SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
/x/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the Fiscal Year ended December 31, 1995
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from to
------------ ------------
Commission File Number 33-13326
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HOECHST CELANESE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-5568434
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1041 Route 202-206
Bridgewater, New Jersey 08807
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 231-2000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. All voting stock is held by an affiliate of the registrant.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. As of March 1, 1996 there were
10,000 shares of Hoechst Celanese Corporation common stock outstanding. All of
such shares are owned by the registrant's parent, Hoechst Corporation.
NOTE: Unless the context otherwise requires, when used in this 1995 Annual
Report on Form 10-K ("10-K") "Hoechst Celanese" and the "Company" includes the
consolidated corporation or any one or more of its subsidiaries, divisions or
joint ventures, as applicable.
TABLE OF CONTENTS
ITEM PAGE
PART I
1. Business 1
2. Properties 8
3. Legal Proceedings 9
4. Submission of Matters to a Vote of Security Holders 11
PART II
5. Market for Registrant's Common Equity and
Related Stockholder Matters 12
6. Selected Financial Data 12
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
8. Financial Statements 19
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 44
PART III
10. Directors and Executive Officers of the Registrant 44
11. Executive Compensation 47
12. Security Ownership of Certain Beneficial Owners
and Management 50
13. Certain Relationships and Related Transactions 50
PART IV
14. Exhibits and Reports on Form 8-K 51
(i)
PART I
ITEM 1. BUSINESS
The Company
The Company was formed in 1918 and was renamed Hoechst Celanese Corporation
in February 1987. The Company manufactures and sells, principally to industrial
customers, a diversified line of products including textile and technical
fibers; acetate cigarette filter tow; specialty and bulk chemicals and bulk
pharmaceuticals; engineering plastics; pigments; and polyester film. The
Company's operations are currently segmented as follows: Chemicals; Fibers and
Film; Specialties and Advanced Materials (comprised of the Advanced Materials
Group and Specialty Chemicals Group); and Advanced Technology.
The Company is wholly owned by Hoechst Corporation, which in turn is wholly
owned by Hoechst Aktienge-sellschaft ("Hoechst AG"), a large chemical and
pharmaceutical company headquartered in Frankfurt, Federal Republic of Germany.
Hoechst AG and its consolidated entities (the "Hoechst Group") consist of over
406 companies. The Hoechst Group operates in more than 102 countries. The
Hoechst Group's sales in 1995 were approximately $36.5 billion. See "Certain
Relationships and Related Transactions." The Hoechst Group is one of the
largest manufacturers of prescription drugs and one of the four largest
producers and marketers of chemicals and chemical-related products in the world.
On July 18, 1995, Hoechst Corporation completed the acquisition of Marion
Merrell Dow Inc. (which was renamed Hoechst Marion Roussel, Inc. ["HMRI"]). In
line with the worldwide strategy of Hoechst AG, the pharmaceutical operations
in North America have been realigned. Accordingly, the Company's management
approved a formal plan to transfer its interest in Copley Pharmaceutical, Inc.
and Hoechst-Roussel Pharmaceuticals Inc. to Hoechst Corporation or the
subsidiaries of Hoechst Corporation. The transfer of the carrying value of the
net assets of these businesses was effective July 1, 1995. Accordingly, the
Company will be reimbursed by Hoechst Corporation for any costs, including
operating losses, the Company might incur associated with the strategic
realignment of the pharmaceutical operations. Beginning with the second quarter
of 1995, the Company eliminated its Life Sciences segment. In addition, in the
fourth quarter 1995, the Company transferred its interest in Agri-Vet Inc.,
which owns the Company's interest in Hoechst-Roussel Agri-Vet Company and
AgrEvo USA Company, to Hoechst Corporation. The Company has reflected the
operating results of all of these businesses as discontinued operations in the
accompanying consolidated financial statements.
The Company's principal executive offices are located at 1041 Route 202-206,
Bridgewater, New Jersey 08807; its mailing address is Route 202-206, Post
Office Box 2500, Somerville, New Jersey 08876-1258; and its telephone number is
(908) 231-2000.
DESCRIPTION OF BUSINESS SEGMENTS
CHEMICALS SEGMENT
This segment consists of Hoechst Celanese Chemical Group, Ltd. ("HCCGL"),
the chemical operations of Grupo Celanese S.A. and the chemical operations of
Celanese Canada Inc. The Company entered the petrochemical field in the United
States in 1945, primarily to obtain supplies of acetic acid and related
chemical raw materials for its fibers operations. As its internal chemical
usage expanded and additional products were developed, the segment began
selling chemicals to others. This segment employs approximately 3,700 people
and produces more than 60 different chemicals.
The segment produces chemicals by upgrading hydrocarbons such as ethylene,
propylene, natural gas and butane. The hydrocarbon raw materials are purchased
on the open market, principally under long-term contracts.
1
The major chemicals produced fall into two broad product groups: (1) methyl
chemicals, oxo-alcohols and solvents; and (2) acetyl chemicals and monomers.
Methyl chemicals are principally used in plastics, polyesters, adhesives,
solvents, synthetic lubricants, fuel additives and coatings. Oxo-alcohols and
solvents are principally used in surfactants, coatings, rocket propellants,
antifreeze, herbicides and polyesters. Monomers and acetyl chemicals are
primarily used in water-based paints, adhesives, textile finishes, paper
coatings, manufactured fibers, pharmaceuticals, herbicides and plastics.
With respect to substantially all of its major products, this segment is
either the largest or second largest United States merchant market supplier.
Other major United States producers are: of methyl chemicals, Borden, Inc.,
du Pont de Nemours & Co., Inc. ("duPont"), Georgia-Pacific Corporation and
Hercules Incorporated; of alcohols, duPont, Eastman Chemical Products, Inc.
("Eastman"), Shell Oil Company and Union Carbide Corporation; and of monomers
and acetyl chemicals, BASF, duPont, Eastman, Quantum Chemical Corporation, Rohm
and Haas Co. and Union Carbide Corporation.
Grupo Celanese S.A. is the sole or a major Mexican producer of a variety of
products including vinyl acetate, acetic acid, acetic anhydride and acrylates.
A substantial portion of the chemical production of Grupo Celanese S.A. is sold
in the export market, in competition with world producers.
Celanese Canada Inc. is the sole or a major Canadian producer of acetic
acid, acetic anhydride, formaldehyde, pentaerythritol and vinyl acetate
monomer. A substantial portion of the chemical production of Celanese Canada
Inc. is sold in the export market, in competition with world producers.
Celanese Canada Inc. operates a world scale methanol unit at its Edmonton plant
site in Alberta. The methanol operation is owned by Celanese Canada Inc. and
the Company. Methanex Corporation is the largest Canadian producer of methanol.
As of December 1, 1994, Valero Javelina Company and HCCGL formed a 50/50
joint venture to restart the Clear Lake methanol unit. Operations commenced in
September 1995.
Utilizing both acquired and internally developed technology, the segment is
continually working to upgrade its chemical processes to improve energy, raw
material and capital utilization. By producing a number of its major chemicals
at different plant locations, the segment attempts to avoid or minimize the
effect of production disruptions at any one location.
FIBERS AND FILM SEGMENT
This segment is comprised of the following business areas: Textile Fibers,
Technical Fibers and Polyester Resins and Films. The Fibers and Film segment
employs approximately 15,800 people and operates plants in the United States
and abroad. The major product lines include: polyester staple, filament,
resins, monofilament, spunbond and film; acetate filament and tow; purified
terephthalic acid ("PTA"); dimethylterephthalate ("DMT"); polybenzimidazole
("PBI") and ethylene oxide/glycol. The Company is one of the largest producers
of manufactured fibers in the United States. It is also one of the leading
producers of polyester film. The Company conducts research and development,
manufactures, markets and sells a combination of branded and unbranded resins,
fibers and film products for a wide variety of end uses. The Company sells most
of its fibers and yarns directly to textile mills, tire manufacturers,
cigarette makers and other intermediate processors. Among the internationally
registered trademarks are: Trevira(R), Celebrate!(R), Hostaphan(R) and
Trespaphan (R).
Polyester staple and filament, commonly recognized by their Trevira(R)
trademark, are principally used in wearing apparel, upholstery, floor
coverings, home furnishings, and woven and non-woven fabrics. Polyester staple
and filament are also used in tires, belts, hoses, thread and plastic
reinforcements.
2
The Company is one of the largest producers in the United States of
cellulose acetate products. Cellulose acetate flake is produced for sale or
conversion to acetate tow for use in cigarette filters and to filament used in
apparel and industrial applications. Polyester monofilament is used in zippers,
conveyor belting and dryer and forming screen applications in the paper
industry. Roofing and geotextile applications are the primary end uses for
polyester spunbond. Polyester resins are primarily used in beverage,
pharmaceutical and other containers and for the manufacture of polyester fibers.
Hostaphan(R) polyester film, manufactured by the Company, is used in many
consumer products including audio, video and computer tape; food packaging;
solar window film; labels and decals; graphic arts film; photoresist; and other
electronics applications. Trespaphan(R) polypropylene film is imported for
resale from other companies in the Hoechst Group and is used in packaging,
capacitors, pressure sensitive tape and electric motor insulators.
The key raw materials used by the Fibers and Film segment in production are
either supplied internally or purchased on the open market, generally under
long-term contracts. Polyester fibers are produced from PTA or DMT and
ethylene glycol, which are either purchased from other suppliers or produced by
the Company. Acetate fibers are made principally from acetic anhydride produced
mainly by the Company and from wood pulp purchased by the Company. See "Raw
Materials and Energy."
Major manufactured polyester and acetate fibers competitors include:
Allied-Signal, Inc., duPont, Eastman, ICI Americas, Inc. ("ICI"), Rhodia AG and
Wellman, Inc..
Major United States and foreign polyester film producers include: duPont,
ICI, Toray Industries (America), Inc. and Teijin America, Inc.. Competing
producers of PTA and DMT in the United States are Amoco Chemicals Corporation
and duPont, respectively.
Grupo Celanese S.A. is the sole or a major Mexican producer of a variety of
products including polyester high denier industrial yarn, industrial staple,
textile filament, polyester staple, industrial nylon filament, cellulose
acetate flake, yarn, cigarette filter tow, polyester bottle resin, laminated
and printed film and bioriented polypropylene. Celanese Canada Inc. is the sole
or a major Canadian producer of a variety of products including polyester,
textile staple, carpet staple, cellulose acetate filament yarn, cellulose
acetate flake and cigarette filter tow. A substantial portion of the fibers
production of both Grupo Celanese S.A. and Celanese Canada Inc. is sold in
export markets in competition with world producers.
The Company (owning approximately a 30% interest) and China National Tobacco
Company are involved in a joint venture that manufactures cellulose acetate
flake and tow for cigarette filters. Two more joint venture manufacturing sites
for cellulose acetate tow are under construction and are expected to come on
stream in first quarter 1996. These are located at Nantong, Kunming and
Zhuhai, People's Republic of China.
SPECIALTIES AND ADVANCED MATERIALS SEGMENT
This segment consists of the Advanced Materials Group, which effective
January 1, 1996 has changed its name to Hoechst Technical Polymers, and the
Specialty Chemicals Group. This segment employs approximately 4,400 people and
produces, imports and sells a wide variety of specialty products.
Advanced Materials Group. The Advanced Materials Group produces a variety
of high-performance engineering thermoplastics, including acetal copolymer sold
under the trademarks Celcon(R) and Hostaform(R), Celanese(R) nylon 6/6 resins,
thermoplastic polyester sold under the trademarks Celanex(R) and Impet(R),
liquid crystal polymers sold under the trademark Vectra(R), long fiber-
reinforced thermoplastics sold under the trademark Celstran(R) and thermo-
plastic alloys sold under the trademark Vandar(R), as replacements for metals
and other plastics in a wide variety of end uses. The Group's product lines also
include Hostalen(R) GUR, ultra high molecular weight polyethylene. The Company
produces the basic raw materials for Celcon(R), Celanex(R), Impet(R) and
Vandar(R) resins and purchases them for Celanese(R) nylon 6/6 and Vectra(R) and
Celstran(R) resins. Other major United States producers of one or more
3
similar engineering thermoplastics are duPont, General Electric Company and
BASF. The Group also resells and compounds Hostaflon(R) fluoropolymers
manufactured by Hoechst AG through the Company's wholly owned subsidiary Custom
Compounding, Inc.. The Company participates in Fortron Industries, a joint
venture (with a 50% interest; Kureha Chemical Industry Co., Ltd. ("Kureha")
having a 50% interest). The joint venture operates a plant to manufacture
Fortron(R) polyphenylene sulfide. Since 1987, the Company has marketed
Fortron(R) which is manufactured by Kureha in Japan and by Forton Industries in
the United States.
The Company participates in Polyplastics Co., Ltd. (with a 45% interest;
Daicel Chemical Industries, Ltd. having a 55% interest) which produces and
sells acetal copolymer, thermoplastic polyester resins and other polymeric
products.
Specialty Chemicals Group. This group's product lines include: organic
pigments, colorant and additive masterbatches, resins, sodium hydrosulfite,
surfactants, and other specialty chemicals which are mainly used in the
textile, ink, pulp and paper, paint, coatings, plastics, personal care,
detergent and food processing industries; organic intermediates used for
synthesis of dyes, pigments, pharmaceuticals, cosmetics, agricultural
chemicals, photochemicals, plastics, adhesives, and other chemical products;
inorganic chemicals sold for broad industrial use, including pharmaceuticals,
electrical and battery equipment and oil drilling; superabsorbent polymers used
in personal care products; waxes and lubricants used for polish and plastics
processing applications and liquid photoresists and ancillaries used in the
manufacture of microchips for computers and other electronic devices. Among
internationally registered trademarks are: Genapol(R) and Hostapon(R)
surfactants; Sanwet(R) superabsorbent polymers (a registered trademark of Sanyo
Chemical Industries, Ltd. licensed to the Company); and AZ(R) liquid
photoresist.
Effective January 2, 1996, the printing plates business was sold to Bayer
Corporation (AGFA Division).
Bulk Pharmaceuticals Inc. ("BPI") is a supplier of bulk analgesics,
pharmaceutical bulk actives and pharmaceutical intermediates. The Company
participates in BHC Company ("BHC") (with a 50% interest; BASF having a 50%
indirect interest) which manufactures and markets bulk ibuprofen. BHC's major
competitor is Ethyl Corporation. BPI also manufactures acetaminophen for which
its major competitors include Mallinckrodt Corporation and Rhone-Poulenc
Corporation.
Effective July 1, 1995, Hoechst AG and Bayer AG ("Bayer") formed a worldwide
joint venture to manufacture and sell textile dyestuffs. In August 1995, a
joint venture was formed in the United States, DyStar L.P., through Hoechst
Celanese Dyes Company, Inc., a wholly-owned subsidiary of the Company, and
Bayer Corporation, a wholly owned subsidiary of Bayer each contributing their
former textile dyestuffs businesses for equal ownership.
ADVANCED TECHNOLOGY SEGMENT
This segment consists of the Advanced Technology Group ("ATG"), the North
American unit of the Hoechst Group corporate research organization. ATG
develops new businesses and processes consistent with the strategies of the
Hoechst Group business units. It also generates new business opportunities both
independently as well as in collaboration with the Hoechst Group business units
and supports the North American business units with technical services. This
segment employs approximately 630 people.
RESEARCH AND DEVELOPMENT
The Company conducts research and development both independently and jointly
with Hoechst AG and, additionally, has been a party to a broad research and
development cost-sharing agreement with Hoechst AG since January 1, 1988.
The Company is continuing to expand its own research and development
activities in areas where specific developments for the United States market
increase the Company's competitiveness.
4
Research and development costs are included in expenses as incurred. The
Company's research and development costs for 1995, 1994 and 1993 were $179
million, $182 million and $166 million, respectively. Management intends to
maintain the Company's research and development expenditures in 1996 at
approximately the same level as 1995.
At December 31, 1995, approximately 1,600 employees, including approximately
850 professionals, were engaged in basic and applied research and development
at the Company. These individuals work in coordination with the Hoechst Group's
research and development personnel in the Federal Republic of Germany and other
parts of the world. The Hoechst Group in turn has access to a significant
portion of the Company's technology, know-how and patent rights. The Hoechst
Group is one of the leading research-oriented chemical and pharmaceutical
companies in the world, employing approximately 15,600 persons in its various
research and development laboratories. Research and development expenditures of
the Hoechst Group amounted to approximately $2.4 billion in 1995. Based on
individual license agreements and the cost-sharing agreement, the Company has
access to a significant portion of the Hoechst Group's technology, know-how and
patent rights for the United States and other markets, including licenses for
new developments.
