base. Growth will be attained by developing specialty uses for commodity products, or differentiated commodities, while diversifying into new advanced materials based on existing skills In polymers, fibers, organic chemistry and ucterlals technology. In the commodity fibers business, over half of the current textile and Industrial products were introduced within the past five years. Celanese believes also that coalitions with others skilled 1c specific product technologies and applications will support the growth strategy. In 1985, investments were expanded in separations materials and established in the non-linear optics field. Total new business development snd technology spending in 1985 amounted to about $30 million, rtilch was in addition to the capital spending of $159 million and research snd development expenditures of $103 million. Financial Revier (Coat'd) Comparative Industrial Growth Trends (Ratio scale 19// - 100) 70 :'V`: or OD no DO 1976 1977 1978 -.979 y*c Fiber* Speoifa Comparative Industrial Growth Trends 1981 1982 CNT 9a* 1985 This, chart compares the performance of th- U.S. Gross fadorm 1 Product (GOT) from 1976, in constant dollars, wit- volume growA in three industry sectors in which Celanese operates: man-made fibers, rannatrrial organic chemicals and plastics materials. For most of the perint, tie Celxnese major U.S. business sectors have grown faster chan theGgp, while showing cyclical patterns comparable to the general economy. Since 1982, the GNP multiple for the U.S. commodity join;try haa moderated. This is the result of the recent reduction in high rates of inflation and the global nature of the industry. It is ielimved that the growth rate for commodities will be closer Co the GRP change in tie future. Celanese coodity businesses are also affected by disttetiomary spending, interest ratea, and inventory adjustments which tend tn magnify their growth aultiples in periods of sharp economic change. ~5i is evident in the severe slowdown in 1981-82 and the economic recovery thaC begat in 1983. financial Review (Coat'd) Cooperative Industrial Growth Trends (Coat'd) The rate of expansion began to moderate In 1954 and many products In 1985 were affected by the sluggish U.S. economy. Record level inports were also a factor, particularly in textile fibers. Real C1IP In 1986 is expected to show continued growth of about 2.5-31 compared to 2.31 In 1985. Domestic auto sales are projected to be 7.7 million units. Housing scarts are forecast at 1.8 million. CeLanese believes that it can manage Its commodity businesses profitably in the changing economic environment. That is because the Corporation has many high-return products, such as acrylates, industrial yarn aod engineering resins, and has also lowered its fixed costs through the restructuring program that began in 1982. While commodity businessea nay lack high growth, they are capable of generating excess cash which will provide flexibility to build and Improve the business base. Celanese intends to grow by strengthening its high return commodity products and developing new advanced materials in its Specialties operations. Advanced materials offer growth multiples higher than the CUP. The following charts depict Celanese major product performance along with the equivalent Federal Reserve Board Industrial Production Index (FRB IPI) for the 1983-35 period. (All FRB IPI data were restated in 1985.) Only the current plastics materials portion of Specialties operations has been included in these comparisons; other parts of its diverse product mix do not match any single FRB IPI. Chemicals 120 no ft. Y y100 a 90 1977--.00 /A--v Qwwi 1983 1984 1985 IQ 2Q 3Q *Q IQ 2Q 30 *Q KJ 2Q 3Q 4Q -- Mendu* Sal--OS. pka oport 92 XJS B2 109 105 m 101 102 94 109 104 106 --FXS OT. tetkamal Os** Ownicifa 100 OS 106 106 10S D6 VJ7 HO m HO no 1121P1 (Pi CkTHimtr\ary 24 - Financial Review (Cont'd) Chemicals Celanese chemicals volumes benefited from the expanding economy In 1983 and increased consumer spending for basic goods. Sales volumes In 1984 followed the industry pattern end declined over the second half as the econowy shifted to a lower growth rate. The high value of the dollar also affected commodity chemical performance in 1984 ar^ 1985. Celanese volumes increased in 1985 because of improvements in methanol caused chiefly by competitors' operational difficulties. Increased vinyl acetate exports were also a favorable factor in 1985. Fibers 115 inde* '*7-100 Quarter 1983 1984 1985 Cr O O! o 1 3Q JQ 3Q JQ IQ X3 30 JQ -- 1 Merchant Sale*--Uiv plu* export 99 106 K>4 100 98 100 103 113 101 107 W2 105 -- FR3 IP!, Man-made Ffccrx 88 97 98 97 97 90 92 95 % *4 951P1 iPi Prrimrury Fihers Fibers volumes moved higher in 1983 because of the economic recovery. The industry pattern was helped also by a strong carpet market. Volumes remained steady in 1984 despite weakness in textile fibers, due to appcrel imports and declines in the filament market. Industrial fibers and stoking product volumes were above the prior year. Polyester staple exports moved Celanese above the Industry trend over the second half. Fibers volumes were relatively constant in 1985. Polyester textile staple and industrial products continued to be hurt by imports. Polyester and ncetste textile filament volumes increased, as exports and industry rationalization helped the business. Smoking product volumes were maintained as exports offset reduced domestic consumption. 25 Financial Revlev (Coat'd) Sales (millions) ml Soles .................................. Operating income .... Sales margin................. 53,752 5 220 5.91 1982 S3,062 S 39 1.35 1982 53,261 5 214 6.62 [984 198 j 53,328 S 272 8.22 53,046 S 127 '.22 Sales and margins in 1985 were affected by the Corporation's testructuring program to enhance shareholder value. Total sales of S3 billion trailed the previous two years as Celanese focused on attaining a higher investaenf return versus voIudt grouch. Other factors influencing the sales pace included the slower growing U.S. econony, the high value of the collar (fostering imports) and competitive price pressure in the industry. Two restructuring events lowered sales and margins in 1985. First, the sale of non-strategic assets in the Specialties operations (AgProducts business, Almatex Ltd., Stein Hall 5.A. and structural composites operations) and the Brazilian fllanenc business accounted for about 5100 million of the total sales variance. Second, operating income declined by 5145 million primarily as the result of tn: three oon-recurrlng ite-.s that reduced operating income by 593 million and net income by 54 million in the second quarter. (Sales margins in 19S5 before the 593 million reduction were 7.22.) Despite the margin erosion, selling and administrative expenses continued to trend down in 1985--5261 million versus 5266 million in 1984. Chemical sales advanced in 1985 while fibers were down, chiefly because of imports that lowered volumes and weakened prices. .Asset divestments reduced Specialties and Brazil/Mexico sales compared to 1984. A review of the past five years indicates that sales peaked at 53.8 blll/on in the hyper-inflation year of 1981 and dropped sharply on volume weakness in the recession year Chat followed. Sales recovered to the S3.3 billion level with cue economic expansion that began in 1933. In 1985. sales of 53.0 billion decreased 82, with price and volume changes each accounting for about half of thz decline. Volume and price changes during 1981-85 were: Volume............. .. ...... .. Frice........................... Total.............. Change Over Prior Tear 1981 1982 1983 (18)2 92 (3) 1 T? (18)2 62 1934 -2 2 22 1985 (4)1 (4) 157: 27 mm Financial Revie* (Cant'd) Analysis of Changes in Net Incase to Co--on 1984 1983 Net income to common of S157 million was $49 mlilior above the pricr year. Sales were $67 million above 1983, with improved pricing accounting for most of the Increase. Cost of goods sold was increased by a si' million charge for the consolidation of polyester textile filament capac'ty and an S8 million charge to reduce tne carrying value of certain water soluble polymer fixed assets. The sale of Brazilian filament operations and certain other non-recurring credits benefited the operating margin. Lower salaries, wages and employee benefits resulted from the restructuring program. Equity in net income of affiliates declined chiefly because of the start-up of the methanol investment and lower lr...ome from Celanese Mexicans. Other Income and expense increased by $1? million due to higher short-term portfolio income. Minority interest declined as a result of the purchase of the minority share in Fiber Industries, Inc. in 1983. Product Group Results 1984 vs. 1983 Chemicals - Net income of $38 million was S25 million above the prior year as a result e: programs to reduce costs, as well as modest volume gates. Folunes for formalin, ethylene oxide, ethylene glycol and acrylates were ahead of 1983, but prices for most products declined. Lower raw material aod energy costs, chiefly butane, partially offset the price weakness. The start-up of the methanol Investment reduced income. Fibers - Record net income of $78 million was $5 million above tbe prior year. Net income was reduced by a $6 million after tax termination expense. Price recovery occurred chiefly for polyester staple aod industrial yarn products. Volumes in textile fibers were level with 1983, as gains in polyester scaple offset weakness in textile filament. Industrial fibers were strong, particularly in the tire reinforcement markets. Smoking products volumes advanced, despite lower exports due to the high value of the dollar. Specialties - Record net Income of $33 million was $16 million above the prior year. Net income was reduced by a 54 million after tax charge to reduce the carrying value of fixed assets. Specialties benefited primarily from strength in the worldwide engineering resins business. Water soluble polymers improved because of cost controls. Virginia Chemicals continued to be hurt by slow demand for amines for herbicide uses. Brazil/Mexico - Net income of $8 million was S3 million over the prior year. Income includes e ?3 million after tax gain relating to tbe Bales of aseuts (Brazilian filament operations) and certain non-recurring credits. The results of the Brazilian operations were higher in 1984 because of the write-down of the polyester filament assets chat occurred in the prior year. - 13 Financial Review (Coal'd) Changes In Net Xococse to Coenoo 1984 vs. 1983 Operations: Sales Price.................................................................................... $ 54 V c I line....................................... .......................................... !3 57 Cost of goods sold....................................................... Operating nargln.......... .............................................. (13) 54 Selling & administration...................................... .. Research & development...,.................................... Operating Income............................................ ............. Other: Equity in net income of affiliates................. Interest expense........................................................... Other income 6 expense.............................................. Income tax provision...................... ............................ Minority interest.......................................................... Net income to common........................................... .. 13 (9) 58 (6) 3 19 (3-) 9 $ 49 1985 vs. 1984 S (136) (146) (282) 141 (141) 5 (9) (145) (3) 22 104 41 (2) 3 17 Analysis of Changes in Hec Income to Coomon 1985 vs. 1984 Record net Income to common of $174 million was $17 million higher than 1984. Sales of $3 billion were $282 million lower than the prior year, with lower prices in all operating areas accounting for $136 million of the decline. The $146 million reduction in volune was caused mostly by sale of assets (Brazilian filament business, AgProducts business, Almatex Ltd., Stein Hall S.A. and structural composites operations). Operating margins in 1985 were helped by lower raw materials and energy prices. Operating results in 1985 were affected by three non-recurring items: a gain of $61 million on the sale of the structural composites operations; a write-down of certain assets by $57 million and a provision of $8 million to cover the cost of restructuring programs in chemicals and specialties. The effect was to reduce operating income by $93 million, to increace ocher income by $86 million, and to reduce equity in net Income of affiliates by $21 million, income tax provision by $23 million and minority interest by $1 million. Improvements in Mexico partially offset the reduction in affiliate income and increased investment income fro* a higher level of lnvestable funds added to other income. Interest expense declined because 29 Financial Review (Coat'd) Analysis of Change* In Wet Income to Cotmaon 1985 va. 1984 (Cost'd) of the early retirement of the $100 mlllon 10 7/82 notes in July and the conversion of $81 million of outstanding debt to common stock. The lower income tarn provision results principally from capital gains tames on certain of the non-recurring items that occurred in the second quarter and an increase in export tax credits. Product Croup Results 1985 vs. 1984 Chemicals - Net income was $18 million after a write-down of $25 million, primarily for methanol investment and $5 million for restructuring. (Net income before the non-recurring items was $48 million versus $38 million in 19d4.) Selling prices .or moat products were lower in 1985 because of easing Hydrocarbon prices and imports. Volumes improved in methanol aud acetyls, in part because of competitors' operational problems early in the year. Vinyl acetate exporrj were also up compared to 1984. A favorable change in r*w materials and energy costs (ethylene, natural gaa and propylene) partially offset the selling price weakness. Fibers - Net income was $57 million after a write-down of $21 million, principal1! related to polyester textile filament assets. income before the non-recurring items was $78 million versus $84 million in 1984.) Selling prices for polyester staple, industrial filament and cigarette tow exports reduced income. Volunes were lower in the U.S. and Canadian markets fcr all fiber units. Textile demand, particularly for p-.lyester staple, was sluggish because of imports and completely offset improvements in filament products. Polyester textile filament benefited from a firming in domestic and non-U.S. market demand and acetate yarn from industry rationalization. Industrial fiber demand for the sewing thread market waa up, but weakness in replacement tires lowered volumes. A decline in domestic smoking product volumes was partially offset by increased exports. Favorable raw material and energy costs contributed to lrroae and cost reductions lowered operating costs. Specialties - Net income was $84 million after a $61 million gain on the sale of the structural composites operations and an $11 million write down, mainly for water soluble polymers assets *nd $3 million provision for restructuring costs. (Net income before the non-recurring items was $37 million in both years.) Volumes were lower in the U.S. for engineering resins and water soluble polymers. Asset sales mentioned above also reduced volumes in 1985. Lower energy costs added to income. Financial Review (Coot'd) Product Croup Result* 1985 vs. 1964 Cone'C Brazil/Mexico - Net income was 515 million compared to incone of 55 nil! ion, Before gains relating to sale of assetB and certain non-recurring credits last year. Domestic volumes for fibers were higher in both countries, with volume improvements also in chemicals and plastics in the Mexican company. Export volumes declined in Mexico in 1985. Performance in Brazil in 1985 benefited from the sale of the filament operations in late 1984. Foreign exchange gains in Mexico contributed ro income in 1985. Liquidity Celanese plans to finance its future growth within the chemical industry primarily through internally generated funds and available external sources, including coalitions. The Corporation maintains committed bank, credit facilities. Total U.S. facilities ac December 31, 1985, were 5100 million. Informal bank lines of up to 530 million are ready to fund short-term cash needs. At December 31, 1985, none of these credit facilities were utilized. Nou-U.S. subsidiaries have facilities with D.S. and non-U.S. banks which currently permit borrowings of up to SI64 million or the equivalent in local currency. The Corporation generally does not provide credit support for subsidiary or affiliate borrowings. In October 1985, Celanese filed a shelf registration scacemenc with the Securities and Exchange Commission covering S100 million of debt securities. The filing permits the issuance of securities on a periodic basis (within a two-year period) In amounts and at rates that are set at tue tine of the offering . At year-end, the Corporation had not Issued debt under Che filing. Durii.g 1985, Celanese sold several businesses (AgProducts business, Almacex Ltd., Stein Hall S.A. and structural composites operations) for 5174 million. The proceeds were added to the Corporation's cash position. In November, the Corporation indicated that it will consider offers to sell its specialty resins and water s-luble polymers businesses. The transactions are expected to be completed In 1985. In 1985, Celanese purchased 2.7 million shares of its coimson stock at a cost of 5302 million. By year-end, tne Corporation had outstanding authority to purchase 227,700 shares and in January 1986, the Corporation announced plans to repurchase an additional 600,000 shares. The Corporation completed the recovery cf 5^89 million before taxis in excess funds from the pension plan. Cash and marketable secunities were 5369 million at year-end 1985 or 5203 million above the prior year. Financial Review (Cont'd) Liquidity (Cont'd) The dtbt-to-total capitalization ratio declined to 281 iron 352 at year-end 1984, chiefly because of the early retirement of SiOO million of 10-7/8 notes due 1987 and the conversion of $81 million of outstanding debt into 1.1 million common shares pursuant to original privileges. Consolidated capital spending decreased by 510 million in 1985 to $159 million. Capital outlays are projected to be about 5550 nillion during 1986-88, vich about 3170 million in 198o. The Corporation believes it unlikely that capital spending in mature products will exceed depreciation levels. Celanese Invested about 530 million in new business development and technology coalitions in 1985 and expects to spend about $60 million during 1986-88. The quarterly dividend on the cotmaon stock was lncreaseu by 10 cents per share in the fourth quarter of 1985. Total dividends paid in 1985 were $61 aillion, down $2 million because of the share repurchase program. It is expected that cash from operations over the next three years will be sufficient to cover capital expenditures, share repurchases, dividends and working capital requirements. Celanetr liquidity is supported by a large internal cash flow. Net funds from operations totaled SI.9 billion for the 1981-65 period and financed 132T of the requirements for capital expenditures and dividends. (millions) 1981 1982 1983 1984 1985 Net funds from operations .................... $563 $272 $413 $408 $449 In 1985, the $449 million of net funds from operations was $271 million greater than net income of $178 million. The difference 1b principally dueto the $246 million of depredation expense. The high level of depreda-tlon reflects the Corporation's conservative policy with respect to asset lives (maximum estimated useful life for 11.S. machinery and equipment of 9 1/2 years). Financial Review (Cont'd) Capital Expenditures Consolidated capital expenditures in 1935 were $159 million, down $10 million from 1984, and substantially below the peak of S14 million in 1981. (Included in the total was the acquisition of the vlnyon staple fiber business.) Also included were capital projects for compliance with federal, state and local environmental control regulations amounting to $12 million. Expenditures were directed into new technology and projects that enhanced quality, lowered costs or Increased productivity. Expansions occurred la products offering ho. .