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 bulk pharmaceuticals; engineering plastics; pigments; and polyester film. The Company's operations are segmented as follows: Chemicals; Fibers and Film; Specialties and Technical Polymers (comprised of the Hoechst Technical Polymers and Specialty Chemicals Group); and Corporate Research & Technology.
The Company is wholly owned by Hoechst Corporation, which in turn is wholly owned by Hoechst Aktiengesellschaft ("Hoechst AG"), a large pharmaceutical and chemical company headquartered in Frankfurt, Federal Republic of Germany. Hoechst AG and its consolidated entities (the "Hoechst Group") consist of over 441 companies. The Hoechst Group operates in more than 100 countries. The Hoechst Group's sales in 1996 were approximately $33.8 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.
As part of a worldwide strategy, Hoechst AG is moving towards a management holding company concept. Thus, the Company is undergoing an internal review to align its businesses under this new global approach. Under this approach, the Cellulosics business has been transferred from the Fibers and Film segment to the Chemicals segment.
In line with the worldwide strategy of Hoechst AG, the pharmaceutical operations in North America were realigned. Accordingly, the Company completed the transfer of its interest in the former Life Sciences segment to its Parent or the subsidiaries of its Parent. The Company reflected the 1995 operating results of these businesses as discontinued operations in the accompanying consolidated financial statements.
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. During 1997, the Company will move its executive offices to 30 Independence Way, Post Office Box 4915, Warren, New Jersey 07060-4915.
DESCRIPTION OF BUSINESS SEGMENTS CHEMICALS SEGMENT
This segment consists of Hoechst Celanese Chemical Group, Ltd. ("HCCGL"), the chemical operations of Grupo Celanese, S.A., the chemical operations of Celanese Canada Inc., and the cellulose acetate business. The Company entered the petrochemical field in the United States in 1945, primarily to obtain supplies of 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 8,900 people and produces more than 60 different chemicals. Celanese(R) is an internationally registered trademark of this segment.
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 and monomers. Methyl chemicals are principally used in plastics, polyesters, adhesives, solvents, synthetic lubricants, fuel additives and coatings. 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.
The Company is one of the largest producers in the United States of cellulose acetate. Cellulose acetate flake is produced for sale or converted to acetate tow for use in cigarette filters and to filament used in apparel and industrial applications. The major products in the cellulose acetate business include acetate filament and tow. Acetate fibers are made principally from acetic anhydride produced by the Company and from wood pulp purchased by the Company.
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., E.I. du Pont 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.
Major acetate fibers competitors include: Eastman, Daicel Chemical Industries, LTD. and Rhodia AG.
Grupo Celanese, S.A. is the sole or a major Mexican producer of a variety of products including vinyl acetate, acetic acid, acetic anhydride, acrylates, cellulose acetate filament yarn, cellulose acetate flake and cigarette filter tow. A substantial portion of the chemical production of Grupo Celanese, S.A. is sold in the export market, in competition with world producers.
Celanese Canada Inc. is the sole or a major Canadian producer of acetic acid, acetic anhydride, formaldehyde, pentaerythritol, vinyl acetate monomer, cellulose acetate filament yarn, cellulose acetate flake and cigarette filter tow. A substantial portion of the chemical production of Celanese Canada Inc. is sold in the export market, in competition with world producers. Celanese Canada Inc. operates a world scale methanol unit at its Edmonton plant site in Alberta. The methanol operation is owned by Celanese Canada Inc. and the Company. Methanex Corporation is the largest Canadian producer of methanol.
The Company participates in a 50/50 joint venture, Clear Lake Methanol Partners, L.P., with Valero Javelina Company.
The Company owns a 75% interest, through a wholly owned subsidiary, in Hoechst Acetyls Singapore Pte. Ltd., a joint venture with Hoechst AG, for the manufacture of vinyl acetate monomer. A manufacturing site in Singapore is currently under construction and production is expected to commence in 1997.
The Company has a 30% interest in each of three joint ventures in the People's Republic of China for cellulose acetate flake and tow. The three joint venture manufacturing sites are located at Nantong (flake and tow), Kunming (tow) and Zhuhai (tow), People's Republic of China.
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 SEGMENT
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 10,200 people and operates plants in the United States and abroad. The major product lines include: polyester staple, filament, resins, monofilament, spunbond and film; purified terephthalic acid ("PTA"); dimethylterephthalate ("DMT"); polybenzimidazole ("PBI") and ethylene oxide/glycol. The Company is one of the largest producers of polyester fibers in the United States. It is also one of the leading producers of polyester film and bottle resins. 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, and other intermediate processors. Among the internationally registered trademarks are: Trevira(R), Hostaphan(R) and Trespaphan(R).
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.
Polyester monofilament is used in zippers, conveyor belting and dryer and forming screen applications in the paper industry. Roofing is the primary end use 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 and ethylene glycol, which are either purchased from other suppliers or produced by the Company. See "Raw Materials and Energy."
Major polyester fibers competitors include: Allied-Signal, Inc., duPont, 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.
Grupo Celanese, S.A. 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, industrial nylon filament, yarn, polyester bottle resin, laminated and printed film and bioriented polypropylene.
Celanese Canada Inc. is the sole or a major Canadian producer of a variety of products including polyester textile staple, carpet staple and bottle resins. A substantial portion of the fibers production of both Grupo Celanese, S.A. and Celanese Canada Inc. is sold in export markets in competition with world producers.
SPECIALTIES AND TECHNICAL POLYMERS SEGMENT
This segment consists of Hoechst Technical Polymers and the Specialty Chemicals Group. This segment employs approximately 3,500 people and produces, imports and sells a wide variety of specialty products.
Hoechst Technical Polymers. Hoechst Technical Polymers 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 end uses. The product lines of the business 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 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: organic pigments, 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 and liquid photoresists and ancillaries used in the manufacture of microchips for computers and other electronic devices. Among internationally registered trademarks are: 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.
Bulk Pharmaceuticals & Intermediates ("BPI") is a supplier of bulk analgesics, pharmaceutical bulk actives and pharmaceutical intermediates. The Company participates in BHC Company ("BHC") (with a 50% interest; BASF 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.
Effective July 1, 1995, Hoechst AG and Bayer AG ("Bayer") formed a worldwide joint venture to manufacture and sell textile dyestuffs. In August 1995, a joint venture was formed in the United States, DyStar L.P., through Hoechst Celanese Dyes Company, Inc., a wholly owned subsidiary of the Company, and Bayer Corporation, a wholly owned subsidiary of Bayer, each contributing their former textile dyestuffs businesses for equal ownership.
