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, 1997
[_] 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.)
30 INDEPENDENCE BOULEVARD
WARREN, NEW JERSEY 07059
(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, 1997 and December 31, 1996.......................... 3
Consolidated Statements of Earnings -
Three months ended March 31, 1997 and 1996................................................. 4
Consolidated Statements of Cash Flows -
Three months ended March 31, 1997 and 1996................................................. 5
Notes to Consolidated Financial Statements.................................................. 6
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations....... 8
PART II - OTHER INFORMATION
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,
1997 1996
------------ --------------
(IN MILLIONS)
ASSETS
Current assets:
Cash and cash equivalents................ $ - $ -
Marketable securities.................... 3 2
Net receivables.......................... 1,977 2,154
Inventories.............................. 791 782
Deferred income taxes.................... 87 86
Prepaid expenses......................... 30 33
------ -----
Total current assets.................... 2,888 3,057
Investments in affiliates................. 404 417
Property, plant and equipment, net........ 2,677 2,643
Deferred income taxes..................... 13 29
Long-term receivable from parent.......... 520 520
Other assets.............................. 731 666
Excess of cost over fair value of net.....
assets of businesses acquired, net....... 965 954
------ ------
Total assets............................ $8,198 $8,286
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Commercial paper, notes payable and
current installments of long-term debt.. $ 6 $ 9
Accounts payable and accrued liabilities. 1,673 1,759
Dividend payable to parent............... - 90
Income taxes payable..................... 335 322
------ ------
Total current liabilities............... 2,014 2,180
Long-term debt............................ 1,050 1,026
Minority interests........................ 478 455
Other liabilities......................... 1,220 1,189
Stockholder's equity:
Common stock............................. - -
Additional paid-in capital............... 2,976 2,976
Retained earnings........................ 627 613
Cumulative translation and other
adjustments............................ (167) (153)
------ ------
Total stockholder's equity.............. 3,436 3,436
------ ------
Total liabilities and stockholder's
equity................................. $8,198 $8,286
====== ======
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,
--------------------
1997 1996
--------- ---------
(IN MILLIONS)
Net sales................................. $1,665 $1,747
Cost of sales............................. 1,368 1,415
Selling, general and administrative
expenses................................. 172 146
Research and development expenses......... 46 45
Special charges........................... 20 -
------ ------
Operating income....................... 59 141
Equity in net earnings of affiliates...... 2 3
Interest expense.......................... (20) (21)
Interest and other income, net............ 18 12
------ ------
Earnings before income taxes and
minority interests.................... 59 135
Income taxes.............................. 17 42
------ ------
Earnings before minority interests..... 42 93
Minority interests........................ 28 40
------ ------
Net earnings........................... $ 14 $ 53
====== ======
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,
------------------
1997 1996
-------- --------
(IN MILLIONS)
Operating activities:
Net earnings........................................ $ 14 $ 53
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Special charges, net of amounts used.............. (13) (91)
Change in equity of affiliates.................... (2) (4)
Depreciation and amortization..................... 99 110
Deferred income taxes............................. 15 35
Issuances of note receivable from Parent.......... (450) (119)
Collections of note receivable from
Parent.......................................... 524 357
Changes in operating assets and
liabilities:
Net receivables................................ 103 (9)
Inventories.................................... (9) 9
Accounts payable and accrued liabilities....... (61) (121)
Income taxes payable........................... 13 (13)
Other, net..................................... 10 81
----- -----
Net cash provided by operating
activities................................ 243 288
----- -----
Investing activities:
Proceeds from sale of businesses and
assets, net........................................ 2 80
Proceeds from sale of marketable
securities......................................... 46 9
Purchases of and investments in
businesses and assets, net......................... (28) -
Purchases of marketable securities.................. (77) (10)
Capital expenditures................................ (118) (137)
----- -----
Net cash used in investing activities....... (175) (58)
----- -----
Financing activities:
Proceeds from long-term debt........................ 25 -
Payments on long-term debt.......................... (1) -
Net (payments on) proceeds from
short-term borrowings............................. (3) 78
Dividends paid...................................... (90) (130)
----- -----
Net cash used in financing activities....... (69) (52)
----- -----
Exchange rate changes on cash........................ 1 (1)
----- -----
Net change in cash and cash equivalents........... - 177
Cash and cash equivalents at beginning
of period........................................... - 81
----- -----
Cash and cash equivalents at end of
period.............................................. $ - $ 258
===== =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest, net of amounts capitalized............. $ 31 $ 78
Income taxes (refunded) paid..................... (11) 23
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 period ended March 31, 1997 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 and its
majority-owned or controlled subsidiaries, including two wholly owned captive
insurance companies, joint ventures and partnerships. Certain reclassifications
have been made in the 1996 consolidated financial statements to conform to the
classifications used in 1997.