--average opportunities, such as the completion of new polyester -ciustrial yam technology at Salisbury, HC which also increased capacity, and the completion of the first stage of an engineering resin expansion (acetal copolymer) at Bishop, TX. Consistent with the growth strategy, Celanese also made additional Investments of about $30 million in new business development and technology coalitions. The tatle below details expenditures by category (see note 0 to the financial statements). (millions) Consolidated: Expansion and new products .......... Maintenance of business ........ Cost reduction......................... .. Total ......................................................... 1981 .J 82 1983 196, 1J85 $173 71 40 31 5 19 69 17 $ 37 105 27 $ 62 85 12 $275 $105 $169 $159 Affiliate company spending was $78 million in 1985. These outlays, plus the consolidated expendituras, totaled $237 million and are shown below as total enterprise expenditures. The major petrochemical and fiber projects of Celanese Hexic&na, S.A. (402 owned) account for a significant portion of the affiliate expenditures in 1981-82, while the Saudi Arabian methanol project, (252 owned) was Included in 1983-84. The engineering resins expansion by Polyplastic9 Co., Ltd. (452 owned) in Japan was a factor in 1984-85. Celanese Mexicana's new polyester bottle resin capacity and a 33 Financial Review (Coat'd) Capital Expenditure.; (Cont'u) polyester staple expansion are Included In 1935. The following table details consolidated, affiliates, total enterprise and Celanese share of total enterprise expenditures for the r`st five years: (millions) 1981 Consolidated ................................. ................... 226 Total enterprise ......... Memo: Celanese share ............................ 1982 $275 164 $439 $27 5 1983 $105 175 $280 1984 1985 $169 90 $159 78 S259 $237 $145 $195 $190 The Celanese share of total enterprise expenditures, $190 Billion in 1985, consists of capital expenditures by the Corporation's wholly-owned units, plus its ownership-adjusted share of spending by subsidiaries, primarily Celanese Canada Inc. (56.2Z owned) end by affiliates. Depredation Depreciation expense Increased sharply in 1985 to $216 trillion. The lr.cresse was caused chiefly by the $57 million write-dewn of assets taken In the second quarter, which partially offset a $61 rniliim gain oa the sale of the structural composites business. In 1986, depreciation expense is expected to be about $175 million. The average depreciation cate was 7.1Z. Excluding fully-depreciated assets, the average rate was 10.5Z. Accumulated depreciation vas 68Z of gToss depreciable assert, at year-end 1985, which is believed to be aaoog the highest in the chemical industry. Financial Review (Cont'd) Depreciation (Cont'd) Expense (millions) ................................................ Average rate .............................................................. Accumulated depreciation as a percent of gross depreciable assets ... 1981 1982 1583 1984 1985 5211 5213 5214 $246 6.5Z b.OZ 6.OZ 7.12 63Z o3Z 66Z 682 Working Capital Ratios 1981 Trade receivables Days sales outstanding ................. Past due over 90 days .................... .. Inventories 3Z Days supply of finished goods.. .. 47 Current ratio ............................................ 1982 45 4Z 47 1.9 1983 44 31 1984 44 3X 1985 44 22 42 45 43 1.7 1.7 1.3 This table eummarizes several key working capital ratios for 1981-35. Successful emphasis on receivable and inventory control during this period has enabled Celanese to minimize Its borrowing needs and related costs. The trade receivables level, as measured by days sales outstanding, remained at 44 days in 1985, while inventories of finished goods at year-end were at 43 days. The current ratio was 1.3 for 1985. Financial Reeiev (Coat'd) Itul.-xea Celaneee Selling price Chemicals Fibers Specialties Brazil/Hexico Total Raw materials Chemicals Fibers SDeclalties Brazil/Mexico Total Energy - U.S. ChemJcals Fibers Specialties Total GNP price deflator Crude oil (a) 1981 1982 1983 (1977 - 100) 1984 1985 151 141 129 125 117 137 137 134 138 127 131 130 129 127 124 140 104 91 108 103 139 130 125 127 120 193 190 19C 181 153 168 161 152 150 136 173 164 153 146 145 146 102 88 117 106 169 153 143 145 131 167 197 198 194 173 155 168 163 171 169 199 237 238 232 211 163 186 184 184 173 140 169 154 161 166 295 266 242 239 224 Financial Rertew (Coot'd) Total Capitalization Debt-to-tocal capitalization dropped to 281, the lowest ratio since 1321, the year preceding major funding prograns to support the large capital expenditures in 1980-82. During 1985, long-tern debt declined by 5228 aillion chiefly because of the early retirement of S100 million in norms and the conversion of 581 million in outstanding debt into cotmon stock, pursuant to original privileges. The decline in 1585 stockholders' equity was mainly the result of repurchasing 2.7 million shares oi common stock. Interests of others was reduced in 1983 when Celaoese acquired the minority share of Fiber Industries, Inr. In 1985, Celanese filed a shelf registration statement covering 5100 million of debt securities. At year-end, no debt had been added as a result of the filing. Decetber 31 (millions) 1981 1982 1583 1964 1985 Long-term debt .............................. Interests of others .................. Stockholders' equity ....... 5 815 238 1 ,233 5 808 256 1,131 5 769 134 1,169 5 662 112 1,099 5 434 104 1,017 Tocal .......................................... 52,286 S2.195 52,072 51 ,873 51,555 Debt/total capitalization... 16.1 371 372 352 28Z Product Croup Results Celanese operations (except in Brazil and Mexico) have been organized in worldwide product groups since the fourth quarter of 1983. Prior results have been restated. Sales by Product Group (millions) 1981 1982 1983 1984 IQ 2Q 3Q 4q Tear 1985 IQ 2Q 3) V) Tear Chemicals............5 970 5 811 5 89 1 5233 5247 5230 5240 S -950 $232 $1*9 $250 $233 $ Fibers.................. 1,876 1,477 1,617 411 416 392 406 1,625 350 378 362 377 1 Specialties____ 741 636 667 181 172 160 157 670 150 139 132 07 Brazil/Mexico(a) 165 138 86 12 25 24 22 83 16 14 H 13 Total................ 53,752 53,062 53,261 SS37 $860 5806 5825 53,328 $748 $780 $73 $760 $3,046 (a) Excludes sales of Celanese Hex!Cana, S-A. W 12 6 t Financial Review (ConC'd) Income per Share by Product Group The following data reflect the allocation of administrative and financing costs and preferred dividends. Operating income and income before taxes for the different operations have varying tax rates that hive a significant effect on product group profitability. In addition, minority inttrests and equity in affiliate income are not the same and, therefore. Income before these items doeB not reflect each product group's contribution to the total income per share. For the same reasons. Income per share data should not be related to product group sales, which do not reflect these varying tax rates, minority interests and the effect of affiliate Income. An analysis of changes in net income to common for the past two years appears earlier in this section. 1984(a) 1985(a) 1981 1982 1983 IQ 2Q 30 4Q Year IQ 2Q 3Q 4Q Tear Chemicals $4.87 $ (.05)$ .81 $ .41$ .79 $ .86$ .60 $ 2.65 $ .30$(1.3l) $1.23 $1-29 $ 1.39 Fibers.................. 3.84 1.93 4.67 1.72 1 .66 1.09 .60 5.35 1.43 .37 1.26 1.47 4.50 Specialties... .71 .18 1.06 .64 .7] .62 .30 2.30 .65 4.31 .74 .81 6.60 Srazll/Mexico.. (.41) (4.51) .35 (.03)( .11) .16 .61 .57 .22 (.02) .50 .54 1.21 Total................ $9.01 $(2.45)$6.89 S2.74S3 .05 $2.7352.31 $10.87 $2.60$ 3.35 $3.73 $4.11 $13.70 (a) A3 a result of the common stocic repurchase program and its effect on the average number of shares outstanding for each interim period, the sue of rbe quarterly lnr.xae per share amounts does not equal :he annual amount. 38 8. Financial Statements and Supplementary Daca Management Report The management of Celanese has prepared and is responsible for the consol idated financial statements of Celanese Corporation. These statements have been presented in accordance with generally accepted accounting principles applied on a consistent basis. Other financial information contained in this report has been prepared on the same basis. The information used in the preparation of the financial statements and other financial data is accumulated from the Corporation's accounting and administrative control systems. The related policies and procedures, in cluding an overall plan of organization, are communicated to employees re sponsible tor the processing of data and recording of transactions. Trans actions are required to be properly authorized and recorded in a manner that maintains accountability for assets; only authorized personnel are permitted access to assets; and asset records are compared with the exist ing assets at reasonable intervals and appropriate action is taken with respect to any differences. Business conduct policies. Including com pliance with applicable laws and observance of moral and ethical standards of society, are promulgated throughout the Corporation. Product groups report on compliance with Celanese policies and procedures on a quarterly basis. The internal audit department '.s responsible for re viewing internal accounting controls and their application at a-' Celanese locations. Recommendations to improve internal controls and deviations or exceptions from established policies and procedures are reported to natiav-- ment. Management reviews such recomnendatious, deviatiens or exceptions and implements recommendations or takes other corrective action? as neces sary. Management believes that the Corporation's internal accounting ontrols provide reasonable assurance that errors or irregularit.es th-t would be material to the financial statements are prevented or would be detected within a timely period by employees in the normal course of performing their assigned functions. Peat, Marwick, Mitchell A Co., the independent certified public accoun tants whose appointment by the Board of Directors was ratified by the stockholders, are responsible for performing an independent examination of the consolidated financial statements in accordance with generally accepted auditing standards and for expressing an opinion as to whether the consol idated statements present fairly the'Corporation's financial position and results of operations. Their report appears on the following page. The Audit Committee of the board of Directors reviews the independence, qualifications and activities of the independent certified public accoun tants and the activities of the internal auditors Co satisfy itself that both arc properly discharging their responsibilities. 