SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended March 31, 1995
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____ to _____
Commission File Number 33-13326
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)
Registrants telephone number, including area code: (908) 231-2000
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
--- ---
All outstanding shares of Hoechst Celanese Corporation stock are owned by its
parent, Hoechst Corporation.
TABLE OF CONTENTS
PAGE
PART I--FINANCIAL INFORMATION
Item 1--CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets March 31, 1995 and December 31, 1994.......... 3
Consolidated Statements of Earnings -
Three months ended March 31, 1995 and 1994............................... 4
Consolidated Statements of Cash Flows -
Three months ended March 31, 1995 and 1994............................... 5
Notes to Consolidated Financial Statements................................. 6
Item 2--Managements Discussion and Analysis of Financial Condition and
Results of Operations..................................................... 7
PART II--OTHER INFORMATION
Item 6--Exhibits and Reports on Form 8-K........................................... 9
NOTE: The Registrant sometimes is referred to in this 10-Q as the Company or
Hoechst Celanese.
2
PART I--FINANCIAL INFORMATION
ITEM 1--CONSOLIDATED FINANCIAL STATEMENTS
HOECHST CELANESE CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
1995 1994
--------- ------------
(In millions)
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 220 $ 192
Marketable securities............................................... 54 51
Net receivables..................................................... 1,590 1,518
Inventories......................................................... 1,057 1,002
Deferred income taxes............................................... 97 95
Prepaid expenses.................................................... 51 31
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Total current assets.............................................. 3,069 2,889
------ ------
Investments in affiliates............................................ 382 358
Property, plant and equipment........................................ 4,530 4,647
Accumulated depreciation and amortization............................ (1,739) (1,772)
------ ------
Net property, plant and equipment.................................... 2,791 2,875
Deferred income taxes................................................ 63 75
Other assets......................................................... 466 424
Excess of cost over fair value of net assets of businesses acquired,
net................................................................. 1,472 1,489
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Total assets...................................................... $8,243 $8,110
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LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Commercial paper and current installments of long-term debt......... $ 188 $ 36
Accounts payable and accrued liabilities............................ 1,385 1,369
Dividend payable to parent.......................................... - 60
Notes and accounts payable, parent and affiliates................... 596 618
Income taxes payable................................................ 311 277
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Total current liabilities......................................... 2,480 2,360
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Long-term debt....................................................... 1,086 1,086
Minority interests................................................... 350 393
Other liabilities.................................................... 1,118 1,107
Stockholders equity:
Common stock........................................................ - -
Additional paid-in capital.......................................... 2,804 2,804
Retained earnings................................................... 481 409
Cumulative translation and other adjustments........................ (76) (49)
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Total stockholders equity......................................... 3,209 3,164
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Total liabilities and stockholders equity......................... $8,243 $8,110
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See accompanying notes to consolidated financial statements.
3
PART I--FINANCIAL INFORMATION
ITEM 1--CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
HOECHST CELANESE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED
MARCH 31,
----------------
1995 1994
---- ----
(In millions)
Net sales............................................... $2,052 $1,612
Cost of sales........................................... 1,510 1,282
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Gross profit......................................... 542 330
Selling, general and administrative expenses............ 239 199
Research and development expenses....................... 75 66
------ ------
Operating income..................................... 228 65
Equity in net loss of affiliates........................ - (2)
Interest expense........................................ (30) (25)
Interest and other income, net.......................... 10 5
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Earnings before income taxes and minority interests.. 208 43
Income taxes............................................ 89 16
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Earnings before minority interests................... 119 27
Minority interests...................................... 47 15
------ ------
Net earnings $ 72 $ 12
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See accompanying notes to consolidated financial statements.