CORPORATE RESEARCH & TECHNOLOGY SEGMENT (CR&T)
This segment, formerly Advanced Technology Segment, consists of the North American unit of the Hoechst Group corporate research and technology organization. CR&T's mission is to identify, assess and work on new developments and technologies that are of strategic importance to the Hoechst Group. Additionally, CR&T supports the North American business units with technical services. This segment employs approximately 600 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.
The Company continues to conduct 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 1996, 1995, and 1994 were $176 million, $179 million, and $182 million, respectively. Management intends to maintain the Company's research and development expenditures in 1997 at approximately the same level as 1996.
At December 31, 1996, approximately 1,500 employees, including approximately 800 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 and pharmaceutical companies in the world, employing approximately 14,800 persons in its various research and development laboratories. Research and development expenditures of the Hoechst Group amounted to approximately $2.6 billion in 1996. 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); 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, pigments and specialty chemicals); Greer, South Carolina (polyester film); Winona, Minnesota (technical polymers); Florence, Kentucky (technical polymers); Portsmouth, Virginia (superabsorbent polymers) and Summit, New Jersey (technical polymers).
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. The principal customers worldwide are other manufacturers which use the Company's products in a wide variety of industrial and consumer products.
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 Technical Polymers products are sold based on product performance, technical support and, to a lesser extent, price. The Company's business is affected to some degree by seasonality in the industries of its customers such as automotive, housing 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 1996, the Company's export sales from the United States were 15.3% of consolidated net sales.
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 and wood pulp. 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, wood pulp (a raw material for cellulosics) is largely obtained from two suppliers, and Hoechst Celanese Polyester Intermediates is the sole supplier of DMT and is one of two suppliers of PTA used in the production of polyester. Grupo Celanese, S.A. purchases the majority of its raw materials from Alfa, S.A. de C.V. and Petroleos de Mexicanos.
In addition, some active ingredients and other raw materials used by the Specialty Chemicals Group are supplied by other companies in the Hoechst Group.
GOVERNMENT REGULATIONS
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.
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 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, specialties and technical polymers fields, some of which have been licensed to affiliates and others worldwide.
EMPLOYEES
At December 31, 1996, worldwide employment for the Company was approximately 24,100. The Company employed about 8,000 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.
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.
In 1996, combined worldwide expenditures, including third party and divested sites, for compliance with environmental control regulations and internal Company initiatives totaled $189 million, of which $66 million was for capital projects. In both 1997 and 1998, total annual environmental expenditures are expected to be approximately $180 million, of which $70 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 1998, 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 $21 million for the three years ended December 31, 1996 with expenditures in no year greater than $9 million.
SEGMENT AND GEOGRAPHICAL INFORMATION
See Note (14) of Notes to Consolidated Financial Statements for Segment and Geographical Information.
ITEM 2.
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:
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* The methanol operation is owned by a joint venture. See Item 1 - "Business -- Description of Business Segments."
** The methanol operation is owned by Celanaese Canada Inc. and Company.
FIBERS AND FILM SEGMENT:
Management believes that the Company's properties are suitable for its business and have adequate productive capacities to meet current and future business requirements.
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* This facility is leased.
ITEM 3.
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 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 of the Company, but may have a material adverse effect on the results of operations or cash flows in any given year.
In late February 1990, the U.S. EPA issued a Notice of Violation to the Company's Celriver plant alleging that the plant is subject to the Benzene NESHAP Fugitive Emissions Standard of the Clean Air Act. Although the Company subsequently met the Fugitive Emissions Standard voluntarily at all plants that used benzene (the Celriver, Celco and Bishop facilities), it believed that the facilities properly determined in 1984 that they qualified for an exemption from the standard and, therefore, enforcement and sanctions were not appropriate. The Department of Justice (DOJ) and EPA filed complaints against Celriver in July 1992 in S.C.; Celco in November 1993 in VA; and Bishop in March 1995 in TX seeking penalties of up to $25,000 per day of violation. In May 1996, the Court in the Celriver case gave deference to the Government's interpretation but dismissed its penalty claim because the Company had not been given notice of that interpretation as required by the U.S. Constitution. The Government filed an appeal. The Company filed a cross-appeal continuing its challenge to the Government's new interpretation. Briefing in the Court of Appeals has been completed, but oral argument has not been scheduled. The Celco and Bishop cases have been stayed by agreement of the parties pending the outcome of the Celriver appeal.
Prior to 1987, the Company made polyethylene water service pipe. In December 1995, the Company was brought into 15 related lawsuits in the Superior Court of the State of California for the County of Orange by approximately 462 homeowners who allege damage from a landslide in January 1993 in Anaheim Hills, California. The claims against the Company are that polyethylene water service pipe (known as "Yardley Water Service Line") sold by the Company leaked or broke in the landslide area and either caused or contributed to the landslide. Other defendants are the City of Anaheim, other governmental agencies and Flintkote Corporation, another manufacturer of water service pipe. The case against the governmental agencies was filed in 1993. Although the total damages claimed aggregate approximately two billion dollars, management believes that the claims against the Company are without merit and will defend itself vigorously. Management believes this will not have a material adverse effect on the financial position, results of operations or cash flows of the Company.
In 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. The Company's penalty, which was the program's $1 million maximum amount, was paid in October 1996.
The Company is a named defendant in 36 putative class actions, three 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 Plumbing Actions the plaintiffs typically seek recovery for alleged property damages, and, in certain cases, additional damages under the Texas Deceptive Trade Practices Act and analagous statutes in other jurisdictions. The other defendants include United States Brass Corporation ("U.S. Brass"), Vanguard Plastics, Inc. ("Vanguard"), Shell Oil Company ("Shell") and E.I. duPont deNemours & 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 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 Mobile (one case), Circuit Court, State of Maryland, County of Montgomery (one case), the 20th Judicial Circuit Court, State of Illinois, County of St. Clair (two cases), 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 (six 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 164th Judicial District Court, State of Texas, County of Harris (one case), the United States District Court for the Southern District of Texas, Houston Division (one case), the District Court, State of Colorado, County of Denver (one case), the Superior Court of California, Santa Cruz County (one case), the Circuit Court of the Eleventh Judicial Circuit, Florida, Dade County (one case) (which has been dismissed on appeal), the Superior Court of Georgia, Fulton County (one case), the Superior Court of Indiana, Marion County (one case), the District Court of Iowa, Polk County (one case), the 18th Judicial District of Louisiana, Iberville Parish (one case), the Civil District Court of Louisiana, Orleans Parish (one case), the Circuit Court of Michigan, Wayne County (one case), the Court of Common Pleas of Ohio, Montgomery County (one case), the Circuit Court of Oregon, Multnomah County (one case), the Court of Common Pleas of Pennsylvania (1st Judicial District), Philadelphia County (one case), the Court of Common Pleas of South Carolina, Beaufort County (one case), the Circuit Court of Wisconsin, Milwaukee County (one case), the District Court, State of Colorado, Denver District (one case), the 22nd Judicial Circuit Court, State of Missouri, County of St. Louis (one case) and the Superior Court, State of New Jersey, County of Burlington (one case).
