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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 [Fee Required]
For the Fiscal Year ended December 31, 1994
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required]
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 202-06
Bridgewater, New Jersey 08807
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 231-2000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ X ]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. All voting stock is held by an affiliate of the registrant.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. As of March 1, 1995
there were 10,000 shares of Hoechst Celanese Corporation common stock
outstanding. All of such shares are owned by the registrant's parent, Hoechst
Corporation.
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NOTE: Unless the context otherwise requires, when used in this 1994 Annual
Report on Form 10K ("l0-K") "Hoechst Celanese" and the "Company" includes
the consolidated corporation or any one or more of its subsidiaries,
divisions or joint ventures, as applicable.
TABLE OF CONTENTS
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ITEM PAGE
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PART I
1. Business................................................................. 1
2. Properties............................................................... 9
3. Legal Proceedings........................................................ 10
4. Submission of Matters to a Vote of Security Holders...................... 13
PART 11
5. Market for Registrant's Common Equity and Related Stockholder Matters.... 14
6. Selected Financial Data.................................................. 14
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................ 14
8. Financial Statements..................................................... 22
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..................................................... 46
PART III
10. Directors and Executive Officers of the Registrant...................... 46
11. Executive Compensation.................................................. 49
12. Security Ownership of Certain Beneficial Owners and Management.......... 52
13. Certain Relationships and Related Transactions.......................... 52
PART IV
14. Exhibits and Reports on Form 8-K........................................ 53
(i)
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PART I
ITEM 1. BUSINESS
The Company
The Company was formed in 1918 and was renamed Hoechst Celanese Corporation
in February 1987. 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
pharmaceuticals; prescription drugs; crop protection products; veterinary
pharmaceuticals and animal-feed additives; engineering plastics; polyethylene;
presensitized offset printing plates; dyes and pigments; and polyester film. The
Company's operations are currently segmented as follows: Chemicals; Fibers and
Film; Specialties and Advanced Materials (comprised of the Advanced Materials
Group and Specialty Chemicals Group); Life Sciences and Advanced Technology.
The Company is wholly owned by Hoechst Corporation, which in turn is wholly
owned by Hoechst Aktiengesellschaft ("Hoechst AG"), a large chemical company
headquartered in Frankfurt, Federal Republic of Germany. Hoechst AG and its
consolidated entities (the "Hoechst Group") consist of over 320 companies. The
Hoechst Group operates in more than 120 countries. The Hoechst Group's sales in
1994 were approximately $30.6 billion. See "Certain Relationships and Related
Transactions." The Hoechst Group is one of the largest manufacturers of
prescription drugs and one of the four largest producers and marketers of
chemicals and chemical-related products in the world.
Effective January 1, 1994. Hoechst AG and Schering Berlin Inc. ("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 NOR-AM
Chemical Company. a wholly owned subsidiary of Schering. The Company's
contribution to the joint venture consisted of its former United States and
Hoechst Canada Inc.'s ("HCI") former crop protection business in exchange for a
60% interest. Schering's contribution consisted of its former United States crop
protection business in exchange for a 40% interest.
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 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.
In November 1993, the Company acquired 52.96% of the outstanding shares of
Copley Pharmaceutical, Inc. ("Copley"), a generic drug manufacturer, in a tender
offer for an aggregate purchase price of $546 million.
The Company's principal executive offices are located at 1041 Route 202-
206, Bridgewater, New Jersey 08807; its mailing address is Route 202-206, Post
Office Box 2500, Somerville, New Jersey 08876-1258; and its telephone number is
(908) 231 -2000.
Description of Business Segments
Chemicals Segment
This segment consists of Hoechst Celanese Chemical Group, Inc. ("HCCGI"),
the chemical operations of Celanese Mexicana, S.A. ("Celmex") which effective
January 1, 1995 has changed its name to Grupo Celanese S.A. and the chemical
operations of Celanese Canada Inc. ("Celanese Canada"), approximately 56% owned
by the Company. The Company entered the petrochemical field in the United States
in 1945, primarily to obtain supplies of
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acetic acid and related chemical raw materials for its fibers operations. As its
internal chemical usage expanded and additional products were developed, the
segment began selling chemicals to others. This segment employs approximately
3,900 people and produces more than 60 different chemicals.
The segment produces chemicals by upgrading hydrocarbons such as ethylene,
propylene, natural gas and butane. The hydrocarbon raw materials are purchased
on the open market, principally under long-term contracts.
The major chemicals produced fall into two broad product groups: (1)
methyl chemicals, oxo-alcohols and solvents; and (2) acetyl chemicals, monomers
and ethylene oxide/glycol. Methyl chemicals are principally used in plastics,
polyesters, adhesives, solvents, synthetic lubricants, fuel additives and
coatings. Ethylene oxide/glycol, oxo-alcohols and solvents are principally used
in surfactants, coatings, rocket propellants, antifreeze, herbicides and
polyesters. Monomers and acetyl chemicals are primarily used in water-based
paints, adhesives, textile finishes, paper coatings, manufactured fibers,
pharmaceuticals, herbicides and plastics.
With respect to substantially all of its major products, this segment is
either the largest or second largest United States merchant market supplier.
Other major United States producers are: of methyl chemicals, Borden, Inc.,
duPont de Nemours & Co., Inc. ("duPont"), Georgia-Pacific Corporation and
Hercules Incorporated; of alcohols, duPont, Eastman Chemical Products, Inc.
("Eastman"), Shell Oil Company and Union Carbide Corporation; and of monomers
and acetyl chemicals, BASF, duPont, Eastman, Quantum Chemical Corporation, Rohm
and Haas Co. and Union Carbide Corporation.
Celmex is the sole or a major Mexican producer of a variety of products
including vinyl acetate, acetic acid, acetic anhydride, acrylates, and phthalic
anhydride. A substantial portion of the chemical production of Celmex is sold in
the export market, in competition with world producers.
Celanese Canada is the sole or a major Canadian producer of acetic acid,
acetic anhydride, formaldehyde, pentaerythritol and vinyl acetate monomer. A
substantial portion of the chemical production of Celanese Canada is sold in the
export market, in competition with world producers. Celanese Canada operates a
world scale methanol unit at its Edmonton plant site in Alberta. The methanol
operation is owned by Celanese Canada and the Company. Methanex Corporation is
the dominant Canadian producer of methanol.
As of December 1, 1994, Valero Energy Corp. and HCCGI have formed a 50/50
joint venture to restart the Clear Lake methanol unit which has been idle for
several years. Operations are expected to commence by late 1995.
Utilizing both acquired and internally developed technology, the segment
is continually working to upgrade its chemical processes to improve energy, raw
material and capital utilization. By producing a number of its major chemicals
at different plant locations, the segment attempts to avoid or minimize the
effect of production disruptions at any one location.
Fibers and Film Segments
This segment is comprised of the following business areas: Textile Fibers,
Technical Fibers and Polyester Resins and Films. The Fibers and Film segment
employs approximately 16,400 people and operates plants in the United States and
abroad. The major product lines include: polyester staple, filament, resins,
monofilament, spunbond and film; acetate filament and tow; purified terephthalic
acid ("PTA"); dimethylterephthalate ("DMT") and polybenzimidazole ("PBI"). The
Company is one of the largest producers of manufactured fibers in the United
States. It is also one of the leading producers of polyester film. The Company
conducts research and development, manufactures, markets and sells a combination
of branded and unbranded resins, fibers and film products for a wide variety of
end uses. The Company sells most of its fibers and yarns directly to textile
mills, tire manufacturers, cigarette makers and other intermediate processors.
Among the internationally registered trademarks are: Trevira(R), Celebrate!(R),
Hostaphan(R) and Trespaphan(R).
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Polyester staple and filament, commonly recognized by their Trevira(R)
trademark, are principally used in wearing apparel, upholstery, floor coverings,
home furnishings, and woven and non-woven fabrics. Polyester staple and filament
are also used in tires, belts, hoses, thread and plastic reinforcements.
The Company is one of the largest producers in the United States of
cellulose acetate products. Cellulose acetate flake is produced for sale or
conversion to acetate tow for use in cigarette filters and to filament used in
apparel and industrial applications. Polyester monofilament is used in zippers,
conveyor belting and dryer and forming screen applications in the paper
industry. Roofing and geotextile applications are the primary end uses for
polyester spunbond. Polyester resins are primarily used in beverage,
pharmaceutical and other containers and for the manufacture of polyester fibers.
Hostaphan(R) polyester film, manufactured by the Company, is used in many
consumer products including audio, video and computer tape; food packaging;
solar window film; labels and decals; graphic arts film; photoresist; and other
electronics applications. Trespaphan(R) polypropylene film is imported for
resale from other companies in the Hoechst Group and is used in packaging,
capacitors, pressure sensitive tape and electric motor insulators.
The key raw materials used by the Fibers and Film segment in production are
either supplied internally or purchased on the open market, generally under
long-term contracts. Polyester fibers are produced from PTA or DMT, which are
either purchased from other suppliers or produced by the Company, and ethylene
glycol which is purchased from other suppliers and is also produced by the
Company. Acetate fibers are made principally from acetic anhydride produced
mainly by the Company and from wood pulp purchased by the Company. See "Raw
Materials and Energy."
Major manufactured polyester and acetate fibers competitors include:
Allied-Signal, Inc., duPont. Eastman. ICI Americas, Inc. ("ICI"), Rhodia AG and
Wellman, Inc.
Major United States and foreign polyester film producers include: duPont,
ICI, Toray Industries (America), Inc. and Teijin America, Inc. Competing
producers of PTA and DMT in the United States are Amoco Chemicals Corporation
and duPont, respectively.
Celmex is the sole or a major Mexican producer of a variety of products
including polyester high denier industrial yarn, industrial staple, textile
filament, polyester staple, textile nylon filament, industrial nylon filament,
cellulose acetate flake, yarn, cigarette filter tow, polyester bottle resin,
laminated and printed film and bioriented polypropylene. Celanese Canada is the
sole or a major Canadian producer of a variety of products including polyester,
textile staple, carpet staple, cellulose acetate filament yarn, cellulose
acetate flake and cigarette filter tow. A substantial portion of the fibers
production of both Celmex and Celanese Canada is sold in export markets in
competition with world producers.
The Company (owning approximately a 30% interest) and China National
Tobacco Company are involved in a joint venture that manufactures cellulose
acetate flake and tow for cigarette filters. Two more joint venture
manufacturing sites for cellulose acetate tow are under construction and are
expected to come on stream in late 1995 and early 1996. They are located at
Kunming and Zhuhai, People's Republic of China.
Specialties and Advanced Materials Segment
This segment consists of the Advanced Materials Group and Specialty
Chemicals Group. This segment employs approximately 4,000 people and produces,
imports and sells a wide variety of specialty products.
Advanced Materials Group. The Advanced Materials Group produces a variety
of high-performance engineering thermoplastics, including acetal copolymer sold
under the trademarks Celcon(R) and Hostaform(R), Celanese(R) nylon 6/6 resins,
thermoplastic polyester sold under the trademarks Celanex(R) and Impet(R),
liquid crystal polymers sold under the trademark Vectra(R), long fiber-
reinforced thermoplastics sold under the trademark Celstran(R) and
thermoplastic alloys sold under the trademark Vandar(R), as replacements for
metals and other plastics in a wide variety of
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end uses. The Group's product lines also include Hostalen(R) GUR, ultra high
molecular weight polyethylene. The Company produces the basic raw materials for
Celcon(R), Celanex(R), Impet(R) and Vandar(R) resins and purchases them for
Celanese(R) nylon 6/6 and Vectra(R) and Celstran(R) resins. Other major United
States producers of one or more similar engineering thermoplastics are duPont,
General Electric Company and BASF. The Group also resells and compounds
Hostaflon(R) fluoropolymers manufactured by Hoechst AG through its wholly owned
subsidiary Custom Compounding, Inc. The Company participates in Fortron
Industries, a joint venture (with a 50% interest; Kureha Chemical Industry Co.,
Ltd. ("Kureha") having a 50% interest). The joint venture operates a plant to
manufacture Fortron(R) polyphenylene sulfide. Since 1987, the Company has
marketed Fortron(R) which is manufactured by Kureha in Japan and by Fortron
Industries in the United States.
The Company participates in Polyplastics Co., Ltd. (with a 45% interest;
Daicel Chemical Industries, Ltd. having a 55% interest) which produces and sells
acetal copolymer, thermoplastic polyester resins and other polymeric products.
Specialty Chemicals Group. This Group's product lines include: textile
dyes, organic pigments, colorant and additive masterbatches, resins, sodium
hydrosulfite, surfactants, and other specialty chemicals which are mainly used
in the textile, ink, pulp and paper, paint, coatings, plastics, personal care,
detergent and food processing industries; organic intermediates used for
synthesis of dyes, pigments, pharmaceuticals, cosmetics, agricultural chemicals,
photochemicals, plastics, adhesives, and other chemical products; inorganic
chemicals sold for broad industrial use, including pharmaceuticals, electrical
and battery equipment and oil drilling; superabsorbent polymers used in personal
care products; waxes and lubricants used for polish and plastics processing
applications; a complete range of color proofing and printing-plate systems for
the graphic arts industry; and liquid photoresists and ancillaries used in the
manufacture of microchips for computers and other electronic devices. Among
internationally registered trademarks are: Remazol(R) dyes; Genapol(R) and
Hostapon(R) surfactants; Sanwet(R) superabsorbent polymers (a registered
trademark of Sanyo Chemical Industries, Ltd. licensed to the Company); and AZ(R)
liquid photoresist.
Life Sciences Segment
This segment consists of Hoechst-Roussel Pharmaceuticals Inc. ("HRPI"),
Copley, Bulk Pharmaceuticals and Intermediates ("BPI") which includes the
Pharmaceutical Production Division ("PPD"), Hoechst-Roussel Agri-Vet Company
("HRAVC"), and AgrEvo. This segment employs approximately 3,500 people. Its
operations encompass the research and development, production and marketing of
branded and generic prescription drugs, bulk pharmaceutical chemicals,
veterinary pharmaceutical products, animal-feed additives and crop protection
products.
HRPI. The Company's prescription drug business is conducted through HRPI, a
majority-owned subsidiary. HRPI has two classes of common stock: Class R and
Class H Common Stock. Class R Common Stock has 20% of the total voting rights
and is owned entirely by Roussel-Uclaf, S. A. ("RU"), a French pharmaceutical
company which is majority owned by Hoechst AG. Class H Common Stock has 80% of
the total voting rights and is owned entirely by the Company.
The major products of HRPI are prescription drugs which are promoted by its
field sales force to health professionals in physicians' offices, pharmacies,
hospitals, group purchasing organizations and managed care organizations. Major
products include: Altace/TM/ (ramipril), Claforan(R) (cefotaxime sodium),
DiaBeta(R) (glyburide), Lasix(R) (furosemide), Loprox(R) (ciclopirox olamine),
Topicort(R) (desoximetasone), Dermatop(R) (prednicarbate) and Trental(R)
(pentoxifylline).
Altace/TM/ is an ACE-inhibitor antihypertensive. Claforan(R) is an
antibiotic used in the treatment of serious infectious diseases. DiaBeta(R) is
an oral antidiabetic. Lasix(R) is a diuretic used for the mobilization of edema
of varied origin. Loprox(R) is a topical antifungal. Topicort(R) is a high
potency topical corticosteriod anti-inflammatory. Dermatop(R) is a mid-potency
topical corticosteroid anti-inflammatory. Trental(R) is a hemorrheologic agent
to relieve intermittent claudication (leg cramping pain associated with
peripheral arterial disease).
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HRPI's major competitors include: for ACE-inhibitor antihypertensive, Merck
& Co., lnc. and Bristol Myers Squibb; for diuretics, Merck & Co., Inc.,
SmithKline Beecham PLC and Hoffman-LaRoche Inc.; for oral antidiabetics, The
Upjohn Company and Pfizer Inc.; for vasotherapeutics, Sandoz Corporation; for
third generation cephalosporin antibiotics, Hoffman-LaRoche Inc., Glaxo, Inc.,
and Eli Lilly & Company; and for dermatologicals, Syntex Laboratories, Inc. and
Schering-Plough Corporation.
Active ingredients for HRPI's major products are produced by PPD or
imported from Hoechst AG or RU. Formulation and packaging of most products are
performed in the United States by HRPI under strict manufacturing practices
governed by the United States Food and Drug Administration (the "FDA"). Other
products are imported from companies in the Hoechst Group and are subject to the
same FDA regulations.
HRPI conducts research concentrated on the discovery of compounds which act
on the central nervous system (e.g., Alzheimer's disease and schizophrenia) and
those which treat diseases of the skin. At this time, HRPI is awaiting approval
from the FDA of five new drug products. Approximately nine additional products
are in clinical investigation under FDA Investigational New Drug Applications.
Copley. The Company's generic drug business is conducted through its
participation in Copley. Copley develops, manufactures and markets a broad range
of off-patent prescription and over the-counter pharmaceuticals. Additionally,
Copley will market off-patent generic versions of certain drugs marketed by
HRPI.
BPI is a supplier of bulk analgesics, pharmaceutical bulk actives and
pharmaceutical intermediates. The Company participates in BHC Company ("BHC")
(with a 50% interest; Boots Company PLC having a 50% indirect interest) which
manufactures and markets bulk ibuprofen. BHC's major competitor is Ethyl
Corporation. BPI also manufactures acetaminophen for which its major competitors
include Mallinckrodt Corporation and Rhone-Poulenc Corporation. PPD produces and
supplies HRPI with active ingredients for DiaBeta(R), Lasix(R), Topicort(R); and
Trental(R) products.
HRAVC. HRAVC is a partnership between a wholly owned subsidiary of the
Company (50%) and Uclaf Corporation (50%), which is indirectly wholly owned by
RU. HRAVC is involved in developing and marketing animal health products.
HRAVC's animal health products consist primarily of veterinary pharmaceuticals
and animal-feed additives. HRAVC's products are promoted by a field sales force
and primarily marketed through distributors. Animal health products are
manufactured under tolling arrangements with HRPI and in some cases other toll
manufacturers. The active ingredients for these products arc imported from other
companies in the Hoechst Group.
AgrEvo. AgrEvo is a partnership between a wholly owned subsidiary of the
Company (60%) and NOR-AM Chemical Company (40%), which is owned directly by
Schering Berlin Inc. AgrEvo is involved in developing and marketing crop
protection products. AgrEvo' s crop protection products are used with many of
the important crops in the United States such as cereals, sugar beets, cotton,
rice and tree fruits.
Advanced Technology Segment
This segment consists of the Advanced Technology Group and includes
research and development costs to seed and develop new businesses. These costs
are not borne by any group and are shown separately. Emerging businesses are
primarily based on products or processes that have been developed by the Company
or other companies in the Hoechst Group. This segment employs approximately 640
people.
Research and Development
The Company conducts research and development both independently and
jointly with Hoechst AG and, additionally, has been a party to a broad research
and development cost-sharing agreement with Hoechst AG since January 1, 1988.
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The Company is continuing to expand its own research and development
activities in areas where specific developments for the United States market
increase the Company's competitiveness.
Research and development costs are included in expenses as incurred. The
Company's research and development costs for 1994, 1993 and 1992 were $313
million, $258 million and $262 million, respectively. Management intends to
maintain the Company's research and development expenditures in 1995 at
approximately the same level as 1994.