The Company's United States research and development facilities are located
in Auburn Hills, Michigan (automotive plastic applications); Branchburg, New
Jersey (photoresists); Charlotte, North Carolina (textile and technical fibers,
specialty chemicals, separations products and polyester resins); Corpus
Christi, Texas (chemicals, pharmaceutical intermediates and bulk actives);
Coventry, Rhode Island (organic intermediates, pigments and specialty
chemicals); Greer, South Carolina (polyester film); Winona, Minnesota (advanced
materials); Florence, Kentucky (advanced materials); Portsmouth, Virginia
(superabsorbent polymers) and Summit, New Jersey (advanced materials, polymers
and engineering plastics).
MARKETING AND COMPETITION
The Company's products are generally sold in the United States directly or
through distributors or agents. Foreign subsidiaries and affiliates sell
principally through local sales personnel or agents. The principal customers
worldwide are other manufacturers which use the Company's products in a wide
variety of industrial and consumer products.
In general, the Company sells its products in highly competitive worldwide
markets. The number of competitors in a market or country and the Company's
competitive position vary widely with the products and countries involved. See
specific discussion of competitors in "Description of Business Segments". There
is growing competition from private and state-owned industries in certain
foreign countries in which there is an abundance of low-cost labor or raw
materials. This competition has a direct or indirect effect on many product
lines. For example, in the area of textile fibers, business is impacted by
fabric and apparel imports into the United States, Canada and Mexico,
particularly from the Far East. Depending upon the characteristics of the
particular market, the Company competes on the basis of price, product quality
and performance, technical support and customer service. Within the Chemicals
and Fibers and Film segments, the Company competes primarily on the basis of
price, product quality and performance. In general, Specialties and Advanced
Materials products are sold based on product performance, technical support
and, to a lesser extent, price. The Company's business is affected to some
degree by seasonality in the industries of its customers such as automotive,
housing and textiles.
The business is also sensitive to changes in the world economy, including
changes in currency exchange rates. Operations outside the United States are
subject to the economic and political risks inherent in the countries in which
they operate. Additionally, the export and domestic markets can be affected
significantly by import laws and regulations and energy cost differentials.
During 1995, the Company's export sales from the United States were 15.7% of
consolidated net sales.
Indirect marketing activities of the Company are extended through technical
and educational services, advertising and promotion. These activities reach
each level of the manufacturing and distribution system, as well as consumers
of apparel, home furnishings and industrial products. Product development and
technical service personnel supplement direct sales efforts by assisting
customers in using existing products and developing new ones.
5
RAW MATERIALS AND ENERGY
Most of the Company's products are made by chemically processing and
upgrading several basic types of raw materials including petroleum hydrocarbons
and derivatives, natural gas and wood pulp. These derivatives include ethylene
and paraxylene, which are primarily supplied by major United States and
Canadian oil companies. Raw materials are purchased from affiliated and
non-affiliated suppliers throughout the world.
The Company's production facilities rely largely on coal, fuel oil, natural
gas and electricity for energy.
The Company currently has adequate supplies or access to sources of all
purchased raw materials and energy for the foreseeable future. The Company does
not consider itself dependent upon any one supplier for a material amount of
its raw material or fuel purchases. However, in the United States, wood pulp (a
raw material for cellulosics) is largely obtained from two suppliers, and
Hoechst Celanese Polyester Intermediates is the sole supplier of DMT and is one
of two suppliers of PTA used in the production of polyester. Grupo Celanese
S.A. purchases the majority of its raw materials from Alfa, S.A. de C.V. and
Petroleos de Mexicanos.
In addition, some active ingredients and other raw materials used by the
Specialty Chemicals Group are supplied by other companies in the Hoechst Group.
GOVERNMENT REGULATIONS
The Company believes it is in substantial compliance with all environmental,
health and safety regulations and continues to devote attention to the health
and safety of its employees and the protection of the public health and the
environment in the regions where it operates. Such compliance has not had an
adverse effect on the Company's competitive position or business. The Company
cannot predict the effect of regulations which may be adopted in the future by
governmental bodies responsible for air, water and solid waste pollution
controls and employee and community health and safety.
PATENTS AND LICENSES
The Company owns, or is licensed under, more than 4,500 patents relating to
its products and manufacturing processes, some of which are important to
specific commercial operations. No single patent or group of patents is
considered material to the business as a whole. The Company's principal
licenses are either continuing licenses from third parties or relate to patents
and know-how owned by other companies in the Hoechst Group. Generally in the
latter cases, the licenses require no specific payment because, overall, the
research and development costs have been shared. In cases where license fees
are involved with the Hoechst Group, they are generally based on percentages of
sales and do not require minimum payments. Management believes that the terms
of such license agreements are similar to those competitively negotiated
between unrelated parties.
The Company has developed and acquired technical information and owns
patents in the chemicals, fibers, specialties and advanced materials fields,
some of which have been licensed to affiliates and others worldwide.
EMPLOYEES
At December 31, 1995, worldwide employment for the Company was approximately
26,200. The Company employed about 9,000 persons outside the United States. In
the United States, fewer than one-fourth of the plants and employees are
organized by labor unions. Most labor agreements are for terms of three years.
The Company offers comprehensive benefit plans for employees and their families
and believes relations with employees are satisfactory.
6
ENVIRONMENT
The Company's worldwide operations are subject to environmental laws and
regulations which impose limitations on the discharge of pollutants into the
air and water and establish standards for the treatment, storage and disposal
of solid and hazardous wastes. The Company believes that it is in substantial
compliance with all applicable environmental laws and regulations.
In 1995, combined worldwide expenditures, including third party and divested
sites, for compliance with environmental control regulations and internal
Company initiatives totaled $220 million, of which $86 million was for capital
projects. In both 1996 and 1997, total annual environmental expenditures are
expected to be approximately $300 million, of which $75 million is for capital
projects. It is anticipated that stringent environmental regulations will
continue to be imposed on the Company and the industry in general. Although the
Company cannot predict expenditures beyond 1997, management believes that the
current spending trends will continue.
The Company may be subject to claims brought by Federal or state regulatory
agencies or private individuals pursuant to statutory authority or common law.
In particular, the Company has a potential liability under the Federal
Comprehensive Environmental Response Compensation and Liability Act
("Superfund") and related state laws for investigation and cleanup costs at
approximately 100 sites. At most of these sites, numerous companies, including
either the Company or one of its predecessor companies, have been notified that
the United States Environmental Protection Agency ("EPA"), state governing body
or private individuals consider such companies to be potentially responsible
parties under Superfund or related laws. The proceedings relating to these
sites are in various stages. The cleanup process has not been completed at most
sites and the status of the insurance coverage for most of these proceedings is
in litigation. The Company has accrued its best estimate of its ultimate
liability for investigation or cleanup costs, but, due to the many variables
involved in such estimation, the ultimate liability may vary. Expenditures for
investigation, cleanup and related activities have been $31 million for the
three years ended December 31, 1995 with expenditures in no year greater than
$12 million.
SEGMENT AND GEOGRAPHICAL INFORMATION
See Note (14) of Notes to Consolidated Financial Statements for Segment and
Geographical Information.
7
ITEM 2. PROPERTIES
The Company owns and operates various manufacturing facilities within the United
States and to its operations such as warehouses, pipelines, tolling operations,
research and development and sales offices.
The Company's principal manufacturing facilities, which are owned by the
Company (unless otherwise indicated), are summarized below:
CHEMICALS SEGMENT:
U.S.
Bay City, Texas Vinyl acetate, butanol, propanol, synthetic fatty
acids,butyl acetate
Bishop, Texas Methanol, formaldehyde, pentaerythritol,
trimethylolpropane
Bucks, Alabama Amines
Clear Lake, Texas Acetic acid, ethoxylate, vinyl acetate, acrylic
acid and esters, methanol*
Pampa, Texas Acetic acid, acetic anhydride, ethyl acetate,
methyl ethyl ketone, acrylic esters
Portsmouth, Virginia Specialty amines
Rock Hill, South Carolina Formaldehyde
NON-U.S.
Celanese Canada Inc.:
Edmonton, Alberta Acetic acid, acetic anhydride, formaldehyde,
methanol**, pentaerythritol, sodium formate, vinyl
acetate
Grupo Celanese S.A.:
Cangrejera, Veracruz Acetic acid, vinyl acetate, dimethyl formamide,
methyl amines, acetic anhydride and acrylic acid
Celaya, Guanajuato Acetic acid esters, solvents, acetic anhydride
Cosoleacaque, Veracruz Acrylic acid esters
FIBERS AND FILM SEGMENT:
U.S.
Clear Lake, Texas Ethylene oxide and glycol
Greer, South Carolina Polyester film and resins
Narrows, Virginia Acetate filament and flake, cigarette filter tow
Rock Hill, South Carolina Acetate filament and flake, PBI
Salisbury, North Carolina Polyester staple and filament fibers and polyester
resins
Shelby, North Carolina Polyester filament fibers
Spartanburg, South Carolina Polyester staple, polyester resins, spunbond and
monofilament
Wilmington, North Carolina PTA, DMT and terate resins
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* The methanol operation is owned by a joint venture. See Item 1 -
"Business -- Description of Business Segments."
** The methanol operation is owned by Celanese Canada Inc. and the Company.
8
NON-U.S.
Hoechst Celanese S.A.:
Lanaken, Belgium Acetate and triacetate filament fibers, cigarette
filter tow
Celanese Canada Inc.:
Drummondville, Quebec Acetate filament fibers
Edmonton, Alberta Cellulose acetate flake and cigarette filter tow
Millhaven, Ontario Polyester staple fibers
Grupo Celanese S.A.:
Ocotlan, Jalisco Nylon, cellulose acetate flake, filament and
cigarette filter tow and polyester filament and
resins
Queretaro, Queretaro High denier nylon and polyester staple, filament,
and high denier filament
Toluca, Mexico Polyester staple and high denier polyester and
nylon filaments
Zacapu, Michoacan Bioriented polypropylene film, laminated printed
films and cellulosic casings
SPECIALTIES AND ADVANCED MATERIALS SEGMENT:
Aston, Pennsylvania Compounded flouropolymers
Bayport, Texas* Ultra high molecular weight polyethylene
Bishop, Texas Engineering plastics and acetaminophen
Branchburg, New Jersey Liquid photoresist
Bucks, Alabama Sodium hydrosulfite, sulfur dioxide, sodium
bisulfite solution
Charlotte, North Carolina* Microporous membranes
Coventry, Rhode Island Pigments, organic intermediates and bulk
pharmaceutical chemicals
Florence, Kentucky Engineering plastics
Leeds, South Carolina Sodium bisulfite solution, sodium hydrosulfite,
sodium hydrosulfite solution, specialty blended
products
Mount Holly, North Carolina Resins, surfactants and other specialty chemicals
Portsmouth, Virginia Superabsorbent materials
Shelby, North Carolina Engineering plastics
Wilmington, North Carolina Polyphenylene sulfide
Winona, Minnesota Engineering plastics
Management believes that the Company's properties are suitable for its
business and have adequate productive capacities to meet current and future
business requirements.
ITEM 3. Legal Proceedings
The Company is a defendant in a number of lawsuits, including environmental,
product liability and personal injury actions. Certain of these lawsuits are or
purport to be class actions. In some of these cases, claimed damages are
substantial. While it is impossible at this time to determine with certainty
the ultimate outcome of these lawsuits, management believes, based on the
advice of legal counsel, that adequate provisions have been made for probable
losses with respect thereto and that the ultimate outcome will not have a
material adverse effect on the financial position of the Company.
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* This facility is leased.
9
In late February 1990, the EPA issued a Notice of Violation to the Company's
Celriver plant alleging that the plant is subject to the Benzene NESHAP
Fugitive Emissions Standard of the Clean Air Act. Although the Company
subsequently met the Fugitive Emissions Standard voluntarily at all plants that
used Benzene (the Celriver, Celco and Bishop facilities), it believed that the
facilities properly determined in 1984 that they qualified for an exemption
from the standard and, therefore, enforcement and sanctions were not
appropriate. The Department of Justice ("DOJ") and EPA filed complaints against
Celriver in July 1992 in SC; Celco in November 1993 in VA; and Bishop in March
1995 in TX seeking penalties of up to $25,000 per day of violation. Discovery
is nearly complete in the Celriver action but has been deferred in the Celco
case pending completing of the Celriver case. The Company has moved to
similarly defer discovery in the Bishop case. The Company and DOJ have each
moved for summary judgement in the Celriver and Bishop cases. Hearings on the
Celriver motions for summary judgement were held in February 1996 and the
Company is awaiting final decision on the motion; the Company is awaiting
scheduling of a similar hearing for the Bishop motions.
In June 1991, the Company entered into an agreement with the EPA to participate
in a voluntary program known as the "Toxic Substances Control Act-Section 8 (e)
CAP Program." Under this program, the EPA is allowing participating companies to
conduct voluntary, retrospective self-audits, to submit newly discovered 8 (e)
studies to the EPA and to pay a penalty of $6 thousand for each unreported
study. Under the program, however, the total penalties to the Company cannot
exceed $1 million. Based on the number of studies the Company's self-audit had
identified by the end of August, 1992, it is clear the Company's penalty will be
the program's $1 million maximum amount.
The Company is a named defendant in thirty-six putative class actions, three
of which have been certified as class actions, as well as a defendant in other
non-class actions filed in twelve states (the "Plumbing Actions"). In these
Plumbing Actions the plaintiffs typically seek recovery for alleged property
damages, and, in certain cases, additional damages under the Texas Deceptive
Trade Practices Act. The other defendants include United States Brass
Corporation ("U.S. Brass"), Vanguard Plastics, Inc. ("Vanguard"), Shell Oil
Company ("Shell") and E.I. duPont deNemours & Co., Inc. ("duPont"). Damage
amounts are not specified. The plumbing systems were designed and manufactured
primarily by U.S. Brass and Vanguard. The pipe was made from polybutylene resin
supplied by Shell. The Company sold acetal copolymer resin and duPont sold
acetal homopolymer resin to other companies who manufactured the fittings used
in the plumbing systems. The class actions and the purported class actions are
in the Circuit Court, State of Alabama, County of Mobile (one case), Circuit
Court, State of Maryland, County of Montgomery (one case), the 20th Judicial
Circuit Court, State of Illinois, County of St. Clair (two cases), the Circuit
Court, State of Missouri, County of St. Louis (one case), the Superior Court,
State of Arizona, County of Maricopa (two cases), the Municipal Court, State of
California, County of San Diego (one case), the Superior Court, State of
California, Counties of San Diego (six cases), and Monterey (one case), the
District Court, State of Nevada, County of Clark (one case), the 2nd Judicial
District Court, State of Nevada, County of Washoe (one case), the 164th
Judicial District Court, State of Texas, County of Harris (one case), the
United States District Court for the Southern District of Texas, Houston
Division (one case), the District Court, State of Colorado, County of Denver
(one case), the Superior Court of California, Santa Cruz County (one case), the
Circuit Court of the Eleventh Judicial Circuit, Florida, Dade County (one
case), the Superior Court of Georgia, Fulton County (one case), the Superior
Court of Indiana, Marion County (one case), the District Court of Iowa, Polk
County (one case), the 18th Judicial District of Louisiana, Iberville Parish
(one case), the Civil District Court of Louisiana, Orleans Parish (one case),
the Circuit Court of Michigan, Wayne County (one case), the Court of Common
Pleas of Ohio, Montgomery County (one case), the Circuit Court of Oregon,
Multnomah County (one case), the Court of Common Pleas of Pennsylvania (1st
Judicial District), Philadelphia County (one case), the Court of Common Pleas
of South Carolina, Beaufort County (one case), the Circuit Court of Wisconsin,
Milwaukee County (one case), the District Court, State of Colorado, Denver
District (one case), the 22nd Judicial Circuit Court, State of Missouri, County
of St. Louis (one case) and in the Superior Court, State of New Jersey, County
of Burlington (one case).
The Company and Shell have resolved through settlement or obtained
dismissals of four certified state court class actions.
