<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1997
[ ] Transition report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period from __________ to __________
Commission File Number 33-13326
_____________
HOECHST CELANESE CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 13-5568434
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 INDEPENDENCE BOULEVARD
WARREN, NEW JERSEY 07059
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 231-2000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes___X___ No______
All outstanding shares of Hoechst Celanese Corporation stock are owned by its
parent, Hoechst Corporation.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
PART I - FINANCIAL INFORMATION
<S> <C>
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets - September 30, 1997 and December 31, 1996........................ 3
Consolidated Statements of Earnings -
Three months and nine months ended September 30, 1997 and 1996............................... 4
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1997 and 1996................................................ 5
Notes to Consolidated Financial Statements.................................................... 6
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations... 8
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K........................................................ 11
</TABLE>
NOTE : The Registrant is referred to in this Form 10-Q as the Company or Hoechst
Celanese.
2
<PAGE>
Part I - Financial Information
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
HOECHST CELANESE CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------------ -------------------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ - $ -
Marketable securities.............................................................. 4 2
Net receivables.................................................................... 1,837 2,039
Inventories........................................................................ 769 680
Deferred income taxes.............................................................. 107 86
Prepaid expenses................................................................... 68 33
------ ------
Total current assets............................................................. 2,785 2,840
Investments in affiliates............................................................ 402 412
Property, plant and equipment, net................................................... 2,517 2,419
Deferred income taxes................................................................ - 29
Long-term receivable from parent..................................................... 520 520
Other assets......................................................................... 710 661
Excess of cost over fair value of net assets of businesses acquired, net............. 904 928
Net assets held for distribution..................................................... - 388
------ ------
Total assets..................................................................... $7,838 $8,197
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Commercial paper, notes payable and current installments of long-term debt.......... $ 109 $ 9
Accounts payable and accrued liabilities............................................ 1,567 1,702
Dividend payable to parent.......................................................... - 90
Income taxes payable................................................................ 311 322
------ ------
Total current liabilities........................................................ 1,987 2,123
Long-term debt....................................................................... 804 1,026
Deferred income taxes................................................................ 33 -
Minority interests................................................................... 466 455
Other liabilities.................................................................... 1,004 1,157
Stockholder's equity:
Common stock....................................................................... - -
Additional paid-in capital......................................................... 2,981 2,976
Retained earnings.................................................................. 728 613
Cumulative translation and other adjustments....................................... (165) (153)
------ ------
Total stockholder's equity....................................................... 3,544 3,436
------ ------
Total liabilities and stockholder's equity....................................... $7,838 $8,197
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
HOECHST CELANESE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales.......................................................... $1,517 $1,492 $4,539 $4,686
Cost of sales...................................................... 1,214 1,217 3,636 3,777
Selling, general and administrative expenses....................... 129 136 414 411
Research and development expenses.................................. 38 40 118 120
Special charges.................................................... 17 - 104 -
------ ------ ------ ------
Operating income............................................... 119 99 267 378
Equity in net earnings of affiliates............................... 3 1 10 8
Interest expense................................................... (17) (22) (58) (65)
Interest and other income, net..................................... 24 13 63 49
------ ------ ------ ------
Earnings before income taxes, minority interests and
discontinued operations....................................... 129 91 282 370
Income tax expense................................................. 34 22 97 115
------ ------ ------ ------
Earnings before minority interests and discontinued
operations.................................................... 95 69 185 255
Minority interests................................................. 26 37 83 126
------ ------ ------ ------
Earnings from continuing operations............................ 69 32 102 129
Earnings from discontinued operations, net of tax.................. - 3 13 8
------ ------ ------ ------
Net earnings................................................... $ 69 $ 35 $ 115 $ 137
====== ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
HOECHST CELANESE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------------
1997 1996
---------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Operating activities:
Earnings from continuing operations........................................................... $ 102 $ 129
Adjustments to reconcile earnings from continuing operations to net cash provided by
operating activities:
Special charges, net of amounts used....................................................... (73) (139)
Change in equity of affiliates............................................................. (8) (6)
Depreciation and amortization.............................................................. 274 305