At December 31, 1994, approximately 2,000 employees, including
approximately 1,000 professionals, were engaged in basic and applied research
and development at the Company. These individuals work in coordination with the
Hoechst Group's research and development personnel in the Federal Republic of
Germany and other parts of the world. The Hoechst Group in turn has access to a
significant portion of the Company's technology, know-how and patent rights. The
Hoechst Group is one of the leading research-oriented chemical companies in the
world, employing approximately 15,500 persons in its various research and
development laboratories. Research and development expenditures of the Hoechst
Group amounted to approximately $2.1 billion in 1994. Based on individual
license agreements and the cost-sharing agreement, the Company has access to a
significant portion of the Hoechst Group's technology, know-how and patent
rights for the United States and other markets, including licenses for new
developments.
The Company's United States research and development facilities are located
in Auburn Hills, Michigan (automotive plastic applications); Branchburg, New
Jersey (photoresists); Bridgewater, New Jersey (pharmaceuticals); Charlotte,
North Carolina (textile and technical fibers, specialty chemicals, separations
products and polyester resins); Corpus Christi, Texas (chemicals, pharmaceutical
intermediates and bulk actives); Coventry, Rhode Island (organic intermediates,
dyes, pigments and specialty chemicals); Greer, South Carolina (polyester film);
Winona, Minnesota (advanced materials); Florence, Kentucky (advanced materials);
Portsmouth, Virginia (superabsorbent polymers) and Summit, New Jersey (advanced
materials, polymers and engineering plastics).
Marketing and Competition
The Company's products are generally sold in the United States directly or
through distributors or agents. Foreign subsidiaries and affiliates sell
principally through local sales personnel or agents. With the exception of
products sold by the Life Sciences segment, the principal customers worldwide
are other manufacturers which use the Company's products in a wide variety of
industrial and consumer products. Products sold by the Life Sciences segment are
primarily sold through wholesalers and distributors.
In general, the Company sells its products in highly competitive worldwide
markets. The number of competitors in a market or country and the Company's
competitive position vary widely with the products and countries involved. See
specific discussion of competitors in "Description of Business Segments". There
is growing competition from private and state-owned industries in certain
foreign countries in which there is an abundance of low-cost labor or raw
materials. This competition has a direct or indirect effect on many product
lines. For example, in the area of textile fibers, business is impacted by
fabric and apparel imports into the United States, Canada and Mexico,
particularly from the Far East. Depending upon the characteristics of the
particular market, the Company competes on the basis of price, product quality
and performance, technical support and customer service. Within the Chemicals
and Fibers and Film segments, the Company competes primarily on the basis of
price, product quality and performance. In general, Specialties and Advanced
Materials products are sold based on product performance, technical support and,
to a lesser extent, price. Life Sciences products compete based on product
performance as well as technical support and expertise. The Company's business
is affected to some degree by seasonality in the industries of its customers
such as automotive, housing, agriculture, printing and textiles.
The business is also sensitive to changes in the world economy, including
changes in currency exchange rates. Operations outside the United States are
subject to the economic and political risks inherent in the countries in which
they operate. Additionally, the export and domestic markets can be affected
significantly by import laws and regulations and energy cost differentials.
During 1994, the Company's export sales from the United States were 12.9% of
consolidated net sales.
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Indirect marketing activities of the Company are extended through technical
and educational services, advertising and promotion. These activities reach each
level of the manufacturing and distribution system, as well as consumers of
apparel, home furnishings and industrial products. Product development and
technical service personnel supplement direct sales efforts by assisting
customers in using existing products and developing new ones.
Raw Materials and Energy
Most of the Company's products are made by chemically processing and
upgrading several basic types of raw materials including petroleum hydrocarbons
and derivatives, natural gas, woodpulp and aluminum. These derivatives include
ethylene and paraxylene, which are primarily supplied by major United States and
Canadian oil companies. Raw materials are purchased from affiliated and non-
affiliated suppliers throughout the world.
The Company's production facilities rely largely on coal, fuel oil, natural
gas and electricity for energy.
The Company currently has adequate supplies or access to sources of all
purchased raw materials and energy for the foreseeable future. The Company does
not consider itself dependent upon any one supplier for a material amount of its
raw material or fuel purchases. However, in the United States, woodpulp (a raw
material for cellulosics) is largely obtained from two suppliers, and Cape
Industries, which effective January 1, 1995 changed its name to Hoechst Celanese
Polyester Intermediates, is the sole supplier of DMT and is one of two suppliers
of PTA used in the production of polyester. Celmex purchases the majority of its
raw materials from Petroleos de Mexico.
In addition, some active ingredients and other raw materials used by the
Life Sciences segment, as well as the Specialty Chemicals and Advanced
Technology Groups, are supplied by other companies in the Hoechst Group.
Government Regulations
The pharmaceutical, agricultural and veterinary industries in the United
States have for many years been subject to extensive regulations by the Federal
government and to an increasing extent by state agencies, primarily as to
product efficacy, safety, advertising and labeling. The general trend is toward
more stringent regulations. Such regulations affect the cost of developing and
marketing products.
The Company believes it is in substantial compliance with all
environmental, health and safety regulations and continues to devote attention
to the health and safety of its employees and the protection of the public
health and the environment in the regions where it operates. Such compliance has
not had an adverse effect on the Company's competitive position or business. The
Company cannot predict the effect of regulations which may be adopted in the
future by governmental bodies responsible for air, water and solid waste
pollution controls and employee and community health and safety.
In November 1990, Congress passed, as part of the Omnibus Budget
Reconciliation Act, legislation requiring pharmaceutical manufacturers to extend
rebates to state Medicaid agencies based on each state's reimbursement of
pharmaceutical products under the Medicaid program effective January 1, 1991.
Medicaid rebates and related state programs reduced net sales and operating
income by $36 million in 1994, $26 million in 1993 and $24 million in 1992.
Patents and Licenses
The Company owns, or is licensed under, more than 4,500 patents relating to
its products and manufacturing processes, some of which are important to
specific commercial operations. No single patent or group of patents is
considered material to the business as a whole. The Company's principal licenses
are either continuing licenses from third parties or relate to patents and know-
how owned by other companies in the Hoechst Group. Generally in the latter
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cases, the licenses require no specific payment because, overall, the research
and development costs have been shared. In cases where license fees are involved
with the Hoechst Group, they are generally based on percentages of sales and do
not require minimum payments. Management believes that the terms of such license
agreements are similar to those competitively negotiated between unrelated
parties.
The Company has developed and acquired technical information and owns
patents in the chemicals, fibers, life sciences, specialties and advanced
materials fields, some of which have been licensed to affiliates and others
worldwide.
Employees
At December 31, 1994, worldwide employment for the Company was
approximately 29,200. The Company employed about 9,000 persons outside the
United States. In the United States, fewer than one-fourth of the plants and
employees are organized by labor unions. Most labor agreements are for terms of
three years. The Company offers comprehensive benefit plans for employees and
their families and believes relations with employees are satisfactory.
Environment
The Company's worldwide operations are subject to environmental laws and
regulations which impose limitations on the discharge of pollutants into the air
and water and establish standards for the treatment, storage and disposal of
solid and hazardous wastes. The Company believes that it is in substantial
compliance with all applicable environmental laws and regulations.
In 1994, combined worldwide expenditures, including third party and
divested sites, for compliance with environmental control regulations and
internal Company initiatives totaled $217 million, of which $74 million was for
capital projects. In both 1995 and 1996, total annual environmental expenditures
are expected to be approximately $300 million, of which $75 million is for
capital projects. It is anticipated that stringent environmental regulations
will continue to be imposed on the Company and the industry in general. Although
the Company cannot predict expenditures beyond 1996, management believes that
the current spending trends will continue.
The Company may be subject to claims brought by Federal or state
regulatory agencies or private individuals pursuant to statutory authority or
common law. In particular, the Company has a potential liability under the
Federal Comprehensive Environmental Response Compensation and Liability Act
("Superfund") and related state laws for investigation and cleanup costs at
approximately 100 sites. At most of these sites, numerous companies, including
either the Company or one of its predecessor companies, have been notified that
the United States Environmental Protection Agency ("EPA"), state governing body
or private individuals consider such companies to be potentially responsible
parties under Superfund or related laws. The proceedings relating to these sites
are in various stages. The cleanup process has not been completed at most sites
and the status of the insurance coverage for most of these proceedings is in
litigation. The Company has accrued its best estimate of its ultimate liability
for investigation or cleanup costs, but, due to the many variables involved in
such estimation, the ultimate liability may vary. Expenditures for
investigation, clean up and related activities have been $32 million for the
three years ended December 31, 1994 with expenditures in no year greater than
$13 million.
Segment and Geographical Information
See Note (14) of Notes to Consolidated Financial Statements for Segment
and Geographical Information.
8
<PAGE>
ITEM 2. PROPERTIES
The Company owns and operates various manufacturing facilities within the
United States and abroad. It also owns or leases facilities related to its
operations such as warehouses, pipelines, tolling operations, research and
development and sales offices.
The Company's principal manufacturing facilities, which are owned by the
Company (unless otherwise indicated), are summarized below:
Chemicals Segment:
U.S.
Bay City, Texas.................Vinyl acetate, butanol, propanol, synthetic
fatty acids
Bishop, Texas...................Methanol, formaldehyde pentaerythritol,
trimethylolpropane, butyl acetate
Bucks, Alabama..................Amines
Clear Lake, Texas...............Acetic acid, ethylene oxide and glycol, vinyl
acetate, acrylic acid and esters
Pampa, Texas....................Acetic acid, acetic anhydride, ethyl acetate,
methyl ethyl ketone, acrylic esters
Portsmouth, Virginia............Specialty amines
Rock Hill, South Carolina.......Formaldehyde
Non-U.S.
Celanese Canada:
Edmonton, Alberta.............Acetic acid, acetic anhydride, formaldehyde,
methanol*, pentaerythritol, sodium formate,
vinyl acetate
Celmex:
Cangrejera, Veracruz..........Acetic acid, vinyl acetate, dimethyl formamide,
methyl amines, acetic anhydride and acrylic
acid
Celaya, Guanajuato............Ketones, acetic acid esters, solvents, acetic
anhydride
Cosoleacaque, Veracruz........Acrylic acid esters
Fibers and Film Segment:
U.S.
Greer, South Carolina**.........Polyester film and resins
Narrows, Virginia...............Acetate filament and flake, cigarette filter tow
Rock Hill, South Carolina.......Acetate filament and flake, PBI
Salisbury, North Carolina.......Technical and textile polyester staple and
filament fibers and polyester resins
Shelby, North Carolina..........Technical and textile polyester filament fibers
Spartanburg, South Carolina.....Technical and textile polyester staple,
polyester resins, spunbond and monofilament
Wilmington, North Carolina......PTA, DMT and terate resins
----------
*The methanol operation is owned by Celanese Canada and the Company.
** Polyester film assets are owned by a partnership. See Item I "Business-
Description of Business Segments".
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<PAGE>
Non-U.S.
Hoechst Celanese S.A:
Lanaken, Belgium..............Acetate and triacetate filament fibers,
cigarette filter tow
Celanese Canada:
Drummondville, Quebec.........Acetate filament fibers
Edmonton, Alberta.............Cellulose acetate flake and cigarette filter tow
Millhaven, Ontario............Polyester staple fibers
Celmex:
Ocotlan, Jalisco..............Nylon, cellulose acetate flake, filament and
cigarette filter tow and polyester filament
and resins
Queretaro, Queretaro..........High denier nylon, polyester staple and filament
Toluca, Mexico................Polyester staple and high denier polyester and
nylon filaments
Zacapu, Michoacan.............Bioriented polypropylene film, laminated
printed films and cellulosic casings
Specialties and Advanced Materials Segment:
Bayport, Texas*.................Ultra high molecular weight polyethylene
Bishop, Texas...................Engineering plastics and acetaminophen
Branchburg, New Jersey..........Presensitized offset printing plates, proofing
films, liquid photoresist
Bucks, Alabama.................Sodium hydrosulfite, sulfur dioxide, sodium
bisulfite solution
Charlotte, North Carolina*......Microporous membranes
Chester Township, Pennsylvania..Compounded fluoropolymers
Coventry, Rhode Island..........Dyes, pigments, organic intermediates
Florence, Kentucky..............Engineering plastics
Leeds, South Carolina...........Sodium bisulfite solution, sodium hydrosulfite,
sodium hydrosulfite solution, specialty
blended products
Mount Holly, North Carolina.....Dyes, resins, surfactants and other specialty
chemicals
Portsmouth, Virginia............Superabsorbent materials
Shelby, North Carolina..........Engineering plastics
Wilmington, North Carolina......Polyphenylene sulfide
Winona, Minnesota...............Engineering plastics
Life Sciences Segment:
Bridgewater, New Jersey.........Prescription and proprietary drugs for human
use and veterinary pharmaceuticals
Coventry, Rhode Island..........Bulk pharmaceutical chemicals
Canton, Massachusetts...........Generic pharmaceuticals
Management believes that the Company's properties are suitable for its
business and have adequate productive capacities to meet current and future
business requirements.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in a number of lawsuits, including
environmental, product liability and personal injury actions. Certain of these
lawsuits are or purport to be class actions. In some of these cases, claimed
damages
----------
* This facility is leased.
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<PAGE>
are substantial. While it is impossible at this time to determine with certainty
the ultimate outcome of these 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 financial position or results of operations of the
Company.
The Company was named in 1986, 1987, 1988 and 1991 as one of numerous
defendants in fourteen lawsuits in the Twenty-First Judicial District Court,
Parish of Livingston, Louisiana. These lawsuits arose out of shipments of
allegedly toxic waste to a waste oil processing site in Livingston Parish,
Louisiana. Claims totalling approximately $20 billion are being made against the
defendants for property damages, personal injury and psychological and other
damages. While a class consisting of approximately 11,000 plaintiffs has been
certified by the Federal district court to which these cases have been removed,
it is difficult to assess the extent to which the Company may be liable, if at
all, since individualized claims of class members are involved. However,
considering the number of potentially responsible parties (over 80 defendants in
each case), many of which are substantial corporations, and the Company's small
proportion of the total volume of waste sent to the site (well under one
percent), management believes, based on the advice of legal counsel, that its
portion of such liability (including any site clean up costs) would not have a
material adverse effect on the financial position of the Company or results of
operations. Trial is expected to begin in September 1996. The Company is
defending itself vigorously in these proceedings.
In February 1990, Region IV of the EPA issued a notice of violation to the
Company at its Rock Hill, South Carolina plant alleging that the plant is
subject to the benzene fugitive emission standard promulgated by the EPA under
the Clean Air Act in 1984. The Company learned in September 1990 that Region IV
referred the matter to the United States Department of Justice ("DOJ") for
consideration of the appropriateness of enforcement. Although the Company has
voluntarily agreed to meet the fugitive emissions standard at this facility as
soon as possible, it is the Company's position that the facility properly
determined in 1984 that it qualified for an exemption from the standard and,
therefore, enforcement and sanctions are not appropriate. The DOJ and the EPA
filed a complaint in July, 1992 in U.S. District Court in Columbia, South
Carolina, asking the Court to set a penalty of not more than $25,000 per
violation per day. The Company asked the EPA and the DOJ to consider an
Alternate Dispute Resolution ("ADR") and they rejected ADR. The Company is
defending itself vigorously.
In November 1993, the DOJ filed a complaint similar to the complaint
described above with regard to the Company's plant in Narrows, Virginia. It is
the Company's position that the Narrows plant also qualified for the same
exemption that applied to the Rock Hill plant. The Company is defending itself
vigorously.
On March 1, 1995, DOJ filed a complaint with regard to the Company's plant
in Bishop, Texas, similar to the complaints (discussed in the preceeding two
paragraphs) that were filed against the Rock Hill and Narrows plants. It is
the Company's position that the Bishop plant also qualified for the same
exemption claimed by the two other plants. The Texas Air Control Board, which
had been delegated authority to implement the NESHAP, formally confirmed in
December, 1984 that the Bishop plant was exempt. That confirmation has never
been formally rescinded by Texas or EPA. The Company will vigorously defend
itself.
In late June 1991, the Company entered into an agreement with the EPA to
participate in a voluntary program known as the "Toxic Substances Control Act -
Section 8 (e) CAP Program." Under this program, the EPA is allowing
participating companies to conduct voluntary, retrospective self-audits, to
submit newly discovered 8(e) studies to the EPA and to pay a penalty of $6
thousand for each unreported study. Under the program, however, the total
penalties to the Company cannot exceed $1 million. Based on the number of
studies the Company's self-audit had identified by the end of August 1992, it
is now clear the Company's penalty, which is expected to be payable in mid to
late 1995, will be the program's $1 million maximum amount.
Under the terms of a December 1991 consent order with the City of Mount
Holly, North Carolina (the "Consent Order"), the Company agreed with respect to
its Mount Holly plant to meet certain effluent limits for its discharges to the
City's water treatment plant and to upgrade its Mount Holly plant's pretreatment
facility. The Consent Order established a date to "begin construction" of the
pretreatment facility upgrade and required the Company to pay a
11
<PAGE>
stipulated sum for each day it fails to comply with the schedule. The City took
the position that the Company began construction late and has requested payment
of $137,000. The Company disagrees with this position. The parties 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.
The Company is a named defendant in twenty-five putative class actions,
five of which have been certified as class actions as well as a defendant in
other non-class actions filed in twelve states (the "Plumbing Actions"). In
these lawsuits the plaintiffs typically seek recovery for alleged property
damage to housing units and mental anguish from the alleged failure of
polybutylene plumbing systems, punitive damages, and, in certain cases,
additional damages under the Texas Deceptive Trade Practices Act. The other
defendants include United States Brass Corporation ("U.S. Brass"), Vanguard
Plastics, Inc. ("Vanguard"), Shell Oil Company ("Shell") and duPont. Damage
amounts are not specified. The plumbing systems were designed and manufactured
primarily by U.S. Brass and Vanguard. The pipe was made from polybutylene resin
supplied by Shell. The Company sold acetal copolymer resin and duPont sold
acetal homopolymer resin to other companies who manufactured the fittings used
in the plumbing systems. The class actions and the purported class actions are
in the Circuit Court, State of Alabama, County of Greene (one case), the Circuit
Court, State of Maryland, County of Montgomery (one case), the 20th Judicial
Circuit Court, State of Illinois, County of St. Clair (one case), the Circuit
Court, State of Missouri, County of St. Louis (one case), the Superior Court,
State of Arizona, County of Maricopa (two cases), the Municipal Court, State of
California, County of San Diego (one case), the Superior Court, State of
California, Counties of San Diego (eleven cases), and Monterey (one case), the
District Court, State of Nevada, County of Clark (one case), the 2nd Judicial
District Court, State of Nevada, County of Washoe, (one case), the 11th and
164th Judicial District Courts, State of Texas, County of Harris (two cases) and
in the United States District Court for the Southern District of Texas, Houston
Division (one case) and the District Court, State of Colorado, County of Denver
(one case). The Company is appealing the class certifications. Shell and the
Company have entered into a proposed agreement, subject to, among other things,
court approval. The proposed agreement provides for the repair of leaking
plumbing systems and settlement of one of the San Diego County Superior Court
class actions which cover mobile homes in San Diego County.
Based on, among other things, the finding of outside experts and the
successful use of the Company's acetal copolymer in similar applications, the
Company does not believe its acetal copolymer was defective or caused the
plumbing systems to fail. In many cases the Company's exposure may be limited
by the fact that the other defendants and other responsible parties may be found
liable in whole or substantial part or by invocation of the statute of
limitations since the Company ceased selling the resin for use in the plumbing
systems in site built homes during 1986 and in manufactured homes during l989.