Based on, among other things, the findings of outside experts and the
successful use of the Company's acetal
10
copolymer in similar applications, the Company does not believe its acetal
copolyer was defective or caused the plumbing systems to fail. In many cases the
Company's exposure may be limited by the fact that the other defendants and
other responsible parties may be found liable in whole or substantial part or by
invocation of the statute of limitations since the Company ceased selling the
resin for use in the plumbing systems in site built homes during 1986 and in
manufactured homes during 1989. The Company is defending itself vigorously in
these actions. The Company has commenced litigation in the Superior Court - Law
Division, State of New Jersey, County of Somerset against U.S. Brass and its
former and current parent, Household International, Inc. ("Household"), and
Eljer Industries, Inc. ("Eljer"), respectively, to recover, among other things,
the portion of the plumbing action judgements, settlements and expenses that are
attributable to U.S. Brass, Household and Eljer. However, as a result of U.S.
Brass filing for Chapter 11 protection in bankruptcy court in Sherman, Texas,
all claims against U.S. Brass have been stayed and this litigation has been
removed to the bankruptcy court. The Company has made a motion in the bankruptcy
court to remand the litigation to state court so that its claims against
Household and Eljer can be pursued.
In November 1995, the Company, Shell and duPont entered into a national
class action settlement, which has been approved by the Courts, subject to
appeals. Outside counsel believes that the Company has a substantial
probability of prevailing on any such appeals.
The settlement calls for the replacement of plumbing systems of claimants
who have had qualifying leaks. Furthermore, the three companies have agreed to
fund such replacements up to U.S. $950 million. The allocation of the payments
already made and future payments between the affected companies has not been
finally determined. There are additional pending lawsuits not covered by this
settlement.
In December 1995, the Company and Shell reached agreement to settle 60,000
claims which were not part of the national class action and which comprise
substantially all of the remaining active claims against the Company. This
settlement is on terms similar to the class action settlement.
Management believes that the Plumbing Actions are substantially covered by
insurance. In September 1989, after being sued by one of its insurers in New
York, the Company filed suit in the Superior Court of the State of Delaware in
and for New Castle County against National Union Fire Insurance Co. of
Pittsburgh, Pennsylvania, the primary general liability insurance carrier for
the Company from April 1985 to May 1989 and 40 excess/umbrella carriers
insuring the Company from 1978 to 1989, seeking a declaration that insurance
coverage exists for these product liability claims. The insurers' New York
action has been dismissed. Negotiations with most of the carriers have resulted
in settlement or agreements in principle to settle, resulting in substantial
continuing coverage of the Plumbing Actions or cash payments for claims. There
are ongoing discussions with several of the remaining insurers. The Company's
Delaware suit has been stayed pending the results of interlocutory appeals to
the Delaware Supreme Court on two issues. Outside counsel believes that the
Company has a substantial probability of prevailing in its litigation against
the carriers.
The Company is not liable for any alleged defects in such systems which were
designed, manufactured and marketed by other companies. Nonetheless, the
Company has agreed to participate in the proposed settlements described above
to reduce litigation expenses and to provide relief to qualifying homeowners
with polybutylene plumbing problems.
Management believes that the Plumbing Actions will not have a material
adverse effect on the financial position of the Company. See Note (15) of Notes
to the Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Not applicable.
ITEM 6. SELECTED FINANCIAL DATA
Years ended December 31,
--------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
(In millions)
Net sales $7,395 $6,874 $6,171 $6,320 $6,160
Operating income (loss) 584 (39) 302 304 385
Earnings (loss) from continuing operations
before cumulative effect of accounting change 310 (108) 129 84 125
Total assets 8,317 7,775 7,611 6,888 6,516
Long-term debt 962 1,082 871 823 743
Dividends declared 130 60 70 85 90
Note: This table should be read in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations and the Financial
Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following sections should be read in conjunction with Note (14) of Notes
to Consolidated Financial Statements for Segment and Geographical Information.
RESULTS OF OPERATIONS
1995 Compared to 1994
On July 18, 1995, Hoechst Corporation, the Company's parent, completed the
acquisition of Marion Merrell Dow Inc. (which was renamed Hoechst Marion
Roussel, Inc. ["HMRI"]). In line with the worldwide strategy of Hoechst
Aktiengesellschaft, ("Hoechst AG"), the pharmaceutical operations in North
America have been realigned. Accordingly, the Company's management approved a
formal plan to transfer its interest in Copley Pharmaceutical, Inc. and
Hoechst-Roussel Pharmaceuticals Inc. to its Parent or the subsidiaries of its
Parent. The transfer of the carrying value of the net assets of these
businesses was effective July 1, 1995. Accordingly, the Company will be
reimbursed by Hoechst Corporation for any costs, including operating losses,
the Company might incur associated with the strategic realignment of the
pharmaceutical operations. Beginning with the second quarter of 1995, the
Company eliminated its Life Sciences segment. In addition, in the fourth
quarter 1995, the Company transferred its interest in Agri-Vet Inc., which owns
the Company's interest in Hoechst-Roussel Agri-Vet Company and AgrEvo USA
Company, to its Parent. The Company has reflected the operating results of all
of these businesses as discontinued operations in the accompanying consolidated
financial statements.
12
Net sales of $7,395 million in 1995 increased by 7.6%, or $521 million, over
net sales of $6,874 million in 1994. The largest sales improvements were
realized in the Chemicals and Fibers and Film segments. The Chemicals segment
sales improved over 1994 with the major product lines showing favorability,
most notably in acetyls. Both vinyl acetate monomers and acetic acid product
lines continued to see strong demand and favorable pricing. Although some
softness in the market was noticed in the second half of 1995, these products
remained favorable over the prior year. The Fibers and Film segment
experienced sales growth over 1994. In Textile Fibers, pricing increases in
the domestic staple market were high enough to more than offset decreases in
domestic volumes for polyester staple and acetate. This decrease in volumes
versus prior year is due to market softness in the later part of 1995,
particularly the apparel market. The Technical Fibers Group experienced sales
growth for the year over 1994 due to filter products volumes and pricing to the
Far East, and improved Tire and MRG (mechanical rubber goods) volumes in the
domestic market. Polyester Resins and Films sales increased significantly as a
result of higher selling prices and volumes for PET Resins due to strong
demand in the packaging materials and plastic containers markets. In addition,
continued favorable pricing and volumes were experienced in PET Film due to
growing demand for both thin and thick film applications. The Specialties and
Advanced Materials segment sales were lower than prior year, as sales increases
in Advanced Materials were not enough to offset decreases in the Specialty
Chemicals Group. In Advanced Materials, overall sales improvements compared to
1994 resulted from favorable sales volumes across most product lines largely
resulting from continued strong domestic and export demand, further
commercialization of products and the benefit of a strong economy. Specialty
Chemicals 1995 sales experienced a downturn versus the prior year primarily due
to price declines in superabsorbants resulting from intense competition and a
reduction in volumes due to the contribution of the dyes business to the DyStar
joint venture, the U.S. part of a worldwide joint venture with Hoechst AG and
Bayer AG. These declines were too large to be countered by the improved
domestic volumes in surfactants, fine chemicals, AZ Photoresist and bulk
pharmaceuticals.
Selling, general and administrative expenses increased $22 million over
last year mainly due to higher personnel related costs associated with higher
profit sharing and increased reengineering spending especially in the Fibers
area. Research and development expenses remained at the same levels versus the
prior year.
The 1995 operating income of $584 million was $623 million greater than 1994
which had an operating loss of $39 million. In the fourth quarter of 1995, the
Company recorded a special charge of $192 million ($115 million, net of tax)
for the expected costs and expenses relating to the write-down of assets and
additional environmental remediation exposure associated mostly with the
Specialties and Advanced Materials segment and for potential additional costs
pertaining to pending and future product liability claims, net of probable
insurance recoveries (See Note (16) of Notes to Consolidated Financial
Statements and Item 3. - "Legal Proceedings"). In November 1995, the Company,
Shell and duPont entered into a national class action settlement, which has
been approved by the Courts, subject to appeals. Outside counsel believes that
the Company has a substantial probability of prevailing on any such appeals.
The settlement calls for the replacement of plumbing systems of claimants who
have had qualifying leaks. Furthermore, the three companies have agreed to fund
such replacements up to U.S. $950 million. The allocation of the payments
already made and future payments between the affected companies has not been
finally determined. There are additional pending lawsuits not covered by this
settlement. In December 1995, the Company and Shell reached agreement to settle
60,000 claims which were not part of the national class action and which
comprise substantially all of the remaining active claims against the Company.
This settlement is on terms similar to the class action settlement.
Operating income in the Chemicals segment benefited from a significant
increase in sales for the full year resulting from increased volumes and
pricing, particularly in methanol, which more than offset the higher raw
material costs for ethylene and propylene. Improvements in the Fibers and Film
segment over the prior year were led by Technical Fibers and Polyester Resins
and Films. In Textile Fibers, operating income decreased as demand for acetate
filament declined. Although the cost of raw materials increased, higher Filter
Products and Tire/MRG sales volumes in Technical Fibers resulted in increased
operating income over last year. This increase is mainly due to the timing of
tow shipments and high domestic demand for Tire/MRG. The operating income for
Polyester Resins and Films improved over the prior year due to very favorable
pricing in the domestic market for PET Film, Polyester Intermediates, and PET
Resins. In the Specialties and Advanced Materials segment, operating income
remained flat compared to 1994. Although Advanced Materials experienced
increased sales in most product lines, this was not
13
enough to offset decreases in Specialty Chemicals. Specialty Chemicals'
operating income declined as the result of higher raw material costs for most
product lines, as well as price declines for superabsorbants.
Equity in net earnings (loss) of affiliates improved by $8 million over 1994
due to increased earnings in a 45% owned affiliate, which sells copolymer and
resins resulting from improved sales and the effect of the weakening of the
U.S. dollar against the Japanese yen.
Interest and other income reflects the following: the gain associated with
transferring the Company's methanol production assets at the Clear Lake, TX
plant and forming a joint venture with Valero Javelina Company which started up
in the third quarter 1995; a gain on the sale of the textile nylon business
operated by Grupo Celanese, S.A. (formerly Celanese Mexicana, S.A.) and a
dividend from an investment in National Methanol Company which operates in
Saudi Arabia.
The effective tax rate was 26% in 1995 compared to a benefit of 105% in 1994
which arose as a result of a change in a prior year's accounting estimate in
1994 which resulted in a tax benefit of $63 million.
Due to the significant devaluation of the Mexican new peso in December 1994
and its continued weakening against the U.S. dollar throughout 1995, the equity
section of the Company was negatively impacted in 1995 by approximately $70
million from the translation effect of the Company's 40% ownership of Grupo
Celanese, S.A. The Company is uncertain about the potential unfavorable impact
of future fluctuations of the Mexican new peso.
The Company has adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of" ("FAS 121"), which establishes standards for the recognition
of impairment of certain assets. Adoption of FAS 121 did not have a material
impact on the financial position or results of operations of the Company.
1994 Compared to 1993
Net sales of $6,874 million in 1994 increased 11%, or $703 million, over net
sales of $6,171 million in 1993. Net sales in all business segments improved
over the prior year, most notably in the Chemicals and Fibers and Film segments.
In the Chemicals segment, sales improvements over 1993 were the result of
strong volumes across all product lines, most notably in methanol, acetyls and
acrylates. Basic commodity chemical prices have continued to improve with a
significant increase in methanol pricing throughout 1994. In the Fibers and
Film segment, sales improvements were realized as strong domestic volumes more
than offset declines in pricing. Textile Fibers achieved marked volume gains
as polyester operations continued in 1994 to operate at capacity levels. High
customer inventories in filter products hindered export pricing and sales
volumes in Technical Fibers. Polyester Resins and Films experienced
significant sales growth as the continued increase in market demand for
packaging resins favorably impacted U.S. and Mexican volumes. The Specialties
and Advanced Materials segment realized an increase in sales over last year.
Specialty Chemicals' sales improved primarily from increased volumes for
pigments due to strong demand in the paint and plastics markets, as well as
gains in the electronics product line caused by strengthening conditions in the
computer and consumer electronics markets. These improvements were slightly
offset by price and volume declines in dyes due to a decrease in the demand for
bright colors used in fleecewear. In Advanced Materials, sales improved versus
the prior year due to volume increases reflecting improved economic conditions
and further commercialization of products in the automotive and fiber optics
industries.
Selling, general and administrative expenses increased over last year
largely due to the increased profit sharing. Research and development expenses
were slightly higher than the prior year mainly attributable to additional
research and development costs in bulk pharmaceuticals.
14
The 1994 operating loss of $39 million was $341 million lower than the 1993
operating income of $302 million. During 1994, the Company recorded a special
charge of $532 million against operating income for estimated costs and
expenses pertaining to pending and future product liability claims, net of
probable insurance recoveries, relating to certain plumbing systems, using
fittings manufactured by other companies from acetal copolymer resin sold by
the Company, (See Note (16) of Notes to the Consolidated Financial Statements
and Item 3. - "Legal Proceedings") and management's best estimate of an
additional accrual for environmental remediation and restoration liabilities,
based on a review of the Company's present and closed manufacturing sites
primarily in the Fibers and Film segment. In addition, this special charge
includes the estimated costs and expenses relating to the reduction in the
workforce and asset write-downs, principally in the Specialties and Advanced
Materials segment.
The Company together with two other substantial manufacturers had agreed to
and announced a proposed settlement of a purported nationwide class action
related to the product liability claims, subject to court approval (See Note
(15) of Notes to the Consolidated Financial Statements). This proposed
settlement would have required the three participating companies to establish a
settlement fund of up to $750 million to be paid out over a period which the
Company estimates would have ended by 2003. The Texas State Court, in February
1995, denied the companies request for preliminary approval of this settlement.
Appeals of this denial have been filed, the three participating companies are
presently exploring several alternatives.
Operating income for the Chemicals segment improved versus the prior year
due to stronger volumes and higher methanol pricing partially offset by higher
raw material costs of ethylene, propylene and sourced methanol. In the Fibers
and Film segment, Textile Fibers experienced increased raw material costs and
production line start up costs which were more than offset by volume gains. In
Technical Fibers, cost reduction programs were not enough to offset the effect
of oversupply conditions existing in the filter products markets. The
operating income for Polyester Resins and Films increased over the prior year
due to higher sales volumes realized in packaging resins which were partially
offset by higher raw material costs resulting from higher worldwide demand for
paraxylene, methanol, purified terephthalic acid and dimethylterephthalate. In
the Specialties and Advanced Materials segment, Specialty Chemicals' operating
income declined versus the prior year as increased sales volumes were not
enough to compensate for higher manufacturing costs, however, volume gains in
Advanced Materials resulted in improved operating income for 1994.
Interest expense increased $34 million or 45% from last year as a result of
higher debt levels related to an acquisition during the fourth quarter of 1993
as well as increasing interest rates.
Equity in net earnings (loss) of affiliates has improved due to increased
earnings in a 50% owned affiliate which manufactures bulk ibuprofen and
earnings contributed by an equity investment acquired during the year. During
the fourth quarter of 1994, the Company transferred its 41% ownership in Ticona
Polymerwerke GmbH to Hoechst AG.
The Company made certain estimates in previous periods in providing for
income taxes. Based on more current information, the Company changed such
accounting estimates giving rise to a tax benefit of $63 million in the second
quarter of 1994. As a result, the effective rate was a benefit of 105%
compared to the 1993 effective tax rate of 34%.
As a result of the significant devaluation of the Mexican new peso in
December 1994, the equity section of the Company was negatively impacted by
approximately $120 million due to the translation effect of the Company's 40%
ownership of Grupo Celanese S.A.. The Company is uncertain about the possible
future impact the fluctuation of the Mexican currency will have on its
consolidated results.
15
1993 Compared to 1992
Net sales of $6,171 million in 1993 were 2%, or $149 million, below 1992 as
sales were slightly lower in all operating segments.
Chemicals segment sales were lower than 1992 as increased volumes were
offset by lower selling prices as a result of continued overcapacity. Fibers
and Film segment sales declined from 1992 as reduced export volumes and selling
prices were slightly offset by improved domestic volumes. Textile Fibers sales
were level compared to 1992. Higher acetate filament sales volumes and prices
reflect continuing strength in the fashion industry. These improvements were
offset by lower volumes in North American polyester filament and lower selling
prices for polyester staple that resulted from increased competitive pressures.
In Technical Fibers, sales volumes and prices were lower than in 1992 as filter
product shipments to the Far East decreased and overall selling prices declined
due to excess worldwide capacity and the strengthening of the dollar in Europe.