Deferred income taxes...................................................................... 41 52
Issuances of note receivable from Parent................................................... (2,013) (1,092)
Collections of note receivable from Parent................................................. 1,908 1,358
Changes in operating assets and liabilities:
Net receivables.......................................................................... 306 51
Inventories.............................................................................. (89) 14
Accounts payable and accrued liabilities................................................. 114 10
Income taxes payable..................................................................... (11) (22)
Other, net............................................................................... (58) (130)
Net cash provided by operating activities of discontinued operations..................... 28 5
------- -------
Net cash provided by operating activities............................................ 521 535
------- -------
Investing activities:
Proceeds from sale of businesses and assets, net.............................................. 434 84
Proceeds from sale of marketable securities................................................... 122 30
Purchases of marketable securities............................................................ (157) (41)
Capital expenditures.......................................................................... (347) (424)
Net cash used in investing activities of discontinued operations.............................. (20) (8)
------- -------
Net cash provided by (used in) investing activities.................................. 32 (359)
------- -------
Financing activities:
Proceeds from long-term debt.................................................................. 36 35
Payments on long-term debt.................................................................... (258) (18)
Net proceeds from (payments on) short-term borrowings......................................... 100 (3)
Net (payments on) proceeds from short-term borrowings from Parent and affiliates.............. (338) 28
Dividends paid................................................................................ (90) (130)
------- -------
Net cash used in financing activities................................................ (550) (88)
------- -------
Exchange rate changes on cash................................................................... (3) (1)
------- -------
Net change in cash and cash equivalents..................................................... - 87
Cash and cash equivalents at beginning of period................................................ - 80
------- -------
Cash and cash equivalents at end of period...................................................... $ - $ 167
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for: Interest, net of amounts capitalized.......................... $ 76 $ 82
Income taxes paid............................................. 76 84
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
Hoechst Celanese Corporation (the "Company") is wholly owned by Hoechst
Corporation ("Parent"), a holding company, itself a wholly owned subsidiary of
Hoechst Aktiengesellschaft ("Hoechst AG"). The Company manufactures and sells,
principally to industrial customers, a diversified line of products including
textile and technical fibers; acetate cigarette filter tow; specialty and bulk
chemicals and bulk pharmaceuticals; engineering plastics; and polyester film.
The consolidated financial statements are unaudited and are subject to year-
end audit and adjustments. In the opinion of management, the financial
statements include all adjustments (consisting only of normal accruals) which
are necessary to present fairly the results for the interim periods reported.
Results for the nine-month period ended September 30, 1997 are not necessarily
indicative of the results that will be realized for the full year. All
significant intercompany balances and transactions have been eliminated in
consolidation. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
consolidated financial statements include the accounts of the Company and its
majority-owned or controlled subsidiaries, including two wholly owned captive
insurance companies, joint ventures and partnerships. Certain reclassifications
have been made in the 1996 consolidated financial statements to conform to the
classifications used in 1997.
Substantially all of the Company's minority interests are comprised of Grupo
Celanese, S.A. and Celanese Canada Inc. The Company, in conjunction with an
investment by its Parent, owns 51% of the outstanding voting shares of Grupo
Celanese, S.A. and exercises management control. The Company owns approximately
56% of Celanese Canada Inc.
As part of a worldwide strategy, Hoechst AG formally became a strategic
management holding company as of July 1, 1997. Thus, the Company is undergoing
an internal review to align its businesses under this new global approach. Under
this approach, the Cellulosics business was transferred from the Trevira
(formerly Fibers and Film) segment to the Celanese (formerly Chemicals) segment
at the end of 1996. The Company has renamed its segments to conform to the new
global alignment. Accordingly, Chemicals is now known as Celanese; Fibers and
Film is now known as Trevira; and Specialties and Technical Polymers is now
known as Specialties and Ticona.
During the second quarter of 1997, the Company's management, the shareholders
of Hoechst AG, and the shareholders of Clariant AG, Switzerland ("Clariant")
approved a formal plan to sell the Company's interests in its specialty
chemicals business to Clariant. During the third quarter of 1997, the Company
sold substantially all of the assets and transferred substantially all of the
related liabilities of its U.S. and Canadian specialty chemicals businesses to
Clariant. Accordingly, the operating results and net assets of these businesses
have been reflected as discontinued operations in the accompanying financial
statements. The third quarter operating results of these businesses were not
material and, therefore, were not included in the Company's consolidated
statements of earnings for the third quarter of 1997. The accounting for this
transaction will be finalized in the fourth quarter of 1997. No significant
gain or loss is expected on this transaction.
6
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) BASIS OF PRESENTATION (CONTINUED)
Included in earnings from discontinued operations, net of tax are net sales
of $182 million for the three months ended September 30, 1996 and $405 million
and $535 million for the nine months ended September 30, 1997 and 1996,
respectively. Operating income for discontinued operations is $6 million for the
three months ended September 30, 1996 and $17 million and $14 million for the
nine months ended September 30, 1997 and 1996, respectively.