The Company is defending itself vigorously in these actions. The Company has
commenced litigation in the Superior Court - Law Division, State of New Jersey,
County of Somerset against U.S. Brass and its former and current parent,
Household International, Inc. ("Household"), and Eljer Industries, Inc.
("Eljer"), respectively, to recover, among other things, the portion of the
plumbing action judgments, settlements and expenses that are attributable to
U.S. Brass, Household and Eljer. However, as a result of U.S. Brass filing for
Chapter l l protection in bankruptcy court in Sherman, Texas, all claims against
U.S. Brass have been stayed and this litigation has been removed to the
bankruptcy court. The Company has made a motion in the bankruptcy court to
remand the litigation to state court so that its claims against Household and
Eljer can be pursued.
The Company together with Shell and duPont agreed to and announced, in
October 1994, a proposed settlement with plaintiffs of a purported nationwide
class action subject to court approval, which would provide replumbings to
qualifying homeowners with leaking polybutylene plumbing systems throughout the
United States. This proposed settlement would have required the three
participating companies to commit to spend up to $750 million for claims over a
13 year period which the Company estimates will end in 2003. The Texas state
court, in February 1995, denied the three participating companies and
plaintiffs' request for preliminary approval of this settlement. Appeals of this
denial have been filed, and the three participating companies are also presently
exploring several alternative courses of action.
The Company is not liable for any alleged defects in such systems, which
were designed, manufactured and marketed by other companies. Nonetheless, the
Company has agreed to participate in the proposed settlements to reduce
litigation expenses and to provide relief to qualifying homeowners with
polybutylene plumbing problems.
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<PAGE>
Management believes that the Plumbing Actions are substantially covered by
insurance. In September 1989, after being sued by one of its insurers in New
York, the Company filed suit in the Superior Court of the State of Delaware in
and for New Castle County against National Union Fire Insurance Co. of
Pittsburgh, Pennsylvania, the primary general liability insurance carrier for
the Company from April 1985 to May 1989 and 40 excess/umbrella carriers insuring
the Company from 1978 to 1989, seeking a declaration that insurance coverage
exists for these product liability claims. The insurers' New York action has
been dismissed. Negotiations with several of the carriers have resulted in
settlement or agreements in principle to settle, resulting in substantial
continuing coverage of the plumbing actions or cash payments for claims. There
are ongoing discussions with several of the remaining insurers. The Company's
Delaware suit has now been stayed pending the results of interlocutory appeals
to the Delaware Supreme Court on two issues. Outside counsel believes that the
Company has a substantial probability of prevailing in its litigation against
the carriers.
Management believes that the Plumbing Actions will not have a material
adverse effect on the financial position or the results of operations of the
Company. See Note (15) of Notes to the Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MAITERS
Not applicable.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
Years ended December 31,
--------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
(In millions)
<S> <C> <C> <C> <C> <C>
Net sales............................................. $7,794 $6,899 $7,044 $6,794 $5,881
Operating (loss)income................................ (94) 360 398 473 405
(Loss) earnings before cumulative effect of accounting
change.............................................. (186) 140 134 172 201
Total assets.......................................... 8,110 7,937 7,044 6,630 6,082
Long-term debt........................................ 1,086 879 830 752 741
Dividends declared.................................... 60 70 85 90 100
</TABLE>
Note: This table should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the
Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following sections should be read in conjunction with Note (14) of
Notes to Consolidated Financial Statements for Segment and Geographical
Information.
Results of Operations
1994 Compared to 1993
Net sales of $7,794 million in 1994 increased 13%, or $895 million, over
net sales of S6,899 in 1993. Net sales in all business segments improved over
the prior year, most notably in the Chemicals and Fibers and Film segments.
In the Chemicals segment, sales improvements over 1993 were the result of
strong volumes across all product lines, most notably in methanol, acetyls and
acrylates. Basic commodity chemical prices have continued to improve with a
significant increase in methanol pricing throughout 1994. In the Fibers and Film
segment, sales improvements were realized as strong domestic volumes more than
offset declines in pricing. Textile Fibers achieved marked volume gains as
polyester operations continued in 1994 to operate at capacity levels. High
customer inventories in filter products hindered export pricing and sales
volumes in Technical Fibers. Polyester Resins and Films experienced significant
sales growth as the continued increase in market demand for packaging resins
favorably impacted U.S. and Mexican volumes. The Specialties and Advanced
Materials segment realized
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<PAGE>
an increase in sales over last year. Specialty Chemicals' sales improved
primarily from increased volumes for pigments due to strong demand in the paint
and plastics markets, as well as gains in the electronics product line caused by
strengthening conditions in the computer and consumer electronics markets. These
improvements were slightly offset by price and volume declines in dyes due to a
decrease in the demand for bright colors used in fleecewear. In Advanced
Materials, sales improved versus the prior year due to volume increases
reflecting improved economic conditions and further commercialization of
products in the automotive and fiber optics industries. Sales in the Life
Sciences segment increased as a result of the consolidation of Copley
Pharmaceutical, Inc. ("Copley"), Hoechst Canada, Inc. ("HCI") and AgrEvo USA
Company ("AgrEvo") (See Note (I) of Notes to the Consolidated Financial
Statements). This increase coupled with the introduction of a new animal health
product, Champion(R), more than offset the decrease in pharmaceutical sales
resulting from increased generic competition and the reduction of the Company's
sales incentive programs to wholesalers.
Selling, general and administrative expenses ("SG&A") increased over last
year largely due to the consolidation of Copley, HCI and AgrEvo. Research and
development expenses were higher than the prior year, primarily in the Life
Sciences segments mainly attributable to additional research and development
costs in bulk pharmaceuticals and the consolidation of Copley, HCI and AgrEvo.
The 1994 operating loss of $94 million was $454 million lower than the
1993 operating income of $360 million. During 1994, the Company recorded a
special charge of $532 million against operating income for estimated costs and
expenses pertaining to pending and future product liability claims, net of
probable insurance recoveries, relating to certain plumbing systems, using
fittings manufactured by other companies from acetal copolymer resin sold by the
Company, (See Note (16) of Notes to the Consolidated Financial Statements and
Item 3. -"Legal Proceedings") and management's best estimate of an additional
accrual for environmental remediation and restoration liabilities, based on a
review of the Company's present and closed manufacturing sites primarily in the
Fibers and Film segment. In addition, this special charge includes the estimated
costs and expenses relating to the reduction in the workforce and asset write-
downs, principally in the Specialties and Advanced Materials segment.
The Company together with two other substantial manufacturers had agreed
to and announced a proposed settlement of a purported nationwide class action
related to the product liability claims, subject to court approval (See Note
(15) of Notes to the Consolidated Financial Statements). This proposed
settlement would have required the three participating companies to establish a
settlement fund of up to $750 million to be paid out over a period which the
Company estimates would have envied by 2003. The Texas State Court, in February
1995, denied the companies request for preliminary approval of this settlement.
Appeals of this denial have been filed, the three participating companies are
presently exploring several alternatives.
Operating income for the Chemicals segment improved versus the prior year
due to stronger volumes and higher methanol pricing partially offset by higher
raw material costs of ethylene, propylene and sourced methanol. In the Fibers
and Film segment, Textile Fibers experienced increased raw material costs and
production line start up costs which were more than offset by volume gains. In
Technical Fibers, cost reduction programs were not enough to offset the effect
of oversupply conditions existing in the filter products markets. The operating
income for Polyester Resins and Films increased over the prior year due to
higher sales volumes realized in packaging resins which were partially offset by
higher raw material costs resulting from higher worldwide demand for paraxylene,
methanol, purified terephthalic acid and dimethylterephthalate. In the
Specialties and Advanced Materials segment, Specially Chemicals' operating
income declined versus the prior year as increased sales volumes were not enough
to compensate for higher manufacturing costs, however, volume gains in Advanced
Materials resulted in improved operating income for 1994. The Life Sciences
segment experienced a loss at the operating income level compared to the prior
year. The operating income contributed by Copley, HCI and AgrEvo did not offset
the effect that generic competition had on branded pharmaceutical products and
the reduction of the Company's sales incentive programs to wholesalers.
Interest expense increased $36 million or 47% from last year as a result of
higher debt levels related to the acquisition of Copley during the fourth
quarter of 1993 as well as increasing interest rates.
15
<PAGE>
Equity in net earnings (loss) of affiliates has improved due to increased
earnings in a 50% owned affiliate which manufactures bulk ibuprofen and earnings
contributed by an equity investment acquired during the year. During the fourth
quarter of 1994, the Company transferred its 41% ownership in Ticona
Polymerwerke GmbH to Hoechst AG.
The Company made certain estimates in previous periods in providing for
income taxes. Based on more current information, the Company changed such
accounting estimates giving rise to a tax benefit of $63 million in the second
quarter of 1994. As a result, the effective rate was a benefit of 71% compared
to the 1993 effective tax rate of 35%.
As a result of the significant devaluation of the Mexican new peso in
December 1994, the equity section of the Company was negatively impacted by
approximately $120 million due to the translation effect of the Company's 40%
ownership of Celmex. The Company is uncertain about the possible future impact
the fluctuation of the Mexican currency will have on its consolidated results.
1993 Compared to 1992
Net sales of $6,899 million in 1993 were 2%, or $145 million, below 1992
sales. Life Sciences sales were slightly higher than in 1992, but sales declined
in all other operating segments.
Chemicals segment sales were lower than 1992 as increased volumes were
offset by lower selling prices as a result of continued overcapacity. Fibers and
Film segment sales declined from 1992 as reduced export volumes and selling
prices were slightly offset by improved domestic volumes. Textile Fibers sales
were level compared to 1992. Higher acetate filament sales volumes and prices
reflect continuing strength in the fashion industry. These improvements were
offset by lower volumes in North American polyester filament and lower selling
prices for polyester staple that resulted from increased competitive pressures.
In Technical Fibers, sales volumes and prices were lower than in 1992 as filter
product shipments to the Far East decreased and overall selling prices declined
due to excess worldwide capacity and the strengthening of the dollar in Europe.
Tire and MRG (mechanical rubber goods) volumes were lower as a result of the
weak European economy, while increased spunbond sales reflected a stronger
domestic roofing market. Polyester Resins and Films sales increased marginally
over 1992 as packaging resin volumes increased due to higher demand,
particularly in the Mexican market. After adjusting for the disposition of the
high density polyethylene ("HDPE") business in 1992, Specialties and Advanced
Materials sales improved as increased volumes offset lower selling prices.
Specialty Chemicals sales were virtually unchanged as reduced selling prices,
due to worldwide competitive pressures, and lower volumes, primarily in fine
chemicals and printing products, were offset by increased selling prices and
improved product mix for pigments and improved volumes for surfactants,
electronic products, waxes, and superabsorbent materials. Within Advanced
Materials, sales were higher as volumes increased for both high performance
polymers and engineering thermoplastics due to general economic growth in their
end use markets. Life Sciences sales were slightly higher as both price and
volume improvements in crop protection and animal health, in part the result of
new product introductions, offset lower full year pharmaceutical volumes. Fourth
quarter pharmaceutical sales were higher than the prior 1993 quarters due to
wholesaler purchases that normally would have occurred in the first quarter of
1994.
Selling, general and administrative expenses ("SG&A") for 1993 remained
virtually the same as 1992 as improvements in Chemicals, Specialty Chemicals,
and Advanced Materials offset unfavorable expenses in Fibers and Film. In
addition, Fibers and Film SG&A includes a $50 million receipt in settlement of a
litigation. Research and development expenses of $258 million were slightly
lower than in 1992.
During 1993, the Company charged $29 million to operating income for
restructuring (principally Mexican chemical operations), $19 million of which
related to the write-down of property, plant and equipment. As part of an
ongoing Fibers and Film segment North American strategy, the Company
restructured its North American polyester fibers operations. During 1992, the
Company charged $87 million to operating income for restructuring, $34 million
16
<PAGE>
of which related to the write-down of property, plant and equipment. An
additional $15 million was charged to operations in 1992 for restructuring and
regionalization of certain other businesses.
Operating income of $360 million was $38 million, or 10%, lower than 1992.
Improvements in the Fibers and Film and the Specialties and Advanced Materials
segments were offset by lower Chemicals and Life Sciences segments operating
income. Chemicals segment operating income declined from $210 million in 1992 to
$88 million in 1993 due to several nonrecurring items. Operating income from
continuing operations improved as manufacturing costs and product mix were
favorable compared to the prior year. Operating income was reduced, however, due
to 1993 restructuring charges and costs associated with a toxic tort suit
involving the Pampa, Texas plant. Also. during 1992, Chemicals segment recorded
income of $68 million related to the settlement of its Pampa insurance claims.
Fibers and Film operating income improved by $117 million from $298 million in
1992 to $415 million in 1993. Textile Fibers operating income was relatively
flat compared to 1992 as an increase in sales volume was offset by higher
manufacturing costs. Technical Fibers operating income was lower than in 1992
primarily due to reduced shipments and lower selling prices of filter products.
The decrease in Polyester Resins and Films operating income was due to increased
manufacturing costs and higher raw material costs principally in Mexico. In
addition, Fibers and Film 1993 operating income includes a $50 million receipt
in settlement of a litigation while 1992 operating income included $87 million
in restructuring costs. The Specialties and Advanced Materials segment operating
income improved from $26 million to $58 million primarily due to higher volumes
and lower selling and marketing expenses. Specialty Chemicals operating income
was lower primarily due to increased manufacturing costs. Operating income
increased significantly for Advanced Materials due to improved volumes and
favorable manufacturing costs resulting from higher efficiencies and reduced
maintenance expenses. Operating income in Life Sciences declined from $60
million in 1992 to $17 million in 1993 primarily due to reduced pharmaceutical
sales and to research and development expenditures associated with strategic
initiatives within the pharmaceuticals business.
Beginning in 1993, the Company segregated sales and costs associated with
the Advanced Technology segment from segment sales and operating income of its
operating segments. The Advanced Technology segment represents research and
development costs to seed and develop new businesses. Prior to 1993 this group
was included in the Specialties and Advanced Materials segment. These costs and
results have not been borne by any operating group. When projects and/or
businesses become viable, they are transferred to the appropriate operating
segment.
Equity in net (loss) earnings of affiliates declined by $12 million
compared to 1992 primarily due to lower earnings by Japanese and German
affiliates which reflect the continued sluggish economic conditions in those
countries.
Interest expense decreased $5 million, or 6%, primarily due to lower
interest rates, particularly in Mexico. Interest and Other Income, net, was
$22 million lower than in 1992 primarily due to lower interest income in 1993,
the result of lower interest rates. In 1992, Interest and Other Income included
a gain on the sale of the HDPE facility.
The effective tax rate decreased to 35% in 1993 compared to 47% in 1992.
The decrease is mainly attributable to the accounting change required by the
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("FAS 109").
The Company implemented Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions"
("FAS 106"), effective January 1, 1992, and FAS 109 and Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" ("FAS 112"), January 1, 1993. FAS 106 requires the Company to accrue
the current cost of those benefits and resulted in a net after-tax cumulative
charge of $141 million in the first quarter of 1992. FAS 109, which requires the
asset and liability method of accounting for income taxes and the calculation of
deferred taxes using enacted tax rates, resulted in a net after-tax cumulative
charge of $31 million in 1993. In addition, by applying FAS 109, pre-tax
operating income was reduced by $40 million due to the increase in depreciation
and amortization expense resulting from the increased carrying amounts of assets
and liabilities acquircd in a purchase business combination. The increase in
operating expense was offset by a lower deferred tax provision. FAS 112 requires
recognition of postemployment benefits on an accrual basis and resulted in a net
after-tax cumulative charge of $8 million in 1993. The effect of this change on
1993 earnings before the cumulative effect of accounting changes was not
material.
17
<PAGE>
On November 11, 1993, the Company purchased 52.96% of the outstanding
shares of Copley for approximately $546 million. Copley develops, manufactures
and markets a broad range of off-patent prescription and over-the-counter
pharmaceuticals. The acquisition was accounted for under the purchase method of
accounting. Accordingly, the purchase price will be allocated to the assets
acquired and liabilities assumed based on their estimated respective fair values
as of the date of acquisition. The allocation of the purchase price will be
finalized during 1994. The excess of cost over net assets acquired was
approximately $510 million and is being amortized over its estimated life. The
Company financed the acquisition through a revolving credit agreement with its
parent, Hoechst Corporation. Copley's results of operations have been included
in the Company's consolidated financial statements as of the date of
acquisition. Copley's operations are not material in relation to the Company's
consolidated financial statements and pro forma financial information,
therefore, has not been presented. Copley is included in the Life Sciences
segment.
The following discussion and analysis of "1992 Compared to 1991" has been
restated to reflect Advanced Technology as a separate segment.
1992 Compared to 1991
Net sales of $7,044 million for 1992 represented an increase of 3.7%, or
$250 million. over 1991. Improvements in the Fibers and Film, Specialties and
Advanced Materials and Life Sciences segments more than offset a decline in the
Chemicals segment.
Chemicals segment sales declined due to continued unfavorable selling
prices, principally methanol and ethylene glycol/oxide, partially offset by
domestic and export volume improvements, mostly acrylates and vinyl acetate
monomer. In the Fibers and Film segment, 1992 full year sales increased due to
improved volumes and, to a lesser extent, higher selling prices. Textile Fibers
sales were higher due to an increase in polyester staple, acetate filament and
polyester textile filament prices. Volume improvements, primarily in polyester
staple and spunbond, were partially offset by unfavorable acetate filament
export volumes. Spunbond prices were lower due to increased competitive
pressures. Strong fourth quarter sales contributed to 1992 increases in
Technical Fibers. The improvement is attributable to higher sales volumes from
filter products and the polyester high denier industrial fibers business units
resulting from increased market demands. In Polyester Resins and Films, sales
increased as a result of favorable pricing and higher volumes in polyethylene
terephthalate film and packaging resins. Specialties and Advanced Materials
segment sales were slightly higher, primarily due to volume improvements in
superabsorbents, dyes and pigments, the last two increasing due to stronger
apparel and automotive markets. Advanced Materials sales increased due to higher
volumes in engineering thermoplastics and high performance polymers, the result
of a general strengthening of the U.S. economy. These volume increases were
partially offset by unfavorable selling prices due to competitive pressures.
Life Sciences segment sales increased due to a strong fourth quarter. The heavy
sales volumes were the result of significant wholesaler purchases which
normally would have occurred in the first quarter of l993. New product
introductions in the crop protection and animal health area also contributed to
the increase.
Selling, general and administrative expenses were $946 million, an increase
of $56 million, or 6.3%, from 1991. Selling, general and administrative expenses
were higher as increased expenses within Life Sciences were partially offset by
declines in the Fibers and Film and Specialties and Advanced Materials segments.
Life Sciences expenses increased due to a field force expansion and higher costs
to support new marketing programs. Research and development expenses of $262
million were flat across all segments and unchanged from 1991 levels.
The Company restructured its North American polyester fibers operations. As
part of an ongoing North American strategy, Hoechst Celanese will install
additional staple fiber capacity within Celanese Mexicana, S.A. This expansion
should not result in a net increase in North American staple fiber capacity.
The realignment of other polyester facilities in Canada and the United States
is currently being studied. During 1992, $87 million has been charged to Fibers
and Film operating income for restructuring, $34 million of which related to the
write-down of property, plant and equipment. An additional $15 million has been
established for restructuring and regionalization of certain other businesses.