39 \ CELANESE CORPORATION Cousolidated Financial Statements (Conc'd) Balance Sheets Asaeta Current asaeta: Cash and marktxble securities... Receivable froa pension plan.......... Receivables.................................... Inventories........................................ ... Prepaid expenses....................................... Total current assets...................... Investments in affiliates......................... Property, plant and equipment............... Accumulated depreciation........................... Net property, plant and equipment Other at -Is........................................................ Toe a! assets............................. .. Notes .F .0 .G ,H B I J (millions) December 31 1984 1985 S 166 370 439 428 32 1,435 200 3,624 (2,27.) 1,349 120 S 3,n4 S 369 - 396 389 7 1,161 228 3,545 (2,328) 1,217 2C3 S 2.809 Liabilities and stockholders' equlcy Current 'iabilities: Accounts payaole and accrued liabilities.... K Income taxes payable........................................................ C,0 Notes payable........................................................................ Long-term debt due within one year...................... L Total current liabilities................................... Long-term debt..............................................................................L Deferred pension gain............................................................. 0 Deferred income taxes............................................................. C,0 Interests of others..................................................................D Stockholders' equity:............................................................. M Capital stock - Cumulative preferred -- Common. Additional naid-in capital....................... Retained 4 luoae................................................. Cuuu jCive translation adjustments.. Treasury stock (at cost)............................ Total stockholders' equity............... Total liabilities and stockholders' equity S 467 319 6 77 369 662 333 29 112 89 306 27 878 (29) (172) 1,099 $ 3,104 5 507 304 15 38 864 434 301 89 104 88 387 28 995 (15) (466) 1,017 $ 2,309 The accompanying notes are an Integral part of these financial statements. 42 fELANESE CORPORATION Consolidated Financial Stat'asenta (Cotic `d) Changes In Financial Position Notes Funds Iron operations: Net Income....................................................I............. Depredation............................................................... Cain on sale of structural composites operations............. .................. Amortization ol deferred pension gain.. 0 Tax provision less taxes paid....................... C,0 Changes In: Receivables.................................. C Inventories.................................. P Accounts payable and accrued liabilities.......... K Prepaid, other.......................................................... Net funds from operations....................... (millions) For the 'ears ended _____ Tr-'iber 31 1983 :984 1985 S 112 213 S 161 214 S 178 246 53 16 (25) - 07) 65 (1) 17 (61) (51) 20 38 27 87 (43) 413 13 (24) 408 45 7 443 Investments and other: Proceeds from sale of structural composites operations............. Capital expenditures............................................ Capitalized Interest..................................... .. Contributions of loint venturer................. Purchase of minority Interest of Fiber Industries, Inc..................................... Investments and advances.................................. Cumulative translation adjustments..... Other................................................................................. Net Investments and other........................ D D P (105) (6) 10 (119) - (12) 6 T3D (169) O', - .07) 55 TITo) 135 (159) (11) (32) 14 (49) (102) Financial transactions: Dividends....................................................................... Notes payable............... ............................................. Long-term debt Including current portion:................................................... Additions............................................................... Reductions.... ................................................ Capital stock (principally stock repurchase In 1984 and 1985)...................... Recovery of excess pension assets............ Set financial transactions L (67) 3 (63) (8) (61) 9 8 (42) 3 (95) 4 (80) iO (277) 051) - (298) (214) 389 Tl44) Cash and marketable securities: At beginning of year.................. At end of year.......... ..................... 104 196 166 F S 196 $ 166 5 369 The accompanying notes are an Integral part of these financial statements. 43 CELANESE CORPORATION Consolidated flcmlil Statements (Conc'd) Chassis In Retained Incone (millions) For the years ended December 31 1983 1984 1985 Net Income............... .. Preferred dividends Net Income Co common stockholders. Common dividends............... Retained Income: At beginning of year At end of year............ S112 (4) 108 (63) 735 $780 Slbl (4) 157 (59) 780 $878 $178 (4) 174 (57) 878 $995 The accompanying notes are an Integral part of these financial statements. Motes to Financial Statements Financial statement presentation The significant accounting policies followed by Celanese Corporation are underlined and are an integral part of the notes to which the policies relate. Principles of consolidation The consolidated financial statements include the accounts of the Corporatlon and all significant suDsldiarles and J oint ventures in which the Corporation owns in excess of 50Z of the voting rights, except Insurance subsidiaries. which arc carried at equity. All material intercompany transactions are eliminated. 44 Eotes to Financial Statwenta (Cont'd) (Millions) A. Total operating expenaes 1983 1984 1985 Raw materials and energy purchased............ ... (Increase)/decrease in Inventories...... Depredation.................................................................. Salaries and wages................................................... Retirement Income plans....................................... Other employee benefits....................................... Taxes: Payroll.......................................................... Prooerty and other............................... SI.925 26) (4) Advertising.................................................................... Royalties......................................................................... Other operating expenses.................................... SI ,881 17 214 569 (13) 67 39 29 44 20 5 184 Total operating expenses.......,,..,. 7 1 53,056 (a) Refer to Note T 'or a discussion of second quarter nonrecurring Items. SI,732 5 246 546 (22) 67 38 26 44 15 5 217 $2,919(a) "" ' " - 45 - Notes to Financial Statements (Coat'd) (Millions) 3. Investments and equity In net Income of affiliates Total: Sales................................................ Operating incone...................... Income before taxes............. .. Net incooe........................... ........ Celanese Mexic&na , S.A. All affiliaites 1983 1984 1985 1983 1984 ' 1985 ' 5 396 87 $ 550 101 5 *97 63 $ 694 S 898 $ 845 134 149 141 70(a) 59(a) 106(a) 115 101 180 63 44 92 84 49 125 Celanese share: Net income..................................... S 25 Dividends........................... ......... .. 1 Undistributed incooe............. 59 S 18 - 77 $ 37 2 112 $ 34 $ 28 $ 25(b) 66 9 95 117 133 Current assets................................ Net property, plant and equipment....................................... Other assets..................................... Tot-.xi assets.............................. $ 163 473 110 746 Current liabilities.................... Long-tera debt................................ Other liabilities......................... Interests of others.................... Celanese equity....................... Special provision (c)................ Celanese investment............. (62) (336) (42) (183) 123 (39) 5 84 6 216 432 164 812 (84) (331) (47) (210) 140 (39) $ 101 $ 181 424 271 876 (101) (324) (13) (263) 175 (39) $ 136 $ 292 $ 393 $ 366 855 121 1,268 829 188 1.410 557 2S4 1.217 (175) (510) (41) (329) (195) (566) (59) (351) (186) (358) (27) (379) 213 239 267 (39) (39) (39) $ 174 $ 200 $ 228 Number of affiliates.................. 12 13 13 (a) Indndes foreign exchange translation gains of $63 million in 1983, $48 Billion In 1984, and S78 million in 1985. (b) Includes a write-down of $21 million for certain assets In the second quarter 1985. (c) The special provision was nade because the Corporation believes that its investment In Mexico has been impaired by local economic conditions, and that it sill be unable to recover fully its equity after absorbing fixed charges. Notea to financial Statements (Cont'd) The Celanese share of income or loss of companies in which the Corporation owns at least 201 and not acre chan 501 of the voting stock. Is Included In the consolidated statements of Income a6 'Equity la net Income of affiliates.Debt Instruments of 402-owned Celanese Hexicana, S.A. (Celnex), due principally in U.S. dollars, Include various covenants that require maintenance of working capital and limit creation of funded debt and payment of dividends. Covenants under certain of these debt lnstrvsents precluded, without applicable lender cons> nts, additional funded debt and dividend declarations at December 31, lidi. During 1985, lenders waived the restrictions in order to permit Celcex to pay a dividend. At year--end 1985 , Celmex was current on all its peso and U.S. dollar principal and Interest obligations. - 48 Motes to Financial Stst' (Millions) its (Cont'd) D. Interests of others Minority incerescs in subsidiaries: Celanese Canada Inc......................................... Celanese do Brasil 5.A................................ Other........................................................................ Total minoricy interests..................... Joint venture interest*........,....... Total interests of others................. Minority share of: Income............................. ... Dividends...................... 