(2) INVENTORIES
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
----------------- -----------------
(IN MILLIONS)
<S> <C> <C>
Finished goods.................................................... $565 $504
Work-in-process................................................... 81 81
Raw materials and supplies........................................ 161 137
---- ----
Subtotal...................................................... 807 722
Excess of current costs over stated values........................ (38) (42)
---- ----
Total inventories............................................. $769 $680
==== ====
</TABLE>
(3) COMMITMENTS AND CONTINGENCIES
The Company is a defendant in a number of lawsuits, including environmental,
product liability and personal injury actions. Certain of these lawsuits purport
to be or have been preliminarily certified as class actions. In some of these
cases, claimed damages are substantial. While it is impossible at this time to
determine with certainty the ultimate outcome of the lawsuits, management
believes, based on the advice of legal counsel, that adequate provisions have
been made and that the ultimate outcome will not have a material adverse effect
on the financial position of the Company, but may have a material adverse effect
on the results of operations or cash flows in any given year.
7
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
As part of a worldwide strategy, Hoechst AG formally became a strategic
management holding company as of July 1, 1997. Thus, the Company is undergoing
an internal review to align its businesses under this new global approach. Under
this approach, the Cellulosics business was transferred from the Trevira
(formerly Fibers and Film) segment to the Celanese (formerly Chemicals) segment
at the end of 1996. It is unknown at this time when other realignments, if any,
will be made and the effect they will have on the Company. The Company has
renamed its segments to conform to the new global alignment. Accordingly,
Chemicals is now known as Celanese; Fibers and Film is now known as Trevira; and
Specialties and Technical Polymers is now known as Specialties and Ticona.
During the second quarter of 1997, the Company's management, the shareholders
of Hoechst AG, and the shareholders of Clariant AG, Switzerland ("Clariant")
approved a formal plan to sell the Company's interests in its specialty
chemicals business to Clariant. During the third quarter of 1997, the Company
sold substantially all of the assets and transferred substantially all of the
related liabilities of its U.S. and Canadian specialty chemicals businesses to
Clariant. Accordingly, the operating results and net assets of these businesses
have been reflected as discontinued operations in the accompanying financial
statements. The third quarter operating results of these businesses were not
material and, therefore, were not included in the Company's consolidated
statements of earnings for the third quarter of 1997. The accounting for this
transaction will be finalized in the fourth quarter of 1997. No significant
gain or loss is expected on this transaction.
Sales for the first nine months of 1997 decreased by 3% to $4,539 million
from $4,686 million for the comparable 1996 period and increased by 2% for the
third quarter to $1,517 million from $1,492 million. The Trevira segment
experienced sales decreases of $205 million and $38 million for the nine months
and the third quarter, respectively, when compared to the prior year. For the
nine-month period, Trevira experienced a negative price variance of $222
million, partially offset by a positive volume variance of $17 million. The
negative price variance was primarily in PET packaging resins, $94 million for
nine months, due to oversupply in the marketplace. Also, intermediates, textile
staple, and PET film experienced negative price variances of $28 million, $72
million, and $28 million, respectively, due to lower raw material costs, which
drove selling prices down. For the third quarter, Trevira experienced a negative
price variance of $22 million, mostly in polyester staple. In the Celanese
segment, sales increased by $53 million for the first nine months and increased
by $29 million for the third quarter 1997 versus 1996 mainly due to favorable
prices. Volumes were unfavorable in Cellulosics for both the third quarter and
the nine months, due to quarterly timing of tow and flake shipments to China. In
the remainder of the Celanese segment, both volume and pricing were favorable
for the third quarter and year-to-date versus 1996. Sales volumes increased
across all business units with strong results from acetyls and favorable
methanol pricing. In addition, sales volumes improved due to tight North
American markets and production outages in the industry. In the Specialties and
Ticona segment, sales decreased by $9 million for the nine months and increased
$15 million for the third quarter over the comparable 1996 period. The decrease
for the nine months was mainly due to the transfer of the fluoropolymers
business to Dyneon, a Hoechst-3M joint venture, effective August 1, 1996. The
increase for the three months was due to higher export sales volumes for Celcon.
Selling, general and administrative expenses increased by $3 million for the
first nine months of 1997 versus 1996. The increase is mostly attributed to
increased spending for reengineering, new computer software and consultants. For
the third quarter 1997, selling, general and administrative expenses decreased
by $7 million from the comparative 1996 period. This is mainly due to the timing
of spending for various reengineering and new computer software projects
throughout the company.