Tire and MRG (mechanical rubber goods) volumes were lower as a result of the
weak European economy, while increased spunbond sales reflected a stronger
domestic roofing market. Polyester Resins and Films sales increased marginally
over 1992 as packaging resin volumes increased due to higher demand,
particularly in the Mexican market. After adjusting for the disposition of the
high density polyethylene ("HDPE") business in 1992, Specialties and Advanced
Materials sales improved as increased volumes offset lower selling prices.
Specialty Chemicals sales were virtually unchanged as reduced selling prices,
due to worldwide competitive pressures, and lower volumes, primarily in fine
chemicals and printing products, were offset by increased selling prices and
improved product mix for pigments and improved volumes for surfactants,
electronic products, waxes, and superabsorbent materials. Within Advanced
Materials, sales were higher as volumes increased for both high performance
polymers and engineering thermoplastics due to general economic growth in their
end use markets.
Selling, general and administrative expenses for 1993 remained virtually the
same as 1992 as improvements in Chemicals, Specialty Chemicals, and Advanced
Materials offset unfavorable expenses in Fibers and Film. In addition, Fibers
and Film SG&A includes a $50 million receipt in settlement of a litigation.
Research and development expenses of $166 million were slightly higher than in
1992.
During 1993, the Company recorded a special charge of $29 million to
operating income for restructuring (principally Mexican chemical operations),
$19 million of which related to the write-down of property, plant and
equipment. As part of an ongoing Fibers and Film segment North American
strategy, the Company restructured its North American polyester fibers
operations. During 1992, the Company charged $87 million to operating income
for restructuring, $34 million of which related to the write-down of property,
plant and equipment. An additional $15 million was charged to operations in
1992 for restructuring and regionalization of certain other businesses.
Operating income of $302 million was flat compared to 1992. Improvements in
the Fibers and Film and the Specialties and Advanced Materials segments were
offset by lower Chemicals segment operating income. Chemicals segment operating
income declined in 1993 due to several nonrecurring items. Operating income
from continuing operations improved as manufacturing costs and product mix were
favorable compared to the prior year. Operating income was reduced, however,
due to 1993 restructuring charges and costs associated with a toxic tort suit
involving the Pampa, Texas plant. Also, during 1992, Chemicals segment recorded
income of $68 million related to the settlement of its Pampa insurance claims.
Fibers and Film operating income improved in 1993. Textile Fibers operating
income was relatively flat compared to 1992 as an increase in sales volume was
offset by higher manufacturing costs. Technical Fibers operating income was
lower than in 1992 primarily due to reduced shipments and lower selling prices
of filter products. The decrease in Polyester Resins and Films operating income
was due to increased manufacturing costs and higher raw material costs
principally in Mexico. In addition, Fibers and Film 1993 operating income
includes a $50 million receipt in settlement of a litigation while 1992
operating income included $87 million in restructuring costs. The Specialties
and Advanced Materials segment operating income improved primarily due to
higher volumes and lower selling and marketing expenses. Specialty Chemicals
operating income was lower primarily due to increased manufacturing costs.
Operating income increased significantly for Advanced Materials due to improved
volumes and favorable manufacturing costs resulting from higher efficiencies
and reduced maintenance expenses.
16
Beginning in 1993, the Company segregated sales and costs associated with
the Advanced Technology segment from segment sales and operating income of its
operating segments. The Advanced Technology segment represents research and
development costs to seed and develop new businesses. Prior to 1993 this group
was included in the Specialties and Advanced Materials segment. These costs and
results have not been borne by any operating group. When projects and/or
businesses become viable, they are transferred to the appropriate operating
segment.
Equity in net (loss) earnings of affiliates declined by $12 million compared
to 1992 primarily due to lower earnings by Japanese and German affiliates which
reflect the continued sluggish economic conditions in those countries.
Interest expense decreased $5 million, or 6%, primarily due to lower
interest rates, particularly in Mexico. Interest and Other Income, net, was $9
million lower than in 1992 primarily due to lower interest income in 1993, the
result of lower interest rates. In 1992, Interest and Other Income included a
gain on the sale of the HDPE facility.
The effective tax rate decreased to 34% in 1993 compared to 49% in 1992. The
decrease is mainly attributable to the accounting change required by the
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("FAS 109").
The Company implemented FAS 109 and Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("FAS
112"), January 1, 1993. FAS 109, which requires the asset and liability method
of accounting for income taxes and the calculation of deferred taxes using
enacted tax rates, resulted in a net after-tax cumulative charge of $30 million
in 1993. In addition, by applying FAS 109, pre-tax operating income was reduced
by $40 million due to the increase in depreciation and amortization expense
resulting from the increased carrying amounts of assets and liabilities
acquired in a purchase business combination. The increase in operating expense
was offset by a lower deferred tax provision. FAS 112 requires recognition of
postemployment benefits on an accrual basis and resulted in a net after-tax
cumulative charge of $8 million in 1993. The effect of this change on 1993
earnings before the cumulative effect of accounting changes was not material.
ENVIRONMENTAL
In 1995, combined worldwide expenditures, including third party and divested
sites, for compliance with environmental regulations and internal Company
initiatives totaled $220 million of which $86 million was for capital projects.
In both 1996 and 1997, total annual environmental expenditures are expected to
be approximately $300 million of which $75 million is for capital projects. It
is anticipated that stringent environmental regulations will continue to be
imposed on the Company and the industry in general. Although the Company cannot
predict expenditures beyond 1997, management believes that the current spending
trends will continue.
In 1995, 1994, and 1993 the total environmental costs charged to operations
for remediation efforts amounted to $101 million, $105 million and $34 million,
respectively. As of December 31, 1995 and 1994 the Company's total
environmental liability recognized in the financial statements is $272 million
and $208 million, respectively. The amounts are neither reduced for anticipated
insurance recovery nor discounted from the anticipated payment date.
In the opinion of management, environmental expenditures will not have a
material adverse effect upon the Company's competitive position.
INFLATION
In recent years, inflation has not had a material impact on the Company's
costs due principally to price competition among suppliers of raw materials.
However, in certain segments of the Company's businesses, changes in the prices
of raw materials, particularly petroleum derivatives, could have a significant
impact on the Company's costs, which the Company may not be able to reflect
fully in its pricing structure.
17
RATIO OF EARNINGS FROM CONTINUING OPERATIONS TO FIXED CHARGES
The ratio of earnings to fixed charges for 1995 was 6.0 compared to less
than one for 1994. The increase was due to strong earnings from continuing
operations in the current year. For purposes of calculating the ratio of
earnings to fixed charges, earnings consist of earnings from continuing
operations before fixed charges, minority interests and income taxes. Fixed
charges consist of interest and debt expense, capitalized interest and the
estimated interest portion of rents under operating leases.
LIQUIDITY AND CAPITAL RESOURCES
Cash generated from operations was sufficient to fund 1995 operating
requirements and capital expenditures. Cash and cash equivalents at December
31, 1995 were $81 million, a decrease of $105 million from $186 million in
1994. The decrease primarily reflects the reduction in debt level by $295
million.
During 1995, the Company borrowed and repaid $462 million under its
commercial paper program and revolving credit lines with its Parent, Hoechst
Corporation. There was no outstanding balance under either credit facility at
year-end 1995. The Company also repaid $150 million of short-term borrowings
due to Hoechst AG and $120 million of term-loans due to its Parent. In the
fourth quarter, the Company received $10 million from the sale of exempt
facility revenue bonds to finance the construction of a waste disposal facility
in Virginia.
The Company paid its Parent a $130 million dividend in February, 1996 and a
$60 million dividend in 1995. The Company intends to continue its practice of
paying a dividend to its Parent at the discretion of the Company's Board of
Directors.
The Company had an aggregate of $175 million medium-term notes outstanding
as of December 31, 1995. The Company may sell from time to time up to an
additional $250 million of such notes. The proceeds from the sale of any
medium-term notes will be used for general corporate purposes.
In June 1995, Moody's confirmed the Company's debt rating of P1/A2 and
Standard & Poor's lowered the Company's debt ratings from A-1+/AA- to A-1/A+.
The Company expects that its capital expenditures, investments, and working
capital requirements will continue to be met primarily from cash generated from
operations. However, the Company may, due to the timing of funding
requirements, supplement its liquidity from external or affiliated sources.
Such sources include the Company's medium-term note shelf registration,
commercial paper program and loans from Parent or Hoechst AG and affiliates.
18
ITEM 8. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Consolidated Balance Sheets as of December 31, 1995 and 1994....................... 20
Consolidated Statements of Earnings for the three years ended December 31, 1995.... 21
Consolidated Statements of Stockholder's Equity for the three years ended
December 31, 1995................................................................. 22
Consolidated Statements of Cash Flows for the three years ended
December 31, 1995................................................................. 23
Notes to Consolidated Financial Statements......................................... 24
Report of Independent Auditors..................................................... 43
19
HOECHST CELANESE CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
----------------
1995 1994
------ ------
(IN MILLIONS)
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 81 $ 186
Marketable securities.............................. 61 39
Net receivables.................................... 1,919 1,224
Inventories........................................ 854 762
Deferred income taxes.............................. 93 94
Prepaid expenses................................... 22 19
------ ------
Total current assets............................. 3,030 2,324
Investments in affiliates............................ 447 358
Property, plant and equipment, net................... 2,660 2,762
Deferred income taxes................................ 65 60
Long-term receivable from parent..................... 520 -
Other assets......................................... 524 395
Excess of cost over fair value of net
assets of businesses acquired, net.................. 987 1,023
Net assets held for distribution..................... 84 853
------ ------
Total assets..................................... $8,317 $7,775
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Notes payable and current installments
of long-term debt................................. $ 7 $ 26
Accounts payable and accrued liabilities........... 1,953 1,768
Dividend payable to parent......................... 130 60
Income taxes payable............................... 285 249
------ ------
Total current liabilities........................ 2,375 2,103
Long-term debt....................................... 962 1,082
Minority interests................................... 372 324
Other liabilities.................................... 1,267 1,102
Stockholder's equity:
Common stock....................................... - -
Additional paid-in capital......................... 2,929 2,804
Retained earnings.................................. 540 409
Cumulative translation and other adjustments....... (128) (49)
------ ------
Total stockholder's equity....................... 3,341 3,164
------ ------
Total liabilities and stockholder's equity......... $8,317 $7,775
====== ======
See accompanying notes to consolidated financial statements.
20
HOECHST CELANESE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31,
------------------------
1995 1994 1993
------ ------ ------
(IN MILLIONS)
Net sales........................................ $7,395 $6,874 $6,171
Cost of sales.................................... 5,702 5,483 5,022
Selling, general and administrative expenses..... 738 716 652
Research and development expenses................ 179 182 166
Special charges.................................. 192 532 29
------ ------ ------
Operating income (loss)...................... 584 (39) 302
Equity in net earnings (loss) of affiliates...... 8 - (8)
Interest expense............................. (107) (109) (75)
Interest and other income, net................... 213 47 73
------ ------ ------
Earnings (loss) before income taxes,
minority interests and cumulative effect of
accounting changes.......................... 698 (101) 292
Income tax (benefit) expense..................... 181 (106) 99
------ ------ ------
Earnings before minority interests and
cumulative effect of accounting changes..... 517 5 193
Minority interests............................... 207 113 64
------ ------ ------
Earnings before cumulative effect of
accounting changes.......................... 310 (108) 129
Cumulative effect of accounting changes,
net of tax...................................... - - 38
------ ------ ------
Earnings (loss) from continuing operations... 310 (108) 91
(Loss) earnings from discontinued operations,
net of tax...................................... (49) (78) 10
------ ------ ------
Net earnings (loss).......................... $ 261 $ (186) $ 101
====== ====== ======
See accompanying notes to consolidated financial statements.
21
HOECHST CELANESE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- ------
(IN MILLIONS)
COMMON STOCK
Par value $.10 per share (authorized Balance at beginning of year....... $ -- $ -- $ --
and issued 10,000 shares) ====== ====== ======
Balance at end of year............. $ -- $ -- $ --
====== ====== ======
- --------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL Balance at beginning of year....... $2,804 $2,769 $2,769
Transfers to/from parent, net...... 125 35 --
------ ------ ------
Balance at end of year............. $2,929 $2,804 $2,769
====== ====== ======
- --------------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS Balance at beginning of year....... $ 409 $ 655 $ 641
Net earnings (loss)................ 261 (186) 101
Dividends - cash................... (130) (60) (70)
Dividends - net assets of
subsidiaries..................... - - (17)
------ ------ ------
Balance at end of year............. $ 540 $ 409 $ 655
====== ====== ======
- --------------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TRANSLATION AND OTHER Balance at beginning of year....... $ (49) $ 58 $ 44
ADJUSTMENTS
Current year adjustments........... (79) (107) 14
------ ------ ------
Balance at end of year............. $ (128) $ (49) $ 58
====== ====== ======
- --------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
22
HOECHST CELANESE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
------- ------ -------
(IN MILLIONS)
Operating activities:
Earnings (loss) from continuing operations.................... $ 310 $ (108) 91
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Special charges, net of amounts used........................ 192 400 20
Cumulative effect of accounting changes, net of tax......... - - 38
Change in equity of affiliates.............................. (5) 8 16
Depreciation and amortization............................... 466 459 467
Tax provision less taxes paid............................... (2) (313) 10
(Gain) loss on sale of businesses
and assets, net........................................... (39) 9 2
Changes in operating assets and liabilities,
net of effect of businesses acquired and sold:
Net receivables........................................... (555) (210) (145)
Inventories............................................... (163) 190 (37)
Accounts payable and accrued liabilities.................. 315 84 (24)
Other, net................................................ 49 111 51
Net cash provided by (used in) operating
activities of discontinued operations.................... 180 (54) 44
----- ------- -------
Net cash provided by operating activities............... 748 576 533
----- ------- -------
Investing activities:
Capital expenditures.......................................... (486) (468) (534)
Redemption of loan to parent.................................. - - 176
Proceeds from sale of businesses and assets................... 71 4 2
Proceeds from sale of marketable securities................... 33 70 52
Purchases of marketable securities............................ (51) (64) (46)
Purchases of and investments in businesses
and assets, net.............................................. - (13) (53)
Net cash used in investing activities of
discontinued operations...................................... (23) (22) (575)
----- ------- -------
Net cash used in investing activities................... (456) (493) (978)
----- ------- -------
Financing activities:
Proceeds from long-term debt.................................. 10 477 107
Proceeds from short-term borrowings........................... 691 2,986 2,977
Payments on long-term debt.................................... (125) (270) (69)
Payments on short-term borrowings............................. (860) (3,175) (2,530)
Dividends paid................................................ (60) (70) (85)
Net cash (used in) provided by financing activities
of discontinued operations................................... (6) 10 -
----- ------- -------
Net cash (used in) provided by financing activities..... (350) (42) 400
----- ------- -------
Exchange rate changes on cash................................... (47) (22) (1)
----- ------- -------
Net (decrease) increase in cash
and cash equivalents................................... (105) 19 (46)
Cash and cash equivalents at beginning of year.................. 186 167 213
----- ------- -------
Cash and cash equivalents at end of year........................ $ 81 $ 186 $ 167
===== ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the period for: Interest, net of amounts
capitalized.................. $ 131 128 $ 86
Income taxes.................. 150 168 106
See accompanying notes to consolidated financial statements.
23
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION
Hoechst Celanese Corporation (the "Company") is wholly owned by
Hoechst Corporation ("Parent"), a holding company, itself a wholly owned
subsidiary of Hoechst Aktiengesellschaft ("Hoechst AG"). The Company
manufactures and sells, principally to industrial customers, a
diversified line of products including textile and technical fibers;
acetate cigarette filter tow; specialty and bulk chemicals and bulk
pharmaceuticals; engineering plastics; pigments; and polyester film. The
consolidated financial statements include the accounts of the Company
and its majority owned or controlled subsidiaries, joint ventures and
partnerships. All significant intercompany balances and transactions
have been eliminated in consolidation. Certain reclassifications have
been made in the 1994 and 1993 consolidated financial statements to
conform to the classifications used in 1995.
Substantially all of the Company's minority interests are
comprised of Grupo Celanese, S.A. and Celanese Canada Inc. The Company,
in conjunction with an investment by Hoechst AG, owns 51% of the
outstanding voting shares of Grupo Celanese S.A. and exercises
management control. The Company owns approximately 56% of Celanese
Canada Inc.
On July 18, 1995, the Company's Parent completed the acquisition
of Marion Merrell Dow Inc. (which was renamed Hoechst Marion Roussel,
Inc., ["HMRI"]). In line with Hoechst AG's worldwide strategy, the
pharmaceutical operations in North America have been realigned.
