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, 1996
[_] Transition report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the 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)
Registrant's 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, 1996
and December 31, 1995....................................... 3
Consolidated Statements of Earnings -
Three months ended March 31, 1996 and 1995.................. 4
Consolidated Statements of Cash Flows -
Three months ended March 31, 1996 and 1995.................. 5
Notes to Consolidated Financial Statements................... 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 7
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings............................................ 10
Item 6 - Exhibits and Reports on Form 8-K............................. 11
NOTE : The Registrant is referred to in this Form 10-Q as the Company or
Hoechst Celanese.
2
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
HOECHST CELANESE CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, DECEMBER 31,
1996 1995
----------- --------------
(IN MILLIONS)
ASSETS
Current assets:
Cash and cash equivalents.............. $ 258 $ 81
Marketable securities.................. 61 61
Net receivables........................ 1,815 1,919
Inventories............................ 821 854
Deferred income taxes.................. 90 93
Prepaid expenses....................... 21 22
------ ------
Total current assets................. 3,066 3,030
Investment in affiliates............... 435 447
Property, plant and equipment, net..... 2,676 2,660
Deferred income taxes.................. 40 65
Long-term receivable from parent....... 520 520
Other assets........................... 560 524
Excess of cost over fair value of net
assets of businesses acquired, net.... 978 987
Net assets of discontinued operations
held for distribution................. - 84
------ ------
Total assets......................... $8,275 $8,317
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Commercial paper, notes payable and
current installments of long-term debt $ 96 $ 7
Accounts payable and accrued liabilities 1,773 1,953
Dividend payable to parent.............. - 130
Income taxes payable.................... 272 285
------ ------
Total current liabilities.............. 2,141 2,375
Long-term debt........................... 952 962
Minority interests....................... 415 372
Other liabilities........................ 1,278 1,267
Stockholder's equity:
Common stock............................ - -
Additional paid-in capital.............. 3,032 2,929
Retained earnings....................... 588 540
Cumulative translation and other
adjustments............................ (131) (128)
------ ------
Total stockholder's equity............ 3,489 3,341
------ ------
Total liabilities and stockholder's
equity............................... $8,275 $8,317
====== ======
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
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
------------------
1996 1995
-------- --------
(IN MILLIONS)
Net sales............................... $1,747 $1,877
Cost of sales........................... 1,415 1,397
Selling, general and administrative
expenses............................... 146 172
Research and development expenses....... 45 49
------ ------
Operating income..................... 141 259
Equity in net earnings of affiliates.... 3 -
Interest expense........................ (21) (29)
Interest and other income, net.......... 12 21
------ ------
Earnings before income taxes and
minority interests.................. 135 251
Income taxes............................ 42 102
------ ------
Earnings before minority interests... 93 149
Minority interests...................... 40 44
------ ------
Earnings from continuing operations.. 53 105
Loss from discontinued operations, net
of tax................................. - (33)
------ ------
Net earnings......................... $ 53 $ 72
====== ======
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
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
------------------
1996 1995
-------- --------
(In Millions)
(IN MILLIONS)
Operating activities:
Net earnings from continuing operations..... $ 53 $ 105
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization ............ 110 115
Change in equity of affiliates............ (4) (1)
Deferred income taxes..................... 35 2
Changes in operating assets and liabilities:
Net receivables......................... 229 (210)
Inventories ............................ 9 (44)
Accounts payable and accrued liabilities (212) 27
Income taxes payable.................... (13) 35
Other, net.............................. 81 91
Net cash used in operating activities
of discontinued operations............. - (8)
----- -----
Net cash provided by operating
activities........................... 288 112
----- -----
Investing activities:
Capital expenditures........................ (137) (119)
Proceeds from sale of businesses and
assets, net................................ 80 -
Proceeds from sale of marketable
securities................................. 9 9
Purchases of marketable securities.......... (10) (10)
Net cash used in investing activities
of discontinued operations................. - (15)
----- -----
Net cash used in investing activities..... (58) (135)
----- -----
Financing activities:
Net proceeds from short-term borrowings..... 78 115
Dividends paid.............................. (130) (60)
Net cash provided by financing
activities of discontinued operations...... - 31
----- -----
Net cash (used in) provided by
financing activities..................... (52) 86
----- -----
Exchange rate changes on cash................ (1) (37)
----- -----
Net increase in cash and cash
equivalents.............................. 177 26
Cash and cash equivalents at beginning
of period................................... 81 186
----- -----
Cash and cash equivalents at end of
period...................................... $ 258 $ 212
===== =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest, net of amounts capitalized........ $ 78 $ 44
Income taxes................................ 23 47
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 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 are unaudited and are 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, 1996 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 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. The
consolidated financial statements include the accounts of the Company, its
majority-owned subsidiaries, joint ventures and partnerships.
In line with the worldwide strategy of Hoechst AG, the pharmaceutical
operations in North America were realigned. Accordingly, the Company completed
the transfer of its interest in the former Life Sciences segment to its Parent
or the subsidiaries of its Parent which resulted in an increase to additional
paid-in-capital of $103 million. The Company reflected the 1995 operating
results of these businesses as discontinued operations in the accompanying
consolidated financial statements.
(2) INVENTORIES MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
(IN MILLIONS)
Finished goods................................... $ 624 $ 676
Work-in-process.................................. 96 92
Raw materials and supplies....................... 181 174
----- -----
Subtotal......................................... 901 942
Excess of current costs over stated values....... (80) (88)
----- -----
Total inventories................................ $ 821 $ 854
===== =====
(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 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 of
the Company.
