Feb 3, 2009
Executives
Mark Oberle - Vice President of Investor Relations and Public Affairs David N. Weidman - Chairman and Chief Executive Officer Steven Sterin - Senior Vice President and Chief Financial Officer
Analysts
David Begleiter - Deutsche Bank Securities Kevin Mccarthy - Banc of America Merrill Lynch Frank Mitsch - BB&T Capital Markets Prashant Juvekar - Citigroup Sergey Vasnetsov - Barclays Capital Michael Judd - Greenwich Consultants Bill Hoffman - UBS Jonathan Goldberg - Highline Capital Management
Operator
Good day, ladies and gentlemen and welcome to the Fourth Quarter 2008 Celanese Corporation Earnings Conference Call. My name is Becky, and I will be your coordinator for today.
At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference.
(Operator Instructions). I would now like to turn the presentation over to your host for today's call, Mr.
Mark Oberle. Please proceed.
Mark Oberle
Thank you, and welcome to the Celanese Corporation fourth quarter 2008 financial results conference call. My name is Mark Oberle, Vice President of Investor Relations and Public Affairs.
On the call today are David Weidman, Chairman and Chief Executive Officer; and Steven Sterin, Senior Vice President and Chief Financial Officer. The Celanese Corporation press release was distributed via Business Wire this morning and is posted on our website, celanese.com.
The PowerPoint slides referenced during this call are also posted on our website. During this call, management may make forward-looking statements concerning, for example, Celanese Corporation's future objectives and results, which will be made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.
These statements are based on management's current expectations and are subject to uncertainty and changes in the circumstances. Actual results may differ from materially from these expectations due to changes in economic, business, competitive, market, political and regulatory factors.
More detailed information about these factors is contained in the earnings release and in Celanese Corporation's filings with the Securities and Exchange Commission. Celanese Corporation undertakes no obligation to update publicly or revise any forward-looking statements.
Celanese Corporation's fourth quarter 2008 earnings release references the performance measures operating EBITDA, affiliate EBITDA, adjusted earnings per share, net debt and adjusted free cash flow as non-U.S. GAAP measures for the most directly comparable financial measures presented in accordance with U.S.
GAAP and our financial statements, and for a reconciliation of our non-U.S. GAAP measures to U.S.
GAAP figures, please see the accompanying schedules to our earnings release which will also be posted on our website, celanese.com. This morning, David Weidman, will review the performance of the company, and Steven Sterin will provide an overview of the business results for each segment and the financials.
We'll have a question-and-answer period following the prepared remarks. Now, I'd like to turn the call over to Dave Weidman.
Dave?
David N. Weidman
Thanks Mark. And welcome everyone to today's call.
Steven Sterin and I will spend the next few minutes sharing our thoughts on our fourth quarter results, the unprecedented recent market conditions and most importantly in our mind, Celanese's longer term objectives and our continued focus on executing our global value creative strategies. Now, as you saw in our announcements the real highlights in fourth quarter's performance was our solid cash generation in the historically weak global demand environment.
While our EPS numbers were negatively affected by a non-cash inventory accounting impact, Celanese delivered cash for our shareholders. Steve will walkthrough the detailed financials in just a moment.
As we begin, I'd ask you to turn to page five of the PowerPoint presentation. This chart which we first published in December, shows the expected business performance of each of our segment throughout any economic cycle.
First on the left is our performance of each segment through an economic cycle. Normalized EBITDA, peak conditions are on the left, this might be comparable to the first half of 2008.
Next on the right, in normalized trough conditions or what we define as no growth global recession. Fourth quarter was clearly a period of sub-trough market conditions due to de-stocking and accounting impacts, which I'll discuss in a minute.
But first, I believe it's important for our investors to clearly understand how we view the company in these normalized trough conditions. Let's start with our foundation in the Consumer Specialties segment, which is made up of acetate fiber and high intensity food sweetener businesses.
These stable, cash generating businesses are relatively, economically insensitive. We wouldn't expect to see much change in volumes and would actually expect to see margins improve slightly as key raw material and energy prices decline.
And that's exactly what we're seeing to-date. In Industrial Specialties, you also would expect to see some modest improvement in margins as pricing in these markets tends to be a bit sticky when energy and raw materials prices decline.
You should expect to see some volume decline relatively inline with global GDP or perhaps even a bit more when the housing slowdown leads within an investor recession like we saw in 2007 and 2008. These businesses tend to have less inventory throughout the customer supply chain, so they also tends to be less in stocking.
Turning now to the Advanced Engineered Materials. In today's environment, we have a relatively stable pricing.
With raw material and energy costs coming down, there is variable margin expansion. Long-term, our application development pipeline remains very robust, as Celanese development engineers work closely with our customers on next generation applications or cost reduction programs.
These positive trends, however, are being negatively impacted by sharp volume decline. We continued to be successful in our growth efforts such as increasing the value per vehicle or innovative solutions in dozens of other markets and our expansion in China.
In Acetyl Intermediates, we would expect industry demands to be down from peak conditions. Pricing should also be lower, reflective of more raw material and energy input costs and the industry operating at a lower point on the cost curve.