4
PART I--FINANCIAL INFORMATION
ITEM 1--CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
HOECHST CELANESE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
MARCH 31,
---------------
1995 1994
---- ----
(IN MILLIONS)
Operating activities:
Net earnings......................................................................... $ 72 $ 12
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization...................................................... 126 122
Change in equity of affiliates..................................................... - 3
Tax provision less taxes paid...................................................... 33 (53)
Changes in operating assets and liabilities:
Net receivables.................................................................. (128) 227
Inventories...................................................................... (75) (30)
Prepaid expenses................................................................. (26) (12)
Accounts payable and accrued liabilities......................................... 59 (139)
Other, net....................................................................... 53 (20)
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Net cash provided by operating activities....................................... 114 110
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Investing activities:
Capital expenditures................................................................. (126) (105)
Proceeds from sale of marketable securities.......................................... 19 30
Purchases of and investments in businesses and assets................................ (7) -
Purchases of marketable securities................................................... (21) (20)
----- -------
Net cash (used in) investing activities........................................ (135) (95)
----- -------
Financing activities:
Proceeds from long term debt......................................................... - 398
Proceeds from short-term borrowings.................................................. 479 940
Payments on long-term debt........................................................... - (1)
Payments on short-term borrowings.................................................... (333) (1,252)
Dividends paid....................................................................... (60) (70)
----- -------
Net cash provided by financing activities....................................... 86 15
----- -------
Exchange rate changes on cash......................................................... (37) (10)
Net increase in cash and cash equivalents.......................................... 28 20
Cash and cash equivalents at beginning of period...................................... 192 171
----- -------
Cash and cash equivalents at end of period............................................ $ 220 $ 191
===== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for: Interest, net of amounts capitalized................ $ 44 $ 52
Income taxes....................................................... 47 69
See accompanying notes to consolidated financial statements.
5
PART I--FINANCIAL INFORMATION
ITEM 1--CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
Hoechst Celanese Corporation (the Company) is wholly owned by Hoechst
Corporation, a holding company, itself a wholly owned subsidiary of Hoechst
Aktiengesellschaft (Hoechst AG).
The consolidated financial statements are unaudited and subject to year-end
audit and adjustments. In the opinion of management, the financial statements
include all adjustments (consisting only of normal accruals) which are
necessary to present fairly the results for the interim periods reported.
Results for the three month period ended March 31, 1995 are not necessarily
indicative of the results that will be realized for the full year. All
significant intercompany balances and transactions have been eliminated in
consolidation. The consolidated financial statements include the accounts of
the Company, its majority-owned subsidiaries, joint ventures and
partnerships.
(2) INVENTORIES
MARCH 31, DECEMBER 31,
1995 1994
--------- ------------
(IN MILLIONS)
Finished goods.............................. $ 815 $ 713
Work-in-process............................. 114 116
Raw materials and supplies.................. 211 248
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Subtotal.................................. 1,140 1,077
Excess of current costs over stated values.. (83) (75)
------ ------
Total inventories.................... $1,057 $1,002
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(3) COMMITMENTS AND CONTINGENCIES
The Company is a defendant in a number of lawsuits, including product
liability and personal injury actions. Certain of these lawsuits purport to
be, or have been preliminarily certified as, class actions. In some of these
lawsuits, claimed damages are substantial. While it is impossible at this
time to determine with certainty the ultimate outcome of the 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
consolidated financial position, or results of operations of the Company.
6
PART I--FINANCIAL INFORMATION
ITEM 2--MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
First quarter 1995 sales of $2,052 million increased $440 million from the
comparable 1994 period as all segments experienced sales improvements. In the
Chemicals segment, all product lines showed favorability over the prior year
with the most notable improvement in methanol. In addition, improvements were
realized in acetyls where acetic acid and vinyl acetate monomer export volumes
and overall pricing improvements resulted from strong market demand. Improved
sales prices in acrylates which resulted from strong demand in the marketplace
contributed to the overall sales improvements. The Fibers and Film segment
experienced sales growth over the same period last year. In Textile Fibers,
polyester staple price and volume gains over the prior year resulted from the
continuing high cotton prices which increased demand for manufactured fibers and
cotton blends in the apparel markets. The Technical Fibers group experienced
sales growth due to filter products' robust export volumes and prices,
particularly to the Far East, and improved spunbond volumes in the geotextile
market which resulted from increased construction activity. Polyester Resins
and Films' sales increased as a result of strong market demand in polyester film
together with continued high domestic and export demand in polyester resins. The
Specialties and Advanced Materials segment showed sales improvements over the
same period last year. Specialty Chemicals' sales remained relatively flat as
improved domestic volumes in pigments and printing products offset both price
shortfalls in dyes caused by increased competitive pressures and volumes losses
in separation products. In Advanced Materials, overall sales improvements versus
the first quarter of 1994 resulted from favorable sales volumes in all product
lines largely resulting from continued strong demand, further commercialization
of products and the continued strengthening of the economy. In the Life Sciences
segment, sales increased over those of the same period last year. Volume
increases in growth promotants for cattle led to higher sales for the animal
health businesses. Volume gains were also seen in generic and prescription
pharmaceuticals.
Selling, general and administrative expenses ("SG&A") increased by $40 million
over the same quarter last year. The increase resulted from slightly higher
personnel related costs and the timing of some expenses versus the prior year.
