<PAGE>
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 June 30, 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
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.
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TABLE OF CONTENTS
PAGE
PART I--FINANCIAL INFORMATION
Item 1--Consolidated Financial Statements
Consolidated Balance Sheets - June 30, 1994 and
December 31, 1993.......................................... 3
Consolidated Statements of Earnings -
Three months ended June 30, 1994 and 1993.................. 4
Consolidated Statements of Cash Flows -
Three months ended June 30, 1994 and 1993.................. 5
Notes to Consolidated Financial Statements................... 6
Item 2--Managements Discussion and Analysis of Financial Condition and
Results of Operations....................................... 8
PART II--OTHER INFORMATION
Item 1--Legal Proceedings............................................ 11
Item 6--Exhibits and Reports on Form 8-K............................. 12
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
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
---------- -------------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 178 $ 171
Marketable securities............................................... 59 75
Net receivables..................................................... 1,298 1,336
Inventories (note 2)................................................ 1,115 1,024
Prepaid expenses.................................................... 67 37
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Total current assets.............................................. 2,717 2,643
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Investments in affiliates............................................. 358 342
Property, plant and equipment......................................... 4,904 4,762
Accumulated depreciation and amortization............................. (1,897) (1,761)
------- -------
Net property, plant and equipment..................................... 3,007 3,001
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Other assets.......................................................... 298 298
Excess of cost over fair value of net assets of businesses acquired... 1,602 1,633
------- -------
Total assets...................................................... $ 7,982 $ 7,917
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Commercial paper and current installments of long-term debt......... $ 374 $ 20
Accounts payable and accrued liabilities............................ 1,039 1,029
Dividend payable to parent.......................................... - 70
Notes and accounts payable, parent and affiliates................... 368 809
Income taxes payable................................................ 190 333
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Total current liabilities......................................... 1,971 2,261
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Long-term debt........................................................ 1,067 879
Deferred income taxes................................................. 15 52
Minority interests.................................................... 512 512
Other liabilities..................................................... 799 731
Stockholder's equity:
Common stock........................................................ - -
Additional paid-in capital.......................................... 2,856 2,769
Retained earnings................................................... 723 655
Unrealized holding losses........................................... (5) -
Cumulative translation adjustment................................... 44 58
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Total stockholder's equity........................................ 3,618 3,482
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Commitments and contingencies (note 3)
Total liabilities and stockholder's equity........................ $ 7,982 $ 7,917
======= =======
</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
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
(IN MILLIONS) (IN MILLIONS)
Net sales.......................................................... $1,976 $1,686 $3,588 $3,142
Cost of sales...................................................... 1,536 1,306 2,818 2,423
------ ------ ------ ------
Gross profit..................................................... 440 380 770 719
Selling, general and administrative expenses....................... 345 233 544 446
Research and development expenses.................................. 79 63 145 121
------ ------ ------ ------
Operating income................................................. 16 84 81 152
Equity in net earnings (loss) of affiliates........................ 1 (3) (1) (6)
Interest expense................................................... (31) (19) (56) (37)
Interest and other income, net..................................... 7 20 12 27
------ ------ ------ ------
Earnings before income taxes, minority interests and cumulative
effect of accounting changes..................................... (7) 82 36 136
Income taxes....................................................... (90) 20 (74) 39
------ ------ ------ ------
Earnings before minority interests and cumulative effect of
accounting changes............................................... 83 62 110 97
Minority interests................................................. 27 16 42 36
------ ------ ------ ------
Earnings before cumulative effect of accounting changes.......... 56 46 68 61
Cumulative effect of accounting changes, net of tax................ - - - (39)
------ ------ ------ ------
Net earnings..................................................... $ 56 $ 46 $ 68 $ 22
====== ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1 -- CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
HOECHST CELANESE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1994 1993
------ ------
(IN MILLIONS)
<S> <C> <C>
Operating activities:
Net earnings.......................................................... $ 68 $ 22
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Cumulative effect of accounting changes, net of tax................. - 39
Depreciation and amortization....................................... 240 216
Change in equity of affiliates...................................... 5 10
Tax provision less taxes paid....................................... (175) 16
Changes in operating assets and liabilities:
Net receivables................................................... 184 113
Inventories....................................................... 6 (129)
Prepaid expenses.................................................. (23) (20)
Accounts payable and accrued liabilities.......................... (63) (63)
Other, net........................................................ (26) (90)
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Net cash provided by operating activities....................... 216 114
------ -----
Investing activities:
Capital expenditures.................................................. (215) (285)
Redemption of Loan to Parent.......................................... - 176
Proceeds from sale of marketable securities........................... 57 24
Purchases of and investments in businesses and assets................. - (20)
Purchases of marketable securities.................................... (46) (20)
------ -----
Net cash used in investing activities........................... (204) (125)
------ -----
Financing activities:
Proceeds from long-term debt.......................................... 448 7
Proceeds from short-term borrowings................................... 2,276 959
Payments on long-term debt............................................ (272) (30)
Payments on short-term borrowings..................................... (2,369) (882)
Dividends paid........................................................ (70) (85)
------ -----
Net cash provided by (used in) financing activities............. 13 (31)
------ -----
Exchange rate changes on cash........................................... (18) 10
Net increase (decrease) in cash and cash equivalents.................. 7 (32)
Cash and cash equivalents at beginning of period........................ 171 213
------ -----
Cash and cash equivalents at end of period.............................. $ 178 $ 181
====== =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for: Interest, net of amount capitalized... $ 78 $ 39
Income taxes.......................... 101 21
</TABLE>
See Note 1 for additional information on noncash activities.