But due to our position on the cost curve, we expect stronger margins than other less advantage intermediate products are certainly stronger than commodity chemicals in general. With Celanese integrated business model and leading technology, we're able to generate significantly higher margins than others in the same trough conditions.
I've also included an updated review of the cost curve on page six. We defined and differentiated the production in China to reflect what we've recently seen in the region.
Broadly speaking, we see the two distinct groups of competitors in China with very different cost positions. In addition to the ethanol and ethylene producers that have shutdown another 10 to 15% of the market, either curtailed production significantly or seized production altogether as pricing declined during the fourth quarter.
And this cost curve remains intact. The great news for Celanese investors is that when 20 to 30% of the industry is shutdown or is not covering the cash cost, Celanese is able to deliver EBITDA margins in the 13 to 15% range.
And as you've heard us say many times, our advantage technology and low cost position in the industry provides superior returns for our investors. But the current environment is clearly more challenging than the normalized trough scenario that we just outlined.
During the fourth quarter, performance was below what we would consider a normalized trough for two primary reasons, each of which was deepened by the global economic crises. First reason is broad based de-stocking.
Most of our markets took extreme measures to manage their working capital positions and preserve cash. For us, the impact in Asia was the largest, followed by Europe and then by the America.
Our Acetyls Intermediate's business volumes were the most impacted as PTA, textile industry construction and brand industrial production in Asia were practically shutdown for a big part of the fourth quarter and early into 2009. Advanced Engineered Materials also felt the impact of the chaos in the global automotive industry.
Compounding the de-stocking impact was a necessity for many companies to try to exit the year with low working capital levels to meet debt covenants or for other self-imposed reasons. Now the second reason for lower than normalized trough performance was the collapse of raw material prices during the quarter and the associated non-cash doubtful inventory accounting practice within Celanese.
During the quarter, we also aggressively managed our production volume to set inventory levels as lower demand requirements. This has the short-term impact of creating a negative inventory drought expense.
Steven will provide detail in a moment, but these two factors resulted in approximately $100 million of non-cash inventory accounting impacts on fourth quarter earnings. As we look at our businesses in the regions around the world where we compete today, not much has changed from what we saw on average in fourth quarter performance.
In Asia, there has been some margin stabilization, which slightly indicates that we are nearing the end of that region inventory de-stocking. But we have not yet seen a meaningful or sustained increase in demand.
And expect the first quarter to be similar to the fourth. Although, we expect de-stocking to subside throughout the year and in the longer-term, believe that government's fiscal and monetary efforts will be positive.
They have yet to have an impact on our short-term demand environment. Globally, we'll see less downside risks than we saw 90 days ago, primarily because of the aggressive inter-bank pension in the banking sector.
But we do not see now, nor do we expect to see some material positive indications of the recovery. I'd like to move now to actions that we're taking during these challenging and difficult times to strengthen our businesses, both for the short-term and into the future.
These actions can be grouped into three areas: first, reducing fixed expense... fixed spending; second, further strengthening our manufacturing footprint; and third, lowering scalable costs or those costs more directly related to production rates.
We're executing plans which will significantly reduce our global fixed spending, which is just over $1.5 billion annually. These are non-energy, non-scalable expenditures in SG&A, manufacturing, R&D and other areas.
We expect these reductions to be sustainable over an extended period, and judge that they will expand our earnings power both through and beyond this downturn. So far, we have identified and are executing on between a 100 and $120 million of fast payback, fixed expense reductions throughout our businesses.
Efforts are underway to identify an aggressively reduced spending even further. One element under scrutiny that would be above the 100 to $120 million already identified, is further streamlining of our manufacturing footprint.
A few days ago, we announced that we were assessing the potential closure of higher cost production facilities such as those in Pardies, France and Cangrejera, Mexico as well as looking at other actions. In current and projected future demand environment, we believe it's important for us to aggressively balance global productions with global demand to strengthen our businesses.
We look forward to sharing more as decisions in this area are finalized. Now, finally Celanese has put actions in place to reduce scalable spending through steps such as lot productions or batch manufacturing facilities, the reduction or elimination of outside contractors and further reduction of our distribution costs.
Depending on demand, this could result in 2009 savings of up to $60 million. So, to summarize as of today, we have identified and begun to reduce fixed spending totaling around 10% of our $1.5 billion base; and that's just the start.
Additionally, we expect to aggressively align our manufacturing capacity with our view of future demand requirement to further reduce our fixed spending and position the company for expanded earnings as we exit the downturn. With that, I'll now turn the call over to Steven.
Steve?
Steven Sterin
Thanks Dave. Let's begin with our overall company results on page eight of our PowerPoint presentation.
Net sales were approximately 1.3 billion in the fourth quarter 2008, down 27% from last year's results. As Dave mentioned, our businesses experienced 26% lower volumes when compared to last year, which is what's driving this decrease in revenue.