18
<PAGE>
Operating income was $398 million, a decrease of $75 million, or 15.9%,
from 1991. Excluding the effects of restructuring costs, all business areas
within the Fibers and Film segment showed improvements in operating income and
offset a decline in the Chemicals segment operating income. The favorability in
operating income experienced by Textile Fibers was mainly due to sales
improvements. Technical Fibers registered a modest improvement in operating
income from increased sales. Fllm and Fiber Intermediates operating income was
higher due to substantially improved sales volumes and, to a lesser extent,
favorable raw materials costs (paraxylene and ethylene glycol). Although raw
material costs were somewhat lower, Chemicals segment operating income declined
as competitive pressures in the commodity chemicals market continued to have an
adverse impact on selling prices and profit margins. Specialties and Advanced
Materials segment operating income improved primarily due to higher sales
volumes. In Specialty Chemicals, strong sales volumes were the main contributor
to improved operating income. Improvements were also realized in Advanced
Materials, which was aided by a strengthening in the automotive and electronics
markets. Life Sciences segment operating income was relatively flat as fourth
quarter sales volume improvements were offset by higher selling, general and
administrative expenses. In addition to higher volumes of Trental(R)
(pentoxifylline), Diabeta(R) (glyburide) and Altace/TM/ (ramipril), earnings
benefited from improved performance in the animal health and crop protection
businesses.
Equity in net earnings of affiliates was $4 million, a decline of $14
million from the comparable 1991 period. The reduction is due, in part, to start
up costs related to the Company's participation in a joint venture to
manufacture and market bulk ibuprofen. In addition, lower volumes and increased
price competition contributed to lower earnings by Japanese and German
affiliates reflecting continued sluggish economic conditions in those countries.
Interest expense declined $13 million to $81 million due primarily to
lower interest rates, particularly in Mexico. Interest and other income, net,
rose slightly to $74 million. The increase is predominantly due to gains
realized on the sale of the HDPE facility and certain other cost investments,
partially offset by lower 1992 interest income, the result of lower interest
rates.
The effective tax rate was 47.1% and 47.4% for 1992 and 1991, respectively.
In November 1987, an explosion and fire caused severe damage resulting in
the shutdown of the Chemical segment's Pampa, Texas plant. Rebuilding of the
plant production facilities was completed in April 1989 with ancillary and
support facilities completed in June of 1991. In 1989, the Company established a
valuation allowance for any potential shortfall between the insurance claims and
the ultimate insurance settlement. During the fourth quarter of 1992, the
Company agreed to a settlement with its insurance carriers covering the
explosion and business interruption claims. As a result of the settlement,
approximately $68 million was credited to Operating income.
Effective January 1, 1992, the Company adopted the provisions of Statement
of Financial Accounting Standards No.106 "Employers' Accounting for
Postretirement Benefits Other than Pensions" ("FAS 106") which decreased net
income by $141 million, net of tax.
Environmental
In 1994, combined worldwide expenditures, including third party and
divested sites, for compliance with environmental regulations and internal
Company initiatives totaled $217 million of which $74 million was for capital
projects. In both 1995 and 1996 total annual environmental expenditures are
expected to be approximately $300 million of which $75 million is for capital
projects. It is anticipated that stringent environmental regulations will
continue to be imposed on the Company and the industry in general. Although the
Company cannot predict expenditures beyond 1996, management believes that the
current spending trends will continue.
In 1994, 1993 and 1992 the total environmental costs charged to operations
for remediation efforts amounted to $105 million, $34 million and $46 million,
respectively. As of December 31, 1994 and 1993 the Company's total environmental
liability recognized in the financial statements is $208 million and $149
million, respectively. The amounts are neither reduced for anticipated insurance
recovery nor discounted from the anticipated payment date.
19
<PAGE>
In the opinion of management, environmental expenditures will not have a
material adverse effect upon the Company's competitive position.
Inflation
In recent years, inflation has not had a material impact on the Company's
costs due principally to price competition among suppliers of raw materials.
However, in certain segments of the Company's businesses, changes in the prices
of raw materials, particularly petroleum derivatives, could have a significant
impact on the Company's costs, which the Company may not be able to reflect
fully in its pricing structure.
Ratio of Earnings to Fixed Charges
Ratio of earnings to fixed charges for 1994 was less than one compared to
3.6 for 1993. The ratio declined due to a special charge of $532 million
associated primarily with product liability reserves, restructuring costs,
assets write-downs and compliance with environmental regulations, as well as,
increased interest expense from new debt.
For purposes of calculating the ratio of earnings to fixed charges,
earnings consists 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, interest on
obligations under capital leases, the estimated interest portion of rents under
operating leases, discount or premium of indebtedness, and the majority-owned
preferred stock dividend requirement.
Liquidity and Capital Resources of the Company
Cash and cash equivalents were $192 million at December 31, 1994, an
increase of $21 million from the prior year. The increase resulted from net cash
provided by operations of $578 million, which more than offset capital
expenditures of $502 million, cash used in financing activities of $42 million
and the unfavorable effect of exchange rate changes on cash of $22 million.
Long-term debt proceeds for 1994 primarily included the issuance of $250
million 10-year 6 1/8% notes, $150 million medium-term notes, $40 million
pollution control bonds and a $30 million loan from its parent Hoechst
Corporation ("Parent"). The Company also had short term borrowings from Hoechst
AG and its affiliates of $510 million in the aggregate. The proceeds were used
to repay the amount borrowed under a revolving credit agreement with its Parent
in connection with the acquisition of Copley and to redeem all of the $250
million 9.45% notes outstanding.
In 1994, the Company paid its Parent a $70 million dividend. The Company
also declared a 1994 dividend of $60 million which was paid in February 1995.
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 December 31, 1994. 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 has a $600 million commercial paper program which is fully
supported by committed domestic revolving credit facilities. In addition, the
Company has a $750 million revolving credit agreement with its Parent. At
December 31, 1994, there was no outstanding balance under any of the facilities.
20
<PAGE>
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.
21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Balance Sheets as of December 31, 1994 and 1993............... 23
Consolidated Statements of Earnings for the three years ended
December 31, 1994......................................................... 24
Consolidated Statements of Stockholder's Equity for the three
years ended December 31, 1994............................................. 25
Consolidated Statements of Cash Flows for the three years
ended December 31, 1994................................................... 26
Notes to Consolidated Financial Statements................................. 27
Report of Independent Auditors............................................. 45
</TABLE>
22
<PAGE>
HOECHST CELANESE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------
1994 1993
---- ----
(In millions)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 192 $ 171
Marketable securities....................................... 51 75
Net receivables............................................. 1,518 1,336
Inventories................................................. 1,002 1,024
Deferred income taxes....................................... 95 20
Prepaid expenses............................................ 31 37
------ ------
Total current assets...................................... 2,889 2,663
Investments in affiliates..................................... 358 342
Property, plant and equipment, net............................ 2,875 3,001
Deferred income taxes......................................... 75 -
Other assets.................................................. 424 298
Excess of cost over fair value of net
assets of businesses acquired, net........................... 1,489 1,633
------ ------
Total assets.............................................. $8,110 $7,937
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Commercial paper, notes payable and
current installments of long-term debt..................... $ 36 $ 20
Accounts payable and accrued liabilities.................... 1,369 1,029
Dividend payable to parent.................................. 60 70
Notes and accounts payable, parent and affiliates........... 618 809
Income taxes payable........................................ 277 333
------ ------
Total current liabilities................................. 2,360 2,261
------ ------
Long-term debt................................................ 1,086 879
Deferred income taxes......................................... - 72
Minority interests............................................ 393 512
Other liabilities............................................. 1,107 731
Stockholder's equity:
Common stock................................................ - -
Additional paid-in capital.................................. 2,804 2,769
Retained earnings........................................... 409 655
Cumulative translation and other adjustments................ (49) 58
------ ------
Total stockholder's equity................................ 3,164 3,482
------ ------
Total liabilities and stockholder's equity................ $8,110 $7,937
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
HOECHST CELANESE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1994 1993 1992
------ ------ ------
(In millions)
<S> <C> <C> <C>
Net sales........................................... $7,794 $6,899 $7,044
Cost of sales....................................... 5,993 5,316 5,336
------ ------ ------
Gross profit.................................... 1,801 1,583 1,708
Selling, general and administrative expenses........ 1,050 936 946
Research and development expenses................... 313 258 262
Special charges..................................... 532 29 102
------ ------ ------
Operating (loss) income......................... (94) 360 398
Equity in net earnings (loss) of affiliates......... - (8) 4
Interest expense.................................... (112) (76) (81)
Interest and other income, net...................... 24 52 74
------ ------ ------
(Loss) earnings before income taxes, minority
interests and cumulative effect of accounting
changes........................................ (182) 328 395
Income tax (benefit) expense........................ (129) 116 186
------ ------ ------
(Loss) earnings before minority interests and
cumulative effect of accounting changes........ (53) 212 209
Minority interests.................................. 133 72 75
------ ------ ------
(Loss) earnings before cumulative effect of
accounting changes............................. (186) 140 134
Cumulative effect of accounting changes, net of
tax................................................ - 39 141
------ ------ ------
Net (loss) earnings............................. $ (186) $ 101 $ (7)
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
HOECHST CELANESE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1994 1993 1992
------ ------ ------
(In millions)
<S> <C> <C> <C>
Common stock
Par value $.10 per share Balance at beginning of year.... $ - $ - $ -
(authorized and issued ====== ====== ======
10,000 shares)
Balance at end of year.......... $ - $ - $ -
====== ====== ======
Additional paid-in capital Balance at beginning of year.... $2,769 $2,769 $2,720
Transfers from parent, net...... 35 - 49
------ ------ ------
Balance at end of year.......... $2,804 $2,769 $2,769
====== ====== ======
Retained earnings Balance at beginning of year.... $ 655 $ 641 $ 735
Net (loss) earnings............. (186) 101 (7)
Dividends - cash................ (60) (70) (85)
Dividends- net assets of
subsidiaries................... - (17) (2)
------ ------ ------
Balance at end of year.......... $ 409 $ 655 $ 641
====== ====== ======
Cumulative translation Balance at beginning of year.... $ 58 $ 44 $ 48
and other adjustments
Current year adjustments........ (107) 14 (4)
------ ------ ------
Balance at end of year.......... $ (49) $ 58 $ 44
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
HOECHST CELANESE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1994 1993 1992
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Operating activities:
Net (loss) earnings................................ $ (186) $ 101 $ (7)
Adjustments to reconcile net (loss) earnings to net
cash provided by
operating activities:
Special charges, net of amounts used............. 400 20 94
Cumulative effect of accounting changes, net of
tax.............................................. -- 39 141
Change in equity of affiliates.................... 8 16 5
Depreciation and amortization..................... 500 476 402
Tax provision less taxes paid..................... (313) 10 12
Loss (gain) on sale of business and assets, net... 9 2 (15)
Changes in operating assets and liabilities, net
of effect of businesses
acquired and sold:
Net receivables.................................. (153) (132) (27)
Inventories...................................... 81 (63) (66)
Accounts payable and accrued liabilities......... 138 (11) 14
Other, net....................................... 94 79 31
------- ------- -------
Net cash provided by operating activities....... 578 537 584
------- ------- -------
Investing activities:
Capital expenditures............................... (502) (556) (592)
Loan to parent..................................... -- 176 (176)
Proceeds from sale of businesses and assets........ 4 2 105
Proceeds from sale of marketable securities........ 96 52 47
Purchases of marketable securities................. (78) (53) (53)
Purchases of and investments in businesses and as- (13) (599) (61)
sets, net......................................... ------- ------- -------
Net cash used in investing activities........... (493) (978) (730)
------- ------- -------
Financing activities:
Proceeds from long-term debt(a).................... 477 107 142
Proceeds from short-term borrowings................ 3,006 2,977 2,065
Payments on long-term debt......................... (270) (69) (29)
Payments on short-term borrowings.................. (3,185) (2,530) (1,956)
Dividends paid..................................... (70) (85) (90)
------- ------- -------
Net cash (used in) provided by financing activi- (42) 400 132
ties........................................... ------- ------- -------
Exchange rate changes on cash....................... (22) (1) (12)
------- ------- -------
Net increase (decrease) in cash and cash equiva-
lents.......................................... 21 (42) (26)
Cash and cash equivalents at beginning of year...... 171 213 239
------- ------- -------
Cash and cash equivalents at end of year............ $ 192 $ 171 $ 213
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the period for:Interest, net of
amounts capitalized................................ $ 130 $ 86 $ 89
Income taxes........................................ 168 106 174
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
(a) In 1992, excludes $34 million of funds held by trustee related to pollution
control bond financing arrangement.
See accompanying notes to consolidated financial statements.
26
<PAGE>
HOECHST CELANESE
CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) Principles of consolidation
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
consolidated financial statements include the accounts of the Company
and its majority owned or controlled subsidiaries, joint ventures and
partnerships. 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 classifications used in 1994.
Substantially all of the Company's minority interests are
comprised of Celanese Mexicana, S.A. ("Celmex"), which effective January
1, 1995 has changed its name to Grupo Celanese, S.A., Celanese Canada
Inc. and Copley Pharmaceutical, Inc. ("Copley").
Effective January 1 , 1994, Hoechst AG and Schering Berlin Inc.
("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 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") 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. The effect on the Company's consolidated
financial statements was not material.
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 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. During 1994, the Company also transferred its 41%
investment in Ticona Polywerke GmbH to Hoechst AG. These transactions
resulted in a $35 million net increase to paid-in capital. The effect on
the Company's consolidated financial statements was not material.
On November 11, 1993, the Company purchased 52.96% of the
outstanding shares of Copley for $546 million. Copley develops,
manufactures and markets a broad range of off-patent prescription and
over-the-counter pharmaceuticals. The acquisition has been accounted for
under the purchase method of accounting. During 1994, the Company
finalized the allocation of the purchase price associated with the
acquisition of the majority share of Copley. The purchase price has been
allocated to the assets acquired and liabilities assumed based on their
estimated respective fair values. The excess of cost over fair value of
the net assets acquired is being amortized over 20 years.
(b) Cash equivalents
The Company considers all highly liquid investments with a
maturity of three months or less to be cash equivalents.
27
<PAGE>
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(1) Summary of Significant Accounting Policies (continued)
(c) Financial instruments
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"), which requires
debt and equity securities be classified as held-to-maturity, trading or
available-for-sale securities and reported at fair value or amortized
cost. Management determines the appropriate classification of securities
at the time of purchase and reevaluates that designation as of each
balance sheet date. In accordance with FAS 115, the Company has
classified its investments in debt and equity securities as "available-
for-sale" and has reported those investements at their fair or market
value as of December 31, 1994.
In 1994, the Company also adopted the Statement of Financial
Accounting Standards No. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments" ("FAS 119"). FAS
119 establishes standards of financial accounting and reporting for
financial instruments whose underlying values are based on other
financial instruments with similar characteristics.
(d) Inventories
Inventories are stated at the lower of cost (first-in, first-out
["FIFO"] or last-in, first-out ["LIFO"]) or market.
(e) Investments and equity in net earnings (loss) of affiliates
In general, the Company's share of net earnings or losses of companies
in which it owns at least 20% and less than a majority, and does not
exercise management control, is included in the Consolidated Statements
of Earnings as "Equity in net earnings (loss) of affiliates."
(f) Property, plant and equipment, net
Property, plant and equipment, net is stated at cost. Depreciation and
amortization are computed on a straight-line basis over estimated useful
lives.
Amortization of leasehold improvements is provided on a straight-line
basis over the estimated useful lives of the related assets or lease
terms, whichever is shorter.
Expenditures for maintenance and repairs are charged against
operations; major replacements, renewals and significant improvements
are capitalized.
(g) Intangibles
Excess of cost over fair value of net assets of businesses acquired
("Goodwill") is being amortized using the straight-line method
principally over periods of twenty and forty years. It is the Company's
policy to review that the forecasted cumulative, undiscounted cash flow
of those acquired businesses is greater than the carrying value of the
Goodwill. Amortization expense charged against operations amounted to
$61 million in 1994, $39 million in 1993 and $37 million in 1992.
28
<PAGE>
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(1) Summary of Significant Accounting Policies (continued)
(g) Intangibles (continued)
Patents and trademarks are being amortized on a straight-line basis over
their estimated useful or legal lives, whichever is shorter. Amortization
expense charged against operations amounted to $15 million in 1994,
$15 million in 1993 and $11 million in 1992.
(h) Income taxes
The Company's consolidated results of operations are included in the
consolidated Federal income tax return of its Parent. The Company's Parent
allocates a provision for Federal income taxes equivalent to the tax effect on
the operations of the Company as if a separate return were filed.
Deferred income taxes have been provided to recognize the effect of
temporary differences between financial statement and income tax accounting.
(i) Research and development
Research and development costs are included in expenses as incurred.
(j) Functional currencies
In general, local currencies have been designated as the functional
currencies for the Company's foreign operations and are translated to United
States dollars using the respective exchange rates. In Mexico, prior to
1993, the United States dollar was the functional currency.
(2) Related Party Transactions
Purchases from Hoechst AG and its affiliates aggregated $708 million in
1994, $495 million in 1993 and $516 million in 1992. Net sales to Hoechst AG and
its affiliates aggregated $259 million in 1994, $216 million in 1993 and $217
million in 1992.
The Company's principal licenses are under patents owned by Hoechst AG
and its affiliates. License fees, relating to license agreements between the
Company and Hoechst AG and its affiliates, charged to operations aggregated $33
million in 1994, $48 million in 1993 and $48 million in 1992.
The Company has a revolving credit agreement with its Parent under which
it may borrow up to $750 million. The Company has agreed to pay interest at 30
day LIBOR plus .0625 of 1%. During 1993, the Company borrowed $768 million under
this agreement. Repayments on the revolving credit agreements for 1994 and 1993,
respectively, were $679 million and $89 million. Interest charges related to
such borrowings aggregated $4 million in 1994 and $2 million in 1993. During
1994, the Company did not borrow against this facility and there was no
outstanding balance at December 31, 1994. The outstanding balance on this credit
facility was $679 million at December 31, 1993.
29
<PAGE>
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(2) Related Party Transactions (continued)
Term note obligations payable to Parent aggregated $186 million at
December 31, 1994 and $156 million at December 31, 1993. Interest expense on
these obligations aggregated $13 million in 1994, $7 million in 1993 and $2
million in 1992.
Short-term note obligations payable to Hoechst AG and its affiliated
companies aggregated $510 million at December 31, 1994. Interest expense on such
obligations aggregated $12 million in 1994. Short-term note obligations payable
to Parent aggregated $100 million at December 31, 1992, which was repaid during
1993. No such obligations were outstanding at December 1994 or 1993. Interest
expense on this obligation aggregated $6 million in 1993 and $2 million in 1992.
(3) Net Receivables
<TABLE>
<CAPTION>
1994 1993
------ ------
(In millions)
<S> <C> <C>
Trade........................................................ $1,211 $1,126
Parent and affiliates........................................ 104 63
Other........................................................ 239 180
------ ------
Subtotal................................................... 1,554 1,369
Allowance for doubtful accounts.............................. (36) (33)
------ ------
Net receivables............................................ $1,518 $1,336
====== ======
</TABLE>
As of December 31,1994 and 1993, the Company had no significant
concentrations of credit risk. Concentrations of credit risk with respect to
trade receivables are limited since the Company's customer base is dispersed
across many different industries and geographies.
