<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1997
[_] Transition report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period from to
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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.)
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
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All outstanding shares of Hoechst Celanese Corporation stock are owned by its
parent, Hoechst Corporation.
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TABLE OF CONTENTS
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PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements
<S> <C>
Consolidated Balance Sheets - June 30, 1997 and December 31, 1996...............................3
Consolidated Statements of Earnings -
Three months and six months ended June 30, 1997 and 1996......................................4
Consolidated Statements of Cash Flows -
Six months ended June 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
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Part I - Financial Information
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
HOECHST CELANESE CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
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(IN MILLIONS)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents................. $ - $ -
Marketable securities..................... 4 2
Net receivables........................... 1,995 2,056
Inventories............................... 727 680
Deferred income taxes..................... 107 86
Prepaid expenses.......................... 61 33
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Total current assets................... 2,894 2,857
Investments in affiliates................... 417 412
Property, plant and equipment, net.......... 2,506 2,419
Deferred income taxes....................... 5 33
Long-term receivable from parent............ 520 520
Other assets................................ 709 661
Excess of cost over fair value of net
assets of businesses acquired, net......... 912 928
Net assets held for distribution............ 403 379
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Total assets........................... $8,366 $8,209
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LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Commercial paper, notes payable and
current installments of long-term debt... $ 368 $ 9
Accounts payable and accrued liabilities.. 1,737 1,701
Dividend payable to parent................ - 90
Income taxes payable...................... 363 335
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Total current liabilities.............. 2,468 2,135
Long-term debt.............................. 804 1,026
Minority interests.......................... 446 455
Other liabilities........................... 1,157 1,157
Stockholder's equity:
Common stock.............................. - -
Additional paid-in capital................ 2,981 2,976
Retained earnings......................... 659 613
Cumulative translation and other
adjustments.............................. (149) (153)
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Total stockholder's equity............ 3,491 3,436
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Total liabilities and stockholder's
equity.............................. $8,366 $8,209
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</TABLE>
See accompanying notes to consolidated financial statements.
3
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PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
HOECHST CELANESE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales......................................... $1,558 $1,621 $3,022 $3,194
Cost of sales..................................... 1,226 1,302 2,422 2,560
Selling, general and administrative
expenses......................................... 131 140 285 275
Research and development expenses................. 37 39 80 80
Special charges................................... 67 - 87 -
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Operating income............................ 97 140 148 279
Equity in net earnings of affiliates.............. 5 4 7 7
Interest expense.................................. (21) (22) (41) (43)
Interest and other income, net.................... 21 24 39 36
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Earnings before income taxes, minority
interests and discontinued
operations................................ 102 146 153 279
Income tax expense................................ 48 53 63 93
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Earnings before minority interests and
discontinued operations.................... 54 93 90 186
Minority interests................................ 29 48 57 89
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Earnings from continuing operations.......... 25 45 33 97
Earnings from discontinued operations,
net of tax....................................... 7 4 13 5
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Net earnings................................. $ 32 $ 49 $ 46 $ 102
====== ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
4
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PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
HOECHST CELANESE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------
1997 1996
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(IN MILLIONS)
<S> <C> <C>
Operating activities:
Earnings from continuing operations.............. $ 33 $ 97
Adjustments to reconcile earnings from
continuing operations to net cash
provided by operating activities:
Special charges, net of amounts used.......... (42) (114)
Change in equity of affiliates................ (5) (5)
Depreciation and amortization................. 180 202
Deferred income taxes......................... 7 26
Loss on sale of businesses and assets, net.... 4 -
Issuances of note receivable from Parent...... (1,157) (699)
Collections of note receivable from Parent.... 855 883
Changes in operating assets and liabilities:
Net receivables............................. 361 (219)
Inventories................................. (47) 30
Accounts payable and accrued liabilities.... 146 192
Income taxes payable........................ 28 13
Other, net.................................. (60) 25
Net cash provided by (used in)
operating activities of discontinued
operations................................. 20 (30)
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Net cash provided by operating
activities.................................. 323 401
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Investing activities:
Proceeds from sale of businesses and
assets, net..................................... 5 83
Proceeds from sale of marketable
securities...................................... 87 19
Purchases of marketable securities............... (119) (21)
Capital expenditures............................. (246) (280)
Net cash used in investing activities
of discontinued operations...................... (20) (7)
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Net cash used in investing activities........ (293) (206)
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Financing activities:
Proceeds from long-term debt.................... 35 35
Payments on long-term debt...................... (7) (15)
Net proceeds from short-term borrowings......... 34 68
Dividends paid.................................. (90) (130)
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Net cash used in financing activities........ (28) (42)
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Exchange rate changes on cash..................... (2) (1)
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Net change in cash and cash equivalents......... - 152
Cash and cash equivalents at beginning
of period........................................ - 80
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Cash and cash equivalents at end of
period........................................... $ - $ 232
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest, net of amounts capitalized....... $ 46 $ 46
Income taxes paid.......................... 32 60
</TABLE>
See accompanying notes to consolidated financial statements.