8
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Research and development expenses decreased $2 million for both the nine
months and the third quarter of 1997 when compared to the same periods of the
prior year. The decrease for the quarter is primarily in the Trevira segment,
partially offset by an increase in the Corporate Research and Technology
segment.
The Company recorded special charges of $104 million in the first nine months
of 1997, of which $17 million was recorded in the third quarter of 1997. These
special charges are mostly due to the announced restructuring of the Trevira and
Corporate Research and Technology segments. In addition, the bulk pharmaceutical
and intermediates business recorded a special charge for ending product
development for the generic bulk actives market.
Operating income was $267 million for the first nine months of 1997, compared
to $378 million for 1996, and was $119 million for the third quarter 1997,
compared to $99 million in 1996. Trevira's operating income declined $32 million
for the nine months due to the special charge recorded in 1997 as well as lower
prices for PET packaging resins, intermediates and textile staple. Trevira's
third quarter operating income increased $13 million mainly due to cost
containment measures and lower spending for new software and systems projects.
In the Celanese segment, operating income decreased $23 million and $3 million
for the nine months and the third quarter, respectively. Higher raw material
prices and additional sourcing costs in the chemicals business resulted in lower
operating income for the nine-month period. In the third quarter, raw material
pricing pressures and sourcing costs continued to ease, resulting in slightly
higher earnings in the chemicals business, which was more than offset by lower
operating income in Cellulosics due to lower sales volumes. The operating income
for Specialties and Ticona decreased $8 million for the first nine months of
1997 and increased $2 million for the third quarter. The decrease for the nine
months was due mostly to the special charge relating to restructuring in the
bulk pharmaceutical and intermediates business. Operating income was also
reduced by the special charge relating to restructuring in the Corporate
Research and Technology segment.
Equity in net earnings of affiliates increased $2 million for both the nine
months and the third quarter when compared to the prior year periods due to
increased earnings in most of the Company's equity investments.
The increase of $14 million in interest and other income, net for the first
nine months of 1997 and the $11 million increase for the third quarter is
primarily due to increased interest income on loans to parent and affiliates.
The effective tax rate increased to 34% in 1997 from 31% in 1996 for the nine
months results. The effective tax rate increased to 26% from 24% for the third
quarter. These increases are primarily attributable to the effect of lower
earnings and the non-deductibility of goodwill amortization and the higher tax
rates of Mexican entities, offset by a change in a prior year's estimate in 1997
which resulted in a tax benefit.
Effective January 1, 1997, the Mexican economy has been deemed
hyperinflationary; thus, the Company switched from the peso to the U.S. dollar
as the functional currency for its Mexican entities. The first nine months
results and the third quarter 1997 results were favorably impacted by
approximately $3 million and $5 million, respectively.
9
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the third quarter and nine months
of 1997 was 5.4 and 4.0, respectively, compared to 3.8 and 5.0 for the 1996
periods. The decrease for the nine months was primarily due to weaker earnings
from continuing operations. The increase for the three months was primarily due
to strong earnings in the third quarter of 1997. For purposes of calculating the
ratio of earnings to fixed charges, earnings consist of earnings from continuing
operations before fixed charges, minority interests and income taxes. Fixed
charges consist of interest and debt expense, capitalized interest and the
estimated interest portion of rents under operating leases.
LIQUIDITY AND CAPITAL RESOURCES
During 1996, the Company began pooling its cash with its Parent and the
Company's excess cash is loaned to its Parent under a revolving credit
agreement. Accordingly, the Company had no cash and cash equivalents at
September 30, 1997 and December 31, 1996. Under this revolving credit agreement,
the outstanding receivable balance from Parent was $296 million as of September
30, 1997 and $191 million as of December 31, 1996.
Cash provided by operations for the first nine months of 1997 was $521
million, compared to $535 million for the 1996 period. Cash provided by
operations was more than sufficient to finance the Company's capital
expenditures.
In 1997, investing activities include proceeds of $422 million relating to
the sale of the Company's U.S. and Canadian specialty chemicals businesses to
Clariant.
During the first nine months of 1997, the Company repaid $3 million under its
commercial paper program. There was no commercial paper outstanding at September
30, 1997. In the third quarter of 1997, the Company redeemed all of the $250
million 9.625% notes outstanding and repaid $360 million short-term borrowings
to Hoechst AG.