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 its Parent, 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.
In January 1997, the Company purchased the rights to the entire range of
the organic pigment business of Cookson Pigments, Inc., a wholly owned
subsidiary of Cookson America, Inc., for $28 million. The acquisition was
accounted for under the purchase method of accounting.
As part of a worldwide strategy, Hoechst AG is moving towards a management
holding company concept. Thus, the Company is undergoing an internal review to
align its businesses under this new global approach. Under this approach, the
Cellulosics business was transferred from the Trevira (formerly Fibers and Film)
segment to the Celanese (formerly Chemicals) segment at the end of 1996. The
Company has renamed its segments to conform to the new global alignment.
Accordingly, Chemicals is now known as Celanese; Fibers and Film is now known as
Trevira; and Specialties and Technical Polymers is now known as Specialties and
Ticona.
6
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) INVENTORIES
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(IN MILLIONS)
Finished goods.......................... $605 $590
Work-in-process......................... 81 90
Raw materials and supplies.............. 166 161
---- ----
Subtotal............................. 852 841
Excess of current costs over stated (61) (59)
values................................. ---- ----
Total inventories.................... $791 $782
==== ====
(3) COMMITMENTS AND CONTINGENCIES
The Company is a defendant in a number of lawsuits, including
environmental, 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 cases, 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 and that the ultimate outcome will not have a material
adverse effect on the financial position of the Company, but may have a material
adverse effect on the results of operations or cash flows in any given year.
7
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
As part of a worldwide strategy, Hoechst AG is moving towards a management
holding company concept. Thus, the Company is undergoing an internal review to
align its businesses under this new global approach. Under this approach, the
Cellulosics business was transferred from the Trevira (formerly Fibers and Film)
segment to the Celanese (formerly Chemicals) segment at the end of 1996. It is
unknown at this time when other realignments, if any, will be made and the
effect they will have on the Company. The Company has renamed its segments to
conform to the new global alignment. Accordingly, Chemicals is now known as
Celanese; Fibers and Film is now known as Trevira; and Specialties and Technical
Polymers is now known as Specialties and Ticona.
Hoechst AG, Frankfurt, Germany and Clariant AG, Muttenz, Switzerland intend
to combine their respective worldwide specialty chemicals businesses and have
signed a nonbinding general agreement. Consummation of the combination is
subject to a number of conditions including the negotiation of definitive
agreements, approval by the board members and shareholders of Hoechst and
approval by the antitrust authorities. Accordingly, the Company is unable to
predict whether or when a transaction with Clariant AG will be consummated.
Sales for the first quarter of 1997 decreased by 5% to $1,665 million from
$1,747 million for the comparable 1996 period. In the Celanese segment, sales
decreased slightly by $4 million with an unfavorable volume variance of $18
million offsetting a favorable price variance. The unfavorable volume variance
was mostly from Cellulosics, due to quarterly timing of tow and flake shipments
to China. In the remainder of the Celanese segment, sales were up slightly over
the prior year as methanol pricing was stronger due to tighter market supply
resulting from production outages in the industry. The largest sales decrease
was realized in the Trevira segment, which experienced a negative price variance
of $109 million, partially offset by a positive volume variance of $26 million.