5
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PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
Hoechst Celanese Corporation (the "Company") is wholly owned by Hoechst
Corporation ("Parent"), a holding company, itself a wholly owned subsidiary of
Hoechst Aktiengesellschaft ("Hoechst AG"). The Company manufactures and sells,
principally to industrial customers, a diversified line of products including
textile and technical fibers; acetate cigarette filter tow; specialty and bulk
chemicals and bulk pharmaceuticals; engineering plastics; pigments; and
polyester film.
The consolidated financial statements are unaudited and are subject to year-
end audit and adjustments. In the opinion of management, the financial
statements include all adjustments (consisting only of normal accruals) which
are necessary to present fairly the results for the interim periods reported.
Results for the six month period ended June 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 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 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. On August 4, 1997, the Company sold
substantially all of the assets and transferred substantially all of the related
liabilities of its U.S. specialty chemicals business to Clariant. The sale of
the Canadian portion of the specialty chemicals business is expected to occur
later in the third quarter of 1997. Accordingly, the operating results and net
assets of these businesses have been reflected as discontinued
6
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PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) BASIS OF PRESENTATION (CONTINUED)
operations in the accompanying financial statements. The accounting for these
transactions is expected to be finalized in the fourth quarter of 1997. No
significant gain or loss is expected on these transactions.
Included in earnings from discontinued operations, net of tax are net sales
of $203 million and $175 million for the three months ended June 30, 1997 and
1996, respectively, and $405 million and $355 million for the six months ended
June 30, 1997 and 1996, respectively. Operating income for discontinued
operations is $10 million and $5 million for the three months ended June 30,
1997 and 1996, respectively, and $17 million and $7 million for the six months
ended June 30, 1997 and 1996, respectively.
(2) INVENTORIES
JUNE 30, DECEMBER 31,
1997 1996
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(IN MILLIONS)
Finished goods.......................... $544 $504
Work-in-process......................... 73 81
Raw materials and supplies.............. 144 137
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Subtotal............................. 761 722
Excess of current costs over stated
values................................. (34) (42)
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Total inventories.................... $727 $680
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(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
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PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
As part of a worldwide strategy, Hoechst AG formally became a 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 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. On August 4, 1997, the Company sold
substantially all of the assets and transferred substantially all of the related
liabilities of its U.S. specialty chemicals business to Clariant. The sale of
the Canadian portion of the specialty chemicals business is expected to occur
later in the third quarter of 1997. Accordingly, the operating results and net
assets of these businesses have been reflected as discontinued operations in the
accompanying financial statements. The accounting for these transactions is
expected to be finalized in the fourth quarter of 1997. No significant gain or
loss is expected on these transactions.
Sales for the first six months of 1997 decreased by 5% to $3,022 million from
$3,194 million for the comparable 1996 period and decreased by 4% for the second
quarter to $1,558 million from $1,621 million. The Trevira segment experienced
the largest sales decrease due to a negative price variance of $200 million,
partially offset by a positive volume variance of $33 million. The negative
price variance was primarily in PET packaging resins, $90 million for six
months, due to oversupply in the marketplace. Also, intermediates and textile
staple both experienced negative price variances of $35 million and $56 million,
respectively, due to lower raw material costs, which drove selling prices down.
In the Celanese segment, sales increased slightly by $24 million for the first
six months and increased by $28 million for the second quarter 1997 versus 1996
mainly due to favorable prices. Volume was unfavorable in Cellulosics for both
the second quarter and the six 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 second quarter and year-to-date versus 1996.
Sales volumes increased across all business units with strong results from
acetyls and favorable methanol pricing and benefited from tight North American
markets and production outages in the industry. In the Ticona segment, sales
decreased by $22 million for the six months and $5 million for the second
quarter over the comparable 1996 period which was mainly due to the transfer of
the fluoropolymers business to Dyneon, a Hoechst-3M joint venture, effective
August 1, 1996.