See accompanying notes to consolidated financial statements.
5
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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 six month period ended June 30, 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.
Effective January 1, 1994, Hoechst AG and Schering Berlin ("Schering")
formed a worldwide joint venture to manufacture and sell agricultural
chemicals. In North America a joint venture was formed, AgrEvo USA Company
("AgrEvo"), through Agri-Vet Inc., a wholly owned subsidiary of the Company,
and through NOR-AM Chemical Company, a wholly owned subsidiary of Schering.
The Company's contribution to the joint venture consisted of its former U.S.
and Hoechst Canada, Inc.'s ("HCI") former Canadian crop protection
businesses in exchange for a 60% interest. Schering's contribution consisted
of its former U.S. crop protection business in exchange for a 40% interest.
As of June 30, 1994 and for the six months then ended the effect on the
Company's financial statements was to increase Net sales, Operating income,
and Net earnings by $140 million, $16 million and $9 million, respectively.
Also effective January 1, 1994 Hoechst Corporation agreed to increase its
investment in the Company by contributing the shares of HCI to the Company,
which resulted in an $87 million increase in Additional paid-in capital. HCI
is involved in various industries including industrial chemicals, colorants,
pharmaceutical production and crop protection. As discussed above, HCI's
crop protection business was contributed to the AgrEvo joint venture. The
Company consolidated the remainder of HCI, after the contribution of its
crop protection business to AgrEvo. As of June 30, 1994 and for the six
months then ended, the effect on the Company's financial statements was to
increase Net sales, Operating income and Net earnings by $45 million, $1
million and $1 million, respectively.
(2) INVENTORIES
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
-------- ------------
(IN MILLIONS)
<S> <C> <C>
Finished goods.............................. $ 811 $ 600
Work-in-process............................. 134 144
Raw materials and supplies.................. 237 340
------ ------
Subtotal................................... 1,182 1,084
Excess of current costs over stated values.. (67) (60)
------ ------
Total inventories.......................... $1,115 $1,024
====== ======
</TABLE>
6
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1 -- CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 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.
7
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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
Sales for the first six months of 1994 increased by 14% to $3,588 from $3,142
for the comparable 1993 period, and sales for the second quarter of 1994
increased by 17% to $1,976 from $1,686 in 1993. Sales for the first six months
of 1994 included $226 million and sales for the second quarter of 1994 included
$207 million related to the consolidation of Copley Pharmaceutical, Inc.
("Copley"), Hoechst Canada, Inc. ("HCI") and AgrEvo USA Company ("AgrEvo") (see
below). The Fibers and Film segment sales were higher for the second quarter and
six months versus the comparable 1993 periods. Textile Fibers sales were higher
for the six-month period, but lower for the quarter. Year-to-date and second
quarter volumes improved over the comparable periods in 1993, particularly in
polyester staple. However such volume increases did not totally offset lower
polyester staple prices. Technical Fibers sales declined both for the second
quarter and six-month periods due primarily to market softness and price
decreases in cellulosic tow products, as a result of worldwide oversupply.