1983 $9 6 1984 $ 51 2 3 56 56 $112 $2 1985 $ 51 3 54 50 S104 $2 1 In June 19b3, Celanese became the sole stockholder of Fiber Industries, loc. (FII) by purchasing the 37 1/22 interest formerly owned by Imperial Chemical Industries pic for $119 million in cash. As of December 30, 19 83, substantially all FII assets and liabilities were transferred to Celanese Corporation. The minority snare of income and dividends of FII's operations prior to June 1, 1983, is Included above. K. Income per share of comoa stock. 1983 1984 Average common shares (thousands): Used in primary computation......................................... Additions for: Convertible debentures................. Convertible preference stock.. Stock options....................................... 13,608 1,693 29 56 14,431 1 ,629 26 72 Used in fullydiluted computation.............................. 17,386 16,158 Fully dilucea Income adjustment............ ................ .. $5.9 $5.8 1985 12,706 524 21 _____ 98 13,349 $1.9 Fully diluted income per share reflects the addition of shares for convert ible debentures and preference stock and the related reductions in Interest expense and preferred dividends; and the addition of shares as calculated to recognize the potential effecc of options outstanding at prices below market. F. Cash ana marketable securities19841985 Cash on hand and demand deposits......................................................... Marketable securities, at cost (approximates marketKa)... Total cash and marketable securities........... ....................... .. $(23) 189 $166 $(28) 397 $369 (a)Primarlly time deposits, commercial paper, and U.S. government agency securities.  Notes to Financial Statements (Conc'd) (Millions) 1. Net property, nlanc and equipment; and maintenance and repairs Machinery and equipment........................................................................ Buildings and improvement:;................................................................. Rolling stock................................................................................................. Furniture and fixtures........................................................................... Other assets................................................................................................... Capitalized interest................................................................................ Depreciable assets............................................................................. Land...................................................................................................................... Construction in progress...................................................................... Total............................................................................................................. Accumulated depreciation...................................................................... Net property, plant and equipment.................................... .. 1981 $ 2,781 160 91 27 23 79 3,166 27 131 3,621 (2 .275) 5 1,319 Maintenance end repairs expense (S186 million in 1983) 5 194 1985 5 2,749 155 88 29 28 78 3,127 26 92 3,515 (2028) 5 1,217 $ 191 Property, plant and equipment includes the cost of land, buildings, equip ment, significant improvements of existing plant and equipment, and capltallzeo interest. Additions, icprovee-nts, renewals and expenditures for maintenance that add materially to productive capacity or extend the life of an asset are capitalized. Other no ' -ter.ance expenditures are charged to Incone. Generally, assets aie <rouped and depreciated on a composite basis. When facilities are sold or retired in the normal course of business, the orieinal cost of the asset adjusted by any net proceeds is charged or credited to the accumulated depreciation account. Depreciation is provided over the estimated useful lives of the assets on the straight-line method, except that the sun-of-the-years-digits ethod is used for n.S. nachiaerv and equipment acquired froa 1974 to 1977. The maxitBun estimated useful life for all N.S. machinery and equipment is 9-1/2 years. Capitalized interest is amortized over 10 years. J. Other assets 1984 1985 Proceeds of pollution control obligations...................... Investment in Elwood Insurance, atequity....................... Funded and prepaid pension cost.............................................. Long-term receivables...................................................................... Investment in New Business/Technology Other investments and advances................................................ Other............................................................................................................. Total other assecs.............................. ............................ S9 42 20 19 7 3 20 S120 $ 13 47 60 22 26 17 17 $203 Preoperating costs are expensed as incurred. Intangibles are amortized over their estimated economic lives. Notes to Financial Statements (Cont'd) (Millions) K. /ccounts payable and accrued liabilities 1984 Accounts payable.................................................................................. Salaries, wages and employee benefits............................... Taxes: Other than income taxes............................................... Withheld.................................................................................... Interest payable.................................................................................. Other accrued liabilities................................................. Total accounts payable and accrued liabilities.. $231 125 17 7 18 fc9 S467 1985 $216 141 14 6 12 118 $507 L. Long-cere debt and related restrictions With the exception of certain pollution control bonds, substantially all long-term debt matures serially. Total maturities and sinicing fund requirements for the next five years are: 1986, $38 million; 1987, $33 million; L9U8, $23 million; 1989, $22 million; and 1990, $33 million. Holders of $16 million of certain long-term pollution control obligations of the Corporation exercised their right to redemption at par pine accrued interest on April 30, 1985. On December 31, 1984, the Corporation reclassified $28 million of long-term debt as current, in anticipation of holders exercising this redemption right. The Corporation has redeemed the $16 million and reclassified the remaining $12 million as long-term. On July 25 , 1985, the Corporation called for redemption and retired the $ IOC r_____ on 10 7/81 debt due in July, 1987. The Corporation has Revolving Credit Agreements with several banks, until June 30, 1988, providing for loans of up to S10C million. Interest on out standing borrowings is to be adjusted periodically based on the bank prime lending rate, the London interbank borrowing rate, or the CD basis interest rate, at the Corporation's option. These credit lines were unusel during 1965. The Corporation's debt instruments include various covenants that require maintenance of working capital and limit creation of funded debt end pay ment of dividends. Additional funded debt nay be created, only if Immedi ately thereafter consolidated net tangible assets are at least twice consolidated funded debt, us those terms are defined in the debt instru ments. Under the most restrictive of these restrictions and covenants at December 31, 1985, the Corporation's consolidated working capital exceeded - 52 - Hotea to Financial Statements (Cont'd) CMillions) -he required minimum of 5160 Billion by 5137 million, and 5262 million of stockholders' equity was available for dividend or other restricted payments. Due 7/87 12/87 4/90 4/90 11/96 9/97 7/05 6/06 37-12 87- 91 88- 99 91-93 2/86 12/86 88-69 Oelaoese Q [ irarim 10 7/81 ooces........................................................................... 9.11 first norcgsge bonds..................................................... 4 1/41 notes.............................................................................. 4X convertible subordinated debentures............................ 9 1/4Z notes...................... 8.451 notes................................................................................ 11 7/81 sinking fund debentures.......................................... 9 3/41 convertible subordinateddebentures....................... 5 3/K to 111 pollution controlobligations..................... Other.......................................................................................... local Celanese Corporation............................................. i554 5 100 14 22 20 114 82 100 100 38 4 594 Q.S. Subsidiaries Virginia Gearlcals Inc. 10 5/SC senior axes and other........................................... 6 1/41 to 8 1/8S industrial reverue and pollution control obligations........................................ Tocal U.S. subsidiaries.................................................... 6 5 1 ttap-O-S. ftdsrl diaries (a) Celanese Canaria Inc. terelving credit obligations............................................... 6 1/2S debentures. Series C................................................. 7 1/2Z mortgage boob. Series A........................................ Celanese do Brasil 3 .A. floating rate axes........................................................... Ocher.......................................................................................... TOcal ncn-U.S. subsidiaries............................................ Total............................................................................... 38 2 3 11 3 57 5 662 (a) Grayrally payable la local currency. 1985 57 18 10 105 76 ICO 29 51 2 398 5 4 9 18 - 7 2 73 543* Hotes to pinarw-fal Sumrar (Coat'd) (Millions, except snares) M. Stockholders' equity DecenJaer 31, 1985 Shares autfaoriled (mUIIoob) emulative preferred-- Series A, 1 1/21 ($103 par value)........................ $85 Convertible preference, $3 (without par value)............ - 72 second ($100 par value)... __ 3 908,602 29,908 32,398 Total (a)...................................... $88 Shares issued and outstanding at Oeceaher 31 1933 1981 1985 (thousands, except 1585) 850.9 42.2 25.6 850.9 37.4 25.6 850,902 29,908 25,638 Cannon (' '.thout par value) (b) 50,000,000 15,680.7 13,523.8 12,020,620 (a) Preference in liquidation: (9 million. (b) Treasury shares were 135,477 in 1983, 2,511,019 in 1984 and 5,121,411 in 1985. Activity in Reserved at 1983 1984 1985 year-eal 1985 Co--nn shares: Beginning of year............................... .5,578,997 15,o80,744 13,523,759 Stock options - 1974 plan.............. 19,000 16,886 800 2,800 - 1930 plan.............. 111,223 70,628 125,213 133,123 - 1985 plan.............. - - - 343,095 Convertible - Debentures................ 