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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, 1994
[ ] 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
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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 08807
Bridgewater, New Jersey (Zip Code)
(Address of principal executive offices)
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.
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TABLE OF CONTENTS
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PAGE
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Part I--Financial Information
Item 1--Consolidated Financial Statements
Consolidated Balance Sheets--March 31, 1994 and
December 31, 1993........................................ 3
Consolidated Statements of Earnings--
Three months ended March 31, 1994 and 1993.............. 4
Consolidated Statements of Cash Flows--
Three months ended March 31, 1994 and 1993.............. 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 1--Legal Proceedings......................................... 10
Item 6--Exhibits and Reports on Form 8-K.......................... 11
</TABLE>
Note: The Registrant sometimes is referred to in this 10-Q as the Company or
Hoechst Celanese.
2
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Part I -- Financial Information
Item 1 -- Consolidated Financial Statements
Hoechst Celanese Corporation
Consolidated Balance Sheets
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<CAPTION>
March 31, December 31,
1994 1993
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(In millions)
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ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 191 $ 171
Marketable securities (note 3)......................................... 68 75
Net receivables........................................................ 1,109 1,336
Inventories (note 2)................................................... 1,054 1,024
Prepaid expenses....................................................... 49 37
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Total current assets.................................................. 2,471 2,643
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Investments in affiliates................................................. 346 342
Property, plant and equipment............................................. 4,842 4,762
Accumulated depreciation and amortization................................. (1,839) (1,761)
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Net property, plant and equipment......................................... 3,003 3,001
Other assets (note 3)..................................................... 337 298
Excess of cost over fair value of net assets of businesses acquired....... 1,619 1,633
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Total assets.......................................................... $ 7,776 $ 7,917
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LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Commercial paper and current installments of long-term debt............ $ 648 $ 20
Accounts payable and accrued liabilities............................... 890 1,029
Dividend payable to parent............................................. - 70
Notes and accounts payable, parent and affiliates...................... 83 809
Income taxes payable................................................... 272 333
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Total current liabilities............................................. 1,893 2,261
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Long-term debt............................................................ 1,017 879
Deferred income taxes..................................................... 53 52
Minority interests........................................................ 518 512
Other liabilities......................................................... 796 731
Stockholder's equity:
Common stock........................................................... - -
Additional paid-in capital............................................. 2,769 2,769
Retained earnings...................................................... 667 655
Unrealized holding gains............................................... 1 -
Cumulative translation adjustment...................................... 62 58
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Total stockholder's equity............................................ 3,499 3,482
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Commitments and contingencies (note 4)
Total liabilities and stockholder's equity............................ $ 7,776 $ 7,917
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</TABLE>
See accompanying notes to consolidated financial statements.
3
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Part I--Financial Information
Item 1--Consolidated Financial Statements (continued)
Hoechst Celanese Corporation
Consolidated Statements of Earnings
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Three months ended
March 31,
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1994 1993
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(In millions)
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Net sales............................................... $1,612 $1,456
Cost of sales........................................... 1,282 1,117
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Gross profit......................................... 330 339
Selling, general and administrative expenses............ 199 213
Research and development expenses....................... 66 58
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Operating income..................................... 65 68
Equity in net (loss) of affiliates...................... (2) (3)
Interest expense........................................ (25) (18)
Interest and other income, net.......................... 5 7
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Earnings before income taxes, minority interests
and cumulative effect of accounting changes......... 43 54
Income taxes............................................ 16 19
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Earnings before minority interests and cumulative
effect of accounting changes........................ 27 35
Minority interests...................................... 15 20
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Earnings before cumulative effect of accounting
changes............................................. 12 15
Cumulative effect of accounting changes, net of tax..... - 39
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Net earnings (loss).................................. $ 12 $ (24)
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</TABLE>
See accompanying notes to consolidated financial statements.