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PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
On July 18, 1995, Hoechst Corporation, the Company's parent, completed
the acquisition of Marion Merrell Dow Inc. In line with the worldwide strategy
of Hoechst Aktiengesellschaft, the pharmaceutical operations in North America
were realigned. Accordingly, the Company completed the transfer of its interest
in the former Life Sciences segment to its Parent or the subsidiaries of its
Parent. The Company reflected the 1995 operating results of these businesses as
discontinued operations in the accompanying consolidated financial statements.
Sales for the first quarter of 1996 decreased by 7% to $1,747 million
from $1,877 million for the comparable 1995 period. The largest sales decreases
were realized in the Chemicals and Specialties and Technical Polymers (formerly
Specialties and Advanced Materials) segments. In the Chemicals segment, sales
decreased in most major product lines except for the favorable performance of
acrylates. Acetyls and derivatives experienced weaker pricing than the same
period of 1995. Beginning in 1996, the Fibers and Film segment was realigned
into four businesses: Textile Fibers, Technical Fibers, Cellulosics, and
Polyester Resins and Films. The Fibers and Film segment experienced sales
growth over the same period last year. In Textile Fibers, sales were lower due
to market softness for polyester staple and filament. This market downturn more
than offset selling price increases in these businesses. The Technical Fibers
group sales were flat versus the prior year period. In the Cellulosics group,
sales improved due to higher selling prices and volumes for acetate and filter
products. Acetate volumes increased as market demand for linings and printed
fabrics improved. Also, supplying new China tow plants with flake increased
sales volumes for filter products. Polyester Resins and Films' sales improved
as prices were favorable for PET films, resins and intermediates. This was
partially offset by reduced volumes in resins due to soft demand and intense
competition. The Specialties and Technical Polymers segment sales decreased
compared to the prior year, as sales increases in Technical Polymers (formerly
Advanced Materials) were not enough to offset decreases in Specialty Chemicals.
In Technical Polymers, overall sales prices and volumes increased across most
product lines. Specialty Chemicals' sales decreased largely as the result of
the sale of the printing plates business to Bayer Corporation (AGFA Division,
"AGFA") on January 2, 1996 and the transfer of the dyes business to DyStar, a
Hoechst-Bayer joint venture in 1995. In addition, Specialty Chemicals
experienced a reduction in both prices and volumes for superabsorbents which was
offset by favorable pricing and volumes for detergent raw materials and
separation products.
Selling, general and administrative expenses decreased by $26 million
over the same quarter last year. The decrease resulted from the sale of the
printing plates business and higher profit sharing in 1995.
Research and development expenses decreased by $4 million over the
prior period. This decrease was primarily in the Advanced Technology segment.
Operating income of $141 million was $118 million less than the
comparable period of the prior year. Decreases in the Chemicals and Fibers and
Film segments were not offset by improvements in the Specialties and Technical
Polymers segment. In the Chemicals segment, the operating income decrease was
due to lower sales in most of the product lines and increased manufacturing
costs. The Fibers and Film segment operating income decreased from the prior
year due mainly to weaker markets in Textile Fibers for staple and filament.
For Technical Fibers, Cellulosics, and Polyester Resins and Films operating
income remained relatively flat versus the prior year period. In the
Specialties and Technical Polymers segment operating income increased
7
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
compared to the prior year period. Technical Polymers' volumes increased because
of strong demand in most product lines resulting in improved operating income
over the comparable 1995 period. Specialty Chemicals' operating income was flat
compared to the prior year. The sale of the printing plates and dyes businesses
was offset by favorable prices and volumes in detergent raw materials and
separations products and favorable manufacturing efficiencies.
Equity in net earnings 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 against
the Japanese yen.
The decrease in interest and other income, net is primarily due to
foreign currency transaction fluctuations which was partially offset by a gain
recognized on the sale of the printing plates business to AGFA.
The effective tax rate decreased to 31% in 1996 from 41% in 1995. The
decrease is primarily attributable to non U.S. earnings taxed at lower rates
representing a larger proportion of total earnings.
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 has been negatively impacted from the translation
effect of the Company's 40% ownership of Grupo Celanese, S.A.; however, the
exchange rate impact for the first quarter 1996 was slightly favorable. The
Company is uncertain about the potential unfavorable impact of future
fluctuations of the Mexican peso.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the first quarter of 1996
was 5.3 compared to 7.5 for the 1995 period. The decrease for the first quarter
was due to weaker earnings from continuing operations, slightly offset by lower
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 of $258 million at March 31, 1996
represented an increase of $177 million from December 31, 1995. The increase
primarily resulted from net cash provided by operations of $288 million,
partially offset by $137 million of expenditures for capital projects.
During the first quarter of 1996, the Company issued $199 million of
commercial paper. There was $59 million of commercial paper outstanding at
March 31, 1996. The Company paid a dividend of $130 million in February 1996
for the year 1995.
8
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company had an aggregate of $175 million medium-term notes
outstanding as of March 31, 1996. 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.
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 its Parent or Hoechst AG
and affiliates.
9
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Prior to 1987, the Company made polyethylene water service pipe. In
December 1995, the Company was brought into 15 related lawsuits in the Superior
Court of the State of California for the County of Orange by approximately 462
homeowners who allege damage from a landslide in January 1993 in Anaheim Hills,
California. The claims against the Company are that polyethylene water service
pipe (known as "Yardley Water Service Line") sold by the Company leaked or broke
in the landslide area and either caused or contributed to the landslide. Other
defendants are the City of Anaheim, other governmental agencies and Flintkote
Corporation, another manufacturer of water service pipe.
The case against the governmental agencies was filed in 1993.
Although the total damages claimed aggregate approximately two billion dollars,
management believes that the claims against the Company are without merit and
will defend itself vigorously. Management believes this will not have a
material adverse effect on the consolidated financial position of the Company.
10
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, 1996, 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, 1996
11