The negative price variance was primarily in PET packaging resins, $51 million,
due to oversupply in the marketplace. Also, intermediates and textile staple
both experienced negative price variances of $22 million and $28 million,
respectively, due to lower raw material costs, which drove selling prices down.
The Specialties and Ticona segment sales increased by $6 million over the
comparable 1996 period. The increase was driven by increased sales volume for
superabsorbents and pigments, due to the pigment products acquired from Cookson
Pigments, Inc. during the first quarter of 1997. These increases were offset by
lower volumes in the Ticona business, which was mainly due to the transfer of
the fluoropolymers business to Dyneon, a Hoechst-3M joint venture, effective
August 1, 1996.
Selling, general and administrative expenses increased by $26 million over
the same quarter last year. The increase is mostly attributed to increased
spending for reengineering, new computer software and consultants.
Research and development expenses increased by $1 million over the first
quarter of the prior year. This increase was primarily in the Corporate
Research & Technology segment.
The Company recorded a special charge of $20 million in the first quarter
1997 which was mostly due to the announced restructuring for the Corporate
Research & Technology segment associated with the worldwide realignment within
the Hoechst Global strategy.
8
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 of $59 million was $82 million less than the comparable
period of the prior year. Decreases were realized in all business segments. In
the Celanese segment, operating income decreased $31 million. Sales decreased
slightly with lower Cellulosics sales offsetting higher pricing in methanol.
Also, there were significantly higher raw material prices and increased fixed
costs in all business lines. Trevira's operating income declined $16 million due
to lower prices for PET packaging resins, intermediates and textile staple. The
operating income for Specialties and Ticona was down $8 million compared to the
prior year period mainly due to the receipt of a one-time technology payment in
1996 and the transfer of the fluoropolymers business to the Dyneon joint
venture.
Equity in net earnings of affiliates was down $1 million compared to the
same period last year mainly due to decreased earnings in a 45% owned affiliate,
which sells copolymer and resins.
The increase of $6 million in interest and other income, net is primarily
due to foreign currency transaction fluctuations.
The effective tax rate decreased to 29% in 1997 from 31% in 1996. The
decrease is primarily attributable to non-U.S. earnings taxed at lower rates
representing a larger proportion of total earnings.
Effective January 1, 1997, the Mexican economy has been deemed
hyperinflationary; thus, the Company switched the functional currency for its
Mexican entities from the peso to the U.S. dollar. The first quarter 1997
results were negatively impacted by approximately $2 million.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the first quarter of 1997 was
2.9, compared to 5.3 for the 1996 period. The decrease for the first quarter was
primarily due to weaker earnings from continuing operations. 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
Beginning in 1996, the Company pools its cash with its Parent and the
Company's excess cash is loaned to its Parent under a revolving credit
agreement. Accordingly, the Company had no cash and cash equivalents at March
31, 1997 and December 31, 1996. Under this revolving credit agreement, the
outstanding receivable balance from Parent was $117 million as of March 31, 1997
and $191 million as of December 31, 1996.
Cash provided by operations for the first quarter of 1997 was $243 million
compared to $288 million for the 1996 period. The decrease is primarily
attributed to lower earnings in 1997. Cash provided by operations was more than
sufficient to finance the Company's capital expenditures.
During the first three months of 1997, the Company repaid $3 million under
its commercial paper program. There was no commercial paper outstanding at
March 31, 1997.
9
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 paid its Parent a $90 million dividend in the first quarter of
1997 and a $130 million dividend in the first quarter of 1996. 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 March 31, 1997. 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.
10
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.14 Summary of agreement, signed April 10, 1997, between the
Company and Harry R. Benz
27 Financial Data Schedule (included in electronic filing only)
(b) FORM 8-K
During the quarter ended March 31, 1997, no reports on Form 8-K were filed.
Pursuant to the requirements of the Securities 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
May 5, 1997 /s/ R. W. Smedley
-------------------------------
R. W. Smedley
Vice President and Controller
11
INDEX TO EXHIBITS
-----------------
10.14 Summary of agreement, signed April 10, 1997, between the Company
and Harry R. Benz
27 Financial Data Schedule (included in electronic
filing only)