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 September 30, 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 - September 30, 1996 and December 31, 1995....................... 3
Consolidated Statements of Earnings -
Three months and nine months ended September 30, 1996 and 1995............................. 4
Consolidated Statements of Cash Flows -
Nine months ended September 30, 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 6 - Exhibits and Reports on Form 8-K............................................................. 10
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)
SEPTEMBER 30, DECEMBER 31,
1996 1995
--------------- --------------
(IN MILLIONS)
ASSETS
Current assets:
Cash and cash equivalents................... $ 168 $ 81
Marketable securities....................... 69 61
Net receivables............................. 1,726 1,919
Inventories................................. 799 854
Deferred income taxes....................... 87 93
Prepaid expenses............................ 6 22
------ ------
Total current assets...................... 2,855 3,030
Investment in affiliates...................... 427 447
Property, plant and equipment, net............ 2,768 2,660
Deferred income taxes......................... 17 65
Long-term receivable from parent and
affiliates................................... 804 520
Other assets.................................. 557 524
Excess of cost over fair value of net
assets of businesses acquired, net........... 963 987
Net assets of discontinued operations
held for distribution........................ - 84
------ ------
Total assets.............................. $8,391 $8,317
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Notes payable and current installments
of long-term debt.......................... $ 5 $ 7
Accounts payable and accrued liabilities.... 1,869 1,953
Dividend payable to parent.................. - 130
Income taxes payable........................ 263 285
------ ------
Total current liabilities................. 2,137 2,375
Long-term debt................................ 979 962
Minority interests............................ 444 372
Other liabilities............................. 1,262 1,267
Stockholder's equity:
Common stock................................ - -
Additional paid-in capital.................. 3,032 2,929
Retained earnings........................... 674 540
Cumulative translation and other
adjustments................................ (137) (128)
------ ------
Total stockholder's equity................ 3,569 3,341
------ ------
Total liabilities and stockholder's
equity................................... $8,391 $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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- -------------------
1996 1995 1996 1995
--------- --------- --------- --------
(IN MILLIONS)
Net sales................................. $1,674 $1,835 $5,221 $5,640
Cost of sales............................. 1,374 1,400 4,239 4,292
Selling, general and administrative....... 152 199 460 551
expenses
Research and development expenses......... 43 45 130 137
------ ------ ------ ------
Operating income...................... 105 191 392 660
Equity in net earnings of affiliates...... 1 1 8 5
Interest expense.......................... (22) (26) (65) (82)
Interest and other income, net............ 13 58 49 145
------ ------ ------ ------
Earnings before income taxes and
minority interests................... 97 224 384 728
Income taxes.............................. 24 78 120 248
------ ------ ------ ------
Earnings before minority interests.... 73 146 264 480
Minority interests........................ 38 39 127 152
------ ------ ------ ------
Earnings from continuing operations... 35 107 137 328
Loss from discontinued operations, net
of taxes................................. - (1) - (48)
------ ------ ------ ------
Net earnings.......................... $ 35 $ 106 $ 137 $ 280
====== ====== ====== ======
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)
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1996 1995
-------- -------
(IN MILLIONS)
Operating activities:
Net earnings from continuing operations............ $ 137 $ 328
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization.................... 325 335
Change in equity of affiliates................... (7) (3)
Deferred income taxes............................ 52 (10)
Changes in operating assets and
liabilities:
Net receivables................................ 309 (231)
Inventories.................................... 18 (141)
Accounts payable and accrued
liabilities................................... (153) 114
Income taxes payable........................... (22) 111
Other, net..................................... (124) 210
Net cash provided by operating
activities of discontinued
operations.................................... - 74
----- -----
Net cash provided by operating
activities................................. 535 787
----- -----
Investing activities:
Proceeds from sale of businesses and
assets, net...................................... 84 2
Proceeds from sale of marketable
securities....................................... 30 32
Capital expenditures.............................. (432) (339)
Purchases of marketable securities................ (41) (44)
Net cash used in investing activities
of discontinued operations....................... - (21)
----- -----
Net cash used in investing
activities................................. (359) (370)
----- -----
Financing activities:
Proceeds from long-term debt...................... 35 -
Net proceeds from (payments on)
short-term borrowings............................ 25 (1)
Payments on long-term debt........................ (18) (30)
Dividends paid.................................... (130) (60)
Net cash provided by financing
activities of discontinued
operations....................................... - 9
----- -----
Net cash used in financing
activities................................. (88) (82)
----- -----
Exchange rate changes on cash....................... (1) (28)
----- -----
Net increase in cash and cash
equivalents.................................... 87 307
Cash and cash equivalents at beginning
of period.......................................... 81 186
----- -----
Cash and cash equivalents at end of
period............................................. $ 168 $ 493
===== =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest, net of amounts capitalized............... $ 82 $ 106
Income taxes....................................... 84 134
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 ("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 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 and nine-month periods ended September 30, 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 SEPTEMBER 30, DECEMBER 31,
1996 1995
------------ --------------
(IN MILLIONS)
Finished goods.......................... $597 $676
Work-in-process......................... 97 92
Raw materials and supplies.............. 169 174
---- ----
Subtotal............................ 863 942
Excess of current costs over stated (64) (88)
values................................. ---- ----
Total inventories................... $799 $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.
6
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 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. The
Company reflected the 1995 operating results of these businesses as discontinued
operations in the accompanying consolidated financial statements.