(4) Inventories
<TABLE>
<CAPTION>
1994 1993
------ ------
(In millions)
<S> <C> <C>
Finished goods............................................... $ 713 $ 600
Work-in-process.............................................. 116 144
Raw materials and supplies................................... 248 340
------ ------
Subtotal................................................... 1,077 1,084
Excess of current costs over stated values................... (75) (60)
------ ------
Total inventories............................................ $1,002 $1,024
====== ======
</TABLE>
At December 31, 1994, $498 million ($518 million at December 31, 1993)
of total inventories were valued by the LIFO method.
30
<PAGE>
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(5) Investments and Equity in Net Earnings (Loss) of Affiliates
(In millions, except number of affilliates)
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Total:
Net sales $ 598 $ 546 $ 575
Net earnings (loss) 13 (8) 9
====== ====== ======
The Company's share:
Net earnings (loss) $ - $ (8) $ 4
Dividends 8 8 9
====== ====== ======
Total assets $ 853 $ 855 $ 755
Total liabilities (219) (265) (214)
Interests of others (344) (320) (298)
------ ------ ------
The Company's equity 290 270 243
Excess of cost over underlying equity in
net assets acquired 68 72 44
------ ------ ------
The Company's investment $ 358 $ 342 $ 287
====== ====== ======
Number of affiliates 7 7 7
====== ====== ======
</TABLE>
(6) Property, Plant and Equipment, Net
<TABLE>
<CAPTION>
1994 1993
------ ------
(In millions)
<S> <C> <C>
Land and improvements........................................ $ 259 $ 241
Buildings, improvements and leasehold improvements........... 635 616
Machinery and equipment...................................... 3,169 3,178
Construction in progress..................................... 437 590
Capitalized interest......................................... 147 137
------ ------
Subtotal................................................... 4,647 4,762
Accumulated depreciation and amortization.................... (1,772) (1,761)
------ ------
Property, plant and equipment, net......................... $2,875 $3,001
====== ======
</TABLE>
Interest costs capitalized in 1994, 1993 and 1992 were $15 million, $21 million
and $14 million, respectively.
31
<PAGE>
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(7) Income Taxes
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"), which
requires the asset and liability method of accounting for income taxes, and
deferred taxes are calculated using enacted tax rates. In addition, FAS 109
significantly changes the accounting for purchase business combinations. The
provisions of FAS 109 have been applied without restating prior years' financial
statements.
Prior to FAS 109, acquired assets and liabilities in a purchase business
combination were shown net of tax. Under FAS 109, these assets and liabilities
are assigned their fair value and deferred taxes are provided on the difference
between such value and their tax bases. Accordingly, in adopting FAS 109, the
Company adjusted the carrying amount of the assets acquired and liabilities
assumed in connection with the 1987 Celanese Corporation acquisition. The
noncash effects from the application of FAS 109 were to increase Property, plant
and equipment $178 million; Investments in affiliates, $34 million; Other
assets, $10 million and Other liabilities, $64 million. Pretax operating income
for the years ended December 31, 1994 and 1993 was reduced by $40 million due to
the increase in depreciation and amortization expense resulting from the higher
carrying amounts. The increase in operating expense was offset by a lower
deferred tax provision.
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
(Loss) earnings before income taxes, minority
interests and cumulative effect of accounting
changes consist of the following:
United States..................................... $ (463) $ 166 $ 236
Non-U.S........................................... 281 162 159
====== ====== ======
$ (182) $ 328 $ 395
The (benefit) provision for income taxes consists
of the following:
Current: United States (Federal and state)....... $ 12 $ 123 $ 187
Non-U.S................................. 99 72 56
------ ------ ------
Total current................................... 111 195 243
------ ------ ------
Deferred: United States (Federal and state)....... (215) (48) (52)
Non-U.S................................. (25) (31) (5)
------ ------ ------
Total deferred.................................. (240) (79) (57)
------ ------ ------
Income tax (benefit) provision.................... $ (129) $ 116 $ 186
====== ====== ======
United States income taxes at Federal statutory
tax rate........................................... $ (64) $ 115 $ 134
Increase (decrease) in taxes resulting from:
Non-deductible depreciation and amortization.... 20 10 28
State income taxes, net of Federal income
tax benefit.................................... (26) 4 8
Additional tax (benefit) provision.............. (55) 4 5
Other........................................... (4) (17) 11
------ ------ ------
Income tax (benefit) provision.................... $ (129) $ 116 $ 186
====== ====== ======
</TABLE>
32
<PAGE>
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(7) Income Taxes (continued)
The tax effects of the temporary differences which give rise to a
significant portion of deferred tax assets and liabilities as of December 31,
1994, and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
(In millions)
<S> <C> <C>
Postretirement obligations........................... $243 $237
Accrued expenses...................................... 278 143
State income taxes.................................... 37 12
Alternative minimum tax carryforward.................. 12 15
Other................................................. 50 40
---- ----
Gross deferred tax assets........................... 620 447
---- ----
Depreciation.......................................... 346 381
Interest.............................................. 1 6
Inventory............................................. 66 65
Non-U.S. investments.................................. 27 33
Other................................................. 10 14
---- ----
Gross deferred tax liabilities...................... 450 499
---- ----
Net deferred tax asset (liability).................... $170 $(52)
==== ====
</TABLE>
The cumulative effect of adopting FAS 109 as of January 1, 1993 amounted
to $31 million and is included as part of the increase to deferred income taxes
in the Consolidated Balance Sheets and a charge to the Consolidated Statements
of Earnings as of December 31,1993. The net adjustment represents the
establishment of deferred taxes primarily due to differences between the book
and tax bases of LiFO inventories and the adjustment of deferred taxes to
reflect the currently enacted tax rate.
A valuation allowance is provided when it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Based on
the Company's historical and current pretax earnings, management believes it is
more likely than not that the Company will realize the benefit of the deferred
tax assets existing at December 31, 1994 and 1993. Further, management believes
the existing deductible temporary differences will reverse during periods in
which the Company generates net taxable income.
The financial reporting basis of investments in certain non-U.S.
subsidiaries differs from their tax basis. In accordance with FAS 109, a
deferred tax liability is not recorded on this temporary difference because the
investments are essentially permanent in duration. A reversal of the Company's
plans to permanently reinvest in these operations would cause such temporary
differences to become taxable. At December 31, 1994 and 1993 these temporary
differences were approximately $374 million and $424 million, respectively. A
determination of the amount of unrecognized deferred tax liability related to
these investments is not practicable.
33
<PAGE>
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCLAL STATEMENTS (continued)
(8) Accounts Payable and Accrued Liabilities
<TABLE>
<CAPTION>
1994 1993
---- ----
(In millions)
<S> <C> <C>
Accounts payable....................................... $ 454 $ 322
Accrued salaries and benefits.......................... 160 150
Accrued environmental costs............................ 89 102
Other.................................................. 666 455
------ ------
Total accounts payable and accrued liabilities....... $1,369 $1,029
====== ======
</TABLE>
(9) Long-term Debt
<TABLE>
<CAPTION>
1994 1993
---- ----
(In millions)
<S> <C> <C>
Term notes:
9.625% notes, due 1999.............................. $ 250 $250
6.125% notes, due 2004.............................. 250 -
7.125% medium-term notes, due 2009.................. 100 -
6.89% term note payable to Parent, due 1998......... 100 70
8.25% term note payable to Parent, due 1997......... 80 80
8.48% senior promissory notes, due 1994-2002........ 35 40
7.5% medium-term notes, due 2004.................... 30 -
9.8% medium-term notes, due 2013 and 2018........... 25 25
9.45% notes, due 1997.............................. - 250
Other............................................... 20 -
Pollution control bonds, interest rates ranging from
3.66% to 8.125% (as adjusted annually), due at
various dates through 2017.......................... 140 146
Other................................................. 56 18
------ ----
Total long-term debt................................. $1,086 $879
====== ====
</TABLE>
The Company has a commercial paper program aggregating $600 million.
There were no balances due at December 31, 1994 and 1993.
The Company has revolving credit agreements with banks that provide for
loans up to $50 million through October, 1996. Under these agreements, the
Company pays a commitment fee of 3/16 of 1% per annum based on unused amounts.
The Company has additional revolving credit agreements with several banks that
provide for loans up to $550 million for a renewable term of 364 days. The
Company pays a commitment fee of 1/16 of 1% per annum on unused amounts. The
above described credit lines provide the credit backup for the Company's
commercial paper program. The credit lines were unused at December 31, 1994 and
1993. The Company had standby and trade letters of credit outstanding amounting
to $130 million at December 31, 1994 and $105 million at December 31, 1993.
The Company has limited involvement with derivative financial instruments
and does not use them for trading purposes. The Company's derivative policy
allows for hedging against future interest rates or currency changes on existing
debt which provides the ability to lock in optimal rates for planned future
borrowings and promotes the achievement of a desired level of fixed floating
rate mix.
34
<PAGE>
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(9) Long-term Debt (continued)
The Company enters into interest rate swap and cap agreements to reduce
costs inherent in the Company's debt portfolio. Regarding interest rate swap
transactions, interest balances due to timing differences are recorded
appropriately in the consolidated balance sheets; up front receipts are included
in deferred revenue and are netted in interest expense over the term of the
agreement. Amounts received under interest rate cap agreements are netted
against interest expense. The premium paid for the cap is included in other
assets in the Consolidated Balance Sheets and is amortized to interest expense
over the term of the agreement. At December 31, 1994, the Company had open
interest rate swaps and cap positions with a notional amount of $400 million.
The Company's exposure to counterparty financial instruments is not material.
The Company's debt instruments include covenants, as defined in the loan
agreements, that require maintenance of consolidated net worth of not less than
$2.3 billion, and the limitation of dividends and other restricted payments. At
December 31, 1994, $442 million was available for dividends or other restricted
payments under existing loan agreements. The Company intends to continue its
current policy to pay dividends to its Parent at the discretion of the Company's
Board of Directors.
Annual maturities of long-term debt each year for the next five years
are: $26 million in 1995; $6 million in 1996; $86 million in 1997; $106 million
in 1998; and $263 million in 1999.
(10) Other Liabilities
<TABLE>
<CAPTION>
1994 1993
---- ----
(In millions)
<S> <C> <C>
Pension and benefit obligations .................... $ 692 $664
Other ............................................... 415 67
----- ----
Total other liabilities ........................... $1,107 $731
</TABLE>
(11) Benefit Plans
The Company has several defined-benefit pension plans covering
substantially all employees. Benefit formulas are based on years of service and
compensation levels or years of service and negotiated benefits. The pension
plans in the United States are being funded in accordance with the requirements
of the Employee Retirement Income Security Act of 1974.
Net periodic pension cost for defined-benefit pension plans consists of
the following:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(In millions)
<S> <C> <C> <C>
Service cost benefits earned during the period ...... $ 57 $ 57 $ 51
Interest cost on projected benefit obligations ...... 115 108 99
Actual return on plan assets (52) (137) (74)
Net amortization and deferral......................... (37) 48 (8)
---- ---- ----
Net periodic pension cost .......................... $ 83 $ 76 $ 68
==== ==== ====
</TABLE>
35
<PAGE>
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(11) Benefit Plans (continued)
The actuarial computations, based on the projected unit credit method,
assumed a discount rate of 8.25%, 7.5% and 8.5% in 1994, 1993 and 1992,
respectively. The assumed rate of return was 9.0%, 9.0% and 8.5% in 1994, 1993
and 1992, respectively. The assumed rate of increase in compensation levels was
5.0%, 4.5% and 5.6% in 1994, 1993 and 1992, respectively.
The following table sets forth the funded status of the Company's
qualified plans and the amounts recognized in the Company's Consolidated Balance
Sheets at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
---- ----
(In millions)
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation ........................... $1,107 $ 991
====== =====
Accumulated benefit obligation....................... $1.159 $1,043
====== ======
Projected benefit obligation ........................ $1,425 $1,301
Plan assets at fair value ........................... 1,103 1,043
----- -----
Projected benefit obligation in excess of plan assets 322 258
Unrecognized prior service cost ..................... (56) (34)
Unrecognized net loss from past experience different
from that assumed .................................. (140) (95)
Unrecognized net asset being recognized over 7 to
18 years ........................................... 44 54
----- ----
Accrued pension obligations ....................... $ 170 $183
</TABLE>
Assets of the Company's pension plans consist of equity and fixed income
securities, real estate and deposit administration contracts maintained in
master trust funds, which are managed by various investment managers appointed
by the Company.
The Company has various investment savings plans for certain employees,
some of which qualify under Section 401(k) of the Internal Revenue Code. The
Company's contributions to the plans are based on specified percentages of
employee contributions and aggregated $36 million in 1994, $33 million in 1993
and $31 million in 1992.
The Company provides certain of its employees with non-qualified
supplemental retirement benefits. The accumulated benefit obligation of these
benefits totaled $103 million in 1994 and $96 million in 1993.
36
<PAGE>
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continuedj
(12) Other Postretirement Benefits
Under various employer sponsored plans, the Company provides certain
health care and life insurance benefits for retired employees and their
dependents. Substantially all of the Company's employees are eligible for health
care benefits after reaching normal retirement age with 10 years of service.
Benefits, eligibility and cost sharing provisions for union employees vary by
location. Generally, the medical plans pay a stated percentage, based upon years
of service, of most medical expenses reduced for any deductible and payments
made by government programs and other group coverage. The Company is generally
self-insured for these costs and has no plan assets. The plans' provisions
include a cap which limits future Company contributions for medical coverage
under these plans.
Net Periodic Postretirement Benefit Cost included the following
components:
<TABLE>
<CAPTION>
1994 1993
---- ----
(In millions)
<S> <C> <C>
Service cost on benefits earned............... $ 8 $ 5
Interest cost on accumulated postretirement
benefit obligation ......................... 28 28
--- ---
Net periodic postretirement benefit cost ... $36 $33
=== ===
</TABLE>
The following table sets forth the unfunded status of the plans, which
represents the accrued postretirement benefit cost recognized in the Company's
Consolidated Balance Sheets at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
---- ----
(In millions)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees ..................................... $245 $271
Active plan participants 126 132
---- ----
Accumulated postretirement benefit obligation. 371 403
Unrecognized net loss (7) (59)
---- ----
Accrued postretirement benefit cost ........ $364 $ 34
==== ====
</TABLE>
For measuring the expected postretirement benefit obligation, the
Company assumed a 10.025% rate of increase in the per capita claims cost in 1994
and assumed that the rate would decrease gradually over a six year period to
5.5% and remain at that level thereafter. The discount rate used in determining
the accumulated postretirement benefit obligation was 8.25% and 7.5% at December
31, 1994 and December 31, 1993, respectively.
If the health care cost trend were increased 1.0%, the accumulated
postretirement benefit obligation as of December 31, 1994 would have increased
by approximately $24 million, or 6.5%. The effect of the change on the aggregate
of service and interest cost for 1994 would be an increase of approximately $2
million. or 5.6%.
37
<PAGE>
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCLAL STATEMENTS (continued)
(12) Other Postretirement Benefits (continued)
Effective January 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" ("FAS 112"). This Statement requires an accrual method
of recognizing postemployment benefits such as disability-related benefits.
The cumulative effect at January 1, 1993 of adopting FAS 112 reduced net
income by $8 million, net of $4 million of income tax benefits. The effect of
this change on 1993 income before cumulative effect of accounting changes was
not material.
Effective January 1, 1992, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ["FAS 106"], which requires the
Company to accrue the current cost of those benefits. The Company elected to
recognize immediately the transition obligation measured as of January 1, 1992.
This resulted in a one-time after-tax charge of $141 million (after a reduction
for income taxes of $90 million and the effect of minority interests of $3
million). The effect of this change on operating results, after recording the
cumulative effect for years prior to 1992, was to recognize an additional
pretax expense of $23 million.
(13) Leased Assets and Lease Commitments
At December 31, 1994, minimum lease commitments under long-term
operating leases are as follows:
<TABLE>
<CAPTION>
(In millions)
<S> <C>
1995 ............................................ $ 50
l996 ............................................ 37
1997 ............................................ 31
1998 ............................................ 26
1999 ............................................ 21
Later years .................................... 26
Sublease income ................................ (5)
----
Net minimum lease commitments................. $186
====
</TABLE>
Total minimum rent charged to operations under all operating leases was
$69 million in 1994, $68 million in 1993 and $64 million in 1992.
Effective December 31, 1992, the Parent increased its investment in the
Company's by contributing to the Company property, plant and equipment that had
been leased under capital leases from its Parent. Rental payments made under
such lease obligations amounted to $10 million for the period ended December
31, 1992. The effect of the transaction was to increase additional paid-in
capital by $49 million, reverse $10 million of previously existing deferred
income taxes and decrease debt (obligations under capital leases) by $59
million.
Management expects that, in the normal course of business, leases that
expire will be renewed or replaced by other leases.
38
<PAGE>
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(14) Segment and Geographical Information
<TABLE>
<CAPTION>
Totals as
Specialties shown in
and Corporate/ consolidated
Fibers Advanced Life Advanced Eliminations financial
Chemicals and Film Materials Sciences Technology (a) & Other statements
--------- -------- ----------- -------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(In millions)
1994:
Net sales...................... $2,057 $3,389 $1,581 $966 $ 2 $(201) $7,794
Operating (loss)............... 282 359 51 (78) (87) (621)(b) (94)
Depreciation/amortization(c)... 150 199 107 50 18 (7) 517
Capital expenditures........... 108 245 89 41 14 5 502
Total assets................... 2,557 2,493 1,579 933 70 478 8,110
1993:
Net sales..................... $1,774 $3,104 $1,469 $757 $ 2 $(207) $6,899
Operating income.............. 88 415 58 17 (88) (130) 360
Depreciation/amortization(d).. 165 154 107 42 14 13 495
Capital expenditures.......... 98 322 97 57(e) 11 3 588
Total assets.................. 2,599 2,582 1,413 1,170 100 73 7,937
1992:
Net sales..................... $1,810 $3,191 $1,489 $749 $ 5 $(200) $7,044
Operating income.............. 210 298 26 60 (90) (106) 398
Depreciation/amortization..... 127 170(f) 88 18 13 16 432
Capital expenditures.......... 149 293 87 33 22 8 592
Total assets.................. 2,420 2,465 1,414 372 83 290 7,044
</TABLE>
----------
(a) Beginning in 1993, the Company segregated amounts associated with Advanced
Technology. This new segment represents research and development costs to
seed and develop new businesses. When projects or businesses become viable,
they are transferred to the appropriate operating segment. The prior years'
segment results have been restated to reflect this change.
(b) Includes Special charges. See Note (16).
(c) Includes $18 million of depreciation reserves for asset write-downs related
to the 1994 Special charges.
(d) Includes $15 million of depreciation and a $4 million reserve for asset
impairment related to the 1993 realignment program.
(e) Includes $29 million of assets related to the purchase of Copley and $3
million of assets related to the purchase of certain other businesses.
(f) Includes a $30 million reserve for asset impairment related to 1992
realignment program for North American Fibers.