Polyester Resins and Films had strong sales gains for both the six months and
second quarter as demand increased in all product lines, especially polyethylene
terephtalate resins. Chemicals segment sales improved both for the six-month
period and the second quarter versus the comparable 1993 periods. Volumes
remained strong in all product lines and improved most notably in methanol,
acetyls and formaldehyde products due in large measure to improvements in the
U.S. economy. Although prices were lower for the six-month period, second
quarter prices, particularly methanol, were higher in 1994 versus 1993. In the
Specialties and Advanced Materials segment, sales were improved for both
periods. Specialty Chemicals sales improved for the six months, but were lower
in the second quarter versus the prior year. Specialty Chemicals volumes
increased for the six-month period, most notably in pigments, due to strong
demand in the paint and plastics industries, and in superabsorbents, due to
continued strong market demand. Dyes volumes were lower as demand continued to
be weak in the fleecewear market. Prices were lower in both periods versus the
prior year due to competition in the dyes and superabsorbents markets. Advanced
Materials sales were up both for the six months and the second quarter as
volumes were favorable in both periods, due principally to continuing strength
in the automotive and consumer electronics markets. Prices remained relatively
stable. Life Sciences segment sales improved for both the six months and the
second quarter due in part to the introduction of new products in the animal
health area, sales from Copley (in which the Company acquired a majority share
in November 1993), and incremental sales related to the crop protection joint
venture with AgrEvo (see below).
Selling, general and administrative expenses ("SG&A") were higher versus the
comparable 1993 periods due principally to a charge of $70 million, net of
estimated insurance recoveries. This charge was based on a review by the Company
of its exposure to product liability claims, together with a recent settlement
relating to acetal copolymer resin sold to other companies who manufactured
fittings used in plumbing systems. (For more information, see the Company's
annual report on Form 10-K for the year ended December 31, 1993.) Excluding the
charge discussed above, SG&A was marginally higher for the quarter and the six
months. Research and development expenses increased by $16 million and $24
million for the quarter and six months, respectively. Increases were primarily
in the Life Sciences and Advanced Technology segments.
Excluding the charge of $70 million discussed above, operating income was
virtually unchanged from the prior year for both the quarter and year-to-date
periods. Improvements in the Chemicals, Life Sciences and Specialties and
Advanced Materials segments were offset by lower operating income in the Fibers
and Film segment and higher research and development costs in the Advanced
Technology segment. Higher operating income in Polyester Resins and Films for
both periods and in Textile Fibers for the six months were not enough to offset
lower operating income in Technical Fibers. In Textile Fibers, higher sales and
lower plant fixed manufacturing costs, resulting from prior restructuring
efforts, were only partially offset by higher raw material costs. In Technical
Fibers, lower manufacturing
8
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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)
costs, the effect of aggressive cost reduction measures, were not sufficient to
offset the effect of lower sales. Polyester Resins and Films operating income
improved as sales increases were greater than the effect of higher raw material
prices, principally para-xylene, and higher fixed manufacturing costs. The
Chemicals segment operating income improved in both periods as higher sales
offset the effects of higher raw material costs, principally in natural gas and
ethylene. Specialties and Advanced Materials operating income was higher for the
six months, but lower for the quarter as improvements in Advanced Materials were
reduced by declines in Specialty Chemicals for both periods. Specialty Chemicals
operating income declined for the six months as higher sales were offset by
higher manufacturing costs. The decline in second quarter operating income was
the result both of marginally lower sales and higher manufacturing costs. In
Advanced Materials, although manufacturing costs were higher, operating income
was favorable for both periods due to higher sales revenue and lower SG&A
costs. In Life Sciences, operating income was favorable to the comparable 1993
periods, but still reflected a loss on the operating income level. The
improvement reflects the inclusion in 1994 of Copley, HCI and AgrEvo as well as
a reduction in wholesaler purchases during the fourth quarter of 1993 versus the
prior year. Lower Advanced Technology operating income reflects an increase in
research and development expenditures.
Interest expense increased by $12 million and $19 million for the quarter and
six months, respectively. 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 the net earnings (loss) of affiliates improved as the
economies in both Japan and Europe are beginning to improve as well as increased
earnings in BHC Company in which the Company owns a 50% interest.
The Company made certain estimates in previous periods in providing for income
taxes. Based on more current information, the Company has changed such
accounting estimates giving rise to a tax benefit of $63 million. The effective
tax rate for the second quarter and six-month period decreased from the
comparable 1993 periods due principally to this benefit and to losses
experienced in the United States which represent a larger portion of
consolidated earnings and are taxed at higher rates.