1.140 48,324 1.104,282 524,222 - Preference stock.. 2,384 3,347 5,171 20,795 Innovation program............................. - 30 40 - Restricted shares - 1985 plan... Treasury stock...................................... - 5,655 (32,000) (2,296.200) (2,744,300) - End tf year.................. 13,523,759 12,020,620 1,024,035 The preferred stock. Series A, may be redeemed it the option of the Corporation at par pius accrued dividends. Each share of convertible preference stock may be redeemed at the option of the Corporation at S65 plus accrued dividends, and is convertible ac the option of the stockholder Into 0.6953 shares of common stock and cash of $1.15, subject to adjustment in certain events. Upon liquidation or dissolution, tne Series A and convertible preference stock are entitled, ixi preference to the 71 second preferred and cannon stock, to $100 and $55 per scare, respectively, both plus accrued dividends. 54 Notes to Financial Suiatmi (Conc'd) There Is no provision for redenption of the 71 second preference crock, which has a preference over ti'e common in liquldatxm or dissolction of $100 per share plus Accrued dividends. The conversion races of the 4Z and 9 3/41 convertible subordinated debentures (Note L) are one Celanese common share for each S92 and 571, respectively, of prlnclp.il amount of the debentures. Ir. '4p3 and 1984, the Corporation purchased 32.00C and 9b,200 treasury shares Intended for use upon exercise of stock options granted under the 1980 Stock Option Flan. Also in 1984, the Corporation purchased 2.2 million shares of Celaneoe common stock for general corporate purposes under various repurchase programs. In 1985, the Corporation announced plans to repurchase an additional 2,977,000 shares of which 2,744,300 had been purchased at December 31, 1985. In January 1986, the Corporation announced plans to purchase an additional 600,000 shares. All acquired shares are being held for general corporate purposes. N. Stock, options and appreciation rights The Corporation has three stock option award plans as adopted lc April 1974, April 1980, and April 1985. 1974 plan--This plan permitted options to be granted to employees for the purchase of 600,000 shares of common stock of the Corporation at the market price of the stock on the date of grant. Options oecome exercisable, in whole or in part, at any time following the first anniversary of the date of grant, and oust be exercised no later than ten years from the dace of grant. The 1974 plan Included an appreciation distribution feature that permits an optionee to elect, subject to the consent of the cotsnittee that administers the plan, to surrender options, in whole or in part, in exchange for cash equal to the appreciation between the option price and the market value on Che date of election. At December 31, 1985, options for 2,800 shares were cutstanding, all of which were exercisable. No further options may be pranced for fhe 1974 plan. - 55 - Notes to yinsnclal Statements (Cont'a) 1980 plan as amended 1". 1982--Options nay be granted to ecployots foe the purchase of 5UO.OOO shares of coonon stock of the Corporation at the sarket price of the stock on che date of grant. The plan also authorizes 500,000 Stock Appreciation Rights (SARs) to be granted. Like the opcices, SARs are granted at the market price of the coanon stock of the Corporation at the date of grant. An SAR entitles a participant to a cash payment from the Corporation equal to the excess of the fair aarket value of a share of common stock on the date of exercise over the initial value of the SAR. Options and SARs become exercisable. In whole or in part, at any time following the first anniversary of the date of grant, and must be exercised no later than ten years from that date. At December 31, 1985, there were outstanding options covering an aggregate of 133,123 shares and 34,200 SARs, all expiring ar various dates from 1990 to 1994 and exercisable at an average option price of S53.78 per share and on average Initial value of $82.37 per SAR. There were 48,750 shares available for future grants at the beginning of the year, and none available at year--end. In addition, there were 47,550 SARs available for future graces at the beginning of the year, and none available at year-end. 1985 plan--Cpclous and restricted 'took may be granted to employees for 300,000 shares of common stock of the Corporation, an additional 48,750 shares representing the number of phares previously subject to grant nnder the 1980 plan, and up to 25,000 shares representing options already outstanding under the 1980 plan to the extent that they expire without exercise. Options are awarded at the market price of the stock at the date of grant; restricted stock awards are valued at the market price of the stock at the date of grant. The plan also authorizes 300;000 SARs or restricted units an additional 47,550 SARs or units representing SARs previously subject to grant under the 1980 plan, and up to 25,000 SARs or units representing SARs already outstanding under the 1980 plan to the extent that they expire without exercise. SARs and restricted units are valued at the narket price of the Corporation's common stock at the date of grant. Cptions and SARs become exercisable. In whole or in part, after the first anniversary of the date of grant. Restricted stock and units vest evenly over a three-year period following the date of grant. All swards must be exercised m later than ten years from the date of grant. At December 31, 1985, there were outstanding options and awards of restricted stock coveting an aggregate 59,230 shares, and an equivalent number of awards for SARs and restricted units, all *_cpiring in 1995, and exercisable at an average price or initial value of 594.95. There were 289,520 shares available for grant at year-end, and 288,320 SARs or units available for grant. - 56 - Notes to Financial Statements (Conn'd) The Corporation provides for the estimated liability under the appreciation feature of the 1974 :>lan, the 1980 plan, and the 1985 pi in fvoo the late of grant and for the estimated liability for restricted sz< cV. awards over the vesting period. The Corporation panes no charge agains: incone with respect to the options under the i960 and 1983 plans. Stock options: 1*83 Outstanding at January 1...................... Crar.ted(a)................. ...................................... Exercised^ b)....................................... Surrendered for appreciation............. Terminated or cancelled......................... 489,950 51.700 133,500 31,100 3,800 Number of Shares 198-' 322,350 58 ,600 90,900 5,000 2,500 1985 282.550 53.575 127,527 19.100 - At December 31: Outstanding^c).. 322,350 Exercisable............... 272,250 2S2.550 224,550 189,498 135,923 Option price ranges of shares: (a) $59.38 for 1933, $68.00 and $71.88 for 1984 and $104.38 and $120.63 for 1985. (b) $37.94 to $62.31 for 1963, $31.63 to $62.31 for 1934,a-d $41.13 to 371.88 for 1985. (c) 329.25 to $66.69 for 1983, $41.13 to $71.So for 1964, and $41.13 to $120.63 for 1985. 57 Notes to Financial Statements (Conc'd) (Millions) A comparison of plan assets with the present value of accuaulated benefits for substantially all funded U.S. plans at Dececber 31, based on the In vestment return assunptlons above, follows. The 1984 plan assets and ac cumulated benefits are shown after the purchase of annuities for active a-d rerired particirants ' benefits accrued through January 23, 1934, and after giving effect to the recovery of the excess assets. Plan assets......................................... Accumulated benefits: Vested.... ................ .. Non-vested............ ....................... Total benefits...................... Assets over benefits................... 1984 S 32 1985 5 73 54 4 58 $ 15 (a) Restated to conform to 1985 presentation. The assets of the non-U.S. plans and one domestic plan not Included in the table above exceeded the present value of their vested benefits as of their most recent valuation dates. The Corporation and its subsidiaries provide certain health care and life insurance benefits for retired employees. Substantially all of the Corpo ration's U.S. and Canadian employees nay become eligible for those bene fits. Those benefits are provided through an insurance company whose prem iums are based on Che benefits paid during the year. Celanese recognizes the cost of providing the life (non-U.S. only) and health insurance benefits by expensing the annual insurance premiums. The U.S. retired life insurance cost is provided for hy amortizing over a ten-year period the present value of projected Insurance benefits. The Corporation expenaed $6 million in 1985 and 1984 for retired health and life lnsurauce benefits. Motes to Financial Statement* CCont'd) TmUTToobT P. Not-D.3. subsidiaries inside area- trade 1965: Canada $ Europe ScagTi rli-w Ttacal mn-C^S. 204 255 S3 569 (teno: O.S. $2,122 1984: Canada $ Europe South itxrlca Tocal non-U.S. 256 247 72 635 Ifeco: O.S. $2,332 1983: Canada S Europe South Aaerlta Toc2l1 nocril-S- 276 253 82 665 Item: U.S- $2,315 Sales bcx>rLs Trade Interco. Tocal Operating Depre 1:xree dation $ 57 2 4 & 8 66 8 56 $ 3Z7 265 57 631 $ 5 6 $ 21 $ 32 3 4 $ 39 $349 5247 $2,718 ,106 $207 Capital ejcpeaa- Total tures assets $12 $306 2 142 1 57 $15 $505 $ 58 2 U n $350 S 70 5 54 $197 $ 384 254 83 700 $2,879 $ 10 12 (4) $ 13 $254 S 33 3T $ 43 $17! $12 $342 3 ID 1 72 $16 S527 $ 57 I 4 8 $273 $ 55 2 45 $217 $ 388 256 86 713 $2,835 $ 11 21 (10) $ 22 SI92 $ 35 3 19 $ 57 $156 S12 ? $398 128 99 $15 $625 In general, local currencies Have been designated as the functional currencies tor the Corporations foreign operations, except In Brazil and Mexico, where the U.S. dollar la the function*1 cnrrency. Wotca to Financial Statements (Conc'd) TFIillioas) 0. Product group information 1985^ Oigsicals fibers Spedaltles Inter-pracjcr line eliminations Brazil/ art corporate Mexico Incase, expenses (a)__________ and assets Totals as shown in financial sra--eflCS Salas: Total....... $1,234 Trrer prrrtrT line Operating Inr-rmr.......... Deprtixr-lnn-........................ Cwr{ r.1 expenditures...... Aaeecs............................................. $1,500 270 33 57 83 95 82 44 71 876 831 $565 7 2 54 41 504 $V 4 4 1 44 $(310) (310) (19) 11 2 554 $3,046 -- 127 2>46 199 2.809 (984 Sales: Tocal....... 1,061 Inter-product line (derating Incooe.................. Depreciating................................. Capital expenditures......... Assets........................................ 1,646 131 21 93 157 32 61 51 66 946 854 676 83 6 42 (4) 59 7 38 1 597 56 (158 ) (158) (16 ) 5 13 651 3,328 272 214 169 3,104 19S3 Sales: Total....... 1,015 Inter-product line Operatic income. 37 Depredating......................... Capital expenditures.......... Assets............................................ 1,633 124 16 162 88 66 24 49 933 897 667 66 27 (11) 38 19 31 670 84 (140) (140) (1) 2 2 285 3,261 214 213 105 2,869 (a)Qdudes Celanese MexlChna, S.A. and Brazilian affiliates, Hetanor S-\. and Copeaor SJL, which are included in "Investaents and equity in net irvrxre of affiliates' (Note B). The nature of the business and the products offered by the Corporation and Its subsidiaries and affiliates appear in the Description of Business. Inter-product line and inter-area sales generally are priced with reference to prevailing market prices. Corporate assets, primarily investments and in 1984 a receivable related to the Corporation's recovery of excess pension assets Included in the next-to-laat column in the table are: $314 aillion in 1983, $713 million in 1984, and $613 million in 1985. Note* to Financial Statements (Conc'd) (Millions) S. Inflacioo--adjusted Information (unaudited) Current accounting rules require the presentation of financial results and investment based on a constant unit of value, using current cost/constant dollar, uhich makes adjustments to historical amounts using cost Indexes that are specific to a company's lines of business. Under this method, the principal Income statement adjustnents are to cost of goods sold, unless the financial statements already reflect such costs on a current basis because of the use of the last-in, first-out (UFO) in ventory valuation method, and to depreciation expense. There is no corre sponding adjustment to income taxes because they are based on historical costs and do not recognize the changing value of the dollar. The principal adjustments needed in balance sheet values are in Inventory (especially when LIFO is used) and property, plant and equipment values. These values, however, may not be in excess of net recoverable amounts as of any of the dates presented. As the value of the dollar declines, assets and liabilities fixed in dol lar terms will be realized in or liquidated with dollars of lower value. Themfore, one further adjustment is required with respect to the change in the value of such items. This results In an unrealized gain or loss, de pending upon whether the net balance of such items la a liability oc an asset. If a net liability exists, there is a gain that increases stock holders' equity. If the specific assets held by a company Increase in value more or less rapidly than the general rate of Inflation as measured by the Consumer Price Index for All Urban Consumers (CPI-U), there is a further gain or loss thac is reflected for the difference chat arises from using specific Indexes rather than a general CPI-U Index. The current accounting rules referred to earlier also do not permit index ing of the assets of companies purchased prior to Che acquisition date. Generally, these assets can be valued no higher than the market value of the shares given (plus any cash) st the time of acquisition. Inasmuch as the marketplace does not generally value common stocks sc inflationadjusted values, the dilutive effect of acquisitions for stock la magnified in inflation-adjusted Information. The cable below sbws changes In stockholders' equity per common share for 1981-85 using historical dollar amounts adjusted to average 1985 dollar values by the use of indexes specific to the Corporation's various busl- Hotes to Financial Statements (Conc'd) (Hlllions, except per share) Inflation-adjusted net income wag belov historical aoounts In all five years, principally because of depreciation expeure adjustments. The depreciation aethods and useful life estimates are unchanged fro* those used in the historical financial statements. No adjustments were made vlth respect to the Corporation's interests in the net assets or results of affiliates.- The reduction in stockholders' equity per common share during 1981 due to acquisitions for stock is principally related to Virginia Chemicals Inc. StodctiolifezB' equity per con share: Bcpressed in average 1985 dollars as calculated by use cf changes in 1961 1962 1963 1964 1965 1961-55 Net InraW (loss).................................... S 3.94 $(10.40)(a) S 3.01 $ 6.74 $ UJ4 S 14.53(a) Cain on net liabilities and preferred stock........................... 4.06 1.98 2.22 2.54 2-69 13.49 (Vrapenlea acqulried for stodc ...... (6 -45) - -- - (6.45) Increase In assets or/(ifflder) Increase In C?I-U.............................. .. (.50) .28 (3-27) (4.15) (5-04) (12.68) Purchase of treasury snores and other................................. .14 (J5> 4.28 (4.7B) (.61) Total Increase/(decrease).... 1.15 (8.00)(a) 1.61 9.41 4-11 8.28(a) Dividends.................................................. .. (4.33) (4.23) (4.17) (4.16) (4-30) (21.39) Net lncresse/Cdecrease)........... .. (3.18) . (12-23)(a) (2-56) 5.25 (-39) (13.U)(a) Equity --beginning of year.................. .. 116.30 113.12 100-89 97.51 101-56 116.X emulative tramlarlnn adjust:amts........................................... _ _ (.82) (1.20) 1-07 (.95) --end cf year............................... $100.89 $97.51 S101.56 $C2JA $102.24 (a) TnrbyW special prevision for f>.LModems, S-A- (Note B). The tables that follow present additional historical and inf latlon-adjusted Information. ItatEB tp Pinwncial Sawma (Coot 'd) Qtlllinos, exrfpt per tJare)~ Selected finmrlal ckta: Coer ac goods sold -excluding flepreci x lna............ Desredatloa................................. Ner lnrrop/doss)......................... Effective tax race....................... Cain cn oec liabilities and prtferrsd stodc.................. Ccnaon stoddpl decs' equity at year-end.................... Increase in assets over/(xxxier) CP1-U..................... Per financial statssents: Inventories at year end.... Net property, plazx and equifnerc at yar end......... Adjiscad to 1985 year end cxiHats: Inrencodes ac year-end.... Net property, plant aod equipoenc at year-end..... Depressed lr. average 1985 dollars as calculated bv use of changes in specific lndesas 1981 1962 1983 -1964 53,255 298 61 42 S2.634 278 (162)(a)i <b) $2,605 278 47 542 52 >7 267 97 512 69 36 37 37 1,765 1,572 1.530 1,373 (ID 5 (54) (61) 443 1,518 ..20 I,KB 445 1,445 428 1,349 744 1,975 647 2,138 592 1,899 551 1,703 (a) Include special provision for Celarveee Modcara, S.A. (ftoce 3), (b) Iffactive tax race Is negative. 1985 $2,330 274 143 29J 35 1,229 (65) 389 11217 -471 1,465 S^pleMecczry 1modal &tai(a) Sales As reported Average 1985 dollars Per share of man scoot Dividends Market price at year end As reported Averaf* 1985 dollars As reported Average 1985 dollars 1981 1982 1983 1984 1985 S3,752 3,062 3,261 3,328 3,046 $4,438 3,413 3,521 3,447 3,046 $3.85 4.00 4X0 4.10 4.50 $4.55 4.46 4.32 4.25 4.50 $ 55.38 45.25 69X0 $ 63.96 49.86 73.25 00 b n 150125 147.86 Mas: CP1-0 YearAverage end 272.4 289.1 298 Jt 311.1 V3J. 281.5 292.4 333.5 313-5 3Z7J4 (a) Average 1985 dollars are i-al/n.l.red by use cf changes In Che CFI-U. - 65 - rtf-y;.'. .O'.. a'-' t* - ' " " : ' s .. Ho'jlm to Financial Statements (Cont'd) (liiillons, except per share) T. Quarterly Information (unaodited) 1984 1985 IQ 2Q 30 40 Sales........................................... Cost of goods sold.... Operating income.............. Income--(let.............................. -Per common share 5837 666 82 44 2.74 5860 683 89 47 3.05 5806 5825 647 7UC 71 30 38(a) 32(a)(b) 2.73(a)2.31(a)(b) 5748 606 56 36 2.60 5780 5758 707(c) 630 (21)(c) 41 45(c) 47 3.35(c) 3.73 5760 612 51 50 4.11 (a) Termination costs of 48f per share, or S6 million, related to the consolidation of polyester textile filament capacity were provided for over the third and fourth quarters. (b) Includes a net charge of 31^ per share, or 54 million, to reduce the carrying value of certain water-soluble polymers fixed assets. This charge was largely offset by a gain of 26^ per share, or S3 million, relating to the sale of assets and certain non-recurring credits for Brazil/Mexico. (c) Operating results in the second quarter of 1985 were affected by three non-recurring items that reduced net lnco-me by 54 million: a gain of 561 million on the sale of structural composites operations; a write-down of certain assets by 557 million and a provision of 58 million to cover che cost of restructuring programs. The effect was to reduce operating Income by 593 million, to increase other income by S86 million, and to reduce equity in net income of affiliates by 521 million, income tax provision by 523 million and minority Interest by 51 million. - 66 - t Schedule V 1983, 1984 and 1985 CONSOLIDATED PROPERTY, PLANT AND EQUIPMENT (millions) TEARS ENDED DECEMBER 31 Beginning Additions or year at cost Retirsments Ocher additions/ (deductions) End of year 1983-tlachinery and equipment Buildings and improvements Rolling stock Furniture and fixtures Other assets Capitalized interest Land Construction in progress Total 52,633 463 82 30 47 66 26 329 53,681 $273 25 1 1 2 6 5 (202) $111 $ 47 4 5 2 5 ____ 2 $ 65 $7 (1) 4 - (5) 1 (4) (13) $(11) $2,366 488 82 29 39 73 27 112 $3,716 1984-Machinery and equipment Buildings and improvements Rolling stock Furniture and fixtures Other assess Capitalized Interest Land Construction in progress Total 52,866 488 82 29 39 73 27 112 53,716 $111 12 12 2 1 9 X 30 $178 $181 20 2 2 i i - $207 $(15) (20) (1) (2) (12) f 2) (11) 5(63) $2,761 460 91 27 26 79 27 131 $3,624 1985-Machinery and equipment Buildings and improvements Rolling stock Furniture end fixtures Other assets Capitalized interest Land Construction In progress Total $2,781 460 91 27 28 79 :j 131 $3,624 $137 15 1 4 ' li. - (1) $170 $142 20 A 3 4 2 2 ___23 $200 $(27) " ~ 1 1 (10) i (15) $(49) $2,749 455 88 29 28 78 26 92 $3,545 68 Schedule VI 1963, 1964 and 1985 CONSOLIDATED ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EOL'TPKENT (alllions) YEARS ENDED DECEMBER 31 Beginning of year Additions charged Other to costs 6 additions/ End expenses Reciremenrs (deductions) of vear 1983-ttachinery and equipment Buildings and improvements Rolling stock Furniture and fixtures Other assets Capitalized interest Total 51,812 199 34 17 20 4 $2,086 $180 17 6 2 2 6 5213 5 42 2 5 2 2 - S 53 $ 24 5 " (4) $ 25 $1,9'' 214 40 17 16 10 $2,271 1984-tlachinery and equipment Buildings and improvements Rolling stock Furniture and fixtures Other assets Capitalized interest Total 51,974 214 40 17 16 10 52,271 5182 13 6 2 1 ____ 8 5214 5163 11 2 2 ______2 5178 $(16) (13) (1) (2) 5(32) $1,977 205 44 16 17 16 $2,275 1985-Machinery and equipment Bui1dings and Improvements Rolling stock Furniture and fixtures Other assets Capitalized interest Total $1,977 205 44 16 17 16 $2,275 $208 15 T 2 1 13 $246 $140 6 3 2 3 ~ $154 $(30) (1) 2 - (i) (9) $(39) $2,015 213 50 16 14 20 $2,328 s. DlsagreeaenCF on Accounting and Financial Di;:oaure Schedule 10-i -age Independent Certified Public Accountants' Report II Amounts receivable on notes iron directors, officers and ~ employees....................................................... 