39
<PAGE>
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(14) Segment and Geographical Information (continued)
The following table presents financial information based on the
geographic location of the manufacturing facilities of the Company:
<TABLE>
<CAPTION>
United Other Regions/
States Mexico Canada Europe Eliminations Total
------ ------ ------ ------ -------------- -------
<S> <C> <C> <C> <C> <C> <C>
(In millions)
1994:
Net sales(a)...................... $6,152 $820 $443 $357 $ 22 $7,794
Transfers between geographic
areas(b)......................... 266 171 192 - (629) -
------ ---- ---- ---- ------- ------
Total........................... $6,418 $991 $635 $357 $ (607) $7,794
====== ==== ==== ==== ======= ======
Operating (loss).................. $ (396) $102 $181 $ 14 $ 5 $ (94)
Total assets...................... $7,958 $684 $476 $158 $(1,166) $8,110
1993:
Net sales(a)...................... $5,574 $675 $293 $340 $ 17 $6,899
Transfers between geographic
areas(b)......................... 198 121 160 1 (480) -
------ ---- ---- ---- ------- ------
Total........................... $5,772 $796 $453 $341 $ (463) $6,899
====== ==== ==== ==== ======= ======
Operating income.................. $ 234 $ 36 $ 81 $ 14 $ (5) $ 360
Total assets...................... $7,305 $938 $260 $139 $ (705) $7,937
1992:
Net sales(a)...................... $5,598 $766 $280 $381 $ 19 $7,044
Transfers between geographic
areas(b)......................... 195 95 190 2 (482) -
------ ---- ---- ---- ------- ------
Total........................... $5,793 $861 $470 $383 $ (463) $7,044
====== ==== ==== ==== ======= ======
Operating income.................. $ 278 $ 60 $ 42 $ 19 $ (1) $ 398
Total assets...................... $6,241 $908 $260 $134 $ (499) $7,044
</TABLE>
----------
(a) Included in United States net sales are export sales of $1,003 million
in 1994, $845 million in 1993 and $877 million in 1992.
(b) Product transfers between geographic areas are priced on a basis
intended to reflect, as nearly as practicable, the prevailing market
value of the products transferred.
40
<PAGE>
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(15) Commitments and Contingencies
The Company is a defendant in a number of lawsuits, including
environmental, product liability and personal injury actions (see Note (18)
for discussion of environmental). Certain of these lawsuits are or 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 these
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 consolidated financial position or
results of operations of the Company.
The Company is named as a defendant in twenty-five putative class
actions, five of which have been certified as class actions as well as
defendant in other non-class actions filed in eleven states ("the Plumbing
Actions"). In these lawsuits the plaintiffs typically seek recovery for
alleged property damage to housing units, mental anguish from the alleged
failure of polybutylene plumbing systems, and punitive damages and, in
certain cases, additional damages under the Texas Deceptive Trade Practices
Act. The other defendants include United States Brass Corporation ("U. S.
Brass") (formerly a wholly owned subsidiary of Household International,
Inc.), Vanguard Plastics, Inc. ("Vanguard"), Shell Oil Company ("Shell")
and E. I. duPont de Nemours & Co. Inc., ("duPont").
Damage amounts are not specified. The plumbing systems were designed and
manufactured primarily by U. S. Brass and Vanguard. The pipe was made from
polybutylene resin supplied by Shell. The Company sold acetal copolymer
resin and duPont sold acetal homopolymer resin to other companies who
manufactured certain of the fittings used in the plumbing systems. Based
on, among other things, the finding of outside experts and the successful
use of the Company's acetal copolymer in similar applications, the
Company does not believe that its acetal copolymer was defective or caused
the plumbing systems to fail. In many cases the Company's exposure may be
limited by the fact that the other defendants and other responsible parties
may be found liable in whole or substantial part or by invocation of the
statute of limitations since the Company ceased selling the resin for use
in the plumbing systems in site built homes during 1986 and in manufactured
homes during 1989.
The Company together with Shell and duPont agreed to and announced, in
October 1994, a proposed settlement of a purported nationwide class action
subject to court approval, which would provide replumbings to qualifying
homeowners with leaking polybutylene plumbing systems throughout the United
States. This proposed settlement would have required the three
participating companies to commit to spend up to $750 million for claims
over a 13 year period which the Company estimates will end in 2003. The
Texas State Court, in February 1995, denied the companies' request for
preliminary approval of this settlement. Appeals of this denial have been
filed, and the three participating companies are also presently exploring
several alternatives.
The Company is not liable for any alleged defects in such systems, which
were designed, manufactured and marketed by other companies. Nonetheless,
the Company has agreed to participate in the settlement to reduce
litigation expenses and to provide relief to qualifying homeowners with
polybutylene plumbing problems.
The Company has accrued its best estimate of its share of the plumbing
actions. Due to the many variables involved in the estimation process, as
facts and circumstances change, the estimate will be adjusted. Since the
Company was only one of the suppliers of a resin used in part of the
plumbing systems and not a manufacturer or marketer of these systems, the
Company does not know the number of units that contain the plumbing
systems, the number of systems that will fail, if any, or the extent of any
failures. Based on settlement agreements signed
41
<PAGE>
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(15) Commitments and Contingencies (continued)
with several insurers and the opinion of counsel as to the outcome of
current litigation with the remaining insurers, management believes that
the expenses related to the plumbing actions are substantially covered by
insurance.
Management believes that the plumbing claims will not have a material
adverse effect on the consolidated financial position, or results of
operations of the Company.
In order to mitigate the potential exposure to and cost of litigation,
the Company, together with Shell and duPont, has agreed to continue funding
the Plumbing Claims Group ("PCG"). PCG is the company which assesses
individual repair requests and pays for certain repairs of qualifying
homeowners with leaking polybutylene plumbing systems. To date, PCG has
been funded by the Company, Shell and duPont on an ongoing basis as monies
were spent. However, the ultimate amount that will be allocated to each
company has yet to be determined.
At December 31, 1994, there were outstanding Commitments relating to
capital projects of approximately $110 million.
(16) Special Charges
During 1994, the Company recorded a special charge of $532 million ($319
million net of tax). This charge included the expected costs pertaining to
pending and future product liability claims, net of probable insurance
recoveries, relating to certain plumbing systems using fittings
manufactured by other companies from acetal copolymer resin and additional
environmental remediation exposures. In addition, this special charge
includes the expected costs and expenses relating to the reduction in the
workforce and the write-down of assets associated mostly with the
Specialties and Advanced Material segment. See Notes (15) and (18) for
additional information relating to the class action and environmental,
respectively.
During 1993, the Company realigned its North American, principally
Mexican, chemicals operations and charged $29 million to Chemicals
operating income, $19 million of which related to the write-down of
property, plant and equipment.
During 1992, the Company realigned its North American polyester fibers
operations and charged $87 million to Fibers and Film operating income, $34
million of which related to the write-down of property, plant and
equipment. An additional $15 million was established for regionalization of
certain other businesses.
42
<PAGE>
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(17) Fair Value of Financial Instruments
Summarized below are the carrying values and fair values of the
Company's financial instruments as of December 31, 1994 and 1993. The fair
value represents the Company's estimate and, therefore, should not be
construed as the value that the Company would receive or give up for a
financial instrument.
Included in other assets are certain investments accounted for under the
cost method. In general, the investments are not publicly traded and,
therefore, fair values are not readily determinable; the Company believes
that the carrying value approximates the fair value.
The fair value of the Company's long-term debt and derivative financial
instruments is estimated based on quotations from investment bankers and on
current rates of debt for similar types of issues. Derivative Financial
Instruments relating to debt are required disclosure for 1994 only, and the
fair value on these instruments is equal to the unrealized gain (loss).
The carrying amounts reported in the balance sheet for cash and cash
equivalents, net receivables, commercial paper, notes payable, trade
payables and the current installments of long-term debt approximates fair
market value, due to the short maturity of these instruments.
<TABLE>
<CAPTION>
1994 1993
---------------- ----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------ -------- ------
<S> <C> <C> <C> <C>
(in millions)
Other assets - Investments.............. $ 57 $ 57 $ 43 $ 43
Long-term debt.......................... 1,086 1,038 879 946
Debt related derivative instruments..... - (3) - -
</TABLE>
(18) Environmental
The Company's worldwide operations are subject to environmental laws and
regulations which impose limitations on the discharge of pollutants into
the air and water and establish standards for the treatment, storage and
disposal of solid and hazardous wastes. The Company believes that it is in
substantial compliance with all applicable environmental laws and
regulations.
The Company reviews the effects of any new laws and regulations on each
of its locations; determines whether a liability exists based on that
review; and records a liability, as appropriate. The Company expenses all
expenditures mandated by law or Company policy to ameliorate existing
conditions. Liabilities that are established represent the Company's best
estimate based on all the available facts and are adjusted as facts and
circumstances change.
The Company may be subject to substantial claims brought by Federal or
state regulatory agencies or private individuals pursuant to statutory
authority or common law. In particular, the Company has a potential
liability under the Federal Comprehensive Environmental Response
Compensation and Liability Act ("Superfund") and related state laws for
investigation and cleanup costs at approximately 100 sites. At most of
these sites, numerous
43
<PAGE>
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(18) Environmental (continued)
companies, including either the Company or one of its predecessor
companies, have been notified that the United States Environmental
Protection Agency ("EPA"), state governing body or private individuals
consider such companies to be potentially responsible parties ("PRPs")
under Superfund or related laws. The proceedings relating to these sites
are in various stages. The cleanup process has not been completed at most
sites and the status of the insurance coverage for most of these
proceedings is uncertain. Consequently, the Company cannot determine
accurately its ultimate liability for investigation or cleanup costs at
these sites. Expenditures (including third party and divested sites) for
investigation, clean up and related activities have been $32 million for
the three years ended December 31, 1994 with expenditures in no year
greater than $13 million.
As events progress at each site for which it has been named a PRP, the
Company accrues, as appropriate, a liability for site cleanup. Such
liabilities include all costs that are probable and can be reasonably
estimated. In establishing these liabilities, the Company considers: its
shipments of waste to a site; its percentage of total waste shipped to the
site; the types of wastes involved; the conclusions of any studies; the
magnitude of any remedial actions that may be necessary; and the number and
viability of other PRPs. Often HCC will join with other PRPs to sign joint
defense agreements that will settle, among the PRPs, each party's percent
allocation of costs at the site. Although the ultimate liability may differ
from the estimate, the Company routinely reviews the liabilities and
revises the estimate, as appropriate, based on the most current information
available.
In 1994, 1993 and 1992 the total environmental costs charged to
operations for remediation efforts amounted to $105 million, $34 million
and $46 million, respectively. As of December 31, 1994 and 1993, the
Company's total environmental liability recognized in the financial
statements is $208 million and $149 million. The amounts are neither
reduced for anticipated insurance recovery nor discounted from the
anticipated payment date. Moreover, environmental liabilities are paid over
an extended period and the timing of such payments cannot be predicted with
certainty.
Management believes that environmental costs will not have a material
adverse effect on the financial position or results of operations of the
Company.
(19) Other Matters
As a result of the significant devaluation of the Mexican peso in
December 1994, the equity section of the Company was negatively impacted by
approximately $120 million due to the translation effect of the Company's
40% ownership of Celmex. The Company is uncertain about the possible future
impact the fluctuation of the Mexican currency will have on its
consolidated results.
Fibers and Film's 1993 operating income includes a $50 million receipt
in settlement of a litigation. The amount has been included in Selling,
general and administrative expenses.
44
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Hoechst Celanese Corporation:
We have audited the accompanying consolidated balance sheets of Hoechst
Celanese Corporation as of December 31, 1994 and 1993, and the related
consolidated statements of earnings, stockholder's equity, and cash flows for
each of the years in the three-year period ended December 31, 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Hoechst
Celanese Corporation as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
As discussed in Notes 7 and 12 to the consolidated financial statements,
the Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" and No. 112, "Employers' Accounting for Postemployment Benefits" in 1993.
As discussed in Note 12 to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" in 1992.
KPMG PEAT MARWICK LLP
Short Hills, New Jersey
January 31, 1995
45
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There has been no change of accountants or reported disagreement on any
matter of accounting principles or procedures or financial statement disclosure
in 1994.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of Hoechst Celanese are as follows:
Name Age Position(s) with the Company
---- --- ----------------------------
Guenter Metz........... 59 Chairman of the Board of Directors
Karl G. Engels/(1)/.... 51 President, Chief Executive Officer and Director
Harry R. Benz/(1)/..... 57 Senior Vice President-Finance, Chief Financial
Officer and Director
Thomas F. Kennedy/(1)/. 52 Executive Vice President and Director
William B. Harris/(1)/. 48 Senior Vice President and Director
David A. Jenkins....... 54 Vice President-General Counsel and Director
Charles M. Langston.... 45 Vice President-Strategic Resources Management
Klaus Schmieder........ 46 Vice President and Treasurer
Alban W. Schuele....... 50 Vice President-Canadian Operations
Raymond W. Smedley..... 54 Vice President and Controller
/(1)/ Member of Executive Committee, a committee of the Board of Directors.
----------
All directors of the Company, except as noted below, have been appointed
for a term commencing November 22, 1994. All terms of directors will end on the
date of the next annual stockholder meeting.
All executive officers were appointed for a term commencing November
28, 1994. All terms of executive officers will end at the first meeting of the
Board following the next annual stockholder meeting.
Dr. Metz has been Director and Chairman of the Company since January
1, 1995. He has been a Director of Hoechst Corporation since February 1987 and
has been Chairman of Hoechst Corporation since April 1994. From October 1986 to
February 1987 he was a Director of American Hoechst Corporation ("AHC"). Since
April 1988 he has been Deputy Chairman of the Board of Management of Hoechst AG.
Since April 1994 he has been responsible for all Hoechst Group activities in
North America. Dr. Metz has been with Hoechst AG for 32 years and is a resident
of the Federal Republic of Germany.
46
<PAGE>
Mr. Engels has been President of the Company since May 1994 and director
of the Company since September 1991. From April 1992 to April 1994 he was
Senior Vice President of the Company and from September 1991 to March 1992 he
was Vice President of the Company. He was Vice President-Marketing and Sales of
the Fibers Division of Hoechst AG from November 1986 until August 1991. From
January 1985 to October 1986 he was Director of Personnel and Social Policies
for the Hoechst Group. From 1981 to December 1984, he was Divisional Director
and head of the Staff Department of Hoechst AG, coordinating the Hoechst Group
affiliates outside the Federal Republic of Germany. Mr. Engels has been with
Hoechst AG for 22 years.
Mr. Benz has been Senior Vice President-Finance and Chief Financial
Officer of the Company since April 1992 and Director of the Company since
February 1987. From February 1987 to March 1992 he was Vice President-Finance
and Chief Financial Officer of the Company. He was a Director and Chief
Financial Officer with AHC from October 1980 to February 1987. Prior to 1980 he
served as AHC's Treasurer for nine years. He also had responsibility for AHC's
Petrochemicals and Plastics Group. Prior to joining AHC, he was employed by
Peat, Marwick, Mitchell & Co. for 10 years.
Mr. Kennedy has been Executive Vice President of the Company since April
1992 and Director of the Company since March 1989. On January 1, 1995, he was
appointed Head of Hoechst Worldwide Basic Chemicals. He was Group President of
the Chemical Group from July 1989 to March 1992. From March 1989 to March 1992
he was Vice President of the Company. Prior to that, he was President of the
Chemical Group from March 1989 to June 1989, Executive Vice President of the
Chemical Group from January 1988 to February 1989 and Executive Vice President
of Celanese Chemical Company, Inc. from September 1986 until December 1987. He
previously served as Vice President and General Manager of Filter Products from
October 1984 to September 1986. Prior to that, he was Business Director of
Celanese Chemical Company, Inc.
Mr. Harris has been Senior Vice President of the Company since May 1,
1994 and on the same date he was appointed Head of Hoechst Worldwide Fibers. He
was President of Textile Fibers Group from January 1990. From January 1988 to
May 1994 he was Vice President of the Company. He served as Treasurer of the
Company from January 1988 until March 1989 and Executive Vice President, Textile
Fibers Group from April 1989 until December 1989. He was formerly President of
Celanese Fibers Operations, Ltd. from September 1986 until January 1988 and Vice
President and General Manager of Polymer and Filter Products from September 1986
until December 1987. He served as Vice President, Administration of Celanese
Fibers from November 1984 until August 1986. From May 1984 he was Executive Vice
President of Celanese Canada Inc. and from November 1982 until April 1984 he was
Vice President, Finance of Celanese Canada Inc.
Mr. Jenkins has been Vice President-General Counsel of the Company since
January 1989 and a Director since April 1989. He served as Deputy General
Counsel of the Company from June 1987 to December 1987 and as Vice President and
General Counsel of the Hoechst Celanese Advanced Technology Company from August
1986 to June 1987. He was Secretary of Celanese from June 1984 to August 1986
and General Attorney of Celanese from September 1976 to August 1986.
Dr. Langston has been Vice President-Strategic Resources Management of
the Company since January 1991. Prior to that, he was Vice President, Human
Resources of the Life Sciences Group from March 1989 to December 1990. From July
1987 to February 1989 he was the Company's Director of Compensation. From
September 1982 to June 1987 he was Director, Human Resources of the Specialty
Chemicals Group.
Mr. Schmieder has been Vice President and Treasurer of the Company since
January 1, 1992. He was Regional Manager for the Asia/Pacific Region of Hoechst
AG from January 1990 to December 1991. From 1987 to December 1989 he worked on
various assignments in the Central Staff and Legal Departments of Hoechst AG.
From 1977 to 1987 he was in the Legal Department of Hoechst AG. Mr. Schmieder
has been with Hoechst AG for 18 years.
47
<PAGE>
Mr. Schuele has been Vice President of the Company since February 1987
and responsible for Canadian Operations since May 1991. Prior to that, he was
President of Specialty Products Group from February 1989 to April 1991 and Vice
President-Quality and Communications from January 1988 to January 1989. He
served as Treasurer from 1981 until January 1988 and became a Vice President in
1985. He joined AHC in 1980 as Assistant Treasurer after having been with The
Chase Manhattan Bank, N.A. for 10 years.
Mr. Smedley has been Vice President and Controller of the Company since
February 1987. Prior to that, he served as Controller of AHC from 1975 and Vice
President and Controller from 1980. Prior to joining AHC in 1972, he was with
Price Waterhouse & Co. for 10 years. He is a Certified Public Accountant.
48
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following tables set forth the compensation paid during the past
three years and, in the case of pensions, payable in the future to the Chief
Executive Officer and the four next most highly compensated executive officers
of the Company.
Compensation Table
The following table sets forth the total amount of cash compensation
paid to the named executives in 1994, 1993 and 1992.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
Name and ----------------------- ------------ All Other
Principal Position Year Salary Bonus/(1)/ LTIP Payouts Compensation/(2)/
------------------ ---- ------ ---------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
Ernest H. Drew/(3)/ 1994 $621,442 $500,000 - $30,481
President, Chief Executive Officer 1993 588,269 620,000 $32,000 15,000
1992 559,231 200,000 48,000 15,000
Karl G. Engels 1994 351,731 460,000 55,200 16,082
President, Chief Executive Officer 1993 261,923 230,000 140,000 13,096
1992 233,269 80,000 - 11,663
Joseph H. Patterson/(4)/ 1994 449,135 400,000 69,000 22,688
Executive Vice President 1993 357,789 325,000 267,200 15,000
1992 339,616 170,000 72,800 15,000
Thomas F. Kennedy 1994 371,231 350,000 59,800 18,561
Executive Vice President 1993 355,885 285,000 239,200 15,000
1992 337,423 170,000 72,800 15,000
William B. Harris 1994 260,942 350,000 27,600 13,609
Senior Vice President 1993 214,673 117,000 110,400 10,734
1992 202,154 110,000 33,600 10,108
</TABLE>
----------
/(1)/ Bonus paid early in the following year for services rendered in each of
the listed years.