Operating profit was the loss of $152 million versus $324 million a year ago. These results include $94 million in fixed-asset impairment charges, associated with the actions we're considering to reduce fixed costs, including the potential closure of our assets and VAM units in Pardies, France and the VAM units at our Cangrejera, Mexico facility.
Operating EBITDA was 68 million versus 349 million a year ago. If you exclude the negative effects of the inventory accounting which Dave mentioned totaling approximately 101 million, operating EBITDA on an equivalent basis would have been a $159 million.
As we said in the press release, these non-cash accounting charges related to our use of the FIFO inventory accounting method as well as the impact of inventory draw due to our prudent management of production levels in the quarter. Adjusted EPS for the quarter was the loss of $0.38 versus the profit of 93 in the prior year.
These results exclude the pre-tax 105 million of other charges and adjustments, which were primarily the fixed asset impairment charges as well as other restructuring costs. Also, the inventory accounting impact which is included in these numbers was approximately $0.48 per share.
Now, I'd like to highlight the fourth quarter performance and our current outlook for each of our businesses. Let's begin with Consumer Specialties on page nine.
Net sales were 286 million, a 7 million improvement from last year. Higher pricing and continued strong demand drove the increase and lower raw material and energy costs resulted in expanded margins.
Operating EBITDA was 55 million, up from 57 million a year ago. As we've said before, our Consumer Specialties businesses are relatively economically insensitive, and they have been able to deliver higher, sustainable earnings during these challenging economic times.
In 2009, we expect earnings in this business to increase with relatively stable volumes, expanded margins as energy and raw material costs are expected to be lower in 2009 than in 2008. Let's now turn to Industrial Specialties on page ten.
Net sales were 277 million, compared to last year's result of 331 million. We were able to increase pricing by 7% year-over-year, which helped to offset the significantly lower volumes and weakened demand in North America and Europe and the unplanned outage at our AT Plastics facility.
We continued to have good success in introducing our products in Asia and saw decent growth in this market. Our operating EBITDA was 8 million compared with 41 million from prior period.
In addition to the lower volume impact driven by weak economic conditions, there were 15 million of inventory accounting impacts in the quarter. Due to anticipated slower growth, we expect volumes in North America and Europe to remain under pressure in 2009.
However, continued expansions into new market and product opportunities should help to offset some of this volume weakness. We also expect this business to benefit from lower raw material and energy costs year-over-year.
Turning now to Advanced Engineered Materials on page 11. Net sales were a 195 million compared with 253 million last year.
Pricing in this business was up 6% in the quarter, as we were able to maintain our pricing that is high value and used products. However, the higher pricing was not able to offset the sharp reduction in volumes, primarily caused by substantial declines in U.S.
and European automotive production. Volumes in many of our non-automotive applications were only down modestly.
Operating EBITDA was the loss of 3 million compared with the profit of 45 million last year, and included approximately 23 million in inventory accounting impacts. For 2009, we expect improved margins in this business, as raw material and energy costs ease and as pricing levels are sustained, which should help offset continued volume declines in many of our key end markets, particularly automotive.
Turning to page 12. Net sales for Acetyl Intermediates were 656 million, compared with 1.1 billion last year.
Volumes were down 30% year-over-year due to the unprecedented inventory de-stocking and our customer supply chains to lower overall global demand. While North America and Europe experienced some declines, Asia was particularly hard hit.
Lower pricing for acetyl products related to both lower demand levels and lower formula based pricing for many acetyl derivatives, also contributed to the decreased revenues. Raw material and energy costs did ease in the period, but due to our use of FIFO inventory accounting we were not able to fully recognize the benefits of the lower costs in the quarter.
Operating EBITDA was 21 million compared with 231 million last year. It included approximately 63 million of inventory accounting impacts.
Dividends from our IbnSina cost investment were up 7 million in the quarter compared to a year ago, contributing 29 million operating EBITDA. For 2009, our Acetyl Intermediates business is expecting continued weakness in global demand, but should benefit as de-stocking moderates across our customer supply chains.
Additionally, margins should stabilize through 2009 for the business, reflecting its advantage, technology and cost positions. Our equity and cost affiliate performance is shown on page 13.
While I won't spent a lot of time going through all the details shown, I'll tell you that year-over-year our strategic affiliates delivered increased earnings and continued to play an integral role in our business portfolio. We'd expect our 2009 affiliate performance to be below 2008 levels, as they face similar pressures as our businesses.
Given the recent declines in methanol pricing, we would expect to see significantly lower earning in our IbnSina affiliate. Keep in mind though that our AEM business will benefit from the lower methanol pricing.
Slide 14 highlights the key elements of our balance sheet and current debt structure. Our sources of liquidity and our debt obligations are shown on the left side of the chart.
At the end of 2008, we have 676 million in cash. I'd estimate that we need approximately 300 million in cash to run the business.
Also added some transparency to include our available credit link facility of $137 million. We also have a revolver of 650 million that extends over 25 different financial institutions that's currently undrawn.
As you can see, we've included approximately 415 million of cash related to the anticipated payment from Frankfurt airport authority, which we'll physically receive in the next several days. This advanced payment increases our flexibility and allows us to more effectively manage not only the expense associated with the relocations, but the cash inflows as well.