Selling, general and administrative expenses increased by $10 million for the
first six months of 1997 versus 1996. The increase is mostly attributed to
increased spending for reengineering, new computer software and consultants. For
the second quarter 1997, selling, general and administrative expenses decreased
by $9 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.
Research and development expenses were flat for the first six months of 1997
when compared to the same period of the prior year and decreased $2 million when
comparing the second quarter of 1997 versus 1996. This decrease for the quarter
is primarily in the Corporate Research and Technology segment.
8
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PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
The Company recorded special charges of $87 million in the first six months
of 1997 and second quarter 1997 charges of $67 million. 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 of $148 million was $131 million less for the first six
months of 1997 than the comparable period of the prior year and was $97 million
for the second quarter 1997 which is $43 million less than the comparable 1996
period. Decreases were realized in all business segments. In the Celanese
segment, operating income decreased $20 million for the first six months of 1997
versus 1996 but increased $11 million for the second quarter 1997 versus 1996.
Higher raw material prices and additional sourcing costs in the chemicals
business during the first quarter of 1997 resulted in lower operating income as
compared to the same period in 1996. Raw material pricing pressures and sourcing
costs eased during the second quarter, bringing 1997 earnings to slightly higher
levels than those for the 1996 second quarter. Operating income was lower in
Cellulosics due to lower sales volumes. Trevira's operating income declined $45
million for the six months and $29 million for the second quarter due to the
special charge recorded in 1997 as well as lower prices for PET packaging
resins, intermediates and textile staple. The operating income for Ticona
decreased $1 million for the first six months of 1997 while the second quarter
results increased $7 million. Operating income was also reduced by the special
charge relating to restructuring in the Corporate Research and Technology
segment and bulk pharmaceutical and intermediates business.
Equity in net earnings of affiliates was the same for the first six months of
1997 as compared to the first six months of last year and was up $1 million for
the second quarter of 1997 compared to the same period last year.
The increase of $3 million in interest and other income, net for the first
six months of 1997 is primarily due to foreign currency transaction
fluctuations.
The effective tax rate increased to 41% in 1997 from 33% in 1996 for the six
month results. The effective tax rate increased to 47% from 36% for the second
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.
Effective January 1, 1997, the Mexican economy has been deemed
hyperinflationary; thus, the Company switched the functional currency for its
Mexican entities from the peso to the U.S. dollar. The first six months results
and the second quarter 1997 results were negatively impacted by approximately $2
million and $1 million, respectively.
9
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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 second quarter and six months
of 1997 was 4.0 and 3.3, respectively, compared to 5.8 and 5.5 for the 1996
periods. The decrease in both periods was primarily due to weaker earnings from
continuing operations. For purposes of calculating the ratio of earnings to
fixed charges, earnings consist of earnings from 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
Beginning in 1996, the Company pools its cash with its Parent and the
Company's excess cash is loaned to its Parent under a revolving credit
agreement. Accordingly, the Company had no cash and cash equivalents at June 30,
1997 and December 31, 1996. Under this revolving credit agreement, the
outstanding receivable balance from Parent was $493 million as of June 30, 1997
and $191 million as of December 31, 1996.
Cash provided by operations for the first six months of 1997 was $314 million
compared to $401 million for the 1996 period. Cash provided by operations was
more than sufficient to finance the Company's capital expenditures.
During the first six months of 1997, the Company repaid $3 million under its
commercial paper program. There was no commercial paper outstanding at June 30,
1997.
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 June 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.
As of June 30, 1997, the Company has reflected $250 million of long-term debt
as short-term due to the Company's intent to repay the debt in the third quarter
of 1997.
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
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PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27 Financial Data Schedule (included in
electronic filing only)
(b) FORM 8-K
During the quarter ended June 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
August 13, 1997 /s/ R. W. Smedley
-------------------------------
R. W. Smedley
Vice President and Controller
11
<TABLE> <S> <C>
<PAGE>
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<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 4
<RECEIVABLES> 2,028
<ALLOWANCES> 33
<INVENTORY> 727
<CURRENT-ASSETS> 2,894
<PP&E> 4,267
<DEPRECIATION> 1,761
<TOTAL-ASSETS> 8,366
<CURRENT-LIABILITIES> 2,468
<BONDS> 804
0
0
<COMMON> 0
<OTHER-SE> 3,491
<TOTAL-LIABILITY-AND-EQUITY> 8,366
<SALES> 3,022
<TOTAL-REVENUES> 3,022
<CGS> 2,422
<TOTAL-COSTS> 2,422
<OTHER-EXPENSES> 87
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