The Company paid its Parent a $90 million dividend in the first quarter of
1997 and a $130 million dividend in the first quarter of 1996. The Company
intends to continue its practice of paying a dividend to its Parent at the
discretion of the Company's Board of Directors.
The Company had an aggregate of $175 million medium-term notes outstanding as
of September 30, 1997. The Company may sell from time to time up to an
additional $250 million of such notes. The proceeds from the sale of any medium-
term notes will be used for general corporate purposes.
The Company expects that its capital expenditures, investments and working
capital requirements will continue to be met primarily from cash generated from
operations. However, the Company may, due to the timing of funding requirements,
supplement its liquidity from external or affiliated sources. Such sources
include the Company's medium-term note shelf registration, commercial paper
program and loans from its Parent or Hoechst AG and affiliates.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.15 Description of the Hoechst AG Stock Appreciation Rights (SAR) Plan
1997, which covers certain executive officers of the Company
27 Financial Data Schedule (included in electronic filing only)
(b) FORM 8-K
During the quarter ended September 30, 1997, no reports on Form 8-K were
filed.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Form 10-Q has been signed on behalf of the Registrant by its Chief
Accounting Officer who is authorized to sign on behalf of the Registrant.
Hoechst Celanese Corporation
November 14, 1997 /s/ R. W. Smedley
--------------------------------------
R. W. Smedley
Vice President and Controller
11
<PAGE>
EXHIBIT 10.15
DESCRIPTION OF THE HOECHST AG
STOCK APPRECIATION RIGHTS (SAR) PLAN 1997
October 15, 1997
<PAGE>
Hoechst [LOGO]
TABLE OF CONTENTS
Page
Introduction 1
Plan Summary 1-2
Plan Eligibility 2
Type of Plan 2
1997 SAR Grant 2
Grant Price 3
Duration of Awards 3
Exercise Rights 3
Exercise Threshold 3
Exercise Periods and Amounts 3
Determination of Plan Payments at Exercise 4
Plan Administration and Plan Payments at Exercise 4
Currency Exchange Procedures 4
If Active Service Ends 5
Tax Treatment 5
Legal Disclaimer 5
<PAGE>
Hoechst [LOGO]
INTRODUCTION
As a further step in Hoechst AG's continuing efforts to add sustained long-term
value to Hoechst AG, the management board (Vorstand) has approved the
introduction of a Stock Appreciation Rights (SAR) Plan for selected key
executives. The Plan is effective as of September 9, 1997.
PLAN SUMMARY
TYPE OF PLAN
Each of the Plan participants receives a certain number of SAR units. Each of
these units entitles the Plan participant to receive the appreciation amount of
one Hoechst share above the grant price. There is no entitlement for the
underlying shares themselves. The number of SAR units granted relates to the
total cash compensation of the participant, means; the market value of the
underlying Hoechst shares at the date of grant equals each participant's total
annualized cash compensation for 1997.
PLAN ELIGIBILITY
Selected executives of top management worldwide participate.
DURATION AND EXERCISE RIGHTS
The SAR Plan has a total duration of five years. During the first two years,
exercise is not allowed. Similarly, exercise is not possible during the two
weeks prior to the announcement of the Company's quarterly financial results.
EXERCISE THRESHOLD
At the time of exercise, the stock price (since Plan commencement in September
1997) must be at least 25% above the grant price.
PLAN PAYMENTS AT EXERCISE
The Plan payment equals the stock appreciation since Plan commencement (i.e.,
stock price at exercise less stock price at Plan commencement). Plan payments
are made through the payroll system.
1
<PAGE>
Hoechst [LOGO]
EXERCISE AMOUNTS
Partial exercise is possible with a minimum exercise of 500 units, and higher
amounts in increments of 100 units.
PLAN ADMINISTRATION
Plan participants exercise units through the bank that administers the Plan.
PLAN ELIGIBILITY
The 1997 SAR Plan is intended for top management worldwide. Key executives who
have been nominated by Hoechst AG or its subsidiaries for participation and
whose participation has been approved by the management board (Vorstand) of
Hoechst AG are participants in the 1997 SAR Plan.
TYPE OF PLAN
The Plan is a Stock Appreciation Rights (SAR) Plan. The Plan allows each
participant to participate in the future appreciation of Hoechst AG shares,
based on the size of the grant received by each participant.
1997 SAR GRANT
Each participant will receive a certain number of SAR units on the effective
date of the Plan. Each of these units entitles each participant to receive the
appreciation of one Hoechst share above the grant price during the duration of
the Plan. There is no entitlement for the underlying shares themselves. The
number of SAR units granted relates to each participant's total cash
compensation, means; the market value of the underlying Hoechst shares at the
date of grant equals the total annualized cash compensation for 1997 for each
participant.