The Company and Shell have resolved through settlement or obtained dismissals of four certified state court class actions.
Based on, among other things, the findings 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 1989. 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 judgements, settlements and expenses that are attributable to U.S. Brass, Household and Eljer. However, as a result of U.S. Brass filing for Chapter 11 protection in bankruptcy court in Sherman, Texas, all claims against U.S. Brass have been stayed and this litigation was 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. By order dated October 21, 1996, the bankruptcy court granted the Company's motion to remand the litigation to the Superior Court of New Jersey so that the Company could pursue its claims against Household and Eljer. Household filed a motion to reconsider the remand order and Eljer sought limited reconsideration of the remand order. The bankruptcy court has not ruled on the motions to reconsider.
In November 1995, the Company, Shell and duPont entered into a national class action settlement, which has been approved by the Courts, subject to appeals. All such appeals have been dismissed.
The settlement calls for the replacement of plumbing systems of claimants who have had qualifying leaks. Furthermore, the three companies have agreed to fund such replacements up to $950 million. The allocation of the payments already made and future payments between the affected companies has not been finally determined and will be subject to allocation in binding arbitration. There are additional pending lawsuits not covered by this settlement.
On or about December 20, 1995, the Company and Shell settled the claims of certain individuals, owning 110,000 property units, who are represented by the law firm of Fleming, Hovenkamp & Grayson, P.C. ("FHG") for an amount not to exceed $170 million. FHG's clients will also be eligble for a replumb of their homes in accordance with the terms of the national class action settlement. The Company's and Shell's contributions under this settlement also will be subject to allocation in binding arbitration.
Management believes that the Plumbing Actions are either covered by insurance or provided for in the financial statements. 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 most 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 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.
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 described above to reduce litigation expenses and to provide relief to qualifying homeowners with polybutylene plumbing problems.
Management believes that the Plumbing Actions 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. See Note (15) of Notes to the Consolidated Financial Statements.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Not applicable.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
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.
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.
Forward-looking statements made in this report are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties.
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
On July 18, 1995, Hoechst Corporation, the Company's parent, completed the acquisition of Marion Merrell Dow Inc. In line with the worldwide strategy of Hoechst AG, the pharmaceutical operations in North America were realigned. Accordingly, the Company completed the transfer of its interest in the former Life Sciences segment to its Parent or the subsidiaries of its Parent. The Company reflected the 1995 operating results of these businesses as discontinued operations in the accompanying consolidated financial statements.
As part of a worldwide strategy, Hoechst AG is moving towards a management holding company concept. Thus, the Company is undergoing an internal review to align its businesses under this new global approach. Under this
approach, the Cellulosics business has been transferred from the Fibers and Film segment to the Chemicals segment. It is unknown at this time when other realignments, if any, will be made and the effect they will have on the Company.
Hoechst AG, Frankfurt, Germany and Clariant AG, Muttenz, Switzerland intend to combine their respective worldwide specialty chemicals businesses and have signed a nonbinding general agreement. Consummation of the combination is subject to a number of conditions including the negotiation of definitive agreements, approval by the board members and shareholders of both companies and approval by the antitrust authorities. Accordingly, the Company is unable to predict whether or when a transaction with Clariant AG will be consummated.
Net sales of $6,906 million in 1996 decreased by 6.6% or $489 million from 1995 net sales of $7,395 million. Sales decreases were realized in most segments. The Chemicals segment sales decreased $133 million over the prior year within most product lines except for the continuing favorable performance of acrylates and cigarette tow. Selling price impact was $80 million unfavorable due to declining prices, particularly in methanol and acetic acid. Volumes also decreased for most basic chemicals, however, increased worldwide demand for both acetate and filter products resulted in higher volumes compared to 1995. The Fibers and Film segment experienced sales declines of $210 million from the same period last year. Competitive pricing pressures resulted in decreased selling prices of $188 million. In Textile Fibers, sales were lower due to market softness for polyester staple compared to the prior year. For filament products, selling prices were maintained, comparable to the prior year level. However, volumes for filament products were stronger because of the increased demand for the product in the fashion industry. Technical Fibers sales decreased due mainly to the sale of the caprolactum business in fourth quarter 1995, which was partially offset by the strong demand in the tire cord business as well as higher pricing in most of the other Technical Fibers businesses. Polyester Resins and Films sales decreased as prices and volumes were unfavorable for PET resins and intermediates. This decline is mainly due to intense competition and market saturation for resins. The Specialties and Technical Polymers segment sales decreased $182 million over the comparable 1995 period. In Technical Polymers (formerly Advanced Materials), overall sales volumes for the full year decreased primarily due to the transfer of the fluoropolymers business to Dyneon, a Hoechst-3M joint venture, effective August 1, 1996. Specialty Chemicals sales decreased largely as the result of the sale of the printing plates business to Bayer Corporation (AGFA Division) on January 2, 1996 and the transfer of the dyes business to DyStar, a Hoechst-Bayer joint venture, in 1995. Excluding these transactions, Specialty Chemicals experienced higher volumes in detergent raw materials, separations products, and pigments. Selling prices were relatively stable in most businesses, however, superabsorbents and bulk pharmaceuticals experienced lower pricing versus the prior year.
Selling, general and administrative expenses ("SG&A") decreased $134 million over 1995. The decrease is a result of the sale of the printing plates business and the transfer of the fluoropolymers business to Dyneon in 1996, and lower profit sharing compared to 1995.
Research and development expenses decreased by $3 million from the 1995 levels, primarily due to reduced spending.
Operating income declined by $84 million from $584 million in 1995 to $500 million in 1996. The decline was driven by reduced profitability in the Chemicals and Fibers and Film segments. In the Chemicals segment, lower operating income was primarily the result of lower prices and volumes for most basic chemical product lines while Cellulosics improved due to both favorable price and volume changes. In the Fibers and Film segment, operating income decreased over the prior year. In Textile Fibers, favorability in filament was not enough to offset lower pricing and volumes in staple. Technical Fibers operating income remained relatively flat versus the prior year. The operating income for Polyester Resins and Films decreased compared to the prior year due to industry oversupply and intense competition in the PET business. In the Specialties and Technical Polymers segment, operating income increased. In Technical Polymers, operating income increased slightly over the comparable prior year, attributable primarily to increased demand in the polyester and Celstran(R) businesses, which more than offset the decrease in operating income resulting from the transfer of the fluoropolymer business to Dyneon. Specialty Chemicals operating income increased compared to the prior year. Favorable volumes in detergent raw materials, separations and pigment products resulted in slightly improved operating income which offset the effect of the printing plates and dyes transactions. In addition, 1996 included a charge relating to a write-down of the remaining dye assets; whereas, 1995 included a charge relating to a write-down of assets and additional environmental remediation exposure.