On the debt obligation side, the 2.8 billion term loan which we entered into in April of 2007 has no maintenance covenants. We have about 739 million of other debt obligations which are primarily capital leases.
Including the Frankfurt airport advance payments, we have a pro-forma net debt of approximately $2.4 billion. At the end of the day, we have a low cost but performing stable debt structure.
Turning now to slide 15. Celanese continued to deliver solid cash generation in 2008.
Net operating cash flow was 568 million, slight increase from 2007 results. Adjusted free cash flow for 2009 was 367 million similar to last year's levels.
During the fourth quarter we were able to significantly reduce working capital by approximately 270 million and help offset the lower earnings. Of these, approximately a 100 million was related to the inventory accounting impact and the rest is associated with maintaining appropriate working capital levels in this lower demand environment.
Slide 16 shows how we see some of the major elements of cash flow in 2009. If you look at the components and recognize that these are cash flows in excess of an operating EBITDA base, we can expect between 80 and 120 million of cash taxes in this number of scale with our overall earnings for the year.
CapEx is expected to be in the 150 to $175 million range, which is consistent with levels of recent years when you exclude the Nanjing investment. Of these numbers, roughly a 100 million or lower in 2008 CapEx is adequate for us to continue to fund our productivity in cost reduction programs and appropriately position the company for a return to more normal demand levels.
As you may recall, we've basically completed our expansion to construction in Nanjing, China. So, we're well prepared for future growth in this critical region with minimal additional CapEx.
We typically have reserves spending of between 50 and 60 million that we would expect to continue. Net interest should be between 220 and 230 million based on today's expectation for interest rates.
Let me just spend a moment on pensions. In 2009, we do not expect to have cash outflows for pensions in excess of 2008 levels.
As you can see here that amounts to between 50 and 60 million beyond expense in EBITDA. This number maybe less than what many people have estimated, but keep in mind we have significant funding credits that allow us to defer required contributions.
In fact, as we look into 2010, we estimate that we have sufficient credits that will result in only minimal to modest increases in required contributions. And then it's important to note the cash flow related to the Frankfurt airport.
In 2008, we received a total of 311 million in cash, and spent approximately 185 million. 2009 should be a heavier capital spend year for the project.
We'd estimate that we would spend between 350, 370 million throughout the year. With our advanced payments of 450 million, we should continue to run ahead of cash outflows.
We'll receive our final payment in 2011 of 110 million curves. On slide 17, you can see our long-term debt repayment schedule.
As this chart shows, only modest cash flows are needed to service our debt portfolio in the next five years. Our terms loans have both maturity in 2014 with the annual amortization of only 1%, and are low cost as LIBOR plus a 150 to 175 basis points.
So to summarize, our debt profile is favorable less when low costs. Our cash generation will be focused on cost reduction and productivity initiatives, which positions Celanese for continued long-term value creation for our shareholders.
With that, I'll now turn the call back over to Mark to open the Q&A.
Mark Oberle
Thank you, Steven. And while we get queued up for Q&A, I would as always ask to limit your questions to one with the follow-up.
And if there are additional questions and additional time, we'll be in a position to go back and answer some more questions. So Becky, if you could get some instruction please.
Operator
Certainly. (Operator Instructions).
And your first question comes from the line of David Begleiter of Deutsche Bank. Please proceed.
David Begleiter - Deutsche Bank Securities
Thank you. Good morning.
David Weidman
Hey, Dave.
David Begleiter - Deutsche Bank Securities
David, what's your expectation for FIFO impacts in Q1? Has that all been utilized?
David Weidman
Dave, the biggest part of FIFO was in the fourth quarter because of the huge reductions in raw material prices we've saw then. Having said that, from the beginning of the quarter till now we've seen raw materials continued to decline in North America, natural gases and example.
So we'd expect to see some in the first quarter, but more modest than what we saw in the fourth.
David Begleiter - Deutsche Bank Securities
And just on the... in terms of the customer's inventory, when do you think to the de-stocking will come to a conclusion?
David Weidman
Yeah, good question. It varies and we don't have a firm view is the short answer, a little texture behind that, our consumer specialties businesses as take to our new turnover.
There is no de-stocking occurring so we're in good shape there. We have seen in some of our Industrial Specialties businesses, in motion businesses as an example.
That there is a limited amount of de-stocking going on because frankly on those spaces, supplying housing principally demand has been down and inventory is being corrected for sometime. In Asia, we'd look at it and say that for the most part, we're seeing de-stocking reduce.
Some of that but not as dramatic as we saw in the November, December timeframe. And then if we turn to Advanced Engineered Materials or Ticona, in the automotive space we continued to see de-stocking going on there.
In fact, if there is anything as we've entered the first quarter, we used to think some acceleration in de-stocking. And Europe, we would judge to be somewhat behind North America or Asia in steps they have taken to de-stock.
Answer it short, we expect de-stocking to not be an issue as we exit 2009. So between now and then for us it's hard to put any degree of confidence in what is going to stock.