For SAR Plan purposes, each participant's total annualized compensation means
annualized base salary - base salary in the month preceding the grant - times 12
months plus target bonus in the year of grant.
2
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Hoechst [LOGO]
GRANT PRICE
The grant price of each 1997 SAR unit equals 73.80 DM, the volume weighted
average of the Hoechst share price on the Frankfurt Stock Exchange between
September 1 and September 8, 1997.
DURATION OF AWARDS
Awards made under the 1997 SAR Plan will have a term of five years.
EXERCISE RIGHTS
SAR units can be exercised in the last three years of the Plan. However, SAR
units cannot be exercised for a period of two weeks prior to the release of the
Company's quarterly financial results during this period.
EXERCISE THRESHOLD
For Plan participants to exercise SAR units, the stock price of Hoechst shares
on the Frankfurt Stock Exchange must have increased by 25% or more. That is to
say, the stock price on the day of exercise must be at least 25% higher than the
grant price. This threshold must be achieved whenever SAR units are exercised.
It is not sufficient that, during the 5-year duration of the award, the stock
price exceeded the threshold on only one day and then fell below the threshold.
EXERCISE PERIODS AND AMOUNTS
SAR units may be exercised during specified exercise periods. The exercise
period for grants awarded on September 9, 1997 begins on September 9, 1999 and
ends on September 9, 2002. However, as stated earlier, no exercise is possible
during the two week period prior to the release of quarterly corporate financial
results.
At the time of exercise, a participant must exercise a minimum of 500 SAR units
or more (in increments of 100 units). Remaining amounts of less than 500 units
are automatically included in the last exercise.
If the Plan's duration ends and exercise is possible, the Plan will
automatically exercise any outstanding units each participant may have.
3
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Hoechst [LOGO]
DETERMINATION OF PLAN PAYMENTS AT EXERCISE
Plan payments at the time of exercise are determined in accordance with the
following formula:
(EXERCISE PRICE MINUS GRANT PRICE)
X NUMBER OF SAR UNITS BEING EXERCISED
The exercise price is equal to the closing stock price of Hoechst AG on the
Frankfurt Stock Exchange at 13:30 hours (1:30 p.m.) on the day of exercise.
PLAN ADMINISTRATION AND PLAN PAYMENT AT EXERCISE
When each participant wishes to exercise SAR units, such participant must
complete an exercise form. All participants will receive exercise forms,
together with other Plan documentation, within the next few months. The
administrative procedures are as follows:
. Each participant sends a completed exercise form via fax or e-mail to the
bank that has been appointed by Hoechst as the Plan administrator.
. The bank acknowledges receipt of such directive to exercise.
. The bank determines the exercise price and notifies the company of such Plan
payment, expressed in the local currency of the country of such participant.
. Each participant's employer calculates the net Plan payment (i.e., after tax
and other required deductions). The net Plan payment will be paid to such
participant as a special award via local payroll. The payment will be in
local currency.
CURRENCY EXCHANGE PROCEDURES
Each participant's total compensation will be converted into Deutsch Marks based
upon the published currency exchange rate for purchases of foreign currency
according to the "Frankfurt Fixing" on August 29, 1997. The amount of such
payment shall be converted back into the local currency of each participant
based upon the published currency exchange rate for purchases of the foreign
currency of each participant, according to the "Frankfurt Fixing" on the date of
exercise.
4
<PAGE>
Hoechst [LOGO]
IF ACTIVE SERVICE ENDS
If active service for a participant ends for any reason during the first 12
months from the date of the grant of SAR units, such participant will have no
entitlement to exercise the grant.
If active service for a participant ends 12 or more months after the date of the
grant of SAR units, entitlement to the grant and exercise period for such
participant differs depending on the event causing termination.
TAX TREATMENT
Income taxes and other required deductions will be withheld from Plan payments.
The deductions will be made at the time of exercise. We suggest that each
participant seek tax counsel in this matter.
LEGAL DISCLAIMER
The Plan documents contain the legal provisions that govern this Plan and they
provide the technical details for Plan administration. If there is a conflict
between this Plan description and the Plan documents, the provisions of the Plan
documents apply. Although the Company intends to install similar Plans in the
future, each participant has no legal right to future Plan participation.
Furthermore, the management board reserves the right to change or revoke this
Plan at any time.
5
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
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