Equity in net earnings of affiliates improved by $3 million over 1995 due to improved earnings in Fortron Industries, a 50% joint venture, which sells polyphenylane sulfide.
Interest and other income, net, decreased by $115 million compared to the prior year. During 1995, a special dividend of $34 million was received from a foreign investment, a gain of approximately $38 million was recorded associated with transferring the Company's methanol production assets at the Clear Lake, TX plant and forming a joint venture with Valero Javelina Company and a gain of $24 million was recorded on the sale of the textile nylon business operated by Grupo Celanese, S.A. During 1996, a gain of $10 million was recognized on the sale of the printing plates business.
The effective tax rate was 32% for 1996 compared to 26% for 1995. The increase is mainly attributable to the decrease in non-US earnings taxed at lower rates.
1995 COMPARED TO 1994
On July 18, 1995, Hoechst Corporation, the Company's parent, completed the acquisition of Marion Merrell Dow Inc. (which was renamed Hoechst Marion Roussel, Inc. ["HMRI"]). In line with the worldwide strategy of Hoechst AG, the pharmaceutical operations in North America were realigned. Accordingly, the Company's management approved a formal plan to transfer its interest in Copley Pharmaceutical, Inc. and Hoechst-Roussel Pharmaceuticals Inc. to its Parent or the subsidiaries of its Parent. The transfer of the carrying value of the net assets of these businesses was effective July 1, 1995. Accordingly, the Company was reimbursed by Hoechst Corporation for any costs, including operating losses, the Company incurred associated with the strategic realignment of the pharmaceutical operations. Beginning with the second quarter of 1995, the Company eliminated its Life Sciences segment. In addition, in the fourth quarter 1995, the Company transferred its interest in Agri-Vet Inc., which owns the Company's interest in Hoechst-Roussel Agri-Vet Company and AgrEvo USA Company, to its Parent. The Company has reflected the operating results of all of these businesses as discontinued operations in the accompanying consolidated financial statements.
Net sales of $7,395 million in 1995 increased by 7.6%, or $521 million, over net sales of $6,874 million in 1994. The largest sales improvements were realized in the Chemicals and Fibers and Film segments. The Chemicals segment sales improved by $389 million, which was driven by $371 million of favorable pricing versus the prior year, especially for methanol. Both vinyl acetate monomers and acetic acid product lines continued to see strong demand and favorable pricing. Although some softness in the market was noticed in the second half of 1995, these products remained favorable over the prior year. Both volumes and prices were favorable for filter products over the prior year. The Fibers and Film segment experienced sales growth of $145 million over 1994. Strong pricing impact of approximately $261 million, driven by PET resins, more than offset declining volumes, mostly in staple. In Textile Fibers, pricing increases in the domestic staple market were high enough to more than offset decreases in domestic volumes for polyester staple and acetate. This decrease in volumes versus prior year is due to market softness in the later part of 1995, particularly the apparel market. The Technical Fibers Group experienced sales growth for the year over 1994 due to improved Tire/MRG (mechanical rubber goods) volumes in the domestic market. Polyester Resins and Films sales increased significantly as a result of higher selling prices and volumes for PET resins due to strong demand in the packaging materials and plastic containers markets. In addition, continued favorable pricing and volumes were experienced in PET film due to growing demand for both thin and thick film applications. The Specialties and Technical Polymers segment sales were $36 million lower than prior year, as sales increases in Technical Polymers were not enough to offset decreases in the Specialty Chemicals Group. In Technical Polymers, overall sales improvements compared to 1994 resulted from favorable sales volumes across most product lines largely resulting from continued strong domestic and export demand, further commercialization of products and the benefit of a strong economy. Specialty Chemicals' 1995 sales experienced a downturn versus the prior year primarily due to price declines in superabsorbents resulting from intense competition and a reduction in volumes due to the contribution of the dyes business to the DyStar joint venture, the U.S. part of a worldwide joint venture with Hoechst AG and Bayer AG. These declines were too large to be countered by the improved domestic volumes in surfactants, fine chemicals, AZ Photoresist and bulk pharmaceuticals.
Selling, general and administrative expenses increased $22 million over the prior year mainly due to higher personnel related costs associated with higher profit sharing and increased reengineering spending especially in the Fibers area. Research and development expenses remained at the same levels versus the prior year.
The 1995 operating income of $584 million was $623 million greater than 1994 which had an operating loss of $39 million. In the fourth quarter of 1995, the Company recorded a special charge of $192 million ($125 million, net of tax) for the expected costs and expenses relating to the write-down of assets and additional environmental remediation exposure associated mostly with the Specialties and Technical Polymers segment and for potential additional costs pertaining to pending and future product liability claims, net of probable insurance recoveries (See Note (16) of Notes to Consolidated Financial Statements and Item 3. "Legal Proceedings"). In November 1995, the Company, Shell and duPont entered into a national class action settlement, which has been approved by the Courts, subject to appeals. Outside counsel believes that the Company has a substantial probability of prevailing on any such appeals. The settlement calls for the replacement of plumbing systems of claimants who have had qualifying leaks. Furthermore, the three companies have agreed to fund such replacements up to $950 million. The allocation of the payments already made and future payments between the affected companies has not been finally determined. There are additional pending lawsuits not covered by this settlement. In December 1995, the Company and Shell reached agreement to settle 60,000 claims which were not part of the national class action and which comprise substantially all of the remaining active claims against the Company. This settlement is on terms similar to the class action settlement.
Operating income in the Chemicals segment benefited from a significant increase in sales for the full year resulting from increased volumes and pricing, particularly in methanol and filter products, which more than offset the higher raw material costs for ethylene and propylene. Improvements in the Fibers and Film segment over the prior year were led by Technical Fibers and Polyester Resins and Films. In Textile Fibers, operating income decreased as demand for acetate filament declined. Although the cost of raw materials increased, Tire/MRG sales volumes in Technical Fibers resulted in increased operating income over the prior year. The operating income for Polyester Resins and Films improved over the prior year due to very favorable pricing in the domestic market for PET Film, Polyester Intermediates, and PET Resins. In the Specialties and Technical Polymers segment, operating income remained flat compared to 1994. Although Technical Polymers experienced increased sales in most product lines, this was not enough to offset decreases in Specialty Chemicals. Specialty Chemicals' operating income declined as the result of higher raw material costs for most product lines, as well as price declines for superabsorbents.