David Begleiter - Deutsche Bank Securities
Thank you.
Steven Sterin
Thanks Dave.
Operator
And your next question comes from the line of Kevin Mccarthy of Banc of America Merrill Lynch. Please proceed.
David Weidman
Hi Kevin.
Kevin Mccarthy - Banc of America Merrill Lynch
Good morning. How are you?
David Weidman
Good.
Kevin Mccarthy - Banc of America Merrill Lynch
Dave, could you talk a little bit about your decision to rationalize asset fuels capacity in France versus Singapore? I think you had upgraded data facility not too long ago.
So I imagine you have some feedstock issues there?
David Weidman
Kevin, first let me be clear. There is been no firm decision yet.
We are assessing shutdown options. If you step back though, our efforts would be to align our global demand and our views of global demand with global production.
And we would choose to supply from the most cost efficient facilities around the world and exit those that were disadvantaged. And so with that in our consideration the Cangrejera facilities, the Pardies facility from an economic basis stand out.
And if we look at demand going forward we judge it to be last for a period of time, and those are the facilities that pop out in our preliminary assessment.
Kevin Mccarthy - Banc of America Merrill Lynch
And if I may follow-up with a question on slide six. You've outlined highest cost Chinese methanol based production capacity foresee the gas at there.
Can you talk a little bit about what that cost might be in today's market and to the extent that this is a forecast for '09, what is the methanol price that's incorporated in that forecast? Thanks.
David Weidman
Well, this is... I'll answer the last question first.
This is a cost curve, for acetic acid production and the relative differences would not change. What change is the methanol pricing.
Now back to last point, the first point you've asked. Those high cost methanol producers in today's market are not running.
They are essentially out of the market. And pricing in China today is in the 350 to $400 a ton range.
And then you can take what methanol is out there now 160, 170 whatever methanol is, that's where we are today.
Kevin Mccarthy - Banc of America Merrill Lynch
So the demand curve is intersecting this cost curve in the bucket called lower cost Chinese methanol, is that fair?
David Weidman
Exactly right. Yeah, exactly right.
We review a normalization of capacity utilization in acetic acid globally to be in the 80... low 80 to high mid 80% range as de-stocking factored out.
And that's exactly what would be on pricing.
Kevin Mccarthy - Banc of America Merrill Lynch
Thank you very much.
Operator
And your next question comes from the line of Frank Mitsch of BB&T Capital Markets.
Frank Mitsch - BB&T Capital Markets
Hi. Good morning, folks.
David Weidman
Hello, Frank.
Steven Sterin
Good morning.
Frank Mitsch - BB&T Capital Markets
Hey Dave, can you talk about what your operating rates were by months through the fourth quarter and where do we stand here in January?
David Weidman
Yeah. Frank, I'd be happy to.
First, as you know Frank, our company is a hybrid company, so we had our asset based fiber business reaching over where they are running for, potentially for. Some of our emulsion businesses, those in what we call Industrial Specialties, the operating rates there were at 80 to 85%, not bad operating rate.
When you get into Advanced Engineered Materials with the de-stocking accruing demand down, the first steps we took to bring inventory inline with demand, we were probably operating there in the 65 to 70% range. And then our Acetyl Intermediates businesses in aggregate, those were probably operating at 65 to 70%, somewhat below modestly below what we saw in AEM.
Now, I guess through the quarter as demand continued to drop, October was the strongest month, November was weaker and December was brutal. And it was, things just dried up entirely.
January, we'd say operating rates and demands are higher than they were in December. But as we look at it, we think that the quarter is going to be in aggregate and on average about what we saw on the average fourth quarter.
Frank Mitsch - BB&T Capital Markets
So, I'm sorry, January better than December?
David Weidman
Yeah, January better than December.
Frank Mitsch - BB&T Capital Markets
Okay. But you are expecting the first quarter to be an average similar to the fourth quarter, which suggests that the increase in January is not quite back to November type levels.
And so you're expecting a gradual sort of pick up off of the very low bottom that you saw in December?
David Weidman
Yeah, I think that's right. Chinese New Years have a big affect in Asia as you were in.
So we're early into the post New Year's demand environment. But Frank I think that's a fair judgment.
Frank Mitsch - BB&T Capital Markets
And Steve you talked about your very strong balance sheet or the cash position and no major maturities anytime soon, assuming that the... assuming economic activity picks up somewhat here what...
how would you characterize your priority uses of cash? And would we be surprised to see Celanese in the M&A or share repurchase markets in 2009?
Steven Sterin
Yeah. I wouldn't say third-party use the cash change all that much from what we've talked over the last year or so.
But in particular as we look at where the largest opportunities are now, the more and high return productivity in cost reduction efforts that Dave talked about earlier versus what we've invested in last couple years in positioning the company for growth like our investment in Nanjing, China. So it's more of a balance towards productivity.
As we look at M&A, I'll Dave comment on that.
David Weidman
Well, Frank I say that we're always looking for these strategic bolt-on acquisition. We're looking for creative ways of doing them all the time, but in this environment we probably have more reception on the other side as we enter into some discussions on approaches and ways we may do things.