4
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Part I--Financial Information
Item 1--Consolidated Financial Statements (continued)
Hoechst Celanese Corporation
Consolidated Statements of Cash Flows
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Three months ended
March 31,
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1994 1993
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(In millions)
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Operating activities:
Net earnings (loss).......................................... $ 12 $ (24)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Cumulative effect of accounting changes, net of tax........ - 39
Depreciation and amortization.............................. 122 108
Change in equity of affiliates............................. 3 9
Tax provision less taxes paid.............................. (53) 2
Changes in operating assets and liabilities:
Net receivables.......................................... 227 119
Inventories.............................................. (30) (90)
Prepaid expenses......................................... (12) (7)
Accounts payable and accrued liabilities................. (139) (41)
Other, net............................................... (20) (35)
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Net cash provided by operating activities.............. 110 80
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Investing activities:
Capital expenditures......................................... (105) (145)
Redemption of Loan to Parent................................. - 176
Proceeds from sale of marketable securities.................. 30 8
Purchases of and investments in businesses and assets........ - (12)
Purchases of marketable securities........................... (20) (9)
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Net cash (used in) provided by investing activities.... (95) 18
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Financing activities:
Proceeds from long term debt................................. 398 -
Proceeds from short-term borrowings.......................... 940 416
Payments on long-term debt................................... (1) (18)
Payments on short-term borrowings............................ (1,252) (405)
Dividends paid............................................... (70) (85)
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Net cash provided by (used in) financing activities.... 15 (92)
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Exchange rate changes on cash................................... (10) (10)
Net increase (decrease) in cash and cash equivalents....... 20 (4)
Cash and cash equivalents at beginning of period................ 171 213
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Cash and cash equivalents at end of period...................... $ 191 $ 209
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Supplemental disclosure of cash flow information:
Cash paid during the
period for: Interest, net of amount capitalized...... $ 52 $ 35
Income taxes............................. 69 10
</TABLE>
See accompanying notes to consolidated financial statements.
5
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Part I--Financial Information
Item I--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, 1994 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. Certain reclassifications have been made in
the 1993 consolidated financial statements to conform to the 1994
presentation. The consolidated financial statements include the accounts of
the Company, its majority-owned subsidiaries, joint ventures and
partnerships.
(2) Inventories
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March 31, December 31,
1994 1993
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(In millions)
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Finished goods........................ $ 647 $ 600
Work-in-process....................... 142 144
Raw materials and supplies............ 329 340
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Subtotal........................... 1,118 1,084
Excess of current costs over stated
values.............................. (64) (60)
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Total inventories.................. $1,054 $1,024
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</TABLE>
(3) Marketable Securities
Effective January 1, 1994, the Company implemented Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("FAS 115"). In accordance with FAS 115, 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 as of March 31, 1994. At that time, the Company had
investments in debt securities amounting to $81 million of which $68
million was included in "Marketable securities" and the remainder in "Other
assets" in the Consolidated Balance Sheet. The net unrealized gain is shown
as a component of Stockholder's Equity. The Company does not believe that
adopting FAS 115 has a material impact on the consolidated financial
statements and related disclosures. Prior to January 1, 1994, these
investments were stated at cost.
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Part I--Financial Information
Item 1--Consolidated Financial Statements (continued)
Hoechst Celanese Corporation
Notes to Consolidated Financial Statements
(4) 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 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 of the
Company, but may have a material effect upon the results of operations in
any given year.
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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
First quarter 1994 sales of $1,612 million increased $156 million from the
comparable 1993 period as all operating segments experienced sales improvements.
In the Fibers and Film segment, improvements in the Textile and Polyester Resins
and Films groups offset lower sales in Technical Fibers. In Textile Fibers
volumes were at near capacity levels in all product lines offsetting lower
selling prices. Technical Fibers sales declined as both price and volume
declined versus the prior year's results. The reduction was primarily driven by
a temporary excess supply of tow and flake, and the timing of shipments to the
Far East. Prices are down due to competitive pressures as well as the strength
of the U.S. dollar in Europe. Volumes declined due to weakness in the European
markets and lower shipments of filter products to the Far East. Polyester Resins
and Films sales were higher as strong volumes, particularly in polyester
intermediates and polyethylene terephthalate resins, offset lower export sales
prices. Chemicals segment sales improved from the prior year as volumes,
particularly in the methanol market, were strong. Prices continued to be under
pressure in all product lines except methanol. Within the Specialties and
Advanced Materials segment, both Specialty Chemicals and Advanced Materials
improved from the prior year. In Specialty Chemicals, volume growth,
particularly in superabsorbent materials, printing products and electronic
products, offset lower domestic sales prices. Advanced Materials sales increased
as both volume and price were favorable compared to the first quarter of 1993.