Equity in net earnings of affiliates improved by $8 million over 1994 due to increased earnings in a 45% owned affiliate, which sells copolymer and resins, resulting from improved sales and the effect of the weakening of the U.S. dollar against the Japanese yen.
Interest and other income reflects the following: a gain of approximately $38 million associated with transferring the Company's methanol production assets at the Clear Lake, TX plant and forming a joint venture with Valero Javelina Company which started up in the third quarter 1995; a gain of $24 million on the sale of the textile nylon business operated by Grupo Celanese, S.A. and a dividend of $34 million from an investment in National Methanol Company, which operates in Saudi Arabia.
The effective tax rate was 26% in 1995 compared to a benefit of 105% in 1994 which arose as a result of a change in a prior year's accounting estimate in 1994 which resulted in a tax benefit of $63 million.
Due to the significant devaluation of the Mexican new peso in December 1994 and its continued weakening against the U.S. dollar throughout 1995, the equity section of the Company was negatively impacted in 1995 by approximately $70 million from the translation effect of the Company's 40% ownership of Grupo Celanese, S.A. The Company is uncertain about the potential unfavorable impact of future fluctuations of the Mexican new peso.
The Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("FAS 121"), which establishes standards for the recognition of impairment of certain assets. Adoption of FAS 121 did not have a material impact on the financial position or results of operations of the Company.
ENVIRONMENTAL
In 1996, combined worldwide expenditures, including third party and divested sites, for compliance with environmental regulations and internal Company initiatives totaled $189 million of which $66 million was for capital projects. In both 1997 and 1998, total annual environmental expenditures are expected to be approximately $180 million of which $70 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 1998, management believes that the current spending trends will continue.
In 1996, 1995, and 1994 the total environmental costs charged to operations for remediation efforts amounted to $24 million, $101 million and $105 million, respectively. As of December 31, 1996 and 1995, the Company's total environmental liability recognized in the financial statements is $248 million and $272 million, respectively. The amounts are neither reduced for anticipated insurance recovery nor discounted from the anticipated payment date.
In the opinion of management, environmental expenditures will not have a material adverse effect on the financial position, results of operations, or cash flows of the Company.
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.
Effective January 1, 1997, the Mexican economy has been deemed hyperinflationary; thus, the Company will switch the functional currency for its Mexican entities from the peso to the U.S. dollar. Although it is not practical to quantify, we expect 1997 results for our Mexican operations to be lower than what they would have been prior to this change.
RATIO OF EARNINGS FROM CONTINUING OPERATIONS TO FIXED CHARGES
The ratio of earnings to fixed charges for 1996 was 5.5 compared to 6.0 for 1995. The decrease was due to weaker earnings from continuing operations, slightly offset by lower interest expense. For purposes of calculating the ratio of earnings to fixed charges, earnings consist of earnings from 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 December 31, 1996. Under this revolving credit agreement, the outstanding receivable balance from Parent was $191 million as of December 31, 1996.
Cash provided by operations for 1996 was $493 million compared to $748 million in 1995. The decrease is primarily attributed to lower earnings in 1996, decreased working capital in 1996 and the effect of discontinued operations in 1995. Cash provided by operations along with cash from the sale of businesses and assets were more than sufficient to finance the Company's capital expenditures.
During 1996, the Company borrowed $383 million and repaid $380 million under its commercial paper program. There was $3 million commercial paper outstanding at December 31, 1996. In 1996, the Company issued $35 million of tax-exempt bonds to finance the construction of pollution control facilities in Texas and Virginia.
The Company paid its Parent a $130 million dividend in 1996 and a $60 million dividend in 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, 1996. 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'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. The Company is in compliance with all debt covenants.
The Company expects that its capital expenditures (which should approximate 1996 levels), 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.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
HOECHST CELANESE CORPORATION
CONSOLIDATED BALANCE SHEETS
See accompanying notes to consolidated financial statements
HOECHST CELANESE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
See accompanying notes to consolidated financial statements.
HOECHST CELANESE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
See accompanying notes to consolidated financial statements.
HOECHST CELANESE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
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 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 include the accounts of the Company and its majority owned or controlled subsidiaries, including two wholly owned captive insurance companies, joint ventures and partnerships. All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made in the 1995 and 1994 consolidated financial statements to conform to the classifications used in 1996.
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 is moving towards a management holding company concept. Thus, the Company is undergoing an internal review to align its businesses under this new global approach. Under this approach, the Cellulosics business has been transferred from the Fibers and Film segment to the Chemicals segment.
In line with the worldwide strategy of Hoechst AG, the pharmaceutical operations in North America were realigned. Accordingly, the Company, in two separate transactions, completed the transfer of its interest in the former Life Sciences segment to its Parent or the subsidiaries of its Parent which resulted in a net increase to stockholder's equity of $11 million in 1996 and $125 million in 1995. The Company reflected the 1995 operating results of these businesses as discontinued operations in the accompanying consolidated financial statements.
The combined net sales of the discontinued operations for the years ended December 31, 1995 and 1994 were $885 million and $921 million, respectively. The net assets held for distribution as of December 31, 1995 consist primarily of accounts receivable, inventory, property, plant and equipment, other noncurrent assets, accounts payable and accrued liabilities.
Effective January 1, 1994, Hoechst Corporation contributed its shares of Hoechst Canada Inc. ("HCI") to the Company. HCI is involved in industrial chemicals. 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.
(b) Cash and cash equivalents
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. See Note (2).
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(1) Summary of Significant Accounting Policies (continued)
(c) Investments in marketable securities
The Company has classified its investments in debt and equity securities as "available-for-sale" and has reported those investments at their fair or market value in the Consolidated Balance Sheets as marketable securities or other assets.
(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 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 of affiliates".
(f) Property, plant and equipment, net
Property, plant and equipment is stated at cost. Depreciation and amortization are computed on a straight-line basis over the following estimated useful lives:
Land improvements 20 years Buildings 30 years Building improvements 10 years Machinery and equipment 10 years
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 a period of forty years. The Company reviews that the forecasted cumulative undiscounted cash flow of those acquired businesses is greater than the carrying value of the Goodwill. Amortization expense charged to operations amounted to $33 million in 1996 and 1995 and $37 million in 1994. Accumulated amortization at December 31, 1996 and 1995 was $321 million and $288 million, respectively.