Accordingly, the Company's management approved a formal plan to transfer
its interests in Copley Pharmaceutical, Inc. and Hoechst-Roussel
Pharmaceuticals Inc. to its Parent or the subsidiaries of its Parent.
The transfer of the carrying value of the net assets of these businesses
was effective July 1, 1995. Accordingly, the Company will be reimbursed
by Hoechst Corporation for any costs, including operating losses, the
Company might incur associated with the strategic realignment of the
pharmaceutical operations. Beginning with second quarter 1995, the
Company eliminated its Life Sciences segment. In addition, in the fourth
quarter 1995, the Company transferred its interest in Agri-Vet. Inc.,
which owns the Company's interest in Hoechst-Roussel Agri-Vet Company
and AgrEvo USA Company, to its Parent. This transaction resulted in a
$125 million increase to paid-in capital. The effect on the Company's
consolidated financial statements was not material. The Company has
reflected the operating results of all of these businesses as
discontinued operations in the accompanying consolidated financial
statements.
The combined net sales of the discontinued operations for the
years ended December 31, 1995, 1994 and 1993 were $885 million, $921
million and $728 million, respectively. The net assets held for
distribution as of December 31, 1995 consist primarily of accounts
receivable, inventory, property, plant and equipment, other noncurrent
assets, accounts payable and accrued liabilities.
Effective January 1, 1994, Hoechst Corporation contributed its
shares of Hoechst Canada Inc. ("HCI") to the Company. HCI is involved in
industrial chemicals and colorants. During 1994, the Company also
transferred its 41% investment in Ticona Polywerke GmbH to Hoechst AG.
These transactions resulted in a $35 million net increase to paid-in
capital. The effect on the Company's consolidated financial statements
was not material.
24
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(b) CASH EQUIVALENTS
The Company considers all highly liquid investments with a
maturity of three months or less to be cash equivalents.
(c) MARKETABLE SECURITIES
The Company has classified its investments in debt and equity
securities as "available-for-sale" and has reported those investments at
their fair or market value in the Consolidated Balance Sheets.
(d) INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out
["FIFO"] or last-in, first-out ["LIFO"]) or market.
(e) INVESTMENTS AND EQUITY IN NET EARNINGS (LOSS) OF AFFILIATES
In general, the Company's share of net earnings or losses of
companies in which it owns at least 20% and less than a majority, and
does not exercise management control, is included in the Consolidated
Statements of Earnings as "Equity in net earnings (loss) of affiliates."
(f) PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment is stated at cost. Depreciation and
amortization are computed on a straight-line basis over estimated useful
lives.
Amortization of leasehold improvements is provided on a straight-
line basis over the estimated useful lives of the related assets or
lease terms, whichever is shorter.
Expenditures for maintenance and repairs are charged against
operations; major replacements, renewals and significant improvements
are capitalized.
(g) INTANGIBLES
Excess of cost over fair value of net assets of businesses
acquired ("Goodwill") is being amortized using the straight-line method
principally over a period of forty years. The Company reviews that the
forecasted cumulative undiscounted cash flow of those acquired
businesses is greater than the carrying value of the Goodwill.
Amortization expense charged against operations amounted to $33 million
in 1995, $37 million in 1994 and $37 million in 1993.
Patents and trademarks are being amortized on a straight-line
basis over their estimated useful or legal lives, whichever is shorter.
Amortization expense charged against operations amounted to $5 million
in 1995, $13 million in 1994 and $15 million in 1993.
25
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(h) INCOME TAXES
The Company's consolidated results of operations are included in
the consolidated Federal income tax return of its Parent. The Company's
Parent allocates a provision for Federal income taxes equivalent to the
tax effect on the operations of the Company as if a separate return were
filed.
Deferred income taxes have been provided to recognize the effect
of temporary differences between financial statement and income tax
accounting.
(i) RESEARCH AND DEVELOPMENT
Research and development costs are included in expenses as
incurred.
(j) FUNCTIONAL CURRENCIES
In general, local currencies have been designated as the
functional currencies for the Company's foreign operations and are
translated to United States dollars using the respective exchange rates.
(k) NEW ACCOUNTING PRONOUNCEMENT
The Company has adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of" ("FAS 121"), which
establishes standards for the recognition of impairment of certain
assets. Adoption of FAS 121 did not have a material impact on the
financial position or the results of operations of the Company.
(l) ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
26
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(2) RELATED PARTY TRANSACTIONS
Purchases from Hoechst AG and its affiliates aggregated $447 million in
1995, $526 million in 1994, and $351 million in 1993. Net sales to Hoechst AG
and its affiliates aggregated $312 million in 1995, $233 million in 1994, and
$216 million in 1993.
The Company's principal licenses are under patents owned by Hoechst AG and
its affiliates. License fees, relating to license agreements between the Company
and Hoechst AG and its affiliates, charged to operations aggregated $33 million
in 1995, $33 million in 1994, and $48 million in 1993.
The Company has a revolving credit agreement with its Parent under which it
may borrow up to $750 million. The Company has agreed to pay interest at 30 day
LIBOR plus .0625 of 1%. There was no activity under this agreement in 1995 and
1994. During 1993, the Company borrowed $768 million under this agreement.
Repayments on the revolving credit agreements for 1994 and 1993, respectively,
were $679 million and $89 million. Interest charges related to such borrowings
aggregated $4 million in 1994 and $2 million in 1993.
The Parent has a revolving credit agreement with the Company under which it
may borrow up to $400 million. The Parent agreed to pay interest at 30 day LIBOR
plus .0625 of 1%. During 1995, the Parent borrowed $349 million under this
agreement. Repayments on the revolving credit agreement for 1995 were $74
million. Interest related to such borrowings aggregated $4 million in 1995. No
such loan existed at December 31, 1994.
The Company has an outstanding note receivable from its Parent as of
December 31, 1995. The Parent has agreed to pay interest at 3-month LIBOR plus
.0625 of 1%. The note is payable in June, 2000. Interest income related to the
note was $20 million in 1995.
The Company transferred its interest in AgriVet, Inc. to its Parent during
the fourth quarter of 1995 (See Note (1)) in exchange for a short-term note.
This note was repaid in the first quarter of 1996.
Term obligations payable to its Parent aggregated $63 million at December
31, 1995, $186 million at December 31, 1994 and $156 million at December 31,
1993. Interest expense on these obligations aggregated $13 million in 1995, $13
million in 1994 and $7 million in 1993.
Short-term note obligations payable to Hoechst AG and its affiliated
companies aggregated $360 million at December 31, 1995 and $510 million at
December 31, 1994. Interest expense on such obligations aggregated $31 million
in 1995, $12 million in 1994 and $6 million in 1993.
(3) NET RECEIVABLES
1995 1994
------ ------
(IN MILLIONS)
Trade.................................... $ 945 $ 949
Parent and affiliates.................... 599 95
Other.................................... 410 211
------ ------
Subtotal......................... 1,954 1,255
Allowance for doubtful accounts.......... (35) (31)
------ ------
Net receivables.................. $1,919 $1,224
====== ======
27
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(3) NET RECEIVABLES (continued)
As of December 31, 1995 and 1994, the Company had no significant
concentrations of credit risk. Concentrations of credit risk with respect to
trade receivables are limited since the Company's customer base is dispersed
across many different industries and geographies.
(4) INVENTORIES
1995 1994
---- ----
(IN MILLIONS)
Finished goods............................... $676 $585
Work-in-process.............................. 92 87
Raw materials and supplies................... 174 160
---- ----
Subtotal................................. 942 832
Excess of current costs over stated values... (88) (70)
---- ----
Total inventories........................ $854 $762
==== ====
At December 31, 1995, $503 million ($435 million at December 31, 1994) of
total inventories were valued by the LIFO method.
(5) INVESTMENTS AND EQUITY IN NET EARNINGS (LOSS) OF AFFILIATES
(IN MILLIONS, EXCEPT NUMBER OF AFFILIATES)
1995 1994 1993
------ ----- -----
Total:
Net sales............................ $ 748 $ 598 $ 546
Net earnings (loss).................. 24 13 (8)
====== ===== =====
The Company's share:
Net earnings (loss).................. $ 8 $ - $ (8)
Dividends............................ 4 8 8
====== ===== =====
Total assets................................. $1,048 $ 853 $ 855
Total liabilities............................ (253) (219) (265)
Interests of others.......................... (414) (344) (320)
------ ----- -----
The Company's equity................. 381 290 270
Excess of cost over underlying equity in net
assets acquired............................ 66 68 72
------ ----- -----
The Company's investment............. $ 447 $ 358 $ 342
====== ===== =====
Number of affiliates......................... 9 7 7
====== ===== =====
28
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(6) PROPERTY, PLANT AND EQUIPMENT, NET
1995 1994
------- -------
(IN MILLIONS)
Land and improvements................................ $ 246 $ 252
Buildings, improvements and leasehold improvements... 593 585
Machinery and equipment.............................. 2,911 3,040
Construction in progress............................. 454 424
Capitalized interest................................. 158 145
------- -------
Subtotal..................................... 4,362 4,446
Accumulated depreciation and amortization............ (1,702) (1,684)
------- -------
Property, plant and equipment, net........... $ 2,660 $ 2,762
======= =======
Interest costs capitalized in 1995, 1994 and 1993 were $17 million, $15
million and $20 million, respectively.
(7) INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" ("FAS 109"), which
requires the asset and liability method of accounting for income taxes, and
deferred taxes are calculated using enacted tax rates. In addition, FAS 109
significantly changes the accounting for purchase business combinations.
Prior to FAS 109, acquired assets and liabilities in a purchase business
combination were shown net of tax. Under FAS 109, these assets and liabilities
are assigned their fair value and deferred taxes are provided on the difference
between such values and their tax bases. Accordingly, in adopting FAS 109, the
Company adjusted the carrying amount of the assets acquired and liabilities
assumed in connection with the 1987 Celanese Corporation acquisition. The
noncash effects from the application of FAS 109 were to increase Property, plant
and equipment, $178 million; Investments in affiliates, $34 million; Other
assets, $10 million and Other liabilities, $64 million. Pretax operating income
for the years ended December 31, 1995, 1994 and 1993 was reduced by $40 million
due to the increase in depreciation and amortization expense resulting from the
higher carrying amounts. The increase in operating expense was offset by a lower
deferred tax provision.
29
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(7) INCOME TAXES (continued)
1995 1994 1993
---- ----- ----
(IN MILLIONS)
Earnings (loss) before income taxes, minority interests and cumulative
effect of accounting changes consist of the following:
United States..................................................................... $268 $(373) $128
Non-U.S........................................................................... 430 272 164
---- ----- ----
$698 $(101) $292
==== ===== ====
The provision (benefit) for income taxes consists of the following:
Current: United States (Federal and state)................................. $ 93 $ 30 $102
Non-U.S........................................................... 94 94 73
---- ----- ----
Total current............................................................. 187 124 175
---- ----- ----
Deferred: United States (Federal and state)................................. 1 (205) (45)
Non-U.S........................................................... (7) (25) (31)
---- ----- ----
Total deferred............................................................ (6) (230) (76)
---- ----- ----
Income tax provision (benefit).................................................... $181 $(106) $ 99
==== ===== ====
United States income taxes at Federal statutory tax rate.................................. $245 $ (35) $102
Increase (decrease) in taxes resulting from:
Non-deductible depreciation and amortization.............................. 10 12 10
State income taxes, net of Federal income tax benefit..................... 17 (21) 2
Non-US earnings taxed at different rates.................................. (61) (20) (10)
Additional tax (benefit) provision........................................ (20) (53) 3
Other..................................................................... (10) 11 (8)
---- ----- ----
Income tax provision (benefit).................................................... $181 $(106) $ 99
==== ===== ====
30
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(7) INCOME TAXES (continued)
The tax effects of the temporary differences which give rise to
significant portion of deferred tax assets and liabilities as of December 31,
1995 and 1994 are as follows:
1995 1994
---- ----
(IN MILLIONS)
Postretirement obligations................................... $232 $239
Accrued expenses............................................. 264 266
State income taxes and net loss carryforwards................ 58 36
Alternative minimum tax carryforward......................... 14 12
Other........................................................ 40 45
---- ----
Gross deferred tax assets............................ 608 598
Valuation allowance.................................. (24) -
---- ----
Net deferred tax asset............................... 584 598
Depreciation................................................. 330 342
Interest..................................................... 5 1
Inventory.................................................... 64 66
Non-U.S. investments......................................... 18 27
Other........................................................ 9 8
---- ----
Gross deferred tax liabilities....................... 426 444
---- ----
Net deferred tax asset............................... $158 $154
==== ====
The cumulative effect of adopting FAS 109 as of January 1, 1993 amounted to
$30 million and is included as part of the increase to deferred income taxes in
the Consolidated Balance Sheets and a charge to the Consolidated Statements of
Earnings as of December 31, 1993. The net adjustment represents the
establishment of deferred taxes primarily due to differences between the book
and tax bases of LIFO inventories and the adjustment of deferred taxes to
reflect the currently enacted tax rate.
A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Accordingly, the
Company has established a valuation allowance for state net operating loss
carryforwards which may not be realizable. Based on the Company's historical and
current pretax earnings, management believes it is more likely than not that the
Company will realize the benefit of the remaining deferred tax assets existing
at December 31, 1995 and 1994. Further, management believes the existing
deductible temporary differences will reverse during periods in which the
Company generates net taxable income.
A financial reporting basis of investments in certain non-U.S. subsidiaries
differs from their tax basis. In accordance with FAS 109, a deferred tax
liability is not recorded on this temporary difference because the investments
are essentially permanent in duration. A reversal of the Company's plans to
permanently reinvest in these operations would cause such temporary differences
to become taxable. At December 31,1995 and 1994 these temporary differences were
approximately $521 and $374 million, respectively. A determination of the amount
of unrecognized deferred tax liability related to these investments is not
practicable.
31
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(8) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
1995 1994
------ ------
(IN MILLIONS)
Accounts payable, trade................................... $ 476 $ 409
Accounts payable, parent and affiliate.................... 349 546
Accrued salaries and benefits............................. 197 148
Accrued environmental costs............................... 97 87
Other..................................................... 834 578
------ ------
Total accounts payable and accrued liabilities.... $1,953 $1,768
====== ======
(9) LONG-TERM DEBT
1995 1994
---- ------
(IN MILLIONS)
Term notes:
9.625% notes, due 1999............................ $250 $ 250
6.125% notes, due 2004............................ 250 250
7.125% medium-term notes, due 2009................ 100 100
6.89% term note payable to parent, due 1998....... 60 100
8.48% senior promissory notes, due 1995-2002...... 30 35
7.5% medium-term notes, due 2004.................. 30 30
9.8% medium-term notes, due 2013 and 2018......... 25 25
8.25% term note payable to parent, due 1997....... - 80
Other............................................. 20 20
Pollution control and industrial revenue bonds, interest
rates ranging from 5.2% to 9.0% (as adjusted annually),
due at various dates through 2017....................... 194 184
Other..................................................... 3 8
---- ------
Total long-term debt.............................. $962 $1,082
==== ======
The Company has an unused commercial paper program aggregating $600 million.
The Company has revolving credit agreements with banks that provide for
loans up to $50 million through October, 1996. Under these agreements, the
company pays a commitment fee of 3/16 of 1% per annum based on unused amounts.
The Company has additional revolving credit agreements with several banks that
provide for loans up to $550 million for a renewable term of 364 days. The
Company pays a commitment fee of 1/16 of 1% per annum based on unused amounts.
The above described credit lines provide the credit backup for the Company's
commercial paper program. The credit lines were unused at December 31, 1995 and
1994. The Company had letters of credit outstanding amounting to $242 million at
December 31, 1995 and $130 million at December 31, 1994.
The Company has limited involvement with derivative financial instruments
and does not use them for trading purposes. The Company's derivative policy
provides the ability to lock in optimal rates for future/existing borrowings and
promotes the achievement of a desired level of fixed/floating rate mix. The
Company enters into interest rate swap and cap agreements to reduce costs
inherent in the Company's debt portfolio. Regarding interest rate swap
transactions, interest balances due to timing differences are recorded
appropriately in the Consolidated Balance Sheets; up front receipts are included
in deferred revenue and are netted in interest expense over the term of the
agreement. Amounts received under interest rate cap agreements are netted
against
32
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(9) LONG-TERM DEBT (continued)
interest expense. The premium paid for the cap is included in Other assets in
the Consolidated Balance Sheets and is amortized to interest expense over the
term of the agreement. At December 31, 1995, the Company had open interest rate
swaps and cap positions with a notional amount of $412 million. The Company's
exposure to counterparty financial instruments is not material.