Effective January 1, 1994, Hoechst AG and Schering Berlin ("Schering") formed
a worldwide joint venture to manufacture and sell agricultural chemicals. In
North America a joint venture was formed, AgrEvo USA Company ("AgrEvo"), through
Agri-Vet Inc., a wholly owned subsidiary of the Company, and through NOR-AM
Chemical Company, a wholly owned subsidiary of Schering. The Company's
contribution to the joint venture consisted of its former U.S. and HCI's former
Canadian crop protection business in exchange for a 60% interest. Schering's
contribution consisted of its former U.S. crop protection business in exchange
for a 40% interest. As of June 30, 1994 and the six months then ended, the
effect on the Company's financial statements was to increase Net sales,
Operating income, and Net earnings by $140 million, $16 million, and $9 million,
respectively.
Also effective January 1, 1994 Hoechst Corporation agreed to increase its
investment in the Company by contributing the shares of HCI to the Company. HCI
is involved in various industries including industrial chemicals, colorants,
pharmaceutical production and crop protection. As noted above, HCI's crop
protection business was contributed to the AgrEvo joint venture. The Company
consolidated the remainder of HCI, after the contribution of its crop protection
business to AgrEvo. As of June 30, 1994 and the six months then ended, the
effect on the Company's financial statements was to increase Net sales,
Operating income and Net earnings by $45 million, $1 million and $1 million,
respectively.
9
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the second quarter and six months
of 1994 was 0.8 and 1.5, respectively, compared to 3.9 and 3.4 for the 1993
periods. The decline for both periods was the result of lower earnings from
operations and 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 $178 million on June 30, 1994 represented an
increase of $7 million from December 31, 1993. The increase resulted as net cash
provided by operating and financing activities of $216 million and $13 million,
respectively, more than offset expenditures for capital projects of $215
million.
During the first six months, the Company issued $250 million of 6 1/8% Notes
due 2004 and sold $150 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. In June of 1994,
the Company exercised its option to redeem all of the $250 million 9.45% Notes.
The funding requirements for the redemption was met through a loan from Hoechst
AG. In addition, the Company borrowed $72 million and repaid $751 million of
debt under the revolving credit agreement with its parent, Hoechst Corporation.
There was no outstanding balance under this credit facility as of June 30, 1994.
The Company had $327 million of commercial paper outstanding at the end of the
second quarter. In March, the Company paid Hoechst Corporation a $70 million
dividend.
As of June 30, 1994, the Company had an aggregate $175 million outstanding of
its medium-term notes. 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.
10
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PART II -- OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
Regarding the Plumbing 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, certain events have occurred.
In May 1994, United States Brass Corporation ("U.S. Brass") (formerly a wholly
owned subsidiary of Household International, Inc., "Household") and one of the
companies primarily responsible for the design and manufacture of the
polybutylene plumbing systems at issue, filed for chapter 11 protection in
bankruptcy court in Sherman, Texas. This filing and several related motions
stayed any further proceedings against U.S. Brass and Household in the Plumbing
Actions. Defendants Hoechst Celanese and Shell Oil Company ("Shell") have
removed virtually all of the pending Plumbing Actions to federal court, with the
object of transferring them to and consolidating them in the Sherman, Texas
bankruptcy court. Many of the cases have been transferred. However the federal
court in California remanded the California cases to the original state court.
The bankruptcy court in Texas has not ruled on whether the Texas actions will be
remanded to the Texas courts.
In July, 1994, Shell and the Company agreed to a confidential settlement of
cases involving approximately 11,000 housing units, with one of the major Texas
plaintiff lawyers. The ultimate allocation of the settlement amount between
Shell and HCC has yet to be determined.
Regarding the consent order with the City of Mount Holly, North Carolina
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 parties have agreed in June 1994 to a
settlement of the matter whereby the Company will make an unrestricted cash
payment of $14,250 and a payment of $57,000 to be used for a project to be
selected by the City.
Reference is made to Part II, Item 1 - Legal Proceedings of the Company's
report on Form 10-Q for the quarterly period ended March 31, 1994 for a
discussion of the finalization of confidential settlements in the Pampa and the
Kingsmill Texas State court actions against the Company.
11
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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 June 30, 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
August 15, 1994
12