Patents and trademarks are being amortized on a straight-line basis over their estimated useful or legal lives, ranging from 5 to 17 years. Amortization expense charged to operations amounted to less than $1 million in 1996, $5 million in 1995 and $13 million in 1994. Accumulated amortization at December 31, 1996 and 1995 was $16 million.
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(1) Summary of Significant Accounting Policies (continued)
(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. Assets and liabilities are translated to United States dollars at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at weighted average exchange rates prevailing during the year. Translation adjustments are recorded as a separate component of stockholder's equity.
(k) Estimates and assumptions
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.
(2) Related Party Transactions
Purchases from Hoechst AG and its affiliates aggregated $386 million in 1996, $447 million in 1995 and $526 million in 1994. Net sales to Hoechst AG and its affiliates aggregated $286 million in 1996, $312 million in 1995 and $233 million in 1994.
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 less than $1 million in 1996, 1995, and 1994.
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(2) Related Party Transactions (continued)
The Parent has a revolving credit agreement with the Company under which it may borrow up to $400 million. The Parent agreed to pay interest at 30 day LIBOR plus .0625 of 1%. As of December 31, 1996 and 1995, the outstanding receivable balance was $191 million and $275 million, respectively. During 1996 and 1995, the Parent borrowed $1,597 million and $349 million, respectively, under this agreement. Repayments on the revolving credit agreement for 1996 and 1995 were $1,681 million and $74 million, respectively. Interest related to such borrowings aggregated $6 million in 1996 and $4 million in 1995. No such loan existed at December 31, 1994. The Company pools its cash with its Parent and loans its excess cash to its Parent under this revolving credit agreement.
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%. There was no balance under this agreement as of December 31, 1996, 1995 and 1994. Repayments on the revolving credit agreements for 1994 were $679 million. Interest charges related to such borrowings aggregated $4 million in 1994.
The Company has an outstanding note receivable from its Parent as of December 31, 1996 and 1995. The Parent has agreed to pay interest at 3-month LIBOR plus .0625 of 1%. The note is payable in June 2000. Interest income related to the note was $29 million in 1996 and $20 million in 1995.
Short-term note receivables from Hoechst AG and its affiliated companies aggregated $454 million at December 31, 1996. Interest income related to the notes was $18 million in 1996. No such note receivables existed at December 31, 1995.
The Company transferred its interest in Agri-Vet, Inc. to its Parent during the fourth quarter of 1995 in exchange for a short-term note. This note was repaid in the first quarter of 1996.
Term obligations payable to its Parent aggregated $50 million at December 31, 1996, $63 million at December 31, 1995 and $186 million at December 31, 1994. Interest expense on these obligations aggregated $4 million in 1996, $13 million in 1995 and $13 million in 1994.
Short-term note obligations payable to Hoechst AG and its affiliated companies aggregated $360 million at December 31, 1996 and 1995, and $510 million at December 31, 1994. Interest expense on such obligations aggregated $20 million in 1996, $31 million in 1995 and $12 million in 1994.
(3) Net Receivables
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(3) Net Receivables (continued)
As of December 31, 1996 and 1995, 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
At December 31, 1996, $412 million ($503 million at December 31, 1995) of total inventories were valued by the LIFO method.
(5) Investments and Equity in Net Earnings of Affiliates (In millions, except number of affiliates)
Effective January 1, 1995, the Company and Valero Javelina Company ("Valero") formed a joint venture, Clear Lake Methanol Partners L.P., to produce methanol. The Company contributed its methanol production assets at the Clear Lake, Texas plant and Valero contributed cash.
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(5) Investments and Equity in Net Earnings of Affiliates (continued)
Effective July 1, 1995, Hoechst AG and Bayer AG ("Bayer") formed a worldwide joint venture to manufacture and sell textile dyestuffs. In August 1995, a joint venture was formed in the United States, Dystar L.P., through Hoechst Celanese Dyes Company, Inc., a wholly owned subsidiary of the Company, and Bayer Corporation, a wholly owned subsidiary of Bayer, each contributing their former textile dyestuffs business for equal ownership.
(6) Property, Plant and Equipment, Net
Interest costs capitalized in 1996, 1995 and 1994 were $15 million, $17 million and $15 million, respectively.
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(7) Income Taxes
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, 1996 and 1995 are as follows:
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. Accordingly, the Company has established a valuation allowance for state net operating loss carryforwards which may not be realizable. 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 remaining deferred tax assets existing at December 31, 1996 and 1995. 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 Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", 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, 1996 and 1995 these temporary differences were approximately $834 and $516 million, respectively. A determination of the amount of unrecognized deferred tax liability related to these investments is not practicable.
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(8) Accounts Payable and Accrued Liabilities
(9) Long-term Debt
The Company has a commercial paper program aggregating $600 million. Included in "Commercial paper, notes payable and current installments of long-term debt" in the Consolidated Balance Sheets at December 31, 1996 is $3 million due to holders of commercial paper. There was no balance due at December 31, 1995.
The Company has revolving credit agreements with several banks that provide for loans up to $600 million for a renewable term of 364 days. The Company pays a commitment fee of 1/16 of 1% per annum based 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, 1996 and 1995. The Company had letters of credit outstanding amounting to $240 million at December 31, 1996 and $242 million at December 31, 1995.
The Company has limited involvement with derivative financial instruments and does not use them for trading purposes. The Company's derivative policy provides the ability to lock in optimal rates for future/existing borrowings and promotes the achievement of a desired level of fixed/floating rate mix. The Company enters into interest rate swap and cap agreements to reduce the exposure of interest rate risk inherent in the Company's debt portfolio. The Company had open interest rate swaps and cap positions with a notional amount of $400 million at December 31, 1996 and $412 million at December 31, 1995. The Company's exposure to counterparty financial instruments is not material.
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(9) Long-term Debt (continued)
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. The Company is in compliance with all debt convenants. At December 31, 1996, $645 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, including current installments, each year for the next five years are: $5 million in 1997; $55 million in 1998; $255 million in 1999; $5 million in 2000; and $25 million in 2001.
(10) Other Liabilities
(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:
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(11) Benefit Plans (continued)
In 1996, the Company elected to change the measurement date for all pension assets and liabilities from December 31 to September 30. The effect of this change was not material. The following table reconciles the funded status of the Company's qualified plans as of September 30, 1996 and December 31, 1995 to the amounts recognized in the Company's Consolidated Balance Sheets at December 31, 1996 and 1995:
The discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 7.50% and 4.25% in 1996 (7.25% and 4.25% in 1995 and 8.25% and 5.0% in 1994). The expected long-term rate of return on plan assets used in determining net periodic pension cost was 9.0% in 1996, 1995, and 1994.