The Company's debt instruments include covenants, as defined in the loan
agreements, that require maintenance of consolidated net worth of not less than
$2.3 billion, and the limitation of dividends and other restricted payments. At
December 31, 1995, $573 million was available for dividends or other restricted
payments under existing loan agreements. The Company intends to continue its
current policy to pay dividends to its Parent at the discretion of the Company's
Board of Directors.
Annual maturities of long-term debt each year for the next five years are:
$6 million in 1996; $6 million in 1997; $66 million in 1998; $262 million in
1999; and $6 million in 2000.
(10) OTHER LIABILITIES
1995 1994
------ ------
(IN MILLIONS)
Pension and benefit obligations.......................... $ 785 $ 688
Other.................................................... 482 414
------ ------
Total other liabilities.......................... $1,267 $1,102
====== ======
(11) BENEFIT PLANS
The Company has several defined-benefit pension plans covering substantially
all employees. Benefit formulas are based on years of service and compensation
levels or years of service and negotiated benefits. The pension plans in the
United States are being funded in accordance with the requirements of the
Employee Retirement Income Security Act of 1974.
Net periodic pension cost for defined-benefit pension plans consists of the
following:
1995 1994 1993
----- ---- -----
(IN MILLIONS)
Service cost benefits earned during the period........ $ 63 $ 57 $ 57
Interest cost on projected benefit obligation......... 128 115 108
Actual return on plan assets.......................... (217) (52) (137)
Net amortization and deferral......................... 126 (37) 48
----- ---- -----
Net periodic pension cost..................... $ 100 $ 83 $ 76
===== ==== =====
33
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(11) BENEFIT PLANS (continued)
The actuarial computations, based on the projected unit credit method,
assumed a discount rate of 7.25%, 8.25% and 7.5% in 1995, 1994 and 1993,
respectively. The assumed rate of return was 9.0% in 1995, 1994 and 1993,
respectively. The assumed rate of increase in compensation levels was 4.25%,
5.0% and 4.5% in 1995, 1994 and 1993, respectively.
The following table sets forth the funded status of the Company's qualified
plans and the amounts recog-nized in the Company's Consolidated Balance Sheets
at December 31, 1995 and 1994:
1995 1994
------ ------
(IN MILLIONS)
Actuarial present value of benefit obligation:
Vested benefit obligation............................. $1,419 $1,107
====== ======
Accumulated benefit obligation........................ $1,469 $1,159
====== ======
Projected benefit obligation.................................. $1,733 $1,425
Plan assets at fair value..................................... 1,282 1,103
------ ------
Projected benefit obligation in excess of plan assets......... 451 322
Unrecognized prior service cost............................... (84) (56)
Unrecognized net loss from past experience different from that
assumed..................................................... (251) (140)
Unrecognized net asset being recognized over 7 to 18 years.... 33 44
Additional minimum liability.................................. 80 -
------ ------
Accrued pension obligation............................ $ 229 $ 170
====== ======
Assets of the Company's pension plans consist of equity and fixed income
securities, real estate and deposit administration contracts maintained in
master trust funds, which are managed by various investment managers appointed
by the Company.
The Company has various investment savings plans for certain employees, some
of which qualify under Section 401(k) of the Internal Revenue Code. The
Company's contributions to the plans are based on specified percentages of
employee contributions and aggregated $35 million in 1995, $36 million in 1994
and $33 million in 1993.
The Company provides certain of its employees with non-qualified
supplemental retirement benefits. The accumulated benefit obligation of these
benefits totaled $121 million in 1995 and $103 million in 1994.
34
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(12) OTHER POSTRETIREMENT BENEFITS
Under various employer sponsored plans, the Company provides certain health
care and life insurance benefits for retired employees and their dependents.
Substantially all of the Company's employees are eligible for health care
benefits after reaching normal retirement age with 10 years of service.
Benefits, eligibility and cost sharing provisions for union employees vary by
location. Generally, the medical plans pay a stated percentage, based upon years
of service, of most medical expenses reduced for any deductible and payments
made by government programs and other group coverage. The Company is generally
self-insured for these costs and has no plan assets. The plans' provisions
include a cap which limits future Company contributions for medical coverage
under these plans.
Net Periodic Postretirement Benefit Cost included the following components:
1995 1994
---- ----
(IN MILLIONS)
Service cost on benefits earned.............................. $ 8 $ 8
Interest cost on accumulated postretirement benefit
obligation................................................ 29 28
--- ---
Net periodic postretirement benefit cost..................... $37 $36
=== ===
The following table sets forth the unfunded status of the plans, which
represents the accrued postretirement benefit obligation recognized in the
Company's Consolidated Balance Sheets at December 31, 1995 and 1994:
1995 1994
---- ----
(IN MILLIONS)
Accumulated postretirement benefit obligation:
Retirees..................................................... $259 $245
Active plan participants..................................... 153 126
---- ----
Accumulated postretirement benefit obligation................ 412 371
Unrecognized net loss........................................ (34) (7)
---- ----
Accrued postretirement benefit obligation.................... $378 $364
==== ====
For measuring the expected postretirement benefit obligation, the Company
assumed a 9.45% rate of increase in the per capita claims cost in 1995 and
assumed that the rate would decrease gradually over a six year period to 5.5%
and remain at that level thereafter. The discount rate used in determining the
accumulated postretirement benefit obligation was 7.25%, 8.25% and 7.5% at
December 31, 1995, 1994 and 1993, respectively.
If the health care cost trend were increased 1%, the accumulated
postretirement benefit obligation as of December 31, 1995 would have increased
by approximately $20 million, or 5%. The effect of the change on the aggregate
of service and interest cost for 1995 would be an increase of approximately $2
million, or 5%.
35
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(12) OTHER POSTRETIREMENT BENEFITS (continued)
Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" ("FAS 112"). This Statement requires an accrual method
of recognizing postemployment benefits such as disability-related benefits.
The cumulative effect at January 1, 1993 of adopting FAS 112 reduced net
income by $8 million, net of $4 million of income tax benefits. The effect of
this change on 1993 income before cumulative effect of accounting changes was
not material.
(13) LEASED ASSETS AND LEASE COMMITMENTS
At December 31, 1995, minimum lease commitments under long-term operating
leases are as follows:
(IN MILLIONS)
1996..................................... $ 47
1997..................................... 34
1998..................................... 32
1999..................................... 28
2000..................................... 22
Later years.............................. 27
Sublease income.......................... (4)
----
Minimum lease commitments........ $186
====
Total minimum rent charged to operations under all operating leases was $57
million in 1995, $60 million in 1994 and $61 million in 1993.
Management expects that, in the normal course of business, leases that
expire will be renewed or replaced by other leases.
36
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(14) SEGMENT AND GEOGRAPHICAL INFORMATION
TOTALS AS
SPECIALTIES SHOWN IN
AND CORPORATE/ CONSOLIDATED
FIBERS ADVANCED ADVANCED ELIMINATIONS FINANCIAL
CHEMICALS AND FILM MATERIALS TECHNOLOGY(a) & OTHER STATEMENTS
--------- -------- --------- ------------ ----------- ------------
(IN MILLIONS)
1995:
Net sales..................... $2,356 $3,771 $1,586 $ 1 $ (319) $7,395
Operating income.............. 582 446 10 (100) (354)(b) 584
Depreciation/amortization(c).. 137 184 113 17 21 472
Capital expenditures.......... 109 293 67 11 6 486
Total assets.................. 2,765 2,541 1,380 68 1,563 8,317
1994:
Net sales..................... $1,904 $3,542 $1,633 $ 2 $(207) $6,874
Operating loss................ 290 350 27 (87) (619)(b) (39)
Depreciation/amortization(d).. 146 203 113 18 (3) 477
Capital expenditures.......... 96 257 94 14 7 468
Total assets.................. 2,557 2,493 1,599 70 1,056 7,775
1993:
Net sales..................... $1,774 $3,104 $1,498 $ 2 $ (207) $6,171
Operating income.............. 88 415 9 (88) (122) 302
Depreciation/amortization(e).. 154 165 138 14 15 486
Capital expenditures(f)....... 98 322 101 11 5 537
Total assets.................. 2,599 2,582 1,443 100 887 7,611
- ----------------------------
(a) Beginning in 1993, the Company segregated amounts associated with
Advanced Technology. This new segment represents research and development
costs to seed and develop new businesses. When projects or businesses
become viable, they are transferred to the appropriate operating segment.
(b) Includes special charges. See Note (16).
(c) Includes $6 million of depreciation reserves for asset write-downs
related to the 1995 special charges.
(d) Includes $18 million of depreciation reserves for asset write-downs
related to the 1994 special charges.
(e) Includes $15 million of depreciation and a $4 million reserve for asset
impairment related to the 1993 realignment program.
(f) Includes $3 million of assets related to the purchase of certain
businesses.
37
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(14) SEGMENT AND GEOGRAPHICAL INFORMATION (continued)
The following table presents financial information based on the geographic
location of the manufacturing facilities of the Company:
UNITED OTHER REGIONS/
STATES MEXICO CANADA EUROPE ELIMINATIONS TOTAL
------ ------ ------ ------ -------------- -----
(IN MILLIONS)
1995:
Net sales(a).......................... $5,602 $ 912 $406 $457 $ 18 $7,395
Transfers between geographic areas(b). 335 232 211 4 (782) -
------ ------ ---- ---- ------- ------
Total......................... $5,937 $1,144 $617 $461 $ (764) $7,395
====== ====== ==== ==== ======= ======
Operating income...................... $ 210 $ 235 $160 $ 8 $ (29) $ 584
Total assets.......................... $6,957 $ 663 $465 $134 $ 98 $8,317
1994:
Net sales(a).......................... $5,251 $ 820 $424 $357 $ 22 $6,874
Transfers between geographic areas(b). 266 171 192 - (629) -
------ ------ ---- ---- ------- ------
Total......................... $5,517 $ 991 $616 $357 $ (607) $6,874
====== ====== ==== ==== ======= ======
Operating loss........................ $ (339) $ 102 $179 $ 14 $ 5 $ (39)
Total assets.......................... $7,887 $ 684 $469 $158 $(1,423) $7,775
1993:
Net sales(a).......................... $4,846 $ 675 $293 $340 $ 17 $6,171
Transfers between geographic areas(b). 198 121 160 1 (480) -
------ ------ ---- ---- ------- ------
Total......................... $5,044 $ 796 $453 $341 $ (463) $6,171
====== ====== ==== ==== ======= ======
Operating income...................... $ 176 $ 36 $ 81 $ 14 $ (5) $ 302
Total assets.......................... $6,936 $ 938 $278 $139 $ (680) $7,611
- -----------------------
(a) Included in United States net sales are export sales of $1,163 million
in 1995, $930 million in 1994 and $838 million in 1993.
(b) Product transfers between geographic areas are priced on a basis
intended to reflect, as nearly as practicable, the prevailing market
value of the products transferred.
38
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(15) COMMITMENTS AND CONTINGENCIES
The Company is a defendant in a number of lawsuits, including environmental,
product liability and personal injury actions (see Note (18) for discussion of
environmental). Certain of these lawsuits are or purport to be or have been
preliminarily certified as class actions. In some of these cases, claimed
damages are substantial. While it is impossible at this time to determine with
certainty the ultimate outcome of these lawsuits, management believes, based on
the advice of legal counsel, that adequate provisions have been made and that
the ultimate outcome will not have a material adverse effect on the consolidated
financial position of the Company.
The Company is named as a defendant in thirty-six putative class actions,
three of which have been certified as class actions as well as a defendant in
other non-class actions filed in twelve states ("the Plumbing Actions"). In
these lawsuits the plaintiffs typically seek recovery for alleged property
damage to housing units, mental anguish from the alleged failure of polybutylene
plumbing systems, and punitive damages and, in certain cases, additional damages
under the Texas Deceptive Trade Practices Act. The other defendants include
United States Brass Corporation ("U. S. Brass") (formerly a wholly owned
subsidiary of Household International, Inc.), Vanguard Plastics, Inc.
("Vanguard"), Shell Oil Company ("Shell") and E. I. duPont de Nemours & Co.,Inc
("duPont").
Damage amounts are not specified. The plumbing systems were designed and
manufactured primarily by U. S. Brass and Vanguard. The pipe was made from
polybutylene resin supplied by Shell. The Company sold acetal copolymer resin
and duPont sold acetal homopolymer resin to other companies who manufactured
certain of the fittings used in the plumbing systems. Based on, among other
things, the finding of outside experts and the successful use of the Company's
acetal copolymer in similar applications, the Company does not believe that its
acetal copolymer was defective or caused the plumbing systems to fail. In many
cases the Company's exposure may be limited by the fact that the other
defendants and other responsible parties may be found liable in whole or
substantial part or by invocation of the statute of limitations since the
Company ceased selling the resin for use in the plumbing systems in site built
homes during 1986 and in manufactured homes during 1989.
In November 1995, the Company, Shell and duPont entered into a national
class action settlement, which has been approved by the Courts, subject to
appeals. Outside counsel believes that the Company has a substantial probability
of prevailing on any such appeals. The settlement calls for the replacement of
plumbing systems of claimants who have had qualifying leaks. Furthermore, the
three companies have agreed to fund such replacements up to U.S. $950 million.
The allocation of the payments already made and future payments between the
affected companies has not been finally determined. There are additional pending
lawsuits not covered by this settlement. In December 1995, the Company and Shell
reached agreement to settle 60,000 claims which were not part of the national
class action and which comprise substantially all of the remaining active claims
against the Company. This settlement is on terms similar to the class action
settlement.
The Company is not liable for any alleged defects in such systems, which
were designed, manufactured and marketed by other companies. Nonetheless, the
Company has agreed to participate in the settlement to reduce litigation
expenses and to provide relief to qualifying homeowners with polybutylene
plumbing problems.
The Company has accrued its best estimate of its share of the Plumbing
Actions. Due to the many variables involved in the estimation process, as facts
and circumstances change, the estimate will be adjusted. Since the Company was
only one of the suppliers of a resin used in part of the plumbing systems and
not a manufacturer or marketer of these systems, the Company does not know the
number of units that contain the plumbing systems,
39
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(15) COMMITMENTS AND CONTINGENCIES (continued)
the number of systems that will fail, if any, or the extent of any failures.
Based on settlement agreements signed with several insurers and the opinion of
counsel as to the outcome of current litigation with the remaining insurers,
management believes that the expenses related to the Plumbing Actions are
substantially covered by insurance.
In order to mitigate the potential exposure to and cost of litigation, the
Company, together with Shell and duPont, has agreed to continue funding the
Plumbing Claims Group ("PCG"). PCG is the company which assesses individual
repair requests and pays for certain repairs of qualifying homeowners with
leaking polybutylene plumbing systems. To date, PCG has been funded by the
Company, Shell and duPont on an ongoing basis as monies were spent. However, the
ultimate amount that will be allocated to each company has yet to be
determined.
Management believes that the plumbing claims will not have a material
adverse effect on the consolidated financial position of the Company.
At December 31, 1995, there were outstanding commitments relating to capital
projects of approximately $153 million.
(16) SPECIAL CHARGES
In 1995, the Company recorded a special charge of $192 million ($115
million, net of tax), for potential additional costs pertaining to pending and
future product liability claims, net of probable insurance recoveries, relating
to certain plumbing systems using fittings manufactured by other companies from
acetal copolymer resin sold by the Company, and the expected cost and expenses
relating to the write-down of assets and additional environmental remediation
exposure associated mostly with the Specialities and Advanced Materials
segment.(See Notes (15) and (18) for additional information relating to the
class action and environmental, respectively.)
During 1994, the Company recorded a special charge of $532 million ($319
million, net of tax). This charge included the expected costs pertaining to
pending and future product liability claims, net of probable insurance
recoveries, relating to certain plumbing systems using fittings manufactured by
other companies from acetal copolymer resin and additional environmental
remediation exposures. In addition, this special charge includes the expected
costs and expenses relating to the reduction in the workforce and the write-down
of assets associated mostly with the Specialties and Advanced Materials segment.
During 1993, the Company realigned its North American, principally Mexican,
chemicals operations and charged $29 million to Chemicals operating income,
$19 million of which related to the write-down of property, plant and equipment.
40
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(17) FAIR VALUE OF FINANCIAL INSTRUMENTS
Summarized below are the carrying values and fair values of the Company's
financial instruments as of December 31, 1995 and 1994. The fair value
represents the Company's estimate and, therefore, should not be construed as the
value that the Company would receive or give up for a financial instrument.