67 V Consolidated property, plant and equipment............................................ 6S VI Consolidated accumulated depreciation of proBMfy, plant and equipment............................................ 9 IX Consolidated short-term borrowings.................................................... 70 (2) Exhibits 7.1 Composite Certificate of Incorporation of Celanese as amended to May 12, 1981 (filed as an Exhibit to the Celanese Quarterly Report on Fora 10-Q for the interim period ended June 30, 1981, and incor porated herein by reference) . 3.2 By-laws of Celanese as amended to May 30, 1984 (filed as an Exhibit to the Celanese Quarterly Report on Fora 10-Q for the interim period ended June 30, 1984, and incorporated herein by reference). 4.1 Form of Indenture between Celanese and Trustee relating to the 42 Convertible Subordinated Debentures due 1990, including the form of the Debentures (filed as an Exhibit to Form S-l P.eqistratlcn Statement No. 2--2317S fi'ed February 17, 1965, and Amendments 1 and 2 thereto and incorporated herein by reference). 4.2 Form of Indenture between Celanese and Trustee relating to the II 7/82 Sinking Fund Debentures, due 2005, including in Section 2.01 and 2.02 thereof, the form of the Debentures (filed as an inhibit to Form S-16 Registration Statemert No. 2-68454 filed July 21, 1930, and Amendment No. 1 thereto and incorporated herein by reference). 4.3 Form of Indenture between Celanese and Trustee relating to the 9 3/42 Convertible Subordinated Debentures due 2006, including in Section 2.02 thereof, the form of the Debentures (filed as an Exhibit to Fora S-16 Registration Statement No. 2-71119 filed March 4, 1981, and Amendment No. 1 thereto and incorporated herein by reference). 4.4 Celanese agrees to furnish to the Commission upon request a copy of any other instrument with respect to long-term debt of Celanese and any subsidiary for which consolidated or unconsolidated financial statements are required to be filed and as to which the amount of securities authorized thereunder does not exceed 102 of the total assets of Celanese and its subsidiaries or. a consolidated b-'isis. - 72 - 10.! Employment Agreement between Celanese end John D. Macomber dated June 1, 1973 (filed at an Exnibit to the Celanese Annual Report on Fora 10-K for the fiscal year ended Deceaber 31, 1984, and incorporated herein by reference.) 10.2 Employment Agreeoents between Celanese and (i) John V. Brooks dated July 29, 1977; and (il) R.L. Mitchell as amended as of October 28, 1977 (filed as Exhibits to the Celanese Annual Report on Form 10-K for the fiscal year ended December 31, 1977, and Incorporated herein by reference). 10.3 Amendment as of November 1, 1977 to Employment Agreement previously filed between Celanese and John D. Macoaber (filed as an Exhibit to the Celanese Annual Report on Form 10-K for the fiscal year ended Deceaber 3 1 , 1977 , and incorporated herein bv reference). 10.4 Amendments Co Employment Agreements previously filed between Celanese and (i) John W. Brooks as of December 1, 1978; (ii) John D. Macoaber as of October 1, 1978; and (iii) R.L. Mitchell as of December 1, 1978 (filed as Exhibits to the Celanese Annual Report on Fora 10-K for the fiscal year ended December 31, 1978, and incorporatt-i herein by reference). 10.5 Amendment as of January 1, 1981 to Employment Agreement previously filed between Celanese and John D. Macomber (filed as an Exhibit to the Celanese Annual Report on Form 10-K for the fiscal year enaed December 31, 19S0, and incorporated herein by reference). 10.6 Amendments to Employment Agreemerts previously filed between Celanese and (i) John D. Macomber as of July 15, October 28 and November 25, 1981;- and (ii) P..E. Mitchell as of October 28, 1981 (filed as Exhibits to the Celanese Annual Reoort on Form 10-K for Che fiscal year ended Deceaber 31, 1981, and incorporated herein by reference). 10.7 Employment Agreement as of October 78, 1961, between Celanese and C.R. Tuliy (filed as an Exhibit to the Celanese .Annual F.erort on Form 1C--E for the fiscal year ended December 31, 1981, and Incorporated herein by reference). 10.8 Amendment as cf August 15, 1982 to Employment Agreement previously filed becveec Celanese and John V. Brooks (filed as an Exhibit to the Celanese Annual Report on Form 10-K for the fiscal year ended Deceaber 31, 1982, and incorporated herein by reference). 10.9 Employment Agreement dated December 1, 1985 between Celanese and Richard M. Clarke. 10.10 Employment Agreement dated December 1, 1985 between Celanese and truest H. Drew. 10.11 Amendments to Employment Agreements previously filed between Celanese and (i) John D. Macomber as of May 27, 1985; (ii) R.L. Mitchell aa cf November 27, 1985; and (iii) C.R. Tuliy as of November 27, 1985, - 73 - 10.12 Celanese 1974 Stock Option Avars Plan, as amended, as of January 27, i9s: (fiied as an Exhibit to Post-Effective Amendment No. 11 to Form S-3 Registration Statement No. 2-31032 filed April 30, 1582, and Incorporated herein by reference). 10.13 Celanese iS80 Stock Option and Long-Term Award Plan, as amended, as o: February 1, 1985 (filed as an Exhibit to the Celanese Annual Report on Form 10-K for the fiscal year ended Deceober 31, 1584, and incorporated herein by reference). 10.14 Celanese 1985 Stock Option and Long-Term Award Plan. 10.15 The Executive Pension Plan of Celanese, as amended, as of January 1, 1986. 10.16 Celanese Supplemcntr.1 Pension Plan to Retirement Income Pension Plan (filed as an Exhibit to the Celarosa Annual Report on Form 10-t for the fiscal year ended December 31, 1977, and Incorporated herein by reference). 10.17 Grantor Trust Agreement, between Celanese and Bankers Trust Counacy. dated December 27, 1985, for payment of benefits under the Executive Pension Plan. 10.18 The Celanese Executive Medical Plan, effective January 1, 1984 (filed as an Exhibit to the Celanese Annuel Report on Form 10-K for tie fiscal year ended December 31, 1984, and incorporated herein by reference.'' 10.19 Rider covering additional coverage for officers under the Celanese Life and Accidental Death and Dismemberment Insurance Plan, as_ of January 1, 1981 (filed os an Exhibit tt the Celanese Annual Report on Form 10-K for the fiscal year ended December 31, 1981, and incorporated herein by reference). 10.20 A description of the Celanese Executive Homeowner, Automobile and Excess Liability Insurance Program, as of January 1, 1985 (filed as an Exhibit to the Celanese Annual Report on Form 10-K for the fiscal year ended December 31, 1984, and incorporated herein by reference.) 10.21 A description of the Celanese Tax Return Preparation and Tax Caaiselijig_ Program for selected key executives (filed a an Exhibit to Fort S--15 Registration Statement No. 2-70320 filed December 19, 1980, and incorporated herein by reference). 10.22 A description of Executive Dining Room privileges for selected key executives (filed as an Exhibit to the Celanese Anneal Report on Fora 10-K for the fiscal year ended December 31, 1982, and Incorporated herein by reference). 20.23 A description of the Cardio-Fitness Program for selected key executives, as of January 1, 1584 (filed as an Exhibit to the Celanese Atanal Report on Fora 10-K for the fiscsl year ended December 31, 1954, and Incorporated herein by reference). Frederic C. Hamilton* Vernon E. Jordan, Jr. Bovard C. Kauffmann* Paul L. Hiller* Robert L. Mitchell* J. Paul Scicht* Director DirecccDirector Dlrtfor Director and Vice Chairman Director *Robert A. Longman, by signing his name hereto, does sign this document on behalf of each of the persons indicated above pursuant to powers of attorney duly executed by such persons, filed with the Securities and Exchange Comission. CHIBITS TO 1985 ANNUAL REPORT OK FORM 10-K Attached exhibits are as follovs: 10.5 1C. 10 10.11 10.14 10.15 10.17 24.1 25.1 25.2 Employment agreement dated December 1, 1985 betveen Celanese aid Richard M. Clarke. Employment agreement dated December 1. 1985 betveen Celanese a-/i Ernest E. Drew. Amendments to Employment Agreements previously filed betveen Celanese and (1) John 0. Macomber as of Kay 27, 1985; (li) R. L. Mitchell as of November 27, 1985; and (ill) C. R. Tully as of November 27, 1985. Celanese 1985 Stock Option and Long-Term Avard Plan. The Executive Pension Plan of Celanese, as amended, as cf January 1, 19S6. Grantor Trust Agreement, betveen Celanese and Bankers Trust Company, dated December 27, 1985, for payment of benefits under the Executive Pension Plan. Consent of Independent Certified Public Accountants. Povers of attorney, dated in February 1986, for directors and officers of Celanese authorizing Robert A. Longman to sign this 10-K on their behalf. Certified copy of resolution adopted by the Board of Directors of Celanese on January 29, 1986, autnorizing officers to sign this 10-K on behalf of Celanese pursuant to povers of attorney.