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 $31 million in 1996, $35 million in 1995 and $36 million in 1994.
The Company provides certain of its employees with non-qualified supplemental retirement benefits. The accumulated benefit obligation of these benefits totalled $135 million in 1996 and $121 million in 1995.
(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
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(12) Other Postretirement Benefits (continued)
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:
In 1996, the Company elected to change the measurement date for all postretirement healthcare and life insurance liabilities from December 31 to September 30. The effect of this change was not material. The following table reconciles the unfunded status of the Company's plans as of September 30, 1996 and December 31, 1995 to the amounts recognized in the Company's Consolidated Balance Sheets at December 31, 1996 and 1995:
For measuring the expected postretirement benefit obligation, the Company assumed a 8.79% rate of increase in the per capita claims cost in 1996 and assumed that the rate would decrease gradually over a five year period to 5.5% and remain at that level thereafter. The discount rate used in determining the accumulated postretirement benefit obligation was 7.50% at September 30, 1996 and 7.25% and 8.25% at December 31, 1995 and 1994, respectively.
If the health care cost trend were increased 1%, the accumulated postretirement benefit obligation as of September 30, 1996 would have increased by approximately $20 million, or 5%. The effect of the change on the aggregate of service and interest cost for 1996 would be an increase of approximately $2 million, or 5%.
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(13) Leased Assets and Lease Commitments
At December 31, 1996, minimum lease commitments under long-term operating leases are as follows:
Total minimum rent charged to operations under all operating leases was $65 million in 1996, $57 million in 1995 and $60 million in 1994.
Management expects that, in the normal course of business, leases that expire will be renewed or replaced by other leases.
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(14) Segment and Geographical Information
- ----------
(a) Includes special charges. See Note (16).
(b) Includes $6 million of depreciation reserves for asset write-downs related to the 1995 special charges.
(c) Includes $18 million of depreciation reserves for asset write-downs related to the 1994 special charges.
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:
- ----------
(a) Included in United States net sales are export sales of $1,056 million in 1996, $1,163 million in 1995 and $930 million in 1994, principally to Asia.
(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.
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIA 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 financial position of the Company, but may have a material adverse effect on the results of operations or cash flows in any given year.
The Company is named as a defendant in thirty-six putative class actions, three 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, 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.
In November 1995, the Company, Shell and duPont entered into a national class action settlement, which has been approved by the Courts, subject to appeals. All such appeals have been dismissed. The settlement calls for the replacement of plumbing systems of claimants who have had qualifying leaks. Furthermore, the three companies have agreed to fund such replacements up to $950 million. The allocation of the payments already made and future payments between the affected companies will be determined in binding arbitration. There are additional pending lawsuits not covered by this settlement.
On or about December 20, 1995, the Company and Shell settled the claims of certain individuals, owning 110,000 property units, who are represented by the law firm of Fleming, Hovenkamp & Grayson, P.C. ("FHG") for an amount not to exceed $170 million. FHG's clients will also be eligible for a replumb of their homes in accordance with the terms of the national class action settlement. The Company's and Shell's contributions under this settlement will also be subject to allocation in binding arbitration.
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(15) Commitments and Contingencies (continued)
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 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.
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"), which assesses individual repair requests and pays for certain repairs of qualifying homeowners with leaking polybutylene plumbing systems. The allocation of the cost of operating PCG between the Company and Shell will be determined in binding arbitration.
Management believes that the Plumbing Actions 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.
At December 31, 1996, there were outstanding commitments relating to capital projects of approximately $219 million.
(16) Special Charges
In 1995, the Company recorded a special charge of $192 million ($125 million net of tax), for potential additional 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 sold by the Company and the expected cost and expenses relating to the write-down of assets and additional environmental remediation exposure associated mostly with the Specialities and Technical Polymers segment. (See Notes (15) and (18) for additional information relating to the class action and environmental, respectively).
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 Technical Polymers segment.
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(17) Fair Value of Financial Instruments
Summarized below are the carrying values and estimated fair values of the Company's financial instruments as of December 31, 1996 and 1995. For purposes of the following disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties.
Included in other assets are certain investments accounted for under the cost method and long-term marketable securities classified as available-for-sale. In general, the cost investments are not publicly traded; however, 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. The fair value of derivative financial instruments related to debt is equal to the unrealized gain (loss).
The carrying amounts reported in the Consolidated Balance Sheets for cash and cash equivalents, net receivables, commercial paper, notes payable, trade payables and the current installments of long-term debt approximate fair value, due to the short-term nature of these instruments. Accordingly, these items have been excluded from the 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
HOECHST CELANESE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(18) Environmental (continued)
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 ("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, cleanup and related activities have been $21 million for the three years ended December 31, 1996 with expenditures in no year greater than $9 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 the Company 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 1996, 1995 and 1994 the total environmental costs charged to operations for remediation efforts amounted to $24 million, $101 million and $105 million, respectively. As of December 31, 1996 and 1995, the Company's total environmental liability recognized in the financial statements is $248 million and $272 million, respectively. 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, results of operations or cash flows of the Company.
(19) Other Matters
Hoechst AG, Frankfurt, Germany and Clariant AG, Muttenz, Switzerland intend to combine their respective worldwide specialty chemicals businesses and have signed a nonbinding general agreement. Consummation of the combination is subject to a number of conditions including the negotiation of definitive agreements, approval by the board members and shareholders of both companies and approval by the antitrust authorities. Accordingly, the Company is unable to predict whether or when a transaction with Clariant AG will be consummated.
During 1996, the Company recognized a gain of $10 million on the sale of the printing plates business.
During 1995, the Company recorded a gain of approximately $38 million associated with transferring the Company's methanol production assets at the Clear Lake, TX plant and forming a joint venture with Valero Javelina Company which started up in the third quarter. A gain of $24 million was also recorded on the sale of the textile nylon business operated by Grupo Celanese, S.A. during the fourth quarter. A special dividend of $34 million from an investment in National Methanol Company, which operates in Saudi Arabia, was recorded. These amounts were included in Interest and other income, net in the Consolidated Statements of Earnings.
- -------------------------------------------------------------------------------- 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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Short Hills, New Jersey January 30, 1997
ITEM 9.
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 1996.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of Hoechst Celanese are as follows:
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(1) Member of Executive Committee, a committee of the Board of Directors.
All directors of the Company have been appointed for a term commencing October 4, 1996. All terms of directors will end on the date of the next annual stockholder meeting.