I'd say the discussion level is a lot higher than it has been because folks are... ourselves included are interested in finding, in solutions and environments like this.
Having said that, I don't know that we would use substantial amounts of cash in the M&A world in 2009.
Frank Mitsch - BB&T Capital Markets
Great. Thank you.
Mark Oberle
Thanks Frank.
Operator
And your next question comes from the line of P.J. Juvekar, of Citigroup.
Please proceed.
Prashant Juvekar - Citigroup
Yes. Hi, good morning.
David Weidman
Hi, P.J.
Steven Sterin
Hi P.J.
Prashant Juvekar - Citigroup
Hey Dave, you have a special window into China with your big exposure there. How much of your products that are made there are used internally versus exported out of China?
David Weidman
Good question. P.J., our view in 2008, if you take probably up through the end of the third quarter the view was at around 40 to 50% of it was exported out of China in a fleet application or the furniture application.
And 50 to 60% of that was consumed within China before the construction market, the recordings market, that's the rough figure.
Prashant Juvekar - Citigroup
Okay. The de-stocking was related to the exports out of China?
David Weidman
Yeah, definitely. It was, it's very chilly in the fourth quarter, if there was just huge de-stocking going on within that space.
And as you think about it, it's a long chain distance wise coming all the way back into China, but it had a material effect on what we saw obviously. But it was big.
Prashant Juvekar - Citigroup
One more question for Steve. Steve, you've taken all these charges and the real impact of these are on the shareholders equity.
And if I look at the balance sheet, the shareholders equity has gone from $1 billion to 174 million. So, I guess if you take more charges that could go negative in '09?
Steven Sterin
Well, as you look at shareholders equity it's not necessarily related to charges. What's driving that are two things: one, we have the impact of our share repurchase that goes into treasury stock and produce the shareholders equity.
And the second is just the accounting impact for pension benefit obligations.
Prashant Juvekar - Citigroup
Right.
Steven Sterin
As you can see, look up there was a change in benefit obligations to reflect the asset returns that we saw in 2008. But as I mentioned to you from accounts' perspective, not expecting significant cash outlays over the next two years with that.
And also, as you look at equity keep in mind currency transaction effects on the balance sheet affects the equity sections as well.
Prashant Juvekar - Citigroup
Sure, sure. So I understand it's not a cash flow impact, but have you talked to rating agencies and how do they view this low level of equity?
Steven Sterin
We're at constant dialogue with ratings agencies. Nothing to state there that we haven't already said about, where we're positioned with our balanced sheet, in our cash outlays and party uses of cash.
That was only paying a positive outlook at the ratings agencies.
David Weidman
Yeah. Usually rating agencies will look at cash.
Steven Sterin
Cash outlays --
David Weidman
That tends to be the principle component of their reassessment.
Prashant Juvekar - Citigroup
Okay.
Steven Sterin
Perhaps you get the cash obligations.
Prashant Juvekar - Citigroup
Okay. Thank you.
Mark Oberle
Thanks P.J.
Operator
And your next question comes from the line of Sergey Vasnetsov of Barclays Capital. Please proceed.
Sergey Vasnetsov - Barclays Capital
Good morning.
David Weidman
Hello, Sergey.
Sergey Vasnetsov - Barclays Capital
Hi. If I take your inventory adjustments and also some other charges, your adjusted EBITDA would have been around 166, which will put you on EPS adjust basis, slightly above the breakeven.
Is it the right math?
Steven Sterin
Yeah. That is the right math.
And I'll extend it further, our EPS would have been around a dime a share rather than the net loss. But, yeah 150 to 175; that's right.
Sergey Vasnetsov - Barclays Capital
Okay. And so Dave, you've talked in the past that you are getting more traction with larger volumes of AT Plastics on new hybrids and say electrical driven cars.
What's your the outlook, let's say within take '09 or '10? Do you think you would able to offset some of your volumes declines with higher content to vehicle?
David Weidman
Yeah, we do. Our pipeline is phenomenal.
It's in great shape. We're up in just number of projects that we're running around 20% from who we were a year ago.
The content of those projects, it's great too. 75% of them either are cost reduction or related towards mandatory fuel obligations, the automotive space in particular is looking at.
But CO2 reduction and some of the other areas as well. So we have a great pipeline and we do believe that there is a phenomenal pipeline that will help us in a weak demand environment.
And Sergey, it also points to the fact that our Asia position, though we started it three years ago, goes growing in size and substance. It's probably order magnitude about 8 to 12% of our revenue now, but the rate of growth on it is very fast and the impact, the negative impact that we saw in Europe and North America the fourth quarter, we didn't see as much in Asia.
Those things, the pipeline in China would help this business, we think Ticona is very, very well positioned.
Sergey Vasnetsov - Barclays Capital
Okay. Thank you.
Mark Oberle
Thanks Sergey.
Operator
And your next question comes from line of Mike Judd of Greenwich Consultants. Please proceed.