Higher sales volume resulted from improved economic conditions in the United
States, changes in product mix and continued strong demand in the consumer
electronics market. Life Sciences sales improved due to higher volumes in
prescription pharmaceuticals and the animal health business. Pharmaceutical
sales volume increased due to sales by Copley Pharmaceutical, Inc. ("Copley")
as well as a planned reduction in wholesaler purchases during the fourth quarter
of 1993 versus prior years.
Selling, general and administrative expenses ("SG&A") decreased by $14
million, or 7%, versus the first quarter of 1993. SG&A was favorable due, in
part, to continuing cost containment measures. Chemicals includes an $8 million
net credit resulting from a verdict in a litigation. Research and development
expenditures increased from $58 million in 1993 to $66 million in 1994.
Increases occurred primarily in the Life Sciences and Advanced Technology
segments.
Operating income was $65 million in 1994 compared to $68 million in 1993.
Improvements in Specialties and Advanced Materials and Life Sciences were offset
by operating income reductions in Fibers and Film and Advanced Technology. In
Fibers and Film, operating income was lower as reductions in Technical Fibers
offset improvements in Textile Fibers and Polyester Resins and Films. In Textile
Fibers, higher sales and cost reduction efforts offset slightly higher raw
material cost. Technical Fibers operating income declined as lower sales were
only partially offset by similar cost containment efforts. Polyester Resins and
Films operating income improved over the comparable 1993 period as sales
increases were greater than the effects of higher raw material and other
manufacturing costs. Chemicals segment operating income was favorable to the
prior year as higher sales and lower SG&A offset increases in manufacturing
costs, the result of higher raw material costs and manufacturing facility
turnarounds. Specialty and Advanced Materials operating income was higher due to
the strong performance of the Advanced Materials group. Specialty Chemicals
operating income remained at 1993 levels as sales improvements were offset by
higher manufacturing costs. In Advanced Materials, higher manufacturing costs
slightly offset higher sales. In Life Sciences, operating income was favorable
to the comparable 1993 period, but still reflected a loss on the operating
income level. The improvement reflects not only the inclusion in 1994 of Copley,
but also a reduction in wholesaler purchases during the fourth quarter of 1993
versus prior years. Operating income is expected to improve during the second
half of 1994. Lower Advanced Technology operating income reflects an increase in
research and development expenditures.
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Part I--Financial Information
Item 2--Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Results of Operations (continued)
Interest expense increased by $7 million to $25 million. The increase is
attributable to the higher debt levels related to the purchase of a majority
share in Copley during the fourth quarter of 1993. Equity in net loss of
affiliates improved marginally from a loss of $3 million in 1993 to a loss of $2
million in 1994. The results continue to reflect the sluggish economies in both
Japan and Europe.
The effective tax rate increased to 37% in 1994 from 35% in 1993. The
increase is attributable to the increase in the statutory Federal tax rate and
the nondeductible costs associated with the acquisition of a majority share in
Copley.
Ratio of Earnings to Fixed Charges
The ratio of earnings to fixed charges declined from 3.0 for the 1993 first
quarter to 2.3 for the 1994 first quarter principally due to 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, income taxes and cumulative effect of accounting changes. 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 $191 million at March 31, 1994, increased $20
million from 1993 year-end. The increase resulted as net cash provided by
operating and financing activities of $110 million and $15 million,
respectively, more than offset expenditures for capital projects of $105
million.
In March, the Company paid its parent, Hoechst Corporation ("Parent"), a
$70 million dividend. During the first quarter, the Company issued $250 million
of 6-1/8% Notes due 2004 and sold $100 million of its medium-term notes. The
Company also received $40 million from the sale of tax exempt bonds to finance
the construction of pollution control facilities in South Carolina. As of March
31, 1994, the Company had $344 million of commercial paper outstanding. In
addition, the Company borrowed $72 million and repaid $751 million of debt under
the revolving credit agreement with its Parent. There was no outstanding balance
under this credit facility at March 31, 1994.
As of March 31, 1994, the Company had an aggregate $125 million outstanding
of its medium-term notes. The Company may sell from time to time up to an
additional $280 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.
9
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Part II--Other Information
Item 1--Legal Proceedings
Regarding the Pampa and the Kingsmill Texas State Court actions against the
Company described in Part I, Item 3 of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993, the following confidential
settlements have been finalized. In the Pampa case, all but 17 plaintiffs have
settled. In the Kingsmill case, all but one plaintiff have settled their claims.
Management believes that the remaining plaintiffs do not have significant
claims.
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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, 1994, 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 12, 1994
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