All executive officers were appointed for a term commencing October 15, 1996, except for Mr. Grom who became Vice President and Treasurer on March 17, 1997. All terms of executive officers will end at the first meeting of the Board following the next annual stockholder meeting.
Mr. Kennedy has been Chairman of the Board of the Company since May 29, 1996, President and Chief Executive Officer since January 1, 1996, Executive Vice President of the Company from April 1992 until December 31, 1995, and Director of the Company since March 1989. On January 1, 1995, he was appointed President of Hoechst Global 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. 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 American Hoechst Corporation ("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 KPMG Peat Marwick LLP for 10 years.
Mr. Harris has been Senior Vice President of the Company and President of Trevira, the worldwide fibers business of Hoechst AG, since May 1, 1994. 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.
Dr. Warning has been Senior Vice President of the Company since January 1, 1996, Vice President of the Company from May 1995 until December 1995 and a Director of the Company since May 1995. He has been Deputy Head of Global Specialty Chemicals Division since January 1, 1995. From July 1994 to December 1994, he served as head of the Surfactants and Auxiliaries Division of Hoechst AG.
Dr. Bailey has been Senior Vice President of Strategic Resources Management of the Company since January 1, 1996 and Director of the Company since February 1996. He was Corporate Vice President, Human Resources and Corporate Relations of Hoechst Marion Roussel, Inc. ("HMRI") from January 1992 to December 1995. From December 1990 to December 1991, he was Managing Director (Vice President) Global Research and Development of HMRI.
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.
Mr. Grom was elected Vice President and Treasurer on March 17, 1997. From February 1994 to March 1997 he served as Assistant Treasurer of the Company. He was Vice President, Finance and Information Systems for the Company's former Life Sciences Group from September 1990 to February 1994. Mr. Grom is a Certified Public Accountant.
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 LLP for 10 years. He is a Certified Public Accountant.
ITEM 11.
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 1996, 1995 and 1994.
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(1) Bonus paid early in the following year for services rendered in each of the listed years.
(2) Company contribution to Savings Plan.
(3) Amount not calculable as of filing date.
(4) Hired by the Company effective May 1, 1995.
1996 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 1996.
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.
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.
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(1) This table represents total benefits payable from both the Hoechst Celanese Retirement Plan and the Hoechst Celanese Executive Pension Plan. Messrs. Kennedy, Harris, Benz and Jenkins are participants in both of these plans. Dr. Warning 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 Final Average Earnings for Messrs. Kennedy, Harris, Benz and Jenkins are approximately $832,861, $653,903; $652,708; and $412,083, respectively. The approximate years of Credited Service of the executives covered by the plans are: Mr. Kennedy, 30 years; Mr. Harris, 22 years; Mr. Benz, 25 years; and Mr. Jenkins, 22 years.
ITEM 12.
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 and Kennedy serves on the Board of Directors of Celanese Canada Inc. Each of Messrs. Benz and Kennedy own 300 shares of its common stock.
ITEM 13.
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 pharmaceutical and chemical company headquartered in Frankfurt, Federal Republic of Germany. Hoechst AG is a publicly held company whose shares are listed and traded on a number of major stock exchanges in Europe including the Frankfurt, Federal Republic of Germany; London, United Kingdom; and Geneva, Switzerland stock exchanges and on the Tokyo stock exchange in Japan.
Because the Company and other members of the Hoechst Group are engaged in similar industries, there may arise conflicts of interest between the Company and other members of the Hoechst Group. The Hoechst Group is undergoing a worldwide reorganization pursuant to which, among other things, certain officers of the Company are responsible for the basic chemicals and fibers businesses globally. Strategies are being developed and coordinated on a divisional-worldwide basis. Affiliated subsidiaries, including the Company, are responsible for implementing such strategies and providing the necessary operational infrastructure in running the various businesses within such subsidiaries. As a result, situations have arisen and could in the future arise where resources and business are shifted among profit centers, including the Company, depending on the overall needs of the worldwide business divisions.
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).
PART IV
ITEM 14.
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1) 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-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 securities authorized thereunder does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis.
Exhibit Number Description ------- -----------
10.1 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).
10.2 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).
10.3 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).
10.4 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).
10.5 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).
10.6 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).
10.7 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).
10.8 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).
10.9 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).
10.10 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).
10.11 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).
10.12 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).
Exhibit Number Description ------ -----------
10.13 Agreement, dated December 7, 1994, between the Company and Joseph H. Patterson, (filed as an Exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1994, and incorporated herein by reference).
12 Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries.
Where Name Incorporated
Celanese Canada Inc. Canada Celanese Engineering Resins, Inc. Delaware Grupo Celanese, S.A. Mexico Hoechst Celanese Chemical Group Ltd Delaware
23 Consent of Independent Accountants.
24.1 Powers of attorney, dated February and March 1997 for directors and officers of the Company authorizing Thomas F. Kennedy 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 March 3, 1997 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, 1996, no reports on Form 8-K were filed.
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/ Thomas F. Kennedy ------------------------------ Thomas F. Kennedy President, Chief Executive Officer and Director
March 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on March 28, 1997, by the following persons on behalf of the registrant and in the capacities indicated.
- -------------------------------------------------------------------------------- Signature Title - -------------------------------------------------------------------------------- Principal Executive Officer:
/s/ Thomas F. Kennedy Director, President and Chief Executive - ----------------------------- Officer Thomas F. Kennedy
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:
William B. Harris* Director David A. Jenkins* Director Klaus Warning* Director Richard Bailey* Director
- ----------
* Thomas F. Kennedy, 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/ Thomas F. Kennedy ----------------------------- Thomas F. Kennedy Attorney-in-Fact
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 or proxy material has been sent to security holders.
EXHIBITS TO 1996 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 securities authorized thereunder does not exceed 10% of the total assets of the Company and its subsidiaries on a
consolidated basis.
10.1 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).
10.2 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).
10.3 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).
10.4 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).
10.5 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).
10.6 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).
10.7 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).
10.8 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).
10.9 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).
10.10 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).
10.11 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).
10.12 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).
10.13 Agreement, dated December 7, 1994, between the Company and Joseph H. Patterson, (filed as an Exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1994, and incorporated herein by reference).
12 Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries.
NAME WHERE INCORPORATED
Celanese Canada Inc. Canada Celanese Engineering Resins, Inc. Delaware Grupo Celanese, S.A. Mexico Hoechst Celanese Chemical Group Ltd. Delaware
23 Consent of Independent Accountants.
24.1 Powers of attorney, dated February and March 1997 for directors and officers of the Company authorizing Thomas F. Kennedy 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 March 3, 1997, 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).