Michael Judd - Greenwich Consultants
Yes, good morning. I've a question about Ticona.
Some of the other companies have been reporting in recent days, they have been commenting that they haven't been benefiting as much from lower raw material costs because of essentially they are operating at a lowering operating rates. You're using FIFO...
is that being that you're essentially not as negatively impacted by that dynamic than perhaps some others. And as we look forward into the first quarter, anything we should be thinking about along in those lines?
Steven Sterin
Hey Mike, Steven. Because we're on the FIFO impact and we talk about these inventory accounting impacts, it is precisely that we're not seeing in the P&L, in the short-run the impact of the benefit of lower raw material costs.
So probably similar comments, but may be using different vernacular that you're hearing out there.
Michael Judd - Greenwich Consultants
Okay, thank you.
Mark Oberle
Okay.
Operator
And your next question comes from the line of Bill Hoffman of UBS. Please proceed.
Bill Hoffman - UBS
Hey guys. Good morning.
David Weidman
Hey Bill.
Bill Hoffman - UBS
Question is more for Steve, just regards to what capital management here as you went through the fourth quarter, released a lot of cash from working capital And as you come into the first, just wanted to understand sort of where you are from a valuation standpoint of inventory and then how the work capital starts to consume cash as you build backup on the volume side? What do you thinking about there?
Steven Sterin
Yeah, so let's start with the fourth quarter. When you look at our working capital, there is really two elements of play.
The first is about half of it is related to this accounting impacts that we talked about. So, the cash benefit of producing inventory that didn't shelf on the P&L that we talked about $100 million.
The rest has to do with mostly accounts receivable collections that take place as you move off at a higher months in the third quarter what we normally see. And then we also kept inventory inline with the current demand levels.
So when you look at our overall working capital picture, we're maintaining a relative 13% of sales basis working capital to which what we've done historically. And we generally expect to maintain levels around there as we look forward.
Now as you say, you do you see some seasonality, historically moving from the fourth quarter to first quarter. I'd expect if you do see fair really be around account receivable, not expecting substantial changes from a cash perspective from inventory.
So, as sales track up as we talk is de-stocking moderate, you could see some offset to the higher earnings in accounts receivable and working capital.
Bill Hoffman - UBS
Okay. But you still expect to see some inventory FIFO charges in the first quarter on the inventory line?
Steven Sterin
Yeah, but at a much more modest level than we saw in the fourth quarter. But there will be some, because raw materials are continuing to fall in the first quarter.
Bill Hoffman - UBS
And that also will impact how your EBITDA gets calculated as well?
Steven Sterin
That's right.
Bill Hoffman - UBS
Okay. Thank you.
Mark Oberle
Thanks Bill.
Operator
: And your next question comes from the line of Jonathan Goldberg of Highline Capital. Please proceed.
Jonathan Goldberg - Highline Capital Management
Hey guys. Good morning.
David Weidman
Good morning, Jonathan.
Steven Sterin
Hi Jonathan.
Jonathan Goldberg - Highline Capital Management
Quick question about the fixed costs reductions that you talked about today. Does that layer in through 2009 and maybe you could just talk about the timing of that?
Steven Sterin
Sure. Jonathan, most of...
we have 1.5 billion, a little over 1.5 billion of fixed spending or fixed expenses. And, we announced today that we have programs that we worked on that will give us an annualized benefit of between 100 and 120 million.
Because of the nature of that, most of these benefits will accrue in 2009 and be sustainable out through extended period of time. And then there is three other types of things we're doing.
First is on ratable spending or scalable spending. Depending on demand levels, there could be as much as $60 million, less due to blot manufacturing, fewer contract, maintenance people and so on.
The third thing that we are doing is assessing our manufacturing footprint. And as we reach conclusions and make decisions there, we'll come and share with you details, financial details around that.
And then the fourth area is we find that there are other opportunities to reduce our fix spending beyond what we've, best we've taken so far. And there are a lot of projects in place right now evaluating, assessing.
And as we confirm on, those will find some way to communicate the impacts in 2009 and beyond on those projects. I mean just I think our culture says that in times like this, you become aggressive and that's exactly what we're doing.
Jonathan Goldberg - Highline Capital Management
The follow-up I guess would be, if we're going to do an EBITDA walk from Q4 for instance, is it fair to layer in whatever the number is we think would be in fixed cost savings or does some of that offset kind of incremental volume weakness that you may see in '09?
Steven Sterin
There are so much questions in our minds in 2009. Candidly, we're focusing on controlling the controllables and for us that fixed expenses and fixed spending.
It's opaque that best demand is opaque at best, but what we can control is fixed spending and that's where our focus is.
Jonathan Goldberg - Highline Capital Management
Okay thanks.
Steven Sterin
Thanks Jonathan.
David Weidman
Thanks Jonathan.
Operator
And your next question comes from the line of Lindsey y Drogan (ph) of Sumitomo Mitsui Banking. Please proceed.
Unidentified Analyst
Thank you for taking the call. Two questions regarding the balance sheet which I guess is page 13 of the press release.