Included in other assets are certain investments accounted for under the
cost method. In general, the investments are not publicly traded and, therefore,
fair values are not readily determinable; the Company believes that the carrying
value approximates the fair value.
The fair value of the Company's long-term debt and derivative financial
instruments is estimated based on quotations from investment bankers and on
current rates of debt for similar types of issues. The fair value on
derivative financial instruments related to debt is equal to the unrealized
gain (loss).
The carrying amounts reported in the Consolidated Balance Sheets for cash
and cash equivalents, net receivables, notes payable, trade payables and the
current installments of long-term debt approximates fair market value, due to
the short maturity of these instruments.
1995 1994
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
Other assets - investments.......... $ 59 $ 59 $ 57 $ 57
Long-term debt...................... 962 1,037 1,082 1,034
Debt related derivative instruments. - (5) - (3)
(18) ENVIRONMENTAL
The Company's worldwide operations are subject to environmental laws and
regulations which impose limitations on the discharge of pollutants into the air
and water and establish standards for the treatment, storage and disposal of
solid and hazardous wastes. The Company believes that it is in substantial
compliance with all applicable environmental laws and regulations.
The Company reviews the effects of any new laws and regulations on each of
its locations; determines whether a liability exists based on that review; and
records a liability, as appropriate. The Company expenses all expenditures
mandated by law or Company policy to ameliorate existing conditions. Liabilities
that are established represent the Company's best estimate based on all the
available facts and are adjusted as facts and circumstances change.
The Company may be subject to substantial claims brought by Federal or state
regulatory agencies or private individuals pursuant to statutory authority or
common law. In particular, the Company has a potential liability under the
Federal Comprehensive Environmental Response Compensation and Liability Act
("Superfund") and related state laws for investigation and cleanup costs at
approximately 100 sites. At most of these sites, numerous companies, including
either the Company or one of its predecessor companies, have been notified that
the United
41
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(18) ENVIRONMENTAL (continued)
States Environmental Protection Agency ("EPA"), state governing body or private
individuals consider such companies to be potentially responsible parties
("PRPs") under Superfund or related laws. The proceedings relating to these
sites are in various stages. The cleanup process has not been completed at most
sites and the status of the insurance coverage for most of these proceedings is
uncertain. Consequently, the Company cannot determine accurately its ultimate
liability for investigation or cleanup costs at these sites. Expenditures
(including third party and divested sites) for investigation, cleanup and
related activities have been $31 million for the three years ended December 31,
1995, with expenditures in no year greater than $12 million.
As events progress at each site for which it has been named a PRP, the
Company accrues, as appropriate, a liability for site cleanup. Such liabilities
include all costs that are probable and can be reasonably estimated. In
establishing these liabilities, the Company considers: its shipments of waste to
a site; its percentage of total waste shipped to the site; the types of wastes
involved; the conclusions of any studies; the magnitude of any remedial actions
that may be necessary; and the number and viability of other PRPs. Often the
Company will join with other PRPs to sign joint defense agreements that will
settle, among the PRPs, each party's percent allocation of costs at the site.
Although the ultimate liability may differ from the estimate, the Company
routinely reviews the liabilities and revises the estimate, as appropriate,
based on the most current information available.
In 1995, 1994 and 1993 the total environmental costs charged to operations
for remediation efforts amounted to $101 million, $105 million and $34 million,
respectively. As of December 31, 1995 and 1994, the Company's total
environmental liability recognized in the financial statements is $272 million
and $208 million. The amounts are neither reduced for anticipated insurance
recovery nor discounted from the anticipated payment date. Moreover,
environmental liabilities are paid over an extended period and the timing of
such payments cannot be predicted with certainty.
Management believes that environmental costs will not have a material
adverse effect on the financial position of the Company.
42
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Board of Directors
Hoechst Celanese Corporation:
We have audited the accompanying consolidated balance sheets of Hoechst
Celanese Corporation as of December 31, 1995 and 1994, and the related
consolidated statements of earnings, stockholder's equity, and cash flows for
each of the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Hoechst
Celanese Corporation as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Notes 7 and 12 to the consolidated financial statements, the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" and No. 112, "Employers' Accounting for Postemployment Benefits" in 1993.
KPMG PEAT MARWICK LLP
Short Hills, New Jersey
January 30, 1996
43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no change of accountants or reported disagreement on any
matter of accounting principles or procedures or financial statement disclosure
in 1995.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of Hoechst Celanese are as follows:
Name Age Position(s) with the Company
---- --- ----------------------------
Guenter Metz.......... 60 Chairman of the Board of Directors
Thomas F. Kennedy(1).. 53 President, Chief Executive Officer and Director
Harry R. Benz(1)...... 58 Senior Vice President--Finance, Chief Financial Officer
and Director
William B. Harris(1).. 49 Senior Vice President and Director
Klaus Warning(1)...... 46 Senior Vice President and Director
Richard Bailey(1)..... 50 Senior Vice President--Strategic Resources Management
and Director
David A. Jenkins...... 54 Vice President--General Counsel and Director
Perry Premdas......... 43 Vice President and Treasurer
Klaus Schmieder....... 47 Vice President
Raymond W. Smedley.... 55 Vice President and Controller
- -----------------
(1) Member of Executive Committee, a committee of the Board of Directors.
All directors of the Company have been appointed for a term commencing
October 9, 1995, except for Dr. Bailey who became a director on February 26,
1996. All terms of directors will end on the date of the next annual
stockholder meeting.
All executive officers were appointed for a term commencing October 17, 1995
except for the following: Mr. Kennedy's term as President and Chief Executive
Officer of the Company commenced January 1, 1996. Dr. Bailey's and Mr. Premdas'
terms commenced January 1, 1996. All terms of executive officers will end at
the first meeting of the Board following the next annual stockholder meeting.
Dr. Metz has been Director and Chairman of the Company since January 1,
1995. He has been a Director of Hoechst Corporation since February 1987 and has
been Chairman of Hoechst Corporation since April 1994. From October 1986 to
February 1987 he was a Director of American Hoechst Corporation ("AHC"). Since
April 1988 he has been Deputy Chairman of the Board of Management of Hoechst
AG. Since April 1994 he has been responsible for all Hoechst Group activities
in North America. Dr. Metz has been with Hoechst AG for 33 years and is a
resident of the Federal Republic of Germany.
44
Mr. Kennedy has been President and Chief Executive Officer since January 1,
1996, Executive Vice President of the Company from April 1992 until December
31, 1995, and Director of the Company since March 1989. On January 1, 1995, he
was appointed President of Hoechst Global Basic Chemicals. He was Group
President of the Chemical Group from July 1989 to March 1992. From March 1989
to March 1992 he was Vice President of the Company. Prior to that, he was
President of the Chemical Group from March 1989 to June 1989, Executive Vice
President of the Chemical Group from January 1988 to February 1989 and
Executive Vice President of Celanese Chemical Company, Inc. from September 1986
until December 1987. He previously served as Vice President and General Manager
of Filter Products from October 1984 to September 1986. Prior to that, he was
Business Director of Celanese Chemical Company, Inc.
Mr. Benz has been Senior Vice President--Finance and Chief Financial Officer
of the Company since April 1992 and Director of the Company since February
1987. From February 1987 to March 1992 he was Vice President--Finance and Chief
Financial Officer of the Company. He was a Director and Chief Financial Officer
with AHC from October 1980 to February 1987. Prior to 1980 he served as AHC's
Treasurer for nine years. He also had responsibility for AHC's Petrochemicals
and Plastics Group. Prior to joining AHC, he was employed by Peat, Marwick,
Mitchell & Co. for 10 years.
Mr. Harris has been Senior Vice President of the Company and President of
Hoechst Fibers Worldwisde since May 1, 1994. He was President of Textile Fibers
Group from January 1990. From January 1988 to May 1994 he was Vice President of
the Company. He served as Treasurer of the Company from January 1988 until
March 1989 and Executive Vice President, Textile Fibers Group from April 1989
until December 1989. He was formerly President of Celanese Fibers Operations,
Ltd. from September 1986 until January 1988 and Vice President and General
Manager of Polymer and Filter Products from September 1986 until December 1987.
He served as Vice President, Administration of Celanese Fibers from November
1984 until August 1986. From May 1984 he was Executive Vice President of
Celanese Canada Inc. and from November 1982 until April 1984 he was Vice
President, Finance of Celanese Canada Inc.
Dr. Warning has been Senior Vice President of the Company since January 1,
1996, Vice President of the Company from May 1995 until December 1995 and a
Director of the Company since May 1995. He has been Deputy Head of Global
Specialty Chemicals Division since January 1, 1995. From July 1994 to December
1994, he served as head of the Surfactants and Auxiliaries Division of Hoechst
AG.
Dr. Bailey has been Senior Vice President of Strategic Resources Management
of the Company since January 1, 1996 and Directory of the Company since
February 1996. He was Corporate Vice President, Human Resource and Corporate
Relations of HMRI from January 1992 to December 1995. From December 1990 to
December 1991, he was Managing Director (Vice President) Global Research and
Development of HMRI.
Mr. Jenkins has been Vice President--General Counsel of the Company since
January 1989 and a Director since April 1989. He served as Deputy General
Counsel of the Company from June 1987 to December 1987 and as Vice President
and General Counsel of the Hoechst Celanese Advanced Technology Company from
August 1986 to June 1987. He was Secretary of Celanese from June 1984 to August
1986 and General Attorney of Celanese from September 1976 to August 1986.
Mr. Premdas has been Vice President of the Company since January 1, 1996. He
was Vice President and General Manager of the Enco Division of the Company from
October 1992 to December 1995. From September 1990 to September 1992 he was
assigned to Herberts GmbH, a member of the Hoechst Group.
45
Mr. Schmieder has been Vice President and Treasurer of the Company since
January 1, 1992 and Treasurer of the Company from January 1, 1992 to January 1,
1996. He was Regional Manager for the Asia/Pacific Region of Hoechst AG from
January 1990 to December 1991. From 1987 to December 1989 he worked on various
assignments in the Central Staff and Legal Departments of Hoechst AG. From 1977
to 1987 he was in the Legal Department of Hoechst AG. Mr. Schmieder has been
with Hoechst AG for 19 years.
Mr. Smedley has been Vice President and Controller of the Company since
February 1987. Prior to that, he served as Controller of AHC from 1975 and Vice
President and Controller from 1980. Prior to joining AHC in 1972, he was with
Price Waterhouse & Co. for 10 years. He is a Certified Public Accountant.
46
ITEM 11. EXECUTIVE COMPENSATION
The following tables set forth the compensation paid during the past three
years and, in the case of pensions, payable in the future to the Chief
Executive Officer and the four next most highly compensated executive officers
of the Company.
Compensation Table
The following table sets forth the total amount of cash compensation paid to
the named executives in 1995, 1994 and 1993.
Long-Term
Annual Compensation Compensation
Name and ----------------------- ------------- All Other
Principal Position Year Salary Bonus(1) LTIP Payouts Compensation(2)
- ------------------------------------------------------------------------------------------------------------
Karl G. Engels(3) 1995 $464,616 $625,000 $153,750 $23,231
President, Chief Executive Officer 1994 351,731 460,000 55,200 16,082
1993 261,923 230,000 140,000 13,096
Thomas F. Kennedy 1995 385,962 625,000 215,250 19,298
President, Chief Executive Officer 1994 371,231 350,000 59,800 18,561
1993 355,885 285,000 239,200 15,000
William B. Harris 1995 360,962 475,000 86,100 18,048
Senior Vice President 1994 260,942 350,000 27,600 13,609
1993 214,673 117,000 110,400 10,734
Harry R. Benz 1995 335,962 450,000 153,750 16,798
Senior Vice President 1994 321,635 270,000 55,200 16,082
1993 308,596 225,000 216,400 15,000
David A. Jenkins 1995 253,308 225,000 98,400 12,665
Vice President - General Counsel 1994 243,308 130,000 36,800 12,166
and Director 1993 232,500 120,000 147,200 7,929
- ----------------------------------------------------------------------------------------------------------
- ---------------
(1) Bonus paid early in the following year for services rendered in each of
the listed years.
(2) Company contribution to Savings Plan.
(3) Retired from the Company effective January 1, 1996. He is currently
serving as Chief Executive Officer of Wacker-Chemie GmbH, an affiliate
of the Hoechst Group.
47
1994 Long-Term Incentive Awards Table
The following table sets forth the awards made under the Company's Long-Term
Incentive Award Plan to the named executives in 1995.
Long-Term Incentive Plans - Awards in Last Fiscal Year
Estimated Future Payouts
Number of Period Until ------------------------------------
Name Units Payout Threshold Target Maximum
- -----------------------------------------------------------------------------------
Karl G. Engels 4,000 3 Years $100,000 $400,000 $600,000
Thomas F. Kennedy 3,000 3 Years 75,000 300,000 450,000
William B. Harris 3,000 3 Years 75,000 300,000 450,000
Harry R. Benz 2,500 3 Years 62,500 250,000 375,000
David A. Jenkins 1,600 3 Years 40,000 160,000 240,000
- -----------------------------------------------------------------------------------
Payments and awards are tied to achieving specified levels of Return on
Capital Employed ("ROCE"), both absolute and relative to a competitive group of
other companies. The target amount will be earned if 100% of the targeted ROCE
is achieved. If threshold levels are not achieved, no payments will be made
from the Plan. If threshold levels are achieved but target levels are not
achieved, payments as low as 25% of the target amounts will be made. If certain
stretch goals beyond target levels are achieved, payments as high as 150% of
the target amounts will be made.
48
Pension Table
The following table sets forth estimated annual retirement benefits for the
named executives under the Hoechst Celanese Retirement Plan and the Hoechst
Celanese Executive Pension Plan.
Pension Plan Table (1)
----------------------
Benefits for Representative Years of Credited Service (2)
---------------------------------------------------------
Final Average
Earnings (3) 15 20 25 30 35
---- ---- ---- ---- ----
$ 100,000 $ 55,000 $ 60,000 $ 60,000 $ 60,000 $ 60,000
200,000 110,000 120,000 120,000 120,000 120,000
300,000 165,000 180,000 180,000 180,000 180,000
400,000 220,000 240,000 240,000 240,000 240,000
500,000 275,000 300,000 300,000 300,000 300,000
600,000 330,000 360,000 360,000 360,000 360,000
700,000 385,000 420,000 420,000 420,000 420,000
800,000 440,000 480,000 480,000 480,000 480,000
900,000 495,000 540,000 540,000 540,000 540,000
1,000,000 550,000 600,000 600,000 600,000 600,000
1,100,000 605,000 660,000 660,000 660,000 660,000
1,200,000 660,000 720,000 720,000 720,000 720,000
- --------
(1) This table represents total benefits payable from both the Hoechst
Celanese Retirement Plan and the Hoechst Celanese Executive Pension Plan.
Messrs. Kennedy, Harris, Benz and Jenkins are participants in both of these
plans. Mr. Engels is covered by the Hoechst AG Pension Plan. Benefits from the
Executive Pension Plan are only payable in the event the executive retires
directly from employment with the Company.
(2) Amounts shown assume the executive retires at age 65 (or earlier if
certain years of service requirements with the Company are met) and are paid
annually for the remainder of the executive's life regardless of marital
status. Benefits listed in the table are not subject to any deduction for
Social Security.
(3) Final Average Earnings are defined in the plans as the average of the
three highest years' earnings (base salary plus bonus) out of the last 10 years
before retirement. The Final Average Earnings for Messrs Kennedy, Harris, Benz
and Jenkins are approximately $641,611; $473,444 and $555,375, and $320,528
respectively. The approximate years of Credited Service of the executives
covered by the plans are: Mr. Kennedy, 29 years; Mr. Harris, 21 years; Mr.
Benz, 24 years and Mr. Jenkins, 21 years.
Employment contract with Hoechst AG. Mr. Engels has a special contract with
Hoechst AG that covers certain aspects of his assignment in the United States
in the nature of foreign relocation allowances, such as moving and travel
expenses, vacation, home leaves, contributions to the German health insurance
system while employed in the United States, emergency home leaves, etc. His
salary and benefits are provided by the Company as long as he is employed in
the United States by the Company.
49
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Collectively, the directors and executive officers of the Company
beneficially own less than 1% of the outstanding capital stock of Hoechst AG.