/(2)/ Company contribution to Savings Plan.
/(3)/ Retired from the Company effective January 1, 1995. He is currently
serving on the Board of Management of Hoechst AG.
/(4)/ Pursuant to an agreement with the Company, Dr. Patterson will continue as
an employee of the Company through February 28, 1996, at which time his
employment will terminate and he will be eligible to receive 29 weeks of
separation pay. Dr. Patterson has indicated his intention to retire under
the provisions of the Hoechst Celanese Retirement Plan and the Hoechst
Celanese Executive Pension Plan on March 1, 1996.
49
<PAGE>
1994 Long-Term Incentive Awards Table
The following table sets forth the awards made under the Company's Long-
Term Incentive Award Plan to the named executives in 1994.
Long-Term Incentive Plans - Awards in Last Fiscal Year
<TABLE>
<CAPTION>
Estimated Future Payouts
-----------------------------------
Number of Period Until Threshold Target Maximum
Name Units Payout
---- -------- ------------ --------- ------ -------
<S> <C> <C> <C> <C> <C>
Ernest H. Drew 0 - 0 0 0
Karl G. Engels 4000 3 Years $100,000 $400,000 $600,000
Joseph H. Patterson 4000 3 Years 100,000 400,000 600,000
Thomas F. Kennedy 3500 3 Years 87,500 350,000 525,000
William B. Harris 2000 3 Years 50,000 200,000 300,000
</TABLE>
Payments and awards are tied to achieving specified levels of Return on
Capital Employed ("ROCE"), both absolute and relative to a competitive group of
other companies. The target amount will be earned if 100% of the targeted ROCE
is achieved. If threshold levels are not achieved, no payments will be made from
the Plan. If threshold levels are achieved but target levels are not achieved,
payments as low as 25% of the target amounts will be made. If certain stretch
goals beyond target levels are achieved, payments as high as 150% of the target
amounts will be made.
50
<PAGE>
Pension Table
The following table sets forth estimated annual retirement benefits for
the named executives under the Hoechst Celanese Retirement Plan and the Hoechst
Celanese Executive Pension Plan.
<TABLE>
<CAPTION>
Pension Plan Table/(1)/
Benefits for Representative Years of Credited Service/(2)/
-----------------------------------------------------
Final Average Earnings/(3)/ 15 20 25 30 35
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 100,000....................$ 55,050 $ 60,000 $ 60,000 $ 60,000 $ 60,000
200,000.................... 110,000 120,000 120,000 120,000 120,000
300,000.................... 165,000 180,000 180,000 180,000 180,Q00
400,000.................... 220,000 240,000 240,000 240,000 240,000
500,000.................... 275,000 300,000 300,000 300,000 300,000
600,000.................... 330,000 360,000 360,000 360,000 360,000
700,000.................... 385,000 420,000 420,000 420,000 420,000
800,000.................... 440,000 480,000 480,000 480,000 480,000
900,000.................... 495,000 540,000 540,000 540,000 540,000
1,000,000.................... 550,000 600,000 600,000 600,000 600,000
1,100,000.................... 605,000 660,000 660,000 660,000 660,000
1,200,000.................... 660,000 720,000 720,000 720,000 720,000
</TABLE>
----------
/(l)/ This table represents total benefits payable from both the Hoechst
Celanese Retirement Plan and the Hoechst Celanese Executive Pension Plan.
Drs. Drew and Patterson and Messrs. Kennedy and Harris are participants in
both of these plans. Mr. Engels is covered by the Hoechst AG Pension Plan.
Benefits from the Executive Pension Plan are only payable in the event the
executive retires directly from employment with the Company.
/(2)/ Amounts shown assume the executive retires at age 65 (or earlier if
certain years of service requirements with the Company are met) and are
paid annually for the remainder of the executive's life regardless of
marital status. Benefits listed in the table are not subject to any
deduction for Social Security.
/(3)/ Final Average Earnings are defined in the plans as the average of the
three highest years' earnings (base salary plus bonus) out of the last 10
years before retirement. The current Final Average Earnings for Dr. Drew
are within 10% of the amounts reported as 1994 Annual Compensation on the
Compensation Table. The Final Average Earnings for Dr. Patterson, Messrs
Kennedy and Harris are approximately $606,250; $568,500 and $340,361,
respectively. The approximate years of Credited Service of the executives
covered by the plans are: Dr. Drew, 28 years; Dr. Patterson, 27 years; Mr.
Kennedy, 28 years and Mr. Harris, 22 years.
Employment contract with Hoechst AG. Mr. Engels has a special contract with
Hoechst AG that covers certain aspects of his assignment in the United States in
the nature of foreign relocation allowances, such as moving and travel expenses,
vacation, home leaves, contributions to the German health insurance system while
employed in the United States, emergency home leaves, etc. His salary and
benefits are provided by the Company as long as he is employed in the United
States by the Company.
51
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Collectively, the directors and executive officers of the Company
beneficially own less than 1% of the outstanding capital stock of Hoechst AG.
Each of Messrs. Benz, Kennedy and Schuele serves on the Board of Directors of
Celanese Canada Inc. Each of Messrs. Benz and Kennedy own 300 shares of its
common stock. Mr. Scheule is the beneficial owner of 2,200 shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationship with Hoechst AG
The Company is wholly owned by Hoechst Corporation, which in turn is
wholly owned by Hoechst AG, a large chemical company headquartered in Frankfurt,
Federal Republic of Germany. Hoechst AG is a publicly held company whose shares
are listed and traded on the Tokyo stock exchange in Japan and on a number of
major stock exchanges in Europe including the Frankfurt, Federal Republic of
Germany; London, United Kingdom; and Geneva, Switzerland stock exchanges.
The Company and Hoechst AG are parties to a broad research and
development cost-sharing agreement. In most cases, licenses between the Company
and Hoechst AG under patents owned by Hoechst AG require no specific payment
because overall research and development costs have been shared. However, when
license agreements are negotiated and utilized between the Company and Hoechst
AG, they are on terms that are as favorable to the Company as could be obtained
by third parties from Hoechst AG.
The Company, from time to time, has entered into various financing
agreements with its parent, Hoechst Corporation, and affiliates of Hoechst AG at
competitive rates. See Note (2) of Notes to Consolidated Financial Statements.
The Company has, from time to time, contracted for various plant and
equipment design and consulting services from companies in the Hoechst Group on
terms at least as favorable as could be obtained from third parties.
The Company purchases from companies in the Hoechst Group many chemical
raw materials at competitive prices for use in manufacturing chemically-related
products. Several finished chemicals, which are resold in the United States, are
also purchased from companies in the Hoechst Group. See Note (2) of Notes to
Consolidated Financial Statements.
The Company intends to continue its current policy of paying dividends
to Hoechst Corporation at the discretion of the Company's Board of Directors.
Payment of dividends by the Company is restricted by its public debt
instruments, when there is, or a payment would result in, a default under these
instruments or if the payments (when aggregated with other "Restricted Payments"
as defined therein) would exceed a formula amount based on the total of $250
million plus Consolidated Net Income (as defined therein) plus certain Net Cash
Proceeds from the sale, conversion or exchange of stock (as specified therein).
Certain of the Company's employees, including a director, have
employment contracts with Hoechst AG. See "Executive Compensation."
52
<PAGE>
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a)(l) Financial Statements
The Consolidated Financial Statements of the Company and the Report of
Independent Auditors of KPMG Peat Marwick LLP are set forth in the Financial
Statements (Item 8) and are filed as part of this report.
(a)(2) Exhibits
The following Exhibits are filed as part of this report:
Exhibit
Number Description
------ -----------
3.1 Restated Certificate of Incorporation of the Company (filed as a part of
Exhibit 3 to the Company's Form S-l Registration Statement No. 33-13326
filed April 10, 1987, and incorporated herein by reference).
3.2 Bylaws of the Company as amended December 15, 1989 (filed as an Exhibit
to the Company's Annual Report on Form 10-K for the year ended December
31, 1989, and incorporated herein by reference).
4.1 Form of Indenture between the Company and The Bank of New York relating
to the 9.45% Notes due 1997, and the form of such notes (filed as
Exhibits to the Company's Quarterly Report on Form 10-Q for the interim
period ended June 30, 1987, and incorporated herein by reference).
4.2 Form of Indenture between the Company and The Bank of New York relating
to the 9 5/8% Notes due 1999, and the form of such notes (filed as
Exhibits to the Company's Quarterly Report on Form 10-Q for the interim
period ended September 30, 1987, and incorporated herein by reference).
4.3 Form of Indenture between the Company and Chemical Bank relating to
medium-term notes and the form of such notes (filed as Exhibits to the
Company's Quarterly Report on Form 10-Q for the interim period ended
September 30, 1988, and incorporated herein by reference).
4.4 Form of First Supplemental Indenture between the Company and Chemical
Bank relating to medium-term notes and the form of such notes (filed as
Exhibits to the Company's Form S-3 Registration Statement No. 33-23628
filed April 24, 1991, and incorporated herein by reference).
4.5 Form of Indenture between the Company and Chemical Bank relating to debt
securities and medium-term notes and the form of such securities and
notes (filed as Exhibits to the Company's Form S-3 Registration Statement
Nos. 33-23628 and 33-51675 filed December 22, 1993 and incorporated
herein by reference).
4.6 The Company agrees to furnish the Commission upon request a copy of any
other instrument with respect to long-term debt of the Company and any
subsidiary for which consolidated or unconsolidated financial statements
are required to be filed and as to which the amount of securities author-
ized thereunder does not exceed 10% of the total assets of the Company
and its subsidiaries on a consolidated basis.
53
<PAGE>
10.1 Memorandum of Cooperation, dated October 20, 1983, between AHC and
Roussel-Uclaf S.A., relating to Hoechst-Roussel Pharmaceuticals
Incorporated (filed as an Exhibit to the Company's Form S-1 Registration
Statement No. 33-13326 filed April 10, 1987, and Incorporated herein by
reference).
10.2 Agreement containing Consent Order and Agreement to Hold Separate, dated
February 19, 1987, among Hoechst AG, AHC, Celanese and the United States
Federal Trade Commission (filed as an Exhibit to the Company's Form S-l
Registration Statement No. 33-13326 filed April 10, 1987, and
incorporated herein by reference).
10.3 Technology Cooperation and License Agreement between Hoechst AG and the
Company as of January 1, 1988 (filed as an Exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31, 1987, and
incorporated herein by reference).
10.4 Summary of AHC Medical Program Policy provisions applicable to former
members of the AHC Executive Committee (filed as an Exhibit to the
Company's Form S-1 Registration Statement No. 33-13326 filed April 10,
1987, and incorporated herein by reference).
10.5 Summary of AHC Executive Retiree Life Insurance Program (filed as an
Exhibit to the Company's Form S-l Registration Statement No. 33-13326
filed April 10, 1987, and incorporated herein by reference).
10.6 The Hoechst Celanese Executive Pension Plan, as amended, as of November
1, 1991 (filed as an Exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1991, and incorporated herein by
reference).
10.7 Supplemental Pension Plan to Retirement Plan (formerly the Celanese
Supplemental Pension Plan to the Celanese Retirement Income Plan) (filed
as an Exhibit to the Celanese Annual Report on Form 10-K (File No. 1-
1308) for the fiscal year ended December 31, 1977, and incorporated
herein by reference).
10.8 Grantor Trust Agreement, between Celanese and Bankers Trust Company dated
December 27, 1985, for payment of benefits under the Executive Pension
Plan (filed as an Exhibit to the Celanese Annual Report on Form 10-K
(File No. 1-1308) for the fiscal year ended December 31, 1985, and
incorporated herein by reference).
10.9 The Hoechst Celanese Executive Medical and Dental Plan, effective January
1, 1989 (filed as an Exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1988, and incorporated herein by
reference).
10.10 Employment Agreement, dated January 21, 1987, between Celanese and Joseph
H. Patterson (filed as an Exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1987, and incorporated herein by
reference).
10.11 Summary of Management Incentive Plan (filed as an Exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31,
1987, and incorporated herein by reference).
10.12 Hoechst Celanese Long-Term Incentive Plan, effective January 1, 1989
(filed as an Exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1988, and incorporated herein by reference).
10.13 A description of the Hoechst Celanese Executive Benefits Reimbursement
Program (filed as an Exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1988, and incorporated herein by
reference).
54
<PAGE>
Exhibit
Number Description
------- -----------
10.14 Agreement, dated December 7, 1994, between the Company and Joseph H.
Patterson.
12 Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries.
Where
Name Incorporated
Hoechst Celanese Chemical Group, Inc. Texas
23 Consent of Independent Accountants.
24.1 Powers of attorney, dated March 6, 1995, for directors and officers of
the Company authorizing Harry R. Benz, Karl G. Engels and/or David A.
Jenkins to sign this 10-K on their behalf.
24.2 Certified copy of resolution adopted by the Board of Directors of the
Company on February 27, 1995, authorizing officers to sign this 10-K on
behalf of the Company pursuant to powers of attorney.
27 Financial Data Schedule (included in electronic filing only)
(b) Reports on Form 8-K
During the quarter ended December 31, 1994, no reports on Form 8-K were
filed.
55
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 15(d) of the Securities Exchange
Act of 1934, Hoechst Celanese has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Hoechst Celanese Corporation
By: /s/ Karl G. Engels
------------------------------------
Karl G. Engels
President, Chief Executive Officer
and Director
March 29, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed on March 29, 1995, by the following persons on
behalf of the registrant and in the capacities indicated.
Signature Title
--------- -----
Principal Executive Officer:
/s/ Karl G. Engels Director, President and Chief Executive Officer
------------------------
Karl G. Engels
Principal Financial Officer:
/s/ Harry R. Benz Director, Senior Vice President-Finance and
------------------------ Chief Financial Officer
Harry R. Benz
Principal Accounting Officer:
/s/ Raymond W. Smedley Vice President and Controller
------------------------
Raymond W. Smedley
Directors:
Guenter Metz* Director
William B. Harris* Director
David A. Jenkins* Director
Thomas F. Kennedy* Director
Joseph H. Patterson* Director
----------
*Karl G. Engels, by signing his name hereto, does sign this document on behalf
of each of the persons indicated above pursuant to powers of attorney duly
executed by such persons, filed with the Securities and Exchange Commission.
By: /s/ Karl G. Engels
------------------------
Karl G. Engels
Attorney-in-Fact
56
<PAGE>
Supplemental information to be furnished with reports filed pursuant to
Section 15(d) of the Securities Exchange Act of 1934 (the "Act") by registrants
which have not registered securities pursuant to Section 12 of the Act:
Hoechst Celanese Corporation is a wholly owned subsidiary of Hoechst
Corporation. Accordingly, no annual report of proxy material has been sent to
security holders.
57
<PAGE>
EXHIBITS TO 1994 ANNUAL REPORT ON FORM 10-K
-------------------------------------------
3.1 Restated Certificate of Incorporation of the Company (filed as a part of
Exhibit 3 to the Company's Form S-1 Registration Statement No. 33-13326
filed April 10, 1987, and incorporated herein by reference).
3.2 Bylaws of the Company as amended December 15, 1989 (filed as an Exhibit
to the Company's Annual Report on Form 10-K for the year ended December
31, 1989, and incorporated herein by reference).
4.1 Form of Indenture between the Company and The Bank of New York relating
to the 9.45% Notes due 1997, and the form of such notes (filed as
Exhibits to the Company's Quarterly Report on Form 10-Q for the interim
period ended June 30, 1987, and incorporated herein by reference).
4.2 Form of Indenture between the Company and The Bank of New York relating
to the 9 5/8% Notes due 1999, and the form of such notes (filed as
Exhibits to the Company's Quarterly Report on Form 10-Q for the interim
period ended September 30, 1987, and incorporated herein by reference).
4.3 Form of Indenture between the Company and Chemical Bank relating to
medium-term notes and the form of such notes (filed as Exhibits to the
Company's Quarterly Report on Form 10-Q for the interim period ended
September 30, 1988, and incorporated herein by reference).
4.4 Form of First Supplemental Indenture between the Company and Chemical
Bank relating to medium-term notes and the form of such notes (filed as
Exhibits to the Company's Form S-3 Registration Statement No. 33-23628
filed April 24, 1991, and incorporated herein by reference).
4.5 Form of Indenture between the Company and Chemical Bank relating to debt
securities and medium-term notes and the form of such securities and
notes (filed as Exhibits to the Company's Form S-3 Registration Statement
Nos. 33-23628 and 33-51675 filed December 22, 1993 and incorporated
herein by reference).
4.6 The Company agrees to furnish the Commission upon request a copy of any
other instrument with respect to long-term debt of the Company and any
subsidiary for which consolidated or unconsolidated financial statements
are required to be filed and as to which the amount of
<PAGE>
securities authorized thereunder does not exceed 10% of the total assets
of the Company and its subsidiaries on a consolidated basis.
10.1 Memorandum of Cooperation, dated October 20, 1983, between AHC and
Roussel-Uclaf S.A., relating to Hoechst-Roussel Pharmaceuticals
Incorporated (filed as an Exhibit to the Company's Form S-1 Registration
Statement No. 33-13326 filed April 10, 1987, and incorporated herein by
reference).
10.2 Agreement containing Consent Order and Agreement to Hold Separate, dated
February 19, 1987, among Hoechst AG, AHC, Celanese and the United States
Federal Trade Commission (filed as an Exhibit to the Company's Form S-1
Registration Statement No. 33-13326 filed April 10, 1987, and
incorporated herein by reference).
10.3 Technology Cooperation and License Agreement between Hoechst AG and the
Company as of January 1, 1988 (filed as an Exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31, 1987, and
incorporated herein by reference).
10.4 Summary of AHC Medical Program Policy provisions applicable to former
members of the AHC Executive Committee (filed as an Exhibit to the
Company's Form S-1 Registration Statement No. 33-13326 filed April 10,
1987, and incorporated herein by reference).
10.5 Summary of AHC Executive Retiree Life Insurance Program (filed as an
Exhibit to the Company's Form S-1 Registration Statement No. 33-13326
filed April 10, 1987, and incorporated herein by reference).
10.6 The Hoechst Celanese Executive Pension Plan, as amended, as of November
1, 1991 (filed as an Exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1991, and incorporated by reference).
10.7 Supplemental Pension Plan to Retirement Plan (formerly the Celanese
Supplemental Pension Plan to the Celanese Retirement Income Plan) (filed
as an Exhibit to the Celanese Annual Report on Form 10-K (File No. 1-
1308) for the fiscal year ended December 31, 1977, and incorporated
herein by reference).
10.8 Grantor Trust Agreement, between Celanese and Bankers Trust Company dated
December 27, 1985, for payment of benefits under the Executive Pension
Plan (filed as an Exhibit to the Celanese Annual Report on Form 10-K
(File No. 1-1308) for the fiscal year ended December 31, 1985, and
incorporated herein by reference).
<PAGE>
10.9 The Hoechst Celanese Executive Medical and Dental Plan, effective January
1, 1989 (filed as an Exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1988, and incorporated herein by
reference).
10.10 Employment Agreement, dated January 21, 1987, between Celanese and Joseph
H. Patterson (filed as an Exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1987, and incorporated herein by
reference).
10.11 Summary of Management Incentive Plan (filed as an Exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31,
1987, and incorporated herein by reference).