Number one, just what is the unfunded pension liability that's reflected in these numbers and funded the planned assets minus at the beginning of the year minus the planned assets at the end of the year? And number two, could you please walk us through some of the details from the change in the accumulated other comprehensive income loss account?
Thanks.
Steven Sterin
Sure. When we follow our 10-K, there will be certainly a lot more detail on this.
So I'll give you the highlights now. When you look at our pension funding status, the APBO basis will be funded above 76% and ABO about 78%.
So, that would give you a sense of funded status. And as I said more detail on the 10-K and in terms of other comprehensive incomes, the main driver there is just normal CTA, movements changes in currency on the balance sheet and the second component is the pension accounting.
As you can see up above the pension obligations increased by about 500 million and that goes through LTI.
Unidentified Analyst
Thank you.
Mark Oberle
Thank you.
Operator
And your next question comes from the line of Bill Young of ChemSpace (ph). Please proceed.
Unidentified Analyst
Good morning, gentleman.
David Weidman
Hello Bill.
Steven Sterin
Hey Bill.
Unidentified Analyst
Couple of quick ones; number one, what do you stick with FIFO accounting, given the mismatch on your income statement realizing there is no cash impact?
David Weidman
I'll let Steve answer that question.
Steven Sterin
Yeah. Yeah, your question is why is it we face non-cash?
Unidentified Analyst
No, why don't you switch to LIFO?
Steven Sterin
Why don't we go to LIFO? As we look at the industry, the practices are pretty mix.
We see about half the industry on FIFO, half on LIFO. We adopted FIFO several years ago.
And it's not a methodology you're allowed to change on a frequent basis because of the RS tax bar. And we're pretty much stick with what we've got on FIFO, so we'll provide you transparency whenever there is large movements.
Unidentified Analyst
Okay, great. And second question that has to be with China.
Maybe you could review some of your long-term plans for China and how the timing might have changed given the tough current conditions?
Steven Sterin
Bill, our long-term position in China hasn't changed. In other words we view that as being a significant growth reason for our customers in the markets that we serve.
What has changed is how that growth develops. And candidly right now we don't know if it's a one year, two year, three year or longer term slowdown that retards the rate of growth in manufacturing in China.
We see that it may strategically, we will be there. We intend to maintain and we're possibly expand our share and our position globally.
And we do that through following growth and China's growth with that.
Unidentified Analyst
Okay. Thanks a lot.
David Weidman
Thanks, Bill.
Steven Sterin
Thanks.
Operator
And your next question comes from the line of Carl Niverd (ph) of CNN Enterprises. Please proceed.
Unidentified Analyst
Good morning, guys.
David Weidman
Thank you. Good morning Carl.
Steven Sterin
Hey, how are you?
Unidentified Analyst
Just a quick question on the inventory side in terms of the number. How much of the decline that you guys are talking about is volume coming up, coming down and how much of that was price in that $100 million?
If you can separate that out. I mean is the volume your inventory way down or is it predominately having to do with the fact that the price is way off?
David Weidman
Yeah. So, there is two components.
There is the FIFO inventory accounting impact which has to deal with the falling raw materials and recognizing historical costs through the system. And that's about 50% and the rest is more related to drawing inventory levels down.
Unidentified Analyst
Okay. So, I could assume then the volume of the inventory, the actual inventory which is predominantly like you as said in the area of the acetyl has come down quite a bit then?
David Weidman
Yeah. Our...
I mean our inventories were down, we typically run 40 to 45 days of the inventory and we're still in that range. So in terms of our inventory levels we're still within normal range levels.
But we did see a dry down in the fourth quarter.
Unidentified Analyst
Okay. As far as you can tell if I looked at the fourth quarter in terms of the sales volumes of a number of products, was it more heavily into the October end of the quarter or into the December end of the quarter?
Because we see in some companies which had very poor sales October, November and a sudden surge in December in volumes, is that been your experience or is that the opposite of your experience?
David Weidman
Yes, the opposite. We saw sequential declines month-by-month as we went through the quarter.
And October was the best of that quarter and December was brutal.
Unidentified Analyst
Okay. So you figure most of your people are still, that your customers are still de-stocked as apposed to restocking on maybe what might have been some sort of fire sale types of pricing in some of your products?
David Weidman
Yeah. That's our view.
As I said earlier in the call, we see a rebound from December and January, demand is up somewhat, it's still significantly below what it was last year. And we judged for the quarter that the quarter will probably run on average about the average of the fourth quarter.
Unidentified Analyst
Got it. Thanks, very much.
Steven Sterin
Thanks Carl.
David Weidman
Thank you.
Operator
And there no further questions at this time. I would now like to turn the call back over to Mark Oberle for closing remarks.
Please proceed, sir.
Mark Oberle
Great. Thank you, Becky and thank you, everyone for taking the time today on what I know is a busy day.
If anyone has any follow-up questions, feel free to give me or any of my IR team a call. I look forward to talking to you soon.
Thank you very much.
Operator
Thank you for your participation in today's conference. This concludes the presentation.
You may now disconnect. Have a great day.