Research and development expenses increased by $9 million. This increase was
primarily in the Life Sciences segment.
Operating income of $228 million was $163 million greater than the prior year
resulting from improvements in all operating segments. In the Chemicals
segment, the significant increase in sales resulted from stronger volumes and
pricing, particularly in methanol, which more than offset the higher raw
material costs in ethylene, propylene and sourced methanol. Improvements in
Polyester Resins and Films and Technical Fibers offset the decline in Textile
Fibers operating income resulting in an overall increase in the Fibers and Film
segment over the prior year. In Textile Fibers, operating income remained
fairly flat as decreased demand for acetate filament along with increased raw
material costs were offset by the favorable sales impact of the staple pricing
and volume improvements. Although the cost of raw materials increased, mainly
in anhydride, woodpulp, glycol, and dimethylterphthalate ("DMT"), strong filter
product volume gains in Technical Fibers resulted in increased operating income
over the same quarter last year. The operating income for Polyester Resins and
Films improved over the prior year due to higher sales volumes in polyester film
and polyester resins which were partially offset by increased raw material
prices resulting from higher worldwide demand for paraxylene, methanol, purified
terephthalic acid and DMT. In the Specialties and Advanced Materials segment,
Specialty Chemicals' operating income declined as the result of higher
manufacturing costs; however, in Advanced Materials, the strong volumes caused
by increasing demand in all product lines improved operating income over the
first quarter of 1994. In the Life Sciences segment, operating income was
favorable to the comparable 1994 period, but still reflected a loss at the
operating income level. Improvements resulted from stronger sales volumes due
to the reduction in wholesaler purchase programs during the fourth quarter of
1994 coupled with ongoing cost containment efforts.
7
PART I--FINANCIAL INFORMATION
ITEM 2--MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Equity in net loss of affiliates improved 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 versus the Japanese yen.
Interest expense increased by $5 million over the same period last year due to
higher debt levels and increasing interest rates.
The effective tax rate increased to 42% in 1995 from 37% in 1994. The
increase is primarily attributable to U.S. earnings taxed at higher rates
representing a larger proportion of total earnings.
As a result of the significant devaluation of the Mexican New Peso in December
of 1994, the equity section of the Company was negatively impacted by
approximately $160 million due to the translation effect of the Company's 40%
ownership of Grupo Celanese, S.A. (formerly Celanese Mexicana, S.A.). The
Company is uncertain about the potential unfavorable impact of future
fluctuations of the Mexican currency.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the first quarter of 1995 was 6.2
compared to 2.3 for the 1994 period. The increase for the first quarter was the
result of increased earnings from operations due to strong sales volumes,
slightly offset by higher interest expense. For purposes of calculating the
ratio of earnings to fixed charges, earnings consist of earnings from 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 and cash equivalents were $220 million on March 31, 1995, an increase of
$28 million from December 31, 1994. The increase primarily resulted from net
cash provided by operations of $114 million and financing transactions of $86
million, partially offset by $126 million expenditures for capital projects.
In March of 1995, the Company paid its parent, Hoechst Corporation ("Parent"),
a $60 million dividend. As of March 31, 1995, the Company borrowed $341 million
and repaid $228 under its commercial paper program and its revolving credit
agreement with its Parent. There was $113 million of commercial paper
outstanding and no outstanding balance under the revolving credit agreement at
March 31, 1995.
The Company had an aggregate $175 million outstanding of its medium-term notes
as of March 31, 1995. The Company may sell from time to time up to an additional
$250 million of such notes. The proceeds of any medium-term notes to be sold
will be used for general corporate purposes.
The Company expects that its capital expenditures, investments and working
capital requirements will continue to be met primarily from internally generated
funds from operations. However, the Company may, due to the timing of funding
requirements or investments, supplement its liquidity from external or
affiliated sources. Such sources include the Company's medium-term note shelf
registration, its commercial paper program or loans from its Parent or Hoechst
AG and affiliates.
8
PART II--OTHER INFORMATION
ITEM 6 --EXHIBITS AND REPORTS ON FORM 8-K
(a) NONE REQUIRED.
(b) FORM 8-K
During the quarter ended March 31, 1995, no reports on Form 8-K were filed.
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this form 10-Q has been signed on behalf of the Registrant by its Chief
Accounting Officer who is authorized to sign on behalf of the Registrant.
Hoechst Celanese Corporation
/s/ R. W. Smedley
Vice President and Controller
May 3, 1995
9