10.12 Hoechst Celanese Long-Term Incentive Plan, effective January 1, 1989
(filed as an Exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1988, and incorporated herein by reference).
10.13 A description of the Hoechst Celanese Executive Benefits Reimbursement
Program (filed as an Exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1988, and incorporated herein by
reference).
10.14 Agreement, dated December 7, 1994, between the Company and Joseph H.
Patterson.
12 Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries.
WHERE
NAME INCORPORATED
Hoechst Celanese Chemical Group, Inc. Texas
23 Consent of Independent Accountants.
24.1 Powers of attorney, dated March 6, 1995, for directors and officers of
the Company authorizing Harry R. Benz, Karl G. Engels and/or David A.
Jenkins to sign this 10-K on their behalf.
24.2 Certified copy of resolution adopted by the Board of Directors of the
Company on February 27, 1995, authorizing officers to sign this 10-K on
behalf of the Company pursuant to powers of attorney.
27. Financial Data Schedule
<PAGE>
EXHIBIT 10.14
-------------
<PAGE>
[LETTERHEAD OF HOECHST CELANESE]
December 7, 1994
Mr. Joseph H. Patterson
Vice Chairman
Hoechst Celanese Corporation
Route 202-206
P.O. Box 2500
Somerville, New Jersey 08876-1258
Dear Joe:
This letter will summarize our mutual agreement concerning your employment
with, and your eventual retirement from, Hoechst Celanese Corporation:
1. You will remain in your present position as Deputy Chairman, at your
current annual salary of $500,000 (subject to market based increase in April
1995), through June 30, 1995, after which you will no longer be required to
provide any services to the Corporation.
2. You will remain on the payroll with full salary and benefits from July
1, 1995 through February 28, 1996, at which time your employment will terminate.
3. As soon as practicable after the termination of your employment on
February 28, 1996, you will receive 29 weeks severance pay in accordance with
the Hoechst Celanese Severance Pay Plan.
4. As soon as practicable after the termination of your employment on
February 28, 1996, you will be paid for your unused 1996 vacation, if any, and
your accrued 1997 vacation.
5. You have indicated your intention to retire on March 1, 1996 under
the provisions of the Hoechst Celanese Retirement Plan and the
<PAGE>
Mr. Joseph H. Patterson
December 7, 1994
Page 2
Executive Pension Plan. Your total unreduced pension, from both these Plans,
will be approximately $479,383 per year in the form of a 50% Joint Lifetime
Annuity. You may elect to receive your pension in any other form permitted by
the Plans, in which case the amount of your pension will be actuarially
adjusted.
6. You are fully vested in your account under the Hoechst Celanese
Savings Plan and you will be eligible for a distribution from the Plan as of the
last day of any month on or after February 28, 1996.
7. You will be eligible for full 1994 and 1995 Management Incentive Plan
payments and a pro rata 1996 Management Incentive Plan payment calculated
pursuant to the provisions of that Plan. Such payments will be made early in
1995, 1996 and 1997, respectively. The amount of the payments will be based on
Quality performance and the Corporation's (a) Target goal for the year or (b)
actual results, whichever is greater.
8. Under the Company's Long-Term Incentive Plan, you will be entitled to a
full payment for the 1992-1994 Cycle (3,500 units, payable early in 1995), the
1993-1995 Cycle (3,500 units, payable early in 1996) and the 1994-1996 Cycle
(4,000 units, payable early in 1997). You will not be entitled to any payment
for the 1995-1997 Cycle.
9. With reference to the Management Incentive Plan payments described in
Paragraph 7 and the Long-Term Incentive Plan payments described in Paragraph 8,
the Company will determine the amounts to be paid in a manner consistent with
such determination for other senior executives of the Company. Such amounts will
be certified as appropriate by the Vice President, Human Resources of the
Company.
<PAGE>
Mr. Joseph H. Patterson
December 7, 1994
Page 3
10. In early 1995 and early 1996, you will receive an Executive Perquisite
Payment of $25,000.
11. You will be eligible for the Corporation's Executive Retiree Medical
Plan effective as of March 1, 1996.
12. Your life insurance coverage can be continued by you after the
termination of your employment. You should deal directly with CIGNA on this
matter.
13. In the event that you relocate prior to March 1, 1997, your relocation
will be covered by the Company's Executive Committee Relocation Plan. This
Plan includes home sale assistance, Guaranteed Price protection for the sale of
your existing residence and shipment of household goods to a retirement
location.
On behalf of the Corporation, let me thank you for your valuable service to
the Corporation in a variety of responsible positions. We wish you much
success in the future.
Sincerely,
HOECHST CELANESE CORPORATION
By: /s/ Charles M. Langston
--------------------------
Acknowledged:
/s/Joseph H. Patterson
--------------------------
Joseph H. Patterson
Date:_____________________
<PAGE>
EXHIBIT 12
----------
<PAGE>
EXHIBIT 12
HOECHST CELANESE CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN MILLIONS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1994 1993 1992 1991 1990
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings as defined in the Rules and
Definitions specified in Regulation S-K,
Section 229.503:
(Loss) earnings from operations before in-
come taxes(b)............................ $(182)(c) $328 $395 $466 $432
Add--
Fixed charges as computed on bottom half
of table................................. 146 122 130 139 113
Amortization of capitalized interest...... 11 14 13 14 12
Affiliate dividends....................... 8 2 9 15 33
Deduct--
Affiliate income.......................... (9) (9) (17) (22) (51)
Majority-owned preferred stock dividend
requirement.............................. 0 0 (1) (1) (1)
Capitalized interest...................... (15) (21) (14) (10) (12)
----- ---- ---- ---- ----
Earnings as defined....................... $ (41) $436 $515 $601 $526
===== ==== ==== ==== ====
Fixed charges as defined in the Rules and
Definitions specified in Regulation S-K,
Section 229.503:
Interest and debt expense................. $ 112 $ 76 $ 81 $ 94 $ 68
Capitalized interest...................... 15 21 14 10 12
Interest factor of rentals(d)............. 17 25 26 26 25
Interest on obligations under capital
leases................................... 0 0 8 8 7
Majority-owned preferred stock dividend
requirement.............................. 0 0 1 1 1
Discount or premium of indebtedness
(expensed or capitalized)................ 2 0 0 0 0
----- ---- ---- ---- ----
Fixed charges as defined.................. $ 146 $122 $130 $139 $113
===== ==== ==== ==== ====
Ratio of earnings to fixed charges.......... * 3.6 4.0 4.3 4.7
===== ==== ==== ==== ====
</TABLE>
--------
* Calculation of the ratio results in an amount that is less than one. The
amount of the earnings deficiency for the year ended December 31, 1994 was
$187.(c)
(a) Effective 1/1/91, the Company consolidated Celanese Mexicana, S.A.
("Celmex") in its financial statements. Prior to 1991, the Company
accounted for Celmex under the equity method and included Celmex with
"Investments in affiliates."
(b) Excludes reduction for minority interests and cumulative effect of
accounting change.
(c) Includes a special charge of $532 associated primarily with product
liability reserves, restructuring costs, asset writedowns and compliance
with environmental regulations. Excluding these charges, the Ratio of
Earnings to Fixed Charges would have been 3.4.
(d) Represents one-third of rent expense, which is deemed to be representative
of the interest factor of operating leases.
<PAGE>
EXHIBIT 23
----------
<PAGE>
EXHIBIT 23
--------------------------------------------------------------------------------
CONSENT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
The Board of Directors
Hoechst Celanese Corporation:
We consent to the incorporation by reference in Registration Statement (No.
33-51675) on Form S-3 which also constitutes Post Effective Amendment No. 4 on
Form S-3 to Registration Statement (No. 33-23628) on Form S-1 of Hoechst
Celanese Corporation of our report dated January 31, 1995, relating to the
consolidated balance sheets of Hoechst Celanese Corporation as of December 31,
1994 and 1993, and the related consolidated statements of earnings,
stockholder's equity, and cash flows for each of the years in the three-year
period ended December 31, 1994, which report appears in the December 31, 1994
annual report on Form 10-K of Hoechst Celanese Corporation. Our report refers
to the adoption of Financial Accounting Standards No. 109. "Accounting for
Income Taxes," and No. 112, "Employers' Accounting for Postemployment
Benefits," in 1993 and Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" in 1992.
KPMG PEAT MARWICK LLP
Short Hills, New Jersey
March 29, 1995
<PAGE>
EXHIBIT 24.1
------------
<PAGE>
POWER OF ATTORNEY
-----------------
As a Director and/or Officer of Hoechst Celanese Corporation, which will
file with the Securities and Exchange Commission, Washington, D.C., its Annual
Report on Form 10-K for the year of 1994 pursuant to the provisions of the
Securities Exchange Act of 1934, I do hereby constitute and appoint Harry R.
Benz, Karl G. Engels and David A. Jenkins, and each of them (with full power to
each of them to act alone) my true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution for me and in my name, place, and
stead, in my offices and capacities as aforesaid and on behalf of the
Corporation, to execute and file the said Annual Report on Form 10-K, any
amendment thereto and any and all other documents to be signed and filed with
the Securities and Exchange Commission in connection therewith; granting unto
said attorneys-in-fact and agents and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises as fully to all intents and purposes as I might or
could do in person hereby ratifying and confirming all that said attorneys-in-
fact and agents or any of them or their substitutes may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, I have executed this instrument on
March 6, 1995.
--------------
/s/ Dr. Guenter Metz
--------------------
Dr. Guenter Metz
<PAGE>
POWER OF ATTORNEY
-----------------
As a Director and/or Officer of Hoechst Celanese Corporation, which will
file with the Securities and Exchange Commission, Washington, D.C., its Annual
Report on Form 10-K for the year of 1994 pursuant to the provisions of the
Securities Exchange Act of 1934, I do hereby constitute and appoint Harry R.
Benz, Karl G. Engels and David A. Jenkins, and each of them (with full power to
each of them to act alone) my true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution for me and in my name, place, and
stead, in my offices and capacities as aforesaid and on behalf of the
Corporation, to execute and file the said Annual Report on Form 10-K, any
amendment thereto and any and all other documents to be signed and filed with
the Securities and Exchange Commission in connection therewith; granting unto
said attorneys-in-fact and agents and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises as fully to all intents and purposes as I might or
could do in person hereby ratifying and confirming all that said attorneys-in-
fact and agents or any of them or their substitutes may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, I have executed this instrument on
March 6, 1995.
--------------
/s/ Karl G. Engels
------------------
Karl G. Engels
<PAGE>
POWER OF ATTORNEY
-----------------
As a Director and/or Officer of Hoechst Celanese Corporation, which will
file with the Securities and Exchange Commission, Washington, D.C., its Annual
Report on Form 10-K for the year of 1994 pursuant to the provisions of the
Securities Exchange Act of 1934, I do hereby constitute and appoint Harry R.
Benz, Karl G. Engels and David A. Jenkins, and each of them (with full power to
each of them to act alone) my true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution for me and in my name, place, and
stead, in my offices and capacities as aforesaid and on behalf of the
Corporation, to execute and file the said Annual Report on Form 10-K, any
amendment thereto and any and all other documents to be signed and filed with
the Securities and Exchange Commission in connection therewith; granting unto
said attorneys-in-fact and agents and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises as fully to all intents and purposes as I might or
could do in person hereby ratifying and confirming all that said attorneys-in-
fact and agents or any of them or their substitutes may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, I have executed this instrument on
March 6, 1995.
--------------
/s/ William B. Harris
---------------------
William B. Harris
<PAGE>
POWER OF ATTORNEY
-----------------
As a Director and/or Officer of Hoechst Celanese Corporation, which will
file with the Securities and Exchange Commission, Washington, D.C., its Annual
Report on Form 10-K for the year of 1994 pursuant to the provisions of the
Securities Exchange Act of 1934, I do hereby constitute and appoint Harry R.
Benz, Karl G. Engels and David A. Jenkins, and each of them (with full power to
each of them to act alone) my true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution for me and in my name, place, and
stead, in my offices and capacities as aforesaid and on behalf of the
Corporation, to execute and file the said Annual Report on Form 10-K, any
amendment thereto and any and all other documents to be signed and filed with
the Securities and Exchange Commission in connection therewith; granting unto
said attorneys-in-fact and agents and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises as fully to all intents and purposes as I might or
could do in person hereby ratifying and confirming all that said attorneys-in-
fact and agents or any of them or their substitutes may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, I have executed this instrument on
March 6, 1995.
--------------
/s/ Harry R. Benz
-----------------
Harry R. Benz
<PAGE>
POWER OF ATTORNEY
-----------------
As a Director and/or Officer of Hoechst Celanese Corporation, which will
file with the Securities and Exchange Commission, Washington, D.C., its Annual
Report on Form 10-K for the year of 1994 pursuant to the provisions of the
Securities Exchange Act of 1934, I do hereby constitute and appoint Harry R.
Benz, Karl G. Engels and David A. Jenkins, and each of them (with full power to
each of them to act alone) my true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution for me and in my name, place, and
stead, in my offices and capacities as aforesaid and on behalf of the
Corporation, to execute and file the said Annual Report on Form 10-K, any
amendment thereto and any and all other documents to be signed and filed with
the Securities and Exchange Commission in connection therewith; granting unto
said attorneys-in-fact and agents and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises as fully to all intents and purposes as I might or
could do in person hereby ratifying and confirming all that said attorneys-in-
fact and agents or any of them or their substitutes may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, I have executed this instrument on
March 6, 1995.
--------------
/s/ Thomas F. Kennedy
---------------------
Thomas F. Kennedy
<PAGE>
POWER OF ATTORNEY
-----------------
As a Director and/or Officer of Hoechst Celanese Corporation, which will
file with the Securities and Exchange Commission, Washington, D.C., its Annual
Report on Form 10-K for the year of 1994 pursuant to the provisions of the
Securities Exchange Act of 1934, I do hereby constitute and appoint Harry R.
Benz, Karl G. Engels and David A. Jenkins, and each of them (with full power to
each of them to act alone) my true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution for me and in my name, place, and
stead, in my offices and capacities as aforesaid and on behalf of the
Corporation, to execute and file the said Annual Report on Form 10-K, any
amendment thereto and any and all other documents to be signed and filed with
the Securities and Exchange Commission in connection therewith; granting unto
said attorneys-in-fact and agents and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises as fully to all intents and purposes as I might or
could do in person hereby ratifying and confirming all that said attorneys-in-
fact and agents or any of them or their substitutes may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, I have executed this instrument on
March 6, 1995.
--------------
/s/ David A. Jenkins
--------------------
David A. Jenkins
<PAGE>
EXHIBIT 24.2
------------
<PAGE>
EXHIBIT 24.2
CERTIFICATE
-----------
HOECHST CELANESE CORPORATION
----------------------------
TO WHOM IT MAY CONCERN:
I, Edmond A. Collins, certify that I am the duly certified and
qualified Corporate Secretary of Hoechst Celanese Corporation (the
"Corporation"), a Delaware corporation, and that the following is a true,
correct and complete copy of a resolution passed by the Board of Directors of
the Corporation by Unanimous Consent Resolution on February 27, 1995, and said
resolution has not been amended or rescinded and is in full force and effect:
RESOLVED, that each officer and director who is authorized under law to
sign (on behalf of the Corporation or as an officer or director thereof) the
Corporation's documents that are filed with the Securities and Exchange
Commission during 1994 is hereby authorized to execute a power of attorney
appointing Harry R. Benz, Karl G. Engels or David A. Jenkins as his true and
lawful attorney to execute in his name, place and stead in any such capacity and
on behalf of the Corporation such documents and all amendments and other papers
in connection therewith, and to file the same with the Securities and Exchange
Commission, each of said attorneys to have full power to act without the others,
and to do and perform, in the name and on behalf of the officers and directors
who shall have executed such power-of-attorney, every act necessary to be done
as such officer or director could do in person; such documents shall include but
not be limited to the Annual Report on Form 10-K for fiscal year 1994 that is
filed pursuant to the Securities Exchange Act of 1934.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of this
Corporation this 17th day of March, 1995.
/s/ E. A. Collins
-----------------
E. A. Collins
Secretary
[SEAL]
<PAGE>
HOECHST CELANESE CORPORATION
----------------------------
UNANIMOUS CONSENT RESOLUTION
----------------------------
OF THE BOARD OF DIRECTORS
-------------------------
In lieu of a Special Meeting of the Board of Directors of Hoechst Celanese
Corporation, the undersigned, being all the Directors of the Corporation, do
hereby unanimously consent to the following resolution:
Authorize Powers-of-Attorney to sign documents filed with the Securities and
----------------------------------------------------------------------------
Exchange Commission
-------------------
WHEREAS, the Corporation files documents with the Securities and Exchange
Commission that are required to be signed by certain officers and directors, and
such documents receive an adequate review before filing;
NOW, THEREFORE, the Board adopts the following resolution which authorizes the
signing of such documents by powers-of-attorney:
RESOLVED, that each officer and director who is authorized under law to
sign (on behalf of the Corporation or as an officer or director thereof) the
Corporation's documents that are filed with the Securities and Exchange
commission during 1995 is hereby authorized to execute a power of attorney
appointing Harry R. Benz, Karl G. Engels or David A. Jenkins as his true and
lawful attorney to execute in his name, place and stead in any such capacity and
on behalf of the Corporation such documents and all amendments and other papers
in connection therewith, and to file the same with the Securities and Exchange
Commission, each of said attorneys to have full power to act without the others,
<PAGE>
- 2 -
and to do and perform, in the name and on behalf of the officers and directors
who shall have executed such power-of-attorney, every act necessary to be done
as such officer or director could do in person; such documents shall include but
not be limited to the Annual Report on Form 10-K for fiscal year 1994 that is
filed pursuant to the Securities Exchange Act of 1934.
The foregoing action is taken pursuant to section 141 (f) of the Delaware
General Corporation Law and shall be of the same force and effect as if taken at
a meeting of the Board of Directors called and held for the purpose of taking
the action set forth above.
IN WITNESS WHEREOF, all of the Directors of the Corporation have affixed their
signature hereto as of the date below written.
/s/ Harry R. Benz /s/ William B. Harris
------------------------- -------------------------
Harry R. Benz William B. Harris
/s/ Karl G. Engels /s/ Thomas F. Kennedy
------------------------- -------------------------
Karl G. Engels Thomas F. Kennedy
/s/ David A. Jenkins /s/ Dr. Guenter Metz
------------------------- -------------------------
David A. Jenkins Dr. Guenter Metz
DATED: February 27, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AND STATEMENT OF EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 192
<SECURITIES> 51
<RECEIVABLES> 1,554
<ALLOWANCES> (36)
<INVENTORY> 1,002
<CURRENT-ASSETS> 2,889
<PP&E> 4,647
<DEPRECIATION> 1,772
<TOTAL-ASSETS> 8,110
<CURRENT-LIABILITIES> 2,360
<BONDS> 1,086
<COMMON> 0
0
0
<OTHER-SE> 3,164
<TOTAL-LIABILITY-AND-EQUITY> 8,110
<SALES> 7,794
<TOTAL-REVENUES> 7,794
<CGS> 5,993
<TOTAL-COSTS> 1,363
<OTHER-EXPENSES> 532
<LOSS-PROVISION> 11
<INTEREST-EXPENSE> 113
<INCOME-PRETAX> (182)
<INCOME-TAX> (129)
<INCOME-CONTINUING> (186)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (186)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