Sales for the first nine months of 1996 decreased by 7% to $5,221 million
from $5,640 million for the comparable 1995 period, and sales for the third
quarter of 1996 also decreased by 9% to $1,674 million from $1,835 million in
1995. Sales decreases were realized in all segments. The Chemicals segment
sales decreased for both the third quarter and nine months with most product
lines showing decreases from the prior periods except for the continuing
favorable performance of acrylates. While maintaining a relatively flat sales
volume in total, the segment experienced weaker prices in the first nine months
of 1996 compared to 1995. In the third quarter 1996, however, the segment
experienced a greater decline in volume than in price compared to 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 declines from the same
periods last year. In Textile Fibers, sales were lower due to market softness
for polyester staple for both the third quarter and the nine months when
compared to the prior year. For filament products, selling prices were
maintained at the prior year level. However, volumes for filament products were
stronger because of the increased demand for the product in the fashion
industry. Technical Fibers sales decreased for both periods due mainly to the
sale of the caprolactum business in fourth quarter 1995, which was partially
offset by the strong demand in the tire cord business as well as higher pricing
in most of the other Technical Fibers businesses. In Cellulosics, sales
improved for the nine months due to higher selling prices and volumes for
acetate and filter products, but declined slightly during the third quarter due
to the delay of tow shipments. However, acetate volumes increased for both
periods as market demand for linings and printed fabrics improved. Polyester
Resins and Films sales decreased as prices and volumes were unfavorable for PET
resins and intermediates for the third quarter and nine months of 1996 versus
1995. This decline is mainly due to intense competition and market saturation
for resins. The Specialties and Technical Polymers segment sales decreased over
the comparable 1995 periods. In Technical Polymers (formerly Advanced
Materials), overall sales volumes for the third quarter and the nine months
decreased slightly primarily due to lower exports. Specialty Chemicals sales
decreased largely as the result of the sale of the printing plates business to
Bayer Corporation (AGFA Division) on January 2, 1996 and the transfer of the
dyes business to DyStar, a Hoechst-Bayer joint venture, in 1995. Excluding
these transactions, Specialty Chemicals experienced higher volumes in detergent
raw materials, separations products, and pigments. Selling prices were
relatively stable in most businesses, however, superabsorbents experienced lower
pricing in both the third quarter and the nine months.
Selling, general and administrative expenses ("SG&A") decreased $91 million
for the nine-month period and decreased $47 million for the third quarter over
the comparable 1995 time frames. The decrease for both these periods is a
result of the sale of the printing plates business in 1996 and higher profit
sharing in 1995.
Research and development expenses remained flat for the third quarter and
decreased by $7 million for the nine months, primarily due to reduced spending
in 1996.
7
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Operating income for the nine-month period of $392 million was $268 million
lower than the prior year. Operating income for the third quarter decreased by
$86 million to $105 million. Declines for both periods were driven by reduced
profitability in the Chemicals and Fibers and Film segments. In the Chemicals
segment, lower operating income was primarily the result of lower prices for
most of its product lines. In the Fibers and Film segment, operating income
decreased over prior year periods. In Textile Fibers, favorability in filament
was not enough to offset lower pricing and volumes in staple. Technical Fibers
operating income remained relatively flat versus the prior year periods. In
Cellulosics, operating income remained relatively flat for the nine months but
declined slightly during the third quarter as a result of the delay of tow
shipments. The operating income for Polyester Resins and Films decreased
compared to the prior year periods due to oversupply and intense competition for
PET resin as well as manufacturing interruptions. In the Specialties and
Technical Polymers segment, operating income decreased slightly in the third
quarter, but improved for the nine months. Technical Polymers operating income
declined for the quarter but remained flat for the nine months compared to the
prior year. Operating income for the quarter declined due to lower export
volumes; for the nine months, lower sales volumes were offset by lower raw
material and plant costs. Specialty Chemicals operating income increased
compared to the prior year periods. Favorable volumes in detergent raw
materials and separations products resulted in slightly improved operating
income which offset the effect of the printing plates and dyes transactions. In
addition, the third quarter 1995 included a charge relating to a write-down of
assets and additional environmental remediation exposure.
Equity in net earnings of affiliates was flat for the third quarter;
however, this improved for the nine months due to increased earnings in a 45%
owned affiliate, which sells copolymer and resins.
Interest and other income, net decreased by $45 million for the third
quarter and $96 million for the nine-month period. During 1995, a special
dividend payment was received from a foreign investment and a 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 was recorded.
During 1996, a gain was recognized on the sale of the printing plates business.
The effective tax rate of 25% for the third quarter and 31% year-to-date
1996 decreased from the prior year periods primarily due to non-U.S. earnings
taxed at lower rates representing a larger proportion of total earnings.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the third quarter and nine
months of 1996 was 4.5 and 5.4, respectively, compared to 7.3 and 7.9 for the
1995 periods. The decrease in both periods 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.
8
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at September 30, 1996 were $168 million, an
increase of $87 million from December 31, 1995. The increase primarily resulted
from net cash provided by operations of $535 million, partially offset by $432
million of expenditures for capital projects.
For the first nine months of 1996, the Company borrowed and repaid $326
million under its commercial paper program. There was no commercial paper
outstanding at September 30, 1996. In 1996, the Company issued $35 million of
tax exempt bonds to finance the construction of pollution control facilities in
Texas and Virginia. The Company paid a dividend of $130 million in February
1996 for the year 1995.
The Company had an aggregate of $175 million medium-term notes outstanding
as of September 30, 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 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) NONE REQUIRED.
(b) FORM 8-K
During the quarter ended September 30, 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
November 5, 1996
10