Each of Messrs. Benz and Kennedy serves on the Board of Directors of Celanese
Canada Inc. Each of Messrs. Benz and Kennedy own 300 shares of its common
stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationship with Hoechst AG
The Company is wholly owned by Hoechst Corporation, which in turn is wholly
owned by Hoechst AG, a large chemical and pharmaceutical company headquartered
in Frankfurt, Federal Republic of Germany. Hoechst AG is a publicly held
company whose shares are listed and traded on a number of major stock
exchanges in Europe including the Frankfurt, Federal Republic of Germany;
London, United Kingdom; and Geneva, Switzerland stock exchanges and on the
Tokyo stock exchange in Japan.
Because the Company and other members of the Hoechst Group are engaged in
similar industries, there may arise conflicts of interest between the Company
and other members of the Hoechst Group. The Hoechst Group is undergoing a
worldwide reorganization pursuant to which, among other things, certain
officers of the Company are responsible for the basic chemicals and fibers
businesses globally. Strategies are being developed and coordinated on a
divisional-worldwide basis. Affiliated subsidiaries, including the Company, are
responsible for implementing such strategies and providing the necessary
operational infrastructure in running the various businesses within such
subsidiaries. As a result, situations have arisen and could in the future arise
where resources and business are shifted among profit centers, including the
Company, depending on the overall needs of the worldwide business divisions.
The Company and Hoechst AG are parties to a broad research and development
cost-sharing agreement. In most cases, licenses between the Company and Hoechst
AG under patents owned by Hoechst AG require no specific payment because
overall research and development costs have been shared. However, when license
agreements are negotiated and utilized between the Company and Hoechst AG, they
are on terms that are as favorable to the Company as could be obtained by third
parties from Hoechst AG.
The Company, from time to time, has entered into various financing
agreements with its parent, Hoechst Corporation, and affiliates of Hoechst AG
at competitive rates. See Note (2) of Notes to Consolidated Financial
Statements.
The Company has, from time to time, contracted for various plant and
equipment design and consulting services from companies in the Hoechst Group on
terms at least as favorable as could be obtained from third parties.
The Company purchases from companies in the Hoechst Group many chemical raw
materials at competitive prices for use in manufacturing chemically-related
products. Several finished chemicals, which are resold in the United States,
are also purchased from companies in the Hoechst Group. See Note (2) of Notes
to Consolidated Financial Statements.
The Company intends to continue its current policy of paying dividends to
Hoechst Corporation at the discretion of the Company's Board of Directors.
Payment of dividends by the Company is restricted by its public debt
instruments, when there is, or a payment would result in, a default under these
instruments or if the payments (when aggregated with other "Restricted
Payments" as defined therein) would exceed a formula amount based on the total
of $250 million plus Consolidated Net Income (as defined therein) plus certain
Net Cash Proceeds from the sale, conversion or exchange of stock (as specified
therein).
Certain of the Company's employees, including a director, have employment
contracts with Hoechst AG. See "Executive Compensation."
50
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The Consolidated Financial Statements of the Company and the Report of
Independent Auditors of KPMG Peat Marwick LLP are set forth in the Financial
Statements (Item 8) and are filed as part of this report.
(a)(2) Exhibits
The following Exhibits are filed as part of this report:
Exhibit
Number Description
- ------- -----------
3.1 Restated Certificate of Incorporation of the Company (filed as a part
of Exhibit 3 to the Company's Form S-1 Registration Statement No. 33-
13326 filed April 10, 1987, and incorporated herein by reference).
3.2 Bylaws of the Company as amended December 15, 1989 (filed as an
Exhibit to the Company's Annual Report on Form 10-K for the year
ended December 31, 1989, and incorporated herein by reference).
4.1 Form of Indenture between the Company and The Bank of New York
relating to the 9.45% Notes due 1997, and the form of such notes
(filed as Exhibits to the Company's Quarterly Report on Form 10-Q for
the interim period ended June 30, 1987, and incorporated herein by
reference).
4.2 Form of Indenture between the Company and The Bank of New York
relating to the 9 5/8% Notes due 1999, and the form of such notes
(filed as Exhibits to the Company's Quarterly Report on Form 10-Q for
the interim period ended September 30, 1987, and incorporated herein
by reference).
4.3 Form of Indenture between the Company and Chemical Bank relating to
medium-term notes and the form of such notes (filed as Exhibits to
the Company's Quarterly Report on Form 10-Q for the interim period
ended September 30, 1988, and incorporated herein by reference).
4.4 Form of First Supplemental Indenture between the Company and Chemical
Bank relating to medium-term notes and the form of such notes (filed
as Exhibits to the Company's Form S-3 Registration Statement No. 33-
23628 filed April 24, 1991, and incorporated herein by reference).
4.5 Form of Indenture between the Company and Chemical Bank relating to
debt securities and medium-term notes and the form of such securities
and notes (filed as Exhibits to the Company's Form S-3 Registration
Statement Nos. 33-23628 and 33-51675 filed December 22, 1993 and
incorporated herein by reference).
4.6 The Company agrees to furnish the Commission upon request a copy of
any other instrument with respect to long-term debt of the Company
and any subsidiary for which consolidated or unconsolidated financial
statements are required to be filed and as to which the amount of
securities authorized thereunder does not exceed 10% of the total
assets of the Company and its subsidiaries on a consolidated basis.
51
Exhibit
Number Description
- ------- -----------
10.1 Agreement containing Consent Order and Agreement to Hold Separate,
dated February 19, 1987, among Hoechst AG, AHC, Celanese and the
United States Federal Trade Commission (filed as an Exhibit to the
Company's Form S-1 Registration Statement No. 33-13326 filed April
10, 1987, and incorporated herein by reference).
10.2 Technology Cooperation and License Agreement between Hoechst AG and
the Company as of January 1, 1988 (filed as an Exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31,
1987, and incorporated herein by reference).
10.3 Summary of AHC Medical Program Policy provisions applicable to former
members of the AHC Executive Committee (filed as an Exhibit to the
Company's Form S-1 Registration Statement No. 33-13326 filed April
10, 1987, and incorporated herein by reference).
10.4 Summary of AHC Executive Retiree Life Insurance Program (filed as an
Exhibit to the Company's Form S-1 Registration Statement No. 33-13326
filed April 10, 1987, and incorporated herein by reference).
10.5 The Hoechst Celanese Executive Pension Plan, as amended, as of
November 1, 1991 (filed as an Exhibit to the Company's Annual Report
on Form 10-K for the year ended December 31, 1991, and incorporated
herein by reference).
10.6 Supplemental Pension Plan to Retirement Plan (formerly the Celanese
Supplemental Pension Plan to the Celanese Retirement Income Plan)
(filed as an Exhibit to the Celanese Annual Report on Form 10-K (File
No. 1-1308) for the fiscal year ended December 31, 1977, and
incorporated herein by reference).
10.7 Grantor Trust Agreement, between Celanese and Bankers Trust Company
dated December 27, 1985, for payment of benefits under the Executive
Pension Plan (filed as an Exhibit to the Celanese Annual Report on
Form 10-K (File No. 1-1308) for the fiscal year ended December 31,
1985, and incorporated herein by reference).
10.8 The Hoechst Celanese Executive Medical and Dental Plan, effective
January 1, 1989 (filed as an Exhibit to the Company's Annual Report
on Form 10-K for the year ended December 31, 1988, and incorporated
herein by reference).
10.9 Employment Agreement, dated January 21, 1987, between Celanese and
Joseph H. Patterson (filed as an Exhibit to the Company's Annual
Report on Form 10-K for the year ended December 31, 1987, and
incorporated herein by reference).
10.10 Summary of Management Incentive Plan (filed as an Exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31,
1987, and incorporated herein by reference).
10.11 Hoechst Celanese Long-Term Incentive Plan, effective January 1, 1989
(filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended December 31, 1988, and incorporated herein by
reference).
10.12 A description of the Hoechst Celanese Executive Benefits
Reimbursement Program (filed as an Exhibit to the Company's Annual
Report on Form 10-K for the year ended December 31, 1988, and
incorporated herein by reference).
52
Exhibit
Number Description
- ------- -----------
10.13 Agreement, dated December 7, 1994, between the Company and Joseph H.
Patterson, (filed as an Exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994, and incorporated
herein as referenced).
12 Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries.
Where
Name Incorporated
Celanese Canada, Inc. Canada
Celanese Engineering Resins, Inc. Delaware
Grupo Celanese S.A. Mexico
Hoechst Celanese Chemicals, Inc. Delaware
23 Consent of Independent Accountants.
24.1 Powers of attorney, dated February 27, 1996, for directors and
officers of the Company authorizing Harry R. Benz, Thomas F. Kennedy
and/or David A. Jenkins to sign this 10-K on their behalf.
24.2 Certified copy of resolution adopted by the Board of Directors of the
Company on February 12, 1996, authorizing officers to sign this 10-K
on behalf of the Company pursuant to powers of attorney.
27 Financial Data Schedule (included in electronic filing only)
(b) Reports on Form 8-K
During the quarter ended December 31, 1995, no reports on Form 8-K were
filed.
53
SIGNATURES
Pursuant to the requirements of Section 15(d) of the Securities Exchange Act
of 1934, Hoechst Celanese has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Hoechst Celanese Corporation
By: /s/ Thomas F. Kennedy
----------------------------------
Thomas F. Kennedy
President, Chief Executive Officer
and Director
March 21, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed on March 21, 1996, by the following persons on behalf of the
registrant and in the capacities indicated.
Signature Title
--------- -----
Principal Executive Officer:
/s/ Thomas F. Kennedy Director, President and
- ----------------------------- Chief Executive Officer
Thomas F. Kennedy
Principal Financial Officer:
/s/ Harry R. Benz Director, Senior Vice President--
- ------------------------------ Finance and Chief Financial Officer
Harry R. Benz
Principal Accounting Officer:
/s/ Raymond W. Smedley Vice President and Controller
- -------------------------------
Raymond W. Smedley
Directors:
Guenter Metz* Director
William B. Harris* Director
David A. Jenkins* Director
Klaus Warning* Director
Richard Bailey* Director
- --------------
*Thomas F. Kennedy, 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
Commission.
By: /s/ Thomas F. Kennedy
------------------------------
Thomas F. Kennedy
Attorney-in-Fact
54
Supplemental information to be furnished with reports filed pursuant to
Section 15(d) of the Securities Exchange Act of 1934 (the "Act") by registrants
which have not registered securities pursuant to Section 12 of the Act:
Hoechst Celanese Corporation is a wholly owned subsidiary of Hoechst
Corporation. Accordingly, no annual report or proxy material has been sent to
security holders.
55
a)(2) Financial Statement Schedules
The following additional financial information is filed as part of this
report and should be read in conjunction with the Consolidated Financial
Statements:
10-K page
Schedule ----
- --------
Report of Independent Auditors 50
V Property, Plant and Equipment 46
VI Accumulated Depreciation and Amortization
of Property, Plant and Equipment 47
IX Short-term Borrowings 48
X Supplementary Income Statement Information 49
Schedules not included with this additional financial information have
been omitted either because they are not applicable or because the required
information is shown in the financial statements or notes thereto.
56
EXHIBITS TO 1995 ANNUAL REPORT ON FORM 10-K
-------------------------------------------
3.1 Restated Certificate of Incorporation of the Company (filed as a part
of Exhibit 3 to the Company's Form S-1 Registration Statement No.
33-13326 filed April 10, 1987, and incorporated herein by reference).
3.2 Bylaws of the Company as amended December 15, 1989 (filed as an Exhibit
to the Company's Annual Report on Form 10-K for the year ended December
31, 1989, and incorporated herein by reference).
4.1 Form of Indenture between the Company and The Bank of New York relating
to the 9.45% Notes due 1997, and the form of such notes (filed as
Exhibits to the Company's Quarterly Report on Form 10-Q for the interim
period ended June 30, 1987, and incorporated herein by reference).
4.2 Form of Indenture between the Company and The Bank of New York relating
to the 9-5/8% Notes due 1999, and the form of such notes (filed as
Exhibits to the Company's Quarterly Report on Form 10-Q for the interim
period ended September 30, 1987, and incorporated herein by reference).
4.3 Form of Indenture between the Company and Chemical Bank relating to
medium-term notes and the form of such notes (filed as Exhibits to the
Company's Quarterly Report on Form 10-Q for the interim period ended
September 30, 1988, and incorporated herein by reference).
4.4 Form of First Supplemental Indenture between the Company and Chemical
Bank relating to medium-term notes and the form of such notes (filed as
Exhibits to the Company's Form S-3 Registration Statement No. 33-23628
filed April 24, 1991, and incorporated herein by reference).
4.5 Form of Indenture between the Company and Chemical Bank relating to
debt securities and medium-term notes and the form of such securities
and notes (filed as Exhibits to the Company's Form S-3 Registration
Statement Nos. 33-23628 and 33-51675 filed December 22, 1993 and
incorporated herein by reference).
4.6 The Company agrees to furnish the Commission upon request a copy of any
other instrument with respect to long-term debt of the Company and any
subsidiary for which consolidated or unconsolidated financial
statements are required to be filed and as to which the amount of
securities authorized thereunder does not exceed 10% of the total
assets of the Company and its subsidiaries on
a consolidated basis.
10.1 Agreement containing Consent Order and Agreement to Hold Separate, dated
February 19, 1987, among Hoechst AG, AHC, Celanese and the United States
Federal Trade Commission (filed as an Exhibit to the Company's Form S-1
Registration Statement No. 33-13326 filed April 10, 1987, and
incorporated herein by reference).
10.2 Technology Cooperation and License Agreement between Hoechst AG and the
Company as of January 1, 1988 (filed as an Exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31, 1987, and
incorporated herein by reference).
10.3 Summary of AHC Medical Program Policy provisions applicable to former
members of the AHC Executive Committee (filed as an Exhibit to the
Company's Form S-1 Registration Statement No. 33-13326 filed April 10,
1987, and incorporated herein by reference).
10.4 Summary of AHC Executive Retiree Life Insurance Program (filed as an
Exhibit to the Company's Form S-1 Registration Statement No. 33-13326
filed April 10, 1987, and incorporated herein by reference).
10.5 The Hoechst Celanese Executive Pension Plan, as amended, as of November
1, 1991 (filed as an Exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1991, and incorporated by reference).
10.6 Supplemental Pension Plan to Retirement Plan (formerly the Celanese
Supplemental Pension Plan to the Celanese Retirement Income Plan) (filed
as an Exhibit to the Celanese Annual Report on Form 10-K (File No.
1-1308) for the fiscal year ended December 31, 1977, and incorporated
herein by reference).
10.7 Grantor Trust Agreement, between Celanese and Bankers Trust Company
dated December 27, 1985, for payment of benefits under the Executive
Pension Plan (filed as an Exhibit to the Celanese Annual Report on Form
10-K (File No. 1-1308) for the fiscal year ended December 31, 1985, and
incorporated herein by reference).
10.8 The Hoechst Celanese Executive Medical and Dental Plan, effective
January 1, 1989 (filed as an Exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1988, and incorporated herein
by reference).
10.9 Employment Agreement, dated January 21, 1987, between Celanese and
Joseph H. Patterson (filed as an Exhibit to
the Company's Annual Report on Form 10-K for the year ended December
31, 1987, and incorporated herein by reference).
10.10 Summary of Management Incentive Plan (filed as an Exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31,
1987, and incorporated herein by reference).
10.11 Hoechst Celanese Long-Term Incentive Plan, effective January 1, 1989
(filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended December 31, 1988, and incorporated herein by
reference).
10.12 A description of the Hoechst Celanese Executive Benefits Reimbursement
Program (filed as an Exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1988, and incorporated herein by
reference).
10.13 Agreement, dated December 7, 1994, between the Company and Joseph H.
Patterson, (filed as an Exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1994, and incorporated herein by
reference).
12 Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries.
WHERE
NAME INCORPORATED
------ ------------
Celanese Canada Inc. Canada
Celanese Engineering Resins, Inc. Delaware
Grupo Celanese S.A. Mexico
Hoechst Celanese Chemicals, Inc. Delaware
23 Consent of Independent Accountants.
24.1 Powers of attorney, dated February 27, 1996 for directors and officers
of the Company authorizing Harry R. Benz, Thomas F. Kennedy and/or
David A. Jenkins to sign this 10-K on their behalf.
24.2 Certified copy of resolution adopted by the Board of Directors of the
Company on February 12, 1996, authorizing officers to sign this 10-K
on behalf of the Company pursuant to powers of attorney.
27 Financial Data Schedule (included in electronic filing only).